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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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 Address, and Telephone Number Identification
Number No.
- ---------- ------------------------------------------ ----------------
1-9120 PUBLIC SERVICE ENTERPRISE GROUP 22-2625848
INCORPORATED
(A New Jersey Corporation)
80 Park Plaza
P.O. Box 1171
Newark, New Jersey 07101-1171
973 430-7000
http://www.pseg.com
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
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
The number of shares outstanding of Public Service Enterprise Group
Incorporated's sole class of common stock, as of the latest practicable date,
was as follows:
Class: Common Stock, without par value
Outstanding at October 31, 1999: 218,591,318
As of October 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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<PAGE>
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PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Page
----
Public Service Enterprise Group Incorporated (PSEG):
Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 1999 and 1998........................ 1
Consolidated Balance Sheets as of September 30, 1999
and December 31, 1998........................................... 2
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1999 and 1998........................ 4
Public Service Electric and Gas Company (PSE&G):
Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 1999 and 1998........................ 5
Consolidated Balance Sheets as of September 30, 1999
and December 31, 1998........................................... 6
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1999 and 1998........................ 8
Notes to Consolidated Financial Statements -- PSEG................ 9
Notes to Consolidated Financial Statements -- PSE&G............... 28
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PSEG ........................................................... 29
PSE&G........................................................... 50
Item 3. Qualitative and Quantitative Disclosures About Market Risk.. 50
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 51
Item 5. Other Information........................................... 53
Item 6. Exhibits and Reports on Form 8-K............................ 53
Forward Looking Statements.......................................... 53
Signatures.......................................................... 55
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PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(Millions of Dollars, except for Per Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Electric Revenues *
Bundled (1/1/99 - 7/31/99) $ 494 $ 1,212 $ 2,480 $ 3,094
Generation (8/1/99 - 9/30/99) 430 - 430 -
Transmission and Distribution (8/1/99 - 9/30/99) 320 - 320 -
------------ ------------ ------------ -----------
Total Electric Revenues 1,244 1,212 3,230 3,094
Gas Distribution (1/1/99 - 9/30/99) 214 197 1,191 1,081
Other 148 30 416 285
------------ ------------ ------------ -----------
Total Operating Revenues 1,606 1,439 4,837 4,460
------------ ------------ ------------ -----------
OPERATING EXPENSES
Electric Energy Costs 312 280 775 740
Gas Costs 154 135 780 733
Operation and Maintenance 471 363 1,328 1,108
Depreciation and Amortization 122 162 410 485
Taxes Other Than Income Taxes 44 49 143 154
------------ ------------ ------------ -----------
Total Operating Expenses 1,103 989 3,436 3,220
------------ ------------ ------------ -----------
OPERATING INCOME 503 450 1,401 1,240
Other Income - net 26 8 39 21
Interest Charges (126) (114) (355) (344)
Preferred Securities Dividend Requirements (23) (22) (70) (57)
------------ ------------ ------------ -----------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 380 322 1,015 860
Income Taxes (159) (142) (425) (367)
------------ ------------ ------------ -----------
INCOME BEFORE EXTRAORDINARY ITEM 221 180 590 493
Extraordinary Item (Net of Tax of $ - and $345) (14) - (804) -
------------ ------------ ------------ -----------
NET INCOME (LOSS) $ 207 $ 180 $ (214) $ 493
============ ============ ============ ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (OOO's) 219,225 231,727 220,413 231,901
============ ============ ============ ===========
EARNINGS (LOSSES) PER SHARE (BASIC AND DILUTED):
Income Before Extraordinary Item $ 1.01 $ 0.78 $ 2.68 $ 2.13
Extraordinary Item (Net of Tax) (0.06) - (3.65) -
------------ ------------ ------------ -----------
Net Income (Loss) $ 0.95 $ 0.78 $ (0.97) $ 2.13
============ ============ ============ ===========
DIVIDENDS PAID PER SHARE OF COMMON STOCK $ 0.54 $ 0.54 $ 1.62 $ 1.62
============ ============ ============ ===========
* Note: Bundled revenues were recorded based on the bundled rates in effect
through 7/31/99. Commencing with the unbundling of rates on 8/1/99, revenues
are disaggregated between Generation Revenue and Transmission and
Distribution Revenue.
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED BALANCE SHEETS
ASSETS
(Millions of Dollars)
(Unaudited)
September 30, December 31,
1999 1998
------------- ---------------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 84 $ 140
Accounts Receivable:
Customer Accounts Receivable 620 506
Other Accounts Receivable 385 219
Less: Allowance for Doubtful Accounts 45 38
Unbilled Revenues 163 255
Fuel 351 331
Materials and Supplies, net of valuation reserves - 1999, $40;
1998, $12 134 167
Prepayments 163 61
Miscellaneous Current Assets 95 32
----------- ------------
Total Current Assets 1,950 1,673
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PROPERTY, PLANT AND EQUIPMENT
Electric - Generation 1,747 9,226
Electric - Transmission and Distribution 4,983 4,953
Gas - Distribution 2,982 2,882
Other 555 551
----------- ------------
Total 10,267 17,612
Less: Accumulated depreciation and amortization 3,648 7,080
----------- ------------
Net 6,619 10,532
Nuclear Fuel in Service, net of accumulated amortization -
1999, $402; 1998, $312 173 187
----------- ------------
Net Property, Plant and Equipment in Service 6,792 10,719
Construction Work in Progress, including Nuclear Fuel in
Process - 1999, $43; 1998, $72 140 219
Plant Held for Future Use 21 24
----------- ------------
Net Property, Plant and Equipment 6,953 10,962
----------- ------------
NONCURRENT ASSETS
Regulatory Assets 5,078 1,579
Long-Term Investments, net of accumulated amortization - 1999, $40;
1998, $28, and net of valuation allowances - 1999, $19; 1998, $18 3,689 3,034
Nuclear Decommissioning Fund 579 524
Other Special Funds 141 125
Other Noncurrent Assets, net of accumulated amortization -
1999, $10; 1998, $8 200 100
----------- ------------
Total Noncurrent Assets 9,687 5,362
----------- ------------
TOTAL $ 18,590 $ 17,997
=========== ============
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND CAPITALIZATION
(Millions of Dollars)
(Unaudited)
September 30, December 31,
1999 1998
------------- ----------------
<S> <C> <C>
CURRENT LIABILITIES
Long-Term Debt Due Within One Year $ 755 $ 418
Commercial Paper and Loans 1,602 1,056
Accounts Payable 826 655
Accrued Taxes 68 41
Other 359 288
------------- ----------------
Total Current Liabilities 3,610 2,458
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NONCURRENT LIABILITIES
Deferred Income Taxes and ITC 2,890 3,706
Regulatory Liability - Excess Depreciation Reserve 569 -
Nuclear Decommissioning 475 -
OPEB Costs 376 344
Other 692 420
------------- ----------------
Total Noncurrent Liabilities 5,002 4,470
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COMMITMENTS AND CONTINGENT LIABILITIES - -
------------- ----------------
CAPITALIZATION:
LONG TERM DEBT 4,711 4,763
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SUBSIDIARIES' PREFERRED SECURITIES:
Preferred Stock Without Mandatory Redemption 95 95
Preferred Stock With Mandatory Redemption 75 75
Guaranteed Preferred Beneficial Interest in Subordinated
Debentures 1,038 1,038
------------- ----------------
Total Subsidiaries' Preferred Securities 1,208 1,208
------------- ----------------
COMMON STOCKHOLDERS' EQUITY:
Common Stock, issued; 231,957,608 shares 3,604 3,603
Treasury Stock, at cost; 1999 - 13,209,490 shares,
1998 - 5,314,100 shares (516) (207)
Retained Earnings 1,177 1,748
Accumulated Other Comprehensive Income (Loss) (206) (46)
------------- ----------------
Total Common Stockholders' Equity 4,059 5,098
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Total Capitalization 9,978 11,069
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TOTAL $ 18,590 $ 17,997
============= ================
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of Dollars)
(Unaudited)
Nine Months Ended
September 30,
-----------------------
1999 1998
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(214) $ 493
Adjustments to reconcile net income (loss) to net cash flows from
operating activities:
Extraordinary Loss - net of tax 804 -
Depreciation and Amortization 410 485
Amortization of Nuclear Fuel 68 70
Recovery of Electric Energy and Gas Costs - net 68 98
Provision for Deferred Income Taxes and ITC - net (227) -
Investment Distributions 124 79
Gains on Investments (103) (66)
Net Changes in certain current assets and liabilities:
Accounts Receivable and Unbilled Revenues (127) (5)
Prepayments (102) (186)
Accounts Payable 174 39
Other Current Assets and Liabilities 1 (20)
Other 79 (8)
--------- ----------
Net Cash Provided By Operating Activities 955 979
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Property, Plant and Equipment,
excluding Capitalized Interest and AFDC (280) (359)
Net Change in Long-Term Investments (846) 8
Contribution to Decommissioning Funds and Other Special Funds (51) (91)
Other - (39)
--------- ----------
Net Cash Used In Investing Activities (1,177) (481)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Change in Short-Term Debt 546 (242)
Issuance of Long-Term Debt 713 250
Redemption/Purchase of Long-Term Debt (428) (527)
Issuance of Preferred Securities - 525
Purchase of Treasury Stock (309) (91)
Cash Dividends Paid on Common Stock (357) (376)
Other 1 (42)
--------- ----------
Net Cash Provided By (Used In) Financing Activities 166 (503)
--------- ----------
Net Change In Cash And Cash Equivalents (56) (5)
Cash And Cash Equivalents At Beginning Of Year 140 83
--------- ----------
Cash And Cash Equivalents At End Of Period $ 84 $ 78
========= ==========
Income Taxes Paid $ 426 $ 347
Interest Paid $ 345 $ 339
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Millions of Dollars)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ---------- -----------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Electric Revenues *
Bundled (1/1/99 - 7/31/99) $ 494 $ 1,212 $ 2,480 $ 3,094
Generation (8/1/99 - 9/30/99) 430 - 430 -
Transmission and Distribution (8/1/99 - 9/30/99) 320 - 320 -
--------- ------------ ----------- -----------
Total Electric Revenues 1,244 1,212 3,230 3,094
Gas Distribution (1/1/99 - 9/30/99) 214 197 1,191 1,081
--------- ------------ ----------- -----------
Total Operating Revenues 1,458 1,409 4,421 4,175
--------- ------------ ----------- -----------
OPERATING EXPENSES
Electric Energy Costs 309 273 765 729
Gas Costs 141 127 730 687
Operation and Maintenance 382 324 1,141 991
Depreciation and Amortization 120 160 405 478
Taxes Other Than Income Taxes 43 51 142 155
--------- ------------ ----------- -----------
Total Operating Expenses 995 935 3,183 3,040
--------- ------------ ----------- -----------
OPERATING INCOME 463 474 1,238 1,135
Other Income - net 5 8 8 14
Interest Charges (98) (94) (284) (276)
Preferred Securities Dividend Requirements (12) (11) (35) (33)
--------- ------------ ----------- -----------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 358 377 927 840
Income Taxes (153) (160) (393) (355)
--------- ------------ ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM 205 217 534 485
Extraordinary Item (Net of Tax of $ - and $345) (14) - (804) -
--------- ------------ ----------- -----------
NET INCOME (LOSS) 191 217 (270) 485
Preferred Stock Dividend Requirement (2) (2) (7) (7)
--------- ------------ ----------- -----------
EARNINGS (LOSSES) AVAILABLE TO
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED $ 189 $ 215 $ (277) $ 478
========= ============ =========== ===========
* Note: Bundled revenues were recorded based on the bundled rates in effect
through 7/31/99. Commencing with the unbundling of rates on 8/1/99, revenues
are disaggregated between Generation Revenue and Transmission and
Distribution Revenue.
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
(Millions of Dollars)
(Unaudited)
September 30, December 31,
1999 1998
------------- -----------------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 24 $ 42
Accounts Receivable:
Customer Accounts Receivable 500 451
Other Accounts Receivable 352 178
Less: Allowance for Doubtful Accounts 39 34
Unbilled Revenues 163 255
Fuel 348 331
Materials and Supplies, net of valuation reserves - 1999, $40;
1998, $12 134 165
Prepayments 159 52
Miscellaneous Current Assets 41 32
------------- -------------
Total Current Assets 1,682 1,472
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PROPERTY, PLANT AND EQUIPMENT
Electric - Generation 1,747 9,226
Electric - Transmission and Distribution 4,983 4,953
Gas - Distribution 2,982 2,882
Other 449 461
------------- -------------
Total 10,161 17,522
Less: Accumulated depreciation and amortization 3,606 7,049
------------- -------------
Net 6,555 10,473
Nuclear Fuel in Service, net of accumulated amortization -
1999, $402; 1998, $312 173 187
------------- -------------
Net Property, Plant and Equipment in Service 6,728 10,660
Construction Work in Progress, including Nuclear Fuel in
Process - 1999, $43; 1998, $72 140 219
Plant Held for Future Use 21 24
------------- -------------
Net Property, Plant and Equipment 6,889 10,903
------------- -------------
NONCURRENT ASSETS
Regulatory Assets 5,078 1,579
Long-Term Investments 74 65
Nuclear Decommissioning Fund 579 524
Other Special Funds 141 125
Other Noncurrent Assets 102 1
------------- -------------
Total Noncurrent Assets 5,974 2,294
------------- -------------
TOTAL $ 14,545 $ 14,669
============= =============
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND CAPITALIZATION
(Millions of Dollars)
(Unaudited)
September 30, December 31,
1999 1998
------------- --------------
<S> <C> <C>
CURRENT LIABILITIES
Long-Term Debt Due Within One Year $ 638 $ 100
Commercial Paper and Loans 1,080 850
Accounts Payable 746 611
Other 286 253
------------- --------------
Total Current Liabilities 2,750 1,814
------------- --------------
NONCURRENT LIABILITIES
Deferred Income Taxes and ITC 2,011 2,846
Regulatory Liability - Excess Depreciation Reserve 569 -
Nuclear Decommissioning 475 -
OPEB Costs 376 344
Other 666 397
------------- --------------
Total Noncurrent Liabilities 4,097 3,587
------------- --------------
COMMITMENTS AND CONTINGENT LIABILITIES - -
------------- --------------
CAPITALIZATION:
LONG TERM DEBT 3,261 4,045
------------- --------------
PREFERRED SECURITIES:
Preferred Stock Without Mandatory Redemption 95 95
Preferred Stock With Mandatory Redemption 75 75
Subsidiaries' Preferred Securities:
Guaranteed Preferred Beneficial Interest in Subordinated
Debentures 513 513
------------- --------------
Total Preferred Securities 683 683
------------- --------------
COMMON STOCKHOLDER'S EQUITY:
Common Stock, issued; 132,450,344 shares 2,563 2,563
Contributed Capital 594 594
Retained Earnings 600 1,386
Accumulated Other Comprehensive Income (Loss) (3) (3)
------------- --------------
Total Common Stockholder's Equity 3,754 4,540
------------- --------------
Total Capitalization 7,698 9,268
------------- --------------
TOTAL $ 14,545 $ 14,669
============= ==============
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of Dollars)
(Unaudited)
Nine Months Ended
September 30,
-----------------------
1999 1998
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(270) $ 485
Adjustments to reconcile net income (loss) to net cash flows from
operating activities:
Extraordinary Loss - net of tax 804 -
Depreciation and Amortization 405 478
Amortization of Nuclear Fuel 68 70
Recovery of Electric Energy and Gas Costs - net 68 98
Provision for Deferred Income Taxes - net (203) 11
Net Changes in certain current assets and liabilities:
Accounts Receivable and Unbilled Revenues (126) (66)
Prepayments (107) 41
Accounts Payable 138 (185)
Other Current Assets and Liabilities (9) 12
Other 85 31
--------- ----------
Net Cash Provided By Operating Activities 853 975
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Property, Plant and Equipment,
excluding Capitalized Interest and AFDC (280) (359)
Contribution to Decommissioning Funds and Other Special Funds (51) (91)
Other (8) (17)
--------- ----------
Net Cash Used In Investing Activities (339) (467)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Change in Short-Term Debt 230 (24)
Issuance of Long-Term Debt - 250
Redemption/Purchase of Long-Term Debt (246) (351)
Cash Dividends Paid on Common Stock (510) (376)
Other (6) (7)
--------- ----------
Net Cash Used In Financing Activities (532) (508)
--------- ----------
Net Change In Cash And Cash Equivalents (18) -
Cash And Cash Equivalents At Beginning Of Year 42 17
--------- ----------
Cash And Cash Equivalents At End Of Period $ 24 $ 17
========= ==========
Income Taxes Paid $ 443 $ 333
Interest Paid $ 297 $ 295
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
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PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation/Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
(SEC). Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. However,
in the opinion of management, the disclosures are adequate to make the
information presented not misleading. These consolidated financial statements
and Notes to Consolidated Financial Statements (Notes) should be read in
conjunction with the Registrant's Notes contained in the 1998 Annual Report on
Form 10-K, the Quarterly Reports on Form 10-Q for the quarters ended March 31,
1999 and June 30, 1999 and the Current Reports on Form 8-K filed March 18, 1999,
April 26, 1999, July 21, 1999, September 15, 1999 and October 14, 1999.
The unaudited financial information furnished reflects all adjustments
which are, in the opinion of management, necessary to fairly state the results
for the interim periods presented. The year-end consolidated balance sheets were
derived from the audited consolidated financial statements included in the 1998
Annual Report on Form 10-K. Certain reclassifications of prior period data have
been made to conform with the current presentation.
The presentation of revenues on the Consolidated Statements of Income has
changed, effective August 1, 1999, due to the deregulation of the electric
generation business by the New Jersey Board of Public Utilities' (BPU) in Public
Service Electric and Gas Company's (PSE&G) rate unbundling, stranded costs and
restructuring proceedings. Effective with that date, electric rates charged to
ratepayers have been unbundled and the generation, transmission, distribution
and other components of the total rate have become separate charges. As a
result, the presentation of revenues has also changed. PSE&G's generation
business earns revenues by providing the energy and capacity to meet PSE&G's
basic generation service (BGS) obligation. Generation revenues are also produced
by a variety of wholesale energy and capacity sales and other ancillary
services. PSE&G's transmission and distribution businesses remain rate regulated
and will continue to earn revenues based on PSE&G's tariffs under which PSE&G
provides transmission and distribution services for its residential, commercial
and industrial customers in New Jersey. The rates charged for transmission and
distribution are regulated by the Federal Energy Regulatory Commission (FERC)
and the BPU, respectively. Transmission and distribution revenues are also
generated from a variety of other activities such as sundry sales, wholesale
transmission services and other miscellaneous services. Revenues earned prior to
August 1, 1999 continue to be presented as Bundled Electric revenues on the
Consolidated Statements of Income as they were earned based upon bundled
electric rates prior to the deregulation of PSE&G's generation business. For
more information on deregulation and PSE&G's rate unbundling, stranded costs and
restructuring proceedings, including the BPU's Final Decision and Order (Final
Order), see Note 2. Regulatory Issues.
Summary of Significant Accounting Policies
Effective April 1, 1999, PSE&G discontinued the application of Statement of
Financial Accounting Standards (SFAS) 71, "Accounting for the Effects of Certain
Types of Regulation" (SFAS 71), for the electric generation portion of its
business. PSE&G calculated an extraordinary charge consistent with the
requirements of Emerging Issues Task Force (EITF) Issue No. 97-4, "Deregulation
of the Pricing of Electricity - Issues Related to the Application of FASB
Statements No. 71 and No. 101" (EITF 97-4) and SFAS 101, "Regulated
Enterprises--Accounting for the Discontinuation of Application of FASB Statement
No. 71" (SFAS 101). The portion of the extraordinary charge related to an
impairment of long-lived assets was calculated in accordance with SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" (SFAS 121). The discontinuation of the application of SFAS 71
<PAGE>
had a material impact on Public Service Enterprise Group Incorporated's (PSEG)
and PSE&G's financial condition and results of operations. For further
discussion, see Note 2. Regulatory Issues and Note 3. Extraordinary Charge and
Other Accounting Impacts of Deregulation. PSE&G's transmission and distribution
businesses, which continue to be regulated, continue to meet the requirements
for the application of SFAS 71.
In concert with the discontinuation of SFAS 71, PSE&G revised a number of
accounting policies related to its generation-related capital assets. Under a
revised capitalization policy, PSE&G will only capitalize costs which increase
the capacity or extend the life of an existing asset, represent a newly acquired
or constructed asset or represent the replacement of a retired asset. Under a
revised depreciation policy, PSE&G will calculate depreciation consistent with
revised asset lives determined by PSE&G policy rather than using depreciation
rates prescribed by the BPU in rate proceedings. Finally, under a revised asset
retirement policy, the portion of future retirements which have not been fully
depreciated will impact earnings.
In the past, fuel revenue and expense flowed through the Electric Levelized
Energy Adjustment Clause (LEAC) mechanism and variances in fuel revenues and
expenses were subject to deferral accounting and had no direct effect on
earnings. Due to the discontinuation of the LEAC mechanism on August 1, 1999,
earnings volatility will increase since the unregulated electric generation
portion of PSEG's business ceased to follow deferral accounting. PSE&G now bears
the full risks and rewards of changes in nuclear and fossil generating fuel
costs and replacement power costs. For further discussion, see Note 4.
Regulatory Assets and Liabilities.
Effective January 1, 1999, PSEG and PSE&G adopted EITF 98-10, "Accounting
for Contracts Involved in Energy Trading and Risk Management Activities" (EITF
98-10). 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 or footnotes. Previously, the gains and losses associated
with these contracts were recorded upon settlement. The adoption of EITF 98-10
did not have a material impact on the financial condition, results of operations
or net cash flows of PSEG or PSE&G.
Effective January 1, 1999, PSEG and PSE&G adopted Statement of Position
(SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use" (SOP 98-1), which provides criteria for capitalizing certain
internal-use software costs. The adoption of SOP 98-1 did not have a material
impact on the financial condition, results of operations or net cash flows of
PSEG or PSE&G.
Effective January 1, 1999, PSEG and PSE&G adopted SOP 98-5, "Reporting on
the Costs of Start-Up Activities" (SOP 98-5). 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 did not have a material
impact on the financial condition, results of operations or net cash flows of
PSEG or PSE&G.
Note 2. Regulatory Issues
New Jersey Energy Master Plan Proceedings and Related Orders
Following the passage of the New Jersey Electric Discount and Energy
Competition Act (Energy Competition Act), the BPU rendered its summary decision
relating to PSE&G's rate unbundling, stranded costs and restructuring
proceedings (Summary Order) on April 21, 1999. On August 24, 1999, the BPU
issued a Final Order in these matters which provided the reasoning for the
action taken by the BPU and affirmed, in all material respects, the decisions
and actions previously approved in the BPU's Summary Order, with the exception
of PSE&G's treatment of investment tax credits (ITC) of $235 million related to
PSE&G's generation assets (see Investment Tax Credits).
<PAGE>
In October and November 1999, two Notices of Appeal of each of the Final
Order and of the BPU's order approving PSE&G's petition relating to the proposed
securitization transaction for an irrevocable Bondable Stranded Costs Rate Order
(Finance Order) (see Securitization Filing and Finance Order) were filed in the
Appellate Division of the New Jersey Superior Court on behalf of several
ratepayers. The Court granted requests to accelerate two of the appeals and
ordered that the matters be consolidated. The Court further established November
3, 1999 as the deadline for the filing of any additional appeals of these Orders
and directed the BPU to certify the record of both proceedings by November 5,
1999. No additional Notices of Appeal were filed and the record was certified to
the Court on such date. In addition, the Court established an expedited briefing
schedule with appellants' briefs due December 10, 1999, respondents' briefs due
January 5, 2000 and reply briefs due January 14, 2000. The Court fixed oral
argument on the consolidated matters for March 8, 2000. While PSEG and PSE&G
believe that the appeals are without merit, no assurances can be given at this
time as to the timing or outcome of these proceedings. Accordingly, neither PSEG
nor PSE&G are able to predict whether such appeals will have a material adverse
effect on their financial condition, results of operations or net cash flows.
The Energy Competition Act, the BPU's Summary Order and Final Order and the
related BPU proceedings are hereinafter referred to as the Energy Master Plan
Proceedings. The result of these proceedings is that all New Jersey retail
electric customers have had the ability to select their electric supplier
beginning August 1, 1999 (see Retail Choice) and all New Jersey retail gas
customers may select their gas supplier commencing December 31, 1999, thus
opening the New Jersey energy markets to competition. For discussion of the
extraordinary charge to earnings recorded as a result of the deregulation of
PSE&G's generation business, see Note 3. Extraordinary Charge and Other
Accounting Impacts of Deregulation.
The Final Order provides for the following; however, the existence of such
appeals noted above may impact the implementation provided in the Final Order:
Transition Period
o A four-year transition period beginning August 1, 1999 and ending July
31, 2003. During this transition period, rates for those services
provided by PSE&G will be capped for all electric customers.
Rate Reductions
o Customers will receive through July 2003 the following rate reductions
from those rates in effect on July 31, 1999 according to the schedule
below:
Effective Date Amount of Rate Reduction
-------------- ------------------------
August 1, 1999: 5%
At the time of securitization: increasing to 7% (minimum)
August 1, 2001: increasing to 9% (minimum)
August 1, 2002: increasing to 13.9% average (10%
off rates in effect in April 1997)
The BPU, in finding that the second and third incremental rate
reductions assume achievement of 2% overall savings from securitization
(in addition to the 1% assumed in the initial 5% reduction),
conditioned these additional interim rate reductions upon
implementation of securitization. The BPU further determined that the
final aggregate rate reduction in 2002 of 13.9% is required by the
Energy Competition Act and is not contingent on the implementation of
securitization.
On August 18, 1999, the BPU approved PSE&G's compliance tariff filing
reflecting the 5% decrease in rates. On August 1, 1999, PSE&G had
implemented this rate reduction, previously approved on a provisional
basis.
<PAGE>
Shopping Credits
o Shopping credits (credits which a customer electing a new supplier of
electricity will receive from PSE&G) will be established for the
transition period and will include the cost of energy, capacity,
transmission, ancillary services, losses, taxes and a retail adder. The
average overall credits will be as follows:
1999: 4.95 cents per kilowatt hour (kWh)
2000: 5.03 cents per kWh
2001: 5.06 cents per kWh
2002: 5.10 cents per kWh
2003: 5.10 cents per kWh
Stranded Costs
o The BPU concluded that PSE&G should be provided the opportunity to
recover up to $2.94 billion (net of tax) of its generation-related
stranded costs, through securitization of $2.4 billion (discussed
below) and an opportunity to recover up to $540 million (net of tax) of
its unsecuritized generation-related stranded costs on a present value
basis. The $540 million is subject to recovery by various means,
including an explicit market transition charge (MTC). The stranded
costs recovery is subject to a reconciliation of the collection of
unsecuritized generation-related stranded costs.
o PSE&G was directed to use the overrecovered balance in the LEAC as of
July 31, 1999 as a mitigation tool for stranded cost recovery
associated with non-utility generation (NUG) contracts. PSE&G will
apply the overrecovery as a credit to the starting deferred balance of
the non-utility generation market transition charge (NTC) to offset
future above market costs and/or contract buyouts otherwise recoverable
from ratepayers.
Securitization
o The BPU concluded that it would issue an irrevocable Bondable Stranded
Costs Rate Order, consistent with the provisions of the Energy
Competition Act, to authorize PSE&G to issue up to $2.525 billion of
transition bonds, with a scheduled amortization upon issuance of 15
years, representing $2.4 billion of generation-related stranded costs
(net of tax) and an estimated $125 million of transaction costs. A
transition bond charge will be collected from all existing and future
electric customers via a single per kWh "wires charge" to be subject to
adjustment at least annually. For further details, see Securitization
Filing and Finance Order.
o The BPU determined that the taxes related to securitization, which
reflect the grossed up revenue requirements associated with the $2.4
billion in generation-related stranded costs (net of tax) being
securitized, are recoverable stranded costs. The BPU determined that
such taxes should not be collected through the transition bond charge;
rather, such taxes will be collected via a separate MTC. The duration
of this separate MTC is to be identical to the duration of the
transition bond charge.
o The BPU clarified the language concerning the use of the net proceeds
of securitization to indicate that the refinancing or retirement of
debt and/or equity shall be done in a manner that will not
substantially alter PSE&G's overall capital structure.
<PAGE>
Sale of Generation-Related Assets
o As directed by the Final Order, PSE&G will sell its generation
property, plant and equipment to a separate unregulated subsidiary of
PSEG for $2.443 billion plus the net book value of other
generation-related assets and liabilities transferred at the time of
purchase, such as fuel and materials and supplies, currently estimated
to be between $200 million and $400 million. PSE&G and PSEG Power LLC
(Power), the separate unregulated subsidiary of PSEG, will record the
difference between the net book value of the generation property, plant
and equipment and the $2.443 billion of sale proceeds as an increase
and decrease to contributed capital, respectively, on their financial
statements.
o Such separate company will become an exempt wholesale generator (EWG)
under the Public Utility Holding Company Act (PUHCA). Any gains
resulting from any sale of the generation-related assets to a third
party which occurs before August 1, 2004 must be shared equally between
ratepayers and shareholders. For further discussion, see
Generation-Related Asset Sale to Power.
Basic Generation Service
o PSE&G is obligated to provide BGS to customers who do not choose
another electric supplier. PSE&G will contract with Power, through
Power's wholly owned subsidiary PSEG Energy Resources & Trade LLC
(ER&T), to provide the energy and capacity required to meet PSE&G's
BGS and Off-Tariff Rate Agreements (OTRA) obligations for the first
three years of retail choice (see Generation-Related Asset Sale to
Power). PSEG, PSE&G and Power are prohibited from promoting such
service as a competitive alternative to other electricity suppliers
and marketers. BGS will be competitively bid for the fourth year and
thereafter. Any payments resulting from BGS being bid out will be
applied to the deferred societal benefit costs balance for purposes of
establishing the societal benefit clause (SBC) rate in the fifth year.
Societal Benefit Clause and Non-utility Generation Market Transition Clause
o Societal benefit costs and stranded costs associated with NUG
contracts will be collected through separate charges. Both charges
will remain constant throughout the four-year transition period and
PSE&G will use deferral accounting, including interest on any
over/underrecoveries. The charges will be reset annually thereafter.
The charge for the stranded NTC will be initially set at the 1999
level of $183 million annually. Any NUG contract buyouts will also be
charged to the NTC and will be subject to deferral accounting. The SBC
will include costs related to: 1) social programs which include the
universal service fund; 2) nuclear plant decommissioning; 3) demand
side management (DSM) programs (see Other Regulatory Issues); 4)
manufactured gas plant remediation; and 5) consumer education.
Electric Distribution Depreciation
o PSE&G was directed by the BPU to record a regulatory liability by
reducing its depreciation reserve for its electric distribution assets
by $569 million. This regulatory liability will be amortized over the
period from January 1, 2000 to July 31, 2003 (see Note 3. Extraordinary
Charge and Other Accounting Impacts of Deregulation).
<PAGE>
Investment Tax Credits
o The BPU directed PSE&G to seek a private letter ruling from the
Internal Revenue Service (IRS) to determine if the ITC can be credited
to customers without violating the tax normalization rules of the
Internal Revenue Code. If the IRS's private letter ruling determines
that the ITC could be passed on to customers of PSE&G without
violating the IRS's normalization rules, then the BPU in the fourth
year of the transition period will consider any action which it may
deem appropriate regarding the treatment of the ITC, giving
consideration to the issues resolved in the Final Order and other
relevant considerations. PSE&G accounted for the ITC as a reduction to
the extraordinary charge recorded in the second quarter of 1999. PSE&G
cannot predict the outcome of the ruling from the IRS or any
subsequent potential actions which may be taken by the BPU. However,
an adverse resolution to this matter would result in an additional
extraordinary charge to income up to the amount of the ITC, which
would likely have a material adverse impact on PSEG's and PSE&G's
financial condition, results of operations and net cash flows.
Securitization Filing and Finance Order
On September 17, 1999, the BPU issued its Finance Order to authorize, among
other things, the imposition of a non-bypassable transition bond charge on
PSE&G's customers; the sale of PSE&G's property right in such charge created by
the Energy Competition Act to a bankruptcy-remote financing entity; the issuance
and sale of $2.525 billion of transition bonds by such entity in payment
therefor, including an estimated $125 million of transaction costs; and the
application by PSE&G of the transition bond proceeds to retire outstanding debt
and/or equity. The order was consistent with the provisions of the Energy
Competition Act and the Final Order.
PSE&G Transition Funding LLC, a wholly owned subsidiary of PSE&G, was
created to issue such transition bonds. Two appeals have been filed which have
challenged the Finance Order and will delay the sale of the transition bonds.
Although PSEG and PSE&G believe the appeals are without merit, PSEG and PSE&G
are unable to predict the outcome of such appeals. However, assuming a favorable
outcome, PSEG and PSE&G expect such sale of transition bonds and receipt of
proceeds therefrom will occur in the first half of 2000.
Generation-Related Asset Sale to Power
In anticipation of the Final Order directing the sale of generation-related
assets, PSEG organized Power and its subsidiaries in June 1999. Power, and its
subsidiaries, PSEG Fossil LLC (Fossil) and PSEG Nuclear LLC (Nuclear), will
acquire and manage PSE&G's electric generation-related assets. The appeal, which
has been filed challenging the approval granted by the BPU in the Final Order
for this sale, will delay this sale. Although PSEG and PSE&G believe the
appeals are without merit, PSEG and PSE&G are unable to predict the outcome of
such appeals. However, assuming a favorable outcome, PSEG and PSE&G expect such
sale will occur in the first half of 2000.
Certain regulatory approvals are required prior to the sale of the
generation-related assets to Power and its subsidiaries. Power has made the
necessary filings and is awaiting final approval from the Nuclear Regulatory
Commission (NRC) (to transfer PSE&G's nuclear licenses), the New Jersey
Department of Environmental Protection (NJDEP) and the Pennsylvania Public
Utility Commission (PAPUC). Additionally, in October 1999, Nuclear and Fossil
filed with the FERC for EWG status. In September 1999, FERC approved PSE&G's
proposed sale of its generating units to Power and its subsidiaries. FERC
conditionally accepted a number of other agreements. Additionally, FERC directed
Power to make amendments clarifying the proposed rate formula by which ER&T
would compensate Fossil and Nuclear for their actual costs and to redesignate
the proposed market-based rate tariff from PSE&G to ER&T.
<PAGE>
Metering, Billing and Account Services
In accordance with the Energy Competition Act, the BPU has mandated the
creation of a Customer Account Services working group comprised of electric
and/or gas utilities, including PSE&G, alternative energy service providers and
other interested parties. The focus of the working group and the BPU will be to
outline a timeline and the extent to which competition will be introduced to
various functions, including metering, billing and customer service, and to
create regulatory guidelines for making these services competitive. Meetings
began in November 1999 with expectations that a formal proceeding will be
scheduled sometime after January 2000.
Generic Issues
In 1999, the BPU issued a series of interim orders that decided generic
issues related to the deregulation of the electric and gas industries in New
Jersey. These orders addressed environmental disclosure standards, energy
aggregation program standards, anti-slamming standards, retail choice consumer
protection standards and licensing and registration standards applicable to all
energy service providers. It is also anticipated that the BPU will issue an
order addressing affiliate relationships and transactions, which could impact
the pricing of affiliate transactions.
Retail Choice
Retail choice of electric energy suppliers started on August 1, 1999. Those
retail customers who choose a third party supplier (TPS) are expected to begin
to receive electric energy from such TPS commencing in the fourth quarter of
1999. As previously noted, the appeals of the Final Order may delay this
implementation.
Gas Unbundling
The Energy Competition Act requires that all residential customers have the
ability to choose a competitive gas supplier by December 31, 1999. As a result,
on March 17, 1999, the BPU issued its Order requiring each natural gas utility
to submit a rate unbundling filing.
On April 30, 1999, PSE&G submitted its required gas unbundling compliance
filing with the BPU. The discovery process has been completed, intervenor
testimony has been filed and hearings before the BPU commenced on September 27,
1999. The BPU is expected to render a decision by the end of December 1999.
PSE&G cannot predict the outcome of this proceeding.
The Energy Competition Act also mandated similar rules for the gas industry
as those for the electric industry addressing affiliate relations and consumer
protection, among others. The standards adopted by the BPU for generic issues
also apply to the competitive gas industry (see Generic Issues).
Other Regulatory Issues
Energy Efficiency and Renewable Energy (Formerly 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 were designed to treat DSM on equal regulatory footing with supply side or
energy production investments. The Energy Competition Act requires the
continuation of these energy efficiency programs and the initiation of renewable
energy programs, the costs of which are to be recovered through a societal
benefits charge on all electric and gas customers' bills. On June 9, 1999, the
BPU initiated a proceeding causing a comprehensive resource analysis of energy
programs to be undertaken including the reevaluation of DSM programs and
incorporation of new renewable programs. Key to this proceeding is the
determination of the appropriate level of funding for energy efficiency and
renewable energy programs on a statewide basis. Hearings have been scheduled by
the BPU with a target established that would permit it to render decisions for
each of the utilities in lieu of settlements, if necessary, by February 9, 2000.
PSE&G filed its proposed plan with the BPU on August 23, 1999.
<PAGE>
Non-utility Generation Buydown
Under Federal and State regulations, utilities were required to enter into
long-term power purchase agreements with NUGs at prices which have subsequently
proven to be above market. PSE&G is seeking to restructure certain of its BPU
approved contracts with NUGs, which were estimated to be $1.6 billion above
assumed future market prices. In July 1999, PSE&G and American Ref-Fuel Company
announced an agreement to amend a NUG contract originally signed in 1985 for the
Essex County Resource Recovery Facility, a waste incinerator located in Newark,
New Jersey. Under the terms of the agreement, PSE&G ratepayers will receive a
cost reduction of up to $100 million over the remaining 20 years of the
contract. In September 1999, the agreement was approved by the BPU and the costs
to restructure this contract will be recovered through the NTC.
Note 3. Extraordinary Charge and Other Accounting Impacts of Deregulation
As previously disclosed, as a result of the BPU's issuance of the Summary
Order in April 1999 and in accordance with EITF 97-4, PSE&G determined that SFAS
71 was no longer applicable to the electric generation portion of its business.
Accordingly, in the second quarter, PSE&G recorded an extraordinary charge to
earnings of $790 million (net of tax). PSE&G accounted for this charge
consistent with the requirements of SFAS 101. In the third quarter of 1999,
PSE&G revised the estimates inherent in the extraordinary charge and recorded an
additional $14 million extraordinary charge. For discussion of the Final Order
and PSE&G's treatment of ITC, see Note 2. Regulatory Issues.
The extraordinary charge recorded in the second and third quarters of 1999
consisted primarily of the write-down of PSE&G's nuclear and fossil generating
stations in accordance with SFAS 121. PSE&G performed a discounted cash flow
analysis on a unit-by-unit basis to determine the amount of the impairment. As a
result of this impairment analysis, the net book value of the generating
stations was reduced by approximately $5.0 billion (pre-tax) or approximately
$3.09 billion (net of tax). This amount was offset by the creation of a $4.057
billion (pre-tax), or $2.4 billion (net of tax), regulatory asset related to the
future receipt of securitization proceeds, as provided for in the Summary Order
and affirmed in the Final Order.
In addition to the impairment of PSE&G's electric generating stations, the
extraordinary charge consisted of various accounting adjustments to reflect the
absence of cost of service regulation in the electric generation portion of the
business in the future. The adjustments primarily related to materials and
supplies, general plant items and liabilities for certain contractual and
environmental obligations.
Other accounting impacts of the discontinuation of SFAS 71 included
reclassifying the Accrued Nuclear Decommissioning Reserve and the Accrued Cost
of Removal for generation-related assets from Accumulated Depreciation to
Long-Term Liabilities. PSE&G also reclassified a $569 million excess
depreciation reserve related to PSE&G's electric distribution assets from
Accumulated Depreciation to a Regulatory Liability. Such amount will be
amortized in accordance with the terms of the Final Order over the period from
January 1, 2000 to July 31, 2003.
Note 4. 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 determined by regulators. 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 ratemaking 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 has been charged or
credited to income.
<PAGE>
Starting in the second quarter of 1999, PSE&G no longer met the
requirements for the application of SFAS 71 to the electric generation portion
of its business. In accordance with SFAS 101 and EITF 97-4, regulatory assets
and liabilities related to the generation portion of PSE&G's business were
written off, except to the extent the Summary and Final Orders provided for
future recovery through regulated operations. Additionally, certain new
regulatory assets and regulatory liabilities were recorded, in compliance with
the Summary and Final Orders. For discussion of the Energy Master Plan
Proceedings, see Note 2. Regulatory Issues and Note 3. Extraordinary Charge and
Other Accounting Impacts of Deregulation.
At September 30, 1999 and December 31, 1998, respectively, PSEG and PSE&G
had deferred the following regulatory assets and liabilities on the Consolidated
Balance Sheets:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------------ --------------
<S> <C> <C>
Regulatory Assets (Millions of Dollars)
Regulatory Asset--Stranded Costs $4,057 $--
SFAS 109 Income Taxes 287 704
OPEB Costs 237 270
Regulatory Asset--SBC 137 --
Demand Side Management Costs 7 150
Environmental Costs 106 139
Unamortized Loss on Reacquired Debt and Debt Expense 122 135
Underrecovered Gas Costs -- 35
Other 125 146
-------------- ------------
Total Regulatory Assets $5,078 $1,579
============== ============
Regulatory Liabilities
Regulatory Liability--Excess Depreciation Reserve $569 $--
Regulatory Liability--NTC 56 --
Overrecovered Gas Costs 23 --
Overrecovered Electric Energy Costs -- 39
Other Stranded Cost Recovery Offsets 6 4
-------------- ------------
Total Regulatory Liabilities $654 $43
============== ============
</TABLE>
Regulatory Asset - Stranded Costs: PSE&G has recorded this regulatory asset
to reflect the future revenues which will be collected via the securitization
transition charge which was authorized by the BPU's Finance Order.
SFAS 109 Income Taxes: This amount represents the regulatory asset related
to the recognition of deferred income taxes arising from the implementation of
SFAS 109, "Accounting for Income Taxes" (SFAS 109). Due to the discontinuation
of SFAS 71 for the electric generation portion of PSE&G's business, the deferred
taxes related to these assets have been reduced and included in the
determination of the Extraordinary Item.
Regulatory Asset - SBC: See Note 2. Regulatory Issues for a description of
the SBC. Before creation of the SBC, the electric DSM and manufactured gas plant
remediation costs were included in DSM and Environmental Costs, respectively, as
listed above.
Regulatory Liability - Excess Depreciation Reserve: As required by the BPU,
PSE&G reduced its depreciation reserve for its electric distribution assets by
$569 million and recorded such amount as a regulatory liability to be amortized
over the period from January 1, 2000 to July 31, 2003. In 2000 and 2001, $125
million will be amortized each year. In 2002 and 2003, $135 million and $184
million will be amortized, respectively.
<PAGE>
Regulatory Liability - NTC: See Note 2. Regulatory Issues for a description
of the NTC.
Regulatory Liability - Overrecovered Electric Energy Costs: As provided by
the BPU in the Final Order, PSE&G continued to follow deferral accounting
treatment for the LEAC through July 31, 1999. At July 31, 1999, Overrecovered
Electric Energy Costs were $59 million. Pursuant to the Final Order, the
overrecovered balance as of July 31, 1999 was applied as a credit to the
starting deferred balance of the NTC.
Note 5. Commitments and Contingent Liabilities
Pending Asset Purchases
PSEG has entered into contracts to purchase a number of combustion
turbines to expand capacity at a number of generating sites. PSEG's commitment
under these contracts is approximately $392 million to be expended through
December 2001. Through October 31, 1999, payments of approximately $70 million
were made under these contracts.
On October 6, 1999, Power announced an agreement with Niagara Mohawk Power
Corporation (Niagara Mohawk), a New York State utility, to purchase its 400
megawatt oil and gas-fired electric generating station in Albany, New York
(Albany Steam Station) for $47.5 million. Payment of Power's obligation under
such agreement has been guaranteed by PSEG. Niagara Mohawk could also receive up
to an additional $11.5 million if Power chooses to pursue redevelopment of the
Albany Steam Station. Under a transition power contract in place through
September 2003, Niagara Mohawk will purchase electricity from Power at prices
consistent with those established in Niagara Mohawk's regulatory agreement with
the New York Public Service Commission (NYPSC). The purchase of the Albany Steam
Station will provide Power entry into the New York Power Pool. The purchase is
subject to approval by the NYPSC and Federal agencies including FERC. Power
expects to complete the transaction in the first quarter of 2000.
On September 30, 1999, Power announced that it has signed an agreement to
acquire all of Conectiv's interests in the Salem Nuclear Generating Station
(Salem) and the Hope Creek Nuclear Generating Station (Hope Creek) and half of
Conectiv's interest in the Peach Bottom Atomic Power Station (Peach Bottom), for
an aggregate purchase price of $15.4 million plus the net book value of nuclear
fuel at closing. Payment of Power's obligation under such agreement has been
guaranteed by PSEG. Conectiv is the parent of Atlantic City Electric Company
(ACE) and Delmarva Power & Light Company (DP&L). Power will purchase Conectiv's
14.82% interest (328 megawatts) in Salem, Conectiv's 5% interest (52 megawatts)
in Hope Creek and half of Conectiv's 15.02% interest (164 megawatts) in Peach
Bottom. Once completed, PSEG would own a 57.41% interest (1,270 megawatts) in
Salem, a 100% interest (1,031 megawatts) in Hope Creek and a 50% interest (1,094
megawatts) in Peach Bottom. The addition of the nuclear assets to Power's
portfolio is in line with its growth-oriented generation and trading strategy in
the Northeast/Mid-Atlantic region. The purchases are subject to approval by the
BPU, the Delaware Public Service Commission, the Maryland Public Service
Commission, the PAPUC and Federal agencies including the NRC and FERC. Power
expects to complete the purchases by mid-2000.
Nuclear Operating Performance Standard (OPS)
PECO Energy Company (PECO Energy), DP&L and PSE&G, three of the co-owners of
Salem and 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
ACE) 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%. At December 31,
1998, the capacity factors were 67% and 81% for Salem 1 and Salem 2,
respectively. 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.
<PAGE>
As noted above, Power has announced that it has signed an agreement to
acquire all of Conectiv's interests in Salem and Hope Creek and half of
Conectiv's interest in Peach Bottom. Once the purchases are completed, DP&L will
no longer have an interest in the OPS agreement.
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. Management estimates the total cost related to Year 2000 readiness will
approximate $76 million, to be incurred through 2001, of which $8 million was
incurred in 1997, $27 million was incurred in 1998 and approximately $35 million
is expected to be incurred in 1999. During the nine months ended September 30,
1999, $20 million was incurred. A portion of these costs is not incremental to
PSEG or PSE&G, but rather, represents a redeployment of existing
personnel/resources.
If PSEG, PSE&G, their domestic and international subsidiaries, their
project affiliates, other members of the PJM Interconnection, LLC (PJM), PJM
trading partners supplying power through PJM, PSEG's or PSE&G's key vendors
and/or customers or the capital markets 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 or net cash
flows.
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. Estimated losses related to
site environmental remediation are based primarily on internal and third party
environmental studies, the number and participation level of other Potentially
Responsible Parties (PRP), the extent of the contamination and the nature of
required remediation.
Certain environmental costs are currently recoverable through the RAC and
are expected to be recoverable in accordance with the Final Order, through the
SBC. Other environmental costs may be recoverable through future recovery
mechanisms, including the SBC; however, no assurances can be given. To the
extent these costs are material and not recoverable, they could have a material
adverse impact on PSEG's and PSE&G's financial condition, results of operations
or net cash flows.
Hazardous Waste
Certain Federal and state laws authorize the U.S. Environmental Protection
Agency (EPA) and the 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
PSEG's and 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 (Remediation Program), PSEG and PSE&G do not expect
their expenditures for any such site, individually or all such current sites in
the aggregate, except as noted below (see Passaic River Site), will have a
material effect on financial condition, results of operations or net cash flows.
<PAGE>
The NJDEP regulations concerning site investigation and remediation require
an ecological evaluation of potential injuries to natural resources in
connection with a remedial investigation of contaminated sites. The NJDEP is
presently working with the 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. 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 existing 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
conditions 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. The
Energy Competition Act provides for the continuation of RAC programs. The Final
Order provides for the recovery of costs for this remediation effort through the
SBC.
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
utilities and large industrial boilers. The extent of investment in control
technologies, operational changes and purchases of emission allowances required
to comply with these regulations will be directly related to the number of
emission allowances PSE&G receives. PSE&G received a preliminary allocation of
emission allowances in March 1999, which were sufficient for the Summer of 1999.
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. It is currently anticipated that the NOx
allowances will be sold to Power at the time of the sale of the generating
assets.
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 the
Federal Comprehensive Environmental Response, Compensation and Liability Act of
1980 (CERCLA) and that, to date, at least thirteen corporations, including
PSE&G, may be potentially liable for performing required remedial actions to
address potential environmental pollution at the facility. The EPA anticipates
identifying other PRPs. One PRP entered into a consent decree with the EPA in
1994 obligating it to conduct a remedial investigation and feasibility study
(RI/FS) of available and applicable corrective actions for the site. It is
anticipated that a report of the RI/FS will be issued in 2001.
PSE&G and certain of its predecessors operated industrial facilities at
properties within the six mile stretch of the Passaic River designated as the
facility. 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 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 matter, or in such event, what costs PSE&G
may incur to address any such claims. However, such costs may be material.
<PAGE>
Subsurface Contamination
PSE&G's sale of generation-related assets to PSEG Power may trigger the
requirements of the New Jersey Industrial Site Recovery Act (ISRA). ISRA
requires that before any transfer of an industrial establishment can be made,
the interested parties shall remediate or cause to be remediated potential site
environmental concerns in accordance with NJDEP requirements. Certain of the
generation-related assets being sold are industrial establishments as defined by
ISRA. In October 1999, PSE&G filed a request with the NJDEP for a determination
that the sale involves a transfer to an affiliate and, as such, is not a covered
transaction under ISRA. In the second quarter of 1999, PSEG recorded a $53
million liability related to these obligations (see Note 3. Extraordinary Charge
and Other Accounting Impacts of Deregulation).
Note 6. 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 September 30, 1999 and December 31, 1998, respectively. Note
that certain future events in connection with securitization and the sale by
PSE&G of generation-related assets to Power will trigger certain redemption
features of certain PSE&G mortgage bonds.
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------------- ----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ ----------- ------------- ------------
<S> <C> <C> <C> <C>
(Millions of Dollars)
Long-Term Debt (A):
PSEG.................................................. $575 $575 $275 $275
Energy Holdings....................................... 992 980 762 769
PSE&G................................................. 3,899 3,874 4,145 4,389
Preferred Securities Subject to Mandatory Redemption:
PSE&G Cumulative Preferred Securities................. 75 68 75 77
Monthly Guaranteed Preferred Beneficial Interest in
PSE&G's Subordinated Debentures.................... 210 209 210 213
Quarterly Guaranteed Preferred Beneficial Interest in
PSE&G's Subordinated Debentures.................... 303 296 303 315
Quarterly Guaranteed Preferred Beneficial Interest in
PSEG's Subordinated Debentures..................... 525 471 525 518
<FN>
(A) Includes current maturities. Includes interest rate swaps of $33 million
and $150 million for Energy Holdings and PSEG, respectively, for the
period ended September 30, 1999 and interest rate swaps of $44 million
and $150 million for Energy Holdings and PSEG, respectively, for the
period ended December 31, 1998.
Global has $67 million of project debt that is non-recourse to PSEG,
Global and Energy Holdings associated with investments in Argentina that
was refinanced in June 1999 for a term of one year. An interest rate swap
was entered into which effectively converts 50% of the floating rate
obligation into a fixed rate obligation. The interest rate differential
to be received or paid under the agreement is recorded over the life of
the agreement as an adjustment to interest expense. The pricing on the
loan is indexed to the London Interbank Offered Rate (LIBOR).
</FN>
</TABLE>
<PAGE>
Commodity-Related Instruments--PSE&G
At September 30, 1999 and December 31, 1998, PSE&G held or issued commodity
and financial instruments that reduce exposure to price 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 uses futures, forwards, swaps and options to manage and hedge
price risk related to these market exposures.
At September 30, 1999, PSE&G had outstanding commodity financial
instruments with a notional contract quantity of 10.4 million megawatt-hours
(MWH) of electricity and 47.5 million MMBTU (million British thermal units) of
natural gas. 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. Notional amounts are indicative only of
the volume of activity and are not a measure of market risk.
As discussed in Note 1. Basis of Presentation/Summary of Significant
Accounting Policies, PSE&G implemented EITF 98-10 effective January 1, 1999. As
a result, PSE&G's energy trading contracts were marked to market and gains and
losses from such contracts were included in earnings. Previously, such gains and
losses were recorded upon settlement of the contracts. PSE&G recorded $3 million
of gains in the quarters ended September 30, 1999 and 1998. PSE&G recorded $20
million and $21 million of gains in the nine months ended September 30, 1999 and
1998, respectively.
Commodity-Related Instruments--Energy Holdings
PSEG Energy Technologies Inc.'s (Energy Technologies) policy is to enter
into natural gas and electricity futures contracts and forward purchases to lock
in prices related to future fixed sales commitments. Whenever possible, Energy
Technologies attempts to be 100% covered on its electric and gas sales
positions. During the nine months ended September 30, 1999 and 1998, Energy
Technologies entered into futures contracts to buy natural gas and electricity
related to fixed-price sales commitments. Energy Technologies had 97% and 90% of
its fixed price natural gas sales commitments hedged and 100% and 63% of its
fixed price electric commodity sales commitments hedged at September 30, 1999
and December 31, 1998, respectively. As of September 30, 1999 and December 31,
1998, Energy Technologies had a net unrealized gain of approximately $3 million
and net unrealized loss of $5 million, respectively, related to its electric and
gas hedges.
Equity Securities--Energy Holdings
PSEG Resources Inc. (Resources) directly and indirectly has investments in
equity securities. Resources carries its investments in equity securities at
their approximate fair value. 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 liquidity and market volatility factors, where appropriate. The
aggregate fair values of such investments which had available market prices at
September 30, 1999 and December 31, 1998 were $118 million and $204 million,
respectively. The decrease in fair value was primarily due to the sale of
certain of such investments during 1999. The potential change in fair value
resulting from a hypothetical 10% change in quoted market prices of these
investments amounted to $11 million at September 30, 1999 and $17 million at
December 31, 1998.
<PAGE>
Foreign Currencies--Energy Holdings
In accordance with their growth strategies, Global and Resources have made
approximately $1.4 billion and $1.0 billion, respectively, of international
investments.
Resources' international investments are primarily leveraged leases of
assets located in the Netherlands and the United Kingdom with associated
revenues denominated in U.S. dollars and, therefore, not subject to foreign
currency risk.
Global's international investments are primarily in projects that generate
or distribute electricity in Argentina, Brazil, Chile, China, India, Peru and
Venezuela. Investing in foreign countries involves certain risks. Economic
conditions that result in higher comparative rates of inflation in foreign
countries likely result in declining values in such countries' currencies. As
currencies fluctuate against the U.S. dollar, there is a corresponding change in
Global's investment value in terms of the U.S. dollar. Such change is reflected
as an increase or decrease in comprehensive income, a separate component of
stockholders' equity. Net foreign currency devaluations have reduced the
reported amount of PSEG's total stockholders' equity by $160 million, $147
million of which was caused by the devaluation of the Brazilian Real, for the
nine months ended September 30, 1999.
In January 1999, Brazil abandoned its managed devaluation strategy and
allowed its currency, the Real, to float against other currencies. As of
September 30, 1999, the Real had devalued approximately 37% against the U.S.
dollar since December 31, 1998, affecting the carrying value of Global's
investment in a Brazilian distribution company. For additional information, see
Note 8. Financial Information by Business Segments.
Higher comparative rates of inflation in foreign economies also means that
borrowing costs in local currency will be higher than in the United States. When
warranted, Global has financed certain foreign investments with U.S. dollar
denominated debt. While less costly to service in terms of U.S. dollars, such
debt is exposed to currency risk because a devaluation would cause repayment to
be more expensive in local currency terms since more units of local currency
would be required to repay the debt. Dollar denominated debt was incurred by
Global in Argentina, Chile and Peru to finance the acquisition of interests in
rate regulated distribution entities. These entities may be able to recover
higher costs incurred as a result of a devaluation specifically through the
terms of the concession agreement or as a pass through of higher inflation costs
in rates over time, although no assurances can be given that this will occur. In
evaluating its investment decisions, Global considers the social, economic,
political and currency risks associated with each potential project, and if
warranted, assumes a certain level of currency devaluation when making its
investment decisions. In Argentina, the currency is pegged 1:1 with the U.S.
dollar and a legislative act is required to de-couple the currency from the
dollar.
Global had consolidated project debt totaling $106 million as of September
30, 1999 associated with Global's investment in a Brazilian distribution company
that is non-recourse to Global, Energy Holdings and PSEG. The debt is
denominated in the Brazilian Real and is indexed to a basket of currencies,
approximately 50% of which is the U.S. dollar. Global is subject to foreign
currency exchange rate risk as a result of exchange rate movements between the
indexed foreign currencies and the U.S. dollar. Exchange rate changes ultimately
impact the debt level outstanding in the reporting currency and result in
foreign currency gains or losses. Gains or losses resulting from such exchange
rate movements are included in other income for the period and amounted to a
loss of $3 million and a gain of $1 million in the quarters ended September 30,
1999 and 1998, respectively, and gains of $2 million and $4 million in the nine
months ended September 30, 1999 and 1998, respectively.
Although Global generally seeks to structure power purchase contracts and
other project revenue agreements to provide for payments to be made in, or
indexed to, U.S. dollars or a currency freely convertible into U.S. dollars, its
ability to do so in all cases may be limited. As Energy Holdings continues to
invest internationally, the financial statements of PSEG will be increasingly
affected by changes in the global economy. PSEG cannot predict foreign currency
exchange rate movements and, therefore, cannot predict the impact of such
movements on PSEG's financial condition, results of operations or net cash
flows.
<PAGE>
Interest Rates
PSEG, PSE&G and Energy Holdings are subject to the risk of fluctuating
interest rates in the normal course of business. Their policy is to manage
interest rate risk through the use of fixed rate debt, floating rate debt and
interest rate swaps. As of September 30, 1999, a hypothetical 10% change in
market interest rates would result in a $4 million, $10 million and $3 million
change in annual interest costs related to short-term and floating rate debt at
PSEG (parent company), PSE&G and Energy Holdings, respectively.
Nuclear Decommissioning Trust Funds
Contributions made to the Nuclear Decommissioning Trust Funds are invested
in debt and equity securities. The carrying values of these funds approximate
their fair market values.
Note 7. Income Taxes
PSEG's effective income tax rate is as follows:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
------------------------ --------------------------
1999 (A) 1998 1999 (A) 1998
----------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Federal tax provision at statutory rate................... 35.0% 35.0% 35.0% 35.0%
New Jersey Corporate Business Tax, net of Federal benefit. 5.9% 5.9% 5.9% 5.9%
Other-- net............................................... 0.6% 2.6% 0.7% 1.4%
----------- --------- ----------- ----------
Effective Income Tax Rate............................. 41.5% 43.5% 41.6% 42.3%
=========== ========= =========== ==========
<FN>
(A) Excludes the impact of the extraordinary charge recorded in the second
and third quarters of 1999. The associated income tax benefits resulting
from the extraordinary charge had an effective income tax rate of 30.04%.
The effective rate is below the statutory rate of 40.85% primarily due to
some of the income tax benefits being flowed through to ratepayers in
prior periods under regulated accounting methods. This was partially
offset by the investment tax credit being credited to the benefit of
PSEG's stockholders pursuant to the Summary Order. For further
discussion, see Note 2. Regulatory Issues.
</FN>
</TABLE>
Note 8. Financial Information by Business Segments
Basis of Organization
The reportable segments disclosed herein were determined based on a variety
of factors including the regulatory environment of each of PSEG's lines of
business and the types of products and services offered. Effective with the
unbundling of PSE&G's rates on August 1, 1999 and the deregulation of the
electric generation portion of PSE&G's business, the basis of segment reporting
has changed beginning with the third quarter of 1999. The generation and energy
trading portions of PSE&G's business are now separate reportable segments,
whereas they previously had been part of the Electric segment. Note that
estimates have been used to separate historical, pre- August 1, 1999, electric
segment data into the Generation, Energy Resources and Trade, and Transmission
and Distribution segments of PSE&G's business.
<PAGE>
Generation
The generation segment of PSE&G's business earns revenue through the sale
of its energy and capacity. This segment consists of the power plants that will
be sold to Fossil and Nuclear.
Energy Resources and Trade
The Energy Resources and Trade segment of PSE&G's business earns revenues
through a variety of wholesale energy and capacity sales and other ancillary
services.
Transmission and Distribution (T&D)
This segment represents regulated utility services provided by PSE&G. The
electric transmission and electric and gas distribution segment of PSE&G's
business generates revenue from its tariffs under which it provides electric
transmission and electric and gas distribution services to residential,
commercial and industrial customers in New Jersey. The rates charged for
electric transmission are regulated by FERC while the rates charged for electric
and gas distribution are regulated by the BPU. Revenues are also generated from
a variety of other activities such as sundry sales, wholesale transmission
services and other miscellaneous services.
Resources
Resources earns revenues from its passive investments in leveraged leases,
limited partnerships, leveraged buyout funds and marketable securities.
Global
Global earns revenues from its investment in and operation of projects in
the generation and distribution of energy, both domestically and
internationally.
Other
PSEG's other activities generate revenues from Energy Technologies and
Enterprise Group Development Corporation (EGDC). Energy Technologies earns
revenues from energy sales and a variety of energy related services provided to
industrial and commercial customers to reduce costs and improve related energy
efficiencies. EGDC, which has been conducting a controlled exit from the real
estate business since 1993, earns revenues from its nonresidential real estate
property management business. Other activities also include amounts applicable
to PSEG, the parent corporation, and Energy Holdings, excluding Resources and
Global.
<PAGE>
Information related to the segments of PSEG's business is detailed below:
<TABLE>
<CAPTION>
Energy
Resources Consolidated
Generation and Trade T & D Resources Global Other Total
---------- ---------- -------- --------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
(Millions of Dollars)
For the Quarter Ended September 30,
1999:
Total Operating Revenues........... $736 $10 $712 $22 $40 $86 $1,606
Segment Income before 104 4 97 4 15 (3) 221
Extraordinary Item......................
Segment Net Income (Loss).......... 90 4 97 4 15 (3) 207
========== ========== ======== ========= ======== ======== ============
For the Quarter Ended September 30,
1998:
Total Operating Revenues........... $743 $9 $657 $(38) $28 $40 $1,439
Segment Net Income (Loss).......... 104 4 109 (34) 3 (6) 180
========== ========== ======== ========= ======== ======== ============
For the Nine Months Ended September 30,
1999:
Total Operating Revenues........... $2,068 $51 $2,302 $ 119 $102 $195 $4,837
Segment Income before 285 23 226 46 21 (11) 590
Extraordinary Item......................
Segment Net Income (Loss)(A)....... (2,919) 23 2,626 46 21 (11) (214)
========== ========== ======== ========= ======== ========= ============
For the Nine Months Ended September 30,
1998:
Total Operating Revenues........... $1,934 $43 $2,198 $75 $84 $126 $4,460
Segment Net Income (Loss).......... 191 22 272 20 5 (17) 493
========== ========== ======== ========= ======== ========= ============
As of September 30, 1999:
Total Assets (A)................... $2,295 $352 $11,898 $1,945 $1,658 $442 $18,590
========== ========== ======== ========= ======== ========= ============
As of December 31, 1998:
Total Assets....................... $7,881 $164 $6,624 $1,809 $1,124 $395 $17,997
========== ========== ======== ========= ======== ========= ============
<FN>
(A) See Note 3. Extraordinary Charge and Other Accounting Impacts of
Deregulation for discussion fo the extraordinary charge recorded by the
Generation segment and the related regulatory asset for securitization
recorded by the T&D segment.
</FN>
</TABLE>
Geographic information for PSEG is disclosed below. The foreign investments
and operations noted below were made through Energy Holdings. PSE&G does not
have foreign investments or operations.
<TABLE>
<CAPTION>
Revenues (1) Identifiable Assets
------------------------------------------------- ----------------------------------
Quarter Ended Nine Months Ended
September 30, September 30, September 30, December 31,
---------------------- --------------------- --------------- --------------
1999 1998 1999 1998 1999 1998
--------- --------- --------- --------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
United States................. $1,569 $1,410 $4,734 $4,387 $16,266 $16,395
Foreign Countries (2)......... 37 29 103 73 2,324 1,602
--------- --------- --------- --------- --------------- --------------
Total.................... $1,606 $1,439 $4,837 $4,460 $18,590 $17,997
========= ========= ========= ========= =============== ==============
</TABLE>
Identifiable investments in foreign countries include:
Argentina $355 $304
Brazil (3) 322 480
Chile and Peru 528 --
Netherlands 608 400
(1) Revenues are attributed to countries based on the locations of the
investments. Global's revenue includes its share of the net income from
joint ventures recorded under the equity method of accounting.
(2) Total assets are net of foreign currency translation adjustment of $(224)
million (pre-tax) as of September 30, 1999 and $(48) million (pre-tax) as
of December 31, 1998.
(3) Amount is net of foreign currency translation adjustment of $(206) million
(pre-tax) as of September 30, 1999 and $(43) million (pre-tax) as of
December 31, 1998.
<PAGE>
Note 9. Accounting Matters
In June 1999, the FASB issued SFAS 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133" (SFAS 137) to defer the effective date of SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133) for
one year. Consequently, SFAS 133 will now be effective for all fiscal quarters
beginning after January 1, 2001. The FASB also decided to defer by one year the
transition date regarding embedded derivatives in SFAS 133.
Note 10. Comprehensive Income (Loss)
Comprehensive Income (Loss), Net of Tax:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
---------------------------- ---------------------------
1999 1998 1999 1998
----------- ------------ ------------ ------------
(Millions of Dollars)
<S> <C> <C> <C> <C>
Net income (loss)................................... $207 $180 $(214) $493
Foreign currency translation, net of tax (A) ....... (33) (10) (160) (22)
----------- ----------- ------------ ----------
Comprehensive income (loss)......................... $174 $ 170 $(374) $ 471
=========== =========== ============ ==========
<FN>
(A) Net of tax of $(4) million and $(1) million for the quarters ended
September 30, 1999 and 1998, respectively, and $(18) million and $(2)
million for the nine months ended September 30, 1999 and 1998,
respectively.
</FN>
</TABLE>
<PAGE>
================================================================================
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Notes to Consolidated Financial Statements of PSEG are incorporated by
reference insofar as they relate to PSE&G and its subsidiaries:
Note 1. Basis of Presentation/Summary of Significant Accounting Policies
Note 2. Regulatory Issues
Note 3. Extraordinary Charge and Other Accounting Impacts of Deregulation
Note 4. Regulatory Assets and Liabilities
Note 5. Commitments and Contingent Liabilities
Note 6. Financial Instruments and Risk Management
Note 8. Financial Information by Business Segments
Note 9. Accounting Matters
Note 7. Income Taxes
PSE&G's effective income tax rate is as follows:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1999 (A) 1998 1999 (A) 1998
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Federal tax provision at statutory rate.................. 35.0% 35.0% 35.0% 35.0%
New Jersey Corporate Business Tax, net of Federal benefit 5.9% 5.9% 5.9% 5.9%
Other-- net.............................................. 1.3% 0.9% 1.4% 1.4%
----------- --------- ----------- ---------
Effective Income Tax Rate............................ 42.2% 41.8% 42.3% 42.3%
=========== ========= =========== =========
<FN>
(A) Excludes the impact of the extraordinary charge recorded in the second
and third quarters of 1999. The associated income tax benefits resulting
from the extraordinary charge had an effective income tax rate of 30.04%.
The effective rate is below the statutory rate of 40.85% primarily due to
some of the income tax benefits being flowed through to ratepayers in
prior periods under regulated accounting methods. This was partially
offset by the investment tax credit being credited to the benefit of
PSEG's stockholders pursuant to the Summary Order. For further
discussion, see Note 2. Regulatory Issues.
</FN>
</TABLE>
Note 10. Comprehensive Income (Loss)
For the quarters and nine months ended September 30, 1999 and 1998, PSE&G's
comprehensive income (loss) equaled the consolidated net income (loss) of PSE&G.
<PAGE>
================================================================================
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
================================================================================
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Following are the significant changes in or additions to information
reported in the Public Service Enterprise Group Incorporated (PSEG) 1998 Annual
Report on Form 10-K, the Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1999 and June 30, 1999 and the Current Reports on Form 8-K filed March
18, 1999, April 26, 1999, July 21, 1999, September 15, 1999 and October 14, 1999
affecting the consolidated financial condition and the results of operations of
PSEG and its subsidiaries. This discussion refers to the Consolidated Financial
Statements (Statements) and related Notes to Consolidated Financial Statements
(Notes) of PSEG and should be read in conjunction with such Statements and
Notes.
Overview and Future Outlook
The electric and gas utility industries in the United States and around the
world continue to experience significant change. Deregulation, restructuring,
privatization and consolidation are creating opportunities and risks for PSEG,
Public Service Electric and Gas Company (PSE&G), PSEG Power LLC (Power) and PSEG
Energy Holdings Inc. (Energy Holdings). At the same time, competitive pressures
are increasing.
Following the passage of the New Jersey Electric Discount and Competition
Act (Energy Competition Act), the New Jersey Board of Public Utilities (BPU)
rendered its summary decision relating to PSE&G's rate unbundling, stranded
costs and restructuring proceedings (Summary Order) and subsequently issued a
Final Decision and Order (Final Order) in these matters. The Energy Competition
Act, the BPU's Summary Order and Final Order and the related BPU proceedings are
hereinafter referred to as the Energy Master Plan Proceedings (Energy Master
Plan Proceedings). These proceedings provide 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 supplier commencing
December 31, 1999, thus opening the New Jersey energy markets to competition.
In October and November 1999, two Notices of Appeal of each of the Final
Order and of the BPU's order approving PSE&G's petition relating to the proposed
securitization transaction for an irrevocable Bondable Stranded Costs Rate Order
(Finance Order) were filed in the Appellate Division of the New Jersey Superior
Court on behalf of several ratepayers. While PSEG and PSE&G believe that the
appeals are without merit, no assurances can be given at this time as to the
timing or outcome of these proceedings. Accordingly, neither PSEG nor PSE&G are
able to predict whether such appeals will have a material adverse effect on
their financial condition, results of operations or net cash flows.
After analysis of the Summary Order, PSE&G concluded that it no longer met
the requirements of Statement of Financial Accounting Standards (SFAS) 71,
"Accounting for the Effects of Certain Types of Regulation" (SFAS 71), for the
electric generation portion of its business. As a result, PSE&G recorded a net
extraordinary charge to earnings of $790 million, net of tax, in the second
quarter of 1999. In the third quarter of 1999, PSE&G revised the estimates
inherent in the extraordinary charge and recorded an additional $14 million
extraordinary charge. This extraordinary charge reflects the impairment of
PSE&G's electric generation-related assets and related fuel, equipment,
materials and supplies, calculated in accordance with SFAS 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS 121). The extraordinary charge also included recording certain liabilities
stemming from the deregulation of PSE&G's electric generation business.
For further discussion of the Energy Master Plan Proceedings including the
appeals, the related extraordinary charge to earnings and securitization, see
Note 2. Regulatory Issues and Note 3. Extraordinary Charge and Other Accounting
Impacts of Deregulation of Notes and Liquidity and Capital Resources.
<PAGE>
As set forth in the Final Order, PSE&G will sell its electric
generation-related assets and all associated rights and liabilities to a
separate corporate entity to be owned by PSEG. The Final Order specifies a sale
price of $2.443 billion plus the book value of PSE&G's other generation-related
assets, including materials, supplies and fuel, currently estimated to be
between $200 million and $400 million. To effectuate the sale, PSEG organized
Power, a Delaware limited liability company (LLC), as a wholly owned subsidiary
in June 1999. Power, and its subsidiaries, PSEG Fossil LLC (Fossil) and PSEG
Nuclear LLC (Nuclear), will acquire and manage PSE&G's electric
generation-related assets. Power's subsidiaries, Fossil, Nuclear and PSEG Energy
Resources & Trade LLC (ER&T), are also Delaware LLCs. Assuming a favorable
outcome of the appeals, PSEG and PSE&G expect that the sale of such assets will
occur in the first half of 2000. Prior to the execution of such sale, Power must
obtain approval from the Nuclear Regulatory Commission (NRC) (to transfer
PSE&G's licenses), the New Jersey Department of Environmental Protection (NJDEP)
and the Pennsylvania Public Utility Commission (PAPUC). In September 1999, the
Federal Energy Regulatory Commission (FERC) approved PSE&G's proposed sale of
its generating units to Power and its subsidiaries.
The Final Order requires PSE&G to provide basic generation service (BGS)
for all customers who do not elect a different service provider. Once the
generation-related asset sale to Power is complete, pursuant to a contractual
relationship, Power, through ER&T, will provide PSE&G with the energy and
capacity required to meet its BGS and off-tariff rate agreement (OTRA)
obligations. ER&T will provide such energy and capacity under the BGS contract
rate for the first three years of the transition period, beginning August 1,
1999. BGS will be competitively bid for the fourth year and thereafter. Once the
generation-related asset sale to Power is complete, pursuant to contractual
relationships, ER&T will obtain the energy and capacity to supply PSE&G's BGS
and OTRA requirements from its affiliates, Nuclear and Fossil, supplemented as
necessary with energy purchased in the competitive wholesale electricity market.
Power's earnings and its contribution to PSEG's earnings will be exposed to the
risks of the competitive wholesale electricity market to the extent that Power
has to purchase energy and/or capacity or generate energy to meet its
obligations to supply power to PSE&G at market prices or costs, respectively,
which approach or exceed the BGS or OTRA contract rates (see PJM
Interconnection, LLC and Item 3. Qualitative and Quantitative Disclosures About
Market Risk). ER&T's policy will be to use derivatives to manage this risk
consistent with its business plans and prudent practices. Power will also
participate in the competitive wholesale electricity market for other items such
as energy, capacity and ancillary services.
The Energy Master Plan Proceedings have dramatically reshaped the utility
industry in New Jersey and have directly affected how PSEG will conduct business
and therefore, its financial prospects in the future. PSEG is realigning its
organizational structure to address the competitive environment brought about by
the deregulation of the electric generation industry in New Jersey. PSEG had
been engaged in the competitive energy business for a number of years through
certain of its unregulated subsidiaries and, in 1998, generated approximately
10% of its earnings from these subsidiaries. However, due to the regulatory
changes outlined above, competitive businesses will constitute a much larger
portion of PSEG's activities going forward. It is expected that by July 31,
2003, the end of the transition period under the Energy Master Plan Proceedings,
PSEG's unregulated subsidiaries (comprised of Energy Holdings and Power) will
contribute between 60% and 70% of PSEG's earnings. Additionally, PSEG will be
more dependent on cash flows generated from its unregulated operations for its
capital needs. As the unregulated portion of the business continues to grow,
potential financial risks and rewards will be greater, financial requirements
will change and the volatility of earnings and cash flows will increase.
Going forward, PSEG will continue to pursue its strategies to grow its
family of energy-related businesses. As previously reported, more emphasis will
be placed on finding opportunities for expansion outside of its traditional
utility services and markets. Power's business strategy is to size its fleet of
generation assets to take advantage of market opportunities, while seeking to
increase its value and manage commodity price risk through its wholesale trading
activity. PSE&G's transmission and distribution objective, both gas and
electric, is to provide cost-effective, high quality, reliable service. PSEG has
positioned Energy Holdings as a major part of its planned growth strategy. In
order to achieve this strategy, PSEG Global Inc. (Global) will focus on
generation and distribution investments within targeted high-growth regions of
the worldwide energy market. PSEG Resources Inc. (Resources) will utilize its
market access, industry knowledge and transaction structuring capabilities to
<PAGE>
expand its energy-related financial investment portfolio. PSEG Energy
Technologies Inc. (Energy Technologies) will continue to provide heating,
ventilating and air conditioning (HVAC) contracting and other energy-related
services to industrial and commercial customers in the Northeastern and Middle
Atlantic United States. However, Energy Holdings will assess the growth
prospects and opportunities for Energy Technologies' business before committing
additional capital. Energy Technologies plans to grow existing operations and
utilize the recently acquired companies to deliver expanded energy-related
services and products, including gas and electricity, to existing and new
customers. In addition to internal growth, PSEG expects to pursue opportunities
for expansion through business combinations.
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 has evolved due to the deregulation of the
electric generation business. Past results are not an indication of future
business prospects or financial results.
<TABLE>
<CAPTION>
Results of Operations
Earnings (Losses)
---------------------------------------------------------------
Quarter Ended Nine Months Ended
September 30, September 30,
--------------------------- ----------------------------
1999 1998 1999 1998
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
PSE&G, Before Extraordinary Item $203 $215 $527 $478
PSE&G Extraordinary Item (14) -- (804) --
------------ ----------- ------------ ------------
Total PSE&G 189 215 (277) 478
Energy Holdings 18 (35) 63 15
------------ ----------- ------------ ------------
Total PSEG $207 $180 $(214) $493
============ =========== ============ ============
Contribution to Earnings Per Share (Basic and Diluted)
---------------------------------------------------------------
Quarter Ended Nine Months Ended
September 30, September 30,
--------------------------- ----------------------------
1999 1998 1999 1998
------------ ----------- ------------ ------------
PSE&G, Before Extraordinary Item $0.93 $0.93 $2.40 $2.07
PSE&G Extraordinary Item (0.06) -- (3.65) --
------------ ----------- ------------ ------------
Total PSE&G 0.87 0.93 (1.25) 2.07
Energy Holdings 0.08 (0.15) 0.28 0.06
------------ ----------- ------------ ------------
Total PSEG $0.95 $0.78 $(0.97) $2.13
============ =========== ============ ============
</TABLE>
Basic and diluted earnings per share of PSEG common stock (Common Stock)
were $0.95 for the quarter ended September 30, 1999, representing an increase of
$0.17 per share from the comparable 1998 period. Basic and diluted earnings per
share of Common Stock were $(0.97) for the nine months ended September 30, 1999,
representing a decrease of $3.10 per share from the comparable 1998 period.
In the second quarter of 1999, PSE&G recorded an extraordinary charge to
earnings of $790 million, net of tax, as a result of the BPU's Summary Order in
the Energy Master Plan Proceedings. In the third quarter of 1999, PSE&G revised
the estimates inherent in the extraordinary charge and recorded an additional
$14 million extraordinary charge. For further discussion, see Note 2. Regulatory
Issues and Note 3. Extraordinary Charge and Other Accounting Impacts of
Deregulation of Notes. Excluding that extraordinary charge, basic and diluted
earnings per share of Common Stock were $1.01 for the quarter ended September
30, 1999, representing an increase of $0.23 per share over the comparable 1998
period and $2.68 for the nine months ended September 30, 1999, representing an
increase of $0.55 per share over the comparable 1998 period.
<PAGE>
Excluding the extraordinary charge, PSE&G's contribution to earnings per
share of Common Stock for the quarter ended September 30, 1999 was flat with the
comparable 1998 period. Although PSE&G's contribution to earnings per share was
flat, PSE&G's net income was down by $12 million or $0.05 per share of Common
Stock as compared to the same period in 1998. The decrease in net income for the
quarter ended September 30, 1999 was offset by the impact of the stock
repurchase program with fewer shares outstanding in 1999 as compared to 1998.
The decrease in net income was due to decreased electric revenues due to the 5%
rate reduction, beginning August 1, 1999, associated with the Energy Master Plan
Proceedings, and higher operating and maintenance expenses attributable to
several factors, including restoration work required in the wake of Tropical
Storm Floyd and the flooding and damage it caused, a change in the
capitalization policy for PSE&G's electric generation business and the effects
of depreciation policy changes stemming from the discontinuation of SFAS 71 (see
Note 1. Basis of Presentation/Summary of Significant Accounting Policies of
Notes). This decrease was partially offset by an improvement in electric sales
volumes due to hot summer weather in 1999 and lower generation-related
depreciation expenses due to the lower net book value of generation-related
assets as a result of the SFAS 121 write-down.
Excluding the extraordinary charge, PSE&G's contribution to earnings per
share of Common Stock for the nine months ended September 30, 1999 increased
$0.33 from the comparable 1998 period, including $0.12 as a result of PSEG's
stock repurchase program. The increase for the nine months ended September 30,
1999 was primarily due to increased sales of gas and electricity resulting from
favorable weather conditions in 1999 augmented by positive economic factors in
New Jersey and profits realized from wholesale energy activities. In addition,
generation-related depreciation expenses were lower as a result of the
impairment write-down, partially offset by a change in the capitalization policy
for PSE&G's electric generation business and the effects of depreciation policy
changes stemming from the discontinuation of SFAS 71. The increase in earnings
was also partially offset by the 5% rate reduction discussed above and higher
operating and maintenance expenses, including higher transmission, distribution
and wholesale energy costs, than those incurred in the nine months ended
September 30, 1998.
Energy Holdings' contribution to earnings per share of Common Stock for the
quarter and nine months ended September 30, 1999 increased $0.23 and $0.22
including $0.01 as a result of PSEG's stock repurchase program, respectively,
from the comparable 1998 periods, primarily due to the better overall
performance of Resources, Global and Energy Technologies. The improvements were
attributable largely to Resources which benefited from an upturn in the equities
markets as compared to the same period in 1998. In addition, Energy Holdings'
results reflect Global's gain from the sale of its interest in a co-generation
facility in Newark, New Jersey, partially offset by write-downs of other
investments in Global's portfolio.
As a result of PSEG's stock repurchase program which began in September
1998, earnings per share of Common Stock for the quarter and nine months ended
September 30, 1999 increased $0.05 and $0.13, respectively, from the comparable
1998 periods. As of September 30, 1999, approximately 13.2 million shares had
been repurchased at a cost of approximately $516 million under this program.
PSE&G -- Revenues
The presentation of revenues on the Consolidated Statements of Income has
changed effective August 1, 1999, due to the change in regulation as required by
the Final Order. PSE&G's generation business has been deregulated and, starting
August 1, 1999, earns revenues by providing the energy and capacity necessary to
meet PSE&G's BGS and OTRA obligations as well as by a variety of wholesale
energy and capacity sales and other ancillary services. PSE&G's transmission and
distribution businesses remain regulated and will continue to earn revenues
based on its tariffs under which it provides transmission and distribution
services for its residential, commercial and industrial customers in New Jersey.
The rates charged for transmission and distribution are regulated by FERC and
the BPU, respectively. Revenues are also generated from a variety of other
activities such as sundry sales, wholesale transmission services and other
miscellaneous services. For more information on the Energy Master Plan
Proceedings, see Note 1. Basis of Presentation/Summary of Significant Accounting
Policies and Note 2. Regulatory Issues of Notes. Because historical information
is not available for the Electric Generation and Electric Transmission and
Distribution Revenues, variances in Electric Revenues will be discussed in the
aggregate. For estimates of historical Electric Generation and Electric
Transmission and Distribution Revenues, see Note 8. Financial Information by
Business Segments of Notes.
<PAGE>
Certain of the below listed year to year variances did not impact earnings
as there was an offsetting variance in expense. To the extent fuel revenue and
expense flowed through the Electric Levelized Energy Adjustment Clause (LEAC)
through July 31, 1999, the Levelized Gas Adjustment Clause (LGAC), the Societal
Benefits Clause (SBC) or the non-utility generation market transition charge
(NTC) mechanisms, variances in certain revenues and expenses offset and thus had
no direct effect on earnings. These include base fuel revenues through July 31,
1999, demand side management (DSM) revenue and Remediation Adjustment Charge
(RAC) revenue. On August 1, 1999, the LEAC mechanism was eliminated as a result
of the Energy Master Plan Proceedings. This is likely to increase earnings
volatility since PSE&G now bears the full risks and rewards of changes in
nuclear and fossil generating fuel costs and replacement power costs. See Note
2. Regulatory Issues and Note 4. Regulatory Assets and Liabilities of Notes for
a discussion of LEAC, LGAC, SBC, NTC, RAC and DSM and their status under the
Energy Master Plan Proceedings.
Electric
Revenues increased $32 million or 3% and $136 million or 4% for the quarter
and nine months ended September 30, 1999 from the comparable periods in 1998,
respectively, primarily due to favorable weather conditions in 1999 augmented by
positive economic factors in New Jersey. These factors increased both generation
and transmission and distribution revenues; however, the increase in generation
revenues was partially offset by the 5% rate reduction, discussed below. The
increase in the nine months ended September 30, 1999 was also due to profits
realized from wholesale energy activities being higher than in the comparable
1998 period. Also, higher DSM revenues in the nine months ended September 30,
1999 than in the comparable 1998 period contributed to increased distribution
revenues.
On August 18, 1999, the BPU approved PSE&G's compliance tariff filing
reflecting the 5% decrease in rates. On August 1, 1999, PSE&G had implemented
this rate reduction previously approved on a provisional basis. In 1999, this
rate reduction is expected to decrease generation revenues by approximately $80
million. For the schedule of future rate reductions mandated by the BPU, see
Note 2. Regulatory Issues of Notes. Additionally, the probable loss of
generation customers through the opening of competition could reduce future
revenues. However, this could create the opportunity for the generation business
to sell available energy and capacity into the wholesale market. The degree to
which generation revenues will be impacted will depend on the amount by which
prices to wholesale customers vary from prices under the BGS contract. Further,
although the probable loss of retail customers will not impact total
transmission revenues, the mix of revenues from retail versus wholesale
customers, including third party suppliers, will change.
Gas
Revenues increased $17 million or 9% and $110 million or 10% for the
quarter and nine months ended September 30, 1999 from the comparable periods in
1998, respectively. The increases were primarily due to increased revenues from
gas service contracts and higher sales to large commercial and industrial
customers than in the comparable periods in 1998. Additionally, favorable
weather in the first and second quarters of 1999 contributed to the increases.
The potential loss of residential customers due to the opening of competition in
2000 could reduce future revenues.
PSE&G -- Expenses
Electric Energy Costs
Electric Energy Costs increased $36 million or 13% and $36 million or 5%
for the quarter and nine months ended September 30, 1999 from the comparable
1998 periods, respectively. The increases were primarily due to an increase in
electric sales volumes due to hot summer weather in 1999. Beginning in August
1999, higher prices for power purchases also contributed to the increase.
<PAGE>
Due to the elimination of the LEAC on August 1, 1999, these historical
trends are not to be considered an indication of future Electric Energy Costs.
Given the elimination of the LEAC, the lifting of the requirements that electric
energy offered for sale in the PJM Interconnection, LLC (PJM) not exceed the
variable cost of producing such energy and that such transactions are now capped
at $1,000 per megawatt-hour (MWH) (see Competitive Environment), the absence of
a PJM price cap in situations involving emergency purchases and the potential
for plant outages; price movements could have a material impact on PSEG's and
PSE&G's financial condition, results of operations or net cash flows. For a
discussion of market risks, see Item 3. Qualitative and Quantitative Disclosures
About Market Risk. Additionally, it is expected that the probable loss of
customers through the opening of competition could reduce future expenses.
Gas Costs
Gas Costs increased $14 million or 11% for the quarter ended September 30,
1999 from the comparable 1998 period due to higher sales to large commercial and
industrial customers than in the comparable 1998 period. Gas Costs for the nine
months ended September 30, 1999 increased $43 million or 6% primarily due to
increased sales of gas resulting from colder weather in the first and second
quarters of 1999. It is expected that the potential loss of residential
customers due to the opening of competition in 2000 could reduce future
expenses.
Operation and Maintenance
Operation and Maintenance expense increased $58 million or 18% and $150
million or 15% for the quarter and nine months ended September 30, 1999 from the
comparable 1998 periods, respectively. The increase was primarily due to higher
transmission and distribution costs, including higher material and outside
services in 1999, attributable to several factors, including restoration work
required in the wake of Tropical Storm Floyd and higher information technology
costs, including costs related to Year 2000 readiness. The change in the
capitalization policy for PSE&G's electric generation business caused higher
Operation and Maintenance expense as did higher costs related to wholesale power
activities. Also contributing to the increase were higher fringe benefits and
higher costs associated with the preparation for deregulation. Additionally, in
the nine months ended September 30, 1999, there were higher Other Post
Retirement Benefits (OPEB) costs incurred and higher DSM recovery of previously
deferred expenses.
With an increasingly competitive energy market as an outcome of the Energy
Master Plan Proceedings and energy industry restructuring, the composition and
level of Operation and Maintenance expense is likely to change. Additionally,
the change in capitalization policy will likely yield a material increase in the
Operation and Maintenance expenses associated with the electric generation
business (see Note 1. Basis of Presentation/Summary of Significant Accounting
Policies of Notes). This increase in Operation and Maintenance expense is not
expected to exceed $85 million per year and will be offset by lower depreciation
expense in the future due to the lower level of expenditures capitalized to
electric generation assets.
Depreciation and Amortization
Depreciation and Amortization expense decreased $40 million or 25% and $73
million or 15% for the quarter and nine months ended September 30, 1999 from the
comparable 1998 periods, respectively. The decreases were due to lower net book
value balances of PSE&G's generation-related assets which were reduced as of
April 1, 1999 as a result of the impairment calculated and recorded pursuant to
SFAS 121. These decreases were partially offset by higher depreciation rates for
generation-related assets used in the second and third quarters of 1999 due to
the change in depreciation policy for generation-related assets (see Note 1.
Basis of Presentation/Summary of Significant Accounting Policies of Notes). The
decreases were partially offset by higher depreciation expense related to
capital additions to the transmission and distribution business.
Despite the higher depreciation rates for generation-related assets, the
net decrease in generation-related depreciation expense will continue due to the
reduced asset balances. Such reductions are currently anticipated to approximate
$230 million per year. Additionally, beginning in 2000, electric distribution
asset-related depreciation will be further reduced due to the amortization of
the excess electric distribution depreciation reserve over the period from
January 1, 2000 to July 31, 2003. See Note 4. Regulatory Assets and Liabilities
of Notes for a discussion of the amortization schedule. Once the securitization
transaction is complete, the regulatory asset recorded for PSE&G's stranded
costs will be amortized with such amortization expense partially offsetting
these decreases.
<PAGE>
Income Taxes
Income Taxes decreased $7 million or 4% and increased $38 million or 11%
for the quarter and nine months ended September 30, 1999 from the comparable
1998 periods, respectively. The increase in the nine months ended September 30,
1999 is primarily due to higher pre-tax operating income.
Energy Holdings -- Earnings (Losses)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
(Millions of Dollars)
<S> <C> <C> <C> <C>
Earnings Before Interest, Taxes and
Preferred Dividends:
Resources $20 $(40) $112 $67
Global 44 21 85 55
Energy Technologies (1) (5) (6) (12)
----------- ----------- ----------- -----------
Sub-total 63 (24) 191 110
Interest, Taxes and Preferred Dividends 45 11 128 95
----------- ----------- ----------- -----------
Earnings (Losses) $18 $(35) $63 $15
=========== =========== =========== ===========
</TABLE>
Energy Holdings' earnings (losses) for the quarter ended September 30, 1999
and 1998 were $18 million and $(35) million, respectively. Energy Holdings'
earnings for the nine months ended September 30, 1999 and 1998 were $63 million
and $15 million, respectively. The increases in Energy Holdings' earnings were
primarily due to the better overall performance of Resources, Global and Energy
Technologies. The improvements were attributable largely to Resources which
benefited from an upturn in the equities markets as compared to the same period
in 1998. In addition, Energy Holdings' results reflect Global's gain from the
sale of its interest in a Newark, New Jersey co-generation facility, partially
offset by write-downs on other investments in Global's portfolio.
Additionally, higher earnings for the nine months ended September 30, 1999
were primarily due to investment gains in Resources' financial investment
portfolio and income from new capital leases. Improved revenue at Global was
partially offset by higher expenses associated with project development. Energy
Technologies' losses narrowed due to higher revenues from recent acquisition
activities partially offset by higher operating expenses.
Energy Holdings -- Revenues
Revenues increased $118 million to $148 million from $30 million for the
quarter ended September 30, 1999 as compared to the same period in 1998. The
increase was primarily due to a $60 million increase in revenues at Resources
primarily due to improved market conditions benefiting Resources' financial
investments and a $49 million increase in revenues at Energy Technologies due to
the addition of revenues from acquisitions in 1999.
Revenues increased $131 million to $416 million from $285 million for the
nine months ended September 30, 1999 as compared to the same period in 1998. The
increase was due to an increase of $44 million at Resources due to higher income
from financial investments and higher income from new capital lease investments,
a $71 million increase in revenues at Energy Technologies due to the addition of
revenues from acquisitions in 1999 and a $17 million increase in revenues at
Global primarily due to improvement in revenues from the electric distribution
companies in Brazil and Argentina as well as the addition of revenues from the
energy distribution companies in Chile and Peru acquired in June 1999. Global's
revenue includes its share of the net income from joint ventures recorded under
the equity method of accounting.
<PAGE>
Global is a 50% partner in six generating facilities in California.
Beginning in 2000, revenue from these facilities will be reduced due to lower
energy prices to be paid by the purchaser under the energy contracts associated
with the plants. Energy prices under such contracts will be reduced from the
current fixed rates to short-run avoided cost (SRAC) energy prices approved by
the California Public Utilities Commission (CPUC). The CPUC is considering the
issue of transitioning SRAC energy payments under contracts of this type to the
clearing price of the California Power Exchange (PX). Although the CPUC has not
yet initiated a proceeding, Global anticipates that eventually energy prices
under these contracts will be based upon the PX clearing price. Two-thirds of
the primary California facilities in which Global has an interest will change
from fixed energy pricing by December 31, 2000, with the remainder changing in
2001. Both the SRAC and the PX energy prices are currently substantially lower
than the fixed energy prices charged in these contracts. Based on current SRAC
and PX energy prices, Global's share of annual income before income taxes from
these facilities is projected to decrease by approximately $30 million to $35
million when all such contracts reflect the lower energy pricing. Actual
revenues over the remaining contract terms, which begin to expire in 2011, will
depend on a number of factors, including the actual energy prices in effect in
the applicable future periods. Global's projects in operation, construction and
development are expected to offset this revenue shortfall; however, no
assurances of that result can be given.
Energy Holdings -- Expenses
Operation and Maintenance
Operation and Maintenance expense increased $52 million to $91 million from
$39 million for the quarter ended September 30, 1999 as compared to the same
period in 1998. Operation and Maintenance expense increased $69 million to $190
million from $121 million for the nine months ended September 30, 1999 as
compared to the same period in 1998. The increases were primarily due to the
addition of expenses from the entities acquired by Energy Technologies and to a
lesser degree, by higher development expenses at Global.
Interest Expense and Preferred Dividends
Interest Expense and Preferred Dividends increased $6 million to $31
million from $25 million for the quarter ended September 30, 1999 as compared to
the same period in 1998. Interest Expense and Preferred Dividends increased $5
million to $84 million from $79 million for the nine months ended September 30,
1999 as compared to the same period in 1998. The increases were primarily due to
financing 1999 investment and acquisition activity.
Income Taxes
Income Taxes increased $27 million to $14 million from $(13) million for
the quarter ended September 30, 1999 as compared to the same period in 1998.
Income Taxes increased $28 million to $44 million from $16 million for the nine
months ended September 30, 1999 as compared to the same period in 1998. The
increases were primarily due to higher pre-tax income for the quarter ended
September 30, 1999.
Energy Holdings -- Other Income (Loss)
Other Income (Loss) increased $20 million to $21 million from $1 million
for the quarter ended September 30, 1999 as compared to the same period in 1998.
Other Income increased $22 million to $28 million from $6 million for the nine
months ended September 30, 1999 as compared to the same period in 1998. The
increases were primarily due to a gain on the sale of Global's interest in a
co-generation facility in Newark, New Jersey, as discussed above, partially
offset by write-downs on other investments, as discussed below.
In the third quarter of 1999, Global completed a comprehensive review of
its existing assets and development activities focusing on rationalizing the
portfolio to ensure efficient capital deployment. As part of this review, Global
assessed the present carrying value of its equity investments in such
activities. Global's management has decided that it will not commit additional
resources to its investments in Thailand and the Philippines and will focus its
current Asian development activities in China. As a result, Global recorded an
$8 million write-down, net of tax, in the third quarter of 1999 to adjust the
carrying value of these assets to net realizable value. In addition, the
projected substantial decline in revenue, discussed above, related to energy
contracts for six generation facilities in California resulted in a $19 million
write-down, net of tax, of Global's equity investment in such facilities in the
third quarter of 1999.
<PAGE>
PSEG -- Preferred Securities Dividend Requirements of Subsidiaries
Preferred Securities Dividend Requirements increased $1 million or 5% and
$13 million or 23% for the quarter and nine months ended September 30, 1999 as
compared to the same periods in 1998. The increase was due to the issuance of
trust preferred securities by three special purpose statutory business trusts
controlled by PSEG, Enterprise Capital Trust I, II and III, in January, June and
July 1998 of $525 million.
Liquidity and Capital Resources
PSEG and PSE&G
PSEG is a holding company and, as such, has no operations of its own. The
following discussion of PSEG's liquidity and capital resources is on a
consolidated basis, noting the uses and contributions of PSEG's two direct
operating subsidiaries, PSE&G and Energy Holdings.
PSEG and PSE&G believe that the deregulation of the utility industry will
impact the sources and uses of cash going forward. Also, as a result of
deregulation and related corporate structure reorganizations, the capital
structure of PSEG will likely change with a likely increase in debt levels. As
of September 30, 1999, PSEG's capital structure consisted of 40.7% common
equity, 47.2% long-term debt and 12.1% preferred stock and other preferred
securities. As of September 30, 1999, PSE&G's capital structure consisted of
48.7% common equity, 42.4% long-term debt and 8.9% preferred stock and other
preferred securities. The BPU, in the Final Order, required that the use of the
net proceeds of securitization shall be done in a manner that will not
substantially alter PSE&G's overall capital structure.
On September 17, 1999, the BPU issued its Finance Order which authorized,
among other things, the imposition of a non-bypassable transition bond charge on
PSE&G's customers; the sale of PSE&G's property right in such charge created by
the Energy Competition Act to a bankruptcy-remote financing entity; the issuance
and sale of $2.525 billion of transition bonds by such entity in payment
therefor, including an estimated $125 million of transaction costs; and the
application by PSE&G of the transition bond proceeds to retire outstanding debt
and/or equity. Assuming a favorable outcome of the appeals, PSEG and PSE&G
expect such sale of transition bonds and receipt of proceeds therefrom will
occur in the first half of 2000.
For a discussion of the pending appeals of the Final Order and the Finance
Order, see Note 2. Regulatory Issues of Notes.
Both the right of PSE&G to receive the bondable transition charge pursuant
to the securitization transaction and the proceeds from the sale of its
generation-related assets to Power are property subject to the lien of PSE&G's
First and Refunding Mortgage (Mortgage). All such property will be released from
the lien of the Mortgage at the time of sale. In accordance with the provisions
of the Mortgage, the net proceeds from the sale of such released property will
be deposited with the Trustee.
As previously reported, the Mortgage authorizes PSE&G to exercise one or
more of the following options as to the application of proceeds of such released
property, at its sole discretion:
1. Withdraw funds for corporate use by utilizing additions and
improvements. (Option 1)
2. Direct the Trustee to invest the proceeds in U.S. Government
Securities. (Option 2)
<PAGE>
3. Direct the Trustee to purchase its Mortgage Bonds at the lowest prices
obtainable, at or below par value. If the Trustee is unable to
purchase sufficient Mortgage Bonds to exhaust such proceeds deposited
with it, the balance may be applied on a pro rata basis towards the
redemption of eligible series of Mortgage Bonds outstanding at par.
(Option 3)
At September 30, 1999, PSE&G had a total of $3.9 billion of Mortgage Bonds
outstanding, of which $3.105 billion are taxable registered Mortgage Bonds
subject to special redemption provisions, outlined in Option 3 (Redeemable
Bonds). At October 31, 1999, PSE&G had a total of $3.729 billion of Mortgage
Bonds outstanding, of which $2.934 billion are Redeemable Bonds (see External
Financings). $624 million of these Redeemable Bonds are scheduled to mature
within twelve months. $780 million of the Mortgage Bonds outstanding are
tax-exempt Pollution Control Bonds and $15 million are two series of taxable
coupon Mortgage Bonds due 2037 (Coupon Bonds). Both the Pollution Control Bonds
and the Coupon Bonds are not subject to Option 3.
PSE&G has not yet made a final decision as to the amount and the manner in
which it will retire or redeem its Mortgage Bonds. Such a decision will be made
on or about the time the proceeds from securitization and the sale of the
generation-related assets to Power are deposited with the Trustee, on the basis
of market conditions and other factors existing at that time. However, based on
current information, a likely utilization of the options available to PSE&G, as
noted above, could be as follows:
1. Withdraw $2.4 billion of net proceeds from securitization under Option
1, above. These proceeds would be used to:
(a) Tender for all Coupon Bonds;
(b) Redeem $126.5 million of Pollution Control Bonds now redeemable;
(c) Retire up to an additional $300 million of Redeemable Bonds
through various means, such as maturities, open market purchases
and make-whole calls;
(d) Reduce PSE&G's short-term debt; and
(e) Reduce PSE&G common and/or preferred equity with the balance of
proceeds, if any.
2. Apply proceeds ($2.4 billion to $2.8 billion) from the
generation-related asset sale to Power under Option 3 against any
remaining taxable Mortgage Bonds outstanding.
As previously reported, in anticipation of securitization, PSEG's Board of
Directors authorized the repurchase of up to an aggregate of 20 million shares
of Common Stock in the open market. The repurchased shares have been held as
treasury stock. At September 30, 1999, PSEG had repurchased approximately 13.2
million shares of Common Stock at a cost of approximately $516 million, under
these authorizations. As of October 31, 1999, PSEG had repurchased approximately
13.6 million shares of Common Stock at a cost of approximately $532 million.
Market conditions and the availability of alternative investments will dictate
if and when more shares of Common Stock will be repurchased under this
authorization.
Going forward, cash generated from PSE&G's regulated business is expected
to provide the majority of the funds for PSE&G's regulated business needs.
Power's capital needs will be dictated by its strategy to size its generation
fleet, and will likely require cash generated from external financings, equity
infusions from PSEG and cash generated from operations to support its
anticipated growth. Energy Holdings' growth will be funded through external
financings, equity infusions from PSEG and cash generated from operations.
Dividend payments on Common Stock were $1.62 per share and totaled
approximately $357 million and $376 million for the nine months ended September
30, 1999 and 1998, respectively. 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 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. PSEG 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 $510 million and $376 million to
PSEG during the nine months ended September 30, 1999 and 1998, respectively.
<PAGE>
These amounts were used to fund PSEG's Common Stock dividends, and in 1999, to
support a portion of PSEG's stock repurchase program. Based on its analysis of
the Final Order, PSEG believes that its dividend payments can be maintained at
their current level (see Note 2. Regulatory Issues of Notes). In the future,
PSEG expects to fund its dividend payments through cash generated by the
operations of PSE&G and Power. Note that due to the competitive environment in
which Power will operate and due to reduced revenues at PSE&G resulting from
mandated rate reductions, such dividend payments will be at a greater risk. Due
to the growth in Energy Holdings investment activities, no dividends on Energy
Holdings' common stock were paid in the nine months ended September 30, 1999 and
1998.
PSEG and PSE&G have each 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 has defaulted on
the applicable indenture related thereto or its guarantee thereof, neither PSEG
nor PSE&G may pay any dividends on its common or preferred stock. Currently,
there has been no deferral nor default.
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 September 30, 1999 were approximately 21% of PSEG's consolidated
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 Corporation (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 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.
Capital resources and capital requirements will be affected by the outcome
of the Energy Master Plan Proceedings and the requirements of the Focused Audit.
As a result of the final outcome and the accounting impacts resulting from the
deregulation of the generation of electricity and the unbundling of the utility
business in New Jersey, PSEG and PSE&G do not believe that the Focused Audit
provision requiring notification of the BPU if PSEG's non-utility assets exceed
20% of its consolidated assets remains appropriate and believe that
modifications will be required. The Final Order addressed the Focused Audit,
noted that PSEG's non-regulated assets would likely exceed 20% of total PSEG
assets once the utility's generating assets were sold to a non-regulated
subsidiary and directed PSE&G to file a petition with the BPU to maintain the
existing regulatory parameters or to propose modifications to the Focused Audit
order no later than the end of the first quarter of 2000 (see Note 2. Regulatory
Issues of Notes). It was also recognized in the Final Order that, due to
significant changes in the industry and, in particular, PSEG's corporate
structure as a result of the Final Order, modifications to or relief from the
Focused Audit might be warranted.
Regulatory oversight by the BPU to ensure that there is no harm to utility
ratepayers from PSEG's non-utility investments is expected to continue. PSEG and
PSE&G believe that these issues will be satisfactorily resolved, although no
assurances can be given. In addition, if PSEG were no longer to be exempt under
the Public Utility Holding Company Act (PUHCA), PSEG and its subsidiaries would
be subject to additional regulation by the SEC with respect to financing and
investing activities, including the amount and type of non-utility investments.
Inability to achieve satisfactory resolution of these matters could impact the
future relative size and financing activities of Energy Holdings and Power and
accordingly, their future prospects. Consequently, this could have a material
adverse impact on PSEG's and PSE&G's financial condition, results of operations
or net cash flows. For discussion of the Energy Master Plan Proceedings, see
Note 2. Regulatory Issues of Notes.
Energy Holdings
As noted above, it is intended that Global and Resources provide earnings
and cash flow for long-term growth for Energy Holdings and PSEG. Resources'
investments are designed to produce immediate earnings and cash flow that enable
Global and Energy Technologies to focus on longer investment horizons.
<PAGE>
Energy Holdings plans to continue the growth of Global and Resources
through further investments made by these subsidiaries. Energy Holdings will
assess the growth prospects and opportunities for Energy Technologies' business
before committing substantial amounts of additional capital. Investing activity
in 1999 will be subject to periodic review and revision and may vary depending
on the opportunities presented. During the next five years, Energy Holdings'
will need significant capital to fund its planned growth. Factors affecting
actual expenditures and investments include availability of capital and suitable
investment opportunities, market volatility and local economic trends. The
anticipated sources of funds for such growth opportunities are additional equity
from PSEG, cash flow from operations and external financings. 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
energy-related services currently being provided to industrial and commercial
customers.
In June 1999, PSEG contributed approximately $200 million of additional
equity to Energy Holdings, which was applied by Energy Holdings to pay down
short-term debt that was used to acquire its interest in the Chilean and
Peruvian distribution companies.
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 reasonable interest rates may affect PSEG's and
Energy Holdings' financial condition, results of operations or net cash flows.
As of September 30, 1999 and 1998, Energy Holdings' embedded cost of debt was
approximately 6.99% and 7.75%, respectively. Energy Holdings' embedded cost of
debt increased to approximately 7.75% as of October 31, 1999 (see External
Financings).
Capital Requirements
PSEG
PSEG has entered into contracts to purchase a number of combustion turbines
to expand capacity at a number of generating sites (see Note 5. Commitments and
Contingent Liabilities of Notes).
PSE&G (including Power)
PSE&G has substantial commitments as part of its ongoing construction
program. 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
transmission and/or distribution rate changes and the ability of PSE&G to raise
necessary capital.
In concert with separating the electric generation portion of the
business from PSE&G's regulated transmission and distribution businesses and
with reviewing PSE&G's strategic initiatives, PSEG is in the process of
assessing the construction requirements of its businesses. This will include a
breakdown of anticipated construction expenditures between the generation
business and the transmission and distribution businesses. For discussion of the
Energy Master Plan Proceedings and their impacts, see Note 2. Regulatory Issues
of Notes.
On October 6, 1999, Power announced an agreement with Niagara Mohawk Power
Corporation (Niagara Mohawk), a New York State utility, to purchase its 400
megawatt oil (MW) and gas-fired electric generating station in Albany, New York
(Albany Steam Station) for $47.5 million. On September 30, 1999, Power announced
that it has signed an agreement to acquire all of Conectiv's interests in the
Salem Nuclear Generating Station (Salem) and the Hope Creek Nuclear Generating
Station (Hope Creek) and half of Conectiv's interest in the Peach Bottom Atomic
Power Station (Peach Bottom), for an aggregate purchase price of $15.4 million
plus the net book value of nuclear fuel at closing. For further discussion, see
Note 5. Commitments and Contingent Liabilities of Notes.
<PAGE>
For the nine months ended September 30, 1999, PSE&G had plant additions,
including capitalized interest and Allowance for Funds Used During Construction
(AFDC), of $285 million, an $83 million decrease from the corresponding 1998
period. This decrease is primarily due to PSE&G's capitalization policy change
for the electric generation portion of its business. See Note 1. Basis of
Presentation/Summary of Significant Accounting Policies of Notes for further
discussion regarding the capitalization policy change.
PSE&G has attempted to minimize the uncertainty associated with the timing
of the final allocation of nitrogen oxide (NOx) allowances by purchasing
allowances, upgrading control technologies and estimating the expected
allocation with as much precision as is practicable using available data (see
Air Pollution discussion of Note 5. Commitments and Contingent Liabilities of
Notes). According to PSE&G's present analysis, 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.
PSE&G's regulated business expects to 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. The unregulated generation portion of PSE&G's current operations
(i.e., Power) will likely be required to finance externally based on its growth
strategy.
Energy Holdings
From December 31, 1998 through September 30, 1999, Energy Holdings'
subsidiaries made investments totaling approximately $931 million. These
investments include acquisitions and other investments made by Global, Resources
and Energy Technologies, discussed below. Projected investment expenditures for
the fourth quarter of 1999 are approximately $250 million, comprised of
investments in generation and distribution facilities and projects and leveraged
lease transactions. Energy Holdings has approximately $35 million of debt
principal payments due in November 1999 which are expected to be refinanced or
funded through existing credit facilities and operating cash flow.
Global
In October 1999, Global closed on the acquisition of a 70% interest in a
power project development company in Italy specializing in renewable energy. The
company currently has approximately 550 MW of power projects either in
development or under construction consisting of biomass, hydro and gas powered
production. Global's acquisition and equity investment requirements over the
next two years are expected to be approximately $80 million.
In August 1999, Global and its partners closed project financing for a 487
MW gas-fired combined-cycle electric generating facility in Rades, Tunisia.
Construction of the facility began in August 1999 and is expected to be
completed in the Summer of 2001 at a total cost of approximately $261 million.
Upon completion, the facility is expected to qualify as a foreign utility
company (FUCO). Global's equity investment for its 35% interest is expected to
be approximately $27 million including contingencies.
In August 1999, Global sold its 50% partnership interest in a 137 MW
gas-fired combined-cycle co-generation facility in Newark, New Jersey and
received net cash proceeds of approximately $70 million. Global recognized an
after-tax gain of approximately $40 million as a result of this transaction.
In June 1999, Global and a partner acquired 90% of a Chilean distribution
company, which at the time owned a 37% controlling interest in a distribution
company in Peru, together providing electric and gas service to approximately
one million customers. The acquisition was made in a 50/50 joint venture
arrangement. Global's equity investment was approximately $268 million including
fees and closing costs. In addition, Global's portion of the acquisition was
financed with $160 million of debt that is non-recourse to Global, Energy
Holdings and PSEG, which is consolidated on the Global balance sheet. In
September 1999, Global and its partner purchased an additional interest in the
Peruvian distribution company. Global's investment in connection with this
purchase was approximately $108 million, resulting in a total combined ownership
share of 84.5% in the Peruvian distribution company.
<PAGE>
Also in June 1999, Global and a partner closed the project financing for an
845 MW gas-fired combined-cycle electric generating facility to be constructed
in San Nicolas, Argentina. The new facility will be adjacent to an existing 650
MW facility also owned by Global and its partner. Construction began in August
1999 and is expected to be completed by 2001 at a total cost of approximately
$448 million. Global's equity investment for its 33% interest, including
contingencies, is expected to be approximately $86 million.
In May 1999, Global acquired a 63% equity interest in a company which is
developing a 525 MW coal-fired electric generating facility to be constructed in
North Chennai, India. Upon scheduled completion in 2003, Global will be the
operator of the plant. The total project cost is expected to be approximately
$633 million, of which Global's maximum equity investment for its 63% interest,
including contingencies, is expected to be approximately $180 million. Financial
closure is expected in the Fall of 1999 with construction to begin by the end of
1999.
In April 1999, Global and a partner entered into a joint venture agreement
to develop, construct and operate a 1,000 MW gas-fired combined-cycle electric
generating facility in Guadalupe County in south central Texas. 500 MW of this
facility is expected to be operational in late 2000 and is expected to qualify
as an EWG. Global's maximum equity investment for its 50% interest is expected
to be approximately $193 million including loans and guarantees. In October
1999, Global closed on a $312 million non-recourse project financing, consisting
of a $260 million term loan and $52 million in letter of credit facilities for
the Guadalupe facility. At the completion of construction (approximately fifteen
months), the loan will convert to a five year term loan.
Also in April 1999, Global and a partner announced the formation of a joint
venture to construct and operate three gas-fired electric generating facilities
with total installed capacity of 200 MW and associated distribution systems to
serve, under contract, industrial customers in Venezuela. Global expects the
first two facilities, which are in construction, to be operational in late 1999
with the third facility in service in early 2001. The total cost of these
facilities is expected to be approximately $140 million and Global's equity
investment, including contingencies, for its 50% interest, is expected to be
approximately $70 million.
Resources
In 1999, Resources, through its investment in a leveraged buyout (LBO)
fund, has received cash distributions of $99 million resulting in a realized,
after-tax gain of $23 million from the fund's sale of a portion of its equity
interests. This includes distributions totaling approximately $40 million
resulting in a realized, after-tax gain of approximately $11 million from the
sales of equity interests held by an LBO fund in the third quarter of 1999.
In the third quarter of 1999, Resources received net cash proceeds of
approximately $76 million from early buy-outs of leveraged leases of a
generation station and an office building, resulting in an after-tax gain of $10
million.
In 1999, Resources has invested approximately $243 million in five
leveraged lease transactions of energy-related assets: gas distribution networks
in the Netherlands, cogeneration plants in Germany and a liquefied natural gas
storage facility in the United States. This includes an investment of
approximately $66 million in a leveraged lease transaction of a natural gas
distribution network in the Netherlands and an investment of approximately $40
million in a leveraged lease transaction of cogeneration plants in Germany in
September 1999.
Energy Technologies
During 1999, Energy Technologies acquired six mechanical and building
service contractors in New Jersey, Virginia and Rhode Island for a total cost of
approximately $44 million including debt assumed. The latest acquisition was
completed in November 1999.
<PAGE>
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. Given
the changes in the industry and the anticipated use of securitization, attention
and scrutiny of PSEG's, PSE&G's and Energy Holdings' competitive strategies by
rating agencies will likely continue. These changes could affect the bond
ratings, cost of capital and market prices of the respective securities of PSEG,
PSE&G and Energy Holdings.
The availability and cost of external capital could be affected by the
performance of Energy Holdings and PSE&G and by the actions ultimately taken by
the BPU with regard to the Energy Master Plan Proceedings as well as by rating
agencies' views of such matters including the degree of structural or regulatory
separation between the utility and its affiliates and the potential impact of
affiliate ratings on the consolidated credit quality of PSEG, PSE&G and Energy
Holdings.
PSEG, PSE&G and Energy Holdings are analyzing their future capital and
financing needs in light of securitization, the sale of generation-related
assets to Power and their business strategies. However, it is expected that
following completion of securitization and the generation-related asset sale,
PSE&G will refinance a portion of its debt and reduce its equity level, which
will not substantially alter its existing capitalization ratios. Power and
Energy Holdings will likely issue debt through the capital markets to fund their
projects and acquisitions, including the sale of generation-related assets by
PSE&G to Power.
PSEG
At September 30, 1999, PSEG had a committed $150 million revolving credit
facility which expires in December 2002. At September 30, 1999, PSEG had $41
million outstanding under this revolving credit facility. On September 8, 1999,
PSEG entered into an uncommitted line of credit with a bank for an unlimited
amount.
In June 1999, PSEG issued $300 million of Extendible Notes, Series C, due
June 15, 2001 with interest at the three-month London Interbank Offered Rate
(LIBOR) plus 0.40%, reset quarterly. These Notes will be automatically tendered
to the remarketing agent for remarketing on March 15, 2000. PSEG used the net
proceeds to make an equity investment in Energy Holdings and to reimburse its
treasury for expenditures made to repurchase shares of its Common Stock.
PSE&G
In addition to the petition filed with the BPU to effectuate the
securitization transaction, PSE&G will need to file petitions with the BPU for
authorization for any additional debt financing needed. PSE&G is currently
evaluating the potential uses of the proceeds of securitization (see Liquidity
and Capital Resources).
Under its Mortgage, PSE&G may issue new First and Refunding Mortgage Bonds
against previous additions and improvements and/or retired Mortgage Bonds
provided that its ratio of earnings to fixed charges calculated in accordance
with its Mortgage is at least 2:1. As of September 30, 1999, the Mortgage would
permit up to $3.8 billion aggregate principal amount of new Mortgage Bonds to be
issued against previous additions and improvements, the level of which could be
impacted by the actions ultimately taken in connection with securitization and
the sale of generation-related assets to Power. At September 30, 1999, PSE&G's
Mortgage coverage ratio was 4.481:1. 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. For a related discussion, see Liquidity and
Capital Resources and Generation-Related Asset Sale to Power of Note 2.
Regulatory Issues of Notes.
In anticipation of securitization, PSE&G purchased certain of its
outstanding series of Mortgage Bonds in the open market. These purchases totaled
$129 million in September 1999 and $171 million in October 1999.
<PAGE>
On July 1, 1999, $100 million of PSE&G's 8.750% Bonds, Series Z, matured.
On September 27, 1999, PSE&G called its $2.990 million of 6.9% Pollution Control
Bonds, Series C, due September 1, 2009. Redemption is scheduled for November 12,
1999.
To provide liquidity for its commercial paper program, PSE&G has an $850
million revolving credit agreement expiring in June 2000 and a $650 million
revolving credit agreement expiring in June 2002 with a group of commercial
banks, which provide for borrowings of up to one year. On September 30, 1999,
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. PSE&G has filed with the BPU for extension of this authorization
through January 2, 2001 and for an increase to $2.0 billion in order to provide
for temporary funding of maturing long-term debt in light of the uncertainty
associated with the timing of securitization and the generation asset sale due
to the recent appeals. An inability to issue short-term obligations would have a
material adverse impact on PSEG's and PSE&G's financial condition, results of
operations and net cash flows. On September 9, 1999, PSE&G entered into an
uncommitted line of credit with a bank for an unlimited amount. Borrowings under
this line of credit and all other short-term borrowings in aggregate cannot
exceed the maximum amount of short-term debt authorized, currently $1.5 billion.
PSE&G also had additional uncommitted lines of credit totaling $70 million on
September 30, 1999. On September 30, 1999, PSE&G had $1.014 billion of
short-term debt outstanding, including $30 million borrowed against its
uncommitted bank lines of credit.
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 September 30, 1999, Fuelco had commercial paper of $68
million outstanding. Once the purchase of PSE&G's generation-related assets is
completed, Fuelco's commercial paper program will be discontinued and financing
of Peach Bottom nuclear fuel will be funded through Power.
Energy Holdings
In October 1999, Energy Holdings issued $400 million of 10.0% Senior Notes
due October 2009. The proceeds were used for the repayment of short-term debt
outstanding under revolving credit facilities. Borrowings under the revolving
credit facilities were used to finance investments and acquisitions and for
general corporate purposes. Energy Holdings expects to file a registration
statement with the SEC relating to an exchange offer for, or the resale of,
these Senior Notes. At September 30, 1999, Energy Holdings had total debt
outstanding of $1.471 billion, including debt at PSEG Capital as discussed below
and consolidated debt that is non-recourse to PSEG, Global and 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. In March and June 1999, PSEG Capital issued $252
million of 6.25% MTNs due May 2003 and $35 million of 6.73% MTNs due June 2001,
respectively. The proceeds were used to repay $100 million of PSEG Capital MTNs
which matured in February 1999 and $35 million which matured in May 1999 and to
reduce Energy Holdings' short-term debt. At September 30, 1999, PSEG Capital had
total debt outstanding of $650 million, all of which was comprised of MTNs with
maturities between 1999 and 2003. Energy Holdings believes it is capable of
eliminating PSEG support of PSEG Capital debt within the time period set forth
in the Focused Audit.
<PAGE>
In September 1999, Energy Holdings closed on a $150 million letter of
credit facility to support a future equity investment in a generation project in
Texas.
In May 1999, Energy Holdings closed on two separate senior revolving credit
facilities, with a syndicate of banks, a $165 million, 364 day revolving credit
facility and a $495 million, five year revolving credit and letter of credit
facility. These facilities replaced existing revolving credit facilities at
Enterprise Capital Funding Corporation (Funding), a financing subsidiary of
Energy Holdings, totaling $450 million. Effective May 1999, Funding is no longer
being used as a financing vehicle for Energy Holdings.
Financial covenants contained in this new facility include the ratio of
cash flow available for debt service (CFADS) to fixed charges. At the end of any
quarterly financial period such ratio shall not be less than 1.50x for the
12-month period then ending. As a condition of borrowing, the pro-forma CFADS to
fixed charges ratio shall not be less than 1.75x as of the quarterly financial
period ending immediately following the first anniversary of each borrowing or
letter of credit issuance. CFADS includes, but is not limited to, operating cash
before interest and taxes, pre-tax cash distributions from all asset
liquidations and equity capital contributions from PSEG to the extent not used
to fund investing activity. In addition, the ratio of consolidated recourse
indebtedness to recourse capitalization, at the end of any quarterly financial
period, shall not be greater than 0.60 to 1.00. This ratio is calculated by
dividing the total recourse indebtedness of Energy Holdings by the total
recourse capitalization. This ratio excludes the debt of PSEG Capital which is
supported by PSEG. As of September 30, 1999, the latest 12 months CFADS coverage
ratio was 10.9x and the ratio of recourse indebtedness to recourse
capitalization was 0.25 to 1.00.
Compliance with applicable financial covenants will depend upon Energy
Holdings' future financial position and levels of earnings and cash flow, as to
which no assurances can be given. In addition, Energy Holdings' ability to
continue to grow its business will depend to a significant degree on PSEG's
ability to access capital and Energy Holdings' ability to obtain additional
financing beyond current levels. At September 30, 1999, Energy Holdings had $481
million outstanding under existing revolving credit facilities totaling $660
million.
Foreign Operations
In accordance with their growth strategies, Global and Resources have made
approximately $1.4 billion and $1.0 billion, respectively, of international
investments.
Resources' international investments are primarily leveraged leases of
assets located in Australia, the Netherlands and the United Kingdom with
associated revenues denominated in U.S. dollars and, therefore, not subject to
foreign currency risk.
Global's international investments are primarily in projects that generate
or distribute electricity in Argentina, Brazil, Chile, China, Peru and
Venezuela. Investing in foreign countries involves certain risks. Economic
conditions that result in higher comparative rates of inflation in foreign
countries likely result in declining values in such countries' currencies. As
currencies fluctuate against the U.S. dollar, there is a corresponding change in
Global's investment value in terms of the U.S. dollar. Such change is reflected
as an increase or decrease in comprehensive income, a separate component of
stockholders' equity. Net foreign currency devaluations, $185 million of which
was caused by the devaluation of the Brazilian Real, have reduced the reported
amount of PSEG's total stockholders' equity by $203 million as of September 30,
1999. For further discussion of foreign currency risk and the devaluation of the
Brazilian Real, see Note 6. Financial Instruments and Risk Management of Notes.
<PAGE>
Competitive Environment
Generation
PSE&G is required to provide BGS for all customers who do not elect a
different service provider. Once the sale of the generation-related assets to
Power is complete, Power, through ER&T, will provide PSE&G with the energy and
capacity required to meet PSE&G's BGS and OTRA obligations. ER&T will provide
such energy and capacity under the BGS contract rate for the first three years
of the transition period, which began August 1, 1999. Once the sale of the
generation-related assets to Power is complete, ER&T will obtain the energy and
capacity to supply PSE&G's BGS and OTRA requirements from its affiliates,
Nuclear and Fossil, supplemented as necessary with energy purchased in the
competitive wholesale electricity market. Power's earnings will be exposed to
the risks of the competitive wholesale electricity market to the extent that
ER&T has to purchase energy and/or capacity to meet its BGS and OTRA obligations
at market prices which approach or exceed the BGS contract rate (see PJM
Interconnection, LLC and Item 3. Qualitative and Quantitative Disclosures About
Market Risk). ER&T's policy will be to use derivatives to manage this risk
consistent with its business plans and prudent practices. Also, as part of its
growth strategy, Power is seeking to mitigate this risk by building and
purchasing additional capacity in the PJM and surrounding regions. BGS will be
competitively bid for the fourth year and thereafter. ER&T will also participate
in the competitive wholesale electricity market for other items such as energy,
capacity and ancillary services. Prior to the sale of the generation-related
assets to Power, such energy and capacity continues to be provided by the
generation-related assets owned by PSE&G as well as through any energy purchases
needed. For further discussion of the sale of generation-related assets, see
Note 2. Regulatory Issues of Notes.
State Regulatory Matters
For discussions of the Energy Master Plan Proceedings, Gas Unbundling, and
other rate matters, see Note 2. Regulatory Issues of Notes.
PJM Interconnection, LLC
PSE&G is a member of PJM and participates on the PJM Members Committee as
part of its governance structure. 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 the
reliability of the bulk electric supply systems in the Mid-Atlantic area.
As of April 1, 1999, FERC lifted the requirement that bids for electric
energy offered for sale in the PJM interchange energy market from utility-owned
generation located within the PJM control area not exceed the variable cost of
producing such energy. FERC found that no single market participant can unduly
influence market prices. Additionally, a market monitoring function is provided
by the PJM Independent System Operator (ISO). Transactions that are bid into the
PJM pool are now capped at $1,000 per megawatt hour. The current PJM market
structure, which includes this price cap on offers into the spot market and an
installed capacity obligation, is being studied by a PJM user group and may be
modified in the future.
All power providers are paid the locational marginal price (LMP) set
through power providers' bids. 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. Since the LEAC was
discontinued as of August 1, 1999, to the extent PSEG's generation business
produces less energy than required to supply PSE&G's BGS customers and OTRA
customers, the lifting of such caps could present additional risks with respect
to the difference between the LMP and the BGS rate. For further discussion of
price volatility of electricity, see Item 3. Qualitative and Quantitative
Disclosures About Market Risk.
<PAGE>
On May 12, 1999, FERC issued a Notice of Proposed Rulemaking regarding
Regional Transmission Organizations (RTO). Although PJM is consistent with the
proposed requirements for a RTO, the proposed rulemaking may restrict PSE&G's
ability to recover its transmission related revenue requirements. Also, under
some RTO structures, ownership of transmission assets would be limited to a de
minimus level. Both of these possible restrictions could have a material adverse
impact on PSEG's and PSE&G's financial condition, results of operations or net
cash flows. PSE&G is actively participating in this rulemaking proceeding to
advocate positions favorable to PSE&G, although no assurances on the outcome of
these proceedings can be given.
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, PSE&G and Energy Holdings 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 before January 1, 2000.
Year 2000 Readiness Status
PSEG, PSE&G and Energy Holdings have established a three-phase program to
achieve Year 2000 readiness. The initial phase (Inventory) identified systems
having potential Year 2000 issues and set priorities for assessing and
remediating those systems. The second phase (Assessment) determined 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. Year 2000
readiness work is considered finished upon completion of all three phases.
PSEG and PSE&G have completed required Year 2000 readiness work for more
than 99% of their mission critical systems as of October 31, 1999. Mission
critical systems are those systems whose unavailability would immediately impact
PSEG's or PSE&G's ability to meet their regulatory, safety or fiduciary duties.
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
and Assessment work on all systems impacted by Year 2000 readiness issues.
Remediation/Testing is expected to be completed in 1999 on all mission critical
systems and a majority of non-critical systems, with the remaining non-critical
systems to be completed in 2000. Energy Holdings (parent company), Energy
Technologies and Resources have completed required Year 2000 readiness work for
100% of their mission critical systems and such systems are Year 2000 ready as
of June 30, 1999. Global has completed required Year 2000 readiness work for 95%
of its mission critical systems through September 1999.
As previously reported, on May 11, 1998, the NRC issued a Generic Letter to
all nuclear facilities requiring certain written responses addressing the status
of their Year 2000 programs. In its responses, PSE&G indicated that planned
implementation will allow PSE&G's nuclear facilities to be Year 2000 ready and
in compliance with the terms and conditions of their licenses and NRC regulation
by January 1, 2000. On June 30, 1999, PSE&G reaffirmed its plan to have all
mission critical systems ready and in compliance with the terms and conditions
of their license and NRC regulation by January 1, 2000. On October 20, 1999,
PSE&G provided an update to its June 30, 1999 response, noting that all mission
critical systems for Hope Creek and Salem were Year 2000 ready. PSE&G has
identified no Year 2000 problem that could affect the proper functioning of any
nuclear safety system. All safety-related systems that could have a Year 2000
issue have already been identified and, where necessary, corrected and tested.
PSE&G will continue to monitor the Year 2000 issue to ensure that it is prepared
for any issues, internal or external to the plants, which could impact PSE&G.
PSE&G has developed contingency plans to address issues that may arise during
the December 31, 1999 through January 1, 2000 rollover. PECO informed PSE&G that
it provided the required July 1999 response to the NRC confirming that Peach
Bottom's Year 2000 effort is on schedule to also be Year 2000 ready and in
compliance with the terms and conditions of their license and NRC regulation by
January 1, 2000. Additionally, PECO informed PSE&G that the remaining work on
Peach Bottom's mission critical systems has been completed and those systems are
Year 2000 ready.
<PAGE>
PSEG, PSE&G and their subsidiaries 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). PSEG, PSE&G and their
subsidiaries designate a vendor as key under the Year 2000 project if that
vendor's product or service has a fiduciary, regulatory or safety impact on PSEG
or PSE&G or their subsidiaries. PSEG and PSE&G have indications from more than
97% of their key vendors that they are making or have made preparations for the
Year 2000. To date, all such key vendors responding indicate that their business
operations will be ready. Global's vendors are not included in that statistic;
however, Global's key vendors have also indicated that they expect to be able to
meet Year 2000 requirements. Strategies are being put into place to minimize the
impact of potential vendor failures on PSEG's, PSE&G's and Energy Holdings'
operations. However, failure of key vendors to be Year 2000 ready could result
in material adverse impacts to PSEG's and PSE&G's operations, financial
condition, results of operations or net cash flows.
Year 2000 Costs
For a discussion of Year 2000 Costs, see Note 5. Commitments and Contingent
Liabilities of Notes.
Year 2000 Risks
PSEG, PSE&G and Energy Holdings have identified some scenarios and will
continue working to determine the most reasonably likely worst case scenarios
arising from Year 2000 readiness issues. PSE&G anticipates its most reasonably
likely worst case scenario as follows:
o Many customers may revert to their own back-up generation or may
preemptively shut down their operations during critical Year 2000
periods (primarily around December 31, 1999 through January 1, 2000).
Their individual decisions could aggregate to unpredictable and/or low
electrical demand patterns, especially given that this is typically a
low electrical demand period. Because electricity cannot be stored,
PSE&G must anticipate and balance supply and demand in order to
maintain electric generation, transmission and distribution systems.
Unusual demand patterns could overburden these systems so that PSE&G
could fail to coordinate demand and supply. In order to prepare for
this contingency, PSE&G has sought to increase system flexibility by
implementing measures to:
o Prepare all plants for significant increase or decrease in
production,
o Have equipment and facilities that can use electricity ready to
run,
o Generate with a more diverse fuel mix than usual, and
o Have additional generating units that typically do not run
during this time of the year (i.e., combustion turbines)
ready to operate.
PSEG and PSE&G are planning for intense media attention on PSE&G's
operations. The period surrounding December 31, 1999 through January
1, 2000 will provide an opportunity to closely review PSE&G's status.
Part of PSE&G's contingency plans is to provide timely and accurate
status information.
Energy Holdings has identified some scenarios and will continue to
determine the most reasonably likely worst case scenarios arising from Year 2000
readiness issues. Global's most reasonably likely worst case scenarios may
include potential external disturbances of its systems including, but not
limited to, fuel supply or transmission interruptions or telecommunications
systems outages. Global's contingency plans have been finalized to address these
scenarios.
<PAGE>
PSEG, PSE&G and Energy Holdings 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 been subject to the following
Year 2000 regulatory action:
o The BPU has issued a specific order requiring a number of
customer related disclosures, including bill inserts,
establishment of an "800" number, and others.
o The BPU has issued an interim report assessing Year 2000 program
progress by PSE&G up to June 15, 1999. The report indicated that
the BPU agreed with the overall status of the project, and that
based on reported progress, the Year 2000 program should come to
a successful termination.
o The BPU has informed PSE&G that it will expect periodic status
reports and specific outage information during the period
December 31, 1999 through January 1, 2000.
Additionally, Energy Holdings, through Global, is subject to international
Year 2000 regulatory initiatives, which could include sanctions being imposed
and requirements to indemnify consumers for damages resulting from Year 2000
non-compliance, in the countries in which it has operations, including
Argentina, Brazil, Chile, China, Peru and Venezuela. Global has reviewed the
impacts of local regulations and laws, has taken all necessary steps to comply
with the international regulatory initiatives and, as noted above, has completed
required Year 2000 readiness work for 95% of its mission critical systems
through September 1999.
Contingency Plans
PSEG, PSE&G and Energy Holdings have adopted the North American Electric
Reliability Council's (NERC) timetable, guidelines and detailed requirements for
developing these contingency plans. The planning process is an iterative one.
PSEG, PSE&G and Energy Holdings have completed their preliminary contingency
plans. The second version of their contingency plans was completed by June 30,
1999, consistent with NERC's timetable.
PSEG and PSE&G conducted a limited scope internal drill on March 19, 1999.
The scope of the drill involved using alternate communication capabilities
(i.e., radio) to monitor electric generation and transmission should the public
switched phone network become unavailable. The drill showed the basic
feasibility of preliminary plans and it identified needed procedural
enhancements, which have since been included in the contingency plans. On April
9, 1999, PSEG and PSE&G participated in a NERC industry-coordinated Year 2000
readiness drill. It involved a scope similar to the March 19, 1999 drill plus
the involvement of PJM. Additionally, PSEG and PSE&G participated in the
NERC-led drill on September 8-9, 1999. The drill was intended to be a full-scale
dress rehearsal for the rollover period of December 31, 1999 to January 1, 2000.
For PSE&G, this drill built on previous exercises. Multiple functions were
involved including gas, electric and distribution. The centralized status and
reporting function created for Year 2000 was activated. As with the previous
drills, this exercise showed the basic feasibility of the contingency plans.
Some procedural details, such as the final development of facility preparation
checklists, creation of contact listings and the distribution of communication
equipment, will be completed before December 31, 1999.
PSEG, PSE&G and Energy Holdings expect that with completion of the Year
2000 readiness work 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, Energy Holdings, their domestic and
international subsidiaries, their project affiliates, the other members of PJM,
PJM trading partners supplying power through PJM, PSEG's or PSE&G's key vendors
and/or customers or the capital markets 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 or net cash
flows.
Environmental Costs
For discussion of potential environmental and other remediation costs, see
Note 5. Commitments and Contingent Liabilities of Notes.
<PAGE>
Accounting Issues
For a discussion of significant accounting matters including SFAS 71; SFAS
121; Emerging Issues Task Force (EITF) Issue No. 97-4, "Deregulation of the
Pricing of Electricity-Issues Related to the Application of FASB Statements No.
71 and No. 101" (EITF 97-4); SFAS 101, "Regulated Enterprises-Accounting for the
Discontinuation of Application of FASB Statement No. 71" (SFAS 101); changes in
capitalization, depreciation and asset retirement policies; discontinuation of
deferral accounting for fuel revenues and expenses; EITF 98-10, "Accounting for
Energy Trading and Risk Management Activities" (EITF 98-10); Statement of
Position (SOP) 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 1. Basis of Presentation/Summary of
Significant Accounting Policies 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) and SFAS 137, "Accounting for Derivative Instruments and Hedging Activities
- - Deferral of the Effective Date of FASB Statement No. 133" (SFAS 137), see Note
9. Accounting Matters 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: Overview and Future Outlook; Results of Operations;
Liquidity and Capital Resources; External Financings; Competitive Environment;
Year 2000 Readiness Disclosure; Environmental Costs; Accounting Issues and
Impact of New Accounting Pronouncements.
ITEM 3. 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 comprised of executive officers which utilizes 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 non-performance or non-payment by a major
counterparty, there may be a material adverse impact on PSEG's and PSE&G's
financial condition, results of operations or net cash flows.
For discussion of interest rates and Energy Holdings' commodity-related
instruments, equity securities and foreign currency risks, see Note 6. Financial
Instruments and Risk Management of Notes.
Commodity-Related Instruments--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.
<PAGE>
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 95%
confidence level and assuming a one week time horizon at September 30, 1999 was
approximately $5 million, compared to the December 31, 1998 level of $4 million.
PSE&G's calculated value-at-risk represents an estimate of the potential change
in the value of its portfolio of physical and financial derivative instruments.
These estimates, however, are not necessarily indicative of actual results,
which may differ due to the fact that actual market rate fluctuations may differ
from forecasted fluctuations and due to the fact that the portfolio of hedging
instruments may change over the holding period.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Certain information reported under Item 3 of Part I of Public Service
Enterprise Group Incorporated's (PSEG) and Public Service Electric and Gas
Company's (PSE&G) 1998 Annual Report on Form 10-K, the Quarterly Reports on Form
10-Q for the quarters ended March 31, 1999 and June 30, 1999 and the Current
Reports on Form 8-K filed March 18, 1999, April 26, 1999, July 21, 1999,
September 15, 1999 and October 14, 1999 is updated below.
(1) Form 10-K, page 29 and June 30, 1999 Form 10-Q, page 52. As previously
disclosed, by complaints filed in 1995 and 1996, shareholder derivative
actions on behalf of PSEG shareholders were commenced by purported
shareholders against certain directors and officers. The four complaints
generally sought 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. By decision dated July 28, 1999, the Court granted the
defendants' motions for summary judgement dismissing all four derivative
actions. The plaintiffs have filed Notices of Appeals in all these actions.
PSEG cannot predict the outcome of these appeals. Public Service Enterprise
Group Inc. by G. E. Stricklin, derivatively v. E. James Ferland, et. al.,
Superior Court of New Jersey, Chancery Division, Essex County, Docket No.
C-160-96. 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.
(2) March 31, 1999 Form 10-Q, page 38 and June 30, 1999 Form 10-Q, page 52. As
previously disclosed, a complaint was received by PSEG naming as defendants
the current directors of PSEG, and naming PSEG as a nominal defendant, from
the same purported shareholder of PSEG who instituted the December 1995
shareholder derivative suit and who instituted the June 1998 proxy
litigation, alleging that the 1999 proxy statement provided to shareholders
of PSEG was 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 and (iii) the demand
letter and derivative litigation described above. The complaint seeks to
have the 1999 proxy statement declared to be in violation of law, to set
aside the election of directors of PSEG and the ratification of the
selection of Deloitte & Touche LLP as PSEG's auditors at the 1999 annual
shareholder meeting, 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 the
matter, which should include as nominees for election as directors persons
having no previous relationship with PSEG or the current directors, and
<PAGE>
other relief. A motion to dismiss the complaint was filed by the defendants
on June 28, 1999. On August 2, 1999, the Court issued an order granting the
defendants' motion to dismiss the complaint. Plaintiff has filed a Notice
of Appeal. PSEG cannot predict the outcome of this appeal. G. E. Stricklin
v. I. Lerner, et. al., United States District Court for the Eastern
District of Pennsylvania. Civil Action No. 99-1950.
In addition, see the following at the pages hereof indicated:
(1) Pages 10 through 15 and 29 through 30. 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, EO97070461, EO97070462 and EO97070463.
(2) Pages 10 through 15 and 29 through 30. Appeals of I/M/O PSE&G's Rate
Unbundling, Stranded Costs and Restructuring Filings before the New
Jersey Superior Court, Appellate Division, Docket No. A-643-99-T3 and
second pending docket number assignment.
(3) Pages 10 through 15 and 29 through 30. Proceedings before the BPU in
the Matter of the Petition of PSE&G for a Bondable Stranded Cost Rate
Order, Docket No. EF99060390.
(4) Pages 10 through 15 and 29 through 30. Appeals of I/M/O the Petition
of PSE&G for a Bondable Stranded Cost Rate Order before the New Jersey
Superior Court, Appellate Division, Docket Nos. A-772-99T3 and
A-1050-99T3.
(5) Page 15. Proceedings before the BPU in the Matter of the Filings of
the Comprehensive Resource Analysis of Energy Programs pursuant to
Section 12 of the Electric Discount and Energy Competition Act of
1999, Docket Nos. EX99050347, EO99050348, EO99050349, EO99050350,
EO99050351, EO99050352, EO99050353 and EO99050354.
(6) Page 15. Proceeding before the BPU Establishing Procedures for gas
unbundling, Docket Nos. GX99030121, GO99030122, GO99030123, GO99030124
and GO99030125.
(7) Page 20. Investigation by the U.S. Environmental Protection Agency
(EPA) regarding the Passaic River site.
(8) Page 21. Additional investigation by the U.S. Environmental Protection
Agency (EPA) regarding the Passaic River site.
ITEM 5. OTHER INFORMATION
Certain information reported under PSEG's and PSE&G's 1998 Annual Report
and the March 31, 1999 and June 30, 1999 Quarterly Reports to the SEC is updated
below. References are to the related pages of the Form 10-K and the Quarterly
Reports for the quarters ended March 31, 1999 and June 30, 1999 as printed and
distributed.
Executive Officers
Form 10-K, page 127. Lawrence R. Codey, President and Chief Operating
Officer of PSE&G and a member of the Boards of Directors of PSEG and PSE&G, has
announced that he will retire on February 29, 2000. It is anticipated that
Alfred C. Koeppe, currently Senior Vice President-Corporate Services and
External Affairs of PSE&G, will succeed Mr. Codey as President and Chief
Operating Officer at that time.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) A listing of exhibits being filed with this document is as follows:
PSEG
- --------------------------------------------------------------------------------
Exhibit Number Document
- ------------------ ------------------------------------------------------------
10a PSE&G Thrift and Tax-Deferred Savings Plan, as amended
effective October 1, 1999
10b PSE&G Employee Savings Plan, as amended effective
October 1, 1999
12 Computation of Ratios of Earnings to Fixed Charges (PSEG)
27(A) Financial Data Schedule (PSEG)
PSE&G
- --------------------------------------------------------------------------------
Exhibit Number Document
- ------------------ ------------------------------------------------------------
10a PSE&G Thrift and Tax-Deferred Savings Plan, as amended
effective October 1, 1999
10b PSE&G Employee Savings Plan, as amended effective
October 1, 1999
12(A) Computation of Ratios of Earnings to Fixed Charges (PSE&G)
12(B)
Computation of Ratios of Earnings to Fixed Charges plus
Preferred Stock Dividend Requirements (PSE&G)
27(B) Financial Data Schedule (PSE&G)
(B) Reports on Form 8-K:
Registrant Date of Report Items Reported
- --------------- ------------------------ ----------------------
PSEG and PSE&G July 21, 1999 Items 5 and 7
PSEG and PSE&G September 15, 1999 Item 5
PSEG and PSE&G October 14, 1999 Items 5 and 7
<PAGE>
FORWARD LOOKING STATEMENTS
Except for the historical information contained herein, certain of the
matters discussed in this report constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are subject to risks and uncertainties which could
cause actual results to differ materially from those anticipated. Such
statements are based on management's beliefs as well as assumptions made by and
information currently available to management. When used herein, the words
"will", "anticipate", "intend", "estimate", "believe", "expect", "plan",
"hypothetical", "potential", variations of such words and similar expressions
are intended to identify forward-looking statements. 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 following review
of factors 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 Private Securities Litigation Reform Act of 1995.
In addition to any assumptions and other factors referred to specifically
in connection with such forward-looking statements, factors that could cause
actual results to differ materially from those contemplated in any
forward-looking statements include, among others, the following: deregulation
and the unbundling of energy supplies and services and the establishment of a
competitive energy marketplace for products and services; managing rapidly
changing wholesale energy trading operations in conjunction with electricity and
gas production, transmission and distribution systems; managing foreign
investments and electric generation and distribution operations 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 PSE&G service territory; ability to complete
development or acquisition of current and future investments; partner and
counterparty risk; exposure to market price fluctuations and volatility of fuel
and power supply, power output, marketable securities, among others; ability to
obtain adequate and timely rate relief, cost recovery, and other necessary
regulatory approvals; ability to obtain securitization proceeds; Federal, state
and foreign regulatory actions; regulatory oversight with respect to utility and
non-utility affiliate relations and activities; 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 debt and
equity market concerns associated with these issues.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused these reports to be signed on their respective
behalf by the undersigned thereunto duly authorized.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
---------------------------------------
(Registrants)
By: PATRICIA A. RADO
---------------------------------------
Patricia A. Rado
Vice President and Controller
(Principal Accounting Officer)
Date: November 12, 1999
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
THRIFT AND TAX-DEFERRED SAVINGS PLAN
As Amended Effective October 1,1999
<PAGE>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
THRIFT AND TAX-DEFERRED SAVINGS PLAN
TABLE OF CONTENTS
Page
----
ARTICLE I Amendment - Purpose......................................1
Section 1.1 Amendment of the Plan..............................1
Section 1.2 Purpose............................................1
ARTICLE II Definitions..............................................1
Section 2.1 Account..........................................1
Section 2.2 Active Participant...............................1
Section 2.3 Additional Lump Sum Deposits.....................1
Section 2.4 Affiliate........................................1
Section 2.5 Balanced Fund....................................1
Section 2.6 Basic Deposits...................................2
Section 2.7 Board of Directors...............................2
Section 2.8 Bond Fund........................................2
Section 2.9 Cash Balance Plan................................2
Section 210 Code..............................................2
Section 2.11 Commissioner......................................2
Section 2.12 Committee or Employee Benefits Committee..........2
Section 2.13 Company...........................................2
Section 2.14 Compensation......................................2
Section 2.15 Deferred..........................................3
Section 2.16 Deposits..........................................3
Section 2.17 Disability........................................3
Section 2.18 Eligible Employee.................................4
Section 2.19 Employee..........................................4
Section 2.20 Employee Savings Plan.............................4
Section 2.21 Employer..........................................4
Section 2.22 Employer Contributions............................4
Section 2.23 Enrollment Date...................................4
Section 2.24 Enterprise........................................4
Section 2.25 Enterprise Common Stock...........................4
Section 2.26 Enterprise Common Stock Fund......................4
Section 2.27 Equities Fund.....................................4
Section 2.28 Equities Index Fund...............................4
Section 2.29 ERISA.............................................5
Section 2.30 ESOP Account......................................5
Section 2.31 Fixed Income Fund.................................5
Section 2.32 Funds.............................................5
Section 2.33 General Manager...................................5
Section 2.34 Government Obligations Fund.......................5
Section 2.35 Highly Compensated Employee.......................5
Section 2.36 Highly Compensated Participant....................6
Section 2.37 Hour of Service...................................6
Section 2.38 Investment Manager................................6
Section 2.39 Lay Off or Laid Off...............................6
Section 2.40 Leased Employee...................................7
Section 2.41 Matured...........................................7
Section 2.42 Nondeferred.......................................7
Section 2.43 Participant.......................................7
Section 2.44 Participating Affiliate...........................7
Section 2.45 Personal Choice Retirement Account Fund...........7
Section 2.46 Plan..............................................7
Section 2.47 Plan Year.........................................7
Section 2.48 Qualified Domestic Relations Order or "QDRO"......7
Section 2.49 Record Keeper.....................................8
Section 2.50 Required Beginning Date...........................8
Section 2.51 Retirement........................................8
Section 2.52 Retirement Choice Program.........................8
Section 2.53 Rollover Contributions............................8
Section 2.54 Supplemental Deposits.............................8
Section 2.55 Thrift Account....................................9
Section 2.56 Trust Agreement...................................9
Section 2.57 Trust Fund........................................9
Section 2.58 Trustee...........................................9
Section 2.59 U. S. Energy Partners Account.....................9
Section 2.60 Year of Service..................................10
ARTICLE III Participation...........................................10
Section 3.1 Participation.....................................10
Section 3.2 Effective Date of Participation..................11
RTICLE IV Deposits.................................................11
Section 4.1 Basic Deposits..................................11
Section 4.2 Supplemental Deposits...........................12
Section 4.3 Additional Lump Sum Deposits....................12
Section 4.4 Method of Deposits..............................12
Section 4.5 Limit on Deferred Deposits......................13
Section 4.6 Distribution of Excess Deferral Amounts.........13
Section 4.7 Code Section 401(k) Limits on Deferred Deposits.14
Section 4.8 Unmatched Employer Contributions................15
Section 4.9 Code Section 401(m) Limits on Nondeferred
Deposits and Employer Contributions...........15
Section 4.10 Changing Deposit Percentages....................15
Section 4.11 Suspension of Deposits...........................15
Section 4.12 Limit on Additional Lump Sum Deposits............16
Section 4.13 Elections........................................16
Section 4.14 Rollover Contributions...........................16
Section 4.15 Transfer from the Employee Savings Plan...........17
ARTICLE V Employer Contributions..................................17
Section 5.1 Amount and Payment of Employer Contributions....17
Section 5.2 Employer Contributions in Enterprise Common
Stock............................................17
Section 5.3 Reduction of Employer Contributions by
Forfeitures....... 17
Section 5.4 Maximum Annual Additions........................17
Section 5.5 Return of Employer Contributions................18
Section 5.6 Allocation from Cash Balance Plan...............18
ARTICLE VI Thrift Account Investments..............................18
Section 6.1 Investment of Deposits, Rollover
Contributions and Employer Contributions......18
Section 6.2 Change in Investment Direction..................19
Section 6.3 Transfer/ Reallocation of Investments...........19
Section 6.4 Quarterly Automatic Rebalancing.................20
Section 6.5 Loans...........................................20
Section 6.6 Special Rules for Investment in the Personal Choice
Retirement Account Fund...................21
ARTICLE VII Thrift Account Funds....................................22
Section 7.1 Establishment of Funds..........................22
Section 7.2 Enterprise Common Stock Fund....................23
ARTICLE VIII Thrift Accounts................................................24
Section 8.1 Establishment of Thrift Accounts................24
Section 8.2 Measure of Thrift Accounts......................24
Section 8.3 Valuation of Funds..............................25
Section 8.4 Valuation of Thrift Accounts....................25
Section 8.5 Separate Accounting.............................25
ARTICLE IX ESOP Accounts...........................................26
Section 9.1 Maintenance of Separate Accounts...............26
Section 9.2 Allocation of Distributions....................26
Section 9.3 Withdrawals or Transfers.......................26
Section 9.4 Dividends and Other Income.....................27
Section 9.5 Voting of ESOP Account Common Stock............27
ARTICLE X Vesting.................................................27
Section 10.1 Vesting of Employer Contributions...............27
Section 10.2 Vesting of Deposits, Rollover Contributions
and the ESOP Account........................28
ARTICLE XI Account Distributions and Withdrawals...................28
Section 11.1 Distribution Upon Retirement, Disability,
Lay Off or Death.............................28
Section 11.2 Distribution Upon Other Termination
of Employment.................................29
Section 11.3 Partial Distributions Following Termination of
Employment.....................................30
Section 11.4 Withdrawal of Nondeferred Deposits
and Employer Contributions During Employment..31
Section 11.5 Withdrawals of Deferred Deposits During
Employment After Age 591/2....................32
Section 11.6 Hardship Withdrawals.............................32
Section 11.7 Suspension of Participation......................34
Section 11.8 Transfer of Employment...........................34
Section 11.9 Form of Distributions............................34
Section 11.10 Time of Distributions...........................36
Section 11.11 Limitation on Post Age 70 1/2 Distributions......37
Section 11.12 Distribution in the Case of Certain Disabilities.38
Section 11.13 Loans............................................38
Section 11.14 Inability to Locate Payee........................40
Section 11.15 Federal Income Tax Withholding
on Distributions and Withdrawals.............40
Section 11.16 Direct Rollover to Another Plan or IRA...........40
ARTICLE XII Limits on Benefits and Contributions Under
Qualified Plans.........................................41
Section 12.1 Definitions.....................................41
Section 12.2 Annual Addition Limits..........................48
Section 12.3 Overall Limit...................................50
Section 12.4 Special Rules...................................50
ARTICLE XIII Top-Heavy Requirements.........................................51
Section 13.1 Definitions.....................................51
Section 13.2 General Requirements............................53
Section 13.3 Maximum Compensation............................53
Section 13.4 Vesting.........................................53
Section 13.5 Minimum Contributions...........................53
Section 13.6 Participants Under Defined Benefit Plans........54
Section 13.7 Super Top-Heavy Plans...........................54
Section 13.8 Determination of Top Heaviness..................55
Section 13.9 Determination of Super Top Heaviness............55
Section 13.10 Calculation of Top-Heavy Ratios................55
Section 13.11 Cumulative Accounts and Cumulative
Accrued Benefits............................55
ARTICLE XIV Beneficiary in Event of Death..................................57
Section 14.1 Designation and Change of Beneficiary............57
ARTICLE XV Administration..........................................58
Section 15.1 Named Fiduciary..................................58
Section 15.2 Administration...................................58
Section 15.3 Control and Management of Assets.................59
Section 15.4 Benefits to be Paid from Trust...................59
Section 15.5 Expenses.........................................59
Section 15.6 Overpayments.....................................60
ARTICLE XVI Claims Procedure...............................................60
Section 16.1 Filing of Claims.................................60
Section 16.2 Appeal of Claims.................................60
Section 16.3 Review of Appeals................................60
ARTICLE XVII Merger or Consolidation........................................60
Section 17.1 Merger or Consolidation..........................60
ARTICLE XVIII Non-Alienation of Benefits.....................................61
Section 18.1 Non-Alienation of Benefits.......................61
ARTICLE XIX Amendments.....................................................61
Section 19.1 Amendment Process................................61
ARTICLE XX Termination.............................................61
Section 20.1 Authority to Terminate...........................61
Section 20.2 Distribution Upon Termination....................61
ARTICLE XXI Plan Confers No Right to Employment............................62
Section 21.1 No right to Employment...........................62
ARTICLE XXII Alternate Payees...............................................62
Section 22.1 Alternate Payees Under QDROs.....................62
ARTICLE XXIII Construction...................................................62
Section 23.1 Governing Law....................................62
Section 23.2 Headings.........................................62
<PAGE>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
THRIFT AND TAX-DEFERRED SAVINGS PLAN
ARTICLE I
AMENDMENT - PURPOSE
Section 1.1 Amendment of the Plan. Public Service Electric and Gas
Company hereby further amends, on September __, 1999 and effective October 1,
1999, its Thrift and Tax-Deferred Savings Plan, a savings, profit-sharing and
tax-credit employee stock ownership plan for its Employees and those of its
Affiliates. The Plan was originally adopted as of July 1, 1981 and was formerly
known as the Public Service Electric and Gas Company Thrift Plan.
Section 1.2 Purpose. The purpose of the Plan is to encourage and assist
thrift and savings by eligible non-bargaining unit employees of Public Service
Electric and Gas Company and certain of its Affiliates through tax-sheltered
forms of investment.
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 "Account" shall mean the separate account maintained in the
Plan for each Participant which consists of the Participant's Thrift Account
(including, for some Participants, the U.S. Energy Partners Account) and/or the
Participant's ESOP Account.
Section 2.2 "Active Participant" shall mean a Participant who is an
Eligible Employee presently making Nondeferred Deposits or for whom Deferred
Deposits are presently being made.
Section 2.3 "Additional Lump Sum Deposits" shall mean that amount which
is contributed to the Plan by a Participant on a lump sum basis. Additional Lump
Sum Deposits shall not be entitled to be matched by Employer Contributions.
Section 2.4 "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 2.5 "Balanced Fund" shall mean the Fund or Funds established
pursuant to Section 7.1(f).
Section 2.6 "Basic Deposits" shall mean that amount, not less than 1%,
nor more than 8% (or such lower maximum percentage as may be established by the
Committee) of a Participant's Compensation, contributed to the Plan through
payroll deduction by or on behalf of a Participant which is entitled to be
matched by Employer Contributions.
Section 2.7 "Board of Directors" shall mean the Board of Directors of
the Company.
Section 2.8 "Bond Fund" shall mean the Fund or Funds established
pursuant to Section 7.1(g).
Section 2.9 "Cash Balance Plan" shall mean the Cash Balance Pension
Plan of Public Service Electric and Gas Company or the Cash Balance Pension Plan
for Represented Employees of Public Service Electric and Gas Company.
Section 2.10 "Code" shall mean the Internal Revenue Code of 1986, as
amended, or as it may be amended from time to time.
Section 2.11 "Commissioner" shall mean the Commissioner of Internal
Revenue.
Section 2.12 "Committee" or "Employee Benefits Committee" shall mean
the Employee Benefits Committee of the Company appointed by the Board of
Directors.
Section 2.13 "Company" shall mean Public Service Electric and Gas
Company.
Section 2.14 "Compensation" shall mean the total remuneration paid to a
Participant for services rendered to an Employer excluding the Employer's cost
for any public or private employee benefit plan, but including all Deferred
Basic and Supplemental Deposits made by a Participant or on a Participant's
behalf to this Plan and all elective contributions that are made by an Employer
on behalf of a Participant which are not includable in income under Code section
125, under rules adopted by the Committee which are uniformly applicable to all
Participants similarly situated. However, Compensation shall not include the
following:
(a) any amounts which are deferred under any deferred compensation
plan of the Company or any Affiliate and any payments from any
such plans of any previously deferred amount;
(b) any amounts received as an award pursuant to any of the following
incentive compensation programs: (1) the Company's Management
Incentive Compensation Plan; (2) the PSEG Global Inc. Executive
Long-Term Incentive Compensation Plan; (3) the PSEG Global
Inc.1987 Stock Appreciation Rights Plan; (4) the PSEG Energy
Technologies Inc. Executive Long-Term Incentive Compensation
Plan; (5) the PSEG Energy Holdings Inc. Management Incentive
Compensation Plan; and (6) the Public Service Enterprise Group
Incorporated 1989 Long-Term Incentive Plan;
(c) any payments received pursuant to the terms of this Plan;
(d) any amounts which constitute reimbursement of expenses;
(e) the following miscellaneous payments:
(1) Separation pay;
(2) Gratuity Payments upon death;
(3) Payment for vacation due at time of death;
(4) Worker's Compensation for permanent partial disability;
(5) Employer contributions for social security, unemployment
compensation or other taxes;
(6) Employer payments toward reimbursement of adoption expenses;
and
(7) Payments made expressly for the purpose of satisfying
withholding tax liabilities on awards earned pursuant to any
employee suggestion program of any Employer;
(f) the following special international payments:
(1) International service premium;
(2) Commodities and services allowance;
(3) Equalization Pay;
(4) Transportation allowance;
(5) Foreign service pay; and
(6) Hardship allowance; and
(g) any amounts received by a Participant as a result of the sale of
vacation entitlements.
In any case, however, Compensation of each Participant taken into
account for any Plan Year shall not exceed the applicable compensation limit for
such year determined under Code Section 401(a)(17). The compensation limit for a
Plan Year beginning on or after January 1, 1997 is $160,000 (as indexed). The
Pension of a Code section 401(a)(17) Employee (as defined in Treasury Regulation
section 1.401(a)(17)-1(e)(2)(i)) shall be determined by utilizing the method
described in Treasury Regulation section 1.401(a)(4)-13(c)(4)(iii) (formula with
extended wear-away).
Section 2.15 "Deferred" in reference to Deposits shall mean that such
Deposits are deferred from current Federal income taxation under Code section
401(k).
Section 2.16 "Deposits" shall mean the aggregate of Additional Lump Sum
Deposits, Basic Deposits and Supplemental Deposits made by or on behalf of a
Participant to his or her Thrift Account. The total of all Deposits made by or
on behalf of a Participant in any Plan Year shall not exceed 25% of the
Participant's Compensation for such Plan Year. Deposits shall include "Deferred
Compensation" credited to the Participant under the U.S. Energy Partners 401(k)
Plan.
<PAGE>
Section 2.17 "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 Doctor of Medicine designated and
approved by the Committee.
Section 2.18 "Eligible Employee" shall mean any Employee who has
completed at least one Year of Service whether or not he or she actually elects
to make any Deposits.
Section 2.19 "Employee" shall mean any person not included in a unit of
Employees covered by a collective bargaining agreement who is an employee (such
term having its customary meaning) of the Company or a Participating Affiliate
and who is receiving remuneration for personal services rendered to the Company
or Participating Affiliate other than (1) solely as a director of the Company or
a Participating Affiliate, (2) as a consultant or (3) as an independent
contractor (regardless of whether a determination is made by the Internal
Revenue Service or other governmental agency or court after the individual is
engaged to perform such services that the individual is an employee of the
Company or Participating Affiliate for the purposes of the Code or otherwise).
Section 2.20 "Employee Savings Plan" shall mean the Public Service
Electric and Gas Company Employee Savings Plan.
Section 2.21 "Employer" shall mean the Company and any Participating
Affiliate.
Section 2.22 "Employer Contributions" shall mean the amounts
contributed to the Plan on behalf of Participants by an Employer in accordance
with Article V. Employer Contributions shall include "Employer's Matching
Contributions" credited to the Participant under the U.S. Energy Partners 401(k)
Plan.
Section 2.23 "Enrollment Date" shall mean the earliest of: (a) the
first day of the first payroll period in which payroll deductions from a
Participant's Compensation are made for Deposits under the Plan; (b) the date an
Additional Lump Sum Deposit is accepted by the Plan from a Participant; (c) the
date a Rollover Contribution is accepted from a Participant for payment to the
Trustee for investment in the Plan in accordance with Section 4.14; or (d) the
date an ESOP Account or a U.S. Energy Partners Account is established on behalf
of a Participant.
Section 2.24 "Enterprise" shall mean the Company's parent, Public
Service Enterprise Group Incorporated.
Section 2.25 "Enterprise Common Stock" shall mean the Common Stock,
without nominal or par value, of Enterprise.
Section 2.26 "Enterprise Common Stock Fund" shall mean the Fund
established pursuant to Section 7.1(c).
Section 2.27 "Equities Fund" shall mean the Fund or Funds established
pursuant to Section 7.1(a).
Section 2.28 "Equities Index Fund" shall mean the Fund or Funds
established pursuant to Section 7.1(d).
Section 2.29 "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended, or as it may be amended from time to time.
Section 2.30 "ESOP Account" shall mean that separate portion of an
Account established pursuant to Section 9.1 which evidences the shares of
Enterprise Common Stock transferred to the Plan for the Account of a
Participant, pursuant to the merger with this Plan with the Public Service
Electric and Gas Company Tax Reduction Act Employee Stock Ownership Plan
(TRASOP) and/or the Public Service Electric and Gas Company Payroll-Based
Employee Stock Ownership Plan (PAYSOP), including the net worth of the Trust
Fund attributable thereto.
Section 2.31 "Fixed Income Fund" shall mean the Fund or Funds
established pursuant to Section 7.1(b).
Section 2.32 "Funds" shall mean the several investment Funds
established pursuant to Section 7.1. As used in the singular, "Fund" shall mean
one of such Funds.
Section 2.33 "General Manager" shall mean the Director - Performance
and Rewards of the Company.
Section 2.34 "Government Obligations Fund" shall mean the Fund or Funds
established pursuant to Section 7.1(e).
Section 2.35 "Highly Compensated Employee" shall mean:
(a) For any Plan Year, any Employee who, during the Plan Year or the
preceding Plan Year--
(1) was at any time a 5% owner; or
(2) for the preceding Plan Year, received Compensation from the
Company or an Affiliate in excess of $80,000 (as adjusted
for cost of living increases); and
(3) if the Company or an Affiliate elects, of was in the
top-paid group of Employees for the preceding Plan Year.
(b) For purposes of this Section, an Employee shall be treated as a
5% owner for any Plan Year if at any time during such Plan Year
such Employee was a 5% owner (as defined in Code section
416(i)(1)) of the Company or an Affiliate.
(c) For purposes of this Section, an Employee shall be considered as
being in the top-paid group of Employees for any Plan Year if
such Employee is in the group consisting of the top 20% of the
Employees when ranked on the basis of Compensation paid during
such Plan Year.
(d) For purposes of determining the top-paid group under paragraph
(c), the following Employees shall be excluded:
(1) Employees who have not completed six months of service;
(2) Employees who normally work less than 17 1/2 hours per week;
(3) Employees who normally work during not more than six months
during any year;
(4) Employees who have not attained age 21; and
(5) Employees who are nonresident aliens and who receive no
earned income (within the meaning of Code section 911(d)(2))
from the Company or an Affiliate which constitutes income
from sources within the United States (within the meaning of
Code section 861(a)(3)).
(e) For purposes of this Section, the term "Compensation" shall mean
Compensation within the meaning of Section 12.1, but including
salary reduction contributions to a cafeteria plan, a 401(k) plan
and a simplified employee pension.
(f) A former Employee shall be treated as a Highly Compensated
Employee if (1) such Employee was a Highly Compensated Employee
when such Employee separated from service or (2) such Employee
was a Highly Compensated Employee at any time after attaining age
55.
Section 2.36 "Highly Compensated Participant" shall mean:
(a) those Highly Compensated Employees who are Participants or
(b) those Highly Compensated Employees who are Eligible Employees,
who have satisfied all conditions for participation under Section
3.1, whether or not they actually elect to make any Deposits or
Rollover Contributions to the Plan.
Section 2.37 "Hour of Service" shall mean each hour for which an
Employee is directly or indirectly paid remuneration or entitled to such payment
by an Employer including any hours for which back pay, irrespective of
mitigation of damages, is either awarded or agreed to by an Employer.
Section 2.38 "Investment Manager" shall mean an investment manager as
defined in ERISA section 3(38).
Section 2.39 "Lay Off" or Laid Off" shall mean a Participant's
involuntary separation from service with an Employer because of a reduction in
work forces at a time when there is no further work available with the Employer
for which the Participant is qualified.
Section 2.40 "Leased Employee" shall mean an individual who is not an
Employee but who would be a leased employee as defined in Code section 414(n),
but for the one year service requirement of Code section 414(n)(2)(B).
Section 2.41 "Matured" in reference to Deposits and Employer
Contributions shall mean that the respective amount has been held in the Plan
for at least twenty-four months. The twenty-four month period will include
periods during which Deposits and Employer Contributions held in the
Participant's U.S. Energy Partners Account were held in the U.S. Energy Partners
401(k) Plan.
Section 2.42 "Nondeferred" in reference to Deposits shall mean that
such Deposits are not deferred from current Federal income taxation under Code
section 401(k).
Section 2.43 "Participant" shall mean any person who has an interest in
the Trust Fund.
Section 2.44 "Participating Affiliate" shall mean any Affiliate of the
Company which: (a) adopts the Plan with the approval of the Board of Directors;
(b) authorizes the Board of Directors and the Employee Benefits Committee to act
for it in all matters arising under or with respect to the Plan; and (c)
complies with such other terms and conditions relating to the Plan as may be
imposed by the Board of Directors.
Section 2.45 "Personal Choice Retirement Account Fund" shall mean the
Fund or Funds established pursuant to Section 7.1(h).
Section 2.46 "Plan" shall mean this Public Service Electric and Gas
Company Thrift and Tax-Deferred Savings Plan, including all amendments hereto
which may hereafter be made.
Section 2.47 "Plan Year" shall mean the calendar year.
Section 2.48 "Qualified Domestic Relations Order" or "QDRO" shall mean
any judgment, decree or order pursuant to a state domestic relations or
community property law which relates to the provision of child support or
marital property rights, which creates or recognizes the existence of an
alternate payee's right to (or assigns to an alternate payee the right to)
receive all or part of a Participant's Account, and which meets the requirements
of (a) and (b) below, as interpreted in accordance with Code section 414(p):
(a) such order specifies:
(1) the name and last known mailing address of the Participant
and each alternate payee;
(2) the amount or the percentage of the Participant's Account to
be paid to each alternate payee, or the manner in which such
amount or percentage is to be determined;
(3) the number of payments or the period to which the order
applies; and
(4) each plan to which such order applies; and
(b) such order does not require the Plan to:
(1) provide any type or form of benefit or option not otherwise
provided under the Plan;
(2) provide increased benefits; or
(3) pay to an alternate payee amounts required to be paid to
another alternate payee under a prior QDRO.
Section 2.49 "Record Keeper" shall mean the person(s) or entity(is)
designated by the Committee to maintain the records of the Plan and Plan
Accounts and to perform such other functions as may be designated by the
Committee.
Section 2.50 "Required Beginning Date" shall mean with respect to
distributions to any Participant, April 1 of the calendar year following the
calendar year in which the Participant attains age 70 1/2; provided, however,
that with respect to distributions to any Participant who attained age 70 before
July 1, 1987 and who was not a "5% owner" as defined in Section 13.1(f)(3), the
Required Beginning Date for such Participant shall be April 1 of the calendar
year following the calendar year in which (1) the Participant attains age 70 1/2
or (2) the Participant retires, whichever is later.
Section 2.51 "Retirement" shall mean the termination of employment by a
Participant other than by reason of his or her death:
(a) under circumstances entitling the Participant to an
immediately payable periodic retirement benefit under the
Pension Plan of Public Service Electric and Gas Company, the
Cash Balance Pension Plan of Public Service Electric and Gas
Company or the Cash Balance Pension Plan for Represented
Employees of Public Service Electric and Gas Company, or
(b) at or after age 65.
Section 2.52 "Retirement Choice Program" shall mean the Public Service
Electric and Gas Company Retirement Choice Program or the Public Service
Electric and Gas Company Retirement Choice Program for Represented Employees.
Section 2.53 "Rollover Contributions" shall mean Employee contributions
transferred to the Plan, in accordance with Section 4.14, from a trust under
another corporate plan, each qualified under Code sections 501(a) and 401(a),
respectively.
Section 2.54 "Supplemental Deposits" shall mean the amount, if any, of
Compensation contributed to the Plan through payroll deduction by or on behalf
of a Participant which is greater than the maximum permitted Basic Deposit.
Supplemental Deposits shall include "Deferred Compensation" credited to the
Participant under the U.S. Energy Partners 401(k) Plan.
Section 2.55 "Thrift Account" shall mean that separate portion of an
Account established pursuant to Section 8.1 and which consists of the sum of the
following subaccounts of such Participant:
(a) Basic Deposit Subaccount shall mean that portion of a
Participant's Thrift Account which evidences the value of Basic
Deposits by or on behalf of a Participant under the Plan,
including the net worth of the Trust Fund attributable thereto.
(b) Supplemental Deposit Subaccount shall mean that portion of a
Participant's Thrift Account which evidences the value of
Supplemental Deposits and Additional Lump Sum Deposits under the
Plan, assets transferred by the Participant from his or her ESOP
Account and Rollover Contributions to the Plan by or on behalf of
a Participant, including the net worth of the Trust Fund
attributable thereto, and his or her U.S. Energy Partners Deposit
Subaccount.
(c) Employer Contribution Subaccount shall mean that portion of a
Participant's Thrift Account which evidences the value of
Employer Contributions which have been credited to a
Participant's Account under Section 5.1 of the Plan (less any
forfeitures), including the net worth of the Trust Fund
attributable thereto, and his or her U.S. Energy Partners
Employer Contribution Subaccount.
Section 2.56 "Trust Agreement" shall mean the agreement between the
Company and the Trustee which provides for the management of the Trust Fund and
the investment of Deposits, Employer Contributions and Rollover Contributions to
the Plan and investment of the assets of ESOP Accounts and U.S. Energy Partners
Accounts.
Section 2.57 "Trust Fund" shall mean the aggregate of Additional Lump
Sum Deposits, Basic and Supplemental Deposits made by or on behalf of
Participants, Rollover Contributions and Employer Contributions, together with
ESOP Accounts and U.S. Energy Partners Accounts, increased by any profits or
income thereon, and decreased by any losses thereon and by any payments made
therefrom.
Section 2.58 "Trustee" shall mean any individual(s) or corporation(s)
by whom any assets of the Plan are held under the Trust Agreement.
Section 2.59 "U.S. Energy Partners Account" shall mean that separate
portion of an Account which evidences the assets transferred to the Plan for the
Account of a Participant, pursuant to the merger of this Plan with the U.S.
Energy Partners 401(k) Plan, and which consists of the sum of the following
subaccounts of such Participant:
(a) U.S. Energy Partners Deposit Subaccount shall mean the portion of
a Participant's U.S. Energy Partners Account which evidences the
value of "Deferred Compensation" credited to the Participant
under the U.S. Energy Partners 401(k) Plan, including the net
worth of the Trust Fund attributable thereto.
(b) U.S. Energy Partners Employer Contribution Subaccount shall mean
the portion of a Participant's U.S. Energy Partners Account which
evidences the value of "Employer's Matching Contributions"
credited to the Participant under the U.S. Energy Partners 401(k)
Plan, including the net worth of the Trust Fund attributable
thereto."
Section 2.60 "Year of Service" shall mean the twelve consecutive month
period beginning on the first day of the month in which an Employee commences
employment with the Company or an Affiliate and each succeeding twelve
consecutive month period beginning on the yearly anniversary of such day, during
which the Employee completes not less than 1,000 Hours of Service; and the
determination of whether an Employee shall have completed not less than 1,000
Hours of Service during any such period shall be made by crediting such Employee
with 190 Hours of Service for each calendar month during such period in which
the Employee is entitled to be credited with at least one Hour of Service for
such month. For the purposes of this Section, there shall be included service
with the Company, U.S. Energy Partners or an Affiliate as an Employee or as a
Leased Employee.
ARTICLE III
PARTICIPATION
Section 3.1 Participation. Each Employee may become a Participant by
applying with the Record Keeper to establish a Thrift Account or accept a
Rollover Contribution on such Employee's behalf, when an ESOP Account or a U.S.
Energy Partners Account was established on his or her behalf or when the
Employee elects to make transfers of age and service credits pursuant to the
terms of the Cash Balance Plan and the Retirement Choice Program. An Employee
who, at the time he/she becomes employed by the Company or a Participating
Affiliate is a participant in the Employee Savings Plan shall be automatically
enrolled in the Plan and account balances held in that plan shall be transferred
to this Plan.
By contacting the Record Keeper and using its automatic voice response
system, the Employee can (a) arrange for the payment of an Additional Lump Sum
Deposit to the Plan, (b) authorize his or her Employer to withhold an amount in
a specified percentage of his or her Compensation, (c) authorize his or her
Employer to accept a Rollover Contribution from another qualified corporate plan
in accordance with Section 4.12, (d) authorize establishing an Account to accept
transfers of age and service credits pursuant to the terms of the Cash Balance
Plan and the Retirement Choice Program and (e) authorize the Record Keeper
and/or Employer to pay any such amount to the Trustee for investment in a Thrift
Account under the Plan in accordance with the Employee's instructions.
Participation in the Plan is entirely voluntary.
Section 3.2 Effective Date of Participation. The effective date of
participation shall be the earliest of the following: (a) participation in the
Plan shall be effective for an Employee and payroll deductions shall commence,
as soon as practicable after the Employee has applied to the Record Keeper for
participation; (b) participation in the Plan for an Employee who, at the time
he/she becomes employed by the Company or a Participating Affiliate, is a
participant in the Employee Savings Plan, shall be effective from the date
he/she first became a participant in that plan; (c) participation in the Plan
for an Employee making a Rollover Contribution or a transfer of age and service
credits pursuant to the terms of the Cash Balance Plan and the Retirement Choice
Program shall be effective as soon as practicable after such Employee's Rollover
Contribution or transferred age and service credits are accepted for transfer;
(d) participation of an Employee in the Plan with respect to the ESOP Account
became effective upon receipt by the Plan of the assets credited to the account
of such Employee in the Company's TRASOP and/or PAYSOP pursuant to a merger of
such plan or plans with this Plan; (e) participation of an Employee in the Plan
with respect to the U.S. Energy Partners Account became effective December 16,
1996.
ARTICLE IV
DEPOSITS
Section 4.1 Basic Deposits. An Eligible Employee may elect:
(a) to make Basic Nondeferred Deposits to the Plan in an amount equal
to any integral multiple of 1% of his or her Compensation up to a
total of 8% each pay period; or
(b) to have Basic Deferred Deposits made to the Plan by an Employer
on his or her behalf in an amount equal to any integral multiple
of 1% of his or her Compensation up to a total of 8% each pay
period; or
(c) to make, or have made by an Employer on his or her behalf, any
combination of Deposits under (a) or (b) above, totaling up to 8%
of his or her Compensation each pay period;
subject to the limitations of Sections 4.5 and 5.4. Basic Deposits made by or on
behalf of a Participant shall be paid over by the Employer to the Trustee and
deposited in the Trust Fund as soon as practicable after deduction and, in any
event, within 90 days of deduction. Such Basic Deposits shall be credited as
soon as practicable to such Participant's Basic Deposit Subaccount in the Plan.
Section 4.2 Supplemental Deposits. Each Participant who is electing the
maximum permitted Basic Deposit to the Plan may also elect:
(a) to make Supplemental Nondeferred Deposits to the Plan in an
amount equal to any integral multiple of 1% of his or her
Compensation to a total of 17% of his or her Compensation each
pay period; or
(b) to have Supplemental Deferred Deposits made by an Employer on his
or her behalf in an amount equal to any integral multiple of 1%
of his or her Compensation up to a total of 17% of his or her
Compensation each pay period; or
(c) to make, or have made by an Employer on his or her behalf, any
combination of the Deposits specified in (a) or (b) above,
totaling up to 17% of his or her Compensation each pay period;
subject to limitations of Sections 4.5 and 5.4. Supplemental
Deposits made by or on behalf of a Participant shall be paid over
by an Employer to the Trustee and deposited in the Trust Fund as
soon as practicable after deduction and, in any event, within 90
days of deduction. Such Supplemental Deposits shall be credited
as soon as practicable to such Participant's Supplemental Deposit
Subaccount in the Plan.
Section 4.3 Additional Lump Sum Deposits. Within any Plan Year, each
Participant may make one or more Additional Lump Sum Deposits on a Nondeferred
basis in the minimum amount of $250.00 and in such total amounts which, when
aggregated with such Participant's Basic Deposits and Supplemental Deposits, do
not exceed 25% of his or her Compensation for that Plan Year and subject to the
limitations of Sections 4.5, 4.12 and 5.4. Additional Lump Sum Deposits made by
a Participant shall be paid over by the Record Keeper to the Trustee and
deposited in the Trust Fund as soon as practicable, but no later than 90 days,
after receipt. Such Additional Lump Sum Deposits shall be credited as soon as
practicable to such Participant's Supplemental Deposit Subaccount in the Plan.
Section 4.4. Method of Deposits. Basic Deposits and Supplemental
Deposits by or on behalf of Active Participants shall be made by means of
payroll deduction. For convenience of administration, if the percentage of
Compensation elected to be contributed to the Plan by an Active Participant is
not equal to a whole dollar amount, such amount will be increased to the next
whole dollar amount in establishing the deduction to be made from such Active
Participant's pay. In addition, if an Active Participant's Compensation is
changed, the resulting change in deduction shall be made as soon as practicable
after such change in Compensation.
Additional Lump Sum Deposits shall be paid directly by Participants to
the Record Keeper who shall forward them to the Trustee for investment in the
Participant's Thrift Account in accordance with his or her then current
investment direction.
Section 4.5 Limit on Deferred Deposits. In no event may Deferred
Deposits for any Participant attributable to any taxable year of such
Participant (presumably the calendar year) exceed the amount permitted by Code
section 402(g). Where a Participant elects under Section 4.1 to have Deferred
Deposits made by an Employer to the Plan which would otherwise exceed the limit
of this Section 4.5, such excessive Deferred Deposits shall be deemed to be
Nondeferred Deposits to the Plan ("Deemed Nondeferred Deposits") rather than
Deferred Deposits to the Plan; provided, however, that such Deemed Nondeferred
Deposits shall be subject to the limits and rules of Sections 4.1 and 4.2; and
provided further, that such Deemed Nondeferred Deposits shall be deemed to be
Basic Nondeferred Deposits (and, therefore, matched by Employer Contributions as
set forth in Article V) to the extent possible under the limits of Sections 2.6
and 4.1, taking into account other Basic Deferred and Nondeferred Deposits of
the Participant.
Section 4.6. Distribution of Excess Deferral Amounts.
(a) Notwithstanding any other provision of the Plan to the contrary,
an Employer shall distribute any Excess Deferral Amount (as
defined below), adjusted according to Section 4.6(d), to
Participants who claim such allocable Excess Deferral Amounts for
a calendar year. Such distribution shall be made no later than
the April 15th next following the end of the calendar year for
which such claim is made.
(b) For purposes of this Section 4.6, "Excess Deferral Amount" shall
mean the amount of Deferred Deposits for a calendar year that the
Participant allocates to this Plan and claims pursuant to the
election procedure set forth in Section 4.6(c) below.
(c) A Participant's election to claim an Excess Deferral Amount for a
calendar year shall be in writing, shall be submitted to the
Committee no later than the March 1st next following the end of
such calendar year, shall specify the Excess Deferral Amount and
shall state that if such amount is not distributed, such Excess
Deferral Amount, when added to amounts deferred under other plans
or arrangements described in Code sections 401(k), 408(k) or
403(b), exceeds the limit imposed on the Participant by Code
section 402(g) for the taxable year (calendar year) in which the
deferral occurred.
(d) The amount distributed to a Participant pursuant to this Section
4.6 with respect to a calendar year shall be increased or
decreased, as applicable, by investment income or losses
attributable thereto. If a loss is allocable to the Excess
Deferral Amount, the amount distributed shall not be less than
the lesser of (1) the Participant's Deferred Deposit Subaccount
or (2) the Participant's Deferred Deposits for the Plan Year
during which the Excess Deferral Amount occurred.
Section 4.7 Code Section 401(k) Limits on Deferred Deposits.
(a) Correction of Excess Nondeferred Deposits and Employer
Contributions. If the Committee determines after the end of the
Plan Year that the nondiscrimination limitation of Code section
401(m) has not been satisfied, Nondeferred Deposits and Employer
Contributions (adjusted to reflect any income or losses allocable
to such excess contributions for the Plan Year in which such
excess contributions were made) of the Highly Compensated
Employees shall be distributed to such Highly Compensated
Employees to eliminate such excess Nondeferred Deposits and
Employer Contributions; provided, however, that the amount of
excess Nondeferred Deposits and Employer Contributions for a Plan
Year shall be determined after the excess Nondeferred Deposits
and Employer Contributions that are treated as employee
contributions due to recharacterization under Treasury Regulation
section 1.401(m)-1(e)(2)(iii).
(b) Elimination of Amount of Excess Nondeferred Deposits and Employer
Contributions. The amount of excess Nondeferred Deposits and
Employer Contributions for a Highly Compensated Employee for a
Plan Year is to be determined by the following leveling method,
under which the contribution percentage of a Highly Compensated
Employee with the highest contribution percentage is reduced to
the extent required to--
(1) enable the Plan to satisfy the contribution percentage
limitation, or
(2) cause such Highly Compensated Employee's contribution
percentage to equal the percentage of the Highly Compensated
Employee with the next highest contribution percentage.
This process must be repeated until the Plan satisfies the actual
contribution percentage test.
(c) Return of Excess Nondeferred Deposits and Employer Contributions.
Excess Nondeferred Deposits and Employer Contributions which are
returned to Highly Compensated Employees pursuant to this section
4.7 shall be distributed to such Employees as soon as
practicable, without regard to any limitation otherwise imposed
by law or by the provisions of this Plan. The amount of excess
Nondeferred Deposits and Employer Contributions for a Highly
Compensated Employee is then equal to total Nondeferred Deposits
and Employer Contributions taken into account for the actual
contribution percentage test, minus the product of the Employee's
contribution ratio and the Employee's Compensation used in
determining such ratio.
(d) Family Aggregation Rules. In the case of a Highly Compensated
Employee whose actual contribution ratio is determined under the
family aggregation rules, the determination of the amount of
excess aggregate contributions shall be made as follows:
(1) the actual contribution ratio shall be reduced pursuant to
the leveling method described above, and
(2) the excess aggregate contributions are allocated among the
family members in proportion to the contribution of each
such family member.
Section 4.8 Unmatched Employer Contributions. If, as the result of the
operation of Sections 4.5, 4.6 and/or 4.7, and before the operation of Section
4.9, the combined Deposits of a Participant are adjusted in such a way that
Employer Contributions previously made on behalf of a Participant for a Plan
Year are no longer matched by such Participant's Basic Deposits, then the
matching Employer Contributions allocated to such Participant's Account for such
Plan Year shall be reduced, under nondiscriminatory rules established by the
Committee, to the extent necessary to equal the percentage of Employer
Contributions (as set forth in Article V) with respect to the Participant's
remaining Basic Deposits for such Plan Year. The amount, if any, of previously
allocated Employer Contributions in excess of the percentage of Employer
Contributions (as set forth in Article V) of the Participant's remaining Basic
Deposits shall be forfeited and applied to reduce future Employer Contributions
to the Plan.
Section 4.9 Code Section 401(m) Limits on Nondeferred Deposits and
Employer Contributions.
(a) Limitation. Nondeferred Deposits by, together with Employer
Contributions on behalf of, Highly Compensated Participants for a
Plan Year shall not exceed the amount permissible to meet the
nondiscrimination tests of Code section 401(m).
(b) Distribution of Excess Contributions The Committee shall,
consistent with regulations under the Code, establish
nondiscriminatory rules to meet the requirements of this Section
4.9.
Section 4.10 Changing Deposit Percentages The percentage of
Compensation deposited in the Plan by or on behalf of an Active Participant
shall continue in effect until such Active Participant shall change the rate of
such Deposits. An Active Participant may change the rate of Deposits to a higher
or lower percentage of Compensation within the limitations of Sections 4.1, 4.2
and 4.5 by arranging for such change with the Record Keeper or as otherwise
prescribed by the Committee. Any such change shall become effective as soon as
practicable after receipt of the notice of change by the Record Keeper.
Section 4.11 Suspension of Deposits.
(a) An Active Participant may suspend all of the Deposits to the Plan
made by such Participant or on his or her behalf at any time by
arranging for such suspension with the Record Keeper or as
otherwise prescribed by the Committee. Such suspension shall be
effective as soon as practicable after receipt of the notice of
suspension by the Record Keeper, and shall continue until such
Participant elects to have Deposits resumed by arranging therefor
with the Record Keeper. Payroll deductions under the Plan shall
begin again as soon as practicable after such notice is received
by the Record Keeper.
(b) If, after other required and authorized deductions from an Active
Participant's pay, there is not sufficient money available in any
pay period to make the entire authorized payroll deduction for
such Participant's Nondeferred Deposits, no payroll deduction
shall be made therefor for that pay period.
(c) In case of any such total suspension of Deposits, pursuant to
Section 4.11(a), Employer Contributions on behalf of such
Participant shall be automatically suspended for a like period.
Section 4.12 Limit on Additional Lump Sum Deposits. No further
Additional Lump Sum Deposits may be made by any Participant in any Plan Year in
which the aggregate amount of all of such Participant's Deposits under the Plan
exceeds 25% of such Participant's Compensation for that Plan Year. Any
Additional Lump Sum Deposits inadvertently received in excess of this limitation
shall be refunded to the Participant as soon as practicable following
determination of such excess.
Section 4.13 Elections. All elections under this Article IV shall be
made at the time, in the manner and subject to the conditions as are specified
by the Committee. Elections of Deferred Deposits shall in all cases be
irrevocably made prior to the beginning of the payroll period for which such
elections shall apply. In any year in which the Committee deems it necessary to
do so to meet the requirements of Section 4.5, 4.7, 4.9 or 5.4 or the Code and
the regulations thereunder, the Committee may reduce, for that Plan Year, the
permissible amount of Deposits by or on behalf of any or all Active
Participants.
Section 4.14 Rollover Contributions. Subject to such rules as may be
established by the Committee, an Employee may transfer Rollover Contributions to
the Plan, to be deposited in his or her Supplemental Deposit Account. The
Employee must certify that such amount to be transferred as a Rollover
Contribution qualifies for such transfer under the Code and regulations
thereunder and must submit such information or evidence, satisfactory to the
Committee, that it may require in order to approve such transfer. The Committee
may impose such nondiscriminatory requirements on such transfer as it deems
necessary or desirable. In addition, Rollover Contributions shall then be
subject to all terms and conditions of this Plan and the Trust Agreement and
shall be treated in the same manner as Supplemental Deposits, unless the context
of the Plan or Trust requires otherwise.
Section 4.15 Transfers from the Employee Savings Plan. Any Employee
who, at the time he/she becomes employed by the Company or a Participating
Affiliate, is a participant in the Employee Savings Plan, shall automatically be
enrolled in the Plan and all balances in the Employee Savings Plan shall be
transferred to the Plan and all contribution and investment elections in effect
for the Employee Savings Plan shall remain in effect, subject to change pursuant
to the operation of Sections 4.10, 4.11 and 6.2 hereof.
ARTICLE V
EMPLOYER CONTRIBUTIONS
Section 5.1 Amount and Payment of Employer Contributions. Each Employer
shall contribute to the Plan on behalf of Participants who are Eligible
Employees, who are its Employees and who are making or having their Employer
make on their behalf Basic Deposits to the Plan an amount equal to 50% of the
aggregate of such Basic Deposits, except to the extent that such Basic Deposits
are reduced or distributed as provided in Sections 4.5 through 4.9, and except
as provided in this Article V and in Section 11.4. Employer Contributions shall
be allocated as Nondeferred. Employer Contributions with respect to a Plan Year
shall be paid to the Trustee not later than the due date (including extensions
of time) for filing Enterprise's consolidated Federal income tax return for such
year. All Employer Contributions may be made without regard to current or
accumulated earnings of the Employer. Notwithstanding the foregoing, the Plan
shall be designated a profit sharing plan for purposes of Code sections 401(a),
402, 412 and 417.
Section 5.2. Employer Contributions in Enterprise Common Stock.
Employer Contributions with respect to Basic Deposits in excess of 6% of
Compensation shall be made in shares of Enterprise Common Stock. Any such shares
credited to a Participant's Account shall be acquired in the same manner as
shares acquired for the Enterprise Common Stock Fund established pursuant to
Section 7.2, be invested in that Fund and shall not be available for transfer to
any other Fund or withdrawal from the Plan prior to the Participant's
termination of employment by the Company or any Affiliate. Notwithstanding the
foregoing, any portion of a Participant's Account invested in the Enterprise
Common Stock Fund that is apportioned for an alternate payee under a QDRO in
accordance with Article XXII may be transferred out of such Fund or withdrawn
from the Plan at any time.
Section 5.3. Reduction of Employer Contributions by Forfeitures. The
amount of an Employer's Contribution shall be reduced by the amount of the
reduction of an unmatched Employer Contribution allocable to a Highly
Compensated Participant as provided in Sections 4.7, 4.8 and 4.9, by the amount
of any forfeiture as a result of termination of the employment of an Active
Participant as provided in Section 11.2 or as a result of the Employer's
inability to locate a Participant or beneficiary to whom a benefit hereunder is
due as provided in Section 11.14.
Section 5.4. Maximum Annual Additions. The maximum Annual Addition, as
defined in Section 12.1, for any Plan Year to any Participant's Account may not
exceed the amount provided for by Code section 415(c). The rules governing the
application of this Section 5.4 and other limitations imposed by Code section
415 are more fully set forth in Article XII.
Section 5.5. Return of Employer Contributions.
(a) Notwithstanding any provision of the Plan to the contrary, any
Employer Contribution made to the Plan by reason of mistake of
fact may be returned to the Employer making such Employer
Contribution, provided the return of such Employer Contribution
is made within one year from the date the mistaken payment was
made and any amount so returned shall be disposed of as the
Committee shall direct.
(b) If the Internal Revenue Service determines that any contribution
by an Employer to the Plan is not deductible under Code section
404, such Employer shall have the option, which it may exercise
within one year after the date of the disallowance of such
deduction, to have such contribution returned to the Employer and
any amount so returned shall be disposed of as the Committee
shall direct.
Section 5.6 Allocation from Cash Balance Plan. Pursuant to the Cash
Balance Plan and the Retirement Choice Program, Participants who so elect may
have certain service and age points otherwise allocate to them under the Cash
Balance Plan made as an Employer Contribution to their Accounts under this Plan.
All amounts so elected shall be accepted by the Trustee and invested in
accordance with Section 6.1. No amounts attributable to Employer Contributions
resulting from Participant elections made pursuant to the Cash Balance Plan and
the Retirement Choice Program shall be available for withdrawal from the Plan
until the Participant's termination of employment by the Company or any
Affiliate.
ARTICLE VI
THRIFT ACCOUNT INVESTMENTS
Section 6.1 Investment of Deposits, Rollover Contributions and Employer
Contributions. Deposits, Rollover Contributions and Employer Contributions to
the Plan shall be invested by the Trustee under the Trust Agreement in the Funds
established pursuant to Section 7.1. Upon enrolling in the Plan, each
Participant shall specify, in such form as shall be prescribed by the Committee,
the percentage (which shall be an integral multiple of 1% - including 0% but not
exceeding 100% in the aggregate) of Deposits to his or her Thrift Account which
shall be invested in each of such Funds. Subject to Section 5.2 with respect to
Employer Contributions related to Basic Deposits in excess of 6% of
Compensation, Employer Contributions shall be invested by the Trustee for the
Account of an Active Participant in the same Funds and in the same percentages
as directed by such Participant with respect to the Basic Deposits to his or her
Thrift Account. Rollover Contributions may be invested in funds under the Plan
in such dollar amounts as shall be designated by the Participant.
Notwithstanding anything to the contrary herein, a Participant who, at the time
he/she becomes an Employee, is a participant in the Employee Savings Plan, shall
continue the same investment elections as he/she maintained in the Employee
Savings Plan until a change in investment direction is made in conformity with
the Section 6.2 hereof. Each Participant with a U.S. Energy Partners Account
shall specify, in such form as shall be prescribed by the Committee, the
percentage (which shall be an integral multiple of 1% - including 0% but not
exceeding 100% in the aggregate) of his or her U.S. Energy Partners Account
which shall be invested in each of the Funds established pursuant to Section
7.1; provided, however, that if the Participant fails to so specify, the U.S.
Energy Partners Account shall be invested in a Fixed Income Fund.
Section 6.2 Change in Investment Direction. Any investment direction
given by a Participant under Section 6.1 shall continue in effect until changed
by the Participant. A Participant may change any such direction by giving notice
of such change in the form prescribed by the Committee. Any such change shall
become effective as soon as practicable after receipt of the notice of change by
the Record Keeper. A change in investment direction under this Section 6.2 shall
not automatically cause a transfer of investments under Section 6.3.
Section 6.3 Transfer/ Reallocation of Investments. Subject to Section
5.2 with respect to the limitation on the transfer of Employer Contributions
made in shares of Enterprise Common Stock and Section 6.6 regarding transfers
into and out of the Personal Choice Retirement Account Fund, a Participant may:
(a) direct that all or any part (in integral multiples of 1%) of his
or her interest in any one or more of the Funds be transferred to
any one or more of the other Funds, except that no transfer may
be made into a Participant's ESOP Account. A Participant may also
transfer his or her ESOP Account assets (in integral multiples of
1%, but not exceeding 100% in the aggregate) into any one or
several of the Funds. However, any transfer from a Fund shall be
subject to such contractual limitations regarding transfers from
such Fund as may exist from time to time under the contracts
governing investments held in such Fund. A direction to transfer
all or a portion of a Participant's interest in a Fund shall be
made by giving notice in the form prescribed by the Committee.
Subject to any contractual limitations that may be applicable,
any such transfer shall be made as soon as practicable after
receipt of the notice of such transfer by the Record Keeper; or
(b) reallocate all or any part (in integral multiples of 1%) of his
or her interest among the Funds, except that no funds may be
reallocated into or out of a Participant's ESOP Account. Any such
reallocation shall be subject to such contractual limitations as
may exist from time to time under the contracts governing
investments held in such Funds. A direction to reallocate a
portion of a Participant's interest in a Fund shall be made by
giving notice in the form prescribed by the Committee. Subject to
any contractual limitations that may be applicable, any such
reallocation shall be made as soon as practicable after receipt
of the notice of such reallocation by the Record Keeper.
Section 6.4 Quarterly Automatic Rebalancing. Subject to the limitation
contained in Section 5.2 with respect to the transfer of Employer Contributions
made in shares of Enterprise Common Stock and excluding investments in the
Participant's ESOP Account and in the Personal Choice Retirement Account Fund, a
Participant may elect automatically rebalance his or her Account among some or
all of the Funds at the end of each calendar quarter. Any such rebalancing shall
also be subject to those contractual limitations regarding transfers from
certain Funds as may exist from time to time under the contracts governing
investments held in such Funds. A direction to elect to quarterly automatic
rebalancing of a Participant's Account shall be made by giving notice in the
form prescribed by the Committee and shall be in effect until an election is
made to discontinue such rebalancing. Subject to any applicable contractual
limitations, such rebalancing shall commence as soon as practicable after the
Record Keeper's receipt of the notice of such election and shall occur on, or as
soon as practicable following, the end of each subsequent calendar quarter.
Section 6.5 Loans. Participants may receive loans from their Thrift
Accounts under the provisions of Section 11.13. A loan to a Participant shall be
considered an investment of such Participant's Thrift Account and the principal
amount of the loan shall be treated as a separate investment within the various
subaccounts. Repayments of the principal amount of the loan shall reduce such
corresponding investments of each such subaccount in the inverse order of such
investment and repayments of such principal along with any accrued interest
thereon shall be invested in the Funds in accordance with the Participant's then
current investment direction. Loan amounts shall be taken from subaccounts in
the following order:
(a) Deferred Deposits;
(b) Unmatured Vested Employer Contributions;
(c) Matured Vested Employer Contributions;
(d) Rollover Contributions;
(e) Unmatured Post-1986 Nondeferred Deposits;
(f) Matured Post-1986 Nondeferred Deposits;
(g) Pre-1987 Nondeferred Deposits.
Loan proceeds shall not be taken from a Participant's ESOP Account, from
assets invested in the Personal Choice Retirement Account Fund, from that
portion of a Participant's Thrift Account attributable to Employer Contributions
made in shares of Enterprise Common Stock or from that portion of a
Participant's Account attributable to age and service credits transferred from
the Cash Balance Plan as a result of Participant elections made pursuant to the
Cash Balance Plan and the Retirement Choice Program.
Section 6.6 Special Rules for Investment in the Personal Choice
Retirement Account Fund. Notwithstanding any provision of this Plan to the
contrary, the investment in the Personal Choice Retirement Account Fund shall be
subject to the following restrictions and limitations:
(a) only vested amounts in a Participant's Account may be transferred
into the Personal Choice Retirement Account Fund;
(b) the minimum initial investment shall be $2,000;
(c) additional investments shall be in minimum amounts of $1,000
(therefore, no Basic Deposits, Supplemental Deposits or Employer
Contributions may be made directly into the Personal Choice
Retirement Account Fund);
(d) transfers in to and out of the Personal Choice Retirement Account
Fund shall be in whole dollar amounts only;
(e) with respect to transfers out of the Personal Choice Retirement
Account Fund, the Participant must designate the specific
investment(s) which is(are) to be liquidated in order to effect
the requested transfer;
(f) participation shall be subject to an annual participation fee,
initially $50.00, which may be changed by the Committee at any
time and from time to time;
(g) the annual participation fee shall be deducted on the day the
Participant first invests in the Personal Choice Retirement
Account Fund, and first business day of January thereafter,
prorata from the portion of the Participant's Account which is
not invested in the Personal Choice Retirement Account Fund;
(h) all fees related to specific transactions in the Personal Choice
Retirement Account Fund will be deducted directly from the
Participant's Account (first, from the Personal Choice Retirement
Account Fund Balance and then from the balance in the
Participant's other Funds;
(i) for the period 10/1/99 through 9/30/00, investment shall be
limited to 50% of the vested balance in the Participant's
Account;
(j) for the period 10/1/00 through 9/30/01, investment shall be
limited to 75% of the vested balance in the Participant's
Account;
(k) For the period 10/1/01 and beyond, any Participant maintaining a
balance in the Personal Choice Retirement Account Fund must
maintain a minimum $500 vested balance in the Plan's other Funds;
(l) All transactions within and from the Personal Choice Retirement
Account Fund shall be in settled cash only and, to the extent
that a transaction has not settled, further transactions and
withdrawals from the Personal Choice Retirement Account Fund will
not be available; and
(m) No transfer may be made directly from the Stable Value Fund into
the Personal Choice Retirement Account Fund and any amounts
transferred from the Stable Value Fund must be invested in one of
the Plan's other equity funds for at least 90 days before they
may be transferred into the Personal Choice Retirement Account
Fund.
ARTICLE VII
THRIFT ACCOUNT FUNDS
Section 7.1. Establishment of Funds. Except as provided in subparagraph
7.1(b), the following Funds shall be established exclusively for the collective
investment of Trust Fund assets attributable to Participant Thrift Accounts, as
directed by Participants:
(a) One or more "Equities Funds", the assets of which shall
principally be invested, directly or indirectly, in common stocks
of domestic or foreign corporations. To the extent practicable,
no Equities Fund shall invest in Enterprise Common Stock.
(b) One or more "Fixed Income Funds" the assets of which shall be (1)
held by an insurance company, banking institution or other
corporate entity pursuant to an agreement containing provisions
for the repayment in full of the amounts transferred to the
insurance company, banking institution or other corporate entity
plus interest at a fixed annual rate for a specified period, or
(2) invested in direct obligations of the United States
Government agencies thereof, or in obligations guaranteed as to
the payment of principal and interest by the United States
Government or agencies thereof, or in fully insured bank
deposits, or fixed income private or public securities or (3)
invested in assets that meet the criteria in (1) and (2) whose
benefit responsiveness, liquidity and/or maturity date is
provided for by a third party, or (4) invested in short-term
investments, including, in all cases, a commingled fund or common
trust and excluding, in all cases, securities issued by any
Employer, except that this limitation shall not apply to
securities held by any commingled fund or common trust in which
any portion of a "Fixed Income Fund" shall be invested. The terms
of such agreements and the identity of such insurance companies,
banking institutions, other corporate entities and/or third
parties shall be determined by the Committee from time to time.
At the election of the Committee, any Fixed Income Fund
established hereunder may be merged or combined with the fixed
income fund maintained by the Company pursuant to the Employee
Savings Plan.
(c) An "Enterprise Common Stock Fund", the assets of which shall
principally be invested in Enterprise Common Stock.
(d) One or more "Equities Index Funds", the assets of which shall
principally be invested, directly or indirectly, in common stocks
substantially comprising the Standard and Poor's 500 Index.
(e) One or more "Government Obligations Funds", the assets of which
shall principally be invested, directly or indirectly, in debt
obligations issued or guaranteed by the U. S. Government, its
agencies or instrumentalities.
(f) One or more "Balanced Funds", the assets of which shall be
principally invested, directly or indirectly, in a combination of
the common stocks and fixed-income securities of domestic
corporations.
(g) One or more "Bond Funds", the assets of which shall principally
be invested, directly or indirectly, in U.S. taxable,
investment-grade debt obligations.
(h) One or more "Personal Choice Retirement Account Funds", the
assets of which will be invested in individual stocks, bonds and
mutual funds as directed by the Participant
Notwithstanding the foregoing, any or all of the above Funds may be
temporarily maintained in cash, or may be invested directly or indirectly in
certain short-term obligations as permitted by the Trust Agreement. Dividends,
interest and other income in respect of any Fund shall be reinvested in the same
Fund to the extent not used to pay expenses of the Plan. Except as otherwise
limited by the provisions of this Plan, withdrawals, distributions and
forfeitures, except as otherwise specified in the Plan, shall be charged pro
rata against the various Funds in which the subaccounts from which such
withdrawals, distributions or forfeitures are then invested.
Section 7.2 Enterprise Common Stock Fund.
(a) Enterprise Common Stock purchased for the Enterprise Common Stock
Fund shall be purchased by the Trustee on the open market or
directly from Enterprise should Enterprise elect to make such
sales.
(b) If Enterprise shall elect to sell shares of Enterprise Common
Stock directly to the Plan, the price to be paid by the Trustee
for any such purchases shall be the average of the high and low
sales prices of Enterprise Common Stock as reported by the New
York Stock Exchange, Inc. on the date of purchase.
(c) All voting discretion, including the power to decide whether or
not to tender Enterprise Common Stock in connection with a tender
offer, with respect to the shares of Enterprise Common Stock held
under the Enterprise Common Stock Fund for the Account of a
Participant (whether vested or not vested) shall be vested in the
Trustee. However, the Trustee shall vote all such shares in
accordance with the directions of such Participant. Within a
reasonable time before voting rights are to be exercised, the
Company or the Trustee shall cause to be sent to each Participant
entitled to give voting instructions all information that
Enterprise has or will distribute to shareholders of Enterprise
Common Stock regarding the exercise of such voting rights. Shares
with respect to which no voting instructions are received shall
not be voted by the Trustee.
(d) If, during the course of the Plan, Enterprise should grant to the
holders of Enterprise Common Stock rights to subscribe to an
issue or issues of securities of Enterprise, any such rights
attaching to the shares of Enterprise Common Stock held by the
Trustee under the Enterprise Common Stock Fund shall be sold by
the Trustee and the net proceeds applied by the Trustee to the
purchase of Enterprise Common Stock on the open market for such
Fund. Stock dividends on shares held by the Enterprise Common
Stock Fund, and stock issued upon any split of such shares, shall
be credited to such Enterprise Common Stock Fund.
ARTICLE VIII
THRIFT ACCOUNTS
Section 8.1 Establishment of Thrift Accounts. The Committee shall
maintain or cause to be maintained a Thrift Account for each Participant which
shall consist of the following subaccounts: Basic Deposit Subaccount,
Supplemental Deposit Subaccount and Employer Contribution Subaccount, the assets
of which shall be invested as provided in Section 5.2 or pursuant to the
direction of the Participant as provided in Article VI. The assets of each such
subaccount of the Thrift Account shall be identified as to Nondeferred or
Deferred.
Section 8.2 Measure of Thrift Accounts.
(a) The interests of Participants in the Funds shall be measured by
participating units in the particular Fund, the number and value
of which shall be determined as of each business day as provided
in the next paragraph. Each participating unit shall have an
equal beneficial interest in the Fund, and none shall have
priority or preference over any other.
(b) As soon as practicable at the end of each business day, the
Trustee shall determine the value of each such Fund as of such
business day in the manner prescribed in Section 8.3. The value
so determined shall be divided by the total number of
participating units allocated to the Accounts of Participants
participating in such Fund in accordance with subsection (a) as
of the prior business day. The resulting quotient shall be the
value of a participating unit as of such business day and
participating units shall be allocated, as such value, to and
from the Fund subaccounts of Participants for all transactions by
them or on their behalf with respect to the current business day.
The value of all participating units allocated to Participants'
Fund subaccounts shall be redetermined in a similar manner each
succeeding business day and participating units shall be
allocated to and from the Accounts of Participants participating
in such Fund at such value for all transactions with respect to
such business day. Fractional units shall be calculated to such
number of decimal places as shall be determined by the Committee
from time to time.
(c) If a Participant shall direct pursuant to Section 6.3 that his or
her interest in a Fund or any part thereof shall be transferred
to another Fund or Funds, or if such Participant's interest in a
Fund or any part thereof is distributed, withdrawn, borrowed or
forfeited under Articles IV or XI, the number of participating
units representing such interest or portion thereof as of the
applicable business day shall be cancelled for purposes of any
subsequent determination of the number of and value of the
participating units in such Fund.
Section 8.3 Valuation of Funds. The value of a Fund as of any business
day shall be the market value of all assets (including any uninvested cash) held
by the Fund as determined by the Trustee, reduced by the amount of any accrued
liabilities of the Fund on such business day and increased by Deposits, Rollover
Contributions and Employer Contributions with respect to such business day. The
Trustee's determination of market value shall be binding and conclusive upon all
parties.
Section 8.4 Valuation of Thrift Accounts. The value of a Participant's
subaccount for any Fund as of any business day shall be the value of the
participating units allocated to the Participant's subaccount for such Fund as
of such business day. The value of a Participant's Account as of any business
day shall be the aggregate of the values of such subaccounts, determined as
provided in the preceding Sections of this Article VIII.
Section 8.5 Separate Accounting. The amounts of Deferred Deposits in a
Participant's Thrift Account shall at all times be separately accounted for from
other amounts in such Thrift Account, by allocating investment gains and losses
on Deferred Deposit amounts on a reasonable pro rata basis and by adjusting the
Deferred and other portions of the subaccounts of a Participant's Thrift Account
for withdrawals, distributions, borrowings and contributions. Gains, losses,
withdrawals, distributions, borrowings, forfeitures and other credits or charges
shall be separately allocated between such Deferred Deposit amounts and other
portions of the subaccounts on a reasonable and consistent basis.
ARTICLE IX
ESOP ACCOUNTS
Section 9.1 Maintenance of Separate Accounts. Each ESOP Account shall
be maintained on the basis of shares of Enterprise Common Stock allocated to
such ESOP Account, with each ESOP Account being credited with the number of full
and fractional shares of Enterprise Common Stock so allocated.
Section 9.2 Allocation of Distributions. Any distributions received by
the Plan with respect to Enterprise Common Stock allocated to a Participant's
ESOP Account shall be allocated to such ESOP Account.
Section 9.3 Withdrawals or Transfers.
(a) Notwithstanding any provision in the Plan to the contrary, a
Participant may withdraw in accordance with Sections 11.3 or 11.4
or transfer in accordance with Section 6.3, the shares of
Enterprise Common Stock allocated to Participant's ESOP Account
or the cash value thereof.
(b) With respect to an election of a Participant to withdraw
Enterprise Common Stock from Participant's ESOP Account, the
shares of Enterprise Common Stock, or the cash value at the
election of the Participant, shall be distributed in accordance
with Article XI, provided that such Participant elects to
withdraw all full and fractional shares of Enterprise Common
Stock allocated to such ESOP Account or the cash value thereof.
Such distribution shall be made as soon as practicable after
receipt by the Record Keeper of the Participant's election to
withdraw.
(c) With respect to an election of a Participant to transfer the cash
value of all full and fractional shares of Enterprise Common
Stock from the Participant's ESOP Account to the Participant's
Thrift Account, such transfer shall be made as soon as
practicable after receipt by the Record Keeper of the
Participant's election to transfer, shall be deposited in the
Participant's Thrift Account, shall be invested in one or more
(in multiples of 1% up to an aggregate of 100%) of the Thrift
Account Funds as such Participant shall designate and thereafter
shall be deemed a Rollover Contribution and treated accordingly.
The cash value of each share of Enterprise Common Stock so
transferred shall be equal to the price of a share of Enterprise
Common Stock actually received by the Trustee.
(d) A Participant may not borrow from his or her ESOP Account.
Section 9.4 Dividends and Other Income. Unless otherwise directed as
hereinafter provided, dividends paid in cash with respect to Enterprise Common
Stock allocated to a Participant's ESOP Account shall be distributed to the
Participant as soon thereafter as practicable and, in any event, not later than
90 days after the close of the Plan Year in which paid. Enterprise Common Stock
delivered to the Trustee pursuant to a stock dividend, stock split or
reorganization, shall be allocated to the ESOP Account of Participants in that
proportion which the shares of each Participant's ESOP Account bears to the
total shares of all Participants' ESOP Accounts.
Section 9.5 Voting of ESOP Account Common Stock. As provided in Section
7.2 with respect to the Enterprise Common Stock Fund, all voting discretion with
respect to stock held in a Participant's ESOP Account, including the power to
decide whether or not to tender Enterprise Common Stock in connection with a
tender offer, shall be vested in the Trustee. Each Participant shall be entitled
to direct the Trustee as to the manner in which voting rights attributable to
Enterprise Common Stock (including fractional shares or fractional rights to
shares) allocated to such Participant's ESOP Account are to be exercised. Within
a reasonable time before voting rights are to be exercised, the Trustee or the
Company shall cause to be sent to each Participant entitled to give voting
instructions all information that Enterprise has or will distribute to
shareholders of Enterprise Common Stock regarding the exercise of such voting
rights. Such voting rights shall be exercised by the Trustee but only to the
extent directed by a Participant. Shares with respect to which no voting
instructions are received shall not be voted by the Trustee.
ARTICLE X
VESTING
Section 10.1 Vesting of Employer Contributions.
(a) Upon completion of five Years of Service, a Participant shall
have a 100% vested interest in his or her Thrift Account
attributable to Employer Contributions made on behalf of such
Participant during any Plan Year. In addition, if a Participant
is eligible for Retirement, suffers a Disability, is Laid Off or
dies, such Participant shall have a 100% vested interest in his
or her Thrift Account attributable to Employer Contributions for
all Plan Years. Also notwithstanding anything herein to the
contrary, a Participant who is an Employee of CEA Kennedy
Operators, Inc. or CEA Stony Brook Operators, Inc. on the date of
the sale of his or her respective Employer shall have a 100%
vested interest in his or her Thrift Account attributable to
Employer Contributions for all Plan Years of participation.
(b) A Participant will become vested in the value of his or her U.S.
Energy Partners Employer Contribution Subaccount according to the
following schedule based on his or her Years of Service:
Years of Vested
Service Percentage
------- ----------
Less than one 0
One 20
Two 40
Three 60
Four 80
Five or more 100
In the case of a Participant who has received a withdrawal or a
distribution under Article XI at a time when his or her vested
percentage in his or her U.S. Energy Partners Employer
Contribution Subaccount was at least 20% but less than 100%, and
who is employed by the Company or an Affiliated Company after
receiving such a withdrawal or distribution, the amount of the
vested portion of his or her U.S. Energy Partners Employer
Contribution Subaccount shall be determined according to the
following formula:
Amount of the Vested Portion = P(AB + D) - D
P is the vested percentage at the relevant time (e.g., at
subsequent termination of employment). AB is the U.S. Energy
Partners Employer Contribution Subaccount balance at the
relevant time. D is the amount of the prior distribution
attributable to U.S. Energy Employer Contribution Subaccount.
(c) For purposes of determining Years of Service, a Participant
shall not be considered to have interrupted his or her
continuous service as a result of a leave of absence or as a
result of a termination of employment; provided, however,
that the periods of absence from employment for these
reasons shall not be counted toward Years of Service for
vesting purposes.
Section 10.2 Vesting of Deposits, Rollover Contributions and the ESOP
Account. A Participant's interest in his or her Thrift Account attributable to
Deposits and Rollover Contributions for all Plan Years and in his or her ESOP
Account shall be 100% vested at all times.
ARTICLE XI
ACCOUNT DISTRIBUTIONS AND WITHDRAWALS
Section 11.1 Distribution Upon Retirement, Disability, Lay Off or
Death. If a Participant terminates employment on account of Retirement or
Disability, is Laid Off or dies, then, in that event, the Participant's Thrift
Account, determined as of the business day coinciding with or next following the
date of the last Deposit made by or which would have been made on behalf of such
Participant, together with the Participant's ESOP Account, shall:
(a) if the value of such Account as so determined is $5,000 (or such
other amount established by law) or less, be distributed, subject
to the provisions of Section 11.10(c), as soon as practicable to
the Participant, or in the case of death of the Participant, to
the Participant's beneficiary as determined in accordance with
Article XIV or, if none, to the Participant's estate; or
(b) if the value of such Account as so determined shall exceed $5,000
(or such other amount established by law), be distributed upon
the earliest of the Participant's Required Beginning Date, the
death of such Participant or the receipt by the Record Keeper of
an application for distribution (which may be for less than all
of the Participant's Account balance provided, however, that the
amount of distribution shall be at least $200, unless such
distribution is of 100% of the remaining value of such
Participant's Account) in a form prescribed by the Committee.
Section 11.2 Distribution Upon Other Termination of Employment. Upon
termination of a Participant's employment with an Employer or for reasons other
than Retirement, Disability, Lay Off or death, the vested portion of the
Participant's Account, determined as of the business day coinciding with or next
following the date of the last Deposit made by or which would have been made on
behalf of such Participant, or, if none, the business day coinciding with or
next following the date of termination, shall:
(a) if the value of such Account as so determined is $5,000 (or such
other amount established by law) or less, be distributed, subject
to the provisions of Section 11.10(c), as soon as practicable to
the Participant, or, in the case of death of the Participant
after termination of employment but prior to such distribution,
to the Participant's beneficiary, or, if none, to the
Participant's estate; or
(b) if the value of such Account as so determined shall exceed $5,000
(or such other amount established by law) be distributed upon the
earliest of the Participant's Required Beginning Date, the death
of the Participant or the receipt by the Record Keeper of an
application for distribution (which may be for less than all of
the Participant's Account balance provided, however, that the
amount of distribution shall be at least $200, unless such
distribution is of 100% of the remaining value of such
Participant's Account) in a form prescribed by the Committee.
Any nonvested portion of the Participant's Account, determined as of
the date of termination, shall be forfeited and shall be applied thereafter to
reduce a subsequent contribution or contributions of the Employer as provided in
Section 5.2. If such former Participant is rehired by an Employer on or before
the end of and is employed by an Employer at the end of the fifth Plan Year
after the Plan Year in which such termination occurred, then such nonvested
portion of the Participant's Account shall be reinstated by the Employer and the
Participant's right thereto shall be determined as if the Participant had not
terminated employment, provided that the Participant repays to the Plan the
amount of any distribution paid to him or her on account of the termination of
employment.
The nonvested portion of the Participant's Account, determined as of
the date of termination, shall be forfeited as of the earlier of (i) the date
the Participant receives a cash-out distribution as described in Treasury
Regulation section 1.411(a)-7(d) or (ii) the time at which the terminated
Participant experiences five consecutive one-year breaks in service, and shall
be applied thereafter to reduce a subsequent contribution or contributions of
the Employer as provided in Section 5.2.
Section 11.3 Partial Distributions Following Termination of Employment.
A Participant who elects pursuant to Section 11.1(b) or 11.2(b) to continue
participation in the Plan following termination of employment may, subsequent to
such Participant's termination of employment but prior to his or her Required
Beginning Date, upon application to the Committee in such format as it may
determine, withdraw all or part of such Participant's Account in minimum amounts
of $200.00 per withdrawal. Such withdrawals may be limited to after-tax
withdrawals.
Withdrawals shall be taken from a Participant's Thrift Plan subaccounts
in the following order:
(a) After-tax withdrawals:
(1) Pre-87 Nondeferred Deposits;
(2) Post-86 Nondeferred Deposits and earnings thereon;
(3) Earnings on Pre-87 Nondeferred Deposits.
(b) Partial withdrawals:
(1) Pre-1987 Nondeferred Deposits;
(2) Post-1986 Nondeferred Deposits and earnings thereon;
(3) Rollover Contributions and earnings thereon;
(4) Earnings on pre-1987 Nondeferred Deposits;
(5) Vested Employer Cash Contributions and earnings thereon;
(6) Vested Employer Stock Contributions and earnings thereon;
(7) Vested Employer Cash Balance Contributions and earnings
thereon;
(8) Deferred Deposits and earnings thereon.
<PAGE>
Section 11.4 Withdrawal of Nondeferred Deposits and Employer
Contributions During Employment.
(a) A Participant may, by application to the Record Keeper in the
form prescribed by the Committee, request to withdraw from the
Plan any or all of his or her Nondeferred Deposits and earnings
thereon, Rollover Contributions and earnings thereon and Vested
Employer Contributions (except for Employer Contributions
resulting from Participant elections made pursuant to the Cash
Balance Plan) shall be available for withdrawal as well as
earnings thereon; provided, however, that the amount withdrawn
shall be at least $200, unless such withdrawal is of 100% of the
value of such Participant's Thrift Account.
(b) If a withdrawal includes Deposits that are not Matured, Employer
Contributions with respect to such Participant shall be suspended
for a period of three months.
(c) Withdrawals shall be taken from a Participant's Thrift Plan
subaccounts in the following order:
(1) Pre-1987 Nondeferred Deposits;
(2) Matured Post-1986 Nondeferred Deposits and earnings thereon;
(3) Unmatured Post-1986 Nondeferred Deposits and earnings
thereon;
(4) Rollover Contributions and earnings thereon;
(5) Earnings on pre-1987 Nondeferred Deposits;
(6) Matured Vested Employer Contributions and earnings thereon;
(7) Unmatured Vested Employer Contributions and earnings
thereon.
(d) Except as provided in Section 6.6 with respect to a Participant's
investment in the Personal Choice Retirement Account Fund, any
withdrawal made by a Participant pursuant to this Section 11.4
shall be made from all Funds in which the Nondeferred Deposits,
Rollover Contributions and Employer Contributions by or on behalf
of such Participant are invested and shall be charged pro rata
against such subaccounts in the Participant's Thrift Account.
(e) The amount of any withdrawal made by a Participant pursuant to
this Section 11.4 shall be determined as of the close of the
business day on which the notice of withdrawal is received by the
Record Keeper.
(f) Notwithstanding any of the foregoing, no withdrawals of Employer
Contributions made in shares of Enterprise Common Stock or
resulting from Participant elections made pursuant to the Cash
Balance Plan and the Retirement Choice Program shall be permitted
prior to the date that the Participant terminates his or her
employment.
Section 11.5 Withdrawals of Deferred Deposits During Employment After
Age 59 1/2. A Participant over the age 59 1/2 may withdraw all or a portion of
the value of his or her Thrift Account attributable to the Deferred Deposits.
The value of such Deferred Deposits for the purpose of such withdrawal shall be
determined as of the close of the business day in which the notice of withdrawal
is received by the Record Keeper. The minimum withdrawal permitted shall be
$200, unless such withdrawal is 100% of the current value of the Deferred
portion of a Participant's Thrift Account.
Section 11.6 Hardship Withdrawals.
(a) Upon the application of any Participant, or his or her legal
representative, the Committee, in accordance with a uniform
nondiscriminatory policy, shall permit such Participant to
withdraw such portion of the value of his or her vested Thrift
Account as deemed to be necessary for the purpose of:
(1) Expenses for medical care described in Code section 213(d)
previously incurred by the Participant, the Participant's
spouse or any dependents (as defined in Code section 152) of
the Participant or necessary for these persons to obtain
medical care described in Code section 213(d);
(2) Costs directly related to the purchase (excluding mortgage
payments) of a principal residence of the Participant;
(3) Payment of tuition and related educational fees for the next
12 months of post-secondary education for the Participant,
the Participant's spouse, children or any dependents (as
defined in Code section 152) of the Participant; or
(4) Payments necessary to prevent the eviction of the
Participant from his principal residence or foreclosure on
the mortgage of the Participant's principal residence.
(b) A Participant or legal representative making application under
this Section 11.6 shall have the burden of presenting to the
Committee satisfactory proof of such need. The Committee shall
not permit withdrawal under this Section without first receiving
such proof as it shall deem necessary to demonstrate such
hardship.
(c) The amount which may be withdrawn shall be withdrawn, as
necessary, in the following order:
(1) Nondeferred Deposits together with vested Employer
Contributions, in the order prescribed by Section 11.4, but
without regard to the limitations on withdrawals of Section
11.4;
(2) Deferred Supplemental Deposits; and
(3) Deferred Basic Deposits.
(d) A withdrawal will be deemed to be necessary to satisfy an
immediate and heavy financial need of a Participant if all of the
following requirements are satisfied:
(1) The withdrawal is not in excess of the amount of the
immediate and heavy financial need of the Participant,
(2) The Participant has obtained all distributions, other than
hardship withdrawals, and all nontaxable loans currently
available under all plans maintained by his or her Employer,
(3) The Participant is prohibited under the terms of the Plan or
an otherwise legally enforceable agreement from making
elective contributions and employee contributions to the
Plan and all other plans maintained by the Company or an
Affiliate for at least 12 months after receipt of the
hardship withdrawal, and
(4) The Plan and all other plans maintained by the Employer,
provide that the Participant may not make elective
contributions for the Participant's taxable year immediately
following the taxable year of the hardship withdrawal in
excess of the applicable limit under Code section 402(g) for
such next taxable year less the amount of such Participant's
elective contributions for the taxable year of the hardship
withdrawal. A Participant shall not fail to be treated as an
eligible Participant for purposes of paragraph (b) of this
Section merely because he is suspended in accordance with
this provision.
(e) If a Participant shall make a withdrawal pursuant to this
Section 11.6, then
(1) the Participant shall not be permitted to make Deposits
(including Additional Lump Sum Deposits) to the Plan
during the one year period beginning on the date of
receipt of such withdrawal; and
(2) a Participant's Deferred Deposits for the Participant's
taxable year next following the taxable year of the
hardship withdrawal may not exceed the limit
established under Code section 402(g) less the amount
of Deferred Deposits made by the Participant in the
year of such withdrawal.
(f) Amounts available for hardship withdrawals with respect to
Deferred Deposits will be limited to the amount of a
Participant's Deferred Deposits, plus earnings allocable
thereto which were credited to Participant's Accounts as of
December 31, 1988, less the amount of any previous hardship
withdrawals.
(g) A hardship withdrawal from the Thrift Account shall not be
permitted unless and until a Participant has withdrawn,
pursuant to Section 9.3, all Enterprise Common Stock from
his or her ESOP Account.
(h) The hardship withdrawal shall be paid to the Participant in
the amount approved as soon as practicable after his or her
application is approved by the Committee.
(i) Notwithstanding any of the foregoing, no withdrawals of
Employer Contributions made in shares of Enterprise Common
Stock or resulting from Participant elections made pursuant
to the Cash Balance Plan and the Retirement Choice Program
shall be permitted prior to the date that the Participant
terminates his or her employment.
Section 11.7. Suspension of Participation. If a Participant shall cease
to be an Eligible Employee, Deposits and Employer Contributions to his or her
Thrift Account shall be suspended and no Additional Lump Sum Deposits shall be
permitted to be made during the period of ineligibility. Distribution of such
Participant's Account shall be deferred until such Participant's termination of
employment with an Employer, whereupon the Participant's Thrift Account shall be
distributed in accordance with the applicable provisions of this Article XI.
Such Participant shall continue to be deemed a Participant for all purposes
other than for Articles IV and V during such period of ineligibility.
Section 11.8 Transfer of Employment. If a Participant shall be
transferred to the employ of an Affiliate which is not an Employer, distribution
of such Participant's Account shall be deferred until the Participant is no
longer in the employ of the Employer or any Affiliate, whereupon the
Participant's Account shall be distributed in accordance with the applicable
provisions of this Article XI. Such transferred Participant shall continue to be
deemed a Participant for all purposes other than for Articles IV and V during
such period of deferral of distribution.
Section 11.9 Form of Distributions.
(a) All distributions from the Plan shall be made in money by check,
except that in the case of a lump sum distribution only, other
than a hardship withdrawal in accordance with Section 11.6, a
Participant may, by notice to the Record Keeper in the form
prescribed by the Committee, (i) elect to have any whole shares
of Enterprise Common Stock held for such Participant's Enterprise
Common Stock Fund subaccount and/or ESOP Account distributed in
shares of Enterprise Common Stock (the value of any fractional
shares shall be paid in money by check) and/or (ii) elect to have
particular assets held in the Personal Choice Retirement Account
Fund transferred to an individual retirement account with the
vendor administering the Personal - Choice Retirement Account
Fund. Any such election may be made at any time prior to the
distribution under Sections 11.1 and 11.2 or prior to receipt by
the Record Keeper of the notice of withdrawal in the case of a
distribution under Sections 11.3 or 11.4. If no such election is
made, the entire value of the amount of the Participant's Account
being distributed shall be distributed in money by check.
(b) All distributions from the Plan shall be made in one lump sum,
with the following exceptions:
(1) In the case of a distribution from a Participant's Account
on account of a Participant's Retirement, such Participant
may elect to have his or her Account, including the ESOP
Account, which is to be transferred into one of the Thrift
Account Funds, distributed in annual or quarterly payments
in money by check by the Trustee in amounts as nearly equal
as possible for a specified number of years up to ten years.
Each payment shall be an amount equal to the Participant's
Thrift Account as of the applicable date divided by the
number of payments remaining.
(2) In the case of a distribution from a Participant's U.S.
Energy Partners Account which exceeds, or has ever exceeded
at the time of any prior distribution, $3,500, if any, the
Participant may elect to have his or her U.S. Energy
Partners Account distributed in one of the following forms:
(A) in the form of a joint and survivor annuity with a
benefit following the Participant's death continuing to
the Participant's spouse during the spouse's lifetime
at a rate equal to 100% (or, at the Participant's
election, 50%) of the rate at which benefits were
payable to the Participant.
(B) in the form of a single life annuity, provided that the
Participant's spouse consents.
(c) If a Participant shall die prior to complete distribution of his
or her Thrift Account pursuant to subsection (b)(1), the value of
the Participant's Thrift Account shall be distributed as soon as
practicable in a lump sum to the Participant's beneficiary, or,
if none, to the Participant's estate. The amount so distributed
after a Participant's death shall be the remaining value of
Participant's Thrift Account determined as of the business day
coinciding with or next following the date of the Participant's
death. Notwithstanding the foregoing, if a Participant who has a
U.S. Energy Partners Account which exceeds, or has ever exceeded
at the time of any prior distribution, $3,500 dies before amounts
have become distributable under subsection (b), his or her
surviving spouse, if any, may elect to have the U.S. Energy
Partners Account paid in the form of a pre retirement survivor
annuity. In addition, if a Participant who has a U.S. Energy
Partners Account dies after amounts have become distributable
under paragraph (2) of subsection (b), survivor benefits, if any,
will be paid in accordance with the annuity elected.
(d) If no election is made under subparagraph (b) above, and the
value of a Participant's Thrift Account, when aggregated with the
value of any ESOP Account and/or U.S. Energy Partners Account of
the Participant, determined in accordance with Article IX,
exceeds $3,500, a distribution will be made in one lump sum at
the time provided for in Section 11.1 or Section 11.2, except as
otherwise provided in Section 11.6.
(e) Anything to the contrary notwithstanding, any Thrift Account
distribution to be made to a Participant under subparagraph (b)
(1) above shall be made in such a manner that the present value
of the payments to be made to the Participant during his or her
life expectancy are calculated to be more than 50% of the present
value of the total payments to be made to the Participant and any
beneficiaries.
Section 11.10 Time of Distributions.
(a) All distributions from the Plan shall commence as soon as
practicable, and in any event no later than 60 days after the
close of the Plan Year in which the Participant terminates
employment, reaches his or her Required Beginning Date, dies, or,
if applicable, requests distribution under Section 11.1 and 11.2,
or 60 days after the close of the Plan Year in which the
Participant elects to withdraw funds from the Plan in the case of
distributions under Sections 9.3, 9.4, 11.3, 11.4 and 11.5.
(b) In the case of a distribution over a period of years under
subparagraph (b) of Section 11.9, the initial payment shall be
made at a time determined in accordance with subparagraph (a) of
this Section 11.10. In the case of annual distributions, the
remaining annual payments shall be made in successive calendar
years on such date each year as shall be determined by the
Committee, subject to the provisions of subparagraph (b) of
Section 11.9 in the case of the Participant's death. In the case
of quarterly distributions, the remaining payments shall be made
each successive three month period on such day during the period
as may be established by the Committee, subject to the provisions
of subparagraph (b) of Section 11.9 in the case of the
Participant's death.
(c) In the case of a distribution on account of a Participant's
Retirement, subject to the provisions of subsection 11.11, the
Participant may elect to have his or her Account distributed as a
lump sum during (1) the Plan Year next following the Plan Year of
his or her Retirement or (2) the next succeeding Plan Year
thereafter or (3) if the Account value exceeds $5,000, at any
time up to the Participant's Required Beginning Date. If no such
election is made, distribution shall commence in accordance with
Section 11.1 and subparagraph (a) above.
Section 11.11 Limitation on Post Age 70 1/2 Distributions.
Notwithstanding the provisions of Sections 11.9 and 11.10:
(a) the entire interest of a Participant must:
(1) be distributed not later than the Participant's Required
Beginning Date, or,
(2) commence no later than such Required Beginning Date and be
payable in accordance with regulations under the Code over a
period not extending beyond the life expectancy of such
Participant.
(b) If a Participant dies before his or her entire interest has been
distributed, then such entire interest (or the remaining part of
such interest if distribution thereof has commenced) shall be
distributed within five years after the Participant's death, and,
if distribution has commenced prior to death, shall be
distributed at least as rapidly as the method of distribution
being used as of the date of such Participant's death.
(c) The amount of the distribution required by this Section 11.11 is
to be determined by Treasury Regulations Section 1.72-9, Table V
using the attained age of the Participant as provided in
regulations without recalculation of the life expectancy;
provided, however, that the amount of the distribution required
by this Section 11.11 with respect to a Participant's U.S. Energy
Partners Account, if any, is to be determined by Treasury
Regulations Section 1.72-9, using the attained age or ages of the
Participant and his or her designated beneficiary as provided in
regulations with recalculation of the life expectancies as the
Participant may elect. Distribution will be made in accordance
with the regulations under Code section 401(a)(9), including the
minimum distribution incidental death benefit requirement of
section 1.401(a)(9)-2, and such regulations shall override any
inconsistent Plan provisions.
Section 11.12 Distribution in the Case of Certain Disabilities. In the
event that the Committee shall find that any person entitled to a distribution
under the Plan is unable to care for his or her affairs because of illness or
accident or because the person is a minor or has died, the Committee may direct
that any distribution due such person, unless claim shall have been made
therefor by a duly appointed legal representative, be paid or applied to or for
the benefit of such person, or his or her spouse, any child of such person
(including an adopted child), any parent or other blood relative of such person,
or a person with whom the person resides, or any of them, and any such payment
or application so made shall be a complete discharge of the liabilities of the
Plan therefor.
Section 11.13 Loans.
(a) The Committee shall have complete authority to establish and
administer a loan program to provide loans to Participants. The
loan program shall include the following:
(1) A procedure for applying for loans;
(2) The basis on which loans will be approved or denied;
(3) Limitations (if any) on the types and amounts of loans
offered;
(4) The procedure under the loan program for determining a
reasonable rate of interest;
(5) The types of collateral which may secure a loan; and
(6) The events constituting default and the steps that will be
taken to preserve plan assets in the event of such default.
The rules and applicable limitations established by the loan
program shall be such as to prevent any loan from constituting a
prohibited transaction under Code section 4975 and ERISA section
406, or a Plan distribution under Code section 72(p).
(b) The Trustee shall, subject to the approval of the General Manager
and compliance with the written loan program and the provisions
of the Code, lend a Participant, who is employed by an Employer,
an amount up to 50% of the vested portion of his or her Account,
including the ESOP Account, but not more than $50,000 in the
aggregate as of the date on which the loan is approved reduced by
the highest outstanding loan balance during the preceding twelve
months. However, no amount may be loaned directly from any ESOP
Account, from any portion of the Enterprise Common Stock Fund
attributable to Employer Contributions made in shares of stock,
from Employer Contributions resulting from Participant elections
made pursuant to the Cash Balance Plan and the Retirement Choice
Program or from investments held in the Personal Choice
Retirement Account Fund. The General Manager shall review each
application for a loan in a nondiscriminatory manner and in
accordance with such rules as may be prescribed by the Committee.
Loans, if approved, shall be made as soon thereafter as
practicable.
(c) In addition to such rules and regulations as the Committee may
adopt, all loans shall comply with the following terms and
conditions:
(1) An application for a loan by an eligible Participant shall
be made by making application therefor to the Record Keeper
in the form prescribed by the Committee.
(2) An eligible Participant may not apply for more than one loan
in any calendar year nor for a loan with an initial
principal amount of less than $1,000 and, in any event, may
not have more than two (2) loans outstanding at any one
time.
(3) All loans, including interest thereon, shall be repaid by
payroll deduction in equal monthly installments over a
period of 12 to 60 months as selected by the Participant.
Nothing herein, however, shall prohibit a Participant from
prepaying such loan in whole or in part in a lump sum in
accordance with such rules as may be established from time
to time by the Committee.
(4) Each loan shall be secured by an assignment of the
Participant's entire right, title and interest in and to the
Trust Fund to the extent of the loan and accrued interest
thereon and shall be evidenced by the Participant's
promissory note for the amount of the loan, including
interest, payable to the order of the Trustee.
(5) Each loan shall bear interest at a reasonable rate (which
rate may be a variable rate) to be established from time to
time by the Committee, not in violation of any applicable
usury laws. In determining the interest rate, the Committee
shall take into consideration interest rates being charged
by other lenders at the time of such determination.
(d) No distribution shall be made to any Participant or beneficiary
thereof unless and until all unpaid loans, including interest
thereon, have been repaid.
Section 11.14 Inability to Locate Payee. Any benefit payable to a
Participant or beneficiary shall be forfeited if the Employer, after reasonable
effort, is unable to locate such Participant or beneficiary to whom payment is
due. The amount of any such forfeited benefit shall be applied to reduce the
amount of Employer Contributions required under the Plan as provided in Section
5.3. However, any such forfeited benefit shall be reinstated and become payable
if a claim therefor is made by such Participant or beneficiary.
Section 11.15 Federal Income Tax Withholding on Distributions and
Withdrawals. Distributions and withdrawals under this Plan shall be subject to
Federal income tax withholding as prescribed by Code section 3405 and the
regulations thereunder.
Section 11.16 Direct Rollover to Another Plan or IRA On or after
January 1, 1993, at the election of a Participant or his spouse or former spouse
entitled to a distribution under Section 22.1 or the foregoing provisions of
this Article XI, the Committee shall direct the Trustee to make a direct
rollover to the trustee or other custodian of an "eligible retirement plan" by
any reasonable means (including providing the Participant or spouse or former
spouse with a check made payable only to the trustee or custodian) of all, or a
specified portion, of an "eligible rollover distribution," subject to the
following restrictions:
(a) An "eligible rollover distribution" is any distribution of all or
any portion of the Participant's Account, except that an
"eligible rollover distribution" does not include
(i) any distribution that is one of a series of substantially
equal periodic payments (made not less frequently than
annually) made for the life (or life expectancy) of the
recipient or the joint lives (or joint life expectancies) of
the recipient and the recipient's designated beneficiary, or
for a specified period of at least ten years; or
(ii) any distribution required under Code section 401(a)(9).
(b) An "eligible retirement plan" is an individual retirement account
described in Code section 408(a), an individual retirement
annuity described in Code section 408(b), an annuity plan
described in Code section 403(a), or a qualified trust described
in Code section 401(a), that accepts the recipient's "eligible
rollover distribution." If the recipient is the Participant's
surviving spouse, but not an alternate payee receiving a
distribution pursuant to a Qualified Domestic Relations Order, an
"eligible retirement plan" is an individual retirement account
described in Code section 408(a) or an individual retirement
annuity described in Code section 408(b) that accepts the
surviving spouse's "eligible rollover distribution," but not an
annuity plan described in Code section 403(a) nor a qualified
trust described in Code section 401(a).
(c) The Participant or his or her spouse or former spouse must
specify, in such form and at such time as the Committee may
prescribe, the "eligible retirement plan" to which the
distribution is to be paid and may specify more than one
"eligible retirement
plan."
(d) The Participant or his or her spouse or former spouse must
provide to the Committee in a timely manner adequate information
regarding the designated "eligible retirement plan".
ARTICLE XII
LIMITS ON BENEFITS AND CONTRIBUTIONS UNDER QUALIFIED PLANS
Section 12.1. Definitions. For purposes of this Article XII, the
following definitions and rules of interpretation shall apply:
(a) "Annual Additions" to a participant's account under a defined
benefit plan or a defined contribution plan is the sum, credited
to a participant's account for any Limitation Year, of:
(1) Company contributions,
(2) Forfeitures, if any,
(3) Employee contributions and
(4) Amounts, if any, attributable to medical benefits allocated
to an account established under Code section 419 A (d)(2) on
behalf of such Participant.
(b) "Annual Benefit"
(1) A benefit which is payable annually in the form of a
straight life annuity under a defined benefit plan. Such
benefit does not include any benefits attributable to either
employee contributions or rollover contributions. If the
defined benefit plan provides for a benefit which is not
payable in the form of a straight life annuity, the benefit
is adjusted in accordance with Section 12.1(b)(5) below.
(2) Where a defined benefit plan provides for mandatory employee
contributions (as defined in Code section 411(c)(2)(C)), the
Annual Benefit attributable to such contributions is not
taken into account. The Annual Benefit attributable to
mandatory contributions is determined by using the factors
described in Code section 411(c)(2)(B) and the regulations
thereunder. However, mandatory employee contributions and
any voluntary employee contributions are all considered a
separate defined contribution plan maintained by the
Company.
(3) If rollover contributions are made to a defined benefit
plan, the Annual Benefit attributable to these contributions
is determined on the basis of reasonable actuarial
assumptions.
(4) When there is a transfer of assets or liabilities from one
qualified defined benefit plan to another, the Annual
Benefit attributable to the assets transferred shall not be
taken into account by the transferee plan in applying the
limitations of Code section 415. The Annual Benefit payable
on account of the transfer for any individual that is
attributable to the assets transferred will be equal to the
Annual Benefit transferred on behalf of such individual
multiplied by a fraction, the numerator of which is the
total assets transferred and the denominator of which is the
total liabilities transferred.
(5) If a defined benefit plan provides a retirement benefit in
any form other than a straight life annuity, the plan
benefit is adjusted to a straight life annuity beginning at
the same age which is the actuarial equivalent of such
benefit in accordance with the rules determined by the
Commissioner. However, the following values are not taken
into account:
(i) The value of a qualified joint and survivor annuity (as
defined in Code section 417 and the regulations
thereunder) provided by the plan to the extent that
such value exceeds the sum of
(A) the value of a straight life annuity beginning on
the same date and
(B) the value of any post-retirement death benefits
which would be payable even if the annuity was not
in the form of a joint and survivor annuity.
(ii) The value of benefits that are not directly related to
retirement benefits (such as pre-retirement disability
and death benefits and post-retirement medical
benefits).
(iii)The value of benefits provided by the plan which
reflect post-retirement cost of living increases to the
extent that such increases are in accordance with Code
section 415(d) and the regulations thereunder.
(6) Where a defined benefit plan provides a retirement benefit
beginning before a participant has attained the Social
Security Retirement Age, the plan benefit shall, in
accordance with rules determined by the Commissioner, be
adjusted to the actuarial equivalent of a benefit commencing
at the Social Security Retirement Age. This adjustment is
only for purposes of applying the dollar limitation
described in Code section 415(b)(1)(A) and Section
12.1(f)(1) to the Annual Benefit of the participant.
(7) Where a participant has less than 10 Years of Service with
the Company at the time the Participant begins to receive
retirement benefits under the defined benefit plan, the
benefit limitations described in Code sections 415(b)(1)(B)
and 415(b)(4) and Section 12.1(f)(2) are to be reduced by
multiplying the otherwise applicable limitation by a
fraction:
(i) the numerator which is the Years of Service (and
fractions thereof) with the Company as of, and
including the current Limitation Year, and
(ii) the denominator of which is 10.
The preceding sentence shall also apply for purposes of
reducing the benefit limitation described in Code section
415(b)(1)(A) and Section 12.1(f)(1), by substituting years
of participation for Years of Service wherever it appears in
such sentence.
(iii)If the retirement benefit under a defined benefit plan
begins after the Participant has attained the Social
Security Retirement Age, the determination as to
whether the Maximum Permissible Defined Benefit Amount
limitation has been satisfied shall be made in
accordance with regulations prescribed by the
Commissioner by adjusting such benefit so that it is
actuarially equivalent to such a benefit beginning at
the Social Security Retirement Age. This adjustment is
only for purposes of applying the limitation described
in Code section 415(b)(1)(A) and Section 12.1(f)(1) to
the Annual Benefit of the participant.
(8) The Annual Benefit to which a participant is entitled at any
time under all defined benefit plans maintained by the
Company shall not, during the Limitation Year, exceed the
Maximum Permissible Defined Benefit Amount.
(9) In determining the actuarial equivalency for purposes of
Sections 12.1(b)(5), 12.1(b)(6) and 12.1(b)(8) above, the
interest rate shall be 5%.
(c) "Company" shall mean the Company, as described in Section 2.11
and any Affiliate as defined in Section 2.4.
(d) "Compensation" with respect to a Limitation Year -
(1) includes amounts paid to a Participant (regardless of
whether he or she was such during the entire Limitation
Year);
(i) as wages, salaries, fees for professional services and
other amounts received (without regard to whether or
not an amount is paid in cash) for personal services
actually rendered in the course of employment with any
Company including but not limited to commissions,
compensation for services on the basis of a percentage
of profits, fringe benefits, reimbursements and other
expense allowances under nonaccountable plans (as
described in Treasury Regulation 1.b2-2(c)) and
bonuses; (ii) for purposes of (A) above, earned income
from sources from outside the United States (as defined
in Code section 911(b)), whether or not excludable from
gross income under Code section 911 or deductible under
Code sections 931 and 933;
(iii)amounts described in Code sections 104(a)(3), 105(a)
and 105(h) but only to the extent that these amounts
are includable in the gross income of the Participant;
(iv) in the case of an employee within the meaning of Code
section 401(c)(1) and the regulations thereunder, the
Participant's earned income (as described in Code
section 401(c)(2) and the regulations thereunder);
(iv) amounts paid or reimbursed by the Company for moving
expenses incurred by the Participant, but only to the
extent that these amounts are not deductible by the
Participant under Code section 217.
(v) The value of a nonqualified stock option granted to a
Participant by a Company, but only to the extent that
the value of the option is includable in the gross
income of the Participant for the taxable year in which
granted.
(vi) The amount includable in the gross income of a
Participant upon making the election described in Code
section 83(b).
(2) Compensation does not include -
(i) notwithstanding subsection (1)(A) of this Section
12.1(d), there shall be excluded from Compensation
amounts contributed to a plan qualified under section
401(k) of the Code as salary reduction contributions
(and not recharacterized as employee contributions
thereunder);
(ii) other contributions made by the Company to a plan of
deferred compensation to the extent that, before the
application of the Code section 415 limitations to the
plan, the contributions are not includable in the gross
income of the Participant for the taxable year in which
contributed. In addition, Company contributions made on
behalf of a Participant to a simplified Participant
pension described in Code section 408(k) are not
considered as Compensation for the taxable year in
which contributed to the extent such contributions are
deductible by the Participant under Code section
219(b)(7). Additionally, any distributions from a plan
of deferred compensation are not considered as
Compensation, regardless of whether such amounts are
includable in the gross income of the Participant when
distributed. However, any amounts received by a
Participant pursuant to an unfunded nonqualified plan
shall be considered as Compensation in the year such
amounts are includable in the gross income of the
Participant;
(iii)amounts realized from the exercise of a nonqualified
stock option or when restricted stock (or property)
held by a Participant either becomes freely
transferable or is no longer subject to a substantial
risk of forfeiture (see Code section 83 and the
regulations thereunder);
(vi) amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock
option;
(v) other amounts which receive special tax benefits, such
as premiums for group term life insurance (but only to
the extent that the premiums are not includable in the
gross income of the Participant);
(e) "Limitation Year" - the Plan Year;
(f) "Maximum Permissible Defined Benefit Amount" - for a Limitation
Year the Maximum Permissible Defined Benefit Amount with respect
to any Participant shall be the lesser of:
(1) $90,000, or,
(2) 100% of the Participant's average Compensation for his or
her high three consecutive Years of Service, subject to the
following rules:
(i) As of January 1 of each calendar year commencing with
the calendar year 1988, the dollar limitation set forth
in Paragraph (1) above shall be adjusted automatically
to equal the dollar limitation as determined by the
Commissioner for that calendar year under Code section
415(d)(1)(A). This adjustment dollar limitation applies
for the Limitation Year ending with or within the
calendar year. It is applicable to Employees who are
Participants in the Plan and to Employees who have
retired or otherwise terminated their service under the
Plan with a nonforfeitable right to accrued benefits,
regardless of whether they have actually begun to
receive such benefits. The Annual Benefit payable to a
terminated Participant which is otherwise limited by
the dollar limitation shall be increased to take into
account the adjustment of the dollar limitation.
(ii) With regard to Participants who have separated from
service with a nonforfeitable right to an accrued
benefit, the compensation limitation described in
paragraph (2) above applicable to Limitation Years
commencing on and after January 1, 1976 shall be
adjusted annually to take into account increases in the
cost of living. For any Limitation Year beginning after
the separation occurs, the adjustment of the
compensation limitation is made as specified in
regulations and rules prescribed by the Commissioner.
In the case of a Participant who separated from service
prior to January 1, 1976, the cost of living adjustment
of the compensation limitation under this paragraph for
all Limitation Years prior to January 1, 1976, is to be
determined as provided by the Commissioner.
(iii)Anything herein to the contrary notwithstanding, in
the case of an individual who was a Participant in the
Plan before January 1, 1983, if such Participant's
"current accrued benefit" (as defined in section
235(g)(4) of the Tax Equity and Fiscal Responsibility
Act of 1982 ("TEFRA")) under the Plan as of the close
of the last Limitation Year beginning before January 1,
1983 exceeded the dollar limitation with respect to
such Participant under Section 12.1(g)(1) shall be
equal to such current accrued benefit.
(iv) Anything herein to the contrary notwithstanding, for
any individual who was a Participant in the Plan on
January 1, 1987, if such Participant's "current accrued
benefit" under the Plan, as that term is defined in
section 1106(i)(3)(B) of the Tax Reform Act of 1986, as
of the close of the last Limitation Year beginning
before January 1, 1987 exceeded the limitation
described in Section 12.1(f)(1) above, the dollar
limitation with respect to such Participant under
Section 12.1(f)(1) shall be equal to such current
accrued benefit.
(g) "Maximum Permissible Defined Contribution Amount" - for a
Limitation Year the Maximum Permissible Defined Contribution
Amount with respect to any Participant shall be the lesser of:
(1) $30,000, or if greater, one fourth of the limitation in
effect under Code section 415(b)(1)(A) (as adjusted by Code
section 415(d)(1)(A)).
(2) 25% of the Participant's Compensation for the Limitation
year.
Notwithstanding the foregoing, or anything herein to the
contrary, the percentage of compensation limitation of this
Section 12.1(g)(2) shall not apply to any Annual Additions
pursuant to Section 12.1(a)(4) above.
(h) "Projected Annual Benefit" - the Annual Benefit to which a
Participant would be entitled under the Plan on the assumption
that he or she continues employment until the normal retirement
age (or current age, if that is later) thereunder, that his or
her Compensation continues at the same rate as in effect for the
Limitation Year under consideration until such age, and that all
other relevant factors used to determine benefits under the Plan
remain constant as of the current Limitation Year for all future
Limitation Years;
(i) "Social Security Retirement Age" - the age used as the retirement
age under Social Security Act section 216(1) except that such
section shall be applied:
(1) without regard to the age increase factor, and,
(2) as if the early retirement age under Social Security Act
section 216(1)(2) were 62.
(j) For purposes of applying the limitations of Code sections 415(b),
(c) and (e) to a Participant for a particular Limitation Year,
all qualified defined benefit plans (without regard to whether a
plan has been terminated) ever maintained by the Company will be
treated as one defined benefit plan and all qualified defined
contribution plans (without regard to whether a plan has been
terminated) ever maintained by the Company will be treated as
part of this Plan.
Section 12.2 Annual Addition Limits. The amount of the Annual Addition
which may be credited under this Plan to any Participant's Account as of any
allocation date shall not exceed the Maximum Permissible Defined Contribution
Amount (based upon his or her Compensation up to such allocation date) reduced
by the sum of any credits of Annual Additions made to the Participant's Account
under all defined contribution plans as of any preceding allocation date within
the Limitation Year. If an allocation date of this Plan coincides with an
allocation date of any other qualified defined contribution plan maintained by
the Company, the amount of the Annual Additions which may be credited under this
Plan to any Participant's Account as of such date shall be an amount equal to
the product of the amount to be credited under this Plan without regard to this
Section 12.2 multiplied by the lesser of one or a fraction, the numerator of
which is the amount described in this Section 12.2 during the Limitation Year
and the denominator of which is the amount that would be otherwise credited on
this allocation date under all defined contribution plans without regard to this
Section 12.2. However, if a security is not allocated to a Participant's Account
under any qualified tax credit employee stock ownership plan of the Company
because of the operation of the limitations of Code section 415 and the
provisions of this Section 12.2, no other amount may be allocated to the
Participant's Account under this Plan after the allocation date for such tax
credit employee stock ownership plan's plan year, until all such unallocated
securities have been allocated in accordance with the provisions of such tax
credit employee stock ownership plan. If contributions to this Plan on behalf of
a Participant are to be reduced as a result of this Section 12.2, such reduction
shall be effected by reducing contributions in the following order: Supplemental
Nondeferred Deposits, Basic Nondeferred Deposits and corresponding matching
Company Contributions, Supplemental Deferred Deposits and finally, if necessary,
Basic Deferred Deposits and corresponding remaining matching Company
Contributions. If, as a result of a reasonable error in estimating a
Participant's Compensation, or under the limited facts and circumstances which
the Commissioner finds justify the availability of the rules set forth in
paragraphs (a)-(c) of this Section 12.2, the allocation of Annual Additions
under the terms of the Plan for a particular Participant would cause the
limitations of Code section 415 applicable to that Participant for the
Limitation Year to be exceeded, the excess amounts shall not be deemed to be
Annual Additions in that Limitation Year if they are treated as follows:
(a) To the extent necessary, Deferred Deposits to the Plan shall be
recharacterized as Nondeferred Deposits and the Participant's
Nondeferred Deposits to the Plan (including Deferred Deposits
recharacterized as Nondeferred Deposits hereunder) and earnings
thereon shall be returned to the Participant.
(b) The excess amounts in the Participant's Account consisting of
Company Contributions shall be used to reduce Company
Contributions for the next Limitation Year (and succeeding
Limitation Years, as necessary) for that Participant if that
Participant is covered by the Plan as of the end of the
Limitation Year. However, if that Participant is not covered by
the Plan as of the end of the Limitation Year then the excess
amounts must be held unallocated in a suspense account for the
Limitation Year and allocated and reallocated in the next
Limitation Year to all of the remaining Participants in the Plan.
If a suspense account is in existence at any time during a
particular Limitation Year, other than the first Limitation Year
described in the preceding sentence, all amounts in the suspense
account must be allocated and reallocated to Participants'
Accounts (subject to the limitations of Code section 415) before
any Company Contributions, may be made to the Plan for that
Limitation Year. Furthermore, the excess amounts must be used to
reduce Company Contributions for the next Limitation Year (and
succeeding Limitation Years, as necessary) for all of the
remaining Participants in the Plan. For purposes of this
subdivision, except as provided in (a) of this Section 12.2,
excess amounts may not be distributed to Participants or former
Participants.
(c) In the event of a termination of the Plan, the suspense account
described in (b) of this Section 12.2 shall revert to the Company
to the extent it may not then be allocated to any Participant's
Account.
(d) Notwithstanding any other provision in this Section 12.2, the
Company shall not contribute any amount that would cause an
allocation to the suspense account as of the date the
contribution is allocated. If the contribution is made prior to
the date as of which it is to be allocated, then such
contribution shall not exceed an amount that would cause an
allocation to the suspense account if the date of contribution
were an allocation date.
Section 12.3 Overall Limit. For any Participant of this Plan who at any
time participated in a defined benefit plan maintained by the Company, the rate
of benefit accrual by such Participant in each defined benefit plan in which the
Participant participates during the Limitation Year will be reduced to the
extent necessary to prevent the sum of the following fractions, computed as of
the close of the Limitation Year, from exceeding 1.0:
(a) Defined Benefit Plan Fraction. Projected Annual Benefit of the
Participant under all defined benefit plans divided by: the
lesser of (1) the product of 1.25, multiplied by the dollar
limitation in effect under Code section 415(b)(1)(A) for such
Limitation Year, or (2) the product of 1.4 multiplied by the
amount which may be taken into account under Code section
415(b)(1)(B) with respect to such Participant for such Limitation
Year.
and
(b) Defined Contribution Plan Fraction. Sum of Annual Additions to
such Participant's Account under all defined contribution plans
in such Limitation Year and for all prior Limitation Years
divided by: the sum of the lesser of the following amounts
determined for such year and for each prior Year of Service with
the Company: (1) the product of 1.25, multiplied by the dollar
limitation in effect under Code section 415(c)(1)(A) for such
Limitation Year, or (2) the product of (a) 1.4, multiplied by (b)
25% of the Participant's Compensation for such Limitation Year.
Section 12.4 Special Rules.
(a) For purposes of applying the Defined Contribution Plan Fraction
in Section 12.3 for any Limitation Year beginning after December
31, 1975 to Limitation Years before January 1, 1976, the
aggregate amount taken into account in determining the numerator
of such fraction is deemed not to exceed the aggregate amount
taken into account in determining the denominator of the
fraction.
(b) In any case where the sum of the fractions in Section 12.3 is
greater than 1.0, calculated as of the close of the last
Limitation Year beginning before January 1, 1983 for a
Participant, in accordance with regulations prescribed by the
Commissioner pursuant to TEFRA section 235(g)(3), an amount shall
be subtracted from the numerator of the defined contribution plan
fraction so that the sum of such fractions does not exceed 1.0
for such Limitation Year.
(c) If the sum of the fractions in Section 12.3 would exceed 1.0,
calculated as of the close of the last Limitation Year beginning
before January 1, 1987 for a Participant, in accordance with
regulations prescribed by the Commissioner pursuant to section
1106(i)(4) of the Tax Reform Act of 1986, an amount shall be
subtracted from the numerator of the defined contribution plan
fraction (not exceeding such numerator) so that the sum of such
fractions does not exceed 1.0. This numerator, as adjusted
herein, will be used for the calculation of the defined
contribution plan fraction for Limitation Years commencing on or
after January 1, 1987.
ARTICLE XIII
TOP-HEAVY REQUIREMENTS
Section 13.1 Definitions. For purposes of this Article XIII, the
following definitions shall apply, to be interpreted in accordance with the
provisions of Code section 416 and the regulations thereunder:
(a) "Aggregation Group" shall mean a plan or group of plans which
includes all plans maintained by the Employers in which a Key
Employee is a Participant or which enables any plan in which a
Key Employee is a Participant to meet the requirements of Code
section 401(a)(4) or Code section 410, as well as all other plans
selected by the Company for permissive aggregation inclusion of
which would not prevent the group of plans from continuing to
meet the requirements of such Code sections.
(b) "Compensation" with respect to a Plan Year shall be as defined in
Section XII without regard to Section 12.1(d)(2)(A).
(c) "Determination Date" shall mean, with respect to any Plan Year,
(1) the last day of the preceding Plan Year, or,
(2) in the case of the first Plan Year of any Plan, the last day
of such Plan Year.
(d) "Employee" shall mean, for purposes of this Article XIII, any
person employed by an Employer and shall also include any
beneficiary of such person, provided that the requirements of
Sections 13.3, 13.4 and 13.5 shall not apply to any person
included in a unit of Employees covered by an agreement which the
Secretary of Labor finds to be a collective bargaining agreement
between Employee representatives and one or more Employers if
there is evidence that retirement benefits were the subject of
good faith bargaining between such Employee representatives and
such Employer or Employers.
(e) "Employer" shall mean, any corporation which is a member of a
controlled group of corporations (as defined in Code section
414(b)) which includes the Company or any trades or business
(whether or not incorporated) which are under common control (as
defined in Code section 414(c)) with the Company, or a member of
an affiliated service group (as defined in Code section 414(m))
which includes the Company.
(f) "Key Employee" shall mean, any Employee or former Employee who
is, at any time during the Plan Year, or was, during any one of
the four preceding Plan Years any one or more of the following:
(1) An officer of an Employer having an annual Compensation
greater than 50% of the amount in effect under Code section
415(b)(1)(A) for any Plan Year unless 50 other such officers
(or, if lesser, a number of such officers equal to the
greater of three or 10% of the Employees) have higher annual
Compensation.
(2) One of the 10 persons employed by an Employer having annual
Compensation greater than the limitation in effect under
Code section 415(c)(1)(A) for any Plan Year, and owning (or
considered as owning within the meaning of Code section 318)
the largest interests in the Employers. For purposes of this
paragraph (2), if two Employees have the same interest, the
one with the greater Compensation shall be treated as owning
the larger interest.
(3) Any person owning (or considered as owning within the
meaning of Code section 318) more than 5% of the outstanding
stock of an Employer or stock possessing more than 5% of the
total combined voting power of such stock.
(4) A person who would be described in paragraph (3) above if
"1%" were substituted for "5%" each place it appears in
paragraph (3) above, and who has annual Compensation of more
than $150,000. For purposes of determining ownership under
this Section 13.11(f), Code section 318(a)(2)(C) shall be
applied by substituting "5%" for "50%" and the rules of
subsections (b), (c) and (m) of Code section 414 shall not
apply.
(g) "Year of Service" shall mean, a year which constitutes a "Year of
Service" under the rules of paragraphs (4), (5) and (6) of Code
section 411(a) to the extent not inconsistent with the provisions
of this Article XIII.
Section 13.2 General Requirements. For any Plan Year beginning after
1983 in which the Plan is a Top-Heavy Plan, the requirements of this Article
XIII must be met in accordance with Code section 416 and the regulations
thereunder. The provisions of this Article XIII shall be inapplicable unless and
until the Plan is a Top-Heavy Plan.
Section 13.3 Maximum Compensation. Compensation for any Employee shall
not be taken into account under the Plan in excess of the amount provided for
pursuant to Code section 401(a)(17) and the regulations thereunder.
Section 13.4 Vesting. A Participant who is credited with an Hour of
Service while the Plan is Top-Heavy, or in any Plan Year after a Plan Year in
which the Plan is Top-Heavy, and who has completed at least three Years of
Service shall have a nonforfeitable right to 100% of his or her accrued benefit
derived from Employer Contributions and no such amount may become forfeitable if
the Plan later ceases to be Top-Heavy nor may such amount be forfeited under the
provisions of Code sections 411(a)(3)(B) or 411 (a)(3)(D). Such accrued benefit
shall include benefits accrued before the Plan becomes Top-Heavy, including
benefits accrued prior to January 1, 1984. Notwithstanding any other provisions
of this Plan to the contrary, once the vesting requirements of this Section 13.4
become applicable, they shall remain applicable even if the Plan later ceases to
be Top-Heavy.
Section 13.5 Minimum Contributions. Minimum Employer Contributions for
a Participant (not including a beneficiary of any Participant) who is not a Key
Employee shall be required under the Plan for the Plan Year as follows:
(a) The amount of the minimum contribution shall be the lesser of the
following percentages of Compensation:
(1) four percent, or,
(2) the highest percentage at which such contributions are made
under the Plan for the Plan Year on behalf of a Key
Employee.
(i) For purposes of this paragraph (2), all defined
contribution plans required to be included in an
Aggregation Group shall be treated as one plan.
(ii) This paragraph (2) shall not apply if the Plan is
required to be included in an Aggregation Group and the
Plan enables a defined benefit plan required to be
included in the Aggregation Group to meet the
requirements of Code sections 401(a)(4) or 410.
(iii)For purposes of this paragraph (2), the calculation of
the percentage at which Employer Contributions are made
for a Key Employee shall be based only on his or her
Compensation not in excess of maximum counted
compensation as provided in Section 13.3.
(b) There shall be disregarded for purposes of this Section 13.5,
contributions or benefits under Code section 3111, Title II of
the Social Security Act or any other federal or state law, and
for Plan Years beginning before December 31, 1984, there shall
also be disregarded any contributions attributable to a salary
reduction or a similar arrangement.
(c) For purposes of this Section 13.5, the term "Participant" shall
be deemed to refer to all Participants who have not separated
from service at the end of the Plan Year including, without
limitation, individuals who:
(1) failed to complete 1000 Hours of Service during the Plan
Year, or
(2) declined to make mandatory contributions to the Plan, or
(3) are excluded from the Plan because their Compensation is
less than a stated amount but who must be considered
Participants for the Plan to satisfy the coverage
requirements of Code section 410(b) in accordance with Code
section 401(a)(5).
Section 13.6 Participants Under Defined Benefit Plans. If any Plan
Participant other than a Key Employee is also a Participant under a defined
benefit plan of an Employer, then Section 13.5(a) shall not apply and the
required minimum annual Employer Contribution for such Participant (not
including a beneficiary of a Participant) under this Plan shall be 7 1/2% of
Compensation, or such lesser amount as may be required to satisfy the
requirements of the Code related to Top-Heavy Plans. Such Employer Contribution
shall be made without regard to the amount of contributions, if any, made to the
Plan on behalf of Key Employees.
Section 13.7 Super Top-Heavy Plans. If for any Plan Year in which the
Plan is a Top-Heavy Plan it is also a Super Top-Heavy Plan, then for purposes of
the limitations on Employer Contributions and benefits provided in Code section
415, and Section 5.3. and Article XII of the Plan, the dollar limitations in the
defined benefit plan fraction and the defined contribution plan fraction shall
be multiplied by 1.0 rather than 1.25. However, if the application of the
provisions of this Section 13.7 would cause any Participant to exceed the
combined Code section 415 limitations on Employer Contributions and benefits,
then the application of the provisions of this Section 13.7 shall be suspended
as to such Participant until such time as he or she no longer exceeds such
limitations as modified by this Section 13.7. During the period of such
suspension, there shall be no Employer Contributions, forfeitures or
Non-Deferred Supplemental Deposits allocated to such Participant under this or
any other defined contribution plan of the Employers and there shall be no
accruals for such Participant under any defined benefit plan of the Employers.
Section 13.8 Determination of Top-Heaviness. The determination of
whether this Plan is Top-Heavy shall be made as follows:
(a) If the Plan is not required to be included in an Aggregation
Group with other plans, then it shall be Top-Heavy only if when
considered by itself it is a Top-Heavy Plan and it is not
included in a permissive Aggregation Group that is not a
Top-Heavy Group.
(b) If the Plan is required to be included in an Aggregation Group
with other plans, it shall be Top-Heavy only if the Aggregation
Group, including any permissively aggregated plans is Top-Heavy.
(c) If a plan is not a Top-Heavy Plan and is not required to be
included in an Aggregation Group, then it shall not be Top-Heavy
even if it is permissively aggregated in an Aggregation Group
which is a Top-Heavy Group.
Section 13.9 Determination of Super Top-Heaviness. This Plan shall be a
Super Top-Heavy Plan if it would be a Top-Heavy Plan under the provisions of
Section 13.8, but substituting "90%" for "60%" in the ratio test of Section
13.10.
Section 13.10 Calculation of Top-Heavy Ratios. A Plan shall be
Top-Heavy and an Aggregation Group shall be a Top-Heavy Group with respect to
any Plan Year as of the Determination Date if the sum as of the Determination
Date of the Cumulative Accrued Benefits and the Cumulative Accounts of Employees
who are Key Employees for the Plan Year exceeds 60% of a similar sum determined
for all Employees, excluding former Key Employees.
Section 13.11 Cumulative Accounts and Cumulative Accrued Benefits. The
Cumulative Accounts and Cumulative Accrued Benefits for any Employee shall be
determined as follows:
(a) "Cumulative Account" shall mean the sum of the amount of an
Employee's Account under a defined contribution plan (for an
unaggregated Plan) or under all defined contribution plans
included in an Aggregation Group (for aggregated plans)
determined as of the most recent plan valuation date within a
12-month period ending on the Determination Date, increased by
any contributions due after such valuation date and before
Determination Date.
(b) "Cumulative Accrued Benefit" shall mean the sum of the present
value of an Employee's accrued benefits under a defined benefit
plan (for an unaggregated plan) or under all defined benefit
plans included in an Aggregation Group (for aggregated plans),
determined under the actuarial assumptions set forth in such Plan
or Plans, as of the most recent plan valuation date used by the
Plan actuary within the 12-month period ending on the
Determination Date as if the Employee voluntarily terminated
service as of such valuation date. The accrued benefit of any
Employee who is not a Key Employee shall be determined under the
method used for accrual purposes for all plans in the Aggregation
Group or, if there is no such method, as if such benefit accrued
not more rapidly than the slowest accrual rate permitted under
Code section 411(b)(1)(c).
(c) Accounts and benefits shall be calculated to include all amounts
attributable to both Employer and Employee contributions but
excluding amounts attributable to voluntary deductible Employee
contributions.
(d) Accounts and benefits shall be increased by the aggregate
distributions during the five-year period ending on the
Determination Date made with respect to an Employee under the
Plan or Plans as the case may be or under a terminated plan
which, if it had not been terminated, would have been required to
be included in the Aggregation Group.
(e) Rollover Contributions and direct plan to plan transfers shall be
handled as follows:
(1) If the transfer is initiated by the Employee and made from a
plan maintained by one employer to a plan maintained by
another employer, the transferring plan continues to count
the amount transferred under the rules for counting
distributions. The receiving plan does not count the amount
if accepted after December 31, 1983, but does count it if
accepted prior to December 31, 1983.
(2) If the transfer is not initiated by the Employee or is made
between plans maintained by the Employers, the transferring
plan shall no longer count the amount transferred and the
receiving plan shall count the amount transferred.
(3) For purposes of this subsection (e), all Employers
aggregated under the rules of Code sections 414(b), (c) and
(m) shall be considered a single employer.
(f) For plan years beginning after December 31, 1984, the accrued
benefits and Accounts of any Employee who has not performed
services for any Employer at any time during the five-year period
ending on the Determination Date shall not be taken into account.
ARTICLE XIV
BENEFICIARY IN EVENT OF DEATH
Section 14.1 Designation and Change of Beneficiary. Upon the death of a
married Participant, the spouse of the Participant shall be deemed the
designated beneficiary of the Participant, unless such spouse has consented, in
writing, to the designation of another beneficiary or beneficiaries (which may
include the estate of the Participant) or any change thereof. If such other
designated beneficiary or beneficiaries predecease a married Participant, such
Participant's spouse shall be deemed the designated beneficiary of the
Participant. If, in such case, the Participant's spouse has also predeceased the
Participant, the value of the Participant's Account shall be paid to his or her
estate.
Each unmarried Participant shall have the right to designate a
beneficiary or beneficiaries to receive any distributions to be made under
Article XI upon the death of such Participant. An unmarried Participant may from
time to time, without the consent of any beneficiary, change or cancel any such
designation. If no beneficiary has been named by a deceased unmarried
Participant, or the designated beneficiary has predeceased such Participant, the
value of the Participant's Account shall be paid to his or her estate as
beneficiary.
Any spousal consent, beneficiary designation and any change therein
shall be made in the form and manner prescribed by the Committee and shall be
filed with the General Manager. Any distribution made to a beneficiary of a
deceased Participant under the Plan shall be made to the beneficiary as soon as
practicable after such Participant's death and shall be in the form of a lump
sum payment, regardless of the form of benefit selected by the deceased
Participant. The beneficiary may elect to have such payment made in money by
check, or may elect to have any whole shares of Enterprise Common Stock held for
the deceased Participant's Enterprise Common Stock Fund subaccount and ESOP
Account distributed in shares of Enterprise Common Stock and the balance of the
deceased Participant's Account (including the value of any fractional shares of
Enterprise Common Stock) paid in money by check. If no election is made, the
entire distribution to the beneficiary shall be made in money by check.
<PAGE>
ARTICLE XV
ADMINISTRATION
Section 15.1 Named Fiduciary. The Committee (and each member of the
Committee acting as such) shall be the named fiduciary of the Plan with
authority to control and manage the operation and administration of the Plan.
Section 15.2 Administration.
(a) The Committee shall have full discretionary authority to
interpret the Plan and to answer all questions which arise
concerning the application, administration and interpretation of
the Plan. The Committee shall adopt such rules and procedures as
in its opinion are necessary and advisable to administer the Plan
and to transact its business. Subject to the other requirements
of this Article XV, the Committee may --
(1) Employ agents to carry out non-fiduciary responsibilities;
(2) Employ agents to carry out fiduciary responsibilities (other
than trustee responsibilities as defined in ERISA Section
405(c)(3));
(3) Consult with counsel, who may be of counsel to an Employer
or an Affiliate; and
(4) Provide for the allocation of fiduciary responsibilities
(other than trustee responsibilities as defined in ERISA
Section 405(c)(3)) among its members. However, any action
described in subparagraphs (2) or (4) of this subparagraph
(a) 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.
(b) 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 the Plan, the Committee shall include in its
minutes a brief explanation of the grounds upon which such
decision was based.
(c) In performing their duties, the members of the Committee shall
act solely in the interest of the Participants in the Plan and
their beneficiaries and:
(1) for the exclusive purpose of providing benefits to the
Participants and their beneficiaries;
(2) with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent man or woman
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
(3) in accordance with the documents and instruments governing
the Plan insofar as such documents and instruments are
consistent with the provisions of Title I of ERISA. In
addition to any other duties the Committee may have, the
Committee shall periodically review the performance of the
Trustee and any Investment Managers and the performance of
all other persons to whom fiduciary duties have been
delegated or allocated pursuant to the provisions of this
Article XV.
(d) The Company agrees to indemnify and reimburse, to the fullest
extent permitted by law, members of the Committee, directors and
Employees of an Employer 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 the Plan.
(e) No member of the Committee nor any of its delegates shall be
personally liable by virtue of any contract, agreement or other
instrument made or executed by him or her or on his or her behalf
in such capacity.
Section 15.3 Control and Management of Assets. The assets of the Plan
shall be held by the Trustee, in trust, and shall be managed by the Trustee
and/or one or more Investment Managers appointed from time to time by the
Committee; provided, however, that the Committee shall have investment authority
with respect to loans approved pursuant to Section 11.13, and may, from time to
time, determine that the Trustee shall be subject to the direction of the
Committee with respect to certain other investments, in which case the Trustee
shall be subject to proper directions of the Committee which are in accordance
with the terms of the Plan and which are not contrary to applicable law.
Section 15.4 Benefits to be Paid from Trust. Benefits under the Plan
shall be payable only from the Trust Fund and only to the extent that such Trust
Fund shall suffice therefore and each Participant assumes all risk connected
with any decrease in market price of any securities in the respective Funds.
Neither the Company nor any Affiliate shall have any liability to make or
continue from its own funds the payment of any benefits under the Plan.
Section 15.5 Expenses. There shall be paid from the Trust Fund all
expenses incurred in connection with the administration of the Plan, including
but not limited to the compensation of the Trustee, record keeping fees, the
reasonable fees of counsel for the Trustee for legal services rendered to the
Trustee and the fees of Investment Managers appointed with respect to the
investment and reinvestment of the Trust Fund, except to the extent that such
expenses and fees are paid by the Employer. There shall be paid from the Trust
Fund all taxes of any and all kinds whatsoever that may be levied or assessed
under existing or future laws upon or in respect of the Trust Fund or any
property of any kind forming a part thereof and all expenses, including
brokerage costs and transfer taxes, incurred in connection with the investment
and reinvestment of the Trust Fund.
Section 15.6 Overpayments. Any overpayment made to a Participant may be
withheld from subsequent payments made to such Participant or from payments made
to his/her surviving spouse or beneficiary until the overpayment has been
recouped.
ARTICLE XVI
CLAIMS PROCEDURE
Section 16.1 Filing of Claims. Claims for benefits under the Plan shall
be filed in writing on such form or forms as may be prescribed by the Committee
with the General Manager.
Section 16.2 Appeal of Claims. 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,
request in writing that the decision denying the claim be reviewed by the
Committee and provide the Committee with information in support of his or her
position by submitting such information in writing to the Secretary of the
Committee.
Section 16.3 Review of Appeals. 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 of the reasons therefor. All decisions of the
Committee shall be final and binding upon all of the parties involved.
ARTICLE XVII
MERGER OR CONSOLIDATION
Section 17.1 Merger or Consolidation. In the case of any merger or
consolidation of the Plan with, or transfer of assets or liabilities to, any
other plan, each Participant or beneficiary shall be entitled to receive a
benefit immediately after the merger, consolidation or transfer (if the Plan had
been terminated) which is equal to or greater than the benefit he or she would
have been entitled to receive immediately before the merger, consolidation or
transfer (if the Plan had then terminated). A merger or consolidation of the
Plan with, or transfer of assets or liabilities to, any other plan shall not be
deemed to be a termination or discontinuance of deposits and contributions
having the effect of such termination of the Plan.
ARTICLE XVIII
NON-ALIENATION OF BENEFITS
Section 18.1 Non-Alienation of Benefits. Except as provided under
Sections 11.13 and 22.1, no benefit or right under the Plan shall in any manner
or to any extent be assigned, alienated or transferred by any Participant or
beneficiary under the Plan or be subject to attachment, garnishment or other
legal process.
ARTICLE XIX
AMENDMENTS
Section 19.1 Amendment Process. The Company reserves the right, by
action of the Board of Directors, but subject to applicable law, at any time and
from time to time, to modify, suspend or amend in whole or in part any or all of
the provisions of the Plan, provided that no modification, suspension or
amendment shall make it possible to deprive any Participant or beneficiary of a
previously acquired right; and provided further that no such modification,
suspension or amendment shall make it possible for any part of the assets of the
Plan to be used for or diverted to purposes other than for the exclusive benefit
of Participants and their beneficiaries under the Plan and for the payment of
expenses of the Plan.
ARTICLE XX
TERMINATION
Section 20.1 Authority to Terminate. The Plan may be terminated in
whole or in part at any time by the Board of Directors, but only upon condition
that such action is taken as shall render it impossible for any part of the
corpus or income of the Trust Fund to be used for or diverted to purposes other
than for the exclusive benefit of the Participants or their beneficiaries and
for the payment of expenses of the Plan.
Section 20.2 Distribution Upon Termination. Upon termination or partial
termination of the Plan or upon the complete discontinuance of Deposits and
Employer Contributions under the Plan, the assets of the Trust Fund shall be
administered and distributed to the Participants or their beneficiaries at such
time or times and in such nondiscriminatory manner as is determined by the
Committee. Upon termination or partial termination of the Plan or upon the
complete discontinuance of Deposits and Employer Contributions under the Plan,
the rights of all affected Participants as of the date of such termination,
partial termination or discontinuance of Deposits and Employer Contributions
shall be nonforfeitable.
ARTICLE XXI
PLAN CONFERS NO RIGHT TO EMPLOYMENT
Section 21.1 No Right to Employment. Nothing contained in the Plan
shall be construed as conferring any legal rights upon any Employee for a
continuation of employment or shall interfere with the rights of an Employer or
an Affiliate to discharge any Employee or otherwise to treat him or her without
regard to the effect which such treatment might have upon such Employee with
respect to the Plan, except as may be limited by applicable law.
ARTICLE XXII
ALTERNATE PAYEES
Section 22.1 Alternate Payees Under QDROs. In the event that a domestic
relations order of any State is received by the Plan and thereafter determined
to be a Qualified Domestic Relations Order (QDRO) within the meaning of Code
section 414p, the vested portion of the Account of the Participant to which such
QDRO is directed shall be apportioned as specified in such QDRO, valued as of
the business day preceding the date specified in such QDRO. Upon notice to the
Committee that a QDRO is being sought with respect to a Participant's Account,
no distribution or loan shall be made to a Participant until such time as the
status of the QDRO is determined. The alternate payee of the Participant's
Account shall thereafter participate in the Plan in accordance with its terms,
except such person shall not have the rights or benefits provided in Article IV,
Article V and in Section 11.13. If a QDRO is issued and the amount awarded the
alternate payee exceeds the value of the Participant's Account less the
outstanding loan balance, such loan shall be deemed to be in default and the
Participant shall immediately repay the loan. Notwithstanding the provisions of
this Article, the Plan may, without the consent of any such alternate payee, pay
to such alternate payee the value of his or her respective share of the
apportioned Account of the Participant, if the value thereof as so determined is
$5,000.00 or less. If a QDRO so provides, benefits may be paid to an alternate
payee before they would otherwise be distributable under the Plan, and no such
distribution to an alternate payee shall be treated as a withdrawal by the
Participant for purposes of Article XI.
ARTICLE XXIII
CONSTRUCTION
Section 23.1 Governing Law. The Plan shall be governed by and construed
and administered under the laws of the State of New Jersey, except to the extent
superseded by ERISA.
Section 23.2 Headings. The headings are for reference only. In the
event of a conflict between a heading and the content of an Article or Section,
the content shall control.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
EMPLOYEE SAVINGS PLAN
Amended Effective October 1, 1999
<PAGE>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
EMPLOYEE SAVINGS PLAN
TABLE OF CONTENTS
Page
----
ARTICLE I AMENDMENT - PURPOSE.............................................1
Section 1.1. Amendment of the Plan....................................1
Section 1.2. Purpose..................................................1
ARTICLE II DEFINITIONS.....................................................1
Section 2.1. "Account"..............................................1
Section 2.2. "Active Participant"...................................1
Section 2.3. "Additional Lump Sum Deposits".........................1
Section 2.4. "Affiliate"............................................1
Section 2.5. "Balanced Fund"........................................2
Section 2.6. "Basic Deposits".......................................2
Section 2.7. "Board of Directors" ..................................2
Section 2.8 "Bond Fund"............................................2
Section 2.9. "Cash Balance Plan"....................................2
Section 2.10. "Code"..................................................2
Section 2.11. "Commissioner"..........................................2
Section 2.12. "Committee" or "Employee Benefits Committee"............2
Section 2.13. "Company"...............................................2
Section 2.14. "Compensation"..........................................2
Section 2.15. "Deferred"..............................................3
Section 2.16. "Deposits"..............................................3
Section 2.17. "Disability"............................................3
Section 2.18. "Eligible Employee".....................................4
Section 2.19. "Employee"..............................................4
Section 2.20. "Employer"..............................................4
Section 2.21. "Employer Contributions"................................4
Section 2.22. "Enrollment Date".......................................4
Section 2.23. "Enterprise"............................................4
Section 2.24. "Enterprise Common Stock"...............................4
Section 2.25. "Enterprise Common Stock Fund"..........................4
Section 2.26. "Equities Fund".........................................4
Section 2.27. "Equities Index Fund"...................................4
Section 2.28. "ERISA".................................................4
Section 2.29. "ESOP Account"..........................................5
Section 2.30. "Fixed Income Fund".....................................5
Section 2.31. "Funds".................................................5
Section 2.32. "General Manager".......................................5
Section 2.33. "Government Obligations Fund"...........................5
Section 2.34. "Highly Compensated Employee" ..........................5
Section 2.35. "Highly Compensated Participant"........................6
Section 2.36. "Hour of Service".......................................6
Section 2.37. "Investment Manager"....................................6
Section 2.38. "Lay Off" or Laid Off"..................................6
Section 2.39. "Leased Employee".......................................7
Section 2.40. "Matured"...............................................7
Section 2.41. "Nondeferred"...........................................7
Section 2.42. "Participant"...........................................7
Section 2.43. "Participating Affiliate"...............................7
Section 2.44. "Personal Choice Retirement Account Fund"..............7
Section 2.45. "Plan"..................................................7
Section 2.46. "Plan Year".............................................7
Section 2.47. "Qualified Domestic Relations Order" or "QDRO"..........7
Section 2.48. "Record Keeper".........................................8
Section 2.49. "Required Beginning Date"...............................8
Section 2.50. "Retirement"............................................8
Section 2.51. "Retirement Choice Program".............................8
Section 2.52. "Rollover Contributions"................................8
Section 2.53. "Savings Account".......................................8
Section 2.54. "Supplemental Deposits".................................9
Section 2.55. "Thrift and Tax-Deferred Savings Plan"..................9
Section 2.56. "Trust Agreement".......................................9
Section 2.57. "Trust Fund"............................................9
Section 2.58. "Trustee"...............................................9
Section 2.59. "Year of Service".......................................9
ARTICLE III PARTICIPATION...........................................10
Section 3.1. Participation...........................................10
Section 3.2. Effective Date of Participation.........................10
ARTICLE IV DEPOSITS................................................11
Section 4.1. Basic Deposits........................................11
Section 4.2. Supplemental Deposits.................................11
Section 4.3. Additional Lump Sum Deposits..........................12
Section 4.4. Method of Deposits....................................12
Section 4.5. Limit on Deferred Deposits............................13
Section 4.6. Distribution of Excess Deferral Amounts...............13
Section 4.7. Code Section 401(k) Limits on Deferred Deposits.......14
Section 4.8. Unmatched Employer Contributions......................14
Section 4.9. Code Section 401(m) Limits on Nondeferred Deposits
and Employer Contributions.........................15
Section 4.10. Changing Deposit Percentages..........................15
Section 4.11. Suspension of Deposits................................15
Section 4.12. Limit on Additional Lump Sum Deposits.................15
Section 4.13. Elections.............................................16
Section 4.14. Rollover Contributions................................16
Section 4.15. Transfer from the Thrift Plan.........................16
ARTICLE V EMPLOYER CONTRIBUTIONS..................................16
Section 5.1. Amount and Payment of Employer Contributions..........16
Section 5.2. Employer Contributions in Enterprise Common Stock.....17
Section 5.3 Reduction of Employer Contributions by Forfeitures....17
Section 5.4. Maximum Annual Additions..............................17
Section 5.5. Return of Employer Contributions......................17
Section 5.6. Allocation from Cash Balance Plan.....................18
ARTICLE VI SAVINGS ACCOUNT INVESTMENTS.............................18
Section 6.1. Investment of Deposits, Rollover Contributions
and Employer Contributions.........................18
Section 6.2. Change in Investment Direction........................18
Section 6.3. Transfer/ Reallocation of Investments.................18
Section 6.4. Quarterly Automatic Rebalancing.......................19
Section 6.5 Loans.................................................19
Section 6.6 Special Rules for Investment in the Personal Choice
Retirement Account Fund............................20
ARTICLE VII SAVINGS ACCOUNT FUNDS...................................21
Section 7.1. Establishment of Funds................................21
Section 7.2. Enterprise Common Stock Fund..........................23
ARTICLE VIII SAVINGS ACCOUNTS...............................................24
Section 8.1. Establishment of Savings Accounts.....................24
Section 8.2. Measure of Savings Accounts...........................24
Section 8.3. Valuation of Funds....................................25
Section 8.4. Valuation of Savings Accounts.........................25
Section 8.5. Separate Accounting...................................25
ARTICLE IX ESOP ACCOUNTS...........................................25
Section 9.1. Maintenance of Separate Accounts......................25
Section 9.2. Allocation of Distributions...........................26
Section 9.3. Withdrawals or Transfers..............................26
Section 9.4. Dividends and Other Income............................26
Section 9.5. Voting of ESOP Account Common Stock...................26
ARTICLE X VESTING.................................................27
Section 10.1. Vesting of Employer Contributions......................27
Section 10.2. Vesting of Deposits, Rollover Contributions and the
ESOP Account.........................................27
ARTICLE XI ACCOUNT DISTRIBUTIONS AND WITHDRAWALS...................27
Section 11.1. Distribution Upon Retirement, Disability, Lay Off or
Death..............................................27
Section 11.2. Distribution Upon Other Termination of Employment......28
Section 11.3. Partial Distributions Following Termination of
Employment...........................................29
Section 11.4. Withdrawal of Nondeferred Deposits and Employer
Contributions During Employment......................30
Section 11.5. Withdrawals of Deferred Deposits
During Employment After Age 59 1/2..................31
Section 11.6. Hardship Withdrawals...................................31
Section 11.7. Suspension of Participation............................33
Section 11.8. Transfer of Employment.................................33
Section 11.9. Form of Distributions..................................33
Section 11.10. Time of Distributions..................................35
Section 11.11. Limitation on Post Age 70 1/2Distributions.............35
Section 11.12. Distribution in the Case of Certain Disabilities.......36
Section 11.13. Loans..................................................36
Section 11.14. Inability to Locate Payee..............................38
Section 11.15. Federal Income Tax Withholding on Distributions an
Withdrawals..........................................38
Section 11.16. Direct Rollover to Another Plan or IRA................38
ARTICLE XII LIMITS ON BENEFITS AND CONTRIBUTIONS
UNDER QUALIFIED PLANS...................................39
Section 12.1. Definitions............................................39
Section 12.2. Annual Addition Limits.................................45
Section 12.3. Overall Limit..........................................47
Section 12.4. Special Rules..........................................48
ARTICLE XIII TOP-HEAVY REQUIREMENTS.........................................48
Section 13.1. Definitions............................................48
Section 13.2. General Requirements...................................50
Section 13.3. Maximum Compensation...................................50
Section 13.4. Vesting................................................50
Section 13.5. Minimum Contributions..................................50
Section 13.6. Participants Under Defined Benefit Plans...............51
Section 13.7. Super Top-Heavy Plans..................................51
Section 13.8. Determination of Top-Heaviness.........................52
Section 13.9. Determination of Super Top-Heaviness. .................52
Section 13.10. Calculation of Top-Heavy Ratios. ......................52
Section 13.11. Cumulative Accounts and Cumulative Accrued Benefits....52
ARTICLE XIV BENEFICIARY IN EVENT OF DEATH..................................54
Section 14.1. Designation and Change of Beneficiary..................54
ARTICLE XV ADMINISTRATION.................................................55
Section 15.1. Named Fiduciary........................................55
Section 15.2. Administration.........................................55
Section 15.3. Control and Management of Assets.......................56
Section 15.4. Benefits to be Paid from Trust.........................56
Section 15.5. Expenses...............................................56
Section 15.6 Overpayments...........................................57
ARTICLE XVI CLAIMS PROCEDURE...............................................57
Section 16.1. Filing of Claims.......................................57
Section 16.2. Appeal of Claims.......................................57
Section 16.3. Review of Appeals......................................57
ARTICLE XVII MERGER OR CONSOLIDATION........................................57
Section 17.1. Merger or Consolidation................................57
ARTICLE XVIII NON-ALIENATION OF BENEFITS.....................................58
Section 18.1. Non-Alienation of Benefits.............................58
ARTICLE XIX AMENDMENTS.....................................................58
Section 19.1. Amendment Process......................................58
ARTICLE XX TERMINATION.............................................58
Section 20.1. Authority to Terminate.................................58
Section 20.2. Distribution Upon Termination..........................58
ARTICLE XXI PLAN CONFERS NO RIGHT TO EMPLOYMENT............................59
Section 21.1. No Right to Employment.................................59
ARTICLE XXII ALTERNATE PAYEES...............................................59
Section 22.1. Alternate Payees Under QDROs...........................59
ARTICLE XXIII CONSTRUCTION...................................................59
Section 23.1. Governing Law..........................................59
Section 23.2. Headings...............................................59
<PAGE>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
EMPLOYEE SAVINGS PLAN
ARTICLE I
AMENDMENT - PURPOSE
Section 1.1. Amendment of the Plan. Public Service Electric and Gas
Company hereby further amends, on September __, 1999 and effective October 1,
1999, its Employee Savings Plan, a savings, profit-sharing and tax-credit
employee stock ownership plan for its Employees and those of its Affiliates.
Section 1.2. Purpose. The purpose of the Plan is to encourage and
assist thrift and savings by eligible bargaining unit employees of Public
Service Electric and Gas Company and its Affiliates through tax-sheltered forms
of investment.
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. "Account" shall mean the separate account maintained in
the Plan for each Participant which consists of the Participant's Savings
Account and/or the Participant's ESOP Account.
Section 2.2. "Active Participant" shall mean a Participant who is an
Eligible Employee presently making Nondeferred Deposits or for whom Deferred
Deposits are presently being made.
Section 2.3. "Additional Lump Sum Deposits" shall mean that amount
which is contributed to the Plan by a Participant on a lump sum basis.
Additional Lump Sum Deposits shall not be entitled to be matched by Employer
Contributions.
Section 2.4. "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 2.5. "Balanced Fund" shall mean the Fund or Funds established
pursuant to Section 7.1(f).
Section 2.6. "Basic Deposits" shall mean that amount, not less than 1%,
nor more than 7%, except that Participants who are Employees of CEA Newark Bay
Services, Inc. shall be entitled to elect maximum Basic Deposits of 8%, (or such
lower maximum percentages as may be established by the Committee) of a
Participant's Compensation, contributed to the Plan through payroll deduction by
or on behalf of a Participant which is entitled to be matched by Employer
Contributions.
Section 2.7. "Board of Directors" shall mean the Board of Directors of
the Company.
Section 2.8. "Bond Fund" shall mean the Fund or Funds established
pursuant to Section 7.1(g).
Section 2.9. "Cash Balance Plan" shall mean the Cash Balance Pension
Plan for Represented Employees of Public Service Electric and Gas Company or the
Public Service Electric and Gas Company Cash Balance Pension Plan.
Section 2.10. "Code" shall mean the Internal Revenue Code of 1986, as
amended, or as it may be amended from time to time.
Section 2.11. "Commissioner" shall mean the Commissioner of Internal
Revenue.
Section 2.12. "Committee" or "Employee Benefits Committee" shall mean
the Employee Benefits Committee of the Company appointed by the Board of
Directors.
Section 2.13. "Company" shall mean Public Service Electric and Gas
Company.
Section 2.14. "Compensation" shall mean the total remuneration paid to
a Participant for services rendered to an Employer excluding the Employer's cost
for any public or private employee benefit plan, but including all Deferred
Basic and Supplemental Deposits made by a Participant or on a Participant's
behalf to this Plan and all elective contributions that are made by an Employer
on behalf of a Participant which are not includable in income under Code section
125, under rules adopted by the Committee which are uniformly applicable to all
Participants similarly situated. However, Compensation shall not include the
following:
(a) any amounts which are deferred under any deferred compensation
plan of the Company or any Affiliate and any payments from any
such plans of any previously deferred amount;
(b) any amounts which constitute a reimbursement of expenses;
(c) the following miscellaneous payments:
(1) Separation pay;
(2) Gratuity Payments upon death;
(3) Payment for vacation due at time of death;
(4) Worker's Compensation for permanent partial disability;
(5) Employer contributions for social security, unemployment
compensation or other taxes;
(6) Employer payments toward reimbursement of adoption expenses;
and
(7) Payments made expressly for the purpose of satisfying
withholding tax liabilities on awards earned pursuant to any
employee suggestion program of any Employer;
(d) the following special international payments:
(1) International service premium;
(2) Commodities and services allowance;
(3) Equalization Pay;
(4) Transportation allowance;
(5) Foreign service pay; and
(6) Hardship allowance; and
(e) any amounts received by a Participant as a result of the sale of
vacation entitlements.
In any case, however, In any case, however, Compensation of each
Participant taken into account for any Plan Year shall not exceed the applicable
compensation limit for such year determined under Code Section 401(a)(17). The
compensation limit for a Plan Year beginning on or after January 1, 1997 is
$160,000 (as indexed). The Pension of a Code section 401(a)(17) Employee (as
defined in Treasury Regulation section 1.401(a)(17)-1(e)(2)(I)) shall be
determined by utilizing the method described in Treasury Regulation section
1.401(a)(4)-13(c)(4)(iii) (formula with extended wear-away).
Section 2.15. "Deferred" in reference to Deposits shall mean that such
Deposits are deferred from current Federal income taxation under Code section
401(k).
Section 2.16. "Deposits" shall mean the aggregate of Additional Lump
Sum Deposits, Basic Deposits and Supplemental Deposits made by or on behalf of a
Participant to his or her Savings Account. The total of all Deposits made by or
on behalf of a Participant in any Plan Year shall not exceed 25% of the
Participant's Compensation for such Plan Year.
Section 2.17. "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 Doctor of Medicine designated and
approved by the Committee.
Section 2.18. "Eligible Employee" shall mean any Employee who has
completed at least one Year of Service whether or not he or she actually elects
to make any Deposits.
Section 2.19. "Employee" shall mean any person, included in a unit of
Employees covered by a collective bargaining agreement who is an employee (such
term having its customary meaning) of the Company or a Participating Affiliate
and who is receiving remuneration for personal services rendered to the Company
or Participating Affiliate other than (1) solely as a director of the Company or
a Participating Affiliate, (2) as a consultant or (3) as an independent
contractor (regardless of whether a determination is made by the Internal
Revenue Service or other governmental agency or court after the individual is
engaged to perform such services that the individual is an employee of the
Company or Participating Affiliate for the purposes of the Code or otherwise).
Section 2.20. "Employer" shall mean the Company and any Participating
Affiliate.
Section 2.21. "Employer Contributions" shall mean the amounts
contributed to the Plan on behalf of Participants by an Employer in accordance
with Article V.
Section 2.22. "Enrollment Date" shall mean the earliest of (a) the
first day of the first payroll period in which payroll deductions from a
Participant's Compensation are made for Deposits under the Plan; (b) the date an
Additional Lump Sum Deposit is accepted by the Plan from a Participant; (c) the
date a Rollover Contribution is accepted from a Participant for payment to the
Trustee for investment in the Plan in accordance with Section 4.14; or (d) the
date an ESOP Account is established on behalf of a Participant.
Section 2.23. "Enterprise" shall mean the Company's parent, Public
Service Enterprise Group Incorporated.
Section 2.24. "Enterprise Common Stock" shall mean the Common Stock,
without nominal or par value, of Enterprise.
Section 2.25. "Enterprise Common Stock Fund" shall mean the Fund
established pursuant to Section 7.1(c).
Section 2.26. "Equities Fund" shall mean the Fund or Funds established
pursuant to Section 7.1(a).
Section 2.27. "Equities Index Fund" shall mean the Fund or Funds
established pursuant to Section 7.1(d).
Section 2.28. "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended, or as it may be amended from time to time.
Section 2.29. "ESOP Account" shall mean that separate portion of an
Account established pursuant to Section 9.1 which evidences the shares of
Enterprise Common Stock transferred to the Plan for the Account of a
Participant, pursuant to the merger with this Plan with the Public Service
Electric and Gas Company Tax Reduction Act Employee Stock Ownership Plan
(TRASOP) and/or the Public Service Electric and Gas Company Payroll-Based
Employee Stock Ownership Plan (PAYSOP), including the net worth of the Trust
Fund attributable thereto.
Section 2.30. "Fixed Income Fund" shall mean the Fund or Funds
established pursuant to Section 7.1(b).
Section 2.31. "Funds" shall mean the several investment Funds
established pursuant to Section 7.1. As used in the singular, "Fund" shall mean
one of such Funds.
Section 2.32. "General Manager" shall mean the Director, Performance and
Rewards of the Company.
Section 2.33. "Government Obligations Fund" shall mean the Fund or Funds
established pursuant to Section 7.1(e).
Section 2.34. "Highly Compensated Employee" shall mean:
(a) For any Plan Year, any Employee who, during the Plan Year or the
preceding Plan Year --
(1) was at any time a 5% owner;
(2) for the preceding Plan Year, received Compensation from the
Company or an Affiliate in excess of $80,000 (as adjusted
for cost of living increases); and
(3) if the Company or an Affiliate elects, of was in the
top-paid group of Employees for the preceding Plan Year.
(b) For purposes of this Section, an Employee shall be treated as a
5% owner for any Plan Year if at any time during such Plan Year
such Employee was a 5% owner (as defined in Code section
416(i)(1)) of the Company or an Affiliate.
(c) For purposes of this Section, an Employee shall be considered as
being in the top-paid group of Employees for any Plan Year if
such Employee is in the group consisting of the top 20% of the
Employees when ranked on the basis of Compensation paid during
such Plan Year.
(d) For purposes of determining the top-paid group under paragraph
(d), the following Employees shall be excluded: (1) Employees who
have not completed six months of service; (2) Employees who
normally work less than 17 1/2 hours per week; (3) Employees who
normally work during not more than six months during any year;
(4) Employees who have not attained age 21; and (5) Employees who
are nonresident aliens and who receive no earned income (within
the meaning of Code section 911(d)(2)) from the Company or an
Affiliate which constitutes income from sources within the United
States (within the meaning of Code section 861(a)(3)).
(e) For purposes of this Section, the term "Compensation" shall mean
Compensation within the meaning of Section 12.1, but including
salary reduction contributions to a cafeteria plan, a 401(k) plan
and a simplified employee pension.
(f) A former Employee shall be treated as a Highly Compensated
Employee if (1) such Employee was a Highly Compensated Employee
when such Employee separated from service or (2) such Employee
was a Highly Compensated Employee at any time after attaining age
55.
Section 2.35. "Highly Compensated Participant" shall mean:
(a) those Highly Compensated Employees who are Participants or
(b) those Highly Compensated Employees who are Eligible Employees,
who have satisfied all conditions for participation under Section
3.1, whether or not they actually elect to make any Deposits or
Rollover Contributions to the Plan.
Section 2.36. "Hour of Service" shall mean each hour for which an
Employee is directly or indirectly paid remuneration or entitled to such payment
by an Employer including any hours for which back pay, irrespective of
mitigation of damages, is either awarded or agreed to by an Employer.
Section 2.37. "Investment Manager" shall mean an investment manager as
defined in ERISA section 3(38).
Section 2.38. "Lay Off" or Laid Off" shall mean a Participant's
involuntary separation from service with an Employer because of a reduction in
work forces at a time when there is no further work available with an Employer
for which the Participant is qualified.
Section 2.39. "Leased Employee" shall mean an individual who is not an
Employee but who would be a leased employee as defined in Code section 414(n),
but for the one year service requirement of Code section 414(n)(2)(B).
Section 2.40. "Matured" in reference to Deposits and Employer
Contributions shall mean that the respective amount has been held in the Plan
for at least twenty-four months.
Section 2.41. "Nondeferred" in reference to Deposits shall mean that
such Deposits are not deferred from current federal income taxation under Code
section 401(k).
Section 2.42. "Participant" shall mean any person who has an interest
in the Trust Fund.
Section 2.43. "Participating Affiliate" shall mean any Affiliate of the
Company which: (a) adopts the Plan with the approval of the Board of Directors;
(b) authorizes the Board of Directors and the Employee Benefits Committee to act
for it in all matters arising under or with respect to the Plan; and (c)
complies with such other terms and conditions relating to the Plan as may be
imposed by the Board of Directors.
Section 2.44. "Personal Choice Retirement Account Fund" shall mean the
Fund or Funds established pursuant to Section 7.1(h).
Section 2.45. "Plan" shall mean this Public Service Electric and Gas
Company Employee Savings Plan, including all amendments hereto which may
hereafter be made.
Section 2.46. "Plan Year" shall mean the calendar year.
Section 2.47. "Qualified Domestic Relations Order" or "QDRO" shall mean
any judgment, decree or order pursuant to a state domestic relations or
community property law which relates to the provision of child support or
marital property rights, which creates or recognizes the existence of an
alternate payee's right to (or assigns to an alternate payee the right to)
receive all or part of a Participant's Account, and which meets the requirements
of (a) and (b) below, as interpreted in accordance with Code section 414(p):
(a) such order specifies:
(1) the name and last known mailing address of the Participant
and each alternate payee;
(2) the amount or the percentage of the Participant's Account to
be paid to each alternate payee, or the manner in which such
amount or percentage is to be determined;
(3) the number of payments or the period to which the order
applies; and
(4) each plan to which such order applies; and
(b) such order does not require the Plan to:
(1) provide any type or form of benefit or option not otherwise
provided under the Plan;
(2) provide increased benefits; or
(3) pay to an alternate payee amounts required to be paid to
another alternate payee under a prior QDRO.
Section 2.48. "Record Keeper" shall mean the person(s) or entity(ies)
designated by the Committee to maintain the records of the Plan and Plan
Accounts and to perform such other functions as may be designated by the
Committee.
Section 2.49. "Required Beginning Date" shall mean with respect to
distributions to any Participant, April 1 of the calendar year following the
calendar year in which the Participant attains age 70 1/2; provided, however,
that with respect to distributions to any Participant who attained age 70 before
July 1, 1987 and who was not a "5% owner" as defined in Section 13.1(f)(3), the
Required Beginning Date for such Participant shall be April 1 of the calendar
year following the calendar year in which (1) the Participant attains age 70 1/2
or (2) the Participant retires, whichever is later.
Section 2.50. "Retirement" shall mean the termination of employment by
a Participant other than by reason of his or her death:
(a) under circumstances entitling the Participant to an immediately
payable periodic retirement benefit under the Pension Plan of
Public Service Electric and Gas Company, the Cash Balance Pension
Plan of Public Service Electric and Gas Company or the Cash
Balance Pension Plan for Represented Employees of Public Service
Electric and Gas Company; and
(b) at or after age 65.
Section 2.51. "Retirement Choice Program" shall mean the Retirement
Choice Program for Represented Employees of Public Service Electric and Gas
Company or the Public Service Electric and Gas Company Retirement Choice
Program.
Section 2.52. "Rollover Contributions" shall mean Employee
contributions transferred to the Plan, in accordance with Section 4.14, from a
trust under another corporate plan, each qualified under Code sections 501(a)
and 401(a), respectively.
Section 2.53. "Savings Account" shall mean that separate portion of an
Account established pursuant to Section 8.1 and which consists of the sum of the
following subaccounts of such Participant:
(a) Basic Deposit Subaccount shall mean that portion of a
Participant's Savings Account which evidences the value of Basic
Deposits by or on behalf of a Participant under the Plan,
including the net worth of the Trust Fund attributable thereto.
(b) Supplemental Deposit Subaccount shall mean that portion of a
Participant's Savings Account which evidences the value of
Supplemental Deposits and Additional Lump Sum Deposits under the
Plan, assets transferred by the Participant from his or her ESOP
Account and Rollover Contributions to the Plan by or on behalf of
a Participant, including the net worth of the Trust Fund
attributable thereto.
(c) Employer Contribution Subaccount shall mean that portion of a
Participant's Savings Account which evidences the value of
Employer Contributions which have been credited to a
Participant's Account under Section 5.1 of the Plan (less any
forfeitures), including the net worth of the Trust Fund
attributable thereto.
Section 2.54. "Supplemental Deposits" shall mean the amount, if any, of
Compensation contributed to the Plan through payroll deduction by or on behalf
of a Participant which is more than the maximum permitted Basic Deposit.
Section 2.55. "Thrift Plan" shall mean the Public Service Electric and Gas
Company Thrift and Tax-Deferred Savings Plan; and
Section 2.56. "Trust Agreement" shall mean the agreement between the
Company and the Trustee which provides for the management of the Trust Fund and
the investment of Deposits, Employer Contributions and Rollover Contributions to
the Plan and investment of the assets of ESOP Accounts.
Section 2.57. "Trust Fund" shall mean the aggregate of Additional Lump
Sum Deposits, Basic and Supplemental Deposits made by or on behalf of
Participants, Rollover Contributions and Employer Contributions, together with
ESOP Accounts, increased by any profits or income thereon, and decreased by any
losses thereon and by any payments made therefrom.
Section 2.58. "Trustee" shall mean any individual(s) or corporation(s)
by whom any assets of the Plan are held under the Trust Agreement.
Section 2.59. "Year of Service" shall mean the twelve consecutive month
period beginning on the first day of the month in which an Employee commences
employment with an Employer and each succeeding twelve consecutive month period
beginning on the yearly anniversary of such day, during which the Employee
completes not less than 1,000 Hours of Service; and the determination of whether
an Employee shall have completed not less than 1,000 Hours of Service during any
such period shall be made by crediting such Employee with 190 Hours of Service
for each calendar month during such period in which the Employee is entitled to
be credited with at least one Hour of Service for such month. For the purposes
of this Section, there shall be included service with an Employer as an Employee
or as a Leased Employee.
ARTICLE III
PARTICIPATION
Section 3.1. Participation. Each Employee may become a Participant by
applying with the Record Keeper to establish a Savings Account or accept a
Rollover Contribution on such Employee's behalf, when an ESOP Account was
established on his or her behalf or when the Employee elects to make transfers
of age and service credits pursuant to the terms of the Cash Balance Plan and
the Retirement Choice Program. An Employee who, at the time he/she becomes
employed by the Company or a Participating Affiliate is a participant in the
Thrift Plan shall be automatically enrolled in the Plan and account balances
held in that plan shall be transferred to this Plan.
By contacting the Record Keeper and using its automatic voice response
system, the Employee can (a) arrange for the payment of an Additional Lump Sum
Deposit to the Plan, (b) authorize his or her Employer to withhold an amount in
a specified percentage of his or her Compensation, (c) authorize establishing an
Account to accept transfers of age and service credits pursuant to the terms of
the Cash Balance Plan and the Retirement Choice Program, (d) authorize his or
her Employer to accept a Rollover Contribution from another qualified corporate
plan in accordance with Section 4.12 and (e) authorize the Record Keeper and/or
Employer to pay any such amount to the Trustee for investment in a Savings
Account under the Plan in accordance with the Employee's instructions.
Participation in the Plan is entirely voluntary.
Section 3.2. Effective Date of Participation. The effective date of
participation shall be the earliest of the following (a) participation in the
Plan shall be effective for an Employee and payroll deductions shall commence,
as soon as practicable after the Employee has applied to the Record Keeper for
participation; (b) participation in the Plan for an Employee who, at the time
he/she becomes employed by the Company or a Participating Affiliate, is a
participant in the Thrift Plan, shall be effective from the date he/she first
became a participant in that plan; (c) participation in the Plan for an Employee
making a Rollover Contribution or a transfer of age and service credits pursuant
to the terms of the Cash Balance Plan and the Retirement Choice Program shall be
effective as soon as practicable after such Employee's Rollover Contribution or
transferred age and service credits are accepted for transfer; (d) participation
of an Employee in the Plan with respect to the ESOP Account became effective
upon receipt by the Plan of the assets credited to the account of such Employee
in the Company's TRASOP and/or PAYSOP pursuant to a merger of such plan or plans
with this Plan.
ARTICLE IV
DEPOSITS
Section 4.1. Basic Deposits.
(a) An Eligible Employee who is not employed by CEA Newark Bay
Services, Inc. may elect:
(1) to make Basic Nondeferred Deposits to the Plan in an amount
equal to any integral multiple of 1% of his or her
Compensation up to a total of 7% each pay period; or
(2) to have Basic Deferred Deposits made to the Plan by the
Company on his or her behalf in an amount equal to any
integral multiple of 1% of his or her Compensation up to a
total of 7% each pay period; or
(3) to make, or have made by the Company on his or her behalf,
any combination of Deposits under (1) or (2) above, totaling
up to 7% of his or her Compensation each pay period;
(b) An Eligible Employee who is employed by CEA Newark Bay Services,
Inc. may elect:
(1) to make Basic Nondeferred Deposits to the Plan in an
amount equal to any integral multiple of 1%, up to 8%,
of his or her Compensation each pay period; or
(2) to have Basic Deferred Deposits made to the Plan by his
or her Employer on his or her behalf in an amount equal
to any integral multiple of 1%, up to 8%, of his or her
Compensation each pay period; or
(3) to make, or have made by his or her Employer on his or
her behalf, any combination of Deposits under (1) or
(2) above, totaling up to 8% of his or her Compensation
each pay period;
subject to the limitations of Sections 4.5 and 5.4. Basic Deposits made by or on
behalf of a Participant shall be paid over by an Employer to the Trustee and
deposited in the Trust Fund as soon as practicable after deduction and, in any
event, within 90 days of deduction. Such Basic Deposits shall be credited as
soon as practicable to such Participant's Basic Deposit Subaccount in the Plan.
Section 4.2. Supplemental Deposits. Each Participant
(a) who is not employed by CEA Newark Bay Services, Inc. and who is
electing the maximum permitted Basic Deposit to the Plan may also
elect:
(1) to make Supplemental Nondeferred Deposits to the Plan in an
amount equal to any integral multiple of 1% of his or her
Compensation up to a total of 18% of his or her Compensation
each pay period; or
(2) to have Supplemental Deferred Deposits made by the Company
on his or her behalf in an amount equal to any integral
multiple of 1% up to a total of 18%, of his or her
Compensation each pay period; or
(3) to make, or have made by the Company on his or her behalf,
any combination of the Deposits specified in (1) or (2)
above, totaling up to 18% of his or her Compensation each
pay period;
(b) who is employed by CEA Newark Bay Services, Inc. and who is
electing the maximum permitted Basic Deposit to the Plan may also
elect:
(1) to make Supplemental Nondeferred Deposits to the Plan in an
amount equal to any integral multiple of 1% of his or her
Compensation to a total of 17% of his or her Compensation
each pay period; or
(2) to have Supplemental Deferred Deposits made by an Employer
on his or her behalf in an amount equal to any integral
multiple of 1% of his or her Compensation up to a total of
17% of his or her Compensation each pay period; or (3) to
make, or have made by an Employer on his or her behalf, any
combination of the amounts specified in (1) or (2) above,
totaling up to 17% of his or her Compensation each pay
period; or
(3) to make, or have made by an Employer on his or her behalf,
any combination of the amounts specified in (1) or (2)
above, totaling up to 18% of his or her Compensation each
pay period;
subject to limitations of Sections 4.5 and 5.4. Supplemental Deposits made by or
on behalf of a Participant shall be paid over by an Employer to the Trustee and
deposited in the Trust Fund as soon as practicable after deduction and, in any
event, within 90 days of deduction. Such Supplemental Deposits shall be credited
as soon as practicable to such Participant's Supplemental Deposit Subaccount in
the Plan.
Section 4.3. Additional Lump Sum Deposits. Within any Plan Year, each
Participant may make one or more Additional Lump Sum Deposits on a Nondeferred
basis in the minimum amount of $250.00 and in such total amounts which, when
aggregated with such Participant's Basic Deposits and Supplemental Deposits, do
not exceed 25% of his or her Compensation for that Plan Year and subject to the
limitations of Sections 4.5, 4.12 and 5.4. Additional Lump Sum Deposits made by
a Participant shall be paid over by the Record Keeper to the Trustee and
deposited in the Trust Fund as soon as practicable, but no later than 90 days
after receipt. Such Additional Lump Sum Deposits shall be credited as soon as
practicable to such Participant's Supplemental Deposit Subaccount in the Plan.
Section 4.4. Method of Deposits. Basic Deposits and Supplemental
Deposits by or on behalf of Active Participants shall be made by means of
payroll deduction. For convenience of administration, if the percentage of
Compensation elected to be contributed to the Plan by an Active Participant is
not equal to a whole dollar amount, such amount will be increased to the next
whole dollar amount in establishing the deduction to be made from such Active
Participant's pay. In addition, if an Active Participant's Compensation is
changed, the resulting change in deduction shall be made as soon as practicable
after such change in Compensation.
Additional Lump Sum Deposits shall be paid directly by Participants to
the Record Keeper who shall forward them to the Trustee for investment in the
Participant's Savings Account in accordance with his or her then current
investment direction.
Section 4.5. Limit on Deferred Deposits. In no event may the sum of a
Participant's Deferred Deposits (including all other deferrals under other
plans, contracts, or arrangements maintained by the Company or an Affiliate on
such Participant's behalf) attributable to any taxable year of such Participant
(presumably the calendar year) exceed the amount permitted by Code section
402(g) for the calendar year in which such taxable year commences. Where a
Participant elects under Section 4.1 to have Deferred Deposits made by an
Employer to the Plan which would otherwise exceed the limit of this Section 4.5,
such excessive Deferred Deposits shall be deemed to be Nondeferred Deposits to
the Plan ("Deemed Nondeferred Deposits") rather than Deferred Deposits to the
Plan; provided, however, that such Deemed Nondeferred Deposits shall be subject
to the limits and rules of Sections 4.1 and 4.2; and provided further, that such
Deemed Nondeferred Deposits shall be deemed to be Basic Nondeferred Deposits
(and, therefore, matched by Employer Contributions as set forth in Article V) to
the extent possible under the limits of Sections 2.6 and 4.1, taking into
account other Basic Deferred and Nondeferred Deposits of the Participant.
Section 4.6. Distribution of Excess Deferral Amounts.
(a) Notwithstanding any other provision of the Plan to the contrary,
an Employer shall distribute any Excess Deferral Amount (as
defined below), adjusted according to Section 4.6(d), to
Participants who claim such allocable Excess Deferral Amounts for
a calendar year. Such distribution shall be made no later than
the April 15th next following the end of the calendar year for
which such claim is made.
(b) For purposes of this Section 4.6, "Excess Deferral Amount" shall
mean the amount of Deferred Deposits for a calendar year that the
Participant allocates to this Plan and claims pursuant to the
election procedure set forth in Section 4.6(c) below; provided,
however, that the "Excess Deferral Amount" to be distributed for
a taxable year will be reduced by excess Deferred Deposits
previously distributed to the Participant during the Plan Year
beginning in such taxable year of the Participant.
(c) A Participant's election to claim an Excess Deferral Amount for a
calendar year shall be in writing, shall be submitted to the
Committee no later than the March 1st next following the end of
such calendar year, shall specify the Excess Deferral Amount and
shall state that if such amount is not distributed, such Excess
Deferral Amount, when added to amounts deferred under other plans
or arrangements described in Code sections 401(k), 408(k) or
403(b), exceeds the limit imposed on the Participant by Code
section 402(g) for the taxable year (calendar year) in which the
deferral occurred.
(d) The amount distributed to a Participant pursuant to this Section
4.6 with respect to a calendar year shall be increased or
decreased, as applicable, by investment income or losses
attributable thereto. If a loss is allocable to the Excess
Deferral Amount, the amount distributed shall not be less than
the lesser of (1) the Participant's Deferred Deposit Subaccount
or (2) the Participant's Deferred Deposits for the Plan Year
during which the Excess Deferral Amount occurred.
Section 4.7. Code Section 401(k) Limits on Deferred Deposits.
(a) Limitation. Deferred Deposits on behalf of Highly Compensated
Participants for a Plan Year shall not exceed the amount
permissible to meet the nondiscrimination test of Code section
401(k).
(b) Distribution of Excess Contributions. The Committee shall,
consistent with regulations under the Code, establish
nondiscriminatory rules to meet the requirements of this Section
4.7; provided, however, that the amount of Deferred Deposits
which must be distributed to any Participant under this section
for a Plan Year shall be reduced by "Excess Deferral Amounts"
previously distributed to the Participant for the taxable year of
such Participant ending during the Plan Year.
Section 4.8. Unmatched Employer Contributions. If, as the result of the
operation of Sections 4.5, 4.6 and/or 4.7, and before the operation of Section
4.9, the combined Deposits of a Participant are adjusted in such a way that
Employer Contributions previously made on behalf of a Participant for a Plan
Year are no longer matched by such Participant's Basic Deposits, then the
matching Employer Contributions allocated to such Participant's Account for such
Plan Year shall be reduced, under nondiscriminatory rules established by the
Committee, to the extent necessary to equal the percentage of Employer
Contributions (as set forth in Article V) with respect to the Participant's
remaining Basic Deposits for such Plan Year. The amount, if any, of previously
allocated Employer Contributions in excess of the percentage of Employer
Contributions (as set forth in Article V) of the Participant's remaining Basic
Deposits shall be forfeited and applied to reduce future Employer Contributions
to the Plan.
<PAGE>
Section 4.9. Code Section 401(m) Limits on Nondeferred Deposits and
Employer Contributions.
(a) Limitation. Nondeferred Deposits by, together with Employer
Contributions on behalf of, Highly Compensated Participants for a
Plan Year shall not exceed the amount permissible to meet the
nondiscrimination tests of Code section 401(m).
(b) Distribution of Excess Contributions. The Committee shall,
consistent with regulations under the Code, establish
nondiscriminatory rules to meet the requirements of this Section
4.9.
Section 4.10. Changing Deposit Percentages. The percentage of
Compensation deposited in the Plan by or on behalf of an Active Participant
shall continue in effect until such Active Participant shall change the rate of
such Deposits. An Active Participant may change the rate of Deposits to a higher
or lower percentage of Compensation within the limitations of Sections 4.1, 4.2
and 4.5 by arranging for such change with the Record Keeper or as otherwise
prescribed by the Committee. Any such change shall become effective as soon as
practicable after receipt of the notice of change by the Record Keeper.
Section 4.11. Suspension of Deposits.
(a) An Active Participant may suspend all of the Deposits to the Plan
made by such Participant or on his or her behalf at any time by
arranging for such suspension with the Record Keeper or as
otherwise prescribed by the Committee. Such suspension shall be
effective as soon as practicable after receipt of the notice of
suspension by the Record Keeper, and shall continue until such
Participant elects to have Deposits resumed by arranging therefor
with the Record Keeper. Payroll deductions under the Plan shall
begin again as soon as practicable after such notice is received
by the Record Keeper.
(b) If, after other required and authorized deductions from an Active
Participant's pay, there is not sufficient money available in any
pay period to make the entire authorized payroll deduction for
such Participant's Nondeferred Deposits, no payroll deduction
shall be made therefor for that pay period.
(c) In case of any such total suspension of Deposits, pursuant to
Section 4.11(a), Employer Contributions on behalf of such
Participant shall be automatically suspended for a like period.
Section 4.12. Limit on Additional Lump Sum Deposits. No further
Additional Lump Sum Deposits may be made by any Participant in any Plan Year in
which the aggregate amount of all of such Participant's Deposits under the Plan
exceeds 25% of such Participant's Compensation for that Plan Year. Any
Additional Lump Sum Deposits inadvertently received in excess of this limitation
shall be refunded to that Participant as soon as practicable following
determination of such excess.
Section 4.13. Elections. All elections under this Article IV shall be
made at the time, in the manner and subject to the conditions as are specified
by the Committee. Elections of Deferred Deposits shall in all cases be
irrevocably made prior to the beginning of the payroll period for which such
elections shall apply. In any year in which the Committee deems it necessary to
do so to meet the requirements of Section 4.5, 4.7, 4.9 or 5.4 or the Code and
the regulations thereunder, the Committee may reduce, for that Plan Year, the
permissible amount of Deposits by or on behalf of any or all Active
Participants.
Section 4.14. Rollover Contributions. Subject to such rules as may be
established by the Committee, an Employee may transfer Rollover Contributions to
the Plan, to be deposited in his or her Supplemental Deposit Account. The
Employee must certify that such amount to be transferred as a Rollover
Contribution qualifies for such transfer under the Code and regulations
thereunder and must submit such information or evidence, satisfactory to the
Committee, that it may require in order to approve such transfer. The Committee
may impose such nondiscriminatory requirements on such transfer as it deems
necessary or desirable. In addition, Rollover Contributions shall then be
subject to all terms and conditions of this Plan and the Trust Agreement and
shall be treated in the same manner as Supplemental Deposits, unless the context
of the Plan or Trust requires otherwise.
Section 4.15 Transfers from the Thrift Plan. Any Employee who, at the
time he/she becomes employed by the Company or a Participating Affiliate, is a
participant in the Thrift Plan, shall automatically be enrolled in the Plan and
all balances in the Thrift Plan shall be transferred to the Plan and all
contribution and investment elections in effect for the Thrift Plan shall remain
in effect, subject to change pursuant to the operation of Sections 4.10, 4.11
and 6.2 hereof.
ARTICLE V
EMPLOYER CONTRIBUTIONS
Section 5.1. Amount and Payment of Employer Contributions. Each
Employer shall contribute to the Plan on behalf of Participants who are Eligible
Employees, who are its Employees and who are making or having Basic Deposits to
the Plan made on their behalf, an amount equal to 50% of the aggregate of such
Basic Deposits, except to the extent that such Basic Deposits are reduced or
distributed as provided in Sections 4.5 through 4.9, and except as provided in
this Article V and in Section 11.4.
Employer Contributions shall be allocated as Nondeferred. Employer
Contributions with respect to a Plan Year shall be paid to the Trustee not later
than the due date (including extensions of time) for filing Enterprise's
consolidated Federal income tax return for such year. All Employer Contributions
may be made without regard to current or accumulated earnings of the Employer.
Notwithstanding the foregoing, the Plan shall be designated a profit sharing
plan for purposes of Code sections 401(a), 402, 412 and 417.
Section 5.2. Employer Contributions in Enterprise Common Stock.
Employer Contributions with respect to Basic Deposits in excess of 5% of
Compensation for Participants who are employed by an Employer other than CEA
Newark Bay Services, Inc. shall be made in shares of Enterprise Common Stock.
Employer Contributions with respect to Basic Deposits in excess of 6% of
Compensation for Participants who are employed by CEA Newark Bay Services, Inc.
shall be made in shares of Enterprise Common Stock. Any such shares credited to
a Participant's account shall be acquired in the same manner as shares acquired
for the Enterprise Common Stock Fund established pursuant to Section 7.2, be
invested in that Fund and not be available for transfer to any other Fund or
withdrawal from the Plan prior to the Participant's termination of employment by
the Company or any Affiliate. Notwithstanding the foregoing, any portion of a
Participant's Account invested in the Enterprise Common Stock Fund that is
apportioned for an alternate payee under a QDRO in accordance with Article XXII
may be transferred out of such Fund or withdrawn from the Plan at any time.
Section 5.3. Reduction of Employer Contributions by Forfeitures. The
amount of an Employer's Contribution shall be reduced by the amount of the
reduction of an unmatched Employer Contribution allocable to a Highly
Compensated Participant as provided in Sections 4.7, 4.8 and 4.9, by the amount
of any forfeiture as a result of termination of the employment of an Active
Participant as provided in Section 11.2 or as a result of the Employer's
inability to locate a Participant or beneficiary to whom a benefit hereunder is
due as provided in Section 11.14.
Section 5.4. Maximum Annual Additions. The maximum Annual Addition, as
defined in Section 12.1, for any Plan Year to any Participant's Account may not
exceed the amount provided for by Code section 415(c). The rules governing the
application of this Section 5.4 and other limitations imposed by Code section
415 are more fully set forth in Article XII.
Section 5.5. Return of Employer Contributions.
(a) Notwithstanding any provision of the Plan to the contrary, any
Employer Contribution made to the Plan by reason of mistake of
fact may be returned to the Employer making such Employer
Contribution, provided the return of such Employer Contribution
is made within one year from the date the mistaken payment was
made and any amount so returned shall be disposed of as the
Committee shall direct.
(b) If the Internal Revenue Service determines that any contribution
by an Employer to the Plan is not deductible under Code section
404, such Employer shall have the option, which it may exercise
within one year after the date of the disallowance of such
deduction, to have such contribution returned to the Employer and
any amount so returned shall be disposed of as the Committee
shall direct.
Section 5.6. Allocation from Cash Balance Plan. Pursuant to the Cash
Balance Plan and the Retirement Choice Program, Participants who so elect may
have certain service and age points otherwise allocated to them under the Cash
Balance Plan made as an Employer Contribution to their Savings Accounts under
this Plan. All amounts so elected shall be accepted by the Trustee and invested
in accordance with Section 6.1. No amounts attributable to Employer
Contributions resulting from Participant elections made pursuant to the Cash
Balance Plan and the Retirement Choice Program shall be available for withdrawal
from the Plan until the Participant's termination of employment by the Company
or any Affiliate.
ARTICLE VI
SAVINGS ACCOUNT INVESTMENTS
Section 6.1. Investment of Deposits, Rollover Contributions and
Employer Contributions. Deposits, Rollover Contributions and Employer
Contributions to the Plan shall be invested by the Trustee under the Trust
Agreement in the Funds established pursuant to Section 7.1. Upon enrolling in
the Plan, each Participant shall specify, in such form as shall be prescribed by
the Committee, the percentage (which shall be an integral multiple of 1% -
including 0% but not exceeding 100% in the aggregate) of Deposits to his or her
Savings Account which shall be invested in each of such Funds. Subject to
Section 5.2 with respect to Employer Contributions made in shares of Enterprise
Common Stock, Employer Contributions with respect to Basic Deposits shall be
invested by the Trustee for the Account of the Active Participant in the same
Funds and in the same percentages as directed by such Participant with respect
to the Basic Deposits to his or her Savings Account. Rollover Contributions may
be invested in funds under the Plan in such dollar amounts as shall be
designated by the Participant. Notwithstanding anything to the contrary herein,
a Participant who, at the time he/she becomes an Employee, is a participant in
the Thrift Plan, shall continue the same investment elections as he/she
maintained in the Thrift Plan until a change in investment direction is made in
conformity with Section 6.2 hereof.
Section 6.2. Change in Investment Direction. Any investment direction
given by a Participant under Section 6.1 shall continue in effect until changed
by the Participant. A Participant may change any such direction by giving notice
of such change in the form prescribed by the Committee. Any such change shall
become effective as soon as practicable after receipt of the notice of change by
the Record Keeper. A change in investment direction under this Section 6.2 shall
not automatically cause a transfer of investments under Section 6.3.
Section 6.3. Transfer/ Reallocation of Investments. Subject to Section
5.2 with respect to the limitation on the transfer of Employer Contributions
made in shares of Enterprise Common Stock and Section 6.6 regarding transfers
into and out of the Personal Choice Retirement Account Fund, a Participant may:
(a) direct that all or any part (in integral multiples of 1%) of his
or her interest in any one or more of the Funds be transferred to
any one or more of the other Funds, except that no transfer may
be made into a Participant's ESOP Account. A Participant may also
transfer his or her ESOP Account assets (in integral multiples of
1%, but not exceeding 100% in the aggregate) into any one or
several of the Funds. However, any transfer from a Fund shall be
subject to such contractual limitations regarding transfers from
such Fund as may exist from time to time under the contracts
governing investments held in such Fund. A direction to transfer
all or a portion of a Participant's interest in a Fund shall be
made by giving notice in the form prescribed by the Committee.
Subject to any contractual limitations that may be applicable,
any such transfer shall be made as soon as practicable after
receipt of the notice of such transfer by the Record Keeper; or
(b) reallocate all or any part (in integral multiples of 1%) of his
or her interest among the Funds, except that no funds may be
reallocated into or out of a Participant's ESOP Account. Any such
reallocation shall be subject to such contractual limitations as
may exist from time to time under the contracts governing
investments held in such Funds. A direction to reallocate a
portion of a Participant's interest in a Fund shall be made by
giving notice in the form prescribed by the Committee. Subject to
any contractual limitations that may be applicable, any such
reallocation shall be made as soon as practicable after receipt
of the notice of such reallocation by the Record Keeper;
Section 6.4. Quarterly Automatic Rebalancing. Subject to the limitation
contained in Section 5.2 with respect to the transfer of Employer Contributions
made in shares of Enterprise Common Stock and excluding investments in the
Participant's ESOP Account and in the Personal Choice Retirement Account Fund, a
Participant may elect automatically rebalance his or her Account among some or
all of the Funds at the end of each calendar quarter. Any such rebalancing shall
also be subject to those contractual limitations regarding transfers from
certain Funds as may exist from time to time under the contracts governing
investments held in such Funds. A direction to elect to quarterly automatic
rebalancing of a Participant's Account shall be made by giving notice in the
form prescribed by the Committee and shall be in effect until an election is
made to discontinue such rebalancing. Subject to any applicable contractual
limitations, such rebalancing shall commence as soon as practicable after the
Record Keeper's receipt of the notice of such election and shall occur on, or as
soon as practicable following, the end of each subsequent calendar quarter.
Section 6.5 Loans. Participants may receive loans from their Savings
Accounts under the provisions of Section 11.13. A loan to a Participant shall be
considered an investment of such Participant's Savings Account and the principal
amount of the loan shall be treated as a separate investment within the various
subaccounts. Repayments of the principal amount of the loan shall reduce such
corresponding investments of each such subaccount in the inverse order of such
investment and repayments of such principal along with any accrued interest
thereon shall be invested in the Funds in accordance with the Participant's then
current investment direction. Loan amounts shall be taken from subaccounts in
the following order:
(a) Deferred Deposits;
(b) Unmatured Vested Employer Contributions;
(c) Matured Vested Employer Contributions;
(d) Rollover Contributions;
(e) Unmatured Post-1986 Nondeferred Deposits;
(f) Matured Post-1986 Nondeferred Deposits;
(g) Pre-1987 Nondeferred Deposits.
Loan proceeds shall not be taken from a Participant's ESOP Account, from assets
invested in the Personal Choice Retirement Account Fund, from that portion of a
Participant's Savings Account attributable to Employer Contributions made in
shares of Enterprise Common Stock or from that portion of a Participant's
Savings Account attributable to age and service credits transferred from the
Cash Balance Plan as a result of Participant elections made pursuant to the Cash
Balance Plan and the Retirement Choice Program.
Section 6.6 Special Rules for Investment in the Personal Choice
Retirement Account Fund. Notwithstanding any provision of this Plan to the
contrary, the investment in the Personal Choice Retirement Account Fund shall be
subject to the following restrictions and limitations:
(a) only vested amounts in a Participant's Account may be transferred
into the Personal Choice Retirement Account Fund;
(b) the minimum initial investment shall be $2,000;
(c) additional investments shall be in minimum amounts of $1,000
(therefore, no Basic Deposits, Supplemental Deposits or Employer Contributions
may be made directly into the Personal Choice Retirement Account Fund);
(d) transfers in to and out of the Personal Choice Retirement Account
Fund shall be in whole dollar amounts only;
(e) with respect to transfers out of the Personal Choice Retirement
Account Fund, the Participant must designate the specific investment(s) which
is(are) to be liquidated in order to effect the requested transfer;
(f) participation shall be subject to an annual participation fee,
initially $50.00, which may be changed by the Committee at any time and from
time to time;
(g) the annual participation fee shall be deducted on the day the
Participant first invests in the Personal Choice Retirement Account Fund, and
first business day of January thereafter, prorata from the portion of the
Participant's Account which is not invested in the Personal Choice Retirement
Account Fund;
(h) all fees related to specific transactions in the Personal Choice
Retirement Account Fund will be deducted directly from the Participant's Account
(first, from the Personal Choice Retirement Account Fund Balance and then from
the balance in the Participant's other Funds;
(i) for the period 10/1/99 through 9/30/00, investment shall be limited
to 50% of the vested balance in the Participant's Account;
(j) for the period 10/1/00 through 9/30/01, investment shall be limited
to 75% of the vested balance in the Participant's Account;
(k) For the period 10/1/01 and beyond, any Participant maintaining a
balance in the Personal Choice Retirement Account Fund must maintain a minimum
$500 vested balance in the Plan's other Funds;
(l) All transactions within and from the Personal Choice Retirement
Account Fund shall be in settled cash only and, to the extent that a transaction
has not settled, further transactions and withdrawals from the Personal Choice
Retirement Account Fund will not be available; and
(m) No transfer may be made directly from the Stable Value Fund into
the Personal Choice Retirement Account Fund and any amounts transferred from the
Stable Value Fund must be invested in one of the Plan's other equity funds for
at least 90 days before they may be transferred into the Personal Choice
Retirement Account Fund.
ARTICLE VII
SAVINGS ACCOUNT FUNDS
Section 7.1. Establishment of Funds. Except as provided in subparagraph
7.1(b), the following Funds shall be established exclusively for the collective
investment of Trust Fund assets attributable to Participant Savings Accounts, as
directed by Participants:
(a) One or more "Equities Funds", the assets of which shall
principally be invested, directly or indirectly, in common stocks
of domestic or foreign corporations. To the extent practicable,
no Equities Fund shall invest in Enterprise Common Stock.
(b) One or more 'Fixed Income Funds' the assets of which shall be (1)
held by an insurance company, banking institution or other
corporate entity pursuant to an agreement containing provisions
for the repayment in full of the amounts transferred to the
insurance company, banking institution or other corporate entity
plus interest at a fixed annual rate for a specified period, or
(2) invested in direct obligations of the United States
Government agencies thereof, or in obligations guaranteed as to
the payment of principal and interest by the United States
Government or agencies thereof, or in fully insured bank
deposits, or fixed income private or public securities or (3)
invested in assets that meet the criteria in (1) and (2) whose
benefit responsiveness, liquidity and/or maturity date is
provided for by a third party, or (4) invested in short-term
investments, including, in all cases, a commingled fund or common
trust and excluding, in all cases, securities issued by any
Employer, except that this limitation shall not apply to
securities held by any commingled fund or common trust in which
any portion of a 'Fixed Income Fund' shall be invested. The terms
of such agreements and the identity of such insurance companies,
banking institutions, other corporate entities and/or third
parties shall be determined by the Committee from time to time.
At the election of the Committee, any Fixed Income Fund
established hereunder may be merged or combined with the fixed
income fund maintained by the Company pursuant to the Employee
Savings Plan.
(c) An "Enterprise Common Stock Fund", the assets of which shall
principally be invested in Enterprise Common Stock.
(d) One or more "Equities Index Funds", the assets of which shall
principally be invested, directly or indirectly, in common stocks
substantially comprising the Standard and Poor's 500 Index.
(e) One or more "Government Obligations Funds", the assets of which
shall principally be invested, directly or indirectly, in debt
obligations issued or guaranteed by the U. S. Government, its
agencies or instrumentalities.
(f) One or more "Balanced Funds", the assets of which shall be
principally invested, directly or indirectly, in a combination of
the common stocks and fixed-income securities of domestic
corporations.
(g) One or more "Bond Funds", the assets of which shall principally
be invested, .. directly or indirectly, in U.S. taxable,
investment-grade debt obligations.
(h) One or more "Personal Choice Retirement Account Funds", the
assets of which will be invested in individual stocks, bonds and
mutual funds as directed by the Participant.
Notwithstanding the foregoing, any or all of the above Funds may be
temporarily maintained in cash, or may be invested directly or indirectly in
certain short-term obligations as permitted by the Trust Agreement. Dividends,
interest and other income in respect of any Fund shall be reinvested in the same
Fund to the extent not used to pay expenses of the Plan. Except as otherwise
limited by the provisions of this Plan, withdrawals, distributions and
forfeitures, except as otherwise specified in the Plan, shall be charged pro
rata against the various Funds in which the subaccounts from which such
withdrawals, distributions or forfeitures are then invested.
Section 7.2. Enterprise Common Stock Fund.
(a) Enterprise Common Stock purchased for the Enterprise Common Stock
Fund shall be purchased by the Trustee on the open market or
directly from Enterprise should Enterprise elect to make such
sales.
(b) If Enterprise shall elect to sell shares of Enterprise Common
Stock directly to the Plan, the price to be paid by the Trustee
for any such purchases shall be the average of the high and low
sales prices of Enterprise Common Stock as reported by the New
York Stock Exchange. Inc. on the date of purchase.
(c) All voting discretion, including the power to decide whether or
not to tender Enterprise Common Stock in connection with a tender
offer, with respect to the shares of Enterprise Common Stock held
under the Enterprise Common Stock Fund for the Account of a
Participant (whether vested or not vested) shall be vested in the
Trustee. However, the Trustee shall vote all such shares in
accordance with the directions of such Participant. Within a
reasonable time before voting rights are to be exercised, the
Employer or the Trustee shall cause to be sent to each
Participant entitled to give voting instructions all information
that Enterprise has or will distribute to shareholders of
Enterprise Common Stock regarding the exercise of such voting
rights. Shares with respect to which no voting instructions are
received shall not be voted by the Trustee.
(d) If, during the course of the Plan, Enterprise should grant to the
holders of Enterprise Common Stock rights to subscribe to an
issue or issues of securities of Enterprise, any such rights
attaching to the shares of Enterprise Common Stock held by the
Trustee under the Enterprise Common Stock Fund shall be sold by
the Trustee and the net proceeds applied by the Trustee to the
purchase of Enterprise Common Stock on the open market for such
Fund. Stock dividends on shares held by the Enterprise Common
Stock Fund, and stock issued upon any split of such shares, shall
be credited to such Enterprise Common Stock Fund.
<PAGE>
ARTICLE VIII
SAVINGS ACCOUNTS
Section 8.1. Establishment of Savings Accounts. The Committee shall
maintain or cause to be maintained a Savings Account for each Participant which
shall consist of the following subaccounts: Basic Deposit Subaccount,
Supplemental Deposit Subaccount and Employer Contribution Subaccount, the assets
of which shall be invested as provided in Section 5.2 or pursuant to the
direction of the Participant as provided in Article VI. The assets of each such
subaccount of the Savings Account shall be identified as to Nondeferred or
Deferred.
Section 8.2. Measure of Savings Accounts.
(a) The interests of Participants in the Funds shall be measured by
participating units in the particular Fund, the number and value
of which shall be determined as of each business day as provided
in the next paragraph. Each participating unit shall have an
equal beneficial interest in the Fund, and none shall have
priority or preference over any other.
(b) As soon as practicable at the end of each business day, the
Trustee shall determine the value of each such Fund as of such
business day in the manner prescribed in Section 8.3. The value
so determined shall be divided by the total number of
participating units allocated to the Accounts of Participants
participating in such Fund in accordance with subsection (a) as
of the prior business day. The resulting quotient shall be the
value of a participating unit as of such business day and
participating units shall be allocated, as such value, to and
from the Fund subaccounts of Participants for all transactions by
them or on their behalf with respect to the current business day.
The value of all participating units allocated to Participants'
Fund subaccounts shall be redetermined in a similar manner each
succeeding business day and participating units shall be
allocated to and from the Accounts of Participants participating
in such Fund at such value for all transactions with respect to
such business day. Fractional units shall be calculated to such
number of decimal places as shall be determined by the Committee
from time to time.
(c) If a Participant shall direct pursuant to Section 6.3 that his or
her interest in a Fund or any part thereof shall be transferred
to another Fund or Funds, or if such Participant's interest in a
Fund or any part thereof is distributed, withdrawn, borrowed or
forfeited under Articles IV or XI, the number of participating
units representing such interest or portion thereof as of the
applicable business day shall be canceled for purposes of any
subsequent determination of the number of and value of the
participating units in such Fund.
Section 8.3. Valuation of Funds. The value of a Fund as of any business
day shall be the market value of all assets (including any uninvested cash) held
by the Fund as determined by the Trustee, reduced by the amount of any accrued
liabilities of the Fund on such business day and increased by Deposits, Rollover
Contributions and Employer Contributions with respect to such business day. The
Trustee's determination of market value shall be binding and conclusive upon all
parties.
Section 8.4. Valuation of Savings Accounts. The value of a
Participant's subaccount for any Fund as of any business day shall be the value
of the participating units allocated to the Participant's subaccount for such
Fund as of such business day. The value of a Participant's Account as of any
business day shall be the aggregate of the values of such subaccounts,
determined as provided in the preceding Sections of this Article VIII.
Section 8.5. Separate Accounting. The amounts of Deferred Deposits in a
Participant's Savings Account shall at all times be separately accounted for
from other amounts in such Savings Account, by allocating investment gains and
losses on Deferred Deposit amounts on a reasonable pro rata basis and by
adjusting the Deferred and other portions of the subaccounts of a Participant's
Savings Account for withdrawals, distributions, borrowings and contributions.
Gains, losses, withdrawals, distributions, borrowings, forfeitures and other
credits or charges shall be separately allocated between such Deferred Deposit
amounts and other portions of the subaccounts on a reasonable and consistent
basis.
ARTICLE IX
ESOP ACCOUNTS
Section 9.1. Maintenance of Separate Accounts. Each ESOP Account shall
be maintained on the basis of shares of Enterprise Common Stock allocated to
such ESOP Account, with each ESOP Account being credited with the number of full
and fractional shares of Enterprise Common Stock so allocated.
Section 9.2. Allocation of Distributions. Any distributions received by
the Plan with respect to Enterprise Common Stock allocated to a Participant's
ESOP Account shall be allocated to such ESOP Account.
Section 9.3. Withdrawals or Transfers
(a) Notwithstanding any provision in the Plan to the contrary, a
Participant may withdraw in accordance with Section 11.3 or 11.4
or transfer in accordance with Section 6.3, the shares of
Enterprise Common Stock allocated to Participant's ESOP Account
or the cash value thereof.
(b) With respect to an election of a Participant to withdraw
Enterprise Common Stock from Participant's ESOP Account, the
shares of Enterprise Common Stock, or the cash value at the
election of the Participant, shall be distributed in accordance
with Article XI, provided that such Participant elects to
withdraw all full and fractional shares of Enterprise Common
Stock allocated to such ESOP Account or the cash value thereof.
Such distribution shall be made as soon as practicable after
receipt by the Record Keeper of the Participant's election to
withdraw.
(c) With respect to an election of a Participant to transfer the cash
value of all full and fractional shares of Enterprise Common
Stock from the Participant's ESOP Account to the Participant's
Savings Account, such transfer shall be made as soon as
practicable after receipt by the Record Keeper of the
Participant's election to transfer, shall be deposited in the
Participant's Savings Account, shall be invested in one or more
(in multiples of 1% up to an aggregate of 100%) of the Savings
Account Funds as such Participant shall designate and thereafter
shall be deemed a Rollover Contribution and treated accordingly.
The cash value of each share of Enterprise Common Stock so
transferred shall be equal to the price of a share of Enterprise
Common Stock actually received by the Trustee.
(d) A Participant may not borrow from his or her ESOP Account.
Section 9.4. Dividends and Other Income. Unless otherwise directed as
hereinafter provided, dividends paid in cash with respect to Enterprise Common
Stock allocated to a Participant's ESOP Account shall be distributed to the
Participant as soon thereafter as practicable and, in any event, not later than
90 days after the close of the Plan Year in which paid. Enterprise Common Stock
delivered to the Trustee pursuant to a stock dividend, stock split or
reorganization, shall be allocated to the ESOP Account of Participants in that
proportion which the shares of each Participant's ESOP Account bears to the
total shares of all Participants' ESOP Accounts.
Section 9.5. Voting of ESOP Account Common Stock. As provided in
Section 7.2 with respect to the Enterprise Common Stock Fund, all voting
discretion with respect to stock held in a Participant's ESOP Account, including
the power to decide whether or not to tender Enterprise Common Stock in
connection with a tender offer, shall be vested in the Trustee. Each Participant
shall be entitled to direct the Trustee as to the manner in which voting rights
attributable to Enterprise Common Stock (including fractional shares or
fractional rights to shares) allocated to such Participant's ESOP Account are to
be exercised. Within a reasonable time before voting rights are to be exercised,
the Trustee or the Employer shall cause to be sent to each Participant entitled
to give voting instructions all information that Enterprise has or will
distribute to shareholders of Enterprise Common Stock regarding the exercise of
such voting rights. Such voting rights shall be exercised by the Trustee but
only to the extent directed by a Participant. Shares with respect to which no
voting instructions are received shall not be voted by the Trustee.
ARTICLE X
VESTING
Section 10.1. Vesting of Employer Contributions.
(a) Upon completion of five Years of Service, a Participant shall
have a 100% vested interest in his or her Savings Account
attributable to Employer Contributions made on behalf of such
Participant during any Plan Year. In addition, if a Participant
is eligible for Retirement, suffers a Disability, is Laid Off or
dies, such Participant shall have a 100% vested interest in his
or her Savings Account attributable to Employer Contributions for
all Plan Years.
(b) For purposes of determining Years of Service, a Participant shall
not be considered to have interrupted his or her continuous
service as a result of a leave of absence or as a result of a
termination of employment; provided, however, that the periods of
absence from employment for these reasons shall not be counted
toward Years of Service for vesting purposes.
Section 10.2. Vesting of Deposits, Rollover Contributions and the ESOP
Account. A Participant's interest in his or her Savings Account attributable to
Deposits and Rollover Contributions for all Plan Years and in his or her ESOP
Account shall be 100% vested at all times.
ARTICLE XI
ACCOUNT DISTRIBUTIONS AND WITHDRAWALS
Section 11.1. Distribution Upon Retirement, Disability, Lay Off or
Death. If a Participant terminates employment on account of Retirement or
Disability, is Laid Off or dies, then, in that event, the Participant's Savings
Account, determined as of the business day coinciding with or next following the
date of the last Deposit made by or which would have been made on behalf of such
Participant, together with the Participant's ESOP Account, shall:
(a) if the value of such Account as so determined is $5,000 (or such
other amount established by law) or less, be distributed, subject
to the provisions of Section 11.10(c), as soon as practicable to
the Participant, or in the case of death of the Participant, to
the Participant's beneficiary as determined in accordance with
Article XIV or, if none, to the Participant's estate; or
(b) if the value of such Account as so determined shall exceed $5,000
(or such other amount established by law), be distributed upon
the earliest of the Participant's Required Beginning Date, the
death of such Participant or the receipt by the Record Keeper of
an application for distribution (which may be for less than all
of the Participant's Account balance provided, however, that the
amount of distribution shall be at least $200, unless such
distribution is of 100% of the remaining value of such
Participant's Account) in a form prescribed by the Committee.
Section 11.2. Distribution Upon Other Termination of Employment. Upon
termination of a Participant's employment with an Employer or for reasons other
than Retirement, Disability, Lay Off or death, the vested portion of the
Participant's Account, determined as of the business day coinciding with or next
following the date of the last Deposit made by or which would have been made on
behalf of such Participant, or, if none, the date coinciding with or next
following the date of termination, shall:
(a) if the value of such Account as so determined is $5,000 (or such
other amount established by law) or less, be distributed, subject
to the provisions of Section 11.9(c), as soon as practicable to
the Participant, or, in the case of death of the Participant
after termination of employment but prior to such distribution,
to the Participant's beneficiary, or, if none, to the
Participant's estate; or
(b) if the value of such Account as so determined shall exceed $5,000
(or such other amount established by law) be distributed upon the
earliest of the Participant's Required Beginning Date, the death
of the Participant or the receipt by the Record Keeper of an
application for distribution (which may be for less than all of
the Participant's Account balance provided, however, that the
amount of distribution shall be at least $200, unless such
distribution is of 100% of the remaining value of such
Participant's Account) in a form prescribed by the Committee.
Any nonvested portion of the Participant's Account, determined as of
the date of termination, shall be forfeited and shall be applied thereafter to
reduce a subsequent contribution or contributions of the Employer as provided in
Section 5.2. If such former Participant is rehired by an Employer on or before
the end of and is employed by an Employer at the end of the fifth Plan Year
after the Plan Year in which such termination occurred, then such nonvested
portion of the Participant's Account shall be reinstated by the Employer and the
Participant's right thereto shall be determined as if the Participant had not
terminated employment, provided that the Participant repays to the Plan the
amount of any distribution paid to him or her on account of the termination of
employment.
The nonvested portion of the Participant's Account, determined as of
the date of termination, shall be forfeited as of the earlier of (i) the date
the Participant receives a cash-out distribution as described in Treasury
Regulation section 1.411(a)-7(d) or (ii) the time at which the terminated
Participant experiences five consecutive one-year breaks in service, and shall
be applied thereafter to reduce a subsequent contribution or contributions of
the Employer as provided in Section 5.2.
Any Participant who receives a distribution under this Section 11.2
shall be prohibited from participating in the Plan for the period of three
months following such distribution.
Section 11.3 Partial Distributions Following Termination of Employment.
A Participant who elects pursuant to Section 11.1(b) or 11.2(b) to continue
participation in the Plan following termination of employment may, subsequent to
such Participant's termination of employment but prior to his or her Required
Beginning Date, upon application to the Committee in such format as it may
determine, withdraw all or part of such Participant's Account in minimum amounts
of $200.00 per withdrawal. Such withdrawals may be limited to after-tax
withdrawals.
Withdrawals shall be taken from a Participant's Plan subaccounts in the
following order:
(a) After-tax withdrawals:
(1) Pre-87 Nondeferred Deposits;
(2) Post-86 Nondeferred Deposits and earnings thereon;
(3) Earnings on Pre-87 Nondeferred Deposits.
(b) Partial withdrawals:
(1) Pre-1987 Nondeferred Deposits;
(2) Post-1986 Nondeferred Deposits and earnings thereon; (3)
Rollover Contributions and earnings thereon;
(4) Earnings on pre-1987 Nondeferred Deposits;
(5) Vested Employer Cash Contributions and earnings thereon;
(6) Vested Employer Stock Contributions and earnings thereon;
(7) Vested Employer Cash Balance Contributions and earnings
thereon;
(8) Deferred Deposits and earnings thereon.
Section 11.4. Withdrawal of Nondeferred Deposits and Employer
Contributions During Employment.
(a) A Participant may, by application to the Record Keeper in the
form prescribed by the Committee, request to withdraw from the
Plan any or all of his or her Nondeferred Deposits and earnings
thereon, Rollover Contributions and earnings thereon and Vested
Employer Contributions (except for Employer Contributions
resulting from Participant elections made pursuant to the Cash
Balance Plan and the Retirement Choice Program) as well as
earnings thereon; provided, however, that the amount withdrawn
shall be at least $200, unless such withdrawal is of 100% of the
value of such Participant's Savings Account.
(b) If a withdrawal includes Deposits that are not Matured, Employer
Contributions with respect to such Participant shall be suspended
for a period of three months.
(c) Withdrawals shall be taken from a Participant's Savings Plan
subaccounts in the following order:
(1) Pre-1987 Nondeferred Deposits;
(2) Matured Post-1986 Nondeferred Deposits and earnings thereon;
(3) Unmatured Post-1986 Nondeferred Deposits and earnings
thereon;
(4) Rollover Contributions and earnings thereon;
(5) Earnings on pre-1987 Nondeferred Deposits;
(6) Matured Vested Employer Contributions and earnings thereon;
(7) Unmatured Vested Employer Contributions and earnings
thereon.
(d) Except as provided in Section 6.6 with respect to a Participant's
investment in the Personal Choice Retirement Account Fund. any
withdrawal made by a Participant pursuant to this Section 11.4
shall be made from all Funds in which the Nondeferred Deposits,
Rollover Contributions and Employer Contributions by or on behalf
of such Participant are invested and shall be charged pro rata
against such subaccounts in the Participant's Savings Account.
(e) The amount of any withdrawal made by a Participant pursuant to
this Section 11.4 shall be determined as of the close of the
business day on which the notice of withdrawal is received by the
Record Keeper.
(f) Notwithstanding any of the foregoing, no withdrawals of Employer
Contributions made in shares of Enterprise Common Stock or
resulting from participant elections made pursuant to the Cash
Balance Plan and the Retirement Choice Program shall be permitted
prior to the date that the Participant terminates his or her
employment.
Section 11.5. Withdrawals of Deferred Deposits During Employment After
Age 59 1/2. A Participant over the age 59 1/2 may withdraw all or a portion of
the value of his or her Savings Account attributable to the Deferred Deposits.
The value of such Deferred Deposits for the purpose of such withdrawal shall be
determined as of the close of the business day in which the notice of withdrawal
is received by the Record Keeper. The minimum withdrawal permitted shall be
$200, unless such withdrawal is 100% of the current value of the Deferred
portion of a Participant's Savings Account.
Section 11.6. Hardship Withdrawals.
(a) Upon the application of any Participant, or his or her legal
representative, the Committee, in accordance with a uniform
nondiscriminatory policy, shall permit such Participant to
withdraw such portion of the value of his or her vested Savings
Account as deemed to be necessary for the purpose of:
(1) Expenses for medical care described in Code section 213(d)
previously incurred by the Participant, the Participant's
spouse or any dependents (as defined in Code section 152) of
the Participant or necessary for these persons to obtain
medical care described in Code section 213(d);
(2) Costs directly related to the purchase (excluding mortgage
payments) of a principal residence of the Participant;
(3) Payment of tuition and related educational fees for the next
12 months of post-secondary education for the Participant,
the Participant's spouse, children or any dependents (as
defined in Code section 152) of the Participant; or
(4) Payments necessary to prevent the eviction of the
Participant from his principal residence or foreclosure on
the mortgage of the Participant's principal residence.
(b) A Participant or legal representative making application under
this Section 11.6 shall have the burden of presenting to the
Committee satisfactory proof of such need. The Committee shall
not permit withdrawal under this Section without first receiving
such proof as it shall deem necessary to demonstrate such
hardship.
(c) The amount which may be withdrawn shall be withdrawn, as
necessary, in the following order:
(1) Nondeferred Deposits together with vested Employer
Contributions, in the order prescribed by Section 11.4, but
without regard to the limitations on withdrawals of Section
11.4;
(2) Deferred Supplemental Deposits; and
(3) Deferred Basic Deposits.
(d) A withdrawal will be deemed to be necessary to satisfy an
immediate and heavy financial need of a Participant if all of the
following requirements are satisfied:
(1) The withdrawal is not in excess of the amount of the
immediate and heavy financial need of the Participant,
(2) The Participant has obtained all distributions, other than
hardship withdrawals, and all nontaxable loans currently
available under all plans maintained by the Company or an
Affiliate,
(3) The Participant is prohibited under the terms of the Plan or
an otherwise legally enforceable agreement from making
elective contributions and employee contributions to the
Plan and all other plans maintained by the Company or an
Affiliate for at least 12 months after receipt of the
hardship withdrawal, and
(4) The Plan and all other plans maintained by the Employer,
provide that the Participant may not make elective
contributions for the Participant's taxable year immediately
following the taxable year of the hardship withdrawal in
excess of the applicable limit under Code section 402(g) for
such next taxable year less the amount of such Participant's
elective contributions for the taxable year of the hardship
withdrawal. A Participant shall not fail to be treated as an
eligible Participant for purposes of paragraph (b) of this
Section merely because he is suspended in accordance with
this provision.
(e) If a Participant shall make a withdrawal pursuant to this Section
11.6, then
(1) the Participant shall not be permitted to make Deposits
(including Additional Lump Sum Deposits) to the Plan during
the one year period beginning on the date of receipt of such
withdrawal and
(2) a Participant's Deferred Deposits for the Participant's
taxable year next following the taxable year of the hardship
withdrawal may not exceed the limit established under Code
section 402(g) less the amount of Deferred Deposits made by
the Participant in the year of such withdrawal.
(f) Amounts available for hardship withdrawals with respect to
Deferred Deposits will be limited to the amount of a
Participant's Deferred Deposits, plus earnings allocable thereto
which were credited to Participant's Accounts as of December 31,
1988, less the amount of any previous hardship withdrawals.
(g) A hardship withdrawal from the Savings Account shall not be
permitted unless and until a Participant has withdrawn, pursuant
to Section 9.3, all Enterprise Common Stock from his or her ESOP
Account.
(h) The hardship withdrawal shall be paid to the Participant in the
amount approved as soon as practicable after his or her
application is approved by the Committee.
(i) Notwithstanding any of the foregoing, no withdrawals of Employer
Contributions made in shares of Enterprise Common Stock or
resulting from Participant elections made pursuant to the Cash
Balance Plan and the Retirement Choice Program shall be permitted
prior to the date that the Participant terminates his or her
employment.
Section 11.7. Suspension of Participation. If a Participant shall cease
to be an Eligible Employee, Deposits and Employer Contributions to his or her
Savings Account shall be suspended and no Additional Lump Sum Deposits shall be
permitted to be made during the period of ineligibility. Distribution of such
Participant's Account shall be deferred until such Participant's termination of
employment with an Employer, whereupon the Participant's Savings Account shall
be distributed in accordance with the applicable provisions of this Article XI.
Such Participant shall continue to be deemed a Participant for all purposes
other than for Articles IV and V during such period of ineligibility.
Section 11.8. Transfer of Employment. If a Participant shall be
transferred to the employ of an Affiliate of the Company, distribution of such
Participant's Account shall be deferred until the Participant is no longer in
the employ of the Company or any Affiliate, whereupon the Participant's Account
shall be distributed in accordance with the applicable provisions of this
Article XI. Such transferred Participant shall continue to be deemed a
Participant for all purposes other than for Articles IV and V during such period
of deferral of distribution.
Section 11.9. Form of Distributions.
(a) All distributions from the Plan shall be made in money by check,
except that in the case of a lump sum distribution only, other
than a hardship withdrawal in accordance with Section 11.6, a
Participant may, by notice to the Record Keeper in the form
prescribed by the Committee, elect to have any whole shares of
Enterprise Common Stock held for such Participant's Enterprise
Common Stock Fund subaccount and/or ESOP Account distributed in
shares of Enterprise Common Stock. (the value of any fractional
shares shall be paid in money by check) and/or (ii) elect to have
particular assets held in the Personal Choice Retirement Account
Fund transferred to an individual retirement account with the
vendor administering the Personal Choice Retirement Account Fund.
Any such election may be made at any time prior to the
distribution under Section 11.1 and 11.2 or prior to receipt by
the Record Keeper of the notice of withdrawal in the case of a
distribution under Sections 11.3 or 11.4. If no such election is
made, the entire value of the amount of the Participant's Account
being distributed shall be distributed in money by check.
(b) All distributions from the Plan shall be made in one lump sum,
except that, in the case of a distribution from a Participant's
Account on account of a Participant's Retirement, such
Participant may elect to have his or her Account, including the
ESOP Account, which is to be transferred into one of the Savings
Account Funds, distributed in annual or quarterly payments in
money by check by the Trustee in amounts as nearly equal as
possible for a specified number of years up to ten years. Each
payment shall be an amount equal to the Participant's Savings
Account as of the applicable date divided by the number of
payments remaining. If a Participant shall die prior to complete
distribution of his or her Savings Account pursuant to this
subparagraph (b)(1), the value of the Participant's Savings
Account shall be distributed as soon as practicable in a lump sum
to the Participant's beneficiary, or, if none, to the
Participant's estate. The amount so distributed after a
Participant's death shall be the remaining value of Participant's
Savings Account determined as of the business day coinciding with
or next following the date of the Participant's death.
(c) If no election is made under subparagraph (b) above, and the
value of a Participant's Savings Account, when aggregated with
the value of any ESOP Account of the Participant, determined in
accordance with Article IX, exceeds $5,00, a distribution will be
made in one lump sum at the time provided for in Section 11.1 or
Section 11.2, except as otherwise provided in Section 11.6.
(d) Anything to the contrary notwithstanding, any Savings Account
distribution to be made to a Participant under subparagraph (b)
above shall be made in such a manner that the present value of
the payments to be made to the Participant during his or her life
expectancy are calculated to be more than 50% of the present
value of the total payments to be made to the Participant and any
beneficiaries.
Section 11.10. Time of Distributions.
(a) All distributions from the Plan shall commence as soon as
practicable, and in any event no later than 60 days after the
close of the Plan Year in which the Participant terminates
employment, reaches his or her Required Beginning Date, dies, or,
if applicable, requests distribution under Section 11.1 and 11.2,
or 60 days after the close of the Plan Year in which the
Participant elects to withdraw funds from the Plan in the case of
distributions under Sections 9.3, 9.4, 11.4, and 11.5.
(b) In the case of a distribution over a period of years under
subparagraph (b) of Section 11.9, the initial payment shall be
made at a time determined in accordance with subparagraph (a) of
this Section 11.10. In the case of annual distributions, the
remaining annual payments shall be made in successive calendar
years on such date each year as shall be determined by the
Committee, subject to the provisions of subparagraph (b) of
Section 11.9 in the case of the Participant's death. In the case
of quarterly distributions, the remaining payments shall be made
each successive three month period on such day during the period
as may be established by the Committee, subject to the provisions
of subparagraph (b) of Section 11.9 in the case of the
Participant's death.
(c) In the case of a distribution on account of a Participant's
Retirement, subject to the provisions of subsection 11.11, the
Participant may elect to have his or her Account distributed as a
lump sum during (1) the Plan Year next following the Plan Year of
his or her Retirement or (2) the next succeeding Plan Year
thereafter or (3) if the Account value exceeds $5,000 at any time
up to the Participant's Required Beginning Date. If no such
election is made, distribution shall commence in accordance with
Section 11.1 and subparagraph (a) above.
Section 11.11. Limitation on Post Age 70 1/2 Distributions.
Notwithstanding the provisions of Sections 11.9 and 11.10:
(a) the entire interest of a Participant must:
(1) be distributed not later than the Participant's Required
Beginning Date, or,
(2) commence no later than such Required Beginning Date and be
payable in accordance with regulations under the Code over a
period not extending beyond the life expectancy of such
Participant.
(b) If a Participant dies before his or her entire interest has been
distributed, then such entire interest (or the remaining part of
such interest if distribution thereof has commenced) shall be
distributed within five years after the Participant's death, and,
if distribution has commenced prior to death, shall be
distributed at least as rapidly as the method of distribution
being used as of the date of such Participant's death.
(c) The amount of the distribution required by this Section 11.11 is
to be determined by Treasury Regulations Section 1.72-9, Table V
using the attained age of the Participant as provided in
regulations without recalculation of the life expectancy.
Distribution will be made in accordance with the regulations
under Code section 401(a)(9), including the minimum distribution
incidental death benefit requirement of section 1.401(a)(9)-2,
and such regulations shall override any inconsistent Plan
provisions.
Section 11.12. Distribution in the Case of Certain Disabilities. In the
event that the Committee shall find that any person entitled to a distribution
under the Plan is unable to care for his or her affairs because of illness or
accident or because the person is a minor or has died, the Committee may direct
that any distribution due such person, unless claim shall have been made
therefor by a duly appointed legal representative, be paid or applied to or for
the benefit of such person, or his or her spouse, any child of such person
(including an adopted child), any parent or other blood relative of such person,
or a person with whom the person resides, or any of them, and any such payment
or application so made shall be a complete discharge of the liabilities of the
Plan therefor.
Section 11.13. Loans.
(a) The Committee shall have complete authority to establish and
administer a loan program to provide loans to Participants. The
loan program shall include the following:
(1) A procedure for applying for loans;
(2) The basis on which loans will be approved or denied;
(3) Limitations (if any) on the types and amounts of loans
offered;
(4) The procedure under the loan program for determining a
reasonable rate of interest;
(5) The types of collateral which may secure a loan; and
(6) The events constituting default and the steps that will be
taken to preserve plan assets in the event of such default.
The rules and applicable limitations established by the loan
program shall be such as to prevent any loan from
constituting a prohibited transaction under Code section
4975 and ERISA section 406, or a Plan distribution under
Code section 72(p).
(b) The Trustee shall, subject to the approval of the General
Manager, subject to compliance with the written loan program and
the provisions of the Code, lend a Participant, who is employed
by an Employer, an amount up to 50% of the vested portion of his
or her Account, including the ESOP Account, but not more than
$50,000 in the aggregate as of the date on which the loan is
approved reduced by the highest outstanding loan balance during
the preceding twelve months. However, no amount may be loaned
directly from any ESOP Account, from any portion of the
Enterprise Common Stock Fund attributable to Employer
Contributions made in shares of stock, resulting from Participant
elections made pursuant to the Cash Balance Plan and the
Retirement Choice Program or from investments held in the
Personal Choice Retirement Account Fund. The Director shall
review each application for a loan in a nondiscriminatory manner
and in accordance with such rules as may be prescribed by the
Committee. Loans, if approved, shall be made as soon thereafter
as practicable.
(c) In addition to such rules and regulations as the Committee may
adopt, all loans shall comply with the following terms and
conditions:
(1) An application for a loan by an eligible Participant shall
be made by making application therefor to the Record Keeper
on a form prescribed by the Committee.
(2) An eligible Participant may not apply for more than one loan
in any calendar year nor for a loan with an initial
principal amount of less than $1,000 and, in any event, may
not have more than two (2) loans outstanding at any one
time.
(3) All loans, including interest thereon, shall be repaid by
payroll deduction in equal monthly installments over a
period of 12 to 60 months as selected by the Participant.
Nothing herein, however, shall prohibit a Participant from
prepaying such loan in whole or in part in a lump sum in
accordance with such rules as may be established from time
to time by the Committee.
(4) Each loan shall be secured by an assignment of the
Participant's entire right, title and interest in and to the
Trust Fund to the extent of the loan and accrued interest
thereon and shall be evidenced by the Participant's
promissory note for the amount of the loan, including
interest, payable to the order of the Trustee.
(5) Each loan shall bear interest at a reasonable rate (which
rate may be a variable rate) to be established from time to
time by the Committee, not in violation of any applicable
usury laws. In determining the interest rate, the Committee
shall take into consideration interest rates being charged
by other lenders at the time of such determination.
(d) No distribution shall be made to any Participant or beneficiary
thereof unless and until all unpaid loans, including interest
thereon, have been repaid.
Section 11.14. Inability to Locate Payee. Any benefit payable to a
Participant or beneficiary shall be forfeited if the Employer, after reasonable
effort, is unable to locate such Participant or beneficiary to whom payment is
due. The amount of any such forfeited benefit shall be applied to reduce the
amount of Employer Contributions required under the Plan as provided in Section
5.3. However, any such forfeited benefit shall be reinstated and become payable
if a claim therefor is made by such Participant or beneficiary.
Section 11.15. Federal Income Tax Withholding on Distributions and
Withdrawals. Distributions and withdrawals under this Plan shall be subject to
Federal income tax withholding as prescribed by Code section 3405 and the
regulations thereunder.
Section 11.16 Direct Rollover to Another Plan or IRA. On or after
January 1, 1993, at the election of a Participant or his spouse or former spouse
entitled to a distribution under Section 22.1 or the foregoing provisions of
this Article XI, the Committee shall direct the Trustee to make a direct
rollover to the trustee or other custodian of an "eligible retirement plan" by
any reasonable means (including providing the Participant or spouse or former
spouse with a check made payable only to the trustee or custodian) of all, or a
specified portion, of an "eligible rollover distribution," subject to the
following restrictions:
(a) An "eligible rollover distribution" is any distribution of all or
any portion of the Participant's Account, except that an
"eligible rollover distribution" does not include
(i) any distribution that is one of a series of substantially
equal periodic payments (made not less frequently than
annually) made for the life (or life expectancy) of the
recipient or the joint lives (or joint life expectancies) of
the recipient and the recipient's designated beneficiary, or
for a specified period of at least ten years; or
(ii) any distribution required under Code section 401(a)(9).
(b) An "eligible retirement plan" is an individual retirement account
described in Code section 408(a), an individual retirement
annuity described in Code section 408(b), an annuity plan
described in Code section 403(a), or a qualified trust described
in Code section 401(a), that accepts the recipient's "eligible
rollover distribution." If the recipient is the Participant's
surviving spouse, but not an alternate payee receiving a
distribution pursuant to a Qualified Domestic Relations Order, an
"eligible retirement plan" is an individual retirement account
described in Code section 408(a) or an individual retirement
annuity described in Code section 408(b) that accepts the
surviving spouse's "eligible rollover distribution," but not an
annuity plan described in Code section 403(a) nor a qualified
trust described in Code section 401(a).
(c) The Participant or his or her spouse or former spouse must
specify, in such form and at such time as the Committee may
prescribe, the "eligible retirement plan" to which the
distribution is to be paid and may specify more than one
"eligible retirement plan."
(d) The Participant or his or her spouse or former spouse must
provide to the Committee in a timely manner adequate information
regarding the designated "eligible retirement plan."
ARTICLE XII
LIMITS ON BENEFITS AND CONTRIBUTIONS UNDER QUALIFIED PLANS
Section 12.1. Definitions. For purposes of this Article XII, the
following definitions and rules of interpretation shall apply:
(a) "Annual Additions" to a participant's account under a defined
benefit plan or a defined contribution plan is the sum, credited
to a participant's account for any Limitation Year, of:
(1) Company contributions,
(2) Forfeitures, if any,
(3) Employee contributions and
(4) Amounts, if any, attributable to medical benefits allocated
to an account established under Code section 419 A (d)(2) on
behalf of such Participant.
(b) "Annual Benefit"
(1) A benefit which is payable annually in the form of a
straight life annuity under a defined benefit plan. Such
benefit does not include any benefits attributable to either
employee contributions or rollover contributions. If the
defined benefit plan provides for a benefit which is not
payable in the form of a straight life annuity, the benefit
is adjusted in accordance with Section 12.1(b)(5) below.
(2) Where a defined benefit plan provides for mandatory employee
contributions (as defined in Code section 411(c)(2)(C)), the
Annual Benefit attributable to such contributions is not
taken into account. The Annual Benefit attributable to
mandatory contributions is determined by using the factors
described in Code section 411(c)(2)(B) and the regulations
thereunder. However, mandatory employee contributions and
any voluntary employee contributions are all considered a
separate defined contribution plan maintained by the
Company.
(3) If rollover contributions are made to a defined benefit
plan, the Annual Benefit attributable to these contributions
is determined on the basis of reasonable actuarial
assumptions.
(4) When there is a transfer of assets or liabilities from one
qualified defined benefit plan to another, the Annual
Benefit attributable to the assets transferred shall not be
taken into account by the transferee plan in applying the
limitations of Code section 415. The Annual Benefit payable
on account of the transfer for any individual that is
attributable to the assets transferred will be equal to the
Annual Benefit transferred on behalf of such individual
multiplied by a fraction, the numerator of which is the
total assets transferred and the denominator of which is the
total liabilities transferred.
(5) If a defined benefit plan provides a retirement benefit in
any form other than a straight life annuity, the plan
benefit is adjusted to a straight life annuity beginning at
the same age which is the actuarial equivalent of such
benefit in accordance with the rules determined by the
Commissioner. However, the following values are not taken
into account:
(i) The value of a qualified joint and survivor annuity (as
defined in Code section 417 and the regulations
thereunder) provided by the plan to the extent that
such value exceeds the sum of
(A) the value of a straight life annuity beginning on
the same date and
(B) the value of any post-retirement death benefits
which would be payable even if the annuity was
not in the form of a joint and survivor annuity.
(ii) The value of benefits that are not directly related to
retirement benefits (such as pre-retirement disability
and death benefits and post-retirement medical
benefits).
(iii)The value of benefits provided by the plan which
reflect post-retirement cost of living increases to the
extent that such increases are in accordance with Code
section 415(d) and the regulations thereunder.
(6) Where a defined benefit plan provides a retirement benefit
beginning before a participant has attained the Social
Security Retirement Age, the plan benefit shall, in
accordance with rules determined by the Commissioner, be
adjusted to the actuarial equivalent of a benefit commencing
at the Social Security Retirement Age. This adjustment is
only for purposes of applying the dollar limitation
described in Code section 415(b)(1)(A) and Section
12.1(f)(1) to the Annual Benefit of the participant.
(7) Where a participant has less than 10 Years of Service with
the Company at the time the Participant begins to receive
retirement benefits under the defined benefit plan, the
benefit limitations described in Code sections 415(b)(1)(B)
and 415(b)(4) and Section 12.1(f)(2) are to be reduced by
multiplying the otherwise applicable limitation by a
fraction:
(i) the numerator which is the Years of Service (and
fractions thereof) with the Company as of, and
including the current Limitation Year, and
(ii) the denominator of which is 10. The preceding sentence
shall also apply for purposes of reducing the benefit
limitation described in Code section 415(b)(1)(A) and
Section 12.1(f)(1), by substituting years of
participation for Years of Service wherever it appears
in such sentence.
(8) If the retirement benefit under a defined benefit plan
begins after the Participant has attained the Social
Security Retirement Age, the determination as to whether the
Maximum Permissible Defined Benefit Amount limitation has
been satisfied shall be made in accordance with regulations
prescribed by the Commissioner by adjusting such benefit so
that it is actuarially equivalent to such a benefit
beginning at the Social Security Retirement Age. This
adjustment is only for purposes of applying the limitation
described in Code section 415(b)(1)(A) and Section
12.1(f)(1) to the Annual Benefit of the participant.
(9) The Annual Benefit to which a participant is entitled at any
time under all defined benefit plans maintained by the
Company shall not, during the Limitation Year, exceed the
Maximum Permissible Defined Benefit Amount.
(10) In determining the actuarial equivalency for purposes of
Sections 12.1(b)(5), 12.1(b)(6) and 12.1(b)(8) above, the
interest rate shall be 5%. (c) "Company" shall mean the
Company, as described in Section 2.11 and any Affiliate as
defined in Section 2.4.
(c) "Company" shall mean the Company, as described in Section 2.11
and any Affiliate as defined in Section 2.4.
(d) "Compensation" with respect to a Limitation Year -
(1) includes amounts paid to a Participant (regardless of
whether he or she was such during the entire Limitation
Year);
(i) as wages, salaries, fees for professional services and
other amounts received (without regard to whether or
not an amount is paid in cash) for personal services
actually rendered in the course of employment with any
Company including but not limited to commissions,
compensation for services on the basis of a percentage
of profits, fringe benefits, reimbursements and other
expense allowances under nonaccountable plans (as
described in Treasury Regulation 1.b2-2(c)) and
bonuses;
(ii) for purposes of (A) above, earned income from sources
from outside the United States (as defined in Code
section 911(b)), whether or not excludable from gross
income under Code section 911 or deductible under Code
sections 931 and 933;
(iii)amounts described in Code sections 104(a)(3), 105(a)
and 105(h) but only to the extent that these amounts
are includable in the gross income of the Participant;
(iv) in the case of an employee within the meaning of Code
section 401(c)(1) and the regulations thereunder, the
Participant's earned income (as described in Code
section 401(c)(2) and the regulations thereunder);
(v) amounts paid or reimbursed by the Company for moving
expenses incurred by the Participant, but only to the
extent that these amounts are not deductible by the
Participant under Code section 217.
(vi) The value of a nonqualified stock option granted to a
Participant by a Company, but only to the extent that
the value of the option is includable in the gross
income of the Participant for the taxable year in which
granted.
(vii)The amount includable in the gross income of a
Participant upon making the election described in Code
section 83(b).
(2) Compensation does not include -
(i) notwithstanding subsection (1)(A) of this Section 12.1(d),
there shall be excluded from Compensation amounts
contributed to a plan qualified under section 401(k) of the
Code as salary reduction contributions (and not
recharacterized as employee contributions thereunder);
(ii) other contributions made by the Company to a plan of
deferred compensation to the extent that, before the
application of the Code section 415 limitations to the plan,
the contributions are not includable in the gross income of
the Participant for the taxable year in which contributed.
In addition, Company contributions made on behalf of a
Participant to a simplified Participant pension described in
Code section 408(k) are not considered as Compensation for
the taxable year in which contributed to the extent such
contributions are deductible by the Participant under Code
section 219(b)(7). Additionally, any distributions from a
plan of deferred compensation are not considered as
Compensation, regardless of whether such amounts are
includable in the gross income of the Participant when
distributed. However, any amounts received by a Participant
pursuant to an unfunded nonqualified plan shall be
considered as Compensation in the year such amounts are
includable in the gross income of the Participant;
(iii)amounts realized from the exercise of a nonqualified stock
option or when restricted stock (or property) held by a
Participant either becomes freely transferable or is no
longer subject to a substantial risk of forfeiture (see Code
section 83 and the regulations thereunder);
(iv) amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock
option;
(v) other amounts which receive special tax benefits, such as
premiums for group term life insurance (but only to the
extent that the premiums are not includable in the gross
income of the Participant);
(e) "Limitation Year" - the Plan Year;
(f) "Maximum Permissible Defined Benefit Amount" - for a
limitation Year the Maximum Permissible Defined Benefit
Amount with respect to any Participant shall be the lesser
of:
(1) $90,000, or,
(2) 100% of the Participant's average Compensation for his
or her high three consecutive Years of Service, subject
to the following rules:
(i) As of January 1 of each calendar year commencing
with the calendar year 1988, the dollar limitation
set forth in Paragraph (1) above shall be adjusted
automatically to equal the dollar limitation as
determined by the Commissioner for that calendar
year under Code section 415(d)(1)(A). This
adjustment dollar limitation applies for the
Limitation Year ending with or within the calendar
year. It is applicable to Employees who are
Participants in the Plan and to Employees who have
retired or otherwise terminated their service
under the Plan with a nonforfeitable right to
accrued benefits, regardless of whether they have
actually begun to receive such benefits. The
Annual Benefit payable to a terminated Participant
which is otherwise limited by the dollar
limitation shall be increased to take into account
the adjustment of the dollar limitation.
(ii) With regard to Participants who have separated
from service with a nonforfeitable right to an
accrued benefit, the compensation limitation
described in paragraph (2) above applicable to
Limitation Years commencing on and after January
1, 1976 shall be adjusted annually to take into
account increases in the cost of living. For any
Limitation Year beginning after the separation
occurs, the adjustment of the compensation
limitation is made as specified in regulations and
rules prescribed by the Commissioner. In the case
of a Participant who separated from service prior
to January 1, 1976, the cost of living adjustment
of the compensation limitation under this
paragraph for all Limitation Years prior to
January 1, 1976, is to be determined as provided
by the Commissioner.
(iii) Anything herein to the contrary notwithstanding,
in the case of an individual who was a Participant
in the Plan before January 1, 1983, if such
Participant's "current accrued benefit" (as
defined in section 235(g)(4) of the Tax Equity and
Fiscal Responsibility Act of 1982 ("TEFRA")) under
the Plan as of the close of the last Limitation
Year beginning before January 1, 1983 exceeded the
dollar limitation with respect to such Participant
under Section 12.1(g)(1), below, the dollar
limitation with respect to such Participant under
Section 12.1(g)(1) shall be equal to such current
accrued benefit.
(iv) Anything herein to the contrary notwithstanding,
for any individual who was a Participant in the
Plan on January 1, 1987, if such Participant's
"current accrued benefit" under the Plan, as that
term is defined in section 1106(i)(3)(B) of the
Tax Reform Act of 1986, as of the close of the
last Limitation Year beginning before January 1,
1987 exceeded the limitation described in Section
12.1(f)(1) above, the dollar limitation with
respect to such Participant under Section
12.1(f)(1) shall be equal to such current accrued
benefit.
(g) "Maximum Permissible Defined Contribution Amount" - for a
Limitation Year the Maximum Permissible Defined Contribution
Amount with respect to any Participant shall be the lesser
of:
(1) $30,000, or if greater, one fourth of the limitation in
effect under Code section 415(b)(1)(A) (as adjusted by
Code section 415(d)(1)(A)); or
(2) 25% of the Participant's Compensation for the
Limitation year. Notwithstanding the foregoing, or
anything herein to the contrary, the percentage of
compensation limitation of this Section 12.1(g)(2)
shall not apply to any Annual Additions pursuant to
Section 12.1(a)(4) above.
(h) "Projected Annual Benefit" - the Annual Benefit to which a
Participant would be entitled under the Plan on the
assumption that he or she continues employment until the
normal retirement age (or current age, if that is later)
thereunder, that his or her Compensation continues at the
same rate as in effect for the Limitation Year under
consideration until such age, and that all other relevant
factors used to determine benefits under the Plan remain
constant as of the current Limitation Year for all future
Limitation Years;
(i) "Social Security Retirement Age" - the age used as the
retirement age under Social Security Act section 216(1)
except that such section shall be applied: (1) without
regard to the age increase factor, and, (2) as if the early
retirement age under Social Security Act section 216(1)(2)
were 62.
(j) For purposes of applying the limitations of Code sections
415(b), (c) and (e) to a Participant for a particular
Limitation Year, all qualified defined benefit plans
(without regard to whether a plan has been terminated) ever
maintained by the Company will be treated as one defined
benefit plan and all qualified defined contribution plans
(without regard to whether a plan has been terminated) ever
maintained by the Company will be treated as part of this
Plan.
Section 12.2. Annual Addition Limits. The amount of the Annual Addition
which may be credited under this Plan to any Participant's Account as of any
allocation date shall not exceed the Maximum Permissible Defined Contribution
Amount (based upon his or her Compensation up to such allocation date) reduced
by the sum of any credits of Annual Additions made to the Participant's Account
under all defined contribution plans as of any preceding allocation date within
the Limitation Year. If an allocation date of this Plan coincides with an
allocation date of any other qualified defined contribution plan maintained by
the Company, the amount of the Annual Additions which may be credited under this
Plan to any Participant's Account as of such date shall be an amount equal to
the product of the amount to be credited under this Plan without regard to this
Section 12.2 multiplied by the lesser of one or a fraction, the numerator of
which is the amount described in this Section 12.2 during the Limitation Year
and the denominator of which is the amount that would be otherwise credited on
this allocation date under all defined contribution plans without regard to this
Section 12.2. However, if a security is not allocated to a Participant's Account
under any qualified tax credit employee stock ownership plan of the Company
because of the operation of the limitations of Code section 415 and the
provisions of this Section 12.2, no other amount may be allocated to the
Participant's Account under this Plan after the allocation date for such tax
credit employee stock ownership plan's plan year, until all such unallocated
securities have been allocated in accordance with the provisions of such tax
credit employee stock ownership plan. If contributions to this Plan on behalf of
a Participant are to be reduced as a result of this Section 12.2, such reduction
shall be effected by reducing contributions in the following order: Supplemental
Nondeferred Deposits, Basic Nondeferred Deposits and corresponding matching
Company Contributions, Supplemental Deferred Deposits and finally, if necessary,
Basic Deferred Deposits and corresponding remaining matching Company
Contributions. If, as a result of a reasonable error in estimating a
Participant's Compensation, or under the limited facts and circumstances which
the Commissioner finds justify the availability of the rules set forth in
paragraphs (a)-(c) of this Section 12.2, the allocation of Annual Additions
under the terms of the Plan for a particular Participant would cause the
limitations of Code section 415 applicable to that Participant for the
Limitation Year to be exceeded, the excess amounts shall not be deemed to be
Annual Additions in that Limitation Year if they are treated as follows:
(a) To the extent necessary, Deferred Deposits to the Plan shall be
recharacterized as Nondeferred Deposits and the Participant's
Nondeferred Deposits to the Plan (including Deferred Deposits
recharacterized as Nondeferred Deposits hereunder) and earnings
thereon shall be returned to the Participant.
(b) The excess amounts in the Participant's Account consisting of
Company Contributions shall be used to reduce Company
Contributions for the next Limitation Year (and succeeding
Limitation Years, as necessary) for that Participant if that
Participant is covered by the Plan as of the end of the
Limitation Year. However, if that Participant is not covered by
the Plan as of the end of the Limitation Year then the excess
amounts must be held unallocated in a suspense account for the
Limitation Year and allocated and reallocated in the next
Limitation Year to all of the remaining Participants in the Plan.
If a suspense account is in existence at any time during a
particular Limitation Year, other than the first Limitation Year
described in the preceding sentence, all amounts in the suspense
account must be allocated and reallocated to Participants'
Accounts (subject to the limitations of Code section 415) before
any Company Contributions, may be made to the Plan for that
Limitation Year. Furthermore, the excess amounts must be used to
reduce Company Contributions for the next Limitation Year (and
succeeding Limitation Years, as necessary) for all of the
remaining Participants in the Plan. For purposes of this
subdivision, except as provided in (a) of this Section 12.2,
excess amounts may not be distributed to Participants or former
Participants.
(c) In the event of a termination of the Plan, the suspense account
described in (b) of this Section 12.2 shall revert to the Company
to the extent it may not then be allocated to any Participant's
Account.
(d) Notwithstanding any other provision in this Section 12.2, the
Company shall not contribute any amount that would cause an
allocation to the suspense account as of the date the
contribution is allocated. If the contribution is made prior to
the date as of which it is to be allocated, then such
contribution shall not exceed an amount that would cause an
allocation to the suspense account if the date of contribution
were an allocation date.
Section 12.3. Overall Limit. For any Participant of this Plan who at
any time participated in a defined benefit plan maintained by the Company, the
rate of benefit accrual by such Participant in each defined benefit plan in
which the Participant participates during the Limitation Year will be reduced to
the extent necessary to prevent the sum of the following fractions, computed as
of the close of the Limitation Year, from exceeding 1.0:
(a) Defined Benefit Plan Fraction. Projected Annual Benefit of the
Participant under all defined benefit plans divided by: the
lesser of (1) the product of 1.25, multiplied by the dollar
limitation in effect under Code section 415(b)(1)(A) for such
Limitation Year, or (2) the product of 1.4 multiplied by the
amount which may be taken into account under Code section
415(b)(1)(B) with respect to such Participant for such Limitation
Year; and
(b) Defined Contribution Plan Fraction. Sum of Annual Additions to
such Participant's Account under all defined contribution plans
in such Limitation Year and for all prior Limitation Years
divided by: the sum of the lesser of the following amounts
determined for such year and for each prior Year of Service with
the Company: (1) the product of 1.25, multiplied by the dollar
limitation in effect under Code section 415(c)(1)(A) for such
Limitation Year, or (2) the product of (a) 1.4, multiplied by (b)
25% of the Participant's Compensation for such Limitation Year.
Section 12.4. Special Rules.
(a) For purposes of applying the Defined Contribution Plan Fraction
in Section 12.3 for any Limitation Year beginning after December
31, 1975 to Limitation Years before January 1, 1976, the
aggregate amount taken into account in determining the numerator
of such fraction is deemed not to exceed the aggregate amount
taken into account in determining the denominator of the
fraction.
(b) In any case where the sum of the fractions in Section 12.3 is
greater than 1.0, calculated as of the close of the last
Limitation Year beginning before January 1, 1983 for a
Participant, in accordance with regulations prescribed by the
Commissioner pursuant to TEFRA section 235(g)(3), an amount shall
be subtracted from the numerator of the defined contribution plan
fraction so that the sum of such fractions does not exceed 1.0
for such Limitation Year.
(c) If the sum of the fractions in Section 12.3 would exceed 1.0,
calculated as of the close of the last Limitation Year beginning
before January 1, 1987 for a Participant, in accordance with
regulations prescribed by the Commissioner pursuant to section
1106(i)(4) of the Tax Reform Act of 1986, an amount shall be
subtracted from the numerator of the defined contribution plan
fraction (not exceeding such numerator) so that the sum of such
fractions does not exceed 1.0. This numerator, as adjusted
herein, will be used for the calculation of the defined
contribution plan fraction for Limitation Years commencing on or
after January 1, 1987.
ARTICLE XIII
TOP-HEAVY REQUIREMENTS
Section 13.1. Definitions. For purposes of this Article XIII, the
following definitions shall apply, to be interpreted in accordance with the
provisions of Code section 416 and the regulations thereunder:
(a) "Aggregation Group" shall mean a plan or group of plans which
includes all plans maintained by the Employers in which a Key
Employee is a Participant or which enables any plan in which a
Key Employee is a Participant to meet the requirements of Code
section 401(a)(4) or Code section 410, as well as all other plans
selected by the Company for permissive aggregation inclusion of
which would not prevent the group of plans from continuing to
meet the requirements of such Code sections.
(b) "Compensation" with respect to a Plan Year shall be as defined in
Section XII without regard to Section 12.1(d)(2)(A).
(c) "Determination Date" shall mean, with respect to any Plan Year,
(1) the last day of the preceding Plan Year, or,
(2) in the case of the first Plan Year of any Plan, the last day
of such Plan Year.
(d) "Employee" shall mean, for purposes of this Article XIII, any
person employed by an Employer and shall also include any
beneficiary of such person, provided that the requirements of
Sections 13.3, 13.4 and 13.5 shall not apply to any person
included in a unit of Employees covered by an agreement which the
Secretary of Labor finds to be a collective bargaining agreement
between Employee representatives and one or more Employers if
there is evidence that retirement benefits were the subject of
good faith bargaining between such Employee representatives and
such Employer or Employers.
(e) "Employer" shall mean, any corporation which is a member of a
controlled group of corporations (as defined in Code section
414(b)) which includes the Company or any trades or business
(whether or not incorporated) which are under common control (as
defined in Code section 414(c)) with the Company, or a member of
an affiliated service group (as defined in Code section 414(m))
which includes the Company.
(f) "Key Employee" shall mean, any Employee or former Employee who
is, at any time during the Plan Year, or was, during any one of
the four preceding Plan Years any one or more of the following:
(1) An officer of an Employer having an annual Compensation
greater than 50% of the amount in effect under Code section
415(b)(1)(A) for any Plan Year unless 50 other such officers
(or, if lesser, a number of such officers equal to the
greater of three or 10% of the Employees) have higher annual
Compensation.
(2) One of the 10 persons employed by an Employer having annual
Compensation greater than the limitation in effect under
Code section 415(c)(1)(A) for any Plan Year, and owning (or
considered as owning within the meaning of Code section 318)
the largest interests in the Employers. For purposes of this
paragraph (2), if two Employees have the same interest, the
one with the greater Compensation shall be treated as owning
the larger interest.
(3) Any person owning (or considered as owning within the
meaning of Code section 318) more than 5% of the outstanding
stock of an Employer or stock possessing more than 5% of the
total combined voting power of such stock.
(4) A person who would be described in paragraph (3) above if
"1%" were substituted for "5%" each place it appears in
paragraph (3) above, and who has annual Compensation of more
than $150,000. For purposes of determining ownership under
this Section 13.11(f), Code section 318(a)(2)(C) shall be
applied by substituting "5%" for "50%" and the rules of
subsections (b), (c) and (m) of Code section 414 shall not
apply.
(g) "Year of Service" shall mean, a year which constitutes a "Year of
Service" under the rules of paragraphs (4), (5) and (6) of Code
section 411(a) to the extent not inconsistent with the provisions
of this Article XIII.
Section 13.2. General Requirements. For any Plan Year beginning after
1983 in which the Plan is a Top-Heavy Plan, the requirements of this Article
XIII must be met in accordance with Code section 416 and the regulations
thereunder. The provisions of this Article XIII shall be inapplicable unless and
until the Plan is a Top-Heavy Plan.
Section 13.3. Maximum Compensation. Compensation for any Employee shall
not be taken into account under the Plan in excess of the amount provided for
pursuant to Code section 401(a)(17) and the regulations thereunder.
Section 13.4. Vesting. A Participant who is credited with an Hour of
Service while the Plan is Top-Heavy, or in any Plan Year after a Plan Year in
which the Plan is Top-Heavy, and who has completed at least three Years of
Service shall have a nonforfeitable right to 100% of his or her accrued benefit
derived from Employer Contributions and no such amount may become forfeitable if
the Plan later ceases to be Top-Heavy nor may such amount be forfeited under the
provisions of Code sections 411(a)(3)(B) or 411 (a)(3)(D). Such accrued benefit
shall include benefits accrued before the Plan becomes Top-Heavy, including
benefits accrued prior to January 1, 1984. Notwithstanding any other provisions
of this Plan to the contrary, once the vesting requirements of this Section 13.4
become applicable, they shall remain applicable even if the Plan later ceases to
be Top-Heavy.
Section 13.5. Minimum Contributions. Minimum Employer Contributions for
a Participant (not including a beneficiary of any Participant) who is not a Key
Employee shall be required under the Plan for the Plan Year as follows:
(a) The amount of the minimum contribution shall be the lesser of the
following percentages of Compensation:
(1) four percent, or,
(2) the highest percentage at which such contributions are made
under the Plan for the Plan Year on behalf of a Key
Employee.
(i) For purposes of this paragraph (2), all defined
contribution plans required to be included in an
Aggregation Group shall be treated as one plan.
(ii) This paragraph (2) shall not apply if the Plan is
required to be included in an Aggregation Group and the
Plan enables a defined benefit plan required to be
included in the Aggregation Group to meet the
requirements of Code sections 401(a)(4) or 410.
(iii)For purposes of this paragraph (2), the calculation of
the percentage at which Employer Contributions are made
for a Key Employee shall be based only on his or her
Compensation not in excess of maximum counted
compensation as provided in Section 13.3.
(b) There shall be disregarded for purposes of this Section
13.5, contributions or benefits under Code section 3111,
Title II of the Social Security Act or any other federal or
state law, and for Plan Years beginning before December 31,
1984, there shall also be disregarded any contributions
attributable to a salary reduction or a similar arrangement.
(c) For purposes of this Section 13.5, the term "Participant"
shall be deemed to refer to all Participants who have not
separated from service at the end of the Plan Year
including, without limitation, individuals who:
(1) failed to complete 1000 Hours of Service during the
Plan Year, or
(2) declined to make mandatory contributions to the Plan,
or
(3) are excluded from the Plan because their Compensation
is less than a stated amount but who must be considered
Participants for the Plan to satisfy the coverage
requirements of Code section 410(b) in accordance with
Code section 401(a)(5).
Section 13.6. Participants Under Defined Benefit Plans. If any Plan
Participant other than a Key Employee is also a Participant under a defined
benefit plan of an Employer, then Section 13.5(a) shall not apply and the
required minimum annual Employer Contribution for such Participant (not
including a beneficiary of a Participant) under this Plan shall be 7 1/2% of
Compensation, or such lesser amount as may be required to satisfy the
requirements of the Code related to Top-Heavy Plans. Such Employer Contribution
shall be made without regard to the amount of contributions, if any, made to the
Plan on behalf of Key Employees.
Section 13.7. Super Top-Heavy Plans. If for any Plan Year in which the
Plan is a Top-Heavy Plan it is also a Super Top-Heavy Plan, then for purposes of
the limitations on Employer Contributions and benefits provided in Code section
415, and Section 5.3. and Article XII of the Plan, the dollar limitations in the
defined benefit plan fraction and the defined contribution plan fraction shall
be multiplied by 1.0 rather than 1.25. However, if the application of the
provisions of this Section 13.7 would cause any Participant to exceed the
combined Code section 415 limitations on Employer Contributions and benefits,
then the application of the provisions of this Section 13.7 shall be suspended
as to such Participant until such time as he or she no longer exceeds such
limitations as modified by this Section 13.7. During the period of such
suspension, there shall be no Employer Contributions, forfeitures or
Non-Deferred Supplemental Deposits allocated to such Participant under this or
any other defined contribution plan of the Employers and there shall be no
accruals for such Participant under any defined benefit plan of the Employers.
Section 13.8. Determination of Top-Heaviness. The determination of
whether this Plan is Top-Heavy shall be made as follows:
(a) If the Plan is not required to be included in an Aggregation
Group with other plans, then it shall be Top-Heavy only if when
considered by itself it is a Top-Heavy Plan and it is not
included in a permissive Aggregation Group that is not a
Top-Heavy Group.
(b) If the Plan is required to be included in an Aggregation Group
with other plans, it shall be Top-Heavy only if the Aggregation
Group, including any permissively aggregated plans is Top-Heavy.
(c) If a plan is not a Top-Heavy Plan and is not required to be
included in an Aggregation Group, then it shall not be Top-Heavy
even if it is permissively aggregated in an Aggregation Group
which is a Top-Heavy Group.
Section 13.9. Determination of Super Top-Heaviness. This Plan shall be
a Super Top-Heavy Plan if it would be a Top-Heavy Plan under the provisions of
Section 13.8, but substituting "90%" for "60%" in the ratio test of Section
13.10.
Section 13.10. Calculation of Top-Heavy Ratios. A Plan shall be
Top-Heavy and an Aggregation Group shall be a Top-Heavy Group with respect to
any Plan Year as of the Determination Date if the sum as of the Determination
Date of the Cumulative Accrued Benefits and the Cumulative Accounts of Employees
who are Key Employees for the Plan Year exceeds 60% of a similar sum determined
for all Employees, excluding former Key Employees.
Section 13.11. Cumulative Accounts and Cumulative Accrued Benefits. The
Cumulative Accounts and Cumulative Accrued Benefits for any Employee shall be
determined as follows:
(a) "Cumulative Account" shall mean the sum of the amount of an
Employee's Account under a defined contribution plan (for an
unaggregated Plan) or under all defined contribution plans
included in an Aggregation Group (for aggregated plans)
determined as of the most recent plan valuation date within a
12-month period ending on the Determination Date, increased by
any contributions due after such valuation date and before
Determination Date.
(b) "Cumulative Accrued Benefit" shall mean the sum of the present
value of an Employee's accrued benefits under a defined benefit
plan (for an unaggregated plan) or under all defined benefit
plans included in an Aggregation Group (for aggregated plans),
determined under the actuarial assumptions set forth in such Plan
or Plans, as of the most recent plan valuation date used by the
Plan actuary within the 12-month period ending on the
Determination Date as if the Employee voluntarily terminated
service as of such valuation date. The accrued benefit of any
Employee who is not a Key Employee shall be determined under the
method used for accrual purposes for all plans in the Aggregation
Group or, if there is no such method, as if such benefit accrued
not more rapidly than the slowest accrual rate permitted under
Code section 411(b)(1)(c).
(c) Accounts and benefits shall be calculated to include all amounts
attributable to both Employer and Employee contributions but
excluding amounts attributable to voluntary deductible Employee
contributions.
(d) Accounts and benefits shall be increased by the aggregate
distributions during the five-year period ending on the
Determination Date made with respect to an Employee under the
Plan or Plans as the case may be or under a terminated plan
which, if it had not been terminated, would have been required to
be included in the Aggregation Group.
(e) Rollover Contributions and direct plan to plan transfers shall be
handled as follows:
(1) If the transfer is initiated by the Employee and made from a
plan maintained by one employer to a plan maintained by
another employer, the transferring plan continues to count
the amount transferred under the rules for counting
distributions. The receiving plan does not count the amount
if accepted after December 31, 1983, but does count it if
accepted prior to December 31, 1983.
(2) If the transfer is not initiated by the Employee or is made
between plans maintained by the Employers, the transferring
plan shall no longer count the amount transferred and the
receiving plan shall count the amount transferred.
(3) For purposes of this subsection (e), all Employers
aggregated under the rules of Code sections 414(b), (c) and
(m) shall be considered a single employer.
(f) For plan years beginning after December 31, 1984, the accrued
benefits and Accounts of any Employee who has not performed
services for any Employer at any time during the five-year period
ending on the Determination Date shall not be taken into account.
ARTICLE XIV
BENEFICIARY IN EVENT OF DEATH
Section 14.1. Designation and Change of Beneficiary. Upon the death of
a married Participant, the spouse of the Participant shall be deemed the
designated beneficiary of the Participant, unless such spouse has consented, in
writing, to the designation of another beneficiary or beneficiaries (which may
include the estate of the Participant) or any change thereof. If such other
designated beneficiary or beneficiaries predecease a married Participant, such
Participant's spouse shall be deemed the designated beneficiary of the
Participant. If, in such case, the Participant's spouse has also predeceased the
Participant, the value of the Participant's Account shall be paid to his or her
estate.
Each unmarried Participant shall have the right to designate a
beneficiary or beneficiaries to receive any distributions to be made under
Article XI upon the death of such Participant. An unmarried Participant may from
time to time, without the consent of any beneficiary, change or cancel any such
designation. If no beneficiary has been named by a deceased unmarried
Participant, or the designated beneficiary has predeceased such Participant, the
value of the Participant's Account shall be paid to his or her estate as
beneficiary.
Any spousal consent, beneficiary designation and any change therein
shall be made in the form and manner prescribed by the Committee and shall be
filed with the General Manager. Any distribution made to a beneficiary of a
deceased Participant under the Plan shall be made to the beneficiary as soon as
practicable after such Participant's death and shall be in the form of a lump
sum payment, regardless of the form of benefit selected by the deceased
Participant. The beneficiary may elect to have such payment made in money by
check, or may elect to have any whole shares of Enterprise Common Stock held for
the deceased Participant's Enterprise Common Stock Fund subaccount and ESOP
Account distributed in shares of Enterprise Common Stock and the balance of the
deceased Participant's Account (including the value of any fractional shares of
Enterprise Common Stock) paid in money by check. If no election is made, the
entire distribution to the beneficiary shall be made in money by check.
ARTICLE XV
ADMINISTRATION
Section 15.1. Named Fiduciary. The Committee (and each member of the
Committee acting as such) shall be the named fiduciary of the Plan with
authority to control and manage the operation and administration of the Plan.
Section 15.2. Administration.
(a) The Committee shall have full discretionary authority to
interpret the Plan and to answer all questions which arise
concerning the application, administration and interpretation of
the Plan. The Committee shall adopt such rules and procedures as
in its opinion are necessary and advisable to administer the Plan
and to transact its business. Subject to the other requirements
of this Article XV, the Committee may --
(1) Employ agents to carry out non-fiduciary responsibilities;
(2) Employ agents to carry out fiduciary responsibilities (other
than trustee responsibilities as defined in ERISA Section
405(c)(3));
(3) Consult with counsel, who may be of counsel to the Company
or an Affiliate; and
(4) Provide for the allocation of fiduciary responsibilities
(other than trustee responsibilities as defined in ERISA
Section 405(c)(3)) among its members. However, any action
described in subparagraphs (2) or (4) of this subparagraph
(a) 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.
(b) 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 the Plan, the Committee shall include in its
minutes a brief explanation of the grounds upon which such
decision was based.
(c) In performing their duties, the members of the Committee shall
act solely in the interest of the Participants in the Plan and
their beneficiaries and:
(1) for the exclusive purpose of providing benefits to the
Participants and their beneficiaries;
(2) with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent man or woman
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
(3) in accordance with the documents and instruments governing
the Plan insofar as such documents and instruments are
consistent with the provisions of Title I of ERISA. In
addition to any other duties the Committee may have, the
Committee shall periodically review the performance of the
Trustee and any Investment Managers and the performance of
all other persons to whom fiduciary duties have been
delegated or allocated pursuant to the provisions of this
Article XV.
(d) The Company agrees to indemnify and reimburse, to the fullest
extent permitted by law, members of the Committee, directors and
Employees of an Employer 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 the Plan.
(e) No member of the Committee nor any of its delegates shall be
personally liable by virtue of any contract, agreement or other
instrument made or executed by him or her or on his or her behalf
in such capacity.
Section 15.3. Control and Management of Assets. The assets of the Plan
shall be held by the Trustee, in trust, and shall be managed by the Trustee
and/or one or more Investment Managers appointed from time to time by the
Committee; provided, however, that the Committee shall have investment authority
with respect to loans approved pursuant to Section 11.13, and may, from time to
time, determine that the Trustee shall be subject to the direction of the
Committee with respect to certain other investments, in which case the Trustee
shall be subject to proper directions of the Committee which are in accordance
with the terms of the Plan and which are not contrary to applicable law.
Section 15.4. Benefits to be Paid from Trust. Benefits under the Plan
shall be payable only from the Trust Fund and only to the extent that such Trust
Fund shall suffice therefore and each Participant assumes all risk connected
with any decrease in market price of any securities in the respective Funds.
Neither the Company nor any Affiliate shall have any liability to make or
continue from its own funds the payment of any benefits under the Plan.
Section 15.5. Expenses. There shall be paid from the Trust Fund all
expenses incurred in connection with the administration of the Plan, including
but not limited to the compensation of the Trustee, record keeping fees, the
reasonable fees of counsel for the Trustee for legal services rendered to the
Trustee and the fees of Investment Managers appointed with respect to the
investment and reinvestment of the Trust Fund, except to the extent that such
expenses and fees are paid by the Employer. There shall be paid from the Trust
Fund all taxes of any and all kinds whatsoever that may be levied or assessed
under existing or future laws upon or in respect of the Trust Fund or any
property of any kind forming a part thereof, and all expenses including
brokerage costs and transfer taxes incurred in connection with the investment
and reinvestment of the Trust Fund.
Section 15.6. Overpayments. Any overpayment made to a Participant may
be withheld from subsequent payments made to such Participant or from payments
made to his/her surviving spouse or beneficiary until the overpayment has been
recouped.
ARTICLE XVI
CLAIMS PROCEDURE
Section 16.1. Filing of Claims. Claims for benefits under the Plan
shall be filed in writing on such form or forms as may be prescribed by the
Committee with the General Manager.
Section 16.2. Appeal of Claims. 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,
request in writing that the decision denying the claim be reviewed by the
Committee and provide the Committee with information in support of his or her
position by submitting such information in writing to the Secretary of the
Committee.
Section 16.3. Review of Appeals. 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 of the reasons therefor. All decisions of the
Committee shall be final and binding upon all of the parties involved.
ARTICLE XVII
MERGER OR CONSOLIDATION
Section 17.1. Merger or Consolidation. In the case of any merger or
consolidation of the Plan with, or transfer of assets or liabilities to, any
other plan, each Participant or beneficiary shall be entitled to receive a
benefit immediately after the merger, consolidation or transfer (if the Plan had
been terminated) which is equal to or greater than the benefit he or she would
have been entitled to receive immediately before the merger, consolidation or
transfer (if the Plan had then terminated). A merger or consolidation of the
Plan with, or transfer of assets or liabilities to, any other plan shall not be
deemed to be a termination or discontinuance of deposits and contributions
having the effect of such termination of the Plan.
ARTICLE XVIII
NON-ALIENATION OF BENEFITS
Section 18.1. Non-Alienation of Benefits. Except as provided under
Sections 11.13 and 22.1, no benefit or right under the Plan shall in any manner
or to any extent be assigned, alienated or transferred by any Participant or
beneficiary under the Plan or be subject to attachment, garnishment or other
legal process.
ARTICLE XIX
AMENDMENTS
Section 19.1. Amendment Process. The Company reserves the right, by
action of the Board of Directors, but subject to applicable law, at any time and
from time to time, to modify, suspend or amend in whole or in part any or all of
the provisions of the Plan, provided that no modification, suspension or
amendment shall make it possible to deprive any Participant or beneficiary of a
previously acquired right; and provided further that no such modification,
suspension or amendment shall make it possible for any part of the assets of the
Plan to be used for or diverted to purposes other than for the exclusive benefit
of Participants and their beneficiaries under the Plan and for the payment of
expenses of the Plan.
ARTICLE XX
TERMINATION
Section 20.1. Authority to Terminate. The Plan may, subject to
collective bargaining, be terminated in whole or in part at any time by the
Board of Directors, but only upon condition that such action is taken as shall
render it impossible for any part of the corpus or income of the Trust Fund to
be used for or diverted to purposes other than for the exclusive benefit of the
Participants or their beneficiaries and for the payment of expenses of the Plan.
Section 20.2. Distribution Upon Termination. Upon termination or
partial termination of the Plan or upon the complete discontinuance of Deposits
and Employer Contributions under the Plan, the assets of the Trust Fund shall be
administered and distributed to the Participants or their beneficiaries at such
time or times and in such nondiscriminatory manner as is determined by the
Committee. Upon termination or partial termination of the Plan or upon the
complete discontinuance of Deposits and Employer Contributions under the Plan,
the rights of all affected Participants as of the date of such termination,
partial termination or discontinuance of Deposits and Employer Contributions
shall be nonforfeitable.
ARTICLE XXI
PLAN CONFERS NO RIGHT TO EMPLOYMENT
Section 21.1. No Right to Employment. Nothing contained in the Plan
shall be construed as conferring any legal rights upon any Employee for a
continuation of employment or shall interfere with the rights of the Company or
an Affiliate to discharge any Employee or otherwise to treat him or her without
regard to the effect which such treatment might have upon such Employee with
respect to the Plan, except as may be limited by applicable law.
ARTICLE XXII
ALTERNATE PAYEES
Section 22.1. Alternate Payees Under QDROs. In the event that a
domestic relations order of any State is received by the Plan and thereafter
determined to be a Qualified Domestic Relations Order (QDRO) within the meaning
of Code section 414p, the vested portion of the Account of the Participant to
which such QDRO is directed shall be apportioned as specified in such QDRO,
valued as of the Accounting Period preceding the date specified in such QDRO.
Upon notice to the Committee that a QDRO is being sought with respect to a
Participant's Account, no distribution or loan shall be made to a Participant
until such time as the status of the QDRO is determined. The alternate payee of
the Participant's Account shall thereafter participate in the Plan in accordance
with its terms, except such person shall not have the rights or benefits
provided in Article IV, Article V and in Section 11.13. If a QDRO is issued and
the amount awarded the alternate payee exceeds the value of the Participant's
Account less the outstanding loan balance, such loan shall be deemed to be in
default and the Participant shall immediately repay the loan. Notwithstanding
the provisions of this Article, the Plan may, without the consent of any such
alternate payee, pay to such alternate payee the value of his or her respective
share of the apportioned Account of the Participant, if the value thereof as so
determined is $5,000.00 or less. If a QDRO so provides, benefits may be paid to
an alternate payee before they would otherwise be distributable under the Plan,
and no such distribution to an alternate payee shall be treated as a withdrawal
by the Participant for purposes of Article XI.
ARTICLE XXIII
CONSTRUCTION
Section 23.1. Governing Law. The Plan shall be governed by and
construed and administered under the laws of the State of New Jersey, except to
the extent superseded by ERISA.
Section 23.2. Headings. The headings are for reference only. In the
event of a conflict between a heading and the content of an article or Section,
the content shall control.
EXHIBIT 12
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
- --------------------------------------------------------------------------------------------------------------------------
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
12 Months
Ended
YEARS ENDED DECEMBER 31, September
30,
------------- ------------ ------------- ------------ ------------ -----------
1994 1995 1996 1997 1998 1999
------------- ------------ ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Earnings as Defined in Regulation
S-K (A):
Income from Continuing Operations (B) $667 $627 $588 $560 $644 $742
Income Taxes (C) 320 348 297 313 428 481
Fixed Charges 535 549 527 543 577 597
------------- ------------ ------------- ------------ ----------- -----------
Earnings $1,522 $1,524 $1,412 $1,416 $1,649 $1,820
============= ============ ============= ============ =========== ===========
Fixed Charges as Defined in
Regulation S-K (D):
Total Interest Expense (E) $462 $464 $453 $470 $481 $489
Interest Factor in Rentals 12 12 12 11 11 10
Subsidiaries' Preferred Securities
Dividend Requirements 2 16 28 44 71 84
Preferred Stock Dividends 41 34 22 12 9 9
Adjustment to Preferred Stock
Dividends to state on a
pre-income tax basis 18 23 12 6 5 5
------------ ------------ ------------- ------------ ----------- -----------
Total Fixed Charges $535 $549 $527 $543 $577 $597
============= ============ ============= ============ =========== ===========
Ratio of Earnings to Fixed Charges 2.84 2.78 2.68 2.61 2.86 3.05
============= ============ ============= ============ =========== ===========
<FN>
(A) The term "earnings" shall be defined as pre-tax income from continuing
operations. Add to pre-tax 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 pre-tax income.
(B) Excludes income from discontinued operations and extraordinary item.
(C) Includes State income taxes and Federal income taxes for other income and
excludes taxes applicable to extraordinary item.
(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.
</FN>
</TABLE>
EXHIBIT 12 (A)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
- ------------------------------------------------------------------------------------------------------------------------------
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
12 Months
Ended
YEARS ENDED DECEMBER 31, September
30,
----------- ------------ ------------- ------------ ------------ ------------
1994 1995 1996 1997 1998 1999
----------- ------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Earnings as Defined in Regulation
S-K (A):
Net Income (B) $659 $617 $535 $528 $604 $652
Income Taxes (C) 302 326 268 286 406 443
Fixed Charges 408 419 438 450 446 450
----------- ------------ ------------- ------------ ------------ -------------
Earnings $1,369 $1,362 $1,241 $1,264 $1,456 $1,545
=========== ============ ============= ============ ============ =============
Fixed Charges as Defined in Regulation
S-K (D):
Total Interest Expense $396 $407 $399 $395 $390 $393
Interest Factor in Rentals 12 12 11 11 11 10
Subsidiaries' Preferred Securities
Dividend Requirements -- -- 28 44 45 47
----------- ------------ ------------- ------------ ------------ -------------
Total Fixed Charges $408 $419 $438 $450 $446 $450
=========== ============ ============= ============ ============ =============
Ratio of Earnings to Fixed Charges 3.35 3.25 2.83 2.81 3.27 3.43
=========== ============ ============= ============ ============ =============
<FN>
(A) The term "earnings" shall be defined as pre-tax income from continuing
operations. Add to pre-tax 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 pre-tax income.
(B) Excludes extraordinary item.
(C) Includes State income taxes and Federal income taxes for other income and
excludes taxes applicable to extraordinary item.
(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.
</FN>
</TABLE>
EXHIBIT 12 (B)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
- -----------------------------------------------------------------------------------------------------------------------------
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS
12 Months
Ended
YEARS ENDED DECEMBER 31, September
30,
------------ ------------- ------------ ------------ ------------- ------------
1994 1995 1996 1997 1998 1999
------------ ------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Earnings as Defined in Regulation
S-K (A):
Net Income (B) $659 $617 $535 $528 $604 $652
Income Taxes (C) 302 326 268 286 406 443
Fixed Charges 408 419 438 450 446 450
------------ ------------- ------------ ------------ ------------- ------------
Earnings $1,369 $1,362 $1,241 $1,264 $1,456 $1,545
============ ============= ============ ============ ============= ============
Fixed Charges as Defined in Regulation
S-K (D):
Total Interest Expense $396 $407 $399 $395 $390 $393
Interest Factor in Rentals 12 12 11 11 11 10
Subsidiaries' Preferred Securities
Dividend Requirements -- -- 28 44 45 47
Preferred Stock Dividends 42 49 23 12 9 9
Adjustment to Preferred Stock
Dividends to state on a pre-income
tax basis 19 24 12 6 6 7
------------ ------------- ------------ ------------ ------------- ------------
Total Fixed Charges $469 $492 $473 $468 $461 $466
============ ============= ============ ============ ============= ============
Ratio of Earnings to Fixed Charges 2.92 2.77 2.62 2.70 3.15 3.32
============ ============= ============ ============ ============= ============
<FN>
(A) The term "earnings" shall be defined as pre-tax income from continuing
operations. Add to pre-tax 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 pre-tax income.
(B) Excludes extraordinary item.
(C) Includes State income taxes and Federal income taxes for other income and
excludes taxes applicable to extraordinary item.
(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 Electric and
Gas Company.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-Q and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000788784
<NAME> PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
<MULTIPLIER>1000000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 6,889
<OTHER-PROPERTY-AND-INVEST> 4,473
<TOTAL-CURRENT-ASSETS> 1,950
<TOTAL-DEFERRED-CHARGES> 5,278
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 18,590
<COMMON> 3,088 <F1>
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 1,177
<TOTAL-COMMON-STOCKHOLDERS-EQ> 4,059 <F2>
1,113
95
<LONG-TERM-DEBT-NET> 4,711
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 1,602
<LONG-TERM-DEBT-CURRENT-PORT> 755
0
<CAPITAL-LEASE-OBLIGATIONS> 50
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 6,205
<TOT-CAPITALIZATION-AND-LIAB> 18,590
<GROSS-OPERATING-REVENUE> 4,837
<INCOME-TAX-EXPENSE> 425
<OTHER-OPERATING-EXPENSES> 3,436
<TOTAL-OPERATING-EXPENSES> 3,861 <F3>
<OPERATING-INCOME-LOSS> 976
<OTHER-INCOME-NET> 39
<INCOME-BEFORE-INTEREST-EXPEN> 1,015
<TOTAL-INTEREST-EXPENSE> 425 <F4>
<NET-INCOME> (214)<F5>
70
<EARNINGS-AVAILABLE-FOR-COMM> (214)
<COMMON-STOCK-DIVIDENDS> 357
<TOTAL-INTEREST-ON-BONDS> 315
<CASH-FLOW-OPERATIONS> 955
<EPS-BASIC> (0.97)
<EPS-DILUTED> (0.97)
<FN>
<F1>Includes Treasury Stock of ($516) million.
<F2>Includes Foreign Currency Translation Adjustment of ($203) million.
<F3>Federal and State Income Taxes are included in this line for FDS purposes.
<F4>Total interest expense includes Preferred Securities Dividends Requirements.
<F5> Net Loss includes an extraordinary charge of $804 million, net of tax of
$345 million. The extraordinary charge impacted EPS (basic and diluted) by
$(3.65).
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-Q and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000081033
<NAME> PUBLIC SERVICE ELECTRIC AND GAS COMPANY
<MULTIPLIER>1000000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 6,889
<OTHER-PROPERTY-AND-INVEST> 794
<TOTAL-CURRENT-ASSETS> 1,682
<TOTAL-DEFERRED-CHARGES> 5,180
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 14,545
<COMMON> 2,563
<CAPITAL-SURPLUS-PAID-IN> 594
<RETAINED-EARNINGS> 600
<TOTAL-COMMON-STOCKHOLDERS-EQ> 3,754
588
95
<LONG-TERM-DEBT-NET> 3,261
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 1,080
<LONG-TERM-DEBT-CURRENT-PORT> 638
0
<CAPITAL-LEASE-OBLIGATIONS> 50
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 5,079
<TOT-CAPITALIZATION-AND-LIAB> 14,545
<GROSS-OPERATING-REVENUE> 4,421
<INCOME-TAX-EXPENSE> 393
<OTHER-OPERATING-EXPENSES> 3,183
<TOTAL-OPERATING-EXPENSES> 3,576 <F1>
<OPERATING-INCOME-LOSS> 845
<OTHER-INCOME-NET> 8
<INCOME-BEFORE-INTEREST-EXPEN> 853
<TOTAL-INTEREST-EXPENSE> 319 <F2>
<NET-INCOME> (270)<F3>
7
<EARNINGS-AVAILABLE-FOR-COMM> (277)
<COMMON-STOCK-DIVIDENDS> 510
<TOTAL-INTEREST-ON-BONDS> 247
<CASH-FLOW-OPERATIONS> 853
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>State and Federal Income Taxes are included in this line for FDS purposes.
<F2>Total interest expense includes Preferred Securities Dividend Requirements.
<F3>Net Loss includes an extraordinary charge of $804 million, net of tax of
$345 million.
</FN>
</TABLE>
