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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 March 31, 2000
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 April 30, 2000: 216,354,551
As of April 30, 2000, 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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PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
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TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Public Service Enterprise Group Incorporated (PSEG).................. 1
Public Service Electric and Gas Company (PSE&G)...................... 5
Notes to Consolidated Financial Statements -- PSEG................... 9
Notes to Consolidated Financial Statements -- PSE&G................... 16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PSEG .............................................................. 17
PSE&G.............................................................. 26
Item 3. Qualitative and Quantitative Disclosures About Market Risk..... 27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 28
Item 4. Submission of Matters to a Vote of Security Holders............ 28
Item 5. Other Information.............................................. 29
Item 6. Exhibits and Reports on Form 8-K............................... 30
Signatures -- PSEG..................................................... 31
Signatures -- PSE&G.................................................... 31
<PAGE>
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PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<PAGE>
<TABLE>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(Millions of Dollars, except for Per Share Data)
(Unaudited)
<CAPTION>
For The Quarters Ended
March 31,
----------------------
2000 1999
--------- ---------
<S> <C> <C>
OPERATING REVENUES
Electric Revenues *
Bundled $ - $ 966
Generation 558 -
Transmission and Distribution 404 -
--------- ---------
Total Electric Revenues 962 966
Gas Distribution 747 700
Other 215 129
--------- ---------
Total Operating Revenues 1,924 1,795
--------- ---------
OPERATING EXPENSES
Electric Energy Costs 216 225
Gas Costs 480 449
Operation and Maintenance 485 431
Depreciation and Amortization 90 173
Taxes Other Than Income Taxes 50 56
--------- ---------
Total Operating Expenses 1,321 1,334
--------- ---------
OPERATING INCOME 603 461
Other Income and Deductions 11 6
Interest Expense (137) (112)
Preferred Securities Dividend Requirements (24) (24)
--------- ---------
INCOME BEFORE INCOME TAXES 453 331
Income Taxes (183) (143)
--------- ---------
NET INCOME $ 270 $ 188
========= =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (000's) 216,437 222,703
========= =========
EARNINGS PER SHARE (BASIC AND DILUTED) $ 1.25 $ 0.85
========= =========
DIVIDENDS PAID PER SHARE OF COMMON STOCK $ 0.54 $ 0.54
========= =========
* 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>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED BALANCE SHEETS
ASSETS
(Millions of Dollars)
<CAPTION>
(Unaudited)
March 31, December 31,
2000 1999
----------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 121 $ 259
Accounts Receivable:
Customer Accounts Receivable 782 646
Other Accounts Receivable 404 371
Allowance for Doubtful Accounts (46) (40)
Unbilled Revenues 183 241
Fuel 165 311
Materials and Supplies, net of valuation
reserves - 2000 and 1999, $11 139 130
Prepayments 29 53
Miscellaneous Current Assets 71 72
----------- -----------
Total Current Assets 1,848 2,043
----------- -----------
PROPERTY, PLANT AND EQUIPMENT
Electric - Generation 2,551 2,510
Electric - Transmission and Distribution 5,141 5,093
Gas - Distribution 3,042 3,019
Other 605 534
----------- -----------
Total 11,339 11,156
Accumulated depreciation and amortization (4,208) (4,078)
----------- -----------
Net Property, Plant and Equipment 7,131 7,078
----------- -----------
NONCURRENT ASSETS
Regulatory Assets 5,027 5,041
Long-Term Investments, net of accumulated
amortization and net of valuation allowances -
2000, $67;1999, $65 3,960 3,848
Nuclear Decommissioning Fund 633 631
Other Special Funds 140 148
Other Noncurrent Assets, net of accumulated
amortization - 2000, $16; 1999, $12 229 226
----------- -----------
Total Noncurrent Assets 9,989 9,894
----------- -----------
TOTAL $ 18,968 $ 19,015
=========== ===========
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND CAPITALIZATION
(Millions of Dollars)
<CAPTION>
(Unaudited)
March 31, December 31,
2000 1999
------------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Long-Term Debt Due Within One Year $ 973 $ 1,073
Commercial Paper and Loans 1,202 1,972
Accounts Payable 802 738
Accrued Taxes 255 70
Other 367 324
------------- -----------
Total Current Liabilities 3,599 4,177
------------- -----------
NONCURRENT LIABILITIES
Deferred Income Taxes and ITC 2,961 2,928
Regulatory Liabilities 582 604
Nuclear Decommissioning 633 631
OPEB Costs 405 390
Other 502 506
------------- -----------
Total Noncurrent Liabilities 5,083 5,059
------------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES - -
------------- -----------
CAPITALIZATION:
LONG - TERM DEBT 4,901 4,575
------------- -----------
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 3,604
Treasury Stock, at cost: 2000 and 1999
- 15,540,390 shares (597) (597)
Retained Earnings 1,345 1,193
Accumulated Other Comprehensive Loss (175) (204)
------------- -----------
Total Common Stockholders' Equity 4,177 3,996
------------- -----------
Total Capitalization 10,286 9,779
------------- -----------
TOTAL $ 18,968 $ 19,015
============= ===========
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of Dollars)
(Unaudited)
<CAPTION>
For The Quarters Ended
March 31,
-----------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 270 $ 188
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation and Amortization 90 173
Amortization of Nuclear Fuel 26 12
Recovery of Electric Energy and Gas Costs - net 16 89
Provision for Deferred Income Taxes and ITC - net 29 (73)
Investment Distributions 12 3
Equity Income from Partnerships (11) (10)
Gains on Investments (31) (14)
Leasing Activities (18) (18)
Net Changes in certain current assets and liabilities:
Accounts Receivable and Unbilled Revenues (105) (74)
Fuel and Materials and Supplies 137 118
Prepayments 24 22
Accounts Payable 64 (151)
Accrued Taxes 185 221
Other Current Assets and Liabilities 44 118
Other 35 9
--------- ---------
Net Cash Provided By Operating Activities 767 613
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Property, Plant and Equipment,
excluding Capitalized Interest and AFDC (149) (79)
Net Change in Long-Term Investments (62) (2)
Contribution to Decommissioning Funds and Other Special Funds (8) (12)
Other - (7)
--------- ---------
Net Cash Used In Investing Activities (219) (100)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Change in Short-Term Debt (770) (332)
Issuance of Long-Term Debt 300 252
Redemption/Purchase of Long-Term Debt (99) (149)
Purchase of Treasury Stock - (235)
Cash Dividends Paid on Common Stock (117) (120)
--------- ---------
Net Cash Used In Financing Activities (686) (584)
--------- ---------
Net Change In Cash And Cash Equivalents (138) (71)
Cash And Cash Equivalents At Beginning Of Period 259 140
--------- ---------
Cash And Cash Equivalents At End Of Period $ 121 $ 69
========= =========
Income Taxes Paid $ 1 $ 1
Interest Paid $ 96 $ 107
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Millions of Dollars)
(Unaudited)
<CAPTION>
For The Quarters Ended
March 31,
--------------------------
2000 1999
---------- -----------
<S> <C> <C>
OPERATING REVENUES
Electric Revenues *
Bundled $ - $ 966
Generation 558 -
Transmission and Distribution 404 -
---------- -----------
Total Electric Revenues 962 966
Gas Distribution 747 700
---------- -----------
Total Operating Revenues 1,709 1,666
---------- -----------
OPERATING EXPENSES
Electric Energy Costs 205 221
Gas Costs 457 424
Operation and Maintenance 388 387
Depreciation and Amortization 88 172
Taxes Other Than Income Taxes 49 56
---------- -----------
Total Operating Expenses 1,187 1,260
---------- -----------
OPERATING INCOME 522 406
Other Income and Deductions 10 3
Interest Expense (97) (93)
Preferred Securities Dividend Requirements (11) (11)
---------- -----------
INCOME BEFORE INCOME TAXES 424 305
Income Taxes (174) (133)
---------- -----------
NET INCOME 250 172
Preferred Stock Dividend Requirement (2) (3)
---------- -----------
EARNINGS AVAILABLE TO PUBLIC SERVICE
ENTERPRISE GROUP INCORPORATED $ 248 $ 169
========== ===========
* 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>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
(Millions of Dollars)
<CAPTION>
(Unaudited)
March 31, December 31,
2000 1999
----------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 31 $ 173
Accounts Receivable:
Customer Accounts Receivable 605 529
Other Accounts Receivable 370 313
Allowance for Doubtful Accounts (40) (35)
Unbilled Revenues 183 241
Fuel 164 308
Materials and Supplies, net of
valuation reserves - 2000 and 1999, $11 133 130
Prepayments 25 48
Miscellaneous Current Assets 36 36
----------- ------------
Total Current Assets 1,507 1,743
----------- ------------
PROPERTY, PLANT AND EQUIPMENT
Electric - Generation 2,408 2,439
Electric - Transmission and Distribution 5,141 5,093
Gas - Distribution 3,042 3,019
Other 463 457
----------- ------------
Total 11,054 11,008
Accumulated depreciation and amortization (4,166) (4,046)
----------- ------------
Net Property, Plant and Equipment 6,888 6,962
----------- ------------
NONCURRENT ASSETS
Regulatory Assets 5,027 5,041
Long-Term Investments 87 99
Nuclear Decommissioning Fund 633 631
Other Special Funds 140 148
Other Noncurrent Assets 88 100
----------- ------------
Total Noncurrent Assets 5,975 6,019
----------- ------------
TOTAL $ 14,370 $ 14,724
=========== ============
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND CAPITALIZATION
(Millions of Dollars)
<CAPTION>
(Unaudited)
March 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Long-Term Debt Due Within One Year $ 523 $ 623
Commercial Paper and Loans 905 1,475
Accounts Payable 872 676
Accrued Taxes 118 70
Other 246 211
------------ ------------
Total Current Liabilities 2,664 3,055
------------ ------------
NONCURRENT LIABILITIES
Deferred Income Taxes and ITC 2,050 2,032
Regulatory Liabilities 582 604
Nuclear Decommissioning 633 631
OPEB Costs 405 390
Other 471 479
------------ ------------
Total Noncurrent Liabilities 4,141 4,136
------------ ------------
COMMITMENTS AND CONTINGENT LIABILITIES - -
------------ ------------
CAPITALIZATION:
LONG - TERM DEBT 3,100 3,099
------------ ------------
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 628 597
Accumulated Other Comprehensive Loss (3) (3)
------------ ------------
Total Common Stockholder's Equity 3,782 3,751
------------ ------------
Total Capitalization 7,565 7,533
------------ ------------
TOTAL $ 14,370 $ 14,724
============ ============
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of Dollars)
(Unaudited)
<CAPTION>
For The Quarters Ended
March 31,
-----------------------
2000 1999
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 250 $ 172
Adjustments to reconcile net income to net cash flows from
operating activities:
Depreciation and Amortization 88 172
Amortization of Nuclear Fuel 26 12
Recovery of Electric Energy and Gas Costs - net 16 89
Provision for Deferred Income Taxes and ITC - net 18 (59)
Net Changes in certain current assets and liabilities:
Accounts Receivable and Unbilled Revenues (70) (62)
Fuel and Materials and Supplies 141 116
Prepayments 23 21
Accounts Payable 231 (59)
Accrued Taxes 48 78
Other Current Assets and Liabilities 35 144
Other 46 (12)
---------- ---------
Net Cash Provided By Operating Activities 852 612
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Property, Plant and Equipment,
excluding Capitalized Interest and AFDC (110) (79)
Contribution to Decommissioning Funds and Other Special Funds (8) (12)
Other 12 10
---------- ---------
Net Cash Used In Investing Activities (106) (81)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Change in Short-Term Debt (570) (279)
Redemption/Purchase of Long-Term Debt (99) -
Cash Dividends Paid on Common Stock (217) (277)
Other (2) (2)
---------- ---------
Net Cash Used In Financing Activities (888) (558)
---------- ---------
Net Change In Cash And Cash Equivalents (142) (27)
Cash And Cash Equivalents At Beginning Of Period 173 42
---------- ---------
Cash And Cash Equivalents At End Of Period $ 31 $ 15
========== =========
Income Taxes Paid $ - $ 1
Interest Paid $ 90 $ 98
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
Basis of Presentation
The financial statements included herein have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC). Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. However, in the
opinion of management, the disclosures are adequate to make the information
presented not misleading. These consolidated financial statements and Notes to
Consolidated Financial Statements (Notes) should be read in conjunction with the
Registrant's Notes contained in the 1999 Annual Report on Form 10-K. These Notes
update and supplement matters discussed in the 1999 Annual Report on Form 10-K.
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 1999
Annual Report on Form 10-K. Certain reclassifications of prior period data have
been made to conform with the current presentation.
Note 2. Regulatory Issues
New Jersey Energy Master Plan Proceedings and Related Orders
In January 1999, the State Legislature passed the New Jersey Electric
Discount and Energy Competition Act (Energy Competition Act) which was signed
into law by the Governor on February 9, 1999. Following the enactment of the
Energy Competition Act, the Board of Public Utilities (BPU) rendered its summary
decision relating to Public Service Electric and Gas Company's (PSE&G) rate
unbundling, stranded costs and restructuring proceedings (Summary Order) on
April 21, 1999 and subsequently issued its Final Order in these matters on
August 24, 1999. The Energy Competition Act and the related BPU proceedings are
hereinafter defined as the Energy Master Plan Proceedings. These proceedings
opened the New Jersey energy markets to competition by allowing all New Jersey
retail electric customers to select their electric supplier commencing August 1,
1999 and all New Jersey retail gas customers to select their gas supplier
commencing January 1, 2000.
In October and November 1999, two appeals of the Final Order and two
appeals 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 customers and the Office of the Ratepayer Advocate.
On April 13, 2000, a three-judge panel unanimously affirmed the Final Order and
Finance Order. On May 2, 2000, one of the appellants filed a notice of its
intention to request the New Jersey Supreme Court to exercise its discretion to
review the unanimous Appellate Division decision. The brief of the appellant,
specifying the issues to be reviewed and the reasons why the Supreme Court
should consider its request, must be filed with the Court not later than May 15,
2000. On May 5, 2000, PSE&G filed a Notice of Motion for Accelerated Briefing
and Disposition of the Petition for Certification which, if granted, would
require all briefing to be completed by May 30, 2000. While PSE&G believes that
the Court is not reasonably likely to exercise its discretion to review the
Appellate Division decision and that the securitization transaction is expected
to be completed by or around the end of the second quarter of 2000, followed by
the generation-related asset sale, no assurances can be given as to the timing
or outcome of such matters.
<PAGE>
Note 3. Regulatory Assets and Liabilities
At March 31, 2000 and December 31, 1999, respectively, PSEG and PSE&G had
deferred the following regulatory assets and liabilities on the Consolidated
Balance Sheets:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------------- -----------------
(Millions of Dollars)
<S> <C> <C>
Regulatory Assets:
Stranded Costs to be Securitized........................... $4,057 $4,057
SFAS 109 Income Taxes...................................... 285 286
OPEB Costs................................................. 232 237
Societal Benefits Charges (SBC)............................ 119 130
Demand Side Management Costs............................... 7 7
Environmental Costs........................................ 104 94
Unamortized Loss on Reacquired Debt and Debt Expense....... 113 117
Other...................................................... 110 113
--------------- -----------------
Total Regulatory Assets................................ $5,027 $5,041
=============== =================
Regulatory Liabilities:
Excess Depreciation Reserve................................ $537 $569
Non-utility Generation Market Transition Charge (NTC)...... 14 20
Overrecovered Gas Costs.................................... 31 15
--------------- -----------------
Total Regulatory Liabilities........................... $582 $604
=============== =================
</TABLE>
Note 4. Commitments and Contingent Liabilities
Pending Asset Purchases
On October 6, 1999, PSEG Power LLC (Power) announced an agreement with
Niagara Mohawk Power Corporation (Niagara Mohawk) to purchase its 400 megawatt
(MW) 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 $9.0 million if Power chooses to pursue redevelopment of the
Albany Steam Station. Under a transition power supply 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). In April 2000, the NYPSC
approved the sale of the Albany Steam Station to Power. Power expects to
complete the transaction in the second quarter of 2000.
On September 30, 1999, Power announced an agreement to acquire all of
Conectiv's interests in Salem Nuclear Generating Station (Salem) and Hope Creek
Nuclear Generating Station (Hope Creek) and half of Conectiv's interest in Peach
Bottom Atomic Power Station (Peach Bottom) for an aggregate purchase price of
$15.4 million plus the net book value of Conectiv's nuclear fuel at closing.
Payment of Power's obligation under such agreement has been guaranteed by PSEG.
Power will purchase Conectiv's 14.82% interest (328 MW) in Salem, Conectiv's 5%
interest (52 MW) in Hope Creek and half of Conectiv's 15.02% interest (164 MW)
in Peach Bottom. Once completed, PSEG, through Power and PSE&G, would own a
57.41% interest (1,270 MW) in Salem, a 100% interest (1,031 MW) in Hope Creek
and a 50% interest (1,094 MW) in Peach Bottom. While certain regulatory
approvals have been obtained, the purchases are still subject to approval by the
BPU, the Virginia State Corporation Commission and the Pennsylvania Public
Utility Commission (PPUC). Power expects to complete the purchases in 2000.
<PAGE>
PSE&G Manufactured Gas Plant Remediation Program
Since 1988, New Jersey Department of Environmental Protection (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 long-term costs 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
Remediation Adjustment Charge (RAC) programs. The Final Order provides for the
recovery of costs for this remediation effort through the SBC.
Passaic River Site
The U.S. Environmental Protection Agency (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
Passaic River "facility". PSE&G and certain of its predecessors operated
industrial facilities at properties within the Passaic River "facility",
including the former Harrison Gas Plant and Essex Generating Station. PSE&G
cannot predict what action, if any, the EPA or any third party may take against
PSE&G with respect to these matters, or in such event, what costs PSE&G may
incur to address any such claims. However, such costs may be material.
Note 5. 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.
<PAGE>
Commodity-Related Instruments -- PSE&G (including Power)
At March 31, 2000 and December 31, 1999, 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 March 31, 2000, PSE&G had outstanding commodity financial instruments
with a notional contract quantity of 9.4 million megawatt-hours (mWh) of
electricity and 16.7 million MMBTU (million British thermal units) of natural
gas. At December 31, 1999, PSE&G had outstanding commodity financial instruments
with a notional contract quantity of 36.1 million mWh of electricity and 25.5
million MMBTU of natural gas. Notional amounts are indicative only of the volume
of activity and are not a measure of market risk.
PSE&G's energy trading and related contracts have been marked to market and
gains and losses from such contracts were included in earnings. PSE&G recorded
$34 million and $18 million of gains in the quarters ended March 31, 2000 and
1999, respectively.
Commodity-Related Instruments -- Energy Holdings
PSEG Energy Technologies Inc. (Energy Technologies) enters into futures
contracts to buy natural gas and electricity related to fixed-price sales
commitments. Such contracts hedged approximately 56% and 85% of its fixed price
natural gas sales and electric sales commitments, respectively, at March 31,
2000 and 64% and 85% of its fixed price natural gas sales and electric sales
commitments, respectively, at December 31, 1999. In February 2000, Energy
Technologies entered into a business arrangement with a third party to provide
an internet-based auction exchange that will allow customers an alternative
method in purchasing their energy requirements. As a result of this change in
strategic direction, Energy Technologies will discontinue the business of buying
and selling natural gas and electricity.
Equity Securities -- Energy Holdings
PSEG Resources Inc. (Resources) has investments in equity securities and
limited partnerships. Resources carries its investments in equity securities at
their approximate fair value as of the reporting date. Consequently, the
carrying value of these investments is affected by changes in the fair value of
the underlying securities. Fair value is determined by adjusting the market
value of the securities for liquidity and market volatility factors, where
appropriate. The aggregate fair values of such investments which had available
market prices at March 31, 2000 and December 31, 1999 were $157 million and $131
million, respectively. The increase in fair value was primarily due to higher
valuation of various securities within Resources' portfolio. The potential
change in fair value resulting from a hypothetical 10% change in quoted market
prices of these investments amounted to $12 million at March 31, 2000 and $11
million at December 31, 1999.
Foreign Currencies -- Energy Holdings
In accordance with their growth strategies, Global and Resources have made
international investments of approximately $1.5 billion and $1.1 billion,
respectively, as of March 31, 2000.
Resources' international investments are primarily leveraged leases of
assets located in Australia, New Zealand, the Netherlands, Germany 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 additional 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 other comprehensive
income, a separate component of stockholders' equity. Cumulatively, net foreign
currency devaluations have reduced the reported amount of PSEG's total
stockholders' equity by approximately $172 million.
Global had consolidated project debt totaling $89 million as of March 31,
2000 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 58% 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 Real and between the Real 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 gain of $1 million and a loss of $3 million for
the quarters ended March 31, 2000 and 1999, respectively.
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 March 31, 2000, a hypothetical 10% change in market
interest rates would result in a $5 million, $10 million and $1 million change
in annual interest costs related to short-term and floating rate debt at PSEG,
PSE&G and Energy Holdings, respectively.
<PAGE>
Note 6. Income Taxes
PSEG's effective income tax rate is as follows:
<TABLE>
<CAPTION>
Quarter Ended March 31,
-----------------------------
2000 1999
----------- ------------
<S> <C> <C>
Federal tax provision at statutory rate............................. 35.0% 35.0%
New Jersey Corporate Business Tax, net of Federal benefit........... 5.9% 5.9%
Other-- net......................................................... (0.5)% 2.1%
----------- ------------
Effective Income Tax Rate...................................... 40.4% 43.0%
=========== ============
</TABLE>
Note 7. 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
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. 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.
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 (A) Total
--------------------------------------------------------------------------------
(Millions of Dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
For the Quarter Ended March 31, 2000:
Total Operating Revenues.......... $524 $34 $1,151 $66 $38 $111 $1,924
Segment Net Income (Loss)......... 109 17 124 27 4 (11) 270
================================================================================
For the Quarter Ended March 31, 1999:
Total Operating Revenues.......... $658 $18 $990 $46 $28 $55 $1,795
Segment Net Income (Loss)......... 76 8 88 19 2 (5) 188
================================================================================
As of March 31, 2000:
Total Assets...................... $2,033 $327 $12,010 $2,194 $1,774 $630 $18,968
================================================================================
As of December 31, 1999:
Total Assets...................... $2,256 $246 $12,222 $2,096 $1,715 $480 $19,015
================================================================================
</TABLE>
(A) PSEG's other activities include amounts applicable to PSEG, the parent
corporation, and Energy Holdings, excluding Resources and Global.
<PAGE>
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
March 31, March 31, December 31,
------------------------------ -------------- ------------------
2000 1999 2000 1999
------------- ------------ -------------- ------------------
(Millions of Dollars) (Millions of Dollars)
<S> <C> <C> <C> <C>
United States............................. $1,876 $1,768 $16,417 $16,595
Foreign Countries (2)..................... 48 27 2,551 2,420
------------- ------------ -------------- ------------------
Total................................ $1,924 $1,795 $18,968 $19,015
============= ============ ============== ==================
Identifiable investments in foreign countries include:
Netherlands $697 $623
Chile and Peru 543 520
Argentina 362 356
Brazil (3) 352 330
Other 597 591
-------------- ------------------
Total $2,551 $2,420
============== ==================
</TABLE>
- --------------------------------------------------------------------------------
(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 $(191)
million (pretax) as of March 31, 2000 and $(222) million (pretax) as of
December 31, 1999.
(3) Amount is net of foreign currency translation adjustment of $(171) million
(pretax) as of March 31, 2000 and $(189) million (pretax) as of December
31, 1999.
Note 8. 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 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. SFAS 133 establishes
accounting and reporting standards for derivative instruments and hedging
activities. It requires an entity to recognize all derivatives, within the scope
of this statement, as assets or liabilities on the balance sheet at fair value.
Also, derivatives that are not hedges must be adjusted to fair value through
income. If a derivative is a hedge, changes in the fair value of the derivative
will either be offset against the change in fair value of the hedged asset,
liability or firm commitment through earnings or be recognized in other
comprehensive income until the hedged item is recognized in earnings, depending
on the nature of the hedge. The ineffective portion of a hedge will be
immediately recognized in earnings. PSEG and PSE&G are currently evaluating the
impact of SFAS 133 as part of their implementation plan.
<PAGE>
Note 9. Comprehensive Income
Comprehensive Income, Net of Tax:
<TABLE>
<CAPTION>
Quarter Ended March 31,
-----------------------------
2000 1999
----------- ------------
(Millions of Dollars)
<S> <C> <C>
Net income.......................................................... $270 $188
Foreign currency translation, net of tax of $(3) and
$(14) for 2000 and 1999, respectively............................... 28 (125)
----------- ------------
Comprehensive income........................................... $298 $63
=========== ============
</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
Note 2. Regulatory Issues
Note 3. Regulatory Assets and Liabilities
Note 4. Commitments and Contingent Liabilities
Note 5. Financial Instruments and Risk Management
Note 7. Financial Information by Business Segments
Note 8. Accounting Matters
Note 6. Income Taxes
PSE&G's effective income tax rate is as follows:
<TABLE>
<CAPTION>
Quarter Ended March 31,
-----------------------------
2000 1999
----------- ------------
<S> <C> <C>
Federal tax provision at statutory rate............................. 35.0% 35.0%
New Jersey Corporate Business Tax, net of Federal benefit........... 5.9% 5.9%
Other-- net......................................................... 0.1% 2.9%
----------- ------------
Effective Income Tax Rate...................................... 41.0% 43.8%
=========== ============
</TABLE>
Note 9. Comprehensive Income
For the quarters ended March 31, 2000 and 1999, PSE&G's comprehensive
income equaled the consolidated net income 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) 1999 Annual
Report on Form 10-K 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
Following the enactment of the New Jersey Electric Discount and Energy
Competition Act (Energy Competition Act), the Board of Public Utilities (BPU)
rendered its summary decision relating to Public Service Electric and Gas
Company's (PSE&G) rate unbundling, stranded costs and restructuring proceedings
(Summary Order) and subsequently issued its Final Order in these matters. The
Energy Competition Act, the BPU's Summary Order and Final Order and the related
BPU proceedings are referred to as the Energy Master Plan Proceedings. These
proceedings opened the New Jersey energy markets to competition by allowing all
New Jersey retail electric customers to select their electric supplier
commencing August 1, 1999 and all New Jersey retail gas customers to select
their gas supplier commencing January 1, 2000.
Also in 1999, the BPU issued its order approving PSE&G's petition relating
to the proposed securitization transaction for an irrevocable Bondable Stranded
Costs Rate Order (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.
As set forth in the Final Order, PSE&G has been directed to sell all of its
electric generation-related assets and all associated rights and liabilities to
a separate corporate entity to be owned by PSEG. As a result, PSEG organized
PSEG Power LLC (Power) to acquire and manage PSE&G's electric generation-related
assets. Prior to the execution of such transfer, Power must obtain approval from
the Pennsylvania Public Utility Commission (PPUC) to transfer PSE&G's assets in
Pennsylvania. In 1999, the Federal Energy Regulatory Commission (FERC) approved
PSE&G's proposed sale of its generating units to Power and gave exempt wholesale
generator (EWG) status to PSEG Fossil LLC (Fossil) and PSEG Nuclear LLC
(Nuclear). In February 2000, the Nuclear Regulatory Commission (NRC) gave
approval to transfer PSE&G's nuclear licenses to Nuclear, conditioned upon BPU
approval.
In October and November 1999, two appeals of the Final Order and two
appeals 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 customers and the Office of the Ratepayer Advocate.
On April 13, 2000, a three-judge panel unanimously affirmed the Final Order and
Finance Order. On May 2, 2000, one of the appellants filed a notice of its
intention to request the New Jersey Supreme Court to exercise its discretion to
review the unanimous Appellate Division decision. The brief of the appellant,
specifying the issues to be reviewed and the reasons why the Supreme Court
should consider its request, must be filed with the Court not later than May 15,
2000. On May 5, 2000, PSE&G filed a Notice of Motion for Accelerated Briefing
and Disposition of the Petition for Certification which, if granted, would
require all briefing to be completed by May 30, 2000. While PSE&G believes that
the Court is not reasonably likely to exercise its discretion to review the
Appellate Division decision and that the securitization transaction is expected
to be completed by or around the end of the second quarter of 2000, followed by
the generation-related asset sale, no assurances can be given as to the timing
or outcome of such matters.
PSEG has positioned PSEG Energy Holdings, Inc. (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. 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. PSEG Resources Inc.
(Resources) will utilize its market access, industry knowledge and transaction
structuring capabilities to 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 Northeastern
and Middle Atlantic United States.
<PAGE>
To the extent that the discussion that follows reports on business
conducted under full monopoly regulation of the utility businesses, it must be
understood that such businesses have changed due to the deregulation of the
electric generation and natural gas commodity sales businesses. Past results are
not an indication of future business prospects or financial results.
Results of Operations
<TABLE>
<CAPTION>
Earnings (Losses)
-------------------------------
Quarter Ended
March 31,
-------------------------------
2000 1999
------------ ------------
(Millions of Dollars)
<S> <C> <C>
PSE&G....................................... $ 248 $ 169
Energy Holdings............................. 25 19
PSEG*....................................... (3) --
------------ ------------
Total PSEG............................ $ 270 $ 188
============ ============
</TABLE>
<TABLE>
<CAPTION>
Contribution to Earnings
Per Share
(Basic and Diluted)
-------------------------------
Quarter Ended
March 31,
-------------------------------
2000 1999
------------ ------------
<S> <C> <C>
PSE&G....................................... $ 1.15 $ 0.76
Energy Holdings............................. 0.11 0.09
PSEG*....................................... (0.01) --
------------ ------------
Total PSEG............................ $ 1.25 $ 0.85
============ ============
* Interest on certain financing transactions.
</TABLE>
Basic and diluted earnings per share of PSEG common stock (Common Stock)
were $1.25 for the quarter ended March 31, 2000, representing an increase of
$0.40 or 47% per share from the comparable 1999 period.
PSE&G's contribution to earnings per share of Common Stock for the quarter
ended March 31, 2000 increased $0.39 or 51% from the comparable 1999 period. The
increase for the quarter ended March 31, 2000 was primarily due to lower
expenses, including lower Electric Energy Costs and lower depreciation and
amortization resulting from the lower net book value of PSE&G's
generation-related assets and the amortization of the Excess Depreciation
Reserve beginning in January 2000. Also contributing to the increase were higher
electric and gas margins. Lower electric energy costs driven by the high
capacity factors of PSE&G's nuclear units, combined with the continued strong
results of PSE&G's wholesale trading operations more than offset the 5% rate
reduction in electric rates.
Energy Holdings' contribution to earnings per share of Common Stock for the
quarter ended March 31, 2000 increased $0.02 or 22% from the comparable 1999
period, primarily due to higher income from Resources' investment portfolio in
the first quarter of 2000.
As a result of PSEG's stock repurchase program which began in September
1998, earnings per share of Common Stock for the quarter ended March 31, 2000
increased $0.04 from the comparable 1999 period. A total of 15.8 million shares
were repurchased at a cost of $607 million under this program as of March 31,
2000.
<PAGE>
PSE&G -- Revenues
Electric
Revenues decreased $4 million or 0.4% for the quarter ended March 31, 2000
from the comparable period in 1999 primarily due to the 5% rate reduction which
decreased generation revenues by approximately $46 million. The rate reduction
was substantially offset by increased sales resulting from the strength of the
New Jersey economy combined with increased trading revenues. Once the
securitization transaction is complete, there will be an additional 2% rate
reduction. In addition, future customer migration from PSE&G could further
reduce future basic generation service (BGS) revenues. However, such customer
migration also creates the opportunity to sell available energy and capacity
into the wholesale market. As of March 31, 2000 third party suppliers had gained
approximately 11% of the customer load traditionally served by PSE&G. Also,
since PSE&G's distribution customers have the ability to change energy
suppliers, the potential return of migrated customers to PSE&G during high cost
summer periods could have a material adverse effect on Power and PSEG.
Gas
Revenues increased $47 million or 7% for the quarter ended March 31, 2000
from the comparable period in 1999 due to several factors, including the
strength of the New Jersey economy. Additional customer migration due to the
opening of full competition in 2000 could further reduce future revenues.
However, since PSE&G earns income through the distribution of gas rather than
the sale of the commodity, net income would not be affected by customers
choosing another supplier.
PSE&G -- Expenses
Electric Energy Costs
Electric Energy Costs decreased $16 million or 7% for the quarter ended
March 31, 2000 from the comparable 1999 period primarily due to lower generation
costs due to the high capacity factors of PSE&G's nuclear units and lower prices
for power purchases beginning in August 1999.
Gas Costs
As a result of the increase in gas revenues discussed above, Gas Costs
increased $33 million or 8% for the quarter ended March 31, 2000 from the
comparable 1999 period.
Depreciation and Amortization
Depreciation and Amortization expense decreased $84 million or 49% for the
quarter ended March 31, 2000 from the comparable 1999 period. The decrease was
primarily 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
recorded pursuant to SFAS 121, resulting in reduced depreciation by
approximately $60 million for the quarter ended March 31, 2000. Additionally,
for the quarter ended March 31, 2000, the amortization of the excess electric
distribution depreciation reserve, which commenced on January 1, 2000, reduced
expenses by approximately $32 million for the quarter ended March 31, 2000.
These decreases were partially offset by higher depreciation rates for
generation-related assets and higher depreciation expenses related to capital
additions to the transmission and distribution business.
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 increased $41 million or 31% for the quarter ended March 31,
2000 from the comparable 1999 period, primarily due to higher pretax operating
income.
Energy Holdings -- Earnings
<TABLE>
<CAPTION>
Quarter Ended
March 31,
--------------------------------
2000 1999
------------- -------------
(Millions of Dollars)
<S> <C> <C>
Earnings Before Interest, Taxes and Preferred Dividends:
Resources.................................................. $62 $43
Global..................................................... 26 18
Energy Technologies........................................ (8) (3)
------------- -------------
Sub-total............................................. 80 58
Interest, Taxes and Preferred Dividends......................... 55 39
------------- -------------
Total Energy Holdings Earnings.................................. $25 $19
============= =============
</TABLE>
Energy Holdings -- Revenues
Revenues increased $86 million to $215 million from $129 million for the
quarter ended March 31, 2000 as compared to the same period in 1999. The
increase was due to an increase of $19 million at Resources due to higher income
from financial investments and higher income from new leveraged lease
investments, a $56 million increase at Energy Technologies due to the addition
of revenues from acquisitions of various HVAC companies in 1999 and 2000 and an
$11 million increase at Global primarily due to the addition of revenues from
distribution company investments in Chile and Peru. Global's revenue includes
its share of the net income from joint ventures recorded under the equity method
of accounting.
Energy Holdings -- Operating Expenses
Operating expenses increased $62 million to $136 million from $74 million
for the quarter ended March 31, 2000 as compared to the same period in 1999. The
increase was primarily due to the addition of operating expenses from the
entities acquired by Energy Technologies in 1999 and 2000. In addition, Energy
Technologies will discontinue buying and selling natural gas and electricity and
has entered into a business arrangement with a third party to provide an
internet-based auction exchange that will allow customers an alternative method
for purchasing their energy requirements. As a result of this change in
strategic direction, Energy Technologies recognized a charge to income of
approximately $7 million relating to severance costs and the write-down of fixed
assets.
Energy Holdings -- Interest Expense and Preferred Dividends
Interest Expense and Preferred Dividends increased $16 million to $41
million from $25 million for the quarter ended March 31, 2000 as compared to the
same period in 1999. The increase was primarily due to financing 1999 investment
and acquisition activities.
<PAGE>
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 in operation in 2000, PSE&G and Energy Holdings
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 as consideration
for such property right, 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. PSEG and PSE&G expect such sale of transition
bonds and the receipt of proceeds in 2000.
Both the right of PSE&G to receive the bondable transition charge pursuant
to the securitization transaction and the proceeds from the transfer 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.
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 and/or retired bonds. (Option 1)
2. Direct the Trustee to invest the proceeds in U.S. Government
Securities. (Option 2)
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)
During the twelve months ended March 31, 2000, $200 million of Mortgage
Bonds matured and $322 million of Mortgage Bonds were purchased in the open
market. At March 31, 2000, PSE&G had a total of $3.627 billion of Mortgage Bonds
outstanding, of which $2.835 billion are taxable registered Mortgage Bonds
subject to the special redemption provisions outlined in Option 3 (Redeemable
Bonds). Approximately $523 million of these Redeemable Bonds are scheduled to
mature by June 30, 2000. Further, $777 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). Neither the
Pollution Control Bonds nor the Coupon Bonds are subject to the special
redemption provisions outlined in Option 3.
<PAGE>
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 (see Overview and
Future Outlook). Based on current information, a likely utilization of the
options available to PSE&G, as noted above, could be as follows:
A. Withdraw $2.4 billion of net proceeds from securitization under Option
1, above. These proceeds would be used to:
i. Redeem $123.5 million of Pollution Control Bonds now redeemable;
ii. Retire PSE&G's outstanding short-term debt; and
iii. Reduce PSE&G common and/or preferred securities with the balance
of proceeds.
B. Withdraw the proceeds ($2.4 billion to $2.8 billion) from the
generation-related asset sale to Power under Option 1. These proceeds
will be used to reduce PSE&G common and/or preferred securities.
As previously reported, in anticipation of securitization, PSEG's Board of
Directors has authorized the repurchase of up to an aggregate of 30 million
shares of Common Stock in the open market. At March 31, 2000, PSEG had
repurchased approximately 15.8 million shares of Common Stock, at a cost of
approximately $607 million. The repurchased shares have been held as treasury
stock or used for other corporate purposes. At April 30, 2000, PSEG had
repurchased approximately 16.1 million shares of Common Stock at a cost of
approximately $617 million. In December 1999, PSEG entered into a Forward
Purchase Agreement with a third party. The transaction may be settled in cash or
with shares of Common Stock. Any repurchase of these shares will not be
reflected on PSEG's balance sheet until settlement of the transaction which is
expected in the second quarter of 2000. 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 business needs. Following
Power's initial external financing, Power's capital needs will be funded with
cash generated from operations and may be supplemented with external financings
and equity infusions from PSEG as dictated by its growth strategy. Energy
Holdings' growth will be funded through external financings, equity infusions
from PSEG and cash generated from operations.
Dividend payments on Common Stock were $0.54 per share and totaled
approximately $117 million and $120 million during the three months ended March
31, 2000 and 1999, respectively. PSEG has not increased its dividend rate in
eight years in order to retain additional capital for reinvestment and to reduce
its payout ratio as earnings grow. Since 1986, PSE&G has made regular cash
payments to PSEG in the form of dividends on outstanding shares of PSE&G's
common stock. PSE&G paid common stock dividends of $217 million and $277 million
to PSEG during the three months ended March 31, 2000 and 1999, respectively.
These amounts were used to fund PSEG's Common Stock dividends and to support a
portion of PSEG's stock repurchase program.
PSEG believes that it will have adequate earnings and cash flow in the
future from PSE&G and Power to maintain dividends at the current level. However,
the amounts and dates of such dividends on Common Stock declared in the future
will necessarily be dependent upon PSEG's future earnings, cash flows, financial
requirements and other factors. Earnings and cash flows required to support the
dividend will become more volatile as PSEG's business changes from one that is
principally regulated to one that is principally competitive.
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, provided
that: (1) PSEG would not permit Energy Holdings' non-utility investments to
exceed 20% of PSEG's consolidated assets without prior notice to the BPU; (2)
the PSE&G Board of Directors would provide an annual certification that the
business and financing plans of Energy Holdings will not adversely affect PSE&G;
(3) PSEG would (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 by April
2003; and (4) Energy Holdings would pay PSE&G an affiliation fee of up to $2
million a year to be applied by PSE&G to reduce utility rates. 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>
As a result of the final outcome and the accounting impacts resulting from
the deregulation of the electric generation business in New Jersey, PSEG and
PSE&G do not believe that the Focused Audit provision requiring notification to
the BPU if PSEG's non-utility assets exceed 20% of its consolidated assets
remains appropriate and believe that modifications will be required (such assets
at March 31, 2000 totaled approximately 24% of PSEG's consolidated assets). The
Final Order addressed the Focused Audit, noting 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. The Final Order also recognized 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. In March 2000, PSE&G submitted a letter to the BPU as its
initial compliance with this filing requirement in which it notified the BPU of
its intention to make a filing to modify the terms of the Focused Audit within
120 days after the Final Order becomes final and non-appealable.
Regulatory oversight by the BPU to ensure that there is no harm to utility
customers 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 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.
PSEG believes, however, that this would not have a material adverse impact on
PSEG and its subsidiaries.
Capital Requirements
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,
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 2000, Power announced that it will construct a 500 MW natural gas-fired,
combined-cycle electric generating plant at Bergen Generating Station at a cost
of approximately $290 million with completion expected in June 2002. Power will
also install four new combustions turbines at Burlington Generating Station and
two new combustion turbines at Linden Generating Station, adding 186 MW and 164
MW, respectively, of electric generating capacity, at a cost of approximately
$155 million. The new combustion turbines are expected to be installed and
operational by July 2000. Project costs through March 31, 2000 totaled $138
million.
On October 6, 1999, Power announced an agreement with Niagara Mohawk Power
Corporation (Niagara Mohawk), to purchase its 400 MW oil 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),
totaling 544 MW for an aggregate purchase price of $15.4 million plus the net
book value of nuclear fuel at closing. For further discussion, see Note 4.
Commitments and Contingent Liabilities of Notes.
For the quarter ended March 31, 2000 PSE&G had net plant additions of $110
million, excluding Allowance for Funds Used During Construction (AFDC) and
capitalized interest, a $31 million increase from the corresponding 1999 period.
<PAGE>
Energy Holdings
Global
In February 2000, Global and its 50% partner completed a $329 million
project financing for a 1,000 MW gas-fired combined-cycle electric generation
facility to be located in Texas. The facility is under construction and
commercial operation is expected in 2001. The total cost of the facility is
estimated to be approximately $528 million, of which Global's equity investment,
including loans and guarantees, is estimated to be approximately $190 million.
Resources
In January and February 2000, Resources invested $73 million in two
leveraged lease transactions including a gas distribution system in the
Netherlands and an electric power plant in the United States.
Energy Technologies
In January 2000, Energy Technologies acquired two mechanical contracting
companies in Pennsylvania and New York for an aggregate cost of approximately
$21 million.
External Financings
PSEG
At March 31, 2000, PSEG had a committed $150 million revolving credit
facility which expires in December 2002. At March 31, 2000, PSEG had $60 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.
At March 31, 2000, PSEG had $105 million outstanding under this line of credit.
On March 22, 2000, PSEG entered into an $850 million bank credit facility,
structured as a $570 million 364 day credit agreement and a $280 million 5 year
credit agreement. The sole purpose of this credit facility is to provide
liquidity for the newly established $850 million PSEG commercial paper program.
PSEG is expected to begin issuing commercial paper on May 1, 2000. The proceeds
from the commercial paper program will be used for general corporate purposes
and, until securitization proceeds are received, will temporarily fund share
repurchases and Power.
In 1998, PSEG issued $100 million of Extendible Notes, Series A, due
November 22, 2000. These Notes were automatically tendered to the remarketing
agent for remarketing in February 2000. The interest rate through maturity is at
the three-month London Interbank Offered Rate (LIBOR) plus 0.22%, reset
quarterly.
Also in 1998, PSEG issued $175 million of Extendible Notes, Series B, due
November 22, 2000. These Notes were automatically tendered to the remarketing
agent for remarketing in November 1999. The interest rate is at the three-month
LIBOR plus 0.60%, reset quarterly. These Notes will be automatically tendered to
the remarketing agent for remarketing in May 2000.
In 1999, PSEG issued $300 million of Extendible Notes, Series C, due June
15, 2001. These Notes were automatically tendered to the remarketing agent for
remarketing in March 2000. The interest rate through September 2000 is at
three-month LIBOR plus 0.20% reset quarterly. These Notes will be automatically
tendered to the remarketing agent for remarketing in September 2000.
<PAGE>
PSE&G
In addition to the refinancing of existing long-term debt authorized by the
BPU in the Final Order, PSE&G will need to obtain BPU authorization to issue any
incremental debt financing necessary for its capital program. 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.
On February 1, 2000, $100 million of PSE&G's 7.625% Bonds, Series II,
matured.
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, The latter will be reduced by
a minimum of $200 million within 60 days after the sale of generation-related
assets to Power. These agreements are with a group of commercial banks, which
provide for borrowings of up to one year. As of March 31, 2000, 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 2, 2001, not more than $2.0 billion of short-term obligations,
consisting of commercial paper and other unsecured borrowings from banks and
other lenders. PSE&G has several uncommitted lines of credit with banks. On
March 31, 2000, PSE&G had $838 million of short-term debt outstanding, including
$130 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 March 31, 2000, Fuelco had commercial paper of $67
million outstanding. After the purchase of PSE&G's generation-related assets is
completed, it is anticipated that Fuelco's commercial paper program will be
discontinued and financing of Peach Bottom nuclear fuel will be funded through
Power.
Energy Holdings
In February 2000, Energy Holdings issued $300 million of 9.125% Senior
Notes due February 2004. The proceeds of the sale were used for the repayment of
short-term debt outstanding under Energy Holdings' 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 later in 2000.
Also in February 2000, Energy Holdings closed on a $190 million letter of
credit facility to support a future equity investment in a generation project in
Texas.
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 Energy Holdings' revolving credit facilities. Borrowings under
the revolving credit facilities were used to finance investments and
acquisitions and for general corporate purposes. In January 2000, Energy
Holdings filed a registration statement with the SEC relating to an exchange
offer for these Senior Notes.
At March 31, 2000, Energy Holdings had total debt outstanding of $1.8
billion, including debt at PSEG Capital and consolidated debt that is
non-recourse to PSEG, Energy Holdings and Global. At March 31, 2000, PSEG
Capital had total debt outstanding of $630 million, all of which was comprised
of MTNs with maturities between 2000 and 2003.
<PAGE>
Foreign Operations
In accordance with their growth strategies, Global and Resources have made
approximately $1.5 billion and $1.1 billion, respectively, of international
investments. As of March 31, 2000, foreign investments represented 13.4% of
PSEG's consolidated assets and contributed 2.5% of first quarter 2000
consolidated revenues. For discussion of the foreign currency risk, see Note 5.
Financial Instruments and Risk Management 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 and Foreign Operations.
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; operating restrictions,
increased cost and construction delays attributable to environmental
regulations; nuclear decommissioning and the availability of 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>
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, pollution credits, 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 PSEG and its
subsidiaries. In the event of non-performance or non-payment by a major
counterparty, there may be a material adverse impact on PSEG's and its
subsidiaries' 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 5. Financial Instruments
and Risk Management of Notes.
Commodity-Related Instruments
The availability and price of energy commodities are subject to
fluctuations from factors such as weather, environmental policies, changes in
supply and demand and state and Federal regulatory policies. 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.
PSEG 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 and financial contracts. 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.
PSEG 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 over a one-week time horizon at March 31, 2000 was
approximately $8 million, compared to the December 31, 1999 level of $3 million.
PSEG'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.
Foreign Currencies--Energy Holdings
For discussion of foreign currency risks, see Note 5. Financial Instruments
and Risk Management of Notes.
<PAGE>
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) 1999 Annual Report on Form 10-K is updated below.
(1) Form 10-K, page 27. In the matter of G.E. Stricklin v. I. Lerner, et.al.,
Civil Action No. 99-1950, on March 29, 2000, the Third Circuit Court of
Appeals issued an order affirming the lower courts dismissal of this
action.
(2) Form 10-K, pages 5, 27, 33, 64 and 69. See Pages 9 and 17. Proceedings
before the BPU in the matter of the Energy Master Plan Phase II Proceeding
to investigate the future structure of the Electric Power Industry, Docket
Nos. EX94120585Y, EO97070462 and EO97070463.
(3) Form 10-K, pages 8, 27, 34 and 69. See Pages 9 and 17. Appeals of the BPUs
Final Order and Finance Order in the Energy Master Plan Proceedings.
(4) Form 10-K, pages 27 and 85. See Page 11. Investigation and additional
investigation by the U.S. Environmental Protection Agency (EPA) regarding
the Passaic River site.
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
PSEG's Annual Meeting of Stockholders was held on April 18, 2000. Proxies
for the meeting were solicited pursuant to Regulation 14A under the Securities
Act of 1934. There was no solicitation of proxies in opposition to management's
nominees as listed in the proxy statement and all of management's nominees were
elected to the Board of Directors. Details of the voting are provided below:
<TABLE>
<CAPTION>
Votes Votes
For Withheld
---------------- -----------------
<S> <C> <C>
Proposal 1 - Election of Directors
Class I - Term expiring 2003
Ernest H. Drew 173,431,000 4,464,737
E. James Ferland 173,367,655 4,528,082
Marilyn M. Pfaltz 173,376,996 4,518,741
Class II - Term Expiring 2001
Forrest J. Remick 173,380,142 4,515,595
Votes Votes
For Against Abstentions
---------------- ----------------- --------------
Proposal 2 - Ratification of the Appointment of
Deloitte & Touche LLP as Independent Auditors for 2000 175,602,560 819,101 1,474,076
</TABLE>
With respect to Proposal 2, abstentions are not counted in the vote totals and,
therefore, have no effect on the vote.
<PAGE>
ITEM 5. OTHER INFORMATION
Certain information reported under PSEG's and PSE&G's 1999 Annual Report to
the SEC is updated below. References are to the related pages on the Form 10-K
as printed and distributed.
Prevention of Significant Deterioration/New Source Review
New Matter. In April 2000, PSE&G received a request for information from
the EPA and the NJDEP pursuant to section 114 of the Clean Air Act seeking
information concerning its Hudson Generation Station and Mercer Generation
Station to assess those stations' compliance with the EPA's regulations for
Prevention of Significant Deterioration/New Source Review. Generally, these
regulations require major sources of criteria air pollutants to obtain permits,
install pollution control technology and obtain offsets in some circumstances
when those sources undergo a "major modification," as defined in the
regulations. PSE&G is collecting information responsive to the request and
cannot predict the outcome of the EPA/ NJDEP inquiry.
Service Company Filing
New Matter. On April 20, 2000, PSE&G filed a petition with the BPU, for
approval of centralizing corporate support services in a separate service
company named PSEG Services Corporation, a direct subsidiary of PSEG. The filing
specifically requests BPU approval of a) the transfer of assets/contracts from
PSE&G to PSEG Services Corporation and b) a service agreement between PSE&G and
PSEG Services Corporation.
PJM Interconnection LLC (PJM)
Form 10-K, page 12. Beginning on June 1, 2000 the PJM Energy Market will
transition from a Single Settlement System to a Two Settlement System. In the
Two Settlement System market participants will have the option to "lock in"
day-ahead scheduled quantities at prices based upon predicted day-ahead hourly
locational marginal price (LMP) values (Day Ahead Settlement). Actual demand
will be satisfied through a real time balancing market based upon real-time
hourly average LMP values. PJM advises that the Two Settlement System will
provide: (i) a means for market participants to obtain increased price
certainty; (ii) financial incentive for resources and demand to submit day-ahead
schedules that match their actual schedules; (iii) financial incentive for
generation to follow real-time dispatch. Management cannot predict the effect
that the implementation of the Two Settlement System in the PJM Energy Market
will have on Electric Energy Costs or the resulting effect on PSEG's or PSE&G's
financial condition, results of operations or net cash flows.
Metering, Billing and Account Services
Form 10-K, page 8. In accordance with the Energy Competition Act, the BPU
has initiated a proceeding to determine the timeline and extent to which
metering, billing and customer services may become competitive, along with the
specific functions and costs that must be considered when it evaluates the issue
of competition for these services. A decision is expected in August 2000. The
Company cannot predict the outcome of the proceeding.
Affiliate Standards
Form 10-K, page 9. On March 15, 2000, the BPU issued a written-order,
Affiliate Relations, Fair Competition and Accounting Standards and Related
Reporting Requirements (Affiliate Standards), as required by the Energy
Competition Act. As a result of these Affiliate Standards, PSE&G is required to
file a compliance plan, within 90 days of the issuance of the written order, to
describe the internal policy and procedures necessary to ensure compliance with
such Affiliate Standards. The BPU will subsequently conduct an audit of
utilities' competitive activities and compliance with such Affiliate Standards.
Management believes that the adoption of Affiliate Standards will not have a
material adverse effect on PSEG's or PSE&G's financial condition, results of
operations or net cash flows.
<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 Document
Number
--------------------------------------------------------
12 Computation of Ratios of Earnings to Fixed
Charges (PSEG)
27(A) Financial Data Schedule (PSEG)
PSE&G
---------------------------------------------------------
Exhibit Document
Number
---------------------------------------------------------
12(A) Computation of Ratios of Earnings to Fixed
Charges (PSE&G)
12(B) Computation of Ratios of Earnings to Fixed
27(B) Financial Data Schedule (PSE&G
(B) Reports on Form 8-K
None.
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: May 5, 2000
<TABLE>
<CAPTION>
EXHIBIT 12
- --------------------------------------------------------------------------------------------------------------------------
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
- --------------------------------------------------------------------------------------------------------------------------
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
12 Months
Ended
YEARS ENDED DECEMBER 31, March 31,
------------- ------------ ------------- ------------ ------------ -----------
1995 1996 1997 1998 1999 2000
------------- ------------ ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Earnings as Defined in Regulation
S-K (A):
Income from Continuing Operations (B) $627 $588 $560 $644 $723 $805
Income Taxes (C) 348 297 284 428 563 603
Fixed Charges 549 527 543 577 615 644
------------- ------------ ------------- ------------ ----------- -----------
Earnings $1,524 $1,412 $1,387 $1,649 $1,901 $2,052
============= ============ ============= ============ =========== ===========
Fixed Charges as Defined in Regulation
S-K (D):
Total Interest Expense (E) $464 $453 $470 $481 $506 $535
Interest Factor in Rentals 12 12 11 11 10 11
Subsidiaries' Preferred Securities
Dividend Requirements 16 28 44 71 85 86
Preferred Stock Dividends 34 22 12 9 9 8
Adjustment to Preferred Stock
Dividends to state on a pre-income
tax basis 23 12 6 5 5 4
------------- ------------ ------------- ------------ ----------- -----------
Total Fixed Charges $549 $527 $543 $577 $615 $644
============= ============ ============= ============ =========== ===========
Ratio of Earnings to Fixed Charges 2.78 2.68 2.55 2.86 3.09 3.19
============= ============ ============= ============ =========== ===========
<FN>
(A) The term "earnings" shall be defined as pretax income from continuing
operations. Add to pretax income the amount of fixed charges adjusted to
exclude (a) the amount of any interest capitalized during the period and
(b) the actual amount of any preferred stock dividend requirements of
majority-owned subsidiaries which were included in such fixed charges
amount but not deducted in the determination of pretax income.
(B) Excludes income from discontinued operations 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 pretax earnings requirements for Public Service Enterprise
Group Incorporated.
(E) Excludes interest expense from discontinued operations.
</FN>
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 12 (A)
- ----------------------------------------------------------------------------------------------------------------------------
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
- ----------------------------------------------------------------------------------------------------------------------------
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
12 Months
Ended
YEARS ENDED DECEMBER 31, March 31,
----------- ------------ ------------- ------------ ------------ ----------
1995 1996 1997 1998 1999 2000
----------- ------------ ------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Earnings as Defined in Regulation S-K (A):
Net Income (B) $617 $535 $528 $602 $653 $731
Income Taxes (C) 326 268 256 404 510 551
Fixed Charges 419 438 450 446 450 453
----------- ------------ ------------- ------------ ------------ -----------
Earnings $1,362 $1,241 $1,234 $1,452 $1,613 $1,735
=========== ============ ============= ============ ============ ===========
Fixed Charges as Defined in Regulation
S-K (D):
Total Interest Expense $407 $399 $395 $390 $394 $397
Interest Factor in Rentals 12 11 11 11 10 10
Subsidiaries' Preferred Securities
Dividend Requirements -- 28 44 45 46 46
----------- ------------ ------------- ------------ ------------ -----------
Total Fixed Charges $419 $438 $450 $446 $450 $453
=========== ============ ============= ============ ============ ===========
Ratio of Earnings to Fixed Charges 3.25 2.83 2.74 3.27 3.58 3.83
=========== ============ ============= ============ ============ ===========
<FN>
(A) The term "earnings" shall be defined as pretax income from continuing
operations. Add to pretax income the amount of fixed charges adjusted to
exclude (a) the amount of any interest capitalized during the period and
(b) the actual amount of any preferred stock dividend requirements of
majority-owned subsidiaries which were included in such fixed charges
amount but not deducted in the determination of pretax income.
(B) Excludes 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>
<TABLE>
<CAPTION>
EXHIBIT 12 (B)
- -----------------------------------------------------------------------------------------------------------------------------
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
- -----------------------------------------------------------------------------------------------------------------------------
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS
12 Months
Ended
YEARS ENDED DECEMBER 31, March 31,
------------ ------------- ------------ ------------ ------------- ------------
1995 1996 1997 1998 1999 2000
------------ ------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Earnings as Defined in Regulation S-K
Net Income (B) $617 $535 $528 $602 $653 $731
Income Taxes (C) 326 268 256 404 510 551
Fixed Charges 419 438 450 446 450 453
------------ ------------- ------------ ------------ ------------- ------------
Earnings $1,362 $1,241 $1,234 $1,452 $1,613 $1,735
============ ============= ============ ============ ============= ============
Fixed Charges as Defined in Regulation
S-K (D):
Total Interest Expense $407 $399 $395 $390 $394 $397
Interest Factor in Rentals 12 11 11 11 10 10
Subsidiaries' Preferred Securities
Dividend Requirements -- 28 44 45 46 46
Preferred Stock Dividends 49 23 12 9 9 8
Adjustment to Preferred Stock
Dividends to state on a pre-income
tax basis 24 12 6 6 7 6
------------ ------------- ------------ ------------ ------------- ------------
Total Fixed Charges $492 $473 $468 $461 $466 $467
============ ============= ============ ============ ============= ============
Ratio of Earnings to Fixed Charges 2.77 2.62 2.64 3.15 3.46 3.72
============ ============= ============ ============ ============= ============
<FN>
(A) The term "earnings" shall be defined as pretax income from continuing
operations. Add to pretax income the amount of fixed charges adjusted to
exclude (a) the amount of any interest capitalized during the period and
(b) the actual amount of any preferred stock dividend requirements of
majority-owned subsidiaries which were included in such fixed charges
amount but not deducted in the determination of pretax income.
(B) Excludes 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 pretax 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 6,888
<OTHER-PROPERTY-AND-INVEST> 4,976
<TOTAL-CURRENT-ASSETS> 1,848
<TOTAL-DEFERRED-CHARGES> 5,256
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 18,968
<COMMON> 3,007 <F1>
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 1,345
<TOTAL-COMMON-STOCKHOLDERS-EQ> 4,177 <F2>
1,113
95
<LONG-TERM-DEBT-NET> 4,901
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 1,202
<LONG-TERM-DEBT-CURRENT-PORT> 973
0
<CAPITAL-LEASE-OBLIGATIONS> 52
<LEASES-CURRENT> 2
<OTHER-ITEMS-CAPITAL-AND-LIAB> 6,453
<TOT-CAPITALIZATION-AND-LIAB> 18,968
<GROSS-OPERATING-REVENUE> 1,924
<INCOME-TAX-EXPENSE> 183 <F3>
<OTHER-OPERATING-EXPENSES> 1,321
<TOTAL-OPERATING-EXPENSES> 1,504
<OPERATING-INCOME-LOSS> 420
<OTHER-INCOME-NET> 11
<INCOME-BEFORE-INTEREST-EXPEN> 431
<TOTAL-INTEREST-EXPENSE> 161 <F4>
<NET-INCOME> 270
24
<EARNINGS-AVAILABLE-FOR-COMM> 270
<COMMON-STOCK-DIVIDENDS> 117
<TOTAL-INTEREST-ON-BONDS> 79
<CASH-FLOW-OPERATIONS> 767
<EPS-BASIC> 1.25
<EPS-DILUTED> 1.25
<FN>
<F1> Includes Treasury Stock of ($597).
<F2> Includes Foreign Currency Translation Adjustment of ($172).
<F3> Federal and State Income Taxes are included in this line item for
FDS purposes.
<F4> Total interest expense includes Preferred Securities Dividends
Requirements.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 6,888
<OTHER-PROPERTY-AND-INVEST> 860
<TOTAL-CURRENT-ASSETS> 1,507
<TOTAL-DEFERRED-CHARGES> 5,115
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 14,370
<COMMON> 2,563
<CAPITAL-SURPLUS-PAID-IN> 594
<RETAINED-EARNINGS> 628
<TOTAL-COMMON-STOCKHOLDERS-EQ> 3,782
588
95
<LONG-TERM-DEBT-NET> 3,100
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 905
<LONG-TERM-DEBT-CURRENT-PORT> 523
0
<CAPITAL-LEASE-OBLIGATIONS> 52
<LEASES-CURRENT> 2
<OTHER-ITEMS-CAPITAL-AND-LIAB> 5,323
<TOT-CAPITALIZATION-AND-LIAB> 14,370
<GROSS-OPERATING-REVENUE> 1,709
<INCOME-TAX-EXPENSE> 174 <F1>
<OTHER-OPERATING-EXPENSES> 1,187
<TOTAL-OPERATING-EXPENSES> 1,361
<OPERATING-INCOME-LOSS> 348
<OTHER-INCOME-NET> 10
<INCOME-BEFORE-INTEREST-EXPEN> 358
<TOTAL-INTEREST-EXPENSE> 108 <F2>
<NET-INCOME> 250
2
<EARNINGS-AVAILABLE-FOR-COMM> 248
<COMMON-STOCK-DIVIDENDS> 217
<TOTAL-INTEREST-ON-BONDS> 73
<CASH-FLOW-OPERATIONS> 852
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1> Federal and State Income Taxes are included in this line item for FDS
purposes.
<F2> Total interest expense includes Preferred Securities Dividend
Requirements.
</FN>
</TABLE>
