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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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
973 430-7000
http://www.pseg.com
SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ------------------------------ -------------------------------------------
Common Stock without par value New York Stock Exchange
Philadelphia Stock Exchange
Trust Originated Preferred Securities (Guaranteed Preferred Beneficial Interest
in PSEG's Debentures), $25 par value at 7.44%, issued by Enterprise Capital
Trust I (Registrant).
Trust Originated Preferred Securities (Guaranteed Preferred Beneficial Interest
in PSEG's Debentures), $25 par value at 7.25%, issued by Enterprise Capital
Trust III (Registrant).
SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:
Floating Rate Capital Securities (Guaranteed Preferred Beneficial Interest in
PSEG's Debentures), $1,000 par value issued by Enterprise Capital Trust II
(Registrant), LIBOR plus 1.22%.
Extendible Notes, Series A, LIBOR plus .75%, Due 2000.
Extendible Notes, Series B, LIBOR plus .78%, Due 2000.
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
973 430-7000
DOCUMENTS INCORPORATED BY REFERENCE
PART OF FORM 10-K DOCUMENTS INCORPORATED BY REFERENCE
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III Portions of the definitive Proxy Statement for the
Annual Meeting of Stockholders of Public Service
Enterprise Group Incorporated to be held April 20, 1999,
which definitive Proxy Statement is expected to be filed
with the Securities and Exchange Commission on or about
March 2, 1999, as specified herein.
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ------------------- -------------------
Cumulative Preferred Stock $100 par value First and Refunding Mortgage Bonds Series
Series: Due:
<S> <C> <C> <C> <C>
4.08% 8 3/4% Z 1999
4.18% 9 1/8% BB 2005
4.30% 9 1/4% CC 2021
5.05% 8 7/8% DD 2003
5.28% 7 7/8% FF 2001
5.97% 7 5/8% II 2000
6.92% 6 7/8% MM 2003 New York Stock Exchange
6 1/2% PP 2004
$25 par value Series: 6 % QQ 2000
6.75% 6 1/8% RR 2002
7 % SS 2024
7 3/8% TT 2014
6 3/4% UU 2006
6 3/4% VV 2016
6 1/4% WW 2007
6 1/2% XX 2000
6 3/8% YY 2023
8 % 2037
5 % 2037
</TABLE>
Monthly Income Preferred Securities (Guaranteed Preferred Beneficial Interest in
PSE&G's Subordinated Debentures), $25 par value at 9.375%, $25 par value at
8.00%, issued by Public Service Electric and Gas Capital, L.P. (Registrant) and
registered on the New York Stock Exchange.
Quarterly Income Preferred Securities (Guaranteed Preferred Beneficial Interest
in PSE&G's Subordinated Debentures), $25 par value at 8.625%, issued by PSE&G
Capital Trust I (Registrant) and registered on the New York Stock Exchange.
Quarterly Income Preferred Securities (Guaranteed Preferred Beneficial Interest
in PSE&G's Subordinated Debentures), $25 par value at 8.125%, issued by PSE&G
Capital Trust II (Registrant) and registered on the New York Stock Exchange.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
REGISTRANT TITLE OF CLASS
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Public Service Electric and Gas Company 6.92% Cumulative Preferred Stock $100
par value Medium-Term Notes, Series A
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports) and (2) have been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the Common Stock of Public Service Enterprise
Group Incorporated held by non-affiliates as of January 31, 1999 was
$8,840,858,422 based upon the New York Stock Exchange Composite Transaction
closing price.
The number of shares outstanding of Public Service Enterprise Group
Incorporated's sole class of Common Stock, as of the latest practicable date,
was as follows:
CLASS OUTSTANDING AT JANUARY 31, 1999
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Common Stock, without par value 223,136,208
As of January 31, 1999, Public Service Electric and Gas Company had issued and
outstanding 132,450,344 shares of Common Stock, without nominal or par value,
all of which were privately held, beneficially and of record by Public Service
Enterprise Group Incorporated.
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TABLE OF CONTENTS
PAGE
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Table of Contents......................................................... i
PART I
Item 1. Business.................................................... 1
General..................................................... 1
PSEG........................................................ 1
PSE&G....................................................... 1
Industry Issues and Risk Factors............................ 1
Segment Information......................................... 2
Competitive Environment..................................... 2
Construction and Capital Requirements....................... 5
Financing Activities........................................ 6
Income Taxes................................................ 6
Credit Ratings.............................................. 6
PSE&G....................................................... 6
Rate Matters................................................ 6
Customers................................................... 6
Electric Supply and Capacity................................ 7
Nuclear Operations.......................................... 10
Electric Fuel Supply and Disposal........................... 14
Gas Operations and Supply................................... 16
Employee Relations.......................................... 17
Environmental Controls...................................... 17
Energy Holdings............................................. 22
Item 2. Properties.................................................. 24
Item 3. Legal Proceedings........................................... 27
Item 4. Submission of Matters to a Vote of Security Holders......... 33
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 33
Item 6. Selected Financial Data..................................... 34
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 35
PSEG........................................................ 35
Corporate Structure......................................... 35
Overview of 1998 and Future Outlook......................... 36
Results of Operations....................................... 38
Liquidity and Capital Resources............................. 41
External Financings......................................... 46
Qualitative and Quantitative Disclosures About Market Risk.. 49
Foreign Operations.......................................... 51
Year 2000 Readiness Disclosure.............................. 51
Rate Matters................................................ 54
Accounting Issues........................................... 55
Impact of New Accounting Pronouncements..................... 55
Site Restorations and Other Environmental Costs............. 55
PSE&G....................................................... 55
Forward Looking Statements.................................. 56
Item 7A. Qualitative and Quantitative Disclosures About Market Risk.. 56
i
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TABLE OF CONTENTS -- (Continued)
PAGE
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Item 8. Financial Statements and Supplementary Data................. 57
Consolidated Statements of Income (PSEG).................... 58
Consolidated Balance Sheets (PSEG).......................... 59
Consolidated Statements of Cash Flows (PSEG)................ 61
Consolidated Statements of Common Stockholders' Equity
(PSEG).................................................... 62
Consolidated Statements of Income (PSE&G)................... 64
Consolidated Balance Sheets (PSE&G)......................... 65
Consolidated Statements of Cash Flows (PSE&G)............... 67
Consolidated Statements of Common Stockholder's Equity
(PSE&G)................................................... 68
Notes to Consolidated Financial Statements (PSEG)........... 69
Notes to Consolidated Financial Statements (PSE&G).......... 112
Financial Statement Responsibility (PSEG)................... 116
Financial Statement Responsibility (PSE&G).................. 117
Independent Auditors' Report (PSEG)......................... 118
Independent Auditors' Report (PSE&G)........................ 119
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.................................. 120
PART III
Item 10. Directors and Executive Officers of the Registrants......... 120
Directors of the Registrants................................ 120
PSEG........................................................ 120
PSE&G....................................................... 120
Executive Officers of the Registrants....................... 121
Item 11. Executive Compensation...................................... 122
PSEG........................................................ 122
PSE&G....................................................... 122
Summary Compensation Table.................................. 123
Option Grants in Last Fiscal Year (1998).................... 124
Aggregated Option Exercises in Last Fiscal Year (1998) and
Fiscal Year End Option Values (12/31/98).................. 125
Employment Contracts and Arrangements....................... 125
Compensation Committee Interlocks and Insider
Participation............................................. 126
Compensation of Directors and Certain Business
Relationships............................................. 126
Compensation Pursuant to Pension Plans...................... 126
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 127
PSEG........................................................ 127
PSE&G....................................................... 127
Item 13. Certain Relationships and Related Transactions.............. 128
PSEG........................................................ 128
PSE&G....................................................... 128
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.................................................... 129
Schedule II--Valuation and Qualifying Accounts (PSEG)....... 131
Schedule II--Valuation and Qualifying Accounts (PSE&G)...... 131
Signatures--Public Service Enterprise Group Incorporated.... 132
Signatures--Public Service Electric and Gas Company......... 133
Exhibit Index............................................... 134
PSEG........................................................ 135
PSE&G....................................................... 144
Glossary of Terms......................................................... 151
ii
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PART I
ITEM 1. BUSINESS
GENERAL
PSEG
Public Service Enterprise Group Incorporated (PSEG), incorporated under
the laws of the State of New Jersey with its principal executive offices located
at 80 Park Plaza, Newark, New Jersey 07102, is an exempt public utility holding
company. PSEG has two principal direct wholly-owned subsidiaries: Public Service
Electric and Gas Company (PSE&G) and PSEG Energy Holdings Inc. (Energy
Holdings), formerly Enterprise Diversified Holdings Incorporated. Energy
Holdings is the parent of PSEG's non-utility businesses: PSEG Global Inc.
(Global), formerly Community Energy Alternatives Incorporated; PSEG Resources
Inc. (Resources), formerly Public Service Resources Corporation; PSEG Energy
Technologies Inc. (Energy Technologies) formerly Energis Resources Incorporated;
Enterprise Group Development Corporation (EGDC); PSEG Capital Corporation (PSEG
Capital) and Enterprise Capital Funding Corporation (Funding).
PSE&G
PSE&G, a New Jersey corporation with its principal executive offices at 80
Park Plaza, Newark, New Jersey 07102, is an operating public utility company
engaged principally in the generation, transmission, distribution and sale of
electric energy service and in the transmission, distribution and sale of gas
service in New Jersey. PSE&G supplies electric and gas service in areas of New
Jersey in which approximately 5.5 million people, about 70% of the State's
population, reside. PSE&G's electric and gas service area is a corridor of
approximately 2,600 square miles running diagonally across New Jersey from
Bergen County in the northeast to an area below the City of Camden in the
southwest. The greater portion of this area is served with both electricity and
gas, but some parts are served with electricity only and other parts with gas
only. This heavily populated, commercialized and industrialized territory
encompasses most of New Jersey's largest municipalities, including its six
largest cities--Newark, Jersey City, Paterson, Elizabeth, Trenton and Camden--in
addition to approximately 300 suburban and rural communities. This service
territory contains a diversified mix of commerce and industry, including major
facilities of many corporations of national prominence. PSE&G believes that it
has all the franchises (including consents) necessary for its electric and gas
distribution operations in the territory it serves. Such franchise rights are
not exclusive.
INDUSTRY ISSUES AND RISK FACTORS
The electric and gas utility industries in the State of New Jersey and
across the country are undergoing major transformations. Legislation has been
passed in New Jersey mandating retail competition in the electric and gas
industries and rate decreases in the electric industry in New Jersey. The New
Jersey Board of Public Utilities (BPU) is expected to issue rulings that will
decide company specific issues by March 31, 1999 and generic issues for the
State sometime thereafter. For discussion of this activity including related
potential financial impacts, volatility of earnings and accounting changes, see
Overview of 1998 and Future Outlook of Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations (MD&A) and Note 2.
Regulatory Issues of Notes to Consolidated Financial Statements (Notes).
PSEG and PSE&G are affected by many issues that are generic to the
electric and gas industries such as: deregulation, the unbundling of energy
supplies and services and the establishment of a competitive energy marketplace
for products and services (see Competitive Environment and Note 2. Regulatory
Issues of Notes); energy sales retention and growth potential in a mature,
competitive service territory; the need to reduce operating and capital costs in
a competitive environment and in light of mandated rate reductions; revenue
stability and growth, including the ability to obtain adequate and timely rate
relief, cost recovery, including stranded costs, and other necessary regulatory
approvals (see Note 2. Regulatory Issues of Notes); the ability to economically
and safely operate nuclear facilities in accordance with regulatory requirements
(see Nuclear Operations); increased capital investments attributable to
environmental regulations
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(see Construction and Capital Requirements and Environmental Controls); nuclear
decommissioning and the availability of storage facilities for spent nuclear
fuel and related costs of disposal (see Electric Fuel Supply and Disposal);
managing wholesale energy trading operations in conjunction with electricity and
gas production, transmission and distribution systems, including commodity price
fluctuations, volatility and credit risk from counterparties; managing foreign
investments and electric generation and distribution operations in locations
outside of the traditional utility service territory (see Foreign Operations of
MD&A and Note 20. Subsequent Events of Notes); political and foreign currency
risks; exposure to market price fluctuations and volatility (see Qualitative and
Quantitative Disclosures About Market Risk and Foreign Operations of MD&A); Year
2000 issues (see Year 2000 Readiness Disclosure of MD&A and Note 10. Commitments
and Contingent Liabilities of Notes); accounting changes resulting from
deregulation (see Note 19. Accounting Matters of Notes); and debt and equity
market concerns associated with these issues.
SEGMENT INFORMATION
Financial information with respect to business segments of PSEG and PSE&G
is set forth in Note 15. Financial Information by Business Segments of Notes.
COMPETITIVE ENVIRONMENT
OVERVIEW
The regulatory structure which has historically governed the electric and
gas industries in the United States and in New Jersey is in transition.
Deregulation is underway in New Jersey and in other states in the Northeast,
including Pennsylvania and New York, and across the United States. The
deregulation and restructuring of the nation's energy markets, unbundling of
services, the diverse industry strategies related to generation capacity and the
anticipated resulting industry consolidation will have a profound effect on PSEG
and PSE&G, providing new opportunities and exposing PSEG and PSE&G to new risks
(see Overview of 1998 and Future Outlook of MD&A).
Legislative and regulatory initiatives, at both the State and Federal
levels, are designed to promote competition and will continue to impose
additional pressures on PSE&G's ability to retain customers. Statutorily
mandated unbundling of the services traditionally provided by vertically
integrated companies, such as PSE&G, and the rapid growth of independent
generation, energy trading and marketing together with new technology and
interest in self generation and cogeneration have provided customers with
alternative sources and supplies of energy. Retention of existing customers and
potential sales growth will depend upon the ability of PSE&G to reduce costs,
meet customer expectations and respond to changing economic conditions and
regulation. Recently, a number of utility-affiliated entities and other
companies have purchased generating units from utilities in the Northeast which
are divesting such assets. In addition, a variety of energy marketers have
expressed interest in operating in New Jersey. These and others selling
generation and other products and services will be competitors of PSEG and
PSE&G. For further information on regulatory changes, see Overview of 1998 and
Future Outlook of MD&A and Note 2. Regulatory Issues of Notes.
PSEG's non-utility businesses are subject to substantial competition in
the United States as well as in the international markets. Restructuring of
world energy markets including the privatization of government owned utilities
and the opening of opportunities to foreign investors will impact PSEG. Some of
the power generation projects in which Global invests compete with other
independent power providers as well as utility generators both domestically and
internationally. Global's distribution businesses in Argentina and Brazil
operate pursuant to franchise arrangements and are generally not subject to
competition. Energy Technologies also competes with other providers of energy
services, including utilities and their affiliates. For additional information,
see Energy Holdings.
STATE REGULATORY BODIES
As a New Jersey public utility, PSE&G is subject to comprehensive
regulation by the BPU including, among other matters, regulation of intrastate
rates and service and the issuance and sale of securities. As a participant in
the ownership of certain generation and transmission facilities in Pennsylvania,
PSE&G is subject to regulation by the Pennsylvania Public Utility Commission
(PPUC) in limited respects in regard to such facilities. PSEG is not subject to
direct regulation by the BPU, except potentially with respect to certain
transfers of control and reporting requirements. The BPU may also impose certain
requirements with respect to affiliate transactions between and among PSE&G,
PSEG and PSEG's non-
2
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utility subsidiaries (see Energy Holdings). Additionally, PSEG and PSE&G are
subject to the rules and regulations of the New Jersey Department of
Environmental Protection (NJDEP) and the State Department of Transportation.
STATE REGULATION
ELECTRIC
The BPU, as well as the New Jersey State Legislature, have each undertaken
the task of restructuring the electric and gas industries in New Jersey.
Throughout 1998, the BPU held hearings and reviewed an Administrative Law
Judge's recommendations and the results of management audits in the proceedings
relating to its Energy Master Plan issued in 1997. In January 1999, the State
Legislature enacted legislation to guide the restructuring of New Jersey's
electric and gas industries. That legislation, the New Jersey Electric Discount
and Energy Competition Act (Energy Competition Act), was signed into law by the
Governor on February 9, 1999. The Energy Competition Act provides, among other
things, for rate reductions and customer choice by August 1, 1999.
Over the next few months, the BPU is expected to issue a series of orders
to continue to provide the specific rules to govern the new deregulated electric
marketplace in New Jersey in accordance with the Energy Competition Act. The BPU
has set a target date for finalizing electric restructuring rules for March 31,
1999, but has yet to establish a target date for a gas restructuring order. For
further discussion of the aforementioned BPU activities, the Energy Competition
Act and the forthcoming BPU proceedings (collectively, the Energy Master Plan
Proceedings) regarding deregulation and unbundling of the electric utility
industry in New Jersey, see Overview of 1998 and Future Outlook of MD&A and Note
2. Regulatory Issues of Notes.
The BPU's response to the New Jersey legislation will significantly impact
PSEG's and PSE&G's future prospects. The BPU will continue in its regulatory
role over many aspects of the New Jersey electric industry, both in determining
the rules for the competitive marketplace and continuing to regulate the
portions of PSE&G's business that remain regulated, including transmission and
distribution of electricity.
In other matters, in 1995 the BPU initiated a generic proceeding that led
to New Jersey electric utilities having the ability to offer "off-tariff"
negotiated rates to customers. Although these Off-Tariff Rate Agreements (OTRAs)
are offered at PSE&G's sole discretion, they are subject to BPU approval of
minimum price, confidentiality of information, contract duration, regulatory
filing requirements and other reporting requirements. These negotiated OTRAs
have formed part of PSE&G's overall strategy to retain customers in its service
territory and maintain long-term electric sales. PSE&G files an annual report
with the BPU which discusses OTRA activities in the prior year. This report
allows the BPU to evaluate the impact of the OTRAs on the financial integrity of
PSE&G. PSE&G is currently in negotiation with several customers for OTRAs. These
agreements have been or will shortly be submitted to the BPU for review and
approval. The Energy Competition Act provides that OTRAs implemented on or after
the effective date of retail competition may establish a price only for the
transmission or distribution of electricity to a retail customer that is
different from, but in no case higher than, that specified in the electric
public utility's current cost-of-service-based tariff rate for transmission or
distribution service otherwise applicable to that customer. The electric rates
under these OTRAs shall include the appropriate societal benefits charge, market
transition charge and securitization transition bond charge. For further
discussion of the Energy Competition Act and the Energy Master Plan Proceedings,
see Note 2. Regulatory Issues of Notes. PSE&G does not expect the impact of
OTRAs to have a material effect on its financial position, results of operations
and net cash flows.
The Energy Competition Act repealed the New Jersey Public Utility Accident
Fault Determination Act (Fault Act) which had required the BPU to make a
determination of fault with regard to any accident at any electric generating or
transmission facility prior to granting a request by any utility for a rate
increase to cover accident-related costs in excess of $10 million. The Energy
Competition Act also repealed the requirement that electric utilities obtain a
certificate of need prior to construction of a new electric generating facility.
For more information on the Energy Competition Act and the Energy Master Plan
Proceedings, see Note 2. Regulatory Issues.
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GAS
PSE&G's unbundled gas transportation tariffs, which have been in place
since 1994, allow any nonresidential customer, regardless of size, to purchase
its own gas, transport it to PSE&G and require PSE&G to deliver such gas to the
customer's facility.
Under the Energy Competition Act, utilities are required to offer all of
their customers the choice to buy the gas commodity from alternate suppliers by
December 31, 1999. For further discussion of gas unbundling and the Energy
Master Plan Proceedings, see Note 2. Regulatory Issues of Notes.
GENERAL
Under the general laws of New Jersey, PSE&G has the right to use the
public highways, streets and alleys in New Jersey for erecting, laying and
maintaining poles, conduits and wires necessary for its electric operations.
PSE&G must, however, first obtain the consent in writing of the owners of the
soil for the purpose of erecting poles. PSE&G's rights are also subject to
regulation by municipal authorities with respect to street openings and the use
of streets for erecting poles in incorporated cities and towns. Concerning gas
distribution, PSE&G has the right to use the roads, streets, highways and public
grounds in New Jersey for pipes and conduits.
The issue of PSEG sharing the benefits of consolidated tax savings with
PSE&G or its ratepayers was addressed by the BPU in 1995 in a letter which
informed PSE&G that the issue of consolidated tax savings can be discussed in
the context of its next base rate case or plan for an alternative form of
regulation. PSEG believes that PSE&G's taxes should be treated on a stand alone
basis for rate making purposes, based on the separate nature of the utility and
non-utility businesses. However, neither PSEG nor PSE&G is able to predict what
action, if any, the BPU may take concerning consolidation of tax benefits in
future proceedings.
Under New Jersey law, the BPU is required to audit all or a portion of the
operating procedures and other internal workings of every gas or electric
utility subject to its jurisdiction, including PSE&G, at least once every six
years. The BPU may, upon completion of the audit and after notice and hearing,
order the utility to adopt such new practices and procedures that it shall find
reasonable and necessary to promote efficient and adequate service to meet
public convenience and necessity.
In June 1997, the BPU commenced management audits of all New Jersey
electric utilities, with the assistance of certain consulting firms, under the
direction of its own audit staff. The audit process included, but was not
limited to, focused reviews of electric utility filings in response to the BPU's
Energy Master Plan. The management audit process for PSE&G was concluded in
December 1997 with a report of the BPU's management consultants relating to
issues of stranded costs, securitization and consumer rate reductions. A second
report on restructuring was filed in February 1998. These management audit
reports were approved for release by the BPU in January 1998 and March 1998,
respectively, and are being considered by the BPU as part of the Energy Master
Plan Proceedings. For additional information regarding the management audit
report, see Note 2. Regulatory Issues of Notes. For a discussion of the BPU's
previous focused audit of the non-utility businesses of PSEG and its impact on
PSEG, see Liquidity and Capital Resources of MD&A.
The BPU can adopt, reject or modify the audit report's results in its
decision in the Energy Master Plan Proceedings. PSE&G cannot predict to what
extent the BPU will rely on the results of the audit report nor what the
ultimate outcome of the Energy Master Plan Proceedings will be; however, the
decision of the BPU will fundamentally change the rules for the generation and
sale of electricity in New Jersey and therefore could have a material adverse
effect on PSEG's and PSE&G's financial condition, results of operations and net
cash flows.
On August 31, 1998, the BPU mandated the commencement of an audit of
PSE&G's competitive services, including PSE&G's Appliance Service Business, to
determine whether PSE&G's competitive services have impaired or could impair
PSE&G's ability to provide safe, adequate and proper service; if
cross-subsidization exists between the regulated utility and the entity
providing competitive services; if rates for competitive services are unjust,
unreasonable, discriminatory or unduly preferential and if the utility is in
compliance with the BPU's compliance monitoring and reporting requirements. The
BPU completed its audit by December 31, 1998 and is expected to issue a draft
report of its findings in concert with the Energy Master Plan Proceedings. PSE&G
cannot predict the outcome of this matter.
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The Energy Competition Act requires an independent audit of the
relationship between PSE&G's regulated businesses and its and its affiliates'
competitive businesses every two years.
On December 16, 1998, the BPU issued an Order in connection with its
investigation of the damage caused by a September 1998 storm that passed through
PSE&G's territory. This Order recommended improvement in communications between
PSE&G and its customers and emergency officials after storm-related power
outages. PSE&G responded to the BPU on January 4, 1999 stating that it will
comply and will work with the BPU on any open recommendations.
FEDERAL REGULATORY BODIES
PSE&G and certain of Energy Holdings' subsidiaries are subject to
regulation by the Federal Energy Regulatory Commission (FERC) with respect to
certain matters, including interstate sales and exchanges of electric
transmission, capacity and energy. PSEG has claimed an exemption from regulation
by the Securities and Exchange Commission (SEC) as a registered holding company
under the Public Utility Holding Company Act of 1935 (PUHCA), except for Section
9(a)(2) thereof, which relates to the acquisition of 5% or more of the voting
securities of an electric or gas utility company. Construction and operation of
nuclear generating facilities are regulated by the Nuclear Regulatory Commission
(NRC). For additional information relating to regulation by the NRC, see Nuclear
Operations. In addition, the Federal Emergency Management Agency is responsible
for the review, in conjunction with the NRC, of certain aspects of emergency
planning relating to the operation of nuclear plants. Additionally, PSE&G is
subject to the rules and regulation of the Federal Environmental Protection
Agency (EPA), Department of Transportation (USDOT) and Department of Energy
(DOE). For information on environmental regulation, see Environmental Controls.
FEDERAL REGULATION
ELECTRIC
The electric industry is currently undergoing restructuring as a result of
Federal legislation and regulatory initiatives. The National Energy Policy Act
of 1992 (EPAct) eased restrictions on independent power producers (IPP) in an
effort to increase competition in the wholesale electric generation market.
FERC Order No. 888 (Order No. 888) became effective in July 1996 and
required all public utilities owning, controlling or operating electric
transmission lines to offer nondiscriminatory open access to their transmission
systems. Intra-pool transactions for power pools were also required to be
conducted under a nondiscriminatory, pool-wide open access tariff by March 1,
1997. Numerous parties, including PSE&G, filed requests seeking rehearing and
clarification of various aspects of Order No. 888. As a result of those
requests, FERC issued Orders No. 888-A and 888-B, which clarified and largely
reaffirmed the legal and policy bases on which Order No. 888 was grounded, and
also provided a process for recovery of stranded costs from wholesale customers.
Numerous parties, including PSE&G, have filed petitions for judicial review of
these orders and these petitions are currently pending before the United States
Courts of Appeals for the District of Columbia and the Second Circuits (see PJM
Interconnection, L.L.C. (PJM)). In March 1998, all of these appeals were
consolidated in the Court of Appeals for the District of Columbia Circuit (D.C.
Circuit). On April 30, 1998, the D.C. Circuit entered an order permitting
certain additional parties to intervene and establishing certain procedural
guidelines for the hearing of these appeals. Briefs were filed on October 1,
1998. Additional briefs are to be filed later in 1999. Oral argument has been
scheduled for November 1999.
GAS
Over the last decade, the natural gas industry has experienced a dramatic
transformation as several FERC initiatives have opened the industry to
competitive market forces. On the interstate level, the pipeline suppliers that
serve PSE&G have unbundled gas supply and transportation services and now offer
transportation services that move gas purchased from numerous natural gas
producers and marketers to PSE&G's service territory.
5
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CONSTRUCTION AND CAPITAL REQUIREMENTS
For information concerning investments, construction and capital
requirements see MD&A--Liquidity and Capital Resources--Construction and Capital
Requirements Forecast, Note 4. Long-Term Investments, Note 7. Schedule of
Consolidated Debt and Note 10. Commitments and Contingent Liabilities of Notes.
FINANCING ACTIVITIES
For a discussion of issuance, repurchase, book value and market value of
PSEG's Common Stock and external financing activities of PSEG, PSE&G and Energy
Holdings for the year 1998, see Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters and Liquidity and Capital Resources of MD&A.
For a discussion of PSEG Capital and Funding, see Energy Holdings--PSEG
Capital and Energy Holdings--Funding. For further discussion of long-term debt
and short-term debt, see Note 7. Schedule of Consolidated Debt of Notes.
INCOME TAXES
For information regarding Federal and State income taxes, see Note 1.
Organization and Summary of Significant Accounting Policies, Note 2. Regulatory
Issues and Note 12. Income Taxes of Notes.
CREDIT RATINGS
The current ratings of securities of PSEG and its subsidiaries are shown
below and reflect the respective views of the rating agencies, from whom an
explanation of the significance of their ratings may be obtained. There is no
assurance that these ratings will continue for any given period of time or that
they will not be revised or withdrawn entirely by the rating agencies, if, in
their respective judgments, circumstances so warrant. Any downward revision or
withdrawal may adversely effect the market price of PSEG's, Energy Holdings' and
PSE&G's securities and serve to increase those companies' cost of capital.
STANDARD DUFF &
MOODY'S & POOR'S PHELPS
------- -------- ------
PSEG
Preferred Securities............................ Baa2 BB+ BBB
Extendible Notes................................ Baa2 BBB BBB+
PSE&G
Mortgage Bonds.................................. A3 A- A
Preferred Securities............................ Baa1 BBB A-
Commercial Paper (including PSE&G Fuel Corp.)... P2 A2 Duff 1
ENERGY HOLDINGS
Senior Debt (PSEG Capital)...................... Baa2 BBB BBB+
As a component of PSE&G's ratings, each rating agency issues its opinion
of the credit trend or outlook. Duff and Phelps currently evaluates that credit
trend or outlook as negative. Standard and Poor's and Moody's evaluate the
outlook as stable.
In February 1999, Standard & Poor's introduced a single credit rating
scale for both debt and preferred securities to replace the separate rating
scales that were applied to these two classes of securities. By rating all debt
and preferred securities according to the same scale, Standard & Poor's has
stated that it believes investors will gain a clearer picture of the credit risk
that these securities present. Broadly, the criteria of the new scale calls in
part for Standard & Poor's to rate preferred securities at least two notches
below the corporate credit rating of an investment-grade issuer. This has
resulted in the re-rating of the preferred securities of PSEG and PSE&G to BB+
and BBB, respectively.
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PSE&G
RATE MATTERS
For information concerning the Energy Master Plan Proceedings, PSE&G's
rate matters and environmental remediation and fuel adjustment clauses, see
General--Competitive Environment--State Regulation (Electric), Note 1.
Organization and Summary of Significant Accounting Policies and Note 2.
Regulatory Issues of Notes. For information concerning PSE&G's under (over)
recovered electric energy and gas fuel costs, see Note 3. Regulatory Assets and
Liabilities of Notes.
CUSTOMERS
As of December 31, 1998, PSE&G provided service to approximately 1.9
million electric customers and 1.6 million gas customers. PSE&G is not dependent
on a single customer or a few customers for its electric or gas sales. For the
year ended December 31, 1998, PSE&G's operating revenues aggregated $5.6
billion, of which 72% was from its electric operations and 28% from its gas
operations. PSE&G's business is weather sensitive and seasonal in that sales of
electricity are higher during the summer months because of air conditioning
requirements and sales of gas are greater in the winter months due to the use of
gas for space-heating purposes.
Revenues were derived as follows for 1998:
REVENUES
----------------------------
ELECTRIC GAS
------------ ----------
(MILLIONS OF DOLLARS)
Residential....................... $1,272 $833
Commercial........................ 1,849 194
Industrial........................ 631 237
Transportation Service--Gas....... -- 245
Other............................. 279 50
------------ ----------
Total......................... $4,031 $1,559
============ ==========
For information on the impact of competition and the Energy Master Plan
Proceedings on PSE&G's customer and revenue base, see Overview of 1998 and
Future Outlook of MD&A and Note 2. Regulatory Issues of Notes.
ELECTRIC SUPPLY AND CAPACITY
The supply of electricity for PSE&G's business is provided by various
sources. Generation, power purchases within PJM, from other power pools and from
non-utility generators (NUGs), and demand side management programs provide
sources for electricity as a commodity. Capacity is provided by the installed
generation production facilities which PSE&G owns as well as through bilateral
purchases and purchases in the new capacity market administered by PJM. The
nature of the supply and capacity markets are changing due to deregulation in
various states and FERC initiatives. The resulting development of new markets
has increased volatility and risks and also has created opportunities for PSE&G.
For further discussion, see Qualitative and Quantitative Disclosures About
Market Risk of MD&A.
RESOURCE PLAN AND POWER PURCHASES
PSE&G periodically reevaluates its forecasted customer load and peak
growth and the sources of electric generating capacity and Demand Side
Management (DSM) to meet such projected growth (see DSM below and Note 2.
Regulatory Issues of Notes). The Resource Plan takes into account assumptions
concerning future customer demand, future cost trends, especially fuel and
purchased power expenses, the impacts of conservation and load management
activities, the long-term condition of and projected additions to PSE&G's plants
and capacity available from other electric utilities and non-utility suppliers.
The forecast for electric system peak demand over the period 1999-2003 has been
developed based on an assumed compound annual rate of growth of 1.47%.
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A component of PSE&G's Resource Plan consists of expected capacity
additions from PJM and NUGs. PSE&G is engaged in wholesale purchases and sales
of electricity and gas. These transactions help satisfy the Resource Plan
requirements and may include both purchasing power from PJM and other electric
systems. Analysis of the lowest cost sources of electricity is made and based on
the expectation that, at certain times, purchases at the wholesale level will
replace production of electricity by PSE&G's facilities. For further discussion
of wholesale activities, see Quantitative and Qualitative Disclosures About
Market Risk of MD&A and Note 8. Financial Instruments and Risk Management of
Notes.
NUG projects are expected to comprise approximately 6% of capacity
resources by 2005. The availability of NUG generation reduces the need for PSE&G
to build or acquire additional generation. For further information on PJM, NUGs
and Stranded Costs, see PJM Interconnection, L.L.C. and Note 2. Regulatory
Issues of Notes.
DEMAND SIDE MANAGEMENT (DSM)
The BPU adopted rules in 1991 to encourage utilities to offer DSM-related
load management and conservation services. These rules were re-adopted in 1996
and are designed to treat DSM on equal regulatory footing with supply side or
energy production investments. The Energy Competition Act permits the
continuation of DSM programs. The recovery of costs for DSM programs is to be
through a societal benefits charge, on all electric customers' bills, initially
set at the level in rates for DSM cost recovery in place on February 9, 1999.
Within the subsequent twelve months, the BPU is required to complete a statewide
comprehensive resource analysis of energy efficiency and renewable energy
programs and determine the appropriate level of funding for each utility based
on this analysis.
PSE&G's most recent DSM Resource Plan (1995 Plan) was approved by the BPU
in 1995 and was designed to encourage investment in energy-saving DSM
activities. These activities involve energy saving techniques and technologies,
such as high-efficiency lighting and motors, which help reduce customer demand
for energy. The 1995 Plan consisted of two major program areas for both electric
and gas; (1) Core Programs which include many specialized programs such as
energy audits, building envelope efficiency improvements and rebates for high
efficiency heating and cooling equipment; and (2) the Standard Offer Program
which is performance based and provides payment for measurable energy savings
resulting from the installation of qualified measures that improve the energy
efficiency of end-uses.
BPU approval of the 1995 Plan included a requirement to file the next DSM
Plan by July 1, 1997. In April of 1997 PSE&G filed a request with the BPU to
extend the 1995 Plan for one year and to defer filing the next DSM Plan until
July 1, 1998, which requests were granted with the condition that the Core
Programs would continue until the next DSM Plan was approved. The BPU further
directed that PSE&G also extend existing project acceptance and in-service
deadline dates by one year. On June 29, 1998, PSE&G filed with the BPU the 1999
Interim Demand Side Management Plan which included Core Programs and the
Standard Offer, and hearings on the filing were conducted. No action has been
taken by the BPU leaving no mechanism open at this time for the accepting of new
Standard Offer project proposals. It is anticipated that there will be BPU
action on the 1999 Interim Plan in the near future, but PSE&G cannot predict the
outcome of such action.
ELECTRIC GENERATING CAPACITY
The following table sets forth certain information as to PSE&G's installed
generating capacity as of December 31, 1998:
INSTALLED
SOURCE CAPACITY (A) (MW) PERCENTAGE
- ------------------------------------------------- ----------------- ----------
Conventional Steam Electric:
Oil-fired (B)............................... 1,531 15%
Coal-fired New Jersey (C)................... 1,271 12%
Coal-fired Pennsylvania (mine mouth) (D).... 770 7%
Combustion Turbine (E)........................... 2,724 27%
Combined Cycle................................... 920 9%
Diesel (D)....................................... 5 0%
Nuclear (D):
New Jersey.................................. 1,921 19%
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Pennsylvania................................ 930 9%
Pumped Storage (D) (E)........................... 200 2%
----------- ---------
Total................................... 10,272 100%
=========== =========
(A) Excludes 695 MW of non-utility generation and 505 MW of capacity
sales to other utilities.
(B) Units with aggregate capacity of 836 MW can also burn gas.
(C) Can also burn gas.
(D) PSE&G share of jointly owned facilities.
(E) Primarily used for peaking purposes.
For additional information, see Item 2. Properties--PSE&G--Electric
Properties.
The capacity available at any time may be less than the installed capacity
noted in the table above because of temporary outages for inspection,
maintenance, repairs, legal and regulatory requirements including environmental
constraints or unforeseen circumstances (see Environmental Controls). The
maximum one-hour demand (peak load) which PSE&G experienced in 1998 was 9,226
MW, which occurred on July 22, 1998, when the day's output was 178,741
megawatt-hours (MWH) of electricity. The all time peak load record is 9,548 MW,
which occurred on July 15, 1997, when the day's output was 184,357 MWH of
electricity.
Demand for electricity will come from PSE&G's retail customers to whom
PSE&G will continue to provide service following implementation of competition
as well as basic generation service customers as mandated by the Energy
Competition Act. See Note 2. Regulatory Issues for further discussion of basic
generation service under the Energy Competition Act. PSE&G expects to be able to
continue to meet the demand for electricity on its system through operation of
available equipment and by power purchases. However, if periods of unusual
demand should coincide with outages of equipment, PSE&G could find it necessary
at times to reduce voltage or curtail load in order to safeguard the continued
operation of its energy delivery systems.
PJM INTERCONNECTION, L.L.C. (PJM)
PSE&G is a member of PJM and participates on the PJM Members Committee as
part of its governance structure. The PJM Office of Interconnection (PJM OI)
administers the open-access transmission tariff for the PJM power pool and
operates the centrally dispatched bid-based energy market for the PJM region,
including sections of Pennsylvania, New Jersey, Delaware, Maryland, Virginia and
the District of Columbia. The PJM electric system is interconnected with other
major electric utility companies in the eastern half of the United States. The
PJM area of the power grid is operated as one system to provide increased
reliability, an assurance of an adequate supply of electricity, security to
withstand disturbances and reduced operating costs to its members. PSE&G's
output, as shown under Electric Fuel Supply and Disposal, reflects significant
amounts of purchased power because at times it is more economical for PSE&G to
purchase power from PJM and others than to produce it. As of December 31, 1998,
the aggregate installed generating capacity of the PJM companies was 57,551 MW.
The maximum one-hour demand experienced by PJM in 1998 was 48,397 MW which
occurred on July 22, 1998. The all time record peak one-hour demand experienced
by PJM was 49,406 MW which occurred on July 15, 1997. PSE&G's capacity
obligations to the PJM system vary from year to year due to changes in system
characteristics. PSE&G expects to have sufficient installed capacity to meet its
obligations during the 1999-2003 period.
PSE&G is also a member of the Mid-Atlantic Area Reliability Council which
provides for review and evaluation of plans for generation and transmission
facilities and other matters relevant to reliability of the bulk electric supply
systems in the Mid-Atlantic area.
PJM operates under a two-tier governance structure under which an
independent 7-member Board of Managers (PJM Board) is responsible for
supervision and oversight of the day-to-day operations of PJM. A Members
Committee, consisting of five sectors representing generation owners, other
suppliers, transmission owners, electric distribution and end-use customers
elects, and provides advice to, the PJM Board. PJM has implemented a zonal rate
design for
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<PAGE>
transmission service, subject to its being replaced by a more uniform, regional
rate design within five years in accordance with FERC requirements.
On October 15, 1998, PJM began operating a centralized capacity credit
market, providing a new option to participants for procuring and selling surplus
capacity to meet reliability obligations within the PJM Control Area. Capacity
is the capability to produce electric power, typically from owned generation or
third-party purchase contracts and differs from the electric energy markets,
which trade the actual energy being generated. This market facilitates the
selling and buying of capacity for participants by providing a single point of
contact for market participants and a published capacity market clearing price.
The design of the PJM capacity market is compatible with the already existing
bilateral capacity market. PSE&G will continue trading capacity both through
bilateral transactions and by participating in the centralized PJM capacity
market.
Effective April 1, 1998, PJM implemented locational marginal pricing (LMP)
to establish the market clearing prices for electric energy and to price
electric transmission usage based upon costs associated with transmission system
congestion. When there is no congestion on the power system and energy is
flowing on the grid in an unconstrained manner, energy prices are cleared at the
highest bid accepted by PJM for the entire PJM region. When a limit is reached
on the transmission grid, PJM will operate the generators to preserve system
reliability. LMP allows PJM to send signals to raise and lower generator output
when the power flows are constrained. Different energy market clearing prices
are paid by wholesale power buyers and sellers on the power grid that reflect
the value relative to a system constraint. LMP provides for an efficient
allocation of congestion costs to transmission users within the PJM control
area. FERC has approved the use of the LMP congestion management system to allow
electric energy market participants with power contracts on neighboring electric
systems to compensate PJM for any unintended flows on the PJM system, rather
than forcing those participants to curtail their contracts. PSE&G cannot predict
how the changes in the energy market will impact PSE&G's cost of power.
On December 31, 1997, the PJM Supporting Companies, including PSE&G, filed
market enhancements with the FERC. The filing seeks the ability to auction
residual and released Fixed Transmission Rights (FTRs), which are financial
hedges against congestion costs, beginning in April 1999. As proposed, these
systems would all be administered by the PJM Independent System Operator (ISO).
The FERC Order on this filing instructs PJM to submit further details on how
the auction will be implemented. PSE&G cannot predict the impacts of PJM
implementing these proposed market enhancements.
Currently, the PJM Operating Agreement dictates that bids for electric
energy offered for sale in the PJM interchange energy market from generation
located within the PJM control area shall not exceed the variable cost of
producing such energy. Transactions that are bid into the PJM pool from
generation located outside the PJM control area are capped at $1,000 per
megawatt hour. All power providers are paid the LMP set through power providers'
bids. Certain PJM members, including PSE&G, have requested that FERC revise the
PJM Operating Agreement to allow the submission of market based bids to the PJM
interchange energy market. The lifting of such caps could provide opportunity
for PSE&G's generation business to receive higher prices for energy it sells
while exposing the delivery business to higher prices when PSE&G is a net buyer.
It is anticipated that should FERC find that no single market participant can
unduly influence market prices and that a market monitoring function is provided
by the ISO, the current bidding restrictions would be eliminated. Furthermore,
in the event that all available generation within the PJM control area is
insufficient to satisfy demand, PJM may institute emergency purchases from
adjoining regions. The cost of such emergency purchases is not subject to any
PJM price cap. PSEG and PSE&G cannot predict the outcome of this request or the
impact on PSEG's and PSE&G's future financial condition, results of operations
and net cash flows if such request is successful, but risk would increase if the
cap were eliminated. For further discussion of price volatility of electricity,
see Qualitative and Quantitative Disclosures About Market Risk of MD&A.
NUCLEAR OPERATIONS
PSE&G has an ownership interest in five nuclear generating units and
operates three of these, the Salem Nuclear Generating Station, Units 1 and 2
(Salem 1 and 2), and the Hope Creek Nuclear Generating Station (Hope Creek).
PECO Energy Company (PECO Energy) operates the Peach Bottom Atomic Power Station
Units 2 and 3 (Peach Bottom 2 and 3). Operation of nuclear generating units
involves continuous close regulation by the NRC. Such regulation involves
testing, evaluation and modification of all aspects of plant operation in light
of NRC safety and environmental
10
<PAGE>
requirements. Continuous demonstrations to the NRC that plant operations meet
applicable requirements are also required. The NRC has the ultimate authority to
determine whether any nuclear generating unit may operate. For 1998, PSE&G's
nuclear units achieved an average capacity factor of approximately 85%. For
information concerning the performance of PSE&G's nuclear units, see Note 10.
Commitments and Contingent Liabilities of Notes.
Refueling outages, expected to last approximately seven weeks in duration,
are scheduled in 1999 for Salem 1 and 2, Hope Creek and Peach Bottom 3. Hope
Creek commenced its refueling outage in February 1999.
On September 16, 1998, the NRC suspended its Systematic Assessment of
Licensee Performance (SALP) program for an interim period until the NRC staff
completes a review of its nuclear power plant performance assessment process.
During the interim period while the SALP program is suspended, the NRC has
indicated that it will utilize the results of its plant performance reviews to
provide nuclear power plant performance information to licensees, state and
local officials and the public. The NRC has indicated that these reviews are
intended to identify performance trends since the previous assessment and make
any appropriate changes to the NRC's inspection plans. At the end of the
process, the NRC will decide whether to resume the SALP program or substitute an
alternative program. PSE&G cannot predict the final outcome of this NRC review
nor its impact on its nuclear operations.
SALEM
Salem consists of two 1,106 MW pressurized water nuclear reactors (PWR)
located in Salem County, New Jersey on the Delaware River. PSE&G owns 42.59% of
the Salem units and operates them on behalf of itself and three other owners:
PECO Energy--42.59%; Atlantic City Electric Company (ACE)--7.41%; and
DP&L--7.41%. In March 1998, ACE and DP&L merged to become Conectiv. As of
December 31, 1998, PSE&G's net book value was approximately $362 million for
Salem 1, $340 million for Salem 2 and $153 million in common plant between the
two units. Each Salem unit represents approximately 5% of PSE&G's installed
electric generating capacity, approximately 3% of its total assets and
approximately 4% of its net utility plant in service. For 1998, Salem achieved
an average capacity factor of approximately 74%.
As previously reported, Salem 1 and 2 were taken out of service by PSE&G
in the second quarter of 1995. Salem 2 returned to service on August 30, 1997.
Salem 1 returned to service on April 17, 1998. In July 1998, the NRC removed
Salem 1 and 2 from the NRC Watch List. The NRC noted that plant material
condition, safety culture and management oversight and effectiveness had
substantially improved. The NRC also observed that, while the maintenance
backlog resulting from discovery efforts during the outage remains high, PSE&G
is effectively managing the prioritization and resolution of those items.
Additionally, the NRC noted that PSE&G's management team has instituted robust
safety oversight and self-assessment at the site and that Salem has demonstrated
sustained successful plant performance.
In the past, the outage of a Salem unit has caused PSE&G to incur
replacement energy costs of approximately $4 to $6 million per month per unit.
Such amounts vary, however, depending upon the availability of other generation,
the cost of purchased energy and other factors including modifications to
maintenance schedules of other units. These costs will also vary greatly
depending upon the time of year an outage occurs, since with the competitive PJM
marketplace, times of higher demand will cause prices to rise significantly. For
further discussion, see Electric Supply and Capacity.
On September 15, 1998, the NRC issued its latest SALP Report for Salem for
the period March 1, 1997 to August 1, 1998. In the areas of Maintenance and
Engineering, Salem was rated Category 2 or "good" performance. In the areas of
Operations and Plant Support, Salem received "superior", or Category 1, ratings.
The NRC noted improved performance overall during the period, as demonstrated by
the nearly event free return of both units to operation following the extended
outage. The NRC identified strong management oversight, safe and conservative
operations, good engineering support and effective programs for independent
oversight and self-assessment. The NRC also noted that although human
performance has improved significantly due to extensive training interventions,
continued close management attention is warranted in the Operations and
Maintenance areas.
For certain litigation relating to Salem, see Item 3. Legal Proceedings.
For information on the operating performance standard applicable to Salem, see
Note 10. Commitments and Contingent Liabilities of Notes.
11
<PAGE>
HOPE CREEK
Hope Creek consists of one 1,031 MW boiling water nuclear reactor (BWR)
located in Salem County, New Jersey on the Delaware River adjacent to Salem.
PSE&G owns 95% of Hope Creek and operates the unit on behalf of itself and ACE,
which owns the remaining 5%. As of December 31, 1998, PSE&G's net book value for
Hope Creek was approximately $2.8 billion. Hope Creek represents approximately
10% of PSE&G's installed electric generating capacity, approximately 19% of its
total assets and approximately 26% of its net utility plant in service. For
1998, Hope Creek achieved an average capacity factor of approximately 96%.
Hope Creek completed its latest planned refueling and maintenance outage
in December 1997. In the past, an outage at Hope Creek has caused PSE&G to incur
replacement energy costs of approximately $8 to $10 million per month. Such
amounts vary, however, depending upon the availability of other generation, the
cost of purchased energy and other factors including modifications to
maintenance schedules of other units. These costs will also vary greatly
depending upon the time of year an outage occurs, since with the competitive PJM
marketplace, times of higher demand will cause prices to rise significantly.
On June 8, 1998, the NRC issued its latest SALP Report for Hope Creek for
the period November 10, 1996 to May 16, 1998. In the areas of Operations,
Maintenance and Engineering, Hope Creek was rated Category 2 or "good"
performance. In the area of Plant Support, Hope Creek received a "superior", or
Category 1, rating. The NRC noted improved performance in all functional areas
during the period, with marked improvement in the Plant Support area,
particularly concerning security and emergency preparedness. The NRC also noted
that although several human performance issues associated with procedure
violations, attention to detail and work controls were evident during the fall
1997 outage, operation since then has been nearly event-free.
PEACH BOTTOM
Peach Bottom consists of two 1,093 MW BWRs located on the Susquehanna
River in southeastern Pennsylvania. PECO Energy owns 42.49% of the Peach Bottom
units and operates them on behalf of itself and three other owners:
PSE&G--42.49%; ACE--7.51%; and DP&L--7.51%. As of December 31, 1998, PSE&G's net
book value was approximately $237 million for Peach Bottom 2 and $243 million
for Peach Bottom 3. Each Peach Bottom unit represents approximately 5% of
PSE&G's installed electric generating capacity, approximately 2% of its total
assets and approximately 2% of its net utility plant in service. For 1998, Peach
Bottom achieved an average capacity factor of approximately 86%.
Peach Bottom 2 completed a scheduled refueling and maintenance outage in
November 1998. In the past, an outage of a Peach Bottom unit has caused PSE&G to
incur additional replacement energy costs of approximately $4 to $6 million per
month per unit. Such amounts vary, however, depending upon the availability of
other generation, the cost of purchased energy and other factors including
modifications to maintenance schedules of other units. These costs will also
vary greatly depending upon the time of year an outage occurs, since with the
competitive PJM marketplace, times of higher demand will cause prices to rise
significantly.
On July 17, 1997, the NRC issued its latest periodic SALP Report for Peach
Bottom for the period October 15, 1995 to June 7, 1997. Peach Bottom was rated
Category 1 in the areas of Plant Operations, Maintenance and Plant Support and
rated Category 2 in the area of Engineering. Overall, the NRC observed excellent
performance at Peach Bottom during the assessment period. The NRC stated that
station management provided excellent oversight and control of engineering
activities throughout the period. The NRC noted that, while overall engineering
performance was good, there were several instances where operating procedures,
surveillances and tests were not consistent with the design and licensing bases.
PECO Energy has advised PSE&G that it will continue to take actions to improve
performance at Peach Bottom.
OTHER NUCLEAR MATTERS
On November 24, 1998, the NRC issued a new rule concerning nuclear plant
license transfers, in response to increasing numbers of license transfer
requests brought on by electric utility deregulation. Each company that operates
and/or owns an interest in a nuclear generating station in the United States
must possess a license from the NRC specific to that station. Any transfers to
third parties or to subsidiaries or affiliates of a utility will require a new
license for the entity becoming the owner and/or operator of the nuclear
generating station. The new rule changes the license transfer process
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<PAGE>
by utilizing a legislative-type hearing rather than the former adjudicatory
proceeding. PSE&G cannot predict what other actions, if any, the NRC may take in
such matters.
In 1990, General Electric (GE) reported that crack indications were
discovered near the seam welds of the core shroud assembly in a GE BWR located
outside the United States. As a result, GE issued a letter requesting that the
owners of GE BWR plants take interim corrective actions. Hope Creek's core
shroud was inspected during a refueling outage in 1997 with no indication of
cracking found. PECO Energy has advised PSE&G that examination of the Peach
Bottom 2 and 3 core shrouds were not required during their refueling outages in
1998 and 1997, and that examinations will be performed during their next
refueling outages in 2000 and 1999, respectively. PECO Energy has also advised
PSE&G that Peach Bottom 3 was shut down from March 13 through March 31, 1998 to
repair cracks in three recirculation system jet pump risers within the reactor
vessel. Permanent repairs were completed and Peach Bottom 3 returned to full
power operation.
In a separate matter, as a result of several BWRs 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 in 1996 to operators of BWRs requesting that measures be
taken to minimize the potential for clogging. The NRC has proposed three
resolution options and required that actions be completed by the end of the
unit's first refueling outage after January 1, 1997. Alternative resolution
options will be subject to NRC approval. PSE&G installed a portion of the
required large capacity passive strainers at Hope Creek during Hope Creek's last
refueling outage in December 1997. The remaining strainers are being installed
during the current refueling outage. PECO Energy has advised PSE&G that large
capacity passive strainers were installed at Peach Bottom 3 during its refueling
outage in October 1997 and at Peach Bottom 2 during its refueling outage in
October 1998. PSE&G cannot predict what other actions, if any, the NRC may take
in this matter.
Predecisional enforcement conferences were held on December 9, 1997 to
discuss two allegations concerning security program issues which occurred at
Salem and Hope Creek in 1996. On April 24, 1998, the NRC issued a severity Level
III violation for one of these matters and informed PSE&G that it would await
issuance of the Secretary of Labor's Administrative Review Board decision before
making an enforcement decision in the other matter. There was no civil penalty
issued by the NRC for this violation. PSE&G did not contest this violation.
PSE&G cannot predict what other actions, if any, the NRC may take in regard to
the second matter.
In a March 1998 letter to PSE&G, the Nuclear Regulatory Commission (NRC)
said that two issues identified at Hope Creek have resulted in two Level III
violations and an associated $55,000 civil penalty. PSE&G met with NRC officials
in 1998 and discussed these issues, including corrective actions and
improvements. These were implemented across PSE&G's nuclear operations to ensure
the continued safe, reliable operation of all three nuclear units. The first
issue was identified at Hope Creek during an NRC inspection in November 1997,
while the unit was shut down for normal refueling maintenance. The NRC noted
that certain plant conditions required more strict procedure compliance and
management oversight than was provided. This resulted in one of the two Level
III violations and the civil penalty. The NRC issued the civil penalty because a
similar issue had been identified in 1996. The second issue concerned the
implementation of the Maintenance Rule, which requires utilities to monitor the
effectiveness of equipment reliability. The NRC said that PSE&G's Maintenance
Rule program did not include all necessary equipment. Because this issue was
self-identified and immediate corrective actions were taken, the NRC issued a
Level III violation with no civil penalty.
In accordance with NRC requirements, nuclear plants utilize various fire
barrier systems to protect equipment necessary for the safe shutdown of the
plant in the event of a fire. As part of an inspection by the NRC in April 1997,
the NRC noted certain weaknesses in Salem's fire barrier systems. PSE&G sent a
letter to the NRC in June 1997 addressing these issues concerning the
qualification of fire wrap barriers used to protect electrical cabling at Salem.
The letter outlined a resolution plan and schedule to address the fire wrap
issues. PSE&G has committed to alternative measures in the form of fire watches
until this plan is implemented. A review of the installed fire barrier materials
and safe shutdown analysis is currently in progress. If certain modifications
are necessary to comply with NRC requirements, it is expected that the cost of
such will not be material. However, failure to resolve these fire barrier issues
could result in potential NRC violations, fines and/or plant shutdown which
could have a material adverse impact to PSE&G's financial condition, results of
operations and net cash flows.
PECO Energy has advised PSE&G that the NRC held a predecisional
enforcement conference on May 21, 1998 to discuss two apparent violations
concerning failure to maintain the operability of a Peach Bottom Unit 3
emergency core
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cooling system pump. On June 11, 1998, the NRC issued an aggregate Level III
violation and a civil penalty of $55,000. PECO Energy has advised PSE&G that it
will not dispute the violation.
For discussion of the lawsuit by PSE&G and the other co-owners of Salem
seeking to recover damages for the costs of replacing the steam generators at
Salem 1 and 2, see Item 3. Legal Proceedings. For discussion of the 1994 NJPDES
permit related to Salem and its operations, see Water Pollution Control.
NUCLEAR DECOMMISSIONING
In accordance with Federal regulations, utilities owning an interest in
nuclear generating facilities are required to determine the costs and funding
methods necessary to decommission such facilities upon termination of operation.
As a general practice, each nuclear utility places funds in independent external
trust accounts it maintains to provide for decommissioning. PSE&G currently
recovers from its customers the amounts paid into the trust fund over a period
of years. Although PSE&G's Energy Master Plan proposal continues this treatment,
no assurances can be given as to the final outcome of the Energy Master Plan
Proceedings. For information concerning nuclear decommissioning costs and the
Energy Master Plan Proceedings, see Note 2. Regulatory Issues and Note 11. PSE&G
Nuclear Decommissioning of Notes.
ELECTRIC FUEL SUPPLY AND DISPOSAL
The following table indicates PSE&G's MWH output by source of energy:
<TABLE>
<CAPTION>
ACTUAL ESTIMATED (A)
SOURCE 1998 1999
- ------------------------------------------------------------ ------ -------------
<S> <C> <C>
Nuclear:
New Jersey facilities.................................. 34% 33%
Pennsylvania facilities................................ 16% 16%
Fossil:
Coal:
New Jersey facilities.................................. 9% 11%
Pennsylvania facilities................................ 14% 13%
Natural Gas................................................. 5% 5%
Net PJM Interchange and Purchases From Utilities and NUG's.. 22% 22%
------ -----------
Total (B).......................................... 100% 100%
====== ===========
</TABLE>
(A) No assurances can be given that actual output will match estimates.
(B) Oil generation for 1998 was less than 1% and for 1999 is estimated
to be less than 1%.
NUCLEAR FUEL
The supply of fuel for nuclear generating units involves the mining and
milling of uranium ore to uranium concentrate, conversion of the uranium
concentrate to uranium hexafluoride, enrichment of the uranium hexafluoride gas,
conversion of the enriched gas to fuel pellets and fabrication of fuel
assemblies.
PSE&G has several long-term contracts with uranium ore operators,
converters, enrichers and fabricators to process uranium ore to uranium
concentrate to meet the currently projected requirements for Salem and Hope
Creek. PSE&G has been advised by PECO Energy that it has similar contracts to
satisfy the fuel requirements of Peach Bottom. Currently, there is an adequate
supply of nuclear fuel for Salem, Hope Creek and Peach Bottom. For a discussion
of issues related to disposal of spent nuclear fuel and related litigation, see
Nuclear Fuel Disposal and Note 10. Commitments and Contingent Liabilities of
Notes.
COAL
Approximately 42% of PSE&G's coal supply for its New Jersey facilities is
obtained under a contract which expires in 1999. PSE&G is currently
renegotiating this contract to extend it through 2001. The balance of the supply
is contracted annually from various suppliers, many of whom PSE&G has dealt with
on a continuing basis for a number of years,
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supplemented by spot market purchases. PSE&G does not presently anticipate any
difficulties in obtaining adequate coal supplies.
PSE&G owns approximately 23% of the Keystone and Conemaugh coal-fired
generating stations located in western Pennsylvania and operated by GPU
Generation, Inc., a subsidiary of GPU Energy, Inc. Pending regulatory approval,
it is expected that GPU Generation, Inc. will sell its ownership interest and
transfer operation of the stations to Sithe Energies, Inc. in the third quarter
of 1999. The Keystone Conemaugh Projects Office, which performs project
administration at these plants on a day to day basis, has advised PSE&G that it
does not presently anticipate any difficulties in obtaining adequate coal
supplies (see Environmental Controls) through long-term contracts and spot
market purchases.
NATURAL GAS
PSE&G utilizes natural gas available from various spot and short-term gas
contracts for electric generation. PSE&G does not presently anticipate any
difficulties in obtaining natural gas supplies.
OIL
PSE&G uses residual oil in its conventional fossil-fired, steam-electric
units. The supply of residual oil is furnished by spot market purchases. PSE&G
uses distillate fuel in its combustion turbines which is also acquired by spot
market purchases. PSE&G does not presently anticipate any difficulties in
obtaining oil supplies.
NUCLEAR FUEL DISPOSAL
After spent fuel is removed from a nuclear reactor, it is placed in
temporary storage for cooling in a spent fuel pool at the nuclear station site.
Under the Nuclear Waste Policy Act of 1982 (NWPA), as amended, the Federal
government has entered into contracts for transportation and ultimate disposal
of the spent fuel and the nuclear utilities agreed to contribute to a Nuclear
Waste Fund at a rate of one mill per kilowatt-hour (KWH) of nuclear generation,
subject to such escalation as may be required to assure full cost recovery by
the Federal government. In addition, a one-time payment was made to the DOE for
permanently discharged spent fuels irradiated prior to 1983. Payments made to
the DOE for disposal costs are based on nuclear generation and are included in
Net Interchanged Power and Fuel for Electric Generation in the Statements of
Income. Until the start of retail competition pursuant to the Energy Competition
Act, these costs are being recovered through the Electric Levelized Energy
Adjustment Clause (LEAC). Thereafter, PSE&G will bear the risks of nuclear fuel
disposal costs. For more information on the Energy Master Plan Proceedings, see
Note 2. Regulatory Issues and Note 3. Regulatory Assets and Liabilities of
Notes.
The Federal government's present policy is that spent nuclear fuel will be
accepted for storage and disposal at government-owned and operated repositories.
However, at present, no such repositories are in service or under construction.
DOE construction of a permanent disposal facility has not begun and DOE has
announced that it does not expect a facility to be available earlier than 2010.
For a discussion of legislation regarding a centralized interim spent fuel
storage facility, see Note 11. PSE&G Nuclear Decommissioning.
Pursuant to NRC rules, spent nuclear fuel generated in any reactor can be
stored in reactor facility storage pools or in independent spent fuel storage
installations located at reactor or away-from-reactor sites for at least 30
years beyond the licensed life for reactor operation (which may include the term
of a revised or renewed license).
As a result of reracking the two spent fuel pools at Salem, the
availability of adequate spent fuel storage capacity is estimated through 2012
for Salem 1 and 2016 for Salem 2, prior to losing an operational full core
discharge reserve. The Hope Creek pool is also fully racked and it is expected
to provide storage capacity until 2008, again prior to losing an operational
full core discharge reserve. PSE&G is currently assessing available options
which could satisfy the potential need for additional storage capacity,
including the option of constructing an on-site storage facility that would
satisfy the spent fuel storage needs of both Salem and Hope Creek. PECO Energy
has advised PSE&G that spent fuel racks at Peach Bottom have storage capacity
until 2000 for Peach Bottom 2 and 2001 for Peach Bottom 3, prior to losing full
core discharge reserve capability. PECO Energy has also advised PSE&G that it is
constructing an on-site dry storage facility which is expected to be operational
in 2000 to provide additional storage capacity. For further discussion of
Nuclear Fuel Disposal, see Note 11. PSE&G Nuclear Decommissioning of Notes.
15
<PAGE>
LOW LEVEL RADIOACTIVE WASTE (LLRW)
As a by-product of their operations, nuclear generating units, including
those in which PSE&G owns an interest, produce LLRW. Such wastes include paper,
plastics, protective clothing, water purification materials and other materials.
LLRW materials are accumulated on site and disposed of at licensed permanent
disposal facilities.
In 1991, New Jersey enacted legislation providing for funding of the
estimated $70 million cost of establishing a LLRW disposal facility. New Jersey
would recover the costs through fees paid by LLRW generators. PSE&G's overall
share was expected to be about 40% of the total cost. PSE&G has provided about
$6 million to date. New Jersey established a volunteer siting process to
establish a LLRW disposal facility by 2000. Public meetings were held across the
State in an effort to provide information to and obtain feedback from the
public; however, no voluntary sites were identified. Consequently, on February
10, 1998, the New Jersey agency responsible for this program recommended to the
Governor that this volunteer plan be abandoned. The Governor has accepted the
agency's plan to reduce the scope of siting activities since the development of
a disposal facility in New Jersey may not be economically feasible in light of
current out-of-state disposal options. As a result, the refund of the unspent
funds paid by waste generators in New Jersey to finance the siting process needs
to be addressed. PSE&G expects to partially recover the funds it paid in
connection with this effort.
Because of the uncertainties regarding disposal, PSE&G built an on-site
facility which was completed in July 1994. The facility has the capacity to
store five years of LLRW from Hope Creek and Salem. The facility was used from
July 1994 through June 1995, while there was no permanent disposal site
available. The facility is currently being used for interim storage of
radioactive materials and waste prior to transport to a permanent disposal
facility.
PECO Energy has advised PSE&G that it has an on-site LLRW storage facility
for Peach Bottom, which has the capacity for at least 5 years of temporary
storage. PECO Energy has also advised PSE&G that Pennsylvania pursued its own
LLRW site development via State-selected candidate sites, along with a volunteer
plan option. On June 18, 1998, the Appalachian States LLRW Compact Commission
unanimously agreed to suspend efforts to site a radwaste storage facility in
Pennsylvania. The Pennsylvania Department of Environmental Protection had
suggested ending the search due to the declining amounts of radwaste produced by
hospitals, nuclear power plants and research facilities. The other compact
members (Delaware, Maryland and West Virginia) have asked Pennsylvania to make
provisions to resume the search if conditions change.
GAS OPERATIONS AND SUPPLY
PSE&G supplies its gas customers principally with natural gas. PSE&G
supplements natural gas with purchased refinery/landfill gas and liquefied
petroleum gas produced from propane. The adequacy of supply of all types of gas
is affected by the nationwide availability of all sources of fuel for energy
production.
As of December 31, 1998, the daily gas capacity of PSE&G was as follows:
TYPE OF GAS THERMS PER DAY
- ----------- --------------
Natural gas.............................................. 22,513,000
Liquefied petroleum gas.................................. 2,200,000
Refinery/landfill gas.................................... 323,000
----------
Total.................................................. 25,036,000
==========
About 40% of the daily gas capacity is firm transportation which is
available every day of the year. The remainder comes from field storage,
liquefied natural gas, seasonal sales, contract peaking supply, propane and
refinery/landfill gas. PSE&G's total gas sold to and transported for its various
customer classes in 1998 was 3.6 billion therms. Included in this amount is 1.0
billion therms of gas delivered to customers under PSE&G's transportation
tariffs and individual cogeneration contracts. During 1998, PSE&G purchased
approximately 3.6 billion therms of gas for its combined gas and electric
operations directly from natural gas producers and marketers. These supplies
were transported to New Jersey by four interstate pipeline suppliers.
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<PAGE>
The majority of PSE&G's gas transportation and supply contracts expire at
various times over the next 10 years. PSE&G does not presently anticipate any
difficulty in negotiating replacement contracts. Since the quantities of gas
available to PSE&G under its supply contracts are more than adequate in warm
months, PSE&G nominates part of such quantities for storage, to be withdrawn
during the winter season under storage contracts with its principal suppliers.
Underground storage capacity currently is approximately 770 million therms.
PSE&G does not presently anticipate any difficulty in obtaining adequate
supplies of natural gas.
Currently, substantially all of PSE&G's gas sales are made under rates
which are currently designed to permit the recovery of projected increases in
the cost of natural gas and gas from supplemental sources, when compared to
levels included in base rates on a current annual basis. Different rate
structures could be implemented in the future as part of gas industry
restructuring in New Jersey. For more information on gas regulation, see State
Regulation--Gas.
The demand for gas by PSE&G's customers is affected by customer
conservation, economic conditions, weather, the price relationship between gas
and alternative fuels and other factors not within PSE&G's control. Rates for
gas sold in interstate commerce are not subject to cost of service ratemaking
but are subject to market forces. PSE&G buys gas from producers, marketers,
unregulated marketing affiliates of interstate pipeline companies and others.
Interstate transportation is regulated by the FERC (see Competitive
Environment--State Regulation).
PSE&G was able to meet all of the demands of its firm customers during the
1997-98 winter season and expects to continue to meet such energy-related
demands of its firm customers during the 1998-99 winter season. However, the
sufficiency of supply could be affected by several factors not within PSE&G's
control, including curtailments of natural gas by its suppliers, the severity of
the winter, the extent of energy conservation by its customers and the
availability of feedstocks for the production of supplements to its natural gas
supply.
EMPLOYEE RELATIONS
PSEG has no employees. As of December 31, 1998, PSE&G had 10,126
employees. Six-year collective bargaining agreements with all of its union
groups, representing 6,147 PSE&G employees, expire on April 30, 2002. Also at
December 31, 1998, Energy Holdings had 810 employees, of whom 200 were
represented by unions. PSE&G and Energy Holdings believe that they maintain
satisfactory relationships with their employees.
For information concerning the employee pension plan and other
postretirement benefits, see Note 1. Organization and Summary of Significant
Accounting Policies and Note 13. Pension, Other Postretirement Benefit and
Savings Plans of Notes.
ENVIRONMENTAL CONTROLS
PSEG and PSE&G, like most industrial enterprises, are subject to
regulation with respect to the environmental impacts of its operations,
including air and water quality control, limitations on land use, disposal of
wastes, aesthetics and other matters by various Federal, regional, state and
local authorities, including the EPA, USDOT, NJDEP, the New Jersey Department of
Health, the BPU, the Interstate Sanitation Commission, the Hackensack
Meadowlands Development Commission, the Pinelands Commission, the Delaware River
Basin Commission (DRBC), the U.S. Coast Guard and the U.S. Army Corps of
Engineers. Global and EGDC are also subject to similar regulation with respect
to operation of their facilities (see Energy Holdings).
Environmental laws generally require air emissions and water discharges to
meet specified limits. They also impose potential joint and several liability,
without regard to fault, on the generators of various hazardous substances to
manage these materials properly and to clean up property affected by the
production and discharge of such substances. Compliance with environmental
requirements has caused PSE&G to modify the day-to-day operation of its
facilities, to participate in the cleanup of various properties that have been
contaminated and to modify, supplement and replace existing equipment and
facilities. During 1998, PSE&G expended approximately $26 million for capital
related expenditures to improve the environment and comply with changing
regulations and estimates that it will expend approximately $48 million, $40
million and $46 million in the years 1999 through 2001, respectively, for such
purposes. Such amounts are included in PSE&G's estimates of construction
expenditures (see MD&A--Liquidity and Capital Resources).
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<PAGE>
Preconstruction analyses and projections of the environmental impacts of
contemplated activities, discharges and emissions are frequently required by the
permitting agency. Before licensing approvals and permits are granted, the
agency usually requests a modeling analysis of the effects of a specific action,
its effect in combination with other existing and permitted activities and may
request the applicant to address emerging environmental issues. Such
environmental reviews have caused delays in the proceedings for licensing
facilities and similar delays can be expected in the future.
The New Jersey Environmental Rights Act provides that any person may
maintain a court action against any other person to enforce or to restrain the
violation of any statute, regulation or ordinance which is designed to prevent
or minimize pollution, impairment or destruction of the environment; or where no
such violation exists, to protect the environment from pollution, impairment or
destruction. Certain Federal legislation confers similar rights on individuals.
The principal laws and regulations relating to the protection of the environment
which affect PSE&G's operations are described below.
AIR POLLUTION CONTROL
The Federal Clean Air Act (CAA) and the EPA's regulations implementing the
CAA impose emission control requirements, including requirements related to the
emissions of sulfur dioxide (SO2) and nitrogen oxides (NOx) and requires
attainment of National Ambient Air Quality Standards (NAAQS). The New Jersey Air
Pollution Control Act (NJAPCA) and regulations of the NJDEP implementing the
NJAPCA govern compliance with, and maintenance of, the NAAQS in New Jersey and
also impose emission control requirements. PSE&G's approximate 23% ownership
interest in Conemaugh and Keystone subject it to State regulation in
Pennsylvania governing compliance with, and maintenance of, the NAAQS in
Pennsylvania.
The CAA provides for SO2 emission reductions to be achieved through a
total cap on SO2 emissions from affected units, and an allocation of SO2
"allowances" (each allowance authorizes the emission of one ton of SO2). Units
needing to cover emissions above their allocations can buy allowances from
sources that have excess allowances. At this time, PSE&G does not expect that it
will incur material expenditures for the units subject to the program.
The NJDEP's regulations also require that each major facility apply for
and receive a facility-wide operating permit. The facility-wide operating permit
terms and conditions are enforceable by both EPA and NJDEP. PSE&G filed permit
applications for its major facilities in New Jersey in 1995. A draft permit for
one facility was issued for comment in 1997. Draft and final permits may be
issued by NJDEP for all of PSE&G's remaining major facilities in 1999. Operating
permits for certain PSE&G facilities may require changes to facility operations
or technology, installation of additional air pollution controls and performance
of supplemental emissions monitoring. Capital costs of complying with these and
other air pollution control requirements through 2003 are included in PSE&G's
estimate of construction expenditures (see Construction and Capital
Requirements). PSE&G's generating stations in New Jersey are located in areas of
the State classified as "non-attainment" for the ozone NAAQS. In non-attainment
areas, construction or expansion of a facility may commence only upon a showing
that any additional emissions from the source will be more than offset by
reductions in similar emissions from existing sources. These requirements may
affect PSE&G's ability to operate, locate, construct or expand generating
facilities in New Jersey in the future which could have an adverse material
impact on PSEG's and PSE&G's financial condition, results of operations and net
cash flows.
Air quality in the northeastern United States is affected by air pollution
transported within and into the region by prevailing winds. In September 1994,
11 Northeastern states and the District of Columbia signed a memorandum of
understanding (MOU) establishing a regional plan for reducing NOx emissions from
utility and large industrial boilers. NOx contributes to the formation of ozone.
The 12 jurisdictions signing this MOU fall within the Ozone Transport Region
(OTR), created under the CAA in recognition of the regional ozone problem facing
the northeastern United States.
In June 1998, the NJDEP adopted regulations implementing the MOU.
Consistent with the MOU, New Jersey's regulations are expected to result in a
65% reduction in NOx emissions from 1990 levels starting in 1999 and a 90%
reduction starting in 2003. These reductions are to be achieved through a
regional cap on NOx emissions from the largest sources of NOx, including PSE&G's
fossil-fueled electric generating facilities. Under formulas established in the
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<PAGE>
regulations, each source will be allocated a number of "allowances," with each
allowance representing one ton of NOx that the source is allowed to emit. The
allowances can be bought and sold through a regional trading program similar to
the trading of SO2 allowances in the Federal Acid Rain Program established in
Title IV of the CAA which has been in place since 1995. The extent of investment
in control technologies, operational changes, and allowance purchases required
to comply with these regulations will be directly related to the number of
allowances PSE&G receives. PSE&G will receive a preliminary allocation of
allowances in March 1999 and the final allocation will be determined in
accordance with the NJDEP regulations in November 1999 which is subsequent to
the May 1 through September 30, 1999 period governed by the regulations. PSE&G
has attempted to minimize the uncertainty associated with the timing of the
allocation by purchasing allowances, upgrading control technologies and
estimating the expected allocation with as much precision as is practicable
using available data. However PSE&G's present analysis leads it to believe that
the potential costs for purchasing additional NOx budget allowances should not
exceed a total of $10 million through December 31, 2002. Expenditures associated
with installing control technology could result in an additional $72 million.
However, PSE&G is currently analyzing alternatives which could preclude the
necessity of capital improvements.
To further improve northeastern air quality, PSE&G is working
collaboratively with several environmental organizations, electric utilities,
environmental regulators and large manufacturing companies located in the
Northeast to achieve significant NOx emission reductions from power plants in
the South and Midwest. It is expected that emission reductions from these power
plants will improve the Northeast's air quality, thereby lessening the need for
additional emission controls in New Jersey beyond those already in effect.
These collaborative efforts, coupled with growing concerns for
cost-effective compliance with CAA requirements, resulted in the creation of an
environmental forum called the Ozone Transport Assessment Group (OTAG),
consisting of the 37 states east of the Mississippi River. In June 1997, OTAG
issued several recommendations for the reduction of ozone and ozone precursors
throughout 22 states of the OTAG region. These recommendations include a call
for reducing power plant NOx emissions by as much as 85% from 1990 levels. OTAG
also recommended that air emissions trading be used to implement this
recommendation.
In July 1997, EPA adopted new Federal air quality standards for ozone. The
new ozone standard was lowered to be more protective of human health and the
measure of the standard was revised to more accurately reflect the nature of the
ozone problem confronting many areas of the United States. In announcing the new
ozone standard, EPA stated that the regional NOx control program for power
plants recommended by OTAG will bring nearly 80% of all new non-attainment areas
back into attainment. PSE&G supports the new ozone standard and EPA's
implementation policy because it addresses the ozone transport problem which
burdens much of the northeastern United States.
On September 24, 1998, EPA issued regulations (referred to as a State
Implementation Plan (SIP) Call) implementing the OTAG recommendations by
requiring the 22 states in the eastern half of the United States to make
significant NOx emission reductions by 2003 and to subsequently cap these
emissions. The NOx reduction requirements are consistent with requirements
already in place in New Jersey and thus are not likely to have an additional
impact on New Jersey facilities nor change the capacity availability from
PSE&G's New Jersey facilities. The impact on facilities in Pennsylvania cannot
be assessed at this time as such impacts are dependent upon Pennsylvania's
implementation of the SIP Call through state regulations which have not been
proposed. If implemented as adopted, these recommendations will require power
plants in the South and Midwest to meet NOx control requirements that are
similar to the requirements faced by PSE&G facilities in New Jersey. PSE&G
supports adoption and implementation of the EPA SIP Call because it addresses
the ozone transport problem which burdens much of the northeastern United
States.
A new particulate matter standard was also adopted by EPA in July 1997 to
address emission of fine particulate matter. It is widely understood that
attainment of the fine particulate matter standard may require reductions in NOx
and SO2. However, under the time schedule announced by EPA when the new standard
was adopted, non-attainment areas will not be designated until 2002 and control
measures to meet this standard will not be identified until 2005.
PSEG Eagle Point, Inc. (Eagle Point), an indirect subsidiary of Global, is
one partner in a partnership which owns the Eagle Point Cogeneration Facility
(EPC), located in West Deptford, New Jersey. EPC is operated by an affiliate of
Eagle Point's partner. EPC provides electricity and steam for an adjacent
petroleum refinery (owned and operated by another affiliate of Eagle Point's
partner) and sells excess electricity to PSE&G. In 1995, Eagle Point received a
Notice of Violation (NOV) from Region II of the EPA alleging violations of
certain CAA requirements and limitations related to the
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<PAGE>
air permit at EPC and the adjacent refinery and demanding that such violations
be corrected. Eagle Point, its partner and the operator of the refinery are
contesting the EPA conclusion that violations have occurred and they have met
with the staffs of the EPA and NJDEP to discuss issues related to the NOV. As a
result of discussions with NJDEP, Eagle Point received a modified air permit
from NJDEP during January 1997. Discussions with the U.S. Department of Justice
(DOJ) were initiated in the last half of 1997 to explore a negotiated resolution
to the NOV issues. The NOV was settled in 1998 and did not have a material
adverse effect on PSEG's or PSE&G's financial position, results of operations
and net cash flows.
WATER POLLUTION CONTROL
The Federal Water Pollution Control Act (FWPCA) authorizes the imposition
of technology and water-quality based effluent limitations to regulate the
discharge of pollutants into the surface waters of the United States through the
issuance of National Pollutant Discharge Elimination System (NPDES) permits. EPA
has been designated as the agency charged with responsibility for implementing
the NPDES program. The FWPCA authorizes the EPA to delegate implementation of
the NPDES program to states with approved programs. The New Jersey Water
Pollution Control Act (NJWPCA) and implementing regulations were adopted to
regulate discharges to New Jersey's surface waters and ground waters through the
New Jersey Pollutant Discharge Elimination System (NJPDES) permits. EPA has
delegated to New Jersey authority to administer the NPDES program through the
NJWPCA and to implement regulations with EPA oversight. The NJDEP administers
the NPDES/NJPDES permit program. Certain PSE&G facilities are directly regulated
by NJPDES permits issued by NJDEP pursuant to FWPCA and the NJWPCA.
The FWPCA authorizes the imposition of less stringent thermal limits
pursuant to a variance procedure set forth in its Section 316(a) and regulates
cooling water intake structures pursuant to its Section 316(b). PSE&G has filed
or will file data and information with the NJDEP in support of Section 316(a)
variance requests and Section 316(b) best technology available determinations
for several of its electric generating stations in connection with the renewal
of the facilities' NJPDES permits. With respect to Section 316(b) requirements,
the EPA is presently required under a consent decree to propose draft
regulations on or before July 1999 and promulgate final regulations by August
2001. EPA has indicated that it intends to seek an extension of these deadlines.
These regulations will address, among other things, regulatory approaches for
determining what constitutes adverse environmental impact and what constitutes
the best technology available for minimizing adverse environmental impact. It is
not possible to determine at this time how the EPA will resolve these issues.
EPA's 316(b) regulations in general and these determinations in particular may
have a material effect on the review of section 316(b) demonstrations.
The NJPDES permit renewal application for PSE&G's Hudson Station, a 983 MW
coal-fired fossil plant located in Jersey City, New Jersey, is in the process of
being reviewed by the NJDEP. As part of that renewal, the NJDEP has requested
updated information in connection with PSE&G's 316(a) and 316(b) demonstrations,
in part, to address issues identified by a consultant hired by NJDEP. The
consultant recommended that Hudson Station be retrofitted to operate with closed
cycle cooling to address alleged adverse impacts associated with the thermal
discharge and intake structure. PSE&G collected additional data which was used
in the updated demonstrations. PSE&G in its 316(b) demonstration, included a
proposal for certain modifications to the intake structure which included
modified screens with fish buckets and a fish return system. PSE&G submitted
these demonstrations to NJDEP in the fourth quarter of 1998. While PSE&G
believes that these demonstrations address the issues identified by the NJDEP's
consultant and provide an adequate basis for favorable determinations under
Sections 316(a) and 316(b) without the imposition of closed cycle cooling, it is
impossible to predict the outcome of the agency's review at the present time.
PSE&G presently estimates that the cost of retrofitting Hudson Station to
operate with closed cycle cooling, if required, to be approximately $100
million. Such amount is not included in PSE&G's estimate of construction
expenditures (see Liquidity and Capital Resources of MD&A).
NJDEP has advised PSE&G that it is reviewing a renewal application for
Mercer Station, a 648 MW coal fired fossil plant located in Hamilton Township,
New Jersey, and in connection with that renewal, will be reexamining the effects
of Mercer Station's cooling water system pursuant to Sections 316(a) and 316(b).
In 1998, PSE&G submitted to NJDEP a plan of study for updating its Sections
316(a) and 316(b) demonstrations for Mercer Station. PSE&G is in the process of
implementing the plan of study which includes the collection of additional data
which will be used to update demonstrations to be submitted to the NJDEP in
2000. It is not possible to predict the outcome of such review.
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PSE&G is implementing the 1994 NJPDES permit issued for Salem which
requires, among other things, water intake screen modifications and wetlands
restoration. The estimated capital cost of compliance with the final permit, the
preparation of a renewal submittal and the activities required to obtain a
renewed permit is approximately $140 million. The project is approximately 90%
complete. Under the 1994 permit, which remains in effect until such time as a
renewal permit is issued, PSE&G is continuing to restore wetlands and to conduct
the requisite management and monitoring associated with the implementation of
the special conditions of that permit. The existing permit remains in full force
and effect indefinitely upon submission of a timely renewal filing. PSE&G's
share is 42.59% and is included in its 1999-2003 construction program. PSE&G
must apply to renew the Salem permit in 1999 and must provide updated Section
316(a) and 316(b) demonstrations for the NJDEP's review (see the discussion
above regarding EPA's Section 316(b) rulemaking and MD&A--Liquidity and Capital
Resources--Construction and Capital Requirements Forecast). On March 4, 1999
PSE&G will file a comprehensive application for the renewal of Salem's NJDEP
permit and will file updated Section 316(a) and 316(b) demonstrations. While it
is impossible to predict the outcome of the review of this application
presently, an unfavorable determination could have a material adverse effect on
PSEG's and PSE&G's financial position, results of operations and net cash flows.
The DRBC issued a revised Docket for Salem in 1995 (Revised Docket)
approving a modification to the 1970 Salem Docket that approved the construction
and operation of the station's cooling water system. The Revised Docket
authorized, among other things, the continued operation of the station's cooling
water system for an additional five years. The Revised Docket provides that the
authorization expires September 27, 2000 absent review of the Docket on or
before August 31, 1999 and renewal by the DRBC. DRBC review of the matter is
planned to commence in the second quarter of 1999.
CONTROL OF HAZARDOUS SUBSTANCES
PSE&G MANUFACTURED GAS PLANT REMEDIATION PROGRAM
For information regarding PSE&G's Manufactured Gas Plant Remediation
Program, see Note 2. Regulatory Issues and Note 10. Commitments and Contingent
Liabilities of Notes.
OTHER SITES
A preliminary review of possible mercury contamination at the Kearny
Station, a 280 MW oil fired fossil plant located in Kearny, New Jersey,
concluded that an additional study and investigations are required. In 1996,
PSE&G entered into a Memorandum of Agreement (MOA) with NJDEP for the Kearny
Station which required PSE&G to conduct a Remedial Investigation (RI) of the
site. An RI Report was submitted to the NJDEP in September 1997 and is currently
under technical review by the NJDEP. As currently issued, the RI Report found
that the mercury at the site is stable and immobile and should be addressed at
the time the Kearny Station is retired. PSE&G does not anticipate that
remediation of this site will have a material effect on its financial position,
results of operations and net cash flows.
HAZARDOUS SUBSTANCES
Certain Federal and state laws authorize the U.S. 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 investigate and take remedial actions at any site that is
determined to present an actual or potential threat to human health 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. For a discussion of these hazardous waste
issues, see Note 10. Commitments and Contingent Liabilities. For a discussion of
remediation/clean-up actions involving PSE&G, see Item 3. Legal Proceedings.
For information regarding the Passaic River site, see Note 10. Commitments
and Contingent Liabilities of Notes.
In addition to the sites individually listed in Item 3. Legal Proceedings,
PSE&G has received 15 claims and/or inquiries concerning prospective enforcement
actions by the EPA and/or NJDEP. Such claims/inquiries relate to
properties/sites where it has been alleged that an actual or potential threat to
human health or to the environment exists as a result of an
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actual or threatened release of one or more hazardous substances. PSE&G's
investigation and initial response concerning each such claim and/or inquiry
indicates that PSE&G's potential liability, if any, with respect to these claims
will not have a material adverse effect on its financial position, results of
operations and net cash flows.
Other liabilities associated with environmental remediation include
Natural Resource Damages. The Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 (CERCLA) and the New Jersey Spill
Compensation and Control Act (Spill Act) authorize Federal and state trustees
for natural resources to assess "damages" against persons who have discharged a
hazardous substance, which discharge resulted in an "injury" to natural
resources. Until recently, the State trustee, NJDEP, has not aggressively
pursued natural resource damages. In February 1997, the NJDEP adopted changes to
the Technical Requirements for Site Remediation pursuant to the Spill Act. Among
these changes was a new provision requiring all persons conducting remediation
to characterize "injuries" to natural resources. Further, these changes required
persons to address those injuries through restoration or damages. Since that
time, PSE&G and others, including industry groups, have been working with NJDEP
on policies to implement this regulatory requirement. The State's program is
still developing and PSE&G cannot assess the magnitude of the potential impact
of this regulatory change. Although inestimable, these costs could be material.
The EPA conducted an inspection of Spill Prevention Control and
Countermeasure (SPCC) Plan compliance at three PSE&G electric distribution
facilities in 1997. The EPA identified certain procedural and substantive
deficiencies in the SPCC Plans for these sites. PSE&G has submitted revised SPCC
Plans to the EPA for these sites and is currently working with the EPA to
finalize these SPCC Plans. In 1998, PSE&G evaluated SPCC Plan compliance at all
electric distribution facilities and identified deficiencies. PSE&G has begun
making the necessary upgrades. It is anticipated that these upgrades will take
several years to complete. PSE&G does not anticipate that the costs will have a
material adverse effect on its financial position, results of operations and net
cash flows.
ENERGY HOLDINGS
Energy Holdings, the wholly-owned, direct non-utility subsidiary of PSEG,
is incorporated under the laws of New Jersey and is the parent company of
Global, Resources, Energy Technologies, EGDC, PSEG Capital and Funding. Energy
Holdings' principal executive offices are located at 80 Park Plaza, Newark, New
Jersey 07102. Energy Holdings' focus is on investment opportunities in the
domestic non-utility and international energy markets. Resources' investments
are designed to produce immediate earnings and cash flows, which enable Global
and Energy Technologies to focus on longer-term growth. For a discussion of
PSEG's agreement with the BPU regarding utility/non-utility activities and its
impact on Energy Holdings, see Liquidity and Capital Resources of MD&A. For more
information on Energy Holdings investment activities, see Note 15. Financial
Information by Business Segments of Notes.
GLOBAL
Global, a New Jersey corporation, has its principal executive offices at
1200 East Ridgewood Avenue, Ridgewood, New Jersey 07450. Global invests and
participates in the development and operation of projects in the generation and
distribution of energy, which include cogeneration and IPP facilities and
electric distribution companies. Global's investments include domestic
qualifying facilities (QFs), foreign exempt wholesale generators (EWGs) and
foreign utility companies (FUCOs). Global is expected to be a primary vehicle
for Energy Holdings' long-term business growth with emphasis on growth
opportunities in the generation and distribution markets arising from domestic
electric utility deregulation and international privatization and development.
Global has investments in 25 cogeneration or independent power projects (ten in
California, two in New Jersey, two in China and one each in New Hampshire,
Pennsylvania, Hawaii, Maine, the Philippines, Argentina and Venezuela),
including four under construction (three in China and one in India), and four
electric distribution ventures (three in Argentina and one in Brazil). Global
continuously evaluates the status of project development and construction
activities in light of the realities of timely completion and the costs
incurred.
Global's projects are diversified geographically and technologically and
are generally financed with equity and non-recourse debt (see Liquidity and
Capital Resources of MD&A). Global's investments in QF projects have been
undertaken with other participants because Global, together with any other
utility affiliate, may not own more than 50% of a QF under applicable law
subsequent to the in-service date. Projects involving EWGs or FUCOs are not
restricted to a 50% investment limitation. Global is an investor in partnerships
and corporate joint ventures which own these projects and the electric capacity
of these facilities is not part of PSE&G's installed capacity. However, some of
the electric power
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generated by these facilities is being purchased by PSE&G pursuant to long-term
contracts with the applicable partnerships and corporate joint ventures. For
more information on Global's investment activity, see Liquidity and Capital
Resources and Foreign Operations of MD&A.
As of December 31, 1998 and 1997, Global's consolidated assets aggregated
$1.1 billion and $1.2 billion, respectively, of which 20 % was financed with
non-recourse debt.
RESOURCES
Resources, a New Jersey corporation, has its principal executive offices
at 80 Park Plaza, Newark, New Jersey 07102. Resources makes primarily passive
investments in assets that can provide funds for future growth as well as
provide incremental earnings for Energy Holdings. Resources' investments are
diverse as to asset type and maturity and include leveraged leases, limited
partnerships, leveraged buyout funds and securities. Some of the transactions in
which Resources participates involve other equity investors. For more
information on Resources' operations and investments, see Liquidity and Capital
Resources of MD&A and Note 4. Long-Term Investments of Notes.
As of December 31, 1998 and 1997, Resources' consolidated assets
aggregated $1.8 billion and $1.6 billion, respectively.
ENERGY TECHNOLOGIES
Energy Technologies, a New Jersey corporation, has its principal executive
offices at 499 Thornall Street, Edison, New Jersey 08837. Energy Technologies,
an energy services business, provides a variety of energy related services to
industrial and commercial customers both within and outside of PSE&G's
traditional service territory. In January 1998, Energy Technologies acquired a
diversified mechanical service contractor which provides services for commercial
and industrial clients in Pennsylvania, New Jersey and Delaware. In January
1999, Energy Technologies acquired another mechanical service contractor
servicing Rhode Island, Connecticut and Massachusetts. Energy Technologies has
also entered into a strategic alliance to market and service compact portable
generators.
As of December 31, 1998 and 1997, Energy Technologies' assets were $124
million and $60 million, respectively. For additional information, see Liquidity
and Capital Resources of MD&A. See Note 20. Subsequent Events related to the
transfer of Public Service Conservation Resources Corporation's (PSCRC) assets
from PSE&G to Energy Technologies effective January 1, 1999.
EGDC
EGDC, a New Jersey corporation having its principal executive offices at
80 Park Plaza, Newark, New Jersey 07102, is a nonresidential real estate
development and investment business. EGDC has investments in eight commercial
real estate properties (one of which is developed) in several states. EGDC's
strategy is to preserve the value of its assets to allow for the controlled
disposition of its properties as the real estate market improves. EGDC has been
conducting a controlled exit from the real estate business since 1993.
As of December 31, 1998 and 1997, EGDC's consolidated assets aggregated
$75 million and $83 million, respectively.
PSEG CAPITAL
PSEG Capital, a New Jersey corporation, has its principal executive
offices at 80 Park Plaza, Newark, New Jersey 07102. PSEG Capital serves as a
financing vehicle for Energy Holdings' businesses (excluding Energy Technologies
and EGDC), borrowing on their behalf on the basis of a minimum net worth
maintenance agreement with PSEG.
As of December 31, 1998 and 1997, PSEG Capital had debt outstanding of
$498 million and $611 million, respectively. For additional information, see
External Financings--Energy Holdings and Liquidity and Capital Resources--Energy
Holdings of MD&A.
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FUNDING
Funding, a New Jersey corporation, has its principal executive offices at
80 Park Plaza, Newark, New Jersey 07102. Funding serves as a financing vehicle
for Resources, Global and their subsidiaries, borrowing on their behalf, as well
as investing their short-term funds.
As of December 31, 1998 and 1997, Funding had outstanding debt of $251
million and $395 million, respectively. For additional information, see External
Financings--Energy Holdings and Liquidity and Capital Resources--Energy Holdings
of MD&A.
ITEM 2. PROPERTIES
PSE&G
The statements under this Item as to ownership of properties are made
without regard to leases, tax and assessment liens, judgments, easements, rights
of way, contracts, reservations, exceptions, conditions, immaterial liens and
encumbrances and other outstanding rights affecting such properties, none of
which is considered to be significant in the operations of PSE&G, except that
PSE&G's First and Refunding Mortgage (Mortgage), securing the bonds issued
thereunder, constitutes a direct first mortgage lien on substantially all of
such property.
PSE&G maintains insurance coverage against loss or damage to its principal
plants and properties, subject to certain exceptions, to the extent such
property is usually insured and insurance is available at a reasonable cost. For
a discussion of nuclear insurance, see Note 10. Commitments and Contingent
Liabilities of Notes.
The electric lines and gas mains of PSE&G are located over or under public
highways, streets, alleys or lands, except where they are located over or under
property owned by PSE&G or occupied by it under easements or other rights. These
easements and rights are deemed by PSE&G to be adequate for the purposes for
which they are being used. Generally, where payments are minor in amount, no
examinations of underlying titles as to the rights of way for transmission or
distribution lines or mains have been made.
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ELECTRIC PROPERTIES
As of December 31, 1998, PSE&G's share of installed generating capacity
was 10,272 MW, as shown in the following table:
INSTALLED PRINCIPAL
NAME AND LOCATION CAPACITY (MW) FUELS USED
- ------------------------------------------------- -------------- ----------
Steam:
Hudson, Jersey City, NJ...................... 1,006 Coal/Gas
Mercer, Hamilton, NJ......................... 648 Coal/Gas
Sewaren, Woodbridge Twp., NJ................. 453 Gas/Oil
Linden, Linden, NJ........................... 415 Oil
Keystone, Shelocta, PA--22.84%(B)............ 388 Coal
Conemaugh, New Florence, PA--22.50%(B)....... 382 Coal
Kearny, Kearny, NJ........................... 280 Oil
-----------
Total Steam............................. 3,572
-----------
Nuclear:
Hope Creek, Lower Alloways Creek, NJ 95%(B).. 979 Nuclear
Salem 1, Lower Alloways Creek, NJ 42.59%(B).. 471 Nuclear
Salem 2, Lower Alloways Creek, NJ 42.59%(B).. 471 Nuclear
Peach Bottom 2, Peach Bottom, PA 42.49%(B)... 465 Nuclear
Peach Bottom 3, Peach Bottom, PA 42.49%(B)... 465 Nuclear
-----------
Total Nuclear........................... 2,851
-----------
Combined Cycle:
Bergen, Ridgefield, NJ....................... 675 Gas
Burlington, Burlington, NJ................... 245 Gas
-----------
Total Combined Cycle.................... 920
-----------
Combustion Turbine:
Essex, Newark, NJ............................ 617 Gas/Oil
Edison, Edison Township, NJ.................. 504 Gas/Oil
Kearny, Kearny, NJ........................... 504 Gas/Oil
Burlington, Burlington, NJ................... 389 Oil
Linden, Linden, NJ........................... 223 Gas/Oil
Hudson, Jersey City, NJ...................... 129 Oil
Mercer, Hamilton, NJ......................... 129 Oil
Sewaren, Woodbridge Township, NJ............. 129 Oil
Bayonne, Bayonne, NJ......................... 42 Oil
Bergen, Ridgefield, NJ....................... 21 Gas
National Park, National Park, NJ............. 21 Oil
Salem, Lower Alloways Creek, NJ 42.59%(B).... 16 Oil
-----------
Total Combustion Turbine................ 2,724
-----------
Internal Combustion:
Conemaugh, New Florence, PA--22.50%(B)....... 3 Oil
Keystone, Shelocta, PA--22.84%(B)............ 2 Oil
-----------
Total Internal Combustion............... 5
-----------
Pumped Storage:
Yards Creek, Blairstown, NJ--50%(B)(C)....... 200
-----------
Total PSE&G............................. 10,272(A)
===========
(A) Excludes 695 MW of non-utility capacity and 505 MW of capacity
sales.
(B) PSE&G's share of jointly owned facility.
(C) Excludes energy for pumping and synchronous condensers.
For information regarding construction see MD&A--Construction and Capital
Requirements Forecast.
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In addition to the generating facilities in New Jersey and Pennsylvania as
indicated in the table above, as of December 31, 1998, PSE&G owned 41 switching
and/or generating stations with an aggregate installed capacity of 30,417,670
kilovolt-amperes and 222 substations with an aggregate installed capacity of
7,497,000 kilovolt-amperes. In addition, seven substations having an aggregate
installed capacity of 103,250 kilovolt-amperes were operated on leased property.
All of these facilities are located in New Jersey.
As of December 31, 1998, PSE&G's transmission and distribution system
included approximately 154,634 circuit miles, of which approximately 38,538
miles were underground, and approximately 808,164 poles, of which approximately
538,759 poles were jointly owned. Approximately 99% of this property is located
in New Jersey.
In addition, as of December 31, 1998, PSE&G owned four electric
distribution headquarters and five subheadquarters in four operating divisions
all located in New Jersey.
GAS PROPERTIES
As of December 31, 1998, the daily gas capacity of PSE&G's 100%-owned
peaking facilities (the maximum daily gas delivery available during the three
peak winter months) consisted of liquid petroleum air gas (LPG) and liquefied
natural gas (LNG) and aggregated 2,973,000 therms (approximately 2,886,000 cubic
feet on an equivalent basis of 1,030 Btu/cubic foot) as shown in the following
table:
DAILY CAPACITY
--------------
PLANT LOCATION (THERMS)
- ----- --------
Burlington LNG........................ Burlington, NJ 773,000
Camden LPG............................ Camden, NJ 280,000
Central LPG........................... Edison Twp., NJ 960,000
Harrison LPG.......................... Harrison, NJ 960,000
---------
Total............................... 2,973,000
=========
As of December 31, 1998, PSE&G owned and operated approximately 16,240
miles of gas mains, owned 11 gas distribution headquarters and two
subheadquarters all in two operating regions located in New Jersey and owned one
meter shop in New Jersey serving all such areas. In addition, PSE&G operated 61
natural gas metering or regulating stations, all located in New Jersey, of which
28 were located on land owned by customers or natural gas pipeline companies
supplying PSE&G with natural gas and were operated under lease, easement or
other similar arrangement. In some instances, portions of the metering and
regulating facilities were owned by the pipeline companies.
ENERGY HOLDINGS
Energy Holdings maintains insurance coverage against loss or damage to its
properties, subject to certain exceptions, to the extent such property is
usually insured and insurance is available at a reasonable cost.
For a brief general description of the properties of the subsidiaries of
Energy Holdings and their locations, see Item 1. Business--Energy Holdings.
OFFICE BUILDINGS AND FACILITIES
PSE&G
PSE&G leases substantially all of a 26-story office tower for its
corporate headquarters at 80 Park Plaza, Newark, New Jersey, together with an
adjoining three-story building. PSE&G also leases other office space at various
locations throughout New Jersey for district offices and offices for various
corporate groups and services. PSE&G also owns various other sites for training,
testing, parking, records storage, research, repair and maintenance, warehouse
facilities and for other purposes related to its business.
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ENERGY HOLDINGS
Energy Holdings owns no real property. Energy Holdings leases office space
for its corporate headquarters at 80 Park Plaza, Newark, New Jersey from PSE&G.
ITEM 3. LEGAL PROCEEDINGS
As previously disclosed, in October 1995, PSEG received a letter from a
representative of a purported shareholder demanding that it commence legal
action against certain of its officers and directors with regard to nuclear
operations of Salem and Hope Creek. The Board of Directors promptly commenced an
investigation and advised the purported shareholder thereof. While the
investigation was pending, the purported shareholder nevertheless commenced, by
complaint filed in December 1995, a shareholder derivative action on behalf of
PSEG shareholders against the then incumbent directors, except Dr. Remick.
Similar derivative complaints were filed by two profit sharing plans and one
individual in February and March 1996 against Messrs. Ferland, Codey and others.
On March 19, 1996, the Board's investigation was concluded, and the Board
determined that this litigation should not have been instituted and should be
terminated. On July 3, 1996, another individual purported shareholder filed a
similar complaint naming the same defendants as the first derivative lawsuit. On
August 21, 1996, all defendants filed motions to dismiss all four derivative
actions, which motions were denied and attempts to appeal were unsuccessful. The
defendants filed motions for summary judgment to dismiss all four of the cases,
which motions are pending. One of the plaintiffs has sold her shares and has
withdrawn from the litigation. Another of the plaintiffs (a profit sharing plan)
has been dissolved, and one of the individual participants in the plan is
maintaining the litigation in his individual name. The four complaints generally
seek recovery of damages for alleged losses purportedly arising out of PSE&G's
operation of the Salem and Hope Creek generating stations, together with certain
other relief, including removal of certain executive officers of PSE&G and PSEG
and certain changes in the composition of PSEG's Board of Directors. Discovery
in all four cases is proceeding to permit plaintiffs to respond to the
defendants' motions for summary judgement. PSEG cannot predict the outcome of
this matter. Public Service Enterprise Group Inc. by G. E. Stricklin,
derivatively v. E. James Ferland, et. al., Docket No. L1068395, Superior Court
of New Jersey, Law Division, Camden County. Dr. Steven Fink and Dr. David
Friedman, P.C. Profit Sharing Plan, derivatively, et. al. v. Lawrence R. Codey,
et. al., Superior Court of New Jersey, Chancery Division, Essex County, Docket
No. C-65-96. A. Harold Datz Pension and Profit Sharing Plan derivatively, et.
al., v. Lawrence R. Codey, et. al., Superior Court of New Jersey, Chancery
Division, Essex County, Docket No. C-68-96. Tillie Greenberg, derivatively v. E.
James Ferland, et. al., Superior Court of New Jersey, Chancery Division, Essex
County, Docket No. C-188-96.
As previously disclosed, on June 25, 1998, a complaint was filed against
the directors of PSEG, and PSEG as a nominal defendant, by the same purported
shareholder of PSEG who instituted the December 1995 shareholder derivative
suit, alleging that the 1996, 1997 and 1998 proxy statements provided to
shareholders of PSEG were false and misleading by reason, among other things, of
failure to disclose certain material facts relating to (i) the controls over and
oversight of PSEG's nuclear operations, (ii) the condition of problems at and
reserves with respect to PSEG's nuclear operations, (iii) the demand letter and
derivative litigation disclosed above, (iv) PSEG's liabilities to the Salem
co-owners as a result of the shutdown of the Salem plants and (v) a shareholder
proposal relating to operations of Salem 1 and 2 which was voted upon at the
1998 annual meeting of shareholders. The complaint sought to have the 1996, 1997
and 1998 proxy statements declared to be in violation of law, and to set aside
the elections of directors of PSEG, the ratification of the selection of
Deloitte & Touche LLP as PSEG's auditors at those annual meetings and the other
matters voted upon at the 1996, 1997 and 1998 annual meetings, and to require
PSEG to conduct a special meeting of shareholders providing for election of
directors following timely dissemination of a proxy statement approved by the
Court hearing this matter, which should include as nominees for election as
directors persons having no previous relationship with PSEG or the current
directors, and other relief. A motion to dismiss the complaint was granted by
the Court on November 10, 1998 except with respect to allegations concerning the
1998 shareholder proposal and with respect to the disclosure in the 1998 proxy
statement of the settlement of litigation between PSE&G and the Salem co-owners.
Following the filing of an amended complaint and a second amended complaint, the
Court, on January 19, 1999, again granted defendants' motion to dismiss the
second amended complaint, again except to the extent set forth in the Court's
November 10, 1998 decision. Discovery on the two remaining claims has commenced.
PSEG cannot predict the outcome of this matter. G.E. Stricklin v. E. James
Ferland, et al., United States District Court for the Eastern District of
Pennsylvania, Civil Action No. 98-3279.
PSE&G and the three other co-owners of Salem filed suit in February 1996
in the U.S. District Court for the District of New Jersey (Civil Action No.
CB96-925) against Westinghouse Electric Corporation (Westinghouse) seeking
damages to recover the cost of replacing the steam generators at Salem 1 and 2.
The suit alleges fraud and breach of contract by
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Westinghouse in the sale, installation and maintenance of the generators,
including a claim under the Federal Racketeering Influenced and Corrupt
Organizations Act (RICO). In April 1996, Westinghouse filed an answer and $2.5
million counterclaim for unpaid work related to services at Salem. Westinghouse
has filed a motion for summary judgment on the grounds that the claim of the
plaintiffs is barred by the statute of limitations and oral arguments on this
motion were held in February 1998. On November 6, 1998, the Court granted
Westinghouse summary judgment on the RICO claim but did not address the
plaintiffs' remaining claims, dismissing them without prejudice since the Court
only had original jurisdiction over the RICO claim. The plaintiffs have appealed
this decision to the Third Circuit Court of Appeals and have re-filed their
remaining claims in the Superior Court of New Jersey.
In October 1997, Old Dominion Electric Cooperative (ODEC) filed a
Complaint at FERC (Docket No. EL 98-6-000) seeking to modify its 1992 Agreement
with PSE&G for a ten-year sale of 150 MW of capacity and energy. ODEC's
Complaint argued that, given the restructuring of PJM, particularly PJM's new
open access regional transmission service rate design which effectively
eliminates rate "pancaking" for energy transactions that traverse more than one
transmission system, it is unreasonable to leave intact existing bilateral
agreements that result in multiple transmission charges. ODEC therefore urged
FERC to reduce ODEC's contract capacity rate with PSE&G to eliminate an imputed
transmission charge. In an answer filed in December 1997, PSE&G responded that
the contract rates were negotiated at arm's length, are fully cost justified and
cannot legally be modified absent an overriding public interest. Although at the
time, FERC had not acted on these filings, it appears FERC summarily decided the
issue in ODEC's favor in its November 25, 1997 PJM Restructuring Order (November
25th Order). PSE&G has requested rehearing and clarification of the November
25th Order. In May 1998, while the ODEC complaint was pending, in a separate
proceeding relating to the restructuring of PJM, FERC ordered PSE&G to reduce
its charges to ODEC by $5.5 million annually for each of the remaining six years
of the agreement. FERC determined that a transmission charge, which it imputed
to the agreement, violated FERC policy, specifically, that users of the PJM
transmission system must pay one rate for transmission based on the transmission
zone in which they are delivering power rather than multiple rates based on
their actual use of multiple transmission systems through which their energy
transactions are moving. PSE&G has applied to FERC for a rehearing of its order
which is pending at this time. On August 4, 1998, FERC dismissed ODEC's October
1997 complaint, determining that issues relating to rate "pancaking" of
transmission were more appropriately addressed in the separate FERC proceeding
on PJM restructuring and that ODEC had failed to show it was entitled to relief
on the remaining issues. ODEC did not seek further review of this order.
On October 10, 1997, PSE&G filed a Petition for Expedited Approvals with
the BPU (Docket No. GM97100758) seeking approval, pursuant to a FERC authorized
capacity release mechanism, to transfer to its subsidiary Public Service Energy
Trading Company (PSETC), all of PSE&G's rights and obligations under its
transportation and storage contracts with interstate pipelines. PSETC, in turn,
would supply all of the natural gas requirements of PSE&G pursuant to a
Requirement Contract between the two parties. The proposed transaction would
transfer to PSETC all future contractual liabilities under these agreements and
protect the regulatory status of certain off-system sales transactions currently
being performed. On December 3, 1997, one of the interstate pipeline companies
from which PSE&G obtains service filed a declaratory judgment action with FERC
challenging PSE&G's interpretation of the capacity release rules. Under the
interpretation proposed by the interstate pipeline company, PSE&G would be
required to guarantee the performance of PSETC under the transferred agreements.
PSE&G disagreed with these claims and filed a protest challenging the December
3, 1997 filing. On February 11, 1998, FERC ruled in favor of the interstate
pipeline company (Texas Eastern Transmission Corporation, Docket No.
RP98.83-000) finding that it was not unreasonable for the pipeline company to
refuse to discharge PSE&G under the circumstances addressed in the order. On
April 29, 1998, FERC issued an order on rehearing in which it denied PSE&G's
request for a rehearing. On June 26, 1998, PSE&G filed a petition for review of
FERC's order with the U.S. Court of Appeals, District of Columbia Circuit. In
January 1999, PSE&G filed a brief. The matter is currently pending.
In addition, see the following below or at the pages indicated:
(1) Pages 2, 9 and 72. Proceedings before the BPU in the matter of the
Energy Master Plan Phase II Proceeding to investigate the future
structure of the Electric Power Industry, Docket Nos. EX94120585Y,
EO97070462 and EO97070463.
(2) Page 3. Generic proceedings before the BPU relating to standards for
"off-tariff" negotiated rate agreement programs, Docket No.
EX95070320.
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(3) Page 4. Proceeding before the BPU in the Matter of the Board's
Determination a Management Audit be Performed on PSE&G, Docket No.
EA97060397.
(4) Pages 4 and 73. Proceedings before the BPU relating to an audit of
PSE&G's competitive services, Docket No. EC98080627.
(5) Page 5. Proceedings before the United States Court of Appeals,
District of Columbia Circuit, in the matter of appeal of FERC Orders
No. 888, 888A and 888B. (Transmission Access Policy Study Group v.
Federal Energy.
(6) Pages 5 and 9 through 10. Proceedings before FERC relating to
competition and electric wholesale power markets. (Inquiry
Concerning the Pricing Policy for Transmission Services Provided by
Utilities Under the Federal Power Act, Docket No. RM93-19.)
(7) Pages 5 and 10. Proceeding before FERC relating to the development
by PSE&G and other regional transmission owners in PJM of a new
transmission service tariff and an Independent System Operator, FERC
Docket Nos. OA97-261-000, et al.
(8) Pages 14 and 97. Proceedings before the United States Court of
Appeals, District of Columbia Circuit, in the matter of the DOE's
unconditional obligation to begin spent fuel acceptance by January
31, 1998, Northern States Power v. Department of Energy, Docket No.
97-1064.
(9) Page 19. Notice of Violation issued by EPA against Eagle Point
Cogeneration Partnership regarding alleged violations of air permit.
(10) Page 20. Administrative proceedings before the NJDEP under Section
316 of the FWPCA for certain electric generating stations.
(11) Pages 40 and 98. Implementation of P.L.1997,C.162, an Act
Revising the Taxation of Electric and Gas Utilities, Docket Nos.
ER97090661 and GR97090672.
(12) Page 71. Generic proceeding before the BPU relating to the matter of
an inquiry into methods of implementation of SFAS-106, Docket No.
AX96070530.
(13) Page 77. Generic proceeding before the BPU relating to recovery of
capacity costs associated with power purchases from cogenerators,
Docket No. EX93060255.
(14) Page 78. Proceedings before the BPU relating to PSE&G's Levelized
Gas Adjustment Clause (LGAC) filed November 14, 1997, Docket No.
GR97110839.
(15) Page 78. Proceeding before the Superior Court of New Jersey,
Appellate Division in the matter of the motion of PSE&G to increase
the level of the Electric Demand Side Adjustment Factor, Appellate
Docket No. A-005257-97T2.
(16) Page 78. Proceeding before the BPU related to the Electric Levelized
Energy Adjustment Clause (LEAC) rate increase to recover DSM costs,
Docket No. ER97020101.
(17) Page 79. Proceedings before the BPU relating to PSE&G's RAC filed
August 1, 1997, Docket No. GR97080573.
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(18) Page 80. Proceedings before the BPU in the Matter of the Electric
Restructuring Plans Filed by Atlantic City Electric Company, Jersey
Central Power & Light Company, D/B/A GPU Energy, Public Service
Electric and Gas Company, and Rockland Electric Company -- General
Auction Standards and Review Criteria, Order Adopting Auction
Standards, Docket Nos. EX94120585Y, EO97070457, EO97070460,
EO97070463 and EO97070466.
(19) Page 80. Proceedings before the BPU relating to PSE&G's proposed CTC
filed September 19, 1996, Docket No. ET96090669.
(20) Page 96. Investigation by the U.S. Environmental Protection Agency
(EPA) regarding the Passaic River site.
(21) Page 96. Additional investigation by the U.S. Environmental
Protection Agency (EPA) regarding the Passaic River site.
(22) Page 98. Proceedings before the United States Court of Claims and
United States District Court for the Southern District of New York
relating to recovery of certain uranium enrichment decontamination
and decommissioning payments. Docket Nos. 96-490C and
98CIV.4155(WK).
In addition, see the following environmental related matters. Based on
current information, PSEG and PSE&G do not expect expenditures for any such
site, individually or all such current sites in the aggregate, to have a
material effect on financial condition, results of operations and net cash
flows.
(23) Claim made in 1985 by U. S. Department of the Interior under CERCLA
with respect to the Pennsylvania Avenue and Fountain Avenue
municipal landfills in Brooklyn, New York, for damages to natural
resources. The U.S. Government alleges damages of approximately $200
million. To PSE&G's knowledge there has been no action on this
matter since 1988.
(24) In July 1997, EPA Region III completed its deletion of a site
operated by Sealand Ltd. in Mount Pleasant Township, New Castle
County, Delaware from the National Priorities List. PSE&G has agreed
to enter into a Consent Decree with the State of Delaware under the
Delaware Hazardous Substance Cleanup Act, requiring the PRPs to
conduct additional limited monitoring at the Sealand site for five
years and to reimburse Delaware for past and future oversight costs.
(25) Duane Marine Salvage Corporation Superfund Site is in Perth Amboy,
Middlesex County, New Jersey.
(26) Various Spill Act directives were issued by NJDEP to PRPs, including
PSE&G with respect to the PJP Landfill in Jersey City, Hudson
County, New Jersey, ordering payment of costs associated with
operating and maintenance expenses, interim remedial measures and a
Remedial Investigation and Feasibility Study (RI/FS) in excess of
$25 million. The directives also sought reimbursement of NJDEP's
past and future oversight costs and the costs of any future remedial
action.
(27) Claim by EPA, Region III, under CERCLA with respect to a Superfund
site in Philadelphia, Pennsylvania, owned and formerly operated as a
non-ferrous scrap reclamation facility by Metal Bank of America,
Inc. PSE&G, other utilities and other companies are alleged to be
liable for contamination at the site. PSE&G has been named as a
potentially responsible party and alleged to be liable for
contamination at the Metal Bank Cottman Avenue Superfund Site, a
former non-ferrous scrap reclamation facility located in
Philadelphia, Pennsylvania. PSE&G and other utilities signed an
Administrative Order by Consent (AOC) in 1991 to perform a remedial
investigation and prepare a feasibility statement which was
submitted to EPA in 1994. In 1995, EPA issued a Proposed Remedial
Action Plan for the site in which EPA's proposed remedy was
estimated to cost between $17 and $30 million. In December 1997, EPA
issued a Record of Decision (ROD). EPA estimates that the selected
remedy will cost approximately $17 million. PSE&G cannot predict
with reasonable certainty the actual cost of the selected remedy or
who will implement the remedy. PSE&G estimates that its share of the
cost of performing the remedy selected by the U.S. Environmental
Protection Agency (EPA) could be $4 to $8 million. On June 26, 1998,
EPA Region III issued an Administrative Order For Remedial Design
And Remedial Action, Docket No. III-98-082-DC, to thirteen
Respondents including PSE&G, other utilities, and other persons and
entities, ordering the Respondents to implement the remedy selected
ROD issued by EPA Region III in December, 1997. Additionally, with
respect to this site, the
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United States of America application in the matter entitled United
States of America, et. al., v. Union Corporation, et. al., Civil
Action No. 80-1589, United States District Court for the Eastern
District of Pennsylvania, seeking leave of court to file an amended
complaint adding claims under the CERCLA was granted. PSE&G and one
other utility were named as third party defendants in the foregoing
captioned matter. Defendants have filed an amended third party
complaint naming PSE&G as a third party defendant. On July 28, 1998,
PSE&G and seven other utilities named as Respondents in the
above-referenced Administrative Order filed with EPA Region III a
Notice of Intent to Comply With Administrative Order for Remedial
Design and Remedial Action, Metal Bank Cottman Avenue Site, Docket
No. III-98-082-DC.
(28) The Klockner Road site is located in Hamilton Township, Mercer
County, New Jersey, and occupies approximately two acres on PSE&G's
Trenton Switching Station property. PSE&G has entered into a MOA
with the NJDEP for the Klockner Road site pursuant to which PSE&G
will conduct an RI/FS and remedial action, if warranted, of the
site. Preliminary investigations indicated the potential presence of
soil and groundwater contamination at the site.
(29) In U.S. v. CDMG Realty Co., et al., Civil Action No. 89-4246 (NHP)
(RJH), pending in the U.S. District Court for the District of New
Jersey, PSE&G and over 60 other entities were joined in 1995 as
additional third-party defendants. Third-party plaintiffs, an
association of 44 entities, are essentially seeking contribution
and/or indemnification for the expenses they have incurred and will
incur as a result of having settled the direct claims of the NJDEP
and EPA related to the investigation and remediation of Sharkey's
Landfill, located in Parsippany-Troy Hills, Morris County, New
Jersey. The claims are all alleged to be brought pursuant to CERCLA
and PSE&G is alleged to have arranged for the disposal of industrial
wastes at Sharkey's Landfill. On July 31, 1998, PSE&G and 23 other
third-party defendants entered into a Settlement Agreement with
third-party plaintiffs. The Settlement Agreement provides the
settling defendants, including PSE&G, a release from all claims for
contribution, diminution of property value, and certain defined
response costs. PSE&G's financial contribution to the settlement was
not material. By Order dated September 2, 1998, the matter was
dismissed with prejudice.
(30) In 1991, the NJDEP issued Directive and Notice to Insurers Number
Two (Directive Two) to 24 Insurers and 52 Respondents, including
PSE&G, in connection with an investigation and remediation of the
Global Landfill Site in Old Bridge Township, Middlesex County, New
Jersey (Global Site). Directive Two seeks recovery of past and
anticipated future NJDEP response costs ($37 million). PSE&G and
other participating PRPs have agreed with NJDEP to a partial
settlement of such costs and to perform the remedial design and
remedial action. In 1996, 13 of the Directive Two Respondents,
including PSE&G, filed a contribution action pursuant to CERCLA and
the Spill Act against approximately 190 parties seeking contribution
for an equitable share of all liability for response costs incurred
and to be incurred in connection with the site. In September 1997,
the NJDEP issued a Superfund ROD with estimated cost of $3.7
million.
(31) In 1991, the NJDEP issued Directive and Notice To Insurers Number
One (Directive No. One) to 50 insurers and 20 respondents, including
PSE&G, seeking from the respondents payment of $5.5 million of
NJDEP's anticipated costs of remedial action and of administrative
oversight at the Combe Fill South Sanitary Landfill in Washington
and Chester Townships, Morris County, New Jersey (Combe Site). The
$5.5 million represents NJDEP's 10% share of total estimated site
remediation costs and administrative oversight costs pursuant to a
cooperative agreement with the United States concerning the selected
remedial action for the site. In 1996, the NJDEP issued Directive
Number Two (Directive No. Two) to 37 respondents, including PSE&G,
directing the respondents to arrange for the operation, maintenance
and monitoring of the implemented remedial action described therein
or pay the NJDEP's future costs of these activities, estimated to be
$39 million. In addition, Directive No. Two directs the respondents
to prepare a workplan for the development and implementation of a
Natural Resource Damage Restoration Plan. In October 1998, the NJDEP
and The United States of America filed separate cost recovery
actions pursuant to CERCLA and/or the Spill Act against
approximately 30 parties seeking recovery of their respective shares
of past and future site investigation and remediation response and
administrative oversight costs incurred and to be incurred at the
site. Third party contribution actions were also filed in each of
the foregoing cost recovery actions seeking contribution for an
equitable share of all liability for these same costs from
approximately 170 third party defendants. PSE&G is a named defendant
in the
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NJDEP cost recovery action and a named third party defendant in the
contribution action filed in the United States' lawsuit.
(32) Spill Act Multi-Site Directive (Directive) issued by the NJDEP to
PRPs, including PSE&G, listing four separate sites, including the
former solid waste bulking and transfer facility called the Marvin
Jonas Transfer Station (Sewell Site) in Deptford Township,
Gloucester County, New Jersey. With regard to the Sewell Site, this
Directive ordered approximately 350 PRPs, including PSE&G, to enter
into an Administrative Consent Order (ACO) with NJDEP, requiring
them to remediate the Sewell Site. Certain PRPs, including PSE&G,
have completed the interim actions directed at both site security
and off-site disposal of containers, trailers and contaminated
surface soils. PRPs, including PSE&G, are currently fulfilling the
terms of a MOA entered into with NJDEP in 1993 to conduct an RI/FS
and, if necessary, take remedial action.
(33) In 1993, in a matter entitled The Fishbein Family Partnership v. PPG
Industries, Inc. and Public Service Electric and Gas Company, Civil
Action No. 93-653 (D.N.J.), the plaintiff filed an action pursuant
to CERCLA, the Spill Act and various common law theories of
liability, seeking declaratory relief regarding responsibility for
and recovery of damages and response costs incurred and/or to be
incurred as a result of the release or threatened release of
hazardous substances at a property located in Jersey City, Hudson
County, New Jersey. The plaintiff alleges that defendants are liable
for the damages and relief sought based on their past conduct of
industrial operations at the site. The industrial operations
referenced in plaintiff's Complaint include chromium ore processing
operations (PPG and its predecessors) and coal gasification
operations (PSE&G and its predecessors). PSE&G filed its response to
the plaintiff's Complaint including cross-claims for indemnity and
contribution against PPG. PSE&G also filed a Third Party Complaint
against UGI Utilities, Inc. (UGI) seeking indemnification and
contribution as to any liability imposed upon PSE&G attributable to
UGI's past conduct of industrial operations on a portion of the
site. In 1995, PSE&G filed an Amended Third Party Complaint
extending the time period of PSE&G's allegations concerning UGI's
past conduct of industrial operations at the site. Also in 1995, an
Administrative Stay of this matter was entered pending either an
agreement between the NJDEP and PPG as to a cleanup plan for the
site or a determination of certain cross-motions for summary
judgment filed by plaintiff and PPG. In 1996, following the court's
determination of plaintiff's and PPG's cross-motions for summary
judgment, the Court entered an Order amending the Order of
Administrative Stay whereby plaintiff's claims against PSE&G, all
cross-claims of PPG and PSE&G, and all claims in the third party
action were administratively stayed until further order of the
court.
(34) Morton International, Inc. and the Velsicol Chemical Corporation
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 U.S. District
Court in Newark, New Jersey against one hundred and seven (107)
defendants, including PSE&G. The suits are contribution actions
pursuant to CERCLA and the Spill Act seeking contribution for an
equitable share of all liability for response costs and damages that
plaintiffs anticipate they will incur in connection with the RI/FS
and remedial action of a forty (40) acre parcel of land in Wood
Ridge, Bergen County, New Jersey and an 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 costs of the RI/FS and past and future NJDEP
oversight costs with respect to the site will approximate $6
million, they have no current estimate of the costs for remediation
of the site and/or the RI/FS 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.
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(35) The EPA issued a Notice of Potential Liability (Notice) to
approximately twenty entities including PSE&G in 1996 with respect
to the Custom Distribution Services site in Perth Amboy, Middlesex
County, New Jersey, formerly operated as a waste oil recovery
facility. Available information suggests that PSE&G may have shipped
waste oil to the facility for recycling. The EPA's notice advises
that is has completed a removal action at the site at a cost of
slightly in excess of $2 million and intends to seek to recover said
costs from those entities including PSE&G that received a Notice.
Prospective remedial actions, if any, have not been performed and/or
identified.
(36) The NJDEP assumed control of a former petroleum products blending
and mixing operation and waste oil recycling facility in Elizabeth,
Union County, New Jersey (Borne Chemical Co. site) and issued
various directives to a number of entities including PSE&G requiring
performance of various remedial actions including: establishment of
security at the site; removal and off-site disposal of containerized
wastes at the site; and conduct of a remedial investigation of the
site. PSE&G's nexus to the site is based upon the shipment of
certain waste oils to the site for recycling. PSE&G and certain of
the other entities named in NJDEP directives are members of a PRP
group that have been working together to satisfy NJDEP requirements
including: funding of the site security program; containerized waste
removal; and a site remedial investigation program.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PSEG and PSE&G, inapplicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PSEG's Common Stock is listed on the New York Stock Exchange, Inc. and the
Philadelphia Stock Exchange, Inc. All of PSE&G's common stock is owned by PSEG,
its parent company. As of December 31, 1998, there were 144,218 holders of
record of PSEG Common Stock.
The following table indicates the high and low sale prices for PSEG's
Common Stock and dividends paid for the periods indicated:
DIVIDEND
COMMON STOCK HIGH LOW PER SHARE
- ------------ ---- --- ---------
1998:
First Quarter........................ $37 15/16 $30 5/16 $.54
Second Quarter....................... 37 7/8 31 3/4 .54
Third Quarter........................ 39 11/16 32 5/16 .54
Fourth Quarter....................... 42 3/4 36 15/16 .54
1997:
First Quarter........................ $29 1/4 $26 1/8 $.54
Second Quarter....................... 26 1/2 22 7/8 .54
Third Quarter........................ 26 3/16 24 1/16 .54
Fourth Quarter....................... 31 13/16 24 3/4 .54
For additional information concerning dividend history, policy, and
potential preferred voting rights, restrictions on payment and common stock
repurchase programs, see Liquidity and Capital Resources and External Financings
of MD&A and Note 6. Schedule of Consolidated Capital Stock and Other Securities
of Notes.
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ITEM 6. SELECTED FINANCIAL DATA
PSEG
The information presented below should be read in conjunction with PSEG's
Consolidated Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- --------------
(MILLIONS OF DOLLARS, WHERE APPLICABLE)
<S> <C> <C> <C> <C> <C>
Total Operating Revenues.......................... $5,931 $6,100 $6,041 $5,893 $5,695
============= ============= ============= ============= ==============
Income from Continuing Operations................. $644 $560 $588 $627 $667
Income from Discontinued Operations (A)........... -- -- 24 35 12
------------- ------------- ------------- ------------- --------------
Net Income........................................ $644 $560 $612 $662 $679
============= ============= ============= ============= ==============
Earnings per Average Share (Basic and
Diluted):
From Continuing Operations..................... $2.79 $2.41 $2.42 $2.57 $2.73
From Discontinued Operations................... -- -- .10 .14 .05
------------- ------------- ------------- ------------- --------------
Total Earnings per Average Share............. $2.79 $2.41 $2.52 $2.71 $2.78
============= ============= ============= ============= ==============
Dividends Paid per Share.......................... $2.16 $2.16 $2.16 $2.16 $2.16
As of December 31:
Total Assets................................... $17,997 $17,943 $16,915 $16,816 $16,313
Long-Term Liabilities:
Long-Term Debt............................... $4,763 $4,873 $4,580 $5,190 $5,110
Other Long-Term Liabilities.................. $517 $457 $411 $367 $332
Preferred Stock With Mandatory Redemption......... $75 $75 $150 $150 $150
Monthly Guaranteed Preferred Beneficial Interest
in PSE&G's Subordinated Debentures............. $210 $210 $210 $210 $150
Quarterly Guaranteed Preferred Beneficial Interest
in PSE&G's Subordinated Debentures............. $303 $303 $208 -- --
Quarterly Guaranteed Preferred Beneficial Interest
in PSEG's Subordinated Debentures.............. $525 -- -- -- --
Ratio of Earnings to Fixed Charges plus
Preferred
Securities Dividend Requirements (B)........... 2.86 2.61 2.68 2.78 2.84
</TABLE>
(A) For discussion of discontinued operations, see Note 16. Discontinued
Operations of Notes.
(B) Excludes income and expenses from discontinued operations.
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PSE&G
The information presented below should be read in conjunction with PSE&G's
Consolidated Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ------------ ----------- ------------ ----------
(MILLIONS OF DOLLARS, WHERE APPLICABLE)
<S> <C> <C> <C> <C> <C>
Total Operating Revenues.............................. $5,590 $5,855 $5,825 $5,707 $5,518
Net Income............................................ $604 $528 $535 $617 $659
As of December 31:
Total Assets....................................... $14,748 $14,920 $14,799 $14,587 $14,259
Long-Term Liabilities:
Long-Term Debt................................... $4,045 $4,126 $4,107 $4,586 $4,487
Other Long-Term Liabilities...................... $517 $457 $411 $367 $332
Preferred Stock With Mandatory Redemption............. $75 $75 $150 $150 $150
Monthly Guaranteed Preferred Beneficial Interest in
PSE&G's Subordinated Debentures.................... $210 $210 $210 $210 $150
Quarterly Guaranteed Preferred Beneficial Interest in
PSE&G's Subordinated Debentures.................... $303 $303 $208 -- --
Ratio of Earnings to Fixed Charges.................... 3.27 2.81 2.83 3.25 3.35
Ratio of Earnings to Fixed Charges plus Preferred
Securities Dividend Requirements................... 3.15 2.70 2.62 2.77 2.92
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
PSEG
This discussion refers to the Consolidated Financial Statements and
related Notes of Public Service Enterprise Group Incorporated (PSEG) and should
be read in conjunction with such statements and notes.
CORPORATE STRUCTURE
PSEG has two principal direct wholly-owned subsidiaries: Public Service
Electric and Gas Company (PSE&G) and PSEG Energy Holdings Inc. (Energy
Holdings), formerly Enterprise Diversified Holdings Incorporated. PSEG's largest
subsidiary, PSE&G, is an operating public utility providing electric and gas
service in certain areas within the State of New Jersey.
Energy Holdings is the parent of PSEG's non-utility businesses: PSEG
Global Inc. (Global), formerly Community Energy Alternatives Incorporated, an
investor in and developer and operator of projects in the generation and
distribution of energy, including cogeneration and independent power production
(IPP) facilities, electric distribution companies, exempt wholesale generators
(EWGs) and foreign utility companies (FUCOs); PSEG Resources Inc. (Resources),
formerly Public Service Resources Corporation, which has made primarily passive
investments; PSEG Energy Technologies Inc. (Energy Technologies), formerly
Energis Resources Incorporated, which provides a variety of energy related
services to industrial and commercial customers both within and outside of
PSE&G's traditional service territory; and Enterprise Group Development
Corporation (EGDC), a nonresidential real estate development and investment
business. Energy Holdings also has two finance subsidiaries: PSEG Capital
Corporation (PSEG Capital), which provides privately-placed debt financing to
Energy Holdings' operating subsidiaries, except Energy Technologies, on the
basis of a minimum net worth maintenance agreement with PSEG and Enterprise
Capital Funding Corporation (Funding), which provides privately-placed debt
financing to Resources, Global and their subsidiaries, which debt is guaranteed
by Energy Holdings,
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but without direct support from PSEG. EGDC has been conducting a controlled exit
from its real estate business since 1993. In July 1996, Energy Holdings sold
Energy Development Corporation (EDC), an oil and gas subsidiary.
As of December 31, 1998 and 1997, PSE&G comprised 82% and 83%,
respectively, of PSEG's assets. For each of the years 1998, 1997 and 1996, PSE&G
revenues were approximately 94%, 96%, and 96%, respectively, of PSEG's revenues
and PSE&G's earnings available to PSEG for such years were 92%, 92% and 87%,
respectively, of PSEG's net income.
OVERVIEW OF 1998 AND FUTURE OUTLOOK
In 1998, energy industry restructuring continued to advance in New Jersey
as PSE&G completed the evidentiary hearings related to the Energy Master Plan
and the Office of Administrative Law filed its decision providing its
recommendations to the New Jersey Board of Public Utilities (BPU). On February
9, 1999, the New Jersey Electric Discount and Energy Competition Act (Energy
Competition Act) was enacted. It provides that all New Jersey retail electric
customers may select their electric supplier commencing August 1, 1999 and all
New Jersey retail gas customers may select their gas suppliers commencing
January 1, 2000, thus fully opening the New Jersey energy markets to
competition. The Energy Competition Act also:
o Requires electric rate decreases of at least 10%, to be phased in
over a period of up to 36 months.
o Allows utilities to have an opportunity to recover up to 100% of
electric-related stranded (above market) costs.
o Allows securitization of up to 75% of electric-related stranded
costs.
o Permits the BPU to require the functional separation or divestiture
of generating assets if required for competition to develop.
o Provides for customer account services (e.g., metering, billing and
related administrative services) to become competitive in one year.
o Authorizes private and municipal aggregation of customers to
collectively choose their electric supplier.
o Authorizes "shopping credits" or discounts for customers that switch
from their current electric utility supplier.
o Requires disclosure of the environmental impact of generation used
for supplying electric customers.
o Authorizes the collection of costs of certain social programs,
nuclear plant decommissioning, demand side management, manufactured
gas plant clean up costs and consumer education through a
non-bypassable Societal Benefits Charge.
The BPU has been conducting related proceedings pursuant to the New Jersey
Energy Master Plan (Energy Master Plan), under which the BPU is expected to
issue a series of orders that will decide both generic issues for the energy
industry (e.g., affiliate standards) and company specific matters (e.g. the
levels of rate decrease, shopping credit, stranded asset recovery and
securitization) for each utility. The BPU has set a target date of March 31,
1999 for issuing an electric restructuring order, but has yet to establish a
target date for the gas restructuring order. For further discussion of the
aforementioned BPU activities, the Energy Competition Act and the forthcoming
BPU proceedings (collectively, the Energy Master Plan Proceedings), see Note 2.
Regulatory Issues of Notes to Consolidated Financial Statements (Notes). These
decisions will fundamentally change the energy industry in New Jersey and will
result in competitive markets for electric and gas supply and for customer
services. The transmission and distribution businesses will remain regulated.
The outcome of these proceedings could have a material adverse impact on PSEG's
and PSE&G's financial condition, results of operations and net cash flows
including a potentially material impact resulting from the discontinuation of
the regulated accounting model currently used by PSE&G. For discussion of
potential accounting changes resulting from deregulation, see Note 19.
Accounting Matters of Notes.
PSEG has been engaged in the competitive energy business for a number of
years through certain of its non-utility subsidiaries. Due to the regulatory
changes outlined above, in the future, PSEG will include a larger component of
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<PAGE>
competitive businesses. As the unregulated component of the business continues
to grow, potential financial risks and rewards will be greater, financial
requirements will change, and the volatility of earnings will increase. The
pending regulatory decisions and the business experience PSEG has acquired in
operating non-regulated energy business will be significant components in
determining future success.
As part of its Energy Master Plan proposal, PSE&G has proposed to recover
$2.5 billion of its potentially stranded costs through the issuance of its
transition bonds, referred to as securitization. The Energy Competition Act
provides that the net proceeds from securitization must be used to reduce
utility debt and equity. Dependent upon the level of securitization authorized
by the BPU in the Energy Master Plan Proceedings, PSE&G may use a number of
alternatives to reduce utility debt and equity, including purchasing outstanding
PSEG common stock and the redemption, tender or purchase of outstanding PSE&G
mortgage bonds and PSE&G preferred stock. For further discussion of
securitization, see Note 2. Regulatory Issues of Notes.
To the extent that recovery of stranded costs occasioned by deregulation
are not probable of recovery and not eligible for deferred accounting treatment
under Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for
the Effects of Certain Types of Regulation" (SFAS 71) and EITF Issue 97-4,
"Deregulation of the Pricing of Electricity - Issues Related to the Application
of FASB Statements No. 71 and No. 101" (EITF 97-4), PSE&G would incur an
extraordinary, non-cash charge to operations, which could be material to the
financial position and results of operations of PSEG and PSE&G. For discussion
of potential accounting changes due to deregulation, see Note 19. Accounting
Matters of Notes.
PSEG and PSE&G believe that the end result of the Energy Master Plan
Proceedings will involve a fundamental change in the way their businesses are
conducted. These changes may impact financial operating trends and could result
in earnings volatility, write down of asset values, reduction in dividend
payments and adverse impacts on revenues due to the mandated electric rate cut,
electric and gas retail choice and fuel and energy price risks. PSE&G is
actively seeking regulatory and operational changes that will allow it to
provide energy services in a safe and reliable manner at competitive prices
while achieving strong financial performance.
Many forces are reshaping how the utility industry meets the needs and
expectations of its customers and shareholders. Profound changes in the way the
industry is regulated are affecting how PSEG conducts business and its financial
prospects in the future. Competitive changes in the utility industry continued
to occur in 1998 and will continue to occur in 1999. For discussions of the New
Jersey Energy Master Plan Proceedings and other rate matters, see Note 2.
Regulatory Issues and Note 3. Regulatory Assets and Liabilities of Notes.
The New Jersey Gross Receipts and Franchise Tax (NJGRT) was eliminated
effective January 1, 1998 and replaced with a combination of the New Jersey
Corporate Business Tax which is a State income tax, the State sales and use tax
and a Transitional Energy Facility Assessment (TEFA), with no material impact on
the financial condition, results of operations and net cash flows of PSEG and
PSE&G. As a result of such tax reform, after the phase out of the TEFA, the
effective state tax rate applicable to PSE&G will be substantially reduced,
putting PSE&G on a more level playing field with competitors. For additional
discussion of energy tax reform, see Note 12. Income Taxes of Notes.
To the extent that the discussion that follows reports on business
conducted under full monopoly regulation of the utility business, it must be
understood that such business will change in 1999 and that past results are not
necessarily an indication of future business prospects or financial results.
In 1998, PSE&G's operations were highlighted by the return to service of
Salem 1 and the overall successful operation of the nuclear generation program.
Complimenting PSE&G's generation capability was the activity of its wholesale
energy operations which positively contributed to PSE&G's results and, through
its risk management policies, mitigated PSE&G's exposure to the dramatic price
volatility and credit concerns seen throughout the energy commodity markets
during the summer of 1998 (see Qualitative and Quantitative Disclosures About
Market Risk).
In 1998, Energy Holdings continued to implement its strategy to develop its
business through international expansion as Global made its first investment in
India and continued its growth in Latin America through the acquisition of its
third
37
<PAGE>
Argentine electric distribution company. Resources also continued its investment
strategy through its investments in several leveraged leases on energy-related
assets in Europe. For discussion of related risks, see Qualitative and
Quantitative Disclosures About Market Risk and Foreign Operations.
Going forward, PSEG will continue to pursue its strategies to grow its
family of businesses. As previously reported, more emphasis will be placed on
finding opportunities for expansion outside of its traditional utility services
and markets. PSE&G's strategy is to size its electric generation fleet in New
Jersey to meet its anticipated needs, while seeking to increase its value and
manage commodity price risk through its wholesale trading activity. PSE&G will
also seek to capitalize on synergies which may exist with its natural gas
purchasing and trading activities. PSE&G's transmission and distribution
strategy, both gas and electric, is to provide cost-effective, high quality
service. PSEG will also consider opportunities for expansion through business
combinations. Global's strategy is to invest in both generation and distribution
facilities worldwide with the goal of creating long-term value. Resources'
strategy is to continue focusing on passive investments in the energy sector
worldwide seeking to provide earnings and economic value. Energy Technologies'
strategy is to expand upon the current energy related services it provides to
industrial and commercial customers to create long-term value and to participate
in the retail energy marketplace.
Successful implementation of these strategies, coupled with the
restructuring of the electric and gas industries will shift more of the assets
and earnings of the PSEG companies from regulated to competitive businesses. As
a result of the deregulation of the electric utility industry, PSE&G could be
required to separate its electric generation services, and potentially other
competitive services, from its regulated utility operations and to possibly
transfer those operations to an entity functionally independent from PSE&G.
RESULTS OF OPERATIONS
Basic and diluted earnings per share of PSEG common stock (Common Stock)
were $2.79 in 1998, representing an increase of $0.38 per share or 16% from
1997. Basic and diluted earnings per share were $2.41 in 1997, a decrease of
$0.11 per share or 4% from 1996.
PSE&G's contribution to earnings per share of Common Stock in 1998
increased $0.37 or 17% compared to 1997 primarily due to the settlement of the
lawsuits filed by the co-owners of Salem which negatively impacted 1997 earnings
by $0.27 per share, an increase in electric revenues resulting from considerably
warmer weather in the third quarter of 1998 and wholesale power activities of
PSE&G (see Item 7A. Qualitative and Quantitative Disclosures About Market Risk).
These increases were partially offset by lower gas sales in 1998 due to mild
winter weather during the 1998 heating seasons. It is expected that PSE&G's 1999
earnings will be impacted by the outcome of the Energy Master Plan Proceedings.
Energy Holdings' contribution to earnings per share in 1998 increased
$0.01 or 5% compared to 1997. Energy Holdings' earnings were primarily those of
PSEG Resources due to the strong overall performance of its investment
portfolio, including leveraged leases, limited partnerships, leveraged buyout
funds and marketable securities. Global's 1998 earnings were negatively impacted
by the loss on the sale of its investment in an electric generating facility
located in Colombia. Global's 1999 earnings will be negatively impacted as a
result of the recent economic developments in Brazil, including the devaluation
of its currency, however, this is not expected to have a material adverse effect
on the results of operations for PSEG. For further discussion, see Foreign
Operations and Note 20. Subsequent Events of Notes.
PSE&G's contribution to earnings per share in 1997 decreased $0.07 or 3%
compared to 1996 due to higher administrative costs attributable to systems
modifications for Year 2000 readiness, legal fees associated with the settlement
of the Salem co-owner litigation and a gain recorded in the second quarter of
1996 from the repurchase of a portion of PSE&G's outstanding cumulative
preferred stock at discounts to par. These decreases were partially offset by
lower operation and maintenance expenses at Salem and the Hudson generating
station. Salem's refueling outage expenses and restart activities declined while
Hudson's expenses benefited from a decrease in the workforce as well as a
reduction of outage work performed in 1997. Earnings per share in 1997 and 1996
were each negatively impacted by charges related to the shutdown of Salem 1 and
2 which began in 1995. The settlement of the lawsuits filed by the co-owners of
Salem negatively impacted 1997 earnings by $0.27 per share and refunds required
by the BPU's December 31, 1996 Order (December 31st Order) which resolved Salem
and other outstanding regulatory issues negatively impacted 1996 earnings by
$0.25 per share. For discussion of the December 31st Order, see Note 2.
Regulatory Issues of Notes.
38
<PAGE>
Energy Holdings' contribution to earnings per share in 1997 decreased
$0.14 or 17% compared to 1996 primarily due to the inclusion in 1996 of earnings
of $0.10 per share related to the discontinued operations of EDC and higher
operating expenses of Energy Technologies as it continued to grow.
As a result of PSEG's stock repurchase program which began in July 1996,
earnings per share of Common Stock for 1997 increased $0.10 from 1996. A total
of 12.7 million shares were repurchased at a cost of $350 million under this
program which concluded in January 1997.
PSE&G--REVENUES
Certain of the below listed year to year variances did not impact earnings
as there was a corresponding variance in expense. To the extent fuel revenue and
expense flowed through the LEAC and LGAC mechanisms, variances in fuel revenues
and expenses offset and thus had no direct effect on earnings. These include
base fuel revenues, demand side management (DSM) revenue and Remediation
Adjustment Charge (RAC) revenue. See Note 2. Regulatory Issues and Note 3.
Regulatory Assets and Liabilities of Notes for a discussion of LEAC, LGAC, RAC
and DSM and their current and proposed status under the Energy Competition Act.
ELECTRIC
Electric revenues increased $113 million or 3% in 1998 and decreased $26
million or 1% in 1997. The increase in 1998 was primarily due to higher sales
resulting from considerably warmer weather in the third quarter of 1998
augmented by positive economic factors in New Jersey. Additionally, revenue from
wholesale power activities and DSM revenue were higher in 1998 than in 1997.
These increases were partially offset by a decrease to revenue caused by New
Jersey energy tax reform in 1998. For a discussion of energy tax reform, see
Note 12. Income Taxes of Notes. Collection of New Jersey Gross Receipts and
Franchise Tax (NJGRT) was reflected in revenue and expense in prior years. As a
result of energy tax reform, the portion of NJGRT replaced by the New Jersey
sales and use tax is no longer reflected in revenue or expense on the income
statement. State sales and use tax is a liability of the customer, collected by
PSE&G and remitted to the State and is recorded in Other Current Liabilities on
the Consolidated Balance Sheets.
The decrease in 1997 was primarily due to lower kilowatt sales from
unfavorable weather partially offset by 1996 refunds required by the December
31st Order.
GAS
Gas revenues decreased $378 million or 20 % in 1998 and increased $56
million or 3% in 1997. The decrease in 1998 is primarily due to lower therm
sales resulting from milder winter weather in 1998 and energy tax reform.
PSE&G--EXPENSES
NET INTERCHANGED POWER AND FUEL FOR ELECTRIC GENERATION
Net Interchanged Power and Fuel for Electric Generation increased $36
million or 4% in 1998 and decreased $10 million or 1% in 1997. The increase in
1998 was primarily due to increased sales of electricity resulting in increased
purchases of fuel for electric generation and purchases of power from the PJM
Interconnection, L.L.C. (PJM) pool. Effective January 1, 1998, the amount
included for the LEAC under/overrecovery represents the difference between
fuel-related revenues and fuel-related expenses which are comprised of the cost
of generation and interchanged power at the PJM market clearing price. Effective
April 1, 1998, PJM, as independent system operator (ISO), replaced the PJM
uniform market clearing price with locational marginal pricing (LMP) for
determining the market clearing pricing to energy providers. Experience to date
shows no material adverse impact of this change to LMP on PSE&G's cost of Net
Interchanged Power and Fuel for Electric Generation.
To the extent fuel revenue and expense flow through the LEAC mechanism,
variances in fuel revenues and expenses offset and thus have no direct effect on
earnings. In 1999, the LEAC mechanism will be discontinued as a result of the
Energy Master Plan Proceedings. This may increase earnings volatility
39
<PAGE>
and fuel and energy price risk since PSE&G will bear the full risks and rewards
of changes in nuclear and fossil generating fuel costs and replacement power
costs. For a discussion of fuel related revenue and expense included in the LEAC
and for the current status of the LEAC, see Note 1. Organization and Summary of
Significant Accounting Policies, Note 2. Regulatory Issues and Note 3.
Regulatory Assets and Liabilities of Notes.
GAS PURCHASED
Gas Purchased decreased $131 million or 12% and $17 million or 2% in 1998
and 1997, respectively. The decrease in 1998 was primarily due to the milder
winter weather in 1998. Due to the operation of the Levelized Gas Adjustment
Clause (LGAC) mechanism, variances in fuel revenues and expenses offset and had
no direct effect on earnings.
OPERATION AND MAINTENANCE
Operation and Maintenance expense increased $81 million or 6% in 1998 and
decreased $23 million or 2% in 1997. The increase in 1998 was primarily due to
higher DSM recovery resulting in a greater recognition of previously deferred
expenses, higher information technology costs in 1998 due to Year 2000
remediation work, higher marketing costs, and higher administrative and general
cost related to wholesale power activities. These increases were partially
offset by lower nuclear operation and maintenance costs due to restart expenses
in 1997 for Salem. DSM costs are currently recoverable through the demand side
adjustment factor of the LEAC and are recorded in both expense and revenue and
therefore, have no direct effect on earnings. For discussion of DSM under the
Energy Master Plan Proceedings, see Note 2. Regulatory Issues of Notes.
INCOME TAXES
Income Taxes increased $91 million or 30% and $42 million or 16% in 1998
and 1997, respectively. The 1998 increase was primarily due to inclusion of New
Jersey State income tax of $103 million in 1998. PSE&G became subject to New
Jersey State income tax, effective January 1, 1998, due to energy tax reform in
the State of New Jersey. For more detail on energy tax reform and changes in New
Jersey taxes, see Note 12. Income Taxes of Notes. Partially offsetting the
increase in 1998 was a decrease from 1997 in Federal income tax due to
adjustments of prior year taxes. The 1997 taxes were higher due to an increase
in pre-tax operating income.
TRANSITIONAL ENERGY FACILITY ASSESSMENT (TEFA) / NEW JERSEY GROSS RECEIPTS
AND FRANCHISE TAX (NJGRT)
TEFA/NJGRT decreased $405 million or 70% and $22 million or 4% in 1998 and
1997, respectively. The 1998 decrease is due to New Jersey energy tax reform.
For 1998, the amount represents TEFA unit-based taxes while the 1997 amount
represents NJGRT unit-based taxes. The TEFA unit tax rates are approximately 30%
of the NJGRT unit tax rates. See Note 12. Income Taxes of Notes for other
impacts of New Jersey energy tax reform.
SETTLEMENT OF SALEM LITIGATION
In January and February 1997, the settlement of the Salem litigation
related to the 1995 shutdown was recorded. That settlement reduced Other Income
and Deductions by $53 million, net of taxes of $29 million, in 1997. For a
further discussion of the Salem settlement, see Note 2. Regulatory Issues of
Notes.
40
<PAGE>
NET LOSS (GAIN) ON PREFERRED STOCK REDEMPTIONS
Net Loss (Gain) on Preferred Stock Redemptions decreased $21 million in
1997 from the comparable 1996 period. The decrease was primarily due to an $18
million net gain on the repurchase of certain of PSE&G's outstanding cumulative
preferred stock at discounts to par in the second quarter of 1996.
ENERGY HOLDINGS--NET INCOME
<TABLE>
<CAPTION>
INCREASE OR (DECREASE)
----------------------------------------------------------
1998 VS. 1997 1997 VS. 1996
--------------------------- ----------------------------
PER PER
AMOUNT SHARE AMOUNT SHARE
------------ ------------- ------------- ------------
(MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Global.............................. $(6) $(.03) $4 $.02
Resources........................... (3) (.01) 3 .01
EGDC................................ 6 .03 (5) (.02)
Energy Technologies................. 5 .02 (12) (.05)
------------ ------------- ------------- ------------
Continuing Operations............... 2 .01 (10) (.04)
Discontinued Operations--EDC
Income from Operations............ -- -- (11) (.04)
Gain on Sale...................... -- -- (13) (.06)
------------ ------------- ------------- ------------
Total....................... $ 2 $.01 $(34) $(.14)
============ ============= ============= ============
</TABLE>
CONTINUING OPERATIONS
Energy Holdings' income from continuing operations was $49 million, a $2
million increase from 1997. Energy Holdings' earnings were primarily those of
PSEG Resources due to the strong overall performance of its investment
portfolio, including leveraged leases, limited partnerships, leveraged buyout
funds and marketable securities. Global's 1998 earnings were negatively impacted
by the loss on the sale of its investment in an electric generating facility
located in Colombia. Global's 1999 earnings will be negatively impacted as a
result of the recent economic developments in Brazil, including the devaluation
of its currency, however, at present, this is not expected to have a material
adverse effect on the results of operations for PSEG. For further discussion,
see Foreign Operations and Note 20. Subsequent Events of Notes.
Energy Holdings' income from continuing operations was $47 million for
1997, a $10 million decrease from 1996. The loss for Energy Technologies
increased due to higher selling, general and administrative expenditures as
Energy Technologies continued to grow. Resources' income increased primarily due
to income from new lease investments, partially offset by lower income from
partnership investments. Global's income increased due to improved financial
performance of several projects.
DISCONTINUED OPERATIONS
EDC was sold on July 31, 1996. Income related to EDC operations was $11
million in 1996. Additionally, a gain of $13 million was recorded on the sale in
1996. For a discussion of discontinued operations, see Note 16. Discontinued
Operations.
LIQUIDITY AND CAPITAL RESOURCES
PSEG AND PSE&G
PSEG is an exempt public utility holding company and, as such, has no
operations of its own. The following is a discussion of PSEG's liquidity and
capital resources on a consolidated basis, noting the uses and contributions of
PSEG's two direct operating subsidiaries, PSE&G and Energy Holdings.
41
<PAGE>
Cash generated from PSE&G's operations is expected to continue to provide
the major source of funds for PSE&G's operating needs. Energy Holdings' growth
will be funded through external financings and cash generated from operations.
PSEG's cash and cash equivalents totaled $140 million at the end of 1998
compared with $83 million at the end of 1997.
PSEG and PSE&G believe that the deregulation of the utility industry will
impact the sources and uses of cash in 1999 and beyond. Securitization as
proposed in PSE&G's Energy Master Plan proposal and authorized in the Energy
Competition Act will change the sources of cash flows. The cash received by
PSE&G from the net proceeds of securitization is required by the Energy
Competition Act to be applied to reduce outstanding debt and equity of the
utility. The outcome of the Energy Master Plan Proceedings could have a material
impact on the cash flows of PSEG and PSE&G. For further discussion of
securitization, see Note 2. Regulatory Issues of Notes.
On September 15, 1998, in anticipation of securitization of PSE&G's
stranded costs afforded by the then proposed Energy Competition Act, the Board
of Directors of PSEG authorized the repurchase of up to 10 million shares of
Common Stock. Under the authorization, repurchases were made in the open market
at the discretion of PSEG. The repurchased shares have been held as treasury
stock. At December 31, 1998, PSEG had repurchased approximately 5.3 million
shares of Common Stock at a cost of $207 million, under this authorization. As
of February 8, 1999, PSEG had repurchased a total of 10 million shares at a cost
of approximately $391 million under this program. On February 16, 1999, the
Board of Directors of PSEG authorized the expansion of the repurchase program up
to an aggregate of 20 million shares under substantially the same terms and
conditions as the program which began in September 1998.
Dividend payments on Common Stock were $2.16 per share and totaled $499
million for the year ended December 31, 1998. Amounts and dates of such
dividends on Common Stock as may be declared in the future will necessarily be
dependent upon PSEG's future earnings, cash flows, financial requirements, the
outcome of the Energy Master Plan Proceedings (see Note 2. Regulatory Issues and
Note 3. Regulatory Assets and Liabilities of Notes), the receipt of dividend
payments from its subsidiaries and other factors. Since 1986, PSE&G has made
regular cash payments to PSEG in the form of dividends on outstanding shares of
PSE&G's common stock. PSE&G has paid quarterly dividends on its common stock in
each year commencing in 1948, the year of the distribution of PSE&G's common
stock by Public Service Corporation of New Jersey, the former parent of PSE&G.
PSE&G has not increased its dividend rates in seven years in order to retain
additional capital for reinvestment and to reduce its payout ratio.
PSE&G paid common stock dividends of $503 million and $523 million to PSEG
during the years ended December 31, 1998 and 1997, respectively. Changes in
PSE&G's financial condition that could result from the Energy Master Plan
Proceedings could have a material adverse effect on the ability to maintain the
dividend at such level. For discussion of the Energy Master Plan Proceedings,
see Note 2. Regulatory Issues of Notes. Due to the growth in Energy Holdings
investment activities, no dividends on Energy Holdings' common stock were paid
in 1998 or are anticipated for 1999. From 1992 through 1996, Energy Holdings
made regular cash payments to PSEG in the form of dividends on outstanding
shares of Energy Holdings' common stock.
PSEG and PSE&G, respectively, have issued Deferrable Interest Subordinated
Debentures in connection with the issuance of their respective tax deductible
preferred securities. If, and for as long as, payments on those Deferrable
Interest Subordinated Debentures have been deferred, or PSEG or PSE&G,
respectively, has defaulted on the applicable indenture related thereto or its
guarantee thereof, neither PSEG nor PSE&G, respectively, may pay any dividends
on its common or preferred stock. For detail on the capital securities of PSEG
and PSE&G, see Note 6. Schedule of Consolidated Capital Stock and Other
Securities of Notes.
As shown on the Consolidated Statements of Cash Flows, net cash provided
by operating activities totaled $1.422 billion in 1998, up from $1.095 billion
in 1997. The major contributor in 1998 was net income of $644 million, which
included $669 million of non-cash deductions for depreciation and amortization.
Net cash provided by operating activities totaled $1.095 billion in 1997,
down from $1.470 billion in 1996. The major contributor in 1997 was net income
of $560 million, which included $630 million of non-cash deductions for
depreciation and amortization.
Net cash used in investing activities totaled $712 million in 1998, down
from $1.614 billion in 1997. The primary use of such cash in 1998 was for
utility plant additions, excluding Allowance for Funds Used During Construction
(AFDC), of
42
<PAGE>
$535 million at PSE&G. Additionally there was a net increase in long-term
investments of $58 million, including Resources' net increase in investments of
$136 million, partially offset by Global's net decrease in investments primarily
from the sale of investments in generation and co-generation companies of $47
million, and contributions made by PSE&G to the pension and nuclear
decommissioning trust funds of $115 million.
Net cash used in investing activities totaled $1.614 billion in 1997, up
from $9 million in 1996. The primary use of such cash in 1997 was a net increase
in long-term investments of $914 million, including Global's investments in
distribution and generation companies of $852 million, Resources' net increase
in investments of $97 million and utility plant additions, excluding Allowance
for Funds Used During Construction (AFDC), of $542 million at PSE&G.
Net cash used in financing activities was $653 million in 1998 as compared
to $323 million of cash provided by financing activities in 1997. Major uses of
such cash in 1998 were a decrease in short-term debt by PSE&G of $256 million,
Energy Holdings of $61 million and PSEG of $75 million, the payment of dividends
on Common Stock of $499 million and the purchase of Common Stock of $207
million. These uses were partially funded by cash provided by the issuance of
preferred securities by PSEG's Enterprise Capital Trust I, II and III of $525
million. PSE&G's long-term debt (primarily Mortgage Bonds) decreased $99 million
in 1998 while Energy Holdings' long-term debt decreased $208 million. PSEG's
long-term debt at the holding company level increased $275 million in 1998 due
to the issuance of Extendible Notes.
Net cash provided by financing activities was $323 million in 1997 as
compared to $1.244 billion of cash used in financing activities in 1996. Major
contributors in 1997 were an increase in short-term debt by PSE&G of $468
million, Energy Holdings of $267 million and PSEG of $75 million, primarily used
to fund certain scheduled long-term debt maturities, Global's investments and a
net increase in long-term debt of $85 million, partially offset by the payment
of dividends on Common Stock of $501 million. PSE&G's long-term debt decreased
$287 million in 1997 while Energy Holdings' long-term debt increased $372
million.
As of December 31, 1998, PSEG's capital structure consisted of 46.1%
common equity, 43.0% long-term debt and 10.9% preferred securities. The capital
structure as of December 31, 1997 consisted of 48.4% common equity, 45.3%
long-term debt and 6.3% preferred securities.
As a result of the 1992 focused audit of PSEG's non-utility businesses
(Focused Audit), the BPU approved a plan which, among other things, provides
that: (1) PSEG will not permit Energy Holdings' non-utility investments to
exceed 20% of PSEG's consolidated assets without prior notice to the BPU (such
investments at December 31, 1998 were approximately 17% of assets); (2) the
PSE&G Board of Directors will provide an annual certification that the business
and financing plans of Energy Holdings will not adversely affect PSE&G; (3) PSEG
will (a) limit debt supported by the minimum net worth maintenance agreement
between PSEG and PSEG Capital to $650 million and (b) make a good-faith effort
to eliminate such support over a six to ten year period from April 1993; and (4)
Energy Holdings will pay PSE&G an affiliation fee of up to $2 million a year to
be applied by PSE&G through its LGAC and its LEAC to reduce utility rates. PSEG
and Energy Holdings and its subsidiaries continue to reimburse PSE&G for the
costs of all services provided to them by employees of PSE&G.
As a result of PSEG's intent that Energy Holdings and its subsidiaries be
its long-term growth vehicles, financing requirements connected with the
continued growth of Energy Holdings, changes to the utility industry expected
from the final outcome of the Energy Master Plan Proceedings and potential
accounting impacts resulting from the deregulation of the generation of
electricity and the unbundling of the utility business, modifications will be
required to certain of the restrictions agreed to by PSEG with the BPU in
response to the Focused Audit. Inability to achieve satisfactory resolution of
these matters could impact the future relative size and financing of Energy
Holdings and accordingly, PSEG's future prospects, including financial
condition, results of operations and net cash flows. For discussion of the
Energy Master Plan Proceedings and potential impacts see Note 2. Regulatory
Issues and Note 3. Regulatory Assets and Liabilities of Notes.
43
<PAGE>
ENERGY HOLDINGS
As noted above, Global, Resources and Energy Technologies are expected to
provide long-term growth for Energy Holdings and PSEG. Resources' investments
are designed to produce immediate earnings and cash flows, which enable Global
and Energy Technologies to focus on longer-term growth. During the next five
years, Energy Holdings' capital requirements are expected to be provided from
additional debt financing and operating cash flows. A significant portion of
Global's growth is expected to occur internationally due to the current and
anticipated growth in electric capacity required in certain regions of the
world. Resources will continue its focus on investments related to energy
infrastructure. Energy Technologies is expected to expand upon the current
energy related services being provided to industrial and commercial customers.
Energy Holdings' cash provided by (used in) operating, investing and
financing activities was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Operating Activities:
Global.................................... $(26) $(9) $9
Resources................................. 23 130 164
Energy Technologies....................... (25) -- --
Other..................................... (5) (23) (16)
------------ ------------ ------------
Continuing Operations..................... (33) 98 157
EDC....................................... -- -- 78
------------ ------------ ------------
Total Operating Activities............ $(33) $98 $235
============ ============ ============
Investing Activities:
Global.................................... $47 $(852) $(8)
Resources................................. (136) (97) 2
Energy Technologies....................... (40) -- --
Other..................................... 30 (2) 12
------------ ------------ ------------
Continuing Operations..................... (99) (951) 6
EDC....................................... -- -- 653
------------ ------------ ------------
Total Investing Activities............ $(99) $(951) $659
============ ============ ============
Financing Activities:
Debt...................................... $(287) $638 $(380)
Preferred Equity (A)...................... 416 78 (369)
------------ ------------ ------------
Total Financing Activities............ $129 $716 $(749)
============ ============ ============
</TABLE>
(A) Preferred stock issued internally to PSEG by Energy Holdings.
For a discussion of the source of Energy Holdings' funds, see External
Financings. Over the next several years, Energy Holdings and its subsidiaries
will be required to refinance their maturing debt and provide additional debt
and equity financing for growth. Any inability to obtain required additional
external capital or to extend or replace maturing debt and/or existing
agreements at current levels and interest rates may affect PSEG's and Energy
Holdings' financial condition, results of operations and net cash flows. As of
December 31, 1998, 1997 and 1996, Energy Holdings' embedded cost of debt of its
finance subsidiaries was approximately 7.4%, 8.2% and 8.9%, respectively. Energy
Holdings' finance subsidiaries did not provide any additional long-term debt
financing during 1998.
In January, June and July 1998, PSEG invested $217 million, $147 million
and $145 million, respectively, in Energy Holdings which issued to PSEG like
amounts of its 5.01%, 4.80% and 4.875% Cumulative Preferred Stock and made
additional equity investments in Global and Resources. PSEG funded its
additional investment in Energy Holdings through the sale of tax deductible
preferred securities, issued by Enterprise Capital Trust I, II and III, special
purpose statutory business trusts controlled by PSEG, representing Guaranteed
Preferred Beneficial Interests in PSEG's Debentures.
44
<PAGE>
CAPITAL REQUIREMENTS
Capital resources and capital requirements will be affected by the outcome
of the Energy Master Plan Proceedings. For a discussion of the potential impact
of the Energy Master Plan Proceedings on PSE&G's future prospects, including
financial condition, results of operations and net cash flows, see Note 2.
Regulatory Issues and Note 3. Regulatory Assets and Liabilities of Notes.
PSE&G
PSE&G had utility plant additions of $547 million, $557 million and $603
million for 1998, 1997 and 1996, respectively, including AFDC of $12 million,
$15 million and $17 million, respectively. Construction expenditures were
related to improvements in PSE&G's existing power plants (including the
replacement of Salem 1 steam generators in 1997 and acquisition of nuclear
fuel), transmission and distribution system, gas system and common facilities.
PSE&G also expended $10 million, $28 million and $34 million for the cost of
plant removal (net of salvage) in 1998, 1997 and 1996, respectively.
Construction expenditures from 1999 through 2003 are expected to aggregate $2.8
billion, excluding AFDC. Forecasted construction expenditures are related to
improvements in PSE&G's transmission and distribution system, existing power
plants (including acquisition of nuclear fuel), gas system and common
facilities. Decision with regard to these improvements will depend, in part,
upon the outcome of the Energy Master Plan Proceedings.
Dependent upon the outcome of the Energy Master Plan Proceedings, PSE&G
expects that it will be able to internally generate the majority of its
construction and capital requirements over the next five years, assuming
adequate and timely recovery of costs, as to which no assurances can be given,
with the balance to be provided by issuance of debt to replace maturities. For
discussion of the Energy Master Plan Proceedings and their potential impacts and
potential contingent liabilities, see Note 2. Regulatory Issues and Note 10.
Commitments and Contingent Liabilities of Notes.
ENERGY HOLDINGS
GLOBAL
In May 1998, Global sold its 50% interests in two domestic cogeneration
plants, resulting in proceeds to Energy Holdings of approximately $70 million.
In July 1998, Global sold its 5% interest in a domestic cogeneration plant and
in August 1998, sold its 50% interest in a natural gas-fired generating station
in Colombia for aggregate proceeds of approximately $70 million. The aggregate
proceeds of all 1998 sales of $140 million approximated book value.
In November 1998, Global acquired a 30% interest in an Argentine electric
distribution company serving a population of 750,000 in the northeast corner of
the Province of Buenos Aires at a cost of approximately $60 million. In December
1998, Global acquired a 20% equity share of a 330 megawatt power plant to be
constructed in India, for which Global will be the operations and maintenance
contractor.
RESOURCES
In the first quarter of 1998, Resources received proceeds of $120 million
from investment liquidations resulting from the exercise of an early buyout
option by the lessee in a leveraged lease and from sales of investments held in
leveraged buyout and venture capital partnerships.
In March 1998, Resources entered into a leveraged lease of a natural gas
distribution network in the Netherlands and, in April 1998, acquired a lease of
a domestic gas-fired steam electric generating station. The aggregate amount of
these investments was approximately $132 million. In July 1998, Resources
purchased a 33.3% interest in a leveraged lease of a natural gas-fired
generating station in the United Kingdom for approximately $40 million and in
September 1998, purchased a 100% interest in a leveraged lease of several gas
distribution networks in the Netherlands for approximately $45 million. In
December 1998, Resources closed on an additional investment in a gas
distribution network leveraged lease in the Netherlands for approximately $34
million.
ENERGY TECHNOLOGIES
Energy Technologies continued to implement its growth strategy in the
regional energy service arena through its acquisition of two mechanical service
contractors and by participating in the deregulating energy markets in the
Northeast.
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EGDC
In June 1998, EGDC continued its controlled exit from the real estate
business and sold its 75% interest in one of its properties for approximately $5
million, which approximated book value.
CONSTRUCTION AND CAPITAL REQUIREMENTS FORECAST
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 TOTAL
--------- --------- --------- -------- ---------- ---------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Construction and Investment Requirements
(Estimate):
PSE&G.......................................... $572 $591 $576 $558 $544 $2,841
Energy Holdings................................ 359 263 233 152 260 1,267
--------- --------- --------- -------- ---------- ---------
Total Construction and Investment Requirements. 931 854 809 710 804 4,108
--------- --------- --------- -------- ---------- ---------
Mandatory Retirement of Debt:
PSEG........................................... -- 275 -- -- -- 275
PSE&G.......................................... 100 635 100 300 300 1,435
Energy Holdings................................ 318 109 166 160 -- 753
--------- --------- --------- -------- ---------- ---------
Total Retirement of Debt....................... 418 1,019 266 460 300 2,463
--------- --------- --------- -------- ---------- ---------
Total Capital Requirements.................. $1,349 $1,873 $1,075 $1,170 $1,104 $6,571
========= ========= ========= ======== ========== =========
</TABLE>
The projected effect of securitization, as included in PSE&G's Energy
Master Plan proposal, is not included in the above forecast. For discussion of
securitization and the Energy Master Plan Proceedings, see Note 2. Regulatory
Issues of Notes.
EXTERNAL FINANCINGS
The changes in the utility industry are attracting increased attention of
bond rating agencies which regularly assess business and financial matters
including how utility companies are meeting competition and competitive
initiatives, especially as they affect potential stranded costs. Bond ratings
affect the cost of capital and the ability to obtain external financing. PSE&G
continually updates the rating agencies on all corporate matters in order to
minimize surprises and give the rating agencies time to comprehend the
information. Given the changes in the industry and the potential use of
securitization, attention and scrutiny of PSE&G's competitive strategies by
rating agencies will likely continue. These changes could result in changes to
PSEG's and PSE&G's bond ratings and significantly alter the capital structures
of both PSEG and PSE&G.
In addition, the impact of the use of securitization proceeds, capital
structure changes and other actions which might be taken by PSEG and PSE&G in
connection with energy industry restructuring is likely to affect the market
prices of their respective securities. For discussion of the use of proceeds of
securitization see Note 2. Regulatory Issues of Notes.
PSEG
At December 31, 1998, PSEG had a committed $150 million revolving credit
facility which expires in December 2002. At December 31, 1998, PSEG had no debt
outstanding under this revolving credit facility. At December 31, 1998 and 1997,
PSEG had a $25 million and a $75 million uncommitted line of credit,
respectively, with a bank. At December 31, 1998, PSEG had no debt outstanding
under this line of credit.
In January 1998, Enterprise Capital Trust I, a special purpose statutory
business trust controlled by PSEG, issued $225 million of 7.44% Trust Originated
Preferred Securities (Guaranteed Preferred Beneficial Interest in PSEG's
Debentures). In June 1998, Enterprise Capital Trust II, a special purpose
statutory business trust controlled by PSEG, issued $150 million of Floating
Rate Capital Securities, Series B at three-month London Interbank Offered Rate
(LIBOR) plus 1.22% reset quarterly. At the time of issuance, PSEG's floating
rate obligation under its debentures was swapped for a fixed rate payment
resulting in an effective rate of 7.2%. For more detail, see Note 8. Financial
Instruments and Risk Management of Notes. In July 1998, Enterprise Capital Trust
III, a special purpose statutory business trust controlled by PSEG, issued $150
million of its 7.25% Trust Originated Preferred Securities, Series C. Proceeds
of these issues were loaned to PSEG and are evidenced by its deferrable interest
subordinated debentures. PSEG used the proceeds of these issues to make $509
million
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preferred equity investments in Energy Holdings. The debentures and their
related indentures constitute a full and unconditional guarantee by PSEG of the
preferred securities issued by the trusts. If, and for as long as, payments on
PSEG's debentures have been deferred, or PSEG has defaulted on the indentures
related thereto or its guarantee thereof, PSEG may not pay any dividends on its
Common Stock. For a discussion of dividends, see Liquidity and Capital Resources
- -- PSEG.
In November 1998, PSEG issued $275 million of Extendible Notes in two
series, $100 million principal amount of Series A with interest at LIBOR plus
0.75%, reset quarterly, and automatically tendered to the remarketing agent for
remarketing on May 24, 1999 and $175 million principal amount of Series B with
interest at LIBOR plus 0.78%, reset quarterly, and automatically tendered to the
remarketing agent for remarketing on November 22, 1999. PSEG used the net
proceeds of these issuances to repurchase shares of its Common Stock and to
reimburse its treasury for expenditures made for that purpose.
As previously disclosed, PSEG and PSE&G have issued a total of
approximately $525 million and $513 million, respectively, of deferrable
interest subordinated debentures which are treated as debt to the issuer for
Federal income tax purposes and as preferred equity for financial accounting and
rating agency purposes. In a case not involving PSEG or PSE&G, the Internal
Revenue Service (IRS) had proposed to disallow interest deductions claimed by
Enron Corp. (Enron) on two issues of similar long-term subordinated debentures
and brought that issue to litigation. Although in December 1998, the IRS
conceded this issue in the Enron litigation, there can be no assurance as to
whether the IRS nevertheless will not seek to disallow the deductions that PSEG
and PSE&G have taken and will claim for interest paid on such debentures. The
annualized interest expense for these debentures for PSEG and PSE&G together is
approximately $83 million. In total for 1994 through 1997, PSEG and PSE&G
claimed approximately $89 million in interest deductions for these debentures,
which equates to approximately $31 million in tax benefits. If challenged by the
IRS, PSEG and PSE&G would expect to vigorously defend the deductibility of the
interest payments taken as deductions on previously filed Federal tax returns.
In the event of the occurrence of a Tax Event as defined in the respective
debenture indentures, such as the receipt of an opinion of counsel that there is
a more than insubstantial risk that interest payable on the debentures will not
be tax deductible, PSEG and PSE&G have the right to redeem the preferred
securities and issue the debentures to the preferred securities holders or to
refinance such obligations as allowed in the respective debenture indentures.
PSE&G
PSE&G has filed with the BPU for approval, which it expects to obtain, to
opportunistically refinance essentially all of its long-term debt through
January 4, 2000. 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 calculated in
accordance with its Mortgage is at least 2:1. As of December 31, 1998, the
Mortgage would permit up to $3.6 billion aggregate principal amount of new Bonds
to be issued against previous additions and improvements. At December 31, 1998,
PSE&G's Mortgage coverage ratio was 3.98:1. PSE&G expects to apply for and
receive necessary BPU authorization for external financings to meet its
requirements over the next five years, as needed.
In January 1998, $100 million of PSE&G's 6.00% Bonds, Series NN, matured.
In April 1998, $8 million of PSE&G's 7.50% Bonds, Series OO, were
purchased in the open market. On August 3, 1998, the remaining outstanding $234
million of the 7.50% Series OO Bonds were redeemed.
In May 1998, PSE&G sold $250 million of its Bonds, Remarketable Series YY,
due 2023, Mandatorily Tendered 2008. The Series YY Bonds bear interest at the
rate of 6.375% per annum until May 1, 2008. PSE&G also entered into a
Remarketing Agreement with a third party that granted the third party the option
to call and remarket the Series YY Bonds on May 1, 2008 for the remaining term
of the Series YY Bonds. If not called by the third party, the Bonds must be put
by the holders to PSE&G. The proceeds of the sale were used primarily to redeem
PSE&G's 7.50% Series OO Bonds.
On July 1, 1998, $18 million of PSE&G's 6% Debenture Bonds matured.
To provide liquidity for its commercial paper program, PSE&G has a $650
million revolving credit agreement expiring in June 1999, which PSE&G expects to
be able to renew, and a $650 million revolving credit agreement expiring
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<PAGE>
in June 2002 with a group of commercial banks, which provide for borrowings of
up to one year. On December 31, 1998, there were no borrowings outstanding under
these credit agreements.
The BPU has authorized PSE&G to issue and have outstanding at any one time
through January 4, 2000, not more than $1.5 billion of short-term obligations,
consisting of commercial paper and other unsecured borrowings from banks and
other lenders. On December 31, 1998, PSE&G had $770 million of short-term debt
outstanding, including $115 million borrowed against its uncommitted bank lines
of credit which lines of credit totaled $150 million as of December 31, 1998.
PSE&G Fuel Corporation (Fuelco) has a $125 million commercial paper
program to finance a 42.49% share of Peach Bottom nuclear fuel, supported by a
$125 million revolving credit facility with a group of banks, which expires on
June 28, 2001. PSE&G has guaranteed repayment of Fuelco's respective obligations
under this program. As of December 31, 1998, Fuelco had commercial paper of $80
million outstanding.
ENERGY HOLDINGS
The minimum net worth maintenance agreement between PSEG Capital and PSEG
provides, among other things, that PSEG (1) maintain its ownership, directly or
indirectly, of all outstanding common stock of PSEG Capital, (2) cause PSEG
Capital to have at all times a positive tangible net worth of at least $100,000
and (3) make sufficient contributions of liquid assets to PSEG Capital in order
to permit it to pay its debt obligations. In 1993, PSEG agreed with the BPU to
make a good-faith effort to eliminate such PSEG support within six to ten years.
Effective January 31, 1995, PSEG Capital notified the BPU of its intention not
to have more than $650 million of debt outstanding at any time. PSEG Capital has
a $650 million Medium Term Note (MTN) program which provides for the
private-placement of MTNs without registration. PSEG Capital's assets consist
principally of demand notes of Global and Resources. Intercompany borrowing
rates are established based upon PSEG Capital's cost of funds. At December 31,
1998, PSEG Capital had total debt outstanding of $498 million, all of which were
comprised of MTNs. On February 16, 1999, PSEG Capital issued $252 million of
6.25% MTNs due May 2003. The proceeds were used to repay $100 million of PSEG
Capital MTNs which matured February 16, 1999 and to reduce Energy Holdings'
short-term debt. At February 16, 1999, total debt outstanding under the MTN
program was $650 million.
As of December 31, 1998, Funding had $150 million and $300 million
revolving credit facilities with two groups of banks which expire in July and
November 1999, respectively. Funding expects to be able to renew both credit
facilities. Funding makes short-term investments only if the funds cannot be
employed in intercompany loans. Intercompany borrowing rates are established
based upon Funding's cost of funds. Funding is providing both long and
short-term capital for Resources and Global and their subsidiaries on the basis
of an unconditional guaranty from Energy Holdings, but without direct support
from PSEG. As of December 31, 1998, Funding had $251 million of total debt
outstanding, including $45 million of privately-placed Senior Notes which mature
in March 1999.
For a discussion of the non-recourse debt of Global, a wholly-owned
subsidiary of Energy Holdings, see Note 7. Schedule of Consolidated Debt of
Notes.
Energy Holdings, Global and Resources are subject to restrictive business
and financial covenants contained in existing debt agreements. Energy Holdings
is required to maintain a debt to equity ratio of no more than 2.00:1 and a
twelve-months earnings before interest and taxes to interest (EBIT) coverage
ratio of at least 1.50:1. As of December 31, 1998 and 1997, Energy Holdings had
consolidated debt to equity ratios of 0.89:1 and 1.80:1, respectively, and for
the years ended December 31, 1998, 1997 and 1996, EBIT coverage ratios, as
defined to exclude the effects of EGDC and the gain on the sale of EDC, of
2.10:1, 2.20:1 and 2.45:1, respectively. The 1998 debt to equity ratio decreased
primarily due to the equity investment by PSEG of $509 million, evidenced by the
like amount of preferred stock issued by Energy Holdings to PSEG. Compliance
with applicable financial covenants will depend upon future financial position
and levels of earnings, as to which no assurance can be given. In addition,
Energy Holdings' ability to continue to grow its business will depend to a
significant degree on PSEG's and Energy Holdings' ability to obtain additional
financing beyond current levels.
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<PAGE>
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk inherent in PSEG's market risk sensitive instruments and
positions is the potential loss arising from adverse changes in commodity
prices, equity security prices, interest rates and foreign currency exchange
rates as discussed below. PSEG's policy is to use derivatives to manage risk
consistent with its business plans and prudent practices. PSEG has a Risk
Management Committee made up of executive officers and an independent risk
oversight function to ensure compliance with corporate policies and prudent risk
management practices.
PSEG is exposed to credit losses in the event of non-performance or
non-payment by counterparties. PSEG also has a credit management process which
is used to assess, monitor and mitigate counterparty exposure for PSE&G and
Energy Holdings. In the event of nonperformance or nonpayment by a major
counterparty, there may be a material adverse impact on PSEG's and PSE&G's
financial condition, results of operations and net cash flows.
COMMODITIES--PSE&G
The availability and price of energy commodities are subject to
fluctuations from factors such as weather, environmental policies, changes in
supply and demand, state and Federal regulatory policies and other events. To
reduce price risk caused by market fluctuations, PSE&G enters into derivative
contracts, including forwards, futures, swaps and options with approved
counterparties, to hedge its anticipated demand. These contracts, in conjunction
with owned electric generating capacity and physical gas supply contracts, are
designed to cover estimated electric and gas customer commitments.
PSE&G currently has levelized energy adjustment clauses in its rate
structure in place for both electricity (LEAC) and natural gas (LGAC). These
clauses were established to minimize the impact of major commodity price swings
on customer prices. They also reduce the risk to PSE&G by permitting PSE&G to
defer price increases and decreases until regulatory treatment can be
determined. In accordance with the December 31st Order, PSE&G is utilizing
deferred accounting for electricity supply costs, however, overrecoveries during
the LEAC period will be used to mitigate stranded costs to be determined in the
Energy Master Plan Proceedings while underrecoveries will be recognized in
results of operations. PSE&G's proposal in the BPU's restructuring proceedings
would cap basic tariff rates for seven years and discontinue the LEAC upon
commencement of customer choice. For discussion of the levelized energy
adjustment clauses, see Note 2. Regulatory Issues of Notes.
During the summer of 1998, the eastern electricity commodity markets
experienced severe volatility resulting from extremely hot weather and electric
capacity and energy shortages in the Midwest. Certain electric power marketers
defaulted, ultimately resulting in their bankruptcy. FERC issued a report on
September 22, 1998 addressing the causes of these severe price movements in the
summer of 1998. The report focused on the activity in the Midwest where the most
extreme movements resulted causing surrounding pools to experience higher than
expected prices and volatilities The report concluded that "the particular
combination of factors that led to the June event was quite unusual." The report
stated further, "This combination of factors was not typical, is not likely to
recur, and is not representative of how wholesale electricity markets usually
work. However, price increases and decreases may be expected in the future
depending upon the balance of demand and supply." PSE&G cannot predict whether
similar events that may lead to extreme price movements will occur again. Given
the impending regulatory change and the dissolution of the LEAC, the absence of
a PJM price cap in situations involving emergency purchases, and the potential
for plant outages, extreme price movements could have a material impact on
PSE&G's financial condition, results of operations and net cash flows.
PSE&G uses a value-at-risk model to assess the market risk of its
commodity business. This model includes fixed price sales commitments, owned
generation, native load requirements, physical contracts and financial
derivative instruments. Value-at-risk represents the potential gains or losses
for instruments or portfolios due to changes in market factors, for a specified
time period and confidence level. PSE&G estimates value-at-risk across its
commodity business using a model with historical volatilities and correlations.
The measured value-at-risk using a variance/co-variance model with a 97.5%
confidence level and assuming a one week horizon at December 31, 1998 was
approximately $4 million, compared to the December 31, 1997 level of $7 million,
due to a reduction in net exposure during volatile months. PSE&G's calculated
value-at-risk exposure represents an estimate of potential net losses that could
be recognized on its portfolio of physical and financial derivative instruments
assuming historical movements in future market rates. These estimates, however,
are not necessarily indicative of actual results which may occur, since actual
future gains and losses will differ from those historical estimates based upon
actual fluctuations in market rates, operating exposures, and the timing
thereof, and changes in PSE&G's portfolio of hedging instruments during the
year.
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As discussed in Results of Operations, wholesale power activities at PSE&G
positively impacted the results of operations for 1998. Certain other utilities
and power marketers have experienced significant losses in their wholesale power
operations during that period. These losses were primarily attributable to
extreme market volatility, counterparty defaults and unavailability of
generation.
COMMODITIES--ENERGY HOLDINGS
During 1998, Energy Technologies entered into futures contracts to buy
natural gas related to fixed-price natural gas sales commitments. Such contracts
hedged approximately 90% of its fixed price sales commitments at December 31,
1998. As of December 31, 1998, Energy Technologies had a net unrealized hedge
loss of $5 million.
NUCLEAR DECOMMISSIONING TRUST FUNDS--PSE&G
Contributions made into the Nuclear Decommissioning Trust Funds are
invested in debt and equity securities. These marketable debt and equity
securities are recorded at $524 million with a fair market value of $542 million
at December 31, 1998 and have exposure to price risk. The potential change in
fair value resulting from a hypothetical 10% change in quoted market prices of
these securities amounts to $54 million. All realized gains on Nuclear
Decommissioning Trust Fund investments are recorded as a component of
accumulated depreciation while unrealized gains are recorded as deferred credits
and neither affects earnings. Under the Energy Master Plan Proceedings, it is
expected that the recovery of these investments will be continued as part of the
societal benefits charge, as to which no assurances can be given.
EQUITY SECURITIES--ENERGY HOLDINGS
Resources has investments in equity securities and partnerships, in which
Resources is a limited partner, which invest in equity securities. Resources
carries its investments in equity securities at their approximate fair value as
of the reporting date. Consequently, the carrying value of these investments is
affected by changes in the fair value of the underlying securities. Fair value
is determined by adjusting the market value of the securities for liquidation
and market volatility factors, where appropriate. The aggregate amount of such
investments which have available market prices at December 31, 1998 and 1997 are
recorded at fair value of $204 million and $185 million, respectively, and have
exposure to price risk. A sensitivity analysis has been prepared to estimate
Energy Holdings' exposure to market sensitivity of these investments. The
potential change in fair value resulting from a hypothetical 10% change in
quoted market prices of these investments amounts to $17 million.
INTEREST RATES--PSEG
PSEG is subject to the risk of fluctuating interest rates in the normal
course of business. PSEG's policy is to manage interest rates through the use of
interest rate swaps and fixed and floating rate debt. As of December 31, 1998, a
hypothetical 10% change in market interest rates would result in a $2 million
change in interest costs related to floating rate debt, in addition to that
noted in Interest Rates--PSE&G and Interest Rates--Energy Holdings below.
PSEG entered into an interest rate swap on June 26, 1998 to hedge
Enterprise Capital Trust II's $150 million of Floating Rate Capital Securities,
Series B, due 2028, which were sold to a group of institutional investors in
June 1998. The Floating Rate Capital Securities were offered to institutional
investors at an annual rate equal to three-month LIBOR plus 1.22%, reset
quarterly. Enterprise Capital Trust II is a special purpose statutory business
trust controlled by PSEG. The basis for both the interest rate swap and the
Floating Rate Capital Securities is the quarterly LIBOR. This interest rate swap
effectively hedges the underlying debt for 10 years at an effective rate of
7.2%.
INTEREST RATES--PSE&G
PSE&G is subject to the risk of fluctuating interest rates in the normal
course of business. PSE&G's policy is to manage interest rates through the use
of fixed and, to a lesser extent, floating rate debt. PSE&G's interest rate risk
related to existing fixed, long-term debt is not significant as PSE&G expects to
receive BPU approval to issue long-term debt for opportunistic refinancing
purposes. Additionally, PSE&G would also use interest rate swap instruments to
hedge interest
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rate risk, when appropriate. As of December 31, 1998, a hypothetical 10% change
in market interest rates would result in a $6 million change in interest costs
related to short-term and floating rate debt.
INTEREST RATES--ENERGY HOLDINGS
Energy Holdings is subject to the risk of fluctuating interest rates in
the normal course of business. Energy Holdings' policy is to manage interest
rates through the use of fixed rate debt, floating rate debt and interest rate
swaps. As of December 31, 1998, a hypothetical 10% change in market interest
rates would result in a $3 million change in interest costs related to
short-term and floating rate debt.
In June 1997, an indirect subsidiary of Global entered into an interest
rate swap on 50% of its floating rate borrowings of $87 million. The basis for
the interest rate swap is six month LIBOR. The interest rate swap effectively
hedges the underlying debt through its scheduled maturity in May 1999 at the
current effective rate of 7.76%. The interest differential to be received or
paid under the interest rate swap agreement is recorded over the life of the
agreement as an adjustment to the interest expense of the related borrowing. The
swap terminates on May 28, 1999.
FOREIGN CURRENCIES--ENERGY HOLDINGS
Global had consolidated non-recourse debt of $123 million as of December
31, 1998 which is denominated in the Brazilian Real that is indexed to a basket
of currencies including U.S. dollars. As a result, it is subject to foreign
currency exchange rate risk due to the effect of exchange rate movements between
the indexed foreign currencies and the Brazilian Real and between the Brazilian
Real and the U.S. Dollar. Exchange rate changes ultimately impact the debt level
outstanding in the denominated currency and result in foreign currency
transactions in accordance with current accounting guidance. Any related
transaction (losses)/gains resulting from such exchange rate changes are
included in determining net income for the period and amounted to $(3) million
and $1 million for the years ended December 31, 1998 and 1997, respectively. For
more information on foreign operations and the devaluation of foreign
currencies, see below and Note 20. Subsequent Events of Notes.
FOREIGN OPERATIONS
In accordance with their growth strategies, Global and Resources have made
approximately $919 million and $691 million, respectively, of international
investments. These investments represent 9% of PSEG's consolidated assets and
contribute 2% of consolidated revenues. Resources investments are primarily in
leveraged leases in the Netherlands and the United Kingdom with associated
revenues denominated in U.S. dollars, and, therefore bear no foreign currency
risk. Global's investments are primarily in projects that generate or distribute
electricity in Brazil, Argentina and China. As a primary vehicle for PSEG's
growth, Global is expected to continue to invest in competitive power markets.
Where possible, Global structures its investments to manage the risk associated
with project development, including foreign currency devaluation and
fluctuations. PSEG has evaluated the current economic conditions in these
regions and has determined that its investments have not been impaired. Net
foreign currency devaluations, caused primarily by the Brazilian Real, have
reduced Global's total assets by $43 million as of December 31, 1998 with an
offsetting charge to cumulative foreign currency translation adjustment (a
separate component of stockholders' equity).
In January 1999, Brazil abandoned its managed devaluation strategy and
allowed its currency, the Real, to float against other currencies. As of January
31, 1999, the Real has devalued approximately 40% against the U.S. dollar since
December 31, 1998. Based on the December 31, 1998 Brazilian investment balance
of $482 million, there was a 40% devaluation as of January 31, 1999 which
resulted in a charge of $172 million to cumulative foreign currency translation
adjustment (a separate component of stockholders' equity). PSEG cannot predict
to what extent, if any, further devaluation may occur, and, therefore, cannot
predict the impact of potential devaluation of currencies on PSEG's results of
operations, financial condition and net cash flows. However, assuming no further
significant devaluation, PSEG does not expect this to have a material adverse
effect on its 1999 results of operations, financial condition or net cash flows.
For additional information, see Note 20. Subsequent Events and Note 15.
Financial Information by Business Segment of Notes. As PSEG increases its
international investments, the financial statements of PSEG will be increasingly
affected by changes in the global economy.
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YEAR 2000 READINESS DISCLOSURE
Many of PSEG's and PSE&G's systems, which include information technology
applications, plant control and telecommunications infrastructure systems, must
be modified due to computer program limitations in recognizing dates beyond
1999. PSEG and PSE&G have had a formal project in place since 1997 to address
Year 2000 issues. Based upon project progress to date, all mission critical
systems are expected to be ready by January 1, 2000. Future progress is
dependent on a wide number of variables, including the continued availability of
trained resources and vendors meeting commitments to PSEG and PSE&G.
YEAR 2000 READINESS STATUS
PSEG and PSE&G have established a three-phase program to achieve Year 2000
readiness. The initial phase (Inventory) identifies systems having potential
Year 2000 issues and sets priorities for assessing and remediating those
systems. The second phase (Assessment) determines whether systems are
digital/date sensitive and the extent of date related issues. The third phase
(Remediation/Testing) repairs programming code, upgrades or replaces systems and
validates that code repairs were implemented as intended.
PSEG's and PSE&G's Year 2000 readiness program addresses issues relating
to three principal types of systems:
o Information technology systems, which include such business
applications as the customer information, administrative and "back
office" systems.
o Process control and monitoring systems, which include embedded
devices as well as real time systems such as energy management
systems (EMS) and the supervisory control systems for gas and
electric (SCADA).
o Infrastructure systems, which include such devices as servers,
routers, etc.
Inventory is more than 99% complete for all information technology,
infrastructure and process control/monitoring systems. Substantial Assessment
work has been completed on the information technology, infrastructure systems
and process control systems. Remediation/Testing is in progress on information
technology, process control and infrastructure systems.
PSEG and PSE&G have completed required Year 2000 readiness work for more
than 80% of their critical systems by the end of 1998. The work required by the
remaining critical systems is expected to be completed by July 1999, except for
certain systems operated by PSE&G's nuclear operations, as discussed below. By
the end of 1999, a majority of PSEG's and PSE&G's non-critical systems are also
expected to be Year 2000 ready with the remainder of such non-critical systems
to be ready in 2000. Energy Holdings and its subsidiaries have essentially
completed Inventory on all systems impacted by Year 2000 readiness issues and
substantial Assessment work has been completed on such systems.
Remediation/Testing is expected to be completed in 1999 on all such systems.
As previously reported, on May 11, 1998, the NRC issued a Generic Letter
requiring submission of a written response within 90 days of that date
indicating whether or not nuclear plant operators have pursued and continue to
pursue Year 2000 programs and addressing the programs' scope, assessment
process, plans for corrective actions, quality assurance measures, contingency
plans and regulatory compliance. Additionally, the Generic Letter required
submission of a written response upon completion of the operators' Year 2000
program or no later than July 1, 1999 confirming that their facilities are Year
2000 ready, or will be Year 2000 ready, by 2000 with regard to compliance with
the terms and conditions of their licenses and NRC regulations. On July 23,
1998, PSE&G provided its written response to the first requirement noted above,
outlining for the NRC its nuclear operations' Year 2000 program and indicating
that planned implementation will allow PSE&G's nuclear operations to be Year
2000 ready and in compliance with the terms and conditions of its licenses and
NRC regulation by January 1, 2000. As of December 31, 1998, PSE&G's nuclear
operations' Year 2000 effort is on schedule to have all mission critical systems
ready by January 1, 2000. Additionally, at a meeting held on September 29, 1998,
PECO informed PSE&G that Peach Bottom's Year 2000 effort is on schedule to meet
the July 1999 NRC response schedule. During the week of October 26, 1998, the
NRC conducted an audit of the nuclear operations' Hope Creek Year 2000 Project.
The audit report states that the nuclear operations' Year 2000 project plan is
comprehensive and is receiving the appropriate management support and oversight.
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PSEG and PSE&G are continuing to work with their supplier base to assess
the Year 2000 readiness status of vendors who provide critical materials and
services (key vendors). Sufficient information has not yet been received from
all key vendors to confirm their preparedness for Year 2000. PSEG and PSE&G are
aggressively pursuing the key vendors who have been unresponsive. However, PSEG
and PSE&G are not yet able to determine whether all of their key vendors will be
able to meet Year 2000 requirements. Failure of key vendors to meet these
requirements could result in material adverse impacts to PSEG's and PSE&G's
operations, financial condition, results of operations and net cash flows.
YEAR 2000 COSTS
For a discussion of Year 2000 Costs, see Note 10. Commitments and
Contingent Liabilities of Notes.
YEAR 2000 RISKS
The North American Electric Reliability Council (NERC) has been asked by
the Department of Energy (DOE) to lead national efforts for electric utility
industry Year 2000 readiness. In its report issued in September 1998, NERC
evaluated potential risks for the industry from both an impact and probability
basis. PSEG's and PSE&G's internal analyses of the risks posed by the Year 2000
are consistent with the risk assessment prepared by NERC. PSEG and PSE&G expect
that the Year 2000 project (specifically remediation and contingency planning
efforts) will mitigate these risks and allow PSEG and PSE&G to meet their
fiduciary, regulatory and safety commitments.
The following risks defined by NERC were assumed only for the purpose of
planning and preparing for operations. None of the risks identified in this plan
are predictions of Year 2000 events:
<TABLE>
<CAPTION>
====================================================================================================
NERC NERC
PROBABILITY IMPACT
NERC DEFINED SCENARIO FOR INDUSTRY FOR INDUSTRY
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Loss of generation High High
- ----------------------------------------------------------------------------------------------------
Loss of EMS, SCADA Systems High High
- ----------------------------------------------------------------------------------------------------
Loss of leased communications lines High High
- ----------------------------------------------------------------------------------------------------
Generation Restart/Loss of Load/Unusual load High Low
- ----------------------------------------------------------------------------------------------------
Environmental control or monitoring Medium Medium
- ----------------------------------------------------------------------------------------------------
Loss of internal communications Medium Medium
- ----------------------------------------------------------------------------------------------------
Loss of gas or oil supply Medium High
- ----------------------------------------------------------------------------------------------------
Sabotage Medium High
- ----------------------------------------------------------------------------------------------------
Distribution system failure/DC Tie Failure/Under-frequency or Low High
under-frequency voltage load shed failure/Loss of system
protection/Loss of transmission/Loss of security coordinator
functions
- ----------------------------------------------------------------------------------------------------
Voltage control device failure Low High
- ----------------------------------------------------------------------------------------------------
Loss of control center access Low Medium
- ----------------------------------------------------------------------------------------------------
Loss of coal Low Medium
- ----------------------------------------------------------------------------------------------------
Operating Personnel/Generation and Transmission Information Low Low
Sharing System (OASIS) Failure/Loss of non-critical operating
data/DSM failure/Supplies
====================================================================================================
</TABLE>
PSEG's and PSE&G's efforts have focused on reducing the "High" and
"Medium" probability scenarios and mitigating the effects of "High" and "Medium"
impacts.
PSEG and PSE&G have identified some and will continue working to determine
the most reasonably likely, worst case scenarios arising from Year 2000
readiness issues. Such scenarios may include, among others, significant
reductions in key customers' power needs due to their own Year 2000 readiness
issues or temporary disruption of service from the effect of disruptions caused
by other entities whose electrical systems are connected to PSE&G's through PJM.
The results of such analysis will depend, in part, on the results of information
currently being obtained from key vendors as to their Year 2000 readiness and
the readiness of PJM and trading partners, among others.
53
<PAGE>
PSEG and PSE&G have no outstanding litigation relating to Year 2000
issues. The likelihood of future Year 2000 related liabilities cannot be
determined at this time. PSEG and PSE&G have not been subject to specific or
general Year 2000 regulatory action, other than responding to inquiries from
regulatory bodies such as the BPU and the NRC.
CONTINGENCY PLANS
PSEG and PSE&G are developing contingency plans in accordance with NERC
and NRC guidelines. The cornerstone of the guidance is to use a "defense in
depth" strategy by creating multiple defense barriers to reduce the risk of
catastrophic results to extremely small probability levels. Other areas covered
by NERC and PSEG's and PSE&G's responses include:
================================================================================
GUIDANCE PSEG'S AND PSE&G'S CONTINGENCY PLAN
- --------------------------------------------------------------------------------
Identify and fix known Year 2000 PSEG and PSE&G have focused their
problems. resources on the remediation of
non-compliant systems.
- --------------------------------------------------------------------------------
Identify most probable and credible PSEG and PSE&G are currently
worst case scenarios. evaluating.
- --------------------------------------------------------------------------------
Plan for the probable, prepare for the PSEG and PSE&G will develop special
worst. Develop special operating procedures and will conduct both
procedures, conduct training and system internal drills and participate in
wide drills. industry efforts.
- --------------------------------------------------------------------------------
Operate systems in a precautionary PSEG & PSE&G are working with the
posture during critical Year 2000 Mid-Atlantic Area Council (MAAC) and
periods. This may include reducing with PJM for detailed planning.
voluntary bulk transfers, ensuring that
adequate generation facilities are in
service and increasing staffing.
================================================================================
The nature of contingency plans will include 1) using existing redundant
assets, such as PSE&G's mix of generating assets; 2) leveraging existing
business continuity plans, such as storm preparedness plans; 3) using manual
work-arounds; 4) using rapid-reaction teams and 5) development of risk
mitigation approaches to reduce overall dependency on vendors. PSEG and PSE&G's
emerging strategy calls for the deployment of these plans in the following
manner (using risk scenarios shown above that NERC evaluated to have a high
probability and a high impact):
================================================================================
SCENARIO INITIAL PLAN
- --------------------------------------------------------------------------------
Loss of generation Use existing redundant assets. Have
available a varied mix of generating
assets, with sufficient reserve
capacity, to ensure that if certain
stations are unable to function, the
reserve can meet generating needs.
- --------------------------------------------------------------------------------
Loss of EMS, SCADA Systems Use manual work-arounds and rapid
reaction teams.
- --------------------------------------------------------------------------------
Loss of leased communications lines Use existing redundant assets such as
existing radio and back-up
communications systems.
================================================================================
PSEG and PSE&G have adopted NERC's timetable, guidelines and detailed
requirements for developing these contingency plans. The planning process is an
iterative one. PSEG and PSE&G have completed their preliminary contingency
plans. The second version of their contingency plans will be completed by June
30, 1999, consistent with NERC's timetable. PSEG and PSE&G will participate,
with internal drills to be completed beforehand, in NERC's industry-coordinated
Year 2000 readiness drills on April 8-9, 1999 and September 8-9, 1999. PSEG and
PSE&G will evaluate plan updates, as needed, from September 1999 through January
2000.
PSEG and PSE&G expect that with completion of the Year 2000 project and
implementation of programs from SAP America, Inc. (SAP), the possibility of
significant interruptions of normal operations should be reduced. However, if
PSEG, PSE&G, their domestic and international subsidiaries, the other members of
PJM, PJM trading partners supplying power through PJM or PSEG's or PSE&G's
critical vendors and/or customers are unable to meet the Year 2000 deadline,
such inability could have a material adverse impact on PSEG's and PSE&G's
operations, financial condition, results of operations and net cash flows.
54
<PAGE>
RATE MATTERS
For discussions of the Energy Master Plan Proceedings, Stranded Costs,
Securitization, Depreciation, NJGRT Reform, Settlement of Certain Regulatory
Issues, the LGAC, the LEAC, the Demand Side Adjustment Factor, the Remediation
Adjustment Charge, Consolidated Tax Benefits, OPEB, and other rate matters, see
Note 2. Regulatory Issues of Notes.
ACCOUNTING ISSUES
For a discussion of significant accounting policies, including those
regarding regulation of PSE&G such as Statement of Financial Accounting
Standards (SFAS) 71, "Accounting for the Effects of Certain Types of
Regulation," and Emerging Issues Task Force (EITF) Issue 97-4, "Deregulation for
the Pricing of Electricity -- Issues Related to the Application of FASB
Statements No. 71 and 101," see Note 1. Organization and Summary of Significant
Accounting Policies and Note 19. Accounting Matters of Notes.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
For a discussion of the impact of new accounting pronouncements including
SFAS 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS
133), Emerging Issues Task Force (EITF) Issues 98-10, "Accounting for Energy
Trading and Risk Management Activities" (EITF 98-10), Statement of Position
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" (SOP 98-1) and SOP 98-5, "Reporting on the Costs of Start-Up
Activities" (SOP 98-5), see Note 19. Accounting Matters of Notes.
SITE RESTORATIONS AND OTHER ENVIRONMENTAL COSTS
For discussion of potential environmental and other remediation costs, see
Note 10. Commitments and Contingent Liabilities of Notes.
PSE&G
The information required by this item is incorporated herein by reference
to the following portions of PSEG's Management's Discussion and Analysis of
Financial Condition and Results of Operations, insofar as they relate to PSE&G
and its subsidiaries: Corporate Structure; Overview of 1998 and Future Outlook;
Results of Operations; Liquidity and Capital Resources; External Financings;
Qualitative and Quantitative Disclosures About Market Risk; Foreign Operations;
Year 2000 Readiness Disclosure; Rate Matters; Accounting Issues; Impact of New
Accounting Pronouncements and Site Restorations and Other Environmental Costs.
55
<PAGE>
FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the Act) provides a
"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 made in this report. Such statements are based on management's beliefs
as well as assumptions made by and information currently available to
management. When used herein, the words "will", "anticipate", "estimate",
"expect", "objective", "hypothetical", "potential" 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; managing rapidly changing energy trading operations in conjunction
with electricity and gas production, transmission and distribution systems;
managing foreign investments and electric generation and distribution operation
in locations outside of the traditional utility service territory; political and
foreign currency risks; an increasingly competitive energy marketplace; sales
retention and growth potential in a mature service territory and a need to
reduce operating and capital costs; ability to obtain adequate and timely rate
relief, cost recovery, including stranded costs, and other necessary regulatory
approvals; Federal and state regulatory actions; costs of construction; Year
2000 issues; operating restrictions, increased cost and construction delays
attributable to environmental regulations; nuclear decommissioning and the
availability of reprocessing and storage facilities for spent nuclear fuel;
licensing and regulatory approval necessary for nuclear and other operating
stations; the ability to economically and safely operate nuclear facilities in
accordance with regulatory requirements; environmental concerns; and market risk
and credit market concerns. PSEG 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 PSEG and PSE&G prior to the
effective date of the Act.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Information relating to quantitative and qualitative disclosures about
market risk is set forth under the caption "Qualitative and Quantitative
Disclosures About Market Risk" in Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations and "Financial Instruments" in
Note 1. Organization and Summary of Significant Accounting Policies of the Notes
to Consolidated Financial Statements. Such information is incorporated herein by
reference. For PSE&G, the information required by this item is incorporated
herein by reference insofar as it relates to PSE&G and its subsidiaries.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
56
<PAGE>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
OPERATING REVENUES
Electric $ 4,031 $ 3,918 $ 3,944
Gas 1,559 1,937 1,881
Nonutility Activities 341 245 216
--------- --------- ---------
Total Operating Revenues 5,931 6,100 6,041
--------- --------- ---------
OPERATING EXPENSES
Net Interchanged Power and Fuel for Electric Generation 945 909 919
Gas Purchased 970 1,101 1,118
Operation and Maintenance 1,501 1,364 1,371
Depreciation and Amortization 669 630 607
Taxes (Note 12)
Income Taxes 420 334 295
Transitional Energy Facility Assessment/New Jersey
Gross Receipts Taxes 171 576 598
Other 69 71 76
--------- --------- ---------
Total Operating Expenses 4,745 4,985 4,984
--------- --------- ---------
OPERATING INCOME 1,186 1,115 1,057
--------- --------- ---------
OTHER INCOME AND DEDUCTIONS
Settlement of Salem Litigation - Net of Applicable
Taxes of $29 -- (53) --
Other - net 6 7 (2)
--------- --------- ---------
Total Other Income and Deductions 6 (46) (2)
--------- --------- ---------
INCOME BEFORE INTEREST CHARGES AND
DIVIDENDS ON PREFERRED SECURITIES 1,192 1,069 1,055
--------- --------- ---------
INTEREST CHARGES AND PREFERRED SECURITIES
DIVIDENDS
Interest Expense (Note 7) 481 470 453
Allowance for Funds Used During Construction -
Debt and Capitalized Interest (13) (20) (18)
Preferred Securities Dividend Requirements of Subsidiaries (Note 6) 80 56 50
Net Loss (Gain) on Preferred Stock Redemptions (Note 6) -- 3 (18)
--------- --------- ---------
Total Interest Charges and Preferred Securities Dividends 548 509 467
--------- --------- ---------
INCOME FROM CONTINUING OPERATIONS 644 560 588
Discontinued Operations (Note 16):
Discontinued Operations - Net of Taxes -- -- 11
Gain on Sale of Discontinued Operations -- -- 13
--------- --------- ---------
NET INCOME $ 644 $ 560 $ 612
========= ========= =========
WEIGHTED AVERAGE COMMON SHARES AND
POTENTIAL DILUTIVE EFFECT OF STOCK OPTIONS
OUTSTANDING (000's) 230,974 231,986 242,401
EARNINGS PER SHARE (Basic and Diluted)
Income From Continuing Operations $ 2.79 $ 2.41 $ 2.42
Income From Discontinued Operations -- -- 0.04
Gain on Sale of Discontinued Operations -- -- 0.06
--------- --------- ---------
TOTAL EARNINGS PER SHARE $ 2.79 $ 2.41 $ 2.52
========= ========= =========
DIVIDENDS PAID PER SHARE OF COMMON STOCK $ 2.16 $ 2.16 $ 2.16
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED BALANCE SHEETS
ASSETS
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
UTILITY PLANT - Original cost
Electric $ 14,069 $ 13,692
Gas 2,847 2,697
Common 578 558
---------- ----------
Total 17,494 16,947
Less: Accumulated depreciation and amortization 7,048 6,463
---------- ----------
Net 10,446 10,484
Nuclear Fuel in Service, net of accumulated amortization -
1998, $312; 1997, $302 187 216
---------- ----------
Net Utility Plant in Service 10,633 10,700
Construction Work in Progress, including Nuclear Fuel in
Process - 1998, $72; 1997, $60 219 326
Plant Held for Future Use 24 24
---------- ----------
Net Utility Plant 10,876 11,050
---------- ----------
INVESTMENTS AND OTHER NONCURRENT ASSETS
Long-Term Investments, net of amortization - 1998, $28; 1997,
$21, and net of valuation allowances - 1998, $18; 1997, $23 3,034 2,873
Nuclear Decommissioning and Other Special Funds 649 492
Other Noncurrent Assets, net of amortization - 1998, $29; 1997, $16,
and net of valuation allowances - 1998, $10; 1997, $7 150 167
---------- ----------
Total Investments and Other Noncurrent Assets 3,833 3,532
---------- ----------
CURRENT ASSETS
Cash and Cash Equivalents 140 83
Accounts Receivable:
Customer Accounts Receivable 506 520
Other Accounts Receivable 219 293
Less: Allowance for Doubtful Accounts 38 41
Unbilled Revenues 255 270
Fuel, at average cost 331 310
Materials and Supplies, at average cost, net of inventory valuation
reserves - 1998, $12; 1997, $12 148 142
Miscellaneous Current Assets 93 86
---------- ----------
Total Current Assets 1,654 1,663
---------- ----------
DEFERRED DEBITS (Note 3)
SFAS 109 Income Taxes 704 725
OPEB Costs 270 289
Demand Side Management Costs 150 116
Environmental Costs 139 122
Unamortized Loss on Reacquired Debt and Debt Expense 135 136
Electric Energy and Gas Costs 35 167
Other 201 143
-----------------------
Total Deferred Debits 1,634 1,698
---------- ----------
TOTAL $ 17,997 $ 17,943
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
CAPITALIZATION
Common Stockholders' Equity:
Common Stock, issued; 231,957,608 shares $ 3,603 $ 3,603
Treasury Stock, at cost; 5,314,100 shares (207) --
Retained Earnings 1,748 1,623
Accumulated Other Comprehensive Income (46) (15)
---------- ----------
Total Common Stockholders' Equity 5,098 5,211
Subsidiaries' Preferred Securities:
Preferred Stock Without Mandatory Redemption 95 95
Preferred Stock With Mandatory Redemption 75 75
Guaranteed Preferred Beneficial Interest in Subordinated
Debentures (Note 6) 1,038 513
Long-Term Debt 4,763 4,873
---------- ----------
Total Capitalization 11,069 10,767
---------- ----------
OTHER LONG-TERM LIABILITIES
Accrued OPEB 344 289
Decontamination and Decommissioning Costs 39 43
Environmental Costs (Note 10) 84 73
Capital Lease Obligations 50 52
---------- ----------
Total Other Long-Term Liabilities 517 457
---------- ----------
CURRENT LIABILITIES
Long-Term Debt due within one year 418 340
Commercial Paper and Loans 1,056 1,448
Accounts Payable 655 686
Other 329 353
---------- ----------
Total Current Liabilities 2,458 2,827
---------- ----------
DEFERRED CREDITS
Income Taxes 3,384 3,394
Investment Tax Credits 322 343
Other 247 155
---------- ----------
Total Deferred Credits 3,953 3,892
---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 10) -- --
---------- ----------
TOTAL $ 17,997 $ 17,943
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 644 $ 560 $ 612
Adjustments to reconcile net income to net cash flows from
operating activities:
Depreciation and Amortization 669 630 607
Amortization of Nuclear Fuel 94 60 60
Recovery (Deferral) of Electric Energy and Gas Costs - net 132 9 (5)
Unrealized Gains on Investments - net (51) (56) (7)
Proceeds from Leasing Activities (20) 71 89
Changes in certain current assets and liabilities:
Net change in Accounts Receivable and Unbilled Revenues 100 (95) (12)
Net change in Inventory - Fuel and Materials and Supplies (27) 9 (64)
Net change in Prepayments (13) (15) 6
Net change in Accounts Payable (31) (11) 60
Net change in Provision for Rate Refund -- (80) 75
Net change in Other Current Assets and Liabilities (18) (7) 11
Other (57) 20 (16)
Net cash provided by operating activities - Discontinued Operations -- -- 54
---------- ---------- ----------
Net Cash Provided By Operating Activities 1,422 1,095 1,470
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Utility Plant, excluding AFDC (535) (542) (586)
Net change in Long-Term Investments (58) (914) 5
Contribution to Decommissioning Funds and Other Special Funds (115) (63) (29)
Other (4) (95) (52)
Net Proceeds from Sale of Discontinued Operations -- -- 704
Change in Net Assets - Discontinued Operations -- -- (51)
---------- ---------- ----------
Net Cash Used In Investing Activities (712) (1,614) (9)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in Short-Term Debt (392) 810 71
Issuance of Long-Term Debt 525 785 374
Redemption of Long-Term Debt (557) (700) (808)
Redemption of Preferred Stock -- (94) (212)
Issuance of Preferred Securities 525 95 208
Purchase of Treasury Stock (207) -- --
Retirement of Common Stock -- (43) (307)
Cash Dividends Paid on Common Stock (499) (501) (523)
Other (48) (29) (47)
---------- ---------- ----------
Net Cash (Used In) Provided By Financing Activities (653) 323 (1,244)
---------- ---------- ----------
Net Change In Cash And Cash Equivalents 57 (196) 217
Cash And Cash Equivalents At Beginning Of Year 83 279 62
---------- ---------- ----------
Cash And Cash Equivalents At End Of Year $ 140 $ 83 $ 279
========== ========== ==========
Income Taxes Paid $ 426 $ 170 $ 157
Interest Paid $ 469 $ 416 $ 463
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
(MILLIONS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON TREASURY RETAINED COMPREHENSIVE
STOCK STOCK EARNINGS INCOME TOTAL
--------------- ----------------- -------- ------------- -------
SHS. AMOUNT SHS. AMOUNT
---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AS OF JANUARY 1, 1996 245 $ 3,801 -- $ -- $ 1,637 $ -- $ 5,438
Net Income -- -- -- -- 612 -- 612
Other Comprehensive Income -- -- -- -- -- -- --
-------
Comprehensive Income -- -- -- -- -- -- 612
-------
Cash Dividends on Common Stock -- -- -- -- (523) -- (523)
Retirement of Common Stock (11) (174) -- -- (133) -- (307)
Preferred Securities Issuance Expenses -- -- -- -- (7) -- (7)
--------------- ----------------- -------- ------------- -------
BALANCE AS OF DECEMBER 31, 1996 234 3,627 -- -- 1,586 -- 5,213
--------------- ----------------- -------- ------------- -------
Net Income -- -- -- -- 560 -- 560
Other Comprehensive Income, net of tax:
Currency Translation Adjustment, net of tax of $(2) -- -- -- -- -- (15) (15)
-------
Other Comprehensive Income -- -- -- -- -- -- (15)
-------
Comprehensive Income -- -- -- -- -- -- 545
-------
Cash Dividends on Common Stock -- -- -- -- (501) -- (501)
Retirement of Common Stock (2) (24) -- -- (19) -- (43)
Preferred Securities Issuance Expenses -- -- -- -- (3) -- (3)
--------------- ----------------- -------- ------------- -------
BALANCE AS OF DECEMBER 31, 1997 232 3,603 -- -- 1,623 (15) 5,211
--------------- ----------------- -------- ------------- -------
Net Income -- -- -- -- 644 -- 644
Other Comprehensive Income, net of tax:
Pension Plan Additional
Minimum Liability, net of tax of $(2) -- -- -- -- -- (3) (3)
Currency Translation Adjustment, net of tax of $(3) -- -- -- -- -- (28) (28)
-------
Other Comprehensive Income -- -- -- -- -- -- (31)
-------
Comprehensive Income -- -- -- -- -- -- 613
-------
Cash Dividends on Common Stock -- -- -- -- (499) -- (499)
Purchase of Treasury Stock -- -- (5) (207) -- -- (207)
Restricted Stock Award -- -- -- -- (5) -- (5)
Preferred Securities Issuance Expenses -- -- -- -- (15) -- (15)
--------------- ----------------- -------- ------------- -------
BALANCE AS OF DECEMBER 31, 1998 232 $ 3,603 (5) $ (207) $ 1,748 $ (46) $ 5,098
=============== ================= ======== ============= =======
</TABLE>
Note: The ability of PSEG to declare and pay dividends is contingent upon its
receipt of dividends from its subsidiaries. PSE&G, PSEG's principal
subsidiary, has restrictions on the payment of dividends which are
contained in its Restated Certificate of Incorporation, as amended, and
certain of the indentures supplemental to its Mortgage and certain other
indentures. However, none of these restrictions presently limits the
payment of dividends out of current earnings. The amount of PSE&G's
restricted retained earnings at December 31, 1998, 1997 and 1996 was $10
million. There are no restrictions on Energy Holding's retained earnings.
See Notes to Consolidated Financial Statements.
<PAGE>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING REVENUES
Electric $ 4,031 $ 3,918 $ 3,944
Gas 1,559 1,937 1,881
---------- ---------- ----------
Total Operating Revenues 5,590 5,855 5,825
---------- ---------- ----------
OPERATING EXPENSES
Net Interchanged Power and Fuel for Electric Generation 945 909 919
Gas Purchased 970 1,101 1,118
Operation and Maintenance 1,357 1,276 1,299
Depreciation and Amortization 658 616 604
Taxes (Note 12)
Income Taxes 398 307 265
Transitional Energy Facility Assessment/New Jersey
Gross Receipts Taxes 171 576 598
Other 72 72 75
---------- ---------- ----------
Total Operating Expenses 4,571 4,857 4,878
---------- ---------- ----------
OPERATING INCOME 1,019 998 947
---------- ---------- ----------
OTHER INCOME AND DEDUCTIONS
Settlement of Salem Litigation - Net of Applicable
Taxes of $29 -- (53) --
Other - net 8 7 (2)
---------- ---------- ----------
Total Other Income and Deductions 8 (46) (2)
---------- ---------- ----------
INCOME BEFORE INTEREST CHARGES AND
DIVIDENDS ON PREFERRED SECURITIES 1,027 952 945
---------- ---------- ----------
INTEREST CHARGES AND PREFERRED SECURITIES DIVIDENDS
Interest Expense (Note 7) 390 395 399
Allowance for Funds Used During Construction - Debt (12) (15) (17)
Preferred Securities Dividend Requirements of Subsidiaries (Note 6) 45 44 28
---------- ---------- ----------
Total Interest Charges and Preferred Securities Dividends 423 424 410
---------- ---------- ----------
NET INCOME 604 528 535
---------- ---------- ----------
Preferred Stock Dividend Requirements (Note 6) 9 12 23
Net Loss (Gain) on Preferred Stock Redemptions (Note 6) -- 3 (18)
---------- ---------- ----------
EARNINGS AVAILABLE TO PUBLIC SERVICE ENTERPRISE
GROUP INCORPORATED $ 595 $ 513 $ 530
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1997
---------- ----------
<S> <C> <C>
UTILITY PLANT - Original cost
Electric $ 14,069 $ 13,692
Gas 2,847 2,697
Common 578 558
---------- ----------
Total 17,494 16,947
Less: Accumulated depreciation and amortization 7,048 6,463
---------- ----------
Net 10,446 10,484
Nuclear Fuel in Service, net of accumulated amortization -
1998, $312; 1997, $302 187 216
---------- ----------
Net Utility Plant in Service 10,633 10,700
Construction Work in Progress, including Nuclear Fuel in
Process - 1998, $72; 1997, $60 219 326
Plant Held for Future Use 24 24
---------- ----------
Net Utility Plant 10,876 11,050
---------- ----------
INVESTMENTS AND OTHER NONCURRENT ASSETS
Long-Term Investments, net of amortization - 1998, $28; 1997, $21,
and net of valuation allowances - 1998, $11; 1997, $15 138 137
Nuclear Decommissioning and Other Special Funds 649 492
Other Noncurrent Assets, net of amortization - 1998, $1; 1997, $1 46 45
---------- ----------
Total Investments and Other Noncurrent Assets 833 674
---------- ----------
CURRENT ASSETS
Cash and Cash Equivalents 43 17
Accounts Receivable:
Customer Accounts Receivable 460 488
Other Accounts Receivable 178 232
Less: Allowance for Doubtful Accounts 38 41
Unbilled Revenues 255 270
Fuel, at average cost 331 310
Materials and Supplies, at average cost, net of inventory
valuation reserves - 1998, $12; 1997, $12 146 142
Miscellaneous Current Assets 84 81
---------- ----------
Total Current Assets 1,459 1,499
---------- ----------
DEFERRED DEBITS (Note 3)
SFAS 109 Income Taxes 704 725
OPEB Costs 270 289
Demand Side Management Costs 150 116
Environmental Costs 139 122
Unamortized Loss on Reacquired Debt and Debt Expense 135 135
Electric Energy and Gas Costs 35 167
Other 147 143
---------- ----------
Total Deferred Debits 1,580 1,697
---------- ----------
TOTAL $ 14,748 $ 14,920
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1997
---------- ----------
<S> <C> <C>
CAPITALIZATION
Common Stockholder's Equity:
Common Stock, issued; 132,450,344 shares $ 2,563 $ 2,563
Contributed Capital 594 594
Retained Earnings 1,443 1,352
Accumulated Other Comprehensive Income (3) --
---------- ----------
Total Common Stockholder's Equity 4,597 4,509
Preferred Stock Without Mandatory Redemption 95 95
Preferred Stock With Mandatory Redemption 75 75
Subsidiaries' Preferred Securities:
Guaranteed Preferred Beneficial Interest in Subordinated
Debentures (Note 6) 513 513
Long-Term Debt 4,045 4,126
---------- ----------
Total Capitalization 9,325 9,318
---------- ----------
OTHER LONG-TERM LIABILITIES
Accrued OPEB 344 289
Decontamination and Decommissioning Costs 39 43
Environmental Costs (Note 10) 84 73
Capital Lease Obligations 50 52
---------- ----------
Total Other Long-Term Liabilities 517 457
---------- ----------
CURRENT LIABILITIES
Long-Term Debt due within one year 100 118
Commercial Paper and Loans 850 1,106
Accounts Payable 627 608
Other 255 268
---------- ----------
Total Current Liabilities 1,832 2,100
---------- ----------
DEFERRED CREDITS
Income Taxes 2,527 2,569
Investment Tax Credits 313 333
Other 234 143
---------- ----------
Total Deferred Credits 3,074 3,045
---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 10) -- --
---------- ----------
TOTAL $ 14,748 $ 14,920
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 604 $ 528 $ 535
Adjustments to reconcile net income to net cash flows from
operating activities:
Depreciation and Amortization 658 616 604
Amortization of Nuclear Fuel 94 60 60
Recovery (Deferral) of Electric Energy and Gas Costs - net 132 9 (5)
Changes in certain current assets and liabilities:
Net change in Accounts Receivable and Unbilled Revenues 94 (64) 7
Net change in Inventory - Fuel and Materials and Supplies (25) 9 (64)
Net change in Prepayments (8) (15) 5
Net change in Accounts Payable 19 (19) 67
Net change in Provision for Rate Refund -- (80) 75
Net change in Other Current Assets and Liabilities (8) (6) (8)
Other 5 (30) (37)
---------- ---------- ----------
Net Cash Provided By Operating Activities 1,565 1,008 1,239
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Utility Plant, excluding AFDC (535) (542) (586)
Contribution to Decommissioning Funds and Other Special Funds (115) (62) (29)
Other (21) (67) (49)
---------- ---------- ----------
Net Cash Used In Investing Activities (671) (671) (664)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in Short-Term Debt (256) 468 71
Issuance of Long-Term Debt 250 288 374
Redemption of Long-Term Debt (349) (575) (429)
Redemption of Preferred Stock -- (94) (212)
Issuance of Preferred Securities -- 95 208
Cash Dividends Paid (513) (535) (547)
Other -- (15) (25)
---------- ---------- ----------
Net Cash Used In Financing Activities (868) (368) (560)
---------- ---------- ----------
Net Change In Cash And Cash Equivalents 26 (31) 15
Cash And Cash Equivalents At Beginning Of Year 17 48 33
---------- ---------- ----------
Cash And Cash Equivalents At End Of Year $ 43 $ 17 $ 48
========== ========== ==========
Income Taxes Paid $ 410 $ 259 $ 254
Interest Paid $ 386 $ 357 $ 392
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
ACCUMULATED
CONTRIBUTED OTHER
COMMON CAPITAL FROM RETAINED COMPREHENSIVE
STOCK PSEG EARNINGS INCOME TOTAL
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE AS OF JANUARY 1, 1996 $ 2,563 $ 594 $ 1,366 $ -- $ 4,523
Net Income -- -- 535 -- 535
Other Comprehensive Income -- -- -- -- --
----------
Comprehensive Income -- -- -- -- 535
----------
Cash Dividends on Common Stock -- -- (524) -- (524)
Cash Dividends on Preferred Stock -- -- (23) -- (23)
Preferred Securities Issuance Expenses -- -- (7) -- (7)
Net Gain on Preferred Stock Redemptions -- -- 18 -- 18
---------- ---------- ---------- ---------- ----------
BALANCE AS OF DECEMBER 31, 1996 2,563 594 1,365 -- 4,522
---------- ---------- ---------- ---------- ----------
Net Income -- -- 528 -- 528
Other Comprehensive Income -- -- -- -- --
----------
Comprehensive Income -- -- -- -- 528
----------
Cash Dividends on Common Stock -- -- (523) -- (523)
Cash Dividends on Preferred Stock -- -- (12) -- (12)
Preferred Securities Issuance Expenses -- -- (3) -- (3)
Net Loss on Preferred Stock Redemptions -- -- (3) -- (3)
---------- ---------- ---------- ---------- ----------
BALANCE AS OF DECEMBER 31, 1997 2,563 594 1,352 -- 4,509
---------- ---------- ---------- ---------- ----------
Net Income -- -- 604 -- 604
Other Comprehensive Income, net of tax:
Pension Plan Additional Minimum
Liability, net of tax of $(2) -- -- -- (3) (3)
----------
Other Comprehensive Income -- -- -- -- (3)
----------
Comprehensive Income -- -- -- -- 601
----------
Cash Dividends on Common Stock -- -- (503) -- (503)
Cash Dividends on Preferred Stock -- -- (10) -- (10)
---------- ---------- ---------- ---------- ----------
BALANCE AS OF DECEMBER 31, 1998 $ 2,563 $ 594 $ 1,443 $ (3) $ 4,597
========== ========== ========== ========== ==========
</TABLE>
Note: The ability of PSEG to declare and pay dividends is contingent upon its
receipt of dividends from its subsidiaries. PSE&G, PSEG's principal
subsidiary, has restrictions on the payment of dividends which are
contained in its Restated Certificate of Incorporation, as amended, and
certain of the indentures supplemental to its Mortgage and certain other
indentures. However, none of these restrictions presently limits the
payment of dividends out of current earnings. The amount of PSE&G's
restricted retained earnings at December 31, 1998, 1997 and 1996 was $10
million. There are no restrictions on Energy Holding's retained earnings.
See Notes to Consolidated Financial Statements.
<PAGE>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
PSEG has two principal direct wholly-owned subsidiaries: Public Service
Electric and Gas Company (PSE&G) and PSEG Energy Holdings Inc. (Energy
Holdings), formerly Enterprise Diversified Holdings Incorporated. PSEG's largest
subsidiary, PSE&G, is an operating public utility providing electric and gas
service within certain areas in the State of New Jersey.
Energy Holdings is the parent of PSEG's non-utility businesses: PSEG
Global Inc. (Global), formerly Community Energy Alternatives Incorporated, an
investor in and developer and operator of projects in the generation and
distribution of energy, including cogeneration and independent power production
(IPP) facilities, electric distribution companies, exempt wholesale generators
(EWGs) and foreign utility companies (FUCOs); PSEG Resources Inc. (Resources),
formerly Public Service Resources Corporation, which has made primarily passive
investments; PSEG Energy Technologies Inc. (Energy Technologies), formerly
Energis Resources, which provides a variety of energy related services to
industrial and commercial customers both within and outside of PSE&G's
traditional service territory; and Enterprise Group Development Corporation
(EGDC), a nonresidential real estate development and investment business. Energy
Holdings also has two finance subsidiaries: PSEG Capital Corporation (PSEG
Capital), which provides privately-placed debt financing to Energy Holdings'
operating subsidiaries, except Energy Technologies, on the basis of a minimum
net worth maintenance agreement with PSEG and Enterprise Capital Funding
Corporation (Funding), which provides privately-placed debt financing to
Resources, Global and their subsidiaries, which debt is guaranteed by Energy
Holdings, but without direct support from PSEG. EGDC has been conducting a
controlled exit from the real estate business since 1993. In July 1996, Energy
Holdings sold Energy Development Corporation (EDC), an oil and gas subsidiary.
For more information on EDC, see Note 16. Discontinued Operations.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REGULATION--PSE&G
The accounting and rates of PSE&G are subject, in certain respects, to the
requirements of the New Jersey Board of Public Utilities (BPU) and the Federal
Energy Regulatory Commission (FERC). As a result, PSE&G maintains its accounts
in accordance with their prescribed Uniform Systems of Accounts, which are the
same. The application of Generally Accepted Accounting Principles (GAAP) by
PSE&G differs in certain respects from applications by non-regulated businesses.
PSE&G prepares its financial statements in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 71 "Accounting for the
Effects of Certain Types of Regulation" (SFAS 71). In general, SFAS 71
recognizes that accounting for rate-regulated enterprises should reflect the
relationship of costs and revenues. As a result, a regulated utility may defer
recognition of costs (a regulatory asset) or recognize obligations (a regulatory
liability) if it is probable that, through the rate-making process, there will
be a corresponding increase or decrease in revenues. Accordingly, PSE&G has
deferred certain costs and recoveries, which will be amortized over various
future periods. To the extent that collection of such costs or payment of
liabilities is no longer probable as a result of changes in regulation and/or
PSE&G's competitive position, the associated regulatory asset or liability will
be charged or credited to income unless recovery mechanisms are approved by the
BPU. PSE&G continues to meet the requirements for application of SFAS 71.
However, once the BPU issues an order with respect to PSE&G in the New
Jersey Energy Master Plan (Energy Master Plan) Proceedings, currently scheduled
for March 31, 1999, it is expected that PSE&G will no longer meet the
requirements for application of SFAS 71 for its then deregulated operations. See
Note 2. Regulatory Issues and Note 19. Accounting Matters for further discussion
of deregulation and the potential accounting impacts caused by deregulation.
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<PAGE>
CONSOLIDATION POLICY
The consolidated financial statements include the accounts of PSEG and its
subsidiaries. PSEG and its subsidiaries consolidate those entities in which they
have a controlling interest. All significant intercompany accounts and
transactions are eliminated in consolidation. Those entities in which PSEG does
not have a controlling interest are being accounted for under the equity method
of accounting. For investments in which significant influence does not exist,
the cost method of accounting is applied.
RECLASSIFICATIONS
Certain reclassifications of prior period data have been made to conform
with the current presentation.
UNAMORTIZED LOSS ON REACQUIRED DEBT AND DEBT EXPENSE
Bond issuance costs and associated premiums and discounts are generally
amortized over the life of the debt issuance. In accordance with Federal Energy
Regulatory Commission (FERC) regulations, costs to reacquire debt are amortized
over the remaining original life of the retired debt. When refinancing debt, the
unamortized portion of the original debt issuance costs of the debt being
retired must be amortized over the life of the replacement debt.
Upon deregulation, gains and losses on reacquired debt associated with the
deregulated portion of PSE&G's operations will be reflected in the statement of
operations as incurred. Gains and losses on reacquired debt associated with
PSE&G's regulated operations will continue to be deferred and amortized to
interest expense over the period approved for ratemaking purposes.
UTILITY PLANT--PSE&G
Additions to utility plant and replacements of units of property are
capitalized at original cost. The cost of maintenance, repair and replacement of
minor items of property is charged to appropriate expense accounts. At the time
units of depreciable property are retired or otherwise disposed, the original
cost less net salvage value is charged to accumulated depreciation. Upon
deregulation, PSE&G will record a gain or loss on the retirement, sale or
disposal of assets in the deregulated portion of its business.
DEPRECIATION AND AMORTIZATION
Depreciation is computed under the straight-line method. Depreciation is
based on estimated average remaining lives of the several classes of depreciable
property. These estimates are reviewed on a periodic basis and necessary
adjustments are made as approved by the BPU. Depreciation rates stated in
percentages of original cost of depreciable property were 3.53% in 1998, 1997
and 1996.
PSE&G has certain regulatory assets resulting from the use of a level of
depreciation expense in the ratemaking process that differs from the amount that
is recorded under generally accepted accounting principles (GAAP) for
non-regulated companies. Upon issuance of a BPU order, PSE&G will no longer
calculate depreciation in accordance with BPU guidance for the deregulated
portion of PSE&G's business. Depreciation for those assets will be calculated
based on estimated plant lives rather than regulatory guidance. PSE&G cannot
presently quantify what the financial statement impact might be if depreciation
expense were required to be determined absent regulation, but the impact on the
financial position, results of operations and net cash flows of PSEG and PSE&G
could be material.
Nuclear fuel burnup costs are charged to fuel expense on a
units-of-production basis over the estimated life of the fuel. Rates for the
recovery of fuel used at all nuclear units include a provision of one mill per
kilowatt-hour (KWH) of nuclear generation for spent fuel disposal costs.
69
<PAGE>
USE OF ESTIMATES
The process of preparing financial statements in conformity with GAAP
requires the use of estimates and assumptions regarding certain types of assets,
liabilities, revenues and expenses. Such estimates primarily relate to unsettled
transactions and events as of the date of the financial statements. Accordingly,
upon settlement, actual results may differ from estimated amounts.
DECONTAMINATION AND DECOMMISSIONING--PSE&G
In 1993, FERC issued Order No. 557 regarding the accounting and
rate-making treatment of special assessments levied under the National Energy
Policy Act of 1992 (EPAct). Order No. 557 provides that special assessments are
a necessary and reasonable current cost of fuel and shall be fully recoverable
in rates in the same manner as other fuel costs.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFDC)--PSE&G
AFDC represents the cost of debt and equity funds used to finance the
construction of new utility facilities. The amount of AFDC capitalized is
reported in the Consolidated Statements of Income as a reduction of interest
charges for the borrowed funds component and as other income for the equity
funds component. The rates used for calculating AFDC in 1998, 1997 and 1996 were
6.06 %, 5.71% and 5.83%, respectively. Upon deregulation, PSE&G will no longer
calculate AFDC for the deregulated portion of PSE&G's business. Interest (cost
of debt only) related to capital projects for generation projects will be
capitalized in accordance with SFAS No. 34, "Capitalization of Interest Cost."
REVENUES AND FUEL COSTS--PSE&G
Revenues are recorded based on services rendered to customers during each
accounting period. PSE&G records unbilled revenues representing the estimated
amount customers will be billed for services rendered from the time meters were
last read to the end of the respective accounting period. Rates include
projected fuel costs for electric generation, purchased and interchanged power
and gas purchased. The fuel component of the LEAC rate was frozen for 1997 and
1998 as part of the BPU's Order dated December 31, 1996 (December 31st Order)
and PSE&G bore all risks associated with fuel prices.
Any Electric Levelized Energy Adjustment Clause (LEAC) and Levelized Gas
Adjustment Clause (LGAC) underrecoveries or overrecoveries, together with
interest (in the case of net overrecoveries), are deferred and included in
operations in the period in which they are reflected in rates. Effective January
1, 1998, the amount included for LEAC under/overrecovery represents the
difference between fuel related revenues and fuel related expenses which are
comprised of the cost of generation and interchanged power at the PJM
Interconnection, L.L.C. (PJM) market clearing price. Effective April 1, 1998,
PJM, as independent system operator (ISO), replaced the PJM uniform market
clearing price with locational marginal pricing (LMP) for determining the market
clearing pricing to energy providers. For discussion of the current and proposed
status of the LEAC and the LGAC, see Note 2. Regulatory Issues and Note 3.
Regulatory Assets and Liabilities.
INVENTORY--MATERIALS AND SUPPLIES AND NUCLEAR FUEL
Inventory is carried on the books at cost in accordance with rate based
regulation. When portions of PSE&G's business become deregulated, the carrying
value of its inventory for its unregulated operations will be valued at a lower
of cost or market basis which could have a material adverse impact on PSEG's and
PSE&G's financial position, results of operations and net cash flows to the
extent that any write downs are not recovered through regulatory mechanisms
approved by the BPU.
COMMODITY CONTRACTS--PSE&G
PSE&G engages in electricity and natural gas commodity forwards, futures,
swaps and options purchases and sales with counterparties to manage exposure to
electricity and natural gas price risk. Certain contracts, in conjunction with
owned electric generating capacity, are designed to provide for estimated
electric customer commitments. Similarly,
70
<PAGE>
PSE&G uses natural gas futures and swaps to manage the price risk associated
with gas supply to customers. PSE&G's accounting policy for these contracts is
to recognize the gains and losses in income upon settlement of the contracts.
PSE&G also enters into forwards, futures, swaps and options that are not
used to manage price risk exposure for commitments to customers. As these are
considered to be trading contracts, PSE&G's accounting policy has been to mark
the contracts to market and record unrealized gains and losses in income. These
contracts do not have a material impact on PSE&G's financial condition, results
of operations and net cash flows. PSE&G does not hold any financial instruments
of a leveraged nature.
For discussion of SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities" (SFAS 133), and Emerging Issues Task Force Issue No. 98-10,
"Accounting for Energy Trading and Risk Management Activities" (EITF 98-10), see
Note 19. Accounting Matters.
FINANCIAL INSTRUMENTS--ENERGY HOLDINGS
Gains and losses on hedges of existing assets or liabilities are included
in the carrying amounts of those assets and liabilities and are ultimately
recognized in income as part of those carrying amounts. Gains and losses related
to qualifying hedges of firm commitments or anticipated transactions also are
deferred and recognized in income or as adjustments of carrying amounts when the
hedged transaction occurs.
EQUITY INVESTMENTS--ENERGY HOLDINGS
Resources carries its investments in equity securities at their
approximate fair market values as of the reporting date.
FOREIGN CURRENCY TRANSLATION/TRANSACTIONS--ENERGY HOLDINGS
The assets and liabilities of Energy Holdings' foreign operations are
translated into U.S. dollars at current exchange rates and revenues and expenses
are translated at average exchange rates for the year. Resulting translation
adjustments are reflected as a separate component of stockholders' equity.
Transaction gains and losses that arise from exchange rate fluctuations on
normal operating transactions denominated in a currency other than the
functional currency, except those transactions which operate as a hedge of an
identifiable foreign currency commitment or as a hedge of a foreign currency
investment position, are included in the results of operations as incurred.
INCOME TAXES
PSEG and its subsidiaries file a consolidated Federal income tax return
and income taxes are allocated to PSEG's subsidiaries based on the taxable
income or loss of each subsidiary. Investment tax credits were deferred in prior
years and are being amortized over the useful lives of the related property,
including nuclear fuel. For discussion of energy tax reform and its impact on
NJGRT, see Note 12. Income Taxes.
BENEFIT PLANS
Non-represented employees of PSE&G commencing service before January 1,
1996, represented employees of PSE&G commencing employment before January 1,
1997 and certain employees of PSE&G's affiliated companies are covered by a
noncontributory trusteed pension plan (Pension Plan) from the date of hire.
Non-represented employees of PSE&G who commenced service after January 1, 1996,
represented employees of PSE&G who commenced employment after January 1, 1997
and certain employees of PSE&G's affiliated companies are covered by a cash
balance pension plan. Beginning with the plan year 1997, the funding policy was
modified to provide annual funding not to exceed the maximum tax deductible
amount. Contributions will be made each year based on targeted funding levels
for the plan.
In 1993, PSEG adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (SFAS 106), which requires that the
expected cost of employees' postretirement health care and life insurance
benefits, also referred to as other postretirement benefits (OPEB), be charged
to income during the years in which employees render
71
<PAGE>
service. PSE&G deferred a portion of these costs as a regulatory asset from 1993
until 1997 when a BPU order was received stipulating that current rates were
sufficient to recover such costs. Therefore, on January 1, 1998, PSE&G began
amortizing its regulatory asset for OPEB over 15 years and recording the annual
SFAS 106 OPEB cost. In 1998, PSE&G began funding its annual OPEB obligation in
an external trust to the maximum extent allowable under Section 401(h) of the
Internal Revenue Code.
CAPITAL LEASES AS LESSEE
The Consolidated Balance Sheets include assets and related obligations
applicable to capital leases under which PSE&G is a lessee. The total
amortization of the leased assets and interest on the lease obligations equals
the net minimum lease payments included in rent expense for capital leases.
Capital leases of PSE&G relate primarily to its corporate headquarters.
IMPAIRMENT OF LONG-LIVED ASSETS
On January 1, 1996, PSEG adopted SFAS 121, which requires review for
possible impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. The adoption of SFAS 121
did not have an impact on the results of operations, financial condition and net
cash flows of PSEG or PSE&G. However, future developments in the electric and
gas industries could have a material impact on the carrying value of certain
investments. Upon deregulation, PSE&G will reevaluate the potential impairment
of its assets which may result in recording an extraordinary, non-cash charge to
earnings that could have a material adverse impact on PSEG's and PSE&G's
financial condition and results of operations to the extent that any impairments
are not recovered through regulatory mechanisms approved by the BPU.
EARNINGS PER SHARE
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share",
which was effective for financial statements issued after December 15, 1997.
Under the new standard, basic earnings per share is computed as earnings
available to common stockholders divided by weighted average shares outstanding
excluding the dilutive effect of potential common shares. Diluted earnings per
share includes the dilutive effect of potential common shares. PSEG has an
existing stock option plan which allows for options to be granted on a periodic
basis. These potential common shares had no impact on diluted earnings per share
for the years ended December 31, 1998, 1997 and 1996.
NOTE 2. REGULATORY ISSUES
NEW JERSEY ENERGY MASTER PLAN PROCEEDINGS
In 1998 and continuing into 1999, energy industry restructuring continued
to advance in New Jersey. In 1998, evidentiary hearings related to PSE&G's
proposal in connection with the BPU's New Jersey Energy Master Plan were
completed and the Office of Administrative Law filed its decision providing its
recommendations on such proposal with the BPU. In January 1999, the State
Legislature passed the New Jersey Electric Discount and Competition Act (Energy
Competition Act) which was signed into law by the Governor on February 9, 1999.
The Energy Competition Act and the related BPU proceedings are hereinafter
defined as the Energy Master Plan Proceedings. Among other things, the Energy
Competition Act provides that all New Jersey retail electric customers may
select their electric supplier commencing August 1, 1999 and all New Jersey
retail gas customers may select their gas suppliers commencing January 1, 2000,
thus fully opening the New Jersey energy markets to customer choice and
competition.
The Energy Competition Act provides the BPU requisite authority to
implement certain aspects of retail electric and gas competition in New Jersey.
The BPU is currently engaged in proceedings to implement the Energy Competition
Act, the result of which will fundamentally change the electric and gas
industries in New Jersey by, among other things, introducing retail competition
to replace the monopoly position of regulated public utilities, potentially
requiring or resulting in the separation or sale of utilities' electric
generation assets and establishing a number of generic rules related to
deregulation, including governing regulated utilities' relationships with their
affiliates.
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<PAGE>
Under the Energy Competition Act, the distribution business will remain
regulated by the BPU. Transmission will remain regulated by the FERC. With
deregulation, electric generation will be a competitive business. Succeeding as
a competitive generator will depend on many factors such as fuel cost,
production costs including labor cost, environmental constraints and related
expenses, transmission availability and rates, marketing ability and quality of
service, among others. The outcome of these proceedings will have a profound
effect on PSEG and PSE&G.
On February 11, 1999, the BPU adopted a schedule for the resolution of
each New Jersey electric utility's filings for rate unbundling, stranded cost
and restructuring proceedings. With respect to PSE&G, the BPU indicated that it
is encouraging the parties to the case to undertake discussions in an attempt to
reach consensus on the litigated issues in the rate unbundling, stranded cost
and, on limited issues, the restructuring proceedings. The BPU further indicated
that, in lieu of a negotiated settlement of the case among the parties, it has
scheduled a final vote on the PSE&G filing at its March 31, 1999 agenda meeting.
To that end, the BPU has set a deadline of March 3, 1999 for the submission of
any negotiated settlement.
Shortly thereafter, the BPU is expected to issue a series of orders that
will decide generic issues related to deregulation of the industry in the
State (e.g., affiliate standards). The BPU has yet to set a timetable related to
a gas restructuring order. Once the March 31, 1999 BPU Order is issued, PSE&G
will no longer meet the requirements of SFAS 71 for the electric generation
portion of its business. While PSE&G cannot predict the outcome of the Energy
Master Plan Proceedings, when PSE&G discontinues the application of SFAS 71 and
if full recovery were not probable through recovery mechanisms approved by the
BPU, there could be an extraordinary, non-cash charge to operations that could
be material to the financial position and results of operations of PSEG and
PSE&G. See Note 19. Accounting Matters for further discussion of the potential
accounting impacts caused by deregulation.
THE ENERGY COMPETITION ACT
Key features of the Energy Competition Act, as passed, include:
o Competitive choice for electric service will begin on August 1,
1999. Competitive choice for gas service must be fully implemented
by December 31, 1999. For further discussion of gas competition, see
Gas Unbundling.
o Mandates that an electric rate reduction of at least 10%, phased in
over a period of up to thirty-six months, will be provided to
consumers. The rate reduction will be based on the level of rates in
effect as of April 30, 1997. Rates must be reduced by no less than
5% effective August 1, 1999. When coupled with reductions from the
1998 change in New Jersey energy taxes, the total rate reductions
for consumers could total 16%, not including an additional 3.5%
reduction due to an interim DSM rate increase.
o Authorizes "shopping credits" or discounts for customers that switch
from their current electric utility supplier to encourage
competition.
o Utilities have an opportunity to recover stranded costs associated
with generation assets through a market transition charge (MTC) that
could last up to eight years. Costs associated with above-market
power purchase contracts with other utilities and with non-utility
generators (NUGs) will be recovered over the remaining life of those
contracts. Mitigation by the utility of its stranded costs, to the
extent possible, is required.
o Securitization is limited to 75% of utility generation-related
stranded costs. Transition bonds with a maximum scheduled
amortization of 15 years can be issued if the proceeds are used to
recover eligible stranded costs. Power purchase contracts can also
be securitized in an effort to buy out or buy down contracts.
o On or after the starting date of implementation of retail choice,
the BPU may require functional separation of a utility's
non-competitive business functions from its competitive electric
generation service and require that those competitive services be
provided by a related competitive business segment of a public
utility holding company. The related competitive business segment of
the public utility holding company will not be subject to regulation
under New Jersey utility law but may be subject to FERC regulation.
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<PAGE>
o While the Energy Competition Act does not mandate divestiture of
electric generation assets, it gives the BPU the right to examine
market conditions and requires divestiture if the BPU finds market
power would impede development of competition.
o Competitive services may be offered by a public utility or a
competitive business segment of a public utility only with the
written approval of the BPU. Tariffs for competitive services will
be required and subject to review and approval by the BPU. The
competitive business segment must not adversely impact the ability
of the utility to offer non-competitive services to customers in a
safe, adequate and proper manner. The price for services must not be
less than the fully allocated cost of providing such services.
Cross-subsidization is prohibited and standards for affiliate
relationships will be established. The BPU will be required to apply
50% of the net revenues earned from competitive services offered by
an electric public utility as an offset to stranded costs or a
reduction of rates for the period of time that the utility collects
transition bond charges.
o Utility holding companies are permitted to offer competitive
electric generation service to existing utility retail customers
subject to affiliate relations standards to be established by the
BPU. A utility holding company's competitive business entity
utilizing utility assets, including personnel and equipment other
than the delivery network or certain shared corporate overhead or
administrative services, to provide competitive services is subject
to a 50% sharing of net revenues from such services. Unless the
utility ratepayers receive full market value for the use of such
utility assets pursuant to a contract between the parties filed with
the BPU, those revenues will be used to offset transition charges
and/or distribution rates for a period of time.
o The BPU is required to initiate a proceeding and adopt interim
technical standards to ensure the safety, reliability and accuracy
of metering equipment provided to electric and gas customers. The
BPU is required to issue an order providing customers the
opportunity to choose a supplier for some or all customer services
(such as metering and billing) not later than one year from the
start of retail competition. Until that time, customers are given
the option with affirmative consent to receive two bills, one from
the utility and one from the supplier.
o The BPU is required to adopt interim consumer protection standards
for electric and gas suppliers to prevent slamming, protect customer
privacy and provide customers necessary information to make informed
decisions.
o Simultaneously with the implementation of retail choice, the BPU may
permit recovery of certain costs through a Societal Benefits Charge
which would be a component of rates for all retail customers. These
costs will include social programs for which rate recovery was
approved prior to April 30, 1997; nuclear decommissioning costs;
demand side management program costs, manufactured gas plant clean
up costs and potentially the cost of a statewide consumer education
program. The BPU is authorized to use the existing funds for social
programs to create a universal service fund for low income energy
assistance.
o Utilities will serve customers for at least three years as the
energy provider of last resort, providing basic electric generation
and gas services. The BPU is required to decide, no later than three
years after the start of retail choice, whether to allow other,
non-utility, suppliers to offer basic generation service on a
competitive basis.
o Businesses, cities, towns and counties are able to aggregate their
own power demands and other energy needs for which marketers may bid
to serve. Customers will control their inclusion in any such group.
Aggregation by municipalities to serve residents and businesses
within those municipalities can also begin at the start of retail
choice.
o Electric suppliers must disclose information about fuels used to
generate the electricity that they sell and emissions from their
portfolio of electricity suppliers on customers' bills or in
marketing materials. The BPU and New Jersey Department of
Environmental Protection (NJDEP) may adopt an emission control
portfolio standard for all retail suppliers if the BPU finds that a
standard is necessary to meet Clean Air Act rules and that regional
and Federal actions would not achieve compliance with those rules,
or if two other states using the PJM power pool comprising 40% of
the retail electric usage in PJM adopt such standards.
STRANDED COSTS
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Stranded costs represent the portion of the book value of generation
related assets or the portion of payments under power purchase contracts which
are in excess of their value in a competitive deregulated marketplace. In its
initial proposal, PSE&G had identified its potentially stranded costs associated
with fossil and nuclear generating stations at $3.9 billion, based on certain
assumptions, including future market prices of electricity and performance of
generating units. Changes in these assumptions could materially alter the
estimated amount of potentially stranded costs.
To the extent that any portion of its stranded costs are not probable of
recovery upon the conclusion of the Energy Master Plan Proceedings, and thus
ineligible for deferral as a regulatory asset under Statement of Financial
Accounting Standards (SFAS) 71, "Accounting for the Effects of Certain Types of
Regulation" (SFAS 71), PSE&G would incur an extraordinary, non-cash charge to
income that could be material to the financial position and results of
operations of PSEG and PSE&G. For additional discussion related to the Energy
Master Plan Proceedings, see Note 3. Regulatory Assets and Liabilities.
Recoverability of these costs is largely dependent on the order to be
issued by the BPU at the conclusion of the Energy Master Plan Proceedings. PSE&G
has proposed to securitize $2.5 billion of these costs, with the remainder to be
recovered through a market transition charge during a proposed transition period
of seven years. In addition, PSE&G is seeking to negotiate the restructuring of
certain of its BPU approved contracts with Non-utility Generators (NUGs), which,
in PSE&G's initial proposal, were estimated to be $1.6 billion above assumed
future market prices. These costs are being recovered through the LEAC and are
expected to continue to be recovered through successor mechanisms to be
determined by the outcome of the Energy Master Plan Proceedings as to which no
assurances can be given. PSEG and PSE&G cannot predict the outcome of these
proceedings. However, such proceedings could have a material adverse effect on
PSEG's and PSE&G's financial condition, results of operations and net cash flows
and could adversely affect the carrying values of PSEG's and PSE&G's assets and
the ability to declare dividends on PSEG's common stock.
SECURITIZATION
In accordance with the provisions of the Energy Competition Act, it is
expected that the BPU will issue an order authorizing securitization of up to
75% of PSE&G's generation-related stranded costs. Securitization is a
refinancing technique, whereby the interest and principal payments on the
securitized debt which is issued will be serviced by an irrevocable,
non-bypassable charge to utility customers. The Energy Competition Act provides
that net proceeds from any authorized securitization of a utility's stranded
costs must be used to reduce that utility's debt and equity.
Dependent upon market conditions and the level of securitization
authorized by the BPU in the Energy Master Plan Proceedings, PSE&G may use a
number of alternatives to reduce its debt and equity, including the redemption,
tender or purchase of its outstanding Mortgage Bonds and preferred stock.
In anticipation of an application of the use of proceeds of securitization,
PSEG has been engaged in a program to repurchase its Common Stock, as
discussed below.
Since the Energy Master Plan Proceedings are still in progress, PSE&G
cannot predict the extent to which regulators will allow the use of such
securitization for recovery of stranded costs. PSE&G's decision as to the manner
in which the proceeds of securitization will be utilized to reduce debt and
equity is dependent upon the BPU's decision in the Energy Master Plan
Proceedings. The decision of the BPU required in this matter could have a
material adverse effect on PSEG's and PSE&G's financial condition, results of
operations and net cash flows. The use of securitization proceeds to reduce debt
and equity is likely to affect the market prices of the related securities.
Additionally, the use of securitization could impact PSEG's and PSE&G's bond
ratings and the cost of other debt for PSEG and PSE&G.
On September 15, 1998, in anticipation of securitization of PSE&G's
stranded costs afforded by the then proposed Energy Competition Act, the Board
of Directors of PSEG authorized the repurchase of up to 10 million shares of its
Common Stock. Under the authorization, repurchases were made in the open market
at the discretion of
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PSEG. The repurchased shares have been held as treasury stock. At December 31,
1998, PSEG had repurchased approximately 5.3 million shares of Common Stock at a
cost of approximately $207 million, under this authorization. As of February 8,
1999, PSEG had repurchased a total of 10 million shares at a cost of
approximately $391 million under this program.
DEPRECIATION
In its Energy Master Plan proposal, PSE&G has proposed to lengthen the
depreciable lives of its electric distribution assets from 28 to 45 years. These
assets are expected to remain regulated. The excess depreciation reserve,
calculated based on this change in depreciable lives, would be amortized over a
proposed seven year transition period. If PSE&G's plan is adopted as proposed,
it would result in a reduction of annual depreciation expense of $116 million
during such transition period and $35 million thereafter over the remaining life
of these assets.
ADMINISTRATIVE LAW JUDGE'S RECOMMENDATIONS
Previously, in connection with its Energy Master Plan Proceedings, the BPU
requested the Office of Administrative Law to hold evidentiary hearings
regarding stranded costs and unbundling issues. Hearings were held before an
Administrative Law Judge (ALJ) and on August 17, 1998, the ALJ filed his
decision providing its recommendations to the BPU. The BPU can adopt, reject or
modify the ALJ's recommendations in its decision on PSE&G's proposal which was
filed as part of these proceedings. PSE&G cannot predict the extent to which the
BPU will rely on the ALJ's decision in evaluating PSE&G's proposal. The ALJ's
decision on PSE&G's competition and rate proposal:
o Recommended the adoption of PSE&G's request to securitize up to $2.5
billion of its after-tax stranded costs through the issuance of
revenue bonds, which would mature over a 15 year period.
o Recommended the recovery of $1.6 billion of PSE&G's above-market
price contracts to purchase power from non-utility generators
(NUGs).
o Recommended a rate cut of between 10% and 12%, exclusive of the
impact of energy tax reform.
o Supported PSE&G's request for a seven year transition period. PSE&G
had proposed a transition period of seven years, starting on the
effective date of the BPU's final decision in these proceedings,
with basic tariff rates capped during that seven year period. During
the transition period, PSE&G would maintain responsibility for
system reliability of energy and capacity supply.
o Accepted PSE&G's approach/methodology of quantifying stranded costs
without quantifying the amount of such costs.
o Recommended a review of PSE&G's actual electric fuel costs, which
would apply any potential savings from the elimination of the
Electric Levelized Energy Adjustment Clause (LEAC) to mitigate
stranded costs.
o Supported PSE&G's Societal Benefits Clause proposal, but proposed to
exclude non-utility generators (NUG) costs from the Societal
Benefits Clause. A separate NUG charge would be created.
o Recommended adding an amount, known as a "retail adder," to the
proposed market-based energy credit on customers' bills to give
customers who choose another energy supplier credits for more than
the market price for power.
On October 2, 1998, PSE&G filed exceptions to the ALJ's decision. These
exceptions addressed issues identified in the ALJ's decision including the
validity of capital additions made by PSE&G after the conclusion of its 1992
base rate case, the relevance of PSE&G's methodology regarding stranded costs,
mitigation strategies, the adoption of securitization and the unbundling of
costs and rates. Other parties to the proceeding have also filed exceptions to
the ALJ's decision. PSE&G filed its reply exceptions to the other parties'
exceptions to the ALJ's decision on October 30, 1998.
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Hearings at the BPU addressing other restructuring issues such as market
power, functional separation and consumer protection concluded on May 28, 1998.
Briefs have been filed by the parties in these hearings. As previously
discussed, these generic issues are expected to be decided shortly after the
March 31, 1999 BPU Order.
SETTLEMENT OF CERTAIN REGULATORY ISSUES
By Order dated December 31, 1996 (December 31st Order), the BPU approved a
settlement among PSE&G, the staff of the BPU (Staff) and the New Jersey Division
of Ratepayer Advocate (Ratepayer Advocate) addressing (1) the cost impact of the
1995 shutdown of Salem Nuclear Generating Station (Salem) Units 1 and 2 (Salem 1
and 2), including the "used and useful" issue related to the units through
December 31, 1998; (2) the recovery of certain replacement power costs
associated with the 1994 Salem 1 outage; and (3) the recovery of capacity costs
associated with PSE&G's power purchases from cogeneration producers through
December 31, 1998. Under the December 31st Order, PSE&G recorded a charge of
$83.9 million for bill credits to electric customers who received credits in
January and February 1997. PSE&G also agreed to forego recovery of $12 million
associated with energy costs that previously had been deferred. The resulting
after-tax earnings loss of $62 million or 26 cents per share of PSEG Common
Stock was previously recorded ($59 million or 25 cents per share in the third
quarter of 1996 and $3 million or 1 cent per share in 1995).
Under the terms of the December 31st Order, Salem 1 and 2 continued in
base rates without being subject to further refund and PSE&G assumed all nuclear
and fossil generating fuel and performance risks, including replacement power
costs associated with the Salem, Hope Creek Generating Station (Hope Creek) and
Peach Bottom Atomic Power Station (Peach Bottom) nuclear stations from January
1, 1997 through December 31, 1998. The BPU's nuclear performance standard (NPS)
did not apply to PSE&G from January 1, 1996 through December 31, 1998. In
addition, the energy component of PSE&G's LEAC was fixed at its then existing
level with no increase to customers until at least January 1999 with PSE&G
responsible for all risks associated with fuel prices. Any underrecovered or
overrecovered LEAC balance existing on December 31, 1998 would not be considered
in any LEAC review subsequent to that date. Any overrecovery at that date would
be applied to reduce any potential stranded costs and any underrecovered balance
will be charged to income in the period identified. For an update on the current
status of the LEAC, see Note 3. Regulatory Assets and Liabilities.
The December 31st Order provided PSE&G the opportunity, but no guarantee,
during the period January 1, 1997 through December 31, 1998, to fully recover
the December 31, 1996 underrecovered LEAC energy balance of $151 million without
any change in the current energy component of the LEAC charge. This balance was
fully recovered and the overrecovery of $39 million at December 31, 1998 is
being carried as a regulatory liability to offset stranded costs.
In addition to the resolution of the Salem "used and useful" issue, the
December 31st Order addressed two other separate long standing issues that PSE&G
had been litigating before the BPU. The first pertains to the recovery of
certain replacement power costs associated with a 58 day outage at Salem 1 in
1994. The December 31st Order required PSE&G to reduce its underrecovered LEAC
balance by $7 million related to that outage. The second pertains to the
recovery of capacity costs associated with electric utility power purchases from
cogeneration producers through December 31, 1998. The December 31st Order
required PSE&G to provide bill credits to electric customers totaling $6.4
million during January and February 1997. In addition, PSE&G reduced its
underrecovered LEAC balance by $5 million related to the recovery of capacity
costs.
Through separate letter 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 created a $30 million
revolving economic development fund with emphasis on stimulating jobs and
developing high technology projects in urban areas. Second, PSE&G will continue
to provide incentives to encourage local public housing authorities to replace
up to 4,000 refrigerators a year. Third, PSE&G committed $1 million to develop a
fund to provide innovative assistance to low income residents who are having
difficulty paying energy bills. Finally, PSE&G committed to developing a
computer system which has been developed to assist low income residents in
identifying government and community programs from which they would be eligible
to receive benefits.
On November 10, 1998, the BPU requested PSE&G to identify its intention
with regard to a new LEAC filing before the BPU, in accordance with the December
31st Order. On November 20, 1998, PSE&G responded and addressed the issue
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of a new LEAC by stating that it intends to follow its Energy Master Plan
filing, wherein it proposed to discontinue the LEAC effective with the
commencement of retail electric competition. PSE&G intends to continue the
utilization of deferred accounting for the LEAC until commencement of customer
choice. Assuming that retail access will commence on or about August 1, 1999, as
mandated in the Energy Competition Act, any overrecovery that exists as of that
date would be utilized as an offset to the proposed $3.9 billion of stranded
costs. As of December 31, 1998, PSE&G established a deferred regulatory
liability in the amount of $39 million which represents an overrecovery of LEAC
fuel costs, to be applied as an offset to stranded costs.
ELECTRIC LEVELIZED ENERGY ADJUSTMENT CLAUSE (LEAC)/DEMAND SIDE ADJUSTMENT FACTOR
(DSAF)
As discussed above, the December 31st Order fixed the energy component of
the LEAC as of December 31, 1996. Additionally, under PSE&G's Energy Master Plan
proposal, if approved, the LEAC would be discontinued. Certain components of the
LEAC would become part of the societal benefits clause under PSE&G's proposal.
No assurances can be given as to the outcome of the Energy Master Plan
Proceedings. For further discussion, see Note 3. Regulatory Assets and
Liabilities and Note 11. PSE&G Nuclear Decommissioning.
On February 24, 1997, PSE&G requested an annualized increase of $151.8
million in the DSAF component of the LEAC effective for the period from May 1997
through December 1998, representing an increase on a typical residential bill of
approximately 3.5%. The request included recovery of electric demand side
management (DSM)/conservation costs related to BPU approved programs and would
raise rates to a level sufficient to recover such costs incurred through
December 31, 1998. On April 1, 1998, the BPU approved $150.8 million of PSE&G's
requested increase. This increase was effective for service rendered on or after
April 3, 1998. The Division of the Ratepayer Advocate has appealed the BPU's
order, seeking to overturn the BPU's decision. Initial Briefs on Appeal were
filed on October 14, 1998. PSE&G cannot predict the outcome of that appeal. If
such an appeal is successful, there could be a material adverse impact on PSEG's
and PSE&G's financial condition, results of operations and net cash flows.
At December 31, 1998, PSE&G had an underrecovered balance, including
interest, of approximately $150 million related to these programs. Such amount
is included in Deferred Debits on PSE&G's balance sheet.
PSE&G's most recent DSM Resource Plan (1995 Plan) was approved by the BPU
in 1995 and was designed to encourage investment in energy-saving DSM
activities. BPU approval of the 1995 Plan included a requirement to file the
next DSM Plan by July 1, 1997. In April of 1997 PSE&G filed a request with the
BPU to extend the 1995 Plan for one year and to defer filing the next DSM Plan
until July 1, 1998, which requests were granted with the condition that the Core
Programs would continue until the next DSM Plan was approved. The BPU further
directed that PSE&G also extend existing project acceptance and in-service
deadline dates by one year. On June 29, 1998, PSE&G filed with the BPU the 1999
Interim Demand Side Management Plan which included Core programs and the
Standard Offer, and hearings on the filing were conducted. No action has been
taken by the BPU leaving no mechanism open at this time for the accepting of new
Standard Offer project proposals. It is anticipated that there will be BPU
action on the 1999 Interim Plan in the near future, but PSE&G cannot predict the
outcome of such action.
The Energy Competition Act provides for the continued ability to recover
costs related to the DSM programs through a societal benefits charge initially
set at the level in rates for DSM cost recovery in place on February 9, 1999.
Within the subsequent twelve months, the BPU is required to complete a statewide
comprehensive resource analysis of energy efficiency and renewable energy
programs and determine the appropriate level of funding for each utility based
on this analysis. PSEG and PSE&G cannot predict the final outcome of DSM and
other mandated societal costs recovery under the Energy Master Plan Proceedings.
Inability to recover such amounts could have a material adverse impact on PSEG's
and PSE&G's financial condition, results of operations and net cash flows. For
further discussion of the potential impact on PSEG and PSE&G of the Energy
Master Plan Proceedings, see New Jersey Energy Master Plan Proceedings.
LEVELIZED GAS ADJUSTMENT CLAUSE (LGAC)
On July 10, 1998, PSE&G filed a motion with the BPU requesting a $27
million annual increase in its LGAC for the period October 1, 1998 to September
30, 1999, representing an increase on a typical residential bill of
approximately 2.8%. Also included in the revised LGAC rate is an increase in the
Remediation Adjustment Clause (RAC) component, a decrease in the Demand Side
Adjustment Factor (DSAF) and a request to change, on a monthly basis, the
over/under collection
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component of the LGAC rate for residential customers. On October 15, 1998,
PSE&G, BPU Staff and the Ratepayer Advocate executed an Interim Stipulation
which allows the filed LGAC rates to become effective, subject to refund. On
November 4, 1998, the BPU approved an Order adopting the Interim Stipulation.
On December 22, 1998, the Board approved a Final Stipulation in the LGAC
which provided for the following:
1) All previously approved interim rates became final.
2) All margins (prospectively) from PSE&G's participation in the New
Jersey Natural Gas Company (New Jersey Natural) residential
unbundling pilot program were to be returned 100% to PSE&G's firm
gas customers.
3) PSE&G was allowed to hedge up to 115bcf (approximately 80%) of its
residential gas supply through physical or financial transactions,
with a limit on the financial transactions of 75% of the total to be
hedged.
4) The LGAC rate can now be changed (increased or decreased) monthly,
within certain limits, during November through April to reflect
changes in the projected over/under collection.
On November 14, 1997, PSE&G filed its 1997/98 LGAC petition with the BPU
requesting a $45 million increase on an annual basis in its LGAC for the period
January 1, 1998 to December 31, 1998. This increase, as filed, amounts to
approximately 4.8% on a typical residential bill. Public hearings were held on
February 3, 1998. On February 18, 1998, the BPU approved a Stipulation agreed to
by the parties in the proceeding. The Stipulation provided for an interim
increase in LGAC revenues of approximately $31 million, excluding State sales
and use tax. This represents an increase of 3.5% on a typical residential bill.
On June 26, 1998, an Order was executed by the BPU making the terms of the
interim Stipulation final, without modification.
REMEDIATION ADJUSTMENT CHARGE (RAC)
In 1992, the BPU approved a mechanism for recovery of PSE&G's costs
associated with its Manufactured Gas Plant Remediation Program (Remediation
Program) 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.
On July 10, 1998, PSE&G filed a motion before the BPU requesting a $1.5
million annual increase in its RAC for the period August 1, 1997 to July 31,
1998, representing an increase on a typical residential bill of approximately
0.03%. On November 4, 1998, the BPU issued an Order approving the rate increase
on an interim basis, subject to refund. On December 22, 1998, the BPU approved
the rate increase on a final basis.
The Energy Competition Act provides for the continued ability to recover
costs related to the Remediation Program through a societal benefits charge. No
assurances can be given as to the outcome of the Energy Master Plan Proceedings.
CONSOLIDATED TAX BENEFITS
In a case affecting another utility in which neither PSEG nor PSE&G were
parties, the BPU considered the extent to which tax savings generated by
non-utility affiliates included in the consolidated tax return of that utility's
holding company should be considered in setting that utility's rates. In 1992,
the BPU approved an order in such case treating certain consolidated tax savings
generated after June 30, 1990 by that utility's non-utility affiliates as a
reduction of its rate base. Also in 1992, the BPU issued an order resolving
PSE&G's 1992 base rate proceeding without separate quantification of the
consolidated tax issue. Such order did not provide final resolution of the
consolidated tax issue for any subsequent base rate filing. While PSEG continues
to account for its two wholly-owned subsidiaries on a stand-alone basis,
resulting in a realization of tax benefits by the entity generating the benefit,
an ultimate unfavorable resolution of the consolidated tax issue could reduce
PSE&G's and PSEG's revenues, net income or net cash flows. In addition, an
unfavorable resolution may adversely impact PSEG's non-utility investment
strategy. PSEG believes that PSE&G's taxes should be treated on a stand-alone
basis for rate-making purposes, based on the separate nature of the utility and
non-utility businesses. The issue of PSEG sharing the benefits of consolidated
tax savings with PSE&G or its ratepayers was addressed by the BPU in its July
28, 1996 letter which informed PSE&G that the issue of consolidated tax savings
can be discussed in the context of PSE&G's next base rate case or plan for an
alternative form of regulation. However, neither PSEG nor PSE&G is able to
predict what action, if any, the BPU may take concerning consolidation of tax
benefits in future rate proceedings.
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POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (OPEB)
On October 21, 1998, the BPU ordered PSE&G to fund in an external trust
its annual OPEB obligation to the maximum extent allowable under Section 401(h)
of the Internal Revenue Code. For 1998, the amount funded was $12 million.
Remaining OPEB costs will not be funded in an external trust.
OTHER REGULATORY ISSUES
NON-UTILITY GENERATION BUYDOWN
PSE&G is seeking to restructure certain of its BPU approved contracts with
NUGs, which are estimated to be $1.6 billion above assumed future market prices.
Under Federal and State regulations, utilities have been required to enter into
long-term power purchase agreements with NUGs at prices which have subsequently
proven to be above market. In June 1998, PSE&G and the Union County Utilities
Authority (UCUA) announced an agreement to amend their Power Purchase and
Interconnection Agreement and in July 1998, the BPU approved this amendment.
Under this amendment, PSE&G has paid UCUA a lump sum amount of $7.75 million in
exchange for a $15.6 million savings to ratepayers on a net present value basis.
The payment of $7.75 million by PSE&G is being recovered through the LEAC and is
expected to continue to be recovered through successor mechanisms to be
determined by the outcome of the Energy Master Plan Proceedings as to which no
assurances can be given.
ORDER ADOPTING AUCTION STANDARDS
On June 16, 1998, the BPU adopted standards applicable to the auction
processes being used by two other New Jersey utilities to divest themselves of
certain of their generating plants by sale to unrelated entities. At this time,
PSEG's strategy is to retain its generation assets. The BPU order adopting these
auction standards indicated that the standards would be reviewed and possibly
modified if deemed appropriate. Should PSE&G decide or be required to sell its
generation assets, PSE&G would determine at such time whether to seek such
review or modification.
INTERIM COMPETITIVE TRANSITION CHARGE (ICTC)
In September 1996, PSE&G filed a petition with the BPU to establish an
ICTC which is designed to recover stranded costs which will result from a
customer leaving PSE&G's system as a full requirements customer. The Energy
Competition Act does not require that on-site generators pay any fees equivalent
to the societal benefits charge or recovery of utility stranded costs (market
transition charge or transition bond charges) provided that the energy load
served by the on-site generators does not reduce the utility's distributed
kilowatt hours below 92.5% of the kilowatt hours distributed by the utility in
1999. If that trigger is exceeded, then on-site generators will pay such
charges. PSE&G cannot predict the impact this may have on its financial
condition, results of operations and net cash flows.
GAS UNBUNDLING
PSE&G's unbundled gas transportation tariffs, which have been in place
since 1994, allow any nonresidential customer, regardless of size, to purchase
its own gas, transport it to PSE&G and require PSE&G to deliver such gas to the
customer's facility. Under the Energy Competition Act, utilities are required to
offer all of their customers the choice to buy the gas commodity from alternate
suppliers by December 31, 1999. The Energy Competition Act also applies similar
rules to the gas industry as to the electric industry addressing affiliate
relations, consumer protections, among others.
To date, approximately 17,700 commercial and industrial customers, of
approximately 180,000 such customers eligible, have elected to utilize unbundled
gas service. PSE&G cannot predict, in light of restructuring and with the
changes in the law affecting the gross receipts and franchise tax which became
effective on January 1, 1998, whether additional customers will use this
service. Those changes now apply sales tax to sales by marketers, putting a
similar tax burden on them as borne by PSE&G (see NJGRT Reform below).
In April 1997, the BPU approved PSE&G's proposal for a residential gas
unbundling pilot program (SelectGas), which allowed approximately 65,000
residential natural gas customers, out of a total of 1.4 million residential gas
customers, to participate in the competitive marketplace effective May 1, 1997.
On April 30, 1998, PSE&G filed a report with the BPU
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on SelectGas and proposed refinements for a permanent residential gas unbundling
program (SelectGas Plus). Under SelectGas Plus, as proposed, a total of 300,000
residential customers would be permitted to choose their gas supplier on a
first-come, first-served basis. This expanded program would commence sixty days
after a BPU order authorizing this program. PSE&G's proposal would permit its
remaining residential customers to choose their gas supplier by July 1, 1999 or
such alternate date as may be established by the BPU. On December 22, 1998,
PSE&G, the BPU and the Ratepayer Advocate executed an Interim Stipulation for
Phase I of PSE&G's Residential Gas Transportation Program (Program). In
accordance with the Interim Stipulation, residential customers would not be
eligible to register (sign-up) for the Program until 60 days after the BPU's
Energy Master Plan Proceedings written order. The Interim Stipulation mandates
that residential customers who return to PSE&G's bundled sales service after a
designated period would be served gas which is market- priced under PSE&G's
Market Price Gas Service (MPGS) tariff.
PSE&G also participates in a retail pilot program of the New Jersey
Natural Gas Company (New Jersey Natural) to provide unbundled gas transportation
to former residential customers of New Jersey Natural. PSE&G has enrolled over
1,700 former residential gas customers of New Jersey Natural.
Current transportation rate schedules produce the same non-fuel revenue
per therm as existing sales tariff rate schedules. Thus, to date, PSE&G's
earnings have been unaffected by whether the customers remain on sales tariffs
or convert to transportation service. PSEG's indirect subsidiary, Energy
Technologies, provides non-utility gas marketing services operating in New
Jersey and several other states.
NEW JERSEY GROSS RECEIPTS AND FRANCHISE TAX (NJGRT) REFORM
For a discussion of New Jersey energy tax reform and its impact on the
NJGRT, see Note 12. Income Taxes.
NOTE 3. REGULATORY ASSETS AND LIABILITIES
Regulatory assets and liabilities are recorded in accordance with the
provisions of SFAS 71. In general, SFAS 71 recognizes that accounting for
rate-regulated enterprises should reflect the relationship of costs and
revenues. As a result, a regulated utility may defer recognition of costs (a
regulatory asset) or recognize obligations (a regulatory liability) if it is
probable that, through the rate-making process, there will be a corresponding
increase or decrease in revenues. Accordingly, PSE&G has deferred certain costs,
which are being amortized over various periods. To the extent that collection of
such costs or payment of liabilities is no longer probable as a result of
changes in regulation and/or PSE&G's competitive position, the associated
regulatory asset or liability will be charged or credited to income. Through
1998 and into 1999, PSE&G continues to meet the requirements for application of
SFAS 71. Once the BPU issues its March 31, 1999 order in the Energy Master Plan
Proceedings, PSE&G will no longer meet the requirements for application of SFAS
71 for its then deregulated operations. It is expected that the existing
regulatory assets, listed below, will continue in the regulated portion of
PSE&G's business and will continue to be subject to SFAS 71.
At December 31, 1998 and 1997, PSE&G had deferred the following regulatory
assets and liabilities on the Consolidated Balance Sheets:
DECEMBER 31,
-----------------------
1998 1997
---------- ----------
REGULATORY ASSETS (MILLIONS OF DOLLARS)
SFAS 109 Income Taxes $ 704 $ 725
OPEB Costs 270 289
Demand Side Management Costs 150 116
Environmental Costs 139 122
Unamortized Loss on Reacquired Debt and
Debt Expense 135 135
Decontamination and Decommissioning Costs 39 43
Underrecovered Gas Costs 35 76
Plant and Regulatory Study Costs 32 34
Repair Allowance Tax Deficiencies and
Interest 26 --
Property Abandonments 21 37
Oil and Gas Property Write-Down 21 26
81
<PAGE>
Underrecovered Electric Energy Costs -- 91
Other 7 --
---------- ----------
Total Regulatory Assets $ 1,579 $ 1,694
========== ==========
REGULATORY LIABILITIES
Overrecovered Electric Energy Costs $ 39 $ --
Other Stranded Cost Recovery Offsets 4 --
---------- ----------
Total Regulatory Liabilities $ 43 $ --
========== ==========
UNAMORTIZED LOSS ON REACQUIRED DEBT AND DEBT EXPENSE: Represents bond issuance
costs, premiums, discounts and losses on reacquired long-term debt.
OPEB COSTS: Includes costs associated with adoption of SFAS 106 which were
deferred in accordance with EITF Issue 92-12. Beginning January 1, 1998, PSE&G
commenced the amortization of the regulatory asset over 15 years.
ENVIRONMENTAL COSTS: Represents environmental costs which are probable of
recovery in future rates.
UNDERRECOVERED ELECTRIC ENERGY COSTS/OVERRECOVERED ELECTRIC ENERGY COSTS: PSE&G
had the opportunity, but no guarantee, during the period January 1, 1997 through
December 31, 1998, to fully recover its December 31, 1996 underrecovered LEAC
balance of $151 million without any change in the current energy component of
the LEAC charge. At December 31, 1998, PSE&G has fully recovered its December
31, 1996 underrecovered LEAC balance. The LEAC is in an overrecovered position
of $39 million at December 31, 1998. This overrecovered amount will be used to
offset stranded costs per the BPU's December 31st Order in the Salem settlement.
PSE&G continues to follow deferred accounting treatment for the LEAC until the
BPU rules on PSE&G's Energy Master Plan proposal. The potential discontinuance
of the LEAC which may result from the Energy Master Plan Proceedings may cause
increased earnings volatility since PSE&G will bear the full risks and rewards
of changes in nuclear and fossil generating fuel costs and replacement power
costs. No assurances can be given as to the outcome of the New Jersey Energy
Master Plan Proceedings.
SFAS 109 INCOME TAXES: Represents regulatory asset related to the implementation
of SFAS 109, "Accounting for Income Taxes" in 1993. For further discussion
including flow-through impacts, see Note 12. Income Taxes.
DEMAND SIDE MANAGEMENT COSTS: Recoveries of DSM/conservation costs (related to
BPU-approved programs) are determined by the BPU. PSE&G's deferred DSM balance
as of December 31, 1998 and 1997, respectively, reflects
underrecovered/(overrecovered) costs as follows:
82
<PAGE>
DECEMBER 31,
--------------------
1998 1997
-------- --------
(MILLIONS OF DOLLARS)
Deferred DSM (Including
Interest)--Electric $ 151 $ 122
Deferred DSM (Including
Interest)--Gas (1) (6)
-------- --------
Total $ 150 $ 116
======== ========
DECONTAMINATION AND DECOMMISSIONING COSTS: Represents amounts related to
decontamination and decommissioning at Federal government sites which are
probable of recovery in future rates.
PLANT AND REGULATORY STUDY COSTS: Amounts shown in the consolidated balance
sheets consist of costs associated with developing, consolidating and
documenting the specific design basis of PSE&G's jointly owned nuclear
generating stations, as well as PSE&G's share of costs associated with the
cancellation of the Hydrogen Water Chemistry System Project (HWCS Project) at
Peach Bottom. PSE&G has received both BPU and FERC approval to defer and
amortize, over the remaining lives of the Salem, Hope Creek and Peach Bottom
nuclear units, costs associated with configuration baseline documentation and
the canceled HWCS Project.
REPAIR ALLOWANCE TAX DEFICIENCIES AND INTEREST: Represents Federal income tax
deficiencies and interest thereon applicable to deductions under the repair
allowance provisions of the Internal Revenue Code, disallowed upon IRS audit.
The BPU has allowed recovery of these costs in rates.
PROPERTY ABANDONMENTS: The BPU has authorized PSE&G to recover after-tax
property abandonment costs from its customers. The table of Regulatory Assets
above reflects property abandonments, and related tax effects, for which no
return is earned. The net-of-tax discount rate used was between 4.868% and
5.292%.
OIL AND GAS PROPERTY WRITE-DOWN: On December 31, 1992, the BPU approved the
recovery of PSE&G's deferral of an EDC write-down through PSE&G's LGAC over a
ten-year period beginning January 1, 1993.
NOTE 4. LONG-TERM INVESTMENTS
Long-Term Investments are primarily those of Energy Holdings.
DECEMBER 31,
-----------------------
1998 1997
---------- ----------
(MILLIONS OF DOLLARS)
Lease Agreements (see Note 5
Leasing Activities):
Leveraged Leases ..................... $ 1,393 $ 1,143
Direct and Other Financing Leases .... -- 4
---------- ----------
Total ............................. 1,393 1,147
---------- ----------
Partnerships:
General Partnerships ................. 72 142
Limited Partnerships ................. 522 534
---------- ----------
Total ............................. 594 676
---------- ----------
Corporate Joint Ventures ................ 879 885
Securities .............................. 21 28
Other Investments ....................... 147 137
---------- ----------
Total Long-Term Investments ....... $ 3,034 $ 2,873
========== ==========
Resources' leveraged leases are reported net of principal and interest on
non-recourse loans, unearned income and deferred tax credits. Income and
deferred tax credits are recognized at a level rate of return from each lease
during the periods in which the net investment is positive.
83
<PAGE>
Partnership investments and corporate joint ventures are those of
Resources, Global and EGDC.
Other Investments, above, relate primarily to Public Service Conservation
Resources Corporation (PSCRC), which at December 31, 1998 was a wholly-owned
subsidiary of PSE&G. On January 1, 1999, PSCRC was transferred to Energy
Technologies, a wholly-owned subsidiary of Energy Holdings. PSCRC's investment
in DSM projects had balances at December 31, 1998 and 1997 of approximately $72
million and $84 million, respectively.
NOTE 5. LEASING ACTIVITIES
AS LESSOR
Resources' net investments in leveraged leases are composed of the
following elements:
DECEMBER 31, 1998 DECEMBER 31, 1997
--------------------- ---------------------
(MILLIONS OF DOLLARS) (MILLIONS OF DOLLARS)
LEVERAGED LEVERAGED
LEASES LEASES
---------- ----------
Lease rents receivable ............ $ 1,921 $ 1,498
Estimated residual value .......... 665 635
---------- ----------
2,586 2,133
Unearned and deferred income ...... (1,193) (990)
---------- ----------
Total investments . ........... 1,393 1,143
Deferred taxes .................... (731) (670)
---------- ----------
Net investments ............... $ 662 $ 473
========== ==========
Resources' other capital leases are with various regional, state and city
authorities for transportation equipment and aggregated $0 million and $4
million as of December 31, 1998 and 1997, respectively.
84
<PAGE>
NOTE 6. SCHEDULE OF CONSOLIDATED CAPITAL STOCK AND OTHER SECURITIES
<TABLE>
<CAPTION>
CURRENT
REDEMPTION
OUTSTANDING PRICE DECEMBER 31, DECEMBER 31,
SHARES PER SHARE 1998 1997
----------- ---------- ------------ ------------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
PSEG Common Stock (no par) (A)
Authorized 500,000,000 shares; issued and
outstanding at December 31, 1998, 226,643,508
shares; at December 31, 1997, 231,957,608 shares
and at December 31, 1996, 233,470,291 shares ........ $3,396 $3,603
PSEG Preferred Securities (B)
PSEG Quarterly Guaranteed Preferred Beneficial
Interest in PSEG's Subordinated Debentures
(D) (E) (G) (I)
7.44% ........................................... 9,000,000 -- $225 $--
Floating Rate ..................................... 150,000 -- 150 --
7 1/4% .......................................... 6,000,000 -- 150 --
------------ ------------
Total Quarterly Guaranteed Preferred Beneficial
Interest in PSEG's Subordinated Debentures ........ $525 $--
============ ============
PSE&G Preferred Securities
PSE&G Cumulative Preferred Stock (C) without
Mandatory Redemption (D) $100 par value series
4.08% ........................................... 146,221 103.00 $15 $15
4.18% ........................................... 116,958 103.00 12 12
4.30% ............................................ 149,478 102.75 15 15
5.05% ............................................ 104,002 103.00 10 10
5.28% ............................................ 117,864 103.00 12 12
6.92% ............................................ 160,711 -- 16 16
$25 par value series
6.75% ............................................ 600,000 -- 15 15
============ ============
Total Preferred Stock without Mandatory Redemption .. $95 $95
============ ============
With Mandatory Redemption (D) (E) $100
par value series
5.97% ............................................ 750,000 102.99 $75 $75
============ ============
Total Preferred Stock with Mandatory Redemption ..... $75 $75
============ ============
PSE&G Monthly Guaranteed Preferred Beneficial
Interest in PSE&G's Subordinated Debentures
(D) (E) (H)
9.375% ........................................... 6,000,000 -- $150 $150
8.00% ............................................ 2,400,000 -- 60 60
------------ ------------
Total Monthly Guaranteed Preferred Beneficial
Interest in PSE&G's Subordinated Debentures ....... $210 $210
============ ============
PSE&G Quarterly Guaranteed Preferred Beneficial
Interest in PSE&G's Subordinated Debentures
(D) (E) (F) (H)
8.625% ........................................ 8,320,000 -- $208 $208
8.125% ........................................ 3,800,000 -- 95 95
------------ ------------
Total Quarterly Guaranteed Preferred Beneficial
Interest in PSE&G's Subordinated Debentures ....... $303 $303
============ ============
</TABLE>
(A) On September 15, 1998, in anticipation of securitization of PSE&G's
stranded costs afforded by the Energy Competition Act and the ALJ's
decision, the Board of Directors of PSEG authorized the repurchase of up
to 10 million shares of its common stock (Common Stock). Under the
authorization, repurchases were made in the open market at the discretion
of PSEG. The repurchased shares have been held as treasury stock. At
December 31, 1998, PSEG had repurchased 5,314,100 shares of Common Stock
at a cost of approximately $207 million, under this authorization. As of
February 8, 1999, PSEG had repurchased a total of 10 million shares at a
cost of approximately $391 million under this program.
In July 1996, PSEG initiated a Common Stock repurchase program. As of
December 31, 1996, 11,227,639 shares had been repurchased for $307
million. The program concluded on January 17, 1997. The total number of
shares repurchased under the program was 12,740,322 at a cost of $350
million.
85
<PAGE>
Total authorized and unissued shares include 7,302,488 shares of PSEG
Common Stock reserved for issuance through PSEG's Dividend Reinvestment
and Stock Purchase Plan and various employee benefit plans. In 1998 and
1997, no shares of PSEG Common Stock were issued or sold through these
plans.
(B) PSEG has authorized a class of 50,000,000 shares of Preferred Stock
without par value, none of which is outstanding.
(C) At December 31, 1998, there were aggregates of 5,954,766 shares of $100
par value and 9,400,000 shares of $25 par value Cumulative Preferred Stock
which were authorized and unissued, and which upon issuance may or may not
provide for mandatory sinking fund redemption. If dividends upon any
shares of Preferred Stock are in arrears in an amount equal to the annual
dividend thereon, voting rights for the election of a majority of PSE&G's
Board of Directors become operative and continue until all accumulated and
unpaid dividends thereon have been paid, whereupon all such voting rights
cease, subject to being revived from time to time.
(D) At December 31, 1998 and 1997, the annual dividend requirement and
embedded dividend rate for Preferred Stock without mandatory redemption
was $10,886,758 and 5.18%, respectively, and for Preferred Stock with
mandatory redemption was $4,477,500 and 6.02%, respectively.
At December 31, 1998 and 1997, the annual dividend requirement and
embedded cost of the Monthly Income Preferred Securities (Guaranteed
Preferred Beneficial Interest in PSE&G's Subordinated Debentures) was
$18,862,500 and 5.50% and $18,862,500 and 6.04%, respectively.
At December 31, 1998 and 1997, the annual dividend requirement of the
Quarterly Income Preferred Securities (Guaranteed Preferred Beneficial
Interest in PSE&G's Subordinated Debentures) and their embedded costs were
$25,658,750 and 5.18% and $25,658,750 and 5.70%, respectively.
At December 31, 1998, the annual dividend requirement of PSEG's Trust
Preferred Securities (Guaranteed Preferred Beneficial Interest in PSEG's
Subordinated Debentures) and their embedded costs were $38,433,000 and
4.91%, respectively. There were no Trust Preferred Securities at PSEG at
December 31, 1997.
(E) For information concerning fair value of financial instruments, see Note
8. Financial Instruments and Risk Management.
(F) In February 1997, PSE&G Capital Trust II issued $95 million of 8.125%
Quarterly Guaranteed Preferred Beneficial Interest in PSE&G's Subordinated
Debentures.
(G) In January 1998, Enterprise Capital Trust I issued $225 million of 7.44%
Quarterly Guaranteed Preferred Beneficial Interest in PSEG's Subordinated
Debentures. In June 1998, Enterprise Capital Trust II issued $150 million
of Floating Rate Capital Securities with a Quarterly Guaranteed Preferred
Beneficial Interest in PSEG's Subordinated Debentures. The Floating Rate
Capital Securities were offered to Institutional Investors at an annual
rate equal to 3-month LIBOR plus 1.22%, determined quarterly. PSEG entered
into an interest rate swap agreement which effectively fixes the rate on
this issue for 10 years at 7.2%. In July 1998, Enterprise Capital Trust
III issued $150 million of 7.25% Quarterly Guaranteed Preferred Beneficial
Interest in PSEG's Subordinated Debentures.
(H) PSE&G Capital L.P., PSE&G Capital Trust I and PSE&G Capital Trust II were
formed and are controlled by PSE&G for the purpose of issuing Monthly and
Quarterly Income Preferred Securities (Monthly and Quarterly Guaranteed
Preferred Beneficial Interest in PSE&G's Subordinated Debentures). The
proceeds were loaned to PSE&G and are evidenced by PSE&G's Deferrable
Interest Subordinated Debentures. If and for as long as payments on
PSE&G's Deferrable Interest Subordinated Debentures have been deferred, or
PSE&G has defaulted on the indentures related thereto or its guarantees
thereof, PSE&G may not pay any dividends on its common and preferred
stock. The Subordinated Debentures and the indentures constitute a full
and unconditional guarantee by PSE&G of the Preferred Securities issued by
the partnership and the trusts.
(I) Enterprise Capital Trust I, Enterprise Capital Trust II and Enterprise
Capital Trust III were formed and are controlled by PSEG for the purpose
of issuing Quarterly Trust Preferred Securities (Quarterly Guaranteed
Preferred
86
<PAGE>
Beneficial Interest in PSEG's Subordinated Debentures). The proceeds were
loaned to PSEG and are evidenced by PSEG's Deferrable Interest
Subordinated Debentures. If and for as long as payments on PSEG's
Deferrable Interest Subordinated Debentures have been deferred, or PSEG
has defaulted on the indentures related thereto or its guarantees thereof,
PSEG may not pay any dividends on its common and preferred stock. The
Subordinated Debentures and the indentures constitute a full and
unconditional guarantee by PSEG of the Preferred Securities issued by the
trusts.
NOTE 7. SCHEDULE OF CONSOLIDATED DEBT
<TABLE>
<CAPTION>
LONG-TERM DECEMBER 31,
-------------------------------
INTEREST RATES MATURITY 1998 1997
- -------------- ----------- ------------ --------------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
PSEG
Extendible Notes (A)
LIBOR plus 0.75% - 0.78% 2000....... $275 $--
------------ --------------
Total Long-Term Debt of PSEG................................... $275 $--
============ ==============
PSE&G
First and Refunding Mortgage Bonds (B)
6.00% 1998....... $-- $100
8.75% 1999....... 100 100
6.00%-7.625% 2000....... 635 635
7.875% 2001....... 100 100
6.125% 2002....... 300 300
6.875%-8.875% 2003....... 300 300
6.25%-9.125% 2004-2007.. 750 750
6.80%-6.90% 2008-2012.. 3 3
Variable 2008-2012.. 66 66
6.75%-7.375% 2013-2017.. 375 375
6.45%-9.25% 2018-2022.. 139 139
Variable 2018-2022.. 14 14
5.20%-7.50% 2023-2027.. 573 568
5.45%-6.55% 2028-2032.. 499 499
Variable 2028-2032.. 25 25
5.00%-8.00% 2033-2037.. 160 160
Medium-Term Notes
8.10%-8.16% 2008-2012.. 60 60
7.04% 2018-2022.. 9 9
7.15%-7.18% 2023-2027.. 41 41
------------ --------------
Total First and Refunding Mortgage Bonds......................... 4,149 4,244
------------ --------------
Unsecured Bonds (C)
6.00% 1998....... -- 18
Variable 2027....... 19 19
------------ --------------
Total Unsecured Bonds............................................ 19 37
------------ --------------
Principal Amount Outstanding (D).................................... 4,168 4,281
Amounts Due Within One Year (E)..................................... (100) (118)
Net Unamortized Discount............................................ (23) (37)
------------ --------------
Total Long-Term Debt of PSE&G (F)................................ $4,045 $4,126
============ ==============
ENERGY HOLDINGS
PSEG CAPITAL
Senior Notes (G)
9.875%--10.05% 1998....... $-- $38
Medium-Term Notes
9.00% 1998....... -- 75
8.95%-9.93% 1999....... 155 155
6.54% 2000....... 78 78
6.74% 2001....... 135 135
6.80%-7.00% 2002....... 130 130
------------ --------------
Principal Amount Outstanding (D).................................... 498 611
Amounts Due Within One Year (E)..................................... (155) (113)
Net Unamortized Discount............................................ (2) (2)
------------ --------------
Total Long-Term Debt of PSEG Capital............................. 341 496
------------ --------------
FUNDING (H)
9.95% 1998....... -- 83
7.58% 1999....... 45 45
------------ --------------
Principal Amount Outstanding (D).................................... 45 128
</TABLE>
87
<PAGE>
<TABLE>
<S> <C> <C> <C>
Amounts Due Within One Year (E)..................................... (45) (83)
------------ --------------
Total Long-Term Debt of Funding.................................. -- 45
------------ --------------
GLOBAL
Non-recourse Debt (I)
7.721% - Bank Loan 1999....... 87 87
13.23% - Bank Loan 2002....... 123 135
14.00% - Minority Interest Loan 2027....... 10 10
------------ --------------
Principal Amount Outstanding (D).................................... 220 232
Amounts Due Within One Year......................................... (118) (26)
------------ --------------
Total Long-Term Debt of Global................................. 102 206
------------ --------------
Total Long-Term Debt of Energy Holdings........................ $443 $747
============ ==============
Consolidated Long-Term Debt (J)............................. $4,763 $4,873
============ ==============
</TABLE>
(A) In November 1998, PSEG issued Series A and B of Extendible Notes due
November 2000 totaling $275 million. Series A in the amount of $100
million pays interest at LIBOR plus 0.75%, reset quarterly, and will be
automatically tendered to the remarketing agent for remarketing on May 24,
1999. Series B in the amount of $175 million pays interest at LIBOR plus
0.78%, reset quarterly, and will be automatically tendered to the
remarketing agent for remarketing on November 22, 1999. At December 31,
1998, the interest rates on Series A and B were 6.00% and 6.03%,
respectively.
(B) PSE&G's Mortgage, securing the Bonds, constitutes a direct first mortgage
lien on substantially all PSE&G's property and franchises.
During 1998, PSE&G reacquired on the open market $242 million of its 7.50%
Series OO First and Refunding Mortgage Bonds (Bonds). In May 1998, PSE&G
issued $250 million of its 6.375% Remarketable Series YY Bonds due 2023,
Mandatorily Tendered 2008. PSE&G also entered into a Remarketing Agreement
with a third party that granted the third party the option to call and
remarket the Series YY Bonds on May 1, 2008 for the remaining term of the
Series YY Bonds. In January 1998, $100 million of PSE&G's 6.00% Bonds,
Series NN, matured.
(C) On July 1, 1998, $18 million of PSE&G's 6% Unsecured Bonds matured.
(D) For information concerning fair value of financial instruments, see Note
8. Financial Instruments and Risk Management.
(E) The aggregate principal amounts of mandatory requirements for sinking
funds and maturities for each of the five years following December 31,
1998 are as follows:
<TABLE>
<CAPTION>
SINKING
FUNDS MATURITIES
----- ----------------------------------------------------------------------------
PSEG
YEAR GLOBAL PSEG PSE&G CAPITAL FUNDING GLOBAL TOTAL
- ------------ ---------- --------- ----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1999........ $31 -- $100 $155 $45 $87 $418
2000........ 31 $275 635 78 -- -- 1,019
2001........ 31 -- 100 135 -- -- 266
2002........ 30 -- 300 130 -- -- 460
2003........ -- -- 300 -- -- -- 300
--------- ------------------------ ------------ ------------ -----------
$123 $275 $1,435 $498 $45 $87 $2,463
========= ======================== ============ ============ ===========
</TABLE>
(F) At December 31, 1998 and 1997, PSE&G's annual interest requirement on
long-term debt was $282 million and $291 million, of which $274 million
and $283 million, respectively, was the requirement for Bonds. The
embedded interest cost on long-term debt on such dates was 7.35% and
7.44%, respectively. The embedded interest cost on long-term debt due
within one year at December 31, 1998 was 8.83%.
(G) PSEG Capital has provided up to $750 million debt financing for Energy
Holdings' businesses, except Energy Technologies, on the basis of a net
worth maintenance agreement with PSEG. Effective January 31, 1995, PSEG
Capital has limited its borrowings to no more than $650 million.
88
<PAGE>
(H) Funding provides debt financing for Resources, Global and their
subsidiaries on the basis of an unconditional guarantee from Energy
Holdings.
(I) Global's projects are generally financed with non-recourse debt at the
project level, with the balance in the form of equity investments by the
partners in the project. The non-recourse debt shown in the above table is
that of two consolidated subsidiaries which have equity investments in
distribution facilities in Argentina and Brazil. Global's capital at risk
on the projects is limited to its original equity investment. The
non-recourse debt, through the process of consolidation, appears as
long-term debt and long-term investments in PSEG's consolidated balance
sheets.
(J) At December 31, 1998 and 1997, the annual interest requirement on
long-term debt was $365 million and $378 million, of which $274 million
and $283 million, respectively, was the requirement for Bonds. The
embedded interest cost on long-term debt on such dates was 7.32% and
7.64%, respectively.
PSEG
At December 31, 1998, PSEG had a committed $150 million revolving credit
facility which expires in December 2002. At December 31, 1998 and 1997, PSEG had
a $25 million and $75 million uncommitted line of credit, respectively, with a
bank. At December 31, 1998, PSEG had no debt outstanding under these facilities.
The weighted-average, short-term debt rate of PSEG was 5.6%, 6.2% and 5.7% for
the years ended December 31, 1998, 1997 and 1996, respectively.
PSE&G
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Principal amount outstanding at year end, primarily commercial paper....... $850 $1,106 $638
Weighted average interest rate for short-term debt at year end............. 5.91% 6.07% 5.70%
</TABLE>
PSE&G has authorization from the BPU to issue and have outstanding not
more than $1.5 billion of its short-term obligations at any one time, consisting
of commercial paper and other unsecured borrowings from banks and other lenders.
This authorization expires January 4, 2000.
PSE&G has a $1.3 billion commercial paper program (Program) supported by a
$650 million revolving credit agreement expiring in June 1999 and a $650 million
revolving credit agreement expiring in June 2002 with a group of commercial
banks. As of December 31, 1998 and 1997, PSE&G had $655 million and $952
million, respectively, outstanding under the Program, which amounts are included
in the table above. As of December 31, 1998, there was no debt outstanding under
the revolving credit agreements.
PSE&G has $150 million in uncommitted lines of credit facilities extended
by a number of banks to primarily support short-term borrowings, of which $115
million was outstanding on December 31, 1998 and is included in the table above.
PSE&G had various lines of credit facilities extended by banks to
primarily support the issuance of letters of credit. As of December 31, 1998,
letters of credit were issued in the amount of $21 million.
PSE&G Fuel Corporation (Fuelco) has a $125 million commercial paper
program to finance a 42.49% share of Peach Bottom nuclear fuel, supported by a
$125 million revolving credit facility with a group of banks, which expires on
June 28, 2001. PSE&G has guaranteed repayment of Fuelco's respective
obligations. As of December 31, 1998 and 1997, Fuelco had commercial paper of
$80 million outstanding under the commercial paper program, which amounts are
included in the table above. As of December 31, 1998, there was no debt
outstanding under the revolving credit facility.
Pursuant to the BPU's authorization of long-term debt, PSE&G has entered
into standby financing arrangements with banks totaling $124 million. These
facilities support long-term tax-exempt multi-mode mortgage bond financings done
through the New Jersey Economic Development Authority, The Pollution Control
Financing Authority of Salem County (New Jersey), the York County (Pennsylvania)
Industrial Development Authority and the Indiana County (Pennsylvania)
Industrial Development Authority. As of December 31, 1998, no amounts were
outstanding under such arrangements.
89
<PAGE>
ENERGY HOLDINGS
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Principal amount outstanding at year end................................... $206 $267 $--
Weighted average interest rate for short-term debt at year end............. 6.46% 6.92% --
</TABLE>
Funding has a $300 million credit facility expiring in July 1999 and a
$150 million revolving credit agreement expiring in November 1999. As of
December 31, 1998, there was $206 million outstanding under these facilities,
which is included in the table above.
NOTE 8. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
PSEG's operations give rise to exposure to market risks from changes in
commodity prices, interest rates, foreign currency exchange rates and securities
prices. PSEG's policy is to use derivative financial instruments for the purpose
of managing market risk consistent with its business plans and prudent business
practices.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value was determined using the market quotations or
values of instruments with similar terms, credit ratings, remaining maturities
and redemptions at the end of 1998 and 1997, respectively. Note that certain
events, in connection with the Energy Master Plan Proceedings could trigger
certain redemption features of certain PSE&G mortgage bonds which is not
reflected in the fair value estimations below, see Note 2. Regulatory Issues.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------
1998 1997
--------------------------- --------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------- ------------- --------------- ---------------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
Long-Term Debt (A):
PSEG.................................................. $275 $275 $-- $--
Energy Holdings....................................... 762 769 969 978
PSE&G................................................. 4,145 4,389 4,244 4,389
Preferred Securities Subject to Mandatory Redemption:
PSE&G Cumulative Preferred Securities................. 75 77 75 78
Monthly Guaranteed Preferred Beneficial Interest in
PSE&G's Subordinated Debentures.................... 210 213 210 221
Quarterly Guaranteed Preferred Beneficial Interest in
PSE&G's Subordinated Debentures.................... 303 315 303 316
Quarterly Guaranteed Preferred Beneficial Interest in
PSEG's Subordinated Debentures..................... 525 518 -- --
</TABLE>
(A) Includes current maturities and interest rate swaps of $44 million and
$150 million for Energy Holdings and PSEG, respectively, for the period
ended December 31, 1998. Includes current maturities and an interest rate
swap of $44 million for Energy Holdings for the period ended December 31,
1997.
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Global had consolidated non-recourse debt of $123 million as of December
31, 1998 which is denominated in the Brazilian Real that is indexed to a
basket of currencies including U.S. dollars. As a result, it is subject to
foreign currency exchange rate risk due to the effect of exchange rate
movements between the indexed foreign currencies and the Brazilian Real
and between the Brazilian Real and the U.S. Dollar. Exchange rate changes
ultimately impact the debt level outstanding in the denominated currency
and result in foreign currency transactions in accordance with current
accounting guidance. Any related transaction (losses)/gains resulting from
such exchange rate changes are included in determining net income for the
period and amounted to $(3) million and $1 million for the years ended
December 31, 1998 and 1997, respectively. For more information on foreign
operations and the devaluation of foreign currencies, see Note 20.
Subsequent Events.
COMMODITY INSTRUMENTS--PSE&G
At December 31, 1998 and 1997, PSE&G held or issued instruments that
reduce exposure to market fluctuations from factors such as weather,
environmental policies, changes in demand, changes in supply, state and Federal
regulatory policies and other events. These instruments, in conjunction with
owned electric generating capacity and physical gas supply contracts, are
designed to cover estimated electric and gas customer commitments. PSE&G
currently has levelized energy adjustment clauses, LEAC and LGAC, in place for
both electricity and natural gas pursuant to BPU orders. These clauses were
established to minimize the impact of major commodity price swings on energy
cost to customers. Effective January 1, 1998, the amount included for LEAC
under/overrecovery represents the difference between fuel-related revenues and
fuel-related expenses which are comprised of the cost of generation and net
purchased power at the locational marginal price. PSE&G uses futures, forwards,
swaps and options to manage and hedge price risk related to these market
exposures.
Energy commodity futures involve the buying or selling of electricity and
natural gas at a fixed price under the provisions of exchange regulations.
Energy commodity forwards involve the buying or selling of electricity and
natural gas at non-standardized terms that result from direct negotiation
between the buyer and the seller. Swap agreements require PSE&G to receive or
make payment based on the difference between a specified price and the actual
price of the underlying commodity. Energy commodity options provide the right,
but not the requirement, to buy or sell energy-related commodities at a fixed
price. PSE&G uses these instruments to manage commodity price risk.
At December 31, 1998, PSE&G had outstanding commodity financial
instruments with a notional contract quantity of 1.6 million MWH of electricity
and 65.2 million MMBTU of natural gas. At December 31, 1997, PSE&G had
outstanding commodity financial instruments with a notional contract quantity of
0.9 million MWH of electricity and 3.7 million MMBTU of natural gas. Notional
amounts are indicative only of the volume of activity and are not a measure of
market risk. At December 31, 1998 and 1997, PSE&G had current unrecognized net
gains of $5 million and $3 million, respectively, related to commodity
instruments.
NATURAL GAS HEDGING--ENERGY HOLDINGS
As of December 31, 1998 and 1997, Energy Technologies had outstanding
futures contracts to buy natural gas related to fixed-price natural gas sales
commitments. Such contracts hedged approximately 90% and 97% of its fixed price
sales commitments at December 31, 1998 and 1997, respectively. As of December
31, 1998 and 1997, Energy Technologies had a net unrealized hedge loss of $5
million and $2 million, respectively.
NUCLEAR DECOMMISSIONING TRUST FUNDS
Contributions made into the Nuclear Decommissioning Trust Funds are
invested in debt and equity securities. The carrying value of these funds of
$524 million and $459 million approximates the fair market value as of December
31, 1998 and 1997, respectively.
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EQUITY SECURITIES--ENERGY HOLDINGS
Resources, a wholly-owned subsidiary of Energy Holdings, has investments
in equity securities and partnerships, in which Resources is a limited partner,
which invest in equity securities. Resources carries its investments in equity
securities at their approximate fair value as of the reporting date.
Consequently, the carrying value of these investments is affected by changes in
the fair value of the underlying securities. Fair value is determined by
adjusting the market value of the securities for liquidation and market
volatility factors, where appropriate. The aggregate amount of such investments
which have available market prices at December 31, 1998 and 1997 are recorded at
fair value of $204 million and $185 million, respectively, and have exposure to
market price risk. A sensitivity analysis has been prepared to estimate Energy
Holdings' exposure to market sensitivity of these investments. The potential
change in fair value resulting from a hypothetical 10% change in quoted market
prices of these investments amounts to $17 million.
INTEREST RATE SWAPS--PSEG AND ENERGY HOLDINGS
PSEG entered into an interest rate swap on June 26, 1998 to hedge
Enterprise Capital Trust II's $150 million of Floating Rate Capital Securities,
Series B, due 2028. Enterprise Capital Trust II is a special purpose statutory
business trust controlled by PSEG. The basis for both the interest rate swap and
the Floating Rate Capital Securities is the quarterly London Interbank Offered
Rate (LIBOR). This interest rate swap effectively hedges the underlying debt for
10 years at an effective rate of 7.2%.
In June 1997, an indirect subsidiary of Global entered into an interest
rate swap on 50% of its floating rate borrowings of $87 million. The basis for
the interest rate swap is six month LIBOR. The interest rate swap effectively
hedges the underlying debt through its scheduled maturity in May 1999 at the
current effective rate of 7.76%. The interest differential to be received or
paid under the interest rate swap agreement is recorded over the life of the
agreement as an adjustment to the interest expense of the related borrowing. The
swap terminates on May 28, 1999.
CREDIT RISK--PSE&G AND ENERGY HOLDINGS
Credit risk relates to the risk of loss that PSEG would incur as a result
of nonperformance by counterparties, pursuant to the terms of their contractual
obligations. PSEG has established credit policies that it believes significantly
minimizes PSEG's exposure to credit risk. These policies include an evaluation
of potential counterparties' financial condition (including credit rating),
collateral requirements under certain circumstances and the use of standardized
agreements, which may allow for the netting of positive and negative exposures
associated with a single counterparty.
NOTE 9. CASH AND CASH EQUIVALENTS
The December 31, 1998 and 1997 balances consist primarily of working funds
and highly liquid marketable securities (commercial paper and money market
funds) with a maturity of three months or less.
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NOTE 10. COMMITMENTS AND CONTINGENT LIABILITIES
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
TYPE AND SOURCE OF COVERAGES TOTAL SITE COVERAGES ASSESSMENTS
- ---------------------------- -------------------- -----------
(MILLIONS OF DOLLARS)
<S> <C> <C>
Public and Nuclear Worker Liability (Primary Layer):
American Nuclear Insurers............................ $200.0 (A) $8.0
Nuclear Liability (Excess Layer):
Price-Anderson Act................................... $9,514.8 (B) $233.6
-------- ------
Nuclear Liability Total.......................... $9,714.8 (C) $241.6
======== ======
Property Damage (Primary Layer):
Nuclear Electric Insurance Limited (NEIL) Primary
(Salem/Hope Creek/Peach Bottom).................. $500.0 $11.6
Property Damage (Excess Layer):
NEIL II (Salem/Hope Creek/Peach Bottom).............. $2,250.0 $10.0
-------- -----
Property Damage Total (Per Site)..................... $2,750.0 $21.6
======== =====
Replacement Power:
NEIL Primary (Primary Layer at all sites)............ $21.0 (D) N/A
NEIL I (Excess Layer at Salem and Peach Bottom)...... $202.8 (E) $5.9
NEIL I (Excess Layer at Hope Creek).................. $449.5 $3.1
----
Replacement Power Total (Hope Creek)............. See (F) $9.0
====
</TABLE>
(A) The primary limit for Public Liability is a per site aggregate limit with
no potential for assessment. The Nuclear Worker Liability represents the
potential liability from workers claiming exposure to the hazard of
nuclear radiation. This coverage is subject to an industry aggregate
limit, includes annual automatic reinstatement if the ICRP Reserve Fund
exceeds $400 million, and has an assessment potential under former
canceled policies.
(B) Retrospective premium program under the Price-Anderson liability
provisions of the Atomic Energy Act of 1954, as amended. PSE&G is subject
to retrospective assessment with respect to loss from an incident at any
licensed nuclear reactor in the United States. This retrospective
assessment can be adjusted for inflation every five years. The last
adjustment was effective as of August 20, 1998. This retrospective program
is excess over the Public and Nuclear Worker Liability primary layers.
(C) Limit of liability under the Price-Anderson Act for each nuclear incident.
(D) After a waiting period, NEIL Primary insured sites may receive a weekly
indemnity of $3.5 million for six weeks.
(E) Salem and Peach Bottom have an aggregate indemnity limit based on a weekly
indemnity of $1.5 million for 52 weeks followed by 80% of the weekly
indemnity for 104 weeks. Hope Creek has an aggregate indemnity limit based
on a weekly indemnity of $3.3 million for 52 weeks followed by 80% of the
weekly indemnity for 104 weeks.
(F) Combined aggregate limit of NEIL Primary and NEIL I coverages available
for Hope Creek is $470.5 million. For Salem and Peach Bottom the combined
aggregate limits are $223.8 million.
The Price-Anderson Act sets the "limit of liability" for claims that could
arise from an incident involving any licensed nuclear facility in the nation.
The "limit of liability" is based on the number of licensed nuclear reactors and
is adjusted at least every five years based on the Consumer Price Index. The
current "limit of liability" is $9.7 billion. All utilities owning a nuclear
reactor, including PSE&G, have provided for this exposure through a combination
of private insurance
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and mandatory participation in a financial protection pool as established by the
Price-Anderson Act. Under the Price-Anderson Act, each party with an ownership
interest in a nuclear reactor can be assessed their share of $88.1 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 $233.6
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. This does not include the $8.0 million that could be assessed under the
nuclear worker policies.
Further, a decision by the U.S. Supreme Court, not involving PSE&G, has
held that the Price-Anderson Act did not preclude awards based on state law
claims for punitive damages.
PSE&G is a member of an industry mutual insurance company, NEIL. NEIL
provides the primary property and decontamination liability insurance at
Salem/Hope Creek and Peach Bottom. NEIL also provides excess property insurance
through its decontamination liability, decommissioning liability, and excess
property policy and replacement power coverage through its business interruption
and/or extra expense policy. NEIL policies 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 provisions in the NEIL policies 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.
NUCLEAR OPERATING PERFORMANCE STANDARD (OPS)
PECO Energy Company (PECO Energy), Delmarva Power & Light Company (DP&L)
and PSE&G, three of the co-owners of the Salem Nuclear Generating Station Units
1 and 2 (Salem) and the Peach Bottom Atomic Power Station Units 2 and 3 (Peach
Bottom), have agreed to an OPS through December 31, 2011 for Salem and through
December 31, 2007 for Peach Bottom. Under the OPS, the station operator is
required to make payments to the non-operating owners (excluding Atlantic City
Electric Company) commencing in January 2001 if the three-year historical
average net maximum dependable capacity factor for that station, calculated as
of December 31 of each year commencing with December 31, 2000, falls below 40%.
Any such payment is limited to a maximum of $25 million per year. The parties
have further agreed to forego litigation in the future, except for limited cases
in which the operator would be responsible for damages of no more than $5
million per year.
YEAR 2000
Many of PSEG's and PSE&G's systems, which include information technology
applications, plant control and telecommunications infrastructure systems, must
be modified due to computer program limitations in recognizing dates beyond
1999. Management estimates the total cost related to Year 2000 readiness will
approximate $83 million, to be incurred from 1997 through 2001, of which $8
million was incurred in 1997, $27 million was incurred in 1998 and approximately
$36 million is expected to be incurred in 1999. A portion of these costs is not
likely to be incremental to PSEG or PSE&G, but rather, represents a redeployment
of existing personnel/resources.
The schedule to replace certain systems was accelerated for Year 2000
purposes. Analysis is continuing and costs identified to date are approximately
$5 million, which are not included in the estimates above. Additionally, PSE&G
is installing programs (SAP) from SAP America, Inc. to replace certain major
business systems. SAP America, Inc. has represented that SAP is Year 2000
compliant, and thus, installation of SAP will eliminate the need to modify those
business systems for Year 2000 compliance. The phased implementation of SAP is
scheduled to be completed by January 1, 2000. The cost of implementing SAP is
not included in the above cost estimates since SAP implementation has not been
accelerated for Year 2000 purposes.
If PSEG, PSE&G, their domestic and international subsidiaries, other
members of the PJM Interconnection, L.L.C. (PJM), PJM trading partners supplying
power through PJM or PSEG's or PSE&G's critical vendors and/or customers are
unable to meet the Year 2000 deadline, such inability could have a material
adverse impact on PSEG's and PSE&G's operations, financial condition, results of
operations and net cash flows.
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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, scheduled
retirement dates of existing facilities, 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. The outcome of the Energy Master
Plan Proceedings and the use of alternative sources of generation may impact
PSE&G's construction program. For discussion of the Energy Master Plan
Proceedings, see Note 2. Regulatory Issues.
PSE&G's construction expenditures are expected to aggregate approximately
$2.8 billion during the years 1999 through 2003, which includes $414 million for
nuclear fuel and excludes AFDC. The estimate of construction requirements is
based on expected project completion dates and includes anticipated escalation
due to inflation of approximately 3% annually. Therefore, construction delays or
higher inflation levels could cause significant increases in these amounts.
PSE&G expects to generate the majority of funds necessary to satisfy its
construction expenditures over this period, assuming adequate and timely
recovery of costs which may be impacted by the outcome of the Energy Master Plan
Proceedings, 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 1999 through
2003.
SITE RESTORATIONS AND OTHER ENVIRONMENTAL COSTS
It is difficult to estimate the future financial impact of environmental
laws, including potential liabilities. PSEG and PSE&G accrue environmental
liabilities when it is probable that a liability has been incurred and the
amount of the liability is reasonably estimable. Provisions for estimated losses
from environmental remediation are, depending on the site, based primarily on
internal and third-party environmental studies, estimates as to the number and
participation level of any other Potentially Responsible Parties, the extent of
the contamination and the nature of required remedial and restoration actions.
HAZARDOUS WASTE
Certain Federal and state laws authorize the U.S. 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 investigate and take remedial actions at any site that is
determined to present an actual or potential threat to human health 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 investigation and
remediation of these potentially hazardous sites is receiving attention from the
government agencies involved. Generally, actions directed at funding such site
investigations and remediation include all suspected or known responsible
parties. Based on current information, except as discussed below with respect to
its manufactured gas plant Remediation Program, PSEG and PSE&G do not expect its
expenditures for any such site, individually or all such current sites in the
aggregate, to have a material effect on financial condition, results of
operations and net cash flows.
The NJDEP has recently revised regulations concerning site investigation
and remediation. These regulations will require an ecological evaluation of
potential injuries to natural resources in connection with a remedial
investigation of contaminated sites. The NJDEP is presently working with the
utility industry to develop procedures for implementing these regulations. These
regulations may substantially increase the costs of remedial investigations and
remediations, where necessary, particularly at sites situate on surface water
bodies. PSE&G and predecessor companies owned and/or operated certain facilities
situate on surface water bodies, certain of which are currently the subject of
remedial activities.
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The financial impact of these regulations on these projects is not currently
estimable. PSE&G does not anticipate that the compliance with these regulations
will 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 extant at PSE&G's former manufactured
gas plant sites. To date, NJDEP and PSE&G have identified 38 former manufactured
gas plant sites. PSE&G is currently working with NJDEP under a program to
assess, investigate and, if necessary, remediate environmental concerns at these
sites. The Remediation Program is periodically reviewed and revised by PSE&G
based on regulatory requirements, experience with the Remediation Program and
available remediation technologies. The cost of the Remediation Program cannot
be reasonably estimated, but experience to date indicates that costs of
approximately $20 million per year could be incurred over a period of about 30
years and that the overall cost could be material to PSEG's and PSE&G's
financial condition, results of operations and net cash flows.
Costs incurred through December 31, 1998 for the Remediation Program
amounted to $139 million. In addition, at December 31, 1998, PSE&G's estimated
liability for remediation costs through 2001 aggregated $84 million.
Expenditures beyond 2001 cannot be reasonably estimated.
The Energy Competition Act provides for the continuation of RAC programs.
The recovery of costs for RAC is to be through a societal benefits charge. No
assurances can be given as to the outcome of the Energy Master Plan Proceedings
(see Note 2. Regulatory Issues).
AIR POLLUTION CONTROL
In June 1998, NJDEP adopted regulations implementing a memorandum of
understanding among 11 Northeastern states and the District of Columbia,
establishing a regional plan for reducing nitrogen oxide (NOx) emissions from
utility and large industrial boilers. The extent of investment in control
technologies, operational changes and purchases of allowances required to comply
with these regulations will be directly related to the number of allowances
PSE&G receives. PSE&G expects to receive a preliminary allocation of allowances
in March 1999 and the final allocation is expected to be determined in
accordance with the NJDEP regulations in November 1999 which is subsequent to
the May 1, 1999 through September 30, 1999 period governed by the regulations.
PSE&G has attempted to minimize the uncertainty associated with the timing of
the allocation by purchasing allowances, upgrading control technologies and
estimating the expected allocation with as much precision as is practicable
using available data. However PSE&G's present analysis leads it to believe that
the potential costs for purchasing additional NOx budget allowances should not
exceed a total of $10 million through December 31, 2002. Expenditures associated
with installing control technology could result in an additional $72 million.
However, PSE&G is currently analyzing alternatives which could substantially
reduce the necessity of capital improvements.
PASSAIC RIVER SITE
The EPA has determined that a six mile stretch of the Passaic River in
Newark, New Jersey is a "facility" within the meaning of that term under CERCLA
and that, to date, at least thirteen corporations may be potentially liable for
performing required remedial actions to address potential environmental
pollution at the facility. The EPA anticipates identifying other potentially
responsible parties (PRP). One PRP (Cooperating Party) entered into a consent
decree with the EPA in 1994 obligating it to conduct a remedial investigation
and feasibility study of available and applicable corrective actions for the
site. The Cooperating Party has reported that it has incurred approximately $35
million to date in connection with the implementation of required remedial
actions for the site. Future costs for prospective remedial actions may be
material to PSE&G.
In a separate matter, PSE&G and certain of its predecessors operated
industrial facilities at properties along the stretch of the Passaic River
designated as the site. In April 1996, the EPA directed PSE&G to provide
information concerning the nature and quantity of raw materials, by-products and
wastes which may have been generated, treated, stored or disposed at certain of
these facilities. The facilities are PSE&G's former Harrison Gas Plant and Essex
Generating Station. PSE&G
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submitted responses to the EPA requests for these sites in August 1996. In July
1997, the EPA named PSE&G as a PRP for this site. PSE&G cannot predict what
action, if any, the EPA or any third party may take against PSE&G with respect
to this site, or in such event, what costs PSE&G may incur to address any such
claims. However, such costs may be material.
NOTE 11. PSE&G NUCLEAR DECOMMISSIONING
The BPU decision in PSE&G's most recent base rate case utilized studies
based on the prompt removal/dismantlement method of decommissioning for all of
PSE&G's nuclear generating stations. This method consists of removing fuel,
source material and all other radioactive materials with activity levels above
accepted release limits from the nuclear sites. PSE&G has an ownership interest
in five nuclear units: Salem 1 and Salem 2--42.59% each, Hope Creek--95% and
Peach Bottom 2 and 3--42.49% each. In accordance with rate orders received from
the BPU, PSE&G has established an external master nuclear decommissioning trust
for all its nuclear units. This trust contains two separate funds: a qualified
fund and a non-qualified fund, due to an Internal Revenue Service (IRS) ruling.
Section 468A of the Internal Revenue Code limits the amount of money that can be
contributed into a "qualified" fund. Contributions made into a qualified fund
are tax deductible. PSE&G estimated the total cost of decommissioning its share
of these five nuclear units at $986 million in year end 1995 dollars (the year
that the most recent site specific estimates were prepared), excluding
contingencies. On December 23, 1996, PSE&G filed its 1995 nuclear plant
decommissioning cost update with the BPU. On December 17, 1997, the BPU accepted
PSE&G's decommissioning cost updates and found that the current funding
requirements as presented in PSE&G's 1996 Nuclear Decommissioning Trust Fund
Report, dated May 15, 1997, appear adequate.
The most recent base rate decision provided that $15.6 million of such
costs are to be collected through base rates and an additional annual amount of
$7 million in 1993 and $14 million each year thereafter are to be recovered
through PSE&G's LEAC. Although the Energy Competition Act provides that the
societal benefits charge will be utilized to collect the necessary funding for
nuclear decommissioning, no assurances can be given as to the outcome of the
Energy Master Plan Proceedings. At December 31, 1998 and 1997, the accumulated
provision for depreciation and amortization included reserves for nuclear
decommissioning for PSE&G's nuclear units of $465 million and $428 million,
respectively. As of December 31, 1998 and 1997, PSE&G had contributed $303
million and $279 million, respectively, into independent, external, qualified
and non-qualified nuclear decommissioning trust funds. The fair market value of
these funds as of December 31, 1998 and 1997 was $542 million and $458 million,
respectively.
The staff of the SEC has questioned certain of the current accounting
practices of the electric utility industry, including PSE&G, regarding the
recognition, measurement and classification of nuclear decommissioning costs in
their financial statements. In response to these questions, the Financial
Accounting Standards Board (FASB) has agreed to review the accounting for
removal costs, including decommissioning. If current electric utility industry
accounting practices for decommissioning are changed: (1) annual provisions for
decommissioning could materially increase, (2) the estimated cost for
decommissioning could be recorded as a liability rather than as accumulated
depreciation and (3) trust fund income from the external decommissioning trusts
could be reported as investment income rather than as a reduction to
decommissioning expense all, or any of which, could have a material adverse
effect on PSEG's and PSE&G's financial condition, results of operations and net
cash flows.
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URANIUM ENRICHMENT DECONTAMINATION AND DECOMMISSIONING FUND
In accordance with EPAct, domestic utilities that own nuclear generating
stations are required to pay a cumulative total of $150 million each year
(adjusted for inflation) into a decontamination and decommissioning fund, based
on their past purchases of U.S. government enrichment services. These amounts
are being collected over a period of 15 years or until $2.25 billion (adjusted
for inflation) has been collected. Under this legislation, PSE&G's obligation
for the nuclear generating stations in which it has an interest is $70 million
(adjusted for inflation). Since 1993, PSE&G has paid $32 million, resulting in a
balance due of $38 million. PSE&G has collected the expenditures incurred to
date as part of underrecovered electric energy costs and anticipates recovery of
such costs through a future regulatory mechanism. PSE&G believes that it should
not be subject to collection of any such fund payments under EPAct. It has filed
suit in the U.S. Court of Claims and petitioned the U.S. District Court,
Southern District of NY to recover these costs.
SPENT NUCLEAR FUEL DISPOSAL COSTS
In accordance with the Nuclear Waste Policy Act (NWPA), PSE&G has entered
into contracts with the Department of Energy (DOE) for the disposal of spent
nuclear fuel. Payments made to the DOE for disposal costs are based on nuclear
generation and are included in Net Interchanged Power and Fuel for Electric
Generation in the Statements of Income. Until the start of retail competition
pursuant to the Energy Competition Act, these costs are being recovered through
the LEAC. Thereafter, PSE&G will bear the risks of nuclear fuel disposal costs.
See Note 2. Regulatory Issues for the Energy Master Plan Proceedings and the
potential impact on the LEAC.
DOE construction of a permanent disposal facility has not begun and DOE
has announced that it does not expect a facility to be available until 2010 at
the earliest. In 1998, legislation which would have the DOE establish a
centralized interim spent fuel storage facility was introduced in Congress.
However, Congress ultimately elected not to consider this legislation, and
whether or not similar legislation will be considered in the future is unknown.
In litigation brought by PSE&G, 40 other utilities and many state and local
governments, the United States Court of Appeals for the District of Columbia
Circuit reaffirmed DOE's unconditional obligation to begin spent fuel acceptance
by January 31, 1998. In November 1997, the court ruled that the utilities had
fulfilled their obligations under their respective contracts with DOE by
contributing to the Nuclear Waste Fund. The court further ruled that DOE's
argument of unavoidable delay to meet its obligation was without merit. However,
the court did not order DOE to commence spent fuel acceptance by January 31,
1998; instead, it decided that the standard contract provided a potentially
adequate remedy in the form of payment of damages if DOE failed its obligations.
In May 1998 the court denied a petition to order DOE to begin spent fuel
acceptance immediately and declare that the utilities are allowed to escrow
their Nuclear Waste Fund fees until DOE begins spent fuel acceptance. Following
this decision, DOE offered a proposal to settle issues related to its failure to
meet its obligation, which the utilities unanimously rejected. PSE&G is
continuing to work with the utility industry to develop a methodology for
determining damages incurred as a result of DOE's failure to meet its obligation
and a strategy for its implementation. Some utilities have initiated litigation
against DOE to recover damages and this option, among others, is currently being
considered by PSE&G. No assurances can be given as to the ultimate availability
of a facility.
NOTE 12. INCOME TAXES
The New Jersey Gross Receipts and Franchise Tax (NJGRT) was eliminated
effective January 1, 1998 and replaced with a combination of the New Jersey
Corporate Business Tax which is a State income tax, the State sales and use tax
and a Transitional Energy Facility Assessment (TEFA), with no material impact on
the financial condition, results of operations and net cash flows of PSEG and
PSE&G. The TEFA, which is collected from customers, will be phased out over five
years. The corresponding phase out and reduction in rates will cause no material
impact on PSEG and PSE&G. While under NJGRT, PSE&G was subject to an effective
state tax on unit sales equal to approximately 13% of receipts. As a result of
such tax reform, after the phase out of the TEFA, the effective state tax rate
applicable to PSE&G will have been substantially reduced, putting PSE&G on a
more level playing field with competitors. Interim rates were implemented with
regard to the new tax structure effective with service rendered on and after
January 1, 1998. The BPU completed its administrative review of the filings of
all New Jersey utilities and approved permanent rates for 1998 on July 13, 1998
in a final Order. Effective January 1, 1999, revised rates became effective
which reflect one year's phase out of the TEFA.
On September 18, 1998 and October 15, 1998, PSE&G filed with the BPU
additional information necessary to 1) reconcile its NJGRT collections to its
liability through April 1998, 2) reflect the impact of cash working capital and
net
98
<PAGE>
negative deferred State income taxes on a separate electric and gas basis and 3)
provide actual and estimated tax collected and tax liability through December
31, 1998. On December 16, 1998, the BPU issued an "Order Implementing 1999
'TEFA' Reductions and Other Rate Adjustments." This order mandates PSE&G to
recognize the cash working capital impact on a separate electric and gas basis
and defer such impact as deferred balance sheet credits with interest. In
accordance with the order, PSE&G deferred $1.3 million at December 31, 1998. The
Order also requires the BPU Staff to perform audits of New Jersey energy
utilities for NJGRT tax payments and collections. The results of such audits are
to be reported to the BPU for further action. PSE&G does not expect these
adjustments, if any, to have a material impact on its financial condition,
results of operations and net cash flows.
A reconciliation of reported Net Income with pretax income and of income
tax expense with the amount computed by multiplying pretax income by the
statutory Federal income tax rate of 35% is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Net Income .......................................................... $644 $560 $612
Preferred securities (net) .......................................... 9 15 5
Discontinued Operations ............................................. -- -- (24)
---------- ---------- ----------
Subtotal .................................................. 653 575 593
---------- ---------- ----------
Income taxes:
Operating income:
Current provision-Federal and State ............................ 441 187 127
Provision for deferred income taxes--net(A)-Federal and State .. -- 167 189
Investment tax credits--net .................................... (21) (20) (21)
---------- ---------- ----------
Total included in operating income ........................ 420 334 295
Miscellaneous other income:
Current provision-Federal and State ............................ 8 (24) 1
Provision for deferred income taxes(A)-Federal and State ....... (1) -- --
SFAS 90 deferred income taxes(A) ............................... 1 1 2
---------- ---------- ----------
Total income tax provisions ............................... 428 311 298
---------- ---------- ----------
Pretax income ....................................................... $1,081 $886 $891
========== ========== ==========
</TABLE>
Reconciliation between total income tax provisions and tax computed at the
statutory tax rate on pretax income:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Tax computed at the statutory rate ............................................ $378 $310 $312
Increase (decrease) attributable to flow through of certain tax adjustments:
Depreciation ............................................................. 23 27 11
Amortization of investment tax credits ................................... (21) (20) (22)
New Jersey Corporate Business Tax ........................................ 63 2 2
Other .................................................................... (15) (8) (5)
-------- -------- --------
Subtotal ............................................................ 50 1 (14)
-------- -------- --------
Total income tax provisions ......................................... $428 $311 $298
======== ======== ========
Effective income tax rate ..................................................... 39.6% 35.1% 33.4%
</TABLE>
(A) The provision for deferred income taxes represents the tax effects of the
following items:
99
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(MILLIONS OF DOLLARS)
Deferred Credits:
<S> <C> <C> <C>
Additional tax depreciation and amortization ... $(33) $34 $39
Leasing Activities ............................. 39 114 136
Conservation Costs ............................. 36 27 15
Deferred Fuel Costs--net ....................... (60) (4) 6
Pension Cost ................................... 26 8 3
New Jersey Corporate Business Tax .............. (5) 3 2
Other .......................................... (3) (14) (10)
-------- -------- --------
Total ..................................... $-- $168 $191
======== ======== ========
</TABLE>
Between the years 1987 and 1994, PSEG's Federal Alternative Minimum Tax
(AMT) liability exceeded its regular Federal income tax liability. This excess
was carried forward to offset regular income tax liability in future years. PSEG
used these AMT credits as a reduction against regular tax liability for 1995,
1996 and 1997. There were no remaining credits as of December 31, 1997.
PSEG provides deferred taxes at the enacted statutory tax rate for all
temporary differences between the financial statement carrying amounts and the
tax bases of existing assets and liabilities irrespective of the treatment for
rate-making purposes. Management believes that it is probable that the
accumulated tax benefits that previously have been treated as a flow-through
item to PSE&G customers will be recovered from utility customers in the future.
Accordingly, an offsetting regulatory asset was established. As of December 31,
1998, PSE&G had a deferred tax liability and an offsetting regulatory asset of
$704 million representing the future revenue expected to be recovered through
rates based upon established regulatory practices which permit recovery of
current taxes payable. This amount was determined using the enacted Federal
income tax rate of 35% and State income tax rate of 9%.
The following is an analysis of deferred income taxes:
DECEMBER 31,
----------------------
1998 1997
-------- --------
DEFERRED INCOME TAXES (MILLIONS OF DOLLARS)
Assets:
Current (net) ................................ $30 $25
-------- --------
Non-current:
Unrecovered Investment Tax Credits ......... 110 117
Nuclear Decommissioning .................... 27 33
Construction Period Interest and Taxes ..... 13 15
New Jersey Corporate Business Tax .......... 15 --
Vacation Pay ............................... 6 7
Development Fees ........................... 15 14
Other ...................................... 32 27
-------- --------
Total Non-current ..................... 218 213
-------- --------
Total Assets .......................... 248 238
-------- --------
Liabilities:
Non-current:
Plant Related Items ........................ 2,180 2,246
Leasing Activities ......................... 702 667
Partnership Activities ..................... 155 159
Conservation Costs ......................... 75 39
Hope Creek O&M Costs ....................... 19 21
Deferred Electric Energy and Gas Costs ..... -- 60
Unamortized Debt Expense ................... 45 44
Taxes Recoverable Through Future Rates (net) 242 249
Other ...................................... 184 122
-------- --------
Total Non-current ..................... 3,602 3,607
-------- --------
Total Liabilities ..................... 3,602 3,607
-------- --------
Summary -- Accumulated Deferred Income Taxes
100
<PAGE>
Net Current Assets ........................... 30 25
Net Non-current Liability .................... 3,384 3,394
-------- --------
Total ................................... $3,354 $3,369
======== ========
NOTE 13. PENSION, OTHER POSTRETIREMENT BENEFIT AND SAVINGS PLANS
In February 1998, the FASB issued SFAS 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" (SFAS 132), which is effective for
financial statements for periods beginning after December 15, 1997. This
statement revises and standardizes disclosure requirements for pension and other
postretirement benefit plans but does not change the measurement or recognition
of those plans. Since SFAS 132 solely revises disclosure requirements, the
adoption of SFAS 132 did not have a material impact on the financial condition,
results of operations and net cash flows of PSEG and PSE&G. The disclosures
required by SFAS 132 are below.
PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
<TABLE>
<CAPTION>
PENSION BENEFITS (B) OTHER POSTRETIREMENT BENEFITS (C)
----------------------------- ---------------------------------
(MILLIONS OF DOLLARS) 1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit Obligation at Beginning of Year $ 2,123 $ 2,065 $ 724 $ 734
Service Cost 60 54 15 12
Interest Cost 158 150 56 54
Special Termination Benefits (A) -- 2 -- --
Actuarial (Gain)/Loss 287 (11) 16 (43)
Benefits Paid (140) (137) (29) (33)
---------- ---------- ---------- ----------
Benefit Obligation at End of Year 2,488 2,123 782 724
---------- ---------- ---------- ----------
CHANGE IN PLAN ASSETS
Fair Value of Assets at Beginning of Year 1,959 1,687 -- --
Actual Return on Plan Assets (Net of Expenses) 249 296 1 --
Employer Contributions 155 113 41 33
Benefits Paid (140) (137) (29) (33)
---------- ---------- ---------- ----------
Fair Value of Assets at End of Year 2,223 1,959 13 --
---------- ---------- ---------- ----------
RECONCILIATION OF FUNDED STATUS
Funded Status (265) (164) (769) (724)
Unrecognized Net
Transition Obligation 37 45 398 429
Prior Service Cost 134 148 30 32
(Gain)/Loss 212 (2) (9) (26)
---------- ---------- ---------- ----------
Net Amount Recognized $ 118 $ 27 $ (350) $ (289)
========== ========== ========== ==========
AMOUNTS RECOGNIZED IN STATEMENT OF FINANCIAL POSITION
Prepaid Benefit Cost 129 33 -- --
Accrued Benefit Cost (42) (34) (350) (289)
Intangible Asset 26 28 -- --
Accumulated Other Comprehensive Income 5 -- -- --
---------- ---------- ---------- ----------
Net Amount Recognized $ 118 $ 27 $ (350) $ (289)
========== ========== ========== ==========
SEPARATE DISCLOSURE FOR PENSION PLANS WITH
ACCUMULATED BENEFIT OBLIGATION IN EXCESS OF PLAN
ASSETS
:Projected Benefit Obligation at End of Year $ 49 $ 39
Accumulated Benefit Obligation at End of Year 42 35
Fair Value of Assets at End of Year $ -- $ 1
</TABLE>
101
<PAGE>
<TABLE>
<CAPTION>
PENSION BENEFITS (B) OTHER POSTRETIREMENT BENEFITS (C)
----------------------------- -----------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
Service Cost $ 60 $ 54 $ 15 $ 12
Interest Cost 158 150 56 54
Expected Return on Plan Assets (176) (151) -- --
Amortization of Net
Transition Obligation 8 8 30 30
Prior Service Cost 14 14 2 2
(Gain)/Loss -- -- (1) (2)
---------- ---------- ---------- ----------
Net Periodic Benefit Cost $ 64 $ 75 $ 102 $ 96
========== ========== ========== ==========
COMPONENTS OF TOTAL BENEFIT EXPENSE
Net Periodic Benefit Cost $ 64 $ 75 $ 102 $ 96
Additional Expense Under FAS 88 Due to Special
Termination Benefits (A) -- 2 -- --
---------- ---------- ---------- ----------
Total Benefit Expense Before Effect of Regulatory
Asset $ 64 $ 77 $ 102 $ 96
---------- ---------- ---------- ----------
Effect of Regulatory Asset -- -- 19 (63)
---------- ---------- ---------- ----------
Total Benefit Expense Including Effect of
Regulatory
Asset $ 64 $ 77 $ 121 $ 33
========== ========== ========== ==========
COMPONENTS OF OTHER COMPREHENSIVE INCOME
Decrease in Intangible Asset $ (1) $ --
Increase in Additional Minimum Liability (4) --
---------- ----------
Other Comprehensive Income $ (5) $ --
---------- ----------
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31
Discount Rate 6.75% 7.25% 6.75% 7.25%
Expected Return on Plan Assets 9.00% 9.00% 9.00% --
Rate of Compensation Increase 4.69% 4.69% 4.69% 4.69%
Rate of Increase in Health Benefit Costs
Administrative Expense 5.00% 5.00%
Pre-65 Medical Costs
Immediate Rate 11.50% 12.00%
Ultimate Rate 5.00% 5.00%
Year Ultimate Rate Reached 2011 2011
Post-65 Medical Costs
Immediate Rate 7.50% 8.00%
Ultimate Rate 5.00% 5.00%
Year Ultimate Rate Reached 2003 2003
Dental Costs
Immediate Rate 5.50% 6.00%
Ultimate Rate 5.00% 5.00%
Year Ultimate Rate Reached 1999 1999
EFFECT OF A CHANGE IN THE ASSUMED RATE OF INCREASE IN HEALTH BENEFIT COSTS
Effect of a 1% Increase On
Total of Service Cost and Interest Cost 5 6
Postretirement Benefit Obligation 60 57
Effect of a 1% Decrease On
Total of Service Cost and Interest Cost (4) (not available)
Postretirement Benefit Obligation (51) (not available)
</TABLE>
See Note 1. Organization and Summary of Significant Accounting Policies.
(A) Effective May 1, 1996, PSE&G's qualified Pension Plan was amended allowing
employees the option to retire early upon attainment of age 55 and
completion of 25 or more years of service. Also, between May 1, 1996 and
April 30, 1997, early retirement without reduction was available to
employees who had attained age 50 and had completed 30
102
<PAGE>
or more years of service. SFAS No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits" requires that an employer that offers special
termination benefits to employees shall recognize a liability when the
employees accept the offer and the amount can be reasonably estimated.
This resulted in an immediate expense applicable to the employees who, as
of April 30, 1997, had accepted the offer.
(B) Beginning in 1997, SFAS 87 was applied to the non-qualified Pension Plans.
Prior to that date, because the plans amounts were considered immaterial,
SFAS 87 was not applied.
(C) From January 1, 1993 through December 31, 1997, PSE&G accounted for the
differences between its SFAS 106 accrual cost and the cash cost currently
recovered through rates as a regulatory asset in accordance with SFAS 71
and EITF 92-12. In 1993, the FASB's EITF concluded that deferral of such
costs is acceptable, provided regulators allow SFAS 106 costs in rates
within approximately five years of the adoption of SFAS 106, which was
December 31, 1997, for financial reporting purposes, with any cost
deferrals recovered in approximately twenty years. On December 17, 1997,
the BPU ruled that PSE&G's current rates are sufficient to recover both
the ongoing OPEB costs and the amortization of the deferred regulatory
asset created by the accounting change from the cash basis of accounting
to the accrual basis of accounting in accordance with SFAS 106 and EITF
92-12. As a result of the BPU's decision, PSE&G began amortizing the
regulatory asset over 15 years beginning January 1, 1998. Also effective
January 1, 1998, PSE&G began recording the annual SFAS 106 OPEB cost. OPEB
costs during 1998 were $121 million, including $19 million of
amortization. At December 31, 1998, the amount of the unfunded liability
was $769 million.
Also, on October 21, 1998, the BPU ordered PSE&G to fund in an external
trust its annual OPEB obligation to the maximum extent allowable under
Section 401(h) of the Internal Revenue Code. In 1998, $12 million was
funded, as allowed. Remaining OPEB costs will not be funded in an external
trust, as mandated by the BPU.
SAVINGS PLANS
PSE&G sponsors two defined contribution plans. Represented employees of
PSE&G and Energy Holdings are eligible for participation in the PSE&G Employee
Savings Plan while all other employees of PSE&G and Energy Holdings are eligible
for participation in the PSE&G Thrift and Tax-Deferred Savings Plan. The two
principal defined contribution plans are PSE&G sponsored 401(k) plans to which
eligible employees may contribute up to 25% of their compensation. Employee
contributions up to 7% for represented employees and up to 8% for all other
employees are matched with employer contributions of cash or PSEG common stock
equal to 50% of such employee contributions. Employer contributions in excess of
5% and up to 7% are made in shares of PSEG common stock for represented
employees. Employer contributions in excess of 6% and up to 8% are made in
shares of PSEG common stock for all other employees. PSE&G billed Energy
Holdings for its portion of employer contributions. The amount expensed for the
matching provision of the plans was approximately $14 million, $15 million and
$14 million in 1998, 1997 and 1996, respectively.
NOTE 14. STOCK OPTIONS, STOCK PURCHASE PLAN AND STOCK REPURCHASE PROGRAM
STOCK OPTIONS
PSEG and PSE&G apply APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations in accounting for its stock-based
compensation plans, which are described below. Accordingly, compensation expense
has been recognized for performance units and dividend equivalent rights issued
in tandem with an equal number of options under its fixed stock option grants.
Performance units and dividend equivalents provide cash payments, dependent upon
future financial performance of PSEG in comparison to other companies and
dividend payments by PSEG, to assist recipients in exercising options granted.
Prior to 1997, all options were granted in tandem with performance units and
dividend equivalent rights. In 1998 and 1997, there were 4,600 and 93,500
options, respectively, granted in tandem with performance units and dividend
equivalent rights. No compensation cost has been recognized for its fixed stock
option grants other than those previously described since the exercise price of
the stock options equals the market price of the underlying stock on the date of
grant. Had compensation costs for its stock option grants been determined based
on the fair value at the grant dates for awards under these plans in accordance
with SFAS No. 123
103
<PAGE>
"Accounting for Stock-Based Compensation," there would have been a charge to
PSEG's net income of approximately $0.4 million and $0.1 million in 1998 and
1997 respectively, with no impact on earnings per share.
In 1989, PSEG adopted a plan (Long Term Incentive Plan) under which
non-qualified options to acquire shares of common stock may be granted to
officers and other key employees selected by the Organization and Compensation
Committee of PSEG's Board of Directors, the plan's administrative committee (the
"Committee"). Payment by option holders upon exercise of an option may be made
in cash or, with the consent of the Committee, by delivering previously acquired
shares of PSEG common stock or surrendering other vested options. In instances
where an optionee tenders shares acquired from a grant previously exercised that
were held for a period of less than six months, an expense will be recorded for
the difference between the fair market value at exercise date and the option
price. (To date, no such transaction has occurred.) Options are exercisable over
a period of time designated by the Committee (but not prior to one year from the
date of grant) and are subject to such other terms and conditions as the
Committee determines. Vesting schedules may be accelerated upon the occurrence
of certain events, such as a change in control. Options may not be transferred
during the lifetime of a holder.
The Long Term Incentive Plan originally provided for the issuance of up to
500,000 shares of common stock and was subsequently amended to increase the
amount to 5,000,000. At December 31, 1998, there were 3,637,700 shares available
for future grants under the Long Term Incentive Plan.
Since the Long Term Incentive Plan's inception, PSEG has delivered
treasury shares upon the exercise of stock options. The difference between the
cost of the treasury shares (purchased on the date of exercise) and the exercise
price of the options has been reflected in Stockholder's Equity except where
otherwise discussed.
Changes in common shares under option for the three fiscal years in the
period ended December 31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------- ---------------------------- ----------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning of year 430,300 $ 29.26 84,000 $ 29.38 77,200 $ 29.15
Granted 841,600 39.16 371,000 29.36 28,700 30.88
Exercised (28,100) 26.76 (21,500) 31.38 (21,900) 30.56
Canceled -- -- (3,200) 28.70 -- --
---------- ---------- ---------- ---------- ---------- ----------
End of year 1,243,800 36.01 430,300 29.26 84,000 29.38
---------- ---------- ---------- ---------- ---------- ----------
Exercisable at end of year 100,963 $ 29.47 6,000 $ 26.45 6,000 $ 26.45
---------- ---------- ---------- ---------- ---------- ----------
--------------------------------------------------------------------------------------------------
Weighted average fair
value of options granted
during the year $ 4.83 $ 3.60 $ 6.71
========== ========== ==========
</TABLE>
For this purpose, the fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions used for grants in 1998, 1997 and 1996,
respectively: expected volatility of 21.41%, 17.15% and 12.92%, risk free
interest rates of 4.48%, 5.14% and 5.28%, expected lives of 4 years, 3.75 years
and 3.75 years. Additional weighted averages assumptions include for grants in
1998, 1997 and 1996 a dividend yield of 0% with respect to the dividend
equivalent feature of the tandem grants. There was a dividend yield of 5.51% in
1998 and 7.31% in 1997 on the non-tandem grants. There were no non-tandem grants
issued in 1996.
104
<PAGE>
The following table provides information about options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ----------------------------------------------------------------------- -------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF OUTSTANDING AT REMAINING EXERCISE EXERCISABLE AT EXERCISE
EXERCISE PRICES DECEMBER 31, 1998 CONTRACTUAL LIFE PRICE DECEMBER 31, 1998 PRICE
- ----------------------------------------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C>
$24.00-$30.00 384,900 8.78 years $29.34 100,963 $29.47
$30.01-$35.00 31,900 7.24 years 31.04 -- --
$35.01-$40.00 827,000 9.93 years 39.31 -- --
- ----------------------------------------------------------------------- -------------------------------------
$24.00-$40.00 1,243,800 9.50 years $36.01 100,963 $29.47
- ----------------------------------------------------------------------- -------------------------------------
</TABLE>
In June 1998, the Committee granted 150,000 shares of common stock to a
key executive. As of December 31, 1998 all of the shares remained outstanding.
These shares are subject to restrictions on transfer and subject to risk of
forfeiture until earned by continued employment. The shares vest on a staggered
schedule beginning on March 31, 2002 and become fully vested on March 31, 2005.
The unearned compensation related to this restricted stock grant as of December
31, 1998 is approximately $5 million and is included in retained earnings on the
consolidated balance sheets.
PSEG's Stock Plan for Outside Directors provides non-employee directors,
as part of their annual retainer, 300 shares of common stock, which will be
increased to 600 shares beginning in 1999. With certain exceptions, the
restrictions on the stock provide that the shares are subject to forfeiture if
the individual ceases to be a director at any time prior to the Annual Meeting
of Stockholders following his or her 70th birthday. These shares are recorded as
compensation expense in the consolidated statements of income.
STOCK PURCHASE PLAN
PSEG and PSE&G have an employee stock purchase plan for all eligible
employees. Under the plan, shares of the common stock may be purchased at 95% of
the fair market value. Employees may purchase shares having a value not
exceeding 10% of their base pay. During 1998, 1997 and 1996, employees purchased
102,387, 144,377 and 153,810 shares at an average price of $36.36, $26.39 and
$27.24 per share, respectively. At December 31, 1998, 1,289,780 shares were
available for future issuance under this plan.
STOCK REPURCHASE PROGRAM
In September 1998, PSEG announced a stock repurchase program whereby the
Board of Directors authorized the repurchase of up to 10 million shares of its
common stock from time to time, subject to market conditions and other relevant
factors affecting PSEG and PSE&G. Share repurchases are planned when market and
business conditions are deemed favorable. The repurchased shares have been held
as treasury stock. As of December 31, 1998, PSEG had repurchased 5,314,100
shares at a cost of approximately $207 million. As of February 8, 1999, PSEG had
repurchased a total of 10 million shares at a cost of approximately $391 million
under this program.
NOTE 15. FINANCIAL INFORMATION BY BUSINESS SEGMENTS
In June 1997, the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131), which is effective for financial
statements for periods beginning after December 15, 1997. SFAS 131 supersedes
SFAS 14, "Financial Reporting for Segments of a Business Enterprise" and
requires that companies disclose segment data based on how management makes
decisions about allocating resources to segments and measuring their
performance. Since SFAS 131 solely revises disclosure requirements, the adoption
of SFAS 131 did not have a material impact on the financial condition, results
of operations and net cash flows of PSEG or PSE&G. The disclosure under SFAS 131
is below.
105
<PAGE>
BASIS OF ORGANIZATION
The reportable segments disclosed herein were determined based on a
variety of factors including the regulatory environment and the types of
products and services offered. With the transition into a deregulated
environment, it is likely that this basis of organization will change.
ELECTRIC
The electric segment of PSE&G's business generates revenue from its
bundled tariff rates under which it provides generation, transmission and
distribution energy services for its residential, commercial and industrial
customers in New Jersey. Revenues are also generated from a variety of wholesale
energy sales and other ancillary and miscellaneous services.
GAS
The gas segment of PSE&G's business generates revenue from its bundled
tariff rates under which it provides for the sale and distribution of gas to its
residential, commercial and industrial customers. Revenues are also generated
from a variety of other activities such as capacity sales, off-system sales,
sundry sales and other miscellaneous services.
RESOURCES
Resources receives revenues from its passive investments including
leveraged leases, limited partnerships, leveraged buyout funds and marketable
securities.
OTHER NON-UTILITY
PSEG's non-utility activities, other than Resources, generate revenues
from Global, Energy Technologies and EGDC. Global receives revenues from its
investment, development and operation of projects in the generation and
distribution of energy both domestically and internationally. Energy
Technologies receives revenues from a variety of energy related services to
industrial and commercial customers. EGDC receives revenues from its
nonresidential real estate development and investment business.
106
<PAGE>
Information related to the segments of PSEG's business is detailed below:
<TABLE>
<CAPTION>
OTHER
NON-UTILITY CONSOLIDATED
(MILLIONS OF DOLLARS) ELECTRIC GAS RESOURCES ACTIVITIES (A) TOTAL
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Year Ended December 31, 1998:
Total Operating Revenues .................... $ 4,031 $ 1,559 $ 145 $ 196 $ 5,931
Depreciation, Depletion and Amortization .... 565 93 1 10 669
Interest Income ............................. 19 1 9 3 32
Net Interest Charges ........................ 353 70 49 76 548
Income Taxes ................................ 359 39 27 (5) 420
Net income from equity method subsidiaries .. -- -- 35 114 149
Operating Income Before Income Taxes ........ 1,257 159 86 104 1,606
Segment Net Income (Loss) ................... $ 552 $ 52 $ 56 $ (16) $ 644
======== ======== ======== ======== ========
As of December 31, 1998:
Total Assets ................................ $ 12,266 $ 2,482 $ 1,809 $ 1,440 $ 17,997
Investments in equity method subsidiaries ... -- -- 383 143 526
Gross Additions to Long-Lived Assets ........ $ 383 $ 152 $ -- $ 10 $ 545
======== ======== ======== ======== ========
For the Year Ended December 31, 1997:
Total Operating Revenues .................... $ 3,918 $ 1,937 $ 144 $ 101 $ 6,100
Depreciation, Depletion and Amortization .... 531 85 1 13 630
Interest Income ............................. 13 1 4 3 21
Net Interest Charges ........................ 345 79 46 39 509
Income Taxes ................................ 224 84 29 (1) 336
Net income from equity method subsidiaries .. -- -- 49 79 128
Extraordinary items ......................... (53) -- -- -- (53)
Operating Income Before Income Taxes ........ 978 328 88 56 1,450
Segment Net Income (Loss) ................... $ 361 $ 167 $ 59 $ (27) $ 560
======== ======== ======== ======== ========
As of December 31, 1997:
Total Assets ................................ $ 12,448 $ 2,472 $ 1,616 $ 1,407 $ 17,943
Investments in equity method subsidiaries ... -- -- 407 274 681
Gross Additions to Long-Lived Assets ........ $ 395 $ 147 $ -- $ 6 $ 548
======== ======== ======== ======== ========
For the Year Ended December 31, 1996:
Total Operating Revenues .................... $ 3,944 $ 1,881 $ 143 $ 73 $ 6,041
Depreciation, Depletion and Amortization .... 517 87 2 1 607
Interest Income ............................. 4 1 11 4 20
Net Interest Charges ........................ 321 89 43 14 467
Income Taxes ................................ 217 48 28 2 295
Net income from equity method subsidiaries .. -- -- 73 48 121
Operating Income Before Income Taxes ........ 978 234 85 55 1,352
Segment Net Income .......................... $ 438 $ 97 $ 57 $ 20 $ 612
======== ======== ======== ======== ========
As of December 31, 1996:
Total Assets ................................ $ 12,406 $ 2,393 $ 1,443 $ 673 $ 16,915
Investments in equity method subsidiaries ... -- -- 408 225 633
Gross Additions to Long-Lived Assets ........ $ 463 $ 123 $ -- $ 3 $ 589
======== ======== ======== ======== ========
</TABLE>
(A) Other Non-utility Activities include amounts applicable to PSEG, the
parent corporation, and Energy Holdings, excluding Resources.
107
<PAGE>
Information related to Property, Plant and Equipment of PSE&G is detailed
below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1998 1997 1996
---------- ---------- ----------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Utility Plant--Original Cost
Electric Plant in Service:
Fossil Production ..................... $ 2,802 $ 1,840 $ 1,843
Nuclear Production .................... 6,246 6,162 6,001
Transmission .......................... 1,200 1,163 1,146
Distribution .......................... 3,545 3,315 3,171
Other ................................. 276 1,212 1,153
---------- ---------- ----------
Total Electric Plant in Service .. 14,069 13,692 13,314
---------- ---------- ----------
Gas Plant in Service:
Transmission .......................... 69 67 67
Distribution .......................... 2,608 2,472 2,358
Other ................................. 170 158 131
---------- ---------- ----------
Total Gas Plant in Service ....... 2,847 2,697 2,556
---------- ---------- ----------
Common Plant in Service:
Capital Leases ........................ 59 59 59
General ............................... 519 499 471
---------- ---------- ----------
Total Common Plant in Service .... 578 558 530
---------- ---------- ----------
Total ....................... $ 17,494 $ 16,947 $ 16,400
========== ========== ==========
</TABLE>
Geographic Information for PSEG is disclosed below. PSE&G does not have
foreign investments or operations.
IDENTIFIABLE
REVENUES (1) ASSETS
---------- ----------
United States $ 5,831 $ 16,387
Foreign Countries 100 1,610
---------- ----------
Total $ 5,931 $ 17,997
========== ==========
Identifiable Assets from Foreign Countries include amounts from:
Argentina $307
Brazil (2) 482
Netherlands 400
(1) Revenues are attributed to countries based on the locations of the
investments.
(2) Amount is net of foreign currency translation adjustment of $39 million.
NOTE 16. DISCONTINUED OPERATIONS
On July 31, 1996, Energy Holdings sold 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 resulting in an after-tax
gain of $13 million. As a result, Consolidated Financial Statements previously
issued have been restated to give effect to the classification of EDC as
discontinued operations.
108
<PAGE>
Operating results of EDC for 1996 (7 months) are summarized in the
following table:
(7 MONTHS)
----------
1996
----
(MILLIONS OF DOLLARS)
Revenues ............................... $ 128
Operating income ....................... 24
Earnings before income taxes ........... 9
Income taxes ........................... (2)
Net income ............................. 11
NOTE 17. JOINTLY OWNED FACILITIES--UTILITY PLANT
PSE&G has ownership interests in and is responsible for providing its
share of the necessary financing for the following jointly owned facilities. All
amounts reflect the share of PSE&G's jointly owned projects and the
corresponding direct expenses are included in Consolidated Statements of Income
as operating expenses.
<TABLE>
<CAPTION>
PLANT--DECEMBER 31, 1998
-------------------------------------------------------------
OWNERSHIP PLANT IN ACCUMULATED PLANT UNDER
INTEREST SERVICE DEPRECIATION CONSTRUCTION
------------ ------------ --------------- --------------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
Coal Generating
Conemaugh.................... 22.50% $199 $56 $2
Keystone..................... 22.84% 124 44 3
Nuclear Generating
Peach Bottom................. 42.49% 808 395 28
Salem........................ 42.59% 1,255 483 12
Hope Creek................... 95.00% 4,144 1,439 26
Nuclear Support Facilities... Various 201 52 7
Pumped Storage Facilities
Yards Creek.................. 50.00% 28 11 4
Transmission Facilities........... Various 124 43 --
Merrill Creek Reservoir........... 13.91% 37 17 --
Linden SNG Plant.................. 90.00% 16 23 --
</TABLE>
NOTE 18. SELECTED QUARTERLY DATA (UNAUDITED)
The information shown below, in the opinion of PSEG, includes all
adjustments, consisting only of normal recurring accruals, necessary to a fair
presentation of such amounts. Due to the seasonal nature of the utility
business, quarterly amounts vary significantly during the year.
<TABLE>
<CAPTION>
CALENDAR QUARTER ENDED
-----------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
-------------------- --------------------- -------------------- ---------------------
1998 1997 1998 1997 1998 1997 1998 1997
-------- -------- -------- -------- -------- -------- -------- --------
(MILLIONS WHERE APPLICABLE)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Revenues......... $1,632 $1,701 $1,348 $1,308 $1,425 $1,448 $1,526 $1,643
Operating Income........... 318 309 251 219 312 301 305 286
Net Income................. 191 140 122 91 180 176 151 153
Earnings per Share
(Basic and Diluted)...... 0.82 0.60 0.53 0.39 0.78 0.76 0.66 0.66
Weighted Average Common
Shares and Potential
Dilutive Effect of Stock
Options Outstanding..... 232 232 232 232 232 232 228 232
</TABLE>
109
<PAGE>
NOTE 19. ACCOUNTING MATTERS
In response to the continuing deregulation of the electric utility
industry, the Financial Accounting Standards Board (FASB), through its Emerging
Issues Task Force (EITF), undertook an initiative designated as EITF Issue 97-4,
"Deregulation of the Pricing of Electricity - Issues Related to the Application
of FASB Statements No. 71 and No. 101" (EITF 97-4). The purpose of this
initiative was to develop guidance for the application of SFAS 101, "Regulated
Enterprises Accounting for the Discontinuation of Application of FASB Statement
No. 71" (SFAS 101). SFAS 101 addresses how an enterprise that ceases to meet the
criteria for application of SFAS 71 to all or part of its operations should
report that event in its general-purpose financial statements. This
authoritative pronouncement will dictate the timing for the accounting for the
outcome of the Energy Master Plan Proceedings.
The EITF's consensus on this issue is that an enterprise is required to
discontinue the application of SFAS 71 for the deregulated portion of its
business once legislation is passed or a rate order is issued which contains a
sufficiently detailed plan to transition from regulated pricing to market
pricing. In addition, the EITF concluded that an enterprise may continue to
carry on its books the regulatory assets and liabilities of the portion of the
business to which SFAS 101 is being applied, provided that regulators have
approved a regulated cash flow stream. This also applies to costs or obligations
not yet recorded as regulatory assets or liabilities regardless of when
incurred. The discontinuance of SFAS 71 also requires an enterprise to
reevaluate the impact of SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121). SFAS
121 requires that regulatory assets be written off once they are no longer
probable of recovery and that impairment losses be recorded for long-lived
assets when related future cash flows or appraised value are less than the
carrying value of the assets.
The impact of these accounting standards to PSEG and PSE&G will be
determined based on the outcome of the Energy Master Plan Proceedings. Under
PSE&G's proposal and the Energy Competition Act, PSE&G would have the
opportunity, through various mechanisms, to recover its electric generation
related potentially stranded costs. Management cannot predict the outcome of the
Energy Master Plan Proceedings on PSEG's and PSE&G's future financial condition,
results of operations and net cash flows. However, depending on regulatory
actions taken in New Jersey with respect to electric utility deregulation, there
could be a material adverse effect on such results.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133), which is effective for financial
statements for all fiscal quarters of fiscal years beginning after June 15,
1999. SFAS 133 establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires an entity to recognize all
derivatives, within the scope of this statement, as assets or liabilities on the
balance sheet at fair value. Also, derivatives that are not hedges must be
adjusted to fair value through income. If a derivative is a hedge, changes in
the fair value of the derivative will either be offset against the change in
fair value of the hedged asset, liability or firm commitment through earnings or
be recognized in other comprehensive income until the hedged item is recognized
in earnings, depending on the nature of the hedge. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
PSEG and PSE&G are currently evaluating the impact of SFAS 133.
In November 1998, the EITF issued EITF 98-10, "Accounting for Contracts
Involved in Energy Trading and Risk Management Activities." EITF 98-10 is
effective for financial statements issued for fiscal years beginning after
December 15, 1998. EITF 98-10 requires that energy trading contracts be marked
to market with gains and losses included in earnings and separately disclosed in
the financial statements and footnotes. The EITF described indicators that
should be considered in determining whether an identifiable operation enters
into contracts that would fall under the scope of this issue. PSE&G has
determined that EITF 98-10 does apply to its operations and will be adopted in
January 1999. The impact of applying EITF 98-10 is not expected to have a
material adverse impact on the financial condition, results of operations and
net cash flows of PSEG and PSE&G.
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" (SOP 98-1), which is
effective for financial statements for fiscal years beginning after December 15,
1998. SOP 98-1 provides criteria for capitalizing certain internal-use software
costs. The adoption of SOP 98-1 is not expected to have a material impact on the
financial condition, results of operations and net cash flows of PSEG and PSE&G.
110
<PAGE>
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities" (SOP 98-5), which is effective for financial
statements for fiscal years beginning after December 15, 1998. SOP 98-5 requires
the expensing of the costs of start-up activities as incurred. Additionally,
previously capitalized start-up costs must be written off as a Cumulative Effect
of a Change in Accounting Principle. The adoption of SOP 98-5 is not expected to
have a material impact on the financial condition, results of operations and net
cash flows of PSEG and PSE&G.
NOTE 20. SUBSEQUENT EVENTS
On January 1, 1999, the outstanding stock of PSCRC was dividended by PSE&G
to PSEG, which contributed such stock indirectly to Energy Technologies as an
additional equity investment. PSCRC had earnings/(losses) of $2 million, $0.2
million and $(9) million for the years ended December 31, 1998, 1997 and 1996,
respectively. At December 31, 1998 and 1997, PSCRC had assets of $89 million and
$117 million, respectively. Future earnings and assets will be reflected in the
consolidated financial statements of Energy Technologies, Energy Holdings and
PSEG.
In January 1999, Brazil abandoned its managed devaluation strategy and
allowed its currency, the Real, to float against other currencies. As of January
31, 1999, the Real has devalued approximately 40% against the U.S. dollar since
December 31, 1998. Based on the December 31, 1998 Brazilian investment balance
of $482 million, there was a 40% devaluation as of January 31, 1999 which
resulted in a charge of $172 million to cumulative foreign currency translation
adjustment (a separate component of stockholders' equity). PSEG cannot predict
to what extent, if any, further devaluation may occur, and, therefore, cannot
predict the impact of potential devaluation of currencies on PSEG's results of
operations, financial condition and net cash flows. However, assuming no further
significant devaluation, PSEG does not expect this to have a material adverse
effect on its 1999 results of operations, financial condition or net cash flows.
For additional information, see Note 15. Financial Information by Business
Segment. As PSEG increases its international investments, the financial
statements of PSEG will be increasingly affected by changes in the global
economy.
PSE&G
Except as modified below, the Notes to Consolidated Financial Statements
of PSEG are incorporated herein by reference insofar as they relate to PSE&G and
its subsidiaries:
Note 1. Organization and Summary of Significant Accounting Policies
Note 2. Regulatory Issues
Note 3. Regulatory Assets and Liabilities
Note 4. Long-Term Investments
Note 5. Leasing Activities--As Lessee
Note 6. Schedule of Consolidated Capital Stock and Other Securities
Note 7. Schedule of Consolidated Debt
Note 8. Financial Instruments and Risk Management
Note 10. Commitments and Contingent Liabilities
Note 11. PSE&G Nuclear Decommissioning
Note 12. Income Taxes
Note 13. Pension, Other Postretirement Benefit and Savings Plans
Note 14. Stock Options, Stock Purchase Plan and Stock Repurchase Program
Note 15. Financial Information by Business Segments
Note 17. Jointly Owned Facilities--Utility Plant
Note 19. Accounting Matters
Note 20. Subsequent Events
111
<PAGE>
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PSEG owns all of PSE&G's common stock (without nominal or par value). Of
the 150,000,000 authorized shares of common stock at December 31, 1998, 1997 and
1996, there were 132,450,344 shares outstanding, with an aggregate book value of
$2.6 billion.
NOTE 9. CASH AND CASH EQUIVALENTS
The December 31, 1998 and 1997 balances consist primarily of working
funds.
112
<PAGE>
NOTE 12. INCOME TAXES
A reconciliation of reported Net Income with pretax income and of income
tax expense with the amount computed by multiplying pretax income by the
statutory Federal income tax rate of 35% is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Net Income ........................................................... $604 $528 $535
---------- ---------- ----------
Income taxes:
Operating income:
Current provision-Federal and State ............................. 453 292 241
Provision for deferred income taxes--net(A)-Federal and State ... (35) 34 43
Investment tax credits--net ..................................... (20) (19) (19)
---------- --------------------------
Total included in operating income .............................. 398 307 265
Miscellaneous other income:
Current provision-Federal and State ............................. 8 (24) 1
Provision for deferred income taxes(A)-Federal and State ........ (1) -- --
SFAS 90 deferred income taxes(A) ................................ 1 1 2
---------- ---------- ----------
Total income tax provisions ................................ 406 284 268
---------- ---------- ----------
Pretax income ........................................................ $1,010 $812 $803
---------- ---------- ----------
</TABLE>
Reconciliation between total income tax provisions and tax computed at the
statutory tax rate on pretax income:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Tax computed at the statutory rate ................................... $354 $284 $281
---------- ---------- ----------
Increase (decrease) attributable to flow through of certain tax
adjustments:
Depreciation .................................................... 23 27 11
Amortization of investment tax credits .......................... (20) (19) (19)
New Jersey Corporate Business Tax ............................... 59 -- --
Other ........................................................... (10) (8) (5)
---------- ---------- ----------
Subtotal ................................................... 52 -- (13)
---------- ---------- ----------
Total income tax provisions ................................ $406 $284 $268
========== ========== ==========
Effective income tax rate ............................................ 40.2% 35.0% 33.3%
</TABLE>
(A) The provision for deferred income taxes represents the tax effects of the
following items:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Deferred Credits:
Additional tax depreciation and amortization .................... $(28) $16 $31
Conservation Costs .............................................. 36 27 15
Deferred Fuel Costs--net ........................................ (60) (4) 6
Pension Cost .................................................... 26 8 3
New Jersey Corporate Business Tax ............................... (8) -- --
Other ........................................................... (1) (12) (10)
---------- ---------- ----------
Total ...................................................... $(35) $35 $45
========== ========== ==========
</TABLE>
113
<PAGE>
SFAS 109
The following is an analysis of deferred income taxes:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1997
---------- ----------
DEFERRED INCOME TAXES (MILLIONS OF DOLLARS)
<S> <C> <C>
Assets:
Current (net) ...................................... $30 $25
Non-current:
Unrecovered Investment Tax Credits ............... 110 117
Nuclear Decommissioning .......................... 27 33
Construction Period Interest and Taxes ........... 13 15
New Jersey Corporate Business Tax ................ 15 --
Vacation Pay ..................................... 6 7
Other ............................................ 22 17
---------- ----------
Total Non-current ............................. 193 189
---------- ----------
Total Assets .................................. 223 214
---------- ----------
Liabilities:
Non-current:
Plant Related Items .............................. 2,212 2,246
Conservation Costs ............................... 75 39
Hope Creek O&M Costs ............................. 19 21
Deferred Electric Energy & Gas Costs ............. -- 60
Unamortized Debt Expense ......................... 45 44
Taxes Recoverable Through Future Rates (Net) ..... 242 249
Other ............................................ 127 99
---------- ----------
Total Non-current ............................. 2,720 2,758
---------- ----------
Total Liabilities ............................. 2,720 2,758
---------- ----------
Summary--Deferred Income Taxes
Net Current Assets ................................. 30 25
Net Non-current Liability .......................... 2,527 2,569
---------- ----------
Total ......................................... $2,497 $2,544
========== ==========
</TABLE>
The balance of Federal income tax payable by (receivable from) PSE&G to
PSEG was $9 million and $5 million as of December 31, 1998 and December 31,
1997, respectively.
NOTE 18. SELECTED QUARTERLY DATA (UNAUDITED)
The information shown below, in the opinion of PSE&G, includes all
adjustments, consisting only of normal recurring accruals, necessary to a fair
presentation of such amounts. Due to the seasonal nature of the utility
business, quarterly amounts vary significantly during the year.
<TABLE>
<CAPTION>
CALENDAR QUARTER ENDED
-----------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------------- ----------------- ----------------- -----------------
1998 1997 1998 1997 1998 1997 1998 1997
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(MILLIONS OF DOLLARS)
Operating Revenues ...... $1,519 $1,662 $1,258 $1,255 $1,416 $1,377 $1,397 $1,561
Operating Income ........ 259 292 208 195 321 264 231 247
Net Income .............. 157 140 111 87 217 159 119 142
Earnings Available to
PSEG .................. 155 136 109 81 215 157 116 139
</TABLE>
114
<PAGE>
FINANCIAL STATEMENT RESPONSIBILITY--PSEG
Management of PSEG is responsible for the preparation, integrity and
objectivity of the consolidated financial statements and related notes of PSEG.
The consolidated financial statements and related notes are prepared in
accordance with generally accepted accounting principles. The financial
statements reflect estimates based upon the judgment of management where
appropriate. Management believes that the consolidated financial statements and
related notes present fairly PSEG's financial position and results of
operations. Information in other parts of this Annual Report is also the
responsibility of management and is consistent with these consolidated financial
statements and related notes.
The firm of Deloitte & Touche LLP, independent auditors, is engaged to
audit PSEG's consolidated financial statements and related notes and issue a
report thereon. Deloitte & Touche's audit is conducted in accordance with
generally accepted auditing standards. Management has made available to Deloitte
& Touche all the corporation's financial records and related data, as well as
the minutes of directors' meetings. Furthermore, management believes that all
representations made to Deloitte & Touche during its audit were valid and
appropriate.
Management has established and maintains a system of internal accounting
controls to provide reasonable assurance that assets are safeguarded, and that
transactions are executed in accordance with management's authorization and
recorded properly for the prevention and detection of fraudulent financial
reporting, so as to maintain the integrity and reliability of the financial
statements. The system is designed to permit preparation of consolidated
financial statements and related notes in accordance with generally accepted
accounting principles. The concept of reasonable assurance recognizes that the
costs of a system of internal accounting controls should not exceed the related
benefits. Management believes the effectiveness of this system is enhanced by an
ongoing program of continuous and selective training of employees. In addition,
management has communicated to all employees its policies on business conduct,
safeguarding assets and internal controls.
The Internal Auditing Department of PSE&G conducts audits and appraisals
of accounting and other operations of PSEG and its subsidiaries and evaluates
the effectiveness of cost and other controls and, where appropriate, recommends
to management improvements thereto. Management has considered the internal
auditors' and Deloitte & Touche's recommendations concerning the corporation's
system of internal accounting controls and has taken actions that, in its
opinion, are cost-effective in the circumstances to respond appropriately to
these recommendations. Management believes that, as of December 31, 1998, the
Corporation's system of internal accounting controls is adequate to accomplish
the objectives discussed herein.
The Board of Directors of PSEG carries out its responsibility of financial
overview through its Audit Committee, which presently consists of five directors
who are not employees of PSEG or any of its affiliates. The Audit Committee
meets periodically with management as well as with representatives of the
internal auditors and Deloitte & Touche. The Audit Committee reviews the work of
each to ensure that its respective responsibilities are being carried out and
discusses related matters. Both the internal auditors and Deloitte & Touche
periodically meet alone with the Audit Committee and have free access to the
Audit Committee, and its individual members, at all times.
E. JAMES FERLAND ROBERT C. MURRAY
Chairman of the Board, Vice President and
President and Chief Executive Officer Chief Financial Officer
PATRICIA A. RADO
Vice President and Controller
(Principal Accounting Officer)
February 12, 1999
115
<PAGE>
FINANCIAL STATEMENT RESPONSIBILITY--PSE&G
Management of PSE&G is responsible for the preparation, integrity and
objectivity of the consolidated financial statements and related notes of PSE&G.
The consolidated financial statements and related notes are prepared in
accordance with generally accepted accounting principles. The financial
statements reflect estimates based upon the judgment of management where
appropriate. Management believes that the consolidated financial statements and
related notes present fairly PSE&G's financial position and results of
operations. Information in other parts of this Annual Report is also the
responsibility of management and is consistent with these consolidated financial
statements and related notes.
The firm of Deloitte & Touche LLP, independent auditors, is engaged to
audit PSE&G's consolidated financial statements and related notes and issue a
report thereon. Deloitte & Touche's audit is conducted in accordance with
generally accepted auditing standards. Management has made available to Deloitte
& Touche all the corporation's financial records and related data, as well as
the minutes of directors' meetings. Furthermore, management believes that all
representations made to Deloitte & Touche during its audit were valid and
appropriate.
Management has established and maintains a system of internal accounting
controls to provide reasonable assurance that assets are safeguarded, and that
transactions are executed in accordance with management's authorization and
recorded properly for the prevention and detection of fraudulent financial
reporting, so as to maintain the integrity and reliability of the financial
statements. The system is designed to permit preparation of consolidated
financial statements and related notes in accordance with generally accepted
accounting principles. The concept of reasonable assurance recognizes that the
costs of a system of internal accounting controls should not exceed the related
benefits. Management believes the effectiveness of this system is enhanced by an
ongoing program of continuous and selective training of employees. In addition,
management has communicated to all employees its policies on business conduct,
safeguarding assets and internal controls.
The Internal Auditing Department conducts audits and appraisals of
accounting and other operations and evaluates the effectiveness of cost and
other controls and, where appropriate, recommends to management improvements
thereto. Management has considered the internal auditors' and Deloitte &
Touche's recommendations concerning the corporation's system of internal
accounting controls and has taken actions that are cost-effective in the
circumstances to respond appropriately to these recommendations. Management
believes that, as of December 31, 1998, the Corporation's system of internal
accounting controls is adequate to accomplish the objectives discussed herein.
The Board of Directors carries out its responsibility of financial
overview through the Audit Committee of PSEG, which presently consists of five
directors who are not employees of PSE&G or any of its affiliates. The PSEG
Audit Committee meets periodically with management as well as with
representatives of the internal auditors and Deloitte & Touche. The Audit
Committee reviews the work of each to ensure that their respective
responsibilities are being carried out and discusses related matters. Both the
internal auditors and Deloitte & Touche, periodically meet alone with the Audit
Committee and have free access to the Audit Committee, and its individual
members, at all times.
E. JAMES FERLAND ROBERT C. MURRAY
Chairman of the Board and Executive Vice President--Finance
Chief Executive Officer (Principal Financial Officer)
PATRICIA A. RADO
Vice President and Controller
(Principal Accounting Officer)
February 12, 1999
116
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Public Service Enterprise Group Incorporated:
We have audited the consolidated balance sheets of Public Service
Enterprise Group Incorporated and its subsidiaries (the "Company") as of
December 31, 1998 and 1997, and the related consolidated statements of income,
common stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1998. Our audits also included the consolidated
financial statement schedule listed in the Index in Item 14(B)(1). These
consolidated financial statements and the consolidated financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and
consolidated financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Public Service Enterprise Group
Incorporated and its subsidiaries at December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998 in conformity with generally accepted accounting
principles. Also, in our opinion, such consolidated financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We have also previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheets as of December 31, 1996,
1995, and 1994, and the related consolidated statements of income, common
stockholders' equity and cash flows for the years ended December 31, 1995 and
1994 (none of which are presented herein) and we expressed unqualified opinions
on those consolidated financial statements. In our opinion, the information set
forth in the Selected Financial Data for each of the five years in the period
ended December 31, 1998 for the Company, presented in Item 6, is fairly stated
in all material respects, in relation to the consolidated financial statements
from which it has been derived.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 12, 1999
117
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Public Service Electric and Gas Company:
We have audited the consolidated balance sheets of Public Service Electric
and Gas Company and its subsidiaries (the "Company") as of December 31, 1998 and
1997, and the related consolidated statements of income, common stockholder's
equity and cash flows for each of the three years in the period ended December
31, 1998. Our audits also included the consolidated financial statement schedule
listed in the Index in Item 14(B)(2). These consolidated financial statements
and the consolidated financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and consolidated financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Public Service Electric and Gas
Company and its subsidiaries at December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles. Also, in our opinion, such consolidated financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We have also previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheets as of December 31, 1996,
1995, and 1994, and the related consolidated statements of income, common
stockholder's equity and cash flows for the years ended December 31, 1995 and
1994 (none of which are presented herein) and we expressed unqualified opinions
on those consolidated financial statements. In our opinion, the information set
forth in the Selected Financial Data for each of the five years in the period
ended December 31, 1998 for the Company, presented in Item 6, is fairly stated
in all material respects, in relation to the consolidated financial statements
from which it has been derived.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 12, 1999
118
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
PSEG and PSE&G, none.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
DIRECTORS OF THE REGISTRANTS
PSEG
The information required by Item 10 of Form 10-K with respect to present
directors who are nominees for election as directors at PSEG's Annual Meeting of
Stockholders to be held on April 20, 1999, and directors whose terms will
continue beyond the meeting, is set forth under the heading "Election of
Directors" in PSEG's definitive Proxy Statement for such Annual Meeting of
Stockholders, which definitive Proxy Statement is expected to be filed with the
Securities and Exchange Commission on or about March 2, 1999 and which
information set forth under said heading is incorporated herein by this
reference thereto.
PSE&G
There is shown as to each present director information as to the period of
service as a director of PSE&G, age as of April 20, 1999, present committee
memberships, business experience during the last five years and other present
directorships. For discussion of certain litigation involving the directors of
PSE&G, except Forrest J. Remick and Conrad K. Harper, see Part I--Business, Item
3--Legal Proceedings.
LAWRENCE R. CODEY has been a director since 1988. Age 54. Member of
Executive Committee. Has been President and Chief Operating Officer of PSE&G
since 1991. Director of PSEG. Director of Sealed Air Corporation, The Trust
Company of New Jersey, United Water Resources Inc. and Horizon Blue Cross Blue
Shield of New Jersey.
E. JAMES FERLAND has been a director since 1986. Age 57. Chairman of
Executive Committee. Chairman of the Board, President and Chief Executive
Officer of PSEG since July 1986, Chairman of the Board and Chief Executive
Officer of PSE&G since September 1991 and Chairman of the Board and Chief
Executive Officer of Energy Holdings since June 1989. Director of PSEG and of
Energy Holdings. Director of Foster Wheeler Corporation and The HSB Group, Inc.
CONRAD K. HARPER has been a director since May 1997. Age 58. Director of
PSEG. Has been a partner in the law firm of Simpson Thacher & Bartlett, New
York, New York since October 1996 and from 1974 to May 1993. Was Legal Adviser,
U.S. Department of State from May 1993 to June 1996. Director of New York Life
Insurance Company.
IRWIN LERNER has been a director since 1993. Age 68. Member of Executive
Committee. Was previously a director from 1981 to February 1988. Director of
PSEG. Retired. Until retirement was Chairman, Board of Directors of Hoffmann-La
Roche Inc., Nutley, New Jersey (prescription pharmaceuticals, vitamins and fine
chemicals, and diagnostic products and services) from January 1993 to September
1993 and President and Chief Executive Officer from 1980 to December 1992.
Director of Humana Inc., AXYS Pharmaceuticals, Inc., Medarex, Inc., Covance Inc.
and V.I. Technologies, Inc.
MARILYN M. PFALTZ has been a director since 1998 and was a Director of
Energy Holdings from 1989 to 1998. Age 66. Director of PSEG. Has been a partner
of P and R Associates, Summit, New Jersey (communication specialists), since
1968. Director of AAA National Association and Beacon Trust Company.
FORREST J. REMICK has been a director since 1995. Age 68. Director of
PSEG. Has been an engineering consultant since 1994. Was Commissioner, U.S.
Nuclear Regulatory Commission, from December 1989 to June 1994. Was Associate
Vice President--Research and Professor of Nuclear Engineering at Pennsylvania
State University, from 1985 to 1989.
119
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANTS
The following table sets forth certain information concerning the
executive officers of PSEG and PSE&G, respectively.
<TABLE>
<CAPTION>
AGE EFFECTIVE DATE
NAME DECEMBER 31, 1998 OFFICE FIRST ELECTED TO PRESENT POSITION
- -------------------------- ----------------- ------------------------------------- -----------------------------------
<S> <C> <C> <C>
E. James Ferland.......... 56 Chairman of the Board, President and July 1986 to present
Chief Executive Officer (PSEG)
Chairman of the Board and Chief July 1986 to present
Executive Officer (PSE&G)
Chairman of the Board and Chief June 1989 to present
Executive Officer (Energy Holdings)
Lawrence R. Codey......... 54 President and Chief Operating Officer September 1991 to present
(PSE&G)
Robert C. Murray.......... 53 Vice President and Chief Financial January 1992 to present
Officer (PSEG)
Executive Vice President--Finance June 1997 to present
(PSE&G)
Senior Vice President and Chief January 1992 to June 1997
Financial Officer (PSE&G)
Robert J. Dougherty, Jr... 47 President and Chief Operating Officer January 1997 to present
(Energy Holdings)
President (Enterprise Ventures and February 1995 to December 1996
Services Corporation)
Senior Vice President--Electric September 1991 to February 1995
(PSE&G)
Harold W. Keiser.......... 55 Chief Nuclear Officer & President-- May 1998 to present
Nuclear Business Unit (PSE&G)
Executive Vice President--Nuclear January 1998 to April 1998
Business Unit (PSE&G)
Private Consultant October 1997 to January 1998
Vice President and Chief Nuclear March 1996 to October 1997
Operating Officer, Commonwealth
Edison
Vice President, Pressurized Water December 1995 to March 1996
Reactor, Commonwealth Edison
Executive Vice President and Chief April 1993 to December 1995
Operating Officer, Entergy Operations
Incorporated
R. Edwin Selover.......... 53 Vice President and General Counsel April 1988 to present
(PSEG)
Senior Vice President and General January 1988 to present
Counsel (PSE&G)
</TABLE>
120
<PAGE>
<TABLE>
<CAPTION>
AGE EFFECTIVE DATE
NAME DECEMBER 31, 1998 OFFICE FIRST ELECTED TO PRESENT POSITION
- -------------------------- ----------------- ------------------------------------- -----------------------------------
<S> <C> <C> <C>
Alfred C. Koeppe............ 52 Senior Vice President--Corporate October 1996 to present
Services and External Affairs (PSE&G)
Senior Vice President--External October 1995 to October 1996
Affairs (PSE&G)
President and Chief Executive February 1993 to October 1995
Officer, Bell Atlantic--New Jersey
Frank Cassidy.............. 51 President November 1996 to present
(Energy Technologies)
Senior Vice President--Fossil February 1995 to November 1996
Generation (PSE&G)
Vice President--Transmission November 1989 to February 1995
Systems (PSE&G)
Eileen A. Moran............. 44 President (Resources) May 1990 to present
President (EGDC) January 1997 to present
Michael J. Thomson.......... 40 President (Global) January 1997 to present
Senior Vice President and Chief February 1994 to December 1996
Operating Officer (Global)
Senior Vice President (Global) July 1993 to February 1994
Patricia A. Rado........... 56 Vice President and Controller April 1993 to present
(PSEG)
Vice President and Controller April 1993 to present
(PSE&G)
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION
PSEG
The information required by Item 11 of Form 10-K is set forth under the
heading "Executive Compensation" in PSEG's definitive Proxy Statement for the
Annual Meeting of Stockholders to be held April 20 1999 which definitive Proxy
Statement is expected to be filed with the Securities and Exchange Commission on
or about March 2, 1999 and such information set forth under such heading is
incorporated herein by this reference thereto.
PSE&G
Information regarding the compensation of the Chief Executive Officer and
the four most highly compensated executive officers of PSE&G as of December 31,
1998 is set forth below. Amounts shown were paid or awarded for all services
rendered to PSEG and its subsidiaries and affiliates including PSE&G.
121
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
--------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------- -----------------------------------
BONUS/ANNUAL LTIP ALL OTHER
SALARY INCENTIVE RESTRICTED OPTIONS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR $ AWARD($)(1) STOCK ($) (#)(2) ($)(3) ($)(4)
- --------------------------------------- ---- ------- ------------ ------------ ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
E. James Ferland....................... 1998 762,070 621,400 5,184,375 (5) 150,000 92,684 28,647
Chairman of the Board and Chief 1997 712,261 425,200 0 118,000 108,702 15,747
Executive Officer of PSE&G 1996 712,261 279,811 0 6,500 168,084 10,994
Lawrence R. Codey...................... 1998 455,250 274,200 0 75,000 44,744 5,043
President and Chief Operating 1997 435,327 249,400 0 59,200 50,325 5,459
Officer of PSE&G 1996 435,327 141,968 0 3,000 81,144 5,934
Robert C. Murray....................... 1998 373,564 225,000 0 50,000 31,960 4,962
Executive Vice President - Finance 1997 345,671 154,900 0 32,000 36,234 5,260
of PSE&G 1996 332,721 83,887 0 2,000 57,960 5,248
Harold W. Keiser....................... 1998 308,047 155,400 0 37,500 0 5,888
Chief Nuclear Officer and President
Nuclear Business Unit of PSE&G (6)
R. Edwin Selover....................... 1998 293,871 154,900 0 25,000 22,372 19,210
Senior Vice President and General 1997 278,928 117,900 0 14,300 26,169 9,065
Counsel of PSE&G 1996 268,967 59,828 0 1,400 40,572 7,172
</TABLE>
(1) Amount awarded in given year was earned under Management Incentive
Compensation Plan (MICP) and determined in following year based on
individual performance and financial and operating performance of PSEG and
PSE&G, including comparison to other companies.
(2) All grants of options to purchase shares of PSEG Common Stock were made
under the Long-Term Incentive Plan (LTIP). For 1998, all options granted
were non-tandem (as described below) except for 2,500 options granted to
Mr. Keiser. For 1997, 100,000; 50,000; 25,000 and 10,000 were non-tandem
and 18,000; 9,200; 7,000 and 4,300 of the options granted to Messrs.
Ferland, Codey, Murray, and Selover, respectively, were tandem. For 1996,
all options granted were in tandem with performance units and dividend
equivalents. Tandem grants are made with an equal number of performance
units and dividend equivalents which may provide cash payments, dependent
upon future financial performance of PSEG in comparison to other companies
and dividend payments by PSEG, to assist recipients in exercising options
granted. The tandem grant is made at the beginning of a three-year
performance period and cash payment of the value of such performance units
and dividend equivalents is made following such period in proportion to
the options, if any, exercised at such time. Non-tandem grants are made
without performance units and dividend equivalents.
(3) Amount paid in proportion to options exercised, if any, based on value of
previously granted performance units and dividend equivalents, each as
measured during three-year period ending the year prior to the year in
which payment is made.
(4) Includes employer contribution to Thrift and Tax-Deferred Savings Plan and
value of 5% discount on phantom stock dividend reinvestment under MICP:
<TABLE>
<CAPTION>
FERLAND CODEY MURRAY KEISER SELOVER
-------------- ---------------- --------------- -------------- --------------
THRIFT MICP THRIFT MICP THRIFT MICP THRIFT MICP THRIFT MICP
($) ($) ($) ($) ($) ($) ($) ($) ($) ($)
------ ----- ------ ----- ------ ---- ------ ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998..................... 4,801 383 4,802 241 4,805 157 5,888 0 4,806 112
1997..................... 4,801 1,122 4,802 657 4,802 458 -- -- 4,802 325
1996..................... 4,150 2,861 4,502 1,432 4,502 746 -- -- 4,502 1,272
</TABLE>
In addition, 1998, 1997 and 1996 amounts include for Mr. Ferland $23,463,
$9,824 and $3,983 and for Mr. Selover $14,292, $3,938 and $1,398,
respectively, representing interest on compensation deferred under PSE&G's
Deferred Compensation Plan in excess of 120% of the applicable Federal
long-term rate as prescribed under Section 1274(d)
122
<PAGE>
of the Internal Revenue Code. Under PSE&G's Deferred Compensation Plan,
interest is paid at prime rate plus 1/2%, adjusted quarterly.
(5) Value as of original grant date, based on the closing price on the New
York Stock Exchange on June 16, 1998, with respect to an award to Mr.
Ferland of 150,000 shares of restricted stock, of which 60,000 shares vest
in 2002; 20,000 shares vest in 2003; 30,000 shares vest in 2004 and 40,000
shares vest in 2005. Dividends on the entire grant are paid in cash from
the date of grant.
(6) Mr. Keiser was first employed in January 1998.
OPTION GRANTS IN LAST FISCAL YEAR (1998)
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION GRANT DATE
NAME GRANTED FISCAL YEAR ($/SH) DATE PRESENT VALUE ($) (4)
- ------------------------------ ---------- ------------ ----------- ---------- ---------------------
<S> <C> <C> <C> <C> <C>
E. James Ferland.............. 150,000(1) 17.8 39.3125 12/03/08 657,000
Lawrence R. Codey............. 75,000(1) 8.9 39.3125 12/03/08 328,500
Robert C. Murray.............. 50,000(1) 5.9 39.3125 12/03/08 219,000
Harold W. Keiser.............. 25,000(1) 3.0 39.3125 12/03/08 109,500
10,000(2) 1.2 29.5625 1/20/08 34,800
2,500(3) 0.3 31.5625 1/21/08 25,325
R. Edwin Selover.............. 25,000(1) 3.0 39.3125 12/03/08 109,500
</TABLE>
(1) Granted under LTIP not in tandem with performance units and dividend
equivalents, with exercisability commencing December 3, 1999, December 3,
2000 and December 3, 2001, respectively, with respect to one-third of the
options at each such date.
(2) Granted under LTIP in tandem with equal number of performance units and
dividend equivalents with exercisability commencing December 16, 1998,
December 16, 1999 and December 16, 2000, respectively, with respect to
one-third of the options at each such date.
(3) Granted under LTIP in tandem with equal number of performance units and
dividend equivalents which may provide cash payments, dependent on future
financial performance of PSEG in comparison to other companies and
dividend payments by PSEG, to assist recipients in exercising options,
with exercisability commencing January 1, 2000. Cash payment is made,
based on the value, if any, of performance units awarded and dividend
equivalents accrued, if any, as measured during the three-year period
ending the year prior to the year in which payment, if any, is made, only
if the specified performance level is achieved, dividend equivalents have
accrued and options are exercised.
(4) Determined using the Black-Scholes model, incorporating the following
material assumptions and adjustments for the grants expiring January 20,
2008, January 21, 2008 and December 3, 2008, respectively: (a) exercise
prices of $29.5625, $31.5625 and $39.3125, equal to the fair market value
of the underlying PSEG Common Stock on the date of grant (or as of
December 16, 1997 for the grant expiring January 20, 2008), to replicate
grants previously given to other executive officers for similar
performance periods; (b) an option term of ten years on all grants; (c)
interest rates of 5.54%, 5.81% and 4.65% that represent the interest rates
on U.S. Treasury securities on the dates of grant (or December 16, 1997
for the grant (expiring January 20, 2008) with a maturity date
corresponding to that of the option terms; (d) volatilities of 19.12%,
19.12% and 20.17% calculated using daily PSEG Common Stock prices for the
one-year period prior to the grant dates; (e) a dividend yield of 0% with
respect to the dividend equivalent feature of the tandem grants (expiring
January 21, 2008) since dividend payments accrue while the option is held;
(f) dividend yields of 6.84% and 5.49% on the non-tandem (expiring January
20, 2008 and December 3, 2008); and (g) reductions of approximately 7.8%
and 7.82% for the non-tandem and 11.53% for the tandem grants,
respectively, to reflect the probability of forfeiture due to termination
prior to vesting, and approximately 2.4%, 20% and 6.23% for the grants
123
<PAGE>
expiring January 20, 2008, January 21, 2008 and December 3, 2008,
respectively, to reflect the probability of a shortened option term due to
termination of employment prior to the option expiration date. Actual
values which may be realized, if any, upon any exercise of such options,
will be based on the market price of PSEG Common Stock at the time of any
such exercise and thus are dependent upon future performance of PSEG
Common Stock. There is no assurance that any such value realized will be
at or near the value estimated by the Black-Scholes model utilized.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR (1998) AND
FISCAL YEAR END OPTION VALUES (12/31/98)
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END(#)(1) AT FY-END($)(3)
---------------------------- ----------------------------
SHARES
ACQUIRED VALUE
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#)(1) ($)(2) (#) (#) ($) ($)
- --------------------------------- ---------------------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
E. James Ferland................. 5,800 63,075 33,340 241,160 347,986 1,061,576
Lawrence R. Codey................ 2,800 18,375 17,370 120,530 185,018 530,982
Robert C. Murray................. 2,000 21,875 8,335 75,665 86,997 305,441
Harold W. Keiser................. 0 0 3,334 34,166 34,799 107,858
R. Edwin Selover................. 1,400 8,525 4,334 37,366 45,049 147,908
</TABLE>
(1) Does not reflect any options granted and/or exercised after year end
(12/31/98). The net effect of any such grants and exercises is reflected
in the table appearing under Security Ownership of Directors and
Management.
(2) Represents difference between exercise price and market price of PSEG
Common Stock on date of exercise.
(3) Represents difference between market price of PSEG Common Stock and the
respective exercise prices of the options at fiscal year end (12/31/98).
Such amounts may not necessarily be realized. Actual values which may be
realized, if any, upon any exercise of such options will be based on the
market price of PSEG Common Stock at the time of any such exercise and
thus are dependent upon future performance of PSEG Common Stock.
EMPLOYMENT CONTRACTS AND ARRANGEMENTS
PSEG has entered into an employment agreement dated as of June 16, 1998
with Mr. Ferland covering his employment as Chief Executive Officer through
March 31, 2005. Under the Agreement, Mr. Ferland has agreed not to retire prior
to March 31, 2002, but may retire thereafter. The Agreement provides that Mr.
Ferland will be re-nominated for election as a Director during his employment
under the Agreement. The Agreement provides that Mr. Ferland's base salary,
target annual incentive bonus and long term incentive bonus will be determined
based on compensation practices for CEO's of similar companies and that his
annual salary will not be reduced during the term of the Agreement and awards
him 150,000 shares of restricted PSEG Stock, of which 60,000 shares vest 2002;
20,000 shares vest in 2003; 30,000 shares vest in 2004 and 40,000 shares vest in
2005. Any non-vested shares are forfeited upon his retirement unless the Board
of Directors, in its discretion, determines to make payment. The Agreement
provides for the granting of 22 years of pension credit for Mr. Ferland's prior
service, which was awarded at the time of his employment. The Agreement further
provides that if Mr. Ferland is terminated without "Cause" or resigns for "Good
Reason" (as those terms are defined in the Agreement) during the term of the
Agreement, the entire stock award becomes vested, he will be paid a benefit of
two times base salary and target bonus and welfare benefits will be continued
for two years unless sooner employed. In the event such a termination occurs
after a "Change in Control" (as defined), the payment to Mr. Ferland becomes
three times the sum of salary and target bonus, continuation of welfare benefits
for three years unless sooner reemployed, payment of the net present value
providing three years additional service under PSEG's retirement plans, and a
gross-up for excise taxes on any termination payments due under the Internal
Revenue Code. The Agreement provides that Mr. Ferland is prohibited from
competing with or recruiting employees from PSEG or its subsidiaries of
affiliates for two years after termination of employment. Violation of these
provisions requires a forfeiture of a portion of the restricted stock grant and
certain other benefits.
124
<PAGE>
The principal remaining applicable terms of an employment agreement
entered into with Mr. Murray at the time of his employment, as modified in 1998,
provide for the grant of additional years of credited service for retirement
purposes in light of allied work experience of five years after completion of
five years of employment, and up to seventeen years after completion of
approximately nine years of employment.
The principal remaining applicable terms of an employment agreement
entered into with Mr. Keiser at the time of his employment provide that his
salary may not be decreased during the first five years of employment, if
discharged without cause during such period, he will be paid his salary for a
twelve-month period or the remainder of the five year period, whichever is less,
and the grant of twenty years of additional credited service for retirement
purposes after completion of five years of employment, in light of allied work
experience.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
PSE&G does not have a compensation committee. Decisions regarding
compensation of PSE&G's executive officers are made by the Organization and
Compensation Committee of PSEG. Hence, during 1998 the PSE&G Board of Directors
did not have, and no officer, employee or former officer of PSE&G participated
in any deliberations of such Board, concerning executive officer compensation.
COMPENSATION OF DIRECTORS AND CERTAIN BUSINESS RELATIONSHIPS
A director who is not an officer of PSEG or its subsidiaries and
affiliates, including PSE&G, is paid an annual retainer of $22,000 and a fee of
$1,200 for attendance at any Board or committee meeting, inspection trip,
conference or other similar activity relating to PSEG, PSE&G or Energy Holdings.
Beginning in 1999, each committee Chair will receive an additional annual
retainer of $3,000. Each of the directors of PSE&G is also a director of PSEG.
No additional retainer is paid for service as a director of PSE&G. Fifty percent
of the annual retainer is paid in PSEG Common Stock.
PSEG also maintains a Stock Plan for Outside Directors pursuant to which
directors who are not employees of PSEG or its subsidiaries receive 300 shares
of restricted stock for each year of service as a director. Beginning in 1999,
this amount will be increased to 600 shares annually. Such shares held by each
non-employee director are included in the table in Item 12 below under the
heading Security Ownership of Directors and Management.
The restrictions on the stock granted under the Stock Plan for Outside
Directors provide that the shares are subject to forfeiture if the director
leaves service at any time prior to the Annual Meeting of Stockholders following
his or her 70th birthday. This restriction would be deemed to have been
satisfied if the director's service were terminated after a "Change in Control"
as defined in the Plan or if the director were to die in office. PSEG also has
the ability to waive this restriction for good cause shown. Restricted stock may
not be sold or otherwise transferred prior to the lapse of the restrictions.
Dividends on shares held subject to restrictions are paid directly to the
director, and the director has the right to vote the shares.
COMPENSATION PURSUANT TO PENSION PLANS
The table below illustrates annual retirement benefits expressed in terms
of single life annuities based on the average final compensation and service
shown and retirement at age 65. A person's annual retirement benefit is based
upon a percentage that is equal to years of credited service plus 30, but not
more than 75%, times average final compensation at the earlier of retirement,
attainment of age 65 or death. These amounts are reduced by Social Security
benefits and certain retirement benefits from other employers. Pensions in the
form of joint and survivor annuities are also available.
125
<PAGE>
PENSION PLAN TABLE
LENGTH OF SERVICE
AVERAGE FINAL ------------------------------------------------------
COMPENSATION 30 YEARS 35 YEARS 40 YEARS 45 YEARS
- ------------- ------------ ----------- ----------- -----------
$300,000 $180,000 $195,000 $210,000 $225,000
400,000 240,000 260,000 280,000 300,000
500,000 300,000 325,000 350,000 375,000
600,000 360,000 390,000 420,000 450,000
700,000 420,000 455,000 490,000 525,000
800,000 480,000 520,000 560,000 600,000
900,000 540,000 585,000 630,000 675,000
1,000,000 600,000 650,000 700,000 750,000
1,100,000 660,000 715,000 770,000 825,000
1,200,000 720,000 780,000 840,000 900,000
1,300,000 780,000 845,000 910,000 975,000
Average final compensation, for purposes of retirement benefits of
executive officers, is generally equivalent to the average of the aggregate of
the salary and bonus amounts reported in the Summary Compensation Table above
under 'Annual Compensation' for the five years preceding retirement, not to
exceed 130% of the average annual salary for such five year period. Messrs.
Ferland, Codey, Murray, Keiser and Selover will have accrued approximately 48,
41, 41, 30 and 43 years of credited service, respectively, as of age 65.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PSEG
The information required by Item 12 of Form 10-K with respect to
directors, executive officers and certain beneficial owners is set forth under
the heading 'Security Ownership of Directors, Management and Certain Beneficial
Owners' in PSEG's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held April 20, 1999 which definitive Proxy Statement is
expected to be filed with the Securities and Exchange Commission on or about
March 2, 1999 and such information set forth under such heading is incorporated
herein by this reference thereto.
PSE&G
All of PSE&G's 132,450,344 outstanding shares of Common Stock are owned
beneficially and of record by PSE&G's parent, PSEG, 80 Park Plaza, P.O. Box
1171, Newark, New Jersey.
The following table sets forth beneficial ownership of PSEG Common Stock,
including options, by the directors and executive officers named below as of
January 31, 1999. None of these amounts exceed 1% of the PSEG Common Stock
outstanding at such date. No director or executive officer owns any PSE&G
Preferred Stock of any class.
126
<PAGE>
AMOUNT AND NATURE OF
NAME BENEFICIAL OWNERSHIP
- -------------------------------------------------------- --------------------
Lawrence R. Codey....................................... 155,816 (1)
E. James Ferland........................................ 483,578 (2)
Conrad K. Harper........................................ 940
Harold W. Keiser........................................ 37,512 (3)
Irwin Lerner............................................ 11,359
Robert C. Murray........................................ 96,322 (4)
Marilyn M. Pfaltz....................................... 8,473
Forrest J. Remick....................................... 2,838
R. Edwin Selover........................................ 50,691 (5)
All directors and executive officers (11) as a group.... 905,686 (6)
(1) Includes the equivalent of 5 shares held under PSE&G Thrift and
Tax-Deferred Savings Plan. Includes options to purchase 137,200 shares,
16,670 of which are currently exercisable.
(2) Includes the equivalent of 11,531 shares held under PSE&G Thrift and
Tax-Deferred Savings Plan. Includes options to purchase 274,500 shares,
33,340 of which are currently exercisable. Includes 150,000 shares of
restricted stock, which vest as described in the Summary Compensation
Table Note 5.
(3) Includes the equivalent of 12 shares held under PSE&G Thrift and
Tax-Deferred Savings Plan. Includes options to purchase 37,500 shares,
3,334 of which are currently exercisable.
(4) Includes the equivalent of 1,322 shares held under PSE&G Thrift and
Tax-Deferred Savings Plan. Includes options to purchase 84,000 shares,
8,335 of which are currently exercisable.
(5) Includes options to purchase 41,700 shares, of which 4,334 are currently
exercisable.
(6) Includes the equivalent of 18,163 shares held under PSE&G Thrift and
Tax-Deferred Savings Plan. Includes options to purchase 625,700 shares, of
which 69,407 are currently exercisable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PSEG
The information required by Item 13 of Form 10-K is set forth under the
heading "Executive Compensation" in PSEG's definitive Proxy Statement for the
Annual Meeting of Stockholders to be held April 20, 1999, which definitive Proxy
Statement is expected to be filed with the Securities and Exchange Commission on
or about March 2, 1999. Such information set forth under such heading is
incorporated herein by this reference thereto.
PSE&G
None.
127
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) Financial Statements:
(1) PSEG Consolidated Statements of Income for the years ended December
31, 1998, 1997, and 1996, on page 57.
PSEG Consolidated Balance Sheets for the years ended December 31,
1998 and 1997, on pages 58 and 59.
PSEG Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997, and 1996 on page 60.
PSEG Statements of Common Stockholders' Equity for the years ended
December 31, 1998, 1997, and 1996 on page 61.
PSEG Notes to Consolidated Financial Statements on pages 68 through
111.
(2) PSE&G Consolidated Statements of Income for the years ended December
31, 1998, 1997, and 1996, on page 63.
PSE&G Consolidated Balance Sheets for the years ended December 31,
1998 and 1997, on pages 64 and 65.
PSE&G Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997, and 1996 on page 66.
PSE&G Statements of Common Stockholder's Equity for the years ended
December 31, 1998, 1997, and 1996 on page 67.
PSE&G Notes to Consolidated Financial Statements on pages 111
through 114.
(B) The following documents are filed as a part of this report:
(1) PSEG Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts for each of the three
years in the period ended December 31, 1998 (page 130).
(2) PSE&G Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts for each of the three
years in the period ended December 31, 1998 (page 130).
Schedules other than those listed above are omitted for the reason
that they are not required or are not applicable, or the required
information is shown in the consolidated financial statements or
notes thereto.
(C) The following exhibits are filed herewith:
(1) PSEG:
Exhibit 4f Indenture dated as of November 1, 1998 between Public
Service Enterprise Group Incorporated and First Union National Bank
providing for the issuance of Senior Debt Securities
Exhibit 10a(1) Directors' Deferred Compensation Plan
Exhibit 10a(2) Deferred Compensation Plan for Certain Employees
128
<PAGE>
Exhibit 10a(3) Limited Supplemental Benefits Plan for Certain
Employees
Exhibit 10a(4) Mid Career Hire Supplemental Retirement Plan
Exhibit 10a(5) Retirement Income Reinstatement Plan
Exhibit 10a(6) Long-Term Incentive Plan
Exhibit 10a(14) Directors' Stock Plan
Exhibit 10a(16) Global Deferred Compensation Plan
Exhibit 10a(17) Global Executive Incentive Compensation Plan
Exhibit 10a(18) Energy Holdings Management Incentive Compensation
Plan
Exhibit 10a(19) Energy Holdings Deferred Compensation Plan
Exhibit 10a(20) Energy Technologies Executive Incentive Compensation
Plan
Exhibit 10a(21) Energy Holdings Limited Supplemental Benefits Plan
for Certain Employees
Exhibit 10a(22) Resources Annual Incentive Compensation Plan
Exhibit 12 Computation of Ratios of Earnings to Fixed Charges
Exhibit 21 Subsidiaries of Registrant
Exhibit 23 Independent Auditors' Consent
Exhibit 27 Financial Data Schedule
(See Exhibit Index on pages 135 through 143.)
(2) PSE&G:
Exhibit 10a(1) Directors' Deferred Compensation Plan
Exhibit 10a(2) Deferred Compensation Plan for Certain Employees
Exhibit 10a(3) Limited Supplemental Benefits Plan for Certain
Employees
Exhibit 10a(4) Mid Career Hire Supplemental Retirement Plan
Exhibit 10a(5) Retirement Income Reinstatement Plan
Exhibit 10a(6) Long-Term Incentive Plan
Exhibit 10a(14) Directors' Stock Plan
Exhibit 12(a) Computation of Ratios of Earnings to Fixed Charges
Exhibit 12(b) Computation of Ratios of Earnings to Fixed Charges
Plus Preferred Stock Dividend Requirements
Exhibit 23 Independent Auditors' Consent
Exhibit 27 Financial Data Schedule
(See Exhibit Index on pages 143 through 149.)
(D) The following reports on Form 8-K were filed by the registrant(s) named
below during the last quarter of 1998 and the 1999 period covered by this
report under Item 5:
REGISTRANT DATE OF REPORT ITEM REPORTED
---------- -------------- -------------
None.
129
<PAGE>
SCHEDULE II
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998 -- DECEMBER 31, 1996
<TABLE>
<CAPTION>
COLUMN B COLUMN C COLUMN D COLUMN E
---------- --------------------------- ----------- ----------
ADDITIONS
---------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COST AND OTHER ACCOUNTS DEDUCTIONS- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- --------------------------------------------- ---------- --------------------------- ----------- ----------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
1998:
Allowance for Doubtful Accounts.............. $41 $40 $-- $43 (A) $38
Discount on Property Abandonments............ 2 -- -- 1 (B) 1
Inventory Valuation Reserve.................. 12 -- -- -- 12
Other Valuation Allowances................... 15 1 -- 5 11
1997:
Allowance for Doubtful Accounts.............. $46 $44 $-- $49 (A) $41
Discount on Property Abandonments............ 4 -- -- 2 (B) 2
Inventory Valuation Reserve.................. 16 -- -- 4 12
Other Valuation Allowances................... 10 5 -- -- 15
1996:
Allowance for Doubtful Accounts.............. $38 $46 $-- $38 (A) $46
Discount on Property Abandonments............ 7 -- -- 3 (B) 4
Inventory Valuation Reserve.................. 20 -- -- 4 16
Other Valuation Allowances................... -- 10 -- -- 10
</TABLE>
(A) Accounts Receivable/Investments written off.
(B) Amortization of discount to income.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998 -- DECEMBER 31, 1996
<TABLE>
<CAPTION>
COLUMN B COLUMN C COLUMN D COLUMN E
---------- --------------------------- ----------- ----------
ADDITIONS
---------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COST AND OTHER ACCOUNTS DEDUCTIONS- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- --------------------------------------------- ---------- --------------------------- ----------- ----------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
1998:
Allowance for Doubtful Accounts.............. $41 $40 $-- $43 (A) $38
Discount on Property Abandonments............ 2 -- -- 1 (B) 1
Inventory Valuation Reserve.................. 12 -- -- -- 12
Other Valuation Allowances................... 15 1 -- 5 11
1997:
Allowance for Doubtful Accounts.............. $46 $44 $-- $49 (A) $41
Discount on Property Abandonments............ 4 -- -- 2 (B) 2
Inventory Valuation Reserve.................. 16 -- -- 4 12
Other Valuation Allowances................... 10 5 -- -- 15
1996:
Allowance for Doubtful Accounts.............. $38 $46 $-- $38 (A) $46
Discount on Property Abandonments............ 7 -- -- 3 (B) 4
Inventory Valuation Reserve.................. 20 -- -- 4 16
Other Valuation Allowances................... -- 10 -- -- 10
</TABLE>
(A) Accounts Receivable/Investments written off.
(B) Amortization of discount to income.
130
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
By E. JAMES FERLAND
-----------------------------------------
E. JAMES FERLAND
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
Date: February 22, 1999
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
E. JAMES FERLAND Chairman of the Board, February 22, 1999
- --------------------- President and Chief Executive
E. JAMES FERLAND Officer and Director (Principal
Executive Officer)
ROBERT C. MURRAY Vice President and Chief Financial February 22, 1999
- --------------------- Officer (Principal Financial Officer)
ROBERT C. MURRAY
PATRICIA A. RADO Vice President and Controller February 22, 1999
- --------------------- (Principal Accounting Officer)
PATRICIA A. RADO
LAWRENCE R. CODEY Director February 22, 1999
- ---------------------
LAWRENCE R. CODEY
ERNEST H. DREW Director February 22, 1999
- ---------------------
ERNEST H. DREW
T. J. DERMOT DUNPHY Director February 22, 1999
- ---------------------
T. J. DERMOT DUNPHY
RAYMOND V. GILMARTIN Director February 22, 1999
- ---------------------
RAYMOND V. GILMARTIN
CONRAD K. HARPER Director February 22, 1999
- ---------------------
CONRAD K. HARPER
IRWIN LERNER Director February 22, 1999
- ---------------------
IRWIN LERNER
MARILYN M. PFALTZ Director February 22, 1999
- ---------------------
MARILYN M. PFALTZ
FORREST J. REMICK Director February 22, 1999
- ---------------------
FORREST J. REMICK
RICHARD J. SWIFT Director February 22, 1999
- ---------------------
RICHARD J. SWIFT
JOSH S. WESTON Director February 22, 1999
- ---------------------
JOSH S. WESTON
131
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
By E. JAMES FERLAND
-----------------------------------------
E. JAMES FERLAND
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
Date: February 22, 1999
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
E. JAMES FERLAND Chairman of the Board and Chief February 22, 1999
- --------------------- Executive Officer and Director
E. JAMES FERLAND (Principal Executive Officer)
ROBERT C. MURRAY Executive Vice President--Finance February 22, 1999
- --------------------- (Principal Financial Officer)
ROBERT C. MURRAY
PATRICIA A. RADO Vice President and Controller February 22, 1999
- --------------------- (Principal Accounting Officer)
PATRICIA A. RADO
LAWRENCE R. CODEY Director February 22, 1999
- ---------------------
LAWRENCE R. CODEY
CONRAD K. HARPER Director February 22, 1999
- ---------------------
CONRAD K. HARPER
IRWIN LERNER Director February 22, 1999
- ---------------------
IRWIN LERNER
MARILYN M. PFALTZ Director February 22, 1999
- ---------------------
MARILYN M. PFALTZ
FORREST J. REMICK Director February 22, 1999
- ---------------------
FORREST J. REMICK
132
<PAGE>
EXHIBIT INDEX
Certain Exhibits previously filed with the Commission and the appropriate
securities exchanges are indicated as set forth below. Such Exhibits are not
being refiled, but are included because inclusion is desirable for convenient
reference.
(a) Filed by PSE&G with Form 8-A under the Securities Exchange Act of
1934, on the respective dates indicated, File No. 1-973.
(b) Filed by PSE&G with Form 8-K under the Securities Exchange Act of
1934, on the respective dates indicated, File No. 1-973.
(c) Filed by PSE&G with Form 10-K under the Securities Exchange Act of
1934, on the respective dates indicated, File No. 1-973.
(d) Filed by PSE&G with Form 10-Q under the Securities Exchange Act of
1934, on the respective dates indicated, File No. 1-973.
(e) Filed by PSEG with Form 10-K under the Securities Exchange Act of
1934, on the respective dates indicated, File No. 1-9120.
(f) Filed with registration statement of PSE&G under the Securities
Exchange Act of 1934, File No. 1-973, effective July 1, 1935,
relating to the registration of various issues of securities.
(g) Filed with registration statement of PSE&G under the Securities Act
of 1933, No. 2-4995, effective May 20, 1942, relating to the
issuance of $15,000,000 First and Refunding Mortgage Bonds, 3%
Series due 1972.
(h) Filed with registration statement of PSE&G under the Securities Act
of 1933, No. 2-7568, effective July 1, 1948, relating to the
proposed issuance of 200,000 shares of Cumulative Preferred Stock.
(i) Filed with registration statement of PSE&G under the Securities Act
of 1933, No. 2-8381, effective April 18, 1950, relating to the
issuance of $26,000,000 First and Refunding Mortgage Bonds, 2 3/4%
Series due 1980.
(j) Filed with registration statement of PSE&G under the Securities Act
of 1933, No. 2-12906, effective December 4, 1956, relating to the
issuance of 1,000,000 shares of Common Stock.
(k) Filed with registration statement of PSE&G under the Securities Act
of 1933, No. 2-59675, effective September 1, 1977, relating to the
issuance of $60,000,000 First and Refunding Mortgage Bonds, 8 1/8%
Series I due 2007.
(l) Filed with registration statement of PSE&G under the Securities Act
of 1933, No. 2-60925, effective March 30, 1978, relating to the
issuance of 750,000 shares of Common Stock through an Employee Stock
Purchase Plan.
(m) Filed with registration statement of PSE&G under the Securities Act
of 1933, No. 2-65521, effective October 10, 1979, relating to the
issuance of 3,000,000 shares of Common Stock.
(n) Filed with registration statement of PSE&G under the Securities Act
of 1933, No. 2-74018, filed on June 16, 1982, relating to the Thrift
Plan of PSE&G.
(o) Filed with registration statement of Public Service Enterprise Group
Incorporated under the Securities Act of 1933, No. 33-2935 filed
January 28, 1986, relating to PSE&G's plan to form a holding company
as part of a corporate restructuring.
(p) Filed with registration statement of PSE&G under the Securities Act
of 1933, No. 33-13209 filed April 9, 1987, relating to the
registration of $575,000,000 First and Refunding Mortgage Bonds
pursuant to Rule 415.
133
<PAGE>
PSEG
- --------------------------------------------------
EXHIBIT NUMBER
- --------------------------------------------------
PREVIOUS FILING
THIS -----------------------------------
FILING COMMISSION EXCHANGES
------ ---------- ---------
3a (o) 3a (o) 3a Certificate of Incorporation
Public Service Enterprise
Group Incorporated
3b (e) 3b (e) 3b By-Laws of Public Service
4/11/88 Enterprise Group Incorporated
3c (e) 3c (e) 3c Certificate of Amendment of
4/11/88 Certificate of Incorporation
of Public Service Enterprise
Group
3d (f) (f) Trust Agreements for
12/24/97 Enterprise Capital Trust I and
III
3e (d) 3 (d) 3 Amended and Restated Trust
8/14/98 8/14/98 Agreement for Enterprise
Capital Trust II
4a(1) (f) B-1 (c) 4b(1) Incorporated, effective April
2/18/81 23, 1987 Indenture between
PSE&G and Fidelity Union Trust
Company, (now First Union
National Bank) as Trustee,
dated August 1, 1924, securing
First and Refunding Mortgage
Bonds
Indentures between PSE&G and
First Union National Bank as
Trustee, supplemental to
Exhibit 4a(1), dated as
follows:
4a(2) (i) 7(1a) (c) 4b(2) April 1, 1927
2/18/81
4a(3) (k) 2b(3) (c) 4b(3) June 1, 1937
2/18/81
4a(4) (k) 2b(4) (c) 4b(4) July 1, 1937
2/18/81
4a(5) (k) 2b(5) (c) 4b(5) December 19, 1939
2/18/81
4a(6) (g) B-10 (c) 4b(6) March 1, 1942
2/18/81
4a(7) (k) 2b(7) (c) 4b(7) June 1, 1949
2/18/81
4a(8) (k) 2b(8) (c) 4b(8) May 1, 1950
2/18/81
4a(9) (k) 2b(9) (c) 4b(9) October 1, 1953
2/18/81
4a(10) (k) 2b(10) (c) 4b(10) May 1, 1954
2/18/81
4a(11) (j) 4b(16) (c) 4b(11) November 1, 1956
2/18/81
4a(12) (k) 2b(12) (c) 4b(12) September 1, 1957
2/18/81
4a(13) (k) 2b(13) (c) 4b(13) August 1, 1958
2/18/81
4a(14) (k) 2b(14) (c) 4b(14) June 1, 1959
2/18/81
134
<PAGE>
PSEG
- --------------------------------------------------
EXHIBIT NUMBER
- --------------------------------------------------
PREVIOUS FILING
THIS -----------------------------------
FILING COMMISSION EXCHANGES
------ ---------- ---------
4a(15) (k) 2b(15) (c) 4b(15) September 1, 1960
2/18/81
4a(16) (k) 2b(16) (c) 4b(16) August 1, 1962
2/18/81
4a(17) (k) 2b(17) (c) 4b(17) June 1, 1963
2/18/81
4a(18) (k) 2b(18) (c) 4b(18) September 1, 1964
2/18/81
4a(19) (k) 2b(19) (c) 4b(19) September 1, 1965
2/18/81
4a(20) (k) 2b(20) (c) 4b(20) June 1, 1967
2/18/81
4a(21) (k) 2b(21) (c) 4b(21) June 1, 1968
2/18/81
4a(22) (k) 2b(22) (c) 4b(22) April 1, 1969
2/18/81
4a(23) (k) 2b(23) (c) 4b(23) March 1, 1970
2/18/81
4a(24) (k) 2b(24) (c) 4b(24) May 15, 1971
2/18/81
4a(25) (k) 2b(25) (c) 4b(25) November 15, 1971
2/18/81
4a(26) (k) 2b(26) (c) 4b(26) April 1, 1972
2/18/81
4a(27) (a) 2 (c) 4b(27) March 1, 1974
3/29/74 2/18/81
4a(28) (a) 2 (c) 4b(28) October 1, 1974
10/11/74 2/18/81
4a(29) (a) 2 (c) 4b(29) April 1, 1976
4/6/76 2/18/81
4a(30) (a) 2 (c) 4b(30) September 1, 1976
9/16/76 2/18/81
4a(31) (k) 2b(31) (c) 4b(31) October 1, 1976
2/18/81
4a(32) (a) 2 (c) 4b(32) June 1, 1977
6/29/77 2/18/81
4a(33) (l) 2b(33) (c) 4b(33) September 1, 1977
2/18/81
135
<PAGE>
PSEG
- --------------------------------------------------
EXHIBIT NUMBER
- --------------------------------------------------
PREVIOUS FILING
THIS -----------------------------------
FILING COMMISSION EXCHANGES
------ ---------- ---------
4a(35) (a) 2 (c) 4b(35) July 1, 1979
7/25/79 2/18/81
4a(36) (m) 2d(36) (c) 4b(36) September 1, 1979 (No. 1)
2/18/81
4a(37) (m) 2d(37) (c) 4b(37) September 1, 1979 (No. 2)
2/18/81
4a(38) (a) 2 (c) 4b(38) November 1, 1979
12/3/79 2/18/81
4a(39) (a) 2 (c) 4b(39) June 1, 1980
6/10/80 2/18/81
4a(40) (a) 2 (a) 2 August 1, 1981
8/19/81 8/19/81
4a(41) (b) 4e (b) 4e April 1, 1982
4/29/82 5/5/82
4a(42) (a) 2 (a) 2 September 1, 1982
9/17/82 9/20/82
4a(43) (a) 2 (a) 2 December 1, 1982
12/21/82 12/21/82
4a(44) (d) 4(ii) (d) 4(ii) June 1, 1983
7/26/83 7/27/83
4a(45) (a) 4 (a) 4 August 1, 1983
8/19/83 8/19/83
4a(46) (d) 4(ii) (d) 4(ii) July 1, 1984
8/14/84 8/17/84
4a(47) (d) 4(ii) (d) 4(ii) September 1, 1984
11/2/84 11/9/84
4a(48) (b) 4(ii) (b) 4(ii) November 1, 1984 (No. 1)
1/4/85 1/9/85
4a(49) (b) 4(ii) (b) 4(ii) November 1, 1984 (No. 2)
1/4/85 1/9/85
4a(50) (a) 2 (a) 2 July 1, 1985
8/2/85 8/2/85
4a(51) (c) 4a(51) (c) 4a(51) January 1, 1986
2/11/86 2/11/86
4a(52) (a) 2 (a) 2 March 1, 1986
3/28/86 3/28/86
136
<PAGE>
PSEG
- --------------------------------------------------
EXHIBIT NUMBER
- --------------------------------------------------
PREVIOUS FILING
THIS -----------------------------------
FILING COMMISSION EXCHANGES
------ ---------- ---------
4a(53) (a) 2(a) (a) 2(a) April 1, 1986 (No. 1)
5/1/86 5/1/86
4a(54) (a) 2(b) (a) 2(b) April 1, 1986 (No. 2)
5/1/86 5/1/86
4a(55) (p) 4a(55) (p) 4a(55) March 1, 1987
4/9/87 4/9/87
4a(56) (a) 4 (a) 4 July 1, 1987 (No. 1)
8/17/87 8/17/87
4a(57) (d) 4 (d) 4 July 1, 1987 (No. 2)
11/13/87 11/20/87
4a(58) (a) 4 (a) 4 May 1, 1988
5/17/88 5/18/88
4a(59) (a) 4 (a) 4 September 1, 1988
9/27/88 9/28/88
4a(60) (a) 4 (a) 4 July 1, 1989
7/25/89 7/26/89
4a(61) (a) 4 (a) 4 July 1, 1990 (No. 1)
7/25/90 7/26/90
4a(62) (a) 4 (a) 4 July 1, 1990 (No. 2)
7/25/90 7/26/90
4a(63) (a) 4 (a) 4 June 1, 1991 (No. 1)
7/1/91 7/2/91
4a(64) (a) 4 (a) 4 June 1, 1991 (No. 2)
7/1/91 7/2/91
4a(65) (a) 4 (a) 4 November 1, 1991 (No. 1)
12/2/91 12/3/91
4a(66) (a) 4 (a) 4 November 1, 1991 (No. 2)
12/2/91 12/3/91
4a(67) (a) 4 (a) 4 November 1, 1991 (No. 3)
12/2/91 12/3/91
4a(68) (a) 4 (a) 4 February 1, 1992 (No. 1)
2/27/92 2/28/92
4a(69) (a) 4 (a) 4 February 1, 1992 (No. 2)
2/27/92 2/28/92
4a(70) (a) 4 (a) 4 June 1, 1992 (No. 1)
6/17/92 6/11/92
4a(71) (a) 4 (a) 4 June 1, 1992 (No. 2)
6/17/92 6/11/92
137
<PAGE>
PSEG
- --------------------------------------------------
EXHIBIT NUMBER
- --------------------------------------------------
PREVIOUS FILING
THIS -----------------------------------
FILING COMMISSION EXCHANGES
------ ---------- ---------
4a(72) (a) 4 (a) 4 June 1, 1992 (No. 3)
6/17/92 6/11/92
4a(73) (a) 4 (a) 4 January 1, 1993 (No.1)
2/2/93 2/2/93
4a(74) (a) 4 (a) 4 January 1, 1993 (No. 2)
2/2/93 2/2/93
4a(75) (a) 4 (a) 4 March 1, 1993
3/17/93 3/18/93
4a(76) (b) 4 (a) 4 May 1, 1993
5/27/93 5/28/93
4a(77) (a) 4 (a) 4 May 1, 1993 (No. 2)
5/25/93 5/25/93
4a(78) (a) 4 (a) 4 May 1, 1993 (No. 3)
5/25/93 5/25/93
4a(79) (b) 4 (b) 4 July 1, 1993
12/1/93 12/1/93
4a(80) (a) 4 (a) 4 August 1, 1993
8/3/93 8/3/93
4a(81) (b) 4 (b) 4 September 1, 1993
12/1/93 12/1/93
4a(82) (b) 4 (b) 4 September 1, 1993 (No. 2)
12/1/93 12/1/93
4a(83) (b) 4 (b) 4 November 1, 1993
12/1/93 12/1/93
4a(84) (a) 4 (a) 4 February 1, 1994
2/3/94 2/14/94
4a(85) (a) 4 (a) 4 March 1, 1994 (No. 1)
3/15/94 3/16/94
4a(86) (a) 4 (a) 4 March 1, 1994 (No. 2)
3/15/94 3/16/94
4a(87) (d) 4 (d) 4 May 1, 1994
11/8/94 12/2/94
4a(88) (d) 4 (d) 4 June 1, 1994
11/8/94 12/2/94
4a(89) (d) 4 (d) 4 August 1, 1994
11/8/94 12/2/94
4a(90) (d) 4 (d) 4 October 1, 1994 (No. 1)
11/8/94 12/2/94
4a(91) (d) 4 (d) 4 October 1, 1994 (No. 2)
11/8/94 12/2/94
138
<PAGE>
PSEG
- --------------------------------------------------
EXHIBIT NUMBER
- --------------------------------------------------
PREVIOUS FILING
THIS -----------------------------------
FILING COMMISSION EXCHANGES
------ ---------- ---------
4a(92) (a) 4 (a) 4 January 1, 1996 (No. 1)
1/26/96 1/26/96
4a(93) (a) 4 (a) 4 January 1, 1996 (No. 2)
1/26/96 1/26/96
4a(94) (e) 4 December 1, 1996
2/26/97
4a(95) (a) 4 (a) 4 June 1, 1997
6/17/97 6/17/97
4a(96) (a) 4 (a) 4 May 1, 1998
5/15/98 5/15/98
4b (b) 4 (b) 4 Indenture of Trust between
12/1/93 12/1/93 PSE&G and The Chase Manhattan
Bank (National Association),
as Trustee, providing for
Secured Medium-Term Notes
dated July 1, 1993
4c(1) (c) (c) Indenture between PSE&G and
2/23/95 2/23/95 First Union National Bank,
National Association (now
known as First Union National
Bank), as Trustee, dated
November 1, 1994, providing
for Deferrable Interest
Subordinated Debentures in
Series
4c(2) (a) (a) Supplemental Indenture between
9/11/95 9/11/95 PSE&G and First Fidelity Bank,
(d) 4d (2) (d) 4d (2) National Association (now
5/13/98 5/13/98 known as First Union National
Bank), as Trustee, dated
September 1, 1995 providing
for Deferrable Interest
Subordinated Debentures,
Series B (relating to Monthly
Preferred Securities)
4d(1) (d) 4e (1) (d) 4e (2) Indenture between PSE&G and
5/13/98 5/13/98 First Union National Bank, as
Trustee, dated June 1, 1996
providing for Deferrable
Interest Subordinated
Debentures in Series (relating
to Quarterly Preferred
Securities)
4d(2) (d) 4e(2) (d) 4e(2) Supplemental Indenture between
5/13/98 5/13/98 PSE&G and First Union National
Bank, as Trustee, dated
February 1, 1997 providing for
Deferrable Interest
Subordinated Debentures,
Series B (relating to
Quarterly Preferred
Securities)
4e(1) (d) 4f (d) 4f Indenture between Public
5/13/98 5/13/98 Service Enterprise Group
Incorporated and First Union
National Bank, as Trustee,
dated January 1, 1998
providing for Deferrable
Interest Subordinated
Debentures in Series (relating
to Quarterly Preferred
Securities)
4e(2) (d) 4a (d) 4a First Supplemental Indenture
8/14/98 8/14/98 to Indenture dated as of
January 1, 1998 between Public
Service Enterprise Group
Incorporated and First Union
National Bank, as Trustee,
dated June 1, 1998 providing
for the issuance of Floating
Rate Deferrable Interest
Subordinated Debentures,
Series B (relating to Trust
Preferred Securities)
4e(3) (d) 4b (d) 4b Second Supplemental Indenture
8/14/98 8/14/98 to Indenture dated as of
January 1, 1998 between Public
Service Enterprise Group
Incorporated and First Union
National Bank, as Trustee,
dated July 1, 1998 providing
for the issuance of Deferrable
Interest Subordinated
Debentures, Series C (relating
to Trust Preferred Securities)
4f Indenture dated as of November
1, 1998 between Public Service
Enterprise Group Incorporated
and First Union National Bank
providing for the issuance of
Senior Debt Securities
9 Inapplicable
139
<PAGE>
PSEG
- --------------------------------------------------
EXHIBIT NUMBER
- --------------------------------------------------
PREVIOUS FILING
THIS -----------------------------------
FILING COMMISSION EXCHANGES
------ ---------- ---------
10a(1) Directors' Deferred
Compensation Plan
10a(2) Deferred Compensation Plan for
Certain Employees
10a(3) Limited Supplemental Benefits
Plan for Certain Employees
10a(4) Mid Career Hire Supplemental
Retirement Plan
10a(5) Retirement Income
Reinstatement Plan
10a(6) Long-Term Incentive Plan
10a(7) (e) 10a(20) (e) 10a(20) Management Incentive
2/26/97 2/26/97 Compensation Plan
10a(8) (d) 10 (d) 10 Employment Agreement with E.
8/14/98 8/14/98 James Ferland, dated June 16,
1998
10a(9) (c) 10a(15) (c) 10a(15) Letter Agreement with Robert
2/10/93 2/11/93 C. Murray dated December 17,
1991
10a(9)(i) (c) 10a(9)(i) (c) 10a(9)(i) Amendment to Letter Agreement
2/23/98 2/23/98 with Robert C. Murray dated
January 6, 1998
10a(10) (c) 10a(14) (c) 10a(14) Letter Agreement with Patricia
2/26/94 3/9/94 A. Rado dated March 24, 1993
10a(11) (d) 10a(15) (d) 10a(15) Letter Agreement with Louis
8/14/95 8/14/95 F. Storz dated July 7, 1995
10a(12) (d) 10a(16) (d) 10a(16) Letter Agreement with Elbert
8/14/95 8/14/95 C. Simpson dated May 31, 1995
10a(13) (d) 10a(17) (d) 10a(17) Letter Agreement with Alfred
11/14/95 11/14/95 C. Koeppe dated August 23,
1995
140
<PAGE>
PSEG
- --------------------------------------------------
EXHIBIT NUMBER
- --------------------------------------------------
PREVIOUS FILING
THIS -----------------------------------
FILING COMMISSION EXCHANGES
------ ---------- ---------
10a(14) Directors' Stock Plan
10a(15) (c) 10a(16) (c) 10a(16) Letter Agreement with Harold
2/23/98 2/23/98 W. Keiser dated January 5,
1998
10a(16) Global Deferred Compensation
Plan
10a(17) Global Executive Incentive
Compensation Plan
10a(18) Energy Holdings Management
Incentive Compensation Plan
10a(19) Energy Holdings Deferred
Compensation Plan
10a(20) Energy Technologies Executive
Incentive Compensation Plan
10a(21) Energy Holdings Limited
Supplemental Benefits Plan for
Certain Employees
10a(22) Resources Annual Incentive
Compensation Plan
11 Inapplicable
12 Computation of Ratios of
Earnings to Fixed Charges
13 Inapplicable
16 Inapplicable
18 Inapplicable
21 Subsidiaries of the Registrant
22 Inapplicable
23 Independent Auditors' Consent
141
<PAGE>
PSEG
- --------------------------------------------------
EXHIBIT NUMBER
- --------------------------------------------------
PREVIOUS FILING
THIS -----------------------------------
FILING COMMISSION EXCHANGES
------ ---------- ---------
24 Inapplicable
27 Financial Data Schedule
28 Inapplicable
99 Inapplicable
PSE&G
- --------------------------------------------------
EXHIBIT NUMBER
- --------------------------------------------------
PREVIOUS FILING
THIS -----------------------------------
FILING COMMISSION EXCHANGES
------ ---------- ---------
3a(1) (b) 3a (b) 3a Restated Certificate of
8/28/86 8/29/86 Incorporation of PSE&G
3a(2) (c) 3a(2) (c) 3a(2) Certificate of Amendment of
4/10/87 Certificate of Restated
Certificate of Incorporation
of PSE&G filed February 18,
1987 with the State of New
Jersey adopting limitations of
liability provisions in
accordance with an amendment
to New Jersey Business
Corporation Act
3a(3) (a) 3(a)3 (a) 3(a)3 Certificate of Amendment of
2/3/94 2/14/94 Restated Certificate of
Incorporation of PSE&G filed
June 17, 1992 with the State
of New Jersey, establishing
the 7.44% Cumulative Preferred
Stock ($100 Par) as a series
of the Preferred Stock
3a(4) (a) 3(a)4 (a) 3(a)4 Certificate of Amendment of
2/3/94 2/14/94 Restated Certificate of
Incorporation of PSE&G filed
March 11, 1993 with the State
of New Jersey, establishing
the 5.97% Cumulative Preferred
Stock ($100 Par) as a series
of Preferred Stock
3a(5) (a) 3(a)5 (a) 3(a)5 Certificate of Amendment of
2/3/94 2/14/94 Restated Certificate of
Incorporation of PSE&G filed
January 27, 1995 with the
State of New Jersey,
establishing the 6.92%
Cumulative Preferred Stock
($100 Par) and the 6.75%
Cumulative Preferred Stock --
$25 Par as series of Preferred
Stock
3b (a) (a) Copy of By-Laws of PSE&G
2/23/95 2/23/95
4a(1) (f) B-1 (c) 4b(1) Indenture between PSE&G and
2/18/81 Fidelity Union Trust Company,
2/18/81 (now First Union
National Bank, National
Association), as Trustee,
dated August 1, 1924, securing
First and Refunding Mortgage
Bond
Indentures between PSE&G and
First Fidelity Bank, National
Association, as Trustee,
supplemental to Exhibit 4a(1),
dated as follows:
4a(2) (i) 7(1a) (c) 4b(2) April 1, 1927
2/18/81
4a(3) (k) 2b(3) (c) 4b(3) June 1, 1937
2/18/81
142
<PAGE>
PSE&G
- --------------------------------------------------
EXHIBIT NUMBER
- --------------------------------------------------
PREVIOUS FILING
THIS -----------------------------------
FILING COMMISSION EXCHANGES
------ ---------- ---------
4a(4) (k) 2b(4) (c) 4b(4) July 1, 1937
2/18/81
4a(5) (k) 2b(5) (c) 4b(5) December 19, 1939
2/18/81
4a(6) (g) B-10 (c) 4b(6) March 1, 1942
2/18/81
4a(7) (k) 2b(7) (c) 4b(7) June 1, 1949
2/18/81
4a(8) (k) 2b(8) (c) 4b(8) May 1, 1950
2/18/81
4a(9) (k) 2b(9) (c) 4b(9) October 1, 1953
2/18/81
4a(10) (k) 2b(10) (c) 4b(10) May 1, 1954
2/18/81
4a(11) (j) 4b(16) (c) 4b(11) November 1, 1956
2/18/81
4a(12) (k) 2b(12) (c) 4b(12) September 1, 1957
2/18/81
4a(13) (k) 2b(13) (c) 4b(13) August 1, 1958
2/18/81
4a(14) (k) 2b(14) (c) 4b(14) June 1, 1959
2/18/81
4a(15) (k) 2b(15) (c) 4b(15) September 1, 1960
2/18/81
4a(16) (k) 2b(16) (c) 4b(16) August 1, 1962
2/18/81
4a(17) (k) 2b(17) (c) 4b(17) June 1, 1963
2/18/81
4a(18) (k) 2b(18) (c) 4b(18) September 1, 1964
2/18/81
4a(19) (k) 2b(19) (c) 4b(19) September 1, 1965
2/18/81
4a(20) (k) 2b(20) (c) 4b(20) June 1, 1967
2/18/81
4a(21) (k) 2b(21) (c) 4b(21) June 1, 1968
2/18/81
4a(22) (k) 2b(22) (c) 4b(22) April 1, 1969
2/18/81
4a(23) (k) 2b(23) (c) 4b(23) March 1, 1970
2/18/81
143
<PAGE>
PSE&G
- --------------------------------------------------
EXHIBIT NUMBER
- --------------------------------------------------
PREVIOUS FILING
THIS -----------------------------------
FILING COMMISSION EXCHANGES
------ ---------- ---------
4a(24) (k) 2b(24) (c) 4b(24) May 15, 1971
2/18/81
4a(25) (k) 2b(25) (c) 4b(25) November 15, 1971
2/18/81
4a(26) (k) 2b(26) (c) 4b(26) April 1, 1972
2/18/81
4a(27) (a) 2 (c) 4b(27) March 1, 1974
3/29/74 2/18/81
4a(28) (a) 2 (c) 4b(28) October 1, 1974
10/11/74 2/18/81
4a(29) (a) 2 (c) 4b(29) April 1, 1976
4/6/76 2/18/81
4a(30) (a) 2 (c) 4b(30) September 1, 1976
9/16/76 2/18/81
4a(31) (k) 2b(31) (c) 4b(31) October 1, 1976
2/18/81
4a(32) (a) 2 (c) 4b(32) June 1, 1977
6/29/77 2/18/81
4a(33) (l) 2b(33) (c) 4b(33) September 1, 1977
2/18/81
4a(34) (a) 2 (c) 4b(34) November 1, 1978
11/21/78 2/18/81
4a(35) (a) 2 (c) 4b(35) July 1, 1979
7/25/79 2/18/81
4a(36) (m) 2d(36) (c) 4b(36) September 1, 1979 (No. 1)
2/18/81
4a(37) (m) 2d(37) (c) 4b(37) September 1, 1979 (No. 2)
2/18/81
4a(38) (a) 2 (c) 4b(38) November 1, 1979
12/3/79 2/18/81
4a(39) (a) 2 (c) 4b(39) June 1, 1980
6/10/80 2/18/81
4a(40) (a) 2 (a) 2 August 1, 1981
8/19/81 8/19/81
4a(41) (b) 4e (b) 4e April 1, 1982
4/29/82 5/5/82
4a(42) (a) 2 (a) 2 September 1, 1982
9/17/82 9/20/82
4a(43) (a) 2 (a) 2 December 1, 1982
12/21/82 12/21/82
4a(44) (d) 4(ii) (d) 4(ii) June 1, 1983
7/26/83 7/27/83
144
<PAGE>
PSE&G
- --------------------------------------------------
EXHIBIT NUMBER
- --------------------------------------------------
PREVIOUS FILING
THIS -----------------------------------
FILING COMMISSION EXCHANGES
------ ---------- ---------
4a(45) (a) 4 (a) 4 August 1, 1983
8/19/83 8/19/83
4a(46) (d) 4(ii) (d) 4(ii) July 1, 1984
8/14/84 8/17/84
4a(47) (d) 4(ii) (d) 4(ii) September 1, 1984
11/2/84 11/9/84
4a(48) (b) 4(ii) (b) 4(ii) November 1, 1984 (No. 1)
1/4/85 1/9/85
4a(49) (b) 4(ii) (b) 4(ii) November 1, 1984 (No. 2)
1/4/85 1/9/85
4a(50) (a) 2 (a) 2 July 1, 1985
8/2/85 8/2/85
4a(51) (c) 4a(51) (c) 4a(51) January 1, 1986
2/11/86 2/11/86
4a(52) (a) 2 (a) 2 March 1, 1986
3/28/86 3/28/86
4a(53) (a) 2(a) (a) 2(a) April 1, 1986 (No. 1)
5/1/86 5/1/86
4a(54) (a) 2(b) (a) 2(b) April 1, 1986 (No. 2)
5/1/86 5/1/86
4a(55) (p) 4a(55) (p) 4a(55) March 1, 1987
4/9/87 4/9/87
4a(56) (a) 4 (a) 4 July 1, 1987 (No. 1)
8/17/87 8/17/87
4a(57) (d) 4 (d) 4 July 1, 1987 (No. 2)
11/13/87 11/20/87
4a(58) (a) 4 (a) 4 May 1, 1988
5/17/88 5/18/88
4a(59) (a) 4 (a) 4 September 1, 1988
9/27/88 9/28/88
4a(60) (a) 4 (a) 4 July 1, 1989
7/25/89 7/26/89
4a(61) (a) 4 (a) 4 July 1, 1990 (No. 1)
7/25/90 7/26/90
4a(62) (a) 4 (a) 4 July 1, 1990 (No. 2)
7/25/90 7/26/90
4a(63) (a) 4 (a) 4 June 1, 1991 (No. 1)
7/1/91 7/2/91
4a(64) (a) 4 (a) 4 June 1, 1991 (No. 2)
7/1/91 7/2/91
4a(65) (a) 4 (a) 4 November 1, 1991 (No. 1)
12/2/91 12/3/91
145
<PAGE>
PSE&G
- --------------------------------------------------
EXHIBIT NUMBER
- --------------------------------------------------
PREVIOUS FILING
THIS -----------------------------------
FILING COMMISSION EXCHANGES
------ ---------- ---------
4a(66) (a) 4 (a) 4 November 1, 1991 (No. 2)
12/2/91 12/3/91
4a(67) (a) 4 (a) 4 November 1, 1991 (No. 3)
12/2/91 12/3/91
4a(68) (a) 4 (a) 4 February 1, 1992 (No. 1)
2/27/92 2/28/92
4a(69) (a) 4 (a) 4 February 1, 1992 (No. 2)
2/27/92 2/28/92
4a(70) (a) 4 (a) 4 June 1, 1992 (No. 1)
6/17/92 6/11/92
4a(71) (a) 4 (a) 4 June 1, 1992 (No. 2)
6/17/92 6/11/92
4a(72) (a) 4 (a) 4 June 1, 1992 (No. 3)
6/17/92 6/11/92
4a(73) (a) 4 (a) 4 January 1, 1993 (No. 1)
2/2/93 2/2/93
4a(74) (a) 4 (a) 4 January 1, 1993 (No. 2)
2/2/93 2/2/93
4a(75) (a) 4 (a) 4 March 1, 1993
3/17/93 3/18/93
4a(76) (b) 4 (a) 4 May 1, 1993
5/27/93 5/28/93
4a(77) (a) 4 (a) 4 May 1, 1993 (No. 2)
5/25/93 5/25/93
4a(78) (a) 4 (a) 4 May 1, 1993 (No. 3)
5/25/93 5/25/93
4a(79) (b) 4 (b) 4 July 1, 1993
12/1/93 12/1/93
4a(80) (a) 4 (a) 4 August 1, 1993
8/3/93 8/3/93
4a(81) (b) 4 (b) 4 September 1, 1993
12/1/93 12/1/93
4a(82) (a) 4 (a) 4 September 1, 1993 (No. 2)
12/1/93 12/1/93
4a(84) (a) 4 (a) 4 February 1, 1994
2/3/94 2/14/94
4a(85) (a) 4 (a) 4 March 1, 1994 (No. 1)
3/15/94 3/16/94
4a(86) (a) 4 (a) 4 March 1, 1994 (No. 2)
3/15/94 3/16/94
4a(87) (d) 4 (d) 4 May 1, 1994
11/8/94 12/2/94
4a(88) (d) 4 (d) 4 June 1, 1994
11/8/94 12/2/94
146
<PAGE>
PSE&G
- --------------------------------------------------
EXHIBIT NUMBER
- --------------------------------------------------
PREVIOUS FILING
THIS -----------------------------------
FILING COMMISSION EXCHANGES
------ ---------- ---------
4a(89) (d) 4 (d) 4 August 1, 1994
11/8/94 12/2/94
4a(90) (d) 4 (d) 4 October 1, 1994 (No. 1)
11/8/94 12/2/94
4a(91) (d) 4 (d) 4 October 1, 1994 (No. 2)
11/8/94 12/2/94
4a(92) (a) 4 (a) 4 January 1, 1996 (No.1)
1/26/96 1/26/96
4a(93) (a) 4 (a) 4 January 1, 1996 (No. 2)
1/26/96 1/26/96
4a(94) (c) 4 December 1, 1996
2/26/97
4a(95) (a) 4 (a) 4 June 1, 1997
6/17/97 6/17/97
4a(96) (a) 4 (a) 4 May 1, 1998
5/15/98 5/15/98
4b (b) 4 (b) 4 Indenture of Trust between
12/1/93 12/1/93 PSE&G and Chase Manhattan Bank
(National Association), as
Trustee, providing for Secured
Medium-Term Notes dated July
1, 1993
4c(1) (b) (c) Indenture between PSE&G and
2/23/95 2/23/95 First Fidelity Bank, National
Association (now known as
First Union National Bank), as
Trustee, dated November 1,
1994, providing for Deferrable
Interest Subordinated
Debentures in Series
4c(2) (a) 4b(5) (a) 4b(5) Supplemental Indenture between
PSE&G and First Fidelity Bank,
(d) 4d(2) (d) 4d(2) National Association (now
5/13/98 5/13/98 known as First Union National
Bank), as Trustee, dated
September 1, 1995 providing
for Deferrable Interest
Subordinated Debentures,
Series B (relating to Monthly
Preferred Securities)
4d(1) (d) 4e(1) (d) 4e(1) Indenture between PSE&G and
5/13/98 5/13/98 First Union National Bank, as
Trustee, dated June 1, 1996
providing for Deferrable
Interest Subordinated
Debentures in Series (relating
to Quarterly Preferred
Securities)
4d(2) (d) 4e(2) (d) 4e(2) Supplemental Indenture between
5/13/98 5/13/98 PSE&G and First Union National
Bank, as Trustee, dated
February 1, 1997 providing for
Deferrable Interest
Subordinated Debentures,
Series B (relating to
Quarterly Preferred
Securities)
10a(1) Directors' Deferred
Compensation Plan
10a(2) Deferred Compensation Plan for
Certain Employees
10a(3) Limited Supplemental Benefits
Plan for Certain Employees
10a(4) Mid Career Hire Supplemental
Retirement Plan
10a(5) Retirement Income
Reinstatement Plan
147
<PAGE>
PSE&G
- --------------------------------------------------
EXHIBIT NUMBER
- --------------------------------------------------
PREVIOUS FILING
THIS -----------------------------------
FILING COMMISSION EXCHANGES
------ ---------- ---------
10a(6) Long-Term Incentive Plan
10a(7) (c) 10a(20) (c) 10a(20) Management Incentive
2/26/97 2/26/97 Compensation Plan
10a(8) (d) 10 (d) 10 Employment Agreement with E.
8/14/98 8/14/98 James Ferland, dated June 16,
1998
10a(9) (c) 10a(12) (c) 10a(12) Letter Agreement with Robert
2/10/93 2/11/93 C. Murray dated December 17,
1991
10a(9)(i) (c) 10a(9)(i) (c) 10a(9)(i) Amendment to Letter Agreement
2/23/98 2/23/98 with Robert C. Murray dated
January 6, 1998
10a(10) (c) 10a(13) (c) 10a(13) Letter Agreement with Patricia
2/26/94 3/9/94 A. Rado dated March 24, 1993
10a(11) (d) 10a(15) (d) 10a(15) Letter Agreement with Louis F.
8/14/95 8/14/95 Storz dated July 7, 1995
10a(12) (d) 10a(16) (d) 10a(16) Letter Agreement with Elbert
8/14/95 8/14/95 C. Simpson dated May 31, 1995
10a(13) (d) 10a(17) (d) 10a(17) Letter Agreement with Alfred
11/14/95 11/14/95 C. Koeppe dated August 23,
1995
10a(14) Directors' Stock Plan
10a(15) (c) 10a(16) (c) 10a(16) Letter Agreement with Harold
2/23/98 2/23/98 W. Keiser dated January 5,
1998
11 Inapplicable
12(a) Computation of Ratios of
Earnings to Fixed Charges
12(b) Computation of Ratios of
Earnings to Fixed Charges Plus
Preferred Stock Dividend
Requirements
13 Inapplicable
16 Inapplicable
19 Inapplicable
21 Inapplicable
23 Independent Auditors' Consent
27 Financial Data Schedule
148
<PAGE>
GLOSSARY OF TERMS
The following is a glossary of frequently used abbreviations or acronyms that
are found in this report:
TERM MEANING
- ---- -------
ACE.................... Atlantic City Electric Company
ACO.................... Administrative Consent Order
AFDC................... Allowance for Funds used During Construction
AMT.................... Alternative Minimum Tax
APB 25................. Accounting Principles Board Opinion, No. 25 "Accounting
for Stock Issued to Employees"
Bonds.................. First and Refunding Mortgage Bonds
BPU.................... New Jersey Board of Public Utilities
BTU.................... British Thermal Units
BWR.................... Boiling Water Nuclear Reactor
CAA.................... Federal Clean Air Act
CERCLA................. Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980
Combe Site............. Combe Fill South Sanitary Landfill in Washington and
Chester Township, Morris County, New Jersey
December 31st Order.... BPU's December 31, 1996 Order settling outstanding
Salem and other outstanding regulatory issues
Directive.............. Spill Act Multi-Site Directive
Directive One.......... Directive and Notice to Insurers Number One
Directive Two.......... Directive and Notice to Insurers Number Two
DOE.................... U.S. Department of Energy
DOJ.................... U.S. Department of Justice
DP&L................... Delmarva Power & Light Company
DRBC................... Delaware River Basin Commission
DSAF................... Demand Side Adjustment Factor
DSM.................... Demand Side Management
Eagle Point............ PSEG Eagle Point, Inc.
EBIT................... Earnings before interest and taxes
EDC.................... Energy Development Corporation
EGDC................... Enterprise Group Development Corporation
EITF................... FASB's Emerging Issues Task Force
EITF 92-12............. Emerging Issues Task Force, Issue No. 92-12
"Accounting for OPEB Costs by Rate-Regulated
Enterprises"
EITF 97-4.............. Emerging Issues Task Force, Issue No. 97-4
"Deregulation of the Pricing of Electricity; Issues
Related to the Application of FASB Statements No. 71
and 101"
EITF 98-10............. Emerging Issues Task Force, Issue No. 98-10 "Accounting
for Energy Trading and Risk Management Activities"
Energy Holdings........ PSEG Energy Holdings Inc.
Energy Technologies.... PSEG Energy Technologies Inc.
EPA.................... U.S. Environmental Protection Agency
EPAct.................. National Energy Policy Act of 1992
EPC.................... Eagle Point Cogeneration Facility
EWGs................... Exempt Wholesale Generators
FASB................... Financial Accounting Standards Board
Fault Act.............. New Jersey Public Utility Accident Fault Determination
Act
FERC................... Federal Energy Regulatory Commission
FUCO................... Foreign Utility Company
149
<PAGE>
GLOSSARY OF TERMS -- (CONTINUED)
TERM MEANING
- ---- -------
Fuelco................. PSE&G Fuel Corporation
Funding................ Enterprise Capital Funding Corporation
FWPCA.................. Federal Water Pollution Control Act
GAAP................... Generally Accepted Accounting Principles
GE..................... General Electric Company
Global................. PSEG Global Inc.
Global Site............ Global Landfill Site in Old Bridge Township, Middlesex
County, New Jersey
Hope Creek............. Hope Creek Nuclear Generating Station
HWCS Project........... Hydrogen Water Chemistry System
ICTC................... Interim Competitive Transition Charge
IPP.................... Independent Power Producers
IRS.................... Internal Revenue Service
ISO.................... Independent System Operator
KWH.................... Kilowatt-hour
LEAC................... Electric Levelized Energy Adjustment Clause
LGAC................... Levelized Gas Adjustment Clause
LLRW................... Low Level Radioactive Waste
LMP.................... Locational Marginal Pricing
LNG.................... Liquefied Natural Gas
LPG.................... Liquid Petroleum Air Gas
LTIP................... Long-Term Incentive Plan
MD&A................... Management's Discussion and Analysis of Financial
Condition and Results of Operations
MICP................... Management Incentive Compensation Plan
MOA.................... Memorandum of Agreement
Mortgage............... First and Refunding Mortgage of PSE&G
MOU.................... Memorandum of Understanding
MTNs................... Medium-Term Notes
MW..................... Megawatts
MWH.................... Megawatt-hours
NAAQS.................. National Ambient Air Quality Standards
NEIL................... Nuclear Electric Insurance Limited
NJDEP.................. New Jersey Department of Environmental Protection
NJGRT.................. New Jersey Gross Receipts and Franchise Tax
NJPDES................. New Jersey Pollution Discharge Elimination System
NJWPCA................. New Jersey Water Pollution Control Act
NML.................... Nuclear Mutual Limited
Notes.................. Notes to Consolidated Financial Statements
Notice................. Notice of Potential Liability
NOV.................... Notice of Violation
November 25th Order.... November 25, 1997 PJM Restructuring Order
NOx.................... Nitrogen Oxides
NPDES.................. National Pollutant Discharge Elimination System
NPS.................... The BPU's nuclear performance standard established for
nuclear generating stations owned by New Jersey
electric utilities
NRC.................... Nuclear Regulatory Commission
NUGs................... Non-utility Generators
NWPA................... Nuclear Waste Policy Act of 1982, as amended
150
<PAGE>
GLOSSARY OF TERMS -- (CONTINUED)
TERM MEANING
- ---- -------
OAL.................... Office of the Administrative Law
ODEC................... Old Dominion Electric Cooperative
OPEB................... Other Postretirement Benefits
Order No. 888.......... FERC Order No. 888, effective July 9, 1996
OTAG................... Ozone Transport Assessment Group
OTR.................... Ozone Transport Region
OTRA................... Off-Tariff Rate Agreement
Peach Bottom........... Peach Bottom Atomic Power Station, Units 2 and 3
PECO Energy............ PECO Energy Company
PJM.................... PJM Interconnection, L.L.C.
PJM Board.............. An independent, 7-Member Board of Managers responsible
for supervision of PJM operations
PPG.................... PPG Industries, Inc.
PPUC................... Pennsylvania Public Utility Commission
PRPs................... Potentially Responsible Parties
PSCRC.................. Public Service Conservation Resources Corporation
PSE&G.................. Public Service Electric and Gas Company
PSEG................... Public Service Enterprise Group Incorporated
PSEG Capital........... PSEG Capital Corporation
PSETC.................. Public Service Energy Trading Company
PUHCA.................. Public Utility Holding Company Act of 1935
PWR.................... Pressurized Water Nuclear Reactor
QFs.................... Qualifying Facilities
RAC.................... Remediation Adjustment Charge
RCRA................... Federal Resource Conservation and Recovery Act of 1976
Remediation Program.... PSE&G Manufactured Gas Plant Remediation Program
Resources.............. PSEG Resources Inc.
RI..................... Remedial Investigation
RI/FS.................. Remedial Investigation and Feasibility Study
ROD.................... Record of Decision
Salem.................. Salem Nuclear Generating Station, Units 1 and 2
SEC.................... Securities and Exchange Commission
Sewell Site............ Marvin Jonas Transfer Station
SFAS 71................ Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of
Regulation"
SFAS 88................ Statement of Financial Accounting Standards No. 88,
"Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination
Benefits"
SFAS 90................ Statement of Financial Accounting Standards No. 90,
"Regulated Enterprises Accounting for Abandonments and
Disallowances of Plant Costs Statement No. 90"
SFAS 101............... Statement of Financial Accounting Standards No. 101,
"Regulated Enterprises Accounting for Discontinuation
of Application of FASB Statement No. 71"
SFAS 106............... Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits
Other than Pensions"
SFAS 109............... Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes"
SFAS 121............... Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of"
SFAS 123............... Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation"
SFAS 130............... Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income"
151
<PAGE>
GLOSSARY OF TERMS -- (CONTINUED)
TERM MEANING
- ---- -------
SFAS 131............... Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and
Related Information"
SFAS 132............... Statement of Financial Accounting Standards No. 132,
"Employers' Disclosures about Pensions and Other
Postretirement Benefits--an amendment of FASB
Statements No. 87, 88, and 106"
SFAS 133............... Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging
Activities"
SO2.................... Sulfur Dioxide
SOP 96-1............... Statement of Position 96-1, "Environmental Remediation
Liabilities"
SPCC................... Spill Prevention Control and Countermeasure
Spill Act.............. New Jersey Spill Compensation and Control Act
Superfund.............. Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980
TEFA................... Transitional Energy Facility Assessment
Trust.................. PSE&G Capital Trust I
UGI.................... UGI Utilities, Inc.
Westinghouse........... Westinghouse Electric Corporation
152
- --------------------------------------------------------------------------------
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
TO
FIRST UNION NATIONAL BANK,
Trustee
Indenture
Dated as of November 1, 1998
----------
Providing for the Issuance
of
Senior Debt Securities
- --------------------------------------------------------------------------------
<PAGE>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
Reconciliation and tie between Trust Indenture Act of 1939
and Indenture, dated as of November 1, 1998
TRUST INDENTURE
INDENTURE ACT SECTION SECTION
ss.310(a)(1) 607
(a)(2) 607
(b) 608
ss.312(c) 701
ss.314(a) 703
(a)(4) 1005
(c)(1) 102
(c)(2) 102
(e) 102
ss.315(b) 601
ss.316(a) (last sentence) 101
("Outstanding")
(a)(1)(A) 502, 512
(a)(1)(B) 513
(b) 508
ss.317(a)(1) 503
(a)(2) 504
ss.318(a) 111
(c) 111
- ----------
NOTE: This reconciliation and tie shall not, for any purpose, be deemed to
be a part of the Indenture.
<PAGE>
TABLE OF CONTENTS
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 101. Definitions......................................................1
Section 102. Compliance Certificates and Opinions.............................8
Section 103. Form of Documents Delivered to Trustee...........................8
Section 104. Acts of Holders..................................................9
Section 105. Notices, Etc., to Trustee and Company...........................10
Section 106. Notice to Holders; Waiver.......................................11
Section 107. Effect of Headings and Table of Contents........................12
Section 108. Successors and Assigns..........................................12
Section 109. Separability Clause.............................................12
Section 110. Benefits of Indenture...........................................12
Section 111. Governing Law...................................................12
Section 112. Legal Holidays..................................................12
ARTICLE TWO
SECURITIES FORMS
Section 201. Forms of Securities.............................................12
Section 202. Form of Trustee's Certificate of Authentication.................13
Section 203. Securities Issuable in Global Form..............................13
ARTICLE THREE
THE SECURITIES
Section 301. Amount Unlimited; Issuable in Series............................14
Section 302. Denominations...................................................17
Section 303. Execution, Authentication, Delivery and Dating..................17
Section 304. Temporary Securities............................................19
Section 305. Registration, Registration of Transfer and Exchange.............22
Section 306. Mutilated, Destroyed, Lost and Stolen Securities................25
Section 307. Payment of Interest; Interest Rights Preserved;
Optional Interest Reset.........................................26
Section 308. Optional Extension of Maturity..................................28
Section 309. Persons Deemed Owners...........................................29
Section 310. Cancellation....................................................30
Section 311. Computation of Interest.........................................30
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Section 312. CUSIP Numbers...................................................30
ARTICLE FOUR
SATISFACTION AND DISCHARGE
Section 401. Satisfaction and Discharge of Indenture.........................31
Section 402. Application of Trust Funds......................................32
ARTICLE FIVE
REMEDIES
Section 501. Events of Default...............................................32
Section 502. Acceleration of Maturity; Rescission and Annulment..............33
Section 503. Collection of Indebtedness and Suits for Enforcement
by Trustee......................................................34
Section 504. Trustee May File Proofs of Claim................................35
Section 505. Trustee May Enforce Claims Without Possession of
Securities or Coupons...........................................36
Section 506. Application of Money Collected..................................36
Section 507. Limitation on Suits.............................................36
Section 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest............................................37
Section 509. Restoration of Rights and Remedies..............................37
Section 510. Rights and Remedies Cumulative..................................37
Section 511. Delay or Omission Not Waiver....................................37
Section 512. Control by Holders of Securities................................38
Section 513. Waiver of Past Defaults.........................................38
Section 514. Waiver of Stay or Extension Laws................................38
ARTICLE SIX
THE TRUSTEE
Section 601. Notice of Defaults..............................................39
Section 602. Certain Rights of Trustee.......................................39
Section 603. Not Responsible for Recitals or Issuance of Securities..........40
Section 604. May Hold Securities.............................................40
Section 605. Money Held in Trust.............................................41
Section 606. Compensation and Reimbursement. The Company agrees:.............41
Section 607. Corporate Trustee Required; Eligibility.........................41
Section 608. Resignation and Removal; Appointment of Successor...............41
Section 609. Acceptance of Appointment by Successor..........................43
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Section 610. Merger, Conversion, Consolidation or Succession to Business.....44
Section 611. Appointment of Authenticating Agent.............................44
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 701. Disclosure of Names and Addresses of Holders....................46
Section 702. Reports by Trustee..............................................46
Section 703. Reports by Company. The Company will:...........................46
Section 704. Calculation of Original Issue Discount..........................47
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER
Section 801. Company May Consolidate, Etc., Only on Certain Terms............47
Section 802. Successor Person Substituted....................................47
ARTICLE NINE
SUPPLEMENTAL INDENTURES
Section 901. Supplemental Indentures Without Consent of Holders..............48
Section 902. Supplemental Indentures with Consent of Holders.................49
Section 903. Execution of Supplemental Indentures............................50
Section 904. Effect of Supplemental Indentures...............................51
Section 905. Conformity with Trust Indenture Act.............................51
Section 906. Reference in Securities to Supplemental Indentures..............51
ARTICLE TEN
COVENANTS
Section 1001. Payment of Principal, Premium, if any, and Interest............51
Section 1002. Maintenance of Office or Agency................................51
Section 1003. Money for Securities Payments to Be Held in Trust..............53
Section 1004. Additional Amounts.............................................54
Section 1005. Statement as to Compliance.....................................55
Section 1006. Waiver of Certain Covenants....................................56
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<PAGE>
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
Section 1101. Applicability of Article.......................................56
Section 1102. Election to Redeem; Notice to Trustee..........................57
Section 1103. Selection by Trustee of Securities to Be Redeemed..............57
Section 1104. Notice of Redemption...........................................57
Section 1105. Deposit of Redemption Price....................................58
Section 1106. Securities Payable on Redemption Date..........................59
Section 1107. Securities Redeemed in Part....................................59
ARTICLE TWELVE
SINKING FUNDS
Section 1201. Applicability of Article.......................................60
Section 1202. Satisfaction of Sinking Fund Payments with Securities..........60
Section 1203. Redemption of Securities for Sinking Fund......................60
ARTICLE THIRTEEN
REPAYMENT AT THE OPTION OF HOLDERS
Section 1301. Applicability of Article.......................................61
Section 1302. Repayment of Securities........................................61
Section 1303. Exercise of Option.............................................61
Section 1304. When Securities Presented for Repayment Become
Due and Payable................................................62
Section 1305. Securities Repaid in Part......................................62
ARTICLE FOURTEEN
DEFEASANCE AND COVENANT DEFEASANCE
Section 1401. Applicability of Article; Company's Option to Effect
Defeasance or Covenant Defeasance..............................63
Section 1402. Defeasance and Discharge.......................................63
Section 1403. Covenant Defeasance............................................63
Section 1404. Conditions to Defeasance or Covenant Defeasance................64
Section 1405. Deposited Money and Government Obligations to Be Held
in Trust; Other Miscellaneous Provisions.......................65
6
<PAGE>
ARTICLE FIFTEEN
MEETINGS OF HOLDERS OF SECURITIES
Section 1501. Purposes for Which Meetings May Be Called......................66
Section 1502. Call, Notice and Place of Meetings.............................66
Section 1503. Persons Entitled to Vote at Meetings...........................67
Section 1504. Quorum; Action.................................................67
Section 1505. Determination of Voting Rights; Conduct and
Adjournment of Meetings........................................68
Section 1506. Counting Votes and Recording Action of Meetings................69
EXHIBIT A
EXHIBIT A-1
EXHIBIT A-2
INDENTURE, dated as of November 1, 1998, between PUBLIC SERVICE ENTERPRISE
GROUP INCORPORATED, a New Jersey corporation (hereinafter called the "Company"),
having its principal office at 80 Park Plaza, Newark, NJ 07102, and FIRST UNION
NATIONAL BANK, a national banking association organized and existing under the
laws of the United States of America, as Trustee (hereinafter called the
"Trustee"), having a Corporate Trust Office at 765 Broad Street, Newark, NJ
07101.
RECITALS OF THE COMPANY
The Company deems it necessary to issue from time to time for its lawful
purposes senior debt securities (hereinafter called the "Securities") evidencing
its unsecured and unsubordinated indebtedness, which may or may not be
convertible into or exchangeable for any securities of any Person (including the
Company), and has duly authorized the execution and delivery of this Indenture
to provide for the issuance from time to time of the Securities, unlimited as to
principal amount, to bear such rates of interest, to mature at such times and to
have such other provisions as shall be fixed as hereinafter provided.
This Indenture is subject to the provisions of the Trust Indenture Act of
1939, as amended, that are required to be part of this Indenture and shall, to
the extent applicable, be governed by such provisions.
7
<PAGE>
All things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Securities and coupons, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. DEFINITIONS. For all purposes of this Indenture, except as
otherwise expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein, and the terms "cash transaction" and
"self-liquidating paper", as used in TIA Section 311, shall have the
meanings assigned to them in the rules of the Commission adopted under the
Trust Indenture Act;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with Generally Accepted Accounting
Principles; and
(4) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
Certain terms, used principally in Article Three, Article Five, Article Six
and Article Ten, are defined in those Articles.
"Act", when used with respect to any Holder, has the meaning specified in
Section 104.
"Additional Amounts" means any additional amounts which are required by a
Security or by or pursuant to a Board Resolution, under circumstances specified
therein, to be paid by the Company in respect of certain taxes imposed on
certain Holders and which are owing to such Holders.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or
8
<PAGE>
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Authenticating Agent" means any authenticating agent appointed by the
Trustee pursuant to Section 611.
"Authorized Newspaper" means a newspaper, in the English language or in an
official language of the country of publication, customarily published on each
Business Day, whether or not published on Saturdays, Sundays or holidays, and of
general circulation in each place in connection with which the term is used or
in the financial community of each such place. Where successive publications are
required to be made in Authorized Newspapers, the successive publications may be
made in the same or in different newspapers in the same city meeting the
foregoing requirements and in each case on any Business Day.
"Bearer Security" means any Security established pursuant to Section 201
which is payable to bearer.
"Board of Directors" means the board of directors of the Company, the
executive committee or any committee of that board duly authorized to act on
behalf of that board.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day", when used with respect to any Place of Payment or any other
particular location referred to in this Indenture or in the Securities, means,
unless otherwise specified with respect to any Securities pursuant to Section
301, each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on
which banking institutions in that Place of Payment or particular location are
authorized or obligated by law or executive order to close.
"CEDEL" means Cedel Bank or its successor.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Securities Exchange Act of 1934, or, if at
any time after execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties on such date.
"Company" means the Person named as the "Company" in the first paragraph of
this Indenture until a successor Corporation shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor Corporation.
"Company Request" and "Company Order" mean, respectively, a written request
or order signed in the name of the Company by the Chairman, the President or a
Vice President, the Treasurer, an Assistant Treasurer, the Controller, an
Assistant Controller, the Secretary or an Assistant Secretary, of the Company,
and delivered to the Trustee.
9
<PAGE>
"Corporate Trust Office" means the office of the Trustee at which, at any
particular time, its corporate trust business shall be administered, which
office at the date hereof is located at 765 Broad Street, Newark, NJ 07101.
"Corporation" includes corporations, associations, companies, limited
liability companies and business trusts.
"Coupon" means any interest coupon appertaining to a Bearer Security.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 307.
"Dollar", "Dollars" or "$" means a dollar or other equivalent unit in such
coin or currency of the United States of America as at the time shall be legal
tender for the payment of public and private debts.
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
Office, or its successor as operator of the Euroclear System.
"European Communities" means the European Union, the European Coal and
Steel Community and the European Atomic Energy Community.
"Event of Default" has the meaning specified in Article Five.
"Generally Accepted Accounting Principles" means the generally accepted
accounting principles set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board.
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America, the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which are not callable or
redeemable at the option of the issuer thereof, and shall also include a
depository receipt issued by a bank or trust company as custodian with respect
to any such Government Obligation or a specific payment of interest on or
principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt; provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt.
10
<PAGE>
"Holder" means, in the case of a Registered Security, the Person in whose
name a Security is registered in the Security Register and, in the case of a
Bearer Security, the bearer thereof and, when used with respect to any coupon,
shall mean the bearer thereof.
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof, including the
provisions of the TIA that are deemed to be a part hereof, and shall include the
terms of particular series of Securities established as contemplated by Section
301; provided, however, that, if at any time more than one Person is acting as
Trustee under this instrument, "Indenture" shall mean, with respect to any one
or more series of Securities for which such Person is Trustee, this instrument
as originally executed or as it may from time to time be supplemented or amended
by one or more indentures supplemental hereto entered into pursuant to the
applicable provisions hereof and shall include the terms of the or those
particular series of Securities for which such Person is Trustee established as
contemplated by Section 301, exclusive, however, of any provisions or terms
which relate solely to other series of Securities for which such Person is not
Trustee, regardless of when such terms or provisions were adopted, and exclusive
of any provisions or terms adopted by means of one or more indentures
supplemental hereto executed and delivered after such Person had become such
Trustee but to which such Person, as such Trustee, was not a party.
"Indexed Security" means a Security as to which all or certain interest
payments and/or the principal amount payable at Maturity are determined by
reference to prices, changes in prices, or differences between prices, of
securities, Currencies, intangibles, goods, articles or commodities or by such
other objective price, economic or other measures as are specified in Section
301 hereof.
"Interest", when used with respect to an Original Issue Discount Security
which by its terms bears interest only after Maturity, shall mean interest
payable after Maturity, and, when used with respect to a Security which provides
for the payment of Additional Amounts pursuant to Section 1004, includes such
Additional Amounts.
"Interest Payment Date", when used with respect to any Security, means the
Stated Maturity of an installment of interest on such Security.
"Issue Date", when used with respect to any Security, means the date on
which the Security is originally issued.
"Maturity", when used with respect to any Security, means the date on which
the principal of such Security or an installment of principal becomes due and
payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, notice of redemption, notice of option to elect
repayment, notice of exchange or conversion or otherwise.
"Officer" means the Chairman, the President, any Vice President, the
Treasurer, any Assistant Treasurer, the Controller, any Assistant Controller,
the Secretary or any Assistant Secretary of the Company.
11
<PAGE>
"Officers' Certificate" means a certificate signed on behalf of the Company
by any one of its Officers and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Company or who may be an employee of or other counsel for the Company.
"Original Issue Discount Security" means any Security which provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the Maturity thereof pursuant to Section 502.
"Outstanding", when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, except:
(i) Securities theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment or redemption
or repayment at the option of the Holder money in the necessary amount has
been theretofore deposited with the Trustee or any Paying Agent (other than
the Company) in trust or set aside and segregated in trust by the Company
(if the Company shall act as its own Paying Agent) for the Holders of such
Securities and any coupons appertaining thereto, provided that, if such
Securities are to be redeemed, notice of such redemption has been duly
given pursuant to this Indenture or provision therefor satisfactory to the
Trustee has been made;
(iii) Securities, except to the extent provided in Sections 1402 and
1403, with respect to which the Company has effected defeasance and/or
covenant defeasance as provided in Article Fourteen; and
(iv) Securities which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands such Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder or are present at
a meeting of Holders for quorum purposes, and for the purpose of making the
calculations required by TIA Section 313, (i) the principal amount of an
Original Issue Discount Security that may be counted in making such
determination or calculation and that shall be deemed to be Outstanding for such
purpose shall be equal to the amount of principal thereof that would be (or
shall have been declared to be) due and payable, at the time of such
determination, upon a declaration of acceleration of the Maturity thereof
pursuant to Section 502, (ii) the principal amount of any Indexed Security that
may be counted in making such determination or calculation and that shall be
deemed outstanding for such purpose shall be equal to the principal face amount
of such Indexed Security at original issuance, unless
12
<PAGE>
otherwise provided with respect to such Security pursuant to Section 301 and
(iii) Securities owned by the Company or any other obligor upon the Securities
or any Affiliate of the Company or of such other obligor shall be disregarded
and deemed not to be Outstanding, except that, in determining whether the
Trustee shall be protected in making such calculation or in relying upon any
such request, demand, authorization, direction, notice, consent or waiver, only
Securities which the Trustee actually knows to be so owned shall be so
disregarded. Securities so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Securities and that
the pledgee is not the Company or any other obligor upon the Securities or any
Affiliate of the Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of (or premium, if any) or interest, if any, on any Securities or
coupons on behalf of the Company.
"Person" means any individual, Corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Place of Payment", when used with respect to the Securities of or within
any series, means the place or places where the principal of (and premium, if
any) and interest, if any, on such Securities are payable as specified and as
contemplated by Sections 301 and 1002.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security or a Security to which a
mutilated, destroyed, lost or stolen coupon appertains shall be deemed to
evidence the same debt as the mutilated, destroyed, lost or stolen Security or
the Security to which the mutilated, destroyed, lost or stolen coupon
appertains.
"Record Date", when used with respect to any Security, means the Regular
Record Date, the Special Record Date or any date set to determine the Holders of
such Security entitled to vote, make a request, consent, receive a payment or
exercise any other right with respect to such Security.
"Redemption Date", when used with respect to any Security to be redeemed,
in whole or in part, means the date specified for such redemption in accordance
with the terms thereof or by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to the terms thereof and
this Indenture.
"Registered Security" shall mean any Security which is registered in the
Security Register.
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"Regular Record Date" for the interest payable on any Interest Payment Date
on the Registered Securities of or within any series means the date specified
for that purpose as contemplated by Section 301, whether or not a Business Day.
"Repayment Date" means, when used with respect to any Security to be repaid
at the option of the Holder, the date fixed for such repayment by or pursuant to
this Indenture.
"Repayment Price" means, when used with respect to any Security to be
repaid at the option of the Holder, the price at which it is to be repaid by or
pursuant to this Indenture.
"Responsible Officer", when used with respect to the Trustee, means any
officer of the Trustee assigned by the Trustee to administer its corporate trust
matters.
"Security" or "Securities" has the meaning stated in the first recital of
this Indenture and, more particularly, means any Security or Securities
authenticated and delivered under this Indenture; provided, however, that, if at
any time there is more than one Person acting as Trustee under this Indenture,
"Securities" with respect to the Indenture as to which such Person is Trustee
shall have the meaning stated in the first recital of this Indenture and shall
more particularly mean Securities authenticated and delivered under this
Indenture, exclusive, however, of Securities of any series as to which such
Person is not Trustee.
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 305.
"Special Record Date" for the payment of any Defaulted Interest on the
Registered Securities of or within any series means a date fixed by the Trustee
pursuant to Section 307.
"Stated Maturity", when used with respect to any Security or any
installment of principal thereof or interest thereon, means the date specified
in such Security or a coupon representing such installment of interest as the
fixed date on which the principal of such Security or such installment of
principal or interest is due and payable, as such date may be extended pursuant
to the provisions of Section 308.
"Subsidiary" means any Corporation a majority of the outstanding voting
stock of which is owned, directly or indirectly, by the Company or by one or
more other Subsidiaries of the Company. For the purposes of this definition,
"voting stock" means stock (or other interests, including partnership interests)
having voting power for the election of directors, managers or trustees thereof,
whether at all times or only so long as no senior class of stock has such voting
power by reason of any contingency.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939 as in
force at the date as of which this Indenture was executed, except as provided in
Section 905.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this Indenture until a successor Trustee shall have become such pursuant to the
applicable provisions
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of this Indenture, and thereafter "Trustee" shall mean or include each Person
who is then a Trustee hereunder; provided, however, that if at any time there is
more than one such Person, "Trustee" as used with respect to the Securities of
any series shall mean only the Trustee with respect to Securities of that
series.
"United States" means, unless otherwise specified with respect to any
Securities pursuant to Section 301, the United States of America (including the
states and the District of Columbia), its territories, its possessions and other
areas subject to its jurisdiction.
"United States person" means, unless otherwise specified with respect to
any Securities pursuant to Section 301, an individual who is a citizen or
resident of the United States, a Corporation, partnership or other entity
created or organized in or under the laws of the United States or an estate or
trust the income of which is subject to United States federal income taxation
regardless of its source.
"Yield to Maturity" means the yield to maturity, computed at the time of
issuance of a Security (or, if applicable, at the most recent redetermination of
interest on such Security) and as set forth in such Security in accordance with
generally accepted United States bond yield computation principles.
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS. Upon any application or
request by the Company to the Trustee to take any action under any provision of
this Indenture, the Company shall furnish to the Trustee an Officers'
Certificate stating that all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with and an Opinion
of Counsel stating that in the opinion of such counsel all such conditions
precedent, if any, have been complied with, except that in the case of any such
application or request as to which the furnishing of such documents is
specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than pursuant to Section 1005)
shall include:
(1) a statement that each individual signing such certificate or
opinion has read such condition or covenant and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such condition or covenant
has been complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
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SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE. In any case where
several matters are required to be certified by, or covered by an opinion of,
any specified Person, it is not necessary that all such matters be certified by,
or covered by the opinion of, only one such Person, or that they be so certified
or covered by only one document, but one such Person may certify or give an
opinion as to some matters and one or more other such Persons as to other
matters, and any such Person may certify or give an opinion as to such matters
in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon an Opinion of Counsel, or a
certificate or representations by counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the opinion, certificate or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such Opinion of Counsel or certificate or
representations may be based, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, an officer or officers of the
Company stating that the information as to such factual matters is in the
possession of the Company, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
as to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. ACTS OF HOLDERS. (a) Any request, demand, authorization,
direction, notice, consent, waiver or other action provided by this Indenture to
be given or taken by Holders of the Outstanding Securities of all series or one
or more series, as the case may be, may be embodied in and evidenced by one or
more instruments of substantially similar tenor signed by such Holders in person
or by agents duly appointed in writing. If Securities of a series are issuable
as Bearer Securities, any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Holders of Securities of such series may, alternatively, be embodied in and
evidenced by the record of Holders of Securities of such series voting in favor
thereof, either in person or by proxies duly appointed in writing, at any
meeting of Holders of Securities of such series duly called and held in
accordance with the provisions of Article Fifteen, or a combination of such
instruments and any such record. Except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments or record
or both are delivered to the Trustee and, where it is hereby expressly required,
to the Company. Such instrument or instruments and any such record (and the
action embodied therein and evidenced thereby) are herein sometimes referred to
as the "Act" of the Holders signing such instrument or instruments or so voting
at any such meeting. Proof of execution of any such instrument or of a writing
appointing any such agent, or of the holding by any Person of a Security, shall
be sufficient for any purpose of this Indenture and conclusive in favor of the
Trustee and the Company and any agent of the Trustee or the Company, if made in
the manner provided in this Section. The record of any meeting of Holders of
Securities shall be proved in the manner provided in Section 1506.
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(b) The fact and date of the execution of any such instrument or writing,
or the authority of the Person executing the same, may be proved in any manner
that the Trustee deems reasonably sufficient.
(c) The ownership of Registered Securities shall be proved by the Security
Register.
(d) The ownership of Bearer Securities may be proved by the production of
such Bearer Securities or by a certificate executed, as depository, by any trust
company, bank, banker or other depository, wherever situated, if such
certificate shall be deemed by the Trustee to be satisfactory, showing that at
the date therein mentioned such Person had on deposit with such depository, or
exhibited to it, the Bearer Securities therein described; or such facts may be
proved by the certificate or affidavit of the Person holding such Bearer
Securities, if such certificate or affidavit is deemed by the Trustee to be
satisfactory. The Trustee and the Company may assume that such ownership of any
Bearer Security continues until (1) another certificate or affidavit bearing a
later date issued in respect of the same Bearer Security is produced, or (2)
such Bearer Security is produced to the Trustee by some other Person, or (3)
such Bearer Security is surrendered in exchange for a Registered Security, or
(4) such Bearer Security is no longer Outstanding. The ownership of Bearer
Securities may also be proved in any other manner that the Trustee deems
sufficient.
(e) If the Company shall solicit from the Holders of Registered Securities
any request, demand, authorization, direction, notice, consent, waiver or other
Act, the Company may, at its option, in or pursuant to a Board Resolution, fix
in advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Company shall have no obligation to do so. Notwithstanding TIA Section
316(c), such record date shall be the record date specified in or pursuant to
such Board Resolution, which shall be a date not earlier than the date 30 days
prior to the first solicitation of Holders generally in connection therewith and
not later than the date such solicitation is completed. If such a record date is
fixed, such request, demand, authorization, direction, notice, consent, waiver
or other Act may be given before or after such record date, but only the Holders
of record at the close of business on such record date shall be deemed to be
Holders for the purposes of determining whether Holders of the requisite
proportion of Outstanding Securities have authorized or agreed or consented to
such request, demand, authorization, direction, notice, consent, waiver or other
Act, and for that purpose the Outstanding Securities shall be computed as of
such record date; provided that no such authorization, agreement or consent by
the Holders on such record date shall be deemed effective unless it shall become
effective pursuant to the provisions of this Indenture not later than eleven
months after the record date.
(f) Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Holder of any Security shall bind every future Holder of the
same Security and the Holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the
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Trustee, any Security Registrar, any Paying Agent, any Authenticating Agent or
the Company in reliance thereon, whether or not notation of such action is made
upon such Security.
SECTION 105. NOTICES, ETC., TO TRUSTEE AND COMPANY. Any notice, request or
other communication required or permitted to be given hereunder shall be in
writing and delivered, telecopied or mailed by first-class mail, postage
prepaid, addressed as follows:
if to the Company:
Public Service Enterprise Group Incorporated
80 Park Plaza
P.O. Box 1171
Newark, New Jersey 07101
Facsimile No.: (973) 596-6309
Attention: Treasurer
if to the Trustee:
First Union National Bank
21 South Street, 3rd Floor
Morristown, New Jersey 07960
Facsimile No.: (973) 682-4531
Attention: Corporate Trust Bond Administration
The Company or the Trustee, by giving notice to the other, may designate
additional or different addresses for subsequent notices or communications. The
Company shall notify the Holders of any such additional or different addresses
of which the Company receives notice from the Trustee.
SECTION 106. NOTICE TO HOLDERS; WAIVER. Where this Indenture provides for
notice of any event to Holders of Registered Securities by the Company or the
Trustee, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage prepaid, to
each such Holder affected by such event, at his address as it appears in the
Security Register, not later than the latest date, and not earlier than the
earliest date, prescribed for the giving of such notice. In any case where
notice to Holders of Registered Securities is given by mail, neither the failure
to mail such notice, nor any defect in any notice so mailed, to any particular
Holder shall affect the sufficiency of such notice with respect to other Holders
of Registered Securities or the sufficiency of any notice to Holders of Bearer
Securities given as provided herein. Any notice mailed to a Holder in the manner
herein prescribed shall be conclusively deemed to have been received by such
Holder, whether or not such Holder actually receives such notice.
If by reason of the suspension of or irregularities in regular mail service
or by reason of any other cause it shall be impracticable to give such notice by
mail, then such
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notification to Holders of Registered Securities as shall be made with the
approval of the Trustee shall constitute a sufficient notification to such
Holders for every purpose hereunder.
Except as otherwise expressly provided herein or otherwise specified with
respect to any Securities pursuant to Section 301, where this Indenture provides
for notice to Holders of Bearer Securities of any event, such notice shall be
sufficiently given if published in an Authorized Newspaper in The City of New
York and in such other city or cities as may be specified in such Securities on
a Business Day, such publication to be not later than the latest date, and not
earlier than the earliest date, prescribed for the giving of such notice. Any
such notice shall be deemed to have been given on the date of such publication
or, if published more than once, on the date of the first such publication.
If by reason of the suspension of publication of any Authorized Newspaper
or Authorized Newspapers or by reason of any other cause it shall be
impracticable to publish any notice to Holders of Bearer Securities as provided
above, then such notification to Holders of Bearer Securities as shall be given
with the approval of the Trustee shall constitute sufficient notice to such
Holders for every purpose hereunder. Neither the failure to give notice by
publication to Holders of Bearer Securities as provided above, nor any defect in
any notice so published, shall affect the sufficiency of such notice with
respect to other Holders of Bearer Securities or the sufficiency of any notice
to Holders of Registered Securities given as provided herein.
Any request, demand, authorization, direction, notice, consent or waiver
required or permitted under this Indenture shall be in the English language,
except that any published notice may be in an official language of the country
of publication.
If the Company mails a notice or communication to the Holders, it shall
mail a copy to the Trustee and each Registrar, Paying Agent or co-Registrar.
Holders may communicate, pursuant to TIA Section 312(b), with other Holders
with respect to their rights under this Indenture or the Securities. The
Company, the Trustee, the Registrar, the Paying Agent and anyone else shall have
the protection of TIA Section 312(c).
SECTION 107. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
SECTION 108. SUCCESSORS AND ASSIGNS. All covenants and agreements in this
Indenture by the Company shall bind its successors and assigns, whether so
expressed or not.
SECTION 109. SEPARABILITY CLAUSE. In case any provision in this Indenture
or in any Security or coupon shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 110. BENEFITS OF INDENTURE. Nothing in this Indenture or in the
Securities or coupons, express or implied, shall give to any Person, other than
the parties hereto,
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any Security Registrar, any Paying Agent, any Authenticating Agent and their
successors hereunder and the Holders any benefit or any legal or equitable
right, remedy or claim under this Indenture.
SECTION 111. GOVERNING LAW. This Indenture and the Securities and coupons
shall be governed by and construed in accordance with the law of the State of
New Jersey without regard to principles of conflicts of laws. This Indenture is
subject to the provisions of the Trust Indenture Act that are required to be
part of this Indenture and shall, to the extent applicable, be governed by such
provisions.
SECTION 112. LEGAL HOLIDAYS. In any case where any Interest Payment Date,
Redemption Date, Repayment Date, sinking fund payment date, Stated Maturity or
Maturity of any Security shall not be a Business Day at any Place of Payment,
then (notwithstanding any other provision of this Indenture or any Security or
coupon other than a provision in the Securities of any series which specifically
states that such provision shall apply in lieu of this Section), payment of
principal (or premium, if any) or interest, if any, need not be made at such
Place of Payment on such date, but may be made on the next succeeding Business
Day at such Place of Payment with the same force and effect as if made on the
Interest Payment Date, Redemption Date, Repayment Date or sinking fund payment
date, or at the Stated Maturity or Maturity; provided that no interest shall
accrue on the amount so payable for the period from and after such Interest
Payment Date, Redemption Date, Repayment Date, sinking fund payment date, Stated
Maturity or Maturity, as the case may be.
ARTICLE TWO
SECURITIES FORMS
SECTION 201. FORMS OF SECURITIES. The Registered Securities, if any, of
each series and the Bearer Securities, if any, of each series and related
coupons shall be in substantially the forms as shall be established in one or
more indentures supplemental hereto or approved from time to time by or pursuant
to a Board Resolution in accordance with Section 301, shall have such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture or any indenture supplemental hereto,
and may have such letters, numbers or other marks of identification or
designation and such legends or endorsements placed thereon as the Company may
deem appropriate and as are not inconsistent with the provisions of this
Indenture, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Securities may be listed, or to conform to usage.
Unless otherwise specified as contemplated by Section 301, Bearer
Securities shall have interest coupons attached.
The definitive Securities and coupons shall be printed, lithographed or
engraved or produced by any combination of these methods on a steel engraved
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border or steel engraved borders or may be produced in any other manner, all as
determined by the officers executing such Securities or coupons, as evidenced by
their execution of such Securities or coupons.
SECTION 202. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION. Subject to
Section 611, the Trustee's certificate of authentication shall be in
substantially the following form:
This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
FIRST UNION NATIONAL BANK,
as Trustee
By___________________________
Authorized Signatory
SECTION 203. SECURITIES ISSUABLE IN GLOBAL FORM. If Securities of or within
a series are issuable in global form, as specified as contemplated by Section
301, then, notwithstanding clause (8) of Section 301 and the provisions of
Section 302, any such Security shall represent such of the Outstanding
Securities of such series as shall be specified therein and may provide that it
shall represent the aggregate amount of Outstanding Securities of such series
from time to time endorsed thereon and that the aggregate amount of Outstanding
Securities of such series represented thereby may from time to time be increased
or decreased to reflect exchanges. Any endorsement of a Security in global form
to reflect the amount, or any increase or decrease in the amount, of Outstanding
Securities represented thereby shall be made by the Trustee in such manner and
upon instructions given by such Person or Persons as shall be specified therein
or in the Company Order to be delivered to the Trustee pursuant to Section 303
or 304. Subject to the provisions of Section 303 and, if applicable, Section
304, the Trustee shall deliver and redeliver any Security in permanent global
form in the manner and upon instructions given by the Person or Persons
specified therein or in the applicable Company Order. If a Company Order
pursuant to Section 303 or 304 has been, or simultaneously is, delivered, any
instructions by the Company with respect to endorsement, delivery or redelivery
of a Security in global form shall be in writing but need not comply with
Section 102 and need not be accompanied by an Opinion of Counsel.
The provisions of the last sentence of Section 303 shall apply to any
Security represented by a Security in global form if such Security was never
issued and sold by the Company and the Company delivers to the Trustee the
Security in global form together with written instructions (which need not
comply with Section 102 and need not be accompanied by an Opinion of Counsel)
with regard to the reduction in the principal amount of Securities represented
thereby, together with the written statement contemplated by the last sentence
of Section 303.
Notwithstanding the provisions of Section 307, unless otherwise specified
as contemplated by Section 301, payment of principal of (and premium, if any)
and interest, if any,
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on any Security in permanent global form shall be made to the Person or Persons
specified therein.
Notwithstanding the provisions of Section 309 and except as provided in the
preceding paragraph, the Company, the Trustee and any agent of the Company and
the Trustee shall treat as the Holder of such principal amount of Outstanding
Securities represented by a permanent global Security (i) in the case of a
permanent global Security in registered form, the Holder of such permanent
global Security in registered form, or (ii) in the case of a permanent global
Security in bearer form, Euroclear or CEDEL.
ARTICLE THREE
THE SECURITIES
SECTION 301. AMOUNT UNLIMITED; ISSUABLE IN SERIES. The aggregate principal
amount of Securities which may be authenticated and delivered under this
Indenture is unlimited.
The Securities shall rank equally and pari passu and may be issued in one
or more series. There shall be established in one or more Board Resolutions or
pursuant to authority granted by one or more Board Resolutions and, subject to
Section 303, set forth, or determined in the manner provided, in an Officers'
Certificate, or established in one or more indentures supplemental hereto, prior
to the issuance of Securities of any series, any or all of the following, as
applicable (each of which (except for the matters set forth in clauses (1), (2)
and (15) below), if so provided, may be determined from time to time by the
Company with respect to unissued Securities of the series when issued from time
to time):
(1) the title of the Securities of the series (which shall distinguish
the Securities of such series from all other series of Securities);
(2) any limit upon the aggregate principal amount of the Securities of
the series that may be authenticated and delivered under this Indenture
(except for Securities authenticated and delivered upon registration of
transfer of, or in exchange for, or in lieu of, other Securities of the
series pursuant to Section 304, 305, 306, 906, 1107 or 1305);
(3) the date or dates, or the method by which such date or dates will
be determined or extended, on which the principal of the Securities of the
series shall be payable;
(4) the rate or rates at which the Securities of the series shall bear
interest, if any, or the method by which such rate or rates shall be
determined, the date or dates from which such interest shall accrue or the
method by which such date or dates shall be determined, the Interest
Payment Dates on which such interest will be payable and the Regular Record
Date, if any, for the interest payable on any Registered Security on any
Interest Payment Date, or the method by which such date shall be
determined, and the
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basis upon which such interest shall be calculated if other than that of a
360-day year of twelve 30-day months;
(5) the place or places, if any, other than or in addition to the
Borough of Manhattan, The City of New York, where the principal of (and
premium, if any) and interest, if any, on Securities of the series shall be
payable, any Registered Securities of the series may be surrendered for
registration of transfer, Securities of the series may be surrendered for
exchange, where Securities of any series that are convertible or
exchangeable may be surrendered for conversion or exchange, as applicable,
and where notices or demands to or upon the Company in respect of the
Securities of the series and this Indenture may be served;
(6) the period or periods within which, or the date or dates on which,
the price or prices at which and other terms and conditions upon which
Securities of the series may be redeemed, in whole or in part, at the
option of the Company, if the Company is to have the option;
(7) the obligation, if any, of the Company to redeem, repay or
purchase Securities of the series pursuant to any sinking fund or analogous
provision or at the option of a Holder thereof, and the period or periods
within which or the date or dates on which, the price or prices at which
and other terms and conditions upon which Securities of the series shall be
redeemed, repaid or purchased, in whole or in part, pursuant to such
obligation;
(8) if other than denominations of $1,000 and any integral multiple
thereof, the denomination or denominations in which any Registered
Securities of the series shall be issuable and, if other than denominations
of $5,000, the denomination or denominations in which any Bearer Securities
of the series shall be issuable;
(9) if other than the Trustee, the identity of each Security Registrar
and/or Paying Agent;
(10) if other than the principal amount thereof, the portion of the
principal amount of Securities of the series that shall be payable upon
declaration of acceleration of the Maturity thereof pursuant to Section 502
or the method by which such portion shall be determined;
(11) whether the amount of payments of principal of (or premium, if
any) or interest, if any, on the Securities of the series may be determined
with reference to an index, formula or other method (which index, formula
or method may be based, without limitation, on one or more Currencies,
commodities, equity indices or other indices), and the manner in which such
amounts shall be determined;
(12) provisions, if any, granting special rights to the Holders of
Securities of the series upon the occurrence of such events as may be
specified;
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(13) any deletions from, modifications of or additions to the Events
of Default or covenants (including any deletions from, modifications of or
additions to any of the provisions of Section 1006) of the Company with
respect to Securities of the series, whether or not such Events of Default
or covenants are consistent with the Events of Default or covenants set
forth herein;
(14) whether Securities of the series are to be issuable as Registered
Securities, Bearer Securities (with or without coupons) or both, any
restrictions applicable to the offer, sale or delivery of Bearer Securities
and the terms upon which Bearer Securities of the series may be exchanged
for Registered Securities of the series and vice versa (if permitted by
applicable laws and regulations), whether any Securities of the series are
to be issuable initially in temporary global form and whether any
Securities of the series are to be issuable in permanent global form with
or without coupons and, if so, whether beneficial owners of interests in
any such permanent global Security may exchange such interests for
Securities of such series in certificated form and of like tenor of any
authorized form and denomination and the circumstances under which any such
exchanges may occur, if other than in the manner provided in Section 305,
and, if Registered Securities of the series are to be issuable as a global
Security, the identity of the depository for such series;
(15) the date as of which any Bearer Securities of the series and any
temporary global Security representing Outstanding Securities of the series
shall be dated if other than the date of original issuance of the first
Security of the series to be issued;
(16) the Person to whom any interest on any Registered Security of the
series shall be payable, if other than the Person in whose name such
Security (or one or more Predecessor Securities) is registered at the close
of business on the Regular Record Date for such interest, the manner in
which, or the Person to whom, any interest on any Bearer Security of the
series shall be payable, if otherwise than upon presentation and surrender
of the coupons appertaining thereto as they severally mature, and the
extent to which, or the manner in which, any interest payable on a
temporary global Security on an Interest Payment Date will be paid if other
than in the manner provided in Section 304;
(17) the applicability, if any, of Sections 1402 and/or 1403 to the
Securities of the series and any provisions in modification of, in addition
to or in lieu of any of the provisions of Article Fourteen;
(18) if the Securities of such series are to be issuable in definitive
form (whether upon original issue or upon exchange of a temporary Security
of such series) only upon receipt of certain certificates or other
documents or satisfaction of other conditions, then the form and/or terms
of such certificates, documents or conditions;
(19) whether, under what circumstances, the Company will pay
Additional Amounts as contemplated by Section 1004 on the Securities of the
series to any Holder who is not a United States person (including any
modification to the definition of such term) in respect of any tax,
assessment or governmental charge and, if so, whether the
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Company will have the option to redeem such Securities rather than pay such
Additional Amounts (and the terms of any such option);
(20) if the Securities of the series are to be convertible into or
exchangeable for any securities of any Person (including the Company), the
terms and conditions upon which such Securities will be so convertible or
exchangeable; and
(21) any other terms of the series (which terms shall not be
inconsistent with the provisions of this Indenture or the requirements of
the Trust Indenture Act).
All Securities of any one series and the coupons appertaining to any Bearer
Securities of such series shall be substantially identical except, in the case
of Registered Securities, as to denomination and except as may otherwise be
provided in or pursuant to such Board Resolution (subject to Section 303) and
set forth in such Officers' Certificate or in any such indenture supplemental
hereto. All Securities of any one series need not be issued at the same time
and, unless otherwise provided, a series may be reopened, without the consent of
the Holders, for issuances of additional Securities of such series.
If any of the terms of the Securities of any series are established by
action taken pursuant to one or more Board Resolutions, a copy of an appropriate
record of such action(s) shall be certified by the Secretary or an Assistant
Secretary of the Company and delivered to the Trustee at or prior to the
delivery of the Officers' Certificate setting forth the terms of the Securities
of such series.
SECTION 302. DENOMINATIONS. The Securities of each series shall be issuable
in such denominations as shall be specified as contemplated by Section 301. With
respect to Securities of any series denominated in Dollars, in the absence of
any such provisions with respect to the Securities of any series, the Registered
Securities of such series, other than Registered Securities issued in global
form (which may be of any denomination) shall be issuable in denominations of
$1,000 and any integral multiple thereof, and the Bearer Securities of such
series, other than Bearer Securities issued in global form (which may be of any
denomination), shall be issuable in a denomination of $5,000.
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING. The Securities
and any coupons appertaining thereto shall be executed on behalf of the Company
by its Chairman, its President or one of its Vice Presidents, under its
corporate seal reproduced thereon, and attested by its Secretary or one of its
Assistant Secretaries. The signature of any of these officers on the Securities
and coupons may be manual or facsimile signatures of the present or any future
such authorized officer and may be imprinted or otherwise reproduced on the
Securities.
Securities or coupons bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities or coupons.
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At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities of any series, together with any
coupon appertaining thereto, executed by the Company, to the Trustee for
authentication, together with a Company Order for the authentication and
delivery of such Securities, and the Trustee in accordance with the Company
Order shall authenticate and deliver such Securities; provided, however, that,
in connection with its original issuance, no Bearer Security shall be mailed or
otherwise delivered to any location in the United States; and provided further
that, unless otherwise specified with respect to any series of Securities
pursuant to Section 301, a Bearer Security may be delivered in connection with
its original issuance only if the Person entitled to receive such Bearer
Security shall have furnished a certificate in the form set forth in Exhibit A-1
to this Indenture or such other certificate as may be specified with respect to
any series of Securities pursuant to Section 301, dated no earlier than 15 days
prior to the earlier of the date on which such Bearer Security is delivered and
the date on which any temporary Security first becomes exchangeable for such
Bearer Security in accordance with the terms of such temporary Security and this
Indenture. If any Security shall be represented by a permanent global Bearer
Security, then, for purposes of this Section and Section 304, the notation of a
beneficial owner's interest therein upon original issuance of such Security or
upon exchange of a portion of a temporary global Security shall be deemed to be
delivery in connection with its original issuance of such beneficial owner's
interest in such permanent global Security. Except as permitted by Section 306,
the Trustee shall not authenticate and deliver any Bearer Security unless all
appurtenant coupons for interest then matured have been detached and canceled.
If all the Securities of any series are not to be issued at one time and if the
Board Resolution or supplemental indenture establishing such series shall so
permit, such Company Order may set forth procedures acceptable to the Trustee
for the issuance of such Securities and determining the terms of particular
Securities of such series, such as interest rate, maturity date, date of
issuance and date from which interest shall accrue. In authenticating such
Securities, and accepting the additional responsibilities under this Indenture
in relation to such Securities, the Trustee shall be entitled to receive, and
(subject to TIA Section 315(a) through 315(d)) shall be fully protected in
relying upon,
(i) an Opinion of Counsel stating,
(a) that the form or forms of such Securities and any coupons
have been established in conformity with the provisions of this
Indenture;
(b) that the terms of such Securities and any coupons have been
established in conformity with the provisions of this Indenture; and
(c) that such Securities, together with any coupons appertaining
thereto, when completed by appropriate insertions and executed and
delivered by the Company to the Trustee for authentication in
accordance with this Indenture, authenticated and delivered by the
Trustee in accordance with this Indenture and issued by the Company in
the manner and subject to any conditions specified in such Opinion of
Counsel, will constitute legal, valid and binding obligations of the
Company, enforceable in accordance with their terms, subject to
applicable
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bankruptcy, insolvency, reorganization and other similar laws of
general applicability relating to or affecting the enforcement of
creditors' rights, to general equitable principles and to such other
qualifications as such counsel shall conclude do not materially affect
the rights of Holders of such Securities and any coupons; and
(ii) an Officers' Certificate stating, to the best of the
knowledge of the signers of such certificate, that no Event of Default
with respect to any of the Securities shall have occurred and be
continuing.
Notwithstanding the provisions of Section 301 and of this Section 303, if
all the Securities of any series are not to be issued at one time, it shall not
be necessary to deliver an Officers' Certificate otherwise required pursuant to
Section 301 or the Company Order, Opinion of Counsel or Officers' Certificate
otherwise required pursuant to the preceding paragraph at the time of issuance
of each Security of such series, but such order, opinion and certificates, with
appropriate modifications to cover such future issuances, shall be delivered at
or before the time of issuance of the first Security of such series.
If such form or terms have been so established, the Trustee shall not be
required to authenticate such Securities if the issue of such Securities
pursuant to this Indenture will affect the Trustee's own rights, duties,
obligations or immunities under the Securities and this Indenture or otherwise
in a manner which is not reasonably acceptable to the Trustee.
Each Registered Security shall be dated the date of its authentication and
each Bearer Security shall be dated as of the date specified as contemplated by
Section 301.
No Security or coupon shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose unless there appears on such Security
or Security to which such coupon appertains a certificate of authentication
substantially in the form provided for herein duly executed by the Trustee or an
Authenticating Agent by manual signature of an authorized signatory, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered hereunder
and is entitled to the benefits of this Indenture. Notwithstanding the
foregoing, if any Security shall have been authenticated and delivered hereunder
but never issued and sold by the Company, and the Company shall deliver such
Security to the Trustee for cancellation as provided in Section 310 together
with a written statement (which need not comply with Section 102 and need not be
accompanied by an Opinion of Counsel) stating that such Security has never been
issued and sold by the Company, for all purposes of this Indenture such Security
shall be deemed never to have been authenticated and delivered hereunder and
shall never be entitled to the benefits of this Indenture.
SECTION 304. TEMPORARY SECURITIES. (a) Pending the preparation of
definitive Securities of any series, the Company may execute, and upon Company
Order the Trustee shall authenticate and deliver, temporary Securities which are
printed, lithographed, typewritten, mimeographed or otherwise produced, in any
authorized denomination, substantially of the tenor of the definitive Securities
in lieu of which they are issued, in registered form, or, if
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authorized, in bearer form with one or more coupons or without coupons, and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as conclusively evidenced
by their execution of such Securities. In the case of Securities of any series,
such temporary Securities may be in global form.
Except in the case of temporary Securities in global form (which shall be
exchanged in accordance with Section 304(b) or as otherwise provided in or
pursuant to a Board Resolution), if temporary Securities of any series are
issued, the Company will cause definitive Securities of that series to be
prepared without unreasonable delay. After the preparation of definitive
Securities of such series, the temporary Securities of such series shall be
exchangeable for definitive Securities of such series upon surrender of the
temporary Securities of such series at the office or agency of the Company in a
Place of Payment for that series, without charge to the Holder. Upon surrender
for cancellation of any one or more temporary Securities of any series
(accompanied by any non-matured coupons appertaining thereto), the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
like principal amount of definitive Securities of the same series of authorized
denominations; provided, however, that no definitive Bearer Security shall be
delivered in exchange for a temporary Registered Security; and provided further
that a definitive Bearer Security shall be delivered in exchange for a temporary
Bearer Security only in compliance with the conditions set forth in Section 303.
Until so exchanged, the temporary Securities of any series shall in all respects
be entitled to the same benefits under this Indenture as definitive Securities
of such series.
(b) Unless otherwise provided in or pursuant to a Board Resolution, this
Section 304(b) shall govern the exchange of temporary Securities issued in
global form. If temporary Securities of any series are issued in global form,
any such temporary global Security shall, unless otherwise provided therein, be
delivered to the London office of a depository or common depository (the "Common
Depository"), for the benefit of Euroclear and CEDEL, for credit to the
respective accounts of the beneficial owners of such Securities (or to such
other accounts as they may direct).
Without unnecessary delay but in any event not later than the date
specified in, or determined pursuant to the terms of, any such temporary global
Security (the "Exchange Date"), the Company shall deliver to the Trustee
definitive Securities, in aggregate principal amount equal to the principal
amount of such temporary global Security, executed by the Company. On or after
the Exchange Date, such temporary global Security shall be surrendered by the
Common Depository to the Trustee, as the Company's agent for such purpose, to be
exchanged, in whole or from time to time in part, for definitive Securities
without charge, and the Trustee shall authenticate and deliver, in exchange for
each portion of such temporary global Security, an equal aggregate principal
amount of definitive Securities of the same series of authorized denominations
and of like tenor as the portion of such temporary global Security to be
exchanged. The definitive Securities to be delivered in exchange for any such
temporary global Security shall be in bearer form, registered form, permanent
global bearer form or permanent global registered form, or any combination
thereof, as specified as contemplated by Section 301, and, if any combination
thereof is so specified, as requested by the beneficial owner thereof; provided,
however, that, unless otherwise specified in such temporary global Security,
upon such
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presentation by the Common Depository, such temporary global Security is
accompanied by a certificate dated the Exchange Date or a subsequent date and
signed by Euroclear as to the portion of such temporary global Security held for
its account then to be exchanged and a certificate dated the Exchange Date or a
subsequent date and signed by CEDEL as to the portion of such temporary global
Security held for its account then to be exchanged, each in the form set forth
in Exhibit A-2 to this Indenture or in such other form as may be established
pursuant to Section 301; and provided further that definitive Bearer Securities
shall be delivered in exchange for a portion of a temporary global Security only
in compliance with the requirements of Section 303.
Unless otherwise specified in such temporary global Security, the interest
of a beneficial owner of Securities of a series in a temporary global Security
shall be exchanged for definitive Securities of the same series and of like
tenor following the Exchange Date when the account holder instructs Euroclear or
CEDEL, as the case may be, to request such exchange on his behalf and delivers
to Euroclear or CEDEL, as the case may be, a certificate in the form set forth
in Exhibit A-1 to this Indenture (or in such other form as may be established
pursuant to Section 301), dated no earlier than 15 days prior to the Exchange
Date, copies of which certificate shall be available from the offices of
Euroclear and CEDEL, the Trustee, any Authenticating Agent appointed for such
series of Securities and each Paying Agent. Unless otherwise specified in such
temporary global Security, any such exchange shall be made free of charge to the
beneficial owners of such temporary global Security, except that a Person
receiving definitive Securities must bear the cost of insurance, postage,
transportation and the like unless such Person takes delivery of such definitive
Securities in person at the offices of Euroclear or CEDEL. Definitive Securities
in bearer form to be delivered in exchange for any portion of a temporary global
Security shall be delivered only outside the United States.
Until exchanged in full as hereinabove provided, the temporary Securities
of any series shall in all respects be entitled to the same benefits under this
Indenture as definitive Securities of the same series and of like tenor
authenticated and delivered hereunder, except that, unless otherwise specified
as contemplated by Section 301, interest payable on a temporary global Security
on an Interest Payment Date for Securities of such series occurring prior to the
applicable Exchange Date shall be payable to Euroclear and CEDEL on such
Interest Payment Date upon delivery by Euroclear and CEDEL to the Trustee of a
certificate or certificates in the form set forth in Exhibit A-2 to this
Indenture (or in such other forms as may be established pursuant to Section
301), for credit without further interest on or after such Interest Payment Date
to the respective accounts of Persons who are the beneficial owners of such
temporary global Security on such Interest Payment Date and who have each
delivered to Euroclear or CEDEL, as the case may be, a certificate dated no
earlier than 15 days prior to the Interest Payment Date occurring prior to such
Exchange Date in the form set forth as Exhibit A-1 to this Indenture (or in such
other forms as may be established pursuant to Section 301). Notwithstanding
anything to the contrary herein contained, the certifications made pursuant to
this paragraph shall satisfy the certification requirements of the preceding two
paragraphs of this Section 304(b) and of the third paragraph of Section 303 of
this Indenture and the interests of the Persons who are the beneficial owners of
the temporary global Security with respect to which such certification was made
will be exchanged for definitive Securities of the same series and of
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like tenor on the Exchange Date or the date of certification if such date occurs
after the Exchange Date, without further act or deed by such beneficial owners.
Except as otherwise provided in this paragraph, no payments of principal (or
premium, if any) or interest, if any, owing with respect to a beneficial
interest in a temporary global Security will be made unless and until such
interest in such temporary global Security shall have been exchanged for an
interest in a definitive Security. Any interest so received by Euroclear and
CEDEL and not paid as herein provided shall be returned to the Trustee prior to
the expiration of two years after such Interest Payment Date in order to be
repaid to the Company.
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE. The
Company shall cause to be kept at the Corporate Trust Office of the Trustee or
in any office or agency of the Company in a Place of Payment a register for each
series of Securities (the registers maintained in such office or in any such
office or agency of the Company in a Place of Payment being herein sometimes
referred to collectively as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Registered Securities and of transfers of Registered Securities.
The Security Register shall be in written form or any other form capable of
being converted into written form within a reasonable time. The Trustee, at its
Corporate Trust Office, is hereby initially appointed "Security Registrar" for
the purpose of registering Registered Securities and transfers of Registered
Securities on such Security Register as herein provided. In the event that the
Trustee shall cease to be Security Registrar, it shall have the right to examine
the Security Register at all reasonable times.
Upon surrender for registration of transfer of any Registered Security of
any series at any office or agency of the Company in a Place of Payment for that
series, the Company shall execute, and the Trustee shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Registered Securities of the same series, of any authorized denominations
and of a like aggregate principal amount, bearing a number not contemporaneously
outstanding and containing identical terms and provisions.
At the option of the Holder, Registered Securities of any series may be
exchanged for other Registered Securities of the same series, of any authorized
denomination or denominations and of a like aggregate principal amount,
containing identical terms and provisions, upon surrender of the Registered
Securities to be exchanged at any such office or agency. Whenever any Registered
Securities are so surrendered for exchange, the Company shall execute, and the
Trustee shall authenticate and deliver, the Registered Securities which the
Holder making the exchange is entitled to receive. Unless otherwise specified
with respect to any series of Securities as contemplated by Section 301, Bearer
Securities may not be issued in exchange for Registered Securities.
If (but only if) permitted by the applicable Board Resolution and (subject
to Section 303) set forth in the applicable Officers' Certificate, or in any
indenture supplemental hereto, delivered as contemplated by Section 301, at the
option of the Holder, Bearer Securities of any series may be exchanged for
Registered Securities of the same series of any authorized denominations and of
a like aggregate principal amount and tenor, upon surrender of the Bearer
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Securities to be exchanged at any such office or agency, with all unmatured
coupons and all matured coupons in default thereto appertaining. If the Holder
of a Bearer Security is unable to produce any such unmatured coupon or coupons
or matured coupon or coupons in default, any such permitted exchange may be
effected if the Bearer Securities are accompanied by payment in funds acceptable
to the Company in an amount equal to the face amount of such missing coupon or
coupons, or the surrender of such missing coupon or coupons may be waived by the
Company and the Trustee if there is furnished to them such security or indemnity
as they may require to save each of them and any Paying Agent harmless. If
thereafter the Holder of such Security shall surrender to any Paying Agent any
such missing coupon in respect of which such a payment shall have been made,
such Holder shall be entitled to receive the amount of such payment; provided,
however, that, except as otherwise provided in Section 1002, interest
represented by coupons shall be payable only upon presentation and surrender of
those coupons at an office or agency located outside the United States.
Notwithstanding the foregoing, in case a Bearer Security of any series is
surrendered at any such office or agency in a permitted exchange for a
Registered Security of the same series and like tenor after the close of
business at such office or agency on (i) any Regular Record Date and before the
opening of business at such office or agency on the relevant Interest Payment
Date, or (ii) any Special Record Date and before the opening of business at such
office or agency on the related proposed date for payment of Defaulted Interest,
such Bearer Security shall be surrendered without the coupon relating to such
Interest Payment Date or proposed date for payment, as the case may be, and
interest or Defaulted Interest, as the case may be, will not be payable on such
Interest Payment Date or proposed date for payment, as the case may be, in
respect of the Registered Security issued in exchange for such Bearer Security,
but will be payable only to the Holder of such coupon when due in accordance
with the provisions of this Indenture.
Whenever any Securities are so surrendered for exchange, the Company shall
execute, and the Trustee shall authenticate and deliver, the Securities which
the Holder making the exchange is entitled to receive.
Notwithstanding the foregoing, except as otherwise specified as
contemplated by Section 301, any permanent global Security shall be exchangeable
only as provided in this paragraph. If any beneficial owner of an interest in a
permanent global Security is entitled to exchange such interest for Securities
of such series and of like tenor and principal amount of another authorized form
and denomination, as specified as contemplated by Section 301 and provided that
any applicable notice provided in the permanent global Security shall have been
given, then without unnecessary delay but in any event not later than the
earliest date on which such interest may be so exchanged, the Company shall
deliver to the Trustee definitive Securities in aggregate principal amount equal
to the principal amount of such beneficial owner's interest in such permanent
global Security, executed by the Company. On or after the earliest date on which
such interests may be so exchanged, such permanent global Security shall be
surrendered by the Common Depository or such other depository as shall be
specified in the Company Order with respect thereto to the Trustee, as the
Company's agent for such purpose, to be exchanged, in whole or from time to time
in part, for definitive Securities without charge and the Trustee shall
authenticate and deliver, in exchange for each portion of such permanent global
Security, an equal aggregate principal amount of definitive Securities of the
same series of authorized
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denominations and of like tenor as the portion of such permanent global Security
to be exchanged which, unless the Securities of the series are not issuable both
as Bearer Securities and as Registered Securities, as specified as contemplated
by Section 301, shall be in the form of Bearer Securities or Registered
Securities, or any combination thereof, as shall be specified by the beneficial
owner thereof; provided, however, that no such exchanges may occur during a
period beginning at the opening of business 15 days before any selection of
Securities to be redeemed and ending on the relevant Redemption Date if the
Security for which exchange is requested may be among those selected for
redemption; and provided further that no Bearer Security delivered in exchange
for a portion of a permanent global Security shall be mailed or otherwise
delivered to any location in the United States. If a Registered Security is
issued in exchange for any portion of a permanent global Security after the
close of business at the office or agency where such exchange occurs on (i) any
Regular Record Date and before the opening of business at such office or agency
on the relevant Interest Payment Date, or (ii) any Special Record Date and
before the opening of business at such office or agency on the related proposed
date for payment of Defaulted Interest, interest or Defaulted Interest, as the
case may be, will not be payable on such Interest Payment Date or proposed date
for payment, as the case may be, in respect of such Registered Security, but
will be payable on such Interest Payment Date or proposed date for payment, as
the case may be, only to the Person to whom interest in respect of such portion
of such permanent global Security is payable in accordance with the provisions
of this Indenture.
All Securities issued upon any registration of transfer or exchange of
Securities shall be valid obligations of the Company, evidencing the same debt
and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Registered Security presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Security
Registrar) be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the Company and the Security Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 304, 906, 1107 or 1305 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer of or
exchange any Security if such Security may be among those selected for
redemption during a period beginning at the opening of business 15 days before
selection of the Securities to be redeemed under Section 1103 and ending at the
close of business on (A) if such Securities are issuable only as Registered
Securities, the day of the mailing of the relevant notice of redemption and (B)
if such Securities are issuable as Bearer Securities, the day of the first
publication of the relevant notice of redemption or, if such Securities are also
issuable as Registered Securities and
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there is no publication, the mailing of the relevant notice of redemption, or
(ii) to register the transfer of or exchange any Registered Security so selected
for redemption in whole or in part, except, in the case of any Registered
Security to be redeemed in part, the portion thereof not to be redeemed, or
(iii) to exchange any Bearer Security so selected for redemption except that
such a Bearer Security may be exchanged for a Registered Security of that series
and like tenor, provided that such Registered Security shall be simultaneously
surrendered for redemption, or (iv) to issue, register the transfer of or
exchange any Security which has been surrendered for repayment at the option of
the Holder, except the portion, if any, of such Security not to be so repaid.
SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES. If any
mutilated Security or a Security with a mutilated coupon appertaining to it is
surrendered to the Trustee or the Company, together with, in proper cases, such
security or indemnity as may be required by the Company or the Trustee to save
each of them or any agent of either of them harmless, the Company shall execute
and the Trustee shall authenticate and deliver in exchange therefor a new
Security of the same series and principal amount, containing identical terms and
provisions and bearing a number not contemporaneously outstanding, with coupons
corresponding to the coupons, if any, appertaining to the surrendered Security.
If there shall be delivered to the Company and to the Trustee (i) evidence
to their satisfaction of the destruction, loss or theft of any Security or
coupon, and (ii) such security or indemnity as may be required by them to save
each of them and any agent of either of them harmless, then, in the absence of
notice to the Company or the Trustee that such Security or coupon has been
acquired by a bona fide purchaser, the Company shall execute and upon its
request the Trustee shall authenticate and deliver, in lieu of any such
destroyed, lost or stolen Security or in exchange for the Security to which a
destroyed, lost or stolen coupon appertains (with all appurtenant coupons not
destroyed, lost or stolen), a new Security of the same series and principal
amount, containing identical terms and provisions and bearing a number not
contemporaneously outstanding, with coupons corresponding to the coupons, if
any, appertaining to such destroyed, lost or stolen Security or to the Security
to which such destroyed, lost or stolen coupon appertains.
Notwithstanding the provisions of the previous two paragraphs, in case any
such mutilated, destroyed, lost or stolen Security or coupon has become or is
about to become due and payable, the Company in its discretion may, instead of
issuing a new Security, with coupons corresponding to the coupons, if any,
appertaining to such mutilated, destroyed, lost or stolen Security or to the
Security to which such mutilated, destroyed, lost or stolen coupon appertains,
pay such Security or coupon; provided, however, that payment of principal of
(and premium, if any) and interest, if any, on Bearer Securities shall, except
as otherwise provided in Section 1002, be payable only at an office or agency
located outside the United States and, unless otherwise specified as
contemplated by Section 301, any interest on Bearer Securities shall be payable
only upon presentation and surrender of the coupons appertaining thereto.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may
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be imposed in relation thereto and any other expenses (including the fees and
expenses of the Trustee) connected therewith.
Every new Security of any series with its coupons, if any, issued pursuant
to this Section in lieu of any destroyed, lost or stolen Security, or in
exchange for a Security to which a destroyed, lost or stolen coupon appertains,
shall constitute an original additional contractual obligation of the Company,
whether or not the destroyed, lost or stolen Security and its coupons, if any,
or the destroyed, lost or stolen coupon shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Securities of that series and their
coupons, if any, duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities or coupons.
SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED; OPTIONAL
INTEREST RESET. (a) Except as otherwise specified with respect to a series of
Securities in accordance with the provisions of Section 301, interest, if any,
on any Registered Security that is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name that Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest at the office or
agency of the Company maintained for such purpose pursuant to Section 1002;
provided, however, that each installment of interest, if any, on any Registered
Security may at the Company's option be paid by (i) mailing a check for such
interest, payable to or upon the written order of the Person entitled thereto
pursuant to Section 309, to the address of such Person as it appears on the
Security Register or (ii) transfer to an account maintained by the payee inside
the United States.
Unless otherwise provided as contemplated by Section 301 with respect to
the Securities of any series, payment of interest, if any, may be made, in the
case of a Bearer Security, by transfer to an account maintained by the payee
with a bank located outside the United States.
Unless otherwise provided as contemplated by Section 301, every permanent
global Security will provide that interest, if any, payable on any Interest
Payment Date will be paid to each of Euroclear and CEDEL with respect to that
portion of such permanent global Security held for its account by the Common
Depository, for the purpose of permitting each of Euroclear and CEDEL to credit
the interest, if any, received by it in respect of such permanent global
Security to the accounts of the beneficial owners thereof.
In case a Bearer Security of any series is surrendered in exchange for a
Registered Security of such series after the close of business (at an office or
agency in a Place of Payment for such series) on any Regular Record Date and
before the opening of business (at such office or agency) on the next succeeding
Interest Payment Date, such Bearer Security shall be surrendered without the
coupon relating to such Interest Payment Date and interest will not be payable
on such Interest Payment Date in respect of the Registered Security issued in
exchange for such
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Bearer Security, but will be payable only to the Holder of such coupon when due
in accordance with the provisions of this Indenture.
Except as otherwise specified with respect to a series of Securities in
accordance with the provisions of Section 301, any interest on any Registered
Security of any series that is payable, but is not punctually paid or duly
provided for, on any Interest Payment Date (herein called "Defaulted Interest")
shall forthwith cease to be payable to the registered Holder thereof on the
relevant Regular Record Date by virtue of having been such Holder, and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Registered Securities of such series (or
their respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company shall
notify the Trustee in writing of the amount of Defaulted Interest proposed
to be paid on each Registered Security of such series and the date of the
proposed payment (which shall not be less than 20 days after such notice is
received by the Trustee), and at the same time the Company shall deposit
with the Trustee an amount of money in Dollars equal to the aggregate
amount proposed to be paid in respect of such Defaulted Interest or shall
make arrangements satisfactory to the Trustee for such deposit on or prior
to the date of the proposed payment, such money when deposited to be held
in trust for the benefit of the Persons entitled to such Defaulted Interest
as in this clause provided. Thereupon the Trustee shall fix a Special
Record Date for the payment of such Defaulted Interest which shall be not
more than 15 days and not less than 10 days prior to the date of the
proposed payment and not less than 10 days after the receipt by the Trustee
of the notice of the proposed payment. The Trustee shall promptly notify
the Company of such Special Record Date and, in the name and at the expense
of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to each Holder of Registered Securities of
such series at his address as it appears in the Security Register not less
than 10 days prior to such Special Record Date. Notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor
having been mailed as aforesaid, such Defaulted Interest shall be paid to
the Persons in whose names the Registered Securities of such series (or
their respective Predecessor Securities) are registered at the close of
business on such Special Record Date and shall no longer be payable
pursuant to the following clause (2). In case a Bearer Security of any
series is surrendered at the office or agency in a Place of Payment for
such series in exchange for a Registered Security of such series after the
close of business at such office or agency on any Special Record Date and
before the opening of business at such office or agency on the related
proposed date for payment of Defaulted Interest, such Bearer Security shall
be surrendered without the coupon relating to such proposed date of payment
and Defaulted Interest will not be payable on such proposed date of payment
in respect of the Registered Security issued in exchange for such Bearer
Security, but will be payable only to the Holder of such coupon when due in
accordance with the provisions of this Indenture.
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(2) The Company may make payment of any Defaulted Interest on the
Registered Securities of any series in any other lawful manner not
inconsistent with the requirements of any securities exchange on which such
Securities may be listed, and upon such notice as may be required by such
exchange, if, after notice given by the Company to the Trustee of the
proposed payment pursuant to this clause, such manner of payment shall be
deemed practicable by the Trustee.
(b) The provisions of this Section 307(b) may be made applicable to any
series of Securities pursuant to Section 301 (with such modifications, additions
or substitutions as may be specified pursuant to such Section 301). The interest
rate (or the spread or spread multiplier used to calculate such interest rate,
if applicable) on any Security of such series may be reset by the Company on the
date or dates specified on the face of such Security (each an "Optional Reset
Date"). The Company may exercise such option with respect to such Security by
notifying the Trustee of such exercise at least 45 but not more than 60 days
prior to an Optional Reset Date for such Security. Not later than 40 days prior
to each Optional Reset Date, the Trustee shall transmit, in the manner provided
for in Section 106, to the Holder of any such Security a notice (the "Reset
Notice") indicating whether the Company has elected to reset the interest rate
(or the spread or spread multiplier used to calculate such interest rate, if
applicable), and if so (i) such new interest rate (or such new spread or spread
multiplier, if applicable) and (ii) the provisions, if any, for redemption
during the period from such Optional Reset Date to the next Optional Reset Date
or if there is no such next Optional Reset Date, to the Stated Maturity of such
Security (each such period a "Subsequent Interest Period"), including the date
or dates on which or the period or periods during which and the price or prices
at which such redemption may occur during the Subsequent Interest Period.
Notwithstanding the foregoing, not later than 20 days prior to the Optional
Reset Date, the Company may, at its option, revoke the interest rate (or the
spread or spread multiplier used to calculate such interest rate, if applicable)
provided for in the Reset Notice and establish a higher interest rate (or a
spread or spread multiplier providing for a higher interest rate, if applicable)
for the Subsequent Interest Period by causing the Trustee to transmit, in the
manner provided for in Section 106, notice of such higher interest rate (or such
spread or spread multiplier providing for a higher interest rate, if applicable)
to the Holder of such Security. Such notice shall be irrevocable. All Securities
with respect to which the interest rate (or the spread or spread multiplier used
to calculate such interest rate, if applicable) is reset on an Optional Reset
Date, and with respect to which the Holders of such Securities have not tendered
such Securities for repayment (or have validly revoked any such tender) pursuant
to the next succeeding paragraph, will bear such higher interest rate (or such
spread or spread multiplier providing for a higher interest rate, if
applicable).
The Holder of any such Security may have the option to elect repayment by
the Company of the principal of such Security on each Optional Reset Date at a
price equal to the principal amount thereof plus interest accrued to such
Optional Reset Date. In order to obtain repayment on an Optional Reset Date, the
Holder must follow the procedures set forth in Article Thirteen for repayment at
the option of Holders except that the period for delivery or notification to the
Trustee shall be at least 25 but not more than 35 days prior to such Optional
Reset Date
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and except that, if the Holder has tendered any Security for repayment pursuant
to the Reset Notice, the Holder may, by written notice to the Trustee, revoke
such tender or repayment until the close of business on the tenth day before
such Optional Reset Date.
Subject to the foregoing provisions of this Section and Section 305, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
SECTION 308. OPTIONAL EXTENSION OF MATURITY. The provisions of this Section
308 may be made applicable to any series of Securities pursuant to Section 301
(with such modifications, additions or substitutions as may be specified
pursuant to such Section 301). The Stated Maturity of any Security of such
series may be extended at the option of the Company for the period or periods
specified on the face of such Security (each an "Extension Period") up to but
not beyond the date (the "Final Maturity") set forth on the face of such
Security. The Company may exercise such option with respect to any Security by
notifying the Trustee of such exercise at least 45 but not more than 60 days
prior to the Stated Maturity of such Security in effect prior to the exercise of
such option (the "Original Stated Maturity"). If the Company exercises such
option, the Trustee shall transmit, in the manner provided for in Section 106,
to the Holder of such Security not later than 40 days prior to the Original
Stated Maturity a notice (the "Extension Notice") indicating (i) the election of
the Company to extend the Stated Maturity, (ii) the new Stated Maturity, (iii)
the interest rate (or spread, spread multiplier or other formula to calculate
such interest rate, if applicable), if any, applicable to the Extension Period
and (iv) the provisions, if any, for redemption during such Extension Period.
Upon the Trustee's transmittal of the Extension Notice, the Stated Maturity of
such Security shall be extended automatically and, except as modified by the
Extension Notice and as described in the next paragraph, such Security will have
the same terms as prior to the transmittal of such Extension Notice.
Notwithstanding the foregoing, not later than 20 days before the Original
Stated Maturity of such Security, the Company may, at its option, revoke the
interest rate (or spread, spread multiplier or other formula used to calculate
such interest rate, if applicable) provided for in the Extension Notice and
establish a higher interest rate (or spread, spread multiplier or other formula
used to calculate such higher interest rate, if applicable) for the Extension
Period by causing the Trustee to transmit, in the manner provided for in Section
106, notice of such higher interest rate (or spread, spread multiplier or other
formula used to calculate such interest rate, if applicable) to the Holder of
such Security. Such notice shall be irrevocable. All Securities with respect to
which the Stated Maturity is extended will bear such higher interest rate.
If the Company extends the Stated Maturity of any Security, the Holder will
have the option to elect repayment of such Security by the Company on the
Original Stated Maturity at a price equal to the principal amount thereof, plus
interest accrued to such date. In order to obtain repayment on the Original
Stated Maturity once the Company has extended the Stated Maturity thereof, the
Holder must follow the procedures set forth in Article Thirteen for repayment at
the option of Holders, except that the period for delivery or notification to
the
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Trustee shall be at least 25 but not more than 35 days prior to the Original
Stated Maturity and except that, if the Holder has tendered any Security for
repayment pursuant to an Extension Notice, the Holder may by written notice to
the Trustee revoke such tender for repayment until the close of business on the
tenth day before the Original Stated Maturity.
SECTION 309. PERSONS DEEMED OWNERS. Prior to due presentment of a
Registered Security for registration of transfer, the Company, the Trustee and
any agent of the Company or the Trustee may treat the Person in whose name such
Registered Security is registered as the owner of such Security for the purpose
of receiving payment of principal of (and premium, if any) and (subject to
Sections 305 and 307) interest, if any, on such Registered Security and for all
other purposes whatsoever, whether or not such Registered Security be overdue,
and neither the Company, the Trustee nor any agent of the Company or the Trustee
shall be affected by notice to the contrary.
Title to any Bearer Security and any coupons appertaining thereto shall
pass by delivery. The Company, the Trustee and any agent of the Company or the
Trustee may treat the bearer of any Bearer Security and the bearer of any coupon
as the absolute owner of such Security or coupon for the purpose of receiving
payment thereof or on account thereof and for all other purposes whatsoever,
whether or not such Security or coupon be overdue, and neither the Company, the
Trustee nor any agent of the Company or the Trustee shall be affected by notice
to the contrary.
None of the Company, the Trustee, any Paying Agent or the Security
Registrar will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of a Security in global form or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
Notwithstanding the foregoing, with respect to any global Security, nothing
herein shall prevent the Company, the Trustee, or any agent of the Company or
the Trustee, from giving effect to any written certification, proxy or other
authorization furnished by any depository, as a Holder, with respect to such
global Security or impair, as between such depository and owners of beneficial
interests in such global Security, the operation of customary practices
governing the exercise of the rights of such depository (or its nominee) as
Holder of such global Security.
SECTION 310. CANCELLATION. All Securities and coupons surrendered for
payment, redemption, repayment at the option of the Holder, registration of
transfer or exchange or for credit against any sinking fund payment shall, if
surrendered to any Person other than the Trustee, be delivered to the Trustee,
and any such Securities and coupons and Securities and coupons surrendered
directly to the Trustee for any such purpose shall be promptly canceled by it.
The Company may at any time deliver to the Trustee for cancellation any
Securities previously authenticated and delivered hereunder which the Company
may have acquired in any manner whatsoever, and may deliver to the Trustee (or
to any other Person for delivery to the Trustee) for cancellation any Securities
previously authenticated hereunder which the Company has not issued and sold,
and all Securities so delivered shall be promptly canceled by the Trustee. If
the Company shall so acquire any of the Securities, however, such acquisition
shall not operate
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as a redemption or satisfaction of the indebtedness represented by such
Securities unless and until the same are surrendered to the Trustee for
cancellation. No Securities shall be authenticated in lieu of or in exchange for
any Securities canceled as provided in this Section, except as expressly
permitted by this Indenture. Canceled Securities and coupons held by the Trustee
shall be destroyed by the Trustee and the Trustee shall deliver a certificate of
such destruction to the Company, unless by a Company Order the Company directs
their return to it.
SECTION 311. COMPUTATION OF INTEREST. Except as otherwise specified as
contemplated by Section 301 with respect to Securities of any series, interest,
if any, on the Securities of each series shall be computed on the basis of a
360-day year consisting of twelve 30-day months.
SECTION 312. CUSIP NUMBERS. The Company in issuing the Securities may use
"CUSIP" numbers (if then generally in use), and, if so, the Trustee shall
indicate the "CUSIP" numbers of the Securities in notices of redemption as a
convenience to Holders; provided that any such notice may state that no
representation is made as to the correctness of such numbers either as printed
on the Securities or as contained in any notice of redemption and that reliance
may be placed only on the other identification numbers printed on the
Securities, and any such redemption shall not be affected by any defect in or
omission of such numbers.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE. This Indenture shall
upon Company Request cease to be of further effect with respect to any series of
Securities specified in such Company Request (except as to any surviving rights
of registration of transfer or exchange of Securities of such series expressly
provided for herein or pursuant hereto and any right to receive Additional
Amounts, as provided in Section 1004), and the Trustee, upon receipt of a
Company Order, and at the expense of the Company, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture as to
such series when
(1) either
(A) all Securities of such series theretofore authenticated and
delivered and all coupons, if any, appertaining thereto (other than
(i) coupons appertaining to Bearer Securities surrendered for exchange
for Registered Securities and maturing after such exchange, whose
surrender is not required or has been waived as provided in Section
305, (ii) Securities and coupons of such series which have been
destroyed, lost or stolen and which have been replaced or paid as
provided in Section 306, (iii) coupons appertaining to Securities
called for redemption and maturing after the relevant Redemption Date,
whose surrender has been waived as provided in Section 1106, and (iv)
Securities and coupons of such series for whose payment money has
theretofore been deposited in trust or segregated and held in trust by
the Company and thereafter repaid to the Company or discharged
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from such trust, as provided in Section 1003) have been delivered to
the Trustee for cancellation; or
(B) all Securities of such series and, in the case of (i) or (ii)
below, any coupons appertaining thereto not theretofore delivered to
the Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity
within one year, or
(iii) if redeemable at the option of the Company, are to be
called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company,
and the Company, in the case of (i), (ii) or (iii) above, has
irrevocably deposited or caused to be deposited with the Trustee as
trust funds in trust for such purpose an amount in Dollars sufficient
to pay and discharge the entire indebtedness on such Securities and
such coupons not theretofore delivered to the Trustee for
cancellation, for principal (and premium, if any) and interest, if
any, to the date of such deposit (in the case of Securities which have
become due and payable) or to the Stated Maturity or Redemption Date,
as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture as to such series have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee and any predecessor Trustee under
Section 606, the obligations of the Company to any Authenticating Agent under
Section 611 and, if money shall have been deposited with the Trustee pursuant to
subclause (B) of clause (1) of this Section, the obligations of the Trustee
under Section 402 and the last paragraph of Section 1003 shall survive.
SECTION 402. APPLICATION OF TRUST FUNDS. Subject to the provisions of the
last paragraph of Section 1003, all money deposited with the Trustee pursuant to
Section 401 shall be held in trust and applied by it, in accordance with the
provisions of the Securities, the coupons and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as its
own Paying Agent) as the Trustee may determine, to the Persons entitled thereto,
of the principal (and premium, if any) and interest, if any, for whose
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payment such money has been deposited with or received by the Trustee, but such
money need not be segregated from other funds except to the extent required by
law.
ARTICLE FIVE
REMEDIES
SECTION 501. EVENTS OF DEFAULT. "Event of Default", wherever used herein
with respect to any particular series of Securities, means any one of the
following events (whatever the reason for such Event of Default and whether or
not it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(1) default in the payment of any interest upon any Security of that
series or of any coupon appertaining thereto, when such interest or coupon
becomes due and payable, and continuance of such default for a period of 30
days; or
(2) default in the payment of the principal of (or premium, if any,
on) any Security of that series when it becomes due and payable at its
Maturity; or
(3) default in the deposit of any sinking fund payment, when and as
due by the terms of any Security of that series; or
(4) default in the performance, or breach, of any covenant or
agreement of the Company in this Indenture with respect to any Security of
that series (other than a covenant or agreement a default in whose
performance or whose breach is elsewhere in this Section specifically dealt
with), and continuance of such default or breach for a period of 60 days
after there has been given, by registered or certified mail, to the Company
by the Trustee or to the Company and the Trustee by the Holders of at least
25% in principal amount of the Outstanding Securities of that series a
written notice specifying such default or breach and requiring it to be
remedied and stating that such notice is a "Notice of Default" hereunder;
or
(5) the Company pursuant to or within the meaning of any Bankruptcy
Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it in an
involuntary case,
(C) consents to the appointment of a Custodian of it or for all
or substantially all of its property and such Custodian is not
discharged within 60 days, or
(D) makes a general assignment for the benefit of its creditors;
or
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(6) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(A) is for relief against the Company in an involuntary case,
(B) appoints a Custodian of the Company or for all or
substantially all of its property, or
(C) orders the liquidation of the Company, and the order or
decree remains unstayed and in effect for 90 days; or
(7) any other Event of Default provided with respect to Securities of
that series.
The term "Bankruptcy Law" means title 11, U.S. Code or any similar Federal or
State law for the relief of debtors. The term "Custodian" means any receiver,
trustee, assignee, liquidator or other similar official under any Bankruptcy
Law.
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. If an
Event of Default with respect to Securities of any series at the time
Outstanding occurs and is continuing, then and in every such case the Trustee or
the Holders of not less than 25% in principal amount of the Outstanding
Securities of that series may declare the principal (or, if any Securities are
Original Issue Discount Securities or Indexed Securities, such portion of the
principal as may be specified in the terms thereof) of all the Securities of
that series to be due and payable immediately, by a notice in writing to the
Company (and to the Trustee if given by the Holders), and upon any such
declaration such principal or specified portion thereof shall become immediately
due and payable.
At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter
provided in this Article, the Holders of a majority in principal amount of the
Outstanding Securities of that series, by written notice to the Company and the
Trustee, may rescind and annul such declaration and its consequences if:
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay in Dollars (except as otherwise specified pursuant to
Section 301 for the Securities of such series):
(A) all overdue installments of interest, if any, on all
Outstanding Securities of that series and any related coupons,
(B) the principal of (and premium, if any, on) all Outstanding
Securities of that series which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate or rates
borne by or provided for in such Securities,
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(C) to the extent that payment of such interest is lawful,
interest upon overdue installments of interest at the rate or rates
borne by or provided for in such Securities, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(2) all Events of Default with respect to Securities of that series,
other than the nonpayment of the principal of (or premium, if any) or
interest on Securities of that series which have become due solely by such
declaration of acceleration, have been cured or waived as provided in
Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE. The Company covenants that if:
(1) default is made in the payment of any installment of interest on
any Security of any series and any related coupon when such interest
becomes due and payable and such default continues for a period of 30 days,
or
(2) default is made in the payment of the principal of (or premium, if
any, on) any Security of any series at its Maturity,
then the Company will, upon demand of the Trustee, pay to the Trustee, for the
benefit of the Holders of Securities of such series and coupons, the whole
amount then due and payable on such Securities and coupons for principal (and
premium, if any) and interest, if any, with interest upon any overdue principal
(and premium, if any) and, to the extent that payment of such interest shall be
legally enforceable, upon any overdue installments of interest, if any, at the
rate or rates borne by or provided for in such Securities, and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon Securities of such series and
collect the moneys adjudged or decreed to be payable in the manner provided by
law out of the property of the Company or any other obligor upon such Securities
of such series, wherever situated.
If an Event of Default with respect to Securities of any series occurs and
is continuing, the Trustee may in its discretion proceed to protect and enforce
its rights and the rights of the Holders of Securities of such series and any
related coupons by such appropriate judicial proceedings as the Trustee shall
deem most effectual to protect and enforce any such
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rights, whether for the specific enforcement of any covenant or agreement in
this Indenture or in aid of the exercise of any power granted herein, or to
enforce any other proper remedy.
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM. In case of the pendency of
any receivership, insolvency, liquidation, bankruptcy, reorganization,
arrangement, adjustment, composition or other judicial proceeding relative to
the Company or any other obligor upon the Securities or the property of the
Company or of such other obligor or their creditors, the Trustee (irrespective
of whether the principal of the Securities of any series shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective of
whether the Trustee shall have made any demand on the Company for the payment of
any overdue principal, premium or interest) shall be entitled and empowered, by
intervention in such proceeding or otherwise:
(i) to file and prove a claim for the whole amount of principal (or in
the case of Original Issue Discount Securities or Indexed Securities, such
portion of the principal as may be provided for in the terms thereof) (and
premium, if any) and interest, if any, owing and unpaid in respect of the
Securities and to file such other papers or documents as may be necessary
or advisable in order to have the claims of the Trustee (including any
claim for the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel) and of the Holders allowed in such
judicial proceeding, and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator (or
other similar official) in any such judicial proceeding is hereby authorized by
each Holder of Securities of such series and coupons to make such payments to
the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due to
it for the reasonable compensation, expenses, disbursements and advances of the
Trustee and any predecessor Trustee, their agents and counsel, and any other
amounts due the Trustee or any predecessor Trustee under Section 606.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder of a Security
or coupon any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or coupons or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder of a
Security or coupon in any such proceeding.
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES OR
COUPONS. All rights of action and claims under this Indenture or any of the
Securities or coupons may be prosecuted and enforced by the Trustee without the
possession of any of the Securities or coupons or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and
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counsel, be for the ratable benefit of the Holders of the Securities and coupons
in respect of which such judgment has been recovered.
SECTION 506. APPLICATION OF MONEY COLLECTED. Any money collected by the
Trustee pursuant to this Article shall be applied in the following order, at the
date or dates fixed by the Trustee and, in case of the distribution of such
money on account of principal (or premium, if any) or interest, if any, upon
presentation of the Securities or coupons, or both, as the case may be, and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee and any
predecessor Trustee under Section 606;
SECOND: To the payment of the amounts then due and unpaid upon the
Securities and coupons for principal (and premium, if any) and interest, if
any, in respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind, according
to the aggregate amounts due and payable on such Securities and coupons for
principal (and premium, if any) and interest, if any, respectively; and
THIRD: To the payment of the remainder, if any, to the Company or any
other Person or Persons entitled thereto.
SECTION 507. LIMITATION ON SUITS. No Holder of any Security of any series
or any related coupon shall have any right to institute any proceeding, judicial
or otherwise, with respect to this Indenture, or for the appointment of a
receiver or trustee, or for any other remedy hereunder, unless:
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default with respect to the Securities of that
series;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities of that series shall have made written request to
the Trustee to institute proceedings in respect of such Event of Default in
its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Outstanding Securities of that series;
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it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other of
such Holders, or to obtain or to seek to obtain priority or preference over any
other of such Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all such
Holders.
SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM
AND INTEREST. Notwithstanding any other provision in this Indenture, the Holder
of any Security or coupon shall have the right which is absolute and
unconditional to receive payment of the principal of (and premium, if any) and
(subject to Sections 305 and 307) interest, if any, on such Security or payment
of such coupon on the respective due dates expressed in such Security or coupon
(or, in the case of redemption, on the Redemption Date) and to institute suit
for the enforcement of any such payment, and such rights shall not be impaired
without the consent of such Holder.
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES. If the Trustee or any
Holder of a Security or coupon has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case the Company, the Trustee and the
Holders of Securities and coupons shall, subject to any determination in such
proceeding, be restored severally and respectively to their former positions
hereunder and thereafter all rights and remedies of the Trustee and the Holders
shall continue as though no such proceeding had been instituted.
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE. Except as otherwise provided
with respect to the replacement or payment of mutilated, destroyed, lost or
stolen Securities or coupons in the last paragraph of Section 306, no right or
remedy herein conferred upon or reserved to the Trustee or to the Holders of
Securities or coupons is intended to be exclusive of any other right or remedy,
and every right and remedy shall, to the extent permitted by law, be cumulative
and in addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion or employment
of any right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. DELAY OR OMISSION NOT WAIVER. No delay or omission of the
Trustee or of any Holder of any Security or coupon to exercise any right or
remedy accruing upon any Event of Default shall impair any such right or remedy
or constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article or by law to the Trustee or to the
Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Holders of Securities or coupons, as the
case may be.
SECTION 512. CONTROL BY HOLDERS OF SECURITIES. The Holders of a majority in
principal amount of the Outstanding Securities of any series shall have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or
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exercising any trust or power conferred on the Trustee with respect to the
Securities of such series, provided that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture,
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction, and
(3) the Trustee need not take any action which might involve it in
personal liability or be unjustly prejudicial to the Holders of Securities
of such series not consenting.
SECTION 513. WAIVER OF PAST DEFAULTS. The Holders of not less than a
majority in principal amount of the Outstanding Securities of any series may on
behalf of the Holders of all the Securities of such series and any related
coupons waive any past default hereunder with respect to such series and its
consequences, except a default
(1) in the payment of the principal of (or premium, if any) or
interest, if any, on any Security of such series or any related coupons, or
(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Security of such series affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or Event of Default or impair any right consequent thereon.
SECTION 514. WAIVER OF STAY OR EXTENSION LAWS. The Company covenants (to
the extent that it may lawfully do so) that it will not at any time insist upon,
or plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, which may affect the covenants or the performance of this Indenture; and
the Company (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
ARTICLE SIX
THE TRUSTEE
SECTION 601. NOTICE OF DEFAULTS. Within 90 days after the occurrence of any
Default hereunder with respect to the Securities of any series, the Trustee
shall transmit in the
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manner and to the extent provided in TIA Section 313(c), notice of such Default
hereunder known to the Trustee, unless such Default shall have been cured or
waived; provided, however, that, except in the case of a Default in the payment
of the principal of (or premium, if any) or interest, if any, on any Security of
such series, or in the payment of any sinking or purchase fund installment with
respect to the Securities of such series, the Trustee shall be protected in
withholding such notice if and so long as the board of directors, the executive
committee or a trust committee of directors and/or Responsible Officers of the
Trustee in good faith determines that the withholding of such notice is in the
interests of the Holders of the Securities and coupons of such series; and
provided further that in the case of any Default or breach of the character
specified in Section 501(4) with respect to the Securities and coupons of such
series, no such notice to Holders shall be given until at least 60 days after
the occurrence thereof.
SECTION 602. CERTAIN RIGHTS OF TRUSTEE. Subject to the provisions of TIA
Section 315(a) through 315(d):
(1) The Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, coupon or other paper or document believed by it to
be genuine and to have been signed or presented by the proper party or
parties.
(2) Any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order (other than
delivery of any Security, together with any coupons appertaining thereto,
to the Trustee for authentication and delivery pursuant to Section 303
which shall be sufficiently evidenced as provided therein) and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution.
(3) Whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad
faith on its part, rely upon a Board Resolution, an Opinion of Counsel or
an Officers' Certificate.
(4) The Trustee may consult with counsel and the advice of such
counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon.
(5) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders of Securities of any series or any related coupons
pursuant to this Indenture, unless such Holders shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request
or direction.
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(6) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, coupon or other paper or document, but the Trustee,
in its discretion, may make such further inquiry or investigation into such
facts or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investigation, it shall be entitled to examine
the books, records and premises of the Company, personally or by agent or
attorney.
(7) The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder.
(8) The Trustee shall not be liable for any action taken, suffered or
omitted by it in good faith and believed by it to be authorized or within
the discretion or rights or powers conferred upon it by this Indenture.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
SECTION 603. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES. The
recitals contained herein and in the Securities, except the Trustee's
certificate of authentication, and in any coupons shall be taken as the
statements of the Company, and neither the Trustee nor any Authenticating Agent
assumes any responsibility for their correctness. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Securities or coupons, except that the Trustee represents that it is duly
authorized to execute and deliver this Indenture, authenticate the Securities
and perform its obligations hereunder and that the statements made by it in a
Statement of Eligibility on Form T-1 supplied to the Company are true and
accurate, subject to the qualifications set forth therein. Neither the Trustee
nor any Authenticating Agent shall be accountable for the use or application by
the Company of Securities or the proceeds thereof.
SECTION 604. MAY HOLD SECURITIES. The Trustee, any Paying Agent, Security
Registrar, Authenticating Agent or any other agent of the Company, in its
individual or any other capacity, may become the owner or pledgee of Securities
and coupons and, subject to TIA Sections 310(b) and 311, may otherwise deal with
the Company with the same rights it would have if it were not Trustee, Paying
Agent, Security Registrar, Authenticating Agent or such other agent.
SECTION 605. MONEY HELD IN TRUST. Money held by the Trustee in trust
hereunder need not be segregated from other funds except to the extent required
by law. The Trustee shall be under no liability for interest on any money
received by it hereunder except as otherwise agreed with the Company.
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SECTION 606. COMPENSATION AND REIMBURSEMENT. The Company agrees:
(1) To pay to the Trustee from time to time such compensation for all
services rendered by it hereunder as has been agreed upon in writing (which
compensation shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust).
(2) Except as otherwise expressly provided herein, to reimburse each
of the Trustee and any predecessor Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by the
Trustee in accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its agents
and counsel), except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith.
(3) To indemnify each of the Trustee and any predecessor Trustee for,
and to hold it harmless against, any loss, liability or expense incurred
without negligence or bad faith on its own part, arising out of or in
connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of
its powers or duties hereunder.
As security for the performance of the obligations of the Company under
this Section, the Trustee shall have a claim prior to the Securities upon all
property and funds held or collected by the Trustee as such, except funds held
in trust for the payment of principal of (or premium, if any) or interest, if
any, on particular Securities or any coupons.
When the Trustee incurs expenses or renders services after an Event of
Default specified in ss.501(5) or (6) occurs, the expenses and compensation for
the services are intended to constitute expenses of administration under any
Bankruptcy Law.
SECTION 607. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY. There shall at all
times be a Trustee hereunder which shall be eligible to act as Trustee under TIA
Section 310(a)(1) and shall have a combined capital and surplus of at least
$50,000,000. If such Corporation publishes reports of condition at least
annually, pursuant to law or the requirements of Federal, State, Territorial or
District of Columbia supervising or examining authority, then for the purposes
of this Section, the combined capital and surplus of such Corporation shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.
SECTION 608. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of
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appointment by the successor Trustee in accordance with the applicable
requirements of Section 609.
(b) The Trustee may resign at any time with respect to the Securities of
one or more series by giving written notice thereof to the Company.
(c) The Trustee may be removed at any time with respect to the Securities
of any series by Act of the Holders of a majority in principal amount of the
Outstanding Securities of such series delivered to the Trustee and to the
Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of TIA
Section 310(b) after written request therefor by the Company or by any
Holder of a Security who has been a bona fide Holder of a Security for
at least six months, or
(2) the Trustee shall cease to be eligible under Section 607 and
shall fail to resign after written request therefor by the Company or
by any Holder of a Security who has been a bona fide Holder of a
Security for at least six months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of
its property shall be appointed or any public officer shall take
charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company by or pursuant to a Board Resolution may
remove the Trustee and appoint a successor Trustee with respect to all
Securities, or (ii) subject to TIA Section 315(e), any Holder of a Security who
has been a bona fide Holder of a Security for at least six months may, on behalf
of himself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee with respect to all Securities and
the appointment of a successor Trustee or Trustees.
(e) If an instrument of acceptance by a successor Trustee shall not have
been delivered to the Trustee within 30 days after the giving of a notice of
resignation or the delivery of an Act of removal, the Trustee resigning or being
removed may petition any court of competent jurisdiction for the appointment of
a successor Trustee.
(f) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause with respect
to the Securities of one or more series, the Company, by or pursuant to a Board
Resolution, shall promptly appoint a successor Trustee or Trustees with respect
to the Securities of that or those series (it being understood that any such
successor Trustee may be appointed with respect to the Securities of one or more
or all of such series and that at any time there shall be only one Trustee with
respect to the Securities of any particular series). If, within one year after
such resignation, removal or incapability, or the occurrence of such vacancy, a
successor Trustee with respect to the Securities
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of any series shall be appointed by Act of the Holders of a majority in
principal amount of the Outstanding Securities of such series delivered to the
Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment, become the successor Trustee
with respect to the Securities of such series and to that extent supersede the
successor Trustee appointed by the Company. If no successor Trustee with respect
to the Securities of any series shall have been so appointed by the Company or
the Holders of Securities and accepted appointment in the manner hereinafter
provided, any Holder of a Security who has been a bona fide Holder of a Security
of such series for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to Securities of such series.
(g) The Company shall give notice of each resignation and each removal of
the Trustee with respect to the Securities of any series and each appointment of
a successor Trustee with respect to the Securities of any series in the manner
provided for notices to the Holders of Securities in Section 106. Each notice
shall include the name of the successor Trustee with respect to the Securities
of such series and the address of its Corporate Trust Office.
SECTION 609. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. (a) In case of the
appointment hereunder of a successor Trustee with respect to all Securities,
every such successor Trustee shall execute, acknowledge and deliver to the
Company and to the retiring Trustee an instrument accepting such appointment,
and thereupon the resignation or removal of the retiring Trustee shall become
effective and such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and duties
of the retiring Trustee; but, on request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of its charges, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee, and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder, subject nevertheless to its claim, if any, provided for in
Section 606.
(b) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Company, the
retiring Trustee and each successor Trustee with respect to the Securities of
one or more series shall execute and deliver an indenture supplemental hereto
wherein each successor Trustee shall accept such appointment and which (1) shall
contain such provisions as shall be necessary or desirable to transfer and
confirm to, and to vest in, each successor Trustee all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Securities of that
or those series to which the appointment of such successor Trustee relates, (2)
if the retiring Trustee is not retiring with respect to all Securities, shall
contain such provisions as shall be deemed necessary or desirable to confirm
that all the rights, powers, trusts and duties of the retiring Trustee with
respect to the Securities of that or those series as to which the retiring
Trustee is not retiring shall continue to be vested in the retiring Trustee, and
(3) shall add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, it being understood that nothing herein or
in such supplemental indenture shall constitute such Trustees co-trustees of the
same trust and that each such Trustee shall be trustee of a trust or trusts
hereunder separate and apart from any trust or trusts hereunder administered
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by any other such Trustee; and upon the execution and delivery of such
supplemental indenture the resignation or removal of the retiring Trustee shall
become effective to the extent provided therein and each such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee with respect to the
Securities of that or those series to which the appointment of such successor
Trustee relates; but, on request of the Company or any successor Trustee, such
retiring Trustee shall duly assign, transfer and deliver to such successor
Trustee all property and money held by such retiring Trustee hereunder with
respect to the Securities of that or those series to which the appointment of
such successor Trustee relates.
(c) Upon request of any such successor Trustee, the Company shall execute
any and all instruments for more fully and certainly vesting in and confirming
to such successor Trustee all such rights, powers and trusts referred to in
paragraph (a) or (b) of this Section, as the case may be.
(d) No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 610. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any Corporation into which the Trustee may be merged or converted or with which
it may be consolidated, or any Corporation resulting from any merger, conversion
or consolidation to which the Trustee shall be a party, or any Corporation
succeeding to all or substantially all of the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided such
Corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities or coupons shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities or coupons so authenticated with
the same effect as if such successor Trustee had itself authenticated such
Securities or coupons. In case any Securities or coupons shall not have been
authenticated by such predecessor Trustee, any such successor Trustee may
authenticate and deliver such Securities or coupons, in either its own name or
that of its predecessor Trustee, with the full force and effect which this
Indenture provides for the certificate of authentication of the Trustee.
SECTION 611. APPOINTMENT OF AUTHENTICATING AGENT. At any time when any of
the Securities remain Outstanding, the Trustee may appoint an Authenticating
Agent or Agents with respect to one or more series of Securities which shall be
authorized to act on behalf of the Trustee to authenticate Securities of such
series issued upon exchange, registration of transfer or partial redemption
thereof, and Securities so authenticated shall be entitled to the benefits of
this Indenture and shall be valid and obligatory for all purposes as if
authenticated by the Trustee hereunder. Any such appointment shall be evidenced
by an instrument in writing signed by a Responsible Officer of the Trustee, a
copy of which instrument shall be promptly furnished to the Company. Wherever
reference is made in this Indenture to the authentication and delivery of
Securities by the Trustee or the Trustee's certificate of authentication, such
reference shall be deemed to include authentication and delivery on behalf of
the Trustee by an
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Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and, except as may otherwise be provided pursuant to
Section 301, shall at all times be a bank or trust company or Corporation
organized and doing business and in good standing under the laws of the United
States of America or of any State or the District of Columbia, authorized under
such laws to act as Authenticating Agent, having a combined capital and surplus
of not less than $1,500,000 and subject to supervision or examination by Federal
or State authorities. If such Authenticating Agent publishes reports of
condition at least annually, pursuant to law or the requirements of the
aforesaid supervising or examining authority, then for the purposes of this
Section, the combined capital and surplus of such Authenticating Agent shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. In case at any time an Authenticating Agent
shall cease to be eligible in accordance with the provisions of this Section,
such Authenticating Agent shall resign immediately in the manner and with the
effect specified in this Section.
Any Corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any Corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any Corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such Corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or further act
on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent for any series of Securities may at any time resign
by giving written notice of resignation to the Trustee for such series and to
the Company. The Trustee for any series of Securities may at any time terminate
the agency of an Authenticating Agent by giving written notice of termination to
such Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee for such series may appoint a successor
Authenticating Agent which shall be acceptable to the Company and shall give
notice of such appointment to all Holders of Securities of the series with
respect to which such Authenticating Agent will serve in the manner set forth in
Section 106. Any successor Authenticating Agent upon acceptance of its
appointment hereunder shall become vested with all the rights, powers and duties
of its predecessor hereunder, with like effect as if originally named as an
Authenticating Agent herein. No successor Authenticating Agent shall be
appointed unless eligible under the provisions of this Section.
The Company agrees to pay to each Authenticating Agent from time to time
reasonable compensation including reimbursement of its reasonable expenses for
its services under this Section.
If an appointment with respect to one or more series is made pursuant to
this Section, the Securities of such series may have endorsed thereon, in
addition to or in lieu of the Trustee's certificate of authentication, an
alternate certificate of authentication substantially in the following form:
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This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
FIRST UNION NATIONAL BANK,
as Trustee
By_________________________________
as Authenticating Agent
By_________________________________
Authorized Signatory
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. DISCLOSURE OF NAMES AND ADDRESSES OF HOLDERS. Every Holder of
Securities or coupons, by receiving and holding the same, agrees with the
Company and the Trustee that neither the Company nor the Trustee nor any
Authenticating Agent nor any Paying Agent nor any Security Registrar shall be
held accountable by reason of the disclosure of any information as to the names
and addresses of the Holders of Securities in accordance with TIA Section 312,
regardless of the source from which such information was derived, and that the
Trustee shall not be held accountable by reason of mailing any material pursuant
to a request made under TIA Section 312(b).
SECTION 702. REPORTS BY TRUSTEE. Within 60 days after May 15 of each year
commencing with the first May 15 after the first issuance of Securities pursuant
to this Indenture, the Trustee shall transmit by mail to all Holders of
Securities as provided in TIA Section 313(c) a brief report dated as of such May
15 if required by TIA Section 313(a).
A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each stock exchange, if any, upon which
the Securities are listed, with the Commission and with the Company. The Company
will promptly notify the Trustee of the listing of the Securities on any stock
exchange.
SECTION 703. REPORTS BY COMPANY. The Company will:
(1) file with the Trustee, within 15 days after the Company is
required to file the same with the Commission, copies of the annual reports
and of the information, documents, and other reports (or copies of such
portions of any of the foregoing as the Commission may from time to time by
rules and regulations prescribe) which the Company may be required to file
with the Commission pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934; or, if the Company is not required
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to file information, documents or reports pursuant to either of such
Sections, then it will file with the Trustee and the Commission, in
accordance with rules and regulations prescribed from time to time by the
Commission, such of the supplementary and periodic information, documents
and reports which may be required pursuant to Section 13 of the Securities
Exchange Act of 1934 in respect of a security listed and registered on a
national securities exchange as may be prescribed from time to time in such
rules and regulations;
(2) file with the Trustee and the Commission, in accordance with rules
and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by
the Company with the conditions and covenants of this Indenture as may be
required from time to time by such rules and regulations; and
(3) transmit by mail to the Holders of Securities, within 30 days
after the filing thereof with the Trustee, in the manner and to the extent
provided in TIA Section 313(c), such summaries of any information,
documents and reports required to be filed by the Company pursuant to
paragraphs (1) and (2) of this Section as may be required by rules and
regulations prescribed from time to time by the Commission.
SECTION 704. CALCULATION OF ORIGINAL ISSUE DISCOUNT. Upon request of the
Trustee, the Company shall file with the Trustee promptly at the end of each
calendar year a written notice specifying the amount of original issue discount
(including daily rates and accrual periods), if any, accrued on Outstanding
Securities as of the end of such year.
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS. The
Company shall not consolidate with or merge with or into any other Corporation
or convey or transfer its properties and assets substantially as an entirety to
any Person, unless:
(1) either the Company shall be the continuing Corporation, or the
Corporation (if other than the Company) formed by such consolidation or
into which the Company is merged or the Person which acquires by conveyance
or transfer the properties and assets of the Company substantially as an
entirety shall expressly assume, by an indenture supplemental hereto,
executed and delivered to the Trustee, in form satisfactory to the Trustee,
the due and punctual payment of the principal of (and premium, if any) and
interest, if any, on all the Securities and the performance of every
covenant of this Indenture on the part of the Company to be performed or
observed;
(2) immediately after giving effect to such transaction, no Default or
Event of Default shall have happened and be continuing; and
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(3) the Company and the successor Person have delivered to the Trustee
an Officers' Certificate and an Opinion of Counsel each stating that such
consolidation, merger, conveyance or transfer and such supplemental
indenture comply with this Article and that all conditions precedent herein
provided for relating to such transaction have been complied with.
SECTION 802. SUCCESSOR PERSON SUBSTITUTED. Upon any consolidation or
merger, or any conveyance or transfer of the properties and assets of the
Company substantially as an entirety in accordance with Section 801, the
successor Corporation formed by such consolidation or into which the Company is
merged or the successor Person to which such conveyance or transfer is made
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under this Indenture with the same effect as if such successor
had been named as the Company herein; and in the event of any such conveyance or
transfer, the Company shall be discharged from all obligations and covenants
under this Indenture and the Securities and coupons and may be dissolved and
liquidated.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS. Without
the consent of any Holders of Securities or coupons, the Company, when
authorized by or pursuant to a Board Resolution, and the Trustee, at any time
and from time to time, may enter into one or more indentures supplemental
hereto, in form satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company herein
and in the Securities contained; or
(2) to add to the covenants of the Company for the benefit of the
Holders of all or any series of Securities (and if such covenants are to be
for the benefit of less than all series of Securities, stating that such
covenants are expressly being included solely for the benefit of such
series) or to surrender any right or power herein conferred upon the
Company; or
(3) to add any additional Events of Default for the benefit of the
Holders of all or any series of Securities (and if such Events of Default
are to be for the benefit of less than all series of Securities, stating
that such Events of Default are expressly being included solely for the
benefit of such series); provided, however, that in respect of any such
additional Events of Default such supplemental indenture may provide for a
particular period of grace after default (which period may be shorter or
longer than that allowed in the case of other defaults) or may provide for
an immediate enforcement upon such default or may limit the remedies
available to the Trustee upon such default or may limit the right of the
Holders of a majority in aggregate principal amount of that or those
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series of Securities to which such additional Events of Default apply to
waive such default; or
(4) to add to or change any of the provisions of this Indenture to
provide that Bearer Securities may be registrable as to principal, to
change or eliminate any restrictions on the payment of principal of or any
premium or interest on Bearer Securities, to permit Bearer Securities to be
issued in exchange for Registered Securities, to permit Bearer Securities
to be issued in exchange for Bearer Securities of other authorized
denominations or to permit or facilitate the issuance of Securities in
uncertificated form; provided that any such action shall not adversely
affect the interests of the Holders of Securities of any series or any
related coupons in any material respect; or
(5) to change or eliminate any of the provisions of this Indenture;
provided that any such change or elimination shall become effective only
when there is no Security Outstanding of any series created prior to the
execution of such supplemental indenture which is entitled to the benefit
of such provision; or
(6) to secure the Securities pursuant to the requirements of Section
801, or otherwise; or
(7) to establish the form or terms of Securities of any series and any
related coupons as permitted by Sections 201 and 301, including the
provisions and procedures relating to Securities convertible into or
exchangeable for any securities of any Person (including the Company); or
(8) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities of one or
more series and to add to or change any of the provisions of this Indenture
as shall be necessary to provide for or facilitate the administration of
the trusts hereunder by more than one Trustee; or
(9) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising
under this Indenture; provided that such action shall not adversely affect
the interests of the Holders of Securities of any series or any related
coupons in any material respect; or
(10) to supplement any of the provisions of this Indenture to such
extent as shall be necessary to permit or facilitate the defeasance and
discharge of any series of Securities pursuant to Sections 401, 1402 and
1403; provided that any such action shall not adversely affect the
interests of the Holders of Securities of such series and any related
coupons or any other series of Securities in any material respect.
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS. With the
consent of the Holders of not less than a majority in principal amount of all
Outstanding Securities affected by such supplemental indenture, by Act of said
Holders delivered to the
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Company and the Trustee, the Company, when authorized by or pursuant to a Board
Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders of Securities and any related
coupons under this Indenture; provided, however, that no such supplemental
indenture shall, without the consent of the Holder of each Outstanding Security
affected thereby:
(1) change the Stated Maturity of the principal of (or premium, if
any, on) or any installment of principal of or interest on, any Security,
subject to the provisions of Section 309; or reduce the principal amount
thereof or the rate of interest (or change the manner of calculating the
rate of interest, thereon, or any premium payable upon the redemption
thereof, or change any obligation of the Company to pay Additional Amounts
pursuant to Section 1004 (except as contemplated by Section 801(1) and
permitted by Section 901(1)), or reduce the portion of the principal of an
Original Issue Discount Security or Indexed Security that would be due and
payable upon a declaration of acceleration of the Maturity thereof pursuant
to Section 502 or the amount thereof provable in bankruptcy pursuant to
Section 504, or adversely affect any right of repayment at the option of
the Holder of any Security, or change any Place of Payment where any
Security or any premium or interest thereon is payable, or impair the right
to institute suit for the enforcement of any such payment on or after the
Stated Maturity thereof (or, in the case of redemption or repayment at the
option of the Holder, on or after the Redemption Date or the Repayment
Date, as the case may be), or adversely affect any right to convert or
exchange any Security as may be provided pursuant to Section 301 herein, or
(2) reduce the percentage in principal amount of the Outstanding
Securities of any series, the consent of whose Holders is required for any
such supplemental indenture, or the consent of whose Holders is required
for any waiver with respect to such series (of compliance with certain
provisions of this Indenture or certain defaults hereunder and their
consequences) provided for in this Indenture, or reduce the requirements of
Section 1504 for quorum or voting, or
(3) modify any of the provisions of this Section, Section 513 or
Section 1006, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Security affected
thereby.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
A supplemental indenture which changes or eliminates any covenant or other
provision of this Indenture which has expressly been included solely for the
benefit of one or more particular series of Securities, or which modifies the
rights of the Holders of Securities of
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such series with respect to such covenant or other provision, shall be deemed
not to affect the rights under this Indenture of the Holders of Securities of
any other series.
The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Persons entitled to consent to any indenture
supplemental hereto. If a record date is fixed, the Holders on such record date,
or their duly designated proxies, and only such Persons, shall be entitled to
consent to such supplemental indenture, whether or not such Holders remain
Holders after such record date; provided, that unless such consent shall have
become effective by virtue of the requisite percentage having been obtained
prior to the date which is 90 days after such record date, any such consent
previously given shall automatically and without further action by any Holder be
canceled and of no further effect.
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES. In executing, or
accepting the additional trusts created by, any supplemental indenture permitted
by this Article or the modification thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
such supplemental indenture is authorized or permitted by this Indenture. The
Trustee may, but shall not be obligated to, enter into any such supplemental
indenture which affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise.
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES. Upon the execution of any
supplemental indenture under this Article, this Indenture shall be modified in
accordance therewith, and such supplemental indenture shall form a part of this
Indenture for all purposes; and every Holder of Securities theretofore or
thereafter authenticated and delivered hereunder and of any coupon appertaining
thereto shall be bound thereby.
SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT. Every supplemental
indenture executed pursuant to this Article shall conform to the requirements of
the Trust Indenture Act as then in effect.
SECTION 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES. Securities
of any series authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall, if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities of any series so modified as to conform, in the opinion of the
Trustee and the Company, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Securities of such series.
ARTICLE TEN
COVENANTS
SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST. The
Company covenants and agrees for the benefit of the Holders of each series of
Securities that it
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will duly and punctually pay the principal of (and premium, if any) and
interest, if any, on the Securities of that series in accordance with the terms
of such series of Securities, any coupons appertaining thereto and this
Indenture. Any interest due on Bearer Securities on or before Maturity, other
than Additional Amounts, if any, payable as provided in Section 1004 in respect
of principal of (or premium, if any, on) such a Security, shall be payable only
upon presentation and surrender of the several coupons for such interest
installments as are evidenced thereby as they severally mature. Unless otherwise
specified with respect to Securities of any series pursuant to Section 301, at
the option of the Company, all payments of principal may be paid by check to the
registered Holder of the Registered Security or other person entitled thereto
against surrender of such Security. Unless otherwise specified as contemplated
by Section 301 with respect to any series of Securities, any interest due on
Bearer Securities on or before Maturity shall be payable only upon presentation
and surrender of the several coupons for such interest installments as are
evidenced thereby as they severally mature.
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY. If Securities of a series
are issuable only as Registered Securities, the Company shall maintain in each
Place of Payment for any series of Securities an office or agency where
Securities of that series may be presented or surrendered for payment, where
Securities of that series may be surrendered for registration of transfer or
exchange, where Securities of that series that are convertible or exchangeable
may be surrendered for conversion or exchange, as applicable, and where notices
and demands to or upon the Company in respect of the Securities of that series
and this Indenture may be served. If Securities of a series are issuable as
Bearer Securities, the Company will maintain (A) in the Borough of Manhattan,
The City of New York, an office or agency where any Registered Securities of
that series may be presented or surrendered for payment, where any Registered
Securities of that series may be surrendered for registration of transfer, where
Securities of that series may be surrendered for exchange, where Securities of
that series that are convertible or exchangeable may be surrendered for
conversion or exchange, as applicable, and where notices and demands to or upon
the Company in respect of the Securities of that series and this Indenture may
be served and where Bearer Securities of that series and related coupons may be
presented or surrendered for payment in the circumstances described in the
following paragraph (and not otherwise), (B) subject to any laws or regulations
applicable thereto, in a Place of Payment for that series which is located
outside the United States, an office or agency where Securities of that series
and related coupons may be presented and surrendered for payment; provided,
however, that if the Securities of that series are listed on the Luxembourg
Stock Exchange or any other stock exchange located outside the United States and
such stock exchange shall so require, the Company will maintain a Paying Agent
for the Securities of that series in Luxembourg or any other required city
located outside the United States, as the case may be, so long as the Securities
of that series are listed on such exchange, and (C) subject to any laws or
regulations applicable thereto, in a Place of Payment for that series located
outside the United States an office or agency where any Registered Securities of
that series may be surrendered for registration of transfer, where Securities of
that series may be surrendered for exchange, where Securities of that series
that are convertible or exchangeable may be surrendered for conversion or
exchange, as applicable and where notices and demands to or upon the Company in
respect of the Securities of that series and this Indenture may be served. The
Company will give prompt written notice to the Trustee of the location, and any
change in the location, of each such office or agency. If at
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any time the Company shall fail to maintain any such required office or agency
or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, except that Bearer Securities of that
series and the related coupons may be presented and surrendered for payment at
the offices specified in the Security, in London, England, and the Company
hereby appoints the same as its agent to receive such respective presentations,
surrenders, notices and demands, and the Company hereby appoints the Trustee its
agent to receive all such presentations, surrenders, notices and demands.
Unless otherwise specified with respect to any Securities pursuant to
Section 301, no payment of principal, premium or interest on Bearer Securities
shall be made at any office or agency of the Company in the United States or by
check mailed to any address in the United States or by transfer to an account
maintained with a bank located in the United States; provided, however, that, if
the Securities of a series are payable in Dollars, payment of principal of (and
premium, if any) and interest, if any, on any Bearer Security shall be made at
the office of the Company's Paying Agent in the Borough of Manhattan, The City
of New York, if (but only if) payment in Dollars of the full amount of such
principal, premium or interest, as the case may be, at all offices or agencies
outside the United States maintained for such purpose by the Company in
accordance with this Indenture, is illegal or effectively precluded by exchange
controls or other similar restrictions.
The Company may from time to time designate one or more other offices or
agencies where the Securities of one or more series may be presented or
surrendered for any or all of such purposes, and may from time to time rescind
such designations; provided, however, that no such designation or rescission
shall in any manner relieve the Company of its obligation to maintain an office
or agency in accordance with the requirements set forth above for Securities of
any series for such purposes. The Company will give prompt written notice to the
Trustee of any such designation or rescission and of any change in the location
of any such other office or agency. Unless otherwise specified with respect to
any Securities pursuant to Section 301 with respect to a series of Securities,
the Company hereby designates as Places of Payment for each series of Securities
the office or agency of the Company in the Borough of Manhattan, The City of New
York, and initially appoints the Trustee at its Corporate Trust Office as Paying
Agent in such city and as its agent to receive all such presentations,
surrenders, notices and demands.
SECTION 1003. MONEY FOR SECURITIES PAYMENTS TO BE HELD IN TRUST. If the
Company shall at any time act as its own Paying Agent with respect to any series
of any Securities and any related coupons, it will, on or before each due date
of the principal of (or premium, if any) or interest, if any, on any of the
Securities of that series, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum in Dollars (except as otherwise specified
pursuant to Section 301 for the Securities of such series) sufficient to pay the
principal (and premium, if any) and interest, if any, on Securities of such
series so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided, and will promptly notify the Trustee
of its action or failure so to act.
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Whenever the Company shall have one or more Paying Agents for any series of
Securities and any related coupons, it will, on or before each due date of the
principal of (or premium, if any) or interest, if any, on any Securities of that
series, deposit with a Paying Agent a sum (in Dollars, as described in the
preceding paragraph) sufficient to pay the principal (or premium, if any) or
interest, if any, so becoming due, such sum to be held in trust for the benefit
of the Persons entitled to such principal, premium or interest and (unless such
Paying Agent is the Trustee) the Company will promptly notify the Trustee of its
action or failure so to act.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
sums.
Except as otherwise provided in the Securities of any series, any money
deposited with the Trustee or any Paying Agent, or then held by the Company, in
trust for the payment of the principal of (or premium, if any) or interest, if
any, on any Security of any series and remaining unclaimed for two years after
such principal, premium or interest has become due and payable shall be paid to
the Company upon Company Request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Security shall thereafter, as
an unsecured general creditor, look only to the Company for payment of such
principal, premium or interest on any Security, without interest thereon, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in an Authorized Newspaper, notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less than
30 days from the date of such publication, any unclaimed balance of such money
then remaining will be repaid to the Company.
SECTION 1004. ADDITIONAL AMOUNTS. If the Securities of a series provide for
the payment of Additional Amounts, the Company will pay to the Holder of a
Security of such series or any coupon appertaining thereto Additional Amounts as
may be specified as contemplated by Section 301. Whenever in this Indenture
there is mentioned, in any context, the payment of the principal of (or premium,
if any) or interest, if any, on any Security of any series or payment of any
related coupon or the net proceeds received on the sale or exchange of any
Security of any series, such mention shall be deemed to include mention of the
payment of Additional Amounts provided by the terms of such series established
pursuant to Section 301 to the extent that, in such context, Additional Amounts
are, were or would be payable in respect thereof pursuant to such terms and
express mention of the payment of Additional Amounts (if applicable) in any
provisions hereof shall not be construed as excluding Additional Amounts in
those provisions hereof where such express mention is not made.
Except as otherwise specified as contemplated by Section 301, if the
Securities of a series provide for the payment of Additional Amounts, at least
10 days prior to the first Interest
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Payment Date with respect to that series of Securities (or if the Securities of
that series will not bear interest prior to Maturity, the first day on which a
payment of principal premium is made), and at least 10 days prior to each date
of payment of principal, premium or interest if there has been any change with
respect to the matters set forth in the below-mentioned Officers' Certificate,
the Company will furnish the Trustee and the Company's principal Paying Agent or
Paying Agents, if other than the Trustee, with an Officers' Certificate
instructing the Trustee and such Paying Agent or Paying Agents whether such
payment of principal, premium or interest on the Securities of that series shall
be made to Holders of Securities of that series or any related coupons who are
not United States persons without withholding for or on account of any tax,
assessment or other governmental charge described in the Securities of the
series. If any such withholding shall be required, then such Officers'
Certificate shall specify by country the amount, if any, required to be withheld
on such payments to such Holders of Securities of that series or related coupons
and the Company will pay to the Trustee or such Paying Agent the Additional
Amounts required by the terms of such Securities. In the event that the Trustee
or any Paying Agent, as the case may be, shall not so receive the
above-mentioned certificate, then the Trustee or such Paying Agent shall be
entitled (i) to assume that no such withholding or deduction is required with
respect to any payment of principal or interest with respect to any Securities
of a series or related coupons until it shall have received a certificate
advising otherwise and (ii) to make all payments of principal and interest with
respect to the Securities of a series or related coupons without withholding or
deductions until otherwise advised. The Company covenants to indemnify the
Trustee and any Paying Agent for, and to hold them harmless against, any loss,
liability or expense reasonably incurred without negligence or bad faith on
their part arising out of or in connection with actions taken or omitted by any
of them in reliance on any Officers' Certificate furnished pursuant to this
Section or in reliance on the Company's not furnishing such an Officers'
Certificate.
SECTION 1005. STATEMENT AS TO COMPLIANCE. The Company will deliver to the
Trustee, within 120 days after the end of each fiscal year, a brief certificate
from the principal executive officer, principal financial officer or principal
accounting officer as to his or her knowledge of the Company's compliance with
all conditions and covenants under this Indenture. For purposes of this Section
1005, such compliance shall be determined without regard to any period of grace
or requirement of notice under this Indenture.
SECTION 1006. WAIVER OF CERTAIN COVENANTS. The Company may omit in any
particular instance to comply with any term, provision or condition, and as
specified pursuant to Section 301(15) for Securities of any series, in any
covenants of the Company added to Article Ten pursuant to Section 301(14) or
Section 301 (15) in connection with the Securities of a series, if before or
after the time for such compliance the Holders of at least a majority in
principal amount of all outstanding Securities, by Act of such Holders, waive
such compliance in such instance or generally waive compliance with such term,
provision or condition, but no such waiver shall extend to or affect such term,
provision or condition except to the extent so expressly waived, and, until such
waiver shall become effective, the obligations of the Company and the duties of
the Trustee in respect of any such term, provision or condition shall remain in
full force and effect.
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ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. APPLICABILITY OF ARTICLE. Securities of any series which are
redeemable before their Stated Maturity shall be redeemable in accordance with
their terms and (except as otherwise specified as contemplated by Section 301
for Securities of any series) in accordance with this Article.
SECTION 1102. ELECTION TO REDEEM; NOTICE TO TRUSTEE. The election of the
Company to redeem any Securities shall be evidenced by or pursuant to a Board
Resolution. In case of any redemption at the election of the Company of less
than all of the Securities of any series, the Company shall, at least 60 days
prior to the Redemption Date fixed by the Company (unless a shorter notice shall
be satisfactory to the Trustee), notify the Trustee in writing of such
Redemption Date and of the principal amount of Securities of such series to be
redeemed. In the case of any redemption of Securities prior to the expiration of
any restriction on such redemption provided in the terms of such Securities or
elsewhere in this Indenture, the Company shall furnish the Trustee with an
Officers' Certificate evidencing compliance with such restriction.
SECTION 1103. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED. If less
than all the Securities of any series issued on the same day with the same terms
are to be redeemed, the particular Securities to be redeemed shall be selected
not more than 60 days prior to the Redemption Date by the Trustee, from the
Outstanding Securities of such series issued on such date with the same terms
not previously called for redemption, by such method as the Trustee shall deem
fair and appropriate and which may provide for the selection for redemption of
portions (equal to the minimum authorized denomination for Securities of that
series or any integral multiple thereof) of the principal amount of Securities
of such series of a denomination larger than the minimum authorized denomination
for Securities of that series.
The Trustee shall promptly notify the Company and the Security Registrar
(if other than itself) in writing of the Securities selected for redemption and,
in the case of any Securities selected for partial redemption, the principal
amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Security redeemed or to be redeemed only in part, to the portion of
the principal amount of such Security which has been or is to be redeemed.
SECTION 1104. NOTICE OF REDEMPTION. Notice of redemption shall be given in
the manner provided in Section 106, not less than 30 days nor more than 60 days
prior to the Redemption Date, unless a shorter period is specified by the terms
of such series established pursuant to Section 301, to each Holder of Securities
to be redeemed, but failure to give such notice in the manner herein provided to
the Holder of any Security designated for redemption as a whole or in part, or
any defect in the notice to any such Holder, shall not affect the validity of
the proceedings for the redemption of any other such Security or portion
thereof.
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Any notice that is mailed to the Holders of Registered Securities in the
manner herein provided shall be conclusively presumed to have been duly given,
whether or not the Holder receives the notice.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and accrued interest, if any, to the
Redemption Date payable as provided in Section 1106,
(3) if less than all Outstanding Securities of any series are to be
redeemed, the identification (and, in the case of partial redemption, the
principal amount) of the particular Security or Securities to be redeemed,
(4) in case any Security is to be redeemed in part only, the notice
which relates to such Security shall state that on and after the Redemption
Date, upon surrender of such Security, the Holder will receive, without a
charge, a new Security or Securities of authorized denominations for the
principal amount thereof remaining unredeemed,
(5) that on the Redemption Date, the Redemption Price and accrued
interest, if any, to the Redemption Date payable as provided in Section
1106 will become due and payable upon each such Security, or the portion
thereof, to be redeemed and, if applicable, that interest thereon shall
cease to accrue on and after said date,
(6) the Place or Places of Payment where such Securities, together in
the case of Bearer Securities with all coupons appertaining thereto, if
any, maturing after the Redemption Date, are to be surrendered for payment
of the Redemption Price and accrued interest, if any,
(7) that the redemption is for a sinking fund, if such is the case,
(8) that, unless otherwise specified in such notice, Bearer Securities
of any series, if any, surrendered for redemption must be accompanied by
all coupons maturing subsequent to the date fixed for redemption or the
amount of any such missing coupon or coupons will be deducted from the
Redemption Price, unless security or indemnity satisfactory to the Company,
the Trustee for such series and any Paying Agent is furnished,
(9) if Bearer Securities of any series are to be redeemed and any
Registered Securities of such series are not to be redeemed, and if such
Bearer Securities may be exchanged for Registered Securities not subject to
redemption on this Redemption Date pursuant to Section 305 or otherwise,
the last date, as determined by the Company, on which such exchanges may be
made, and
(10) the CUSIP number of such Security, if any.
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Notice of redemption of Securities to be redeemed shall be given by the
Company or, at the Company's request, by the Trustee in the name and at the
expense of the Company.
SECTION 1105. DEPOSIT OF REDEMPTION PRICE. On or prior to any Redemption
Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if
the Company is acting as its own Paying Agent, which it may not do in the case
of a sinking fund payment under Article Twelve, segregate and hold in trust as
provided in Section 1003) an amount of money in Dollars (except as otherwise
specified pursuant to Section 301 for the Securities of such series) sufficient
to pay on the Redemption Date the Redemption Price of, and (unless otherwise
specified pursuant to Section 301) accrued interest on, all the Securities or
portions thereof which are to be redeemed on that date.
SECTION 1106. SECURITIES PAYABLE ON REDEMPTION DATE. Notice of redemption
having been given as aforesaid, the Securities so to be redeemed shall, on the
Redemption Date, become due and payable at the Redemption Price therein
specified in Dollars (except as otherwise specified pursuant to Section 301 for
the Securities of such series) (together with accrued interest, if any, to the
Redemption Date), and from and after such date (unless the Company shall default
in the payment of the Redemption Price and accrued interest, if any) such
Securities shall if the same were interest-bearing cease to bear interest and
the coupons for such interest appertaining to any Bearer Securities so to be
redeemed, except to the extent provided below, shall be void. Upon surrender of
any such Security for redemption in accordance with said notice, together with
all coupons, if any, appertaining thereto maturing after the Redemption Date,
such Security shall be paid by the Company at the Redemption Price, together
with accrued interest, if any, to the Redemption Date; provided, however, that
installments of interest on Bearer Securities whose Stated Maturity is on or
prior to the Redemption Date shall be payable only at an office or agency
located outside the United States (except as otherwise provided in Section 1002)
and, unless otherwise specified as contemplated by Section 301, only upon
presentation and surrender of coupons for such interest; and provided further
that installments of interest on Registered Securities whose Stated Maturity is
prior to (or, if specified pursuant to Section 301, on) the Redemption Date
shall be payable to the Holders of such Securities, or one or more Predecessor
Securities, registered as such at the close of business on the relevant Record
Dates according to their terms and the provisions of Section 307.
If any Bearer Security surrendered for redemption shall not be accompanied
by all appurtenant coupons maturing after the Redemption Date, such Security may
be paid after deducting from the Redemption Price an amount equal to the face
amount of all such missing coupons, or the surrender of such missing coupon or
coupons may be waived by the Company and the Trustee if there be furnished to
them such security or indemnity as they may require to save each of them and any
Paying Agent harmless. If thereafter the Holder of such Security shall surrender
to the Trustee or any Paying Agent any such missing coupon in respect of which a
deduction shall have been made from the Redemption Price, such Holder shall be
entitled to receive the amount so deducted; provided, however, that interest
represented by coupons shall be payable only at an office or agency located
outside the United States (except as otherwise provided in Section 1002) and,
unless otherwise specified as contemplated by Section 301, only upon
presentation and surrender of those coupons.
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If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the Redemption Price shall, until paid, bear interest
from the Redemption Date at the rate of interest set forth in such Security or,
in the case of Original Issue Discount Security, at the Yield to Maturity of
such Security.
SECTION 1107. SECURITIES REDEEMED IN PART. Any Registered Security which is
to be redeemed only in part (pursuant to the provisions of this Article or of
Article Twelve) shall be surrendered at a Place of Payment therefor (with, if
the Company or the Trustee so requires, due endorsement by, or a written
instrument of transfer in form satisfactory to the Company and the Trustee duly
executed by, the Holder thereof or his attorney duly authorized in writing) and
the Company shall execute and the Trustee shall authenticate and deliver to the
Holder of such Security without service charge a new Security or Securities of
the same series, of any authorized denomination as requested by such Holder in
aggregate principal amount equal to and in exchange for the unredeemed portion
of the principal of the Security so surrendered. However, if less than all the
Securities of any series with differing issue dates, interest rates and stated
maturities are to be redeemed, the Company in its sole discretion shall select
the particular Securities to be redeemed and shall notify the Trustee in writing
thereof at least 45 days prior to the relevant redemption date.
ARTICLE TWELVE
SINKING FUNDS
SECTION 1201. APPLICABILITY OF ARTICLE. The provisions of this Article
shall be applicable to any sinking fund for the retirement of Securities of a
series except as otherwise specified as contemplated by Section 301 for
Securities of such series.
The minimum amount of any sinking fund payment provided for by the terms of
Securities of any series is herein referred to as a "mandatory sinking fund
payment", and any payment in excess of such minimum amount provided for by the
terms of such Securities of any series is herein referred to as an "optional
sinking fund payment". If provided for by the terms of any Securities of any
series, the cash amount of any mandatory sinking fund payment may be subject to
reduction as provided in Section 1202. Each sinking fund payment shall be
applied to the redemption of Securities of any series as provided for by the
terms of Securities of such series.
SECTION 1202. SATISFACTION OF SINKING FUND PAYMENTS WITH SECURITIES. The
Company may, in satisfaction of all or any part of any mandatory sinking fund
payment with respect to the Securities of a series, (1) deliver Outstanding
Securities of such series (other than any previously called for redemption)
together in the case of any Bearer Securities of such series with all unmatured
coupons appertaining thereto and (2) apply as a credit Securities of such series
which have been redeemed either at the election of the Company pursuant to the
terms of such Securities or through the application of permitted optional
sinking fund payments pursuant to the terms of such Securities, as provided for
by the terms of such Securities; provided that such Securities so delivered or
applied as a credit have not been previously so credited. Such
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Securities shall be received and credited for such purpose by the Trustee at the
applicable Redemption Price specified in such Securities for redemption through
operation of the sinking fund and the amount of such mandatory sinking fund
payment shall be reduced accordingly.
SECTION 1203. REDEMPTION OF SECURITIES FOR SINKING FUND. Not less than 60
days prior to each sinking fund payment date for Securities of any series, the
Company will deliver to the Trustee an Officers' Certificate specifying the
amount of the next ensuing mandatory sinking fund payment for that series
pursuant to the terms of that series, the portion thereof, if any, which is to
be satisfied by payment of cash in Dollars (except as otherwise specified
pursuant to Section 301 for the Securities of such series) and the portion
thereof, if any, which is to be satisfied by delivering and crediting Securities
of that series pursuant to Section 1202, and the optional amount, if any, to be
added in cash to the next ensuing mandatory sinking fund payment, and will also
deliver to the Trustee any Securities to be so delivered and credited. If such
Officers' Certificate shall specify an optional amount to be added in cash to
the next ensuing mandatory sinking fund payment, the Company shall thereupon be
obligated to pay the amount therein specified. Not less than 30 days before each
such sinking fund payment date the Trustee shall select the Securities to be
redeemed upon such sinking fund payment date in the manner specified in Section
1103 and cause notice of the redemption thereof to be given in the name of and
at the expense of the Company in the manner provided in Section 1104. Such
notice having been duly given, the redemption of such Securities shall be made
upon the terms and in the manner stated in Sections 1106 and 1107.
ARTICLE THIRTEEN
REPAYMENT AT THE OPTION OF HOLDERS
SECTION 1301. APPLICABILITY OF ARTICLE. Repayment of Securities of any
series before their Stated Maturity at the option of Holders thereof shall be
made in accordance with the terms of such Securities and (except as otherwise
specified by the terms of such series established pursuant to Section 301) in
accordance with this Article.
SECTION 1302. REPAYMENT OF SECURITIES. Securities of any series subject to
repayment in whole or in part at the option of the Holders thereof will, unless
otherwise provided in the terms of such Securities, be repaid at the Repayment
Price thereof, together with interest, if any, thereon accrued to the Repayment
Date specified in or pursuant to the terms of such Securities. The Company
covenants that on or before the Repayment Date it will deposit with the Trustee
or with a Paying Agent (or, if the Company is acting as its own Paying Agent,
segregate and hold in trust as provided in Section 1003) an amount of money in
Dollars (except as otherwise specified pursuant to Section 301 for the
Securities of such series) sufficient to pay the Repayment Price of, and (unless
otherwise specified pursuant to Section 301) accrued interest on, all the
Securities or portions thereof, as the case may be, to be repaid on such date.
SECTION 1303. EXERCISE OF OPTION. Securities of any series subject to
repayment at the option of the Holders thereof will contain an "Option to Elect
Repayment" form on the reverse of such Securities. To be repaid at the option of
the Holder, any Security so
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providing for such repayment, with the "Option to Elect Repayment" form on the
reverse of such Security duly completed by the Holder (or by the Holder's
attorney duly authorized in writing), must be received by the Company at the
Place of Payment therefor specified in the terms of such Security (or at such
other place or places of which the Company shall from time to time notify the
Holders of such Securities) not earlier than 45 days nor later than 30 days
prior to the Repayment Date. If less than the entire Repayment Price of such
Security is to be repaid in accordance with the terms of such Security, the
portion of the Repayment Price of such Security to be repaid, in increments of
the minimum denomination for Securities of such series, and the denomination or
denominations of the Security or Securities to be issued to the Holder for the
portion of such Security surrendered that is not to be repaid, must be
specified. Any Security providing for repayment at the option of the Holder
thereof may not be repaid in part if, following such repayment, the unpaid
principal amount of such Security would be less than the minimum authorized
denomination of Securities of the series of which such Security to be repaid is
a part. Except as otherwise may be provided by the terms of any Security
providing for repayment at the option of the Holder thereof, exercise of the
repayment option by the Holder shall be irrevocable unless waived by the
Company.
SECTION 1304. WHEN SECURITIES PRESENTED FOR REPAYMENT BECOME DUE AND
PAYABLE. If Securities of any series providing for repayment at the option of
the Holders thereof shall have been surrendered as provided in this Article and
as provided by or pursuant to the terms of such Securities, such Securities or
the portions thereof, as the case may be, to be repaid shall become due and
payable and shall be paid by the Company on the Repayment Date therein
specified, and on and after such Repayment Date (unless the Company shall
default in the payment of such Securities on such Repayment Date) such
Securities shall, if the same were interest-bearing, cease to bear interest and
the coupons for such interest appertaining to any Bearer Securities so to be
repaid, except to the extent provided below, shall be void. Upon surrender of
any such Security for repayment in accordance with such provisions, together
with all coupons, if any, appertaining thereto maturing after the Repayment
Date, the Repayment Price of such Security so to be repaid shall be paid by the
Company, together with accrued interest, if any, to the Repayment Date;
provided, however, that coupons whose Stated Maturity is on or prior to the
Repayment Date shall be payable only at an office or agency located outside the
United States (except as otherwise provided in Section 1002) and, unless
otherwise specified pursuant to Section 301, only upon presentation and
surrender of such coupons; and provided further that installments of interest on
Registered Securities, whose Stated Maturity is prior to (or, if specified
pursuant to Section 301, on) the Repayment Date shall be payable (but without
interest thereon, unless the Company shall default in the payment thereof) to
the Holders of such Securities, or one or more Predecessor Securities,
registered as such at the close of business on the relevant Record Dates
according to their terms and the provisions of Section 307.
If any Bearer Security surrendered for repayment shall not be accompanied
by all appurtenant coupons maturing after the Repayment Date, such Security may
be paid after deducting from the amount payable therefor as provided in Section
1302 an amount equal to the face amount of all such missing coupons, or the
surrender of such missing coupon or coupons may be waived by the Company and the
Trustee if there be furnished to them such security or indemnity as they may
require to save each of them and any Paying Agent harmless. If thereafter
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the Holder of such Security shall surrender to the Trustee or any Paying Agent
any such missing coupon in respect of which a deduction shall have been made as
provided in the preceding sentence, such Holder shall be entitled to receive the
amount so deducted; provided, however, that interest represented by coupons
shall be payable only at an office or agency located outside the United States
(except as otherwise provided in Section 1002) and, unless otherwise specified
as contemplated by Section 301, only upon presentation and surrender of those
coupons.
If any Security surrendered for repayment shall not be so repaid upon
surrender thereof, the Repayment Price shall, until paid, bear interest from the
Repayment Date at the rate of interest set forth in such Security or, in the
case of an Original Issue Discount Security, at the Yield to Maturity of such
Security.
SECTION 1305. SECURITIES REPAID IN PART. Upon surrender of any Registered
Security which is to be repaid in part only, the Company shall execute and the
Trustee shall authenticate and deliver to the Holder of such Security, without
service charge and at the expense of the Company, a new Registered Security or
Securities of the same series, of any authorized denomination specified by the
Holder, in an aggregate principal amount equal to and in exchange for the
portion of the principal of such Security so surrendered which is not to be
repaid.
ARTICLE FOURTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1401. APPLICABILITY OF ARTICLE; COMPANY'S OPTION TO EFFECT
DEFEASANCE OR COVENANT DEFEASANCE. If pursuant to Section 301 provision is made
for either or both of (a) defeasance of the Securities of or within a series
under Section 1402 or (b) covenant defeasance of the Securities of or within a
series under Section 1403, then the provisions of such Section or Sections, as
the case may be, together with the other provisions of this Article (with such
modifications thereto as may be specified pursuant to Section 301 with respect
to any Securities), shall be applicable to such Securities and any coupons
appertaining thereto, and the Company may at its option by Board Resolution, at
any time, with respect to such Securities and any coupons appertaining thereto,
elect to have Section 1402 (if applicable) or Section 1403 (if applicable) be
applied to such Outstanding Securities and any coupons appertaining thereto upon
compliance with the conditions set forth below in this Article.
SECTION 1402. DEFEASANCE AND DISCHARGE. Upon the Company's exercise of the
above option applicable to this Section with respect to any Securities of or
within a series, the Company shall be deemed to have been discharged from its
obligations with respect to such Outstanding Securities and any coupons
appertaining thereto on the date the conditions set forth in Section 1404 are
satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means
that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by such Outstanding Securities and any coupons
appertaining thereto, which shall thereafter be deemed to be "Outstanding" only
for the purposes of Section 1405 and the other Sections of this Indenture
referred to in clauses (A) and (B) of this Section, and to have satisfied all
its other obligations under such Securities and any coupons appertaining thereto
and this
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Indenture insofar as such Securities and any coupons appertaining thereto are
concerned (and the Trustee, at the expense of the Company, shall execute proper
instruments acknowledging the same), except for the following which shall
survive until otherwise terminated or discharged hereunder: (A) the rights of
Holders of such Outstanding Securities and any coupons appertaining thereto to
receive, solely from the trust fund described in Section 1404 and as more fully
set forth in such Section, payments in respect of the principal of (and premium,
if any) and interest, if any, on such Securities and any coupons appertaining
thereto when such payments are due, (B) the Company's obligations with respect
to such Securities under Sections 305, 306, 1002 and 1003 and with respect to
the payment of Additional Amounts, if any, on such Securities as contemplated by
Section 1004, (C) the rights, powers, trusts, duties and immunities of the
Trustee hereunder and (D) this Article. Subject to compliance with this Article
Fourteen, the Company may exercise its option under this Section notwithstanding
the prior exercise of its option under Section 1403 with respect to such
Securities and any coupons appertaining thereto. Money and securities held in
trust pursuant to this Section 1402 shall not be subject to Article Sixteen.
SECTION 1403. COVENANT DEFEASANCE. Upon the Company's exercise of the above
option applicable to this Section with respect to any Securities of or within a
series, the Company shall be released from any obligations under any covenant
specified pursuant to Section 301, with respect to such Outstanding Securities
and any coupons appertaining thereto on and after the date the conditions set
forth in Section 1404 are satisfied (hereinafter, "covenant defeasance"), and
such Securities and any coupons appertaining thereto shall thereafter be deemed
to be not "Outstanding" for the purposes of any direction, waiver, consent or
declaration or Act of Holders (and the consequences of any thereof) in
connection with such covenant, but shall continue to be deemed "Outstanding" for
all other purposes hereunder. For this purpose, such covenant defeasance means
that, with respect to such Outstanding Securities and any coupons appertaining
thereto, the Company may omit to comply with and shall have no liability in
respect of any term, condition or limitation set forth in any such Section or
such other covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such Section or such other covenant or by reason of
reference in any such Section or such other covenant to any other provision
herein or in any other document and such omission to comply shall not constitute
a Default or an Event of Default under Section 501(4) or 501(7) or otherwise, as
the case may be, but, except as specified above, the remainder of this Indenture
and such Securities and any coupons appertaining thereto shall be unaffected
thereby.
SECTION 1404. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE. The
following shall be the conditions to application of Section 1402 or Section 1403
to any Outstanding Securities of or within a series and any coupons appertaining
thereto:
(a) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 607 who shall agree to comply with the provisions of this
Article Fourteen applicable to it) as trust funds in trust for the purpose
of making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Securities and any
coupons appertaining
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thereto, (1) an amount in Dollars, or (2) Government Obligations applicable
to such Securities and coupons appertaining thereto which, through the
scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one day before the
due date of any payment of principal of (and premium, if any) and interest,
if any, on such Securities and any coupons appertaining thereto, money in
an amount, or (3) a combination thereof in an amount, sufficient, in the
opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, to
pay and discharge, and which shall be applied by the Trustee (or other
qualifying trustee) to pay and discharge, (i) the principal of (and
premium, if any) and interest, if any, on such Outstanding Securities and
any coupons appertaining thereto on the Stated Maturity of such principal
or installment of principal or interest and (ii) any mandatory sinking fund
payments or analogous payments applicable to such Outstanding Securities
and any coupons appertaining thereto on the day on which such payments are
due and payable in accordance with the terms of this Indenture and of such
Securities and any coupons appertaining thereto.
(b) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, this Indenture or
any other material agreement or instrument to which the Company is a party
or by which it is bound.
(c) No Default or Event of Default with respect to such Securities and
any coupons appertaining thereto shall have occurred and be continuing on
the date of such deposit or, insofar as Sections 501(5) and 501(6) are
concerned, at any time during the period ending on the 91st day after the
date of such deposit (it being understood that this condition shall not be
deemed satisfied until the expiration of such period).
(d) In the case of an election under Section 1402, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (i) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (ii) since the date of execution of this
Indenture, there has been a change in the applicable Federal income tax
law, in either case to the effect that, and based thereon such opinion
shall confirm that, the Holders of such Outstanding Securities and any
coupons appertaining thereto will not recognize income, gain or loss for
Federal income tax purposes as a result of such defeasance and will be
subject to Federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance had not
occurred.
(e) In the case of an election under Section 1403, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that
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the Holders of such Outstanding Securities and any coupons appertaining
thereto will not recognize income, gain or loss for Federal income tax
purposes as a result of such covenant defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such covenant defeasance had not
occurred.
(f) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent to the defeasance under Section 1402 or the covenant defeasance
under Section 1403 (as the case may be) have been complied with and an
Opinion of Counsel to the effect that either (i) as a result of a deposit
pursuant to subsection (a) above and the related exercise of the Company's
option under Section 1402 or Section 1403 (as the case may be),
registration is not required under the Investment Company Act of 1940, as
amended, by the Company, with respect to the trust funds representing such
deposit or by the trustee for such trust funds or (ii) all necessary
registrations under said Act have been effected.
(g) Notwithstanding any other provisions of this Section, such
defeasance or covenant defeasance shall be effected in compliance with any
additional or substitute terms, conditions or limitations which may be
imposed on the Company in connection therewith pursuant to Section 301.
SECTION 1405. DEPOSITED MONEY AND GOVERNMENT OBLIGATIONS TO BE HELD IN
TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to the provisions of the last
paragraph of Section 1003, all money and Government Obligations (or other
property as may be provided pursuant to Section 301) (including the proceeds
thereof) deposited with the Trustee (or other qualifying trustee, collectively
for purposes of this Section 1405, the "Trustee") pursuant to Section 1404 in
respect of any Outstanding Securities of any series and any coupons appertaining
thereto shall be held in trust and applied by the Trustee, in accordance with
the provisions of such Securities and any coupons appertaining thereto and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Holders of such Securities and any coupons appertaining
thereto of all sums due and to become due thereon in respect of principal (and
premium, if any) and interest, if any, but such money need not be segregated
from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the Government Obligations deposited
pursuant to Section 1404 or the principal and interest received in respect
thereof other than any such tax, fee or other charge which by law is for the
account of the Holders of such Outstanding Securities and any coupons
appertaining thereto.
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Anything in this Article to the contrary notwithstanding, the Trustee shall
deliver or pay to the Company from time to time upon Company Request any money
or Government Obligations (or other property and any proceeds therefrom) held by
it as provided in Section 1404 which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee, are in excess of the amount thereof which
would then be required to be deposited to effect a defeasance or covenant
defeasance, as applicable, in accordance with this Article.
ARTICLE FIFTEEN
MEETINGS OF HOLDERS OF SECURITIES
SECTION 1501. PURPOSES FOR WHICH MEETINGS MAY BE CALLED. If Securities of a
series are issuable as Bearer Securities, a meeting of Holders of Securities of
such series may be called at any time and from time to time pursuant to this
Article to make, give or take any request, demand, authorization, direction,
notice, consent, waiver or other action provided by this Indenture to be made,
given or taken by Holders of Securities of such series.
SECTION 1502. CALL, NOTICE AND PLACE OF MEETINGS. (a) The Trustee may at
any time call a meeting of Holders of Securities of any series for any purpose
specified in Section 1501, to be held at such time and at such place in the
Borough of Manhattan, The City of New York or in London as the Trustee shall
determine. Notice of every meeting of Holders of Securities of any series,
setting forth the time and the place of such meeting and in general terms the
action proposed to be taken at such meeting, shall be given, in the manner
provided in Section 106, not less than 21 nor more than 180 days prior to the
date fixed for the meeting.
(b) In case at any time the Company, pursuant to a Board Resolution, or the
Holders of at least 10% in principal amount of the Outstanding Securities of any
series shall have requested the Trustee to call a meeting of the Holders of
Securities of such series for any purpose specified in Section 1501, by written
request setting forth in reasonable detail the action proposed to be taken at
the meeting, and the Trustee shall not have made the first publication of the
notice of such meeting within 21 days after receipt of such request or shall not
thereafter proceed to cause the meeting to be held as provided herein, then the
Company or the Holders of Securities of such series in the amount above
specified, as the case may be, may determine the time and the place in the
Borough of Manhattan, The City of New York or in London for such meeting and may
call such meeting for such purposes by giving notice thereof as provided in
subsection (a) of this Section.
SECTION 1503. PERSONS ENTITLED TO VOTE AT MEETINGS. To be entitled to vote
at any meeting of Holders of Securities of any series, a Person shall be (1) a
Holder of one or more Outstanding Securities of such series, or (2) a Person
appointed by an instrument in writing as proxy for a Holder or Holders of one or
more Outstanding Securities of such series by such Holder or Holders. The only
Persons who shall be entitled to be present or to speak at any meeting of
Holders of Securities of any series shall be the Persons entitled to vote at
such
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meeting and their counsel, any representatives of the Trustee and its counsel
and any representatives of the Company and its counsel.
SECTION 1504. QUORUM; ACTION. The Persons entitled to vote a majority in
principal amount of the Outstanding Securities of a series shall constitute a
quorum for a meeting of Holders of Securities of such series; provided, however,
that if any action is to be taken at such meeting with respect to a consent or
waiver which this Indenture expressly provides may be given by the Holders of
not less than a specified percentage in principal amount of the Outstanding
Securities of a series, the Persons entitled to vote such specified percentage
in principal amount of the Outstanding Securities of such series shall
constitute a quorum. In the absence of a quorum within 30 minutes of the time
appointed for any such meeting, the meeting shall, if convened at the request of
Holders of Securities of such series, be dissolved. In any other case the
meeting may be adjourned for a period of not less than 10 days as determined by
the chairman of the meeting prior to the adjournment of such meeting. In the
absence of a quorum at any such adjourned meeting, such adjourned meeting may be
further adjourned for a period of not less than 10 days as determined by the
chairman of the meeting prior to the adjournment of such adjourned meeting.
Notice of the reconvening of any adjourned meeting shall be given as provided in
Section 1502(a), except that such notice need be given only once not less than
five days prior to the date on which the meeting is scheduled to be reconvened.
Notice of the reconvening of any adjourned meeting shall state expressly the
percentage, as provided above, of the principal amount of the Outstanding
Securities of such series which shall constitute a quorum.
Except as limited by the proviso to Section 902, any resolution presented
to a meeting or adjourned meeting duly reconvened at which a quorum is present
as aforesaid may be adopted by the affirmative vote of the Holders of a majority
in principal amount of the Outstanding Securities of that series; provided,
however, that, except as limited by the proviso to Section 902, any resolution
with respect to any request, demand, authorization, direction, notice, consent,
waiver or other action which this Indenture expressly provides may be made,
given or taken by the Holders of a specified percentage, which is less than a
majority, in principal amount of the Outstanding Securities of a series may be
adopted at a meeting or an adjourned meeting duly reconvened and at which a
quorum is present as aforesaid by the affirmative vote of the Holders of such
specified percentage in principal amount of the Outstanding Securities of that
series.
Any resolution passed or decision taken at any meeting of Holders of
Securities of any series duly held in accordance with this Section shall be
binding on all the Holders of Securities of such series and the related coupons,
whether or not present or represented at the meeting.
Notwithstanding the foregoing provisions of this Section 1504, if any
action is to be taken at a meeting of Holders of Securities of any series with
respect to any request, demand, authorization, direction, notice, consent,
waiver or other action that this Indenture expressly provides may be made, given
or taken by the Holders of a specified percentage in principal
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amount of all Outstanding Securities affected thereby, or of the Holders of such
series and one or more additional series:
(i) there shall be no minimum quorum requirement for such meeting; and
(ii) the principal amount of the Outstanding Securities of such series
that vote in favor of such request, demand, authorization, direction,
notice, consent, waiver or other action shall be taken into account in
determining whether such request, demand, authorization, direction, notice,
consent, waiver or other action has been made, given or taken under this
Indenture.
SECTION 1505. DETERMINATION OF VOTING RIGHTS; CONDUCT AND ADJOURNMENT OF
MEETINGS. (a) Notwithstanding any provisions of this Indenture, the Trustee may
make such reasonable regulations as it may deem advisable for any meeting of
Holders of Securities of a series in regard to proof of the holding of
Securities of such series and of the appointment of proxies and in regard to the
appointment and duties of inspectors of votes, the submission and examination of
proxies, certificates and other evidence of the right to vote, and such other
matters concerning the conduct of the meeting as it shall deem appropriate.
Except as otherwise permitted or required by any such regulations, the holding
of Securities shall be proved in the manner specified in Section 104 and the
appointment of any proxy shall be proved in the manner specified in Section 104
or by having the signature of the Person executing the proxy witnessed or
guaranteed by any trust company, bank or banker authorized by Section 104 to
certify to the holding of Bearer Securities. Such regulations may provide that
written instruments appointing proxies, regular on their face, may be presumed
valid and genuine without the proof specified in Section 104 or other proof.
(b) The Trustee shall, by an instrument in writing appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by Holders of Securities as provided in Section 1502(b), in which
case the Company or the Holders of Securities of the series calling the meeting,
as the case may be, shall in like manner appoint a temporary chairman. A
permanent chairman and a permanent secretary of the meeting shall be elected by
vote of the Persons entitled to vote a majority in principal amount of the
Outstanding Securities of such series represented at the meeting.
(c) At any meeting each Holder of a Security of such series or proxy shall
be entitled to one vote for each $1,000 principal amount of the Outstanding
Securities of such series held or represented by him; provided, however, that no
vote shall be cast or counted at any meeting in respect of any Security
challenged as not Outstanding and ruled by the chairman of the meeting to be not
Outstanding. The chairman of the meeting shall have no right to vote, except as
a Holder of a Security of such series or proxy.
(d) Any meeting of Holders of Securities of any series duly called pursuant
to Section 1502 at which a quorum is present may be adjourned from time to time
by Persons entitled to vote a majority in principal amount of the Outstanding
Securities of such series represented at the meeting, and the meeting may be
held as so adjourned without further notice.
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SECTION 1506. COUNTING VOTES AND RECORDING ACTION OF MEETINGS. The vote
upon any resolution submitted to any meeting of Holders of Securities of any
series shall be by written ballots on which shall be subscribed the signatures
of the Holders of Securities of such series or of their representatives by proxy
and the principal amounts and serial numbers of the Outstanding Securities of
such series held or represented by them. The permanent chairman of the meeting
shall appoint two inspectors of votes who shall count all votes cast at the
meeting for or against any resolution and who shall make and file with the
secretary of the meeting their verified written reports in duplicate of all
votes cast at the meeting. A record, at least in duplicate, of the proceedings
of each meeting of Holders of Securities of any Series shall be prepared by the
secretary of the meeting and there shall be attached to said record the original
reports of the inspectors of votes on any vote by ballot taken thereat and
affidavits by one or more persons having knowledge of the fact, setting forth a
copy of the notice of the meeting and showing that said notice was given as
provided in Section 1502 and, if applicable, Section 1504. Each copy shall be
signed and verified by the affidavits of the permanent chairman and secretary of
the meeting and one such copy shall be delivered to the Company and another to
the Trustee to be preserved by the Trustee, the latter to have attached thereto
the ballots voted at the meeting. Any record so signed and verified shall be
conclusive evidence of the matters therein stated.
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* * * * *
This Indenture may be executed in any number of counterparts, each of which
so executed shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
PUBLIC SERVICE ENTERPRISE GROUP
INCORPORATED
By /s/ MORTON A. PLAWNER
----------------------------
[SEAL] Treasurer
Attest:
/s/ PATRICK M. BURKE
- -----------------------
Assistant Secretary
FIRST UNION NATIONAL BANK,
as Trustee
By /s/ F. GALLAGHER
----------------------------------
Vice President
[SEAL]
Attest:
J. Waters
- -----------------------
Assistant Secretary
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STATE OF NEW JERSEY )
) ss:
COUNTY OF ESSEX )
On the 23rd day of November, 1998, before me personally came Morton A.
Plawner to me known, who, being by me duly sworn, did depose and say that he
resides at East Brunswick, New Jersey; that he is Treasurer of Public Service
Enterprise Group Incorporated, one of the Corporations described in and which
executed the foregoing instrument; that he knows the seal of said Corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by authority of the Board of Directors of said Corporation; and that he
signed his name thereto by like authority.
[Notarial Seal]
/s/ JACQUELYN E. COYLE
-----------------------------------
Notary Public of New Jersey
My Commission Expires July 22, 2002
STATE OF NEW JERSEY )
) ss:
COUNTY OF ESSEX )
On the 23rd day of November, 1998, before me personally came
Frank Gallagher, to me known, who, being by me duly sworn, did depose and say
that he resides at Secaucus, New Jersey; that he is a Vice President of First
Union National Bank, one of the Corporations described in and which executed the
foregoing instrument; that he knows the seal of said Corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
authority of the Board of Directors of said Corporation; and that he signed his
name thereto by like authority.
[Notarial Seal]
/s/ CHERRI WELDON
----------------------------------
Notary Public of New Jersey
My Commission Expires June 4, 2003
80
<PAGE>
EXHIBIT A
FORMS OF CERTIFICATION
EXHIBIT A-1
FORM OF CERTIFICATE TO BE GIVEN BY PERSON ENTITLED
TO RECEIVE BEARER SECURITY OR TO OBTAIN INTEREST
PAYABLE PRIOR TO THE EXCHANGE DATE
CERTIFICATE
[Insert title or sufficient description of Securities
to be delivered]
This is to certify that, as of the date hereof, and except as set forth
below, the above-captioned Securities held by you for our account (i) are owned
by person(s) that are not citizens or residents of the United States, domestic
partnerships, domestic corporations or any estate or trust the income of which
is subject to United States federal income taxation regardless of its source
("United States person(s)"), (ii) are owned by United States person(s) that are
(a) foreign branches of United States financial institutions (financial
institutions, as defined in United States Treasury Regulations Section
1.165-12(c)(1)(v) are herein referred to as "financial institutions") purchasing
for their own account or for resale, or (b) United States person(s) who acquired
the Securities through foreign branches of United States financial institutions
and who hold the Securities through such United States financial institutions on
the date hereof (and in either case (a) or (b), each such United States
financial institution hereby agrees, on its own behalf or through its agent,
that you may advise Public Service Enterprise Group Incorporated or its agent
that such financial institution will comply with the requirements of Section
165(j)(3)(A), (B) or (C) of the United States Internal Revenue Code of 1986, as
amended, and the regulations thereunder), or (iii) are owned by United States or
foreign financial institution(s) for purposes of resale during the restricted
period (as defined in United States Treasury Regulations Section
1.163-5(c)(2)(i)(D)(7)), and, in addition, if the owner is a United States or
foreign financial institution described in clause (iii) above (whether or not
also described in clause (i) or (ii)), this is to further certify that such
financial institution has not acquired the Securities for purposes of resale
directly or indirectly to a United States person or to a person within the
United States or its possessions.
As used herein, "United States" means the United States of America
(including the States and the District of Columbia); and its "possessions"
include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island
and the Northern Mariana Islands.
A-1
<PAGE>
We undertake to advise you promptly by tested telex on or prior to the date
on which you intend to submit your certification relating to the above-captioned
Securities held by you for our account in accordance with your Operating
Procedures if any applicable statement herein is not correct on such date, and
in the absence of any such notification it may be assumed that this
certification applies as of such date.
This certificate excepts and does not relate to [U.S.$] ____________of such
interest in the above-captioned Securities in respect of which we are not able
to certify and as to which we understand an exchange for an interest in a
Permanent Global Security or an exchange for and delivery of definitive
Securities (or, if relevant, collection of any interest) cannot be made until we
do so certify.
We understand that this certificate may be required in connection with
certain tax legislation in the United States. If administrative or legal
proceedings are commenced or threatened in connection with which this
certificate is or would be relevant, we irrevocably authorize you to produce
this certificate or a copy thereof to any interested party in such proceedings.
Dated: ________________, 19__
[To be dated no earlier than the 15th day prior to (i) the Exchange Date or (ii)
the relevant Interest Payment Date occurring prior to the Exchange Date, as
applicable]
[Name of Person Making Certification]
_____________________________________
(Authorized Signatory)
Name:
Title:
A-2
<PAGE>
EXHIBIT A-2
FORM OF CERTIFICATE TO BE GIVEN BY EUROCLEAR AND
CEDEL BANK IN CONNECTION WITH THE EXCHANGE OF
A PORTION OF A TEMPORARY GLOBAL SECURITY
OR TO OBTAIN INTEREST PAYABLE PRIOR
TO THE EXCHANGE DATE
CERTIFICATE
[Insert title or sufficient description of Securities
to be delivered]
This is to certify that, based solely on written certifications that we
have received in writing, by tested telex or by electronic transmission from
each of the persons appearing in our records as persons entitled to a portion of
the principal amount set forth below (our "Member Organizations") substantially
in the form attached hereto, as of the date hereof, [U.S.$] principal amount of
the above-captioned Securities (i) is owned by person(s) that are not citizens
or residents of the United States, domestic partnerships, domestic corporations
or any estate or trust the income of which is subject to United States Federal
income taxation regardless of its source ("United States person(s)"), (ii) is
owned by United States person(s) that are (a) foreign branches of United States
financial institutions (financial institutions, as defined in U.S. Treasury
Regulations Section 1.165-12(c)(1)(v) are herein referred to as "financial
institutions") purchasing for their own account or for resale, or (b) United
States person(s) who acquired the Securities through foreign branches of United
States financial institutions and who hold the Securities through such United
States financial institutions on the date hereof (and in either case (a) or (b),
each such financial institution has agreed, on its own behalf or through its
agent, that we may advise Public Service Enterprise Group Incorporated or its
agent that such financial institution will comply with the requirements of
Section 165(j)(3)(A), (B) or (C) of the Internal Revenue Code of 1986, as
amended, and the regulations thereunder), or (iii) is owned by United States or
foreign financial institution(s) for purposes of resale during the restricted
period (as defined in United States Treasury Regulations Section
1.163-5(c)(2)(i)(D)(7)), and, to the further effect, that financial institutions
described in clause (iii) above (whether or not also described in clause (i) or
(ii)) have certified that they have not acquired the Securities for purposes of
resale directly or indirectly to a United States person or to a person within
the United States or its possessions.
As used herein, "United States" means the United States of America
(including the States and the District of Columbia); and its "possessions"
include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island
and the Northern Mariana Islands.
A-2-1
<PAGE>
We further certify that (i) we are not making available herewith for
exchange (or, if relevant, collection of any interest) any portion of the
temporary global Security representing the above-captioned Securities excepted
in the above-referenced certificates of Member Organizations and (ii) as of the
date hereof we have not received any notification from any of our Member
Organizations to the effect that the statements made by such Member
Organizations with respect to any portion of the part submitted herewith for
exchange (or, if relevant, collection of any interest) are no longer true and
cannot be relied upon as of the date hereof.
We understand that this certification is required in connection with
certain tax legislation in the United States. If administrative or legal
proceedings are commenced or threatened in connection with which this
certificate is or would be relevant, we irrevocably authorize you to produce
this certificate or a copy thereof to any interested party in such proceedings.
Dated:_______________, 19__
[To be dated no earlier than the Exchange Date or the relevant Interest Payment
Date occurring prior to the Exchange Date, as applicable]
[Morgan Guaranty Trust Company of New York,
Brussels Office,] as Operator of the Euroclear
System
[Cedel Bank]
By___________________________
A-2-2
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
DEFERRED COMPENSATION PLAN FOR DIRECTORS
AMENDED DECEMBER 15, 1998
<PAGE>
2
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
DEFERRED COMPENSATION PLAN FOR DIRECTORS
January 1, 1988
1. PURPOSE. The Plan is designed to provide a method of deferring payment
to non-employee Directors of their fees and annual retainers, as fixed from time
to time by the Board of Directors, until termination of their services on the
Board.
2. PLAN PERIODS. The first Plan Period shall commence upon the election of
Directors at the 1987 Annual Stockholders' Meeting and terminate upon the
election of Directors at the 1988 Annual Stockholders' Meeting. Subsequent Plan
Periods shall relate to successive similar periods between Annual Stockholders
Meetings.
3. ADMINISTRATION. The Plan shall be administered by a Committee consisting
of the Chief Executive Officer of the Company and two other officers appointed
by him. The Committee shall have the power to interpret the Plan and, subject to
its provisions, to make all determinations necessary or desirable for the Plan's
administration.
4. PARTICIPATION.
(a) An individual who serves as a Director and is not otherwise employed
by the Company or any of its subsidiaries shall be eligible to
participate in the Plan if he elects to have payment of his annual
retainer, his fees or his annual retainer and fees in respect of a
Plan Period deferred as provided herein.
(b) The election shall be made by written notice on Schedule A to the Plan
filed with the Company's Secretary prior to the first day of such Plan
Period or, in the case of a Director who first becomes eligible during
a Plan Period, not later than 30 days after he first becomes eligible.
Each such election shall be irrevocable.
5. DEFERRED COMPENSATION ACCOUNTS.
(a) An account shall be established for each eligible, electing Director
(a "Participant") which shall be designated as his Deferred
Compensation Account. If a Participant elects to have payment deferred
of his annual
3
<PAGE>
retainer, the amount of the annual retainer payable to him with
respect to a Plan Period shall be credited, in four equal installments
on or about the last day of June, September, December and March in the
Plan Period to which such retainer relates, to his Deferred
Compensation Account, subject to the provisions of Section 5(c). If a
Participant elects to have payment deferred of his fees, the amount of
each fee payable to him for attendance at a meeting during a Plan
Period shall be credited to his Deferred Compensation Account on or
about the first business day following such meeting. The Company shall
not be required to segregate any amounts credited to the Deferred
Compensation Accounts, which shall be established merely as an
accounting convenience. Amounts credited to the Deferred Compensation
Accounts shall at all times remain solely the property of the Company
subject to the claims of its general creditors and available for the
Company's use for whatever purpose desired.
(b) The amounts credited to a Deferred Compensation Account shall accrue
interest each calendar quarter at an annual rate equal to the rate
charged by The Chase Manhattan Bank, N.A., on the first business day
of such calendar quarter for prime commercial loans of 90-day maturity
(based on actual numbers of days, 360 days to the year), plus 1/2 of
1%. Such interest shall be computed on the average daily balance in a
Deferred Compensation Account during each such calendar quarter and
shall be credited to such Account and compounded on the last day of
March, June, September and December. Interest shall continue to accrue
and be compounded on the unpaid balance in a Deferred Compensation
Account until such Account is fully distributed.
(c) If, prior to the end of a Plan Period, a Participant becomes an
employee of the Company or one of its subsidiaries or dies or ceases
for any reason to be a Director, or if the effective date of
participation by a Participant for any Plan Period shall be other than
the first day thereof, he will be entitled
<PAGE>
4
to be credited with that proportion of the annual retainer for the
full Plan Period which the number of days of his participation in the
Plan during such Plan Period bears to the total number of days in such
Plan Period.
6. PAYMENT.
(a) Following termination of a Participant's service on the Board, the
Company shall distribute his Deferred Compensation Account.
(b) By written notice on Schedule A to the Plan filed with the Company's
Secretary, a Participant may elect to have distribution of his
Deferred Compensation Account commence either (l) within thirty (30)
days after the date he ceases to be a Director of the Company, or, in
the alternative, (2) in the month of January of any calendar year
following termination of the Participant's service on the Board, but
not later than the month of January following the Participant's 71st
birthday, unless the Participant is still a Director at such time, in
which case distribution shall commence within thirty (30) days after
the date he ceases to be a Director. Any such election, or any change
in such election (by such subsequent written notice to the Secretary
of the Company), shall apply only to future deferrals. In the event no
election is made as to the commencement of distribution, such
distribution shall commence within 30 days after the date the
Participant ceases to be a Director of the Company. The actual date
that distribution shall commence shall be a date within the
appropriate period determined by the Committee in its sole discretion.
(c) By written notice on Schedule A to the Plan filed with the Company's
Secretary, a Participant may elect to receive the distribution of his
Deferred Compensation Account in the form of (l) one lump-sum payment,
or (2) monthly distributions over a period selected by the Participant
of up to ten years. Any such election, or any change in such election
(by such subsequent written notice to the Secretary of the Company),
shall apply only to future deferrals. In the event a lump-sum
<PAGE>
5
payment is made under the Plan, the amount then standing to the
Participant's credit in his Deferred Compensation Account, including
interest at the rate provided in Section 5(b) to the date of
distribution, shall be paid to the Participant on the date determined
under Section 6(b). In the case of a distribution over a period of
years, the Company shall pay to the Participant, commencing on the
date determined under Section 6(b), monthly installments from the
amount then standing to his credit in his Deferred Compensation
Account, including interest on the unpaid balance at the rate provided
in Section 5(b) to the date of distribution. The amount of each
installment shall be determined by dividing the then unpaid balance,
plus accrued interest, in the Participant's Deferred Compensation
Account by the number of installments remaining to be paid. If a
Participant does not make an election as to the manner of distribution
of his Deferred Compensation Account, such distribution shall be made
in the form of monthly installments paid over a five-year period.
Notwithstanding the above, a Participant may at any time elect, by
written notice to the Secretary of the Company, to have the monthly
payments scheduled to be made to him within a tax year paid to him in
one installment within such year.
(d) In the event of a Participant's death, the balance of the
Participant's Deferred Compensation Account shall be distributed to
the Participant's Beneficiary(ies) in annual installments over a
period of not more than five years, in accordance with his election on
Schedule B to the Plan filed with the Secretary of the Company. Any
change in the period over which such payments are made shall only
apply to future deferrals. Such distribution shall be made in a manner
consistent with Section 6(c) of the Plan and shall commence within 30
days after the Participant's death, on a date within said month to be
determined by the Committee in its sole discretion. Additional annual
payments for distributions made over a
<PAGE>
6
period of more than one year shall be made on the yearly anniversaries
of such date. In the event of a Participant's death after distribution
of this Deferred Compensation Account has commenced, any election
under this Section 6(d) shall not extend the time of payment of his
Deferred Compensation Account beyond the time when distribution would
have been completed if he had lived. A Participant may change
Beneficiary designations by filing a subsequent Schedule B with the
Secretary of the Company. If a Participant does not make an election
as to the manner of distribution of his Deferred Compensation Account
in the event of his death, any such distribution shall be made as a
lump-sum payment to his estate within 30 days after the Participant's
death.
(e) Notwithstanding any other provision of the Plan, if the Committee
shall determine in its sole discretion that the time of payment of a
Participant's Deferred Compensation Account should be advanced because
of protracted illness or other undue hardship, then the Committee may
advance the time or times of payment (whether before or after the
Retirement Date) only if the Committee determines that an emergency
beyond the control of the Participant exists and which would cause
such Participant severe financial hardship if the payment of such
benefits were not approved. Any such distribution for hardship shall
be limited to the amount needed to meet such emergency. A Participant
who receives a hardship distribution may not reenter the Plan for
twelve months after the date of such distribution. Any distribution
for hardship under this Section 6(e) shall commence within thirty days
after the Committee determines to make such hardship distribution.
(f) Notwithstanding any other provision of the Plan if the Committee shall
determine in its sole discretion that the time of payment of a
Participant's Deferred Compensation Account should be advanced because
it is important to terminate such Account in the interest of the
Company, then
<PAGE>
7
the Committee may advance the time or times of payment whether before
or after the Retirement Date).
7. ASSIGNMENT. No benefit under the Plan shall in any manner or to any
extent be assigned, alienated, or transferred by any Participant or Beneficiary
or subject to attachment, garnishment or other legal process.
8. TERMINATION AND AMENDMENT.
(a) The Board may terminate the Plan at any time so that no further
amounts shall be credited to Deferred Compensation Accounts or may,
from time to time, amend the Plan, without the consent of Participants
or Beneficiaries; provided, however, that no such amendment or
termination shall impair any rights, including rights to income
credits pursuant to Section 5(b) hereof, which have accrued under the
Plan without the consent of the Participant or Beneficiary, or the
legal representative of such person, so affected.
(b) Notwithstanding any other provision of this Plan, upon the occurrence
of a Change in Control (as defined below), the income credit
calculated pursuant to Section 5(b) hereof may not be reduced below
the prime commercial lending rate described therein.
For purposes of this Plan, "Change in Control" shall mean the
occurrence of any of the following events:
(i) any "person" (within the meaning of Section 13(d) of the
Securities Exchange Act of 1934, as amended from time to time (the
"Act")) is or becomes the beneficial owner within the meaning of Rule
13d-3 under the Act (a "Beneficial Owner"), directly or indirectly, of
securities of the Corporation (not including in the securities
beneficially owned by such person any securities acquired directly
from the Corporation or its affiliates) representing 25% or more of
the combined voting power of the Corporation's then outstanding
securities, excluding any person who becomes such a Beneficial Owner
in connection with a transaction described in clause (1) of paragraph
(iii) below; or
<PAGE>
8
(ii) the following individuals cease for any reason to constitute
a majority of the number of directors then serving: individuals who,
on December 15, 1998, constitute the Board of Directors and any new
director (other than a director whose initial assumption of office is
in connection with an actual or threatened election contest, including
but not limited to a consent solicitation, relating to the election of
directors of the Corporation) whose appointment or election by the
Board of Directors or nomination for election by the Corporation's
stockholders was approved or recommended by a vote of at least
two-thirds (2/3) of the directors then still in office who either were
directors on December 15, 1998 or whose appointment, election or
nomination for election was previously so approved or recommended; or
(iii) there is consummated a merger or consolidation of the
Corporation or any direct or indirect wholly owned subsidiary of the
Corporation with any other corporation, other than (1) a merger or
consolidation which would result in the voting securities of the
Corporation outstanding immediately prior to such merger or
consolidation continuing to represent (either by remaining outstanding
or by being converted into voting securities of the surviving entity
or any parent thereof), in combination with the ownership of any
trustee or other fiduciary holding securities under an employee
benefit plan of the Corporation or any subsidiary of the Corporation,
at least 75% of the combined voting power of the securities of the
Corporation or such surviving entity or any parent thereof outstanding
immediately after such merger or consolidation, or (2) a merger or
consolidation effected to implement a recapitalization of the
Corporation (or similar transaction) in which no person is or becomes
the Beneficial Owner, directly or indirectly, of securities of the
Corporation representing 25% or more of the combined voting power of
the Corporation's then outstanding securities; or
(iv) the stockholders of the Corporation approve a plan of
complete liquidation or dissolution of the Corporation or there is
consummated an agreement for the sale or disposition by the
Corporation of all or substantially all of the Corporation's assets,
other than a sale or disposition by the Corporation of all or
substantially all of the Corporation's assets to an entity, at least
75% of the combined voting power of the voting securities of which are
owned by stockholders of the Corporation in substantially the same
proportions as their ownership of the Corporation immediately prior to
such sale.
Notwithstanding the foregoing subparagraphs (i), (ii), (iii) and
(iv), a "Change
<PAGE>
9
in Control" shall not be deemed to have occurred by virtue of the
consummation of any transaction or series of integrated transactions
immediately following which the record holders of the common stock of
the Corporation immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate
ownership in an entity which owns all or substantially all of the
assets of the Corporation immediately following such transaction or
series of transactions.
<PAGE>
SCHEDULE A
DEFERRED COMPENSATION PLAN FOR DIRECTORS OF
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED (THE "PLAN")
Elections in Connection with Deferral of Compensation
Section 1 Election as to Compensation to be Deferred
Note: THIS SECTION IS TO BE USED TO MAKE OR TO CHANGE AN ELECTION UNDER
SECTION 4 OF THE PLAN. ANY CHANGE IN ELECTION WILL ONLY APPLY TO
SUBSEQUENT PLAN PERIODS.
I hereby elect to defer, in accordance with the provisions of the Plan:
_____(a) My retainer.
_____(b) My fees.
_____(c) My retainer and my fees.
Section 2. Election as to Commencement of Distribution From Account
Note: THIS SECTION IS TO BE USED (A) WHEN FIRST BECOMING A DIRECTOR COVERED
BY THE PLAN AND (B) PRIOR TO EACH ANNUAL MEETING IF THERE IS TO BE
ANY CHANGE IN THE ORIGINAL ELECTION. ANY SUCH CHANGE WILL ONLY APPLY
TO FUTURE DEFERRALS.
I hereby elect, in accordance with the provisions of the Plan,
to have distribution from my Account commence:
_____(a) Within thirty (30) days after I cease to be a director of the
Company.
_____(b) In the month of January after I cease to be a director of the
Company.
_____(c) In the month of January,_______, (which is not later than the
January following my 71st birthday), unless I am a director of the
Company at such time, in which case within 30 days after I cease
to be a director of the Company.
Participant's Initials________
Date________
<PAGE>
SCHEDULE A-2
Section 3. Election as to the Timing of the Distribution
Note: THIS SECTION IS TO BE USED (A) WHEN FIRST BECOMING A DIRECTOR COVERED
BY THE PLAN AND (B) PRIOR TO EACH ANNUAL MEETING IF THERE IS TO BE
ANY CHANGE IN THE ORIGINAL ELECTION. ANY SUCH CHANGE WILL ONLY APPLY
TO FUTURE DEFERRALS.
I hereby elect, in accordance with the provisions of the Plan, to have the
distribution of my Account paid:
_____(a) In one lump sum.
_____(b) In monthly installments over a period of _____ years.
Date:_____
- ------------------------------------ ------------------------------------
Witness Participant's Signature
<PAGE>
SCHEDULE B
DEFERRED COMPENSATION PLAN FOR DIRECTORS OF
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED (THE "PLAN")
Section 1. Election as to Method of Distribution in Case of Death
In case of my death, I hereby elect, in accordance with the provisions of
the Plan, to have the distribution of my Deferred Compensation Account paid over
a period of _______ year(s) to my Beneficiary(ies) designated in Section 2
hereof.
Section 2. Designation of Beneficiary(ies)
In the event of my death, I hereby designate the following individuals,
fiduciaries or other entities, in their own right or in their representative
capacity, in the proportions and in the priority of interest designated, to be
the beneficiaries of any benefits owing to me, under the Plan.
PRIMARY BENEFICIARIES - The following beneficiary(ies) shall receive all
benefits payable under the Plan in the event of my death in the proportions
designated hereunder. If any one or more of the primary beneficiaries designated
hereunder shall predecease me, such beneficiary's share(s) shall be divided
equally among the remaining primary beneficiaries.
PROPORTIONATE
NAME AND PRESENT INTEREST OF RELATIONSHIP
ADDRESS OF PRIMARY PRIMARY TO
BENEFICIARY(IES) BENEFICIARY(IES) PARTICIPANT
- -----------------------
- ----------------------- ----------% --------------
- -----------------------
- ----------------------- ----------% --------------
- -----------------------
- ----------------------- ----------% --------------
- -----------------------
- ----------------------- ----------% --------------
Participant's Initials______
Date______
<PAGE>
SCHEDULE B-2
SECONDARY BENEFICIARIES - The following beneficiary(ies) shall receive all
benefits payable under the Plan in the event of my death in the proportions
designated hereunder only if all of my Primary Beneficiaries have predeceased
me. If all Primary Beneficiaries have predeceased me and if any one or more of
the Secondary Beneficiaries designated hereunder shall predecease me, such
Secondary Beneficiary's share(s) shall be divided equally among the Secondary
Beneficiaries.
PROPORTIONATE
NAME AND PRESENT INTEREST OF RELATIONSHIP
ADDRESS OF SECONDARY SECONDARY TO
BENEFICIARY(IES) BENEFICIARY(IES) PARTICIPANT
- -----------------------
- ----------------------- ----------% --------------
- -----------------------
- ----------------------- ----------% --------------
- -----------------------
- ----------------------- ----------% --------------
- -----------------------
- ----------------------- ----------% --------------
ESTATE - In the event I have declined to designate a Beneficiary hereunder
or if all of the Beneficiaries that I have designated predecease me, then all
benefits payable under the Plan shall be payable to my Estate.
Date:_______________
- ------------------------------------ ------------------------------------
Witness Participant's Signature
DEFERRED COMPENSATION PLAN FOR CERTAIN EMPLOYEES
OF PUBLIC SERVICE ELECTRIC AND GAS COMPANY
AS AMENDED DECEMBER 15, 1998
<PAGE>
DEFERRED COMPENSATION PLAN FOR CERTAIN EMPLOYEES OF
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
AS AMENDED DECEMBER 15, 1998
1. PURPOSE. The purpose of this Plan is to provide a method to certain
select and key employees of the Company to defer compensation as provided
herein.
2. DEFINITIONS OF TERMS USED IN THIS PLAN. As used in this Plan, the
following words and phrases shall have the meanings indicated:
(a) "Account" - The Deferred Compensation Account described in Paragraph 4
of this Plan.
(b) "Assets" - All Compensation and interest that have been credited to an
Employee's Account in accordance with Paragraph 4 of this Plan.
(c) "Beneficiary" - The individual(s) and/or entity(ies) designated and
defined by Schedule B of the Plan.
(d) "Change in Control" - The occurrence of any of the following events:
(i) any "person" (within the meaning of Section 13(d) of the
Securities Exchange Act of 1934, as amended from time to time
(the "Act")) is or becomes the beneficial owner within the
meaning of Rule 13d-3 under the Act (a "Beneficial Owner"),
directly or indirectly, of securities of Public Service
Enterprise Group Incorporated ("Parent") (not including in the
securities beneficially owned by such person any securities
acquired directly from Parent or its affiliates) representing 25%
or more of the combined voting power of Parent's then outstanding
securities, excluding any person who becomes such a Beneficial
Owner in connection with a transaction described in clause (A) of
paragraph (iii) below; or
(ii) the following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals
who, on December 15, 1998, constitute the board of directors of
Parent ("Board") and any new director (other than a director
whose initial assumption of office is in connection with an
actual or threatened election contest, including but not limited
to a consent solicitation, relating to the election of directors
of Parent) whose appointment or election by the Board or
nomination for election by Parent's stockholders was approved or
recommended by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors on
December 15, 1998 or whose appointment, election or
<PAGE>
3
nomination for election was previously so approved or
recommended; or
(iii) there is consummated a merger or consolidation of Parent or any
direct or indirect wholly owned subsidiary of Parent with any
other corporation, other than (1) a merger or consolidation which
would result in the voting securities of Parent outstanding
immediately prior to such merger or consolidation continuing to
represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or any parent
thereof), in combination with the ownership of any trustee or
other fiduciary holding securities under an employee benefit plan
of Parent or any subsidiary of Parent, at least 75% of the
combined voting power of the securities of Parent or such
surviving entity or any parent thereof outstanding immediately
after such merger or consolidation, or (2) a merger or
consolidation effected to implement a recapitalization of Parent
(or similar transaction) in which no person is or becomes the
Beneficial Owner, directly or indirectly, of securities of Parent
representing 25% or more of the combined voting power of Parent's
then outstanding securities; or
(iv) the stockholders of Parent approve a plan of complete liquidation
or dissolution of Parent or there is consummated an agreement for
the sale or disposition by Parent of all or substantially all of
Parent's assets, other than a sale or disposition by Parent of
all or substantially all of Parent's assets to an entity, at
least 75% of the combined voting power of the voting securities
of which are owned by stockholders of Parent in substantially the
same proportions as their ownership of Parent immediately prior
to such sale.
Notwithstanding the foregoing subparagraphs (i), (ii), (iii) and (iv), a
"Change in Control" shall not be deemed to have occurred by virtue of the
consummation of any transaction or series of integrated transactions
immediately following which the record holders of the common stock of
Parent immediately prior to such transaction or series of transactions
continue to have substantially the same proportionate ownership in an
entity which owns all or substantially all of the assets of Parent
immediately following such transaction or series of transactions.
(e) "Committee" - The Employee Benefits Committee of the Company.
(f) "Company" - Public Service Electric and Gas Company.
<PAGE>
4
(g) "Compensation" - The total remuneration paid to an Employee for
services rendered to the Company, excluding the Company's cost for any
public or private employee benefit plan. Compensation deferrable under
this Plan shall specifically include any and all amounts transferred
from the deferred compensation accounts of the Management Incentive
Compensation Plan of Public Service Electric and Gas Company.
(h) "Deferred Compensation" - The amount of Compensation deferred pursuant
to Paragraph 3 of this Plan.
(i) "Disability" - Disability so as to be incapable of performing further
work for the Company that results in termination of employment.
(j) "Employee" - Each individual member of the Operating Committee of the
Company and such other employees of the Company as may be designated
by the Committee.
(k) "Pension Plan" - The Pension Plan of Public Service Electric and Gas
Company.
(l) "Plan" - The Deferred Compensation Plan for Certain Employees of
Public Service Electric and Gas Company.
3. ELECTION AS TO THE AMOUNT OF COMPENSATION THAT IS TO BE DEFERRED. An
Employee may elect to defer any portion of his Compensation otherwise payable
for services rendered for the Company after the date of adoption of this
Plan.
Any such election must be made by filing with the Committee an "Election in
Connection with Deferral of Compensation", the form of which is attached to this
Plan as Schedule A and is hereinafter referred to as "Schedule A". An Employee
may change (using Schedule A for such purposes), not later than December 31 of
any year, the amount of Compensation to be deferred by him with respect to the
next succeeding calendar year or years. In the calendar year that an Employee
first becomes eligible to participate in this Plan, such Employee may elect to
defer Compensation f or part of that calendar year but only if such election is
made within thirty (30) days after the Employee first becomes eligible to
participate in this Plan. Compensation may be deferred prospectively only, and
the amount of Compensation to be deferred may be changed only with respect to
future calendar years.
<PAGE>
5
4. HOW THE ACCOUNT IS TO BE MAINTAINED.
(a) Establishment of Account - The Company shall establish an Account
for each Employee who elects to participate in the Plan. Each Employee's Account
shall be credited at the end of each month with an amount equal to the Deferred
Compensation which would have otherwise been payable to him that month.
(b) Interest on Assets in the Account - The Assets credited to each
Employee's Account shall accrue interest each calendar quarter at an annual rate
equal to the rate charged by The Chase Manhattan Bank, N.A. on the first
business day of such calendar quarter for prime commercial loans of 90 day
maturity (based on actual number of days, 360 days to the year), plus 1/2 of 1%.
Such interest shall be computed on the average daily balance in the Employee's
Account during each calendar quarter, excluding any Assets which have been
distributed from the Employee's Account during such quarter, and shall be
credited to the Employee's Account and compounded on the last day of March,
June, September and December, and interest on Assets distributed from an
Employee's Account shall accrue in the same manner to the date of, be credited
to the Employee's Account on the date of, and be paid with, such distribution.
(c) Title to and Beneficial Ownership of Assets - The Plan shall be
unfunded. The Company shall not be required to segregate any amounts credited to
any Employee's Account, which shall be established merely as an accounting
convenience. Title to and beneficial ownership of any Assets, whether Deferred
Compensation or interest credited to an Employee's Account pursuant to
Paragraphs 4(a) and (b) hereinabove, shall at all times remain in the Company,
and no Employee nor Beneficiary shall have any interest whatsoever in any
specific assets of the Company. All Assets shall at all times remain solely the
property of the Company subject to the claims of its general creditors and
available f or the Company's use for whatever purpose desired.
5. DISTRIBUTION FROM THE ACCOUNT
(a) Election as to the Commencement of the Distribution - By election
on Schedule A filed with the Committee, an Employee may elect to have
distribution from his Account commence either (l) within thirty (30) days after
the date he ceases to be employed by
<PAGE>
6
the Company or, in the alternative, (2) in the month of January of any calendar
year following termination of employment elected by the Employee, but in any
event no later than the later of (a) the January of the year following the year
of the Employee's 70th birthday or (b) the January following termination of
employment. An Employee may change such election by filing a subsequent Schedule
A, but any such change shall apply only to future deferrals. The actual date
that distribution shall commence shall be a date within the elected period to be
determined by the Committee in its sole discretion.
(b) Election as to the Timing of the Distribution(s) - By election on
Schedule A filed with the Committee, an Employee may elect to receive the
distribution of his Account in the form of (l) one lump-sum payment, (2) annual
distributions over a five-year period or (3) annual distributions over a 10-year
period. An Employee may change such election by filing a subsequent Schedule A,
but any such change shall apply only to future deferrals. In the event a
lump-sum payment is made under this Plan, the Assets credited to an Employee's
Account, including interest at the rate provided in Paragraph 4(b) of this Plan
to the date of distribution, shall be paid to the Employee on the date
determined under Paragraph 5(a) of this Plan. In the case of a distribution over
a period of years, the Company shall pay to the Employee on the date determined
under Paragraph S(a) of this Plan and on the yearly anniversaries of such date,
annual installments of the unpaid balance of the Assets in the Employee's
Account, including interest on the unpaid balance at the rate provided in
Paragraph 4(b) of this Plan to the date of distribution. The amount of each
installment shall be determined by multiplying the then unpaid balance, plus
accrued interest, in the Employee's Account by a fraction, the numerator of
which is one and the denominator of which is the number of annual installments
remaining to be paid.
(c) Distribution in Case of Certain Disability - In the event of an
Employee's Disability prior to a calendar year elected by the Employee under
Paragraph 5(a) (2) of this Plan for distribution to commence, distribution of
the Employee's Account shall commence in the month following the month in which
the Employee terminates employment for disability, in accordance with the
Employee's election under Paragraph S(b) of this Plan as to the form of
distribution. The actual date that distribution shall commence shall be a date
within such month determined by the Committee in its sole discretion.
<PAGE>
7
(d) Distribution in Case of Death - In the event of an Employee's
death, the balance of the Employee's Account shall be distributed to the
Employee's Beneficiary(ies) over a period of not more than five (S) years, in
accordance with his election on Schedules A and B (filed with the Committee) for
distribution in case of death. Any change in the period over which such payments
are made shall only apply to future deferrals. Such distribution shall be made
in a manner consistent with Paragraph 5(b) of this Plan and shall commence in
the month of January of the year after the year of the Employee's death, on a
date within said month to be determined by the Committee in its sole discretion.
Additional annual payments for distributions made over a period of more than one
year shall be made on the yearly anniversaries of such date. In the event of an
Employee's death after distribution of his Account has commenced, any election
under this Paragraph S(d) shall not extend the time of payment of his Account
beyond the time when distribution would have been completed if he had lived. An
Employee may change Beneficiary designations by filing a subsequent Schedule B
with the Committee.
(e) Request for Change in Distribution - An Employee, Beneficiary or a
legal representative may request a change in the timing, frequency or amount of
payments made from an Employee's Account by filing a written request therefor
with the Committee. The Committee may, in its sole discretion, grant such
request only if the Committee determines that an emergency beyond the control of
the Employee, Beneficiary or legal representative exists and which would cause
such Employee, beneficiary or legal representative severe financial hardship if
the payment of such benefits were not approved. Any such distribution for
hardship shall be limited to the amount needed to meet such emergency. An
Employee who makes a hardship withdrawal may not reenter this Plan for 12 months
after the date of withdrawal. Any distribution under this Paragraph 5(e) shall
commence within 30 days after the Committee grants such request for hardship
withdrawal.
(f) Employment not Terminated if Transferred to Company-Owned
Corporation - For the purposes of this Paragraph 5, an Employee shall not be
deemed to have terminated his employment if he is transferred to the employ of a
corporation in which the Company owns a majority equity interest.
(g) Company may Distribute in Lump-Sum if Distributable Amount Less
<PAGE>
8
Than $5,000 - The Company reserves the right to make a lump-sum distribution,
notwithstanding any other provision of this Plan, if the total Assets in an
Employee's Account are $5,000 or less at any time after the Employee ceases to
be employed by the Company.
6. UNFUNDED ADJUSTMENTS To MAKE UP FOR REDUCED BENEFIT UNDER PENSION PLAN.
If an Employee, on termination of employment or thereafter, or a Beneficiary of
the Employee under the Pension Plan, is entitled to any benefit under the
Pension Plan, the Company shall pay out of its general funds a supplementary
benefit (at such time after the Employee's retirement and in such manner as the
Committee in its sole discretion shall determine) equivalent to the excess of
the amount computed in (a) below over the amount computed in (b) below:
(a) The benefit to which the Employee or such Beneficiary would have been
entitled if the Employee's Final Earnings, as defined in the Pension
Plan, had included all Compensation earned which would have been
included in his Final Earnings if this Plan were not in effect.
(b) The actual benefit to which the Employee or such Beneficiary is
entitled under the Pension Plan.
7. ASSIGNMENT. No benefit under the Plan shall in any manner or to any
extent be assigned, alienated, or transferred by any Employee or Beneficiary
under the Plan or subject to attachment, garnishment or other legal process.
8 PLAN DOES NOT CONSTITUTE AN EMPLOYMENT AGREEMENT. This Plan shall not
constitute a contract f or the continued employment of any Employee by the
Company. The Company reserves the right to modify an Employee's compensation at
any time and from time to time as it considers appropriate and to terminate his
employment for any reason at any time notwithstanding this Plan.
<PAGE>
9
9. AMENDMENT OR TERMINATION OF THE PLAN BY THE COMPANY. The Board of
Directors of the Company may, in its sole discretion, amend, modify or terminate
this Plan at any time, provided, however, that no such amendment, modification
or termination shall adversely affect the right of an Employee in respect of
Deferred Compensation previously earned by him which has not been paid, unless
such Employee or his legal representative shall consent to such change;
provided, further, that notwithstanding any other provision of this Plan, upon
the occurrence of a Change in Control, the income credit calculated pursuant to
Paragraph 4 may not be reduced below the prime commercial lending rate described
therein.
10. WHAT CONSTITUTES NOTICE. Any notice to an Employee, Beneficiary or
legal representative hereunder shall be given either by delivering it or by
depositing it in the United States mail, postage prepaid, addressed to his last
known address. Any notice to the Company or the Committee hereunder (including
the filing of Schedules A and B) shall be given either by delivering it, or
depositing it in the United States mail, postage prepaid, to the Secretary of
the Employee Benefits Committee, Public Service Electric and Gas Company, 80
Park Plaza T2B, P. 0. Box 570, Newark, New Jersey 07101.
11. ADVANCE DISCLAIMER OF ANY WAIVER ON THE PART OF THE COMPANY. Failure by
the Company to insist upon strict compliance with any of the terms, covenants or
conditions hereof shall not be deemed a waiver of any such term, covenant or
condition, nor shall any waiver or relinquishment of any right or power
hereunder at any one or more times be deemed a waiver or relinquishment of any
such right or power at any other time or times.
12. EFFECT ON INVALIDITY OF ANY PART OF THE PLAN. The invalidity or
unenforceability of any provision hereof shall in no way affect the validity or
enforceability of any other provision.
13. PLAN BINDING ON ANY SUCCESSOR OWNER. Except as otherwise
<PAGE>
10
provided herein, this Plan shall inure to the benefit of and be binding upon the
Company, its successors and assigns, including but not limited to any
corporation which may acquire all or substantially all of the Company's assets
and business or with or into which the Company may be consolidated or merged.
14. LAWS GOVERNING THIS PLAN. Except to the extent federal law applies,
this Plan shall be governed by the laws of the State of New Jersey.
15. MISCELLANEOUS. The masculine pronoun shall mean the feminine wherever
appropriate.
<PAGE>
11
SCHEDULE A
DEFERRED COMPENSATION PLAN FOR CERTAIN EMPLOYEES OF
PUBLIC SERVICE ELECTRIC AND GAS COMPANY (THE "PLAN")
Elections in Connection With Deferral of Compensation
Section 1. Election as to Compensation to be Deferred.
Note: THIS SECTION IS TO BE USED TO MAKE OR TO CHANGE AN ELECTION UNDER
PARAGRAPH 3 OF THE PLAN. ANY CHANGE IN ELECTION MUST BE MADE NO LATER
THAN DECEMBER 31 OF THE YEAR PRECEDING THE YEAR IN WHICH YOU WISH THE
CHANGE TO APPLY.
I hereby elect to defer, in accordance with the provisions of the Plan:
_________ (a) a month of my Compensation; or
_________ (b) All of my Compensation in excess of $___________ per year.
Section 2. Election as to Commencement of Distribution From Account
Note: THIS SECTION IS TO BE USED (A) WHEN FIRST BECOMING AN EMPLOYEE
COVERED BY THE PLAN AND (B) PRIOR TO DECEMBER 31ST OF ANY GIVEN
YEAR IF THERE IS TO BE ANY CHANGE IN THE ORIGINAL ELECTION. ANY
SUCH CHANGE WILL ONLY APPLY TO FUTURE DEFERRALS.
I hereby elect, in accordance with the provisions of the Plan, to have
distribution from my Account commence:
_________ (a) Within thirty (30) days after I cease to be employed by the
Company.
_________ (b) In the month of January, _________, unless I am employed by
the Company at such time, in which case within 30 days after
I cease to be employed by the Company.
Employee's Initials______________
Date_____________
<PAGE>
SCHEDULE A-2
Section 3. Election as to the Timing of the Distribution
Note: THIS SECTION IS TO BE USED (A) WHEN FIRST BECOMING AN EMPLOYEE
COVERED BY THE PLAN AND (B) PRIOR TO DECEMBER 31ST OF ANY GIVEN
YEAR IF THERE IS TO BE ANY CHANGE IN THE ORIGINAL ELECTION. ANY
SUCH CHANGE WILL ONLY APPLY TO FUTURE DEFERRALS.
I hereby elect, in accordance with the provisions of the Plan, to have the
distribution of my Account paid:
_________ (a) In one lump sum.
_________ (b) In annual installments over a period of five (5) years.
_________ (c) In annual installments over a period of ten (10) years.
Section 4. Election As To Method Of Distribution In Case of Death
Note: THIS SECTION TO BE USED TO SELECT THE METHOD OF DISTRIBUTION IN
THE CASE OF DEATH. PERIOD SELECTED MAY NOT BE MORE THAN FIVE (5)
YEARS.
In case of my death, I hereby elect, in accordance with the provisions of
the Plan, to have the distribution of my Account paid over a period of ______
year(s) to my Beneficiary(ies) designated on Schedule B.
__________________, 19__
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Witness Employee Signature
<PAGE>
SCHEDULE B
DEFERRED COMPENSATION PLAN FOR CERTAIN EMPLOYEES OF
PUBLIC SERVICE ELECTRIC AND GAS COMPANY (THE "PLAN")
DESIGNATION OF BENEFICIARY(IES)
In the event of my death, I hereby designate the following individuals,
fiduciaries or other entities, either in their own right or in their
representative capacity, in the proportions and in the priority of interest
designated, to be the beneficiaries of any benefits owing to me, under the Plan.
PRIMARY BENEFICIARIES - The following beneficiary(ies) shall receive all
benefits payable under the Plan in the event of my death in the proportions
designated hereunder. If any one or more of the primary beneficiaries designated
hereunder shall predecease me, such beneficiary's share(s) shall be divided
equally among the remaining primary beneficiaries.
PROPORTIONATE
NAME AND PRESENT ADDRESS INTEREST OF PRIMARY RELATIONSHIP
OF PRIMARY BENEFICIARY(IES) BENEFICIARY(IES) TO EMPLOYEE
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- ------------------------------ ----------% --------------
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- ------------------------------ ----------% --------------
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- ------------------------------ ----------% --------------
<PAGE>
SCHEDULE B
SECONDARY BENEFICIARIES - The following beneficiary(ies) shall receive all
benefits payable under the Plan in the event of my death in the proportions
designated hereunder only if all of my Primary Beneficiaries have predeceased
me. If all Primary Beneficiaries have predeceased me and if any one or more of
the Secondary Beneficiaries designated hereunder shall predecease me, such
Secondary Beneficiary's share(s) shall be divided equally among the Secondary
Beneficiaries.
PROPORTIONATE
NAME AND PRESENT ADDRESS INTEREST OF PRIMARY RELATIONSHIP
OF PRIMARY BENEFICIARY(IES) BENEFICIARY(IES) TO EMPLOYEE
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- ------------------------------ ----------% --------------
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ESTATE - In the event I have declined to designate a Beneficiary hereunder
or if all of the Beneficiaries that I have designated predecease me, then all
benefits payable under the Plan shall be payable to my Estate.
Date:________
- ------------------------------------ ------------------------------------
Witness Employee's Signature
LIMITED SUPPLEMENTAL BENEFITS PLAN
FOR CERTAIN EMPLOYEES OF
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
AS AMENDED DECEMBER 15, 1998
<PAGE>
LIMITED SUPPLEMENTAL BENEFITS PLAN
FOR CERTAIN EMPLOYEES OF
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
TABLE OF CONTENTS
Page
1. PURPOSE............................................................... 1
2. DEFINITIONS OF TERMS USED IN THE PLAN................................. 1
3. DEATH BENEFIT.......................................................... 5
4. RETIREMENT BENEFIT..................................................... 6
5. ADMINISTRATION OF ACCOUNTS............................................ 12
6. DESIGNATION OF BENEFICIARIES.......................................... 13
7. LIMITATION OF BENEFITS................................................ 16
8. PLAN DOES NOT CONSTITUTE AN EMPLOYMENT AGREEMENT...................... 16
9. AMENDMENT OR TERMINATION OF THE PLAN.................................. 16
10. WHAT CONSTITUTES NOTICE............................................... 17
11. ADVANCE DISCLAIMER OF WAIVER.......................................... 17
12. EFFECT OF INVALIDITY OF ANY PART OF THE PLAN.......................... 17
13. PLAN BINDING ON ANY SUCCESSOR......................................... 17
14. FUNCTION OF THE COMMITTEE............................................. 18
15. COMPANY SHALL PAY LEGAL FEES.......................................... 18
16. LAW GOVERNING THE PLAN................................................ 18
17. MISCELLANEOUS......................................................... 18
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<PAGE>
LIMITED SUPPLEMENTAL BENEFITS PLAN
FOR CERTAIN EMPLOYEES OF
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
1. PURPOSE. The purpose of this Plan is to assist the Company in attracting and
retaining a stable pool of key managerial talent and to encourage long-term
key employee commitment to the Company by providing selected employees of
the Company with certain limited supplemental death and retirement benefits
as defined herein. The Plan is intended to provide such benefits to a select
group of management or highly compensated employees within the meaning of
ERISA.
2. DEFINITIONS OF TERMS USED IN THE PLAN. As used in the Plan, the following
words and phrases shall have the meanings indicated:
(a) "ACCOUNT" -- Any account established pursuant to Paragraph 3(b) or 4(f)
of the Plan.
(b) "ANNUITY" -- A fully-funded contract with an independent insurance
company purchased by the Company pursuant to Paragraph 4(f) of the Plan.
(c) "ASSETS" -- All amounts that have been credited to an Employee's Account
in accordance with Paragraph 3(b), 4(f), or 5(b) of the Plan.
(d) "BENEFICIARY" -- The individual(s) and/or entity(ies) designated in
writing by a Participant in the form attached to the Plan as Schedule A.
(e) "CASH BALANCE PLAN" -- The Cash Balance Pension Plan of Public Service
Electric and Gas Company.
(f) "CHANGE IN CONTROL" -- For the purposes of the Plan, a Change in Control
of the Company shall mean the occurrence of any of the following events:
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<PAGE>
(i) any "person" (within the meaning of Section 13(d) of the Securities
Exchange Act of 1934, as amended from time to time (the "Act")) is
or becomes the beneficial owner within the meaning of Rule 13d-3
under the Act (a "Beneficial Owner"), directly or indirectly, of
securities of Public Service Enterprise Group Incorporated
("Parent") (not including in the securities beneficially owned by
such person any securities acquired directly from Parent or its
affiliates) representing 25% or more of the combined voting power
of Parent's then outstanding securities, excluding any person who
becomes such a Beneficial Owner in connection with a transaction
described in clause (A) of paragraph (iii) below; or
(ii) the following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals who,
on December 15, 1998, constitute the board of directors of Parent
("Board") and any new director (other than a director whose initial
assumption of office is in connection with an actual or threatened
election contest, including but not limited to a consent
solicitation, relating to the election of directors of Parent)
whose appointment or election by the Board or nomination for
election by Parent's stockholders was approved or recommended by a
vote of at least two-thirds (2/3) of the directors then still in
office who either were directors on December 15, 1998 or whose
appointment, election or nomination for election was previously so
approved or recommended; or
(iii) there is consummated a merger or consolidation of Parent or any
direct or indirect wholly owned subsidiary of Parent with any other
corporation, other than (A) a merger or consolidation which would
result in the voting securities of Parent outstanding immediately
prior to such merger or consolidation continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity or any parent thereof), in
combination with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of Parent or any
subsidiary of Parent, at least 75% of the combined voting power of
the securities of Parent or such surviving entity or any parent
thereof outstanding immediately after such merger or consolidation,
or (B) a merger or consolidation effected to implement a
recapitalization of Parent (or similar transaction) in which no
person is or becomes the Beneficial Owner, directly or indirectly,
of securities of Parent representing 25% or more of the combined
voting power of Parent's then outstanding securities; or
-2-
<PAGE>
(iv) the stockholders of Parent approve a plan of complete liquidation
or dissolution of Parent or there is consummated an agreement for
the sale or disposition by Parent of all or substantially all of
Parent's assets, other than a sale or disposition by Parent of all
or substantially all of Parent's assets to an entity, at least 75%
of the combined voting power of the voting securities of which are
owned by stockholders of Parent in substantially the same
proportions as their ownership of Parent immediately prior to such
sale.
Notwithstanding the foregoing subparagraphs (i), (ii), (iii) and
(iv), a "Change in Control" shall not be deemed to have occurred by
virtue of the consummation of any transaction or series of
integrated transactions immediately following which the record
holders of the common stock of Parent immediately prior to such
transaction or series of transactions continue to have substantially
the same proportionate ownership in an entity which owns all or
substantially all of the assets of Parent immediately following such
transaction or series of transactions.
(g) "CODE" -- The Internal Revenue Code of 1986, as amended.
(h) "COMMITTEE" -- The Employee Benefits Committee of the Company as
selected by its Board of Directors.
(i) "COMPANY" -- Public Service Electric and Gas Company.
(j) "COMPENSATION" --
(i) For the purposes of calculating the Death Benefit pursuant to
Paragraph 3 of the Plan, as to any Participant, Compensation shall
be equal to the annual rate of salary of the Participant in effect
at the date of death; and
(ii) For the purposes of calculating the Retirement Benefit pursuant to
Paragraph 4 of the Plan, as to any Participant, Compensation shall
be equal to the average of the total remuneration paid to such
Participant for services rendered to the Company, excluding the
Company's cost for any
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<PAGE>
public or private employee benefit plan (including, without
limitation, the Long-Term Incentive Compensation Plan of
Enterprise) but including all elective contributions that are made
by the Company on behalf of a Participant which are not includable
in income under Code Sections 125 or 401(k), for the five years
ending at the earlier of such Participant's date of Retirement or
attainment of normal retirement age under the Pension Plan;
provided, however, that for the purposes of Paragraph 4 of the
Plan, Compensation with respect to any Participant shall not exceed
the amount which is 130% of the average annual base salary of the
Participant for the applicable five-year period.
(k) "ENTERPRISE" -- Public Service Enterprise Group Incorporated.
(l) "ERISA" -- The Employee Retirement Income Security Act of 1974, as
amended.
(m) "PARTICIPANT" -- Each employee of the Company nominated by the Chief
Executive Officer and designated by the Employee Benefits Policy
Committee of Enterprise. The Chief Executive Officer of the Company
shall nominate such select and key employees of the Company upon such
terms as he shall deem appropriate due to the employee's
responsibilities and opportunity to contribute substantially to the
financial and operating objectives of the Company.
(n) "PENSION PLAN" -- The Pension Plan of Public Service Electric and Gas
Company.
(o) "PLAN" -- The Limited Supplemental Benefits Plan for Certain Employees
of Public Service Electric and Gas Company.
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<PAGE>
(p) "RETIREMENT" -- For the purposes of the Plan, Retirement of a
Participant shall be deemed to have occurred upon either (i) termination
of the Participant's service with the Company with the right to an
immediately payable periodic retirement benefit under the Pension Plan
or the Cash Balance Plan or (ii) upon a Change in Control of the
Company. Retirement shall not include termination of service with the
right to a deferred pension under the Pension Plan or a deferred
retirement benefit or early commencement of payment of a participant's
Cash Balance Account under the Cash Balance Plan.
(q) "RETIREMENT PLAN" -- Any pension plan within the meaning of ERISA,
excluding (i) the Pension Plan, the Cash Balance Plan and all defined
contribution plans maintained by the Company, except insofar as any such
defined contribution plan may provide supplementary benefits to the
Pension Plan or the Cash Balance Plan, (ii) this Plan and (iii) all
deferred compensation plans, tax credit employee stock ownership plans
and thrift plans, and all other profit-sharing plans which are not the
principal retirement benefit of a plan sponsor, maintained by sponsors
other than the Company.
(r) "VOTING STOCK" -- Outstanding stock of a corporation entitled to vote in
the election of the directors of that corporation.
3. DEATH BENEFIT.
(a) AMOUNT OF BENEFIT -- If a Participant dies while in the active
employment of the Company, the Company shall provide a death benefit to
such Participant's Beneficiary in an amount equal to 150% of the
Participant's Compensation, adjusted to the nearest $1,000, or to the
next highest $1,000 if such Compensation
-5-
<PAGE>
is a multiple of $500 but not of $1,000.
(b) ESTABLISHMENT OF ACCOUNT -- Upon the death of a Participant during
employment with the Company, the Company shall establish an Account for
the benefit of such Participant's Beneficiary. Such Account shall
initially be credited with an amount equal to the benefit provided under
Paragraph 3(a) and shall be held and administered as provided in
Paragraph 5 of the Plan.
4. RETIREMENT BENEFIT.
(a) GENERAL -- At Retirement, the Company shall provide each Participant
with a retirement benefit calculated as provided in this Paragraph 4.
(b) DETERMINATION OF BENEFIT --
(i) Pension Plan Participants:
(A) The Participant's Compensation shall be multiplied by an amount
equal to one one-hundredth of the sum of (X) the number of the
Participant's years of credited service under the Pension Plan at
Retirement, (Y) the number of any additional years of service
credit to which the Participant may be entitled from the Company
under the Mid-Career Supplemental Retirement Income Plan of Public
Service Electric and Gas Company and its Affiliates or any written
arrangement with the Company, and (Z) 30; but, in no event, shall
the multiple be greater than 0.75.
(B) The amount determined under subparagraph (A) of this Paragraph
4(b)(i) shall be reduced by the sum of (X) the amount the
Participant would be entitled to at Retirement as an annual pension
benefit under the Pension Plan and any supplemental retirement plan
(other than this Plan)
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<PAGE>
maintained by the Company calculated as a single life annuity
without reduction for any pre-retirement survivor's option coverage
or any reduction for early retirement, (Y) 100% of the amount of
the unreduced annual Social Security benefit to which the
Participant would be entitled at age 65 (or such other age which
may be established by the Social Security Administration from time
to time as the earliest age at which a Participant may receive an
unreduced benefit thereunder), assuming that the Participant has no
earnings from the date of Retirement to age 65 (or such other
applicable age), or, if greater, any disability benefit under
Social Security to which the Participant may be entitled, and (Z)
the aggregate of the annual benefits to which the Participant is
entitled under all Retirement Plans as of the date the Participant
is employed by the Company, such Social Security Benefits and
benefits under all Retirement Plans to be calculated as single life
annuities without any reductions, under rules, procedures and
equivalents determined by the Committee. To determine the amounts
referred to under (y) and (z) above, the Participant shall file a
declaration of all such amounts with the Employee Benefits
Department of the Company in such form as the Committee may require
from time to time. No benefit shall be paid under the Plan until
such a declaration, in satisfactory form, shall be filed with the
Employee Benefits Department. If a Participant is granted a
disability Social Security benefit, he shall notify the Employee
Benefits Department thereof within 30 days thereof, and the
Participant's retirement benefit under this Plan shall be adjusted
-7-
<PAGE>
accordingly. The Company shall be entitled to rely on such
statements in making payment, and if any such statement is
incorrect or is not furnished, the Company shall be entitled to
reimbursement from the Participant, the Beneficiary or their legal
representatives for any overpayment and may reduce or suspend
future payments to recover any such overpayment. In the event it is
established to the satisfaction of the Committee, in its sole
discretion, that any such statement was intentionally false or
omitted, the Participant or Beneficiary shall be entitled to no
further payments under the Plan, and the Company shall be entitled
to recover any payments made hereunder.
(ii) Cash Balance Plan Participants:
(A) The Participant's Compensation shall be multiplied by an amount
equal to one one-hundredth of the sum of (X) the number of the
Participant's years of service under the Pension Plan with
which such Participant would have been credited at Retirement
had the Participant participated in the Pension Plan from
his/her date of hire, (Y) the number of any additional years of
service credit to which the Participant may be entitled from
the Company under the Mid-Career Supplemental Retirement Income
Plan of Public Service Electric and Gas Company and its
Affiliates or any written arrangement with the Company, and (Z)
30; but, in no event, shall the multiple be greater than 0.75.
(B) The amount determined under subparagraph (A) of this Paragraph
4(b)(ii) shall be reduced by the sum of (X) the amount the
Participant would be
-8-
<PAGE>
entitled to at Retirement as an annual pension benefit under the
Cash Balance Plan and any supplemental retirement plan (other than
this Plan) maintained by the Company calculated as a single life
annuity without reduction for any pre-retirement survivor's option
coverage or any reduction for early retirement, (Y) 100% of the
amount of the unreduced annual Social Security benefit to which the
Participant would be entitled at age 65 (or such other age which
may be established by the Social Security Administration from time
to time as the earliest age at which a Participant may receive an
unreduced benefit thereunder), assuming that the Participant has no
earnings from the date of Retirement to age 65 (or such other
applicable age), or, if greater, any disability benefit under
Social Security to which the Participant may be entitled, and (Z)
the aggregate of the annual benefits to which the Participant is
entitled under all Retirement Plans as of the date the Participant
is employed by the Company, such Social Security Benefits and
benefits under all Retirement Plans to be calculated as single life
annuities without any reductions, under rules, procedures and
equivalents determined by the Committee. To determine the amounts
referred to under (y) and (z) above, the Participant shall file a
declaration of all such amounts with the Employee Benefits
Department of the Company in such form as the Committee may require
from time to time. No benefit shall be paid under the Plan until
such a declaration, in satisfactory form, shall be filed with the
Employee Benefits Department. If a Participant is granted a
disability Social Security benefit, he shall
-9-
<PAGE>
notify the Employee Benefits Department thereof within 30 days
thereof, and the Participant's retirement benefit under this Plan
shall be adjusted accordingly. The Company shall be entitled to
rely on such statements in making payment, and if any such
statement is incorrect or is not furnished, the Company shall be
entitled to reimbursement from the Participant, the Beneficiary or
their legal representatives for any overpayment and may reduce or
suspend future payments to recover any such overpayment. In the
event it is established to the satisfaction of the Committee, in
its sole discretion, that any such statement was intentionally
false or omitted, the Participant or Beneficiary shall be entitled
to no further payments under the Plan, and the Company shall be
entitled to recover any payments made hereunder.
(c) FORMS OF BENEFIT -- The annual amount determined under paragraph (b) of
this Paragraph 4 shall be paid in one of the following forms:
(i) a single life annuity in monthly installments equal to one twelfth
of such annual amount;
(ii) a joint and survivor annuity in monthly installments based upon
such annual amount and calculated in accordance with any
post-retirement survivorship option available under the Pension
Plan or the Cash Balance Plan, as the case may be;
(iii)a 10-year certain level payment annuity in monthly installments
which is the actuarial equivalent to the single life annuity under
(i), as determined by the actuary for the Pension Plan or the Cash
Balance Plan, as the case
-10-
<PAGE>
may be, according to mortality assumptions used for the Pension
Plan or the Cash Balance Plan, as the case may be, on the basis of
a current interest rate assumption determined from time to time by
the Committee;
or
(iv) a 10-year certain increasing payment annuity paid in accordance
with Paragraph 5(c) of the Plan based upon the lump-sum amount
which is the actuarial equivalent to the single life annuity under
(i), as determined by the actuary for the Pension Plan or the Cash
Balance Plan, as the case may be, according to mortality
assumptions used for the Pension Plan or the Cash Balance Plan, as
the case may be, on the basis of a current market rate interest
assumption determined from time to time by the Committee;
or
(v) a lump sum payment of the present value of any of the foregoing
based upon the same assumptions used for lump sum payments under
the Pension Plan or the Cash Balance Plan, as the case may be.
The Committee in its sole discretion shall determine the form of benefit
payment for each Participant; provided, however, that, notwithstanding any
other provision of this Plan, the Participant shall determine the form of
benefit from and after the occurrence of a Change in Control.
(d) CHANGE IN CONTROL --
(i) If there shall occur a Change in Control, then each Participant who
has not already retired under the Pension Plan or the Cash Balance
Plan, as the case may be, shall be entitled to a retirement benefit
under this Plan
-11-
<PAGE>
calculated as if such Participant had retired under the Pension
Plan or the Cash Balance Plan, as the case may be, as of the date
of such Change in Control.
(ii) The retirement benefit to be paid pursuant to Paragraph 4(d)(i)
shall be paid to the Participant in a 10-year certain level payment
annuity paid in accordance with Paragraph 5(c) of the Plan based
upon the lump-sum amount which is the actuarial equivalent to the
single-life annuity under Paragraph 4(c)(i) of the Plan as
determined by the actuary for the Pension Plan or the Cash Balance
Plan, as the case may be, according to mortality assumptions used
for the Pension Plan or the Cash Balance Plan, as the case may be,
on the basis of a current market rate interest assumption
determined from time to time by the Committee.
(iii) Notwithstanding anything contained in the Plan to the contrary, if
a Change in Control shall occur, the Company shall purchase from an
independent insurance company fully paid annuities which shall
provide for the payment to all Participants and Beneficiaries of
all accrued benefits under the Plan.
(e) ESTABLISHMENT OF ACCOUNT -- If payment is made under either Paragraph
4(c)(iii) or 4(c)(iv) of the Plan, upon Retirement, the Company shall
establish an Account for the benefit of the Participant and any
Beneficiary. Such Account shall initially be credited with an amount
equal to the amount of the lump-sum payment determined under Paragraph
4(c)(iii) or 4(c)(iv), as applicable, and shall be administered as
provided in Paragraph 5 of the Plan.
-12-
<PAGE>
(f) DISABILITY RETIREMENT -- If a Participant retires for disability under
the Pension Plan or the Cash Balance Plan, as the case may be, payment
of the Participant's retirement benefit and any joint and survivor
benefit under Paragraph 4(c)(ii) of the Plan shall be subject to the
same conditions as the disability pension under the Pension Plan or the
Cash Balance Plan, as the case may be.
5. ADMINISTRATION OF ACCOUNTS.
(a) GENERAL -- Accounts shall be established under the Plan only pursuant to
Paragraphs 3(b) and 4(e) hereof. All Accounts shall be administered in
accordance with the provisions of this Paragraph 5.
(b) INTEREST ON ASSETS IN THE ACCOUNT -- The Assets credited to a
Participant's Account shall accrue interest at a market rate of interest
as may be determined from time to time by the Committee.
(c) TIMING OF THE DISTRIBUTION(S) -- A Participant or Beneficiary shall
receive the distribution of the Participant's Account in the form of
monthly distributions over a ten-year period commencing in the month
following the month of the Participant's death in the case of a death
benefit, or over a ten-year period commencing in the month of the
Participant's Retirement in the case of a retirement benefit. The amount
of each installment shall be determined by dividing the then unpaid
balance in the Participant's Account, including accrued and unpaid
interest, by the number of installments remaining to be paid.
(d) REQUEST FOR CHANGE IN DISTRIBUTION -- A Participant, Beneficiary or
legal representative may request a change in the timing, frequency or
amount of payments made from a Participant's Account by filing a written
request therefor
13
<PAGE>
with the Committee. The Committee may, in its sole discretion, grant
such request only if the Committee determines that an emergency beyond
the control of the Participant, Beneficiary or legal representative
exists and which would cause such Participant, Beneficiary or legal
representative severe financial hardship if the payment of such benefits
were not approved. Any such distribution for hardship shall be limited
to the amount needed to meet such emergency. The Committee shall inform
the Participant, Beneficiary or legal representative of its decision
within sixty (60) days of receipt of the written request.
6. DESIGNATION OF BENEFICIARIES
(a) GENERAL -- To designate an individual(s) and/or entity(ies) to receive
the benefits of the Plan with respect to a Participant, such Participant
must file a written designation in the form of Schedule A to the Plan
with the Committee. Subject to the restrictions of this Paragraph 6, a
Participant may change such designation by filing a subsequent written
designation.
(b) DEATH BENEFIT -- By designation on Section 1 of a Schedule A filed with
the Committee, a Participant may name an individual(s) and/or
entity(ies) to receive a death benefit under Paragraph 3 of the Plan
with respect to such Participant. A Participant may change such
designation by filing a subsequent notification in the form of Schedule
A.
(c) RETIREMENT BENEFITS --
(i) SINGLE LIFE ANNUITY. If a Participant's retirement benefit under
the Plan is paid as a single life annuity under Paragraph 4(c)(i)
of the Plan, there shall be no Beneficiary with respect to such
benefit and all retirement benefits shall cease
14
<PAGE>
upon the Participant's death.
(ii) JOINT AND SURVIVOR ANNUITY. If a Participant's retirement benefit
under Paragraph 4(c)(ii) of the Plan and the Participant's pension
under the Pension Plan or the Cash Balance Plan, as the case may
be, are both paid as joint and survivor annuities, any survivor
annuity under the Plan shall be paid to the same beneficiary
entitled to any post-retirement survivorship benefit under the
Pension Plan or the Cash Balance Plan, as the case may be. If the
Participant's pension under the Pension Plan or the Cash Balance
Plan, as the case may be, is paid as a single life annuity, any
survivor annuity paid under Paragraph 4(c)(ii) of the Plan shall be
paid to the Beneficiary designated in Section 2 of Schedule A to
the Plan. If a Beneficiary designated by the Participant under
Paragraph 4(c)(ii) of the Plan predeceases the Participant within
five years from the date of Participant's Retirement, the
Participant's retirement benefit hereunder will automatically
revert and return to a single life annuity commencing the first day
of the month following the month in which the designated
Beneficiary died. If, however, the Beneficiary predeceases the
Participant more than five years after Participant's Retirement,
the Participant's reduced retirement benefit shall continue during
his life and no survivor benefit shall be paid. The election of
such Beneficiary must be made prior to Retirement and may not be
changed thereafter.
(iii) 10-YEAR CERTAIN ANNUITIES. If a Participant's Retirement benefit
is paid as a 10-year certain level payment annuity under Paragraph
4(c)(iii) or Paragraph 4(d)(ii) of the Plan, or a 10-year certain
increasing payment annuity under Paragraph 4(c)(iv), the
Beneficiary or Beneficiaries with respect to such benefit shall be
as
15
<PAGE>
specified in Section 1 of the most recent Schedule A filed with the
Committee.
(d) DESIGNATION BY LAST REMAINING BENEFICIARY -- After a Participant's
death, if there is only one remaining Beneficiary with respect to a
death benefit under Paragraph 3 of the Plan or a 10-year certain annuity
under Paragraph 4(c)(iii), 4(c)(iv) or 4(d)(ii) of the Plan, such
Beneficiary shall be entitled to designate in writing to the Committee
an individual to be paid any remainder of such benefit under the Plan at
such Beneficiary's death. If no such further designation is made, such
remainder shall be paid to such Beneficiary's estate. In the event of
such Beneficiary's death, and regardless of whether any such further
designation has been made, the Committee in its sole discretion may
require any such remainder to be paid as a lump sum.
7. LIMITATION OF BENEFITS.
(a) The Plan shall be unfunded with respect to all benefits to be paid
hereunder. In addition, except as provided in Paragraphs 4(d)(iii) and
16(b), the Company shall not be required to segregate any amounts
credited to any Account, which shall be established merely as an
accounting convenience; title to and beneficial ownership of any Assets
credited to any Account shall at all times remain in the Company, and no
Participant, Beneficiary or legal representative shall have any interest
whatsoever in any specific assets of the Company.
(b) The payment of any death or survivorship benefit under this Plan shall
be contingent upon such evidence of death as may be required by the
Committee.
(c) If the Company should terminate the Plan pursuant to Paragraph 9 hereof,
the Company's obligation to pay any benefits under the Plan shall
likewise terminate;
16
<PAGE>
provided, however, that, except as otherwise provided in said Paragraph
9, the Company may not terminate the Plan with respect to any
Participant subsequent to that Participant's Retirement or death.
8. PLAN DOES NOT CONSTITUTE AN EMPLOYMENT AGREEMENT. The Plan shall not
constitute a contract for the continued employment of any Participant by the
Company. The Company reserves the right to modify a Participant's
Compensation at any time and from time to time as it considers appropriate
and to terminate any Participant's employment for any reason at any time
notwithstanding the Plan.
9. AMENDMENT OR TERMINATION OF THE PLAN. The Board of Directors of the Company
may, in its sole discretion, amend, modify or terminate the Plan at any
time, provided, however, that no such amendment, modification or termination
shall deprive any Participant or Beneficiary of a previously acquired right
unless such Participant or Beneficiary or his legal representative shall
consent to such change. No right to a death benefit under the Plan shall
accrue until a Participant's death and no right to a retirement benefit
shall accrue until a Participant's Retirement.
10. WHAT CONSTITUTES NOTICE. Any notice to a Participant, a Beneficiary or any
legal representative hereunder shall be given in writing, by personal
delivery, overnight express service or by United States mail, postage
prepaid, addressed to such person's last known address. Any notice to the
Company or the Committee hereunder (including the filing of Schedule A)
shall be given by delivering it in person or by overnight express service,
or depositing it in the United States mail, postage prepaid, to the
Secretary of the Employee Benefits Committee, Public Service Electric and
Gas Company, 80 Park Plaza, T10B, P.O. Box 570, Newark, New Jersey, 07101.
17
<PAGE>
11. ADVANCE DISCLAIMER OF WAIVER. Failure by the Company or the Committee to
insist upon strict compliance with any of the terms, covenants or conditions
hereof shall not be deemed a waiver of any such term, covenant or condition,
nor shall any waiver or relinquishment of any right or power hereunder at
any one or more times be deemed a waiver or relinquishment of any such right
or power at any other time or times.
12. EFFECT OF INVALIDITY OF ANY PART OF THE PLAN. The invalidity or
unenforceability of any provision hereof shall in no way affect the validity
or enforceability of any other provision of the Plan.
13. PLAN BINDING ON ANY SUCCESSOR. Except as otherwise provided herein, the Plan
shall inure to the benefit of and be binding upon the Company, its
successors and assigns, including but not limited to any corporation which
may acquire all or substantially all of the Company's assets and business or
with or into which the Company may be consolidated or merged.
14. FUNCTION OF THE COMMITTEE. The Plan shall be administered by the Committee
and the Committee shall be the final arbiter of any question that may arise
under the Plan.
15. COMPANY SHALL PAY LEGAL FEES.
(a) In the event of a Change in Control, the Company shall pay the legal
fees and expenses of any Participant, Beneficiary or legal
representative thereof incurred in any action to enforce such person's
right to receive a benefit under the Plan.
(b) In the event of a Change in Control, the Company shall establish a trust
for the benefit of Participants and persons claiming though them which
shall be funded in
18
<PAGE>
an initial amount of $1,000,000 from which the Committee shall,
according to reasonable rules that the Committee shall establish, pay
the legal fees and expenses incurred by any Participant, Beneficiary or
legal representative thereof in enforcing his rights under the Plan. The
Company shall contribute such additional sums to such trust as shall be
necessary to pay such legal fees and expenses.
16. LAW GOVERNING THE PLAN. Except to the extent federal law applies, the Plan
shall be governed by the laws of the State of New Jersey without giving
effect to principles of conflicts of law.
17. MISCELLANEOUS.
(a) The masculine pronoun shall mean the feminine wherever appropriate.
(b) The headings are for convenience only. In the event of a conflict
between the headings of a paragraph and its contents, the contents shall
control.
19
MID-CAREER HIRE SUPPLEMENTAL RETIREMENT INCOME PLAN
FOR SELECTED EMPLOYEES OF
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
AND ITS AFFILIATES
Effective January 1, 1996
As Amended December 15, 1998
<PAGE>
TABLE OF CONTENTS
Section 1. Definitions.......................................................1
Section 2. Eligibility.......................................................4
Section 3. Supplemental Retirement Benefit...................................5
Section 4. Supplemental Surviving Spouse Benefit.............................7
Section 5. Administration of the Plan........................................8
Section 6. Claims Procedure and Status Determination........................10
Section 7. Amendment or Termination.........................................10
Section 8. General Provisions...............................................11
Section 9. Miscellaneous....................................................14
<PAGE>
MID-CAREER HIRE SUPPLEMENTAL RETIREMENT INCOME PLAN
FOR SELECTED EMPLOYEES OF
PUBLIC SERVICE ELECTRIC AND GAS
COMPANY AND ITS AFFILIATES
This Mid-Career Hire Supplemental Retirement Income Plan for Selected
Employees of Public Service Electric and Gas Company and its Affiliates is
adopted effective January 1, 1995. This Plan is established and maintained by
Public Service Electric and Gas Company and its Participating Affiliates solely
for the purpose of assisting in attracting and retaining a stable pool of key
managerial and professional talent and long-term key employee commitment by
providing certain supplemental retirement benefits based upon additional service
credit for a selected number of their key employees who participate in the
Pension Plan of Public Service Electric and Gas Company. This Plan is intended
to constitute an unfunded plan of deferred compensation for a select group of
management or highly compensated employees for purposes of Title 1 of ERISA.
Accordingly, Public Service Electric and Gas Company hereby adopts this
Plan pursuant to the terms and provisions set forth below:
Section 1. Definitions
When used herein, the words and phrases hereinafter defined shall have the
following meanings unless a different meaning is clearly required by the context
of the Plan:
1.1 "Affiliate" shall mean any organization which is a member of a
controlled group of Companies (as defined in Code Section 414(b), as modified by
Code Section 415(h)) which includes the Company; or any trades or businesses
(whether or not incorporated) which are under common control (as defined in Code
Section 414(c), as modified by Code Section 415(h)) with the Company; or a
member of an affiliated service group (as defined in Code Section 414(m))
<PAGE>
2
which includes the Company or any other entity required to be aggregated with
the Company as required by regulations promulgated pursuant to Code Section
414(o).
1.2 "Beneficiary" shall mean any person or persons selected by a
Participant on a form provided by the Company who may become eligible to receive
the benefits provided under this Plan in the event of such Participant's death.
1.3 "Board of Directors" or "Board" shall mean the Board of Directors of
the Company.
1.4 "Code" shall mean the Internal Revenue Code of 1986, as amended, and as
same may be amended from time to time.
1.5 "Company" shall mean Public Service Electric and Gas Company.
1.6 "Compensation" shall mean compensation as defined in the Reinstatement
Plan.
1.7 "Credited Service" shall mean the aggregate of all periods of
employment with the Company or an Affiliate or former Affiliate and all periods
of additional service credit granted by the Company for which a Participant will
be given credit in computing his Supplemental Retirement Benefit.
1.8 "Employee Benefits Committee" or "Committee" shall mean the Employee
Benefits Committee of Public Service Electric and Gas Company.
1.9 "Employee Benefits Policy Committee" or "Policy Committee" shall mean
the Employee Benefits Policy Committee of Public Service Enterprise Group
Incorporated, the Company's parent.
1.10 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as
<PAGE>
3
amended, and as the same may be amended from time to time.
1.11 "Normal Retirement Date" shall mean the first day of the month
coinciding with or next following a Participant's attainment of age 65.
1.12 "Participant" shall mean each employee or former employee of the
Company or a Participating Affiliate who is selected by the Chief Executive
Officer of the Company to participate in the Plan. The Chief Executive Officer
of the Company shall select such key employees of the Company and Participating
Affiliates upon such terms as he shall deem appropriate due to the employee's
responsibilities and opportunity to contribute to the financial and operating
objectives of the Company or Participating Affiliate.
1.13 "Participating Affiliate" shall mean any Affiliate of the Company
which (a) is the sponsor or a Participating Affiliate of the Reinstatement Plan;
(b) adopts this Plan with the approval of the Board of Directors; (c) authorizes
the Board of Directors and the Employee Benefits Committee to act for it in all
matters arising under or with respect to this Plan; and (d) complies with such
other terms and conditions relating to this Plan as may be imposed by the Board
of Directors.
1.14 "Pension Plan" shall mean the Pension Plan of Public Service Electric
and Gas Company and each successor or replacement plan.
1.15 "Plan" shall mean this Mid-Career Hire Supplemental Retirement Income
Plan for Selected Employees of Public Service Electric and Gas Company and Its
Affiliates.
1.16 "Plan Year" shall mean the calendar year.
1.17 "Reinstatement Plan" shall mean the Retirement Income Reinstatement
Plan for Non-Represented Employees of Public Service Electric and Gas Company
and its Affiliates.
<PAGE>
4
1.18 "Reinstatement Plan Retirement Benefit" shall mean the aggregate
annual benefit payable to a Participant pursuant to the Reinstatement Plan by
reason of his termination of employment with the Company and all Affiliates for
any reason other than death.
1.19 "Reinstatement Plan Surviving Spouse Benefit" shall mean the aggregate
annual benefit payable to the Surviving Spouse of a Participant pursuant to the
Reinstatement Plan in the event of the death of the Participant at any time
prior to commencement of payment of his Reinstatement Plan Retirement Benefit.
1.20 "Supplemental Retirement Benefit" shall mean the benefit payable to a
Participant pursuant to this Plan by reason of his termination of employment
with the Company and all Affiliates for any reason other than death.
1.21 "Surviving Spouse" shall mean a person who is married to a Participant
at the date of his death.
1.22 "Year of Service" shall mean Year of Service as defined in the Pension
Plan.
1.23 "Supplemental Surviving Spouse Benefit" shall mean the benefit payable
to a Surviving Spouse pursuant to this Plan.
Section 2. Eligibility
2.1 A Participant who is selected by the Chief Executive Officer of the
Company to participate in this Plan shall be eligible to receive a Supplemental
Retirement Benefit. The Surviving Spouse of a Participant described in the
preceding sentence who dies prior to commencement of payment of his
Reinstatement Plan Retirement Benefit shall be eligible to receive a
Supplemental Surviving Spouse Benefit.
<PAGE>
5
2.2 Upon selection for participation in the Plan, the Chief Executive
Officer shall designate the number of years of additional Credited Service to
which such Participant shall be entitled to be credited in calculating his
Supplemental Retirement Benefit under this Plan. The Chief Executive Officer
shall notify the Vice President - Human Resources in writing of such selection
and designation.
Section 3. Supplemental Retirement Benefit
3.1 The Supplemental Retirement Benefit payable to an eligible Participant
shall be equal to the excess of (a) over (b) where:
(a) is the sum of the amount of Pension Plan Retirement Benefit and
Reinstatement Plan Retirement Benefit to which the Participant would have
been entitled under the Pension Plan and the Reinstatement Plan if such
benefits were computed with the additional years of Credited Service
provided for in this Plan; and
(b) is the sum of the Pension Plan Retirement Benefit and
Reinstatement Plan Retirement Benefit actually payable to the Participant
or payable to a third party on the Participant's behalf.
The amounts described in (a) and (b) shall be computed as of the date of
termination of employment of the Participant with the Company and all Affiliates
in the form of a single life annuity payable over the lifetime of the
Participant only commencing on his Normal Retirement Date.
3.2. The Supplemental Retirement Benefit payable to a Participant shall be
paid in the same form under which the Pension Plan Retirement Benefit or
Reinstatement Plan Retirement Benefit, as applicable, is payable to the
Participant (including the election to receive a lump sum
<PAGE>
6
distribution of the present value of any benefit). The Participant's election
under the Pension Plan of any optional form of payment of his Pension Plan
Retirement Benefit (with the valid consent of his spouse where required under
the Pension Plan) shall also be applicable to the payment of his Supplemental
Retirement Benefit hereunder.
3.3 Payment hereunder of the Supplemental Retirement Benefit to a
Participant shall commence on the same date as payment of the Pension Plan
Retirement Benefit or Reinstatement Plan Retirement Benefit, as applicable, to
the Participant commences.
3.4 (a) Notwithstanding the provisions of Sections 3.2 and 3.3 above, an
election made by the Participant with respect to the form of payment of his
retirement benefits under the Pension Plan and Reinstatement Plan, or the date
for commencement of payment thereof, shall not be effective with respect to the
form of payment or date for commencement of payment of his Supplemental
Retirement Benefits hereunder unless such election is expressly approved by the
Committee with respect to his Supplemental Retirement Benefit; provided,
however, that notwithstanding any other provision of this Plan, no such approval
shall be required from and after the occurrence of a Change in Control (as
defined below).. If the Committee shall not approve such election, then the form
of payment or date for commencement of payment of the Participant's Supplemental
Retirement Benefits shall be selected by the Committee in its sole discretion.
(b) For the purposes hereof, a "Change in Control" shall mean the
occurrence of any of the following events:
(i) any "person" (within the meaning of Section 13(d) of the Securities
Exchange Act of 1934, as amended from time to time (the "Act")) is or
becomes the beneficial owner within the meaning of
<PAGE>
7
Rule 13d-3 under the Act (a "Beneficial Owner"), directly or
indirectly, of securities of Public Service Enterprise Group
Incorporated ("Parent") (not including in the securities beneficially
owned by such person any securities acquired directly from Parent or
its affiliates) representing 25% or more of the combined voting power
of Parent's then outstanding securities, excluding any person who
becomes such a Beneficial Owner in connection with a transaction
described in clause (A) of paragraph (iii) below; or
(ii) the following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals who, on
December 15, 1998, constitute the board of directors of Parent
("Board") and any new director (other than a director whose initial
assumption of office is in connection with an actual or threatened
election contest, including but not limited to a consent solicitation,
relating to the election of directors of Parent) whose appointment or
election by the Board or nomination for election by Parent's
stockholders was approved or recommended by a vote of at least
two-thirds (2/3) of the directors then still in office who either were
directors on December 15, 1998 or whose appointment, election or
nomination for election was previously so approved or recommended; or
(iii) there is consummated a merger or consolidation of Parent or any
direct or indirect wholly owned subsidiary of Parent with any other
corporation, other than (A) a merger or consolidation which would
result in the voting securities of Parent outstanding immediately
prior to such merger or consolidation continuing to represent (either
by remaining outstanding or by being converted into voting securities
of the surviving entity or any parent thereof), in combination with
the ownership of any trustee or other fiduciary holding securities
under an employee benefit plan of Parent or any subsidiary of Parent,
at least 75% of the combined voting power of the securities of Parent
or such surviving entity or any parent thereof outstanding immediately
after such merger or consolidation, or (B) a merger or consolidation
effected to implement a recapitalization of Parent (or similar
transaction) in which no person is or becomes the Beneficial Owner,
directly or indirectly, of securities of Parent representing 25% or
more of the combined voting power of Parent's then outstanding
securities; or
(iv) the stockholders of Parent approve a plan of complete liquidation or
dissolution of Parent or there is consummated an agreement for
<PAGE>
8
the sale or disposition by Parent of all or substantially all of
Parent's assets, other than a sale or disposition by Parent of all or
substantially all of Parent's assets to an entity, at least 75% of the
combined voting power of the voting securities of which are owned by
stockholders of Parent in substantially the same proportions as their
ownership of Parent immediately prior to such sale.
Notwithstanding the foregoing subparagraphs (i), (ii), (iii) and (iv), a
"Change in Control" shall not be deemed to have occurred by virtue of the
consummation of any transaction or series of integrated transactions immediately
following which the record holders of the common stock of Parent immediately
prior to such transaction or series of transactions continue to have
substantially the same proportionate ownership in an entity which owns all or
substantially all of the assets of Parent immediately following such transaction
or series of transactions.
3.5 A Supplemental Retirement Benefit which is payable in any form other
than a single life annuity over the lifetime of the Participant, or which
commences at any time prior to the Participant's Normal Retirement Date, shall
be the actuarial equivalent of the Supplemental Retirement Benefit set forth in
Subsection 3.1 above as determined by the same actuarial adjustments as those
specified in the Pension Plan with respect to determination of the amount of
retirement benefits payable pursuant to the Pension Plan on the date for
commencement of payment hereunder.
Section 4. Supplemental Surviving Spouse Benefit
4.1 If a Participant dies prior to commencement of payment of his Pension
Plan Retirement Benefit or Reinstatement Plan Retirement Benefit under
circumstances in which a Pension Plan Surviving Spouse Benefit or Reinstatement
Plan Surviving Spouse Benefit is payable to his Surviving Spouse, then a
Supplemental Surviving Spouse Benefit shall be payable
<PAGE>
9
to his Surviving Spouse as hereinafter provided. The Supplemental Surviving
Spouse Benefit payable to a Surviving Spouse shall be equal to the excess of (a)
over (b) where:
(a) is the sum of the amount of the Pension Plan Surviving Spouse
Benefit or Reinstatement Plan Surviving Spouse Benefit to which the
Surviving Spouse would have been entitled under the Pension Plan and
Reinstatement Plan, as applicable, if such benefits were computed with the
additional years of Credited Service provided for in this Plan; and
(b) is the sum of the Pension Plan Surviving Spouse Benefit and
Reinstatement Plan Surviving Spouse Benefit actually payable to the
Surviving Spouse.
4.2 A Supplemental Surviving Spouse Benefit shall be payable over the
lifetime of the Surviving Spouse only in monthly installments commencing on the
date for commencement of payment of the Pension Plan Surviving Spouse Benefit or
Reinstatement Plan Surviving Spouse Benefit, as applicable, (or if both are
payable, the earlier to commence) to the Surviving Spouse and terminating on the
date of the last payment of the Pension Plan Surviving Spouse Benefit or
Reinstatement Plan Surviving Spouse Benefit, as applicable, made before the
Surviving Spouse's death.
Section 5. Administration of the Plan
5.1 The Committee shall be the named fiduciary of this Plan responsible for
the general operation and administration of this Plan and for carrying out the
provisions thereof. The Committee shall have discretionary authority to construe
the terms of this Plan.
5.2 The Committee shall adopt such rules and procedures as it deems
necessary and advisable to administer this Plan and to transact its business.
Subject to the other requirements of this Section 5, the Committee may--
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10
(a) employ agents to carry out non-fiduciary responsibility;
(b) employ agents to carry out fiduciary responsibilities (other than
trustee responsibilities as defined in Section 405(c)(3) of ERISA);
(c) consult with counsel, who may be counsel to the Company or an
Affiliate; and
(d) provide for the allocation of fiduciary responsibilities (other
than trustee responsibilities as defined in Section 405(c)(3) of ERISA) among
its members.
However, any action described in sub-paragraphs (b) or (d) of this
Subsection 5.2, and any modification or rescission of any such action, may be
effected by the Committee only by a resolution approved by a majority of the
Committee. The Committee shall be entitled to rely conclusively upon all tables,
valuations, certificates, opinions and reports furnished any actuary,
accountant, controller, counsel or other person employed or engaged by the
Committee with respect to this Plan.
5.3 The Committee shall keep written minutes of all its proceedings, which
shall be open to inspection by the Board of Directors. In the case of any
decision by the Committee with respect to a claim for benefits under this Plan,
such Committee shall include in its minutes a brief explanation of the grounds
upon which such decision was based.
5.4 In performing their duties, the members of the Committee shall act
solely in the interest of the Participants in this Plan and their Beneficiaries
and
(a) for the exclusive purpose of providing benefits to Participants
and their Beneficiaries;
<PAGE>
11
(b) with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent person acting in like capacity and
familiar with such matters would use in the conduct of an enterprise of a like
character and with like aims; and
(c) in accordance with the documents and instruments governing this
Plan insofar as such documents and instruments are consistent with the
provisions of Title I of ERISA.
5.5 In addition to any other duties the Committee may have, the Committee
shall review the performance of all persons to whom the Committee shall have
delegated or allocated fiduciary duties pursuant to the provisions of this
Section 5.
5.6 The Company agrees to indemnify and reimburse, to the fullest extent
permitted by law, members of the Committee, directors and employees of the
Company and its Affiliates, and all such former members, directors and
employees, for any and all expenses, liabilities or losses arising out of any
act or omission relating to the rendition of services for or the management and
administration of this Plan.
5.7 No member of the Committee nor any delegate thereof shall be personally
liable by virtue of any contract, agreement or other instrument made or executed
by him or on his behalf in such capacity.
Section 6. Claims Procedure and Status Determination
6.1 Claims for benefits under this Plan and requests for a status
determination shall be filed in writing with the Company.
6.2 In the case of a claim for benefits, written notice shall be given to
the claiming Participant or Beneficiary of the disposition of such claim,
setting forth specific reasons for any
<PAGE>
12
denial of such claim in whole or in part. If a claim is denied in whole or in
part, the notice shall state that such Participant or Beneficiary may, within
sixty days of the receipt of such denial, request in writing that the decision
denying the claim be reviewed by the Committee and provide the Committee with
information in support of his position by submitting such information in writing
to the Secretary of the Committee.
6.3 The Committee shall review each claim for benefits which has been
denied in whole or in part and for which such review has been requested and
shall notify, in writing, the affected Participant or Beneficiary of its
decision and the reasons therefor.
6.4 In the case of a request for status determination, written notice shall
be given to the requesting person within a reasonable time setting forth
specific reasons for the decision.
Section 7. Amendment or Termination
7.1 The Company reserves the right to amend or terminate this Plan when, in
the sole opinion of the Company, such amendment or termination is advisable. Any
such amendment or termination shall be made pursuant to a resolution of the
Board or of the Employee Benefits Policy Committee and shall be effective as
provided for in such resolution.
7.2 No amendment or termination of this Plan shall directly or indirectly
deprive any current or former Participant, Beneficiary or Surviving Spouse of
all or any portion of any Supplemental Retirement Benefit or Supplemental
Surviving Spouse Benefit payment which has commenced prior to the effective date
of such amendment or termination or the right to which has accrued on such
effective date.
<PAGE>
13
Section 8. General Provisions
8.1 This Plan at all times shall be entirely unfunded and no provision
shall at any time be made with respect to segregating any assets of the Company
or any Affiliate for payment of any benefits hereunder. No Participant,
Beneficiary, Surviving Spouse or any other person shall have any interest in any
particular assets of the Company or any Affiliate by reason of the right to
receive a benefit under this Plan and any such Participant, Beneficiary,
Surviving Spouse or other person shall have only the rights of a general
unsecured creditor with respect to any rights under the Plan.
8.2 Except as otherwise expressly provided herein, all terms and conditions
of the Pension Plan and the Reinstatement Plan applicable to a benefits paid to
a Participant or a Surviving Spouse Benefit under such plans shall also be
applicable to a Supplemental Retirement Benefit or a Supplemental Surviving
Spouse Benefits payable hereunder. Any benefits payable under the Pension Plan
or the Reinstatement Plan, shall be paid solely in accordance with the
respective terms and conditions of the Pension Plan and the Reinstatement Plan
and nothing in this Plan shall operate or be construed in any way to modify,
amend or affect the terms and provisions of the Pension Plan or the
Reinstatement Plan.
8.3 Nothing contained in this Plan shall constitute a guaranty by the
Company or any other entity or person that the assets of the Company or any
Affiliate will be sufficient to pay any benefit hereunder.
8.4 No Participant or Surviving Spouse shall have any right to a benefit
under this Plan except in accordance with the terms of this Plan. Establishment
of this Plan shall not be
<PAGE>
14
construed to give any Participant the right to be retained in the service of the
Company or any Affiliate.
8.5 No interest of any person or entity in, or right to receive a benefit
under, this Plan shall be subject in any manner to sale, transfer, assignment,
pledge, attachment, garnishment or other alienation or encumbrance of any kind;
nor any such interest or right to receive a benefits be taken, either
voluntarily or involuntarily, for the satisfaction of the debts of, or other
obligations or claims against, such person or entity, including claims for
alimony, support, separate maintenance and claims in bankruptcy proceedings.
8.6 This Plan shall be construed and administered under the laws of the
United States and the State of New Jersey to the extent not superseded by
Federal law.
8.7 If the present value of any Supplemental Retirement Benefit or
Supplemental Surviving Spouse benefit is less than $3,500, the Company may pay
the present value of such Benefit to the Participant or Surviving Spouse in a
single lump sum in lieu of any further benefit payments hereunder.
8.8 Actuarial assumptions to determine the present value of any benefit
hereunder shall be the same as used to determine the present value of benefits
under the Pension Plan.
8.9 If any person entitled to a benefit payment under this Plan is deemed
by the Committee to be incapable of personally receiving and giving a valid
receipt for such payment, then, unless and until claim therefor shall have been
made by a duly appointed guardian or other legal representative of such person,
the Committee may provide for such payment or any part thereof to be made to any
other person or institution then contributing toward or providing for the care
and maintenance of such person. Any such payment shall be a payment for the
account
<PAGE>
15
of such person and a complete discharge of any liability of the Company and this
Plan therefor.
8.10 This Plan shall inure to the benefit of and be binding upon the
Company, its successors and assigns, including but not limited to any
corporation which may acquire all or substantially all of the Company's assets
and business or with or into which the Company may be consolidated or merged.
8.11 Each Participant shall keep the Company informed of his current
address and the current address of his spouse. The Company shall not be
obligated to search for the whereabouts of any person. If the location of a
Participant is not made known to the Company within three (3) years after the
date on which payment of the Participant's Supplemental Retirement Benefit may
first be made, payment may be made as though the Participant had died at the end
of the three-year period. If, within one additional year after such three-year
period has elapsed, or, within three years after the actual death of a
Participant, the Company is unable to locate any Surviving Spouse of the
Participant, then the Company shall have no further obligation to pay any
benefit hereunder to such Participant or Surviving Spouse or any other person
and such benefit shall be irrevocably forfeited.
8.12 Notwithstanding any of the preceding provisions of this Plan, none of
the Company, the Committee or any individual acting as an employee or agent of
the Company or the Committee shall be liable to any Participant, former
Participant, Surviving Spouse or any other person for any claim, loss, liability
or expense incurred in connection with this Plan.
Section 9. Miscellaneous
9.1 As used herein, words in the masculine gender shall include the
feminine and the singular shall include the plural, and vice versa, unless
otherwise required by the context. Any
<PAGE>
16
headings used herein are included for ease of reference only and are not to be
construed so as to alter the terms hereof.
RETIREMENT INCOME REINSTATEMENT PLAN
FOR NON-REPRESENTED EMPLOYEES OF
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
AND ITS AFFILIATES
As Amended December 15, 1998
<PAGE>
TABLE OF CONTENTS
Section 1. Definitions........................................................1
Section 2. Eligibility........................................................5
Section 3. Supplemental Retirement Benefit....................................5
Section 4. Supplemental Surviving Spouse Benefit..............................7
Section 5. Administration of the Plan.........................................8
Section 6. Claims Procedure and Status Determination.........................10
Section 7. Amendment or Termination..........................................11
Section 8. General Provisions................................................11
Section 9. Miscellaneous.....................................................14
<PAGE>
RETIREMENT INCOME REINSTATEMENT PLAN
FOR NON-REPRESENTED EMPLOYEES OF
PUBLIC SERVICE ELECTRIC AND GAS
COMPANY AND ITS AFFILIATES
This Retirement Income Reinstatement Plan for Non-Represented Employees of
Public Service Electric and Gas Company and its Affiliates is adopted effective
January 1, 1995. This Plan is established and maintained by Public Service
Electric and Gas Company and its Participating Affiliates solely for the purpose
of assisting in attracting and retaining a stable pool of key managerial and
professional talent and long-term key employee commitment by providing certain
supplemental retirement benefits for certain of their employees who participate
in the Pension Plan of Public Service Electric and Gas Company or the Cash
Balance Pension Plan of Public Service Electric and Gas Company. This Plan is
intended to constitute an unfunded "excess benefit plan" as defined in Section
3(36) of the ERISA, to the extent it provides benefits that would be paid under
the Pension Plan of Public Service Electric and Gas Company or the Cash Balance
Pension Plan of Public Service Electric and Gas Company but for the limitations
of Section 415 of the Code, and an unfunded plan of deferred compensation for a
select group of management or highly compensated employees for purposes of Title
1 of ERISA, to the extent it provides other benefits.
Accordingly, Public Service Electric and Gas Company hereby adopts this
Plan pursuant to the terms and provisions set forth below:
Section 1. Definitions
When used herein, the words and phrases hereinafter defined shall have the
following meanings unless a different meaning is clearly required by the context
of the Plan:
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1.1 "Affiliate" shall mean any organization which is a member of a
controlled group of Companies (as defined in Code Section 414(b), as modified by
Code Section 415(h)) which includes the Company; or any trades or businesses
(whether or not incorporated) which are under common control (as defined in Code
Section 414(c), as modified by Code Section 415(h)) with the Company; or a
member of an affiliated service group (as defined in Code Section 414(m)) which
includes the Company or any other entity required to be aggregated with the
Company as required by regulations promulgated pursuant to Code Section 414(o).
1.2 "Beneficiary" shall mean any person or persons selected by a
Participant on a form provided by the Company who may become eligible to receive
to receive the benefits provided under this Plan in the event of such
Participant's death.
1.3 "Benefit Limitation" shall mean the maximum annual benefit payable to a
Participant under the Pension Plan or the Cash Balance Plan in accordance with
Section 415 of the Code.
1.4 "Board of Directors" or "Board" shall mean the Board of Directors of
the Company.
1.5 "Cash Balance Plan" shall mean the Cash Balance Pension Plan of Public
Service Electric and Gas Company and each successor or replacement plan.
1.6 "Code" shall mean the Internal Revenue Code of 1986, as amended, and as
same may be amended from time to time.
1.7 "Company" shall mean Public Service Electric and Gas Company.
1.8 "Compensation" shall mean compensation as defined in the Pension Plan
or the Cash Balance Plan, as the case may be, except, for the purposes hereof,
Compensation shall also
<PAGE>
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include amounts which have been deferred under any Deferred Compensation Plan of
the Company or any Participating Affiliate which would otherwise be excluded
solely on account of Subsection 1.6(a) of the Pension Plan or, as the case may
be, Subsection 1.1(k)(1) of the Cash Balance Plan.
1.9 "Compensation Limitation" shall mean the maximum amount of annual
compensation under Section 401(a)(17) of the Code that may be taken into account
in any Plan Year for benefit accrual purposes under the Pension Plan or the Cash
Balance Plan.
1.10 "Employee" shall mean any individual in the employ of the Company or a
Participating Affiliate who is not included within a unit of employees covered
by a collective bargaining agreement. The term "Employee" shall not include a
director of the Company or a Participating Affiliate who serves in no capacity
other than as a director, a consultant or independent contractor doing work for
the Company or a Participating Affiliate or a person employed by a consultant or
independent contractor doing work for the Company or a Participating Affiliate.
1.11 "Employee Benefits Committee" or "Committee" shall mean the Employee
Benefits Committee of Public Service Electric and Gas Company.
1.12 "Employee Benefits Policy Committee" shall mean the Employee Benefits
Policy Committee of Public Service Enterprise Group Incorporated, the Company's
parent.
1.13 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and as the same may be amended from time to time.
1.14 "Normal Retirement Date" shall mean the first day of the month
coinciding with or next following a Participant's attainment of age 65.
<PAGE>
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1.15 "Participant" shall mean any Employee or former Employee of the
Company or a Participating Affiliate who meets the requirements of Subsection
2.1 of the Plan.
1.16 "Participating Affiliate" shall mean any Affiliate of the Company
which (a) is the sponsor or a Participating Affiliate of the Pension Plan and/or
the Cash Balance Plan; (b) adopts this Plan with the approval of the Board of
Directors; (c) authorizes the Board of Directors and the Employee Benefits
Committee to act for it in all matters arising under or with respect to this
Plan; and (d) complies with such other terms and conditions relating to this
Plan as may be imposed by the Board of Directors.
1.17 "Pension Plan" shall mean the Pension Plan of Public Service Electric
and Gas Company and each successor or replacement plan.
1.18 "Pension Plan Retirement Benefit" shall mean the aggregate annual
benefit payable to a Participant pursuant to the Pension Plan or the Cash
Balance Plan, as the case may be, by reason of the Participant's termination of
employment with the Company and all Affiliates for any reason other than death.
1.19 "Pension Plan Surviving Spouse Benefit" shall mean the aggregate
annual benefit payable to the Surviving Spouse of a Participant pursuant to the
Pension Plan or the Cash Balance Plan, as the case may be, in the event of the
death of the Participant at any time prior to commencement of payment of the
Participant's Pension Plan Retirement Benefit.
1.20 "Plan" shall mean this Retirement Income Reinstatement Plan for
Non-Represented Employees of Public Service Electric and Gas Company and Its
Affiliates.
1.21 "Plan Year" shall mean the calendar year.
<PAGE>
-5-
1.22 "Supplemental Retirement Benefit" shall mean the benefit payable to a
Participant pursuant to this Plan by reason of the Participant's termination of
employment with the Company and all Affiliates for any reason other than death.
1.23 "Surviving Spouse" shall mean a person who is married to a Participant
at the date of the Participant's death.
1.24 "Supplemental Surviving Spouse Benefit" shall mean the benefit payable
to a Surviving Spouse pursuant to this Plan.
Section 2. Eligibility
2.1 A Participant who is eligible to receive a Pension Plan Retirement
Benefit, the amount of which is reduced by reason of (a) the application of the
limitations on benefits imposed by application of any provisions of the Code, as
in effect on the date for commencement of the Pension Plan Retirement Benefit or
as in effect at any time thereafter, to the Pension Plan or the Cash Balance
Plan, as the case may be, or (b) the restrictions of Subsection 1.6(a) of the
Pension Plan or Subsection 1.1(k)(1) of the Cash Balance Plan, shall be eligible
to receive a Supplemental Retirement Benefit. The Surviving Spouse of a
Participant described in the preceding sentence who dies prior to commencement
of payment of his Pension Plan Retirement Benefit shall be eligible to receive a
Supplemental Surviving Spouse Benefit.
Section 3. Supplemental Retirement Benefit
3.1 The Supplemental Retirement Benefit payable to an eligible Participant
shall be equal to the excess of (a) over (b) where:
(a) is the amount of Pension Plan Retirement Benefit to which the
Participant would have been entitled under the Pension Plan or the Cash Balance
Plan, as the case may be, if
<PAGE>
-6-
such benefit were computed without regard to (i) the exclusion of any amounts
pursuant to Subsection 1.6(a) of the Pension Plan, (ii) the exclusion of any
amounts pursuant to Subsection 1.1(k)(1) of the Cash Balance Plan, (iii) the
Benefit Limitation or (iv) the Compensation Limitation; and
(b) is the amount of the Pension Plan Retirement Benefit actually
payable to the Participant or payable to a third party on the Participant's
behalf under the Pension Plan or the Cash Balance Plan, as the case may be.
The amounts described in (a) and (b) shall be computed as of the date
of termination of employment of the Participant with the Company and all
Affiliates in the form of a single life annuity payable over the lifetime of the
Participant only commencing on his Normal Retirement Date.
3.2. The Supplemental Retirement Benefit payable to a Participant shall be
paid in the same form under which the Pension Plan Retirement Benefit is payable
to the Participant (including the election to receive a lump sum distribution of
the present value of any benefit). The Participant's election under the Pension
Plan or the Cash Balance Plan, as the case may be, of any optional form of
payment of his Pension Plan Retirement Benefit (with the valid consent of his
spouse where required under the Pension Plan or the Cash Balance Plan, as the
case may be) shall also be applicable to the payment of his Supplemental
Retirement Benefit.
3.3 Payment of the Supplemental Retirement Benefit to a Participant shall
commence on the same date as payment of the Pension Plan Retirement Benefit to
the Participant commences. Any election under the Pension Plan or the Cash
Balance Plan, as the case may be, made by the Participant with respect to the
commencement of payment of his Pension Plan
<PAGE>
-7-
Retirement Benefit shall also be applicable with respect to the commencement of
payment of his Supplemental Retirement Benefit.
3.4 (a) Notwithstanding the provisions of Sections 3.2 and 3.3 above, an
election made by the Participant under the Pension Plan or the Cash Balance
Plan, as the case may be, with respect to the form of payment of his Pension
Plan Retirement Benefit (with the valid consent of his spouse where required
under the Pension Plan), or the date for commencement of payment thereof, shall
not be effective with respect to the form of payment or date for commencement of
payment of his Supplemental Retirement Benefits hereunder unless such election
is expressly approved by the Committee with respect to his Supplemental
Retirement Benefit; provided, however, that, notwithstanding any other provision
of this Plan, no such approval shall be required from and after the occurrence
of a Change in Control (as defined below). If the Committee shall not approve
such election, then the form of payment or date for commencement of payment of
the Participant's Supplemental Retirement Benefits shall be selected by the
Committee in its sole discretion.
(b) "Change in Control. For the purposes hereof, a Change in Control shall
mean the occurrence of any of the following events:
(i) any "person" (within the meaning of Section 13(d) of the
Securities Exchange Act of 1934, as amended from time to time (the "Act"))
is or becomes the beneficial owner within the meaning of Rule 13d-3 under
the Act (a "Beneficial Owner"), directly or indirectly, of securities of
the Corporation (not including in the securities beneficially owned by such
person any securities acquired directly from the Corporation or its
affiliates) representing 25% or more of the combined voting power of the
Corporation's then outstanding securities, excluding
<PAGE>
-8-
any person who becomes such a Beneficial Owner in connection with a
transaction described in clause (A) of paragraph (iii) below; or
(ii) the following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals who, on
December 15, 1998, constitute the Board of Directors and any new director
(other than a director whose initial assumption of office is in connection
with an actual or threatened election contest, including but not limited to
a consent solicitation, relating to the election of directors of the
Corporation) whose appointment or election by the Board of Directors or
nomination for election by the Corporation's stockholders was approved or
recommended by a vote of at least two-thirds (2/3) of the directors then
still in office who either were directors on December 15, 1998 or whose
appointment, election or nomination for election was previously so approved
or recommended; or
(iii) there is consummated a merger or consolidation of the
Corporation or any direct or indirect wholly owned subsidiary of the
Corporation with any other corporation, other than (A) a merger or
consolidation which would result in the voting securities of the
Corporation outstanding immediately prior to such merger or consolidation
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity or any parent
thereof), in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of the
Corporation or any subsidiary of the Corporation, at least 75% of the
combined voting power of the securities of the Corporation or such
surviving entity or any parent thereof outstanding immediately after such
merger or consolidation, or (B) a merger or consolidation effected to
implement a recapitalization of the Corporation (or similar transaction) in
which no person is or becomes the Beneficial Owner, directly or indirectly,
of securities of the Corporation representing 25% or more of the combined
voting power of the Corporation's then outstanding securities; or
(iv) the stockholders of the Corporation approve a plan of complete
liquidation or dissolution of the Corporation or there is consummated an
agreement for the sale or disposition by the Corporation of all or
substantially all of the Corporation's assets, other than a sale or
disposition by the Corporation of all or substantially all of the
Corporation's assets to an entity, at least 75% of the combined voting
power of the voting securities of which are owned by stockholders of the
Corporation in substantially the same proportions as their ownership of the
Corporation immediately prior to such sale.
<PAGE>
-9-
Notwithstanding the foregoing subparagraphs (i), (ii), (iii) and (iv), a
"Change in Control" shall not be deemed to have occurred by virtue of the
consummation of any transaction or series of integrated transactions immediately
following which the record holders of the common stock of the Corporation
immediately prior to such transaction or series of transactions continue to have
substantially the same proportionate ownership in an entity which owns all or
substantially all of the assets of the Corporation immediately following such
transaction or series of transactions.
3.5 A Supplemental Retirement Benefit which is payable in any form other
than a single life annuity over the lifetime of the Participant, or which
commences at any time prior to the Participant's Normal Retirement Date, shall
be the actuarial equivalent of the Supplemental Retirement Benefit set forth in
Subsection 3.1 above as determined by the same actuarial adjustments as those
specified in the Pension Plan or the Cash Balance Plan, as the case may be, with
respect to determination of the amount of the Pension Plan Retirement Benefit on
the date for commencement of payment hereunder.
Section 4. Supplemental Surviving Spouse Benefit
4.1 If a Participant dies prior to commencement of payment of his Pension
Plan Retirement Benefit under circumstances in which a Pension Plan Surviving
Spouse Benefit is payable to his Surviving Spouse, then a Supplemental Surviving
Spouse Benefit shall be payable to his Surviving Spouse as hereinafter provided.
The Supplemental Surviving Spouse Benefit payable to a Surviving Spouse shall be
equal to the excess of (a) over (b) where:
(a) is the amount of Pension Plan Surviving Spouse Benefit to which
the
<PAGE>
-10-
Surviving Spouse would have been entitled under the Pension Plan or the
Cash Balance Plan, as the case may be, if such benefit were computed
without regard to (i) the exclusion of any amounts pursuant to Subsection
1.6(a) of the Pension Plan, (ii) the exclusion of any amounts pursuant to
Subsection 1.1(k)(1) of the Cash Balance Plan, (iii) the Benefit Limitation
or (iv) the Compensation Limitation; and
(b) is the amount of the Pension Plan Surviving Spouse Benefit
actually payable to the Surviving Spouse under the Pension Plan or the Cash
Balance Plan, as the case may be.
4.2 A Supplemental Surviving Spouse Benefit shall be payable over the
lifetime of the Surviving Spouse only in monthly installments commencing on the
date for commencement of payment of the Pension Plan Surviving Spouse Benefit to
the Surviving Spouse and terminating on the date of the last payment of the
Pension Plan Surviving Spouse Benefit made before the Surviving Spouse's death.
Section 5. Administration of the Plan
5.1 The Committee shall be the named fiduciary of this Plan responsible for
the general operation and administration of this Plan and for carrying out the
provisions thereof. The Committee shall have discretionary authority to construe
the terms of this Plan.
5.2 The Committee shall adopt such rules and procedures as it deems
necessary and advisable to administer this Plan and to transact its business.
Subject to the other requirements of this Section 5, the Committee may--
(a) employ agents to carry out non-fiduciary responsibility;
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(b) employ agents to carry out fiduciary responsibilities (other than
trustee responsibilities as defined in Section 405(c)(3) of ERISA);
(c) consult with counsel, who may be counsel to the Company or an
Affiliate; and
(d) provide for the allocation of fiduciary responsibilities (other
than trustee responsibilities as defined in Section 405(c)(3) of ERISA)
among its members.
However, any action described in sub-paragraphs (b) or (d) of this
Subsection 5.2, and any modification or rescission of any such action, may be
effected by the Committee only by a resolution approved by a majority of the
Committee. The Committee shall be entitled to rely conclusively upon all tables,
valuations, certificates, opinions and reports furnished any actuary,
accountant, controller, counsel or other person employed or engaged by the
Committee with respect to this Plan.
5.3 The Committee shall keep written minutes of all its proceedings, which
shall be open to inspection by the Board of Directors. In the case of any
decision by the Committee with respect to a claim for benefits under this Plan,
such Committee shall include in its minutes a brief explanation of the grounds
upon which such decision was based.
5.4 In performing their duties, the members of the Committee shall act
solely in the interest of the Participants in this Plan and their Beneficiaries
and
(a) for the exclusive purpose of providing benefits to Participants
and their Beneficiaries;
(b) with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent person acting in like capacity
and familiar with such matters would use
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in the conduct of an enterprise of a like character and with like aims; and
(c) in accordance with the documents and instruments governing this
Plan insofar as such documents and instruments are consistent with the
provisions of Title I of ERISA.
5.5 In addition to any other duties the Committee may have, the Committee
shall review the performance of all persons to whom the Committee shall have
delegated or allocated fiduciary duties pursuant to the provisions of this
Section 5.
5.6 The Company agrees to indemnify and reimburse, to the fullest extent
permitted by law, members of the Committee, directors and employees of the
Company and its Affiliates, and all such former members, directors and
employees, for any and all expenses, liabilities or losses arising out of any
act or omission relating to the rendition of services for or the management and
administration of this Plan.
5.7 No member of the Committee nor any delegate thereof shall be personally
liable by virtue of any contract, agreement or other instrument made or executed
by him or on his behalf in such capacity.
Section 6. Claims Procedure and Status Determination
6.1 Claims for benefits under this Plan and requests for a status
determination shall be filed in writing with the Company.
6.2 In the case of a claim for benefits, written notice shall be given to
the claiming Participant or Beneficiary of the disposition of such claim,
setting forth specific reasons for any denial of such claim in whole or in part.
If a claim is denied in whole or in part, the notice shall state that such
Participant or Beneficiary may, within sixty days of the receipt of such denial,
<PAGE>
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request in writing that the decision denying the claim be reviewed by the
Committee and provide the Committee with information in support of his position
by submitting such information in writing to the Secretary of the Committee.
6.3 The Committee shall review each claim for benefits which has been
denied in whole or in part and for which such review has been requested and
shall notify, in writing, the affected Participant or Beneficiary of its
decision and the reasons therefor.
6.4 In the case of a request for status determination, written notice shall
be given to the requesting person within a reasonable time setting forth
specific reasons for the decision.
Section 7. Amendment or Termination
7.1 The Company reserves the right to amend or terminate this Plan when, in
the sole opinion of the Company, such amendment or termination is advisable. Any
such amendment or termination shall be made pursuant to a resolution of the
Board or of the Employee Benefits Policy Committee and shall be effective as
provided for in such resolution.
7.2 No amendment or termination of this Plan shall directly or indirectly
deprive any current or former Participant, Beneficiary or Surviving Spouse of
all or any portion of any Supplemental Retirement Benefit or Supplemental
Surviving Spouse Benefit payment which has commenced prior to the effective date
of such amendment or termination or the right to which has accrued on such
effective date.
Section 8. General Provisions
8.1 This Plan at all times shall be entirely unfunded and no provision
shall at any time be made with respect to segregating any assets of the Company
or any Affiliate for payment of any benefits hereunder. No Participant,
Beneficiary, Surviving Spouse or any other person shall
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have any interest in any particular assets of the Company or any Affiliate by
reason of the right to receive a benefit under this Plan and any such
Participant, Beneficiary, Surviving Spouse or other person shall have only the
rights of a general unsecured creditor with respect to any rights under the
Plan.
8.2 Except as otherwise expressly provided herein, all terms and conditions
of the Pension Plan or the Cash Balance Plan, as the case may be, applicable to
a Pension Plan Retirement Benefit or a Pension Plan Surviving Spouse Benefit
shall also be applicable to a Supplemental Retirement Benefit or a Supplemental
Surviving Spouse Benefits payable hereunder. Any Pension Plan Retirement Benefit
or Pension Plan Surviving Spouse Benefit, or any other benefit payable under the
Pension Plan or the Cash Balance Plan, as the case may be, shall be paid solely
in accordance with the terms and conditions of the Pension Plan or the Cash
Balance Plan, as the case may be, and nothing in this Plan shall operate or be
construed in any way to modify, amend or affect the terms and provisions of the
Pension Plan or the Cash Balance Plan, as the case may be.
8.3 Nothing contained in this Plan shall constitute a guaranty by the
Company or any other entity or person that the assets of the Company or any
Affiliate will be sufficient to pay any benefit hereunder.
8.4 No Participant or Surviving Spouse shall have any right to a benefit
under this Plan except in accordance with the terms of this Plan. Establishment
of this Plan shall not be construed to give any Participant the right to be
retained in the service of the Company or any Affiliate.
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8.5 No interest of any person or entity in, or right to receive a benefit
under, this Plan shall be subject in any manner to sale, transfer, assignment,
pledge, attachment, garnishment or other alienation or encumbrance of any kind;
nor any such interest or right to receive a benefits be taken, either
voluntarily or involuntarily, for the satisfaction of the debts of, or other
obligations or claims against, such person or entity, including claims for
alimony, support, separate maintenance and claims in bankruptcy proceedings.
8.6 This Plan shall be construed and administered under the laws of the
United States and the State of New Jersey to the extent not superseded by
Federal law.
8.7 If the present value of any Supplemental Retirement Benefit or
Supplemental Surviving Spouse benefit is less than $3,500, the Company may pay
the present value of such Benefit to the Participant or Surviving Spouse in a
single lump sum in lieu of any further benefit payments hereunder.
8.8 Actuarial assumptions to determine the present value of any benefit
hereunder shall be the same as used to determine the present value of benefits
under the Pension Plan or the Cash Balance Plan, as the case may be.
8.9 If any person entitled to a benefit payment under this Plan is deemed
by the Committee to be incapable of personally receiving and giving a valid
receipt for such payment, then, unless and until claim therefor shall have been
made by a duly appointed guardian or other legal representative of such person,
the Committee may provide for such payment or any part thereof to be made to any
other person or institution then contributing toward or providing for the care
and maintenance of such person. Any such payment shall be a payment for the
account of such person and a complete discharge of any liability of the Company
and this Plan therefor.
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8.10 The Plan shall inure to the benefit of and be binding upon the
Company, its successors and assigns, including but not limited to any
corporation which may acquire all or substantially all of the Company's assets
or businesses or with or into or which the Company may be consolidated or
merged.
8.11 Each Participant shall keep the Company informed of his current
address and the current address of his spouse. The Company shall not be
obligated to search for the whereabouts of any person. If the location of a
Participant is not made known to the Company within three (3) years after the
date on which payment of the Participant's Supplemental Retirement Benefit may
first be made, payment may be made as though the Participant had died at the end
of the three-year period. If, within one additional year after such three-year
period has elapsed, or, within three years after the actual death of a
Participant, the Company is unable to locate any Surviving Spouse of the
Participant, then the Company shall have no further obligation to pay any
benefit hereunder to such Participant or Surviving Spouse or any other person
and such benefit shall be irrevocably forfeited.
8.12 Notwithstanding any of the preceding provisions of this Plan, none of
the Company, the Committee or any individual acting as an employee or agent of
the Company or the Committee shall be liable to any Participant, former
Participant, Surviving Spouse or any other person for any claim, loss, liability
or expense incurred in connection with this Plan.
Section 9. Miscellaneous
9.1 As used herein, words in the masculine gender shall include the
feminine and the singular shall include the plural, and vice versa, unless
otherwise required by the context. Any headings used herein are included for
ease of reference only and are not to be construed so as to
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alter the terms hereof.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
1989 LONG-TERM INCENTIVE PLAN
Amended December 15, 1998
<PAGE>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
1989 LONG-TERM INCENTIVE PLAN
ARTICLE I
PURPOSE
Section 1.1 Purpose. This Public Service Enterprise Group Incorporated 1989
Long-Term Incentive Plan is intended to advance the interests of the Company and
its Affiliates by affording an incentive to officers and other key employees to
acquire a proprietary interest in the Company in order to induce them to exert
their maximum efforts toward the Company's success, to remain in its employ and
to more closely align the interests of such key employees with the long-term
interests of the Company's Stockholders. The Plan is also intended to attract to
the Company and its Affiliates individuals of experience and ability by
providing a more competitive total compensation program.
Section 1.2 Types of Awards. This Plan allows the Company to grant
Non-Qualified Stock Options, which Options may, at the discretion of the
Committee, be granted in tandem with Dividend Equivalents and/or Performance
Units, to officers and key employees of the Company and its Affiliates.
ARTICLE II
DEFINITIONS
When used herein, the words and phrases hereinafter defined shall have the
following meanings unless a different meaning is clearly required by the context
of the Plan:
Section 2.1 "Affiliate" shall mean any organization which is a member of a
controlled group of corporations (as defined in Code section 414(b) as modified
by Code section 415(h)) which includes the Company, or any trades or businesses
(whether or not incorporated) which are under common control (as defined in Code
section 414(c) as modified by Code section 415(h)) with the Company, or a member
of an affiliated service group (as defined in Code section 414(m)) which
includes the Company, or any other entity required to be aggregated with the
Company pursuant to regulations promulgated pursuant to Code section 414(o).
Section 2.2 "Award Cycle" shall have the meaning specified in Section 6.1.
Section 2.3 "Board of Directors" shall mean the Board of Directors of the
Company.
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Section 2.4 "Code" shall mean the Internal Revenue Code of 1986, as
amended, or as it may be amended from time to time.
Section 2.5 "Committee" shall mean the Organization and Compensation
Committee of the Board of Directors.
Section 2.6 "Common Stock" shall mean the Common Stock, without nominal or
par value of the Company.
Section 2.7 "Company" shall mean Public Service Enterprise Group
Incorporated, a New Jersey corporation.
Section 2.8 "Director" shall mean a member of the Board of Directors.
Section 2.9 "Disability" shall mean any physical or mental condition which
renders a Participant incapable of performing further work for his or her
employer, as certified in writing by a medical practitioner designated and/or
approved by the Committee.
Section 2.10 "Dividend Equivalent" shall have the meaning specified in
Section 6.2.
Section 2.11 "Exchange Act" shall mean the Securities and Exchange Act of
1934, as amended, or as it may be amended from time to time.
Section 2.12 "Fair Market Value" shall mean, as of a given date, if the
shares of Common Stock are listed as of such date on the NYSE, the closing price
on such date. If the shares are not then listed on the NYSE, and if the shares
of Common Stock are then listed on any other national securities exchange or
traded on the over-the-counter market, the fair market value shall be the
closing price on such exchange or on the NASDAQ National Market System or the
mean of the closing bid and asked prices of the shares of Common Stock on the
over-the-counter market, as reported by the NASDAQ, the National Association of
Securities Dealers OTC Bulletin Board or the National Quotation Bureau, Inc., as
the case may be, on such date or, if there is no closing price or bid or asked
price on that day, the closing price or mean of the closing bid and asked prices
on the most recent day preceding such date for which such prices are available.
Section 2.13 "NASDAQ" shall mean the National Association of Securities
Dealers Automated Quotation System.
Section 2.14 "NYSE" shall mean the New York Stock Exchange, Inc.
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Section 2.15 "Option" shall mean a non-qualified stock option, that is, a
stock option which is not intended to qualify as an "incentive stock option" as
that term is defined in Section 422(b) of the Code.
Section 2.16 "Option Price" shall mean the exercise price for any Options
granted pursuant to the Plan computed in accordance with Section 6.1(b) or
6.1(d), as appropriate.
Section 2.17 "Participant" shall mean any officer or key employee of the
Company or an Affiliate who has been granted an Option pursuant to this Plan.
Section 2.18 "Performance Unit" shall have the meaning specified in Section
6.3 of this Plan.
Section 2.19 "Plan" shall mean this Public Service Enterprise Group
Incorporated 1989 Long-Term Incentive Plan, as amended.
Section 2.20 "Purchase Price" shall mean the Option Price times the number
of shares with respect to which an Option is exercised.
Section 2.21 "Retirement" shall mean the termination of employment by a
Participant other than by reason of his death:
(a) under circumstances entitling the Participant to an immediately
payable periodic retirement benefit under any pension plan of his employer,
or
(b) at or after age 65.
Section 2.22 "Securities Act" shall mean the Securities Act of 1933, as
amended, or as it may be amended from time to time.
Section 2.23 "Share" shall mean a share of Common Stock.
Section 2.24 "Stockholders" shall mean the holders of Common Stock entitled
to vote in an election of Directors.
ARTICLE III
SHARES SUBJECT TO THE PLAN
Section 3.1 Total Shares Available. The total number of shares of Common
Stock that may be subject to Options granted under the Plan shall be 5,000,000
shares in the aggregate, subject to adjustment as provided in Article VIII. This
shall include shares both granted pursuant
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to Options and paid as Performance Units. Shares of Common Stock issued pursuant
to this Plan may be either authorized but unissued shares or shares now or
hereafter acquired in the open market by a agent independent of the Company, as
selected by the Company. In the event any Option or Performance Unit granted
under the Plan shall expire or terminate for any reason without having been
exercised in full or shall cease for any reason to be exercisable in whole or in
part, the unpurchased shares subject thereto shall again be available for the
granting of Options or Performance Units under the Plan.
ARTICLE IV
ELIGIBILITY
Section 4.1 Eligible Recipients. Options may be granted from time to time
under the Plan to one or more officers or key employees of the Company or any
Affiliate.
ARTICLE V
ADMINISTRATION OF THE PLAN.
Section 5.1 Committee. The Plan shall be administered by the Committee. No
member of the Committee shall be eligible to participate in the Plan.
Within the limits of the express provisions of the Plan, the Committee
shall have the authority, subject to such orders or resolutions, not
inconsistent with the provisions of the Plan, as may from time to time be issued
or adopted by the Board of Directors, in its discretion to determine the
individuals to whom, and the time or times at which, Options shall be granted,
the number of shares of Common Stock to be subject to each Option, whether any
Option shall be granted in tandem with Dividend Equivalents and/or Performance
Units, the limitations, restrictions and conditions applicable to each Option
grant, the terms and provisions of option agreements that may be entered into in
connection with Options (which need not be identical), to interpret the Plan, to
prescribe, amend and rescind rules and regulations relating to the Plan and to
make all other determinations and take all other actions necessary or advisable
for the administration of the Plan.
In making its determinations relating to Option grants, the Committee may
consult with the Chief Executive Officer of the Company and may take into
account the recommendations of the Chief Executive Officer with respect to
grants made to other employees. The Committee may also take into account the
nature of the services rendered by such individuals, their present and potential
contributions to the Company's success and such other factors as the Committee,
in its discretion, shall deem relevant.
The Committee's determinations on the matters regarding this Plan
(including matters referred to in this Section 5.1) shall be conclusive and
shall be binding on the Company, its Stockholders, its Affiliates, all
Participants, all other employees and all other persons.
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Section 5.2 Section 16 of the Exchange Act. Notwithstanding anything
contained herein to the contrary, the Committee shall have the exclusive right
to grant Options to persons subject to Section 16 of the Exchange Act and set
forth the terms and conditions thereof. With respect to persons subject to
Section 16 of the Exchange Act, transactions under the Plan are intended to
comply with all applicable conditions of Rule 16b-3, as amended from time to
time (and its successor provisions, if any), under the Exchange Act. To the
extent any provision of the Plan or action by the Board of Directors or the
Committee fails to so comply, it shall be deemed null and void to the extent
required by law and to the extent deemed advisable by the Board of Directors
and/or the Committee.
Section 5.3 Retention of Advisors. The Committee may retain such counsel,
consultants or advisors as it shall deem necessary or appropriate in the
performance of its duties and may rely upon any opinion or computation received
from any such counsel, consultant or advisor. Expenses incurred by the Committee
in the engagement of such counsel, consultant or advisor shall be paid by the
Company or such Affiliate whose employees have benefited from the Plan, as
determined by the Committee. The Company shall indemnify members of the
Committee and any agent of the Committee who is an employee of the Company or an
Affiliate against any and all liabilities or expenses to which they may be
subjected by reason of any act or failure to act with respect to their duties on
behalf of the Plan, except in circumstances involving such person's gross
negligence or willful misconduct.
ARTICLE VI
TERMS OF OPTIONS
Section 6.1 Option Provisions. The Committee may grant Options within the
limits of the express provisions of the Plan. An Option shall enable the
Participant to purchase from the Company, at any time during a specified
exercise period, a specified number of shares of Common Stock at a specified
Option Price. The character and terms of each Option granted under the Plan
shall be determined by the Committee consistent with the provisions of the Plan,
including the following:
(a) The Option Price of the shares of Common Stock of Options granted in
tandem with Dividend Equivalents and/or Performance Units shall not be
less than the Fair Market Value of such shares of Common Stock as of
the time such Option is granted.
(b) Any Option granted in tandem with Dividend Equivalents and/or
Performance Units shall be administered in Award Cycles relating to
the performance of the Company and/or one or more of its Affiliates
throughout a period determined by the Committee. The Committee shall
define the length of any such Award
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Cycle, as well as one or more goals for each such Award Cycle to
measure such performance
(c) The Option Price of the shares of Common Stock of Options not granted
in tandem with Dividend Equivalents and Performance Units shall be
determined by the Committee, in its sole discretion.
(d) In no event shall any Option granted under the Plan have an expiration
date later than ten (10) years from the date of its grant and all
Options granted under the Plan shall be subject to earlier termination
as expressly provided in this Article VI.
(e) Unless otherwise provided in any option agreement under the Plan, an
Option granted under the Plan shall become exercisable, in whole at
any time or in part from time to time, but in no case may an Option
(i) be exercised as to less than one hundred (100) shares of Common
Stock at any one time, or the remaining shares of Common Stock covered
by the Option if less than one hundred (100), and (ii) become fully
exercisable more than ten (10) years from the date of its grant.
Except as otherwise provided herein, (i) Options granted in tandem
with Dividend Equivalents and/or Performance Units shall not be
exercisable prior to the conclusion of their related Award Cycle and
(ii) all other Options shall not be exercisable until one (1) year
after the date of grant.
(f) An Option granted under the Plan shall be exercised by the delivery by
the holder thereof to the Company at its principal office (to the
attention of the Compensation Manager of Public Service Electric and
Gas Company, the Company's subsidiary) of written notice of the number
of full shares of Common Stock with respect to which the Option is
being exercised, accompanied by payment in full, in cash or by
certified or bank check payable to the order of the Company, of the
Option Price of such shares of Common Stock, or, at the discretion of
the Committee, by the delivery of unexercised Options having an
exercise value equal to the Option Price and/or shares of Common Stock
having a Fair Market Value equal to the Option Price, or, at the
option of the Committee, by a combination of cash and/or such
unexercised Options and/or shares (subject to the restrictions above)
held by a Participant that have an exercise value or a Fair Market
Value together with such cash that shall equal the Option Price. The
Option Price may also be paid in full by a broker-dealer to whom the
Participant has submitted an exercise notice consisting of a fully
endorsed Option, or through any other medium of payment as the
Committee, in its discretion, shall authorize.
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(g) The holder of an Option shall have none of the rights of a Stockholder
with respect to the shares of Common Stock covered by such holder's
Option until such shares of Common Stock shall be issued to such
holder upon the exercise of the Option.
(h) No Options granted under the Plan shall be transferable otherwise than
by will or the laws of descent and distribution, and any Option
granted under the Plan may be exercised during the lifetime of the
holder thereof only by the holder. No Option granted under the Plan
shall be subject to execution, attachment or other process.
(i) Except as otherwise provided herein, the right to exercise an Option
shall expire when the Participant shall no longer be an employee of
the Company or Affiliate.
Section 6. 2 Dividend Equivalents. Dividend Equivalents granted in tandem
with an Option under the Plan shall be in such form and shall contain such terms
and conditions as the Committee shall from time to time determine, subject to
the following:
(a) Number. The number of Dividend Equivalents granted to a Participant
under the Plan with respect to an Award Cycle shall be equal to the
number of shares of Common Stock with respect to which Options are
granted to the Participant for such Award Cycle.
(b) Amount. The amount of each Dividend Equivalent granted under the Plan
shall be equal to the cumulative cash dividends per share actually
paid by the Company on its Common Stock during the applicable Award
Cycle.
(c) Term of Dividend Equivalents. A Dividend Equivalent shall be paid to a
Participant if, and only if, and to the extent that, the Participant
exercises the Option that was granted in tandem with the Dividend
Equivalent within the first nine months that the Option is initially
exercisable. If a Participant partially exercises the Option within
the first nine months that the Option is initially exercisable,
Dividend Equivalents with respect to the same number of shares shall
be paid to the Participant. If the Option, or portion thereof, is not
exercised within the first nine months after it is initially
exercisable, the related Dividend Equivalent or portion thereof shall
terminate and be forfeited, and the Participant shall have no right
whatsoever to such Dividend Equivalent or portion thereof.
(d) Manner of Payment. Dividend Equivalents shall be paid in cash
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Section 6. 3 Performance Units. Performance Units granted in tandem with an
Option under the Plan shall be in such form and shall contain such terms and
conditions as the Committee shall from time to time determine, subject to the
following:
(a) Number. The number of Performance Units granted to a Participant under
the Plan with respect to an Award Cycle shall be equal to the number
of shares of Common Stock which has been granted to the Participant
for such Award Cycle pursuant to the related Option.
(b) Amount. The Committee shall determine the target value of each
Performance Unit as of the date it is granted. The actual value of the
Performance Unit at the end of the Award Cycle shall be determined by
the Committee by reference to performance by the Company and/or one or
more Affiliate relative to the goal or goals established by the
Committee for the Award Cycle at the time of grant; provided, however,
that the Committee may, subsequent to the date of grant, adjust such
goal or goals to account for extraordinary extenuating circumstances
so as to equitably reflect what would be a consistent application of
the goal or goals over the Award Cycle.
(c) Term and Manner of Payment for Performance Units. A Performance Unit
shall be paid to a Participant if, and only if, and to the extent
that, the Participant exercises the Option that was granted in tandem
with the Performance Unit within the first nine months that the Option
is initially exercisable. The actual value of the Performance Units
granted in tandem with such Option, determined as of the end of the
Award Cycle, shall be paid to the Participant in cash. If a
Participant does not exercise the Option within such initial nine
month period, the related Performance Units shall terminate and be
forfeited. If the Participant partially exercises the Option within
the first nine months that the Option initially becomes exercisable,
the Participant shall be so paid in cash with respect to the number of
Performance Units equal to the number of Shares for which the Option
is exercised, and shall forfeit the balance of such Performance Units.
Section 6.4 Retirement or Disability. Except as otherwise provided herein,
upon termination of employment with the Company or an Affiliate on account of
Retirement or Disability, all Options not in tandem with Dividend Equivalents
and Performance Units shall become exercisable in full, and any Participant
holding any such Options may exercise such Options at any time within three (3)
years after the date of such termination, subject to the provisions of Section
6.7. In addition, and anything contained hereto to the contrary notwithstanding,
the term during which a Participant may exercise Options subsequent to the date
of termination may, in the Committee's discretion, be modified, subject to
applicable law
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and regulation, from the term specified above, as of the date of grant and as
specified in an option agreement evidencing the grant of Options under the Plan.
With respect to a Participant holding one or more Options granted in tandem
with Dividend Equivalents and/or Performance Units, who terminates employment
prior to the end of the related Award Cycle(s) on account of Disability or
Retirement, and who survives to the end of the Award Cycle(s), then, if the
Participant had been actively employed for at least one year during such Award
Cycle(s), the Committee may, in its sole discretion, at the end of the
applicable Award Cycle(s), permit the Participant to participate in the Plan
with respect to such Award Cycle(s). If the Committee permits the Participant to
so participate with respect to such Award Cycle(s), such participation shall be
upon the same terms and conditions as if the Participant continued to be
employed by the Company or an Affiliate, except to the extent that the Committee
in its sole discretion shall modify such terms and conditions and except that
(1) the Participant's award (Options, Dividend Equivalents and Performance
Units) shall be prorated to reflect his or her employment during the applicable
Award Cycle(s), (2) any Dividend Equivalents and Performance Units shall expire
no later than nine months following the end of the applicable Award Cycle(s) and
(3) any related Options shall expire no later than three (3) years following
termination of employment.
In the event that a Participant holding one or more Options granted in
tandem with Dividend Equivalents and/or Performance Units terminates employment
following the conclusion of the related Award Cycle on account of Disability or
Retirement, then to the extent the Participant has any unexercised Options with
respect to such Award Cycle at the time of termination of employment, the
Participant shall have the same rights as an active employee with respect to
such Options, except that any Dividend Equivalents and Performance Units shall
expire no later than nine months following the end of the applicable Award
Cycle(s) and all such Options shall expire on the sooner of three (3) years
following termination of employment or on the date specified in the related
Option agreement.
Section 6.5 Death. If a Participant dies holding an Option granted not in
tandem with Dividend Equivalents or Performance Units (i) while employed by the
Company or a Affiliate or (ii) within three (3) months after the termination of
such Participant's employment on account of Retirement or Disability, such
Options shall become exercisable in full and, subject to the provisions of
Section 6.7, may be exercised by such Participant's personal representative at
any time within three (3) years after the Participant's death.
With respect to a Participant holding one or more Options granted in tandem
with Dividend Equivalents and/or Performance Units, who terminates employment
prior to the end of the related Award Cycle(s) on account of death, or dies
prior to the end of the Award Cycle(s) following Disability or Retirement, then,
if the Participant had been employed by the Company or an Affiliate for at least
one year during such Award Cycle(s), the Committee, in its sole discretion, may
determine that the Participant shall be entitled to an award with respect to the
applicable
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Award Cycle(s), in which case the Participant's personal representative shall
have rights similar to the rights the Participant would have had at the end of
the applicable Award Cycle(s), except that: (1) the right of the personal
representative to exercise any Options shall commence as of the date of the
Participant's death and shall expire no later than three (3) years after the
date of the Participant's death; (2) the amount of the prorated Dividend
Equivalents shall be paid to the Participant's personal representative in cash
as soon as practicable; and (3) if appropriate in the sole discretion of the
Committee, a prorated amount appropriately reflecting the value of the
Performance Units shall be paid to the Participant's personal representative in
cash as soon as practicable.
If a Participant holding Options granted in tandem with Dividend
Equivalents and/or Performance Units terminates employment on account of death
after the end of the related Award Cycle, the Participant's personal
representative shall have the same rights as the Participant had at the time of
his or her death, except that: (1) the right of the Participant's personal
representative to exercise any unexercised Option shall expire no later than
three (3) years after the date of the Participant's death; (2) the amount of any
remaining Dividend Equivalents shall be paid to the Participant's personal
representative in cash as soon as practicable; and (3) the final value of any
remaining Performance Units shall be paid to the Participant's personal
representative in cash as soon as practicable.
Section 6.6 Other Termination of Employment. In the event that Participant
holding Options granted in tandem with Dividend Equivalents and/or Performance
Units terminates employment following the conclusion of an Award Cycle otherwise
than on account of death, Disability or Retirement, then such Participant shall
have the same rights as an actively employed Participant, except that all
Options, Dividend Equivalents and Performance Units shall expire on the earliest
of nine months following termination of employment, the date specified in the
related Option agreement, or the date otherwise applicable to the Dividend
Equivalent and/or Performance Unit.
Section 6.7 No Extension. An Option may not be exercised pursuant to this
Article VI except to the extent that the Participant holding such Option was
entitled to exercise the Option at the time of termination of employment or
death and, in any event, may not be exercised after the original expiration date
of the Option.
Section 6.8 Change in Control.
(a) Notwithstanding anything in this Plan to the contrary, if a
Participant's employment is terminated by the Company following a
Change in Control (as defined below), (i) all outstanding Options
shall immediately vest and become exercisable in full and (ii) any
Dividend Equivalents and/or Performance Units granted in tandem with
such Option shall be paid immediately in the form of Common Stock
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(unless the Committee determines that they should be paid in cash).
The amount so payable in respect of such Performance Units shall be
calculated as if the target value with respect to such Performance
Units had been achieved and, in respect of such Dividend Equivalents,
shall be calculated as if the Award Cycle had been completed and the
most recent quarterly dividend had continued to be paid through the
end of such Award Cycle.
(b) "Change in Control" shall mean the occurrence of any of the following
events:
(i) any "person" (within the meaning of Section 13(d) of the
Securities Exchange Act of 1934, as amended from time to time (the "Act"))
is or becomes the beneficial owner within the meaning of Rule 13d-3 under
the Act (a "Beneficial Owner"), directly or indirectly, of securities of
the Corporation (not including in the securities beneficially owned by such
person any securities acquired directly from the Corporation or its
affiliates) representing 25% or more of the combined voting power of the
Corporation's then outstanding securities, excluding any person who becomes
such a Beneficial Owner in connection with a transaction described in
clause (A) of paragraph (iii) below; or
(ii) the following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals who, on
December 15, 1998, constitute the Board of Directors and any new director
(other than a director whose initial assumption of office is in connection
with an actual or threatened election contest, including but not limited to
a consent solicitation, relating to the election of directors of the
Corporation) whose appointment or election by the Board of Directors or
nomination for election by the Corporation's stockholders was approved or
recommended by a vote of at least two-thirds (2/3) of the directors then
still in office who either were directors on December 15, 1998 or whose
appointment, election or nomination for election was previously so approved
or recommended; or
(iii) there is consummated a merger or consolidation of the
Corporation or any direct or indirect wholly owned subsidiary of the
Corporation with any other corporation, other than (A) a merger or
consolidation which would result in the voting securities of the
Corporation outstanding immediately prior to such merger or consolidation
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity or any parent
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thereof), in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of the
Corporation or any subsidiary of the Corporation, at least 75% of the
combined voting power of the securities of the Corporation or such
surviving entity or any parent thereof outstanding immediately after such
merger or consolidation, or (B) a merger or consolidation effected to
implement a recapitalization of the Corporation (or similar transaction) in
which no person is or becomes the Beneficial Owner, directly or indirectly,
of securities of the Corporation representing 25% or more of the combined
voting power of the Corporation's then outstanding securities; or
(iv) the stockholders of the Corporation approve a plan of complete
liquidation or dissolution of the Corporation or there is consummated an
agreement for the sale or disposition by the Corporation of all or
substantially all of the Corporation's assets, other than a sale or
disposition by the Corporation of all or substantially all of the
Corporation's assets to an entity, at least 75% of the combined voting
power of the voting securities of which are owned by stockholders of the
Corporation in substantially the same proportions as their ownership of the
Corporation immediately prior to such sale.
Notwithstanding the foregoing subparagraphs (i), (ii), (iii) and (iv),
a "Change in Control" shall not be deemed to have occurred by virtue of the
consummation of any transaction or series of integrated transactions
immediately following which the record holders of the common stock of the
Corporation immediately prior to such transaction or series of transactions
continue to have substantially the same proportionate ownership in an
entity which owns all or substantially all of the assets of the Corporation
immediately following such transaction or series of transactions.
Section 6.9 Vesting on Account of Death. In addition, and notwithstanding
anything contained herein to the contrary, in the event an Participant dies
during such time as the Participant is employed by the Company or an Affiliate,
then any outstanding Options which have not vested and are not exercisable by
the Participant as of the date of death shall be automatically deemed vested and
exercisable by the Participant's personal representative and/or his legatees in
accordance with Section 6.5.
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ARTICLE VII
LEAVE OF ABSENCE
Section 7.1 Leaves. For the purposes of the Plan, a Participant who is on
military or sick leave or other bona fide leave of absence shall be considered
as remaining in the employ of the Company or of a Affiliate or for ninety (90)
days or such longer period as such Participant's right to reemployment is
guaranteed either by statute or by contract.
ARTICLE VIII
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
Section 8.1 Recapitalization. In the event that the outstanding shares of Common
Stock are hereafter changed by reason of recapitalization, reclassification,
stock split, combination or exchange of shares of Common Stock or the like, or
by the issuance of dividends payable in shares of Common Stock, an appropriate
adjustment shall be made by the Committee in the aggregate number of shares of
Common Stock available under the Plan, in the number of shares of Common Stock
issuable upon exercise of outstanding Options or Performance Units and the
Option Price per share. In the event of any consolidation or merger of the
Company with or into another company or the conveyance of all or substantially
all of the assets of the Company to another company, each then outstanding
Option shall, upon exercise, thereafter entitle the holder thereof to such
number of shares of Common Stock or other securities or property to which a
holder of shares of Common Stock would have been entitled to upon such
consolidation, merger or conveyance; and, in any such case, appropriate
adjustment, as determined by the Committee, shall be made as set forth above
with respect to any future changes in the capitalization of the Company or its
successor entity. In the event of the proposed dissolution or liquidation of the
Company, all outstanding Options under the Plan will automatically terminate,
unless otherwise provided by the Board or any authorized committee thereof;
provided, however, that the Committee shall give at least 30 days prior written
notice of such event to each Participant during which time he or she shall have
a right to exercise his or her unexercised Options, and, subject to prior
expiration as otherwise provided in this Plan, each such Stock Option shall be
exercisable after receipt of such written notice and prior to the effective date
of such transaction. In the event a Participant elects to so exercise any such
Option, any related Dividend Equivalents and Performance Units shall also become
payable to the Participant adjusted, in the discretion of the Committee, to
proportionately reflect the partially completed Award Cycle(s). In the event a
Participant does not elect to so exercise any such Option, any related Dividend
Equivalent, adjusted, in the discretion of the Committee, to proportionately
reflect the partially completed Award Cycle(s), shall terminate and be
automatically paid to the Participant in cash, and any related Performance
Units, adjusted, in the discretion of the Committee, to proportionately reflect
the partially completed Award Cycle(s), shall be automatically paid to the
Participant in Common Stock and/or cash as determined by the Committee, on such
date within 30 days prior to the effective date of such transaction or
dissolution as the Committee shall determine and, in the absence of such
determination, on the last business day immediately prior to such effective
date.
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Section 8.2 Unexercised Options. Any adjustment in the number of shares of
Common Stock shall apply proportionately to only the unexercised portion of the
Options granted hereunder. If fractions of shares of Common Stock would result
from any such adjustment, the adjustment shall be revised to the next higher
whole number of shares of Common Stock.
ARTICLE IX
FURTHER CONDITIONS
Section 9.1 Representation by the Participant. Unless the shares of Common
Stock issuable upon the exercise of an Option to be awarded under the Plan have
been registered with the Securities and Exchange Commission under the Securities
Act prior to the exercise of the Option, the Participant receiving such Option
must represent in writing to the Company that such shares of Common Stock are
being acquired for investment purposes only and not with a view towards the
further resale or distribution thereof and must supply to the Company such other
documentation as may be required by the Company, unless in the opinion of
counsel to the Company such representation, agreement or documentation is not
necessary to comply with such law.
Section 9.2 Exchange Listing. The Company shall not be obligated to deliver
any shares of Common Stock until they have been listed on each securities
exchange on which the shares of Common Sock may then be listed or until there
has been qualification under or compliance with such state or federal laws,
rules or regulations as the Company may deem applicable. The Company shall use
reasonable efforts to obtain such listing, qualification and compliance.
Section 9.3 Tax Withholding. The Committee may make such provisions and
take such steps as it may deem necessary or appropriate for the withholding of
any taxes that the Company is required by any law or regulation of any
governmental authority, whether federal, state or local, domestic or foreign, to
withhold in connection with the exercise of any Option, including, but not
limited to, (i) the withholding of delivery of shares of Common Stock until the
Participant reimburses the Company for the amount the Company is required to
withhold with respect to such taxes, (ii) the canceling of any number of shares
of Common Stock issuable in an amount sufficient to reimburse the Company for
the amount it is required to so withhold or (iii) withholding the amount due
from any such Participant's wages or other compensation. A Participant may
request that the Company withhold from the shares of Common Stock to be issued
upon exercise of an Option that number of shares having a Fair Market Value
equal to the tax withholding amount due in order to provide for such withholding
tax.
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ARTICLE X
TERMINATION, MODIFICATION AND AMENDMENT
Section 10.1 Termination of Plan. The Committee or the Board of Directors
may, at any time, terminate the Plan or from time to time make such
modifications or amendments of the Plan it may deem advisable.
Section 10.2 Modification of Outstanding Awards. The Committee may from
time to time, at its discretion, alter, amend or suspend any previously granted
Option, including any previously granted Option granted in tandem with a
Dividend Equivalent and/or Performance Unit prior to the completion of the
related Award Cycle.
Section 10.3 Effect on Outstanding Awards. No action taken pursuant to
Sections 10.1 or 10.2 may materially and adversely affect the rights of a
Participant under any outstanding Option without the consent of such
Participant.
ARTICLE XI
EFFECTIVE DATE OF THE PLAN
Section 11.1 Effective Date. This Plan was initially adopted by the Board
of Directors on December 20, 1988.
ARTICLE XII
NOT A CONTRACT OF EMPLOYMENT
Section 12.1 No Employment Rights Conferred. Nothing contained in the Plan
or in any option agreement executed pursuant hereto shall be deemed to confer
upon any Participant to whom an Option is or may be granted hereunder any right
to remain in the employ of the Company or of an Affiliate or in any way limit
the right of the Company, or of any Affiliate, to terminate the employment of
any Participant or to terminate any other relationship with a Participant.
ARTICLE XIII
OTHER COMPENSATION PLANS
Section 13.1 No Effect on Other Plans. The adoption of this Plan shall not
affect any other stock option plan, incentive plan or any other compensation
plan in effect for the Company or any Affiliate, nor shall the Plan preclude the
Company or any Affiliate from establishing any other form of stock option plan,
incentive plan or any other compensation plan.
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ARTICLE XIV
MISCELLANEOUS
Section 14.1 Non-Assignability. No grant of any "derivative security" (as
defined by Rule 16a-1(c) under the Exchange Act) made under the Plan or any
rights or interests therein shall be assignable or transferable by a Participant
except by will or the laws of descent and distribution and except to the extent
it is otherwise permissible under the Exchange Act, nor shall any "derivative
security" be subject to execution, attachment or similar process, it being
understood that no grant of any "derivative security" shall be assignable or
transferable pursuant to a domestic relations order. During the lifetime of a
Participant, awards granted hereunder shall be exercisable only by the
Participant or the Participant's guardian or legal representative. Any attempted
assignment, transfer, pledge, hypothecation, other disposition, levy of
attachment or similar process not specifically permitted herein shall be null
and void and without effect.
Section 14.2 Costs and Expenses. The costs and expenses of administering
the Plan shall be borne by the Company and its Affiliates and shall not be
charged against any award nor to any Participant receiving an award.
Section 14.3 Written Option Agreement. Notwithstanding anything to the
contrary contained herein, the Company shall be under no obligation to sell or
deliver Common Stock or to make any other payment under this Plan to any
Participant unless and until such Participant shall execute a written option
agreement in form and substance satisfactory to the Committee.
Section 14.4 Non-Competition. Any option agreement may contain, among other
things, provisions prohibiting Participants from competing with the Company or
any Affiliate in a form or forms acceptable to the Committee, in its sole
discretion.
Section 14.5 Transfer of Employment. For the purposes hereof, a Participant
shall not be considered as having terminated his/her employment if he/she
transfers employment between the Company and an Affiliate or between Affiliates.
Section 14.6 Governing Law. To the extent not preempted by Federal law,
this Plan and actions taken in connection herewith shall be governed and
construed in accordance with the laws of the State of New Jersey.
Section 14.7 Rules of Construction. The captions and section numbers
appearing in this Plan are inserted only as a matter of convenience. They do not
define, limit or describe the scope or intent of the provisions of this Plan. In
this Plan, words in the singular number include the plural and in the plural
include the singular; and words of the masculine gender include the feminine and
the neuter, and when the sense so indicates, words of the neuter gender may
refer to any gender.
Section 14.8 Time for Performance. Whenever the time for payment or
performance hereunder shall fall on a weekend or public holiday, such payment or
performance shall be
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deemed to be timely if made on the next succeeding business day; provided,
however, that this Section 14.6 shall not be construed to extend the ten (10)
year period referred to in Section 6.1(d).
Section 14.9 Notices. Every direction, revocation or notice authorized or
required by the Plan shall be deemed delivered to the Company (a) on the date it
is personally delivered its principal executive offices to the attention of the
Compensation Manager of Public Service Electric and Gas Company or (b) three
business days after it is sent by registered or certified mail, postage prepaid,
addressed to the Company (attn: Compensation Manager of Public Service Electric
and Gas Company) at such offices; and shall be deemed delivered to a Participant
(a) on the date it is personally delivered to him or her, or (b) three business
days after it is sent by registered or certified mail, postage prepaid,
addressed to him or her at the last address shown for him or her on the records
of the Company.
17
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
STOCK PLAN FOR OUTSIDE DIRECTORS
EFFECTIVE JANUARY 1, 1996
AMENDED DECEMBER 15, 1998
I. PURPOSE.
The purpose of this Public Service Enterprise Group Incorporated Stock Plan
for Outside Directors is to advance the interests of the Company and its
stockholders by assisting the Company in attracting and retaining individuals of
superior talent, ability and achievement to serve on its Board of Directors.
II. DEFINITIONS.
The following words and phrases shall have the meanings set forth below
unless a different meaning is required by the context:
(a) Adjustment Shares: New or additional or different shares of Common
Stock or other securities (other than rights or warrants to purchase
securities) received or entitled to be received by an owner of
Restricted Stock as a result of a change in capitalization of the
Company as set forth in Article VIII hereof.
(b) Annual Meeting: The Annual Meeting of Stockholders of the Company.
(c) Board: The Board of Directors of the Company.
(d) Committee: Those persons who are members of the Board but who are not
Outside Directors.
(e) Common Stock: The Common Stock without nominal or par value of the
Company.
(f) Company: Public Service Enterprise Group Incorporated, a corporation
organized and existing under the laws of the State of New Jersey, or
its successor or successors.
(g) Disability: Any physical or mental condition of a permanent nature
which, in sole reasonable judgement of the Committee, renders an
Outside Director incapable of performing the duties of a member of the
Board.
(h) Effective Date: January 1, 1996.
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(i) Eligible Director: An Outside Director who meets the eligibility
requirements for stock awards as set forth in Article IV hereof.
(j) Exchange Act: The Securities and Exchange Act of 1934, as amended, or
as it may be amended from time to time.
(k) NYSE: The New York Stock Exchange, Inc.
(l) Outside Director: A member of the Board on or after the Effective Date
who never has been employed by the Company or any of its affiliates.
(m) Outside Directors' Pension Plan: The Public Service Enterprise Group
Incorporated Pension Plan for Outside Directors Effective January 1,
1989.
(n) Plan: This Public Service Enterprise Group Incorporated Stock Plan for
Outside Directors, as it may be amended from time to time.
(o) Restricted Stock: Shares of Common Stock subject to restrictions
awarded pursuant to Article IV hereof.
(p) Securities Act: The Securities Act of 1933, as amended, or as it may
be amended from time to time.
(q) Service: A Director's service as a member of the Board.
(r) Year of Service: The annual period commencing the day of each Annual
Meeting and ending on the day before the next Annual Meeting. For any
person first elected a member of the Board after the date of an Annual
Meeting, his first Year of Service shall commence upon his election as
a Director and shall end on the day before the next Annual Meeting.
III. SHARES SUBJECT TO THE PLAN.
Shares of Restricted Stock which may be awarded under the Plan shall be
purchased on the open market by the Company or its agent. In the event that any
shares of Restricted Stock shall be forfeited, the shares so forfeited shall
again be available for the awarding of Restricted Stock under the Plan.
IV. RESTRICTED STOCK AWARDS.
A. After the Effective Date of this Plan, each Outside Director shall be
granted an award of 600 shares of Restricted Stock upon the
commencement of each Year of
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Service as a member of the Board. The date of grant shall be the first
business day of the month following the Annual Meeting or the Outside
Director's first election as a member of the Board.
B. Upon the Effective Date of this Plan, (i) each Outside Director who
shall have completed five Years of Service as of December 31, 1995
shall be granted an award of shares of Restricted Stock equal to the
present value (assuming commencement of payment at age 70) of what his
vested accrued benefit under the Outside Directors' Pension Plan would
have been had he terminated Service as of December 31, 1995. The
actual number of shares will be determined by dividing said Outside
Directors' Pension Plan assumed vested accrued benefit by the closing
price of the Common Stock on the NYSE on December 29, 1995 and
rounding up to the next whole share; (ii) each Outside Director who
shall not have completed five Years of Service as of December 31, 1995
shall be granted an award of shares of Restricted Stock equal in
number to 300 times the number of the years he has been a member of
the Board; all as reflected in Schedule A to the Plan.
C. The award of shares of Restricted Stock, including the restrictions
thereon, shall be evidenced by a written instrument in such form and
upon such terms and conditions as the Committee shall determine and as
are consistent with the following provisions of the Plan:
(i) Upon the retirement of an Outside Director as a member of the
Board at the Annual Meeting next following the Outside Director's
70th birthday, the restrictions on the Restricted Stock shall
lapse and the Company shall issue to the Outside Director a
certificate for the shares which have been awarded to him without
any legend or restriction of any kind and the Company shall
return to the Outside Director or destroy any and all blank stock
powers previously provided to it by such Outside Director.
(ii) If the service as a member of the Board of an Outside Director
who is the recipient of the shares of Restricted Stock terminates
for any reason, other than on account of Disability, before the
Annual Meeting next following said Outside Director's 70th
birthday, such Outside Director shall forfeit any and all rights
in and to the shares of Restricted Stock; provided, however,
that, the Committee may, for good and valid business reasons,
waive such restriction as the Committee deems appropriate.
Notwithstanding any other provision of this Plan, upon the
occurrence of a termination of Service following a Change in
Control (as defined below), all restrictions on the Restricted
Stock shall immediately lapse and be of no effect.
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For the purposes of this Plan, "Change in Control" shall mean the
occurrence of any of the following events:
(a) any "person" (within the meaning of Section 13(d) of the
Securities Exchange Act of 1934, as amended from time to time
(the "Act")) is or becomes the beneficial owner within the
meaning of Rule 13d-3 under the Act (a "Beneficial Owner"),
directly or indirectly, of securities of the Corporation (not
including in the securities beneficially owned by such person any
securities acquired directly from the Corporation or its
affiliates) representing 25% or more of the combined voting power
of the Corporation's then outstanding securities, excluding any
person who becomes such a Beneficial Owner in connection with a
transaction described in clause (1) of paragraph (c) below; or
(b) the following individuals cease for any reason to constitute
a majority of the number of directors then serving: individuals
who, on December 15, 1998, constitute the Board of Directors and
any new director (other than a director whose initial assumption
of office is in connection with an actual or threatened election
contest, including but not limited to a consent solicitation,
relating to the election of directors of the Corporation) whose
appointment or election by the Board of Directors or nomination
for election by the Corporation's stockholders was approved or
recommended by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors on
December 15, 1998 or whose appointment, election or nomination
for election was previously so approved or recommended; or
(c) there is consummated a merger or consolidation of the
Corporation or any direct or indirect wholly owned subsidiary of
the Corporation with any other corporation, other than (1) a
merger or consolidation which would result in the voting
securities of the Corporation outstanding immediately prior to
such merger or consolidation continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity or any parent thereof), in
combination with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of the
Corporation or any subsidiary of the Corporation, at least 75% of
the combined voting power of the securities of the Corporation or
such surviving entity or any parent thereof outstanding
immediately after such merger or consolidation, or (2) a merger
or consolidation effected to implement a recapitalization of the
Corporation (or similar transaction) in which no person is or
becomes the Beneficial Owner, directly or indirectly, of
securities of the Corporation representing
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25% or more of the combined voting power of the Corporation's
then outstanding securities; or
(d) the stockholders of the Corporation approve a plan of
complete liquidation or dissolution of the Corporation or there
is consummated an agreement for the sale or disposition by the
Corporation of all or substantially all of the Corporation's
assets, other than a sale or disposition by the Corporation of
all or substantially all of the Corporation's assets to an
entity, at least 75% of the combined voting power of the voting
securities of which are owned by stockholders of the Corporation
in substantially the same proportions as their ownership of the
Corporation immediately prior to such sale.
Notwithstanding the foregoing subparagraphs (a), (b), (c) and (d), a
"Change in Control" shall not be deemed to have occurred by virtue of
the consummation of any transaction or series of integrated
transactions immediately following which the record holders of the
common stock of the Corporation immediately prior to such transaction
or series of transactions continue to have substantially the same
proportionate ownership in an entity which owns all or substantially
all of the assets of the Corporation immediately following such
transaction or series of transactions.
(iii) Shares of Restricted Stock may not be sold, assigned,
transferred, pledged, hypothecated or otherwise disposed of,
except by will or the laws of descent and distribution, for the
period specified in or in accordance with Section IV(c)(i) and
except in accordance with applicable laws and regulations. Any
attempted sale, assignment, transfer, pledge, hypothecation or
other disposition in contravention of the foregoing shall be
null and void and without effect.
(iv) Shares of Restricted Stock will be issued in the name of the
Outside Director receiving the award, but will be held by the
Company for the account of such Outside Director (together with
a blank stock power which such Outside Director shall execute
and deliver to the Company), subject to all of the terms and
conditions of the Plan, for the period specified in or in
accordance with Section IV(c)(i).
(v) Except as otherwise provided herein and in the instrument
evidencing the award of shares of Restricted Stock, the
Outside Director receiving same shall have all rights of a
stockholder with respect to shares of Restricted Stock issued
in his name, including the right to vote and to receive
dividends and other distributions.
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(vi) If an Outside Director dies while serving as a member of the
Board, and more than six months after the date on which the
shares of Restricted Stock were awarded to him have elapsed,
the restriction provided for in Section IV(c)(i) shall be
deemed to have lapsed immediately prior to death.
(vii) If an Outside Director, as owner of shares of Restricted
Stock, receives or shall be entitled to receive Adjustment
Shares, the certificates representing the Adjustment Shares
(together with a blank stock power executed by such Outside
Director) shall be delivered to and held by the Company,
subject to all of the terms and conditions of the Plan, for
the period specified in or in accordance with Section
IV(c)(i). Any Adjustment Shares shall be Restricted Stock for
all purposes of the Plan, subject to the same restrictions as
the shares of Restricted Stock to which they relate. If such
Participant shall receive rights or warrants with respect to
any shares of Restricted Stock or any Adjustment Shares, such
rights or warrants may be held, exercised, sold or otherwise
disposed of by such Outside Director, and any shares or other
securities acquired by such Outside Director as a result of
the exercise of such rights or warrants likewise may be held,
sold, or otherwise disposed of by such Outside Director, free
and clear of any restrictions.
V. FURTHER CONDITIONS.
A. Unless the shares of Restricted Stock to be awarded under the Plan
have been registered with the Securities and Exchange Commission under
the Securities Act prior the issuance of the shares of Restricted
Stock, the Outside Director receiving such Restricted Stock must
represent in writing to the Company that such shares of Common Stock
are being acquired for investment purposes only and not with a view
towards the further resale or distribution thereof and must supply to
the Company such other documentation as may be required by the
Company, unless in the opinion of counsel to the Company such
representation, agreement or documentation is not necessary to comply
with the Securities Act.
B. The Company shall not be obligated to deliver any shares of Common
Stock until they have been listed on each securities exchange on which
the shares of Common Sock may then be listed or until there has been
qualification under or compliance with such state or federal laws,
rules or regulations as the Company may deem applicable. The Company
shall use reasonable efforts to obtain such listing, qualification and
compliance.
C The Committee may make such provisions and take such steps as it may
deem
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necessary or appropriate for the withholding of any taxes that the
Company is required by any law or regulation of any governmental
authority, whether federal, state or local, domestic or foreign, to
withhold in connection with the award of any Restricted Stock,
including, but not limited to (i) the withholding of delivery of
certificates for shares of Common Stock until the Outside Director
reimburses the Company for the amount the Company is required to
withhold with respect to such taxes, (ii) the cancelling of any number
of shares of Common Stock issuable in an amount sufficient to
reimburse the Company for the amount it is required to so withhold or
(iii) withholding the amount due from any such Outside Director's
other compensation.
VI. FORFEITURE OF BENEFITS.
As long as an Outside Director is receiving or is a recipient of a
Restricted Stock Award under the Plan, such Outside Director will not directly
or indirectly enter into or in any manner take part in any business or other
endeavor, as an employee, agent, independent contractor, owner or otherwise,
which in any manner competes or conflicts with the business of the Company or is
detrimental to the best interests of the Company, unless the Company consents
thereto in writing. The failure of an Outside Director to comply with the
provisions of this Article shall result in the forfeiture all Restricted Stock
grants under the Plan. Before any such forfeiture, the Company shall mail notice
to the Outside Director that consideration is being given to forfeiture pursuant
to this Article. On written request of the Outside Director within sixty days
following the mailing by the Company of the notice, the Committee shall afford
the Outside Director an opportunity to demonstrate to the Committee that
forfeiture would not be justified.
VII. ADMINISTRATION.
The Plan shall be administered by the Committee, which shall have full and
final authority to interpret the provisions of the Plan and to establish rules
and regulations and otherwise make determinations regarding the administration
and operation of the Plan. All decisions and determinations by the Committee
with respect to the Plan or awards payable thereunder shall be final and binding
upon all parties.
VIII. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
In the event that the outstanding shares of Common Stock are hereafter
changed by reason of recapitalization, reclassification, stock split,
combination or exchange of shares of Common Stock or the like, or by the
issuance of dividends payable in shares of Common Stock, an appropriate
adjustment shall be made by the Committee in the number of shares of Restricted
Stock outstanding.
<PAGE>
-8-
IX. TERMINATION, MODIFICATION AND AMENDMENT
A. The Board may, at any time, terminate the Plan or, from time to time,
make such modifications or amendments of the Plan as it may deem
advisable.
B. No termination, modification or amendment of the Plan may adversely
affect the rights under any outstanding shares of Restricted Stock
without the consent of the Outside Director to whom such shares of
Restricted Stock shall have been previously awarded.
X. NOT A CONTRACT FOR CONTINUED SERVICE
Nothing contained in the Plan or in any restricted stock agreement executed
pursuant hereto shall be deemed to confer upon any Outside Director to whom
shares of Restricted Stock are or may be awarded hereunder any right to remain a
member of the Board or in any way limit the right of the Board or the
Stockholders to terminate or fail to renominate or reelect any such Outside
Director as a member of the Board.
XI. MISCELLANEOUS
A. The costs and expenses of administering the Plan shall be borne by the
Company and shall not be charged against any award nor to any Outside
Director receiving an award.
B. Any restricted stock agreement may contain, among other things,
provisions prohibiting the Outside Director from competing with the
Company or any affiliate in a form or forms acceptable to the
Committee, in its sole discretion.
C. This Plan and actions taken in connection herewith shall be governed
and construed in accordance with the laws of the State of New Jersey.
D. The captions and section numbers appearing in this Plan are inserted
only as a matter of convenience. They do not define, limit or describe
the scope or intent of the provisions of this Plan. In this Plan,
words in the singular number include the plural and in the plural
include the singular; and words of the masculine gender include the
feminine and the neuter, and when the sense so indicates, words of the
neuter gender may refer to any gender.
E. Whenever the time for payment or performance hereunder shall fall on a
weekend or public holiday, such payment or performance shall be deemed
to be timely if made on the next succeeding business day.
DEFERRED COMPENSATION PLAN FOR CERTAIN EMPLOYEES OF
PSEG GLOBAL INC.
February 1, 1995
As Amended December 21, 1998
<PAGE>
TABLE OF CONTENTS
1. PURPOSE...............................................................1
2. DEFINITIONS OF THE TERMS USED IN THIS PLAN............................1
(a) "Account"....................................................1
(b) "Affiliate"..................................................1
(c) "Assets".....................................................1
(d) "Beneficiary"................................................1
(e) "Committee"..................................................1
(f) "Company"....................................................1
(g) "Compensation"...............................................2
(h) "Deferrable SAR".............................................2
(i) "Deferred Compensation"......................................2
(j) "Disability".................................................2
(k) "Employee"...................................................2
(l) "Plan".......................................................2
(m) "SAR Income".................................................2
(n) "SAR Plan"...................................................2
3. ELECTION AS TO THE AMOUNT OF COMPENSATION AND/OR
SAR INCOME THAT IS TO BE DEFERRED.....................................2
4. HOW THE ACCOUNT IS TO BE MAINTAINED...................................3
(a) Establishment of Account.....................................3
(b) Interest on Assets in the Account............................3
(c) Title and Beneficial Ownership of Assets.....................4
5. DISTRIBUTION FROM THE ACCOUNT.........................................4
(a) Election as to the Commencement of the Distribution..........4
(b) Election as to the Timing of the Distribution(s) ............4
(c) Distribution in Case of Certain Disability...................5
(d) Distribution in Case of Death................................5
(e) Request for Change in Distribution...........................6
(f) Not Terminated if Transferred to an Affiliate................6
(g) Company may Distribution in Lump Sum if Distributable
Amount Less than $5,000......................................6
(h) Delay of Certain Distributions...............................6
6. ASSIGNMENT............................................................7
7. PLAN DOES NOT CONSTITUTE AN EMPLOYMENT AGREEMENT......................7
8. AMENDMENT OR TERMINATION OF THE PLAN BY THE COMPANY...................7
<PAGE>
9. WHAT CONSTITUTES NOTICE...............................................8
10. ADVANCE DISCLAIMER OF ANY WAIVER ON THE PART OF THE
COMPANY...............................................................8
11. EFFECT ON INVALIDITY OF ANY PART OF THE PLAN..........................8
12. PLAN BINDING ON ANY SUCCESSOR OWNER...................................8
13. LAWS GOVERNING THIS PLAN..............................................9
14. WITHHOLDING FOR TAXES.................................................9
15. MISCELLANEOUS.........................................................9
SCHEDULE A....................................................................10
SCHEDULE B....................................................................12
<PAGE>
DEFERRED COMPENSATION PLAN FOR CERTAIN EMPLOYEES OF
PSEG GLOBAL INC.
February 1, 1995
1. PURPOSE. The purpose of this Plan is to provide a method to certain
select and key employees of the Company to defer compensation as provided
herein.
2. DEFINITIONS OF THE TERMS USED IN THIS PLAN. As used in this Plan, the
following words and phrases shall have the meanings indicated:
(a) "Account" - The Deferred Compensation Account described in Paragraph 4
of this Plan.
(b) "Affiliate" - Any organization which is a member of a controlled group
of corporations (as defined in the Internal Revenue Code (Code) section 414(b)
as modified by Code section 415(h)) which includes the Company, or any trades or
businesses (whether or not incorporated) which are under common control (as
defined in Code section 414(c) as modified by Code section 415(h)) with the
Company, or a member of an affiliated service group (as defined in Code section
414(m)) which includes the Company, or any other entity required to be
aggregated with the Company pursuant to regulations promulgated pursuant to Code
section 414(o).
(c) "Assets" - All Compensation, SAR Income and interest that have been
credited to an Employee's Account in accordance with Paragraph 4 of this Plan.
(d) "Beneficiary" - The individual(s) and/or entity(ies) designated and
defined by Schedule B of the Plan.
(e) "Committee"- The Compensation Committee of the Company.
<PAGE>
(f) "Company" -- PSEG Global Inc. and Affiliates.
(g) "Compensation" - The total remuneration paid to an Employee for
services rendered to the Company or an Affiliate excluding the Company's or
Affiliate's cost for any public or private employee benefit plan.
(h) "Deferrable SAR" - A stock appreciation right under the SAR Plan
granted no more than five years before the date of any deferral under Section 3
of this Plan.
(i) "Deferred Compensation" - The amount of compensation deferred pursuant
to Paragraph 3 of this Plan.
(j) "Disability" - Disability so as to be incapable of performing further
work for the Company.
(k) "Employee" - Each employee of the Company as may be designated by the
Committee.
(l) "Plan" - This Deferred Compensation Plan for Certain Employees of PSEG
Global Inc.
(m) "SAR Income" - That amount to which an Employee may be entitled to
receive pursuant to the SAR Plan with respect to Deferrable SARs.
(n) "SAR Plan" - The Community Energy Alternatives, Incorporated 1987 Stock
Appreciation Rights Plan.
3. ELECTION AS TO THE AMOUNT OF COMPENSATION AND/OR SAR INCOME THAT IS TO
BE DEFERRED. An Employee may elect to defer any portion of his Compensation
otherwise payable for services rendered for the Company after the date of
adoption of this Plan. An Employee may also elect to defer any portion of SAR
Income otherwise payable to him after the adoption of this Plan.
<PAGE>
3
Any such election must be made by filing with the Committee an "Election in
Connection With Deferral of Compensation", the form of which is attached to this
Plan as Schedule A and is hereinafter referred to as "Schedule A". An Employee
may change (using Schedule A for such purpose), not Later than December 31 of
any year, the amount of Compensation and/or SAR Income to be deferred by him
with respect to the next succeeding calendar year or years. In the calendar year
this Plan is adopted, or in the calendar year that an Employee first becomes
eligible to participate in this Plan, an election may be made to defer
Compensation and/or SAR Income for a part of that calendar year. Compensation
and/or SAR Income may be deferred prospectively only, and the amount of
Compensation and/or SAR Income to be deferred may be changed only with respect
to future calendar years.
4. HOW THE ACCOUNT IS TO BE MAINTAINED.
(a) Establishment of Account - The Company shall establish an Account for
each Employee who elects to participate in the Plan. Each Employee's Account
shall be credited at the end of each month with an amount equal to the Deferred
Compensation and/or SAR Income which would have otherwise been payable to him
that month.
(b) Interest on Assets in the Account - The Assets credited to each
Employee's Account shall accrue interest each calendar quarter at an annual rate
equal to the rate charged by The Chase Manhattan Bank, N.A. on the first
business day of such calendar quarter for prime commercial loans of 90-day
maturity (based on actual number of days, 360 days to the year), plus 1/2 of 1%.
Such interest shall be computed on the average daily balance in the Employee's
Account during each calendar quarter, excluding any Assets which have been
distributed from the Employee's Account during such quarter, and shall be
credited to the Employee's Account
<PAGE>
4
and compounded on the last day of March, June, September and December, and
interest in Assets distributed from an Employee's Account shall accrue in the
same manner to the date of, be credited to the Employee's Account on the date
of, and be paid with, such distribution.
(c) Title and Beneficial Ownership of Assets - The Plan shall be unfunded.
The Company shall be not be required to segregate any amounts credited to any
Employee's Account, which shall be established merely as an accounting
convenience. Title and beneficial ownership of any Assets, whether Deferred
Compensation, Deferred SAR Income or interest credited to an Employee's Account
pursuant to Paragraphs 4(a) and (b) hereinabove, shall at all times remain in
the Company, and an Employee shall not have any interest whatsoever in any
specific assets of the Company.
5. DISTRIBUTION FROM THE ACCOUNT.
(a) Election as to the Commencement of the Distribution - By election on
Schedule A filed with the Committee, an Employee may elect to have distribution
from his Account commence either (1) within sixty (60) days after the date he
ceases to be employed by the Company or, in the alternative, (2) in the month of
January of the calendar year elected by the Employee. An Employee may change
such election by filing a subsequent Schedule A, but any such change shall apply
only to future deferrals. The actual date that distribution shall commence shall
be a date within the elected period to be determined by the Committee in its
sole discretion.
(b) Election as to the Timing of the Distribution(s) - By election on
Schedule A filed with the Committee, an Employee may elect to receive the
distribution of his Account in the form of (1) one lump-sum payment, (2) annual
distributions over a five-year period or (3)
<PAGE>
5
annual distributions over a 10-year period. An Employee may change such election
by filing a subsequent Schedule A, but any such change shall apply only to
future deferrals. In the event a lump-sum payment is made under this Plan, the
Assets credited to an Employee's Account, including interest at the rate
provided in Paragraph 4(b) of this Plan to the date of distribution, shall be
paid to the Employee on the date determined under Paragraph 5(a) of this Plan.
In the case of a distribution over a period of years, the Company shall pay to
the Employee on the date determined under Paragraph 5(a) of this Plan and on the
yearly anniversaries of such date, annual installments of the unpaid balance of
the Assets in the Employee's Account, including interest on the unpaid balance
at the rate provided in Paragraph 4(b) of this Plan to the date of distribution.
The amount of each installment shall be determined by multiplying the then
unpaid balance, plus accrued interest, in the Employee's Account by a fraction,
the numerator of which is one and the denominator of which is the number of
annual installments remaining to be paid.
(c) Distribution in Case of Certain Disability - In the event of an
Employee's Disability prior to a calendar year elected by the Employee under
Paragraph 5(a)(2) of this Plan for distribution to commence, distribution of the
Employee's Account shall commence within six (6) months after such Disability,
in accordance with the Employee's election under Paragraph 5(b) of this Plan as
to the form of distribution. The actual date that distribution shall commence
shall be a date within such six (6) month period to be determined by the
Committee in its sole discretion.
(d) Distribution in Case of Death - In the event of an Employee's death,
the balance of the Employee's Account shall be distributed to the Employee's
Beneficiary(ies) over a period of not more than five (5) years, in accordance
with his election on Schedules A and B
<PAGE>
6
filed with the Committee for distribution in case of death. Such distribution
shall be made in a manner consistent with Paragraph 5(b) of this Plan and shall
commence in the month of January of the year after the year of the Employee's
death, on a date within said month to be determined by the Committee in its sole
discretion. Additional annual payments for distributions made over a period of
more than one year shall be made on the yearly anniversaries of such date. In
the event of an Employee's death after distribution of his Account has
commenced, any election under this paragraph 5(d) shall not extend the time of
payment of his Account beyond the time when distribution would have been
completed if he had lived. An Employee may change Beneficiary designations by
filing a subsequent Schedule B with the Committee.
(e) Request for Change in Distribution - An Employee, Beneficiary or a
legal representative may request a change in the timing, frequency or amount of
payments made from an Employee's Account by filing a written request therefor
with the Committee. The Committee may, in its sole discretion, grant such
request only if such request specifies appropriate circumstances to justify such
a change to prevent undue hardship. The Committee shall inform the Employee,
Beneficiary or representative of its decision within sixty (60) days of its
receipt of the written request.
(f) Not Terminated if Transferred to an Affiliate - For the purposes of
this Paragraph 5, an Employee shall not be deemed to have terminated his
employment if he is transferred to and remains in the employ of an Affiliate.
(g) Company may Distribution in Lump Sum if Distributable Amount Less than
$5,000 - The Company reserves the right to make a lump-sum distribution,
notwithstanding any other provision of this Plan, if the total Assets in an
Employee's Account are $5,000 or less
<PAGE>
7
at any time after the Employee ceases to be employed by the Company.
(h) Delay of Certain Distributions - Notwithstanding anything contained in
this Plan to the contrary, distribution of an amount equal to 50% of what the
Company's withholding obligation for Federal and applicable state income tax
purposes had the Company been obligated to withhold in the year that the
Employee elected to redeem such Deferrable SARs, would have been in respect of
SARs which were vested under the terms of the SAR Plan at the time of the
election to defer income related thereto, shall be deferred as described in this
paragraph. Such deferred amount, and all interest accrued with respect thereto
under this Plan, shall be paid in one lump sum upon the earlier of the end of
(a) eleven (11) years from the date of the exercise of the vested SAR or (b) the
date upon which the audit period for the Company's Federal or applicable state
income tax return for the year in which the vested Deferrable SARs were
exercised closes. Except, however, if at the time noted in (a), above the issue
of the Company's withholding obligation in respect of such SAR Income is being
contested, distribution of all amounts otherwise distributable, not exceeding
the amount in controversy, will be delayed until resolution of such contest.
6. ASSIGNMENT. No benefit under the Plan shall in any manner or to any
extent be assigned, alienated or transferred by any Employee or Beneficiary
under the Plan or be subject to attachment, garnishment or other legal process.
7. PLAN DOES NOT CONSTITUTE AN EMPLOYMENT AGREEMENT. This Plan shall not
constitute a contract for the continued employment of any Employee by the
Company. The Company reserves the right to modify an Employee's Compensation at
any time and from time to time as it considers appropriate and to terminate his
employment for any reason
<PAGE>
8
at any time notwithstanding this Plan.
8. AMENDMENT OR TERMINATION OF THE PLAN BY THE COMPANY. The Board of
Directors of the Company may, in its sole discretion, amend, modify or terminate
this Plan at any time, provided, however, that no such amendment, modification
or termination shall materially adversely affect the right of an Employee in
respect of Deferred Compensation previously earned by him which has not been
paid, unless such Employee or his legal representative shall consent to such
change.
9. WHAT CONSTITUTES NOTICE. Any notice to an Employee, Beneficiary or legal
representative hereunder shall be given either by delivering it or by depositing
it in the United States mail, postage prepaid, addressed to his last-known
address. Any notice to the Company or the Committee hereunder (including the
filing of Schedules A and B) shall be given either by delivering it, or
depositing it in the United States mail, postage prepaid, to the Secretary of
the Employee Benefits Policy Committee, Public Service Enterprise Group
Incorporated, 80 Park Plaza, T4B, Newark, New Jersey 07101.
10. ADVANCE DISCLAIMER OF ANY WAIVER ON THE PART OF THE COMPANY. Failure by
the Company to insist upon strict compliance with any of the terms, covenants or
conditions hereof shall not be deemed a waiver of any such term, covenant or
condition, nor shall any waiver or relinquishment of any right or power
hereunder at any one or more times be deemed a waiver or relinquishment of any
such right or power at any other time or times.
11. EFFECT ON INVALIDITY OF ANY PART OF THE PLAN. The invalidity or
unenforceability of any provision hereof shall in no way affect the validity or
enforceability of
<PAGE>
9
any other provision.
12. PLAN BINDING ON ANY SUCCESSOR OWNER. Except as otherwise provided
herein, this Plan shall inure to the benefit of and be binding upon the Company,
its successors and assigns, including but not limited to any corporation which
may acquire all or substantially all of the Company's assets and business or
with or into which the Company may be consolidated or merged.
13. LAWS GOVERNING THIS PLAN. Except to the extent federal law applies,
this Plan shall be governed by the laws of the State of New Jersey.
14. WITHHOLDING FOR TAXES. The Company shall have the right to deduct from
any payment any sums required to be withheld by federal, state, or local tax
law. There is no obligation hereunder that any Participant or other person be
advised in advance of the existence of the tax or the amount so required to be
withheld.
15. MISCELLANEOUS. The masculine pronoun shall mean the feminine wherever
appropriate.
<PAGE>
10
SCHEDULE A
DEFERRED COMPENSATION PLAN FOR CERTAIN EMPLOYEES OF
COMMUNITY ENERGY ALTERNATIVES, INCORPORATED (THE "PLAN")
Elections In Connection With Deferral Of Compensation
Section 1. Election As To Compensation To Be Deferred.
Note: THIS SECTION IS TO BE USED TO MAKE OR TO CHANGE ANY ELECTION UNDER
PARAGRAPH 3 OF THE PLAN. ANY CHANGE IN ELECTION MUST BE MADE NO
LATER THAN DECEMBER 31 OF THE YEAR PRECEDING THE YEAR IN WHICH YOU
WISH THE CHANGE TO APPLY.
I hereby elect to defer, in accordance with the provisions of the Plan:
(a) _________________ a month of my Compensation;
(b) All of my Compensation in excess of $_______________ per year;
(c) __________% of any payments made pursuant to the grant of
_________________________________ under the Community Energy
Alternatives Incorporated 1987 Stock Appreciation Rights Plan;
(d) __________% or $________________ of any award paid to me
pursuant to the Community Energy Alternatives Incorporated
Incentive Compensation Plan;
(e) __________% or $_______________ of any project completion bonus
paid to me.
Section 2. Election As To Commencement Of Distribution From Account
Note: THIS SECTION IS TO BE USED (A) WHEN FIRST BECOMING AN EMPLOYEE
COVERED BY THE PLAN AND (B) PRIOR TO DECEMBER 31ST OF ANY GIVEN
YEAR IF THERE IS TO BE ANY CHANGE IN THE ORIGINAL ELECTION. ANY
SUCH CHANGE WILL ONLY APPLY TO FUTURE DEFERRALS.
I hereby elect, in accordance with the provisions of the Plan, to have
distribution from my Account commence:
(a) Within sixty (60) days after I cease to be employed by the
Company.
(b) In the month of January of the calendar year following the year I
cease to be employed by the Company.
(c) In the month of January, _______________________.
Employee's Initials___________
Date______________________
<PAGE>
11
SCHEDULE A
Section 3. Election As To The Timing Of The Distribution
Note: THIS SECTION IS TO BE USED (A) WHEN FIRST BECOMING AN EMPLOYEE
COVERED BY THE PLAN AND (B) PRIOR TO DECEMBER 31ST OF ANY GIVEN YEAR
IF THERE IS TO BE ANY CHANGE IN THE ORIGINAL ELECTION. ANY SUCH
CHANGE WILL ONLY APPLY TO FUTURE DEFERRALS.
I hereby elect, in accordance with the provisions of the Plan, to have the
distribution of my Account paid:
(a) In one lump sum
(b) In annual installments over a period of five (5) years.
(c) In annual installments over a period of ten (10) years.
Section 4. Election As To Method Of Distribution In Case Of Death
Note: THIS SECTION TO BE USED TO SELECT THE METHOD OF DISTRIBUTION IN THE
CASE OF DEATH. PERIOD SELECTED MAY NOT BE MORE THAN FIVE (5) YEARS.
In case of my death, I hereby elect, in accordance with the provisions of
the Plan, to have the distribution of my Account paid over a period of
year(s) to my Beneficiary(ies) designated on Schedule B.
___________________, 19
- ------------------------------ ------------------------------------
WITNESS EMPLOYEE SIGNATURE
<PAGE>
12
SCHEDULE B
DEFERRED COMPENSATION PLAN FOR CERTAIN EMPLOYEES OF
COMMUNITY ENERGY ALTERNATIVES, INCORPORATED (THE "PLAN")
DESIGNATION OF BENEFICIARY(IES)
In the event of my death, I hereby designate the following individuals,
fiduciaries or other entities, either in their own right or in their
representative capacity, in the proportions and in the priority of interest
designated, to be the beneficiaries of any benefits owing to me under the Plan.
PRIMARY BENEFICIARIES - The following beneficiary(ies) shall receive all
benefits payable under the Plan in the event of my death in the proportions
designated hereunder. If any one or more of the primary beneficiaries designated
hereunder shall predecease me, such beneficiary's share(s) shall be divided
equally among the remaining primary beneficiaries.
NAME AND PRESENT PROPORTIONATE INTEREST
ADDRESS OF PRIMARY OF PRIMARY RELATIONSHIP
BENEFICIARIES BENEFICIARY(IES) TO EMPLOYEE
- ------------------------- ----------% ---------------
- -------------------------
- ------------------------- ----------% ---------------
- -------------------------
- ------------------------- ----------% ---------------
- -------------------------
- ------------------------- ----------% ---------------
- -------------------------
------------------------
Employee's Initials
<PAGE>
13
SCHEDULE B
SECONDARY BENEFICIARIES - The following beneficiary(ies) shall receive all
benefits payable under the Plan in the event of my death in the proportions
designated hereunder only if all of my primary beneficiaries have predeceased
me. If all primary beneficiaries have predeceased me and if any one or more of
the secondary beneficiaries designated hereunder shall predecease me, such
secondary beneficiary's share(s) shall be divided equally among the remaining
secondary beneficiaries.
NAME AND PRESENT PROPORTIONATE INTEREST
ADDRESS OF SECONDARY OF SECONDARY RELATIONSHIP
BENEFICIARY(IES) BENEFICIARY(IES) TO EMPLOYEE
- ------------------------- ----------% ---------------
- -------------------------
- ------------------------- ----------% ---------------
- -------------------------
- ------------------------- ----------% ---------------
- -------------------------
- ------------------------- ----------% ---------------
- -------------------------
ESTATE - In the event I have declined to designate a beneficiary hereunder
or if all of the beneficiaries that I have designated predecease me, then all
benefits payable under the Plan shall be payable to my estate.
Date:
- ------------------------------------ ------------------------------------
WITNESS EMPLOYEE'S SIGNATURE
1997 EXECUTIVE LONG-TERM INCENTIVE
COMPENSATION PLAN
PSEG GLOBAL INC.
As Amended December 21, 1998
<PAGE>
TABLE OF CONTENTS
Page No.
--------
1. Purposes...............................................................1
2. Definitions............................................................1
3. Eligibility............................................................5
4. Administration.........................................................6
5. Phantom Stock Units....................................................7
6. Granting of Awards....................................................7
7. Vesting of Award Grants ...............................................8
8. Term of Award Grants...................................................8
9. Payment of Award Grants................................................9
10. Method of Exercise of Award Grants.....................................9
11. Termination of Employment.............................................10
12. Assignment............................................................11
13. Plan Does Not Constitute an Employment Agreement......................11
14. Amendment or Termination of this Plan by the Company..................11
15. What Constitutes Notice...............................................11
16. Advance Disclaimer of Any Waiver......................................12
17. Effect on Invalidity of Any Part of this Plan.........................12
18. Change In Control.....................................................12
19. Plan Binding on Any Successor Owner...................................12
20. Laws Governing This Plan..............................................12
21. Miscellaneous.........................................................13
22. Withholding...........................................................13
23. Effective Date........................................................13
<PAGE>
PSEG GLOBAL INC.
1997 EXECUTIVE LONG-TERM INCENTIVE
COMPENSATION PLAN
1. PURPOSES
The purposes of this Plan are to foster attainment of the long-term
financial and operating objectives of the Company by providing incentive to key
members of the senior management of this Company and its Subsidiaries tied to
changes in the total value of the Company as measured by the performance of
units of Phantom Stock of the Company; to supplement the Company's salary and
benefit programs so as to provide overall compensation for such executives which
is competitive with corporations with which the Company must compete for
executive talent; and to assist the Company in attracting and retaining
executives who can materially influence its long-term financial and operating
results.
2. DEFINITIONS
As used in this Plan, the following words and phrases shall have the
following meanings unless the context clearly requires otherwise:
(a) "Affiliate" shall mean any organization which is a member of a
controlled group of corporations (as defined in Code section 414(b) as
modified by Code section 415(h)) which includes the Company, or any trades
or businesses (whether or not incorporated) which are under common control
(as defined in Code section 414(c) as modified by Code section 415(h)) with
the Company, or a member of an affiliated service group (as defined in Code
section 414(m)) which includes the Company, or any other entity required to
be aggregated with the Company pursuant to regulations promulgated pursuant
to Code section 414(o).
(b) "Award Grants" - options with respect to units of Phantom Stock of
the Company awarded by the Committee pursuant to Paragraph 6 of this Plan.
(c) "Award Year" - a Plan Year with respect to which Award Grants to
Participants in this Plan are approved by the Committee.
(d) "Change in Control" - for purposes of this Plan, a "Change in
Control" of the Company shall have occurred if:
1
<PAGE>
(i) any Person, other than Holdings, its parent, Public Service
Enterprise Group Incorporated, their successors or assigns or
any of their Subsidiaries or Affiliates, is or becomes the
Beneficial Owner (as that term is defined in Rule 13-3 under
the Securities and Exchange Act of 1934, as amended), directly
or indirectly, of securities of the Company (not including in
the securities beneficially owned by such Person any
securities acquired directly from the Company) representing
fifty percent (50%) or more of the combined voting power of
the Company's then outstanding securities; or
(ii) a reorganization, merger or consolidation of the Company is
consummated, other than a reorganization, merger or
consolidation immediately following which more than fifty
percent (50%) of the voting securities of the Company, are
owned, directly or indirectly, by Holdings, Public Service
Enterprise Group Incorporated, their successors or assigns or
any of their Subsidiaries or Affiliates; or
(iii) the shareholders of the Company approve (a) the sale or
disposition by the Company (other than to a parent, Subsidiary
or Affiliate of Holdings, or Public Service Enterprise Group
Incorporated or to their successors or assigns) of all or
substantially all of the assets of the Company (or any such
sale or disposition is effected through condemnation
proceedings), or (b) a complete liquidation or dissolution of
the Company.
For the purposes of this paragraph 2(d), any public offering of the
common stock of the Company shall not be deemed to result in a
Change in Control of the Company.
2
<PAGE>
(e) "Committee" - the Compensation Committee of the Board of
Directors of the Company.
(f) "Company" - PSEG Global Inc.
(g) "Disability" - any physical or mental condition which renders a
Participant incapable of performing further work for his or her employer,
as certified in writing by a medical practitioner designated and/or
approved by the Committee.
(h) "Holdings" - PSEG Holdings Inc., the Company's parent.
(i) "Exercise Date" - the date upon which a Participant elects to
"exercise" an Award Grant pursuant to Paragraphs 9 and 10 of this Plan.
(j) "Exercise Period" - the annual 45 day period within which vested
Award Grants may be exercised, as provided for in Paragraph 10 of this
Plan.
(k) "Fair Market Value" - as of a given date, if the shares of
common stock of the Company are listed as of such date on any national
securities exchange or traded on the over-the-counter market, the Fair
Market Value shall be the closing price on such exchange or on the NASDAQ
National Market System or the mean of the closing bid and asked prices of
the shares of common stock on the over-the-counter market, as reported by
the NASDAQ, the National Association of Securities Dealers OTC Bulletin
Board or the National Quotation Bureau, Inc., as the case may be, on such
date or, if there is no closing price or bid or asked price on that day,
the closing price or mean of the closing bid and asked prices on the most
recent day preceding such date for which such prices are available.
(l) "Option Price" - the Unit Value of an Award Grant on the date of
grant.
(m) "Participant(s)" - such employee(s) of the Company and its
Subsidiaries as may be designated by the Committee to participate in this
Plan.
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(n) "Phantom Stock" - fictitious units of common stock in the
Company that will be the basis upon which the value of Award Grants shall
be determined, as provided in Paragraph 5 of this Plan.
(o) "Plan" - this PSEG Global Inc. 1997 Executive Long-Term
Incentive Compensation Plan.
(p) "Plan Year" - the calendar year.
(q) "Retirement" - termination of employment with the Company or any
Subsidiary (i) at or after the age of 62 or (ii) under circumstances
entitling the Participant to an immediately payable periodic retirement
benefit under the Public Service Electric and Gas Company Pension Plan or
the Cash Balance Pension Plan for Non Represented Employees of Public
Service Electric and Gas Company. Retirement shall not include termination
of service with a right to a deferred pension under the Pension Plan or a
deferred retirement benefit or early commencement of a Participant's cash
balance account under the Cash Balance Pension Plan;
(r) "Subsidiary" - a corporation at least 80% of the voting shares
of which are owned by this Company.
(s) "Total Value" - the total value of the Company computed
according to paragraph 5(c) of this Plan.
(t) "Unit Value" - the value per unit of Phantom Stock computed
according to paragraph 5(b) of this Plan.
3. ELIGIBILITY
(a) The Committee may select such employees of the Company and its
Subsidiaries (individually or by position) for participation in this Plan upon
such terms as it deems
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appropriate, due to the employee's responsibilities and his/ her opportunity to
make substantial contributions to the attainment of the long-term financial and
operating objectives of the Company. A determination with respect to
participation for any particular Plan Year shall be made within 30 days of the
beginning of the Plan Year, except that designation of Participants with respect
to the first Plan Year following adoption of this Plan shall be made within 30
days of the initial adoption of this Plan and selection of new hires or newly
transferred or promoted employees for participation shall be made within 30 days
of hire, transfer or promotion. Further, the Committee may adjust an Award Grant
of any Participant if the Committee deems it appropriate to so do reflect a
change which may have occurred during an Award Year in such Participant's
position or responsibilities.
(b) Participation in this Plan in one Plan Year shall not guarantee
participation in any other Plan Year. The Committee shall have sole discretion
with respect to the selection of Participants, the making of Award Grants or
whether to suspend operation of this Plan for any period of time.
4. ADMINISTRATION
(a) This Plan shall be administered by the Committee. The Committee shall
have full and final authority to select Participants and to designate an Award
Grant for each Participant. The Committee shall have the authority, subject to
such resolutions as may from time to time be issued or adopted by the Board of
Directors, in its discretion to determine the individuals to whom, and the time
or times at which, Award Grants shall be made, the number of units of Phantom
Stock to be subject to each Award Grant, the limitations, restrictions and
conditions applicable to each Award Grant, the terms and provisions of
agreements that may be entered into in connection with Award Grants (which need
not be identical), to interpret the Plan, to prescribe, amend and rescind rules
and regulations relating to the Plan and to make all other determinations and
take all other actions necessary or advisable for the administration of the
Plan.
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(b) The Committee's determinations on the matters regarding this Plan
(including matters referred to in this Paragraph 4) shall be conclusive and
shall be binding on the Company, its stockholders, its Affiliates, all
Participants, all other employees and all other persons.
5. PHANTOM STOCK UNITS
The Company is a wholly owned subsidiary of Holdings and none of the
Company's actual capital stock will be available for award or distribution under
this Plan. Instead, "units" of Phantom Stock shall be the basis for the
calculation of the value of Award Grants made pursuant to this Plan. Such
Phantom Stock shall be subject to the following assumptions:
(a) There are 10,000,000 total units;
(b) The Unit Value (the value of each unit of Phantom Stock) on any
date shall be equal to the Total Value of the Company at the close of
business on the last business day of the Plan Year immediately prior to
such date, divided by 10,000,000. Except that following any initial public
offering of the common stock of the Company, Unit Value shall be equal to
the Fair Market Value of the common stock.
(c) The Total Value of the Company at the close of business on the
last business day of any Plan Year shall be computed using such criteria
and formulae as shall be approved by the Committee prior to the end of
such Plan Year and shall be distributed, at least annually, to all
Participants. In its discretion, the Committee may utilize such third
party as it may choose to verify this computation for any Plan Year.
6. GRANTING OF AWARDS
(a) Within 30 days of the beginning of each Plan Year, or in the case of
the first Plan Year, within 30 days after the initial adoption of this Plan and,
in the case of new hires or
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newly transferred or promoted employees selected for participation, within 30
days from the date of hire, transfer or promotion, the Committee shall approve
an Award Grant for each Participant based upon the Participant's position and
his/ her potential to contribute to the attainment of the Company's long-term
financial and operating objectives. The Award Grant shall be expressed as an
"option" with respect to a certain number of units of Phantom Stock of the
Company. The amount of any individual Award Grant and the total of Award Grants
made in any Award Year shall be based upon any criteria that the Committee shall
deem to be reasonable. The Option Price at which such "option" may be exercised
shall be the Unit Value of the Phantom Stock as of the close of business on the
last business day of the Plan Year immediately prior to the date of grant.
(b) Also, notwithstanding anything contained in this Plan to the contrary,
the Committee shall have the authority to adjust any Participant's Award Grant
upon any basis it shall determine to be reasonable.
7. VESTING OF AWARD GRANTS
Award Grants shall vest and become exercisable according to the following
schedule on the first day of the Exercise Period in the respective Plan Year
following the Plan Year for which they were awarded (each, an "Exercise Date"):
Prior to three years from date of grant ..................Zero
Beginning in the third Plan Year from date of grant ...... 50%
Beginning in the fourth Plan Year from date of grant ..... 75%
Beginning in the fifth Plan Year from date of grant ......100%
(i.e., the first Exercise Date for Award Grants made for the 1997 Award Year
shall be the first day of the Exercise Period in 2000).
8. TERM OF AWARD GRANTS
The term of Award Grants shall be seven (7) years. Award Grants shall be
exerciseable until the close of the Exercise Period in the Plan Year which is
six years following the Plan Year for which the Award Grant was made (i.e.,
Award Grants made for the 1997 Award Year
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must be exercised on or before the close of the Exercise Period in 2004). Award
Grants not exercised prior to the close of such final Exercise Period shall
lapse.
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9. PAYMENT OF AWARD GRANTS
All distributions under this Plan shall be made in money by check. The
amount that shall be distributed to a Participant upon exercise of an Award
Grant shall be equal to the difference in the Unit Value of the Award Grant on
the Exercise Date and the Option Price, times the number of units of the Award
Grant that are being exercised. Provided, however, that the Unit Value of an
Award Grant that is exercised following an initial public offering of common
stock of the Company shall not exceed the Fair Market Value of such common stock
on the Exercise Date. If there is an initial public offering of the common stock
of the Company and the number of shares of common stock of the Company
outstanding immediately following such initial public offering is different than
10,000,000, then, in that case, the Option Price of any outstanding Award Grants
shall be adjusted, upward or downward, in the same proportion as 10,000,000 is
to the number of shares of common stock of the Company outstanding immediately
following such initial public offering
10. METHOD OF EXERCISE OF AWARD GRANTS
(a) Except as provided below in Subparagraph (b) or in Paragraphs 11(a) and
11(b) of this Plan, Award Grants may be exercised only during an Exercise
Period. In each Plan Year, the Exercise Period shall be the 45-day period
beginning on the date that the Committee publishes the Total Value of the
Company as of the end of the prior Plan Year in accordance with Paragraph 5(c)
of this Plan.
(b) If there has been an initial public offering of the common stock of the
Company, the exercise of Award Grants shall no longer be limited to the Exercise
Period.
(c) In order to exercise an Award Grant, the Participant desiring the
exercise must deliver written notice to the Secretary of the Committee, at the
address shown in Paragraph 15 of this Plan, indicating (i) the Participant's
desire to exercise the Award Grant, (ii) the identification of the Award Year of
the Award Grant elected to be exercised and (iii) the number of units of such
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Award Grant (which may be less than the total number of units of such Award
Grant but which must be a whole number of units) which have been elected to be
exercised.
11. TERMINATION OF EMPLOYMENT
(a) If a Participant's employment with the Company or a Subsidiary is
terminated on account of the Participant's death after such Participant shall
have received an Award Grant, but prior to the date that such Award Grant shall
become vested, a prorated portion of such Award Grant (equal to the number of
months which have transpired since the date of grant divided by 36) shall be
deemed to be vested and all vested Award Grants shall be paid to the
Participant's Estate within 90 days of Participant's death. Any Award Grant or
portion thereof not so vested and paid shall be forfeited.
(b) If a Participant's employment with the Company or a Subsidiary is
terminated on account of the Participant's Retirement or Disability after such
Participant shall have received an Award Grant, but prior to the date that such
Award Grant shall become vested, a prorated portion of such Award Grant (equal
to the number of months that have transpired since the date of grant divided by
36) shall be deemed to be vested and all vested Award Grants shall be paid to
the Participant within 90 days of Participant's termination of employment. Any
Award Grant or portion thereof not so vested and paid shall be forfeited.
(c) If a Participant's employment with the Company or a Subsidiary is
terminated on account of the Participant's transfer of employment to an
Affiliate which is not a Subsidiary after such Participant shall have received
an Award Grant, the Participant shall be treated, for the purposes of such Award
Grant, as if he/she had remained in the employ of the Company or a Subsidiary
for as long as the Participant remains in the employ of an Affiliate.
(d) If the employment of a Participant is terminated for any reason other
than death, Retirement or transfer to the employ of an Affiliate, any Award
Grants not yet exercised on the date of termination shall lapse.
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12. ASSIGNMENT
No benefit under this Plan shall in any manner or to any extent be
assigned, alienated or transferred by any Participant under this Plan or subject
to attachment, garnishment or other legal process.
13. PLAN DOES NOT CONSTITUTE AN EMPLOYMENT AGREEMENT
This Plan shall not constitute a contract for the continued employment of
any Participant by the Company or any Subsidiary. The Company and each
Subsidiary reserve the right to modify a Participant's compensation at any time
and from time to time as it considers appropriate and to terminate any
Participant's employment for any reason at any time notwithstanding this Plan.
14. AMENDMENT OR TERMINATION OF THIS PLAN BY THE COMPANY
The Board of Directors of the Company may, in its sole discretion, amend,
modify or terminate this Plan at any time, provided, however, that no such
amendment, modification or termination shall materially adversely affect the
right of a Participant in respect of a vested Award Grant, unless such
Participant or his or her legal representative shall consent to such change.
15. WHAT CONSTITUTES NOTICE
Any notice to a Participant or legal representative hereunder shall be
given either by delivering it or by depositing it in the United States mail,
postage prepaid, addressed to such person's last-known address. Any notice to
the Company or the Committee hereunder shall be given either by delivering it or
depositing it in the United States Mail, postage prepaid, to the Secretary, PSEG
Glogal Inc., 80 Park Plaza, T4B, P. O. Box 1171, Newark, New Jersey 07101.
16. ADVANCE DISCLAIMER OF ANY WAIVER
Failure by the Company or the Committee to insist upon strict compliance
with any of the terms, covenants or conditions hereof shall not be deemed a
waiver of any such term, covenant or condition, nor shall any waiver or
relinquishment of any right or power hereunder at
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any one or more times be deemed a waiver or relinquishment of any such right or
power at any other time or times.
17. EFFECT ON INVALIDITY OF ANY PART OF THIS PLAN
The invalidity or unenforceability of any provision hereof shall in no way
affect the validity or enforceability of any other provision.
18. CHANGE IN CONTROL
If a Change in Control of the Company shall occur, all Award Grants that
have not yet vested shall immediately vest.
19. PLAN BINDING ON ANY SUCCESSOR OWNER
Except as otherwise provided herein, this Plan shall inure to the benefit
of and be binding upon the Company, its successors and assigns, including but
not limited to any corporation which may acquire all or substantially all of the
Company's assets and business or with or into which the Company may be
consolidated or merged.
20. LAWS GOVERNING THIS PLAN
Except to the extent federal law applies, this Plan shall be governed by
the laws of the State of New Jersey.
21. MISCELLANEOUS
The masculine pronoun shall also mean the feminine and vice versa wherever
appropriate.
22. WITHHOLDING
The Company shall have the right to deduct from any payment any sum
required to be withheld by federal, state, or local tax law. There is no
obligation hereunder that any Participant or other person be advised in advance
of the existence of the tax or the amount so required to be withheld.
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23. EFFECTIVE DATE
This Plan shall be effective as of January 1, 1997.
MANAGEMENT INCENTIVE COMPENSATION PLAN
PSEG ENERGY HOLDINGS INC.
AMENDED DECEMBER 15, 1998
<PAGE>
PSEG ENERGY HOLDINGS INC.
MANAGEMENT INCENTIVE COMPENSATION PLAN
1. PURPOSES
The purposes of this Plan are to foster attainment of the financial and
operating objectives of this Corporation which are important to customers and
stockholders by providing incentive to members of management who contribute to
attainment of these objectives; to supplement this Corporation's salary and
benefit programs so as to provide overall compensation for such executives which
is competitive with corporations with which this Corporation must compete for
executive talent; and to assist this Corporation in attracting and retaining
executives who are important to its continued success.
2. DEFINITIONS
As used in this Plan, the following words and phrases shall have the
meanings indicated:
(a) "Account" - an Account established pursuant to Paragraph 8(a) of
this Plan.
(b) "Award" - the amount of final Incentive Award for a Participant
approved by the Committee pursuant to Paragraphs 5 and 7 of the Plan.
(c) "Award Year" - a Plan Year in which Incentive Awards are earned by
Participants in the Plan.
(d) "Committee" - the Compensation Committee appointed by the Board of
Directors of this Corporation.
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(e) "Corporation" - PSEG Energy Holdings Inc.
(f) "Disability" - any physical or mental condition which renders a
Participant incapable of performing further work for this Corporation and
that results in termination of employment.
(g) "Distribution Date" - for each Award Year, the first business day
of January.
(h) "Enterprise" - Public Service Enterprise Group Incorporated.
(i) "Incentive Award" - the amount earned by a Participant in
accordance with Paragraph 7.
(j) "Participant" - each officer or other employee of this Corporation
and its subsidiaries as may be designated by the Committee pursuant to
Paragraph 3 of the Plan.
(k) "Plan" - the PSEG Energy Holdings Inc. Management Incentive
Compensation Plan.
(l) "Plan Year" - the calendar year.
(m) "Primary Award" - the amount determined under Paragraph 7(a)(1).
(n) "PSE&G" - Public Service Electric and Gas Company.
(o) "Retirement" - termination of service with this Corporation with
the right to an immediately payable periodic normal or early retirement
benefit under the Pension Plan of Public Service Electric and Gas Company
or the Cash Balance Pension Plan of Public Service Electric and Gas
Company. Retirement shall not include termination of service with the right
to a deferred retirement benefits under either said plan.
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(p) "Target Incentive Award" - the amount determined under paragraph
6.
3. ELIGIBILITY
(a) The Committee may select such employees of this Corporation and its
subsidiaries (individually or by position) for participation in the Plan upon
such terms as it deems appropriate, due to the employee's responsibilities and
his opportunity to contribute substantially to the attainment of financial and
operating objectives of this Corporation. A determination of participation for a
Plan Year shall be made no later than the beginning of that Plan Year. Provided,
however, that employees whose duties and responsibilities change significantly
during a Plan Year may be added or deleted as a Participant by the Committee.
Provided further, the Committee may prorate the Incentive Award of any
Participant if appropriate to reflect any such change in employee
responsibilities during a Plan Year.
(b) Participation in the Plan in one Plan Year shall not guarantee
participation in another Plan Year.
(c) The Committee shall have sole discretion as to whether to suspend
operation of the Plan for any period of time.
4. ADMINISTRATION
(a) The Plan shall be administered by the Committee. Subject to the
provisions of the Plan, the Committee shall have full and final authority to
select Participants, to designate the Target Incentive Award for each
Participant, and to determine the performance objectives and the amount of all
Incentive Awards. The Committee shall also have, subject to the provisions of
the Plan, full and final authority to
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interpret the Plan, to establish and revise rules, regulations and guides
relating to the Plan, and to make any other determinations that it believes
necessary or advisable for the administration of the Plan. The Committee may
delegate such responsibilities, other than final approval of Awards or appeals
of alleged adverse determinations under the Plan, to the Chief Executive Officer
of this Corporation or to any other officer of this Corporation.
(b) All decisions and determinations by the Committee shall be final and
binding upon all parties, including stockholders, Participants, legal
representatives and other employees.
5. DETERMINATION OF AWARD YEAR
Not later than 120 days after the close of each Plan Year, the Committee
shall, in its sole discretion, determine whether any Participants shall be
eligible to earn Incentive Awards with respect to such Plan Year. The discretion
of the Committee with respect to this final approval of Awards shall be total.
6. DETERMINATION OF TARGET INCENTIVE AWARDS
For each Award Year, the Committee shall establish a Target Incentive Award
for each Participant based upon the Participant's position and potential for
contribution to the attainment of this Corporation's financial and operating
objectives. The Target Incentive Award shall be expressed as a percentage of the
Participant's rate of base salary in effect as of the last day of the Plan Year
to which such Target Incentive Award relates.
7. DETERMINATION OF INCENTIVE AWARD
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(a) To determine each Participant's Incentive Award, the Participant's
Target Incentive Award shall be adjusted based upon the following factors,
provided that the Incentive Award for any Participant shall in no event exceed
1.5 times the Target Incentive Award and provided further that the Committee may
determine, based upon the financial and operating results of this Corporation or
any other business factors that it determines appropriate, that no Incentive
Award shall be awarded for any Plan Year:
(1) The Target Incentive Award shall be multiplied by a factor of
between 0 and 1.5 to proportionately reflect Enterprise's return on
capital for the Plan Year as reported to the Board of Directors in
accordance with such rules and procedures as are approved by the
Committee; provided, however, that if such return is below a
minimum threshold established by the Committee prior to the
beginning of the Plan Year, no Incentive Award shall be earned for
such Plan Year. This adjusted amount is the Participant's Primary
Award.
(2) The Participant's Primary Award shall be adjusted by a factor of
between -0.5 and +0.5 to proportionately reflect the relative
annual increase or decrease in this PSE&G's weighted average of
cost per unit of electricity and gas sold in the Plan Year as
compared with similar increases or decreases of other designated
comparison utilities, in accordance with such rules and procedures
as are approved by the Committee.
(3) The sum of items (1) and (2) above shall be multiplied by a factor
of between 0 and 1.5 to reflect the Participant's level of
individual
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performance, in accordance with such rules and procedures as are
approved by the Committee.
(b) The Chief Executive Officer shall recommend to the Committee an Award
for each Participant, except that the Committee shall have full responsibility
for assessing the performance of the Chief Executive Officer and that the
Committee shall make the final determination of all Awards.
8. AWARD PAYMENT
(a) For Incentive Awards Relating to Plan Years Ending Prior to 1/1/96:
(i) There shall be established an account for each Participant for each
Plan Year which shall, to the extent not paid to the Participant, be initially
credited with the amount of the Participant's Incentive Award. The Plan shall be
unfunded. This Corporation shall not be required to segregate any amounts
credited to any Participant's Account, which shall be established merely as an
accounting convenience. Title to and beneficial ownership of any amounts
credited to a Participant's Account shall at all times remain in this
Corporation, and no Participant or shall have any interest whatsoever in any
specific assets of this Corporation. All amounts credited to Participants'
Accounts shall at all times remain solely the property of this Corporation
subject to the claims of its general creditors and available for this
Corporation's use for whatever purpose desired.
(ii) The amount credited to a Participant's Account shall be treated
for valuation purposes as if it had been used to purchase shares of the Common
Stock of this Corporation or Enterprise, whichever is then listed on the New
York Stock Exchange, on the date it is credited to the Participant's Account at
a price equal to the average of the
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high and low sale prices of such Common Stock on such date on the New York Stock
Exchange. For the purpose of valuing a Participant's Account, the equivalent
shares so credited to a Participant's Account shall be treated as if they were
to accrue dividends the same as actual shares of Common Stock, and such
equivalent dividends were used to purchase additional shares of such Common
Stock at a price equal to 95% of the average of the high and low sale prices of
such Common Stock on the New York Stock Exchange on the dividend payment date.
(iii) When a distribution or partial distribution is to be made, cash
in the amount of the equivalent number of shares of Common Stock to be
distributed times the average of the high and low sale prices of such Common
Stock on the New York Stock Exchange as of the Distribution Date shall be
distributed.
(iv) Distribution of a Participant's Account attributable to a Plan
Year shall be made in yearly payments over a period of three years, commencing
with the second year following the Plan Year to which the Incentive Award
relates, each yearly payment to be determined by dividing the value of such
Account by the number of payments remaining.
(b) For Incentive Awards Related to Plan Years Beginning After 12/31/95:
Participants' Incentive Awards shall be made in one lump sum cash payment as
soon as practicable after the Determination Date.
9. DEFERRAL OF AWARDS
(a) Effective January 1, 1997, receipt of payment of Incentive Awards
earned pursuant to this Plan may no longer be voluntarily deferred pursuant to
this
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Plan.
(b) Also effective on that date, all amounts previously deferred under the
voluntary deferral provisions of this Plan shall be transferred (using the last
sale price for the Common Stock on December 31, 1996 as a reference for the
amount to be transferred) to the Deferred Compensation Plan for Certain
Employees of Public Service Electric and Gas Company, as amended, and be treated
in accordance with the terms of that plan.
10. TERMINATION
(a) If the employment of a Participant by this Corporation is terminated by
the Participant's death, Disability or Retirement, the entire value of the
Participant's Account shall be distributed as soon as practicable. In addition,
the Committee shall, if it determines that Incentive Awards may be earned for
such year of termination, prorate an Award for that part of the year in which
the Participant was participating prior to such termination and this Corporation
shall pay the prorated Award as soon as practicable after determination, unless
otherwise determined by the Committee.
(b) If the employment of a Participant is terminated for any reason other
than death, Disability or Retirement, any amounts held for the Account of
Participant upon any such termination which have not been paid because of the
mandatory deferral provisions of Paragraph 8(a) shall be forfeited, unless
otherwise determined by the Committee, and the balance of the Participant's
Account shall be distributed as soon as practicable. In addition, the
Participant shall not receive an Award for that part of the
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Plan Year in which the Participant was participating at the time of termination,
unless otherwise determined by the Committee.
(c) If a Participant becomes or ceases to be a Participant during a Plan
Year, any Award to the Participant shall be appropriately prorated from the time
the Participant entered or left the Plan to the end of the Plan Year.
(d) In the case of a Participant's death, payment of the entire value of
the Participant's Account under the Plan and/or any Award related to the
Participant's final year of participation shall be made to the Participant's
estate as a lump sum as soon as practicable after the Participant's death.
11. ASSIGNMENT
No benefit under the Plan shall in any manner or to any extent be assigned,
alienated, or transferred by any Participant or be subject to attachment,
garnishment or other legal process.
12. PLAN DOES NOT CONSTITUTE AN EMPLOYMENT AGREEMENT
This Plan shall not constitute a contract for the continued employment of
any Participant by this Corporation. This Corporation reserves the right to
modify a Participant's compensation at any time and from time to time as it
considers appropriate and to terminate his employment for any reason at any time
notwithstanding this Plan.
13. AMENDMENT OR TERMINATION OF THE PLAN BY THIS CORPORATION
The Board of Directors of this Corporation may, in its sole discretion,
amend, modify or terminate this Plan at any time, provided, however, that no
such amendment, modification or termination shall materially adversely affect
the right of a Participant in respect
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of an Incentive Award previously earned by him which has not been paid, unless
such Participant or his legal representative shall consent to such change. If
this Plan is terminated during any Plan Year in which Participants have been
selected to participate, the Board of Directors may authorize the Committee to
prorate and make provision for payment of Awards for such period.
14. WHAT CONSTITUTES NOTICE
Any notice hereunder to a Participant or his legal representative shall be
given either by delivering it, or by depositing it in the United States mail,
postage prepaid, addressed to his last-known address. Any notice to this
Corporation or the Committee hereunder shall be given either by delivering it,
or depositing it in the United States Mail, postage prepaid, to the Secretary,
PSEG Energy Holdings Inc. c/o Public Service Enterprise Group Incorporated, 80
Park Plaza, T4B, P.O. Box 1171, Newark, New Jersey 07101.
15. ADVANCE DISCLAIMER OF ANY WAIVER
Failure by this Corporation or the Committee to insist upon strict
compliance with any of the terms, covenants or conditions hereof shall not be
deemed a waiver of any such term, covenant or condition, nor shall any waiver or
relinquishment of any right or power hereunder at any one or more times be
deemed a waiver or relinquishment of any such right or power at any other time
or times.
16. EFFECT OF INVALIDITY OF ANY PART OF THE PLAN
The invalidity or unenforceability of any provision hereof shall in no way
affect the validity of enforceability of any other provision.
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17. PLAN BINDING ON ANY SUCCESSOR OWNER
Except as otherwise provided herein, this Plan shall inure to the benefit
of and be binding upon this Corporation, its successors and assigns, including
but not limited to any corporation which may acquire all or substantially all of
this Corporation's assets and business or with or into which this Corporation
may be consolidated or merged.
18. LAWS GOVERNING THIS PLAN
Except to the extent federal laws applies, this Plan shall be governed by
the laws of the State of New Jersey.
19. MISCELLANEOUS
The masculine pronoun shall also mean the feminine wherever appropriate.
20. WITHHOLDING
This Corporation shall have the right to deduct from any payment any sums
to be withheld by federal, state, or local tax law. There is no obligation
hereunder that any Participant or other person be advised in advance of the
existence of the tax or the amount so required to be withheld.
21. EFFECTIVE DATE
This Plan shall be effective as of January 1, 1993.
11
DEFERRED COMPENSATION PLAN
FOR CERTAIN EMPLOYEES OF
PSEG HOLDINGS INC
AS AMENDED DECEMBER 15, 1998
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TABLE OF CONTENTS
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1. Purpose 1
2. Definitions Of Terms Used In This Plan 1
(a) Account
(b) Assets
(c) Beneficiary
(d) Change in Control
(e) Company
(f) Compensation
(g) Deferred Compensation
(h) Disability
(i) Employee
(j) Pension Plan
(k) Plan
3. Election as to Amount of Compensation That Is To Be Deferred 2
4. How The Account Is To Be Maintained 2
(a) Establishment of Account
(b) Interest on Assets in the Account
(c) Title to be Beneficial Ownership of Assets
5. Distribution From The Account 3
(a) Election as to the Commencement of the Distribution
(b) Election as to the Timing of the Distribution(s)
(c) Distribution in Case of Certain Disability
(d) Distribution in Case of Death
(e) Request for Change in Distribution
(f) Not Terminated if Transferred to Company-Owned Corporation
(g) Company may Distribute in Lump-Sum if Distributable Amount
Less Than $5,000
6. Unfunded Adjustments to Make Up For Reduced Benefit Under Pension Plan 6
7. Assignment 6
8. Plan Does Not Constitute An Employment Agreement 7
9. Amendment Or Termination Of The Plan By The Company 7
10. What Constitutes Notice 7
11. Advance Disclaimer Of Any Waiver On The Part Of The Company 7
12. Effect Of Invalidity Of Any Part Of The Plan 8
13. Plan Binding On Any Successor Owner 8
14. Laws Governing This Plan 8
15. Miscellaneous 8
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TABLE OF CONTENTS--(Continued)
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Schedule A - Elections In Connection With Deferral Of Compensation 9
Schedule B - Designation Of Beneficiary(ies) 11
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DEFERRED COMPENSATION PLAN FOR CERTAIN EMPLOYEES OF
PSEG HOLDINGS INC
AMENDED DECEMBER 15, 1998
1. Purpose.
The purpose of this Plan is to provide a method to certain select and key
employees of the Company to defer compensation as provided herein.
2. Definitions Of Terms Used In This Plan.
As used in this Plan, the following words and phrases shall have the
meanings indicated:
(a) "Account" - The Deferred Compensation Account described in Paragraph 4
of this Plan.
(b) "Assets" - All Compensation and interest that have been credited to an
Employee's Account in accordance with Paragraph 4 of this Plan.
(c) "Beneficiary" - The individual(s) and/or entity(ies) designated and
defined by Schedule B of the Plan.
(d) "Change in Control" - The occurrence of any of the following events:
(i) any "person" (within the meaning of Section 13(d) of the
Securities Exchange Act of 1934, as amended from time to time
(the "Act")) is or becomes the beneficial owner within the
meaning of Rule 13d-3 under the Act (a "Beneficial Owner"),
directly or indirectly, of securities of Public Service
Enterprise Group Incorporated ("Parent") (not including in the
securities beneficially owned by such person any securities
acquired directly from Parent or its affiliates) representing
25% or more of the combined voting power of Parent's then
outstanding securities, excluding any person
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who becomes such a Beneficial Owner in connection with a
transaction described in clause (A) of paragraph (iii) below;
or
(ii) the following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals
who, on December 15, 1998, constitute the board of directors
of Parent ("Board") and any new director (other than a
director whose initial assumption of office is in connection
with an actual or threatened election contest, including but
not limited to a consent solicitation, relating to the
election of directors of Parent) whose appointment or election
by the Board or nomination for election by Parent's
stockholders was approved or recommended by a vote of at least
two-thirds (2/3) of the directors then still in office who
either were directors on December 15, 1998 or whose
appointment, election or nomination for election was
previously so approved or recommended; or
(iii) there is consummated a merger or consolidation of Parent or
any direct or indirect wholly owned subsidiary of Parent with
any other corporation, other than (1) a merger or
consolidation which would result in the voting securities of
Parent outstanding immediately prior to such merger or
consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity or any parent thereof), in combination
with the ownership of any trustee or other fiduciary holding
securities under an employee benefit plan of Parent or any
subsidiary of Parent, at least 75% of the combined voting
power of the securities of Parent or such surviving entity or
any parent thereof outstanding immediately after such merger
or consolidation, or (2) a merger or consolidation effected to
implement a recapitalization of Parent (or similar
transaction) in which no person is or becomes the Beneficial
Owner, directly or indirectly, of securities of Parent
representing 25% or more of the combined voting power of
Parent's then outstanding securities; or
(iv) the stockholders of Parent approve a plan of complete
liquidation or dissolution of Parent or there is consummated
an agreement for the sale or disposition by Parent of all or
substantially all of Parent's assets, other than a sale or
disposition by Parent of all or substantially all of Parent's
assets to an entity, at least 75% of the combined voting power
of the voting securities of which are owned by stockholders of
Parent in substantially the same
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proportions as their ownership of Parent immediately prior to
such sale.
Notwithstanding the foregoing subparagraphs (i), (ii), (iii)
and (iv), a "Change in Control" shall not be deemed to have
occurred by virtue of the consummation of any transaction or
series of integrated transactions immediately following which
the record holders of the common stock of Parent immediately
prior to such transaction or series of transactions continue
to have substantially the same proportionate ownership in an
entity which owns all or substantially all of the assets of
Parent immediately following such transaction or series of
transactions.
(e) "Company" - PSEG Holdings Inc, formerly known as Enterprise Diversified
Holdings Incorporated.
(f) "Compensation" - The total remuneration paid to an Employee for
services rendered to the Company, excluding the Company's cost for any public or
private employee benefit plan. Compensation deferrable under this Plan shall
specifically include any and all amounts transferred from the deferred
compensation accounts of the Management Incentive Compensation Plan of PSEG
Holdings Inc;
(g) "Deferred Compensation" - The amount of Compensation deferred pursuant
to Paragraph 3 of this Plan.
(h) "Disability" - Disability so as to be incapable of performing further
work for the Company that results in termination of employment.
(i) "Employee" - Each employee of the Company as may be designated by the
Company.
(j) "Pension Plan" - The Pension Plan of Public Service Electric and Gas
Company.
(k) "Plan" - The Deferred Compensation Plan for Certain Employees of PSEG
Holdings Inc.
3. Election As To The Amount Of Compensation That Is To Be Deferred.
An employee may elect to defer any portion of his compensation otherwise
payable for services rendered
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for the Company after the date of adoption of this Plan.
Any such election must be made by filing with the Company an "Election in
Connection with Deferral of Compensation", the form of which is attached to this
Plan as Schedule A and is hereinafter referred to as "Schedule A". An Employee
may change (using Schedule A for such purposes), not later than December 31 of
any year, the amount of Compensation to be deferred by him with respect to the
next succeeding calendar year or years. In the calendar year that an Employee
first becomes eligible to participate in this Plan, such Employee may elect to
defer Compensation for part of that calendar year but only if such election is
made within thirty (30) days after the Employee first becomes eligible to
participate in this Plan. Compensation may be deferred prospectively only, and
the amount of Compensation to be deferred may be changed only with respect to
future calendar years.
4. How The Account Is To Be Maintained.
(a) Establishment of Account - The Company shall establish an Account for
each Employee who elects to participate in the Plan. Each Employee's Account
shall be credited at the end of each month with an amount equal to the Deferred
Compensation which would have otherwise been payable to him that month.
(b) Interest on Assets in the Account - The Assets credited to each
Employee's Account shall accrue interest each calendar quarter at an annual rate
equal to the rate charged by The Chase Manhattan Bank, N.A. on the first
business day of such calendar quarter for prime commercial loans of 90-day
maturity (based on actual numbers of days, 360 days to the year), plus 1/2 of
1%. Such interest shall be computed on the average daily balance in the
Employee's Account during each calendar quarter, excluding any Assets which have
been distributed from the Employee's Account during such quarter, and shall be
credited to the Employee's Account and compounded on the last day of March,
June, September and December, and interest on Assets distributed from an
Employee's Account shall accrue in the same manner to the date of, be credited
to the Employee's
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Account on the date of, and be paid with, such distribution.
(c) Title to and Beneficial Ownership of Assets - The Plan shall be
unfunded. The Company shall not be required to segregate any amounts credited to
any Employee' s Account, which shall be established merely as an accounting
convenience. Title to and beneficial ownership of any Assets, whether Deferred
Compensation or interest credited to an Employee's Account pursuant to
Paragraphs 4(a) and (b) herein above, shall at all times remain in the Company,
and no Employee nor Beneficiary shall have any interest whatsoever in any
specific assets of the Company. All Assets shall at all times remain solely the
property of the Company subject to the claims of its general creditors and
available for the Company's use for whatever purpose desired.
5. Distribution From The Account
(a) Election as to the Commencement of the Distribution - By election on
Schedule A filed with the Company, an Employee may elect to have distribution
from his Account commence either (l) within thirty (30) days after the date he
ceases to be employed by the Company or, in the alliterative, (2) in the month
of January of any calendar year following termination of employment elected by
the Employee, but in any event, no later than the later of (a) the January of
the year following the year of the Employee's 70th birthday or (b) the January
following termination of employment. An Employee may change such election by
filing a subsequent Schedule A, but any such change shall apply only to future
deferrals. The actual date that distribution shall commence shall be a date
within the elected period to be determined by the Company in its sole
discretion.
(b) Election as to the Timing of the Distribution(s) - By election on
Schedule A filed with the Company an Employee may elect to receive the
distribution of his Account in the form of (l) one lump-sum payment, (2) annual
distributions over a five-year period or (3) annual distributions over a 10-year
period. An Employee may change such election by filing a subsequent Schedule A,
but any such change shall apply only to future deferrals. In the event a
lump-sum payment is made under this Plan, the Assets credited to an Employee's
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Account, including interest at the rate provided in Paragraph 4(b) of this Plan
to the date of distribution, shall be paid to the Employee on the date
determined under Paragraph 5(a) of this Plan. In the case of a distribution over
a period of years, the Company shall pay to the Employee on the date determined
under Paragraph 5(a) of this Plan and on the yearly anniversaries of such date,
annual installments of the unpaid balance of the Assets in the Employee' s
Account, including interest on the unpaid balance at the rate provided in
Paragraph 4(b) of this Plan to the date of distribution. The amount of each
installment shall be determined by multiplying the then unpaid balance, plus
accrued interest, in the Employee's Account by a fraction, the numerator of
which is one and the denominator of which is the number of annual installments
remaining to be paid.
(c) Distribution in Case of Certain Disability - In the event of an
Employee' s Disability prior to a calendar year elected by the Employee under
Paragraph 5(a)(2) of this Plan for distribution to commence, distribution of the
Employee's Account shall commence in the month following the month in which the
Employee terminates employment for disability, in accordance with the Employee's
election under Paragraph 5(b) of this Plan as to the form of distribution. The
actual date that distribution shall commence shall be a date within such month
determined by the Company in its sole discretion.
(d) Distribution in Case of Death - In the event of an Employee's death,
the balance of the Employee's Account shall be distributed to the Employee' s
Beneficiary(ies) over a period of not more than five (5) years, in accordance
with his election on Schedules A and B (filed with the Company) for distribution
in case of death. Any change in the period over which such payments are made
shall only apply to future deferrals. Such distribution shall be made in a
manner consistent with Paragraph 5(b) of this Plan and shall commence in the
month of January of the year after the year of the Employee's death, on a date
within said month to be determined by the Company in its sole discretion.
Additional annual payment for distributions made over a period of more than one
year shall be made on the yearly anniversaries of such date. In the event of an
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Employee's death after distribution of his Account has commenced, any election
under this Paragraph 5(d) shall not extend the time of payment of his Account
beyond the time when distribution would have been completed if he had lived. An
Employee may change Beneficiary designations by filing a subsequent Schedule B
with the Company.
(e) Request for Change in Distribution - An Employee, Beneficiary or a
legal representative may request a change in the timing, frequency or amount of
payments made from an Employee's Account by filing a written request therefor
with the Company. The Company may, in it sole discretion, grant such request
only if the Company determines that an emergency beyond the control of the
Employee, Beneficiary or legal representative exists and which would cause such
Employee, Beneficiary or legal representative severe financial hardship if the
payment of such benefits were not approved. Any such distribution for hardship
shall be limited to the amount needed to meet such emergency. An Employee who
makes a hardship withdrawal may not reenter this Plan for 12 months after the
date of withdrawal. Any distribution under this Paragraph S(e) shall commence
within 30 days after the Company grants such request for hardship withdrawal.
(f) Employment not Terminated if Transferred to Company-owned or Commonly
Controlled Corporation. - For the purposes of this Paragraph 5, an Employee
shall not be deemed to have terminated his employment if he is transferred to
the employ of a corporation in which the Company owned a majority equity
interest or in which a majority equity interest is owned, directly or
indirectly, by a company under common control with the Company.
(g) Company may Distribute in Lump-Sum if Distributable Amount Less Than
$5,000 - The Company reserves the right to make a lump-sum distribution,
notwithstanding any other provision of this Plan, if the total Assets in an
Employee's Account are $5,000 or less at any time after the Employee ceases to
be employed by the Company.
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6. Unfunded Adjustments To Make Up For Reduced Benefit Under Pension Plan.
If an Employee, on termination of employment or thereafter, or a
Beneficiary of the Employee under the Pension Plan, is entitled to any benefit
under the Pension Plan, the Company shall pay out of its general funds a
supplementary benefit (as such time after the Employee's retirement and in such
manner as the Company in its sole discretion shall determine) equivalent to the
excess of the amount computed in (a) below over the amount computed in (b)
below:
(a) The benefit to which the Employee or such Beneficiary would have been
entitled if the Employee's Final Earnings, as defined in the Pension Plan, had
included all Compensation earned which would have been included in his Final
Earnings if this Plan were not in effect.
(b) The actual benefit to which the Employee or such Beneficiary is
entitled under the Pension Plan.
7. Assignment.
No benefit under the Plan shall in any manner or to any extent be assigned,
alienated, or transferred by any Employee or Beneficiary under the Plan or
subject to attachment, garnishment or other legal process.
8. Plan Does Not Constitute An Employment Agreement.
This Plan shall not constitute a contract for the continued employment of
any Employee by the Company. The Company reserves the right to modify an
Employee's compensation at any time and from time to time as it considers
appropriate and to terminate its employment for any reason at any time
notwithstanding this Plan.
9. Amendment Or Termination Of The Plan By The Company.
The Board of Directors of the Company may, in its sole discretion, amend,
modify or terminate this Plan at any time, provided, however, that no such
amendment, modification or
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termination shall adversely affect the right of an Employee in respect of
Deferred Compensation previously earned by him which has not been paid, unless
such Employee or his legal representative shall consent to such change;
provided, further, that notwithstanding any other provision of this Plan, upon
the occurrence of a Change in Control, the income credit calculated pursuant to
Paragraph 4 may not be reduced below the prime commercial lending rate described
therein.
10. What Constitutes Notice.
Any notice to an Employee, Beneficiary or legal representative hereunder
shall be give either by delivering it or by depositing it in the United States
mail, postage prepaid, addressed to his last-known address. Any notice to the
Company hereunder (including the filing of Schedules A and B) shall be given
either by delivering it, or depositing it in the United States mail, postage
prepaid, to the Secretary of the Company, c/o Public Service Enterprise Group
Incorporated, 80 Park Plaza, T-4B, P.O. Box 570, Newark, New Jersey 07101.
11. Advance Disclaimer Of Any Waiver On The Part Of The Company.
Failure by the Company to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of any such
term, covenant or condition, nor shall any waiver or relinquishment of any right
or power hereunder at any one or more times be deemed a waiver or relinquishment
of any such right or power at any other time or times.
12. Effect On Invalidity Of Any Part Of The Plan.
The invalidity or unenforceability of any provision hereof shall in no way
affect the validity or enforceability of any other provision.
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13. Plan Binding On Any Successor Owner.
Except as otherwise provided herein, this Plan shall inure to the benefit
of and be binding upon the Company, its successors and assigns, including but
not limited to any corporation which may acquire all or substantially all of the
Company's assets and business or with or into which the Company may be
consolidated or merged.
14. Laws Governing This Plan.
Except to the extent federal law applies, this Plan shall be governed by
the laws of the State of New Jersey.
15. Miscellaneous.
The masculine pronoun shall mean the feminine wherever appropriate.
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Schedule A
DEFERRED COMPENSATION PLAN FOR CERTAIN EMPLOYEES OF
PSEG HOLDINGS INC (THE PLAN)
Elections in Connection with Deferral of Compensation
Section 1. Election as to Compensation to be Deferred.
Note: THIS SECTION IS TO BE USED TO MAKE OR CHANGE AN ELECTION UNDER
PARAGRAPH 3 OF THE PLAN, ANY CHANGE IN ELECTION MUST BE MADE NO LATER
THAN DECEMBER 31 OF THE YEAR PRECEDING THE YEAR IN WHICH YOU WISH THE
CHANGE TO APPLY.
I hereby elect to defer, in accordance with the provisions of the Plan:
(a)_______________ a month of my Compensation; or
(b)_______________ All of my Compensation in excess of S____ per year.
$_________________ per year.
Section 2. Election as to Commencement of Distribution From Account
Note: THIS SECTION IS TO BE USED (A) WHEN FIRST BECOMING AN EMPLOYEE
COVERED BY THE PLAN AND (B) PRIOR TO DECEMBER 31 OF ANY GIVEN YEAR IF
THERE IS TO BE ANY CHANGE IN THE ORIGINAL ELECTION. ANY SUCH CHANGE
WILL ONLY APPLY TO FUTURE DEFERRALS.
I hereby elect, in accordance with the provisions of the Plan, to have
distribution from my Account commence:
_____(a) Within thirty (30) days after I cease to be employed by the Company.
_____(b) In the month of January, unless I am employed by the Company at such
time, in which case within 30 days after I cease to be employed by
the Company.
Employee's Initials______________
Date_____________________________
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Schedule A
Section 3. Election as to the Timing of the Distribution.
Note: THIS SECTION IS TO BE USED (A) WHEN FIRST BECOMING AN EMPLOYEE
COVERED BY THE PLAN AND (B) PRIOR TO DECEMBER 31 OF ANY GIVEN YEAR IF
THERE IS TO BE ANY CHANGE IN THE ORIGINAL ELECTION. ANY SUCH CHANGE
WILL ONLY APPLY TO FUTURE DEFERRALS.
I hereby elect, in accordance with the provisions of the Plan, to
have the distribution of my Account paid:
__________ (a) In one lump-sum.
__________ (b) In annual installments over a period of five (S) years.
__________ (c) In annual installments over a period of ten (10) years.
Section 4. Election As To Method Of Distribution In Case of Death.
Note: THIS SECTION TO BE USED TO SELECT THE METHOD OF DISTRIBUTION IN THE
CASE OF DEATH. PERIOD SELECTED MAY NOT BE MORE THAN FIVE (5) YEARS.
In case of my death, I hereby elect, in accordance with the
provisions of the Plan, to have the distribution of my Account paid over a
period of ______ year(s) to my Beneficiary(ies) designated on Schedule B.
___________________, 19___
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WITNESS EMPLOYEE SIGNATURE
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Schedule B
SECONDARY BENEFICIARIES - The following beneficiary(ies) shall receive all
benefits payable under the Plan in the event of my death in the proportions
designated hereunder only if all of my Primary Beneficiaries have predeceased
me. If all Primary Beneficiaries have predeceased me and if any one or more of
the Secondary Beneficiaries designated hereunder shall predecease me, such
Secondary Beneficiary's share(s) shall be divided equally among the Secondary
Beneficiaries.
PROPORTIONATE
INTEREST OF
NAME AND PRESENT ADDRESS- SECONDARY RELATIONSHIP
OF SECONDARY BENEFICIARY(IES) BENEFICIARY(IES) TO EMPLOYEE
__________________________ _______ % ________
__________________________
__________________________ _______ % ________
__________________________
__________________________ _______ % ________
__________________________
__________________________ _______ % ________
__________________________
ESTATE - In the event I have declined to designate a Beneficiary hereunder
or if all of the Beneficiaries that I have designated predecease me, then all
benefits payable under the Plan shall be payable to my Estate.
Date:
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WITNESS EMPLOYEE SIGNATURE
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EXECUTIVE LONG-TERM INCENTIVE
COMPENSATION PLAN
PSEG ENERGY TECHNOLOGIES INC.
JANUARY 1, 1997
AMENDED DECEMBER 21, 1998
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TABLE OF CONTENTS
Page No.
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1. Purposes........................................................... 1
2. Definitions........................................................ 1
3. Eligibility........................................................ 2
4. Administration..................................................... 3
5. Determination of Target Incentive Award............................ 3
6. Determination of Performance Objectives............................ 3
7. Determination of Achievement of Performance Objectives ............ 3
8. Determination of Award Cycle....................................... 4
9. Determination of Final Incentive Performance Awards ............... 4
10. Payment of Final Incentive Performance Awards...................... 4
11. Termination........................................................ 4
12. Assignment......................................................... 5
13. Plan Does Not Constitute an Employment Agreement................... 5
14. Amendment or Termination of the Plan by the Company ............... 5
15. What Constitutes Notice............................................ 5
16. Advance Disclaimer of Any Waiver................................... 6
17. Effect on Invalidity of Any Part of the Plan....................... 6
18. Plan Binding on Any Successor Owner................................ 6
19. Laws Governing This Plan........................................... 6
20. Miscellaneous...................................................... 6
21. Withholding........................................................ 6
22. Effective Date..................................................... 7
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PSEG ENERGY TECHNOLOGIES INC.
EXECUTIVE LONG-TERM INCENTIVE
COMPENSATION PLAN
January 1, 1997
1. PURPOSES
The purposes of this Plan are to foster attainment of the long-term
financial and operating objectives of the Company by providing incentive to
members of the senior management of the Company tied to the achievement of those
long-term objectives; to supplement the Company's salary and benefit programs so
as to provide overall compensation for such executives which is competitive with
corporations with which the Company must compete for executive talent; and to
assist the Company in attracting and retaining executives who can have a
material, positive influence on its long-term financial and operating results.
2. DEFINITIONS
As used in this Plan, the following words and phrases shall have the
following meanings unless the context clearly requires otherwise:
(a) "Award Cycle" - a Performance Cycle with respect to which Final
Incentive Performance Awards to Participants in the Plan are approved by the
Committee in accordance with Section 9.
(b) "Base Salary" - a sum equal to the annual rate of a Participant's
base compensation as of the first day of any Performance Cycle.
(c) "Committee" - the Compensation Committee of the Board of Directors
of the Company.
(d) "Company" - PSEG Energy Technologies Inc.
(e) "Disability" - any physical or mental condition which renders a
Participant incapable of performing further work for the Company and that
results in termination of such Participant's employment.
(f) "Distribution Date" - a date for distribution established by the
Committee pursuant to Paragraph 10(b) of this Plan.
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(g) "Final Incentive Performance Award" - the amount awarded to a
Participant in accordance with Paragraph 9 of this Plan.
(h) "Participant" - such senior employees of the Company as may be
designated by the Committee to participate in this Plan.
(i) "Performance Cycle" - a period of three consecutive Plan Years as
designated by the Committee.
(j) "Plan" - this PSEG Energy Technologies Inc. Executive Long-Term
Incentive Compensation Plan.
(k) "Plan Year" - the calendar year.
(l) "Retirement" - termination of employment with the Company (i) at
or after the age of 62 or (ii) under circumstances entitling the Participant to
an immediately payable periodic retirement benefit under the Public Service
Electric and Gas Company Pension Plan or the Cash Balance Pension Plan of Public
Service Electric and Gas Company.
(m) "Subsidiary" - a corporation at least 80% of the voting shares of
which are owned by this Company.
(n) "Target Incentive Award" - the amount determined under Paragraph 5
of this Plan.
3. ELIGIBILITY
(a) The Committee may select such employees of the Company and its
Subsidiaries (individually or by position) for participation in the Plan upon
such terms as it deems appropriate, due to the employee's responsibilities and
opportunity to contribute substantially to the attainment of the long-term
financial and operating objectives of the Company. A determination with respect
to participation for any particular Performance Cycle shall be made no later
than the beginning of the Performance Cycle, except that designation of
Participants with respect to the first Performance Cycle following adoption of
the Plan shall be made within 30 days of the initial adoption of this Plan and
selection for participation in the Plan of new hires or of employees newly
promoted to executive positions shall be made within 30 days of hire or
promotion. Further, the Committee may adjust a Final Incentive Performance Award
of any Participant if the Committee deems it appropriate to so do reflect a
change which may have occurred during a Performance Cycle in such Participant's
position or responsibilities.
(b) Participation in the Plan in one Plan Year or Performance Cycle shall
not guarantee participation in any other Plan Year or Performance Cycle. The
Committee shall have
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sole discretion with respect to the selection of Participants or whether to
suspend operation of the Plan for any period of time.
4. ADMINISTRATION
(a) The Plan shall be administered by the Committee. Subject to the
provisions of the Plan, the Committee shall have full and final authority to
select Participants, to designate the Target Incentive Award for each
Participant, to determine Performance Objectives for a Performance Cycle and to
determine the amount of all Final Incentive Performance Awards. Also,
notwithstanding anything contained in this Plan to the contrary, the Committee
may adjust a Participant's Final Incentive Award based upon any reasonable
criteria it may determine. The Committee shall also have, subject to the
provisions of the Plan, full and final authority to interpret the Plan, to
establish and revise rules, regulations and guides relating to the Plan, to
entertain appeals of Participants or beneficiaries regarding alleged adverse
determinations under the Plan and to make any other determinations that it
believes necessary or advisable for the administration of the Plan.
(b) All decisions and determinations by the Committee shall be final and
binding upon all parties, including the Company, Participants, beneficiaries and
other employees.
5. DETERMINATION OF TARGET INCENTIVE AWARD
Prior to each Performance Cycle, or in the case of the first Performance
Cycle, within 30 days after the initial adoption of the Plan and, in the case of
new hires or newly promoted executives selected for participation, within 30
days from the date of hire or promotion, the Committee shall approve a Target
Incentive Award for each Participant based upon the Participant's position and
potential to contribute to the attainment of the Company's long-term financial
and operating objectives. The Target Incentive Award shall be expressed as a
whole dollar amount equal to a percentage of the Participant's Base Salary.
6. DETERMINATION OF PERFORMANCE OBJECTIVES
(a) Concurrent with the approval of Target Incentive Awards for
Participants, the Committee shall establish Performance Objectives for the
Company for the related Performance Cycle. The Company's actual performance
during a Performance Cycle will be compared to these Performance Objectives in
determining the amount, if any, of each Participant's Final Incentive
Performance Award. Performance Objectives shall be measurable criteria regarding
the Company's quality of earnings, earnings growth, asset growth, market share
and/or such other indicators selected by the Committee to reflect the Company's
business plan for the related Performance Cycle.
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(b) At the time that it approves Performance Objectives for a Performance
Cycle, the Committee shall assign to each a relative weight to be afforded the
accomplishment of each such Performance Objective in calculating the Final
Incentive Performance Award of each Participant.
7. DETERMINATION OF ACHIEVEMENT OF PERFORMANCE OBJECTIVES
Within 90 days of the end of each Performance Cycle, the Committee shall
certify the extent to which the Company has achieved the several Performance
Objectives which have been established for such Performance Cycle. Certification
shall be by resolution of the Committee, which resolution shall state the
percentage of achievement of each respective Performance Objective. The
determination of such achievement shall be by reference to the Company's audited
financial statements.
8. DETERMINATION OF AWARD CYCLE
Not later than 120 days after the close of each Performance Cycle, the
Committee shall, in its sole discretion, determine whether any Participant shall
be granted a Final Incentive Performance Award with respect to such Performance
Cycle. A Performance Cycle for which the Committee has determined that a Final
Incentive Performance Award shall be paid shall be deemed an Award Cycle.
9. DETERMINATION OF FINAL INCENTIVE PERFORMANCE AWARDS
To determine each Participant's Final Incentive Performance Awards, the
Participant's Target Incentive Award shall be multiplied by an applicable
percentage based upon the Committee's certification of the Company's achievement
of its Performance Objectives for the Performance Cycle and the following chart:
================================================================================
Weighted Average Final Incentive Performance Award* as
Achievement of a Percent of Target
Performance Objectives Incentive Award
- --------------------------------------------------------------------------------
>150% 200%
-
- --------------------------------------------------------------------------------
125% 150%
- --------------------------------------------------------------------------------
100% 100%
- --------------------------------------------------------------------------------
75% 50%
- --------------------------------------------------------------------------------
< 50% 0%
-
- --------------------------------------------------------------------------------
*Awards for weighted average achievement of Performance Objectives at
levels above 50% and below 150%, but not shown above, are to be interpolated.
================================================================================
<PAGE>
-8-
10. PAYMENT OF FINAL INCENTIVE PERFORMANCE AWARDS
Payment of a Participant's Final Incentive Performance Award shall be made
within 30 days of the date that the Committee approves the amount of such award
unless the Committee determines, in its sole discretion, that payment shall be
made at some other time. Payment shall be paid in cash by check.
11. TERMINATION
(a) If the employment of a Participant by the Company is terminated
on account of the Participant's death, Disability or Retirement after such
Participant shall have completed at least one year of a Performance Cycle, the
Committee shall, if it determines that a Final Incentive Performance Award may
be earned for any such Performance Cycle(s) which include the Plan Year of
termination, prorate the Final Incentive Performance Award(s) for that part of
such Performance Cycle(s) in which the Participant was participating prior to
such termination and the Company shall pay the prorated Final Incentive
Performance Award as soon as practicable after determination, unless otherwise
determined by the Committee.
(b) If the employment of a Participant is terminated for any reason other
than death, Disability or Retirement, the Participant shall not receive any
Final Incentive Performance Award for that part of any uncompleted Performance
Cycle(s) in which the Participant was participating at the time of termination.
(c) If a Participant becomes a Participant during a Performance Cycle, any
Final Incentive Performance Award to the Participant shall be appropriately
prorated from the time the Participant entered the Plan to the end of the
Performance Cycle.
(d) In the case of a Participant's death, payment of the entire value of
the Participant's award under the Plan shall be made to the Participant's
Estate. Such payment shall be made as a lump sum as soon as practicable after
the Participant's death.
12. ASSIGNMENT
No benefit under the Plan shall in any manner or to any extent be assigned,
alienated or transferred by any Participant under the Plan or subject to
attachment, garnishment or other legal process.
13. PLAN DOES NOT CONSTITUTE AN EMPLOYMENT AGREEMENT
This Plan shall not constitute a contract for the continued employment of
any Participant by the Company. The Company reserves the right to modify a
Participant's compensation at any time and from time to time as it considers
appropriate and to terminate any Participant's employment for any reason at any
time notwithstanding this Plan.
<PAGE>
-9-
14. AMENDMENT OR TERMINATION OF THE PLAN BY THE COMPANY
The Board of Directors of the Company may, in its sole discretion, amend,
modify or terminate this Plan at any time, provided, however, that no such
amendment, modification or termination shall materially adversely affect the
right of a Participant in respect of a previously earned Final Incentive
Performance Award which has not been paid, unless such Participant or his or her
legal representative shall consent to such change. If this Plan is terminated
during any Performance Cycle in which Participants have been selected to
participate, the Board of Directors may authorize the Committee to prorate and
make provision for payment of Final Incentive Performance Awards for such a
period.
15. WHAT CONSTITUTES NOTICE
Any notice to a Participant or legal representative hereunder shall be
given either by delivering it, or by depositing it in the United States mail,
postage prepaid, addressed to such person's last-known address. Any notice to
the Company or the Committee hereunder shall be given either by delivering it,
or depositing it in the United States Mail, postage prepaid, to the Secretary,
PSEG Energy Technologies Inc., 80 Park Plaza, T4B, P. O. Box 1171, Newark, New
Jersey 07101.
16. ADVANCE DISCLAIMER OF ANY WAIVER
Failure by the Company or the Committee to insist upon strict compliance
with any of the terms, covenants or conditions hereof shall not be deemed a
waiver of any such term, covenant or condition, nor shall any waiver or
relinquishment of any right or power hereunder at any one or more times be
deemed a waiver or relinquishment of any such right or power at any other time
or times.
17. EFFECT ON INVALIDITY OF ANY PART OF THE PLAN
The invalidity or unenforceability of any provision hereof shall in no way
affect the validity or enforceability of any other provision.
18. PLAN BINDING ON ANY SUCCESSOR OWNER
Except as otherwise provided herein, this Plan shall inure to the benefit
of and be binding upon the Company, its successors and assigns, including but
not limited to any corporation which may acquire all or substantially all of the
Company's assets and business or with or into which the Company may be
consolidated or merged.
19. LAWS GOVERNING THIS PLAN
Except to the extent federal law applies, this Plan shall be governed by
the laws of the
<PAGE>
-10-
State of New Jersey.
20. MISCELLANEOUS
The masculine pronoun shall also mean the feminine and vice versa wherever
appropriate.
21. WITHHOLDING
The Company shall have the right to deduct from any payment any sums
required to be withheld by federal, state, or local tax law. There is no
obligation hereunder that any Participant or other person be advised in advance
of the existence of the tax or the amount so required to be withheld.
22. EFFECTIVE DATE
This Plan shall be effective as of January 1, 1997 although, at the
Committee's discretion, the first year of the first Performance Cycle may be
less than a full calender year and may commence prior to such date, but no
earlier than June 1, 1996.
LIMITED SUPPLEMENTAL BENEFITS PLAN FOR CERTAIN EMPLOYEES OF
PSEG HOLDINGS INC
AMENDED AS OF DECEMBER 15, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
1. Purpose...................................................................1
2. Definitions of Terms Used in the Plan ....................................1
3. Death Benefit.............................................................3
4. Retirement Benefit........................................................3
5. Administration of Accounts ...............................................7
6. Designations of Beneficiaries ............................................8
7. Limitation of Benefit ...................................................10
8. Company May Make Certain Lump-sum Distributions..........................10
9. Plan Does Not Constitute an Employment Agreement.........................11
10. Amendment or Termination of the Plan ....................................11
11. What Constitutes Notice..................................................11
12. Advance Disclaimer of Waiver ............................................12
13. Effect of Invalidity of Any Part of the Plan ............................12
14. Plan Binding on Any Successor ...........................................12
15. Law Governing the Plan ..................................................12
16. Miscellaneous ...........................................................12
<PAGE>
LIMITED SUPPLEMENTAL BENEFITS PLAN FOR CERTAIN EMPLOYEES OF
PSEG HOLDINGS INC
1. Purpose.
The purpose of this Plan is to assist the Company in attracting and
retaining a stable pool of key managerial talent and to encourage long-term key
employee commitment to the Company by providing selected employees of the
Company with certain limited supplemental death and retirement benefits as
defined herein. The Plan is intended to provide such benefits to a select group
of management or highly compensated employees within the meaning of ERlSA.
2. Definitions Of Terms Used In The Plan.
As used in the Plan, the following words and phrases shall have the
meanings indicated:
(a) "Account" - Any account established pursuant to Paragraph 3(b) or 4(d)
of the Plan.
(b) "Assets" - All amounts that have been credited to an Employee's Account
in accordance with Paragraph 3(b), 4(d), or S(b) of the Plan.
(c) "Beneficiary" - The individual(s) and/or entity(ies) designated in
writing by a Participant in the form attached to the Plan as Schedule A.
(d) "Change in Control" -The occurrence of any of the following events:
(i) any "person" (within the meaning of Section 13(d) of the
Securities Exchange Act of 1934, as amended from time to time
(the "Act")) is or becomes the beneficial owner within the
meaning of Rule 13d-3 under the Act (a "Beneficial Owner"),
directly or indirectly, of securities of Public Service
Enterprise Group Incorporated ("Parent") (not including in the
securities beneficially owned by such person any securities
acquired directly from Parent or its affiliates) representing 25%
or more of the combined voting power of Parent's then outstanding
securities, excluding any person
1
<PAGE>
who becomes such a Beneficial Owner in connection with a
transaction described in clause (A) of paragraph (iii) below; or
(ii) the following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals
who, on December 15, 1998, constitute the board of directors of
Parent ("Board") and any new director (other than a director
whose initial assumption of office is in connection with an
actual or threatened election contest, including but not limited
to a consent solicitation, relating to the election of directors
of Parent) whose appointment or election by the Board or
nomination for election by Parent's stockholders was approved or
recommended by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors on
December 15, 1998 or whose appointment, election or nomination
for election was previously so approved or recommended; or
(iii) there is consummated a merger or consolidation of Parent or any
direct or indirect wholly owned subsidiary of Parent with any
other corporation, other than (A) a merger or consolidation which
would result in the voting securities of Parent outstanding
immediately prior to such merger or consolidation continuing to
represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or any parent
thereof), in combination with the ownership of any trustee or
other fiduciary holding securities under an employee benefit plan
of Parent or any subsidiary of Parent, at least 75% of the
combined voting power of the securities of Parent or such
surviving entity or any parent thereof outstanding immediately
after such merger or consolidation, or (B) a merger or
consolidation effected to implement a recapitalization of Parent
(or similar transaction) in which no person is or becomes the
Beneficial Owner, directly or indirectly, of securities of Parent
representing 25% or more of the combined voting power of Parent's
then outstanding securities; or
(iv) the stockholders of Parent approve a plan of complete liquidation
or dissolution of Parent or there is consummated an agreement for
the sale or disposition by Parent of all or substantially all of
Parent's assets, other than a sale or disposition by Parent of
all or substantially all of Parent's assets to an entity, at
least 75% of the combined voting power of the voting securities
of which are owned by stockholders of Parent in substantially the
same
2
<PAGE>
proportions as their ownership of Parent immediately prior to
such sale.
Notwithstanding the foregoing subparagraphs (i), (ii), (iii) and (iv),
a "Change in Control" shall not be deemed to have occurred by virtue of
the consummation of any transaction or series of integrated
transactions immediately following which the record holders of the
common stock of Parent immediately prior to such transaction or series
of transactions continue to have substantially the same proportionate
ownership in an entity which owns all or substantially all of the
assets of Parent immediately following such transaction or series of
transactions.
(e) "Code" - The Internal Revenue Code of 1986, as amended.
(f) "Company" - PSEG Holdings Inc, formerly known as Enterprise Diversified
Holdings Incorporated and its Subsidiaries.
(g) "Compensation" -
(i) for the purposes of calculating the Death Benefit pursuant to
Paragraph 3 of the Plan, as to any Participant, Compensation
shall be equal to the annual rate of salary in effect at the date
of death; and
(ii) for the purposes of calculating the Retirement Benefit pursuant
to Paragraph 4 of the Plan, as to any Participant, Compensation
shall be equal to the average of the total remuneration paid to
such Participant for services rendered to the Company or any of
its subsidiaries or affiliates, excluding the Company's, or any
such subsidiary's or affiliate's, cost for any public or private
employee benefit plan (including, without limitation, the Long
Term Incentive Compensation Plan of Public Service Enterprise
Group Incorporated), but including all elective contributions
that are made by the
3
<PAGE>
Company or any subsidiary or affiliate on behalf of Participant
which are not includable in income under Code Sections 125 or
401(k), for the five years ending at the earlier of such
Participant's date of Retirement or the date he attains normal
retirement age under the Pension Plan. Provided, however, that
for the purposes of Paragraph 4 of the Plan, Compensation with
respect to any Participant shall not exceed the amount which is
130% of the average of annual base salary of the Participant for
the applicable five-year period.
(g) "ERISA" - The Employee Retirement Income Security Act of 1974, as
amended.
(h) "Participant" -- Each employee of the Company or any one of its
subsidiaries nominated by the Chief Executive Officer and designated by the
Board of Directors of the Company. The Chief Executive Officer of the Company
shall nominate such select and key employees of the Company or any one of its
subsidiaries upon such terms as he shall deem appropriate due to the employee's
responsibilities and opportunity to contribute substantially to the financial
and operating objectives of the Company or the subsidiary.
(i) "Pension Plan" - The Pension Plan of Public Service Electric and Gas
Company.
(j) "Plan" - The Limited Supplemental Benefits Plan for Certain Employees
of PSEG Holdings Inc.
(k) "Retirement" - For the purposes of the Plan, Retirement of a
Participant shall be deemed to have occurred upon the termination of the
Participant's service with the Company or its subsidiary with the right to an
immediate benefit under the Pension Plan. Retirement shall not include
termination of service with the right to a deferred pension.
(l) "Retirement Plan" - Any pension plan within the meaning of ERISA,
excluding:
(i) the Pension Plan and all defined contribution plans maintained by
the
4
<PAGE>
Company or any subsidiary, except insofar as any such defined
contribution plan may provide supplementary benefits to the
Pension Plan
(ii) this Plan
(iii) all deferred compensation plans, tax credit employee stock
ownership plans and thrift plans, and all other profit-sharing
plans which are not the principal retirement benefit of a plan
sponsor, maintained by sponsors other than the Company or one of
its subsidiaries.
3. Death Benefit.
(a) Amount of Benefit - If a Participant dies while in the active
employment of the Company or one of its subsidiaries, the Company shall provide
a death benefit to such Participant's Beneficiary in an amount equal to 150% of
the Participant's Compensation, adjusted to the nearest $1,000, or to the next
highest $1,000 if such Compensation is a multiple of $500 but not of $1,000.
(b) Establishment of Account - Upon the death of a Participant during
employment with the Company or one of its subsidiaries, the Company shall
establish an Account for the benefit of such Participant's Beneficiary. Such
Account shall initially be credited with an amount equal to the benefit provided
under Paragraph 3(a) and shall be held and administered as provided in Paragraph
5 of the Plan.
4. Retirement Benefit.
(a) General - At Retirement, the Company shall provide each Participant
with a retirement benefit calculated as provided in this Paragraph 4.
5
<PAGE>
(b) Determination of Benefit --
(i) The Participant's Compensation shall be multiplied by an amount
equal to one one-hundredth of the sum of (A) the number of the
Participant's years of credited service under the Pension Plan at
Retirement, (B) the number of any additional years of service credit to
which the Participant may be entitled from the Company, the Company's
subsidiary, or any other company, more than fifty percent (50%) of which is
owned by Public Service Enterprise Group Incorporated, if applicable,
under any written arrangement with the Company, such subsidiary or other
company, and (C) 30; but, in no event, shall the multiple be greater than
0.75.
(ii) The amount determined under subparagraph (i) of this Paragraph
4(b) shall be reduced by the sum of (A) the amount the Participant would be
entitled to at Retirement as an annual pension benefit under the Pension
Plan calculated as a single life annuity without reduction for any
pre-retirement survivor's option coverage or any reduction for early
retirement, (B) 100% of the amount of the unreduced annual Social Security
benefit to which the Participant would be entitled at age 65 (or such other
age which may be established by the Social Security Administration from
time to time as the earliest age at which a Participant may receive an
unreduced benefit thereunder), assuming that the Participant has no
earnings from the date of Retirement to age 65 (or such other applicable
age), or, if greater, any disability benefit under Social Security to which
the Participant may be entitled, and (C) the aggregate of the annual
benefits to which the Participant is entitled under all Retirement Plans as
of the date the Participant is employed by the Company or the Company's
subsidiary, such Social Security Benefits
6
<PAGE>
and benefits under all Retirement Plans to be calculated as single life
annuities without any reductions, under rules, procedures and equivalents
determined by the Company. To determine the amounts referred to under (B)
and (C) above, the Participant shall file a declaration of all such amounts
with the Company in such form as the Company may require from time to time.
No benefit shall be paid under the Plan until such a declaration, in
satisfactory form, shall be filed with the Company. If a Participant is
granted a disability Social Security benefit, he shall notify the Company
thereof within 30 days thereof, and the Participant's retirement benefit
under this Plan shall be adjusted accordingly. The Company shall be
entitled to rely on such statements in making payment, and if any such
statement is incorrect or is not furnished, the Company shall be entitled
to reimbursement from the Participant, the Beneficiary or their legal
representatives for any overpayment and may reduce or suspend future
payments to recover any such overpayment. In the event it is established to
the satisfaction of the Company, in its sole discretion, that any such
statement was intentionally false or omitted, the Participant or
Beneficiary shall be entitled to no further payments under the Plan, and
the Company shall be entitled to recover any payments made hereunder.
(c) Forms of Benefit -- The annual amount determined under paragraph (b) of
this Paragraph 4 shall be paid in one of the following forms:
(i) a single life annuity in monthly installments equal to one twelfth
of such annual amount;
(ii) a joint and survivor annuity in monthly installments based upon
such annual amount and calculated in accordance with any post-retirement
survivorship option
7
<PAGE>
available under the Pension Plan;
(iii) a 10-year certain level payment annuity in monthly installments
which is the actuarial equivalent to the single life annuity under (i), as
determined by the actuary for the Pension Plan according to mortality
assumptions used for the Pension Plan on the basis of a current interest
rate assumption determined from time to time by the Company; or
(iv) a 10-year certain increasing payment annuity paid in accordance
with Paragraph 5(c) of the Plan based upon the lump-sum amount which is the
actuarial equivalent to the single life annuity under (i), as determined by
the actuary for the Pension Plan according to mortality assumptions used
for the Pension Plan on the basis of a current market rate interest
assumption determined from time to time by the Company.
The Company in its sole discretion shall determine the form of benefit
payment for each Participant; provided, however, that, notwithstanding any other
provision of this Plan, the Participant shall determine the form of benefit
payment from and after the occurrence of a Change in Control.
(d) Establishment of Account - If payment is made under either Paragraph
4(c)(iii) or 4(c)(iv) of the Plan, upon Retirement, the Company shall establish
an Account for the benefit of the Participant and any Beneficiary. Such Account
shall initially be credited with an amount equal to the amount of the lump-sum
payment determined under Paragraph 4(c)(iii) or 4(c)(iv), as applicable, and
shall be administered as provided in Paragraph 5 of the Plan.
(e) Disability Retirement - If a Participant retires for disability under
the Pension Plan, payment of the Participant's retirement benefit and any joint
and survivor benefit under
8
<PAGE>
Paragraph 4(c)(ii) of the Plan shall be subject to the same conditions as the
disability pension under the Pension Plan.
5. Administration Of Accounts.
(a) General - Accounts shall be established under the Plan only pursuant to
Paragraphs 3(b) and 4(d) hereof. All Accounts shall be administered in
accordance with the provisions of this Paragraph 5.
(b) Interest on Assets in the Account - The Assets credited to a
Participant's Account shall accrue interest at a market rate of interest as may
be determined from time to time by the Company.
(c) Timing of the Distribution(s) - A Participant or Beneficiary shall
receive the distribution of the Participant's Account in the form of monthly
distributions over a ten-year period commencing in the month following the month
of the Participant's death in the case of a death benefit, or over a ten-year
period commencing in the month of the Participant's Retirement in the case of a
retirement benefit. The amount of each installment shall be determined by
dividing the then unpaid balance in the Participant's Account, including accrued
and unpaid interest, by the number of installments remaining to be paid.
(d) Request for Change in Distribution - A Participant, Beneficiary or
legal representative may request a change in the timing, frequency or amount of
payments made from a Participant's Account by filing a written request therefor
with the Company. The Company may, in its sole discretion, grant such request
only if the Company determines that an emergency beyond the control of the
Participant, Beneficiary or legal representative exists and which would cause
such Participant, Beneficiary or legal representative severe financial hardship
if the
9
<PAGE>
payment of such benefits were not approved. Any such distribution for hardship
shall be limited to the amount needed to meet such emergency. The Company shall
inform the Participant, Beneficiary or legal representative of its decision
within sixty (60) days of receipt of the written request.
6. Designation Of Beneficiaries.
(a) General - To designate an individual(s) and/or entity(ies) to receive
the benefits of the Plan with respect to a Participant, such Participant must
file a written designation in the form of Schedule A to the Plan with the
Company. Subject to the restrictions of this Paragraph 6, a Participant may
change such designation by filing a subsequent written designation.
(b) Death Benefit - By designation on Section 1 of a Schedule A filed with
the Company, a Participant may name an individual(s) and/or entity(ies) to
receive a death benefit under Paragraph 3 of the Plan with respect to such
Participant. A Participant may change such designation by filing a subsequent
notification in the form of Schedule A.
(c) Retirement Benefits -
(i) Single Life Annuity. If a Participant's retirement benefit under
the Plan is paid as a single life annuity under Paragraph 4(c)(i)
of the Plan, there shall be no Beneficiary with respect to such
benefit and all retirement benefits shall cease upon the
Participant's death.
(ii) Joint and Survivor Annuity. If a Participant's retirement benefit
under Paragraph 4(c)(ii) of the Plan and the Participant's
pension under the Pension Plan are both paid as joint and
survivor annuities, any survivor annuity under the Plan shall be
paid to the same beneficiary entitled to any post-retirement
survivorship benefit
10
<PAGE>
under the Pension Plan. If the Participant's pension under the
Pension Plan is paid as a single life annuity, any survivor
annuity paid under Paragraph 4(c)(ii) of the Plan shall be paid
to the Beneficiary designated in Section 2 of Schedule A to the
Plan. If a Beneficiary designated by the Participant under
Paragraph 4(c)(ii) of the Plan predeceases the Participant within
five years from the date of Participant's Retirement, the
Participant's retirement benefit hereunder will automatically
revert and return to a single life annuity commencing the first
day of the month following the month in which the designated
Beneficiary died. If, however, the Beneficiary predeceases the
Participant more than five years after Participant's Retirement,
the Participant's reduced retirement benefit shall continue
during his life and no survivor benefit shall be paid. The
election of such Beneficiary must be made prior to Retirement and
may not be changed thereafter.
(iii) 10-Year Certain Annuities. If a Participant's Retirement benefit
is paid as a 10-year certain level payment annuity under
Paragraph 4(c)(iii) of the Plan, or a 10 year certain increasing
payment annuity under Paragraph 4(c)(iv) of the Plan, the
Beneficiary or Beneficiaries with respect to such benefit shall
be as specified in Section 1 of the most resent Schedule A filed
with the Company.
(d) Designation by Last Remaining Beneficiary - After a Participant's
death, if there is only one remaining Beneficiary with respect to a death
benefit under Paragraph 3 of the Plan or a l year certain annuity under
Paragraph 4(c)(iii) or 4(c)(iv) of the Plan, such Beneficiary shall be entitled
to designate in writing to the Company an individual to be paid any remainder of
such benefit under the Plan at such Beneficiary's death. If no such further
designation is made, such
11
<PAGE>
remainder shall be paid to such Beneficiary's estate. In the event of such
Beneficiary's death, and regardless of whether any such further designation has
been made, the Company in its sole discretion may require any such remainder to
be paid as a lump sum.
7. Limitation Of Benefits.
(a) The Plan shall be unfunded with respect to all benefits to be paid
hereunder In addition, and without limitation, the Company shall not be required
to segregate any amounts credited to any Account, which shall be established
merely as an accounting convenience; title to and beneficial ownership of any
Assets credited to any Account shall at all times remain in the Company, and no
Participant, Beneficiary or legal representative shall have any interest
whatsoever in any specific assets of the Company.
(b) The payment of any death or survivorship benefit under this Plan shall
be contingent upon such evidence of death as may be required by the Company.
(c) If the Company should terminate the Plan pursuant to Paragraph 10
hereof, the Company's obligation to pay any benefits under the Plan shall
likewise terminate; provided, however, that, except as otherwise provided in
said Paragraph 10, the Company may not terminate the Plan with respect to any
Participant subsequent to that Participant's Retirement or death.
8. Company May Make Certain Lump-Sum Distributions.
The Company reserves the right to make a lump-sum distribution,
notwithstanding any other provision of the Plan, if the total benefit payable to
a Participant, Beneficiary or legal representative is $20,000 or less at any
time.
12
<PAGE>
9. Plan Does Not Constitute An Employment Agreement.
The Plan shall not constitute a contract for the continued employment of
any Participant by the Company. The Company reserves the right to modify a
Participant's Compensation at any time and from time to time as it considers
appropriate and to terminate any Participant's employment for any reason at any
time notwithstanding the Plan.
10. Amendment Or Termination Of The Plan.
The Board of Directors of the Company may, in its sole discretion, amend,
modify or terminate the Plan at any time, provided, however, that no such
amendment, modification or termination shall deprive any Participant or
Beneficiary of a previously acquired right unless such Participant or
Beneficiary or his legal representative shall consent to such change. No right
to a death benefit under the Plan shall accrue until a Participant's death and
no right to a retirement benefit shall accrue until a Participant's Retirement.
11. What Constitutes Notice.
Any notice to a Participant, a Beneficiary or any legal representative
hereunder shall be given in writing, by personal delivery, overnight express
service or by United States mail, postage prepaid, addressed to such person's
last known address. Any notice to the Company hereunder (including the filing of
Schedule A) shall be given by delivering it in person or by overnight express
service, or depositing it in the United States mail, postage prepaid, to the
Secretary, Enterprise Diversified Holdings Incorporated, 80 Park Plaza, T4B,
P.O. Box 1171, Newark, New Jersey, 07101.
13
<PAGE>
12. Advance Disclaimer Of Waiver.
Failure by the Company or the Committee to insist upon strict compliance
with any of the terms, covenants or conditions hereof shall not be deemed a
waiver of any such term, covenant or condition, nor shall any waiver or
relinquishment of any right or power hereunder at any one or more times be
deemed a waiver or relinquishment of any such right or power at any other time
or times.
13. Effect Of Invalidity Of Any Part Of The Plan.
The invalidity or unenforceability of any provision hereof shall in no way
affect the validity or enforceability of any other provision of the Plan.
14. Plan Binding On An Successor.
Except as otherwise provided herein, the Plan shall inure to the benefit of
and be binding upon the Company, its successors and assigns, including but not
limited to any corporation which may acquire all or substantially all of the
Company's assets and business or with or into which the Company may be
consolidated or merged.
15. Law Governing The Plan.
Except to the extent federal law applies, the Plan shall be governed by the
laws of the State of New Jersey without giving effect to principles of conflicts
of law.
16. Miscellaneous.
(a) The masculine pronoun shall mean the feminine wherever appropriate.
(b) The headings are for convenience only. In the event of a conflict
between the headings of a paragraph and its contents, the contents shall
control.
14
ANNUAL INCENTIVE COMPENSATION
PLAN FOR EMPLOYEES OF
PSEG RESOURCES INC.
JANUARY 1, 1995
AS AMENDED DECEMBER 21, 1998
<PAGE>
TABLE OF CONTENTS
Page No.
--------
1. Purposes....................................................... 1
2. Definitions.................................................... 1
3. Eligibility.................................................... 3
4. Administration................................................. 4
5. Determination of Target Incentive Amount....................... 5
6. Determination of Individual Performance Objectives............. 5
7. Determination of Planned Corporate Performance Goal
and Incentive Award Pool....................................... 6
8. Determination of Preliminary Incentive Amount.................. 7
9. Determination of Final Incentive Award......................... 7
10. Distribution................................................... 9
11. Termination.................................................... 9
12. Assignment.....................................................10
13. Plan Does Not Constitute an Employment Agreement...............10
14. Amendment or Termination of the Plan by the Company............10
15. What Constitutes Notice........................................11
16. Advance Disclaimer of Any Waiver...............................11
17. Effect on Invalidity of Any Part of the Plan...................11
18. Plan Binding on Any Successor Owner............................12
19. Laws Governing This Plan.......................................12
20. Miscellaneous..................................................12
21. Withholding....................................................12
22. Effective Date.................................................12
<PAGE>
PSEG RESOURCES INC.
ANNUAL INCENTIVE COMPENSATION PLAN
January 1, 1995
1. PURPOSES
The purposes of this Plan are to foster attainment of the financial and
operating objectives of the Company by providing incentive to employees who
contribute significantly to attainment of those objectives; to promote
individual accountability for achieving the Company's annual performance and
operating goals; to supplement the Company's salary and benefit programs so as
to provide overall compensation for employees which is competitive with
corporations with which the Company must compete for talent; and to assist the
Company in attracting and retaining employees who are important to its continued
success.
2. DEFINITIONS
As used in this Plan, the following words and phrases shall have the
following meanings unless the context clearly requires otherwise:
(a) "Base Salary" - a sum equal to the annual rate of a Participant's
base compensation as of the last day of the Plan Year.
(b) "Committee" - the Compensation Committee of the Board of Directors
of the Company.
(c) "Company" - PSEG Resources Inc.
<PAGE>
-2-
(d) "Disability" - any physical or mental condition which renders a
Participant incapable of performing further work for the Company and that
results in termination of such Participant's employment.
(e) "Employee" - each salaried exempt employee of the Company.
(f) "Final Incentive Award" - the amount earned by a Participant in
accordance with Paragraph 9 of this Plan.
(g) "Incentive Award Pool" - the total amount of dollars to be awarded
to all Participants in this Plan in any Plan Year as determined by the
Committee pursuant to Paragraph 7(c) of this Plan.
(h) "Participant" - each such Employee of the Company as may be
designated by the Committee to participate in this Plan.
(i) "Performance Objectives" - goals and objectives established in
accordance with Paragraph 6 of this Plan, the achievement of which will be
the basis upon which a Participant's Final Incentive Award will be
computed.
(j) "Plan" - this Annual Incentive Compensation Plan for Employees of
PSEG Resources Inc.
(k) "Planned Corporate Performance Goal" - the goal for the Company's
corporate performance for a Plan Year established by the Committee as the
standard against which the amount of an Incentive Award Pool will be
determined in accordance with Paragraph 7 of this Plan.
<PAGE>
-3-
(l) "Plan Year" - the calendar year.
(m) "Preliminary Incentive Amount" - the amount determined under
Paragraph 8 of this Plan.
(n) "Retirement" - termination of employment with the Company (i) at
or after the age of 62 or (ii) under circumstances entitling the
Participant to an immediately payable retirement benefit under the Pension
Plan of Public Service Electric and Gas Company.
(o) "Subsidiary" - a corporation at least 80% of the voting stock of
which is owned by the Company.
(p) "Target Incentive Amount" - the amount determined under Paragraph
5 of this Plan.
3. ELIGIBILITY
(a) All Employees of the Company and its subsidiaries shall be eligible to
participate in this Plan. For each Plan Year, the Committee may select such
Employees (individually or by position) for participation in the Plan upon such
terms as it deems appropriate. A determination with respect to any Participant
for any particular Plan Year shall be made no later than the beginning of the
Plan Year, except that designation of Participants with respect to (i) the first
Plan Year shall be made within 30 days of the initial adoption of this Plan and
(ii) new hires shall be made within 30 days of the date of hire. Further, the
Committee may adjust any Final Incentive Award of any Participant if the
Committee deems it appropriate to so do to reflect a change which may have
occurred during a Plan Year in such Participant's employee responsibilities.
<PAGE>
-4-
(b) Participation in the Plan in one Plan Year shall not guarantee
participation in any other Plan Year. The Committee shall have sole discretion
with respect to the selection of Participants or whether to suspend operation of
the Plan for any period of time.
4. ADMINISTRATION
(a) The Plan shall be administered by the Committee. Subject to the
provisions of the Plan, for each Plan Year the Committee shall have full and
final authority to select Participants, to designate a Target Incentive Amount
for each Participant, to establish an Incentive Award Pool, to approve the
Performance Objectives of Participants, to establish the Planned Net Income and
to determine or approve the amount of all Final Incentive Awards. The Committee
shall also have, subject to the provisions of the Plan, full and final authority
to interpret the Plan, to establish and revise rules, regulations and guides
relating to the Plan, to entertain appeals of Participants or beneficiaries
regarding alleged adverse determinations under the Plan and to make any other
determinations that it believes necessary or advisable for the administration of
the Plan. The Committee may delegate to the President of the Company or to any
other officer of the Company any such responsibilities other than (i) final
approval of the Incentive Award Pool, (ii) determination of Planned Corporate
Performance Goal, (iii) approval of the President's Target Incentive Amount,
Performance Objectives and Final Incentive Award, or (iv) entertaining appeals
of alleged adverse determinations.
<PAGE>
-5-
(b) All decisions and determinations by the Committee shall be final and
binding upon all parties, including shareholders, Participants, beneficiaries
and other Employees.
5. DETERMINATION OF TARGET INCENTIVE AMOUNT
Prior to each Plan Year, or, in the case of the First Plan Year, within 30
days of the initial adoption of the Plan and, in the case of new hires, within
30 days of the date of hire, the Committee shall approve a Target Incentive
Amount for each Participant based upon the Participant's position and potential
to contribute to the attainment of the Company's financial and operating
objectives. The Target Incentive Amount shall be expressed as a percentage of
the Participant's Base Salary. Target Incentive Amounts for individual
Participants may vary from Plan Year to Plan Year in the discretion of the
Committee.
6. DETERMINATION OF INDIVIDUAL PERFORMANCE OBJECTIVES
Prior to each Plan Year, or, in the case of the First Plan Year, within 30
days of the initial adoption of the Plan and, in the case of new hires, within
30 days of hire, the Committee shall approve each Participant's Performance
Objectives. Performance Objectives shall be measurable goals which (i) are
related to the Company's business objectives and (ii) reflect outcomes or
results that the Participant can directly influence. Performance Objectives are
to be developed by Participants in conjunction with their immediate supervisors,
except that the President's Performance Objectives shall be established in
conjunction with the Committee. Each objective
<PAGE>
-6-
shall be weighted to reflect its overall impact on the Participant's Target
Incentive Award.
7. DETERMINATION OF PLANNED CORPORATE PERFORMANCE GOAL
AND INCENTIVE AWARD POOL
(a) Prior to the beginning of each Plan Year, or, in the case of the First
Plan Year, within 30 days of the initial adoption of the Plan, the Committee
shall establish an Planned Corporate Performance Goal for the Company for such
Plan Year. Such goal shall be any measurable criteria of corporate performance
as the committee may deem appropriate. The Committee may change such criteria or
measurement from Plan Year to Plan Year as it deems appropriate.
(b) At the time that the Committee establishes the Company's Planned
Corporate Performance Goal for a Plan Year, it shall also establish a schedule
to be used in computing the Incentive Award Pool. Such schedule shall define the
levels of achievement of the Planned Corporate Performance Goal for the Plan
Year will result in adjustments to the Incentive Award Pool, upwards for
superior performance and downward for failure to achieve goals.
(c) Not later than 90 days after the completion of each Plan Year, the
Committee shall certify the Company's Corporate Performance for such Plan Year
based upon the Company's audited financial statements for that year.
(d) Thereafter, an Incentive Award Pool shall be established based upon the
Company's success in achieving its
<PAGE>
-7-
Planned Corporate Performance Goal for that Plan Year.
8. DETERMINATION OF PRELIMINARY INCENTIVE AMOUNT
Participant's Preliminary Incentive Amount shall then be determined by
multiplying the amount of the Incentive Award Pool by a factor which equals the
proportion that such Participant's Target Incentive Award is to the total Target
Incentive Awards of all Participants.
================================================================================
For Example:
Assumptions: (a) Participant A's Target
Incentive Amount = $ 15,000
(b) Sum of all Participants'
Target Incentive Awards = $600,000
(c) Total Incentive Award Pool = $720,000
15,000
-------
600,000 X $720,000 = $18,000
================================================================================
9. DETERMINATION OF FINAL INCENTIVE AWARD
(a) Within 90 days of the end of each Plan Year, each Participant's
supervisor, or in the case of the President or any Vice President of the
Company, the Committee, shall certify the extent to which such Participant has
achieved his/her Performance Objectives. Such certification shall be in writing
and shall be expressed in terms of percentage of achievement of each of the
several objectives.
(b) Each Participant's Preliminary Incentive Award shall then be multiplied
by the weighted percentage of
<PAGE>
-8-
achievement of his/her individual Performance Objectives to determine the
Participant's Final Incentive Award.
- --------------------------------------------------------------------------------
For Example:
Participant A
- --------------------------------------------------------------------------------
Weighting Percentage of Final Award
Objective # Factor(1) Achievement(2) Factor
- --------------------------------------------------------------------------------
1 .10 100 .10
- --------------------------------------------------------------------------------
2 .25 90 .225
- --------------------------------------------------------------------------------
3 .35 90 .315
- --------------------------------------------------------------------------------
4 .30 110 .33
- --------------------------------------------------------------------------------
.97
- --------------------------------------------------------------------------------
(1) Established prior to the beginning of the Plan Year.
(2) Determined within 90 days of the close of the Plan Year.
Thus, in this example, Participant A's Final Incentive Award would be equal
to 97% of his/her Preliminary Incentive Amount or, following the example in
Paragraph 8 $18,000 X .97 = $17,460.
- --------------------------------------------------------------------------------
(c) Notwithstanding anything contained in this Plan to the contrary, a
Participant's Final Incentive Award shall not exceed 100% of such Participant's
Base Salary for the Award Year to which it relates.
(d) Notwithstanding anything contained in this Plan to the contrary, the
total of all Participants' Final Incentive Awards for any Plan Year shall not
exceed the amount of the Incentive Award Pool established for such Plan Year.
<PAGE>
-9-
10. DISTRIBUTION
(a) All distributions of a Participant's Final Incentive Award shall be
made as of a distribution date established by the Committee which shall be no
later than 120 days after the close of the Plan Year to which such award
relates.
(b) All distributions shall be in one lump sum in money by check.
11. TERMINATION
(a) If the employment of a Participant is terminated on account of the
Participant's death, disability or retirement, the Committee shall, if it
determines that an award under this Plan may be earned for the Plan Year of
termination, prorate such award for that part of the Plan Year in which the
Participant was participating prior to such termination and the Company shall
pay such prorated award as soon as practicable after determination, unless
otherwise determined by the Committee.
(b) If the employment of a Participant is terminated for any reason other
than death, Disability or Retirement, the Participant shall not receive any
award under this Plan for the Plan Year of termination.
(c) If a Participant becomes a Participant during a Plan Year, any award
under this Plan to the Participant shall be appropriately prorated from the time
the Participant entered the Plan to the end of the Plan Year.
<PAGE>
-10-
(d) In the case of a Participant's death, any payment under the Plan shall
be made to the Participant's estate. Such payment shall be made as a lump sum as
soon as practicable after determination of the Final Incentive Award in
accordance with Paragraph 9.
12. ASSIGNMENT
No benefit or award under the Plan shall in any manner or to any extent be
assigned, alienated or transferred by any Participant under the Plan or subject
to attachment, garnishment or other legal process.
13. PLAN DOES NOT CONSTITUTE AN EMPLOYMENT AGREEMENT
This Plan shall not constitute a contract for the continued employment of
any Participant by the Company. The Company reserves the right to modify a
Participant's compensation at any time and from time to time as it considers
appropriate and to terminate any Participant's employment for any reason at any
time notwithstanding this Plan.
14. AMENDMENT OR TERMINATION OF THE PLAN BY THE COMPANY
The Board of Directors of the Company may, in its sole discretion, amend,
modify or terminate this Plan at any time, provided, however, that no such
amendment, modification or termination shall materially adversely affect the
right of a Participant in respect of a previously earned Final Incentive Award
which has not been paid, unless such Participant or his or her legal
representative shall consent to such change. If this
<PAGE>
-11-
Plan is terminated during any Plan Year in which Participants have been selected
to participate, the Board of Directors may authorize the Committee to prorate
and make provision for payment of Final Incentive Awards for such a period.
15. WHAT CONSTITUTES NOTICE
Any notice to a Participant or legal representative hereunder shall be
given either by delivering it, or by depositing it in the United States mail,
postage prepaid, addressed to his last-known address. Any notice to the Company
or the Committee hereunder shall be given either by delivering it, or depositing
it in the United States Mail, postage prepaid, to the Secretary, PSEG Resources
Inc., 80 Park Plaza, T4B, P. O. Box 1171, Newark, New Jersey 07101.
16. ADVANCE DISCLAIMER OF ANY WAIVER
Failure by the Company or the Committee to insist upon strict compliance
with any of the terms, covenants or conditions hereof shall not be deemed a
waiver of any such term, covenant or condition, nor shall any waiver or
relinquishment of any right or power hereunder at any one or more times be
deemed a waiver or relinquishment of any such right or power at any other time
or times.
17. EFFECT ON INVALIDITY OF ANY PART OF THE PLAN
The invalidity or unenforceability of any provision hereof shall in no way
affect the validity or enforceability of any other provision.
<PAGE>
-12-
18. PLAN BINDING ON ANY SUCCESSOR OWNER
Except as otherwise provided herein, this Plan shall inure to the benefit
of and be binding upon the Company, its successors and assigns, including but
not limited to any corporation which may acquire all or substantially all of the
Company's assets and business or with or into which the Company may be
consolidated or merged.
19. LAWS GOVERNING THIS PLAN
Except to the extent federal law applies, this Plan shall be governed by
the laws of the State of New Jersey.
20. MISCELLANEOUS
The masculine pronoun shall also mean the feminine and vice versa wherever
appropriate.
21. WITHHOLDING
The Company shall have the right to deduct from any payment any sums
required to be withheld by federal, state, or local tax law. There is no
obligation hereunder that any Participant or other person be advised in advance
of the existence of the tax or the amount so required to be withheld.
22. EFFECTIVE DATE
This Plan shall be effective as of January 1, 1995.
EXHIBIT 12
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------- -------- -------- -------- --------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Earnings as Defined in Regulation S-K (A):
Income from Continuing Operations (B) $667 $627 $588 $560 $644
Income Taxes (C) 320 348 297 313 428
Fixed Charges 535 549 527 543 577
-------- -------- -------- -------- --------
Earnings $1,522 $1,524 $1,412 $1,416 $1,649
======== ======== ======== ======== ========
Fixed Charges as Defined in Regulation S-K (D)
Total Interest Expense (E) $462 $464 $453 $470 $481
Interest Factor in Rentals 12 12 12 11 11
Subsidiaries' Preferred Securities Dividend
Requirements 2 16 28 44 71
Preferred Stock Dividends 41 34 22 12 9
Adjustment to Preferred Stock Dividends to
state on a pre-income tax basis 18 23 12 6 5
-------- -------- -------- -------- --------
$535 $549 $527 $543 $577
======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges 2.84 2.78 2.68 2.61 2.86
======== ======== ======== ======== ========
</TABLE>
Notes:
(A) The term "earnings" shall be defined as pretax income from continuing
operations. Add to pretax income the amount of fixed charges adjusted to
exclude (a) the amount of any interest capitalized during the period and
(b) the actual amount of any preferred stock dividend requirements of
majority-owned subsidiaries which were included in such fixed charges
amount but not deducted in the determination of pretax income.
(B) Excludes income from discontinued operations.
(C) Includes State income taxes and Federal income taxes for other incomes.
(D) 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 and preferred stock dividends, increased to
reflect the pre-tax earnings requirement for Public Service Enterprise
Group Incorporated.
(E) Excludes interest expense from discontinued operations.
EXHIBIT 12 (A)
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------- -------- -------- -------- --------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Earnings as Defined in Regulation S-K (A):
Net Income $659 $617 $535 $528 $604
Income Taxes (B) 302 326 268 286 406
Fixed Charges 408 419 438 450 446
-------- -------- -------- -------- --------
Earnings $1,369 $1,362 $1,241 $1,264 $1,456
======== ======== ======== ======== ========
Fixed Charges as Defined in Regulation S-K (C):
Total Interest Expense $396 $407 $399 $395 $390
Interest Factor in Rentals 12 12 11 11 11
Subsidiaries' Preferred Securities Dividend
Requirements -- -- 28 44 45
-------- -------- -------- -------- --------
Total Fixed Charges $408 $419 $438 $450 $446
======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges 3.35 3.25 2.83 2.81 3.27
======== ======== ======== ======== ========
</TABLE>
Notes:
(A) The term "earnings" shall be defined as pretax income from continuing
operations. Add to pretax income the amount of fixed charges adjusted to
exclude (a) the amount of any interest capitalized during the period and
(b) the actual amount of any preferred stock dividend requirements of
majority-owned subsidiaries which were included in such fixed charges
amount but not deducted in the determination of pretax income.
(B) Includes State income taxes and Federal income taxes for other income.
(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.
EXHIBIT 12 (B)
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------- -------- -------- -------- --------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Earnings as Defined in Regulation S-K (A):
Net Income $659 $617 $535 $528 $604
Income Taxes (B) 302 326 268 286 406
Fixed Charges 408 419 438 450 446
-------- -------- -------- -------- --------
Earnings $1,369 $1,362 $1,241 $1,264 $1,456
======== ======== ======== ======== ========
Fixed Charges as Defined in Regulation S-K (C):
Total Interest Expense $396 $407 $399 $395 $390
Interest Factor in Rentals 12 12 11 11 11
Subsidiaries' Preferred Securities Dividend
Requirements -- -- 28 44 45
Preferred Stock Dividends 42 49 23 12 9
Adjustment to Preferred Stock Dividends to
state on a pre-income tax basis 19 24 12 6 6
-------- -------- -------- -------- --------
Total Fixed Charges $469 $492 $473 $468 $461
======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges 2.92 2.77 2.62 2.70 3.15
======== ======== ======== ======== ========
</TABLE>
Notes:
(A) The term "earnings" shall be defined as pretax income from continuing
operations. Add to pretax income the amount of fixed charges adjusted to
exclude (a) the amount of any interest capitalized during the period and
(b) the actual amount of any preferred stock dividend requirements of
majority-owned subsidiaries which were included in such fixed charges
amount but not deducted in the determination of pretax income.
(B) Includes State income taxes and Federal income taxes for other income.
(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 and preferred stock dividends, increased to
reflect the pre-tax earnings requirement for Public Service Electric and
Gas Company.
EXHIBIT 21
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
SIGNIFICANT SUBSIDIARIES
STATE OF
NAME OWNERSHIP % INCORPORATION
- ---- ----------- -------------
Public Service Electric and Gas Company ..... 100 New Jersey
Energy Holdings Inc. ........................ 100 New Jersey
PSEG Resources Inc. ......................... 100 New Jersey
The remaining subsidiaries of Public Service Enterprise Group Incorporated
are not significant subsidiaries as defined in Regulation S-X.
EXHIBIT 23
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements
Nos. 33-44581, 33-44582 and 33-45491 of Public Service Enterprise Group
Incorporated on Form S-8 and Registration Statements No. 33-49123 and 333-65261
of Public Service Enterprise Group Incorporated on Form S-3 of our report dated
February 12, 1999, appearing in this Annual Report on Form 10-K of Public
Service Enterprise Group Incorporated for the year ended December 31, 1998.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 22, 1999
EXHIBIT 23(A)
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements
Nos. 33-49367, 33-50199, 33-51309, 333-02763 and 333-44991 of Public Service
Electric and Gas Company on Form S-3 of our report dated February 12, 1999
appearing in this Annual Report on Form 10-K of Public Service Electric and Gas
Company for the year ended December 31, 1998.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 22, 1999
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary information extracted from SEC Form 10-K and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000788784
<NAME> PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 10,876
<OTHER-PROPERTY-AND-INVEST> 3,833
<TOTAL-CURRENT-ASSETS> 1,654
<TOTAL-DEFERRED-CHARGES> 1,634
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 17,997
<COMMON> 3,396 <F1>
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 1,748
<TOTAL-COMMON-STOCKHOLDERS-EQ> 5,098 <F2>
1,113
95
<LONG-TERM-DEBT-NET> 4,763
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 1,056
<LONG-TERM-DEBT-CURRENT-PORT> 418
0
<CAPITAL-LEASE-OBLIGATIONS> 50
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 5,404
<TOT-CAPITALIZATION-AND-LIAB> 17,997
<GROSS-OPERATING-REVENUE> 5,931
<INCOME-TAX-EXPENSE> 428 <F3>
<OTHER-OPERATING-EXPENSES> 4,325
<TOTAL-OPERATING-EXPENSES> 4,745
<OPERATING-INCOME-LOSS> 1,186
<OTHER-INCOME-NET> 6
<INCOME-BEFORE-INTEREST-EXPEN> 1,192
<TOTAL-INTEREST-EXPENSE> 548 <F4>
<NET-INCOME> 644
80
<EARNINGS-AVAILABLE-FOR-COMM> 644
<COMMON-STOCK-DIVIDENDS> 499
<TOTAL-INTEREST-ON-BONDS> 393
<CASH-FLOW-OPERATIONS> 1,422
<EPS-PRIMARY> 2.79
<EPS-DILUTED> 2.79
<FN>
<F1> Includes Treasury Stock of ($207).
<F2> Includes Foreign Currency Translation Adjustment of ($43).
<F3> Federal and State Income Taxes for Other Income of $8 were incorporated
into this line for FDS purposes. In the referenced financial statements, Total
Other Income and Deductions are net of the above applicable Federal and State
income taxes.
<F4> Total interest expense includes Preferred Securities Dividends
Requirements.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from Form 10-K
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000081033
<NAME> PUBLIC SERVICE ELECTRIC AND GAS COMPANY
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 10,876
<OTHER-PROPERTY-AND-INVEST> 833
<TOTAL-CURRENT-ASSETS> 1,459
<TOTAL-DEFERRED-CHARGES> 1,580
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 14,748
<COMMON> 2,563
<CAPITAL-SURPLUS-PAID-IN> 594
<RETAINED-EARNINGS> 1,443
<TOTAL-COMMON-STOCKHOLDERS-EQ> 4,597
588
95
<LONG-TERM-DEBT-NET> 4,045
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 850
<LONG-TERM-DEBT-CURRENT-PORT> 100
0
<CAPITAL-LEASE-OBLIGATIONS> 50
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 4,423
<TOT-CAPITALIZATION-AND-LIAB> 14,748
<GROSS-OPERATING-REVENUE> 5,590
<INCOME-TAX-EXPENSE> 407 <F1>
<OTHER-OPERATING-EXPENSES> 4,173
<TOTAL-OPERATING-EXPENSES> 4,571
<OPERATING-INCOME-LOSS> 1,019
<OTHER-INCOME-NET> 8
<INCOME-BEFORE-INTEREST-EXPEN> 1,027
<TOTAL-INTEREST-EXPENSE> 423 <F2>
<NET-INCOME> 604
10
<EARNINGS-AVAILABLE-FOR-COMM> 595
<COMMON-STOCK-DIVIDENDS> 503
<TOTAL-INTEREST-ON-BONDS> 309
<CASH-FLOW-OPERATIONS> 1,565
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> State Income Taxes of $2 and Federal and State Income Taxes for Other
Income of $7 were incorporated into this line item for FDS purposes. In the
referenced financial statements, Total Other Income and Deductions are net of
the above applicable Federal and State income taxes.
<F2> Total interest expense includes Preferred Securities Dividend
Requirements.
</FN>
</TABLE>
