SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 21, 1999
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
(Exact name of registrant as specified in its charter)
State of New Jersey 1-9120 22-2625848
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
80 Park Plaza, P.O. Box 1171
Newark, New Jersey 07101-1171
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 973-430-7000
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
(Exact name of registrant as specified in its charter)
State of New Jersey 1-973 22-1212800
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
80 Park Plaza, P.O. Box 570
Newark, New Jersey 07101-0570
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 973-430-7000
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Item 5. Other Events
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The following information updates certain matters previously reported to the
Securities and Exchange Commission under Item 1 - Business and Item 3 -
Legal Proceedings of Part I and Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations ("MD&A") and Item 8 - Financial
Statements and Supplementary Data of Part II of the Annual Reports on Form 10-K
for the year ended December 31, 1998 and on Form 8-K filed March 18, 1999 of
Public Service Electric and Gas Company ("PSE&G") and of its parent, Public
Service Enterprise Group Incorporated ("PSEG").
PSE&G -- Rate Matters-New Jersey Energy Master Plan Proceedings
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As previously reported, on March 17, 1999, PSE&G, together with seven other
parties, filed a proposed stipulation (the PSE&G Stipulation) with the New
Jersey Board of Public Utilities (BPU) to resolve outstanding issues in its Rate
Unbundling, Stranded Costs and Restructuring proceedings. (BPU Docket Nos.
EO97070461, EO97070462 and EO97070463). These matters are collectively referred
to as the "Energy Master Plan" or "EMP" proceedings.
On March 29, 1999, the Office of the Ratepayer Advocate, together with certain
other parties, filed their proposal on EMP issues.
On April 21, 1999, the BPU rendered its oral and written summary decision
regarding EMP matters (Summary Order), but indicated that it would issue a more
detailed Decision and Order in these matters in the near future.
The Summary Order, in adopting the PSE&G Stipulation with the specific
modifications and clarifications as set forth below, found that the PSE&G
Stipulation was overall more financially prudent, consistent with the New Jersey
Electric Discount and Competition Act's (the Act) requirements, consistent with
the record in the Rate Unbundling, Stranded Costs and Restructuring proceedings
and was found to provide the framework for a reasonable resolution of these
matters.
The key elements of the PSE&G Stipulation and the corresponding BPU
modifications as set forth in the Summary Order are as follows:
Transition Period
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PSE&G's Proposed Stipulation as Adopted:
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o A four-year transition period would begin August 1, 1999 and end July
31, 2003. During this transition period, rates would be capped for all
customers who remain with PSE&G.
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Rate Reductions
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PSE&G's Proposed Stipulation:
-----------------------------
o Customers would receive the following reductions from current rates
through July 2003 according to this schedule:
August 1, 1999 - 5%
January 1, 2000 - increasing to 7%, depending on timing of
securitization
August 1, 2001 - increasing to 8.25%
August 1, 2002 - increasing to 13.9% average (10% off rates in effect
in April 1997)
All rate reductions after the initial 5% reduction would be contingent
on PSE&G's implementing a BPU order providing for securitization of
$2.475 billion of generation-related stranded costs, plus transaction
costs, and establishing a securitization bond charge under New Jersey's
new energy competition law.
BPU Modifications:
------------------
o Customers are to receive rate reductions of:
August 1, 1999: 5%
January 1, 2000: 7%
August 1, 2001: 9%
August 1, 2002: average 13.9% (10% off rates in effect in April 1997)
The BPU rejected PSE&G's request that all further rate reductions
beyond the initial 5% be conditioned upon securitization. The BPU, in
finding that the 2000 and 2001 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, but found however, that the final aggregate rate
reduction in 2002 of 13.9% is required by the legislation and is not
contingent on the implementation of securitization.
Shopping Credits
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PSE&G's Proposed Stipulation as Adopted:
----------------------------------------
o Shopping credits would be established for four years and would
include cost of energy, capacity, transmission, ancillary
services, losses, taxes and a retail adder. The average overall
annual credits would 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
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Stranded Costs
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PSE&G's Proposed Stipulation:
-----------------------------
o Generation-related stranded costs would be established at $3.3
billion, net of tax, of which $2.475 billion plus transaction
costs of up to $125 million would be securitized. As a result of
negotiation, PSE&G would reduce the unsecuritized portion by $225
million. PSE&G would then have the opportunity to recover the
remaining $600 million, net of tax, over the four-year transition
period. The $600 million would be recovered by various means,
including an explicit market transition charge (MTC). There would
be a reconciliation mechanism to insure that PSE&G does not
recover more than $600 million, net of tax.
BPU Modifications:
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o The BPU concluded that PSE&G should be provided the opportunity
to recover up to $2.94 billion net of tax stranded costs, through
securitization of $2.4 billion and an opportunity to recover up
to $540 million of its unsecuritized generation-related, stranded
costs on a present value basis net of tax. The stranded costs
recovery is subject to a true up on the collection of the
unsecuritized generation-related stranded costs.
Additionally, PSE&G cannot use the overrecovery in the Electric
Levelized Energy Adjustment Clause (LEAC) as of July 31, 1999,
expected to be approximately $60 million, net of tax, as a
mitigation tool. Instead, PSE&G must return the overrecovery
amount to ratepayers by applying the overrecovery as a credit to
the starting deferred balance of the non-utility generation
market transition clause (NTC) to offset stranded costs otherwise
recoverable from ratepayers.
Securitization
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PSE&G's Proposed Stipulation:
-----------------------------
o PSE&G would be allowed to issue a total of up to $2.6 billion of
transition bonds to be amortized over a 15-year period. A
transition bond charge would be collected from customers via a
per kWh or wires charge. This would be trued-up at least
annually. Net proceeds from this securitization of stranded costs
would be used to refinance or retire debt and/or equity. The
resulting savings from this bond financing must be returned to
customers.
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BPU Modifications:
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o The BPU will issue a financing order, consistent with the
provisions of the Act, to authorize PSE&G to issue up to $2.525
billion of transition bonds representing $2.4 billion of net of
tax generation-related stranded costs and an estimated $125
million of transaction costs. The taxes related to
securitization, which reflect the grossed up revenue requirements
associated with the $2.4 billion in net of tax stranded costs
being securitized, are legitimate recoverable stranded costs,
however they should not be collected through the transition bond
charge; rather, such taxes shall be collected via a separate MTC.
The duration of this separate MTC shall be 15 years, identical to
the duration of the transition bond charge.
Transfer of Generation-Related Assets
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PSE&G's Proposed Stipulation:
-----------------------------
o PSE&G would be required to separate its transmission and
distribution assets from its generation-related assets. Its
generation-related assets would be transferred to a separate
generation company (Genco) to be owned by PSE&G's parent holding
company, PSEG. Given the resolution of stranded costs, the
proposed transfer price of $2.368 billion was intended to ensure
that PSE&G receives full and fair recompense for these assets.
Genco would become an exempt wholesale generator (EWG) upon
receipt of Federal Energy Regulatory Commission (FERC) approval.
If the generation-related assets are sold during the four-year
transition period, any gains would be shared equally between
customers and shareholders, subject to BPU approval.
BPU Modifications:
------------------
o The BPU directed the establishment of a separate company (i.e.,
Genco) by PSEG to sell generation output in the wholesale
marketplace and also ordered PSE&G to transfer its
generation-related assets to such separate unregulated subsidiary
at a price of $2.443 billion. Any gains resulting from the sale
of the transferred generation-related assets to a third party
which occurs within five years of August 1, 1999, rather than
within the four years proposed in the PSE&G stipulation, will be
shared 50 - 50 between ratepayers and shareholders.
Basic Generation Service
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PSE&G's Proposed Stipulation:
-----------------------------
o Through a contract with Genco, PSE&G would provide basic
generation service (BGS) for the first three years and would not
promote it as a competitive alternative. BGS would be
competitively bid for the fourth year and annually thereafter.
<PAGE>
BPU Modifications:
------------------
o The BPU approved PSE&G's proposal on basic generation, but
clarified that any payments to PSE&G resulting from BGS being bid
out for year 4 of the transition period shall be credited to the
deferred societal benefit costs (SBC) balance for purposes of
establishing the SBC rate in year 5, and shall in no event be
retained by PSE&G or remitted to Genco or otherwise utilized to
recover unsecuritized generation-related stranded costs.
Excess Electric Distribution Depreciation
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PSE&G's Proposed Stipulation as Adopted:
----------------------------------------
o PSE&G would be authorized to amortize an excess electric
distribution depreciation reserve in the amount of $568.7 million
over the period of January 1, 2000 to July 31, 2003.
Societal Benefit and Other Costs
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PSE&G's Proposed Stipulation as Adopted:
----------------------------------------
o SBC and above market stranded costs associated with non-utility
generation would be collected through clause mechanisms; SBC
level would remain constant through the transition period;
deferred accounting including interest on any
over/underrecoveries would be used; and the clauses would be
reset annually thereafter. The clause mechanism for the above
market stranded NTC would be initially set at the 1999 level of
$183 million annually and would also use deferred accounting on
any over/underrecoveries. The clause mechanism for societal
benefits would include costs related to: 1) social programs which
include the universal service fund; 2) nuclear plant
decommissioning; 3) demand side management (DSM) program; 4)
manufactured gas plant remediation and 5) consumer education.
The BPU will issue a more detailed, written, final order in these matters in the
near future. Once such order is provided, PSE&G will discontinue the application
of Statement of Financial Accounting Standards No. 71 "Accounting for the
Effects of Certain Types of Regulation", for the generation portion of its
business and will record the appropriate accounting entries at that time.
Pending the BPU's final written order, PSE&G anticipates that it will be
required to record a net extraordinary charge to earnings, in the range of $500
million to $700 million, in the second quarter of 1999 to reflect its
unrecoverable costs.
<PAGE>
The right of PSE&G to receive the bondable transition charge pursuant to the
securitization transaction is property subject to the lien of PSE&G's Mortgage
Indenture. The proceeds of securitization will be deposited with the Mortgage
Trustee to comply with the property release provisions of the Mortgage. PSE&G
can utilize one or more of the following, at its option, with respect to these
proceeds:
o Withdraw funds for corporate use by utilizing additions and
improvements. These funds could be used to purchase Common Stock, or
purchase, tender or redeem outstanding Mortgage Bonds under existing
applicable optional redemption provisions.
o Direct the Trustee to invest the proceeds in US Government Securities.
o Direct the Trustee to purchase eligible Mortgage Bonds pro rata at the
lowest prices obtainable.
Unless PSE&G affirmatively chooses an option within two years of deposit of
the funds, the Trustee is required to undertake par redemptions. All outstanding
Mortgage Bonds, except for each of the series of Pollution Control Bonds and two
series of coupon Bonds are eligible for such redemption at their par special
redemption price, as provided in the Mortgage Indenture and each respective
Supplemental Indenture.
Generation assets, which have been directed by the BPU to be transferred to
a separate unregulated subsidiary, are also subject to the lien of the Mortgage
Indenture. Proceeds of that sale will likewise be deposited with the Trustee.
PSE&G has the same options with regard to those proceeds as discussed above in
connection with securitization. Transfer of generation assets requires PSE&G to
obtain various additional federal and state regulatory approvals.
PSE&G has not yet made a decision as to the extent to which it will elect
to redeem such eligible Mortgage Bonds at par. Such decision will be based upon
the final BPU Decision and Order, financial conditions at the time of the
decision and other factors.
At March 31, 1999, PSE&G had a total amount of $4.148 billion of Mortgage
Bonds outstanding, of which $3.354 billion are eligible for special redemption
at par. $780 million of Pollution Control Bonds and $15 million of coupon Bonds
are not eligible for this special redemption.
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SIGNATURE
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned hereunto duly authorized.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
(Registrant)
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
(Registrant)
By: PATRICIA A. RADO
--------------------------------
Patricia A. Rado
Vice President and Controller
(Principal Accounting Officer)
Date: April 26, 1999
