-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, pFcUGmhB+SBhdomcCp/P0p7domM1WciWBuZPaR4dtOzeqf7ZP5FsYMKdm9U40FOX UHuZ6aJNAIIC+vAobu2QOw== 0000788784-95-000002.txt : 19950224 0000788784-95-000002.hdr.sgml : 19950224 ACCESSION NUMBER: 0000788784-95-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950223 SROS: NYSE SROS: PHLX FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUBLIC SERVICE ENTERPRISE GROUP INC CENTRAL INDEX KEY: 0000788784 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 222625848 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09120 FILM NUMBER: 95514662 BUSINESS ADDRESS: STREET 1: 80 PARK PLZ STREET 2: P O BOX 1171 CITY: NEWARK STATE: NJ ZIP: 07101 BUSINESS PHONE: 2014307000 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUBLIC SERVICE ELECTRIC & GAS CO CENTRAL INDEX KEY: 0000081033 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 221212800 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-00973 FILM NUMBER: 95514663 BUSINESS ADDRESS: STREET 1: 80 PARK PLZ STREET 2: PO BOX 570 CITY: NEWARK STATE: NJ ZIP: 07101 BUSINESS PHONE: 2014307000 10-K 1 FORM 10-K PSE&G, PS ENTERPRISES - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 COMMISSION FILE NUMBER 1-9120 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED (Exact name of registrant as specified in its charter) NEW JERSEY 22-2625848 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 80 PARK PLAZA, P.O. BOX 1171 07101-1171 NEWARK, NEW JERSEY (Zip Code) (Address of principal executive offices) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 201 430-7000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - ---------------------------------------------- ---------------------------- Common Stock without par value New York Stock Exchange Philadelphia Stock Exchange COMMISSION FILE NUMBER 1-973 PUBLIC SERVICE ELECTRIC AND GAS COMPANY (Exact name of registrant as specified in its charter) NEW JERSEY 22-1212800 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 80 PARK PLAZA, P.O. BOX 570 07101-0570 NEWARK, NEW JERSEY (Zip Code) (Address of principal executive offices) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 201 430-7000 DOCUMENTS INCORPORATED BY REFERENCE PART OF FORM 10-K DOCUMENTS INCORPORATED BY REFERENCE - ----------------- ----------------------------------- III Portions of the definitive Proxy Statement for the Annual Meeting of Stockholders of Public Service Enterprise Group Incorporated to be held April 18, 1995, which definitive Proxy Statement is expected to be filed with the Securities and Exchange Commission on or about March 1, 1995, as specified herein. - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS TITLE OF EACH CLASS WHICH REGISTERED ------------------- -------------------- ------------------------ Cumulative Preferred Stock First and Refunding $100 par value Series: Mortgage Bonds Series Due: 4.08% 8 3/4% Z 1999 4.18% 9 3/4% AA 2020 4.30% 9 1/8% BB 2005 5.05% 9 1/4% CC 2021 5.28% 8 7/8% DD 2003 5.97% 8 3/4% EE 2021 6.80% 7 7/8% FF 2001 7.40% 7 1/8% GG 1997 7.44% 8 3/4% HH 2022 7.52% 7 5/8% II 2000 7.70% 6 % JJ 1995 6 7/8% KK 1997 New York Stock Exchange 8 1/2% LL 2022 6 7/8% MM 2003 6 % NN 1998 Cumulative Preferred Stock 7 1/2% OO 2023 $25 par Series: 6 1/2% PP 2004 6 % QQ 2000 6.75% 6 1/8% RR 2002 7 % SS 2024 7 3/8% TT 2014 6 3/4% UU 2006 8 % 2037 5 % 2037 Monthly Income Preferred Securities
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: REGISTRANT TITLE OF CLASS ------------------------------------- ------------------------------------- Public Service Enterprise Group None Incorporated Public Service Electric and Gas 6.92% Cumulative Preferred Stock $100 Company par value Medium-Term Notes, Series A Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No . ----- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X ----- The aggregate market value of the Common Stock of Public Service Enterprise Group Incorporated held by non-affiliates as of January 31, 1995 was $7,031,387,787 based upon the New York Stock Exchange Composite Transaction closing price. The number of shares outstanding of Enterprise's sole class of common stock, as of the latest practicable date, was as follows: CLASS OUTSTANDING AT JANUARY 31, 1995 ------------------------------- ------------------------------- Common Stock, without par value 244,697,930 As of January 31, 1995, 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 (Enterprise).
TABLE OF CONTENTS
PAGE ---- Table of Contents................................................... i Glossary of Terms................................................... v PART I Item 1. Business............................................. 1 General.............................................. 1 Enterprise......................................... 1 PSE&G.............................................. 2 Industry Issues...................................... 3 Competition.......................................... 3 Overview........................................... 3 Electric........................................... 4 Gas................................................ 5 Construction and Capital Requirements................ 6 PSE&G.............................................. 6 EDHI............................................... 7 Financing Activities................................. 7 Federal Income Taxes................................. 8 Credit Ratings....................................... 8 PSE&G................................................ 9 Rate Matters....................................... 9 Nuclear Performance Standard....................... 9 Customers.......................................... 10 Integrated Resource Plan........................... 11 Pennsylvania -- New Jersey -- Maryland Interconnection................................ 11 Power Purchases.................................. 11 Demand Side Management........................... 12 Electric Generating Capacity....................... 13 Nuclear Operations................................. 14 Salem............................................ 14 Hope Creek....................................... 16 Peach Bottom..................................... 16 Other Nuclear Matters............................ 17 Electric Fuel Supply and Disposal.................. 18 Nuclear Fuel..................................... 19 Coal............................................. 20 Natural Gas...................................... 20 Oil.............................................. 20 Nuclear Fuel Disposal............................ 21 Low Level Radioactive Waste (LLRW)............... 22 Gas Operations and Supply.......................... 23
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PAGE ---- Employee Relations................................... 25 Regulation........................................... 25 Environmental Controls............................... 28 Air Pollution Control.............................. 29 Water Pollution Control............................ 31 Control of Hazardous Substances.................... 34 Financial Statistics of Enterprise................... 42 Operating Statistics of PSE&G........................ 43 EDHI................................................. 44 EDC................................................ 44 CEA................................................ 44 PSRC............................................... 45 EGDC............................................... 46 Capital............................................ 46 Funding............................................ 46 Item 2. Properties........................................... 47 PSE&G.............................................. 47 Electric Properties.............................. 48 Gas Properties................................... 49 Office Buildings and Facilities.................... 50 Item 3. Legal Proceedings.................................... 51 Item 4. Submission of Matters to a Vote of Security Holders............................................ 52 Item 10. Executive Officers of the Registrants................ 52 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................................ 53 Item 6. Selected Financial Data............................. 55 Enterprise........................................ 55 PSE&G............................................. 55 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............... 56 Enterprise.......................................... 56 Overview.......................................... 56 PSE&G Energy and Fuel Adjustment Clauses.......... 57 Competition....................................... 57 Enterprise Earnings............................... 59 PSE&G........................................... 60 EDHI............................................ 60 Dividends......................................... 61
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PAGE ---- Revenues.......................................... 62 PSE&G Electric................................ 62 PSE&G Gas..................................... 63 EDHI.......................................... 65 Electric Energy Costs............................. 66 Gas Supply Costs.................................. 66 Liquidity and Capital Resources................... 68 PSE&G........................................... 68 EDHI............................................ 68 Long-Term Investments and Real Estate........... 63 Construction, Investments and Other Capital Requirements Forecast......................... 70 Internal Generation of Cash from Operations..... 71 External Financings............................. 71 PSE&G............................................... 75 Gas Supply Costs.................................. 75 Liquidity and Capital Resources................... 76 Internal Generation of Cash from Operations..... 76 Item 8. Financial Statements and Supplementary Data......... 77 Financial Statement Responsibility (Enterprise)... 77 Financial Statement Responsibility (PSE&G)........ 79 Independent Auditors' Report (Enterprise)......... 81 Independent Auditors' Report (PSE&G).............. 82 Consolidated Statements of Income (Enterprise).... 83 Consolidated Balance Sheets (Enterprise).......... 84 Consolidated Statements of Cash Flows (Enterprise) 86 Consolidated Statements of Retained Earnings (Enterprise).................................... 87 Consolidated Statements of Income (PSE&G)......... 88 Consolidated Balance Sheets (PSE&G)............... 89 Consolidated Statements of Cash Flows (PSE&G)..... 91 Consolidated Statements of Retained Earnings (PSE&G).......................................... 92 Notes to Consolidated Financial Statements (Enterprise)..................................... 93 Notes to Consolidated Financial Statements (PSE&G). 132
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PAGE ---- PART III Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................ 136 Item 10. Directors and Executive Officers of the Registrants.. 136 Directors of the Registrants....................... 136 Enterprise....................................... 136 PSE&G............................................ 136 Executive Officers of the Registrants................ 137 Item 11. Executive Compensation............................... 139 Enterprise......................................... 139 PSE&G.............................................. 139 Summary Compensation Table....................... 140 Option Grants in Last Fiscal Year (1994)......... 141 Aggregated Option Exercises in Last Fiscal Year (1994) and Fiscal Year-End Option Values (12/31/94).............................. 141 Employment Contracts and Arrangements............ 142 Compensation Committee Interlocks and Insider Participation.................................. 142 Compensation of Directors and Certain Business Relationships.................................. 142 Compensation Pursuant to Pension Plans........... 143 Item 12. Security Ownership of Certain Beneficial Owners and Management......................................... 144 Enterprise......................................... 144 PSE&G.............................................. 144 Item 13. Certain Relationships and Related Transactions....... 145 Enterprise......................................... 145 PSE&G.............................................. 145 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................................ 146 Schedule VIII -- Valuation and Qualifying Accounts (Enterprise)... 149 Schedule VIII -- Valuation and Qualifying Accounts (PSE&G)........ 150 Signatures -- Public Service Enterprise Group Incorporated..... 151 Signatures -- Public Service Electric and Gas Company.......... 152 Exhibit Index..................................................... 153 Enterprise........................................................ 154 PSE&G............................................................. 160
iv GLOSSARY OF TERMS The following is a glossary of frequently used abbreviations or acronyms that are found in this report:
TERM MEANING ----------------------- ---------------------------------------------- ACO.................... Administrative Consent Order AFDC................... Allowance for Funds used During Construction AMT.................... Alternative Minimum Tax BCFE................... Billion Cubic Feet Equivalent Bonds.................. First and Refunding Mortgage Bonds BPU.................... New Jersey Board of Public Utilities BTA.................... Best Technology Available BWA.................... Boiling Water Reactor CAA.................... Federal Clean Air Act Capital................ PSEG Capital Corporation CEA.................... Community Energy Alternatives Incorporated CEA USA................ CEA USA, Inc. CEA New Jersey......... CEA New Jersey, Inc. CERCLA................. Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 Certificate............ Certificate of Need under the NJNAA CORP................... New Jersey Commission on Radiation Protection DGW.................... Discharge to Ground Water DOE.................... United States Department of Energy DRIP................... Enterprise's Dividend Reinvestment and Stock Purchase Plan DSM.................... Demand Side Management DSM Plan............... DSM Incentive Resource Plan DSW.................... Discharge to Surface Water EBIT................... Earnings before interest and taxes ECRA................... New Jersey Environmental Cleanup Responsibility Act EDC.................... Energy Development Corporation EDHI................... Enterprise Diversified Holdings Incorporated EGDC................... Enterprise Group Development Corporation EITF................... FASB's Emerging Issues Task Force EMF.................... Electric and Magnetic Fields Enterprise............. Public Service Enterprise Group Incorporated EPA.................... United States Environmental Protection Agency
v
TERM MEANING ---------------------- -------------------------------------------------- EWGs................... Exempt Wholesale Generators FASB................... Financial Accounting Standards Board Fault Act.............. New Jersey Public Utility Accident Fault Determination Act FERC................... Federal Energy Regulatory Commission Fuelco................. PSE&G Fuel Corporation Funding................ Enterprise Capital Funding Corporation FWPCA.................. Federal Water Pollution Control Act GE..................... General Electric GEMS................... Gloucester Environmental Management Services, Inc. Hope Creek............. Hope Creek Nuclear Generating Station IEPNJ.................. Independent Energy Producers of New Jersey IPP.................... Independent Power Producers IRP.................... Integrated Resource Plan IRS.................... Internal Revenue Service KWH.................... Kilowatthours LEAC................... Electric Levelized Energy Adjustment Clause LGAC................... Levelized Gas Adjustment Charge LLRW................... Low Level Radioactive Waste LLRWPA................. Low Level Radioactive Waste Policy Act, as amended LNG.................... Liquefied Natural Gas LPG.................... Liquid Petroleum Air Gas LTIP................... Long-Term Incentive Plan MD&A................... Management's Discussion and Analysis of Financial Condition and Results of Operations MICP................... Management Incentive Compensation Plan MIPS................... Monthly Income Preferred Securities Mortgage............... First and Refunding Mortgage of PSE&G MTNs................... Medium-Term Notes MW..................... Megawatts MWH.................... Megawatthours NAAQS.................. National Ambient Air Quality Standards NEIL................... Nuclear Electric Insurance Limited NEPA................... National Energy Policy Act of 1992 NJAPCC................. New Jersey Air Pollution Control Code NJDEP.................. New Jersey Department of Environmental Protection NJEDA.................. New Jersey Economic Development Authority NJGRT.................. New Jersey Gross Receipts and Franchise Tax NJNAA.................. New Jersey Need Assessment Act
vi
TERM MEANING ----------------------- -------------------------------------------------- NJPDES................. New Jersey Pollution Discharge Elimination System NJWPCA................. New Jersey Water Pollution Control Act NOC.................... Nuclear Oversight Committee NOx.................... Nitrogen Oxides NPDES.................. National Pollutant Discharge Elimination System NPS.................... The BPU's nuclear performance standard established for nuclear generating stations owned by New Jersey electric utilities NRC.................... Nuclear Regulatory Commission NUGs................... Nonutility Generators NWPA................... Nuclear Waste Policy Act of 1982, as amended OAL.................... Office of Administrative Law of the State of New Jersey OPEB................... Other Postretirement Benefits Partnership............ Public Service Electric and Gas Capital, L.P. Peach Bottom........... Peach Bottom Atomic Power Station, Units 2 and 3 PECO................... PECO Energy Inc. Penelec................ Pennsylvania Electric Company PJM.................... Pennsylvania -- New Jersey -- Maryland Interconnection PJP.................... PJP Landfill in Jersey City, New Jersey PPUC................... Pennsylvania Public Utility Commission Price Anderson......... Price-Anderson liability provisions of the Atomic Energy Act of 1954, as amended PRPs................... Potentially Responsible Parties PSE&G.................. Public Service Electric and Gas Company PSCRC.................. Public Service Conservation Resources Corporation PSRC................... Public Service Resources Corporation PUHCA.................. Public Utility Holding Company Act of 1935 PURPA.................. Public Utility Regulatory Policies Act of 1978 QFs.................... Qualifying Facilities RAC.................... Remediation Adjustment Charge RACT................... Reasonable Available Control Technologies RAR.................... Revenue Agent's Report RCRA................... Federal Resource Conservation and Recovery Act of 1976
vii
TERM MEANING ----------------------- -------------------------------------------------- Remediation Program.... PSE&G Gas Plant Remediation Program RI/FS.................. Remedial Investigation and Feasibility Study ROD.................... Record of Decision Salem.................. Salem Nuclear Generating Station, Units 1 and 2 SALP................... Systematic Assessment of Licensee Performance SEC.................... Securities and Exchange Commission SFAS 71................ Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" SFAS 106............... Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions" SFAS 107............... Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments" SFAS 109............... Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" SNG Plant.............. Synthetic Natural Gas Plant 636 Orders............. Orders No. 636 and No. 636-A of FERC Spill Act.............. New Jersey Spill Compensation and Control Act USDOT.................. United States Department of Transportation USEC................... United States Enrichment Corporation USEP................... U.S. Energy Partners
viii PART I ITEM 1. BUSINESS. General Enterprise Public Service Enterprise Group Incorporated (Enterprise), incorporated under the laws of the State of New Jersey with its principal executive offices located at 80 Park Plaza, Newark, New Jersey 07101, is a public utility holding company that neither owns nor operates any physical properties. Enterprise has two direct wholly-owned subsidiaries, Public Service Electric and Gas Company (PSE&G) and Enterprise Diversified Holdings Incorporated (EDHI). Enterprise's principal subsidiary, PSE&G, is an operating public utility providing electric and gas service in certain areas in the State of New Jersey. Enterprise has claimed an exemption from regulation by the Securities and Exchange Commission (SEC) as a registered holding company under the Public Utility Holding Company Act of 1935 (PUHCA), except for Section 9(a)(2) thereof which relates to the acquisition of voting securities of an electric or gas utility company. PSE&G is subject to direct regulation by the New Jersey Board of Public Utilities (BPU) and the Federal Energy Regulatory Commission (FERC). EDHI is the parent of Enterprise's nonutility businesses: Energy Development Corporation (EDC), an oil and gas exploration and production and marketing company; Community Energy Alternatives Incorporated (CEA), an investor in and developer of cogeneration and independent power production facilities; Public Service Resources Corporation (PSRC), which has made primarily passive investments; Enterprise Group Development Corporation (EGDC), a diversified nonresidential real estate development and investment business; PSEG Capital Corporation (Capital), which has provided up to $750 million debt financing on the basis of a minimum net worth maintenance agreement from Enterprise; and Enterprise Capital Funding Corporation (Funding), which provides privately placed debt financing on the basis of the consolidated financial position of EDHI without direct support from Enterprise. As of December 31, 1994 and December 31, 1993, respectively, PSE&G comprised 85% and 86% of Enterprise's assets. PSE&G's 1994, 1993 and 1992 revenues were 93% of Enterprise's revenues and PSE&G's earnings available to Enterprise for such years were 91%, 96% and 88%, respectively, of Enterprise's net income. Electric and gas production and distribution will continue as the principal business of Enterprise for the foreseeable future. Financial information with respect to business segments of PSE&G and Enterprise is set forth in Note 15 -- Financial Information by Business Segments of Notes to Consolidated Financial Statements. PSE&G PSE&G, a New Jersey corporation with its principal executive offices at 80 Park Plaza, Newark, New Jersey 07101, is an operating public utility company engaged principally in the generation, transmission, distribution and sale of electric energy service and in the production, transmission, distribution and sale of gas service in New Jersey. PSE&G supplies electric and gas service in areas of New Jersey in which approximately 5,500,000 persons, about 70% of the State's population, reside. (See General -- Enterprise.) PSE&G's electric and gas service area is a corridor of approximately 2,600 square miles running diagonally across New Jersey from Bergen County in the northeast to an area below the City of Camden in the southwest. The greater portion of this area is served with both electricity and gas, but some parts are served with electricity only and other parts with gas only. This heavily populated, commercialized and industrialized territory encompasses most of New Jersey's largest municipalities, including its six largest cities -- Newark, Jersey City, Paterson, Elizabeth, Trenton and Camden -- in addition to approximately 300 suburban and rural communities. It contains a diversified mix of commerce and industry, including major facilities of many corporations of national prominence. Under the general laws of New Jersey, PSE&G has the right to use the public highways, streets and alleys in New Jersey for erecting, laying and maintaining poles, conduits and wires necessary for its electric operations. PSE&G must, however, first obtain the consent in writing of the owners of the soil for the purpose of erecting poles. In incorporated cities and towns, PSE&G must obtain from the municipality a designation of the streets in which the poles are to be placed and the manner of placing them. PSE&G's rights are also subject to regulation by municipal authorities with respect to street openings and the use of streets for erecting poles in incorporated cities and towns. PSE&G, by virtue of a special charter granted by the State of New Jersey to one of its predecessors, has the right to use the roads, streets, highways and public grounds in New Jersey for pipes and conduits for distributing gas. PSE&G believes that it has all the franchises (including consents) necessary for its electric and gas operations in the territory it serves. Such franchises are non-exclusive. For discussion of the significant changes which PSE&G's electric and gas utility businesses have been and are undergoing, see Competition and Regulation. Industry Issues Enterprise and PSE&G are affected by many issues that are common to the electric and gas industries, such as: an increasingly competitive energy marketplace, sales retention and growth potential in a mature service territory and need to contain costs (see Regulation and Competition); deregulation and the unbundling of energy supplies and services (see Competition); ability to obtain adequate and timely rate relief, cost recovery, and other necessary regulatory approvals (see PSE&G -- Rate Matters; Regulation and Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) - Competition); costs of construction (see Construction and Capital Requirements); operating restrictions, increased costs and construction delays attributable to environmental regulations (see Environmental Controls); controversies regarding electric and magnetic fields (EMF) (see Environmental Controls); nuclear decommissioning and the availability of reprocessing and storage facilities for spent nuclear fuel (see Electric Fuel Supply and Disposal); and credit market concerns with these issues. Competition Overview The energy utility industry is in transition. Changes in Federal law and regulation are encouraging new entrants to the traditional markets of electric and gas utilities. New technologies are creating opportunities for new energy services. Customers, more aware and sophisticated about their choices and dissatisfied with the often limited range of options available from the local utility, are increasingly turning elsewhere for energy supplies and services. Competition has arrived and, as a consequence, the traditional utility structure -- consisting of a vertically integrated system and functioning as a natural monopoly -- is being dramatically altered. Further, PSE&G's ability to meet competition and shift costs among customer categories is impacted by State regulation, including the historic utility mandate to serve all customers. (See MD&A -- Competition.) Federal energy laws and regulations are designed to make more efficient use of all energy, introduce price competition and encourage the use of nonconventional energy sources and to limit oil imports by increasing production of domestic energy resources. Among other things, these actions (1) encourage development of alternative energy generation, (2) require wheeling of power for wholesale transactions, (3) require state regulatory authorities to consider certain standards on rate design and certain other utility practices, (4) encourage conservation of energy through certain financial incentives, including incentives by individual utilities to customers to help them to conserve energy and (5) deregulate prices on natural gas. Also, Federal and State laws designed to reduce air and water pollution and control hazardous substances have had the effect of increasing the costs of operation and replacement of existing utility plants. (See Environmental Controls.) Competition from nonutility generators (NUGs), such as cogenerators,independent power producers (IPP) and exempt wholesale generators (EWGs), as permitted by the Public Utility Regulatory Policies Act of 1978 (PURPA) and the National Energy Policy Act of 1992 (NEPA), continues to impact upon PSE&G. As a result of changes brought about by NEPA, along with proposals in some states to authorize retail wheeling, discussed below, electric customers and suppliers, including PSE&G and its customers, have increased opportunities for purchase and sale of electricity from and to sellers and buyers outside of traditional franchised territories. Retention of existing customers and potential sales growth will depend upon the ability of PSE&G to contain costs, meet customer expectations and respond to changing economic conditions and energy regulation. As a result of such competitive forces, Enterprise announced a corporate reorganization on February 22, 1995, effective March 1, 1995, that includes the creation of a new ventures and services corporation ("Ventures") as a subsidiary of PSE&G to develop and market new energy-related products and services and the establishment of three new separate business units: fossil generation; electric and gas transmission and distribution; and customer services. Previously in the Fall of 1994, PSE&G reorganized its nuclear operations as a business unit, (see Nuclear Operations). Ventures is expected to be the foundation for new businesses through the development of energy-related products and services that may be marketed beyond traditional boundries. It will include such existing businesses as Public Service Conservation Resources Corporation (PSCRC) offering demand side management (DSM) services (see PSE&G Demand Side Management) and U.S. Energy Partners (USEP) a natural gas marketing company (see EDHI -- PSRC). (See PSE&G -- Customers and MD&A -- Competition.) Competition may also adversely impact upon the economics of certain regulatory-created incentives, such DSM and conservation. For additional information, including a discussion of the potential effects of competition upon rates, cost recovery and assets, see MD&A -- Competition. Electric In the electric utility industry, competitive pressures began with the enactment of PURPA. This law, together with subsequent changes in Federal regulation, has increasingly opened the electric utility industry to competition. PURPA created a class of generating facilities exempt from federal and state public utility regulation -- cogeneration and small power producers known as "qualifying facilities" (QFs) -- and created an instant market for them by requiring regulated utilities to purchase their excess power production. NEPA, by facilitating the development of the wholesale power market, has lead to even stronger competition. The increasing competitiveness of the electric wholesale markets, along with consideration of retail wheeling or "direct retail access" within utility franchise areas in several states, but not New Jersey to date, has brought to the forefront the issue of potential stranded costs within the electric utility industry (see MD&A - Competition). NEPA provides FERC with increased authority to order "wheeling" of wholesale, but not retail, electric power on the transmission systems of electric utilities, provided that certain requirements are met. In order to facilitate the transition to increased competition in wholesale power markets made possible by NEPA, FERC has, in a Notice of Inquiry, requested comments on a wide array of policy and legal questions related to wholesale transmission pricing, alternative power pooling institutions and stranded costs. NEPA also amended PUHCA to permit EWGs, which are not subject to PUHCA regulation. NEPA permits both independent companies and utility affiliates to participate in the development of EWGs' projects regardless of the location and ownership of other generating resources. The transmission access provisions apply to wholesale, but not retail, "wheeling" of power, subject to FERC review. See PSE&G -- Integrated Resource Plan, Construction and Capital Requirements, Financing Activities and PSE&G -- Customers. For information concerning the activities of CEA, which is an owner-developer of QFs and EWGs, see EDHI -- CEA. Another key factor in determining how competition will affect PSE&G's electric business is the extent to which New Jersey public utility regulation may be modified to be reflective of these new competitive realities. The BPU in November 1994 issued the first phase of a draft revised Energy Master Plan. The revised Energy Master Plan acknowledges the need for regulatory flexibility that is responsive to the competitive realities of today's energy marketplace and the competitive pressures being experienced by energy customers in New Jersey. The revised Energy Master Plan calls for legislation that would allow PSE&G and other New Jersey utilities to propose, subject to BPU approval, alternatives to existing rate base/rate-of-return pricing and allow for pricing flexibility under certain standards for customers with competitive options and for the equalization of the impact of tax policy upon energy producers (see PSE&G -- Customers). The revised Energy Master Plan also calls for integrated resource planning and a competitive supply procurement process for electric utilities as measures that would accommodate competition and support the State's environmental and energy conservation goals. Repeal of the Certificate of Need (Certificate) process for new electric capacity also is recommended (see Regulation). PSE&G is in agreement with the essential elements of this first phase of the revised Energy Master Plan and is encouraged that the plan acknowledges the need for legislation that would provide much needed regulatory flexibility in meeting the needs of customers and New Jersey's economy. PSE&G has supported such legislation in the past and will review the precise terms and conditions of any proposed legislation. The BPU is expected to begin consideration of a second phase of the revised Energy Master Plan during the second quarter of 1995. This second phase is expected to address the future structure of the utility industry, including retail wheeling and wholesale competition. PSE&G intends to actively participate in the public debate concerning the revised Energy Master Plan. PSE&G cannot predict the impact of any regulatory or legislative changes which might ultimately be adopted. Gas Competition in the natural gas industry was dramatically accelerated with the issuance by FERC of its Order Nos. 636 and 636-A (636 Orders) which transformed it from an industry driven by regulation to one driven by competitive market forces. The principal effect of the 636 Orders has been to cause interstate natural gas pipelines to reconfigure their services so that services provided to third-party shippers are now fully comparable to the services that pipelines had historically provided in their role as gas merchants. To this end, the 636 Orders required the unbundling of interstate pipeline services (i.e., transportation service and sales service bundled together for one price) in order to develop a more competitive interstate natural gas industry. While unbundling of services provides PSE&G and certain of its customers with greater access to lower cost gas supplies, it also results in pipeline transition costs being borne by pipeline ratepayers and their customers. Although each pipeline has completed the restructuring of its services in order to comply with the 636 Orders, numerous parties have appealed the 636 Orders to the U.S. Court of Appeals for the Eleventh Circuit and for the D.C. Circuit. PSE&G has been granted status as an intervenor in these appeals, which remain pending. However, the appeals have not had the effect of staying the 636 Orders. In November 1993, the BPU adopted a proposal for the unbundling of traditional services provided by the local gas distribution companies, such as PSE&G, within the State of New Jersey in order to promote unrestricted access to natural gas and related services in New Jersey for all customer classes except the residential end user. On November 30, 1994, the BPU approved PSE&G's proposed new rate schedules, effective December 1, 1994, to implement the BPU guidelines on unbundled gas services. This will enable PSE&G's industrial and commercial gas customers, who represent about half of PSE&G's sales volumes, to participate in the competitive market. The transportation rate schedules produce the same non-fuel revenue per therm as the customers' existing sales service rate schedules. Thus, PSE&G's earnings are unaffected whether the customers remain on sales service or convert to transportation service. PSE&G cannot predict how its gas business may be affected in the future should additional modifications to the New Jersey public utility regulations be made. (See Note 2 - Rate Matters of Notes to Consolidated Financial Statements.) Construction and Capital Requirements PSE&G PSE&G has substantial commitments as part of its ongoing construction program which includes capital requirements for nuclear fuel. PSE&G's construction program is continuously reviewed and periodically revised as a result of changes in economic conditions, revised load forecasts, changes in the scheduled retirement dates of existing facilities, changes in business plans, site changes, cost escalations under construction contracts, requirements of regulatory authorities and laws, the timing of and amount of electric and gas rate changes and the ability of PSE&G to raise necessary capital. Based on PSE&G's current IRP and construction program, construction expenditures are expected to aggregate approximately $3.2 billion during the years 1995 through 1999, including $484 million for nuclear fuel and $78 million of allowance for funds used during construction (AFDC). For additional information, see MD&A -- Liquidity and Capital Resources and Note 12 -- Commitments and Contingent Liabilities -- Construction and Fuel Supplies of Notes to Consolidated Financial Statements. PSE&G's estimate of its electric construction expenditures, including AFDC, for the years 1995 through 1999, described above, recognizes the current and planned results of PSE&G's Demand Side Management (DSM) Incentive Resource Plan (DSM Plan) which is designed to reduce the rate of growth in its electric system peak demand and improve system load factor without restricting the continued economic development of PSE&G's service area. PSE&G's DSM Plan includes rebates for high efficiency appliances and heating equipment, audits, loans, seal-ups and for larger customers, an overall standard offer for eligible DSM end-users. PSE&G's 1994 IRP includes a demand forecast average compound annual rate of growth through the year 2004 of electric system peak demand of 0.6%. Aggressive conservation and load management efforts are expected to reduce the system peak by 843 Megawatts (MW) by 1998. By the year 2004, 1,412 MW are expected to be saved through these programs. It is important to note that, through its "Standard Offer" program, PSE&G only pays for its verified, audited conservation (see PSE&G -- Integrated Resource Plan). PSE&G's construction program focuses on upgrading electric and gas transmission and distribution systems and constructing new transmission and distribution facilities to serve new load. Gross additions to PSE&G's utility plant during the three-year period ended December 31, 1994 amounted to approximately $2.5 billion, including $92 million of AFDC. EDHI As of December 31, 1994 and 1993, EDHI's long-term investments aggregated $1.6 billion and $1.5 billion, respectively. Its property, plant and equipment (net of accumulated depreciation and amortization and valuation allowances) aggregated $.7 billion and $.6 billion, respectively. As of December 31, 1994 and December 31, 1993, respectively, EDHI comprised 15% and 14% of Enterprise's assets. Enterprise has an agreement in place with the BPU that it will not permit its investments in EDHI, as defined in the agreement, to exceed 20% of its consolidated assets without prior notice to the BPU and that debt supported by a minimum net worth maintenance agreement (see EDHI -- Capital) between Enterprise and Capital will be limited to $750 million, with a good faith effort to eliminate such support over a six-to-ten-year period from April 1993. Effective January 31, 1995, the maximum amount of Capital debt that may be outstanding was reduced to $650 million. As of December 31, 1994, Capital's long-term and short-term portion of long-term debt was $478 million and $154 million, respectively. (See Regulation and MD&A -- Liquidity and Capital Resources.) For further discussion of capital requirements, investments and internal generation of cash from operations, see MD&A -- Liquidity and Capital Resources, and Note 7 -- Long-Term Investments, of Notes to Consolidated Financial Statements. For a discussion of sinking fund payments and maturities through 1999, see Note 6 -- Schedule of Consolidated Debt of Notes to Consolidated Financial Statements. Financing Activities For a discussion of issuance, book value and market value of Enterprise's Common Stock and external financing activities of Enterprise, PSE&G and EDHI for the year 1994, see MD&A -- Liquidity and Capital Resources and Item 5. - Market for Registrant's Common Equity and Related Stockholder Matters. Enterprise's Common Stock is listed on the New York and Philadelphia Stock Exchanges. For a discussion of Capital and Funding, see EDHI -- Capital and EDHI - Funding. For further discussion of long-term debt and short-term debt, see Note 6 -- Schedule of Consolidated Debt of Notes to Consolidated Financial Statements. Federal Income Taxes For information regarding Federal income taxes, see Note 1 -- Organization and Summary of Significant Accounting Policies, Note 2 -- Rate Matters and Note 10 -- Federal Income Taxes of Notes to Consolidated Financial Statements. Credit Ratings The current ratings of securities of Enterprise's subsidiaries set forth below reflect the respective views of the rating agency furnishing the same, from whom an explanation of the significance of such ratings may be obtained. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by such rating agencies, if, in their respective judgments, circumstances so warrant. Any such downward revision or withdrawal of such ratings, or any of them, may have an adverse effect on the market price of Enterprise's Common Stock and PSE&G's securities and serve to increase the cost of capital of PSE&G and EDHI.
STANDARD DUFF PSE&G MOODY'S & POOR'S & PHELPS FITCH - ----- ------- -------- -------- ----- Mortgage Bonds............... A2 A- A A- Debenture Bonds.............. A3 BBB+ A- BBB+ Preferred Stock.............. A3 BBB+ A- BBB+ Commercial Paper............. P1 A2 Duff 1 Fuelco: Commercial Paper..... P1 A2 Duff 1 As a component of the ratings noted above, each rating agency issues its opinion of the credit trend or outlook for the entity being rated. For PSE&G, these opinions are as follows: Moody's -- negative; Standard & Poor's -- stable; Duff & Phelps -- stable; and Fitch -- stable. EDHI - ---- Capital: Senior Debt......... Baa2 BBB BBB+ Funding: Commercial Paper(A). P1 A1+ Duff 1+
(A) Supported by commercial bank letter of credit (see MD&A -- Liquidity and Capital Resources and Note 6-- Schedule of Consolidated Debt -- Short-Term of Notes to Consolidated Financial Statements.) PSE&G Rate Matters For information concerning PSE&G's rate matters, see Note 2 -- Rate Matters of Notes to Consolidated Financial Statements. For information concerning PSE&G's Energy Remediation and Fuel Adjustment Clauses, see MD&A. For information concerning PSE&G's Under (Over) recovered Electric Energy and Gas Fuel Costs, see Note 5 -- Deferred Items of Notes to Consolidated Financial Statements. For a discussion of the repowering of Bergen Generating Station, see Note 12 -- Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements. Nuclear Performance Standard The BPU has established a nuclear performance standard (NPS) for nuclear generating stations owned by New Jersey electric utilities, including the five nuclear units in which PSE&G has an ownership interest: Salem Nuclear Generating Station, Units 1 and 2 (Salem 1 and 2) -- 42.59%; Hope Creek Nuclear Generating Station (Hope Creek) -- 95%; and Peach Bottom Atomic Power Station, Units 2 and 3 (Peach Bottom 2 and 3) -- 42.49%. PSE&G operates Salem and Hope Creek, while Peach Bottom is operated by PECO Energy, Inc. (PECO). The following table sets forth the capacity factor in accordance with the NPS of each of PSE&G's nuclear units for the years indicated:
NUCLEAR UNITS 1994 1993 1992 - -------------- ---- ---- ---- Capacity Factors: Salem 1...................................... 59% 60% 54% Salem 2...................................... 58 57 49 Hope Creek................................... 77 95 76 Peach Bottom 2............................... 80 84 61 Peach Bottom 3............................... 98 70 80 Aggregate capacity factor of nuclear units... 74 77 66
For information concerning such NPS, see Note 12 -- Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements. Customers As of December 31, 1994, PSE&G provided service to approximately 1,900,000 electric customers and 1,500,000 gas customers. PSE&G is not dependent on a single customer or a few customers for its electric or gas sales. For the year ended December 31, 1994, PSE&G's operating revenues aggregated $5.5 billion, of which 68% was from its electric operations and 32% from its gas operations. These revenues were derived as follows:
Revenues ------------------ Electric Gas --------- ------ (Millions of Dollars) Residential........................................ $1,187 $ 890 Commercial......................................... 1,735 511 Industrial......................................... 693 312 Transportation Service - Gas....................... -- 35 Other.............................................. 118 31 ------ ------ Total........................................... $3,733 $1,779 ====== ======
Customers of PSE&G, as well as those of other New Jersey electric and gas utilities, pay New Jersey Gross Receipts and Franchise Tax (NJGRT) which, in effect, adds approximately 13% to their bills. The NJGRT is a unit tax based on electric kilowatthour and gas therm sales. This tax differential provides an incentive to large-volume electric and gas customers to seek to obtain their energy supplies from nonutility sources not subject to NJGRT. To the extent this occurs, it could result in a significant decrease in PSE&G's revenues and earnings. (See Competition.) In January 1995, PSE&G and its second-largest industrial customer submitted a petition to the BPU to approve a tariff modification for this customer that would vary the electric price hourly to reflect changes in PSE&G's marginal cost of energy. The proposed pricing would result in a bill reduction for the customer of approximately $7 million or about 25%. This reduction in revenues would be partially offset by a proposed decrease of $1.8 million in PSE&G's State tax liability. Under the agreement between the customer and PSE&G, the customer will forego an opportunity to relocate to another state and remain a PSE&G customer for ten years. BPU approval is pending. A tariff modification to reduce electric costs of PSE&G's largest industrial customer by approximately $9 million, or about 23%, was approved by the BPU in December 1993. PSE&G has signed each of its three existing wholesale electric customers, aggregating 40 mw of load, to new 5-year full service agreements with mid-term extension options. Two of these agreements are pending approval by FERC. Beginning in 1995, under the terms of a previously negotiated 10-year wholesale power transaction negotiated in 1992, PSE&G will receive $12.5 million in annual revenues from Old Dominion Electric Cooperative. PSE&G's business is seasonal in that sales of electricity are higher during the summer months because of air conditioning requirements and sales of gas are greater in the winter months due to the use of gas for space-heating purposes. Integrated Resource Plan Pursuant to its IRP, PSE&G periodically reevaluates its forecasted customer load and peak growth and the sources of electric generating capacity and DSM to meet such projected growth (see Demand Side Management below). The IRP takes into account assumptions concerning future customer demand, future cost trends, especially fuel and purchased power expenses, effectiveness of conservation and load management activities, the long-term condition of and projected additions to PSE&G's plants and capacity available from other electric utilities and nonutility suppliers. PSE&G's IRP consists principally of plant additions, power purchases through PJM and NUGs and DSM. Pennsylvania -- New Jersey -- Maryland Interconnection PSE&G is a member of Pennsylvania -- New Jersey -- Maryland Interconnection (PJM) which integrates the bulk power generation and transmission supply operations of 11 utilities in Pennsylvania, New Jersey, Delaware, Maryland, Virginia and the District of Columbia, and in turn is interconnected with other major electric utility companies in the northeastern part of the United States. The PJM is operated as one system and provides for the purchase and sale of power among members on the basis of reliability of service and operating economy. As a result, the most economical mix of generating capability available is used to meet PJM daily load requirements. PSE&G's output, as shown under Electric Fuel Supply, reflects purchased power because at times it is more economical for PSE&G to purchase power from PJM and others than to produce it. As of December 31, 1994, the aggregate installed generating capacity of the PJM companies was 56,073 MW. The peak one-hour demand experienced by the PJM power pool was 45,992 MW which occurred on July 8, 1994. The 1994 peak was 437 MW lower than the record-setting 1993 summer peak of 46,429 MW which occurred on July 8, 1993. PSE&G's capacity obligations to PJM system vary from year to year due to changes in system characteristics. PSE&G expects to have sufficient installed capacity to meet its obligations during the 1995-96 period. Power Purchases A component of PSE&G's IRP consists of expected capacity additions from NUGs. These additions are projected to be 57 MW and are scheduled for service by 1998. NUG projects are expected to comprise approximately 7% of resources by 2004. This availability of NUG generation will reduce the need for PSE&G to build or acquire additional generation. PSE&G is also a party to the Mid-Atlantic Area Coordination Agreement which provides for review and evaluation of plans for generation and transmission facilities and other matters relevant to reliability of the bulk electric supply systems in the Mid-Atlantic area. PSE&G expects to be able to continue to meet the demand for electricity on its system through operation of available equipment and by power purchases. However, if periods of unusual demand should coincide with outages of equipment, PSE&G could find it necessary at times to reduce voltage or curtail load in order to safeguard the continued operation of its system. Demand Side Management Integrated resource planning brings together demand-side and supply-side strategies. In order to encourage DSM, the BPU adopted rules in late 1991 providing special incentives to encourage utilities to offer these load management conservation services. The rules are designed to place DSM on an equal regulatory footing with supply side or energy production investments. Both NEPA and the revised Energy Master Plan call for conservation to play a significant role in meeting New Jersey's energy needs over the coming decade. PSE&G's DSM Plan has been approved by the BPU. The IRP calls for PSE&G to utilize conservation and DSM to meet most of the incremental resource needs for the next decade (see Competition). PSE&G's DSM Plan is designed to encourage investment in energy-saving DSM activities in New Jersey. These activities involve new techniques and technologies, such as high-efficiency lighting and motors, that help reduce customer demand for energy. The DSM Plan presents a two-phase approach -- a core program that includes many of the conservation programs now available to customers and a performance-based program that offers payments for introducing DSM technology and services that result in measurable energy savings. The performance-based proposal uses a technique that provides direct payments for kilowatthours of electricity and therms of gas saved through investments in DSM. PSE&G's IRP projects 597 MW of passive DSM and 815 MW of active DSM by the year 2004. PSE&G has established a wholly owned subsidiary, Public Service Conservation Resources Corporation (PSCRC), to offer DSM services. PSCRC has its principal office at 9 Campus Drive, Parsippany, N.J. 07054. PSCRC finances, markets and develops energy conservation projects, mostly within the PSE&G service territory. At December 31, 1994, assets totaled $49.6 million, of which $38.1 million were project assets and work in progress. Electric Generating Capacity The following table sets forth certain information as to PSE&G's installed generating capacity as of December 31, 1994:
INSTALLED SOURCE CAPACITY(MW) PERCENTAGE - --------------- ------------ ---------- Conventional Steam Electric Oil-fired(a)............................. 2,359 23 Coal-fired New Jersey(b)................. 1,242 12 Coal-fired Pennsylvania (mine mouth)(c).. 770 7 Combustion Turbine(d)...................... 2,875 27 Combined Cycle............................. 249 2 Diesel(c).................................. 5 Nuclear(c) New Jersey............................... 1,921 18 Pennsylvania............................. 886 9 Pumped Storage(c)(d)....................... 190 2 ------ ---- Total(e)......................... 10,497 100 ====== ==== (a) Units with aggregate capacity of 1,406 MW can also burn gas. (b) Can also burn gas. (c) PSE&G share of jointly owned facilities. (d) Primarily used for peaking purposes. (e) Excludes 664 MW of nonutility generation and temporary capacity sales of 173 MW to Baltimore Gas and Electric and 111 MW to General Public Utilities.
For additional information, see Item 2. Properties -- PSE&G -- Electric Properties. The capacity available at any time may be less than the installed capacity because of temporary outages for inspection, maintenance, repairs, legal and regulatory requirements or unforeseen circumstances. The maximum one-hour demand (peak load) which PSE&G experienced in 1994 was 9,001 MW, which occurred on June 15, 1994 when PSE&G's customers used a total of 172,362 Megawatthours (MWH) of electricity. (For information concerning sales, output and capacity factors, see Operating Statistics.) The peak load in 1993 was 9,147 MW, a record which occurred on July 8, 1993, when the day's output was 180,643 MWH of electricity. Nuclear Operations Operation of nuclear generating units involves continuous close regulation by the Nuclear Regulatory Commission (NRC). Such regulation involves testing, evaluation and modification of all aspects of plant operation in light of NRC safety and environmental requirements and continuous demonstrations to the NRC that plant operations meet applicable requirements. The NRC has the ultimate authority to determine whether any nuclear generating unit may operate. For information concerning the performance of the nuclear units, see Nuclear Performance Standard and Note 12 -- Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements. The scheduled 1995, 1996, and 1997 refueling outages, each estimated at eight to ten weeks duration, for PSE&G's five licensed nuclear units are expected to commence in the following months:
REFUELING OUTAGES ----------------------------------------------- 1995 1996 1997 ------------- ------------- ------------- Salem 1................... April September -- Salem 2................... -- March September Hope Creek................ September -- March Peach Bottom 2............ -- September -- Peach Bottom 3............ September -- September
Salem The outage of a Salem unit causes PSE&G to incur replacement power costs of approximately $4 million to $6 million per month. Such amounts vary, however, depending upon the availability of other generation, the cost of purchased energy and other factors including modifications to maintenance schedules of other units. Operations at the Salem units continue to present challenges for PSE&G. These units have experienced equipment failures and personnel errors that have precipitated or contributed to plant events or trips which have lead to a number of outages over the units' lifetimes. As a result of the NRC investigation following the reactor shutdown of Salem 1 in April 1994, PSE&G was fined $500,000 for violations relating to the failure to identify and correct significant conditions adverse to quality at the facility related to spurious steam flow signals and inoperable atmospheric relief valves, both of which, the NRC concluded, lead to unnecessary safety injections during the event; the failure to identify and correct significant conditions adverse to quality at the facility related to providing adequate training, guidance and procedures for the operators to cope with the event; and the failure by supervisors to exercise appropriate command and control of the operations staff and the reactor during the event. On November 1, 1994, PSE&G responded to the violations and paid the fine. On January 3, 1995, the NRC provided PSE&G with its latest Systematic Assessment of Licensee Performance (SALP) report on Salem for the period between June 20, 1993 and November 5, 1994. SALP is a process pursuant to which the NRC periodically reviews the performance of nuclear power plant operations. The Salem SALP report was issued under the revised SALP process in which the number of assessment areas has been reduced from seven to four: Operations, Maintenance, Engineering and Plant Support (the Plant Support area includes security, emergency preparedness, radiological controls, fire protection, chemistry and housekeeping). Ratings range from a high of "1" to a low of "3" for each assessment area. Salem received a rating of "3" in the Operations and Maintenance areas, a rating of "2" in Engineering, and a rating of "1" in the Plant Support area. The NRC noted an overall decline in performance, and evidenced particular concern with plant and operator challenges caused by repetitive equipment problems and personnel errors. The NRC also noted that although PSE&G has initiated several comprehensive actions within the past year to improve plant performance, and some recent incremental gains have been made, these efforts have yet to noticeably change overall performance at Salem. PSE&G's own assessments, as well as those by the NRC and the Institute of Nuclear Power Operations indicate that additional efforts are required to further improve operating performance, and PSE&G is committed to taking the necessary actions to address Salem's performance needs. It is anticipated that the NRC will maintain a close watch on Salem's performance and corrective actions related to the April reactor shutdown. No assurance can be given as to what, if any, further or additional actions may be taken or required by the NRC to improve Salem's performance. PSE&G is taking significant steps to address performance shortfalls at Salem. In 1993, a comprehensive performance assessment team identified areas of weakness through an in-depth investigation of common causes and events. Corrective action plans and effectiveness measures were then initiated in 1994 and are ongoing, along with additional measures designed to achieve a change in Salem's performance. Personnel performance is being addressed through improved supervisory training and increased monitoring of work activities, improved operational command and control and the reorganization and increased staffing of Salem Station. PSE&G has established a goal of safe, uneventful operation to be achieved through enhanced self-assessment and corrective action processes, resolution of long-standing equipment problems, improved independent oversight of plant operations and improved root-cause analysis of plant problems. In furtherance of these goals, PSE&G has reorganized the operational structure of its Nuclear Department and recruited a new chief nuclear officer. In addition, Enterprise has strengthened oversight of nuclear plant operations by establishing a standing Nuclear Committee of its Board of Directors. (see Item 10. -- Directors and Executive Officers of the Registrants). On February 6, 1995, Enterprise and PSE&G received a request from the NRC for a meeting of its representatives with their respective Boards of Directors to discuss the need for continued improvements in equipment reliability and staff performance. This meeting is scheduled for mid-March. Enterprise cannot predict what actions, if any, the NRC may take as a result of this meeting. Hope Creek An outage at Hope Creek causes PSE&G to incur replacement energy costs of approximately $10 million to $16 million per month. Such amounts vary, however, depending upon the availability of other generation, the cost of purchased energy and other factors including modifications to maintenance schedules of other units. The NRC's latest periodic SALP report on Hope Creek was received in September 1993 and covered the period between December 29, 1991 and June 19, 1993. This report was issued under prior SALP procedures. Hope Creek received a rating of "1" in six functional areas, and received a rating of "2" in the one remaining area. The NRC noted an improvement over the prior rating period in the Maintenance/Surveillance and Engineering/Technical Support areas and a declining trend in the Emergency Preparedness area, with excellent performance overall. As a result of an internal allegation report, PSE&G submitted a License Event Report to the NRC on October 14, 1994 which stated that in 1992, the Hope Creek control room was understaffed for approximately three minutes and a decision was made by those involved that the incident did not warrant initiation of NRC reporting documentation. A meeting with Region I NRC personnel was held on October 18, 1994 in which the NRC expressed a high degree of concern over the issue. The NRC's Office of Investigation has since looked into the event, as well as an internal investigation by PSE&G as to the validity of the allegation. The NRC's Senior Resident Inspector has indicated to PSE&G that a Notice of Violation would likely be issued. A second meeting with the NRC was held on February 3, 1995, with resolution of this issue pending completion of the NRC's investigation. PSE&G cannot predict what other action the NRC may take in this matter. Peach Bottom The outage of a Peach Bottom unit causes PSE&G to incur additional replacement energy costs of approximately $4 million to $6 million per month per unit. Such amounts vary, however, depending upon the availability of other generation, the cost of purchased energy and other factors including modifications to maintenance schedules of other units. PSE&G has been advised by PECO that on June 29, 1994, the NRC issued its periodic SALP Report for Peach Bottom for the period November 1, 1992 to April 30, 1994. The Report was issued under the revised SALP process described above for Salem. PECO has advised PSE&G that Peach Bottom received a rating of "1" in the area of Plant Operations; the areas of Engineering, Maintenance, and Plant Support received ratings of "2" overall, the NRC found continued improvement in performance during the period; the NRC stated that enhancement in problem identification and resolution, good control of refuelings and outages and excellent oversight by plant management of day-to-day activities in a manner that ensured safe operation of the units contributed to the improvement; despite the overall improvement, the NRC noted that some areas require continued management attention and that management needs to continue to encourage plant personnel at all levels to identify existing, and sometimes longstanding, problems so that priorities can be established, and effective corrective actions implemented; the NRC also noted instances of personnel inattention to detail and failure to follow procedures which warranted additional management attention. PECO has advised PSE&G that it has taken and is taking actions to address the weaknesses discussed in the SALP Report. PSE&G has been advised by PECO that on October 18, 1994, the NRC held an enforcement conference to discuss a violation at Peach Bottom. An emergency service water valve was left closed and unattended for approximately 45 minutes during testing, which would have prevented safety-related equipment from receiving the proper cooling flow in an emergency. On November 21, 1994, PECO received a Level III violation for this incident, including a civil penalty of $87,500. PSE&G cannot predict what other actions, if any, the NRC may take in this matter. PSE&G has been advised by PECO that, by letter dated October 18, 1994, the NRC has approved PECO's request to re-rate the authorized maximum reactor core power levels of both Peach Bottom units by 5% to 3,458 MW from the current limits of 3,293 MW. The amendment of the Peach Bottom 2 facility operating license was effective upon the date of the NRC approval letter and the hardware changes were completed during the fall 1994 refueling outage. The amendment of the Peach Bottom 3 facility operating license will be effective upon the implementation of associated hardware changes, which are to be completed during Peach Bottom 3's next refueling outage scheduled for the fall of 1995. Other Nuclear Matters In October 1990, General Electric (GE) reported that crack indications were discovered near the seam welds of the core shroud assembly in a GE Boiling Water Reactor (BWR) located outside the United States. As a result, GE issued a letter requesting that the owners of GE BWR plants take interim corrective actions, including a review of fabrication records and visual examinations of accessible areas of the core shroud seam welds. PSE&G (Hope Creek) and PECO (Peach Bottom) are participating in a GE BWR Owners' Group to evaluate this issue and develop long-term corrective actions. During the spring 1994 refueling outage, PSE&G inspected the shroud of Hope Creek in accordance with GE's recommendations and found no cracks. PSE&G is working closely with GE and the BWR Owners' Group on coordination of inspections, evaluations and repair options, if required. PSE&G expects minimal impact due to the age and materials of the Hope Creek shroud and the historical maintenance of low conductivity water chemistry. For these reasons, Hope Creek has been placed in the lowest susceptibility category by the BWR Owners' Group. PECO has advised PSE&G that Peach Bottom 3 was examined in October 1993 during the last refueling outage and crack indications were identified at two locations. On November 3, 1993, PECO presented its findings to the NRC and provided justification for continued operation of Unit 3 for another two-year cycle with crack indications. PECO has also advised that Peach Bottom 2 was examined in October 1994 during its refueling outage. Although some crack indications were identified, they were considered to be much less severe than those previously found on Unit 3, and no repairs were required to operate Unit 2 for another two-year cycle. Electric Fuel Supply and Disposal The following table indicates PSE&G's KWH output by source of energy:
ACTUAL ESTIMATED SOURCE 1994 1995 ------ ------ --------- Nuclear New Jersey facilities.......................... 28% 30% Pennsylvania facilities........................ 17 14 Fossil Coal New Jersey facilities........................... 7 11 Pennsylvania facilities......................... 12 12 Natural Gas..................................... 7 6 Residual Oil.................................... 2 1 Net PJM Interchange and Utility Purchases and NUGs........................................ 27 26 ---- ---- Total................................................. 100% 100% ==== ====
PSE&G's cost of fuel used to generate electricity in the periods shown below was as follows: NATURAL COAL GAS ---------------------------------------- -------- NEW JERSEY PENNSYLVANIA NUCLEAR FACILITIES FACILITIES OIL ------- ------------------- ------------------- ------------------- CENTS/ CENTS/ CENTS/ CENTS/ CENTS/ MILLION MILLION MILLION MILLION $/ MILLION YEAR BTU $/TON BTU $/TON BTU BTU BARREL BTU - ---- ------- ------- ------- ------- ------- ------- ------ ------- 1992 60.8 58.24 214.0 32.98 133.4 207.4 21.70 351.7 1993 59.3 55.45 203.8 33.73 136.6 221.7 23.44 384.5 1994 62.3 56.31 213.8 34.78 140.7 197.8 22.19 361.02 Substantially all of PSE&G's electric sales are made under rates which are designed to permit the recovery of increases in energy costs over base costs on a current annual basis. (See PSE&G -- Rate Matters -- Adjustment Clauses.)
Nuclear Fuel The supply of fuel for nuclear generating units involves the mining and milling of uranium ore to uranium concentrate, conversion of the uranium concentrate to uranium hexafluoride, enrichment of that gas, conversion of the enriched gas to fuel pellets and fabrication of fuel assemblies. PSE&G has several long-term contracts with ore operators to process uranium ore to uranium concentrate to meet the currently projected requirements for the Salem and Hope Creek units fully through the year 2000 and, thereafter, 60% of their requirements through the year 2002. Present contracts for conversion, enrichment and fabrication services meet the fuel cycle requirements for Salem and Hope Creek units through the years shown in the following table:
NUCLEAR UNIT CONVERSION ENRICHMENT FABRICATION - ------------ ---------- ---------- ----------- Salem 1..................... 2000 (1) 2004 Salem 2..................... 2000 (1) 2005 Hope Creek.................. 2000 (1) 2000
(1) 100% coverage through 1998; approximately 50% through 2002; and approximately 30% through 2004. PSE&G does not anticipate any difficulties in obtaining necessary enrichment service for its Salem and Hope Creek units. PSE&G has been advised by PECO that it has contracts for the purchase of uranium which will satisfy the fuel requirements of Peach Bottom 2 and 3 through 2002. PSE&G has also been advised by PECO that it has contracts for uranium concentrates which will be allocated to Peach Bottom 2 and 3 and two other nuclear generating units in which PSE&G does not have an interest, on an as-needed basis. PECO has also advised PSE&G that it has contracted for the following segments of the nuclear fuel supply cycle for Peach Bottom 2 and 3 through the following years:
NUCLEAR UNIT CONVERSION ENRICHMENT FABRICATION - ------------ ---------- ---------- ----------- Peach Bottom 2.............. 1997 2008 1999 Peach Bottom 3.............. 1997 2008 1998
Coal Approximately 40% of PSE&G's coal supply for its New Jersey facilities is obtained under a contract which expires in 1999. The balance of the supply is contracted annually from various suppliers, many of whom PSE&G has dealt with on a continuing basis for a number of years, and is supplemented by spot market purchases. The New Jersey Air Pollution Control Code (NJAPCC) permits the burning of coal with a sulfur content of up to 1% at existing coal-fired generating stations including PSE&G's three coal-fired New Jersey units, Hudson 2 and Mercer 1 and 2. The weighted monthly average sulfur content of the coal received at Hudson Station and at Mercer Station must not exceed 1.0% (dry weight basis). PSE&G has been able to obtain sufficient quantities of 1% (or less) sulfur coal and does not presently anticipate any difficulties in obtaining adequate coal supplies to replace expiring contracts. (See Environmental Controls -- Air Pollution Control). PSE&G has an approximately 23% interest in the Keystone and Conemaugh coal-fired generating stations located in western Pennsylvania and operated by Pennsylvania Electric Company (Penelec). At least 67%, optionally up to 100%, of the fuel required by the Keystone station is supplied by one coal company under a contract which expires December 31, 2004. At least 18% of the fuel required by Conemaugh station is supplied by another coal company under a contract which expires on December 31, 1997. In addition, approximately 51% of Conemaugh's coal requirements is supplied under a mix of short-term contracts which expire on March 31, 1995 and September 30, 1995. The balance of the fuel requirements for each station is supplied through spot purchases obtained from local suppliers. Penelec has advised PSE&G that it does not expect any difficulties in obtaining adequate coal supplies. (See Environmental Controls). Natural Gas PSE&G utilizes natural gas available from various spot, short-term and long-term gas contracts, to replace other fuels for electric generation. Presently, there are no effective legal restrictions on the use of natural gas for electric generation in existing plants. However, approval by FERC is required for the interstate transportation of natural gas, either by virtue of existing blanket authority or through individual proceedings. PSE&G does not expect any difficulties in obtaining natural gas supplies. Oil PSE&G uses residual oil in its conventional fossil-fired, steam-electric units. The supply of residual oil is furnished by contract suppliers, supplemented by occasional spot market purchases. PSE&G uses distillate fuel in its combustion turbines which is acquired by spot market purchases. PSE&G does not presently anticipate any difficulties in obtaining oil supplies. Nuclear Fuel Disposal As a result of NEPA, all utilities owning nuclear units will be responsible to co-fund with the Federal government a decontamination and decommissioning fund for the United States Department of Energy (DOE) enrichment facilities. Both PSE&G and PECO are responsible for making annual payments into this fund through 2008, with payments based on enrichment services purchased from the DOE prior to 1993. (See Note 3 -- PSE&G Nuclear Decommissioning and Amortization of Nuclear Fuel of Notes to Consolidated Financial Statements.) After spent fuel is removed from a nuclear reactor, it is placed in temporary storage for cooling in a spent fuel pool at the nuclear station site. Under the Nuclear Waste Policy Act of 1982, as amended, (NWPA), the Federal government has entered into contracts for transportation and ultimate disposal of the spent fuel. The Federal government's present policy is that spent nuclear fuel will be accepted for long-term storage at government-owned and operated repositories. At present, no such repositories are in service or under construction. In conformity with the NWPA, PSE&G entered into contracts with the DOE for the disposal of spent nuclear fuel from Salem and Hope Creek. Similarly, PECO contracted with the DOE in connection with Peach Bottom 2 and 3. Under these contracts, the DOE will take title to the spent fuel at the site, then transport it and provide for its permanent disposal at a cost of one mil per KWH of nuclear generation, subject to such escalation as may be required to assure full cost recovery by the Federal government. In addition, a one-time payment was made to the DOE for permanently discharged spent fuels irradiated prior to 1983. In December 1989, the DOE announced that it would not be able to open a permanent, high-level nuclear waste storage facility until 2010, at the earliest. The DOE stated it would seek legislation from Congress for the construction of a temporary storage facility which would accept spent nuclear fuel from utilities in 1998 or soon thereafter. On May 25, 1994, the DOE published a Notice of Inquiry indicating its preliminary view on waste acceptance. The DOE stated that, despite provisions of NWPA to the contrary, it has no statutory obligation to accept spent nuclear fuel beginning in 1998 in the absence of an operational repository or other facility constructed under the NWPA although the DOE may have created an expectation that it would begin accepting such spent nuclear fuel in 1998. The Notice of Inquiry is intended to elicit the views of the affected parties on the DOE's preliminary view on the 1998 obligation issue, the need for an interim, away-from-reactor storage facility prior to repository operations and options for offsetting, through the use of a nuclear waste fund, a portion of the financial burden that may be incurred by utilities to store spent fuel at reactor sites beyond 1998. Pursuant to NRC rules, spent nuclear fuel generated in any reactor can be stored safely and without significant environmental impact in reactor facility storage pools or in independent spent fuel storage installations located at reactor or away-from-reactor sites for at least 30 years beyond the licensed life for operation (which may include the term of a revised or renewed license). In June 1994, two separate lawsuits were filed by a group of states and a group of utilities, respectively, in the U. S. Court of Appeals for the District of Columbia Circuit to compel DOE to accept spent fuel by 1998. On July 19, 1994, the BPU voted to join the lawsuit brought by the group of states. PSE&G is not a party to the lawsuit brought by the group of utilities. Salem 1 and 2 have adequate on-site temporary storage capability through March 1998 and March 2002, respectively, when operational full core discharge capability requirements are considered. PSE&G has developed an integrated strategy to meet the longer term Salem and Hope Creek spent fuel storage needs. In May 1994, PSE&G received a license from the NRC to replace the existing high density racks in the spent fuel pools of Salem 1 and 2 with maximum density racks. The Salem re-racking project is ongoing and is expected to extend the storage capability through March 2008 for Salem 1 and March 2012 for Salem 2, considering operational full core discharge requirements. The Hope Creek pool is fully racked and it has capacity to hold spent fuel through September 2007, considering operational full core discharge requirements. PECO has advised PSE&G that spent fuel racks at Peach Bottom have storage capacity until 2000 for Unit 2 and 1999 for Unit 3 prior to loss of full core reserve occurring, and that expansion of storage capacity beyond such dates is being investigated. In accordance with NWPA, utilities owning an interest in nuclear generating facilities are required to determine the costs and methods of funding the costs necessary to decommission such facilities upon termination of operation. As a general practice, a utility funding such costs places funds in trust accounts it maintains. The utility recovers from its customers the amounts paid into the trust fund over a period of years. For information concerning enrichment of nuclear fuel and nuclear decommissioning costs, see Note 3 -- PSE&G Nuclear Decommissioning and Amortization of Nuclear Fuel of Notes to Consolidated Financial Statements. Low Level Radioactive Waste (LLRW) As a by-product of their operations, nuclear generating units, including those in which PSE&G owns an interest, produce LLRW. Such wastes include paper, plastics, protective clothing, water purification materials and other materials of which proper disposal must be made. Prior to July 1, 1994, such materials were accumulated on site and disposed of at a federally licensed permanent disposal facility. However, in accordance with the Low Level Radioactive Waste Policy Act, as amended (LLRWPA), operating disposal sites have exercised their authority to either cease operations or deny access to LLRW generated in states which are not members of the regional compact in which they are located. For PSE&G and all other New Jersey LLRW generators, this means that since July 1, 1994, LLRW must be temporarily stored on site until New Jersey provides for permanent disposal. In 1991, New Jersey enacted legislation providing for funding of the estimated $90 million cost of establishing a disposal facility. The State would recover the costs through fees paid by LLRW generators. PSE&G's overall share is expected to be about 40% of the total cost and has provided about $4.8 million to date. New Jersey has introduced a volunteer siting process as its plan for establishing a LLRW disposal facility by the year 2000. Public meetings have been held across the state in an effort to provide information to and obtain feedback from the public. The plan is expected to be approved in early 1995 and an official invitation to municipalities to become volunteer hosts for a disposal facility will be announced sometime in 1995. Until New Jersey provides for disposal, PSE&G will temporarily store LLRW in an on-site facility completed in September 1994 at a total cost of $7.1 million. This facility will provide five years' storage for LLRW from Hope Creek and Salem. PECO has advised PSE&G that as of July 1, 1994, the Peach Bottom plants are also providing temporary on-site storage with adequate space for at least five years. PECO has also advised that Pennsylvania is pursuing its own LLRW site development via state-selected candidate sites, along with a volunteer plan option. PSE&G will continue to accrue monies for stored LLRW from Salem, Hope Creek and Peach Bottom to cover expenses with a concurrent liability for the amount to be paid at the time of ultimate disposal when New Jersey and Pennsylvania provide disposal facilities. Gas Operations and Supply PSE&G supplies its gas customers principally with natural gas. PSE&G supplements natural gas with purchased refinery gas and liquefied petroleum gas produced from propane. The adequacy of supply of all types of gas is affected by the nationwide availability of all sources for energy production. As of December 31, 1994, the daily gas capacity of PSE&G was as follows:
Type of Gas Therms Per Day ------------------------------------ -------------- Natural gas......................... 23,191,270 Liquefied petroleum gas............. 2,200,000 Refinery gas........................ 400,000 ----------- Total........................... 25,791,270 ===========
About 40% of the daily gas capacity is high load factor natural gas and is available every day of the year. The remainder comes from field storage, liquefied natural gas, seasonal sales, contract peaking supply, propane and refinery gas. PSE&G's total gas sold to and transported for its various customer classes in 1994 was 3.8 billion therms which consisted of approximately 96% natural gas. Included in this amount is 1.3 billion therms of gas delivered to customers under PSE&G's transportation tariffs and individual cogeneration contracts. (See Operating Statistics of PSE&G). During 1994, PSE&G purchased approximately 3.5 billion therms of gas for its combined gas and electric operations directly from natural gas producers and marketers and the balance from interstate pipeline suppliers. These supplies were transported to New Jersey by PSE&G's four interstate pipeline suppliers. This diversification of supply sources provides PSE&G with reliability of supply, purchasing flexibility and lower overall costs. PSE&G's gas supply contracts expire at various times over the next two to ten years. PSE&G does not presently anticipate any difficulty in negotiating replacement contracts. Since the quantities of gas available to PSE&G under its supply contracts are more than adequate in warm months, PSE&G nominates part of such quantities for storage, to be withdrawn during the winter season, under storage contracts with its principal suppliers. Underground storage capacity currently is approximately 770 million therms. PSE&G does not presently anticipate any difficulty in obtaining adequate supplies of natural gas. PSE&G's annual average cost of natural gas sendout is shown below:
Cents Per Year Million BTU(A) ---------------------------------- -------------- 1994............................. 338.09 1993.............................. 340.85 1992.............................. 311.16
(A) Excludes contribution by electric department for gas reservation charge and natural gas refunds from suppliers. Substantially all of PSE&G's gas sales are made under rates which are designed to permit the recovery of projected increases in the cost of natural gas and gas from supplemental sources, when compared to levels included in base rates, on a current annual basis. (See Note 2 -- Rate Matters of Notes to Consolidated Financial Statements.) The demand for gas by PSE&G's customers is affected by customer conservation, economic conditions, weather, the price relationship between gas and alternative fuels and other factors not within PSE&G's control. Presently, the majority of gas sold in interstate commerce has become deregulated. The ability of gas prices to respond to market conditions has improved in recent years because of actions taken by the FERC. Pipeline companies are able to adjust their gas rates up or down through their purchased gas adjustment mechanism more often than the semi-annual filings of prior years. As previously discussed, FERC's 636 Orders provided pipeline customers, such as PSE&G, with the opportunity to convert a portion of their pipeline sales contracts to transportation agreements and purchase natural gas supplies directly from a producer or other seller of natural gas. This regulatory framework has increased competition in the gas market by encouraging pipeline companies to act as non-discriminatory transporters of natural gas. PSE&G has used these regulations to lower its overall gas costs through the displacement of higher cost contract supplies with lower cost spot gas purchases and long-term producer contract supplies. (See Competition.) PSE&G was able to meet all of the demands of its firm customers during the 1993-94 winter season and expects to continue to meet such energy-related demands of its firm customers during the 1994-95 winter season. However, the sufficiency of supply could be affected by several factors not within PSE&G's control, including curtailments of natural gas by its suppliers, the severity of the winter, the extent of energy conservation by its customers and the availability of feedstocks for the production of supplements to its natural gas supply. During the 1994-95 heating season through February 13, 1995, it was necessary for PSE&G to interrupt service to 'interruptible' customers for eight days as permitted by the applicable tariff. During the 1993-94 heating season, service to such customers was interrupted for 25 days. Employee Relations Enterprise has no employees. As of December 31, 1994, PSE&G and its subsidiaries employed 11,919 persons. Four-year bargaining agreements between PSE&G and its unions, representing approximately 7,000 employees, will expire April 30, 1996. EDHI and its subsidiaries employed 471 persons, of which 37 are represented by unions. Enterprise and EDHI and its subsidiaries reimburse PSE&G for the costs of services provided by employees of PSE&G. PSE&G, EDHI and their subsidiaries believe that they maintain satisfactory relationships with their employees. For information concerning the employee pension plan and other postretirement benefits, see Note 1 -- Organization and Summary of Significant Accounting Policies, Note 13 -- Postretirement Benefits Other Than Pensions and Note 14 -- Pension Plan of Notes to Consolidated Financial Statements. Regulation Enterprise has claimed an exemption from regulation by the SEC as a registered holding company under PUHCA, except for Section 9(a)(2) thereof, which relates to the acquisition of 5% or more of the voting securities of an electric or gas utility company. Enterprise is not subject to direct regulation by the BPU, except potentially with respect to certain transfers of control and reporting requirements, and is not subject to regulation by the FERC. The BPU may also impose certain requirements with respect to affiliate transactions between and among PSE&G, Enterprise and Enterprise's nonutility subsidiaries. (See EDHI.) As a New Jersey public utility, PSE&G is subject to comprehensive regulation by the BPU including, among other matters, regulation of intrastate rates and service and the issuance and sale of securities. As a participant in the ownership and operation of certain generation and transmission facilities in Pennsylvania, PSE&G is subject to regulation by the Pennsylvania Public Utility Commission (PPUC) in limited respects in regard to such facilities. PSE&G is subject to regulation by FERC and by the Economic Regulatory Administration, both within DOE, with respect to certain matters, including regulation by FERC with respect to interstate sales and exchanges of electric transmission, capacity and energy, including cogeneration and small power production projects being constructed pursuant to PURPA, and accounts, records and reports. PSE&G is also subject to regulation by the United States Department of Transportation (USDOT) with respect to safety standards for pipeline facilities and the transportation of gas under the Natural Gas Pipeline Safety Act of 1968. In addition, the New Jersey Need Assessment Act (NJNAA) provides that no public utility shall commence construction of any electric facility (as defined in the NJNAA) without having first obtained from the Division of Energy Planning and Conservation within the New Jersey Department of Environmental Protection (NJDEP) a Certificate. A Certificate, if granted, is valid for three years, renewable subject to review by the Commissioner of the NJDEP. Under the NJNAA, no state or local agency may issue any license or permit required for any such construction or substantial expansion prior to the issuance of the Certificate. An electric facility is defined under the NJNAA as any electric power generating unit or combination of units at a single site with a capacity of 100 MW or more or any such units added to an existing electric generating facility which will increase its installed capacity by 25% or by more than 100 MW, whichever is smaller. Under NJNAA, a Certificate shall be issued only if the NJDEP Commissioner determines that the proposed facility is necessary to meet the projected need for electricity in the area to be served and that no more efficient, economical or environmentally sound alternative is available. For a discussion of the repowering of Bergen Generating Station, see Note 12 - -- Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements. For information concerning nuclear insurance coverages, the BPU's NPS and assessments and the Price-Anderson Amendments Act of 1988, as amended, see Note 12 -- Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements. The New Jersey Public Utility Accident Fault Determination Act (Fault Act) requires the BPU to make a determination of fault with regard to any accident at any electric generating or transmission facility prior to granting a request by any utility for a rate increase to cover accident-related costs in excess of $10 million. Fault, as defined in the Fault Act, means any negligent action or omission of any party which either contributed substantially to causing the accident or failed to mitigate its severity. However, the Fault Act allows the affected utility to file for non-accident related rate increases during such fault determination hearings and to recover contributions to federally mandated or voluntary cost-sharing plans and allows the BPU to authorize the recovery of certain fault-related repair, clean-up, power replacement and damage costs if substantiated by the evidence presented and if authorized in writing by the BPU. The Fault Act could have a material adverse effect on PSE&G's financial position if such an accident were to occur at a PSE&G facility, it was ultimately determined that the accident was due to the fault of PSE&G and the BPU were to deny recovery of all or a portion of the costs related thereto. See Note 2 - Rate Matters -- LEAC of Notes to Consolidated Financial Statements. Under New Jersey law, the BPU is required to audit all or a portion of the operating procedures and other internal workings of every gas or electric utility subject to its jurisdiction, including PSE&G, at least once every six years. Under the law, the audit may be performed either by the BPU Staff or under the supervision of designated members of such Staff by an independent management consulting firm, chosen by the utility from a list provided by the BPU. The BPU may, upon completion of the audit and after notice and hearing, order the utility to adopt such new practices and procedures that it shall find reasonable and necessary to promote efficient and adequate service to meet public convenience and necessity. The last such management audit of PSE&G was completed in 1991. In 1992, as a follow-up to its 1991 management audit, the BPU conducted a focused audit of Enterprise's nonutility businesses to ascertain whether nonutility activities had harmed PSE&G. Enterprise has consistently maintained a clear and distinct separation of its utility and nonutility operations and believes that its nonutility activities have not in any way adversely affected the utility. The results of the focused audit confirmed that there has been no harm to PSE&G as a result of Enterprise's nonutility activities. However, as a result of recommendations made by the BPU's auditors regarding operations and intercompany relationships between PSE&G and EDHI's nonutility businesses, the BPU approved a plan which, among other things, provides: (1) that Enterprise will not permit EDHI's nonutility investments to exceed 20% of Enterprise's consolidated assets without prior notice to the BPU (such assets presently being approximately 15%); (2) for a restructuring of the PSE&G Board to include nonemployee Enterprise directors with an annual certification by such Board that the business and financing plans of EDHI will not adversely affect PSE&G; (3) for an Enterprise agreement to (a) limit debt supported by the minimum net worth maintenance agreement between Enterprise and Capital to $750 million, and (b) make a good- faith effort to eliminate such support over a six to ten year period from April 1993; and (4) the payment by EDHI to PSE&G of an affiliation fee of up to $2 million a year which will be applied by PSE&G through its LGAC and LEAC to reduce utility rates. Effective January 31, 1995, such fee is predicated on up to $650 million of supported debt outstanding and will be proportionately reduced as such debt is repaid. The issue of Enterprise sharing the benefits of consolidated tax savings with PSE&G or its ratepayers was not resolved by this plan and remains open. Enterprise believes that PSE&G's taxes should be treated on a stand-alone basis for ratemaking purposes, based on the separate nature of the utility and nonutility businesses. However, neither Enterprise nor PSE&G is able to predict what action, if any, the BPU may take concerning consolidation of tax benefits in future proceedings. (See Note 2 -- Rate Matters - Consolidated Tax Benefits of Notes to Consolidated Financial Statements.) Construction and operation of nuclear generating facilities are regulated by the NRC. For additional information relating to regulation by the NRC, see Construction and Capital Requirements, Rate Matters and Nuclear Operations. In addition, the Federal Emergency Management Agency is responsible for the review in conjunction with the NRC of certain aspects of emergency planning relating to the operation of nuclear plants. CEA invests in and participates in the development of domestic and foreign cogeneration and power production facilities, which include QFs and EWGs. For additional information, see EDHI -- CEA. The BPU has authority to regulate power sales agreements within the BPU's pricing guidelines to utilities in the State of New Jersey and ascertain that the terms and conditions of agreements with New Jersey utilities are fair and reasonable. For additional information, see EDHI. Environmental Controls PSE&G, like most industrial enterprises, is subject to regulation with respect to the environmental effects of its operations, including air and water quality control, limitations on land use, disposal of wastes, aesthetics and other matters, by various federal, regional, state and local authorities, including the United States Environmental Protection Agency (EPA), the USDOT, NJDEP, the New Jersey Department of Health, the BPU, the Interstate Sanitation Commission, the Hackensack Meadowlands Development Commission, the Pinelands Commission, the Delaware River Basin Commission, the United States Coast Guard, the United States Army Corps of Engineers, the Delaware Department of Natural Resources and Environmental Control and, with regard to its ownership interest in the Keystone, Conemaugh and Peach Bottom generating stations in Pennsylvania, by the PPUC and the Pennsylvania Department of Environmental Resources. EDC, CEA and EGDC are also subject to similar regulation. Environmental laws generally require air emissions and water discharges to meet specified limits. They also impose potential joint and several liability, without regard to fault, on the generators of various hazardous substances to clean up property affected by the production and discharge of such substances. Environmental controls also require, in many instances, balancing the need for additional quantities of energy against the need to protect the environment. The necessity to comply with environmental standards has caused PSE&G to modify the day-to-day operation of its facilities, to participate financially in the cleanup of various properties that have been contaminated and to modify, supplement and replace existing equipment and facilities. Further, compliance with environmental requirements has resulted in significant delays with respect to construction of facilities. During 1994, PSE&G expended approximately $255 million of capital related to improving the environment. It is estimated that PSE&G will expend approximately $169 million, $142 million, $54 million, $53 million and $54 million in the years 1995 through 1999, respectively, for such purposes. Such amounts are included in PSE&G's estimates of construction expenditures. (See MD&A -- Liquidity and Capital Resources.) Preconstruction analyses and projections of the environmental effects of contemplated activities and emissions are frequently required by the permitting agency. Before licensing approvals and permits are granted, the agency usually requests a modeling analysis of the effects of a specific action, and of its effect in combination with other existing and permitted activities and may request the applicant to address emerging environmental issues. Such environmental reviews have caused delays in the proceedings for licensing facilities and more such delays can be expected in the future. An emerging environmental issue with respect to the construction and operation of electric transmission and distribution lines is the possible adverse health effects of EMF exposure. In September 1990, the New Jersey Commission on Radiation Protection (CORP) decided against setting a limit on magnetic fields produced by high-voltage power lines citing the lack of convincing evidence required to determine dangerous levels. Proposed power regulations are currently under study by CORP to cover new power lines and allow existing power lines to continue to function regardless of new rule changes. As revised, the rules would authorize the NJDEP to screen all new power line projects of 100 kilovolts or more using a principle of "as low as reasonably achievable" to demonstrate that all steps within reason, including modest cost, were taken to reduce EMFs. The outcome of EMF study and/or regulations and the public concerns will affect PSE&G's design and location of future electric power lines and facilities and the cost thereof. Such amounts as may be necessary to comply with these new EMF rules and address public concerns cannot be determined at this time, but such amounts could be material. The New Jersey Environmental Rights Act provides that any person may maintain a court action against any other person to enforce, or to restrain the violation of, any statute, regulation or ordinance which is designed to prevent or minimize pollution, impairment or destruction of the environment, or where no such requirement exists, to protect the environment from pollution, impairment or destruction. Certain Federal legislation confers similar rights on individuals. The principal laws and regulations relating to the protection of the environment which affect PSE&G's operations are described below. Air Pollution Control The Federal Clean Air Act (CAA) imposes stringent emission requirements across the United States, including requirements related to the emissions of sulfur dioxide and nitrogen oxides (NOx). Additional requirements are being developed under the CAA by Federal and State agencies, the costs of which cannot be quantified, but could be material. PSE&G's two wholly-owned and operated coal-fired generating stations in New Jersey are presently expected to be able to meet CAA sulfur dioxide requirements with only modest expenditures. PSE&G's New Jersey generating stations are located in a severe non-attainment area for ozone and the CAA requires that reductions be made in NOx from major sources in this area. A requirement for these areas is that each state impose reasonable available control technologies (RACT) on major sources of NOx effective May 1995. All of PSE&G's fossil steam and combustion turbine generating units are subject to RACT requirements. NJDEP RACT Regulations were adopted in November 1993 and will result in capital expenditures of approximately $90 million over a period of years. Such amount is included in PSE&G's estimate of construction expenditures. Additional reductions of NOx emissions will likely be needed continuing through the attainment dates of 2005 and 2007 to bring the area into attainment with ozone standards. The necessary reductions will be based upon modeling results and regulatory agency discussions currently underway and could result in additional changes to equipment, in methods of operation or in fuel. PSE&G also has an approximately 23% interest in Conemaugh and Keystone, coal-fired generating stations located in western Pennsylvania. With respect to Conemaugh, in order to comply with the CAA, the station's co-owners, including PSE&G, have formally approved the installation of scrubbers (flue gas desulfurization systems). PSE&G's share of the remaining Conemaugh scrubber cost is estimated at $78.6 million including cost of removal. Such amount is included in PSE&G's estimate of construction expenditures. Construction at Conemaugh Unit 2 is scheduled for completion by January 1, 1996. Conemaugh and Keystone will also be required to reduce NOx emissions. PSE&G's share of capital costs for NOx emission controls are included in PSE&G's estimate of construction expenditures and are estimated at approximately $8.2 million for Keystone and $9.1 million for Conemaugh. Permitting of all major stationary sources will also be required under the CAA. This national air pollution emission source operating permit program will require some PSE&G facilities to assess emissions, install continuous emission monitors and/or make changes in facility operations or technology in order to comply with permit conditions. All such amounts which can be quantified and which may be necessary to comply with the revised CAA requirements through 1999 are included in PSE&G's estimate of construction expenditures. PSE&G expects to request the BPU to allow the recovery of all such CAA costs from electric customers, although no assurances can be given as to what action may be taken by the BPU. In addition, the revised CAA requirements will increase the cost of producing electricity for the Pennsylvania and Ohio Valley Region generating units supplying electricity to the PJM and New Jersey. All of PSE&G's current purchased power costs are included in PSE&G's LEAC. (See Note 2 -- Rate Matters of Notes to Consolidated Financial Statements.) In non-attainment areas, one of the effects of the CAA is to allow construction or expansion of a facility only upon a showing that any additional emissions from the source will be more than offset by reductions in similar emissions from existing sources. In prevention of significant deterioration areas, construction or expansion of a facility would be permitted only if emissions from the source, together with emissions from other expected new sources, would not violate air quality increments for particulates and sulfur dioxide that are more stringent than the National Ambient Air Quality Standards (NAAQS). All of these requirements may affect PSE&G's ability to locate, construct or expand generating facilities in the future. NJDEP is using the New Jersey Air Pollution Control Code (NJAPCC) to achieve compliance with the NAAQS adopted by EPA under the CAA. The NJAPCC currently establishes ambient air quality standards and emission limitations for six pollutants, all of which have EPA approval. In addition, the NJAPCC provides stringent requirements restricting the sulfur content in coal and oil fuels. (See PSE&G -- Electric Fuel Supply and Disposal -- Coal.) The increased cost of purchasing low-sulfur fuel is offset by rates which are designed to permit the recovery of fuel costs on a current annual basis. (See PSE&G -- Electric Fuel Supply and Disposal and Note 2 -- Rate Matters of Notes to Consolidated Financial Statements.) Water Pollution Control The Federal Water Pollution Control Act (FWPCA) provides for the imposition of technology and water-quality based effluent limitations to regulate the discharge of pollutants into the waters of the United States. Certain PSE&G facilities are directly regulated by permits issued pursuant to FWPCA. Under the FWPCA, compliance with the above-referenced applicable limitation is to be achieved under the National Pollutant Discharge Elimination System (NPDES) permit program, which is administered by NJDEP pursuant to the New Jersey Water Pollution Control Act (NJWPCA). The NJWPCA authorizes NJDEP to regulate discharges of pollutants to surface and ground waters of the State. The NPDES permit program, administered by the NJDEP, is referred to as the New Jersey Pollutant Discharge Elimination System (NJPDES) program. The NJPDES program provides for Discharge to Surface Water (DSW) permits and Discharge to Ground Water (DGW) permits, among others. Section 304(l) of the FWPCA requires all states to implement more stringent controls on discharges of toxics to certain water-bodies deemed contaminated by toxic discharges. Although five PSE&G electric generating stations (Bergen, Hudson, Kearny, Linden and Sewaren) were originally subject to requirements imposed pursuant to Section 304(l), the NJDEP and EPA have proposed delisting these stations from the 304(l) program for the present time. No final action on this proposal has been taken. The FWPCA also includes specific provisions relating to discharges of heat and the design, location, construction and capacity of intake structures for cooling water. Pursuant to Section 316(a) and (b) of the FWPCA, if the permittee can demonstrate that the aquatic ecosystem is protected, then alternate thermal limits may be imposed and/or the intake structure may be found to be the Best Technology Available (BTA). PSE&G has submitted applications to EPA and NJDEP seeking variances from thermal limits and BTA determinations in connection with six of its electric generating stations pursuant to Section 316(a) and (b). If PSE&G's applications with respect to these generating stations do not receive favorable action, NJDEP may impose requirements for closed-cycle cooling, e.g., cooling towers, or other structural modifications and/or operational restrictions at these facilities. The NJDEP regulations relating to DGW require permits for some of PSE&G's facilities and may require the monitoring of ground water at such locations. PSE&G has applied for DGW permits at certain facilities as discussed below. The total cost to comply with all applicable requirements of DGW permits at all PSE&G facilities covered by NJPDES -- DGW permits cannot be accurately estimated at this time, but aggregate annual ground water monitoring cost is not expected to be material. PSE&G has NJPDES DSW permits for its Bergen, Hudson, Kearny, Essex, Linden, Sewaren, Edison, Mercer, Burlington, Salem and Hope Creek electric generating stations and its Harrison gas facilities. Adjudicatory hearing requests are pending before the NJDEP to resolve one or more contested issues in the above-referenced permits for Linden and are discussed below. Discussed below are pending actions or proceedings relating to specific facilities or sites. In 1991, the NJDEP issued a draft NJPDES permit for Sewaren Station which would impose water quality-based effluent limits both on pollutants identified as a result of a monitoring program instituted pursuant to Section 304(l) in non-contact cooling water and treatment plant discharges, which could have significant adverse impact on the operations of this station. PSE&G submitted comments addressing factual and legal issues raised by the draft permit. The NJDEP and the EPA have proposed delisting Sewaren and the NJDEP has indicated its intent to reissue a draft permit which would not impose water-quality-based effluent limits. In August 1994, the Bergen County Utilities Authority issued a significant industrial user permit for the discharge of cooling tower blowdown and other sources associated with the newly repowered Bergen Unit. This permit will replace the expired NJPDES DSW permit. In 1993, the NJDEP issued a final Major Modification to Linden's DSW permit incorporating conditions consistent with the comments PSE&G previously filed on the 1992 draft permit. PSE&G is evaluating whether to rescind its request for an adjudicatory hearing based on these changes. NJDEP advised PSE&G in 1986 that, with respect to PSE&G's Bergen, Hudson, Kearny, Sewaren and Linden Stations, the demonstrations and reports previously submitted to EPA supporting PSE&G's Section 316(a) variance requests and Section 316(b) determinations no longer provided adequate information upon which decisions could be made. PSE&G submitted supplemental Section 316(a) and Section 316(b) demonstrations in 1988 for Bergen, Hudson and Kearny Stations. In 1989, PSE&G submitted supplemental Section 316(b) demonstrations for both Linden and Sewaren Stations and a supplemental Section 316(a) demonstration for Sewaren. The Linden supplemental Section 316(a) demonstration was submitted in 1990. To date, the NJDEP has not responded to these submittals. PSE&G received a final DGW permit for Bergen in 1987. A hearing request was filed and all issues but one were resolved amicably thereafter in 1987. PSE&G may ultimately contest the single unresolved issue contained in the final Bergen DGW permit. A draft DGW permit was issued by NJDEP for Mercer Generating Station in 1987. NJDEP has taken no further action. Salem Station As required by the FWPCA, over the past 15 years, PSE&G has submitted to the EPA and NJDEP its demonstrations which concluded that structural modifications including cooling towers, are not required at Salem to achieve satisfactory environmental effects. In 1990, the NJDEP issued a draft NJPDES Permit to the Salem Station which required closed-cycle cooling. In response to the 1990 Draft Permit, PSE&G submitted extensive written comments to the NJDEP regarding the ecological effects of station operations demonstrating that Salem was not having and would not have an adverse environmental impact and that closed-cycle cooling was an inappropriate solution. To resolve the NJDEP's concerns, PSE&G also developed and submitted a supplement to the permit renewal application setting forth an alternative approach that would protect aquatic life in the Delaware Estuary and provide other ecological benefits. PSE&G proposed intake screen modifications to reduce fish losses, a study of sound deterrent systems to divert fish from the intake and a limit on intake flow. In addition, PSE&G proposed conservation measures, including the restoration of up to 10,000 acres of degraded wetlands and the installation of fish ladders to allow fish to reach upstream spawning areas. Finally, PSE&G proposed a comprehensive biological monitoring program to expand existing knowledge of the Delaware Estuary and to monitor station impacts. In June 1993, the NJDEP issued Salem a revised draft permit which reconsidered the requirement for closed-cycle cooling and adopted alternative measures proposed by PSE&G with certain modifications. A final five-year permit, with essentially the same provisions as the revised draft permit, was issued on July 20, 1994 with an effective date of September 1, 1994. The EPA, which has authority to review the final permit issued by the NJDEP, completed its review and has not raised any objections. Certain environmental groups and other entities, including the State of Delaware, have filed requests for hearings with the NJDEP challenging the final permit. The NJDEP granted the hearing requests on certain of the issues and PSE&G has been named as a respondent along with the NJDEP in these matters which are pending in the Office of Administrative Law of the State of New Jersey (OAL). PSE&G is implementing the final permit. Additional permits from various agencies are required to be obtained to implement the permit. No assurances can be given as to receipt of any such additional permits. The estimated capital cost of compliance with the final permit is approximately $100 million, of which PSE&G's share is 42.59% and is included in PSE&G's 1995-1999 construction program. PSE&G will request the BPU to allow the recovery in rates from electric customers of all costs associated with the modifications and conservation measures required by the permit. (See MD&A -- Liquidity and Capital Resources -- Construction, Investments and Other Capital Requirements Forecast.) Hope Creek Station Hope Creek's existing permit has been in effect since 1985. PSE&G submitted an application for renewal in 1990. The existing permit remains in effect pending NJDEP action expected in 1995. PSE&G cannot predict what new terms and conditions NJDEP may seek to impose in the renewed permit. Control of Hazardous Substances PSE&G Manufactured Gas Plant Remediation Program For information regarding PSE&G's Manufactured Gas Plant Remediation Program, see Note 12 -- Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements. Other Sites PSE&G's 1989 decision to close the Synthetic Natural Gas Plant (SNG Plant) in Linden, New Jersey (jointly owned by PSE&G (90%) and the Elizabethtown Gas Company (10%)) triggered certain environmental compliance activities under the New Jersey Environmental Cleanup Responsibility Act (ECRA). PSE&G has completed the first stage of the required site sampling activities at this facility. During field work activities, certain soil and ground water contamination has been identified. The costs of any necessary cleanup are not currently estimable, but such costs are not expected to have a material effect on its financial position, results of operations or net cash flows. A preliminary review of possible mercury contamination at the Kearny Generating Station concluded that additional study and investigations are required. PSE&G filed an application in January 1995 for a Memorandum of Agreement with NJDEP for the conduct of the additional study and investigation. A work plan detailing additional sampling will be developed in early 1995 and submitted to the NJDEP. Soil sampling and surveys will begin after approval of the detailed work plan with completion estimated for the end of the third quarter 1995. The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), as amended by the Superfund Amendments and Reauthorization Act of 1986 and the Federal Resource Conservation and Recovery Act of 1976 (RCRA), authorize EPA to issue orders and/or to bring an enforcement action to compel responsible parties to take investigative and/or cleanup actions at any site that is determined to present an imminent and substantial danger to the public or to the environment because of an actual or threatened release of one or more hazardous substances. The New Jersey Spill Compensation and Control Act (Spill Act) and the New York Environmental Conservation Law provide similar authority to NJDEP and the New York Attorney General, respectively. Because of the nature of PSE&G's business, including the production of electricity, the distribution of gas and, formerly, the manufacture of gas, various by-products and substances are or were produced or handled which contain constituents classified as hazardous under one or more of the above laws. PSE&G generally provides for the disposal or processing of such substances through licensed independent contractors. However, these statutory provisions impose joint and several liability without regard to fault on all allegedly responsible parties, including the generators of the hazardous substances for certain investigative and cleanup costs at sites where these substances were disposed of or processed. PSE&G has been notified with respect to a number of such sites and the cleanup of these potentially hazardous sites is receiving greater attention from the government agencies involved. Generally, actions directed at funding such site investigations and cleanups include suspected or known allegedly responsible parties. PSE&G's past operations suggest that some remedial action may be required. PSE&G does not expect its expenditures for any such site to have a material effect on its financial position, results of operations or net cash flows. Presently, such actions involving PSE&G include the following: (1) In United States and New Jersey v. Alcan Aluminum, et al., Civil Action Nos. 88-4646 (NHP) and 88-4670 (NHP), in the U. S. District Court for the District of New Jersey, in 1989, a Consent Decree was entered with EPA and NJDEP, obligating potentially responsible parties (PRPs), including PSE&G, to implement both a bioremediation treatability study and a two-stage subsurface remedial action, i.e., excavation and bioremediation, at the Renora Superfund Site in Edison, Middlesex County, New Jersey. The excavation and off-site removal of soils contaminated with polychlorinated biphenyls has been completed. However, because the treatability study showed that bioremediation would fail at this site, in 1991, the Consent Decree was modified to eliminate that remedial action. Instead, EPA required new treatability studies on solidification technologies, and a Phase II Feasibility Study (FS II) incorporating that new data. These new studies proved that all on-site soil treatment technologies would fail, and in 1992, the PRPs submitted FS II for EPA's and NJDEP's comments. An amended Record of Decision (ROD) issued by EPA in October 1994 requires additional excavation and off-site removal of soil, the estimated cost of which is approximately $2.8 million. Based upon discussions held among the parties to date, it appears that PSE&G's responsibility for clean-up costs at this site will approximate 10% of such costs. (2) 1985 claim by U. S. Department of the Interior under CERCLA with respect to the Pennsylvania Avenue and Fountain Avenue municipal landfills in Brooklyn, New York for damages to natural resources. The U.S. Government alleges damages of approximately $200 million. To PSE&G's knowledge, there has been no action on this matter since 1988. (3) Claim by EPA, Region III, under CERCLA with respect to a site operated by Sealand Ltd. in Mount Pleasant Township, New Castle County, Delaware. PSE&G and other companies have entered into an Administrative Consent Order (ACO) obligating the signatories thereto to fund a Remedial Investigation and Feasibility Study (RI/FS). PSE&G's share of the costs of actions taken at this site have approximated 25% of such costs. In 1991, EPA entered a ROD which determined that no further action was required at the site. The State of Delaware has filed comments objecting to this ROD and has hired a consultant which has recommended that additional actions be taken at the site based on its review of EPA's files. The State of Delaware required the PRPs to conduct additional groundwater analyses during 1994 and is presently reviewing the results to determine whether any future actions are required at this site. (4) At the Duane Marine Salvage Corporation Superfund Site in Perth Amboy, Middlesex County, New Jersey, the PRPs, including PSE&G, had completed an EPA-approved surface removal action during 1986 and EPA had required no further response actions. However, NJDEP ordered that an RI/FS be performed to address or disprove an alleged subsurface contamination and, following negotiations with the PRPs, including PSE&G, an ACO was executed. The PRPs have submitted an RI/FS and a second revised Draft Feasibility Study. In 1994, NJDEP selected a remedy for the site, the total cost of which is estimated to be $1,500,000. Based upon the claims made and activities taken to date, PSE&G anticipates that its obligations with respect to this site will be de minimis. (5) Spill Act Directive issued by NJDEP in 1987 to PRPs, including PSE&G, with respect to a site formerly owned and operated by Borne Chemical Company in Elizabeth, Union County, New Jersey, ordering certain interim actions directed at both site security and the off-site removal of certain hazardous substances. Certain PRPs, including PSE&G, signed an ACO with NJDEP to secure the site, which has been completed. After further negotiations, certain other PRPs, including PSE&G, signed a further ACO requiring them to perform a removal action at the site, which was completed in 1992. In 1994, NJDEP issued a third Directive requiring the performance of an RI/FS. The PRPs have entered into negotiations with NJDEP regarding the terms of the RI/FS oversight document. Based upon the claims made and activities taken to date, PSE&G anticipates that its obligations with respect to this site will be de minimis. (6) A second Directive pursuant to the Spill Act was issued by NJDEP in 1989 to PRPs, including PSE&G, with respect to the PJP Landfill in Jersey City, Hudson County, New Jersey (PJP), ordering payment of operating and maintenance costs of approximately $150,000 and reasserting claims made in an initial Directive for all past and future costs associated with investigations and remediation of the alleged contamination. Additionally, in 1990, also pursuant to the Spill Act, NJDEP issued a Multi-Site Directive concerning four sites, including PJP. With respect to the PJP site, NJDEP reasserted demands for payment made in the earlier Directives. The NJDEP alleges that it has spent approximately $23 million in interim remedial measures at the PJP site. The NJDEP also alleges that it will incur approximately $2 million in costs to complete a remedial investigation of the PJP site. PSE&G has made a good-faith payment of approximately $21,000 to NJDEP pursuant to the Multi-Site Directive in accordance with actions taken by certain other PRPs named in these Directives. The NJDEP has filed a cost recovery action in Superior Court against certain of the other PRPs named in the Directives. Based upon the claims made and activities taken to date, PSE&G anticipates that its obligations with respect to this site will be de minimis. (7) Prospective enforcement action by NJDEP with respect to a site formerly owned by the Township of Hillsborough, Somerset County, New Jersey and used for a sanitary landfill and presently owned by PSE&G. NJPDES-DGW permits were issued by NJDEP to PSE&G and to the adjoining property owner to install monitoring wells on these premises. As required by the foregoing permits, groundwater monitoring wells were established and groundwater monitored. In accordance with a subsequent New Jersey Supreme Court decision in a case to which PSE&G was not a party, the subject NJPDES -- DGW permit was determined to be invalid. However, the NJDEP has recommended that any existing ground water monitoring wells be maintained pending the NJDEP's drafting of groundwater regulations which may affect the former landfill site. (8) In State of New Jersey, Department of Environmental Protection v. Gloucester Environmental Management Services, Inc. (GEMS), et al., Docket No. 84-0152 (SSB), in the U.S. District Court for the District of New Jersey, the Fourth Amended Complaint was filed, naming PSE&G and approximately forty other alleged generators of hazardous waste materials as defendants. PSE&G investigated possible involvement with the GEMS site in Gloucester Township, Camden County, in response to an earlier inquiry from EPA. That investigation revealed that certain waste materials originating at a PSE&G facility may have contained asbestos and may have been taken to the GEMS site by an independent contractor performing removal work for PSE&G. PSE&G agreed to participate in the partial settlement of the litigation which includes the Phase I remediation of the landfill and contributed $150,000 toward the estimated Phase I cost of approximately $32.5 million. (9) Claim by EPA, Region III, under CERCLA with respect to a Superfund Site in Philadelphia, Pennsylvania, owned and formerly operated by Metal Bank, Inc., as a non-ferrous scrap reclamation facility. PSE&G, together with several other similarly situated utilities, is alleged to be liable either to conduct an RI/FS and undertake the necessary cleanup, if any, or to reimburse EPA for the cost of performing these functions. In 1991 these utilities, including PSE&G, entered into an ACO with the EPA to perform an RI/FS, Docket No. III-91-34-DC. The RI/FS was recently completed and the RI/FS Report was submitted to EPA on October 14, 1994. The RI/FS Report proposes various remedial alternatives for consideration by EPA in its selection of a remedy for the site. The alternatives proposed in the RI/FS range in cost from approximately $2 million to approximately $90 million. However, the RI/FS proposes a remedy ranging in cost from $15 to $30 million. It is expected that during 1995 EPA will select a remedy and issue a ROD memorializing this remedy selection. At that time it is anticipated that EPA will assess a claim against PSE&G and the other similarly situated utility companies, and perhaps others as well, for the performance or funding of the selected remedy. PSE&G's share of the costs of the proposed remedy is approximately $7 million or approximately 26% of the total. (10) Inquiry and prospective enforcement action by EPA, Region II, with respect to a site known as the Florence Land Recontouring (FLR) Landfill Site in the Townships of Florence, Mansfield and Springfield, Burlington County, New Jersey. In 1989 the NJDEP issued Directive and Notice to Insurers (1989 Directive) to PSE&G and twenty-six other respondents. The 1989 Directive requires the respondents to arrange for certain remedial measures at the FLR Site and to pay the NJDEP a total of approximately $7.5 million in estimated remedial construction activities and administration costs regarding future operations and maintenance. In 1990, pursuant to the Spill Act, the NJDEP issued Multi-Site Directive and Notice to Insurers Number One (1990 Directive) in the matter of four sites including the FLR Site. The 1990 Directive, as it relates to the FLR Site, directs eighteen of the twenty-seven respondents named in the 1989 Directive to undertake the same remedial measures and pay the same costs as set forth in the 1989 Directive. PSE&G is currently evaluating the NJDEP's claim and is working in concert with other PRPs to address the NJDEP Directives. Based upon the claims made and activities taken to date, PSE&G anticipates that its obligations with respect to this site will be de minimis. (11) Claim by EPA, Region II, under CERCLA with respect to a Superfund Site known as the Lone Pine Landfill in Freehold Township, Monmouth County, New Jersey. EPA investigation regarding this site disclosed that certain hazardous waste materials generated by approximately 200 alleged generators and transported to a site known as the SCP Scientific Chemical Processing Site, Wilson Avenue, Newark, Essex County, New Jersey (SCP-Newark), were allegedly subsequently transshipped, taken to and disposed of at the Lone Pine Landfill. PSE&G's prior investigation in response to an earlier inquiry from EPA regarding the SCP-Newark Site revealed that certain waste materials originating at a PSE&G facility were received by Scientific Chemical Processing, Inc. for processing and disposal. A consent decree was entered in the U.S. District Court for the District of New Jersey in 1990 approving the terms of a settlement under which PSE&G agreed to participate as a de minimis settlor. A second Consent Decree was lodged with the United States District Court for the District of New Jersey in 1991 seeking approval of the terms of a settlement under which PSE&G agreed to participate as a de minimis settlor toward an off-site investigation/remediation cost. PSE&G cannot determine, at this time, whether the off-site investigation activities will result in the identification of further off-site remediation costs. Based upon the claims made and activities taken to date, PSE&G anticipates that its obligations with respect to this site will be de minimis. (12) Inquiry and prospective enforcement action by NJDEP against PSE&G regarding PSE&G's property in Hamilton Township, Mercer County, New Jersey, adjacent to PSE&G's Trenton Switching Station. PSE&G is implementing a groundwater monitoring program at the site. (13) 1987 inquiry and prospective enforcement action by EPA, Region II, under CERCLA regarding a site formerly owned and/or operated by Atlantic Resources Corporation in Sayreville, Middlesex County, New Jersey. To PSE&G's knowledge, there has been no action taken on this matter since the initial filing by the EPA. (14) In U.S. v. CDMG Realty Co., et al., Civil Action No. 89-4246 (NHP) (RJH), pending in the United States District Court for the District of New Jersey, PSE&G and over 60 other entities were joined in January 1995 as additional third-party defendants. Third-party plaintiffs, an association of 44 entities, are essentially seeking contribution and/or indemnification for the expenses they have incurred and will incur as a result of having settled the direct claims of the NJDEP and EPA related to the investigation and remediation of Sharkey's Landfill, located in Parsippany-Troy Hills, Morris County, New Jersey. The claims are all alleged to be brought pursuant to CERCLA, and PSE&G is alleged to have arranged for the disposal of industrial wastes at Sharkey's Landfill. (15) 1987 Inquiry and prospective enforcement action by EPA, Region II, under CERCLA regarding PSE&G's possible use of the Curcio Scrap Metal facility in Saddle Brook Township, Bergen County, New Jersey, for scrap reclamation since 1981. To PSE&G's knowledge, there has been no action taken on this matter since the initial filing by the EPA. (16) 1988 inquiry and prospective enforcement action by EPA, Region II, under CERCLA regarding PSE&G's possible use of Higgins Disposal Service Site in Kingston, Franklin Township, Somerset County, New Jersey. To PSE&G's knowledge, there has been no action taken on this matter since the initial filing by the EPA. (17) Inquiry and prospective enforcement actions by EPA, Region II and NJDEP, under CERCLA and the Spill Act regarding PSE&G's possible use of Global Landfill Site in Old Bridge Township, Middlesex County, New Jersey (Global Site). In 1991, the NJDEP issued Directive and Notice to Insurers Number Two (Directive Two) to 24 Insurers and 52 Respondents, including PSE&G. Directive Two seeks recovery of past and anticipated future NJDEP response costs ($37.4 million) incurred and to be incurred in connection with an investigation and remediation of the Global Site. PSE&G's alleged liability is based on assertions that it generated asbestos-containing materials which were disposed of at the Global Site. In 1991, PSE&G entered into an agreement with the NJDEP and 29 other Directive Two Respondents effecting a partial settlement of the foregoing costs subject to a subsequent reallocation based upon the parties' further development of information concerning their respective proportionate waste contributions to the Global Site. The New Jersey Department of Law and Public Safety and PRPs who participated in the partial settlement set forth above have concluded negotiations concerning a resolution of the balance of the response costs sought pursuant to Directive Two. In connection with those negotiations, the PRPs are currently attempting to secure the information necessary to determine their respective proportionate waste contributions to the Global Site for the purpose of further establishing proportionate shares of any future settlement. Negotiations are ongoing regarding resolution of the balance of the response costs sought pursuant to Directive Two. In 1993, the NJDEP and various participating PRPs, including PSE&G, executed a Consent Decree whereby the participating PRPs agreed to perform the remedial design and remedial action for the operable unit one remedy as specified in a 1991 ROD (approximate total cost $30 million). The Consent Decree was executed and entered by the United States District Court for the District of New Jersey in 1993. Subject to a subsequent reallocation, the various parties to the Consent Decree have agreed that PSE&G's contribution under the Consent Decree settlement will be $300,000 (approximately 1% of the total cost). (18) 1989 inquiry and prospective enforcement action by EPA, Region II under CERCLA regarding PSE&G's possible use of the Port Washington Landfill in North Hempstead, New York. To PSE&G's knowledge, there has been no action taken on this matter since the initial filing by the EPA (NJDEP). (19) 1989 Spill Act inquiry and prospective enforcement action issued by NJDEP to PRPs, including PSE&G, regarding PSE&G's possible use of Combe Fill North Sanitary Landfill in Mt. Olive Township, Morris County, New Jersey. To PSE&G's knowledge, there has been no action taken on this matter since the initial filing by the NJDEP. (20) Spill Act inquiry and prospective enforcement action issued by NJDEP to PRPs, including PSE&G, regarding PSE&G's possible use of Combe Fill South Sanitary Landfill in Washington and Chester Townships, Morris County, New Jersey (Combe Site). In 1991, the New Jersey Department of Law and Public Safety, Division of Law, issued Directive and Notice To Insurers Number One (Directive One) to 50 Insurers and 20 Respondents, including PSE&G, seeking from the Respondents payment of $5.5 million of NJDEP's anticipated costs of remedial action and of administrative oversight at the Combe Site. The $5.5 million represents the NJDEP's 10% share of such anticipated costs pursuant to a cooperative agreement with the United States regarding the selected remedial action. Therefore, total site remediation costs approximate $50 million. Further, the Directive One Respondents are directed to perform the operation and maintenance of the remedial action including all remedial facilities on the Combe Site. PSE&G's alleged liability is based on the assertion that PSE&G-generated waste oil and water, containing hazardous substances, was transported to the Combe Site and applied to Combe Site roads for dust control. Based upon the claims made and activities taken to date, PSE&G anticipates that its obligations, if any, with respect to this site will be deminimis. (21) In United States of America v. Superior Tube Company, et al., Docket No. 89-7421 in the U.S. District Court for the Eastern District of Pennsylvania, PSE&G was served in 1990 with a Third-Party Complaint. Pursuant to CERCLA, the United States filed suit against Superior Tube Company (Superior) and others seeking recovery of past and future costs incurred or to be incurred in the cleanup of the Moyer Landfill located in Pennsylvania. Superior filed a Third-Party Complaint naming approximately 150 third-party defendants, including PSE&G. Superior alleges that PSE&G generated, transported, arranged for the disposal of and/or caused to be deposited certain hazardous substances at the Moyer Landfill. On the basis of those allegations, Superior seeks contribution and/or indemnification from the third-party defendants, including PSE&G, on the United States' action against it. PSE&G has recently participated in negotiations concerning resolution of the United States' and Superior Tube's claims. Based upon the claims made and activities taken to date, PSE&G anticipates that its obligations with respect to this site will be de minimis. (22) Spill Act Multi-Site Directive (Directive) issued by the NJDEP to PRPs, including PSE&G, listing four separate sites, including the former bulking and transfer facility called the Marvin Jonas Transfer Station (Sewell Site) in Deptford Township, Gloucester County, New Jersey. With regard to the Sewell Site, this Directive ordered approximately 350 PRPs, including PSE&G, to enter into an ACO with NJDEP, requiring them to remediate the Sewell Site. Certain PRPs, including PSE&G, have completed the interim actions directed at both site security and off-site disposal of containers, trailers and contaminated surface soils. PRPs, including PSE&G, are currently fulfilling the terms of a Memorandum of Agreement (MOA) entered into with NJDEP in July 1993 to conduct an RI/FS and, if necessary, take remedial action. An RI/FS Work Plan has been approved by the NJDEP and the RI/FS is expected to be conducted during 1995. Based upon the claims made and activities taken to date, PSE&G anticipates that its obligations with respect to this site will be de minimis. (23) In Transtech Industries, Inc. et al v. A&Z Septic Clean et al., Docket No. 2-90-2578(HAA), filed on October 5, 1992, in the U.S. District Court for the District of New Jersey, PSE&G has been named a defendant in a Complaint which has been filed pursuant to CERCLA, against several hundred parties seeking recovery of past and future response costs incurred or to be incurred in the investigation and/or remediation of the Kin-Buc Landfill, located in Edison Township, Middlesex County, New Jersey. Plaintiffs allege that all named defendants, including PSE&G, are PRPs as generators and/or transporters of various hazardous substances ultimately deposited at the Kin-Buc Landfill. Based upon the claims made and activities taken to date, PSE&G anticipates that its obligations with respect to this site will be de minimis. (24) Ongoing and prospective enforcement action by EPA, Region II, under CERCLA regarding PSE&G's possible use of the Custom Distribution Services Site in Perth Amboy, Middlesex County, New Jersey. (25) 1992 inquiry and prospective CERCLA enforcement action by EPA, Region II, regarding PSE&G's possible use of the Scientific Chemical Processing Superfund Site, Carlstadt, New Jersey. (26) 1993 inquiries and prospective enforcement action by EPA, Region II, regarding PSE&G's possible use of the Bridgeport Rental and Oil Services site located in Logan Township, Gloucester County, New Jersey. Enterprise - ---------- Consolidated Financial Statistics (A)
(Thousands of Dollars where applicable) 1994 1993 1992 1991 1990 - ---------------------------------------------- ------------ ----------- ------------ ------------ ------------ Selected Income Information Operating Revenues Electric...................................... $ 3,733,113 $ 3,693,083 $ 3,407,819 $ 3,519,806 $ 3,380,742 Gas........................................... 1,778,528 1,594,341 1,586,181 1,307,849 1,236,747 Nonutility Activities......................... 404,202 418,135 362,781 283,766 230,075 - ------------------------------------------------------------------------------------------------------------------ Total Operating Revenues...................... $ 5,915,843 $ 5,705,559 $ 5,356,781 $ 5,111,421 $ 4,847,564 - ------------------------------------------------------------------------------------------------------------------ Net Income.................................... $ 679,033 $ 600,933 $ 504,117 $ 543,035 $ 403,663 - ------------------------------------------------------------------------------------------------------------------ Earnings per average share of Common Stock.... $ 2.78 $ 2.50 $ 2.17 $ 2.43 $ 1.90 Dividends Paid per Share...................... $ 2.16 $ 2.16 $ 2.16 $ 2.13 $ 2.09 Payout Ratio.................................. 78% 86% 100% 88% 110% Rate of Return on Average Common Equity(B).... 12.94% 11.91% 10.69% 12.24% 9.66% Ratio of Earnings to Fixed Charges............ 2.76 2.59 2.30 2.54 2.09 Book Value per Common Share(C)................ $ 21.70 $ 21.07 $ 20.32 $ 20.04 $ 19.44 Gross Utility Plant........................... $16,566,058 $15,861,484 $15,081,907 $14,426,560 $12,836,874 Accumulated Depreciation and Amoritzation of Utility Plant............................ $ 5,467,813 $ 5,057,104 $ 4,610,595 $ 4,243,979 $ 3,963,093 Total Assets.................................. $16,717,440 $16,329,656 $14,777,732 $14,804,354 $13,713,248 - ------------------------------------------------------------------------------------------------------------------ Consolidated Capitalization Common Stock.................................. $ 3,801,157 $ 3,772,662 $ 3,499,183 $ 3,262,138 $ 3,043,402 Retained Earnings............................. 1,510,010 1,361,018 1,282,931 1,282,029 1,203,772 - ------------------------------------------------------------------------------------------------------------------ Common Equity................................. 5,311,167 5,133,680 4,782,114 4,544,167 4,247,174 Long-Term Debt................................ 5,180,657 5,256,321 4,977,579 5,128,373 4,668,024 Preferred Stock without Mandatory Redemption.. 384,994 429,994 429,994 429,994 429,994 Preferred Stock with Mandatory Redemption..... 150,000 150,000 75,000 -- -- Monthly Income Preferred Securities........... 150,000 -- -- -- -- - ------------------------------------------------------------------------------------------------------------------ Total Capitalization.......................... $11,176,818 $10,969,995 $10,264,687 $10,102,534 $ 9,345,192 ================================================================================================================== (A) See Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes to Consolidated Financial Statements. (B) Net Income for a twelve-month period divided by the thirteen-month average of Common Equity. (C) Total Common Equity divided by end-of-period Common Shares outstanding.
Operating Statistics PSE&G - -----
(Thousands of Dollars where applicable) 1994 1993 1992 1991 1990 - ---------------------------------------------- ------------ ----------- ------------ ------------ ------------ Electric Revenues from Sales of Electricity: Residential................................. $ 1,187,103 $ 1,175,875 $ 1,037,099 $ 1,116,699 $ 1,038,906 Commercial.................................. 1,734,901 1,678,011 1,554,956 1,575,547 1,516,755 Industrial.................................. 693,535 710,206 683,750 728,411 697,571 Public Street Lighting...................... 52,353 51,019 47,729 46,400 45,418 ----------- ----------- ----------- ----------- ----------- Total Revenues from Sales to Customers........ 3,667,892 3,615,111 3,323,534 3,467,057 3,298,650 Interdepartmental........................... 1,710 1,737 1,544 1,599 1,652 Non-Jurisdictional Sales.................... 35,223 48,625 51,313 19,763 48,325 ----------- ----------- ----------- ----------- ----------- Total Revenues from Sales of Electricity...... 3,704,825 3,665,473 3,376,391 3,488,419 3,348,627 Other Electric Revenues....................... 28,288 27,610 31,428 31,387 32,115 ----------- ----------- ----------- ----------- ----------- Total Operating Revenues................. $ 3,733,113 $ 3,693,083 $ 3,407,819 $ 3,519,806 $ 3,380,742 =========== =========== =========== =========== =========== Sales of Electricity - megawatthours: Residential................................. 10,594,134 10,631,402 9,816,046 10,505,547 9,875,569 Commercial.................................. 18,466,863 18,096,312 17,454,352 17,596,569 17,054,495 Industrial.................................. 9,249,233 9,203,839 9,298,741 9,406,109 9,457,985 Public Street Lighting...................... 334,726 329,828 325,545 320,900 314,936 ----------- ----------- ----------- ----------- ----------- Total Sales to Customers...................... 38,644,956 38,261,381 36,894,684 37,829,125 36,702,985 Interdepartmental........................... 17,755 18,514 19,012 19,719 19,822 Non-Jurisdictional Sales.................... 1,320,170 2,245,884 2,116,049 1,858,590 1,625,016 ----------- ----------- ----------- ----------- ----------- Total Sales of Electricity............... 39,982,881 40,525,779 39,029,745 39,707,434 38,347,823 =========== =========== =========== =========== =========== Gas Revenues from Sales of Gas: Residential................................. $ 889,541 $ 780,195 $ 809,559 $ 699,696 $ 667,077 Commercial.................................. 510,829 460,340 481,960 426,110 406,577 Industrial.................................. 312,405 299,762 243,527 138,394 130,273 Street Lighting............................. 491 467 468 468 385 ----------- ----------- ----------- ----------- ----------- Total Revenues from Sales to Customers........ 1,713,266 1,540,764 1,535,514 1,264,668 1,204,312 Interdepartmental............................ 3,976 3,078 2,572 2,689 2,157 ----------- ----------- ----------- ----------- ----------- Total Revenues from Sales of Gas.............. 1,717,242 1,543,842 1,538,086 1,267,357 1,206,469 Transportation Service Revenues............... 35,057 37,081 34,739 27,036 15,654 Other Gas Revenues............................ 26,229 13,418 13,356 13,456 14,624 ----------- ----------- ----------- ----------- ----------- Total Operating Revenues................. $ 1,778,528 $ 1,594,341 $ 1,586,181 $ 1,307,849 $ 1,236,747 =========== =========== =========== =========== =========== Sales of Gas - kilotherms: Residential................................. 1,337,267 1,280,128 1,265,270 1,140,887 1,097,034 Commercial.................................. 945,950 943,054 939,021 893,069 837,650 Industrial.................................. 912,689 876,421 739,508 399,385 341,467 Street Lighting............................. 668 666 668 666 657 ----------- ----------- ----------- ----------- ----------- Total Sales to Customers...................... 3,196,574 3,100,269 2,944,467 2,434,007 2,276,808 Interdepartmental............................. 9,316 7,509 5,967 6,174 5,144 ----------- ----------- ----------- ----------- ----------- Total Sales of Gas............................ 3,205,890 3,107,778 2,950,434 2,440,181 2,281,952 Transportation Service........................ 544,539 557,403 543,097 381,497 182,056 ----------- ----------- ----------- ----------- ----------- Total Gas Sold and Transported........... 3,750,429 3,665,181 3,493,531 2,821,678 2,464,008 =========== =========== =========== =========== ===========
EDHI EDHI, a wholly owned, direct subsidiary of Enterprise, is incorporated under the laws of New Jersey and is the parent company of EDC, CEA, PSRC, EGDC, Capital and Funding. EDHI's principal executive offices are located at One Riverfront Plaza, Newark, New Jersey 07102. EDHI's focus is on its energy- related core businesses, with emphasis on its investment in the independent energy market. For a discussion of the impact on EDHI of Enterprise's agreement with the BPU regarding utility/nonutility activities, see Regulation. EDC EDC, a New Jersey corporation, has its principal executive offices at 1000 Louisiana Street, Suite 2900, Houston, Texas 77002. EDC is an oil and gas exploration and production and marketing company with principal operations both onshore and offshore in the southern United States and has a growing international production base. EDC has been pursuing a program to grow its reserve base in order to maintain an annual production level of 130-140 Billion Cubic Feet Equivalent (BCFE) through a combination of exploratory and development activities. EDC's worldwide 1994 production totaled 108 BCFE. Year-end 1994 proved reserves were 594 billion cubic feet of gas and 49 million barrels of oil, increases of 10% and 9%, respectively, compared to 1993. As of December 31, 1994 and 1993, EDC's consolidated assets aggregated $729 million and $679 million, respectively. EDC is exempt from direct regulation by the BPU and FERC except that certain FERC approval is required to transport its gas interstate from its discovery fields. EDC had provided a source of firm gas supply to PSE&G which in 1994 accounted for approximately 7% of EDC's gas sales volumes. Sales by EDC to PSE&G were discontinued on September 30, 1994 pursuant to an agreement with the BPU. (See PSE&G -- Gas Operations and Supply, Regulation and Note 1 -- Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements.) CEA CEA, a New Jersey corporation, has its principal executive offices at 1200 East Ridgewood Avenue, Ridgewood, New Jersey 07450. CEA invests in and participates in the development of cogeneration and power production facilities, which include QFs and a foreign EWG. CEA is expected to be the primary vehicle for EDHI's business growth for the foreseeable future, with emphasis on international projects. CEA's two direct subsidiaries, CEA New Jersey, Inc. (CEA New Jersey) and CEA USA, Inc. (CEA USA), hold certain of its investments. CEA New Jersey's subsidiaries invest in projects in New Jersey selling power to PSE&G. CEA USA's subsidiaries invest in projects selling power to other domestic and foreign utilities. CEA and/or its subsidiaries and affiliates have investments in 17 commercially operating cogeneration or power projects, one anthracite coal mine and one project scheduled for start-up in the first quarter of 1995. CEA continuously evaluates the status of project development and construction in light of the realities of timely completion and the costs incurred. CEA's investments in QF projects have been undertaken with other participants because CEA, together with any other utility affiliate, may not own more than 50% of a QF under applicable law subsequent to the in-service date. Projects involving EWGs are not restricted to a 50% investment limitation. CEA's projects are diversified internationally and technologically and are generally financed through non-recourse debt. CEA is an investor in these projects and the electricity produced by the facilities is not part of PSE&G's installed capacity. However, some of such power is being purchased by PSE&G pursuant to long-term contracts with the applicable projects. As of December 31, 1994 and 1993, CEA's consolidated assets aggregated $232 million and $211 million, respectively. (See Note 7 -- Long-Term Investments of Notes to Consolidated Financial Statements.) PSRC PSRC, a New Jersey corporation, has its principal executive offices at One Riverfront Plaza, Newark, New Jersey 07102. PSRC makes primarily passive investments in assets that can provide funds for future growth as well as provide incremental earnings for Enterprise. Investments have been made in leveraged and direct financing leases, project financings, venture capital funds, leveraged buyout funds, real estate limited partnerships and securities. The maturities of the portfolio's investments are also fairly diverse, with some having terms exceeding 30 years. PSRC's leveraged lease investments include a wide range of asset sectors. Some of the transactions in which PSRC and its subsidiaries participate involve other equity investors. PSRC plans to limit new investments to existing commitments and investments related to EDHI's core business. For information concerning PSRC's three direct-finance leases with Continental Airlines, see Note 12 -- Commitment and Contingent Liabilities of Notes to Consolidated Financial Statements. In January 1994, in response to regulatory changes occurring at both the national and state levels regarding the sale and distribution of natural gas (see Competition), PSRC formed a gas marketing subsidiary, Public Service Gas Marketing Company, which has entered into a partnership with another major utility to market natural gas and associated services on an unregulated basis to commercial and industrial gas consumers nationwide. The partnership, USEP, commenced its marketing activities in May 1994 and had sold approximately 4.9 mmbtu of gas through December 1994. PSRC is a limited partner in various partnerships and is committed to make investments from time to time, upon the request of the respective general partners. On December 31, 1994, $134 million remained as PSRC's unfunded commitment subject to call. As of year-end 1994 and 1993, PSRC's long-term investments aggregated $1.3 billion. EGDC EGDC, a New Jersey corporation having its principal executive offices at One Riverfront Plaza, Newark, New Jersey 07102, is a diversified nonresidential real estate development and investment business. EGDC has investments in ten commercial real estate properties (five of which are developed) in several states. EGDC's strategy is to preserve and build the value of its assets to allow for the controlled disposition of its properties as the real estate market improves. As of December 31, 1994 and 1993, EGDC's consolidated assets aggregated $189 million and $203 million, respectively. For further discussion of EGDC, see MD&A -- Liquidity and Capital Resources -- EDHI. Capital Capital, a New Jersey corporation, has its principal executive offices at 80 Park Plaza, Newark, New Jersey 07101. Capital serves as a financing vehicle for EDHI's businesses, borrowing on their behalf on the basis of a minimum net worth maintenance agreement with Enterprise. That agreement provides, among other things, that Enterprise (i) maintain its ownership, directly or indirectly, of all outstanding common stock of Capital, (ii) cause Capital to have at all times a positive tangible net worth of at least $100,000 and (iii) make sufficient contributions of liquid assets to Capital in order to permit it to pay its debt obligations. In 1993, Enterprise agreed with the BPU to make a good-faith effort to eliminate such Enterprise support within six to ten years. Intercompany borrowing rates are established with reference to Capital's cost of funds. Effective January 31, 1995, Capital will not have more than $650 million of debt outstanding at any time. Capital's assets consist principally of demand notes of EDC, CEA, PSRC and EGDC. As of December 31, 1994 and 1993, Capital had outstanding $632 million and $724.5 million, respectively, of its long-term debt. For additional information, see Construction and Capital Requirements -- Financing Activities and MD&A -- Liquidity and Capital Resources -- EDHI. Funding Funding, a New Jersey corporation, has its principal executive offices at 80 Park Plaza, Newark, New Jersey 07101. Funding serves as a financing vehicle for EDHI's businesses (excluding EGDC), borrowing on their behalf, as well as investing their short-term funds. Short-term investments are made only if the funds cannot be employed in intercompany loans. Intercompany borrowing rates are established with reference to Funding's cost of funds. Funding is providing both long and short-term capital for the nonutility businesses other than EGDC on the basis of an unconditional guaranty from EDHI, but without direct support from Enterprise. As of December 31, 1994 and 1993, Funding's assets consisted principally of demand notes of EDC, CEA and PSRC and their subsidiaries, all of which are pledged to Funding's lenders and which aggregated $334 million and $289 million, respectively. For additional information, see MD&A -- Liquidity and Capital Resources -- EDHI. ITEM 2. PROPERTIES PSE&G The statements under this Item as to ownership of properties are made without regard to leases, tax and assessment liens, judgments, easements, rights of way, contracts, reservations, exceptions, conditions, immaterial liens and encumbrances and other outstanding rights affecting such properties, none of which is considered to be significant in the operations of PSE&G, except that PSE&G's First and Refunding Mortgage (Mortgage), securing the bonds issued thereunder, constitutes a direct first mortgage lien on substantially all of such property. PSE&G maintains insurance coverage against loss or damage to its principal plants and properties, subject to certain exceptions, to the extent such property is usually insured and insurance is available at a reasonable cost. For a discussion of nuclear insurance, see Note 12 -- Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements. The electric lines and gas mains of PSE&G are located over or under public highways, streets, alleys or lands, except where they are located over or under property owned by PSE&G or occupied by it under easements or other rights. These easements and rights are deemed by PSE&G to be adequate for the purposes for which they are being used. Generally, where payments are minor in amount, no examinations of underlying titles as to the rights of way for transmission or distribution lines or mains have been made. Electric Properties As of December 31, 1994, PSE&G's share of installed generating capacity was 10,497 MW, as shown in the following table:
INSTALLED NET MEGAWATT PRINCIPAL HEAT GENERATION CAPACITY NAME AND LOCATION CAPACITY FUEL USED RATE (000 MWH) FACTOR(a) - -------------------------------------------- --------- --------- ------ --------- --------- Fossil Bergen, Ridgefield, NJ ..................... 570 Gas 14,433 305 6.1 Burlington, Burlington, NJ ................. 180 Oil 16,921 57 3.6 Conemaugh, New Florence, PA - 22.50%(b)(c).. 382 Coal 9,488 2,463 73.6 Hudson, Jersey City, NJ .................... 983 Coal 10,975 2,611 30.3 Kearny, Kearny, NJ ......................... 292 Oil 14,349 101 3.9 Keystone, Shelocta, PA - 22.84%(b)(c)....... 388 Coal 9,647 2,381 70.1 Linden, Linden, NJ ......................... 481 Oil 16,540 177 4.2 Mercer, Hamilton, NJ ....................... 642 Coal 10,130 2,297 40.8 Sewaren, Woodbridge Twp., NJ ............... 453 Gas 13,480 441 11.1 ------- ------ --------- --------- Total Fossil........................... 4,371 10,953 10,833 28.5 ------- ------ --------- --------- Nuclear (Capacity factor calculated in accordance with industries maximum dependable capability standards) Hope Creek, Lower Alloways Creek, NJ 95%(b)(c)................................. 979 Nuclear 10,751 6,752 78.9 Peach Bottom, Peach Bottom PA - 42.49%(b)... 886 Nuclear 10,798 6,873 89.3 Salem, Lower Alloways Creek, NJ 42.59%(b)................................. 942 Nuclear 11,032 4,809 58.5 ------- ------ --------- --------- Total Nuclear(b)(c).................... 2,807 10,842 18,434 75.4 ------- ------ --------- --------- Combustion Turbine Bayonne, NJ ................................ 42 Oil 14,130 0.9 Bergen, Ridgefield, NJ ..................... 61 Oil 14,716 1.0 Burlington, NJ ............................. 629 Gas 9,291 413.7 Edison, Edison Township, NJ ................ 504 Gas 15,299 12.7 Essex, Newark, NJ .......................... 617 Gas 13,855 189.5 Hudson, Jersey City, NJ .................... 134 Oil 26,703 1.7 Kearny, Kearny, NJ ......................... 501 Oil 16,478 40.0 Linden, Linden, NJ ......................... 329 Oil 18,494 10.0 Mercer, Hamilton, NJ ....................... 134 Oil 47,299 1.0 National Park, National Park, NJ ........... 21 Oil 43,551 0.1 Salem, Lower Alloways Creek, NJ 42.59%(b)................................. 18 Oil 23,603 0.2 Sewaren, Woodbridge Township, NJ ........... 134 Oil 35,332 2.0 ------- ------ --------- --------- Total Combustion Turbine............... 3,124 11,432 672.8 0.2 ------- ------ --------- --------- Diesel Conemaugh, New Florence, PA - 22.50%(b)..... 3 Oil 10,226 0.2 0.7 Keystone, Shelocta, PA - 22.84%(b).......... 2 Oil 10,261 0.7 4.0 ------- ------ --------- --------- Total Diesel........................... 5 10,254 0.9 2.0 ------- ------ --------- --------- Pumped Storage Yards Creek, Blairstown, NJ - 50%(b)(c)..... 190 367 22.0 ------- ------ --------- --------- Total PSE&G............................ 10,497(d) 10,739 30,308(e) 33.0 ======= ====== ========= ========= (a) Net generation divided by the product of weighted average generating capacity times total hours. (b) PSE&G's share of jointly owned facility. (c) Excludes energy for pumping and synchronous condensers. (d) Excludes 664 MW of nonutility generation and temporary capacity sales of 173 MW to Baltimore Gas and Electric and 111 MW to General Public Utilities. (e) Excludes 4,876 of NUGs.
For information regarding construction see Item 1. Business -- Construction and Capital Expenditures. As of December 31, 1994, PSE&G owned 40 switching stations with an aggregate installed capacity of 31,351,000 kilovolt-amperes, and 224 substations with an aggregate installed capacity of 7,277,000 kilovolt-amperes. In addition, 6 substations having an aggregate installed capacity of 139,250 kilovolt-amperes were operated on leased property. All of these facilities are located in New Jersey. Also at that date, PSE&G owned undivided interests in similar jointly owned facilities at jointly owned generating facilities in New Jersey and Pennsylvania as indicated in the table above. As of December 31, 1994, PSE&G's transmission and distribution system included 149,533 circuit miles, of which 34,868 miles were underground, and 782,031 poles, of which 533,017 poles were jointly owned. Approximately 99% of this property is located in New Jersey. In addition, as of December 31, 1994, PSE&G owned 4 electric distribution headquarters and five subheadquarters in four operating divisions all located in New Jersey. Gas Properties As of December 31, 1994, the daily gas capacity of PSE&G's 100%-owned peaking facilities (the maximum daily gas delivery available during the three peak winter months) consisted of liquid petroleum air gas (LPG) and liquefied natural gas (LNG) and aggregated 2,973,000 therms (approximately 297,300 Mcf. on an equivalent basis of 1,000 Btu/cubic foot) as shown in the following table:
Daily Capacity Plant Location (Therms) - -------------------------------- ------------------ -------------- Burlington LNG.................. Burlington, N.J. 773,000 Camden LPG...................... Camden, N.J. 280,000 Central LPG..................... Edison Twp., N.J. 960,000 Harrison LPG.................... Harrison, N.J. 960,000 --------- Total........................... 2,973,000 =========
As of December 31, 1994, PSE&G owned and operated approximately 15,406 miles of gas mains, owned 12 gas distribution headquarters and one subheadquarters and leased one other subheadquarters all in two operating regions located in New Jersey and owned one meter shop in New Jersey serving all such areas. In addition, PSE&G operated 61 natural gas metering or regulating stations, all located in New Jersey, of which 28 were located on land owned by customers or natural gas pipeline companies supplying PSE&G with natural gas and were operated under lease, easement or other similar arrangement. In some instances, portions of the metering and regulating facilities were owned by pipeline companies. Office Buildings and Facilities PSE&G leases substantially all of a 26-story office tower for its corporate headquarters at 80 Park Plaza, Newark, N. J., together with an adjoining three-story building. PSE&G also leases other office space at various locations throughout New Jersey for district offices and offices for various corporate groups and services. PSE&G also owns various other sites for training, testing, parking, records storage, research, repair and maintenance, warehouse facilities and for other purposes related to its business. EDHI owns no real property. EDHI leases its corporate headquarters at One Riverfront Plaza, Newark, New Jersey 07102. For a brief general description of the properties of the subsidiaries of EDHI, see Item 1. Business -- EDHI. ITEM 3. LEGAL PROCEEDINGS See the following, at the pages indicated: (1) Page 4. Proceedings before FERC relating to competition and electric wholesale power markets. (Inquiry Concerning the Pricing Policy for Transmission Services Provided by Utilities Under the Federal Power Act, Docket No. RM93-19.) (2) Page 5. Proceedings before FERC relating to restructuring of natural gas industry pursuant to Orders 636. (In Re Pipeline Service Obligations and Revisions to Regulations Governing Self-Implementing Transportation Under Part 284 of the Commission's Regulations, Docket No. RM91-11-000). (3) Page 10. Proceedings before the BPU relating to PSE&G's Second Largest Customer, filed January 6, 1995, in Docket No. ER95010005. (4) Page 31. Requests filed in 1974 and later supplemented, to EPA and NJDEP to establish thermal discharges and intake structures for PSE&G's electric generating stations (Sewaren Generating Station, NJ 0000680; Hudson Generating Station, NJ 0000647; Kearny Generating Station, NJ 0000655; Salem Generating Station, NJ 0005622; Linden Generating Station, NJ 0000663). (5) Pages 35 through 41. Various administrative actions, claims, litigation and requests for information by federal and/or state agencies, and/or private parties, under CERCLA, RCRA, and state environmental laws to compel PRPs, which may include PSE&G, to provide information with respect to transportation and disposal of hazardous substances and wastes, and/or to undertake or contribute to the costs of investigative and/or cleanup actions at various locations because of actual or threatened releases of one or more potentially hazardous substances and/or wastes. (6) Page 98. Proceedings before the BPU relating to PSE&G's LGAC, filed July 1, 1994, in Docket No. GR94070292. (7) Page 98. Proceedings before the BPU relating to PSE&G's LEAC, filed July 1, 1994, in Docket No. ER94070293. (8) Page 123. On November 7, 1988, PSE&G filed a lawsuit in the United States District Court for the District of New Jersey against Associated Electric & Gas Insurance Services, Ltd., Certain Underwriters at Lloyd's of London, and Certain London Market Companies (PSE&G v. AEGIS, et al., Civ. Action No. 884811.) The suit seeks insurance coverage from these insurers for claims that have been made against PSE&G by the NJDEP and certain private parties. The claims concern alleged contamination at former gas manufacturing plant sites in New Jersey that are either currently owned by PSE&G or that were previously owned by PSE&G or one of its predecessors. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Enterprise and PSE&G, inapplicable. ITEM 10. EXECUTIVE OFFICERS OF THE REGISTRANTS Enterprise and PSE&G. Information regarding executive officers required by this Item is set forth in Part III, Item 10 hereof. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Enterprise's Common Stock is listed on the New York Stock Exchange, Inc. and the Philadelphia Stock Exchange, Inc. All of PSE&G's common stock is owned by Enterprise, its corporate parent. As of December 31, 1994, there were 185,941 holders of record of Enterprise Common Stock. The following table indicates the high and low sale prices for Enterprise's Common Stock, as reported in The Wall Street Journal as Composite Transactions and dividends paid for the periods indicated:
Dividend High Low Per Share ------ ------- --------- Common Stock: 1994 First Quarter........................ 32 27 1/4 .54 Second Quarter....................... 29 1/4 25 .54 Third Quarter........................ 28 5/8 23 7/8 .54 Fourth Quarter....................... 27 1/8 25 .54 1993 First Quarter........................ 34 1/4 30 .54 Second Quarter....................... 35 31 7/8 .54 Third Quarter........................ 36 1/8 34 .54 Fourth Quarter....................... 35 1/4 30 .54
Since 1986, PSE&G has made regular cash payments to Enterprise in the form of dividends on outstanding shares of PSE&G's Common Stock. PSE&G has paid quarterly dividends on its common stock in each year commencing in 1948, the year of the distribution of PSE&G's common stock by Public Service Corporation of New Jersey, the former parent of PSE&G. Beginning in 1992, EDHI has made regular cash payments to Enterprise in the form of dividends on outstanding shares of EDHI's common stock. Enterprise has paid quarterly dividends in each year commencing with the corporate restructuring of PSE&G when Enterprise became the owner of all the outstanding common stock of PSE&G. While the Board of Directors of Enterprise intends to continue the practice of paying dividends quarterly, amounts and dates of such dividends as may be declared will necessarily be dependent upon Enterprise's future earnings, financial requirements and other factors. The ability of Enterprise to declare and to pay dividends is contingent upon its receipt of dividend payments from its subsidiaries. PSE&G has restrictions on the payments of dividends which are contained in its Restated Certificate of Incorporation, as amended, certain of the indentures supplemental to its Mortgage and certain debenture bond indentures. Under these restrictions, dividends on PSE&G's common stock may be paid only out of PSE&G's earned surplus and may not reduce PSE&G's earned surplus to less than $10 million. PSE&G dividends on common stock would be limited to 75% of Earnings Available for Public Service Enterprise Group Incorporated if payment thereof would reduce PSE&G's Stock Equity to less than 33 1/3% of PSE&G's Total Capitalization and would be limited to 50% of Earnings Available for Public Service Enterprise Group Incorporated if payment thereof would reduce Stock Equity to less than 25% of PSE&G's Total Capitalization, as each of said terms is defined in said PSE&G's debenture bond indentures. Further, under an indenture relating to the loan to PSE&G of the proceeds of the monthly income preferred securities (MIPS) of Public Service Electric and Gas Capital, L.P. (see Note 4. -- Schedule of Consolidated Capital Stock and Other Securities of Notes to Consolidated Financial Statements), dividends may not be paid on PSE&G's capital stock as long as any payments on PSE&G's deferrable interest subordinated debentures issued under said indenture have been deferred or there is a default under said indenture or PSE&G's guarantee relating to the MIPS. None of these restrictions presently limits the payment of dividends out of current earnings. The amount of Enterprise's and PSE&G's consolidated retained earnings free of these restrictions at December 31, 1994 was $1.5 billion and $1.3 billion, respectively. ITEM 6. SELECTED FINANCIAL DATA Enterprise The information presented below should be read in conjunction with Enterprise Consolidated Financial Statements and Notes thereto.
YEARS ENDED DECEMBER 31, ----------------------------------------------------------------------- 1994 1993 1992 1991 1990 ----------- ----------- ----------- ----------- ----------- (THOUSANDS OF DOLLARS, WHERE APPLICABLE) Total Operating Revenues.... $ 5,915,843 $ 5,705,559 $ 5,356,781 $ 5,111,421 $ 4,847,564 Net Income.................. $ 679,033 $ 600,933 $ 504,117 $ 543,035 $ 403,663 Earnings per average share of Common Stock........... $ 2.78 $ 2.50 $ 2.17 $ 2.43 $ 1.90 Dividends paid per share of Common Stock.............. $ 2.16 $ 2.16 $ 2.16 $ 2.13 $ 2.09 As of December 31: Total Assets.............. $16,717,440 $16,329,656 $14,777,732 $14,804,354 $13,713,248 Long-Term Liabilities: Long-Term Debt....... $ 5,180,657 $ 5,256,321 $ 4,977,579 $ 5,128,373 $ 4,668,024 Other Long-Term Liabilities........ $ 215,603 $ 220,159 $ 53,617 $ 54,073 $ 54,512 Preferred Stock with mandatory redemption...... $ 150,000 $ 150,000 $ 75,000 $ -- $ -- Monthly Income Preferred Securities................ $ 150,000 $ -- $ -- $ -- $ -- Ratio of Earnings to Fixed Charges plus Preferred Securities Dividend Requirements (A).......... 2.76 2.59 2.30 2.54 2.09 (A) Fixed charges include the preferred securities dividend requirements of PSE&G.
PSE&G The information presented below should be read in conjunction with PSE&G Consolidated Financial Statements and Notes thereto.
YEARS ENDED DECEMBER 31, ----------------------------------------------------------------------- 1994 1993 1992 1991 1990 ----------- ----------- ----------- ----------- ----------- (THOUSANDS OF DOLLARS, WHERE APPLICABLE) Total Operating Revenues.... $ 5,511,641 $ 5,287,424 $ 4,994,000 $4,827,655 $ 4,617,489 Net Income.................. $ 659,406 $ 614,868 $ 475,936 $ 545,479 $ 537,619 As of December 31: Total Assets.............. $14,264,398 $13,984,298 $12,273,857 $12,027,971 $11,652,208 Long-Term Liabilities: Long-Term Debt....... $ 4,486,787 $ 4,364,437 $ 3,978,138 $ 3,933,389 $ 3,733,444 Other Long-Term Liabilities........ $ 215,603 $ 220,159 $ 53,617 $ 54,073 $ 54,512 Preferred Stock with mandatory redemption...... $ 150,000 $ 150,000 $ 75,000 $ -- $ -- Monthly Income Preferred Securities................ $ 150,000 $ -- $ -- $ -- $ -- Ratio of Earnings to Fixed Charges................... 3.35 3.30 2.70 3.20 3.10 Ratio of Earnings to Fixed Charges plus Preferred Securities Dividend Requirements.............. 2.92 2.89 2.43 2.86 2.79
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ENTERPRISE Following are the significant factors affecting the consolidated financial condition and the results of operations of Public Service Enterprise Group Incorporated (Enterprise) and its subsidiaries. This discussion refers to the Consolidated Financial Statements and related Notes of Enterprise and should be read in conjunction with such statements and notes. Overview Enterprise has two direct wholly owned subsidiaries, Public Service Electric and Gas Company (PSE&G) and Enterprise Diversified Holdings Incorporated (EDHI). Enterprise's principal subsidiary, PSE&G, is an operating public utility providing electric and gas service in certain areas in the State of New Jersey. EDHI is the parent of Enterprise's nonutility businesses: Energy Development Corporation (EDC), an oil and gas exploration and production and marketing company; Community Energy Alternatives Incorporated (CEA), an investor in and developer of cogeneration and independent power production (IPP) facilities and exempt wholesale generators (EWGs); Public Service Resources Corporation (PSRC), which has made primarily passive investments; and Enterprise Group Development Corporation (EGDC), a diversified nonresidential real estate development and investment business. EDHI also has two finance subsidiaries: PSEG Capital Corporation (Capital), which provides privately placed debt financing on the basis of a minimum net worth maintenance agreement from Enterprise and Enterprise Capital Funding Corporation (Funding), which provides privately placed debt financing guaranteed by EDHI but without direct support from Enterprise. As of December 31, 1994 and December 31, 1993, PSE&G comprised 85% and 86%, respectively, of Enterprise assets. For each of the years 1994, 1993 and 1992, PSE&G revenues were 93% of Enterprise's revenues and PSE&G's earnings available to Enterprise for such years were 91%, 96% and 88%, respectively, of Enterprise's net income. The major factors which will affect Enterprise's future results include general and regional economic conditions, PSE&G's customer retention and growth, the ability of PSE&G and EDHI to meet competitive pressures and to contain costs, the adequacy and timeliness of rate relief, cost recovery and necessary regulatory approvals, the ability to continue to operate and maintain nuclear programs in accordance with Nuclear Regulatory Commission (NRC) and New Jersey Board of Public Utilities (BPU) requirements, the impact of environmental regulations, continued access to the capital markets and continued favorable regulatory treatment of consolidated tax benefits. (See Note 2 -- Rate Matters, Note 10 -- Federal Income Taxes and Note 12 -- Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements ("Notes").) PSE&G Energy and Fuel Adjustment Clauses PSE&G has fuel and energy tariff rate adjustment clauses which are designed to permit adjustments for changes in electric energy and gas supply costs and certain other costs as approved by the BPU, when compared to cost recovery included in base rates. Charges under the clauses are primarily based on energy and gas supply costs which are normally projected over twelve-month periods. The changes in the Levelized Gas Adjustment Charge (LGAC) and the electric Levelized Energy Adjustment Clause (LEAC) do not directly affect earnings because such costs are adjusted monthly to match amounts recovered through revenues. However, the carrying of underrecovered costs ultimately increases financing costs. PSE&G is also required to pay interest on net overrecovered costs. Under the clauses, if actual costs differ from the costs recovered, the amount of the underrecovery or overrecovery is deferred and is reflected in the average cost used to determine the fuel and energy tariff rate adjustment for the period in which it is recovered or repaid. Actual costs otherwise includable in the LEAC are subject to adjustment by the BPU in accordance with its nuclear performance standard (NPS). (See Note 2 -- Rate Matters and Note 12 -- Commitments and Contingent Liabilities of Notes.) Competition Ongoing initiatives affecting PSE&G's electric and gas utility businesses associated with the continuing transition to a competitive market environment will have an increasingly significant impact on Enterprise and PSE&G. Federal legislation, including the National Energy Policy Act (NEPA), as well as regulatory initiatives at both the federal and state levels that are designed to promote competition and lessen regulation of the energy supply industry can be expected to result in additional pressures on customer retention due to energy prices, especially with respect to larger industrial and commercial customers. Growth potential is limited in PSE&G's mature service territory. The shift of rate regulation from traditional concepts based upon rate base/rate of return to concepts based upon market competition and service is accelerating. As a result, added emphasis will be placed upon cost reduction. Utilities and their regulators will need to develop flexible ratemaking strategies to minimize adverse impacts which might otherwise occur to revenues and earnings and to maximize potential opportunities presented by deregulation. The manner in which regulators address evolving competitive issues will also affect utility credit quality and the carrying value of assets. The transition to a competitive market environment will cause changes from traditional utility ratemaking and is likely to affect utilities' ability to recover costs, resulting in these costs being "stranded." Stranded costs are costs and liabilities that were incurred by regulated utilities as a result of the regulatory compact among utilities, regulators and customers which are no longer recoverable from such customers due to changes in the regulatory framework that allow such customers to change electric suppliers before paying for the costs the utility has incurred on their behalf. Potential stranded costs include but are not limited to: generation assets; long-term purchase power and fuel contracts; "regulatory assets" -- Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS 71), which are expenses that have been deferred pending recovery from customers; and costs which regulators have ordered utilities to incur to fulfill a variety of broader social purposes (including such things as energy conservation costs such as demand-side management (DSM) costs). More competitive electric wholesale markets, proposals to authorize retail wheeling or direct retail access within utility franchise areas, but not New Jersey to date, as well as the recent Federal Energy Regulatory Commission's (FERC) notice of proposed rulemaking on stranded costs have brought to the forefront the issue of potential stranded costs. If changes in rate regulation ultimately require a recognition of any such stranded costs, asset write-downs for utilities, including PSE&G, may occur. At this time, management cannot predict the level of transition costs or stranded costs resulting from industry deregulation, if any, or whether utility regulators will allow recovery of any such transition costs from customers. In addition, PSE&G cannot presently quantify what the financial statement impact may be if depreciation expense is determined absent regulation. However, if any such amounts are not recovered, the impact on the financial position, results of operations or net cash flows of PSE&G and Enterprise could be material. (See Note 1 -- Organization and Summary of Significant Accounting Policies and 2 -- Rate Matters of Notes.) Further, competition will force utilities, including PSE&G, to operate more cost effective and efficient plants, particularly in light of the technological advantages available to new entrants, which unlike utilities, do not operate older, less efficient units. Recovery of related costs by utilities, including PSE&G, will depend upon the decisions of the regulators, which cannot be predicted, or the ability to sell the electricity generated by such plants in the emerging wholesale power market. For discussion of PSE&G's renovation project at Bergen, see Note 12 - Commitments and Contingent Liabilities of Notes. The BPU has issued the first phase of a draft revised Energy Master Plan which acknowledges the need for regulatory flexibility as competition unfolds and calls for legislation that would allow New Jersey utilities to propose, subject to BPU approval, alternatives to existing rate base/rate of return pricing, allow for pricing flexibility under certain standards for customers with competitive options and equalize the impact of tax policies, such as New Jersey Gross Receipts and Franchise Tax (NJGRT), upon energy producers. Management cannot predict the ultimate form of any legislative or regulatory changes which may be adopted as a result of this revised Energy Master Plan. Enterprise Earnings Earnings per share of Enterprise Common Stock were $2.78 in 1994, $2.50 in 1993 and $2.17 in 1992. The changes are summarized as follows:
1994 vs. 1993 1993 vs. 1992 ---------------- --------------- Per Per Amount Share Amount Share ------ ------ ------ ------ (Millions, except Per Share Data) PSE&G Revenues (net of fuel costs and gross receipts taxes).......................... $ 144 $ .60 $ 347 $1.49 Peach Bottom Settlement (net of Federal income taxes)........................... -- -- (33) (.14) Other operation expenses.................. (77) (.32) (62) (.26) Maintenance expenses...................... (3) (.02) 3 .01 Depreciation and amortization expenses.... (29) (.12) (15) (.06) Federal income taxes...................... 14 .06 (113) (.49) Other taxes............................... (9) (.04) (1) -- Interest charges.......................... (6) (.02) 12 .05 Allowance for Funds used During Construction (AFDC)...................... 11 .05 -- -- Preferred Securities Dividend Requirements............................ (4) (.02) (6) (.02) Other income and expenses................. 1 -- 1 -- ------ ----- ----- ---- Earnings Available to Enterprise.......... 42 .17 133 .58 EDHI PSRC................................. 14 .06 (07) (.04) CEA.................................. 2 .01 3 .01 EDC.................................. (34) (.14) 17 .07 EGDC................................. 54 .22 (49) (.20) ----- ----- ----- ----- Subtotal.................................. 36 .15 (36) (.16) ----- ----- ----- ----- Net Income................................ $ 78 .32 $ 97 .42 ===== ===== Effect of additional shares of Enterprise Common Stock issued........... (.04) (.09) ----- ---- Total........................... $.28 $.33 ===== ====
The average shares of Enterprise Common Stock outstanding were 244,470,794 for 1994, 240,663,599 for 1993 and 232,306,492 for 1992, respectively. PSE&G In 1994, PSE&G's earnings available to Enterprise increased by $42 million. The increase was primarily due to higher electric commercial sales and firm gas residential and commercial sales. Electric kilowatthour (KWH) commercial sales increased 2% and total gas therms sold and transported increased 2.3%, respectively, principally due to weather and a modest improvement in New Jersey's economy. Also benefitting earnings was the decrease in Federal income tax expense resulting from the receipt of a nontaxable insurance benefit partially offset by higher pre-tax operating income. In addition, higher AFDC was a benefit to earnings due to greater construction, partially offset by a slightly reduced 1994 AFDC rate. The major factors adversely affecting earnings were higher other operation expenses, comprised primarily of miscellaneous nuclear production expenses, employee benefits expenses and increased accruals for uncollectible customer accounts, increased depreciation and amortization expenses due to more utility plant in service, higher interest charges due to a higher average daily balance of short-term debt outstanding at higher interest rates and higher maintenance expenses, principally at Hope Creek nuclear station due to the spring 1994 refueling outage. In 1993, excluding the $33 million net effect of the settlement of litigation against Philadelphia Electric Company, now known as PECO Energy, Inc. (PECO), in connection with the 1987 shutdown of Peach Bottom Atomic Power Station, Units 2 and 3 (Peach Bottom) by the NRC, PSE&G's earnings available to Enterprise increased by $166 million. The principal contributing factors to the increase in earnings available to Enterprise were PSE&G's higher electric and gas base rates that became effective January 1, 1993 and a substantial increase in electric KWH sales. (See Revenues below.) The increase in electric sales was primarily due to the abnormally warm summer weather. Partially offsetting the increase in earnings were higher other operation expenses (comprised primarily of labor and employee benefits costs and miscellaneous nuclear production costs), higher depreciation and amortization and higher Federal income taxes resulting from increased pre-tax operating income and an increase in the Federal corporate income tax rate, effective January 1993. (See Note 10 -- Federal Income Taxes of Notes.) EDHI The net income of EDHI was $60 million in 1994. Excluding the impact of an impairment of assets of $51 million, after tax, by EGDC in 1993, EDHI's earnings in 1994 decreased $15 million in comparison to 1993. Increased income from PSRC (higher investment income, lower income taxes compared to 1993 which included the effects of a Federal income tax increase and lower interest charges) and CEA (higher income from operating plants) was offset by lower EDC earnings (lower gas volumes and prices and higher exploration and development expenditures due to increased drilling activities). To the extent that the prices at which EDC is able to sell gas remain low, EDHI's earnings may continue to be negatively impacted. For information concerning certain of PSRC's direct-finance aircraft leases, see Note 12 -- Commitments and Contingent Liabilities of Notes. The net income of EDHI was $24 million in 1993, a decrease of $36 million from 1992. The decrease in EDHI's net income was due primarily to EGDC's recording of an impairment related to certain real estate properties, including properties upon which management revised its intent from a long-term investment strategy to a short-term hold for sale status, reflecting such properties at their net realizable value. This impairment reduced EDHI's earnings by $51 million, after tax, or 21 cents per share of Enterprise Common Stock. Partially offsetting this decrease was an increase in the earnings of EDC due to the higher price of natural gas. Exclusive of the recorded impairment, EDHI's net income would have been $75 million for 1993. Dividends The ability of Enterprise to declare and pay dividends is contingent upon its receipt of dividend payments from its subsidiaries. PSE&G has made regular payments to Enterprise in the form of dividends on outstanding shares of its common stock since Enterprise was formed in 1986. In addition, commencing in 1992, EDHI has also made payments to Enterprise in the form of dividends on its outstanding common stock. Dividends paid to holders of Enterprise Common Stock increased $6 million during 1994 compared to 1993 and increased $18 million during 1993 compared to 1992. The increase in dividend payments for 1994 over 1993 and for 1993 over 1992, respectively, was due to the issuance of additional shares of Enterprise Common Stock. Dividends paid to holders of PSE&G's Preferred Stock increased $2 million during 1994 compared to 1993 and $6 million during 1993 compared to 1992. The increase in such dividends was due to the issuance of additional shares of PSE&G's Preferred Stock, partially offset by reduced dividend requirements resulting from the redemption of certain higher cost series of Preferred Stock. (See Liquidity and Capital Resources.) Dividends payable to holders of Monthly Income Preferred Securities (MIPS) of Public Service Electric and Gas Capital, L.P. (Partnership), a limited partnership of which PSE&G is the general partner, aggregated $2 million for 1994. (See Note 4 -- Schedule of Consolidated Capital Stock and Other Securities of Notes.) Revenues PSE&G Electric Revenues increased $40 million, or 1.1%, in 1994 from 1993; 1993 revenues increased $285 million, or 8.4%, compared to 1992. The significant components of these changes follow:
Increase or (Decrease) ------------------------------ 1994 vs. 1993 1993 vs. 1992 ------------- ------------- (Millions) Kilowatthour sales....................... $ 69 $ 67 Base rate increase effective January 1, 1993................................... - 244 Tax Reform Act of 1986................... - 13 Recovery of energy costs................. (26) (52) NJGRT.................................... (4) 17 Other operating revenues................. 1 (4) ----- ----- Total Electric Revenues.................. $ 40 $ 285 ===== =====
Changes in kilowatthour sales by customer category are described below:
Increase or (Decrease) ----------------------------- 1994 vs. 1993 1993 vs. 1992 ------------- ------------- Residential.............................. (0.4)% 8.3% Commercial............................... 2.0 3.7 Industrial............................... 0.5 (1.0) Total Sales of Electricity to Customers........................... 1.0 3.7
1994 -- The increase in electric revenues was primarily due to higher kilowatthour sales, partially offset by lower recovery of energy costs. The increase in kilowatthour sales is due to higher commercial and industrial sales as a result of an improving economy. Residential sales were below last year's levels due to the abnormally warm summer weather experienced in 1993. 1993 -- The increase in electric revenues over 1992 was primarily due to the base rate increase which became effective January 1, 1993, partially offset by the larger LEAC credit also effective January 1, 1993. Abnormally warm summer weather resulted in a significant increase in weather sensitive sales during 1993. Increased competition from nonutility generators (NUGs) and an unscheduled maintenance shutdown at PSE&G's largest industrial customer negatively impacted industrial sales. PSE&G Gas Revenues increased $184 million, or 11.6%, during 1994 over 1993; 1993 revenues increased $8 million, or 0.5%, over 1992. The significant components of these changes follow:
Increase or (Decrease) ------------------------------ 1994 vs. 1993 1993 vs. 1992 ------------- ------------- (Millions) Therm sales.............................. $ 61 $ (29) Base rate increase effective January 1, 1993........................ - 48 Recovery of fuel costs................... 121 15 NJGRT.................................... (12) (5) Other operating revenues................. 14 (21) ----- ----- Total Gas Revenues............. $ 184 $ 8 ===== =====
Changes in gas revenues sold and transported by customer category are described below:
Increase or (Decrease) ------------------------------- 1994 vs. 1993 1993 vs. 1992 ------------- ------------- Residential.............................. 4.5% 1.2% Commercial............................... .3 .4 Industrial............................... 4.1 18.5 Transportation Service................... (2.3) 2.6 Total Gas Sold and Transported........... 2.3 4.9
1994 -- The increase in gas revenues was primarily due to an increase in the recovery of fuel costs, principally due to higher fuel rates, higher sales and significantly lower customer refunds. Residential, commercial and industrial sales increased due to favorable weather conditions and an improving economy. Sales to cogenerators was the largest contributor to the increase in industrial sales as cogeneration average customer usage continues to increase. Transportation sales decreased due to storm-related service interruptions in January and February. 1993 -- The increase in gas revenues over 1992 was primarily attributable to the base rate increase which became effective January 1, 1993 and the higher recovery of fuel-related costs. Sales to cogenerators was the largest contributor to the increase in industrial sales as cogeneration average customer usage for electric generation continued to increase. Transportation service sales reflect the movement of some interruptible customers to transportation service. EDHI EDHI revenues decreased $23 million, or 5%, during 1994 from 1993; 1993 revenues increased $30 million, or 7%, over 1992. The significant components contributing to such results were as follows:
Increase or (Decrease) ------------------------------ 1994 vs. 1993 1993 vs. 1992 ------------- ------------- (Millions) EDC...................................... $ (46) $ 30 CEA...................................... 17 10 PSRC..................................... 10 (11) EGDC..................................... (4) 1 ----- ---- Total EDHI Revenues............ $ (23) $ 30 ===== ====
1994 -- EDC's revenues decreased due to lower natural gas volumes ($29 million) and prices ($17 million). CEA's revenues increased as a result of greater income from operating projects. PSRC's revenues increased due to higher income from partnerships. 1993 -- EDC was the largest contributor to the EDHI revenue increase due to the higher price of natural gas. CEA revenues increased as a result of greater income from operating projects. PSRC revenues decreased due to unrealized losses on investments and lower income from leases. Electric Energy Costs Electric energy costs decreased $21 million, or 3.0%, in 1994 compared to 1993 and $59 million, or 7.7%, in 1993 compared to 1992. The significant components of these changes follow:
Increase or (Decrease) ------------------------------- 1994 vs. 1993 1993 vs. 1992 ------------- ------------- (Millions) Change in prices paid for fuel and power purchases................. $ 12 $ 18 Kilowatthour generation............... 9 29 Adjustment of actual costs to match recoveries through revenues(A)...... (42) (106) ----- ---- Total Electric Energy Costs.... $ (21) $ (59) ===== =====
(A) Reflects the change in the deferred over(under)recovered energy costs, which in the years 1994, 1993 and 1992 amounted to $(135) million, $(93) million and $13 million, respectively. (See PSE&G Energy and Fuel Adjustment Clauses and Note 2 -- Rate Matters of Notes.) 1994 -- The decrease in total costs was principally due to the underrecovery of energy costs, partially offset by a 12% increase in purchased power costs and a 1% increase in kilowatthour generation. 1993 -- The decrease in total costs was the result of an adjustment in the recovery of energy costs resulting from the base rate case decision effective January 1, 1993, partially offset by a 17% increase in nuclear kilowatthour generation and an 11% increase in purchased power costs. Gas Supply Costs Gas supply costs increased $126 million, or 14.0%, in 1994 compared to 1993 and $39 million, or 4.6%, in 1993 compared to 1992. The significant components of these changes follow:
Increase or (Decrease) ------------------------------ 1994 vs. 1993 1993 vs. 1992 ------------- ------------- (Millions) Change in prices paid for gas supplies... $ (10) $ 117 Therm sendout............................ 31 41 Refunds from pipeline suppliers.......... (21) 33 Adjustment of actual costs to match recoveries through revenues(A)......... 126 (152) ----- ----- Total Gas Supply Costs......... $ 126 $ 39 ===== =====
(A) Reflects the change in the deferred over(under)recovered gas supply costs, which in the years 1994, 1993 and 1992 amounted to $26 million, $(100) million and $52 million, respectively. (See PSE&G Energy and Fuel Adjustment Clauses and Note 2 -- Rate Matters of Notes.) 1994 -- The increase in total costs was principally due to the overrecovery of fuel costs and increased sales to nonutility generators (NUGs), partially offset by lower gas prices. 1993 -- The increase in total costs was principally due to greater sales to NUGs and other customers, higher gas costs and higher therm sendout resulting from the colder 1993 winter season compared to the 1992 winter season. The increase in costs was reduced by deferred underrecovered 1993 gas costs resulting from the BPU approved adjustment in PSE&G's LGAC, effective January 1, 1993 of $71 million on an annualized basis through December 31, 1993. The adjustment reflects lower gas costs and the inclusion of $15.1 million of conservation program costs in LGAC. In addition, gas customers received $45 million of credits during the first quarter of 1993. Liquidity and Capital Resources Enterprise's liquidity is affected by maturing debt (see Note 6 -- Schedule of Consolidated Debt of Notes), investment and acquisition activities, the capital requirements of PSE&G's construction program, permitted regulatory recovery of expenses and collection of revenues. Capital resources available to meet such requirements depend upon the factors noted above under Overview. (See Construction, Investments and Other Capital Requirements Forecast below.) PSE&G For 1994, PSE&G had utility plant additions, including AFDC, of $887 million, a decrease of $3 million versus 1993 additions of $890 million. Additions in 1993 increased $63 million from 1992 additions of $827 million. AFDC for 1994, 1993 and 1992 amounted to $38 million, $27 million and $26 million, respectively. Construction expenditures were related to improvements in PSE&G's existing power plants, transmission and distribution system, gas system and common facilities. PSE&G also expended $34 million, $48 million and $40 million for the cost of plant removal (net of salvage) in 1994, 1993 and 1992, respectively. Construction expenditures from 1995 through 1999 are expected to aggregate $3.2 billion. Forecasted construction expenditures are related to improvements in PSE&G's existing power plants, transmission and distribution system, gas system and common facilities. (See Construction, Investments and Other Capital Requirements Forecast below.) Decommissioning and other special funds, excluding interest, increased $35 million, $46 million and $9 million in 1994, 1993 and 1992, respectively. (See Note 3 -- PSE&G Nuclear Decommissioning and Amortization of Nuclear Fuel of Notes.) PSE&G expects that it will be able to generate internally a majority of its capital requirements including construction expenditures over the next five years, assuming adequate and timely recovery of costs as to which no assurances can be given. (See Note 2 -- Rate Matters and Note 12 -- Commitments and Contingent Liabilities of Notes.) EDHI During the next five years, a majority of EDHI's capital requirements are expected to be provided from operational cash flows. (See Construction, Investments and Other Capital Requirements Forecast below.) EDHI's focus is on CEA and EDC, its energy-related core businesses. CEA is expected to be the primary vehicle for EDHI's business growth, both domestically and internationally. A significant portion of CEA's growth is expected to occur in the international arena, due to the current and anticipated growth in electric capacity required in certain regions of the world. EDC is projected to grow its reserve base, principally through exploration and drilling, in order to maintain an annual production level of 130-140 billion cubic feet equivalent (BCFE). EDC's worldwide 1994 production totaled 108 BCFE and at year end had proved reserves of 888 BCFE. EDC expended approximately $188 million, $109 million and $56 million in 1994, 1993 and 1992, respectively, to acquire, discover or develop domestic and international reserves. Of these expenditures, $154 million, $91 million and $36 million in 1994, 1993 and 1992, respectively, were capitalized. These amounts included capitalized interest of $4 million, $3 million and $4 million, respectively. PSRC will limit new investments to those which support EDHI's core businesses, while EGDC will exit the real estate business in a prudent manner. Over the next several years, EDHI and its subsidiaries will also be required to refinance a portion of their maturing debt in order to meet their capital requirements. Any inability to extend or replace maturing debt at current levels and interest rates may affect future earnings and result in an increase in EDHI's cost of capital. A partnership, in which EGDC is an 80% partner ($21 million equity investment), is currently negotiating to extend or replace a mortgage financing of $40.2 million which is maturing on February 28, 1995. EGDC has guaranteed $5.3 million of the financing. No assurances can be given that EGDC or the partnership will be able to extend this loan or obtain a replacement loan in the amount of the existing loan. Failure to extend or replace the existing loan at the current outstanding loan balance, or at current interest rates, may result in an increase in the amount of capital which EGDC will require. PSRC is a limited partner in various limited partnerships and is committed to make investments from time to time, upon the request of the respective general partners. At December 31, 1994, $134 million remained as PSRC's unfunded commitment subject to call. EDHI and each of its subsidiaries are subject to restrictive business and financial covenants contained in existing debt agreements and are required to not exceed various debt to equity ratios which vary from 3:1 to 1.75:1. EDHI is also required to maintain a twelve-months earnings (before interest and taxes) to interest (EBIT) coverage ratio of at least 1.35:1. As of December 31, 1994 and 1993, EDHI had consolidated debt to equity ratios of 1.15:1 and 1.34:1 and, for the years ended December 31, 1994, 1993 and 1992, EBIT coverage ratios, as defined to exclude the effects of EGDC of 1.94:1, 2.13:1 and 1.88:1, respectively. Compliance with applicable financial covenants will depend upon future levels of earnings, among other things, as to which no assurance can be given. (See Note 6 -- Schedule of Consolidated Debt and Note 16 -- Property Impairment of Enterprise Group Development Corporation of Notes.) Long-Term Investments and Real Estate Long-Term Investments and Real Estate, which are primarily those of EDHI, decreased $58 million and $67 million in 1994 and 1993, respectively, and increased $61 million in 1992. The decrease in 1994 is primarily due to a $73 million net decrease in PSE&G's investment in an insurance contract, partially offset by an increase in Public Service Conservation Resources Corporation's (a PSE&G subsidiary) Long-Term Investments of $23 million. The decrease in 1993 is due primarily to EDHI's decrease in Long-Term Investments of $63 million. The increase in 1992 is due primarily to EDHI's increase in investments in real estate of $77 million. (For more details, see Note 7 -- Long-Term Investments and Note 11 -- Leasing Activities - As Lessor of Notes.) Construction, Investments and Other Capital Requirements Forecast The estimated construction requirements of PSE&G, including AFDC, investments and other capital requirements of PSE&G and EDHI for 1995 through 1999 are based on expected project completion dates, included anticipated escalation due to inflation of approximately 3% for utility projects and are as follows:
1995 1996 1997 1998 1999 TOTAL ------ ------ ------ ------ ------ ------ (MILLIONS OF DOLLARS) PSE&G ELECTRIC Nuclear Production Facilities...... $ 89 $ 85 $ 66 $ 65 $ 66 $ 371 Nuclear Fuel....................... 96 90 87 112 99 484 Transmission and Distribution...... 165 185 175 163 175 863 Other Production................... 166 118 42 52 58 436 Conservation and Other............. 45 39 37 33 29 183 ------ ------ ------ ------ ------ ------ Total Electric..................... 561 517 407 425 427 2,337 ------ ------ ------ ------ ------ ------ GAS Production Facilities.............. 2 2 - - - 4 Transmission and Distribution...... 136 141 143 143 143 706 ------ ------ ------ ------ ------ ------ Total Gas.......................... 138 143 143 143 143 710 ------ ------ ------ ------ ------ ------ Miscellaneous Corporate.............. 46 38 35 35 35 189 ------ ------ ------ ------ ------ ------ Total Construction Requirements of PSE&G.... 745 698 585 603 605 3,236 ------ ------ ------ ------ ------ ------ EDHI................................. 242 175 125 153 149 844 ------ ------ ------ ------ ------ ------ Mandatory Retirement of Securities: PSE&G.............................. 310 - 300 118 100 828 EDHI............................... 190 91 125 196 200 802 ------ ------ ------ ------ ------ ------ 500 91 425 314 300 1,630 ------ ------ ------ ------ ------ ------ Working Capital and Other-net...... 101 43 41 21 21 227 ------ ------ ------ ------ ------ ------ Total Capital Requirements......... $1,588 $1,007 $1,176 $1,091 $1,075 $5,937 ====== ====== ====== ====== ====== ======
While the above forecast includes capital costs to comply with revised Federal Clean Air Act (CAA) requirements through 1999, it does not include additional requirements being developed under the CAA by Federal and State agencies. Such additional costs cannot be reasonably estimated at this time. PSE&G believes that such CAA costs would be recoverable from electric customers. Internal Generation of Cash from Operations Enterprise's cash provided by operating activities for 1994 increased $200 million to $1.232 billion when compared to 1993. This increase was primarily due to the increase in net income of $78 million, higher recovery of electric energy and gas costs through PSE&G's LEAC and LGAC of $74 million, a decrease in accounts receivable of $152 million, a decrease in accrued taxes of $35 million, a positive net change in certain other current assets and liabilities of $57 million and a positive net change in certain noncurrent assets and liabilities, primarily deferred amounts, of $61 million. Partially offsetting these cash inflows were a decrease in accounts payable of $181 million and the loss from property impairments in 1993 of $78 million. (For additional information see Enterprise Earnings and Revenues.) Although net income increased in 1993 (see Enterprise Earnings and Revenues), net cash provided by operating activities decreased by $292 million from 1992 to $1.032 billion. This decrease was primarily due to an underrecovery of electric energy and gas costs through PSE&G's LEAC and LGAC of $306 million, a decrease in accrued taxes of $332 million (primarily increased NJGRT payments), and a decrease in depreciation and amortization of $42 million. Partially offsetting these cash outflows were the increase in net income of $97 million, increases in deferred income taxes of $112 million, inventory decreases in fuel and materials and supplies of $54 million, increases in accounts payable of $57 million and a loss from property impairments of $78 million. External Financings ENTERPRISE CONSOLIDATED CASH FLOWS FROM FINANCING ACTIVITIES
1994 1993 1992 ------- ------- ------ (MILLIONS OF DOLLARS) Enterprise (Parent Company): Issuance of Common Stock(A)....................... $ 28 $ 273 $ 237 Cash Dividends paid on Common Stock(B)............ (528) (522) (503) ------- ------- ------- Total Enterprise (Parent Company)......... (500) (249) (266) ------- ------- ------- PSE&G:(C) Net (decrease) increase in Short-Term Debt(D)..... (131) 275 92 Increase (decrease) in Book Overdrafts............ 24 (10) 24 Issuance of Long-Term Debt(E)..................... 850 1,973 850 Redemptions of Long-Term Debt..................... (479) (1,716) (1,032) Long-Term Debt Issuance and Redemption Costs...... (30) (68) (19) Issuance of Preferred Stock(F).................... 75 75 75 Redemption of Preferred Stock..................... (120) - - Issuance of Monthly Income Preferred Securities (G)................................. 150 - - Other............................................. (2) (6) (6) ------- ------- ------- Total PSE&G............................... 337 523 (16) ------- ------- ------- EDHI:(H) Net increase (decrease) in Short-Term Debt........ 45 (90) (89) Issuance of Long-Term Debt........................ 165 30 Redemptions of Long-Term Debt..................... (115) (367) (27) Other............................................. - (4) - ------- ------- ------- Total EDHI................................ (70) (296) (86) ------- ------- ------- Net cash used in financing activities............... $ (233) $ (22) $ (368) ======= ======= =======
(A) During 1994, Enterprise issued 1,009,674 shares of Common Stock through its Dividend Reinvestment and Stock Purchase Plan (DRIP) and various employee benefit plans. The net proceeds from such sales, aggregating approximately $28 million, were used by Enterprise to make equity investments in its subsidiaries. Book value per share was $21.70 at December 31, 1994, compared to $21.07 at December 31, 1993. (See Note 4 -- Schedule of Consolidated Capital Stock and Other Securities of Notes.) (B) See Dividends. (C) Under the terms of PSE&G's Mortgage and Restated Certificate of Incorporation at December 31, 1994, PSE&G would qualify to issue an additional $3.511 billion of its First and Refunding Mortgage Bonds (Bonds) at a rate of 8.875% or $3.017 billion of Preferred Stock at a rate of 8.750%. PSE&G's Restated Certificate of Incorporation currently limits the issuance of Preferred Stock to $1.0 billion, of which $535 million is outstanding. In addition, as a prerequisite to the issuance of additional Bonds, PSE&G's Mortgage requires a 2:1 ratio of earnings to fixed charges as computed thereunder. For 1994, such ratio was 3.62:1. The ratio of earnings to fixed charges as required by the Securities and Exchange Commission was 3.35:1. The BPU has authorized PSE&G to issue $370 million of Bonds/Medium-Term Notes (MTNs) through 1996 for refunding purposes. The BPU has authorized PSE&G to issue not more than $1 billion of its short-term obligations at any one time outstanding, consisting of commercial paper and other unsecured borrowings from banks and other lenders through January 1, 1997. On December 31, 1994, PSE&G had $308 million of short-term debt outstanding. PSE&G renewed and increased to $800 million a revolving credit agreement with a group of commercial banks through September 14, 1995. On December 31, 1994, there were no short-term borrowings outstanding under this credit agreement. For additional detail, see Note 4 -- Schedule of Consolidated Capital Stock and Other Securities and Note 6 -- Schedule of Consolidated Debt of Notes. (D) PSE&G Fuel Corporation (Fuelco) has a $150 million commercial paper program to finance a 42.49% share of Peach Bottom nuclear fuel, supported by a $150 million revolving credit facility with a group of banks, which expires on June 28, 1996. PSE&G has guaranteed repayment of Fuelco's respective obligations. As of December 31, 1994, Fuelco had commercial paper of $93.7 million outstanding under such program. (E) Enterprise's long-term debt aggregated $5.181 billion as of December 31, 1994, of which $4.487 billion was attributable to PSE&G and $694 million to EDHI. During 1994, PSE&G issued a total of $850 million principal amount of its Bonds/MTNs. The net proceeds from the sale of the Bonds were used by PSE&G to redeem or defease $474 million of its higher cost Bonds and to pay a portion of its current construction program. For additional detail see Note 6 -- Schedule of Consolidated Debt of Notes. (F) In February 1994, PSE&G issued and sold $75 million of its Cumulative Preferred Stock. In March 1994, PSE&G used the funds from the above sale to redeem $45 million of its higher priced Preferred Stock. The remaining funds were added to the general funds of PSE&G and used to pay a portion of its then outstanding short-term debt obligations, which were principally incurred to fund a portion of its construction expenditures. In December 1994, PSE&G redeemed an additional $75 million of its Preferred Stock. The BPU has authorized PSE&G to issue not more than $180 million of Preferred Stock through 1995. For additional detail see Note 4 -- Schedule of Consolidated Capital Stock and Other Securities of Notes. (G) In November 1994, Public Service Electric and Gas Capital, L.P. (Partnership) issued $150 million of Monthly Income Preferred Securities (MIPS), the proceeds of which were loaned to PSE&G and used to redeem $75 million of Preferred Stock and the payment of construction expenditures. For additional detail see Note 4 -- Schedule of Consolidated Capital Stock and Other Securities of Notes. (H) Funding has a commercial paper program, supported by a commercial bank letter of credit and credit facility, through November 18, 1995 in the amount of $225 million. As of December 31, 1994, Funding had $90 million of borrowings outstanding under this program. Funding has a $225 million revolving credit facility which terminates on November 18, 1995. As of December 31, 1994, Funding had no borrowings outstanding under this facility. Funding is in the process of amending its letter of credit and revolving credit facility in order to adjust pricing and extend the maturity to early 1998. Capital's MTN program provides for an aggregate principal amount of up to $750 million of MTNs provided that its total debt outstanding at any time, including MTNs, shall not exceed such amount. Effective January 31, 1995, Capital will not have more than $650 million of debt outstanding at any time. In November 1994, Capital repaid $50 million of its 7.40% MTNs. At December 31, 1994, Capital had $467 million of MTNs outstanding and total debt outstanding of $632 million. For additional detail see Note 6 -- Schedule of Consolidated Debt of Notes. PSE&G Following are the significant factors affecting the consolidated financial condition and the results of operations of PSE&G and its subsidiaries. This discussion refers to the Consolidated Financial Statements and related Notes of PSE&G and should be read in conjunction with such statements and notes. Except as modified below, the information required by this item is incorporated herein by reference to the following portions of Enterprise's Management's Discussion and Analysis of Financial Condition and Results of Operations, insofar as they relate to PSE&G and its subsidiaries: Overview; PSE&G Energy and Fuel Adjustment Clauses; Enterprise Earnings: Dividends; Revenues -- PSE&G Electric, PSE&G Gas; PSE&G Electric Energy Costs; Liquidity and Capital Resources, PSE&G, Long-Term Investments and Real Estate; Construction, Investments and Other Capital Requirements Forecast; and External Financings. Gas Supply Costs Gas supply costs increased $117 million or 12.7% in 1994 compared to 1993 and $17 million or 1.8% in 1993 compared to 1992. The significant components of these changes follow:
Increase or (Decrease) ----------------------------- 1994 vs.1993 1993 vs. 1992 ------------- ------------- (Millions) Change in prices paid for gas supplies... $ (20) $ 93 Therm sendout............................ 32 43 Refunds from pipeline suppliers.......... (21) 33 Adjustment of actual costs to match recoveries through revenues (A)........ 126 (152) ----- ----- Total Gas Supply Costs......... $ 117 $ 17 ===== =====
(A) Reflects the change in the deferred over(under)recovered gas supply costs, which in the years 1994, 1993 and 1992 amounted to $26 million, $(100) million and $52 million, respectively. (See PSE&G Energy and Fuel Adjustment Clauses and Note 2 -- Rate Matters of Notes.) 1994 -- The increase in total costs was principally due to the overrecovery of fuel costs and increased sales to NUGs, partially offset by lower gas prices. 1993 -- The increase in total costs was principally due to greater sales to cogenerators and other customers, higher gas costs and higher therm sendout resulting from the colder 1993 winter season compared to the 1992 winter season. The increase in costs was reduced by deferred underrecovered 1993 gas costs resulting from the BPU approved adjustment in PSE&G's LGAC, effective January 1, 1993, of $71 million on an annualized basis through December 31, 1993. The adjustment reflects lower gas costs and the inclusion of $15.1 million of conservation program costs in LGAC. In addition, gas customers received $45 million of credits during the first quarter of 1993. Liquidity and Capital Resources Internal Generation of Cash from Operations PSE&G's cash provided by operating activities increased $229 million to $1,061 million for 1994 compared to the corresponding period in 1993. This increase was primarily due to an increase in net income of $45 million, a decrease in accounts receivable of $154 million, a greater recovery of electric energy and gas costs through PSE&G's LEAC and LGAC of $74 million, an increase in depreciation and amortization of $38 million, a decrease in accrued taxes of $25 million, a positive net change in certain other current assets and liabilities of $64 million and a positive net change in certain noncurrent assets and liabilities, primarily deferred amounts, of $69 million, partially offset by a decrease in accounts payable of $183 million and a decrease in deferred income taxes of $68 million. (For additional information see PSE&G - Earnings and Revenues.) Although net income increased for 1993 (See Enterprise Earnings -- PSE&G and Revenues -- PSE&G Electric and PSE&G Gas), PSE&G's net cash provided by operating activities decreased by $338 million from 1992 to $832 million. This decrease was primarily due to an underrecovery of electric energy and gas costs through PSE&G's LEAC and LGAC of $306 million, a decrease in accrued taxes of $306 million (primarily increased NJGRT payments), a decrease in depreciation and amortization of $43 million and a negative net change in certain other current assets and liabilities of $28 million and a negative net change in certain noncurrent assets and liabilities, primarily deferred amounts, of $32 million. Partially offsetting these cash outflows were the increase in net income of $139 million, an increase in deferred income taxes of $154 million, a decrease in fuel and materials and supplies inventories of $54 million and an increase in accounts payable of $36 million. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA FINANCIAL STATEMENT RESPONSIBILITY Management of Enterprise is responsible for the preparation, integrity and objectivity of the consolidated financial statements and related notes of Enterprise. The consolidated financial statements and related notes are prepared in accordance with generally accepted accounting principles. The financial statements reflect estimates based upon the judgment of management where appropriate. Management believes that the consolidated financial statements and related notes present fairly Enterprise's financial position and results of operations. Information in other parts of this Annual Report is also the responsibility of management and is consistent with these consolidated financial statements and related notes. The firm of Deloitte & Touche LLP, independent auditors, is engaged to audit Enterprise's consolidated financial statements and related notes and issue a report thereon. Deloitte & Touche's audit is conducted in accordance with generally accepted auditing standards. Management has made available to Deloitte & Touche LLP, all the corporation's financial records and related data, as well as the minutes of directors' meetings. Furthermore, management believes that all representations made to Deloitte & Touche LLP, during its audit were valid and appropriate. Management has established and maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded, and that transactions are executed in accordance with management's authorization and recorded properly for the prevention and detection of fraudulent financial reporting, so as to maintain the integrity and reliability of the financial statements. The system is designed to permit preparation of consolidated financial statements and related notes in accordance with generally accepted accounting principles. The concept of reasonable assurance recognizes that the costs of a system of internal accounting controls should not exceed the related benefits. Management believes the effectiveness of this system is enhanced by an ongoing program of continuous and selective training of employees. In addition, management has communicated to all employees its policies on business conduct, safeguarding assets and internal controls. The Internal Auditing Department of PSE&G conducts audits and appraisals of accounting and other operations of Enterprise and its subsidiaries and evaluates the effectiveness of cost and other controls and recommends to management, where appropriate, improvements thereto. Management has considered the internal auditors' and Deloitte & Touche's recommendations concerning the corporation's system of internal accounting controls and has taken actions that, in its opinion, are cost-effective in the circumstances to respond appropriately to these recommendations. Management believes that, as of December 31, 1994, the corporation's system of internal accounting controls is adequate to accomplish the objectives discussed herein. The Board of Directors of Enterprise carries out its responsibility of financial overview through its Audit Committee, which presently consists of six directors who are not employees of Enterprise or any of its affiliates. The Audit Committee meets periodically with management as well as with representatives of the internal auditors and Deloitte & Touche LLP. The Audit Committee reviews the work of each to ensure that its respective responsibilities are being carried out and discusses related matters. Both the internal auditors and Deloitte & Touche LLP periodically meet alone with the Audit Committee and have free access to the Audit Committee, and its individual members, at any time. E. JAMES FERLAND ROBERT C. MURRAY E. James Ferland Robert C. Murray Chairman of the Board, Vice President and President and Chief Chief Financial Officer Executive Officer PATRICIA A. RADO Patricia A. Rado Vice President and Controller Principal Accounting Officer February 14, 1995
FINANCIAL STATEMENT RESPONSIBILITY Management of PSE&G is responsible for the preparation, integrity and objectivity of the consolidated financial statements and related notes of PSE&G. The consolidated financial statements and related notes are prepared in accordance with generally accepted accounting principles. The financial statements reflect estimates based upon the judgment of management where appropriate. Management believes that the consolidated financial statements and related notes present fairly PSE&G's financial position and results of operations. Information in other parts of this Annual Report is also the responsibility of management and is consistent with these consolidated financial statements and related notes. The firm of Deloitte & Touche LLP, independent auditors, is engaged to audit PSE&G's consolidated financial statements and related notes and issue a report thereon. Deloitte & Touche's audit is conducted in accordance with generally accepted auditing standards. Management has made available to Deloitte & Touche LLP, all the corporation's financial records and related data, as well as the minutes of directors' meetings. Furthermore, management believes that all representations made to Deloitte & Touche LLP, during its audit were valid and appropriate. Management has established and maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded, and that transactions are executed in accordance with management's authorization and recorded properly for the prevention and detection of fraudulent financial reporting, so as to maintain the integrity and reliability of the financial statements. The system is designed to permit preparation of consolidated financial statements and related notes in accordance with generally accepted accounting principles. The concept of reasonable assurance recognizes that the costs of a system of internal accounting controls should not exceed the related benefits. Management believes the effectiveness of this system is enhanced by an ongoing program of continuous and selective training of employees. In addition, management has communicated to all employees its policies on business conduct, safeguarding assets and internal controls. The Internal Auditing Department conducts audits and appraisals of accounting and other operations and evaluates the effectiveness of cost and other controls and recommends to management, where appropriate, improvements thereto. Management has considered the internal auditors' and Deloitte & Touche's recommendations concerning the corporation's system of internal accounting controls and has taken actions that are cost-effective in the circumstances to respond appropriately to these recommendations. Management believes that, as of December 31, 1994, the corporation's system of internal accounting controls is adequate to accomplish the objectives discussed herein. The Board of Directors carries out its responsibility of financial overview through the Audit Committee of Enterprise, which presently consists of six directors who are not employees of Enterprise or any of its affiliates. The Enterprise Audit Committee meets periodically with management as well as with representatives of the internal auditors and Deloitte & Touche LLP. The Audit Committee reviews the work of each to ensure that their respective responsibilities are being carried out and discusses related matters. Both the internal auditors and Deloitte & Touche LLP, periodically meet alone with the Audit Committee and have free access to the Audit Committee, and its individual members, at any time. E. JAMES FERLAND ROBERT C. MURRAY E. James Ferland Robert C. Murray Chairman of the Board Senior Vice President and and Chief Executive Officer Chief Financial Officer PATRICIA A. RADO Patricia A. Rado Vice President and Controller Principal Accounting Officer February 14, 1995
INDEPENDENT AUDITORS' REPORT To the Stockholders and Board of Directors of Public Service Enterprise Group Incorporated: We have audited the accompanying consolidated balance sheets of Public Service Enterprise Group Incorporated and its subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, retained earnings, and cash flows for each of the three years in the period ended December 31, 1994. Our audits also included the consolidated financial statement schedules listed in the Index in Item 14(b)(1). These consolidated financial statements and the consolidated financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and consolidated financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Public Service Enterprise Group Incorporated and its subsidiaries at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. Also, in our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. We have also previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheets as of December 31, 1992, 1991, and 1990, and the related consolidated statements of income, retained earnings, and cash flows for the years ended December 31, 1991 and 1990 (none of which are presented herein) and we expressed unqualified opinions on those consolidated financial statements. In our opinion, the information set forth in the Selected Financial Data for each of the five years in the period ended December 31, 1994 for the Company, presented in Item 6, is fairly stated in all material respects, in relation to the consolidated financial statements from which it has been derived. DELOITTE & TOUCHE LLP February 14, 1995 Parsippany, New Jersey INDEPENDENT AUDITORS' REPORT To the Board of Directors of Public Service Electric and Gas Company: We have audited the accompanying consolidated balance sheets of Public Service Electric & Gas Company and its subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, retained earnings, and cash flows for each of the three years in the period ended December 31, 1994. Our audits also included the consolidated financial statement schedules listed in the Index in Item 14(b)(2). These consolidated financial statements and the consolidated financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and consolidated financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Public Service Electric & Gas Company and its subsidiaries at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. Also, in our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. We have also previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheets as of December 31, 1992, 1991, and 1990, and the related consolidated statements of income, retained earnings, and cash flows for the years ended December 31, 1991 and 1990 (none of which are presented herein) and we expressed unqualified opinions on those consolidated financial statements. In our opinion, the information set forth in the Selected Financial Data for each of the five years in the period ended December 31, 1994 for the Company, presented in Item 6, is fairly stated in all material respects, in relation to the consolidated financial statements from which it has been derived. DELOITTE & TOUCHE LLP February 14, 1995 Parsippany, New Jersey PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, -------------------------------------------- 1994 1993 1992 ------------ ------------ ------------ (THOUSANDS OF DOLLARS) OPERATING REVENUES Electric............................................... $ 3,733,113 $ 3,693,083 $ 3,407,819 Gas.................................................... 1,778,528 1,594,341 1,586,181 Nonutility Activities.................................. 404,202 418,135 362,781 ------------ ------------ ------------ Total Operating Revenues........................ 5,915,843 5,705,559 5,356,781 ------------ ------------ ------------ OPERATING EXPENSES Operation Fuel for Electric Generation and Interchanged Power............................................. 695,763 717,136 776,571 Gas Purchased and Materials for Gas Produced......... 1,023,956 897,885 858,737 Other................................................ 1,116,263 1,012,757 924,942 Maintenance............................................ 308,080 304,403 307,726 Depreciation and Amortization.......................... 629,688 600,264 642,548 Property Impairment (note 16).......................... -- 77,637 -- Taxes Federal Income Taxes (note 10)....................... 312,551 313,680 221,469 New Jersey Gross Receipts Taxes...................... 583,167 597,898 585,770 Other................................................ 82,282 77,052 72,883 ------------ ------------ ----------- Total Operating Expenses........................ 4,751,750 4,598,712 4,390,646 ------------ ------------ ----------- OPERATING INCOME......................................... 1,164,093 1,106,847 966,135 ------------ ------------ ----------- OTHER INCOME Allowance for Funds Used During Construction -- Equity............................... 12,789 12,265 12,828 Peach Bottom Settlement -- net of Federal income taxes 1992, $16,985 (note 2)............................... -- -- 32,970 Miscellaneous -- net................................... 6,430 (3,778) 30,188 ------------ ------------ ----------- Total Other Income.............................. 19,219 8,487 75,986 ------------ ------------ ----------- INCOME BEFORE INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES................................... 1,183,312 1,115,334 1,042,121 ------------ ------------ ----------- INTEREST CHARGES (note 6) Long-Term Debt......................................... 459,158 469,120 479,898 Short-Term Debt........................................ 23,962 13,860 14,858 Other.................................................. 12,805 19,554 29,269 ------------ ------------ ----------- Total Interest Charges.......................... 495,925 502,534 524,025 Allowance for Funds Used During Construction -- Debt and Capitalized Interest................................... (33,793) (20,833) (17,928) ------------ ------------ ----------- Net Interest Charges..................................... 462,132 481,701 506,097 ------------ ------------ ----------- Preferred Securities Dividend Requirements (note 4)...... 42,147 38,114 31,907 ------------ ------------ ----------- Income before cumulative effect of accounting change..... 679,033 595,519 504,117 Cumulative effect of change in accounting for income taxes (note 10).............................................. -- 5,414 -- ------------ ------------ ----------- Net Income............................................... $ 679,033 $ 600,933 $ 504,117 ============ ============ =========== SHARES OF COMMON STOCK OUTSTANDING End of Year............................................ 244,697,930 243,688,256 235,395,751 Average for Year....................................... 244,470,794 240,663,599 232,306,492 EARNINGS PER AVERAGE SHARE OF COMMON STOCK Income before cumulative effect of accounting change... $ 2.78 $ 2.48 $ 2.17 Cumulative effect of change in accounting for income taxes................................................ -- .02 -- ------------ ------------ ----------- TOTAL EARNINGS PER AVERAGE SHARE OF COMMON STOCK......... $ 2.78 $ 2.50 $ 2.17 ============ ============ =========== DIVIDENDS PAID PER SHARE OF COMMON STOCK................. $ 2.16 $ 2.16 $ 2.16 ============ ============ ===========
See Notes to Consolidated Financial Statements. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED BALANCE SHEETS ASSETS
DECEMBER 31, --------------------------- 1994 1993 ----------- ----------- (THOUSANDS OF DOLLARS) UTILITY PLANT-ORIGINAL COST (note 15) Electric.................................................................. $12,345,919 $11,920,894 Gas....................................................................... 2,318,233 2,177,841 Common.................................................................... 545,131 520,285 ----------- ----------- Total.............................................................. 15,209,283 14,619,020 Less accumulated depreciation and amortization.............................. 5,147,105 4,772,942 ----------- ----------- Net......................................................................... 10,062,178 9,846,078 Nuclear Fuel in Service, net of accumulated amortization -- 1994, $302,906; 1993, $275,638.......................................... 205,273 205,237 ----------- ----------- Net Utility Plant in Service....................................... 10,267,451 10,051,315 Construction Work in Progress, including Nuclear Fuel in Process -- 1994, $65,429; 1993, $98,780.............................................. 806,934 735,356 Plant Held for Future Use................................................... 23,860 17,709 ----------- ----------- Net Utility Plant.................................................. 11,098,245 10,804,380 ----------- ----------- INVESTMENTS AND OTHER NONCURRENT ASSETS (notes 3, 7, 8, 11,12 and 16) Long-Term Investments, net of amortization -- 1994, $2,365; 1993, $572, and net of valuation allowances -- 1994, $17,104; 1993, $18,018, respectively.............................. 1,625,952 1,630,996 Oil and Gas Property, Plant and Equipment, net of accumulated depreciation and amortization -- 1994, $748,245; 1993, $695,791...................... 577,913 506,047 Real Estate, Property and Equipment, net of accumulated depreciation -- 1994, $14,242; 1993, $10,840, and net of valuation allowances -- 1994, $23,264; 1993, $16,684, respectively.............................. 115,210 110,661 Other Plant, net of accumulated depreciation and amortization -- 1994, $4,653; 1993, $3,735.............................................. 36,063 28,327 Nuclear Decommissioning and Other Special Funds........................... 233,022 189,282 Other Assets - net........................................................ 85,478 103,538 ----------- ----------- Total Investments and Other Noncurrent Assets...................... 2,673,638 2,568,851 ----------- ----------- CURRENT ASSETS Cash and Cash Equivalents (note 9)........................................ 67,866 71,372 Accounts Receivable: Customer Accounts Receivable............................................ 434,207 446,629 Other Accounts Receivable............................................... 211,779 230,373 Less: allowance for doubtful accounts.................................. 40,915 27,932 Unbilled Revenues......................................................... 204,056 244,497 Fuel, at average cost..................................................... 268,927 285,943 Materials and Supplies, net of inventory valuation reserves -- 1994, $18,200; 1993, $8,525, respectively............................... 148,285 172,438 Deferred Income Taxes (note 10)........................................... 25,311 12,934 Miscellaneous Current Assets.............................................. 37,356 49,860 ----------- ----------- Total Current Assets............................................... 1,356,872 1,486,114 ----------- ----------- DEFERRED DEBITS (note 5) Property Abandonments -- net.............................................. 88,269 105,536 Oil and Gas Property Write-Down........................................... 41,232 46,386 Unamortized Debt Expense.................................................. 134,599 121,278 Deferred OPEB Costs (notes 1 and 13)...................................... 116,476 58,593 Underrecovered Electric Energy and Gas Costs -- net....................... 172,563 62,034 Unrecovered Environmental Costs (notes 2 and 12).......................... 135,499 138,531 Unrecovered Plant and Regulatory Study Costs.............................. 37,128 35,196 Unrecovered SFAS 109 Deferred Income Taxes (note 10)...................... 791,393 789,795 Deferred Decontamination and Decommissioning Costs (note 3)............... 53,016 56,055 Other..................................................................... 18,510 56,907 ----------- ----------- Total Deferred Debits.............................................. 1,588,685 1,470,311 ----------- ----------- Total............................................................ $16,717,440 $16,329,656 =========== ===========
See Notes to Consolidated Financial Statements. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED BALANCE SHEETS CAPITALIZATION AND LIABILITIES
DECEMBER 31, --------------------------- 1994 1993 ----------- ----------- (THOUSANDS OF DOLLARS) CAPITALIZATION (notes 4, 5 and 6) Common Equity Common Stock.................................. $ 3,801,157 $ 3,772,662 Retained Earnings............................. 1,510,010 1,361,018 ----------- ----------- Total Common Equity...................... 5,311,167 5,133,680 Subsidiaries' Securities and Obligations Preferred Securities Preferred Stock Without Mandatory Redemption.. 384,994 429,994 Preferred Stock With Mandatory Redemption..... 150,000 150,000 Monthly Income Preferred Securities........... 150,000 -- Long-Term Debt................................... 5,180,657 5,256,321 ----------- ----------- Total Capitalization..................... 11,176,818 10,969,995 ----------- ----------- OTHER LONG-TERM LIABILITIES Decontamination and Decommissioning Costs (note 3) 56,149 56,055 Environmental Costs (notes 2 and 12).............. 105,684 111,000 Capital Lease Obligations......................... 53,770 53,104 ----------- ----------- Total Other Long-Term Liabilities......... 215,603 220,159 ----------- ----------- CURRENT LIABILITIES Long-Term Debt due within one year................ 499,738 168,064 Commercial Paper and Loans (note 6)............... 491,586 577,636 Book Overdrafts................................... 86,576 62,992 Accounts Payable.................................. 433,471 519,261 New Jersey Gross Receipts Taxes Accrued........... -- 263,357 Other Taxes Accrued............................... 44,149 39,610 Interest Accrued.................................. 107,962 107,027 Estimated Liability for Vacation Pay.............. 27,080 26,993 Customer Deposits................................. 33,698 36,668 Liability for Injuries and Damages................ 29,814 28,338 Miscellaneous Environmental Liabilities........... 15,365 4,475 Other............................................. 87,480 61,277 ----------- ---------- Total Current Liabilities................. 1,856,919 1,895,698 ----------- ---------- DEFERRED CREDITS Accumulated Deferred Income Taxes (note 10)....... 2,905,390 2,702,386 Accumulated Deferred Investment Tax Credits ...... 412,466 432,713 Deferred OPEB Costs (notes 1 and 13).............. 116,476 58,593 Other............................................. 33,768 50,112 ----------- ---------- Total Deferred Credits.................... 3,468,100 3,243,804 ----------- ---------- COMMITMENTS AND CONTINGENT LIABILITIES (note 12) Total..................................... $16,717,440 $16,329,656 =========== ===========
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 1994 1993 1992 ---------- ---------- --------- (THOUSANDS OF DOLLARS) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income......................................... $ 679,033 $ 600,933 $ 504,117 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and Amortization................... 629,688 600,264 642,548 Amortization of Nuclear Fuel.................... 95,173 102,718 91,903 (Deferral) Recovery of Electric Energy and Gas Costs -- net.......................... (110,529) (184,770) 121,371 Loss from Property Impairments.................. -- 77,637 -- Cumulative Effect of Change in Accounting for Income Taxes.................................. -- (5,414) -- Amortization of Discounts on Property Abandonments and Disallowance................. (6,743) (7,801) (11,293) Unrealized Gains on Investments -- net.......... (26,329) (8,694) (24,843) Provision for Deferred Income Taxes -- net...... 138,919 168,406 56,846 Investment Tax Credits -- net................... (20,247) (11,655) (20,342) Allowance for Funds Used During Construction -- Debt and Equity and Capitalized Interest...... (46,582) (33,098) (30,756) Proceeds from Leasing Activities -- net......... 27,682 14,780 30,295 Changes in certain current assets and liabilities Net decrease (increase) in Accounts Receivable and Unbilled Revenues...................... 84,440 (68,382) (68,525) Net decrease (increase) in Inventory -- Fuel and Materials and Supplies................. 41,169 16,438 (37,083) Net (decrease) increase in Accounts Payable... (85,790) 95,331 38,589 Net (decrease) increase in Accrued Taxes...... (258,818) (293,919) 37,892 Net change in Other Current Assets and Liabilities................................ 36,748 (19,505) 8,263 Other........................................... 53,976 (11,598) (14,538) ---------- ---------- ---------- Net cash provided by operating activities............................... 1,231,790 1,031,671 1,324,444 ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to Utility Plant, excluding AFDC......... (849,174) (863,294) (800,344) Additions to Oil and Gas Property, Plant and Equipment, excluding Capitalized Interest....... (149,523) (87,968) (32,337) Net decrease (increase) in Long-Term Investments and Real Estate................................. 58,416 66,659 (61,099) Increase in Decommissioning and Other Special Funds, excluding interest....................... (35,394) (45,508) (9,262) Cost of Plant Removal -- net....................... (33,962) (47,791) (40,111) Other.............................................. 7,154 (14,938) (6,000) ---------- ---------- ---------- Net cash used in investing activities...... (1,002,483) (992,840) (949,153) ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (decrease) increase in Short-Term Debt......... (86,050) 185,654 2,932 Increase (decrease) in Book Overdrafts............. 23,584 (10,078) 24,009 Issuance of Long-Term Debt......................... 849,800 2,137,700 880,000 Redemption of Long-Term Debt....................... (593,790) (2,083,453) (1,058,179) Long-Term Debt Issuance and Redemption Costs....... (29,811) (72,114) (19,753) Issuance of Preferred Stock........................ 75,000 75,000 75,000 Redemption of Preferred Stock...................... (120,000) -- -- Issuance of Monthly Income Preferred Securities.... 150,000 -- -- Issuance of Common Stock........................... 28,495 273,479 237,045 Cash Dividends Paid on Common Stock................ (528,071) (521,572) (503,197) Other.............................................. (1,970) (6,772) (5,719) ---------- ---------- ---------- Net cash used in financing activities...... (232,813) (22,156) (367,862) ---------- ---------- ---------- Net (decrease) increase in Cash and Cash Equivalents........................................ (3,506) 16,675 7,429 Cash and Cash Equivalents at Beginning of Year....... 71,372 54,697 47,268 ---------- ---------- ---------- Cash and Cash Equivalents at End of Year............. $ 67,866 $ 71,372 $ 54,697 ========== ========== ========== Income Taxes Paid.................................... $ 155,104 $ 140,172 $ 143,211 Interest Paid........................................ $ 432,873 $ 458,956 $ 486,396
See Notes to Consolidated Financial Statements. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------- 1994 1993 1992 ---------- ---------- ---------- (THOUSANDS OF DOLLARS) BALANCE JANUARY 1...................................... $1,361,018 $1,282,931 $1,282,029 ADD NET INCOME......................................... 679,033 600,933 504,117 ---------- ---------- ---------- Total........................................ 2,040,051 1,883,864 1,786,146 ---------- ---------- ---------- DEDUCT Dividends on Common Stock(A)......................... 528,071 521,572 503,197 Capital Stock Expenses............................... 1,970 1,274 18 ---------- ---------- ---------- Total Deductions............................. 530,041 522,846 503,215 ---------- ---------- ---------- BALANCE DECEMBER 31.................................... $1,510,010 $1,361,018 $1,282,931 ========== ========== ========== (A) The ability of Enterprise to declare and pay dividends is contingent upon its receipt of dividend payments from its subsidiaries. PSE&G, Enterprise's principal subsidiary, has restrictions on the payment of dividends which are contained in its Restated Certificate of Incorporation, as amended, certain of the indentures supplemental to its Mortgage, and certain debenture bond and other indentures. However, none of these restrictions presently limits the payment of dividends out of current earnings. The amount of PSE&G's restricted retained earnings at December 31, 1994, 1993 and 1992 was $10 million.
See Notes to Consolidated Financial Statements. PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------- 1994 1993 1992 ---------- ---------- ---------- (THOUSANDS OF DOLLARS) OPERATING REVENUES Electric............................................. $3,733,113 $3,693,083 $3,407,819 Gas.................................................. 1,778,528 1,594,341 1,586,181 ---------- ---------- ---------- Total Operating Revenues..................... 5,511,641 5,287,424 4,994,000 ---------- ---------- ---------- OPERATING EXPENSES Operation Fuel for Electric Generation and Interchanged Power........................................... 695,763 717,136 776,571 Gas Purchased and Materials for Gas Produced...... 1,036,701 919,870 903,360 Other............................................. 957,599 880,943 818,606 Maintenance.......................................... 308,080 304,403 307,726 Depreciation and Amortization........................ 547,032 509,206 552,011 Taxes Federal Income Taxes (note 10).................... 294,529 308,790 195,464 New Jersey Gross Receipts Taxes................... 583,167 597,898 585,770 Other............................................. 76,100 67,593 65,968 ---------- ---------- ---------- Total Operating Expenses..................... 4,498,971 4,305,839 4,205,476 ---------- ---------- ---------- OPERATING INCOME....................................... 1,012,670 981,585 788,524 ---------- ---------- ---------- OTHER INCOME Allowance for Funds Used During Construction -- Equity............................ 12,789 12,265 12,828 Peach Bottom Settlement -- net of Federal income taxes -- 1992, $16,985 (note 2)................... -- -- 32,970 Miscellaneous -- net................................. 6,233 (3,841) 29,927 ---------- ---------- ---------- Total Other Income........................... 19,022 8,424 75,725 ---------- ---------- ---------- INCOME BEFORE INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES................................. 1,031,692 990,009 864,249 ---------- ---------- ---------- INTEREST CHARGES (note 6) Long-Term Debt....................................... 366,894 364,252 368,496 Short-Term Debt...................................... 18,175 6,414 5,920 Other................................................ 10,856 19,290 27,486 ---------- ---------- ---------- Total Interest Charges....................... 395,925 389,956 401,902 Allowance for Funds Used During Construction -- Debt... (25,319) (14,815) (13,589) ---------- ---------- ---------- Net Interest Charges................................... 370,606 375,141 388,313 ---------- ---------- ---------- Monthly Income Preferred Securities Dividend Requirements (note 4)....................... 1,680 -- -- ---------- ---------- ---------- Net Income............................................. 659,406 614,868 475,936 ---------- ---------- ---------- Preferred Stock Dividend Requirements (note 4)......... 40,467 38,114 31,907 ---------- ---------- ---------- EARNINGS AVAILABLE TO PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED......................................... $ 618,939 $ 576,754 $ 444,029 ========== ========== ==========
See Notes to Consolidated Financial Statements. PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED BALANCE SHEETS ASSETS
DECEMBER 31, --------------------------- 1994 1993 ----------- ----------- (THOUSANDS OF DOLLARS) UTILITY PLANT-ORIGINAL COST (note 15) Electric........................................................ $12,345,919 $11,920,894 Gas............................................................. 2,318,233 2,177,841 Common.......................................................... 545,131 520,285 ----------- ----------- Total................................................... 15,209,283 14,619,020 Less accumulated depreciation and amortization.................... 5,147,105 4,772,942 ----------- ----------- Net............................................................... 10,062,178 9,846,078 Nuclear Fuel in Service, net of accumulated amortization -- 1994, $302,906; 1993, $275,638............................... 205,273 205,237 ----------- ----------- Net Utility Plant in Service............................ 10,267,451 10,051,315 Construction Work in Progress, including Nuclear Fuel in Process -- 1994, $65,429; 1993, $98,780......................... 806,934 735,356 Plant Held for Future Use......................................... 23,860 17,709 ----------- ----------- Net Utility Plant....................................... 11,098,245 10,804,380 ----------- ----------- INVESTMENTS AND OTHER NONCURRENT ASSETS Long-Term Investments, net of amortization -- 1994, $2,365; 1993, $572, respectively...................... 65,886 116,554 Nuclear Decommissioning and Other Special Funds (note 3)........ 233,022 189,282 Other Plant, net of accumulated depreciation and amortization -- 1994, $1,127; 1993, $872................................... 32,879 26,369 ----------- ----------- Total Investments and Other Noncurrent Assets........... 331,787 332,205 ----------- ----------- CURRENT ASSETS Cash and Cash Equivalents (note 9).............................. 27,498 42,165 Accounts Receivable: Customer Accounts Receivable................................. 434,207 446,629 Other Accounts Receivable.................................... 151,684 160,729 Less: allowance for doubtful accounts........................ 40,915 27,932 Unbilled Revenues............................................... 204,056 244,497 Fuel, at average cost........................................... 268,927 285,943 Materials and Supplies, net of inventory valuation reserves -- 1994, $18,200; 1993, $8,525, respectively..................... 146,763 170,910 Deferred Income Taxes (note 10)................................. 25,311 12,934 Miscellaneous Current Assets.................................... 30,407 45,754 ----------- ----------- Total Current Assets.................................... 1,247,938 1,381,629 ----------- ----------- DEFERRED DEBITS (note 5) Property Abandonments -- net.................................... 88,269 105,536 Oil and Gas Property Write-Down................................. 41,232 46,386 Unamortized Debt Expense........................................ 132,342 117,057 Deferred OPEB Costs (notes 1 and 13)............................ 116,476 58,593 Underrecovered Electric Energy and Gas Costs -- net............. 172,563 62,034 Unrecovered Environmental Costs (notes 2 and 12)................ 135,499 138,531 Unrecovered Plant and Regulatory Study Costs.................... 37,128 35,196 Deferred Decontamination and Decommissioning Costs (note 3)..... 53,016 56,055 Unrecovered SFAS 109 Deferred Income Taxes (note 10)............ 791,393 789,795 Other........................................................... 18,510 56,901 ----------- ----------- Total Deferred Debits................................... 1,586,428 1,466,084 ----------- ----------- Total................................................. $14,264,398 $13,984,298 =========== ===========
See Notes to Consolidated Financial Statements. PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED BALANCE SHEETS CAPITALIZATION AND LIABILITIES
DECEMBER 31, ------------------------- 1994 1993 ----------- ----------- (THOUSANDS OF DOLLARS) CAPITALIZATION (notes 4, 5 and 6) Common Equity Common Stock................................... $ 2,563,003 $ 2,563,003 Contributed Capital from Enterprise........... 534,395 534,395 Retained Earnings............................. 1,292,201 1,180,532 ----------- ----------- Total Common Equity...................... 4,389,599 4,277,930 Preferred Stock without mandatory redemption....... 384,994 429,994 Preferred Stock with mandatory redemption.......... 150,000 150,000 Monthly Income Preferred Securities of Subsidiary....................................... 150,000 -- Long-Term Debt..................................... 4,486,787 4,364,437 ----------- ----------- Total Capitalization..................... 9,561,380 9,222,361 ----------- ----------- OTHER LONG-TERM LIABILITIES Decontamination and Decommissioning Costs (note 3) 56,149 56,055 Environmental Costs (notes 2 and 12)............. 105,684 111,000 Capital Lease Obligations (note 11).............. 53,770 53,104 ----------- ----------- Total Other Long-Term Liabilities......... 215,603 220,159 ----------- ----------- CURRENT LIABILITIES Long-Term Debt due within one year................ 310,200 61,700 Commercial Paper and Loans (note 6)............... 401,759 532,728 Book Overdrafts................................... 86,576 62,992 Accounts Payable.................................. 370,005 480,796 Accounts Payable - Associated Companies (note 19). 16,677 5,674 New Jersey Gross Receipts Taxes Accrued........... -- 263,357 Other Taxes Accrued............................... 36,030 33,710 Interest Accrued.................................. 95,721 96,257 Estimated Liability for Vacation Pay.............. 27,080 26,993 Customer Deposits................................. 33,698 36,668 Liability for Injuries and Damages................ 29,814 28,338 Miscellaneous Environmental Liabilities........... 15,365 4,475 Other............................................. 50,778 26,450 ----------- ----------- Total Current Liabilities................. 1,473,703 1,660,138 ----------- ----------- DEFERRED CREDITS Accumulated Deferred Income Taxes (note 10)....... 2,478,539 2,368,778 Accumulated Deferred Investment Tax Credits ...... 389,721 408,929 Deferred OPEB Costs (notes 1 and 13).............. 116,476 58,593 Other............................................. 28,976 45,340 ----------- ----------- Total Deferred Credits.................... 3,013,712 2,881,640 ----------- ----------- COMMITMENTS AND CONTINGENT LIABILITIES (note 12) Total..................................... $14,264,398 $13,984,298 =========== ===========
PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 1994 1993 1992 ----------- ----------- ----------- (THOUSANDS OF DOLLARS) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income................................................. $ 659,406 $ 614,868 $ 475,936 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and Amortization........................... 547,032 509,206 552,011 Amortization of Nuclear Fuel............................ 95,173 102,718 91,903 (Deferral) Recovery of Electric Energy and Gas Costs -- net.......................................... (110,529) (184,770) 121,371 Amortization of Discounts on Property Abandonments and Disallowance.......................................... (6,743) (7,801) (11,293) Provision for Deferred Income Taxes -- net.............. 108,163 175,868 21,839 Investment Tax Credits -- net........................... (19,208) (18,408) (19,089) Allowance for Funds Used During Construction -- Debt and Equity................................................ (38,108) (27,080) (26,417) Changes in certain current assets and liabilities Net decrease (increase) in Accounts Receivable and Unbilled Revenues.............................. 74,891 (78,953) (54,792) Net decrease (increase) in Inventory -- Fuel and Materials and Supplies............................. 41,163 16,920 (36,775) Net (decrease) increase in Accounts Payable........... (99,788) 83,421 47,365 Net (decrease) increase in Accrued Taxes.............. (261,037) (286,119) 20,227 Net change in Other Current Assets and Liabilities.... 36,245 (27,790) 492 Other................................................... 33,846 (39,872) (12,115) ----------- ----------- ----------- Net cash provided by operating activities............. 1,060,506 832,208 1,170,663 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to Utility Plant, excluding AFDC................. (849,174) (863,294) (800,344) Net decrease (increase) in Long-Term Investments........... 50,668 (26,980) (20,438) Net increase in Decommissioning Funds and Other Special Funds, excluding interest............................... (35,394) (45,508) (9,262) Cost of Plant Removal -- net............................... (33,962) (47,791) (40,111) Other...................................................... 1,692 (13,607) (4,572) ----------- ----------- ----------- Net cash used in investing activities................. (866,170) (997,180) (874,727) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (decrease) increase in Short-Term Debt................. (130,969) 275,192 91,679 Increase (decrease) in Book Overdrafts..................... 23,584 (10,078) 24,009 Issuance of Long-Term Debt................................. 849,800 1,972,700 850,000 Redemption of Long-Term Debt............................... (478,950) (1,716,401) (1,031,660) Long-Term Debt Issuance and Redemption Costs............... (29,731) (68,227) (19,314) Issuance of Preferred Stock................................ 75,000 75,000 75,000 Redemption of Preferred Stock.............................. (120,000) - - Issuance of Monthly Income Preferred Securities............ 150,000 - - Contributed Capital by Enterprise.......................... 174,670 239,725 Cash Dividends Paid........................................ (545,767) (531,314) (517,907) Other...................................................... (1,970) (754) (402) ----------- ----------- ----------- Net cash (used in) provided by financing activities... (209,003) 170,788 (288,881) ----------- ----------- ----------- Net (decrease) increase in Cash and Cash Equivalents......... (14,667) 5,816 7,055 Cash and Cash Equivalents at Beginning of Year............... 42,165 36,349 29,294 ----------- ----------- ----------- Cash and Cash Equivalents at End of Year..................... $ 27,498 $ 42,165 $ 36,349 =========== =========== =========== Income Taxes Paid............................................ $ 209,196 $ 172,869 209,258 Interest Paid................................................ $ 345,867 $ 356,620 $ 374,049
See Notes to Consolidated Financial Statements. PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------- 1994 1993 1992 ---------- ---------- ---------- (THOUSANDS OF DOLLARS) BALANCE JANUARY 1...................................... $1,180,532 $1,097,734 $1,140,117 ADD NET INCOME......................................... 659,406 614,868 475,936 ---------- ---------- ---------- Total........................................ 1,839,938 1,712,602 1,616,053 ---------- ---------- ---------- DEDUCT CASH DIVIDENDS(A) Preferred Stock, at required rates................... 40,467 38,114 31,907 Common Stock......................................... 505,300 493,200 486,000 CAPITAL STOCK EXPENSES................................. 1,970 756 412 ---------- ---------- ---------- Total Deductions............................. 547,737 532,070 518,319 ---------- ---------- ---------- BALANCE DECEMBER 31.................................... $1,292,201 $1,180,532 $1,097,734 ========== ========== ========== (A) The Company has restrictions on the payment of dividends which are contained in its Restated Certificate of Incorporation, as amended, certain of the indentures supplemental to its Mortgage, and certain debenture bond indentures. However, none of these restrictions presently limits the payment of dividends out of current earnings. The amount of the Company's restricted retained earnings at December 31, 1994, 1993 and 1992 was $10 million.
See Notes to Consolidated Financial Statements. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Enterprise has two direct wholly owned subsidiaries, Public Service Electric and Gas Company (PSE&G) and Enterprise Diversified Holdings Incorporated (EDHI). Enterprise's principal subsidiary, PSE&G, is an operating public utility providing electric and gas service in certain areas in the State of New Jersey. Enterprise owns all of PSE&G's common stock (without nominal or par value). Of the 150,000,000 authorized shares of such common stock at December 31, 1994, 1993 and 1992, there were 132,450,344 shares outstanding, with an aggregate book value of $2.6 billion. PSE&G has a finance subsidiary, PSE&G Fuel Corporation (Fuelco), providing financing, unconditionally guaranteed by PSE&G, of up to $150 million aggregate principal amount at any one time of a 42.49% interest in the nuclear fuel acquired for Peach Bottom Atomic Power Station Units 2 and 3 (Peach Bottom). PSE&G also has a nonutility subsidiary, Public Service Conservation Resources Corporation (PSCRC) which offers demand side management (DSM) services to utility customers. In 1994, Public Service Electric and Gas Capital, L.P. (Partnership), a limited partnership in which PSE&G is the general partner, was formed for the purpose of issuing monthly income preferred securities (MIPS). (See Note 4 -- Schedule of Consolidated Capital Stock and Other Securities.) EDHI is the parent of Enterprise's nonutility businesses: Energy Development Corporation (EDC), an oil and gas exploration and production and marketing company; Community Energy Alternatives Incorporated (CEA), an investor in and developer of cogeneration and independent power production facilities; Public Service Resources Corporation (PSRC), which makes primarily passive investments; and Enterprise Group Development Corporation (EGDC), a diversified nonresidential real estate development and investment business. EDHI also has two finance subsidiaries: PSEG Capital Corporation (Capital), and Enterprise Capital Funding Corporation (Funding). NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Consolidation Policy The consolidated financial statements include the accounts of Enterprise and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications of prior years' data have been made to conform with the current presentation. Regulation -- PSE&G The accounting and rates of PSE&G are subject, in certain respects, to the requirements of the New Jersey Board of Public Utilities (BPU) and the Federal Energy Regulatory Commission (FERC). As a result, PSE&G maintains its accounts in accordance with their prescribed Uniform Systems of Accounts, which are the same. The applications of Generally Accepted Accounting Principles by PSE&G differ in certain respects from applications by non-regulated businesses. PSE&G prepares its financial statements in accordance with the provisions of Statement of Financial Accounting Standards No. 71 -- "Accounting for the Effects of Certain Types of Regulation" (SFAS 71). In general, SFAS 71 recognizes that accounting for rate-regulated enterprises should reflect the relationship of costs and revenues. As a result, a regulated utility may defer recognition of cost (a regulatory asset) or recognize an obligation (a regulatory liability) if it is probable that, through the rate-making process, there will be a corresponding increase or decrease in revenues. Accordingly, PSE&G has deferred certain costs, which will be amortized over various periods. To the extent that collection of such costs or payment of liabilities is no longer probable as a result of changes in regulation and/or PSE&G's competitive position, the associated regulatory asset or liability will be reversed with a charge or credit to income. (See Note 5 -- Deferred Items.) Amounts charged to operations for depreciation expense reflect estimated useful lives and methods, that include estimated cost of removal and salvage, prescribed and approved by regulators rather than those that might otherwise apply to unregulated enterprises. PSE&G cannot presently quantify what the financial statement impact may be if depreciation expense is determined absent regulation. Utility Plant and Related Depreciation -- PSE&G Additions to utility plant and replacements of units of property are capitalized at original cost. The cost of maintenance, repairs and replacements of minor items of property is charged to appropriate expense accounts. At the time units of depreciable properties are retired or otherwise disposed of, the original cost less net salvage value is charged to accumulated depreciation. For financial reporting purposes, depreciation is computed under the straight-line method. Depreciation is based on estimated average remaining lives of the several classes of depreciable property. These estimates are reviewed on a periodic basis and necessary adjustments are made as approved by the BPU. Depreciation provisions stated in percentages of original cost of depreciable property were 3.51% in 1994, 3.46% in 1993 and 3.48% in 1992. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Decontamination and Decommissioning -- PSE&G In September 1993, FERC issued Order No. 557 on the accounting and rate-making treatment of special assessments levied under the National Energy Policy Act of 1992 (NEPA). Order No. 557 provides that special assessments are a necessary and reasonable current cost of fuel and shall be fully recoverable in rates in the same manner as other fuel costs. While PSE&G expects to recover such special assessments through its electric Levelized Energy Adjustment Clause (LEAC) no assurances can be given that the BPU will authorize such recovery from customers. (See Note 3 -- PSE&G Nuclear Decommissioning and Amortization of Nuclear Fuel - Uranium, Decontamination and Decommissioning Fund.) Amortization of Nuclear Fuel -- PSE&G Nuclear energy burnup costs are charged to fuel expense on a units-of-production basis over the estimated life of the fuel. Rates for the recovery of fuel used at all nuclear units include a provision of one mill per kilowatthour (KWH) of nuclear generation for spent fuel disposal costs. (See Note 3 -- PSE&G Nuclear Decommissioning and Amortization of Nuclear Fuel.) Revenues and Fuel Costs -- PSE&G Revenues are recorded based on services rendered to customers during each accounting period. PSE&G records unbilled revenues representing the estimated amount customers will be billed for services rendered from the time meters were last read to the end of the respective accounting period. Rates include projected fuel costs for electric generation, purchased and interchanged power, gas purchased and materials used for gas production. Any under or overrecoveries, together with interest (in the case of net overrecoveries), are deferred and included in operations in the period in which they are reflected in rates. Long-Term Investments PSRC has invested in securities and limited partnerships investing in securities, which are recorded at fair value, and various leases and other limited partnerships. EGDC is a participant in the nonresidential real estate markets. CEA is an investor in and developer of cogeneration and power production facilities. (See Note 7 -- Long-Term Investments.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Derivatives Gains and losses on hedges of existing assets or liabilities are included in the carrying amounts of those assets and liabilities and are ultimately recognized in income as part of those carrying amounts. Gains and losses related to qualifying hedges of firm commitments or anticipated transactions also are deferred and recognized in income or as adjustments of carrying amounts when the hedged transaction occurs. PSRC's security derivatives are recorded at fair value. Realized and unrealized changes in fair values are recognized in revenues in the period in which the changes occur. (See Note 8 -- Financial Instruments and Risk Management.) Oil and Gas Accounting -- EDC EDC uses the successful efforts method of accounting under which proved leasehold costs are capitalized and amortized over the proved developed and undeveloped reserves on a units-of-production basis. Drilling and equipping costs, except exploratory dry holes, are capitalized and depreciated over the proved developed reserves on a units-of-production basis. Estimated future abandonment costs of offshore proved properties are depreciated on a units-of-production basis over the proved developed reserves. Unproved leasehold costs are capitalized and not amortized, pending an evaluation of the exploration results. Unproved leasehold and producing properties costs are assessed periodically to determine if an impairment of the cost of significant individual properties has occurred. The cost of an impairment is charged to expense. Costs incurred for exploratory dry holes, exploratory geological and geophysical work and delay rentals are charged to expense as incurred. Income Taxes Enterprise and its subsidiaries file a consolidated Federal income tax return and income taxes are allocated to Enterprise's subsidiaries based on taxable income or loss of each. Investment tax credits are deferred and amortized over the useful lives of the related property, including nuclear fuel. Effective January 1, 1993, Enterprise and its subsidiaries adopted Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS 109). Under SFAS 109, deferred income taxes are provided for all temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities irrespective of the treatment for rate-making purposes. For periods prior to January 1, 1993, PSE&G provided deferred income taxes to the extent permitted for rate-making purposes. (See Note 10 -- Federal Income Taxes.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Allowance for Funds Used During Construction and Capitalized Interest PSE&G -- Allowance for Funds Used During Construction (AFDC) represents the cost of debt and equity funds used to finance the construction of new utility facilities. The amount of AFDC capitalized is reported in the Consolidated Statements of Income as a reduction of interest charges for the borrowed funds component and as other income for the equity funds component. The rates used for calculating AFDC in 1994, 1993 and 1992 were 6.48%, 6.96% and 7.80%, respectively. These rates are within the limits set by FERC. EDHI -- The operating subsidiaries of EDHI capitalize interest costs allocable to construction expenditures at the average cost of borrowed funds. Pension Plan and Other Postretirement Benefits The employees of PSE&G and participating affiliates, after completing one year of service, are covered by a noncontributory trusteed pension plan (Pension Plan). The policy is to fund pension costs accrued. PSE&G also provides certain health care and life insurance benefits to active and retired employees. The portion of such costs pertaining to retirees amounted to $29 million, $28 million, and $24 million in 1994, 1993 and 1992, respectively. The current cost of these benefits is charged to expense when paid and is currently being recovered from ratepayers. On January 1, 1993, Enterprise and PSE&G adopted Statement of Financial Accounting Standards No. 106, "Employers Accounting for Postretirement Benefits Other Than Pensions" (SFAS 106), which requires that the expected cost of employees' postretirement health care benefits be charged to expense during the years in which employees render service. Prior to 1993, Enterprise and PSE&G recognized postretirement health care costs in the year in which the benefits were paid. PSE&G elected to amortize over 20 years its unfunded obligation at January 1, 1993. (See Note 13 -- Postretirement Benefits Other Than Pensions and Note 14 -- Pension Plan.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 2. RATE MATTERS Levelized Gas Adjustment Charge On July 1, 1994, PSE&G petitioned the BPU to increase its Levelized Gas Adjustment Charge (LGAC) rates to recover an additional $23.7 million, to be effective October 1, 1994. On August 4, 1994, the matter was transmitted to the Office of Administrative Law of the State of New Jersey (OAL) for adjudication. Due to recent projections of lower gas prices, the parties reached a stipulated settlement on October 6, 1994 which provides for the implementation of the Gas Remediation Adjustment Charge (RAC) with an equal corresponding offsetting adjustment to the current LGAC rate. These LGAC and RAC rates, when combined, produce a charge which results in a zero increase to the firm customers for the LGAC period ending September 30, 1995. The settlement was approved by the BPU on December 21, 1994. The BPU, on January 24, 1995, approved PSE&G's proposal to credit a total of $50 million to its firm gas sales customers during February and March 1995. Specifically, PSE&G will credit approximately $30 million in February and $20 million in March 1995. The opportunity to provide these credits was due principally to abnormally warm winter weather, lower gas prices and a lower current short-term price forecast. Electric Levelized Energy Adjustment Clause On July 1, 1994, PSE&G petitioned the BPU to increase its LEAC rates, effective October 1, 1994, to recover an additional $130 million of energy costs. A significant part of the need for an increase is the larger percentage of power that PSE&G is obligated to purchase under prior BPU approved contracts with non-regulated power producers. On November 1, 1994, the parties reached a stipulated settlement which provides for the implementation of provisional LEAC rates, subject to refund, designed to recover an additional $98 million over the period November 1994 through May 1995. The stipulation provided sufficient rate relief to recover current fuel costs and to begin to reduce the accumulated underrecovered balance while affording the parties the opportunity to continue litigating unresolved issues of: a) rate treatment for the Bergen repowering project (See Note 12 -- Commitments and Contingent Liabilities - Bergen Station Repowering); b) an alleged overearnings issue; c) recovery of the costs related to the April 7, 1994 shutdown at Salem 1 nuclear unit; and d) the appropriateness of PSE&G's gas to electric transfer and pricing calculations pertaining to the 1993 agreement with PSE&G's largest industrial customer (Bayway Decision and Order). This stipulation was approved by the BPU without modification and became effective on November 4, 1994. With respect to the litigated issues outlined above, an Administrative Law Judge (ALJ) decision was filed with the BPU on January 30, 1995 recommending that (1) the issue of alleged overearnings is not a LEAC issue and PSE&G is not earning in excess of its rate of return; (2) a hearing convene regarding the Salem 1 shutdown to determine replacement power costs and whether any limitations imposed by the New Jersey Public Utility Fault Determination Act should be triggered; (3) a reduction of the 1993 Nuclear Performance Standard (NPS) reward to $1.9 million from $3.9 million be made; (4) the joint position of the parties on gas to electric pricing and the accounting procedures approved by the BPU in its Bayway Decision and Order should not be revised; (5) a decrease of $700 thousand in DSM program costs; and (6) the BPU should address the RAC costs in the LEAC. PSE&G filed exceptions to the ALJ's decision on February 14, 1995 addressing the 1993 NPS reward; DSM estimates; replacement power costs for the April 7, 1994 Salem outage and the treatment of RAC charges. However, neither Enterprise nor PSE&G is able to predict what action, if any, the BPU may take concerning the ALJ's decision. (See Note 3 -- PSE&G Nuclear Decommissioning and Amortization of Nuclear Fuel.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On July 7, 1994, the BPU approved a stipulation which made permanent the LEAC rates that went into effect on January 1, 1993 on an interim basis and closed out the previous LEAC for the period ended December 31, 1992. The stipulation also provided a credit of $2.5 million to the deferred fuel balance for LEAC customers in resolution of all outstanding issues related to the November 9, 1991 Salem 2 turbine generator outage and a credit of $1.3 million to reflect an adjustment of estimated New Jersey Gross Receipts and Franchise Tax (NJGRT) unit tax rates to actual unit tax rates. Remediation Adjustment Charge In accordance with the BPU Order dated September 15, 1993 and the BPU approved Technical Conference Decision and Order dated November 4, 1993, PSE&G proposed to recover, effective October 1, 1994, $3.7 million from its gas customers and $2.4 million from its electric customers for costs incurred during the period October 1, 1992 through July 31, 1994 with respect to PSE&G's Manufactured Gas Plant Remediation Program (Remediation Program). Pursuant to the above-referenced Board Order and Technical Conference Stipulation, costs are to be included in a RAC and are amortized over a rolling seven-year period, 60 percent to be recovered through the gas RAC and the remaining 40 percent to be recovered through the electric RAC. This Remediation Program has been and continues to be carried out under the direction and supervision of the New Jersey Department of Environmental Protection (NJDEP). On December 21, 1994, the BPU approved a LGAC Stipulation allowing PSE&G to recover $3.1 million of Remediation Program costs from gas customers. (See Note 12 -- Commitments and Contingent Liabilities of Notes.) All recovery of costs through PSE&G rates are subject to audit and verification by the BPU. Consolidated Tax Benefits In a case affecting another utility in which neither Enterprise nor PSE&G were parties, the BPU considered the extent to which tax savings generated by nonutility affiliates included in the consolidated tax return of that utility's holding company should be considered in setting that utility's rates. On September 30, 1992, the BPU approved an order in such case treating certain consolidated tax savings generated after June 30, 1990 by that utility's nonutility affiliates as a reduction of its rate base. On December 31, 1992 the BPU issued an order approving a stipulation in PSE&G's 1992 base rate proceeding which resolved the case without separate quantification of the consolidated tax issue. The stipulation does not provide final resolution of the consolidated tax issue for any subsequent base rate filing. While Enterprise continues to account for these entities on a stand-alone basis, resulting in a realization of the tax benefits by the entity generating the benefit, an ultimate unfavorable resolution of the consolidated tax issue could reduce PSE&G's and Enterprise's future revenue and net income. In addition, an unfavorable resolution may adversely impact Enterprise's nonutility investment strategy. Enterprise believes that PSE&G's taxes should be treated on a stand-alone basis for rate-making purposes, based on the separate nature of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) utility and nonutility businesses. However, neither Enterprise nor PSE&G is able to predict what action, if any, the BPU may take concerning consolidation of tax benefits in future rate proceedings. (See Note 10 -- Federal Income Taxes.) Peach Bottom Settlement In the first quarter of 1992, Enterprise and PSE&G allocated 75% of the net proceeds of the Peach Bottom settlement to income attributable to shareholders and deferred 25% attributable to ratepayers. Pursuant to the base rate case settlement, such allocations were adjusted in December 1992 to an equal sharing of the benefits of the Peach Bottom settlement. NOTE 3. PSE&G NUCLEAR DECOMMISSIONING AND AMORTIZATION OF NUCLEAR FUEL The BPU decision in PSE&G's 1992 base rate case utilized studies based on the prompt removal/dismantlement method of decommissioning for all of PSE&G's nuclear generating stations. This method consists of removing all fuel, source material and all other radioactive materials with activity levels above accepted release limits from the nuclear sites. PSE&G has an ownership interest in five nuclear units: Salem 1 and Salem 2 -- 42.59% each, Hope Creek -- 95% and Peach Bottom 2 and 3 -- 42.49% each. In accordance with rate orders received from the BPU, PSE&G has established an external master nuclear decommissioning trust for all of its nuclear units. The Internal Revenue Service (IRS) has ruled that payments to the trust are tax deductible. PSE&G's total estimated cost of decommissioning its share of these 5 nuclear units is estimated at $681 million in year-end 1990 dollars (the year that the site specific estimate was prepared), excluding contingencies. The 1992 base rate decision provided that $15.6 million of such costs are to be collected through base rates and an additional annual amount of $7.0 million in 1993 and $14 million each year thereafter are to be recovered through PSE&G's LEAC. At December 31, 1994 and 1993, the accumulated provision for depreciation and amortization included reserves for nuclear decommissioning for PSE&G's units of $249 million and $211 million, respectively. As of December 31, 1994 and 1993, PSE&G has contributed $190 million and $155 million, respectively, into external qualified and nonqualified nuclear decommissioning trust funds. Based upon current regulatory requirements, PSE&G must file a decommissioning cost update by January 1, 1996 based on a site-specific study or upon the generic NRC guidelines. The staff of the Securities and Exchange Commission (SEC) has questioned certain of the current accounting practices of the electric utility industry, including PSE&G, regarding the recognition, measurement and classification of decommissioning costs for nuclear generating stations in the financial statements of electric utilities. In response to these questions, the Financial Accounting Standards Board (FASB) has agreed to review the accounting for removal costs, including decommissioning. If current electric utility NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) industry accounting practices for such decommissioning are changed: (1) annual provisions for decommissioning could increase, (2) the estimated cost for decommissioning could be recorded as a liability rather than as accumulated depreciation and (3) trust fund income from the external decommissioning trusts could be reported as investment income rather than as a reduction to decommissioning expense. Uranium Enrichment Decontamination and Decommissioning Fund In accordance with NEPA, domestic utilities that own nuclear generating stations are required to pay a cumulative total of $150 million each year (adjusted for inflation) into a decontamination and decommissioning fund, based on their past purchases of enrichment services from the United States Department of Energy (DOE) Uranium Enrichment Enterprise (now a federal government corporation known as the United States Enrichment Corporation (USEC)). These amounts are being collected over a period of 15 years or until $2.25 billion (adjusted for inflation) has been collected. Under this legislation, PSE&G's obligation for the nuclear generating stations in which it has an interest is $66 million (adjusted for inflation). To date, PSE&G has paid $13 million, resulting in a balance due of $53 million. PSE&G has deferred the expenditures incurred to date as part of deferred underrecovered electric energy costs and expects to recover its costs in the next LEAC. PSE&G cannot predict the outcome, amount or timing of any recovery associated with this matter. In addition, as of December 31, 1994, PSE&G has recorded a liability of $3 million relating to low level radioactive waste costs incurred at its nuclear generating stations. Spent Nuclear Fuel Disposal Costs In accordance with the Nuclear Waste Policy Act (NWPA), PSE&G has entered into contracts with the DOE for the disposal of spent nuclear fuel. Payments made to the DOE for disposal costs are based on nuclear generation and are included in Fuel for Electric Generation and Interchanged Power in the Statements of Income. These costs are recovered through the LEAC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 4. SCHEDULE OF CONSOLIDATED CAPITAL STOCK AND OTHER SECURITIES
CURRENT REDEMPTION OUTSTANDING PRICE DECEMBER 31, DECEMBER 31, (THOUSANDS OF DOLLARS) SHARES PER SHARE 1994 1993 - --------------------------------------------------- ----------- ---------- ------------ ------------ ENTERPRISE COMMON STOCK (no par) - note (A) -- authorized 500,000,000 shares; issued and outstanding at December 31, 1994, 244,697,930 shares, at December 31, 1993, 243,688,256 shares, and at December 31, 1992, 235,395,751 shares. 3,801,157 3,772,662 ENTERPRISE PREFERRED SECURITIES (note B) PSE&G CUMULATIVE PREFERRED SECURITIES (note C) Without Mandatory Redemption (notes D and E) $100 par value series 4.08%.................................... 250,000 103.00 25,000 25,000 4.18%.................................... 249,942 103.00 24,994 24,994 4.30%.................................... 250,000 102.75 25,000 25,000 5.05%.................................... 250,000 103.00 25,000 25,000 5.28%.................................... 250,000 103.00 25,000 25,000 6.80%.................................... 250,000 102.00 25,000 25,000 6.92%.................................... 600,000 103.46 60,000 - 7.40%.................................... 500,000 101.00 50,000 50,000 7.52%.................................... 500,000 101.00 50,000 50,000 7.80%.................................... 750,000 - - 75,000 7.70%.................................... 600,000 100.79 60,000 60,000 8.08%.................................... 150,000 - - 15,000 8.16%.................................... 300,000 - - 30,000 --------- --------- $25 par value series 6.75%.................................... 600,000 - 15,000 - --------- --------- Total Preferred Stock without Mandatory Redemption................... 384,994 429,994 ========= ========= With Mandatory Redemption (notes D and F) $100 par value series 7.44%.................................... 750,000 103.72 75,000 75,000 5.97%.................................... 750,000 102.99 75,000 75,000 --------- --------- Total Preferred Stock With Mandatory Redemption (note G).......... 150,000 150,000 ========= ========= Monthly Income Preferred Securities (notes F and G) 9.375%................................... 6,000,000 25.00 150,000 - --------- Total Monthly Income Preferred Securities 150,000 - ========= (A) Total authorized and unissued shares include 7,302,488 shares of Enterprise Common Stock reserved for issuance through Enterprise's Dividend Reinvestment and Stock Purchase Plan and various employee benefit plans. In 1994, 1,009,674 shares of Enterprise Common Stock were issued and sold for $28,495,122 and in 1993, 8,292,505 shares were issued and sold for $273,479,342, including a public offering of 4,400,000 shares issued and sold for $142,670,000. (B) Enterprise has authorized a class of 50,000,000 shares of Preferred Stock without par value, none of which is outstanding. (C) As of December 31, 1994, there were 2,300,058 shares of $100 par value and 9,400,000 shares of $25 par value Cumulative Preferred Stock which were authorized and unissued, and which upon issuance may or may not provide for mandatory sinking fund redemption. If dividends upon any shares of Preferred Stock are in arrears in an amount equal to the annual dividend thereon, voting rights for the election of a majority of PSE&G's Board of Directors become operative and continue until all accumulated and unpaid dividends thereon have been paid, whereupon all such voting rights cease, subject to being again revived from time to time. (D) At December 31, 1994, the annual dividend requirement and embedded dividend for Preferred Stock without mandatory redemption were $24,666,763 and 6.39%, respectively, and for Preferred Stock with mandatory redemption were $10,057,500 and 6.75%, respectively. At December 31, 1993, the annual dividend requirement and embedded dividend for Preferred Stock without mandatory redemption were $29,012,000 and 6.75%, respectively and for Preferred Stock with mandatory redemption were $10,057,500 and 6.71%, respectively. (E) In February 1994, PSE&G sold 600,000 shares of its 6.92% Cumulative Preferred Stock ($100 Par) and 600,000 shares of its 6.75% Cumulative Preferred Stock ($25 par). PSE&G redeemed the 150,000 shares of its outstanding 8.08% Cumulative Preferred Stock ($100 par) on March 1, 1994 at a redemption price of $101.00. In addition, PSE&G redeemed on March 1, 1994, all of the 300,000 shares of its outstanding 8.16% Cumulative Preferred Stock ($100 par), at a redemption price of $100.74. On December 16, 1994, PSE&G redeemed all of the outstanding 750,000 shares of its 7.80% cumulative preferred stock ($100 par), at a redemption price of $101.00. (F) Public Service Electric and Gas Capital, L.P. (Partnership) was formed for the purpose of issuing Monthly Income Preferred Securities (MIPS). The proceeds of MIPS sales are lent to PSE&G and evidenced by PSE&G's Deferrable Interest Subordinated Debentures. If and for as long as payments on PSE&G's Deferred Interest Subordinated Debentures have been deferred, or PSE&G has defaulted on the indenture related thereto or its guarantee thereof, PSE&G may not pay any dividends on its Capital Stock. On November 9, 1994, the Partnership issued 6,000,000 of its 9-3/8% MIPS, Series A, with a stated liquidation preference of $25 each. (G) For information concerning fair value of financial instruments, see Note 8 -- Financial Instruments and Risk Management.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 5. DEFERRED ITEMS Property Abandonments The BPU has authorized PSE&G to recover after-tax property abandonment costs from its customers. The following table reflects the application of Statement of Financial Accounting Standards No. 90, "Regulated Enterprises -- Accounting for Abandonments and Disallowances of Plant Costs," as amended (SFAS 90), on property abandonments, and related tax effects, for which no return is earned. The net-of-tax discount rate used was between 4.443% and 7.801%. (See Note 2 -- Rate Matters.) The following table reflects property abandonments:
DECEMBER 31, 1994 DECEMBER 31, 1993 ------------------ ------------------ DISCOUNTED DISCOUNTED PROPERTY ABANDONMENTS COST TAXES COST TAXES - ------------------------------------------------ ---------- ------- ---------- ------- (THOUSANDS OF DOLLARS) Atlantic Project................................ $ 70,130 $29,453 $81,475 $34,229 LNG Project..................................... 7,287 2,635 11,362 4,227 Uranium Projects................................ 10,852 4,677 12,699 5,442 -------- ------- -------- ------- $ 88,269 $36,765 $105,536 $43,898 ======== ======= ======== =======
Under (Over) Recovered Electric Energy and Gas Costs -- net Recoveries of electric energy and gas costs are determined by the BPU under the LEAC and LGAC. PSE&G's deferred fuel balances as of December 31, 1994 and December 31, 1993, reflect underrecovered costs as follows:
DECEMBER 31, ------------------- 1994 1993 ------ ------ (Thousands of Dollars) Underrecovered Electric Energy Costs......... $172.0 $ 35.2 Underrecovered Gas Fuel Costs................ .6 26.8 ------ ------ Total................................... $172.6 $ 62.0 ====== ======
Unrecovered Plant and Regulatory Study Costs Amounts shown in the consolidated balance sheets consist of costs associated with developing, consolidating and documenting the specific design basis of PSE&G's jointly owned nuclear generating stations, as well as PSE&G's share of costs associated with the cancellation of the Hydrogen Water Chemistry System Project at Peach Bottom. PSE&G has received both BPU and FERC approval to defer and amortize, over the remaining life of the Salem and Hope Creek nuclear units, costs associated with configuration baseline documentation projects. PSE&G has received FERC approval to defer and amortize over the remaining life of the applicable Peach Bottom units, costs associated with the configuration baseline documentation and the cancelled Hydrogen Water Chemistry System Projects. While PSE&G expects the BPU to authorize recovery of such costs from electric customers, no assurances can be given. Unamortized Debt Expense Gains and losses and the costs of issuing and redeeming long-term debt for PSE&G are deferred and amortized over the life of the applicable debt. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Oil and Gas Property Write-Down On December 31, 1992, the BPU approved the recovery of the EDC write-down through PSE&G's LGAC over a ten-year period beginning January 1, 1993. At December 31, 1994 and 1993, the remaining balance to be amortized was $41.2 million and $46.4, respectively. NOTE 6. SCHEDULE OF CONSOLIDATED DEBT LONG-TERM
DECEMBER DECEMBER INTEREST RATES DUE 1994 1993 - ----------------- ------------------------------------------------- ---------- ---------- (THOUSANDS OF DOLLARS) PSE&G FIRST AND REFUNDING MORTGAGE BONDS (note A) 4 5/8% 1994............................................. $ -- $ 60,000 4 3/4% - 6% 1995............................................. 310,000 310,000 6 7/8% - 7 1/8% 1997............................................. 300,000 300,000 6% 1998............................................. 100,000 100,000 8 3/4% 1999............................................. 100,000 100,000 6% - 8 7/8% 2000-2004........................................ 1,400,000 1,400,000 6.30% - 9 1/8% 2005-2009........................................ 359,310 184,510 6.80% - 10 1/2% 2010-2014........................................ 198,500 313,300 6.45% - 8.10% 2015-2019........................................ 29,600 25,000 7% - 9 3/4% 2020-2024........................................ 1,244,500 1,368,500 5.2% - 6.55% 2025-2029........................................ 179,955 87,000 5.45% - 6.40% 2030-2034........................................ 487,445 145,200 5% - 8% 2037............................................. 15,001 15,001 MEDIUM-TERM NOTES 7.15% - 7.18% 2023............................................. 40,500 40,500 8.10% - 8.16% 2009............................................. 60,000 -- ---------- ---------- Total First and Refunding Mortgage Bonds.......................... $4,824,811 $4,449,011 ========== ==========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER DECEMBER INTEREST RATES DUE 1994 1993 - ----------------- ---- ---------- ---------- (THOUSANDS OF DOLLARS) DEBENTURE BONDS UNSECURED 6% 1998............................................. $ 18,195 $ 18,195 ---------- ---------- Total Debenture Bonds.................................................. 18,195 18,195 ---------- ---------- Principal Amount Outstanding (note F).................................. 4,843,006 4,467,206 Amounts Due Within One Year (note B)................................... (310,200) (61,700) Net Unamortized Discount............................................... (46,019) (41,069) ---------- ---------- Total Long-Term Debt of PSE&G (note G)............................ 4,486,787 4,364,437 ---------- ---------- EDHI CAPITAL (note C) Senior Notes 9.875% - 10.05% 1998............................................. 165,000 207,500 Medium-Term Notes 7.40% 1994............................................. -- 50,000 5.65% - 9.55% 1995............................................. 112,000 112,000 9.00% 1996............................................. 20,000 20,000 5.79% - 5.91% 1997............................................. 27,000 27,000 9.00% 1998............................................. 75,000 75,000 8.95% - 9.93% 1999............................................. 155,000 155,000 6.54% 2000............................................. 78,000 78,000 ---------- ---------- Principal Amount Outstanding (note F).................................. 632,000 724,500 Amounts Due Within One Year (note B)................................... (154,405) (92,436) Net Unamortized Discount............................................... (1,278) (1,746) ---------- ---------- Total Long-Term Debt of Capital................................... 476,317 630,318 ---------- ---------- FUNDING (note D) 9.54% 1995............................................. 35,000 35,000 9.55% 1996............................................. 28,000 28,000 6.85% - 9.59% 1997............................................. 55,000 55,000 9.95% 1998............................................. 83,000 83,000 7.58% 1999............................................. 45,000 45,000 ---------- ---------- Principal Amount Outstanding (note F).................................. 246,000 246,000 Amounts Due Within One Year (note B)................................... (35,000) -- ---------- ---------- Total Long-Term Debt of Funding................................... 211,000 246,000 ---------- ---------- EGDC MORTGAGE NOTES 5.18% - 7.736% 1994............................................. -- 13,638 5.75% 1998............................................. -- 9,050 10.625% - 12.75% 2012............................................. 6,686 6,806 ---------- ---------- Principal Amount Outstanding (note F).................................. 6,686 29,494 Amounts Due Within One Year (note B)................................... (133) (13,928) ---------- ---------- Total Long-Term Debt of EGDC........................................... 6,553 15,566 ---------- ---------- Total Long-Term Debt of EDHI........................................... 693,870 891,884 ---------- ---------- Consolidated Long-Term Debt (note E).............................. $5,180,657 $5,256,321 ========== ==========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTES: (A) PSE&G's Mortgage, securing the Bonds, constitutes a direct first mortgage lien on substantially all PSE&G'S property and franchises. (B) The aggregate principal amounts of mandatory requirements for sinking funds and maturities for each of the five years following December 31, 1994 are as follows:
SINKING FUNDS MATURITIES ----------------- ---------------------------------------------------- YEAR PSE&G CAPITAL PSE&G CAPITAL EGDC FUNDING TOTAL (THOUSANDS OF DOLLARS) 1995................ $ 200 $ 42,500 $310,000 $112,000 $ 133 $ 35,000 $ 499,833 1996................ 200 42,500 -- 20,000 149 28,000 90,849 1997................ 300 42,500 300,000 27,000 166 55,000 424,966 1998................ 300 37,500 118,195 75,000 184 83,000 314,179 1999................ 300 -- 100,000 155,000 205 45,000 300,505 ------ -------- -------- -------- ------- -------- --------- $1,300 $165,000 $828,195 $389,000 $ 837 $246,000 $1,630,332 ====== ======== ======== ======== ======= ======== ========== (C) Capital has provided up to $750 million debt financing for EDHI's businesses on the basis of a net worth maintenance agreement with Enterprise. Effective January 31, 1995, Capital will not have more than $650 million of debt outstanding at any one time. (D) Funding provides debt financing for EDHI's businesses other than EGDC on the basis of unconditional guarantees from EDHI. (E) At December 31, 1994 and 1993, the annual interest requirement on long-term debt was $422.7 million and $421.2 million, of which $335.6 million and $327.5 million was the requirement for Bonds. The embedded interest cost on long-term debt on such date was 7.79% and 8.06%, respectively. (F) For information concerning fair value of financial instruments, see Note 8 -- Financial Instruments and Risk Management. (G) At December 31, 1994 and 1993, PSE&G's annual interest requirement on long-term debt was $343.3 million and $331.5 million, of which $335.6 million and $327.5 million, respectively, was the requirement for Bonds. The embedded interest cost on long-term debt was 7.59% and 7.85%, respectively.
SHORT-TERM (Commercial Paper and Loans) Commercial paper represents unsecured bearer promissory notes sold through dealers at a discount with a term of nine months or less. Bank loans represent PSE&G's unsecured promissory notes issued under informal credit arrangements with various banks and have a term of eleven months or less.
PSE&G - ----- 1994 1993 1992 ------ ------ ------ (Millions of Dollars) Principal amount outstanding at end of year, primarily commercial paper...................... $ 402 $ 533 $ 258 Weighted average interest rate for Short-Term Debt at year-end................................ 6.07% 3.34% 3.64% PSE&G has authorization from the BPU to issue and have outstanding not more than $1 billion of its short-term obligations at any one time, consisting of commercial paper and other unsecured borrowings from banks and other lenders. This authorization expires January 1, 1997. PSE&G has an $800 million revolving credit agreement with a group of banks which expires September 14, 1995. As of December 31, 1994, there was no short-term debt outstanding under this agreement. Fuelco has a $150 million commercial paper program to finance a 42.49% share of Peach Bottom nuclear fuel, supported by a $150 million revolving credit facility with a group of banks, which expires in June 1996. PSE&G has guaranteed repayment of Fuelco's respective obligations. As of December 31, 1994, 1993 and 1992, Fuelco had commercial paper of $93.7 million, $108.7 million and $122.5 million, respectively, outstanding under such program, which amounts are included in the table above.
EDHI - ---- 1994 1993 1992 ------ ------ ------ (Millions of Dollars) Principal amount outstanding at end of year....... $ 90 $ 45 $ 134 Weighted average interest rate for Short-Term Debt at year-end................................ 5.97% 3.47% 3.76% At December 31, 1994, Funding had a $225 million commercial paper program supported by a direct pay commercial bank letter of credit and revolving credit facility and a $225 million revolving credit facility, each of which expires in November 1995. ENTERPRISE - ---------- At each of December 31, 1994, 1993 and 1992, Enterprise had a $25 million line of credit supported by compensating balances under an informal arrangement with a bank. At each of December 31, 1994, 1993 and 1992, Enterprise had no lines of credit compensated for by fees.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 7. LONG-TERM INVESTMENTS Long-Term Investments are primarily those of EDHI. A summary of Long-Term Investments is as follows:
1994 1993 ------ ------ (MILLIONS OF DOLLARS) Lease Agreements (see Note 11 - Leasing Activities): Leveraged Leases................................ $ 789 $ 738 Direct-Financing Leases......................... 76 85 Other Leases.................................... 6 8 ------ ------ Total...................................... 871 831 ------ ------ Partnerships: General Partnerships............................ 157 152 Limited Partnerships............................ 437 433 ------ ------ Total...................................... 594 585 ------ ------ Joint Ventures....................................... 37 35 Securities........................................... 75 82 Valuation Allowances................................. (17) (18) Other Investments.................................... 66 116 ------ ------ Total Long-Term Investments................ $1,626 $1,631 ====== ======
PSRC's leveraged leases are reported net of principal and interest on nonrecourse loans and unearned income, including deferred tax credits. Income and deferred tax credits are recognized at a level rate of return from each lease during the periods in which the net investment is positive. For information concerning PSRC's three direct-finance leases with Continental Airlines, see Note 12 -- Commitment and Contingent Liabilities of Notes. Partnership investments are those of PSRC, EGDC and CEA and are undertaken with other investors. PSRC is a limited partner in various partnerships and is committed to make investments from time to time, upon the request of the respective general partners. As of December 31, 1994, $134 million remained as PSRC's unfunded commitment subject to call. PSRC has invested in securities and limited partnerships investing in securities, which are recorded at fair value. Realized investment gains and losses on the sale of investment securities are determined utilizing the specific cost identification method. (See Note 8 -- Financial Instruments and Risk Management.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 8. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Enterprise's operations give rise to exposure to market risks from changes in crude oil and natural gas prices, interest rates, foreign exchange rates and security prices of investments recorded at fair value. Enterprise's policy is to use derivatives for the purpose of managing market risk consistent with its business plans and prudent practices. Enterprise does not hold or issue financial instruments for trading purposes. The notional amounts of derivatives summarized below do not represent amounts exchanged by the parties and, thus, are not a measure of the exposure of Enterprise through its use of derivatives. The amounts exchanged, under the terms of the derivatives, are calculated on the basis of the notional amounts. Enterprise limits its exposure to credit-related losses in the event of nonperformance by counterparties by limiting its counterparties to those with high credit ratings. Natural Gas Hedging EDC sold futures contracts outstanding at December 31, 1994 which hedged 10,650,000 mmbtu representing approximately 13% of anticipated domestic natural gas production in 1995 at an average sales price of $1.95 per mmbtu. The deferred unrealized gain at December 31, 1994 related to EDC's futures contracts was $2.6 million. EDC did not have any outstanding futures contracts at December 31, 1993. Interest Rate Swap Capital entered into an interest rate swap on December 7, 1990 to allow EDHI to borrow at floating rates and effectively swap them into fixed rates. The interest differential to be received or paid under the interest rate swap agreement is accrued over the life of the agreement as an adjustment to the interest expense of the related borrowing. The swap terminates on December 11, 1995.
1994 1993 --------- --------- (Thousands of Dollars) Pay-fixed swap Notional amount............................... $100,000 $100,000 Pay rate...................................... 8.0% 8.0% Average receive rate.......................... 4.1% 3.5% Year-end receive rate......................... 6.8% 3.4%
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Foreign Exchange During 1994, PSRC entered into a forward purchase contract for foreign currency to hedge an EDC firm purchase commitment denominated in pound sterling. The EDC commitment related to the acquisition of Industrial Scotland Energy Limited (ISE) for approximately 21 million pounds. The realized gain of approximately $800 thousand on the forward purchase contract for foreign currency was used to reduce the net acquisition cost allocated to ISE's assets upon completion of the acquisition in June 1994. Currently, substantially all of Enterprise's foreign revenues and expenses are denominated in U.S. dollars. Security Swap During 1994, PSRC entered into two agreements to swap portions of its ownership interest in certain equity securities, held in a partnership, to the S&P 500 return. The purpose of the swap was to minimize PSRC's exposure to the potential price volatility of such equity securities. One agreement with a notional amount of $17.6 million expires in June 1995; the other agreement, with a notional amount of $12.9 million, expires in September 1995. The notional amount swapped and the year end gain during 1994 for these two agreements were as follows:
Notional Year End Amount Fair Value Gain -------- ---------------------- (Thousands of Dollars) $30,489 $ 3,801
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Fair Value of Financial Instruments The estimated fair value was determined using the market quotations or values of securities with similar terms, credit ratings, remaining maturities and redemptions at the end of 1994 and 1993, respectively.
1994 1993 ------------------------ ------------------------ CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE ---------- ---------- ---------- ---------- (Millions of Dollars) Long-Term Debt: EDHI.................................... $ 884,686 $ 900,000 $ 999,994 $1,200,000 PSE&G................................... 4,843,006 4,500,000 4,467,206 4,700,000 Preferred Securities Subject to Mandatory Redemption: PSE&G Cumulative Preferred Securities... 150,000 145,900 150,000 158,000 Monthly Income Preferred Securities..... 150,000 158,300 -- --
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 9. CASH AND CASH EQUIVALENTS The December 31, 1994 and 1993 balances consist primarily of working funds and highly liquid marketable securities (commercial paper) with a maturity of three months or less. NOTE 10. FEDERAL INCOME TAXES A reconciliation of reported Net Income with pretax income and of Federal income tax expense with the amount computed by multiplying pretax income by the statutory Federal income tax rates of 35% in 1994 and 1993 and 34% in 1992 is as follows:
1994 1993 1992 ---------- -------- -------- (THOUSANDS OF DOLLARS) Net Income......................................... $ 679,033 $600,933 $504,117 Preferred securities dividend requirements......... 40,467 38,114 31,907 SFAS 109 Cumulative Effect......................... -- (5,414) -- ---------- -------- -------- Subtotal................................. 719,500 633,633 536,024 ---------- -------- -------- Federal income taxes: Operating income: Current provision................................ 162,521 151,208 151,509 Provision for deferred income taxes -- net(A).... 173,327 186,256 91,595 Investment tax credits -- net.................... (23,297) (23,784) (21,635) ---------- -------- -------- Total included in operating income................. 312,551 313,680 221,469 Miscellaneous other income: Current provision................................ (8,186) (14,340) 4,946 Provision for deferred income taxes(A)........... 10,422 9,815 19,261 SFAS 90 deferred income taxes(A)................... 2,530 2,948 2,690 ---------- -------- -------- Total Federal income tax provisions................ 317,317 312,103 248,366 ---------- -------- -------- Pretax income...................................... $1,036,817 $945,736 $784,390 ========== ======== ========
Reconciliation between total Federal income tax provisions and tax computed at the statutory tax rate on pretax income: 1994 1993 1992 -------- -------- -------- (THOUSANDS OF DOLLARS) Tax computed at the statutory rate................. $362,887 $331,008 $266,693 -------- -------- -------- Increase (decrease) attributable to flow through of certain tax adjustments: Depreciation.................................. (4,597) 3,347 19,330 Amortization of plant abandonments and write-downs................................. (2,046) (2,239) (18,867) Amortization of investment tax credits........... (23,297) (23,784) (20,681) Other............................................ (15,630) 3,771 1,891 -------- -------- -------- Subtotal........................................... (45,570) (18,905) (18,327) -------- -------- -------- Total Federal income tax provisions................ $317,317 $312,103 $248,366 ======== ======== ======== Effective Federal income tax rate.................. 30.6% 33.0% 31.7%
(A) The provision for deferred income taxes represents the tax effects of the following items:
1994 1993 1992 -------- -------- -------- (THOUSANDS OF DOLLARS) Deferred Credits: Additional tax depreciation and amortization..... $109,106 $112,814 $136,073 Leasing Activities............................... 60,129 34,958 56,087 Property Abandonments............................ (6,606) (6,632) (34,739) Oil and Gas Property Write-Down.................. (2,451) (2,451) (6,393) Deferred fuel costs -- net....................... 39,361 63,330 (40,148) Other............................................ (13,260) (3,000) 2,666 -------- -------- -------- Total.............................................. $186,279 $199,019 $113,546 ======== ======== ========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Since 1987, Enterprise's Federal alternative minimum tax (AMT) liability has exceeded its regular Federal income tax liability. This excess can be carried forward indefinitely to offset regular income tax liability in future years. Enterprise expects to utilize these AMT credits in the future as regular tax liability exceeds AMT. As of December 31, 1994, 1993 and 1992, Enterprise had AMT credits of $256 million, $247 million and $212 million, respectively. Since 1986, Enterprise has filed a consolidated Federal income tax return on behalf of itself and its subsidiaries. Prior to 1986, PSE&G filed consolidated tax returns. On March 20, 1992, the Internal Revenue Service (IRS) issued a Revenue Agent's Report (RAR) following completion of examination of PSE&G's consolidated tax return for 1985 and Enterprise's consolidated tax returns for 1986 and 1987, proposing various adjustments for such years which would increase Enterprise's consolidated Federal income tax liability by approximately $121 million, exclusive of interest and penalties, of which approximately $118 million is attributable to PSE&G. Interest after taxes on these proposed adjustments is currently estimated to be approximately $97 million as of December 31, 1994 and will continue to accrue at the Federal rate for large corporate underpayments, currently 11% annually. The most significant of these proposed adjustments relates to the IRS contention that PSE&G's Hope Creek nuclear unit is a partnership with a short 1986 taxable year. In addition, the IRS contends that the tax in-service date of that unit is four months later than the date claimed by PSE&G. In June 1992, Enterprise and PSE&G filed a protest with the IRS disagreeing with certain of the proposed adjustments (including those related to Hope Creek) contained in the RAR for taxable years 1985 through 1987 and continue to contest these issues. Any tax adjustments resulting from the RAR would reduce Enterprise's and PSE&G's respective deferred credits for accumulated deferred income taxes. While PSE&G believes that assessments attributable to it are generally recoverable from its customers in rates, no assurances can be given as to what regulatory treatment may be afforded by the BPU. On January 1, 1993, Enterprise adopted SFAS 109 without restating prior years' financial statements which resulted in Enterprise recording a $5.4 million cumulative effect increase in its net income. Under SFAS 109, deferred taxes are provided at the enacted statutory tax rate for all temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities irrespective of the treatment for ratemaking purposes. Since management believes that it is probable that the effects of SFAS 109 on PSE&G, principally the accumulated tax benefits that previously have been treated as a flow-through item to customers, will be recovered from utility customers in the future, an offsetting regulatory asset was established. As of December 31, 1994, PSE&G had recorded a deferred tax liability and an offsetting regulatory asset of $791 million representing the future revenue expected to be recovered through rates based upon established regulatory practices which permit recovery of current taxes payable. This amount was determined using the 1994 Federal income tax rate of 35%. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SFAS 109 The following is an analysis of accumulated deferred income taxes:
ACCUMULATED DEFERRED INCOME TAXES 1994 1993 ----------------------------------------- ---------- ---------- (THOUSANDS OF DOLLARS) Assets: Current (net)................................... $ 25,311 $ 12,934 Non-Current: Unrecovered Investment Tax Credits......... 136,402 143,125 Nuclear Decommissioning.................... 25,082 25,211 Hope Creek Cost Disallowance............... 10,127 20,231 Construction Period Interest and Taxes..... 15,913 9,811 Vacation Pay............................... 6,822 6,721 AMT Credit................................. 255,828 246,862 Real Estate Impairment..................... 20,932 27,173 Other...................................... 6,863 14,845 ---------- ---------- Total Non-Current..................... $ 477,969 $ 493,979 ---------- ---------- Total Assets.................................... $ 503,280 $ 506,913 ========== ========== Liabilities: Non-Current: Plant Related Items........................ $2,268,688 $2,169,861 Leasing Activities......................... 580,415 520,286 Property Abandonments...................... 26,971 32,206 Oil and Gas Property Write-Down............ 14,925 16,790 Deferred Electric Energy & Gas Costs....... 59,884 20,133 Unamortized Debt Expense................... 37,599 38,768 Taxes Recoverable Through Future Rates (net).............................. 270,684 270,518 Other...................................... 124,193 127,803 ---------- ---------- Total Non-Current..................... $3,383,359 $3,196,365 ---------- ---------- Total Liabilities............................... $3,383,359 $3,196,365 ========== ========== Summary -- Accumulated Deferred Income Taxes Net Current Assets........................... $ 25,311 $ 12,934 Net Deferred Liability....................... $2,905,390 $2,702,386 ---------- ---------- Total..................................... $2,880,079 $2,689,452 ========== ==========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 11. LEASING ACTIVITIES As Lessee The Consolidated Balance Sheets include assets and related obligations applicable to capital leases under which PSE&G is a lessee. The total amortization of the leased assets and interest on the lease obligations equals the net minimum lease payments included in rent expense for capital leases. Capital leases of PSE&G relate primarily to its corporate headquarters and other capital equipment. Certain of the leases contain renewal and purchase options and also contain escalation clauses. Enterprise and its other subsidiaries are not lessees in any capitalized leases. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Utility plant includes the following amounts for capital leases at December 31: 1994 1993 ------- ------- (THOUSANDS OF DOLLARS) Common Plant............................................. $58,610 $56,812 Less: Accumulated Amortization........................... 4,840 3,708 ------- ------- Net Assets under Capital Leases.......................... $53,770 $53,104 ======= ======= Future minimum lease payments for noncancelable capital and operating leases at December 31, 1994 were:
CAPITAL OPERATING LEASES LEASES ------- --------- (THOUSANDS OF DOLLARS) 1995..................................................... $ 13,174 $ 15,013 1996..................................................... 13,174 13,933 1997..................................................... 13,175 11,945 1998..................................................... 13,176 8,631 1999..................................................... 13,177 6,442 Later Years.............................................. 202,064 18,426 -------- -------- Minimum Lease Payments................................... 267,940 $ 74,390 ======== Less: Amount representing estimated executory costs, together with any profit thereon, included in minimum lease payments............................. 132,453 -------- Net minimum lease payments............................... 135,487 Less: Amount representing interest....................... 81,717 -------- Present value of net minimum lease payments(A)........... $ 53,770 ======== (A) Reflected in the Consolidated Balance Sheets for 1994 and 1993 were Capital Lease Obligations of $53.770 million and $53.104 million which includes Capital Lease Obligations due within one year of $659 thousand and $574 thousand, respectively.
The following schedule shows the composition of rent expense included in Operating Expenses:
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 1994 1993 1992 ------- ------- ------- (THOUSANDS OF DOLLARS) Interest on Capital Lease Obligations................. $ 6,156 $ 6,074 $ 6,129 Amortization of Utility Plant under Capital Leases.... 588 513 457 ------- ------- ------- Net minimum lease payments relating to Capital Leases.............................................. 6,744 6,587 6,586 Other Lease payments.................................. 28,447 22,095 21,739 ------- ------- ------- Total Rent Expense.................................... $35,191 $28,682 $28,325 ======= ======= =======
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) As Lessor PSRC's net investments in leveraged and direct financing leases are composed of the following elements:
DECEMBER 31, 1994 DECEMBER 31, 1993 ---------------------------------- ---------------------------------- (MILLIONS OF DOLLARS) DIRECT DIRECT LEVERAGED FINANCING LEVERAGED FINANCING LEASES LEASES TOTAL LEASES LEASES TOTAL --------- --------- ------- --------- --------- ------- Lease rents receivable.......... $ 990 $ 92 $ 1,082 $ 980 $ 114 $ 1,094 Estimated residual value........ 622 13 635 595 12 607 -------- ------- ------- -------- ------- ------- 1,612 105 1,717 1,575 126 1,701 Unearned and deferred income.... (823) (29) (852) (837) (41) (878) -------- ------- ------- -------- ------- ------- Total investments............... 789 76 865 738 85 823 Deferred taxes.................. (333) (20) (353) (267) (20) (287) -------- ------- ------- -------- ------- ------- Net investments................. $ 456 $ 56 $ 512 $ 471 $ 65 $ 536 ======== ======= ======= ======== ======= ======= PSRC's other leases are with various regional, state and city authorities for transportation equipment and aggregated $6 million and $8 million as of December 31, 1994 and 1993, respectively. For information concerning PSRC's three direct-finance leases with Continental Airlines, see Note 12 -- Commitments and Contingent Liabilities -- Public Service Resources Corporation.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 12. COMMITMENTS AND CONTINGENT LIABILITIES Nuclear Performance Standard The BPU has established an NPS for nuclear generating stations owned by New Jersey electric utilities, including the five nuclear units in which PSE&G has an ownership interest: Salem -- 42.59%; Hope Creek -- 95%; and Peach Bottom -- 42.49%. PSE&G operates Salem and Hope Creek, while Peach Bottom is operated by PECO. The penalty/reward under the NPS is a percentage of replacement power costs. (See table below.) The NPS provides that the penalties will be calculated to the edge of each capacity factor range. For example, a 30% penalty applies to replacement power costs incurred in the 55% to 65% range and a 40% penalty applies to replacement power costs in the 45% to 55% range.
CAPACITY FACTOR RANGE REWARD PENALTY - ----------------------------------------------------- ------ ------- Equal to or greater than 75%......................... 30% -- Equal to or greater than 65% and less than 75%....... None None Equal to or greater than 55% and less than 65%....... -- 30% Equal to or greater than 45% and less than 55%....... -- 40% Equal to or greater than 40% and less than 45%....... -- 50% Below 40%............................................ BPU Intervenes
Under the NPS, the capacity factor is calculated annually using maximum dependable capability of the five nuclear units in which PSE&G owns an interest. This method takes into account actual operating conditions of the units. While the NPS does not specifically have a gross negligence provision, the BPU has indicated that it would consider allegations of gross negligence brought upon a sufficient factual basis. A finding of gross negligence could result in penalties other than those prescribed under the NPS. During 1994, the five nuclear units in which PSE&G has an ownership interest aggregated a 74% combined capacity factor. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Nuclear Insurance Coverages and Assessments PSE&G's insurance coverages and maximum retrospective assessments for its nuclear operations are as follows:
PSE&G MAXIMUM TOTAL ASSESSMENTS SITE FOR A SINGLE TYPE AND SOURCE OF COVERAGES COVERAGES INCIDENT - -------------------------------------------- --------- ------------- (MILLIONS OF DOLLARS) Public Liability: American Nuclear Insurers.................. $ 200.0 $ -- Indemnity(A)............................... 8,720.3 210.2 -------- -------- $8,920.3 (B) $ 210.2 -------- -------- Nuclear Worker Liability: American Nuclear Insurers(C)............... $ 200.0 $ 8.2 -------- -------- Property Damage: Nuclear Mutual Limited..................... $ 500.0 $ 11.6 Nuclear Electric Insurance Ltd. (NEIL II).. 1,400.0 (D) 8.2 (E) Nuclear Electric Insurers Ltd. (NEIL III).. 850.0 6.7 -------- -------- $2,750.0 $ 26.5 -------- -------- Replacement Power: Nuclear Electric Insurance Ltd (NEIL I).... $ 3.5 (F) $ 12.4
(A) Retrospective premium program under the Price-Anderson liability provisions of the Atomic Energy Act of 1954, as amended (Price-Anderson). Subject to retrospective assessment with respect to loss from an incident at any licensed nuclear reactor in the United States. Assessment adjusted for inflation effective August 20, 1993. (B) Limit of liability for each nuclear incident under Price-Anderson. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (C) Industry aggregate limit representing the potential liability from workers claiming exposure to the hazard of nuclear radiation. This policy includes automatic reinstatements up to an aggregate of $200 million, thereby providing total coverage of $400 million. This policy does not increase PSE&G's obligation under Price-Anderson. (D) Includes up to $250 million for premature decommissioning costs. (E) In the event of a second industry loss triggering NEIL II - coverage, the maximum retrospective premium assessment can increase to $17.5 million. (F) Weekly indemnity for 52 weeks which commences after the first 21 weeks of an outage. Beyond the first 52 weeks of coverage, indemnity of $2.8 million per week for 104 weeks is afforded. Total coverage amounts to $473.2 million over three years. Price-Anderson sets the "limit of liability" for claims that could arise from an incident involving any licensed nuclear facility in the nation. The "limit of liability" is based on the number of licensed nuclear reactors and is adjusted at least every five years based on the Consumer Price Index. The current "limit of liability" is $8.9 billion. All utilities owning a nuclear reactor, including PSE&G, have provided for this exposure through a combination of private insurance and mandatory participation in a financial protection pool as established by Price-Anderson. Under Price-Anderson, each party with an ownership interest in a nuclear reactor can be assessed its share of $79.3 million per reactor per incident, payable at $10 million per reactor per incident per year. If the damages exceed the "limit of liability," the President is to submit to Congress a plan for providing additional compensation to the injured parties. Congress could impose further revenue raising measures on the nuclear industry to pay claims. PSE&G's maximum aggregate assessment per incident is $210.2 million (based on PSE&G's ownership interests in Hope Creek, Peach Bottom and Salem) and its maximum aggregate annual assessment per incident is $26.5 million. PSE&G purchases property insurance, including decontamination expense coverage and premature decommissioning coverage, with respect to loss or damage to its nuclear facilities. PECO has advised PSE&G that it maintains similar insurance coverage with respect to Peach Bottom. Under the terms of the various insurance agreements, PSE&G could be subject to a maximum retrospective assessment for a single incident of up to $26.5 million. Certain of the policies also provide that the insurer may suspend coverage with respect to all nuclear units on a site without notice if the Nuclear Regulatory Commission (NRC) suspends or revokes the operating license for any unit on a site, issues a shutdown order with respect to such unit or issues a confirmatory order keeping such unit shut down. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) PSE&G is a member of an industry mutual insurance company, NEIL, which provides replacement power cost coverage in the event of a major accidental outage at a nuclear station. The policies provide for a weekly indemnity payment of $3.5 million for 52 weeks, subject to a 21-week waiting period. The policies provide for weekly indemnity payments of $2.8 million for a 104-week period beyond the first year's indemnity. The premium for this coverage is subject to retrospective assessment for adverse loss experience. Under the policies, PSE&G's present maximum share of any retrospective assessment in any year is $12.4 million. Construction and Fuel Supplies PSE&G has substantial commitments as part of its ongoing construction program which includes capital requirements for nuclear fuel. PSE&G's construction program is continuously reviewed and periodically revised as a result of changes in economic conditions, revised load forecasts, changes in the scheduled retirement dates of existing facilities, changes in business plans, site changes, cost escalations under construction contracts, requirements of regulatory authorities and laws, the timing of and amount of electric and gas rate changes and the ability of PSE&G to raise necessary capital. Pursuant to an integrated electric resource plan (IRP), PSE&G periodically reevaluates its forecasts of future customers, load and peak growth, sources of electric generating capacity and DSM to meet such projected growth, including the need to construct new electric generating capacity. The IRP takes into account assumptions concerning future demands of customers, effectiveness of conservation and load management activities, the long-term condition of PSE&G's plants, capacity available from electric utilities and other suppliers and the amounts of cogeneration and other nonutility capacity projected to be available. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Based on PSE&G's 1995-1999 construction program, construction expenditures are expected to aggregate approximately $3.2 billion, which includes $484 million for nuclear fuel and $78 million of AFDC during the years 1995 through 1999. The estimate of construction requirements is based on expected project completion dates and includes anticipated escalation due to inflation of approximately 3%, annually. Therefore, construction delays or higher inflation levels could cause significant increase in these amounts. PSE&G expects to generate internally the funds necessary to satisfy its construction expenditures over the next five years, assuming adequate and timely recovery of costs, as to which no assurances can be given. In addition, PSE&G does not presently anticipate any difficulties in obtaining sufficient sources of fuel for electric generation or adequate gas supplies during the years 1995 through 1999. Bergen Station Repowering PSE&G is presently engaged in a construction project to renovate (or "repower") the Bergen Station pursuant to an air pollution control permit issued by the NJDEP in May 1993. The current effort would maintain the existing electric supply of the station (with a small increase from 629 MW to 669 MW), improve operational reliability and efficiency and significantly improve the environmental effects of operation of the facility. In July 1993, an association of competitors of PSE&G appealed the NJDEP's issuance of the air permit for the project to the Appellate Division of the New Jersey Superior Court, alleging that PSE&G is first required to obtain a Certificate of Need (Certificate) under the New Jersey Need Assessment Act (NJNAA). The NJDEP determined that the NJNAA was inapplicable to this renovation project. The Appellate Division of New Jersey Superior Court affirmed this determination. The New Jersey Supreme Court has denied certification of the petition for review of this decision. As of December 31, 1994, the repowering project was about 95% complete and PSE&G had spent approximately $291 million on this effort. The final cost is estimated to be approximately $400 million. In order for PSE&G to recover its costs for the project, PSE&G would need either BPU authorization to recover such costs in its rates or be successful in selling the station's output in the emerging wholesale market. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Hazardous Waste Certain Federal and State laws authorize the EPA and the NJDEP, among other agencies, to issue orders and bring enforcement actions to compel responsible parties to take investigative and remedial actions at any site that is determined to present an imminent and substantial danger to the public or the environment because of an actual or threatened release of one or more hazardous substances. Because of the nature of PSE&G's business, including the production of electricity, the distribution of gas and, formerly, the manufacture of gas, various by-products and substances are or were produced or handled which contain constituents classified as hazardous. PSE&G generally provides for the disposal or processing of such substances through licensed independent contractors. However, these statutory provisions impose joint and several responsibility without regard to fault on all responsible parties, including the generators of the hazardous substances, for certain investigative and remediation costs at sites where these substances were disposed of or processed. PSE&G has been notified with respect to a number of such sites and the remediation of these potentially hazardous sites is receiving greater attention from the government agencies involved. Generally, actions directed at funding such site investigations and remediation include all suspected or known responsible parties. PSE&G does not expect its expenditures for any such site to have a material effect on its financial position, results of operations or net cash flows. PSE&G Manufactured Gas Plant Remediation Program In 1988, NJDEP notified PSE&G that it had identified the need for PSE&G, pursuant to a formal arrangement, to systematically investigate and, if necessary, resolve environmental concerns extant at PSE&G's former manufactured gas plant sites. To date, NJDEP and PSE&G have identified 38 former gas plant sites. PSE&G is currently working with NJDEP under a program to assess, investigate and, if necessary, remediate environmental concerns at these sites (Remediation Program). The Remediation Program is periodically reviewed and revised by PSE&G based on regulatory requirements, experience with the Remediation Program and available technologies. The cost of the Remediation Program cannot be reasonably estimated, but experience to date indicates that costs of at least $20 million per year could be incurred over a period of more than 30 years and that the overall cost could be material to PSE&G's financial position, results of operations or net cash flows. Costs incurred through December 31, 1994 for the Remediation Program amounted to $51.4 million. In addition, at December 31, 1994, PSE&G's estimated liability for estimated remediation costs aggregated $105.7 million through 1997. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In accordance with a Stipulation approved by the BPU in January 1992, PSE&G is recovering $32 million of its actual remediation costs to reflect costs incurred through September 30, 1992 over a six-year period. PSE&G will recover $5.3 million in each of its next two LGAC periods ending in 1996. The regulatory treatment of the remediation costs covered by this Stipulation was not changed in the BPU's September 15, 1993 written order, allowing continued collection under the terms of the January 1992 Stipulation. As of December 31, 1994, PSE&G has recovered $22.2 million through its LGAC. The September 1993 decision concluded that PSE&G had met its burden of proof for establishing the reasonableness and prudence of remediation costs incurred in operating and decommissioning these facilities in the past. The remediation costs incurred during the period July 1, 1992 through September 30, 1992 were subject to audit and verification in PSE&G's 1992-93 LGAC. The audit has been completed and resulted in no disallowance of any costs. (See Note 2 - - Rate Matters - Remediation Adjustment Charge). A final Board Order was received on November 4, 1994, memorializing the above September 15, 1993 Stipulation. Also in 1988, PSE&G filed suit against certain of its insurers to recover the costs associated with addressing and resolving environmental issues of the Remediation Program. PSE&G has settled its claim with one insurer and there is a trial scheduled for March 1995 with the remaining insurers. Pending full recovery of Remediation Program costs through rates or under its insurance policies, neither of which can be assured, PSE&G will be required to finance the unreimbursed costs of its Remediation Program. Public Service Resources Corporation PSRC has leased three wide-body aircraft to Continental Airlines (Continental) through direct-finance leases. The leases for two A-300 aircraft expire December 2000, while the lease for one DC 10-30 aircraft expires June 2002. At December 31, 1994, PSRC had investments in the A-300 leases and the DC 10-30 lease of $43.0 million and $33.1 million, respectively. Continental has failed to make full payment of its required lease payments due February 1, 1995 and has advised PSRC of its intent to seek the termination of the A-300 leases and return the A-300 aircraft to PSRC. Continental also advised PSRC of its intention, effective February 1, 1995, to reduce its rental payments due under all three leases by approximately 50%. Continental indicated that payments under these leases could include debt securities convertible into equity in lieu of full cash payments. Under the leases, PSRC rents receivable and pre-tax lease income in 1995 would have been $9.4 million and $4.1 million, respectively for the A-300 aircraft and $5.5 million and $2.7 million, respectively for the DC 10-30 aircraft. PSRC has informed Continental that it expects all of Continental's lease obligations to be satisfied in full. Negotiations are continuing concerning this matter. No assurances can be given that PSRC will be able to obtain new leases, sell or otherwise dispose of any such aircraft on satisfactory terms in the event of an unscheduled lease termination. Enterprise believes the ultimate resolution of this matter will not have a material effect on its financial position, results of operations or net cash flows. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 13. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS On January 1, 1993, Enterprise and PSE&G adopted SFAS 106, which requires that the expected cost of employees' postretirement health care and insurance benefits be charged to expense during the years in which employees render service. PSE&G elected to amortize over 20 years of its unfunded obligation of $609.3 million at January 1, 1993. Prior to 1993, Enterprise and PSE&G recognized postretirement health care and insurance costs in the year that the benefits were paid. The following table discloses the significant components of the net periodic postretirement benefit obligation:
DECEMBER 31, ---------------------- NET PERIODIC POSTRETIREMENT BENEFIT OBLIGATION 1994 1993 - ---------------------------------------------------- --------- --------- (MILLIONS) Service cost......................................... $ 11.1 $ 11.7 Interest on accumulated postretirement obligation.... 45.4 44.4 Amortization of transition obligations............... 30.5 30.5 Deferral of current expense.......................... (57.8) (58.6) ------ ------ Annual net expense.............................. $ 29.2 $ 28.0 ====== ======
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The discount rate used in determining the PSE&G net periodic postretirement benefit cost was 7.25% and 7.50% for 1994 and 1993, respectively. A one-percentage-point increase in the assumed health care cost trend rate for each year would increase the aggregate of the service and interest cost components of net periodic postretirement health care cost by approximately $4.7 million, or 10.5%, and increase the accumulated postretirement benefit obligation as of December 31, 1994 by $54.4 million, or 11.3%. The assumed health care cost trend rates used in measuring the accumulated postretirement benefit obligation in 1994 were: medical costs for pre-age sixty-five retirees -- 13.5%, medical costs for post-age retirees -- 9.5% and dental costs -- 7.5%; such rates are assumed to gradually decline to 5.5%, 5.0% and 5.0%, respectively, in 2010. The medical costs above include a provision for prescription drugs. In its 1992 base rate case, PSE&G requested full recovery of the costs associated with postretirement benefits other than pensions (OPEB) on an accrual basis, in accordance with SFAS 106. The BPU's December 31, 1992 base rate order provided that (1) PSE&G's pay-as-you-go basis OPEB costs will continue to be included in cost of service and will be recoverable in base rates on a pay-as-you-go basis; (2) prudently incurred OPEB costs, that are accounted for on an accrual basis in accordance with SFAS 106, will be recoverable in future rates; (3) PSE&G should account for the differences between its OPEB costs on an accrual basis and the pay-as-you-go basis being recovered in rates as a regulatory asset; and (4) the issue of cash versus accrual accounting will be revisited and in the event that FASB or the SEC requires the use of accrual accounting for OPEB costs for ratemaking purposes, the regulatory asset will be recoverable, through rates, over an appropriate amortization period. Accordingly, PSE&G is accounting for the differences between its SFAS 106 accrual cost and the cash cost currently recovered through rates as a regulatory asset. OPEB costs charged to expenses during 1994 were $29.2 million and accrued OPEB costs deferred were $57.8 million. The amount of the unfunded liability, at December 31, 1994, as shown below, is $585.9 million and funding options are currently being explored. The primary effect of adopting SFAS 106 on Enterprise's and PSE&G's financial reporting is on the presentation of their financial positions with minimal effect on their results of operations. During January 1993 and subsequent to the receipt of the Order, the FASB's Emerging Issues Task Force (EITF) concluded that deferral of such costs is acceptable, provided regulators allow SFAS 106 costs in rates within approximately five years of the adoption of SFAS 106 for financial reporting purposes, with any cost deferrals recovered in approximately twenty years. PSE&G intends to request the BPU for full SFAS 106 recovery in accordance with NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the EITF's view of such standard and believes that it is probable that any deferred costs will be recovered from utility customers within such twenty-year time period. As of December 31, 1994, PSE&G has deferred $116.4 million of such costs. In accordance with SFAS 106 disclosure requirements, a reconciliation of the funded status of the plan is as follows:
DECEMBER 31, ---------------------- 1994 1993 -------- -------- (MILLIONS) Accumulated postretirement benefit obligation: Retirees........................................... $(379.2) $(406.4) Fully eligible active plan participants............ (45.7) (35.0) Other active plan participants..................... (161.0) (215.6) ------- ------- Total.......................................... (585.9) (657.0) Plan assets at fair value.......................... -- -- ------- ------- Accumulated postretirement benefit obligation in excess of plan assets......................... (585.9) (657.0) Unrecognized net (gain)/loss from past experience different from that assumed and from changes in assumptions................................... (78.8) 19.6 Unrecognized prior service cost.................... -- -- Unrecognized transition obligation................. 548.3 578.8 ------- ------- Accrued postretirement obligation.................. $(116.4) $ (58.6) ======= ======= The discount rate used in determining the accumulated postretirement benefit obligation as of December 31, 1994 was 8.50% and 7.25% for 1994 and 1993, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 14. PENSION PLAN The discount rates, expected long-term rates of return on assets and average compensation growth rates used in determining the Pension Plan's funded status and net pension cost as of December 31, 1994 and 1993 were as follows:
1994 1993 ------ ------ Funded Status: - ------------- Discount Rate used to Determine Benefit Obligations...... 8-1/2% 7-1/4% Average Compensation Growth to Determine Benefit Obligations.................................... 4.5% 5.5% Net Pension Cost: - ---------------- Discount Rate............................................ 7-1/4% 7-1/2% Expected Long-Term Return on Assets...................... 8% 8% Average Compensation Growth.............................. 5.5% 6%
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table shows the Pension Plan's funded status:
DECEMBER 31, ------------------------- 1994 1993 ----------- ----------- (THOUSANDS OF DOLLARS) Actuarial present value of benefit obligations: Accumulated benefit obligations, including vested benefits of $1,151,677 in 1994 and $1,045,035 in 1993........... $(1,235,930) $(1,144,214) Effect of projected future compensation................... (261,846) (346,416) ----------- ----------- Projected benefit obligations............................... (1,497,776) (1,490,630) Plan assets at fair value, primarily listed equity and debt securities................................................ 1,270,116 1,312,619 ----------- ----------- Projected benefit obligations in excess of plan assets...... (227,660) (178,011) Unrecognized net gain (loss) from past experience and effects of changes in assumptions......................... 32,815 (20,981) Prior service cost not yet recognized in net pension cost... 119,783 113,397 Unrecognized net obligations being recognized over 16.7 years................................................ 69,387 77,486 ----------- ----------- Accrued pension expense..................................... $ (5,675) $ (8,109) =========== ===========
The net pension cost for the years ending December 31, 1994, 1993 and 1992, include the following components:
1994 1993 1992 -------- -------- -------- (THOUSANDS OF DOLLARS) Service cost - benefits earned during year......... $ 42,904 $ 42,948 $ 36,125 Interest cost on projected benefit obligations..... 108,394 103,118 94,233 Return on assets................................... 5,022 (166,916) (62,323) Net amortization and deferral...................... (90,752) 90,958 (14,035) -------- -------- -------- Total.............................................. $ 65,568 $ 70,108 $ 54,000 ======== ======== ======== See Note 1 -- Organization and Summary of Significant Accounting Policies.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 15. FINANCIAL INFORMATION BY BUSINESS SEGMENTS Information related to the segments of Enterprise's business is detailed below:
NONUTILITY ELECTRIC GAS ACTIVITIES(A) TOTAL ----------- ---------- ------------- ----------- (THOUSANDS OF DOLLARS) FOR THE YEAR ENDED DECEMBER 31, 1994 Operating Revenues...................... $ 3,733,113 $1,778,528 $ 416,947 $ 5,928,588 Eliminations (Intersegment Revenues).... -- -- (12,745) (12,745) ----------- ---------- ---------- ----------- Total Operating Revenues................ 3,733,113 1,778,528 404,202 5,915,843 ----------- ---------- ---------- ----------- Depreciation and Amortization........... 467,570 79,462 82,656 629,688 Operating Income Before Income Taxes.... 1,083,155 226,196 172,800 1,482,151 Capital Expenditures.................... 734,100 153,183 168,741 1,056,024 December 31, 1994 Net Utility Plant....................... 9,642,177 1,456,068 -- 11,098,245 Oil and Gas Property, Plant & Equipment............................. -- -- 577,913 577,913 Other Corporate Assets.................. 2,589,348 576,806 1,875,128 5,041,282 ----------- ---------- ---------- ----------- Total Assets............................ $12,231,525 $2,032,874 $2,453,041 $16,717,440 =========== ========== ========== =========== FOR THE YEAR ENDED DECEMBER 31, 1993 Operating Revenues...................... $ 3,693,083 $1,594,341 $ 440,120 $ 5,727,544 Eliminations (Intersegment Revenues).... -- -- (21,985) (21,985) ----------- ---------- ---------- ----------- Total Operating Revenues................ 3,693,083 1,594,341 418,135 5,705,559 ----------- ---------- ---------- ----------- Depreciation and Amortization........... 439,831 69,375 91,058 600,264 Operating Income Before Income Taxes.... 1,117,739 173,916 135,472 1,427,127 Capital Expenditures.................... 738,362 152,012 94,014 984,388 December 31, 1993 Net Utility Plant....................... 9,451,581 1,352,799 -- 10,804,380 Oil and Gas Property, Plant & Equipment............................. -- -- 506,047 506,047 Other Corporate Assets.................. 2,313,394 866,524 1,839,311 5,019,229 ----------- ---------- ---------- ----------- Total Assets............................ $11,764,975 $2,219,323 $2,345,358 $16,329,656 =========== ========== ========== =========== FOR THE YEAR ENDED DECEMBER 31, 1992 Operating Revenues...................... $ 3,407,819 $1,586,181 $ 407,404 $ 5,401,404 Eliminations (Intersegment Revenues).... -- -- (44,623) (44,623) ----------- ---------- ---------- ----------- Total Operating Revenues................ 3,407,819 1,586,181 362,781 5,356,781 ----------- ---------- ---------- ----------- Depreciation and Amortization........... 435,104 116,907 90,537 642,548 Operating Income Before Income Taxes.... 861,066 124,893 206,783 1,192,742 Capital Expenditures.................... 668,537 158,224 61,048 887,809 December 31, 1992 Net Utility Plant....................... 9,224,543 1,246,769 -- 10,471,312 Oil and Gas Property, Plant & Equipment............................. -- -- 506,814 506,814 Other Corporate Assets.................. 1,315,564 486,981 1,997,061 3,799,606 ----------- ---------- ---------- ----------- Total Assets............................ $10,540,107 $1,733,750 $2,503,875 $14,777,732 =========== ========== ========== =========== (A) The Nonutility Activities include amounts applicable to Enterprise, the parent corporation.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Information related to Property, Plant and Equipment of PSE&G is detailed below:
DECEMBER DECEMBER DECEMBER 1994 1993 1992 ----------- ----------- ----------- (Thousands of Dollars) Utility Plant - Original Cost Electric Plant in Service Steam Production....................... $ 1,810,674 $ 1,763,253 $ 1,668,198 Nuclear Production..................... 5,931,049 5,873,274 5,819,755 Transmission........................... 1,078,928 1,034,150 1,024,843 Distribution........................... 2,877,862 2,724,202 2,573,226 Other.................................. 647,406 526,015 479,647 ----------- ----------- ------------ Total Electric Plant in Service.... 12,345,919 11,920,894 11,565,669 ----------- ----------- ----------- Gas Plant in Service Transmission........................... 62,213 63,395 57,405 Distribution........................... 2,131,816 1,993,044 1,870,462 Other.................................. 124,204 121,402 117,077 ----------- ----------- ----------- Total Gas Plant in Service......... 2,318,233 2,177,841 2,044,944 ----------- ----------- ----------- Common Plant in Service Capital Leases......................... 58,610 56,812 56,812 General................................ 486,521 463,473 423,160 ----------- ----------- ----------- Total Common Plant in Service...... 545,131 520,285 479,972 ----------- ----------- ----------- TOTAL......................... $15,209,283 $14,619,020 $14,090,585 =========== =========== ===========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED) NOTE 16. PROPERTY IMPAIRMENT OF ENTERPRISE GROUP DEVELOPMENT CORPORATION As a result of a management review of each property's current value and the potential for increasing such value through operating and other improvements, EGDC recorded an impairment in 1993 related to certain of its properties, including properties upon which EDHI's management revised its intent from a long-term investment strategy to a hold for sale status, reflecting such properties on its books at their net realizable value. This impairment reduced the estimated value of EGDC's properties by $77.6 million and 1993 net income by $50.5 million, after tax, or 21 cents per share of Enterprise Common Stock. EGDC's real estate held for sale of $13.5 million and $33.8 million at December 31, 1994 and 1993 are presented in "Other Assets -- net," respectively, in the accompanying consolidated balance sheets. NOTE 17. JOINTLY OWNED FACILITIES -- UTILITY PLANT PSE&G has ownership interests in and is responsible for providing its share of the necessary financing for the following jointly owned facilities. All amounts reflect the share of PSE&G's jointly owned projects and the corresponding direct expenses are included in Consolidated Statements of Income as operating expenses. (See Note 1 -- Organization and Summary of Significant Accounting Policies.)
OWNERSHIP PLANT IN ACCUMULATED PLANT UNDER PLANT -- DECEMBER 31, 1994 INTEREST SERVICE DEPRECIATION CONSTRUCTION - ------------------------------------------------ --------- --------- ------------ ------------ % (THOUSANDS OF DOLLARS) Coal Generating Conemaugh..................................... 22.50 $ 176,463 $ 35,044 $ 16,150 Keystone...................................... 22.84 111,360 30,935 2,615 Nuclear Generating Peach Bottom.................................. 42.49 729,317 286,565 28,239 Salem......................................... 42.59 1,021,588 358,492 39,550 Hope Creek.................................... 95.00 4,120,538 938,535 5,104 Nuclear Support Facilities.................... Various 158,400 28,211 6,342 Pumped Storage Generating Yards Creek................................... 50.00 23,645 8,721 2,886 Transmission Facilities......................... Various 120,274 34,720 9 Merrill Creek Reservoir......................... 13.91 37,184 10,492 -- Linden Gas Plant................................ 90.00 15,872 18,532 --
NOTE 18. SELECTED QUARTERLY DATA (UNAUDITED) The information shown below, in the opinion of Enterprise, includes all adjustments, consisting onlyof normal recurring accruals, necessary to a fair presentation of such amounts. Due to the seasonal nature of the utility business, quarterly amounts vary significantly during the year.
CALENDAR MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, QUARTER ---------------------- ---------------------- ---------------------- ---------------------- ENDED 1994 1993 1994 1993 1994 1993 1994 1993 - -------------------------- ---------- ---------- ---------- ---------- ---------- ----------- ---------- ---------- (THOUSANDS WHERE APPLICABLE) Operating Revenues........ $1,794,425 $1,594,708 $1,278,363 $1,246,337 $1,374,976 $1,402,037 $1,468,079 $1,462,477 Operating Income.......... $ 348,948 $ 336,505 $ 252,725 $ 248,658 $ 311,920 $ 318,785 $ 250,500 $ 202,899 Net Income................ $ 230,127 $ 215,418 $ 129,885 $ 119,782 $ 187,178 $ 192,231 $ 131,843 $ 73,502 Earnings Per Share of Common Stock............ $ 0.94 $ 0.91 $ 0.53 $ 0.49 $ 0.76 $ 0.79 $ 0.54 $ 0.30 Average Shares of Common Stock Outstanding....... 243,777 236,919 244,698 240,920 244,698 241,889 244,698 242,848
PUBLIC SERVICE ELECTRIC AND GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PSE&G Except as modified below, the Notes to Consolidated Financial Statements of Enterprise are incorporated herein by reference insofar as they relate to PSE&G and its subsidiaries: Note 1. - Organization and Summary of Significant Accounting Policies Note 2. - Rate Matters Note 3. - PSE&G Nuclear Decommissioning and Amortization of Nuclear Fuel Note 4. - Schedule of Consolidated Capital Stock and Other Securities Note 5. - Deferred Items Note 6. - Schedule of Consolidated Debt Note 7. - Long-Term Investments Note 8. - Financial Instruments and Risk Management Note 11. - Leasing Activities -- As Lessee Note 12. - Commitments and Contingent Liabilities Note 13. - Postretirement Benefits Other Than Pensions Note 14. - Pension Plan Note 15. - Financial Information by Business Segments Note 17. - Jointly Owned Facilities -- Utility Plant NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation Policy The consolidated financial statements include the accounts of PSE&G and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications of prior years' data have been made to conform with the current presentation. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 9. CASH AND CASH EQUIVALENTS The December 31, 1994 and 1993 balances consist primarily of working funds. NOTE 10. FEDERAL INCOME TAXES A reconciliation of reported Net Income with pretax income and of Federal income tax expense with the amount computed by multiplying pretax income by the statutory Federal income tax rates of 35% in 1994 and 1993 and 34% in 1992 is as follows:
1994 1993 1992 -------- -------- -------- (THOUSANDS OF DOLLARS) Net Income......................................... $659,406 $614,868 $475,936 -------- -------- -------- Federal income taxes: Operating income: Current provision............................. 230,709 177,314 214,887 Provision for deferred income taxes-net(A).... 83,028 149,884 (334) Investment tax credits -- net................. (19,208) (18,408) (19,089) -------- -------- -------- Total included in operating income................. 294,529 308,790 195,464 Miscellaneous other income: Current provision................................ (8,186) (15,419) 4,718 Provision for deferred income taxes(A)........... 10,422 9,815 19,261 SFAS 90 deferred income taxes(A)................... 2,530 2,948 2,690 -------- -------- -------- Total Federal income tax provisions................ 299,295 306,134 222,133 -------- -------- -------- Pretax income...................................... $958,701 $921,002 $698,069 ======== ======== ========
Reconciliation between total Federal income tax provisions and tax computed at the statutory tax rate on pretax income:
1994 1993 1992 -------- -------- -------- (THOUSANDS OF DOLLARS) Tax expense at the statutory rate.................. $335,546 $322,351 $237,343 -------- -------- -------- Increase (decrease) attributable to flow-through of certain tax adjustments: Depreciation.................................. (4,597) 3,347 19,330 Amortization of plant abandonments and write-downs................................. (2,046) (2,239) (18,867) Amortization of investment tax credits........ (19,208) (18,408) (18,408) Other......................................... (10,400) 1,083 2,735 -------- -------- -------- Subtotal........................................... (36,251) (16,217) (15,210) -------- -------- -------- Total Federal income tax provisions................ $299,295 $306,134 $222,133 ======== ======== ======== Effective Federal income tax rate.................. 31.2% 33.2% 31.8% (A) The provision for deferred income taxes represents the tax effects of the following items:
1994 1993 1992 -------- -------- -------- (THOUSANDS OF DOLLARS) Deferred Credits: Additional tax depreciation and amortization......... $ 85,335 $ 92,693 $ 94,757 Property Abandonments................................ (6,606) (6,632) (34,739) Oil and Gas Property Write-Down...................... (2,451) (2,451) (6,393) Deferred fuel costs-net.............................. 39,361 63,330 (40,148) Other................................................ (19,659) 15,707 8,140 -------- -------- -------- Total........................................ $ 95,980 $162,647 $ 21,617 ======== ======== ========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SFAS 109 The following is an analysis of accumulated deferred income taxes:
ACCUMULATED DEFERRED INCOME TAXES 1994 1993 ---------- ---------- (THOUSANDS OF DOLLARS) Assets: Current (net)....................................................... $ 25,311 $ 12,934 Non-Current: Unrecovered Investment Tax Credits............................... 136,402 143,125 Nuclear Decommissioning.......................................... 25,082 25,211 Hope Creek Cost Disallowance..................................... 10,127 20,231 Construction Period Interest and Taxes........................... 15,913 9,811 Vacation Pay..................................................... 6,822 6,721 Other............................................................ 6,863 14,845 ---------- ---------- Total Non-Current........................................... $ 201,209 $ 219,944 ---------- ---------- Total Assets.......................................................... $ 226,520 $ 232,878 ========== ========== Liabilities: Non-Current: Plant Related Items.............................................. $2,157,206 $2,075,359 Property Abandonments............................................ 26,971 32,206 Oil and Gas Property Write-Down.................................. 14,925 16,790 Deferred Electric Energy & Gas Costs............................. 59,884 20,133 Unamortized Debt Expense......................................... 37,599 38,768 Taxes Recoverable Through Future Rates (Net)..................... 270,684 270,518 Other............................................................ 112,479 134,948 ---------- ---------- Total Non-Current........................................... $2,679,748 $2,588,722 ---------- ---------- Total Liabilities..................................................... $2,679,748 $2,588,722 ========== ========== Summary -- Accumulated Deferred Income Taxes Net Current Assets.................................................. $ 25,311 $ 12,934 Net Deferred Liability.............................................. $2,478,539 $2,368,778 ---------- ---------- Total............................................................ $2,453,228 $2,355,844 ========== ========== The balance of Federal income tax payable by PSE&G to Enterprise was $15.6 million and zero, as of December 31, 1994 and December 31, 1993, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED) NOTE 18. SELECTED QUARTERLY DATA (UNAUDITED) The information shown below, in the opinion of PSE&G, includes all adjustments, consisting only of normal recurring accruals, necessary to a fair presentation of such amounts. Due to the seasonal nature of the utility business, quarterly amounts vary significantly during the year.
CALENDAR MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, QUARTER ---------------------- ---------------------- ---------------------- ---------------------- ENDED 1994 1993 1994 1993 1994 1993 1994 1993 - ---------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- (THOUSANDS OF DOLLARS) Operating Revenues.... $1,689,967 $1,502,247 $1,181,655 $1,147,901 $1,282,952 $1,291,192 $1,357,067 $1,346,084 Operating Income...... $ 305,013 $ 294,734 $ 218,225 $ 206,056 $ 282,782 $ 279,173 $ 206,650 $ 201,622 Net Income............ $ 221,439 $ 204,404 $ 128,113 $ 113,849 $ 190,378 $ 188,575 $ 119,476 $ 108,040 Earnings Available to Public Service Enterprise Group Incorporated........ $ 211,159 $ 195,582 $ 117,969 $ 104,092 $ 180,234 $ 178,808 $ 109,577 $ 98,272
NOTE 19. ACCOUNTS PAYABLE TO ASSOCIATED COMPANIES -- NET The balance at December 31, 1994 and 1993 consisted of the following:
1994 1993 ------- ------- (THOUSANDS OF DOLLARS) Public Service Enterprise Group Incorporated (A).......... $17,678 $ 582 Energy Development Corporation............................ (336) 5,698 Other..................................................... (665) (606) ------- ------- Total.............................................. $16,677 $ 5,674 ======= ======= (A) Principally Federal income taxes related to PSE&G's taxable income.
PART III ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Enterprise and PSE&G, none. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS DIRECTORS OF THE REGISTRANTS Enterprise The information required by Item 10 of Form 10-K with respect to present directors who are nominees for election as directors at Enterprise's Annual Meeting of Stockholders to be held on April 18, 1995, and directors whose terms will continue beyond the meeting, is set forth under the heading "Election of Directors" in Enterprise's definitive Proxy Statement for such Annual Meeting of Stockholders, which definitive Proxy Statement is expected to be filed with the Securities and Exchange Commission on or about March 1, 1995 and which information set forth under said heading is incorporated herein by this reference thereto. PSE&G There is shown as to each present director information as to the period of service as a director of PSE&G, age as of April 18, 1995, present committee memberships, business experience during the last five years and other present directorships. LAWRENCE R. CODEY has been a director since 1988. Age 50. Member of Executive Committee. Has been President and Chief Operating Officer of PSE&G since September 1991. Was Senior Vice President-Electric of PSE&G from January 1989 to September 1991. Director of Enterprise. Director of Sealed Air Corporation, The Trust Company of New Jersey, United Water Resources Inc., and Blue Cross & Blue Shield of New Jersey. E. JAMES FERLAND has been a director since 1986, and Chairman of the Board, President and Chief Executive Officer of Enterprise since July 1986, Chairman of the Board and Chief Executive Officer of PSE&G since September 1991, and Chairman of the Board and Chief Executive Officer of EDHI since June 1989. Age 53. Chairman of Executive Committee. President of PSE&G from July 1986 to September 1991. Director of Enterprise and of EDHI and its subsidiaries, CEA, EDC, PSRC, EGDC, Capital and Funding. Director of First Fidelity Bancorporation, First Fidelity Bank, N.A., Foster Wheeler Corporation and The Hartford Steam Boiler Inspection and Insurance Company. RAYMOND V. GILMARTIN has been a director since July 20, 1993. Age 54. Director of Enterprise. Has been Chairman of the Board, President and Chief Executive Officer of Merck & Co., Inc. Whitehouse Station, New Jersey (discovers, develops, produces and markets human and animal health products) since November 1994. Was President and Chief Executive Officer of Merck & Co., Inc. from June 1994 to November 1994. Was Chairman of the Board, President and Chief Executive Officer of Becton Dickinson and Company (manufactures medical devices and diagnostic systems) from November 1992 to June 1994 and President and Chief Executive Officer of Becton Dickinson and Company from February 1989 to November 1992. Director of Merck & Co., Inc. and Providian Corporation. SHIRLEY A. JACKSON has been a director since July 20, 1993. Was previously a director from 1987 to February 1988. Age 48. Director of Enterprise. Has been Professor of Physics, Rutgers University, since 1991 and has been a theoretical physics consultant since 1991 and was a theoretical physicist from 1976 to 1991 at AT&T Bell Laboratories (performs research and development in areas related to telecommunications for AT&T Corp.). Director of Core States Financial Corporation, Core States/New Jersey National Bank, New Jersey Resources Corporation and Sealed Air Corporation. Trustee of Massachusetts Institute of Technology. IRWIN LERNER has been a director since July 20, 1993. Was previously a director from 1981 to February 1988. Age 64. Director of Enterprise. Was Chairman, Board of Directors and Executive Committee from January 1993 to September 1993 and President and Chief Executive Officer from 1980 to December 1992 of Hoffmann-La Roche Inc., Nutley, New Jersey (manufactures pharmaceuticals, vitamins, fine chemicals and provides home health care and diagnostic products and services). Director of Humana Inc. and Affymax, N.V. JAMES C. PITNEY has been a director since July 20, 1993. Was previously a director from 1979 to February 1988. Age 68. Member of Executive Committee. Director of Enterprise. Has been a partner in the law firm of Pitney, Hardin, Kipp & Szuch, Morristown, New Jersey, since 1958, Director of Tri-Continental Corporation and sixteen funds of the Seligman family of funds. Executive Officers of the Registrants The following table sets forth certain information concerning the executive officers of Enterprise and PSE&G, respectively.
AGE EFFECTIVE DATE DECEMBER 31, FIRST ELECTED NAME 1994 OFFICE TO PRESENT POSITION - ------------------------------------ ---------------------------------- ------------------------- E. James Ferland........ 52 Chairman of the Board, President July 1986 to present and Chief Executive Officer (Enterprise) Chairman of the Board and Chief July 1986 to present Executive Officer (PSE&G) President (PSE&G) June 1986 to September 1991 Chairman of the Board and Chief June 1989 to present Executive Officer (EDHI) Lawrence R. Codey....... 50 President and Chief Operating September 1991 to present Officer (PSE&G) Senior Vice President -- Electric January 1989 to September 1991 (PSE&G) Robert C. Murray........ 49 Vice President and Chief Financial January 1992 to present Officer (Enterprise) Senior Vice President -- Finance January 1992 to present and Chief Financial Officer (PSE&G) Managing Director of Morgan January 1987 to July 1991 Stanley & Co. Incorporated Patricia A. Rado........ 52 Vice President and Controller April 1993 to present (Enterprise) Vice President and Controller April 1993 to present (PSE&G) Controller of Yankee Energy July 1989 to April 1993 Systems Inc. Paul H. Way............. 57 President, Chief Operating February 1993 to present Officer and Director (EDHI) Senior Vice President (EDHI) June 1992 to February 1993 Senior Vice President -- April 1988 to Corporate Performance (PSE&G) June 1992 R. Edwin Selover........ 49 Vice President and General April 1988 to present Counsel (Enterprise) Senior Vice President and General January 1988 to present Counsel (PSE&G) Francis J. Riepl........ 58 Treasurer (Enterprise) March 1987 to present Vice President and Treasurer March 1987 to present (PSE&G) Harold W. Borden, Jr.... 50 Senior Vice President -- External January 1990 to present Affairs (PSE&G) Thomas M. Crimmins, Jr. . 51 Senior Vice President -- September 1991 to present Customer Operations (PSE&G) Vice President -- Nuclear May 1989 to Engineering (PSE&G) September 1991
AGE EFFECTIVE DATE DECEMBER 31, FIRST ELECTED NAME 1994 OFFICE TO PRESENT POSITION - ------------------------------------ ---------------------------------- ------------------------- Robert J. Dougherty, Jr. 43 Senior Vice President -- Electric September 1991 to present (PSE&G) Senior Vice President -- Customer September 1989 to Operations (PSE&G) September 1991 Leon R. Eliason 55 Chief Nuclear Officer and October 1994 to President - Nuclear Business present Unit (PSE&G) President, Power Supply Business January 1993 to Unit, Northern States Power September 1994 Vice President, Nuclear Genera- July 1990 to tion, Northern States Power January 1993 General Manager, Nuclear Opera- 1980 to June 1990 tions, Prairie Island and Monti- cello Nuclear Station, Northern States Power Rudolph D. Stys......... 59 Senior Vice President -- Gas January 1989 to present (PSE&G)
ITEM 11. EXECUTIVE COMPENSATION ENTERPRISE The information required by Item 11 of Form 10-K is set forth under the heading "Executive Compensation" in Enterprise's definitive Proxy Statement for the Annual Meeting of Stockholders to be held April 18, 1995, which definitive Proxy Statement is expected to be filed with the Securities and Exchange Commission on or about March 1, 1995 and such information set forth under such heading is incorporated herein by this reference thereto. PSE&G Information regarding the compensation of the Chief Executive Officer and the four most highly compensated executive officers of PSE&G as of December 31, 1994 is set forth below. Amounts shown were paid or awarded for all services rendered to Enterprise and its subsidiaries and affiliates including PSE&G. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION --------------------- ANNUAL COMPENSATION AWARDS PAYOUTS ----------------------- --------- --------- SECURITIES BONUS/ANNUAL UNDERLYING LTIP ALL OTHER SALARY INCENTIVE OPTIONS PAYOUTS COMPENSATION NAME AND PRINCIPAL POSITION YEAR $(1) AWARD($)(2) (#)(3) ($)(4) ($)(5) - --------------------------- ---- ------- ------------ ---------- ------- ------------ E. James Ferland........... 1994 652,492 (6) 5,400 127,140 5,628 Chairman of the Board, 1993 622,606 265,316 5,800 28,072 7,678 President and CEO of 1992 620,691 244,759 5,600 27,588 7,610 Enterprise Lawrence R. Codey.......... 1994 398,468 (6) 2,500 48,900 5,351 President and Chief 1993 378,545 109,585 2,800 9,570 6,981 Operating Officer of PSE&G 1992 336,208 102,919 2,700 6,270 6,789 Robert C. Murray........... 1994 303,832 50,000(6)(7) 1,800 26,895 4,944 Vice President and Chief 1993 288,889 154,032(6)(8) 2,000 3,190 7,264 Financial Officer of 1992 263,410 70,463 3,200 0 5,064 Enterprise and Senior Vice President- Finance and Chief Financial Officer of PSE&G Robert J. Dougherty, Jr. .. 1994 273,946 (6) 1,800 26,895 4,227 Senior Vice President- 1993 259,004 65,703 2,000 5,104 6,341 Electric of PSE&G 1992 222,415 59,916 1,600 0 5,995 R. Edwin Selover........... 1994 241,074 (6) 1,300 29,340 5,512 Vice President and General 1993 231,113 51,040 1,400 0 7,594 Counsel of Enterprise and 1992 228,621 44,914 1,300 0 7,576 Senior Vice President and General Counsel of PSE&G (1) Due to pay schedules, 1992 amounts reflect one additional pay period per individual compared to 1994 and 1993. (2) Amount awarded in given year was earned under Management Incentive Compensation Plan (MICP) and determined in following year with respect to the given year based on individual performance and financial and operating performance of Enterprise and PSE&G, including comparison to other companies. Award is accounted for as market-priced phantom stock with dividend reinvestment at 95% of market price, with payment made over three years beginning in second year following grant. (3) Granted under Long-Term Incentive Plan (LTIP) in tandem with equal number of performance units and dividend equivalents which may provide cash payments, dependent upon future financial performance of Enterprise in comparison to other companies and dividend payments by Enterprise, to assist officers in exercising options granted. The grant is made at the beginning of a three-year performance period and cash payment of the value of such performance units and dividend equivalents is made following such period in proportion to the options, if any, exercised at such time. (4) Amount paid in proportion to options exercised, if any, based on value of previously granted performance units and dividend equivalents, each as measured during three-year period ending the year prior to the year in which payment is made. (5) Includes employer contribution to Thrift and Tax-Deferred Savings Plan and value of 5% discount on phantom stock dividend reinvestment under MICP:
FERLAND CODEY MURRAY DOUGHERTY SELOVER -------------- -------------- ------------- ------------- --------------- THRIFT MICP THRIFT MICP THRIFT MICP THRIFT MICP THRIFT MICP $ $ $ $ $ $ $ $ $ $ ------ ----- ------ ----- ------ ---- ------ ---- ------ ------ 1994............ 3,751 1,877 4,197 1,154 4,504 440 3,752 475 4,506 1,006 1993............ 5,900 1,778 5,896 1,085 7,078 186 5,907 434 6,630 964 1992............ 5,725 1,885 5,725 1,064 5,064 0 5,562 433 6,588 988 (6) The 1994 MICP award amount has not yet been determined. The target award is 40% of salary for Mr. Ferland, 30% for Mr. Codey, 25% for Messrs. Murray and Dougherty and 20% for Mr. Selover. The target award is adjusted to reflect Enterprise's comparative return on capital, PSE&G's comparative electric and gas costs and individual performance. (7) Amount paid pursuant to Mr. Murray's employment agreement.
(8) Includes $75,000 paid pursuant to Mr. Murray's employment agreement. OPTION GRANTS IN LAST FISCAL YEAR (1994)
INDIVIDUAL GRANTS POTENTIAL REALIZABLE -------------------------------------------------- VALUE AT ASSUMED ANNUAL NUMBER OF % OF TOTAL RATES OF STOCK PRICE SECURITIES OPTIONS APPRECIATION FOR OPTION UNDERLYING GRANTED TO EXERCISE OR TERM(2) OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ----------------------- NAME GRANTED(1) FISCAL YEAR ($/SH) DATE 0%($) 5%($) 10%($) - ------------------------- ----------- ------------ ----------- ---------- ----- ------- ------- E. James Ferland......... 5,400 28.1 31.375 1/04/94 0 106,550 270,020 Lawrence R. Codey........ 2,500 13.0 31.375 1/04/94 0 49,329 125,009 Robert C. Murray......... 1,800 9.4 31.375 1/04/94 0 35,517 90,007 Robert J. Dougherty, Jr..................... 1,800 9.4 31.375 1/04/94 0 35,517 90,007 R. Edwin Selover......... 1,300 6.8 31.375 1/04/94 0 25,651 65,005 (1) Granted under LTIP in tandem with equal number of performance units and dividend equivalents which may provide cash payments, dependent on future financial performance of Enterprise in comparison to other companies and dividend payments by Enterprise, to assist individuals in exercising options, with exercisability commencing January 1, 1997. Cash payment is made, based on the value, if any, of performance units awarded and dividend equivalents accrued, if any, as measured during the three-year period ending the year prior to the year in which payment, if any, is made, only if the specified performance level is achieved, dividend equivalents have accrued and options are exercised. (2) All options reported have a ten-year term, as noted. Amounts shown represent hypothetical future values at such term based upon hypothetical price appreciation of Enterprise Common Stock and may not necessarily be realized. Actual values which may be realized, if any, upon any exercise of such options, will be based on the market price of Enterprise Common Stock at the time of any such exercise and thus are dependent upon future performance of Enterprise Common Stock.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR (1994) AND FISCAL YEAR-END OPTION VALUES (12/31/94)
VALUE OF UNEXERCISED NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS SHARES OPTIONS AT FY-END(#)(1) AT FY-END($)(3) ACQUIRED VALUE -------------------------- -------------------------- ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE NAME (#)(1) ($)(2) (#) (#) ($) ($) - ------------------------- ----------- -------- ----------- ------------- ----------- ------------- E. James Ferland......... 5,200 19,874 0 16,800 0 0 Lawrence R. Codey........ 2,000 6,500 700 8,000 1,575 0 Robert C. Murray......... 1,100 2,200 0 5,400 0 0 Robert J. Dougherty, Jr.. 1,100 0 0 5,400 0 0 R. Edwin Selover......... 1,200 3,450 2,200 4,000 2,700 0 (1) Does not reflect any options granted and/or exercised after year-end (12/31/94). The net effect of any such grants and exercises is reflected in the table appearing under Security Ownership of Directors and Management. (2) Represents difference between exercise price and market price of Enterprise Common Stock on date of exercise. (3) Represents difference between market price of Enterprise Common Stock and the respective exercise prices of the options at fiscal year-end (12/31/94). Such amounts may not necessarily be realized. Actual values which may be realized, if any, upon any exercise of such options will be based on the market price of Enterprise Common Stock at the time of any such exercise and thus are dependent upon future performance of Enterprise Common Stock.
Employment Contracts and Arrangements Employment agreements were entered into with Messrs. Ferland and Murray at the time of their employment. For Mr. Ferland, the remaining applicable provisions of these agreements provide for additional credited service for pension purposes in the amount of 22 years. The principal remaining applicable terms of the agreement with Mr. Murray provide for payment of severance in the amount of one year's salary, if discharged without cause during his first five years of employment, for a lump sum cash payment of $25,000 in 1995 to align Mr. Murray with MICP payments for other executive officers, and additional years of credited service for pension purposes for allied work experience of five years after completion of five years of employment, and up to fifteen years after completion of ten years of service. Compensation Committee Interlocks and Insider Participation PSE&G does not have a compensation committee. Decisions regarding compensation of PSE&G's executive officers are made by the Organization and Compensation Committee of Enterprise. Hence, during 1994 the PSE&G Board of Directors did not have, and no officer, employee or former officer of PSE&G participated in any deliberations of such Board, concerning executive officer compensation. Compensation of Directors and Certain Business Relationships A director who is not an officer of Enterprise or its subsidiaries and affiliates, including PSE&G, is paid an annual retainer of $22,000 and a fee of $1,200 for attendance at any Board or committee meeting, inspection trip, conference or other similar activity relating to Enterprise, PSE&G or EDHI. Each of the directors of PSE&G is also a director of Enterprise. No additional retainer is paid for service as a director of PSE&G. Effective July 1, 1994, 50 percent of the annual retainer is payable each January in Enterprise Common Stock for the twelve-month period beginning the preceding July 1 and ending the following June 30. Enterprise has a Retirement Plan for outside directors. Under this Plan, directors with five years of service who have not been employees of Enterprise or its subsidiaries, who leave service after age 65, or for disability, receive an annual retirement benefit payable for life equal to the annual Board retainer in effect at the time the director's service terminates. The benefit payment is prorated for directors with less than 10 years of service on the Board. During 1994, Dr. Shirley A. Jackson, a director of Enterprise and PSE&G, was the liaison member for the Board of Directors on and Chair of PSE&G's Nuclear Oversight Committee (NOC). The NOC met three times during 1994, with two meetings lasting two days and one meeting lasting three days. In accordance with the compensation policy for all NOC members, Dr. Jackson received an annual retainer of $28,000 and $1,000 per day for each NOC meeting attended. COMPENSATION PURSUANT TO PENSION PLANS PENSION PLAN TABLE
AVERAGE LENGTH OF SERVICE FINAL ----------------------------------------------- COMPENSATION 30 YEARS 35 YEARS 40 YEARS 45 YEARS - ------------ -------- -------- -------- -------- $ 300,000 $180,000 $195,000 $210,000 $225,000 400,000 240,000 260,000 280,000 300,000 500,000 300,000 325,000 350,000 375,000 600,000 360,000 390,000 420,000 450,000 700,000 420,000 455,000 490,000 525,000 800,000 480,000 520,000 560,000 600,000 900,000 540,000 585,000 630,000 675,000 1,000,000 600,000 650,000 700,000 750,000
The above table illustrates annual retirement benefits expressed in terms of single life annuities based on the average final compensation and service shown and retirement at age 65. A person's annual retirement benefit is based upon a percentage that is equal to years of credited service plus 30, but not more than 75%, times average final compensation at the earlier of retirement, attainment of age 65 or death. These amounts are reduced by Social Security benefits and certain retirement benefits from other employers. Pensions in the form of joint and survivor annuities are also available. Average final compensation, for purposes of retirement benefits of executive officers, is generally equivalent to the average of the aggregate of the salary and bonus amounts reported in the Summary Compensation Table above under 'Annual Compensation' for the five years preceding retirement, not to exceed 120% of the average annual salary for such five year period. Messrs. Ferland, Codey, Murray, Dougherty and Selover will have accrued approximately 48, 41, 39, 48 and 43 years of credited service, respectively, as of age 65. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Enterprise The information required by Item 12 of Form 10-K with respect to directors and executive officers is set forth under the heading 'Security Ownership of Directors and Management' in Enterprise's definitive Proxy Statement for the Annual Meeting of Stockholders to be held April 18, 1995 which definitive Proxy Statement is expected to be filed with the Securities and Exchange Commission on or about March 1, 1995 and such information set forth under such heading is incorporated herein by this reference thereto. PSE&G All of PSE&G's 132,450,344 outstanding shares of Common Stock are owned beneficially and of record by PSE&G's parent, Enterprise, 80 Park Plaza, P.O. Box 1171, Newark, New Jersey. The following table sets forth beneficial ownership of Enterprise Common Stock, including options, by the directors and executive officers named below as of January 31, 1995. None of these amounts exceed 1% of the Enterprise Common Stock outstanding at such date. No director or executive officer owns any PSE&G Preferred Stock of any class.
AMOUNT AND NATURE OF NAME BENEFICIAL OWNERSHIP ----------------------------------------------- -------------------- Lawrence R. Codey.............................. 18,611(1) Robert J. Dougherty, Jr. ...................... 10,147(2) E. James Ferland............................... 56,335(3) Raymond V. Gilmartin........................... 1,415 Shirley A. Jackson............................. 1,488 Irwin Lerner................................... 3,996 Robert C. Murray............................... 11,555(4) James C. Pitney................................ 3,154 R. Edwin Selover............................... 11,191(5) All directors and executive officers (15) as a group................................... 148,561(6)
- --------------- (1) Includes options to purchase 11,500 additional shares, 3,400 of which are currently exercisable. (2) Includes the equivalent of 639 shares held under Thrift and Tax-Deferred Savings Plan. Include options to purchase 7,400 additional shares, 1,600 of which are currently exercisable. (3) Includes the equivalent of 8,788 shares held under Thrift and Tax-Deferred Savings Plan. Includes options to purchase 22,600 additional shares, 5,600 of which are currently exercisable. (4) Includes the equivalent of 555 shares held under Thrift and Tax-Deferred Savings Plan. Includes options to purchase 7,400 additional shares, 1,600 of which are currently exercisable. (5) Disclaims beneficial ownership of 273 shares. Includes options to purchase 7,600 additional shares, 3,500 of which are currently exercisable. (6) Includes 275 shares owned by relatives as to which beneficial ownership is disclaimed. Also includes the equivalent of 10,699 shares held under Thrift and Tax-Deferred Savings Plan. Includes options to purchase 78,400 additional shares, of which 21,000 are currently exercisable. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Enterprise The information required by Item 13 of Form 10-K is set forth under the heading "Executive Compensation" in Enterprise's definitive Proxy Statement for the Annual Meeting of Stockholders to be held April 18, 1995, which definitive Proxy Statement is expected to be filed with the Securities and Exchange Commission on or about March 1, 1995. Such information set forth under such heading is incorporated herein by this reference thereto. PSE&G None. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements: (1) Enterprise Consolidated Statements of Income for the years ended December 31, 1994, 1993, and 1992, on page 83. Enterprise Consolidated Balance Sheets for the years ended December 31, 1994 and 1993, on pages 84 and 85. Enterprise Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992 on page 86. Enterprise Statements of Retained Earnings for the years ended December 31, 1994, 1993 and 1992 on page 87. Enterprise Notes to Consolidated Financial Statements on pages 93 through 131. (2) PSE&G Consolidated Statements of Income for the years ended December 31, 1994, 1993 and 1992, on page 88. PSE&G Consolidated Balance Sheets for the years ended December 31, 1994 and 1993, on pages 89 and 90. PSE&G Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992 on page 91. PSE&G Statements of Retained Earnings for the years ended December 31, 1994, 1993 and 1992 on page 92. PSE&G Notes to Consolidated Financial Statements on pages 132 through 135. (b) The following documents are filed as a part of this report: (1) Enterprise Financial Statement Schedules: Schedule VIII -- Valuation and Qualifying Accounts for each of the three years in the period ended December 31, 1994 (page 149). (2) PSE&G Financial Statement Schedules: Schedule VIII -- Valuation and Qualifying Accounts for each of the three years in the period ended December 31, 1994 (page 150). Schedules other than those listed above are omitted for the reason that they are not required or are not applicable, or the required information is shown in the consolidated financial statements or notes thereto. (c) The following exhibits are filed herewith: (1) Enterprise: [S] [C] 4b(4) -- Indenture dated November 1, 1994 10a(15) -- Letter Agreement, as amended, with Leon R. Eliason dated September 14, 1994 12 -- Computation of Ratios of Earnings to Fixed Charges. 21 -- Subsidiaries of Registrant. 23 -- Independent Auditors' Consent. 27 -- Financial Data Schedule (See Exhibit Index on pages 153 through 159). (2) PSE&G: [S] [C] 3b -- Copy of By-Laws of PSE&G, as in effect September 1, 1994 4b(4) -- Indenture dated November 1, 1994 10a(14) -- Letter Agreement, as amended, with Leon R. Eliason dated September 14, 1994 12(a) -- Computation of Ratios of Earnings to Fixed Charges. 12(b) -- Computation of Ratios of Earnings to Fixed Charges Plus Preferred Stock Dividend Requirements. 23 -- Independent Auditors' Consent. 27 -- Financial Data Schedule (See Exhibit Index on page 153 and pages 160 through 165). (d) The following reports on Form 8-K were filed by the registrant(s) named below during the last quarter of 1994 and the 1995 period covered by this report under Item 5:
REGISTRANT DATE OF REPORT ITEM REPORTED - ------------------- ----------------- -------------------------------- Enterprise and PSE&G October 6, 1994 Item 5. Other Events (NRC fine for the Salem Unit No. 1 event and electric Levelized Energy Adjustment Charge).
SCHEDULE VIII PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1994 -- DECEMBER 31, 1992 - ---------------------------------------------------------------------------------------------------------------------------- COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ---------------------------------------------------------------------------------------------------------------------------- ADDITIONS ---------------------------------- CHARGED TO BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING OF COST AND OTHER ACCOUNTS- DEDUCTIONS- END OF DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD - ---------------------------------------------------------------------------------------------------------------------------- (THOUSANDS OF DOLLARS) 1994 Allowance for Doubtful Accounts........... $ 27,932 $ 50,140 $ -- $37,157(A) $ 40,915 ============ ========== =============== =========== ========== Discount on Property Abandonments......... $ 16,263 $ -- $ -- $ 4,840(B) $ 11,423 ============ ========== =============== =========== ========== Valuation Allowances...................... $ 34,703 $ 6,827 $ 4,500 $ 5,662 $ 40,368 ============ ========== =============== =========== ========== Inventory Valuation Reserve............... $ 8,525 $ 9,675 $ -- $ -- $ 18,200 1993 Allowance for Doubtful Accounts........... $ 24,059 $ 31,625 $ -- $27,752(A) $ 27,932 ============ ========== =============== =========== ========== Discount on Property Abandonments......... $ 21,951 $ -- $ -- $ 5,688(B) $ 16,263 ============ ========== =============== =========== ========== Valuation Allowances...................... $ 21,509 $ 17,887 $ -- $ 4,693 $ 34,703 ============ ========== =============== =========== ========== Inventory Valuation Reserve............... $ -- $ 8,525 $ -- $ -- $ 8,525 1992 Allowance for Doubtful Accounts........... $ 21,241 $ 29,488 $ -- $26,670(A) $ 24,059 ========== ========= =============== =========== ========== Discount on Property Abandonments......... $ 31,567 $ -- $ -- $ 9,616(B) $ 21,951 ============ ========== =============== =========== ========== Valuation Allowances...................... $ 16,696 $ 42,859 $ -- $38,046 $ 21,509 ============ ========== =============== =========== ========== Inventory Valuation Reserve............... $ -- $ -- $ -- $ -- $ -- NOTES: (A) Accounts Receivable/Investments written off. (B) Amortization of discount to income.
SCHEDULE VIII PUBLIC SERVICE ELECTRIC AND GAS COMPANY SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1994 -- DECEMBER 31, 1992 - ---------------------------------------------------------------------------------------------------------------------------- COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ---------------------------------------------------------------------------------------------------------------------------- ADDITIONS ---------------------------------- CHARGED TO BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING OF COST AND OTHER ACCOUNTS- DEDUCTIONS- END OF DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD - ---------------------------------------------------------------------------------------------------------------------------- (THOUSANDS OF DOLLARS) 1994 Allowance for Doubtful Accounts........... $ 27,932 $ 50,140 $ -- $37,157(A) $ 40,915 ============ ========== =============== =========== ========== Discount on Property Abandonments......... $ 16,263 $ -- $ -- $ 4,840(B) $ 11,423 ============ ========== =============== =========== ========== Inventory Valuation Reserve............... $ 8,525 $ 9,675 $ -- $ -- $ 18,200 1993 Allowance for Doubtful Accounts........... $ 24,059 $ 31,625 $ -- $27,752(A) $ 27,932 ============ ========== =============== =========== ========== Discount on Property Abandonments......... $ 21,951 $ -- $ -- $ 5,688(B) $ 16,263 ============ ========== =============== =========== ========== Inventory Valuation Reserve............... $ -- $ 8,525 $ -- $ -- $ 8,525 1992 Allowance for Doubtful Accounts........... $ 21,241 $ 29,488 $ -- $26,670(A) $ 24,059 ============ ========== =============== =========== ========== Discount on Property Abandonments......... $ 31,567 $ -- $ -- $ 9,616(B) $ 21,951 ============ ========== =============== =========== ========== Inventory Valuation Reserve............... $ -- $ -- $ -- $ -- $ -- NOTES: (A) Accounts Receivable/Investments written off. (B) Amortization of discount to income.
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED By E. JAMES FERLAND ------------------------------- E. James Ferland Chairman of the Board, President Date: February 23, 1995 and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- E. JAMES FERLAND - -------------------------------- Chairman of the Board, February 23, 1995 E. James Ferland President and Chief Executive Officer and Director (Principal Executive Officer) ROBERT C. MURRAY - -------------------------------- Vice President and Chief February 23, 1995 Robert C. Murray Financial Officer (Principal Financial Officer) PATRICIA A. RADO - -------------------------------- Vice President and February 23, 1995 Patricia A. Rado Controller (Principal Accounting Officer) LAWRENCE R. CODEY - -------------------------------- Director February 23, 1995 Lawrence R. Codey ERNEST H. DREW - -------------------------------- Director February 23, 1995 Ernest H. Drew T. J. DERMOT DUNPHY - -------------------------------- Director February 23, 1995 T. J. Dermot Dunphy RAYMOND V. GILMARTIN - -------------------------------- Director February 23, 1995 Raymond V. Gilmartin SHIRLEY A. JACKSON - -------------------------------- Director February 23, 1995 Shirley A. Jackson IRWIN LERNER - -------------------------------- Director February 23, 1995 Irwin Lerner MARILYN M. PFALTZ - -------------------------------- Director February 23, 1995 Marilyn M. Pfaltz JAMES C. PITNEY - -------------------------------- Director February 23, 1995 James C. Pitney RICHARD J. SWIFT - -------------------------------- Director February 23, 1995 Richard J. Swift JOSH S. WESTON - -------------------------------- Director February 23, 1995 Josh S. Weston
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PUBLIC SERVICE ELECTRIC AND GAS COMPANY By E. JAMES FERLAND ------------------------------- E. James Ferland Chairman of the Board and Chief Executive Officer Date: February 23, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- E. JAMES FERLAND - -------------------------------- Chairman of the Board and February 23, 1995 E. James Ferland Chief Executive Officer and Director (Principal Executive Officer) LAWRENCE R. CODEY - -------------------------------- President and Chief February 23, 1995 Lawrence R. Codey Operating Officer and Director ROBERT C. MURRAY - -------------------------------- Senior Vice President - February 23, 1995 Robert C. Murray Finance and Chief Financial Officer (Principal Financial Officer) PATRICIA A. RADO - -------------------------------- Vice President and February 23, 1995 Patricia A. Rado Controller (Principal Accounting Officer) RAYMOND V. GILMARTIN - -------------------------------- Director February 23, 1995 Raymond V. Gilmartin SHIRLEY A. JACKSON - -------------------------------- Director February 23, 1995 Shirley A. Jackson IRWIN LERNER - -------------------------------- Director February 23, 1995 Irwin Lerner JAMES C. PITNEY - -------------------------------- Director February 23, 1995 James C. Pitney
EXHIBIT INDEX Certain Exhibits previously filed with the Commission and the appropriate securities exchanges are indicated as set forth below. Such Exhibits are not being refiled, but are included because inclusion is desirable for convenient reference. (a) Filed by PSE&G with Form 8-A under the Securities Exchange Act of 1934, on the respective dates indicated, File No. 1-973. (b) Filed by PSE&G with Form 8-K under the Securities Exchange Act of 1934, on the respective dates indicated, File No. 1-973. (c) Filed by PSE&G with Form 10-K under the Securities Exchange Act of 1934, on the respective dates indicated, File No. 1-973. (d) Filed by PSE&G with Form 10-Q under the Securities Exchange Act of 1934, on the respective dates indicated, File No. 1-973. (e) Filed by Enterprise with Form 10-K under the Securities Exchange Act of 1934, on the respective dates indicated, File No. 1-9120. (f) Filed with registration statement of PSE&G under the Securities Exchange Act of 1934, File No. 1-973, effective July 1, 1935, relating to the registration of various issues of securities. (g) Filed with registration statement of PSE&G under the Securities Act of 1933, No. 2-4995, effective May 20, 1942, relating to the issuance of $15,000,000 First and Refunding Mortgage Bonds, 3% Series due 1972. (h) Filed with registration statement of PSE&G under the Securities Act of 1933, No. 2-7568, effective July 1, 1948, relating to the proposed issuance of 200,000 shares of Cumulative Preferred Stock. (i) Filed with registration statement of PSE&G under the Securities Act of 1933, No. 2-8381, effective April 18, 1950, relating to the issuance of $26,000,000 First and Refunding Mortgage Bonds, 2 3/4% Series due 1980. (j) Filed with registration statement of PSE&G under the Securities Act of 1933, No. 2-12906, effective December 4, 1956, relating to the issuance of 1,000,000 shares of Common Stock. (k) Filed with registration statement of PSE&G under the Securities Act of 1933, No. 2-59675, effective September 1, 1977, relating to the issuance of $60,000,000 First and Refunding Mortgage Bonds, 8 1/8% Series I due 2007. (l) Filed with registration statement of PSE&G under the Securities Act of 1933, No. 2-60925, effective March 30, 1978, relating to the issuance of 750,000 shares of Common Stock through an Employee Stock Purchase Plan. (m) Filed with registration statement of PSE&G under the Securities Act of 1933, No. 2-65521, effective October 10, 1979, relating to the issuance of 3,000,000 shares of Common Stock. (n) Filed with registration statement of PSE&G under the Securities Act of 1933, No. 2-74018, filed on June 16, 1982, relating to the Thrift Plan of PSE&G. (o) Filed with registration statement of Public Service Enterprise Group Incorporated under the Securities Act of 1933, No. 33-2935 filed January 28, 1986, relating to PSE&G's plan to form a holding company as part of a corporate restructuring. (p) Filed with registration statement of PSE&G under the Securities Act of 1933, No. 33-13209 filed April 9, 1987, relating to the registration of $575,000,000 First and Refunding Mortgage Bonds pursuant to Rule 415. ENTERPRISE
EXHIBIT NUMBER - -------------------------------------------- PREVIOUS FILING THIS -------------------------------- FILING COMMISSION EXCHANGES - --------- -------------- -------------- 3a (o) 3a (o) 3a Certificate of Incorporation Public Service Enterprise Group Incorporated 3b (e) 3b (e) 3b Copy of By-Laws of Public Service Enterprise 4/11/88 Group Incorporated, as in effect May 1, 1987 3c (e) 3c (e) 3c Certificate of Amendment of Certificate of 4/11/88 Incorporation of Public Service Enterprise Group Incorporated, effective April 23, 1987 4a(1) (f) B-1 (c) 4b(1) Indenture between PSE&G and Fidelity Union Trust 2/18/81 Company, (now First Fidelity Bank, National Association), as Trustee, dated August 1, 1924, securing First and Refunding Mortgage Bonds Indentures between PSE&G and First Fidelity Bank, National Association, as Trustee, supplemental to Exhibit 4a(1), dated as follows: 4a(2) (i) 7(1a) (c) 4b(2) April 1, 1927 2/18/81 4a(3) (k) 2b(3) (c) 4b(3) June 1, 1937 2/18/81 4a(4) (k) 2b(4) (c) 4b(4) July 1, 1937 2/18/81 4a(5) (k) 2b(5) (c) 4b(5) December 19, 1939 2/18/81 4a(6) (g) B-10 (c) 4b(6) March 1, 1942 2/18/81 4a(7) (k) 2b(7) (c) 4b(7) June 1, 1949 2/18/81 4a(8) (k) 2b(8) (c) 4b(8) May 1, 1950 2/18/81 4a(9) (k) 2b(9) (c) 4b(9) October 1, 1953 2/18/81 4a(10) (k) 2b(10) (c) 4b(10) May 1, 1954 2/18/81 4a(11) (j) 4b(16) (c) 4b(11) November 1, 1956 2/18/81 4a(12) (k) 2b(12) (c) 4b(12) September 1, 1957 2/18/81 4a(13) (k) 2b(13) (c) 4b(13) August 1, 1958 2/18/81 4a(14) (k) 2b(14) (c) 4b(14) June 1, 1959 2/18/81 4a(15) (k) 2b(15) (c) 4b(15) September 1, 1960 2/18/81
EXHIBIT NUMBER - -------------------------------------------- PREVIOUS FILING THIS -------------------------------- FILING COMMISSION EXCHANGES - --------- -------------- -------------- 4a(16) (k) 2b(16) (c) 4b(16) August 1, 1962 2/18/81 4a(17) (k) 2b(17) (c) 4b(17) June 1, 1963 2/18/81 4a(18) (k) 2b(18) (c) 4b(18) September 1, 1964 2/18/81 4a(19) (k) 2b(19) (c) 4b(19) September 1, 1965 2/18/81 4a(20) (k) 2b(20) (c) 4b(20) June 1, 1967 2/18/81 4a(21) (k) 2b(21) (c) 4b(21) June 1, 1968 2/18/81 4a(22) (k) 2b(22) (c) 4b(22) April 1, 1969 2/18/91 4a(23) (k) 2b(23) (c) 4b(23) March 1, 1970 2/18/81 4a(24) (k) 2b(24) (c) 4b(24) May 15, 1971 2/18/81 4a(25) (k) 2b(25) (c) 4b(25) November 15, 1971 2/18/81 4a(26) (k) 2b(26) (c) 4b(26) April 1, 1972 2/18/81 4a(27) (a) 2 (c) 4b(27) March 1, 1974 3/29/74 2/18/81 4a(28) (a) 2 (c) 4b(28) October 1, 1974 10/11/74 2/18/81 4a(29) (a) 2 (c) 4b(29) April 1, 1976 4/6/76 2/18/81 4a(30) (a) 2 (c) 4b(30) September 1, 1976 9/16/76 2/18/81 4a(31) (k) 2b(31) (c) 4b(31) October 1, 1976 2/18/81 4a(32) (a) 2 (c) 4b(32) June 1, 1977 6/29/77 2/18/81 4a(33) (l) 2b(33) (c) 4b(33) September 1, 1977 2/18/81 4a(34) (a) 2 (c) 4b(34) November 1, 1978 11/21/78 2/18/81 4a(35) (a) 2 (c) 4b(35) July 1, 1979 7/25/79 2/18/81 4a(36) (m) 2d(36) (c) 4b(36) September 1, 1979 (No. 1) 2/18/81 4a(37) (m) 2d(37) (c) 4b(37) September 1, 1979 (No. 2) 2/18/81
EXHIBIT NUMBER - -------------------------------------------- PREVIOUS FILING THIS -------------------------------- FILING COMMISSION EXCHANGES - --------- -------------- -------------- 4a(38) (a) 2 (c) 4b(38) November 1, 1979 12/3/79 2/18/81 4a(39) (a) 2 (c) 4b(39) June 1, 1980 6/10/80 2/18/81 4a(40) (a) 2 (a) 2 August 1, 1981 8/19/81 8/19/81 4a(41) (b) 4e (b) 4e April 1, 1982 4/29/82 5/5/82 4a(42) (a) 2 (a) 2 September 1, 1982 9/17/82 9/20/82 4a(43) (a) 2 (a) 2 December 1, 1982 12/21/82 12/21/82 4a(44) (d) 4(ii) (d) 4(ii) June 1, 1983 7/26/83 7/27/83 4a(45) (a) 4 (a) 4 August 1, 1983 8/19/83 8/19/83 4a(46) (d) 4(ii) (d) 4(ii) July 1, 1984 8/14/84 8/17/84 4a(47) (d) 4(ii) (d) 4(ii) September 1, 1984 11/2/84 11/9/84 4a(48) (b) 4(ii) (b) 4(ii) November 1, 1984 (No. 1) 1/4/85 1/9/85 4a(49) (b) 4(ii) (b) 4(ii) November 1, 1984 (No. 2) 1/4/85 1/9/85 4a(50) (a) 2 (a) 2 July 1, 1985 8/2/85 8/2/85 4a(51) (c) 4a(51) (c) 4a(51) January 1, 1986 2/11/86 2/11/86 4a(52) (a) 2 (a) 2 March 1, 1986 3/28/86 3/28/86 4a(53) (a) 2(a) (a) 2(a) April 1, 1986 (No. 1) 5/1/86 5/1/86 4a(54) (a) 2(b) (a) 2(b) April 1, 1986 (No. 2) 5/1/86 5/1/86 4a(55) (p) 4a(55) (p) 4a(55) March 1, 1987 4/9/87 4/9/87 4a(56) (a) 4 (a) 4 July 1, 1987 (No. 1) 8/17/87 8/17/87 4a(57) (d) 4 (d) 4 July 1, 1987 (No. 2) 11/13/87 11/20/87 4a(58) (a) 4 (a) 4 May 1, 1988 5/17/88 5/18/88 4a(59) (a) 4 (a) 4 September 1, 1988 9/27/88 9/28/88
EXHIBIT NUMBER - -------------------------------------------- PREVIOUS FILING THIS -------------------------------- FILING COMMISSION EXCHANGES - --------- -------------- -------------- 4a(60) (a) 4 (a) 4 July 1, 1989 7/25/89 7/26/89 4a(61) (a) 4 (a) 4 July 1, 1990 (No. 1) 7/25/90 7/26/90 4a(62) (a) 4 (a) 4 July 1, 1990 (No. 2) 7/25/90 7/26/90 4a(63) (a) 4 (a) 4 June 1, 1991 (No. 1) 7/1/91 7/2/91 4a(64) (a) 4 (a) 4 June 1, 1991 (No. 2) 7/1/91 7/2/91 4a(65) (a) 4 (a) 4 November 1, 1991 (No. 1) 12/2/91 12/3/91 4a(66) (a) 4 (a) 4 November 1, 1991 (No. 2) 12/2/91 12/3/91 4a(67) (a) 4 (a) 4 November 1, 1991 (No. 3) 12/2/91 12/3/91 4a(68) (a) 4 (a) 4 February 1, 1992 (No. 1) 2/27/92 2/28/92 4a(69) (a) 4 (a) 4 February 1, 1992 (No. 2) 2/27/92 2/28/92 4a(70) (a) 4 (a) 4 June 1, 1992 (No. 1) 6/17/92 6/11/92 4a(71) (a) 4 (a) 4 June 1, 1992 (No. 2) 6/17/92 6/11/92 4a(72) (a) 4 (a) 4 June 1, 1992 (No. 3) 6/17/92 6/11/92 4a(73) (a) 4 (a) 4 January 1, 1993 (No.1) 2/2/93 2/2/93 4a(74) (a) 4 (a) 4 January 1, 1993 (No. 2) 2/2/93 2/2/93 4a(75) (a) 4 (a) 4 March 1, 1993 3/17/93 3/18/93 4a(76) (b) 4 (a) 4 May 1, 1993 5/27/93 5/28/93 4a(77) (a) 4 (a) 4 May 1, 1993 (No. 2) 5/25/93 5/25/93 4a(78) (a) 4 (a) 4 May 1, 1993 (No. 3) 5/25/93 5/25/93 4a(79) (b) 4 (b) 4 July 1, 1993 12/1/93 12/1/93 4a(80) (a) 4 (a) 4 August 1, 1993 8/3/93 8/3/93 4a(81) (b) 4 (b) 4 September 1, 1993 12/1/93 12/1/93
EXHIBIT NUMBER - -------------------------------------------- PREVIOUS FILING THIS -------------------------------- FILING COMMISSION EXCHANGES - --------- -------------- -------------- 4a(82) (b) 4 (b) 4 September 1, 1993 (No. 2) 12/1/93 12/1/93 4a(83) (b) 4 (b) 4 November 1, 1993 12/1/93 12/1/93 4a(84) (a) 4 (a) 4 February 1, 1994 2/3/94 2/14/94 4a(85) (a) 4 (a) 4 March 1, 1994 (No. 1) 3/15/94 3/16/94 4a(86) (a) 4 (a) 4 March 1, 1994 (No. 2) 3/15/94 3/16/94 4a(87) (d) 4 (d) 4 May 1, 1994 11/8/94 12/2/94 4a(88) (d) 4 (d) 4 June 1, 1994 11/8/94 12/2/94 4a(89) (d) 4 (d) 4 August 1, 1994 11/8/94 12/2/94 4a(90) (d) 4 (d) 4 October 1, 1994 (No. 1) 11/8/94 12/2/94 4a(91) (d) 4 (d) 4 October 1, 1994 (No. 2) 11/8/94 12/2/94 4b(1) (h) 7(12) (c) 4c(1) Indenture between PSE&G and Federal Trust 2/18/81 Company, as Trustee (Midlantic National Bank, Successor Trustee) dated July 1, 1948, providing for 6% Debenture Bonds due 1998 4b(2) (l) 2c(8) (c) 4c(8) Indenture between PSE&G and The Chase Manhattan 2/18/81 Bank (National Association), as Trustee, dated August 15, 1971, providing for 7 3/4% Debenture Bonds due 1996 4b(3) (b) 4 (b) 4 Indenture of Trust between PSE&G and The Chase 12/1/93 12/1/93 Manhattan Bank (National Association), as Trustee, providing for Secured Medium-Term Notes dated July 1, 1993 4b(4) Indenture between PSE&G and First Fidelity Bank, National Association, as Trustee, dated November 1, 1994, providing for Deferrable Interest Subordinated Debentures in Series 9 Inapplicable 10a(1) (c) 10c(1) (c) 10c(1) Directors' Deferred Compensation Plan 3/17/82 3/19/82 10a(2) (c) 10c(2) (c) 10c(2) Officers' Deferred Compensation Plan 3/17/82 3/19/82 10a(3) (c) 10c(3) (c) 10c(3) Supplemental Death Benefits Plan for officers 3/17/82 3/19/82 10a(4) (c) 10c(4) (c) 10c(4) Description of additional retirement benefits 3/17/82 3/19/82 for certain officers 10a(5)(i) (c) 10b(5) (c) 10b(5) Limited Supplemental Death Benefits and 3/31/83 4/8/83 Retirement Plan 10a(5)(ii) (c) 10a(5)(ii) (c) 10a(5)(ii) Limited Supplemental Benefits Plan for Certain 2/25/94 3/1/94 Employees 10a(6)(i) (c) 10a(6) (c) 10a(6) Description of additional retirement benefits 3/10/87 4/16/87 for certain officers 10a(6)(ii) (c) 10a(6)(1) (c) 10a(6)(1) Description of additional retirement benefits 3/30/90 3/30/90 for certain officers. 10a(6)(iii) (c) 10a(6)(2) (c) 10a(6)(2) Description of additional retirement benefits 3/30/92 4/27/92 for a certain officer.
EXHIBIT NUMBER - -------------------------------------------- PREVIOUS FILING THIS -------------------------------- FILING COMMISSION EXCHANGES - --------- -------------- -------------- 10a(7) (o) 10g (o) 10g Management Incentive Compensation Plan 10a(8) (c) 10a(8) (c) 10a(8) Long-Term Incentive Plan 3/30/89 4/18/89 10a(9) (c) 10a(9) (c) 10a(9) Public Service Enterprise Group Incorporated 3/30/89 4/18/89 Pension Plan for Outside Directors 10a(10) (c) 10a(11) (c) 10a(11) Letter Agreement with E. James Ferland dated 2/10/93 2/11/93 April 16, 1986 10a(11) (c) 10a(12) (c) 10a(12) Letter Agreement with Paul H. Way dated March 2/10/93 2/11/93 28, 1988 10a(12) (c) 10a(13) (c) 10a(13) Letter Agreement with Thomas M. Crimmins, Jr. 2/10/93 2/11/93 dated April 5, 1989 10a(13) (c) 10a(15) (c) 10a(15) Letter Agreement with Robert C. Murray dated 2/10/93 2/11/93 December 17, 1991 10a(14) (c) 10a(14) (c) 10a(14) Letter agreement with Patricia A. Rado dated 2/26/94 3/9/94 March 24, 1993 10a(15) Letter Agreement, as amended, with Leon R. Eliason dated September 14, 1994 11 Inapplicable 12 Computation of Ratios of Earnings to Fixed Charges 13 Inapplicable 16 Inapplicable 18 Inapplicable 21 Subsidiaries of the Registrant 22 Inapplicable 23 Independent Auditors' Consent 24 Inapplicable 27 Financial Data Schedule 28 Inapplicable 99 Inapplicable
PSE&G
EXHIBIT NUMBER - -------------------------------------------- PREVIOUS FILING THIS -------------------------------- FILING COMMISSION EXCHANGES - --------- -------------- -------------- 3a(1) (b) 3a (b) 3a Restated Certificate of Incorporation of PSE&G, 8/28/86 8/29/86 effective May 1, 1986 3a(2) (c) 3a(2) (c) 3a(2) Certificate of Amendment of Certificate of 4/10/87 Restated Certificate of Incorporation of PSE&G filed February 18, 1987 with the State of New Jersey adopting limitations of liability provisions in accordance with an amendment to New Jersey Business Corporation Act 3a(3) (a) 3(a)3 (a) 3(a)3 Certificate of Amendment of Restated Certificate 2/3/94 2/14/94 of Incorporation of PSE&G filed June 17, 1992 with the State of New Jersey, establishing the 7.44% Cumulative Preferred Stock ($100 Par) as a series of the Preferred Stock 3a(4) (a) 3(a)4 (a) 3(a)4 Certificate of Amendment of Restated Certificate 2/3/94 2/14/94 of Incorporation of PSE&G filed March 11, 1993 with the State of New Jersey, establishing the 5.97% Cumulative Preferred Stock ($100 Par) as a series of Preferred Stock 3a(5) (a) 3(a)5 (a) 3(a)5 Certificate of Amendment of Restated Certificate 2/3/94 2/14/94 of Incorporation of PSE&G filed January 27, 1994 with the State of New Jersey, establishing the 6.92% Cumulative Preferred Stock ($100 Par) and the 6.75% Cumulative Preferred Stock -- $25 Par as series of Preferred Stock 3b Copy of By-Laws of PSE&G, as in effect September 1, 1994 4a(1) (f) B-1 (c) 4b(1) Indenture between PSE&G and Fidelity Union Trust 2/18/81 Company, (now First Fidelity Bank, National Association), as Trustee, dated August 1, 1924, securing First and Refunding Mortgage Bonds Indentures between PSE&G and First Fidelity Bank, National Association, as Trustee, supplemental to Exhibit 4a(1), dated as follows: 4a(2) (i) 7(1a) (c) 4b(2) April 1, 1927 2/18/81 4a(3) (k) 2b(3) (c) 4b(3) June 1, 1937 2/18/81 4a(4) (k) 2b(4) (c) 4b(4) July 1, 1937 2/18/81 4a(5) (k) 2b(5) (c) 4b(5) December 19, 1939 2/18/81 4a(6) (g) B-10 (c) 4b(6) March 1, 1942 2/18/81 4a(7) (k) 2b(7) (c) 4b(7) June 1, 1949 2/18/81 4a(8) (k) 2b(8) (c) 4b(8) May 1, 1950 2/18/81
EXHIBIT NUMBER - -------------------------------------------- PREVIOUS FILING THIS -------------------------------- FILING COMMISSION EXCHANGES - --------- -------------- -------------- 4a(9) (k) 2b(9) (c) 4b(9) October 1, 1953 2/18/81 4a(10) (k) 2b(10) (c) 4b(10) May 1, 1954 2/18/81 4a(11) (j) 4b(16) (c) 4b(11) November 1, 1956 2/18/81 4a(12) (k) 2b(12) (c) 4b(12) September 1, 1957 2/18/81 4a(13) (k) 2b(13) (c) 4b(13) August 1, 1958 2/18/81 4a(14) (k) 2b(14) (c) 4b(14) June 1, 1959 2/18/81 4a(15) (k) 2b(15) (c) 4b(15) September 1, 1960 2/18/81 4a(16) (k) 2b(16) (c) 4b(16) August 1, 1962 2/18/81 4a(17) (k) 2b(17) (c) 4b(17) June 1, 1963 2/18/81 4a(18) (k) 2b(18) (c) 4b(18) September 1, 1964 2/18/81 4a(19) (k) 2b(19) (c) 4b(19) September 1, 1965 2/18/81 4a(20) (k) 2b(20) (c) 4b(20) June 1, 1967 2/18/81 4a(21) (k) 2b(21) (c) 4b(21) June 1, 1968 2/18/81 4a(22) (k) 2b(22) (c) 4b(22) April 1, 1969 2/18/81 4a(23) (k) 2b(23) (c) 4b(23) March 1, 1970 2/18/81 4a(24) (k) 2b(24) (c) 4b(24) May 15, 1971 2/18/81 4a(25) (k) 2b(25) (c) 4b(25) November 15, 1971 2/18/81 4a(26) (k) 2b(26) (c) 4b(26) April 1, 1972 2/18/81 4a(27) (a) 2 (c) 4b(27) March 1, 1974 3/29/74 2/18/81 4a(28) (a) 2 (c) 4b(28) October 1, 1974 10/11/74 2/18/81 4a(29) (a) 2 (c) 4b(29) April 1, 1976 4/6/76 2/18/81 4a(30) (a) 2 (c) 4b(30) September 1, 1976 9/16/76 2/18/81
EXHIBIT NUMBER - -------------------------------------------- PREVIOUS FILING THIS -------------------------------- FILING COMMISSION EXCHANGES - --------- -------------- -------------- 4a(31) (k) 2b(31) (c) 4b(31) October 1, 1976 2/18/81 4a(32) (a) 2 (c) 4b(32) June 1, 1977 6/29/77 2/18/81 4a(33) (l) 2b(33) (c) 4b(33) September 1, 1977 2/18/81 4a(34) (a) 2 (c) 4b(34) November 1, 1978 11/21/78 2/18/81 4a(35) (a) 2 (c) 4b(35) July 1, 1979 7/25/79 2/18/81 4a(36) (m) 2d(36) (c) 4b(36) September 1, 1979 (No. 1) 2/18/81 4a(37) (m) 2d(37) (c) 4b(37) September 1, 1979 (No. 2) 2/18/81 4a(38) (a) 2 (c) 4b(38) November 1, 1979 12/3/79 2/18/81 4a(39) (a) 2 (c) 4b(39) June 1, 1980 6/10/80 2/18/81 4a(40) (a) 2 (a) 2 August 1, 1981 8/19/81 8/19/81 4a(41) (b) 4e (b) 4e April 1, 1982 4/29/82 5/5/82 4a(42) (a) 2 (a) 2 September 1, 1982 9/17/82 9/20/82 4a(43) (a) 2 (a) 2 December 1, 1982 12/21/82 12/21/82 4a(44) (d) 4(ii) (d) 4(ii) June 1, 1983 7/26/83 7/27/83 4a(45) (a) 4 (a) 4 August 1, 1983 8/19/83 8/19/83 4a(46) (d) 4(ii) (d) 4(ii) July 1, 1984 8/14/84 8/17/84 4a(47) (d) 4(ii) (d) 4(ii) September 1, 1984 11/2/84 11/9/84 4a(48) (b) 4(ii) (b) 4(ii) November 1, 1984 (No. 1) 1/4/85 1/9/85 4a(49) (b) 4(ii) (b) 4(ii) November 1, 1984 (No. 2) 1/4/85 1/9/85 4a(50) (a) 2 (a) 2 July 1, 1985 8/2/85 8/2/85 4a(51) (c) 4a(51) (c) 4a(51) January 1, 1986 2/11/86 2/11/86 4a(52) (a) 2 (a) 2 March 1, 1986 3/28/86 3/28/86
EXHIBIT NUMBER - -------------------------------------------- PREVIOUS FILING THIS -------------------------------- FILING COMMISSION EXCHANGES - --------- -------------- -------------- 4a(53) (a) 2(a) (a) 2(a) April 1, 1986 (No. 1) 5/1/86 5/1/86 4a(54) (a) 2(b) (a) 2(b) April 1, 1986 (No. 2) 5/1/86 5/1/86 4a(55) (p) 4a(55) (p) 4a(55) March 1, 1987 4/9/87 4/9/87 4a(56) (a) 4 (a) 4 July 1, 1987 (No. 1) 8/17/87 8/17/87 4a(57) (d) 4 (d) 4 July 1, 1987 (No. 2) 11/13/87 11/20/87 4a(58) (a) 4 (a) 4 May 1, 1988 5/17/88 5/18/88 4a(59) (a) 4 (a) 4 September 1, 1988 9/27/88 9/28/88 4a(60) (a) 4 (a) 4 July 1, 1989 7/25/89 7/26/89 4a(61) (a) 4 (a) 4 July 1, 1990 (No. 1) 7/25/90 7/26/90 4a(62) (a) 4 (a) 4 July 1, 1990 (No. 2) 7/25/90 7/26/90 4a(63) (a) 4 (a) 4 June 1, 1991 (No. 1) 7/1/91 7/2/91 4a(64) (a) 4 (a) 4 June 1, 1991 (No. 2) 7/1/91 7/2/91 4a(65) (a) 4 (a) 4 November 1, 1991 (No. 1) 12/2/91 12/3/91 4a(66) (a) 4 (a) 4 November 1, 1991 (No. 2) 12/2/91 12/3/91 4a(67) (a) 4 (a) 4 November 1, 1991 (No. 3) 12/2/91 12/3/91 4a(68) (a) 4 (a) 4 February 1, 1992 (No. 1) 2/27/92 2/28/92 4a(69) (a) 4 (a) 4 February 1, 1992 (No. 2) 2/27/92 2/28/92 4a(70) (a) 4 (a) 4 June 1, 1992 (No. 1) 6/17/92 6/11/92 4a(71) (a) 4 (a) 4 June 1, 1992 (No. 2) 6/17/92 6/11/92 4a(72) (a) 4 (a) 4 June 1, 1992 (No. 3) 6/17/92 6/11/92 4a(73) (a) 4 (a) 4 January 1, 1993 (No.1) 2/2/93 2/2/93 4a(74) (a) 4 (a) 4 January 1, 1993 (No. 2) 2/2/93 2/2/93
EXHIBIT NUMBER - -------------------------------------------- PREVIOUS FILING THIS -------------------------------- FILING COMMISSION EXCHANGES - --------- -------------- -------------- 4a(75) (a) 4 (a) 4 March 1, 1993 3/17/93 3/18/93 4a(76) (b) 4 (a) 4 May 1, 1993 5/27/93 5/28/93 4a(77) (a) 4 (a) 4 May 1, 1993 (No. 2) 5/25/93 5/25/93 4a(78) (a) 4 (a) 4 May 1, 1993 (No. 3) 5/25/93 5/25/93 4a(79) (b) 4 (b) 4 July 1, 1993 12/1/93 12/1/93 4a(80) (a) 4 (a) 4 August 1, 1993 8/3/93 8/3/93 4a(81) (b) 4 (b) 4 September 1, 1993 12/1/93 12/1/93 4a(82) (a) 4 (a) 4 September 1, 1993 (No. 2) 12/1/93 12/1/93 4a(83) (b) 4 (b) 4 November 1, 1993 12/1/93 12/1/93 4a(84) (a) 4 (a) 4 February 1, 1994 2/3/94 2/14/94 4a(85) (a) 4 (a) 4 March 1, 1994 (No. 1) 3/15/94 3/16/94 4a(86) (a) 4 (a) 4 March 1, 1994 (No. 2) 3/15/94 3/16/94 4a(87) (d) 4 (d) 4 May 1, 1994 11/8/94 12/2/94 4a(88) (d) 4 (d) 4 June 1, 1994 11/8/94 12/2/94 4a(89) (d) 4 (d) 4 August 1, 1994 11/8/94 12/2/94 4a(90) (d) 4 (d) 4 October 1, 1994 (No. 1) 11/8/94 12/2/94 4a(91) (d) 4 (d) 4 October 1, 1994 (No. 2) 11/8/94 12/2/94 4b(1) (h) 7(12) (c) 4c(1) Indenture between PSE&G and Federal Trust 2/18/81 Company, as Trustee, (Midlantic National Bank, Successor Trustee) dated July 1, 1948, providing for 6% Debenture Bonds due 1998 4b(2) (l) 2c(8) (c) 4c(8) Indenture between PSE&G and the Chase Manhattan 2/18/81 Bank (National Association), as Trustee, dated August 15, 1971, providing for 7 3/4% Debenture Bonds due 1996 4b(3) (b) 4 (b) 4 Indenture of Trust between the Company and The 12/1/93 12/1/93 Chase Manhattan Bank (National Association), as Trustee, providing for Secured Medium-Term Notes dated July 1, 1993 4b(4) Indenture between PSE&G and First Fidelity Bank, National Association, as Trustee, dated November 1, 1994, providing for Deferrable Interest Subordinated Debentures in Series 9 Inapplicable 10a(1) (c) 10c(1) (c) 10c(1) Directors' Deferred Compensation Plan 3/17/82 3/19/82 10a(2) (c) 10c(2) (c) 10c(2) Officers' Deferred Compensation Plan 3/17/82 3/19/82 Supplemental Benefits Plan for Certain 2/25/94 3/1/94 Employees
EXHIBIT NUMBER - -------------------------------------------- PREVIOUS FILING THIS -------------------------------- FILING COMMISSION EXCHANGES - --------- -------------- -------------- 10a(3) (c) 10c(3) (c) 10c(3) Supplemental Death Benefits Plan for officers 3/17/82 3/19/82 10a(4) (c) 10c(4) (c) 10c(4) Description of additional retirement for certain 3/17/82 3/19/82 officers 10a(5)(i) (c) 10b(5) (c) 10b(5) Limited Supplemental Death Benefits and 3/31/83 4/8/83 Retirement Plan 10a(5)(ii) (c) 10a(5)(ii) (c) 10a(5)(ii) Limited S----- 10a(6)(i) (c) 10a(6) (c) 10a(6) Description of additional retirement benefits 3/10/87 4/16/87 for certain officers 10a(6)(ii) (c) 10a(6)(1) (c) 10a(6)(1) Description of additional retirement benefit for 3/30/90 3/30/90 certain officers. 10a(6)(iii) (c) 10a(6)(2) (c) 10a(6)(2) Description of additional retirement benefit for 3/30/92 4/27/92 a certain officer. 10a(7) (o) 10g (o) 10g Management Incentive Compensation Plan 10a(8) (c) 10a(8) (c) 10a(8) Long-Term Incentive Plan 3/30/89 4/18/89 10a(9) (c) 10a(9) (c) 10a(9) Public Service Enterprise Group Incorporated 3/30/89 4/18/89 Pension Plan for Outside Directors 10a(10) (c) 10a(9) (c) 10a(9) Letter Agreement with E. James Ferland dated 2/10/93 2/11/93 April 16, 1986 10a(11) (c) 10a(10) (c) 10a(10) Letter Agreement with Thomas M. Crimmins, Jr. 2/10/93 2/11/93 dated April 5, 1989 10a(12) (c) 10a(12) (c) 10a(12) Letter Agreement with Robert C. Murray dated 2/10/93 2/11/93 December 17, 1991 10a(13) (c) 10a(13) (c) 10a(13) Letter agreement with Patricia A. Rado dated 2/26/94 3/9/94 March 24, 1993. 10a(14) Letter Agreement, as amended, with Leon R. Eliason dated September 14, 1994 11 Inapplicable 12(a) Computation of Ratios of Earnings to Fixed Charges 12(b) Computation of Ratios of Earnings to Fixed Charges Plus Preferred Stock Dividend Requirements 13 Inapplicable 16 Inapplicable 19 Inapplicable 21 Inapplicable 22 Inapplicable 23 Independent Auditors' Consent 24 Inapplicable 27 Financial Data Schedule 28 Inapplicable 99 Inapplicable
EX-3.B 2 EX-3.B EXHIBIT 3-B BY-LAWS OF PUBLIC SERVICE ELECTRIC AND GAS COMPANY ------------------------- As in effect September 1, 1994 ============================================================================ ============================================== BY-LAWS OF PUBLIC SERVICE ELECTRIC AND GAS COMPANY _________________________ ARTICLE I. DIRECTORS SECTION 1. The Board of Directors shall consist of such number of directors, not less than 3 nor more than 16, as shall be fixed from time to time by the Board of Directors. The directors shall be elected annually at the annual meeting of the stockholders by those stockholders entitled to vote at the election of directors. If the holders of Preferred Stock and the holders of Preferred Stock-$25 Par are entitled to vote at elections of directors, such stockholders, voting as a single class separately from the holders of Common Stock, shall be entitled to elect the smallest number of directors which will be more than on-half of the total number of directors, and the holders of Common Stock, voting separately as a single class, shall be entitled to elect all other directors. As used in these By-Laws, the term "entire Board" means the total number of directors which the corporation would have if there were no vacancies. Directors shall hold office for one year and until their successors are duly elected and qualified, but if, in accordance with the provisions of the third paragraph of Section 6 of Article IX of these By-Laws, a special meeting of stockholders is convened at which a quorum of the holders of Preferred Stock and the holders of Preferred Stock-$25 Par is present, the terms of office of all directors shall terminate, and at such meeting, the holders of Preferred Stock and the holders of Preferred Stock-$25 Par, voting as a single class separately form the holders of Common Stock, shall be entitled to elect the smallest number of directors which will be more than one-half the total number of directors, and the holders of Common Stock, voting separately as a single class shall be entitled to elect all other directors. If the office of any director becomes vacant, the remaining directors, by a majority vote, may elect a successor, who shall hold office for the unexpired term, and until his successor is duly elected and qualified except that if the holders of Preferred Stock and the holders of Preferred Stock-$25 Par are entitled to voting rights to elect directors, any vacancy in the Board of Directors caused by the death or resignation of any director elected by the holders of Preferred Stock and the holder of Preferred Stock-$25 Par shall be entitled to fill upon any increase in the number of directors shall, until the next meeting of the stockholders for the election directors, in each case be filled by majority vote of the remaining or other directors elected by the holders of Preferred Stock and the holders of Preferred Stock-$25 Par. Upon the termination of such voting rights of the holders of Preferred Stock and the holders of Preferred Stock-$25 Par, the terms of office of all persons who shall have been elected directors by vote of such holders, or by vote of the directors elected by such holders, shall forthwith terminate, and the vacancies thereby created may be filled by majority vote of the remaining directors, though less than a quorum. SECTION 2. The Board of Directors, by the affirmative vote of a majority of directors in office and irrespective of any personal interest of any of them, may establish reasonable compensation of directors for services to the corporation as directors, officers, or otherwise. ARTICLE II. OFFICERS. SECTION 1. The elective officers of the corporation shall include a President, one or more Vice Presidents, a Secretary, one or more Assistant Secretaries, a Treasurer, and one or more Assistant Treasurers, and may also include a Chairman of the Board, one or more Senior Executive Vice Presidents, one or more Executive Vice Presidents, one or more Senior Vice Presidents and a Chief Nuclear Officer. The Chairman of the Board and the President shall be members of the Board of Directors. All elective officers of the corporation shall be elected by the Board of Directors at the first meeting thereof after the annual election of directors. The Board of Directors shall also have power, at any time, to elect additional Senior Executive Vice Presidents, Executive Vice Presidents, Senior Vice Presidents, Vice Presidents, Assistant Secretaries and Assistant Treasurers. The Board of Directors may appoint such other officers as it shall from time to time deem necessary, who shall have such powers and perform such duties as may be assigned to them by the Board of Directors, the Executive Committee, or the person exercising the authority of chief executive officer of the corporation. Any two or more offices may be held by the same person. The Board of Directors shall have power to fill any vacancy in any existing office or to fill any newly created office, at any time. The Chairman of the Board, the President, each Senior Executive Vice President, each Executive Vice President, each Senior Vice President, each Vice President and the Chief Nuclear Officer, severally, shall have power to sign deeds, contracts, and other instruments. Each elective officer shall have such powers and perform such duties as may be assigned to him by the Board of Directors, the Executive Committee, or the chief executive officer, in addition to any powers and duties that are assigned to him specifically by these By- Laws. The term of office of each officer shall be from the time of his election or appointment and qualification until the first meeting of the Board of Directors after the last annual election of Directors, or such other term of office as shall be provided in the resolution of election or appointment, and until the election or appointment and qualification of his successor, subject to earlier termination by removal or resignation. ARTICLE III. CHAIRMAN OF THE BOARD; PRESIDENT; SENIOR EXECUTIVE VICE PRESIDENTS; EXECUTIVE VICE PRESIDENTS; SENIOR VICE PRESIDENTS; CHIEF NUCLEAR OFFICER SECTION 1. If there be a Chairman of the Board, he shall preside at all meetings of the stockholders and of the Board of Directors, and shall have such other powers and perform such other duties as may be assigned to him by the Board of Directors or the Executive Committee. SECTION 2. If there be a Chairman of the Board, the Board of Directors shall designate either the Chairman of the Board or the President as the chief executive officer of the corporation with plenary powers of supervision and direction of the business and affairs of the corporation, unless such offices are occupied by the same person. If there be no Chairman of the Board, the President shall be the chief executive officer. SECTION 3. If there be a Chairman of the Board and if he be designated as the chief executive officer of the corporation, the President shall have charge of the coordination and supervision of all matters of operation of the corporation. In the absence of the Chairman of the Board, the President shall have the powers and perform the duties of the Chairman of the Board. SECTION 4. The Senior Executive Vice Presidents, severally, in the order designated by the chief executive officer, shall, in the absence of the president, have the powers and perform the duties of the President, and if there be a Chairman of the Board, they shall, in the absence of the Chairman of the Board and the President, have the powers and perform the duties of the Chairman of the Board. SECTION 5. The Executive Vice Presidents, severally, in the order designated by the chief executive officer, shall, in the absence of the President and the Senior Executive Vice Presidents, have the powers and perform the duties of the President, and if there be a Chairman of the Board, they shall, in the absence of the Chairman of the Board and the President, have the powers and perform the duties of the Chairman of the Board. SECTION 6. The Senior Vice Presidents, severally, in the order designated by the chief executive officer, shall, in the absence of the President, the Senior Executive Vice Presidents and the Executive Vice Presidents, have the powers and perform the duties of the President, and if there be a Chairman of the Board, they shall, in the absence of the Chairman of the Board, the President, the Senior Executive Vice Presidents and the Executive Vice Presidents, have the powers and perform the duties of the Chairman of the Board. SECTION 7. The Chief Nuclear Officer shall, in the absence of the President, the Senior Executive Vice Presidents, the Executive Vice Presidents and the Senior Vice Presidents have the powers and perform the duties of the President, and if there be a Chairman of the Board, the Chief Nuclear Officer shall, in the absence of the Chairman of the Board, the President the Senior Executive Vice Presidents, the Executive Vice Presidents and the Senior Vice Presidents have the powers and perform the duties of the Chairman of the Board. ARTICLE IV. VICE PRESIDENTS. SECTION 1. The Vice Presidents, severally, in the order designated by the chief executive officer, shall, in the absence of the President, the Senior Executive Vice Presidents, the Executive Vice Presidents, and the Senior Vice Presidents, have the powers and perform the duties of the President, and if there be a Chairman of the Board, they shall, in the absence of the Chairman of the Board, the President, the Senior Executive Vice President, the Executive Vice Presidents and the Senior Vice presidents, have the powers and perform the duties of the Chairman of the Board. ARTICLE V. SECRETARY. SECTION 1. The Secretary shall keep minutes of all meetings of the stockholders of the Board of Directors and of the Executive Committee, and shall give notices of meetings of the stockholders, of the Board of Directors, and of the Executive Committee. He shall have custody of all deeds, contracts, and other instruments, documents and records, except as otherwise provided in these By-Laws, or by the Board of Directors, and shall attend to such correspondence of the corporation as the Board of Directors or the chief executive officer shall direct. He shall be the custodian of the seal of the corporation and shall affix it to any instrument requiring the same, except as otherwise provided herein or by the Board of Directors. ARTICLE VI. ASSISTANT SECRETARIES. SECTION 1. Each Assistant Secretary shall have such powers and perform such duties as may be assigned to him by the Secretary. In the absence of the Secretary, the Assistant Secretaries, in the order designated by the Secretary, shall have the powers and perform the duties of the Secretary. ARTICLE VII. TREASURER. SECTION 1. The Treasurer shall have charge of all receipts and disbursements of the corporation and shall be the custodian of the corporation's funds. He shall have full authority to receive and give receipts for all moneys due and payable to the corporation from any source whatever, and to endorse or cause to be endorsed checks, drafts, warrants, and other instruments for the payment of money in its name and on its behalf, and full discharge for the same to give. The funds of the corporation shall be deposited in its name in such depositories as may be designated from time to time by the Board of Directors, or by the Treasurer if the Board of Directors shall authorize him to do so. All checks, drafts and other instruments for the payment of money, and all notes and other evidences of indebtedness, issued in the name of the corporation, shall be signed by such officer or officers, employee or employees, agent or agents, of the corporation, and in such manner, including the use of facsimile signatures, as shall be determined from time to time by the Board of Directors, or by the Treasurer if the Board of Directors shall authorize him to make such determination. A report of the financial condition of the corporation shall be made by the Treasurer whenever requested by the chief executive officer. If required by the Board of Directors he shall give bond for the faithful performance of his duties, in such sum and with such surety or sureties as the Board of Directors may determine. ARTICLE VIII. ASSISTANT TREASURERS. SECTION 1. Each Assistant Treasurer shall have such powers and perform such duties as may be assigned to him by the Treasurer. In the absence of the Treasurer, the Assistant Treasurers, in the order designated by the Treasurer, shall have the powers and perform the duties of the Treasurer. ARTICLE IX. MEETINGS. SECTION 1. The meetings of the stockholders shall, unless otherwise provided by law, be held at such place, within or without the State of New Jersey, as may be fixed by the Board of Directors and stated in the notice of the meeting. Each annual meeting of the stockholders for the election of directors for the ensuing year, and for the transaction of such other business as may be brought before the meeting, shall be held at such time, not more than 13 months after the last annual meeting, as may be fixed by the Board of Directors. SECTION 2. Except as herein or in the Restated Certificate of Incorporation expressly provided to the contrary or as otherwise required by law, all voting rights in the corporation shall be vested exclusively in the holders of Common Stock, and the holders of Preferred Stock and the holders of Preferred Stock-$25 Par shall have no right to vote or to participate in any meeting of the stockholders of the corporation or to receive any notice of any such meeting. Except as herein or in the Restated Certificate of Incorporation expressly provided to the contrary or as otherwise required by law, at all meetings of stockholders the holders of Common Stock shall be entitled to cast one vote for each share of Common Stock held. At any meeting of the stockholders of the corporation at which the holders of Preferred Stock and the holders of Preferred Stock-$25 Par shall be entitled to vote as a single class, the holders of Preferred stock shall be entitled to cast one vote for each share of Preferred Stock held and the holders of Preferred Stock-$25 Par shall be entitled to cast one-quarter vote for each Preferred Stock-$25 Par held. At all elections of directors each holder of Common Stock shall be entitled to as many votes as shall equal the number of his shares of Common Stock multiplied by the number of directors to be elected, and, in each case, the stockholder may cast all such votes for a single director or may distribute them among the number to be voted for, or any two or more of them as he may see fit; provided that whenever the holders of Preferred Stock and the holders of Preferred Stock-$25 Par, voting separately as a single class, are entitled to elect directors, (i) each holder of Preferred Stock shall be entitled to as many votes as shall equal the numbers of his shares of stock, and each holder of Preferred Stock-$25 Par shall be entitled to as many votes as shall equal one-fourth the number of his shares of stock, in each case multiplied by the number of directors to be elected by the holders of Preferred Stock and the holders of Preferred Stock-$25 Par, and (ii) each holder of Common Stock shall be entitled to as many votes as shall equal the number of his shares of stock, multiplied by the number of directors to be elected by the holders of Common Stock. SECTION 3. So long as any Preferred Stock or Preferred Stock-$25 Par shall be outstanding, if dividends upon any shares of Preferred Stock-$25 Par shall be in arrears to an amount equal to the annual dividend thereon, the holders of Preferred Stock and the holders of Preferred Stock-$25 Par shall become entitled, to the extent, herein provided, to vote at all elections of directors for the corporation and to receive notice of stockholders' meetings to be held for such purpose. Such voting rights of the holders of Preferred Stock and the holders of Preferred Stock-$25 Par to elect directors shall continue until all the accumulated and unpaid dividends on Preferred Stock and Preferred Stock-$25 Par shall have been paid, whereupon all such voting rights shall cease, subject to being again revived from time to time upon the recurrence of the conditions described above as giving rise thereto. SECTION 4. Every stockholder entitled to vote at a meeting of stockholders or to express consent or dissent without a meeting may authorize another person or persons to act for him by proxy. No proxy shall be valid after 11 months from the date of its execution, unless a longer time is expressly provided therein, but in no event shall a proxy be valid after three years from the date of execution. A proxy shall not be revoked by the death or incapacity of a stockholder but shall continue in force until revoked by the personal representative or guardian of the stockholder. The presence at any meeting of any stockholder who has given a proxy shall not revoke such proxy unless the stockholder shall file written notice of such revocation with the secretary of the meeting prior to the voting of such proxy. A person named in a proxy as the attorney or agent of a stockholder may, if the proxy so provides, substitute another person to act in his place, including any other person named as an attorney or agent in the same proxy. The substitution shall not be effective until an instrument effecting it is filed with the Secretary. SECTION 5. All elections for directors shall be by ballot, and the polls at every such election shall remain open so long as may be reasonably necessary to permit all stockholders entitled to vote at such meeting, present in person or by proxy, to cast their votes. SECTION 6. Special meetings of the stockholders may be called at any time by the Board of Directors or by the chief executive officer or upon the written request of the holders of the capital stock entitled to cast a majority of votes thereat. Except as otherwise provided by law, and unless waived, written notice of the time, place and purposes of every meeting of stockholders shall be given not less than 10 nor more than 60 days before the date of the meeting, to each stockholder of record entitled to vote at the meeting, either personally or by mailing a notice to him at his last post office address appearing on the books of the corporation. At any time after the accrual to the holders of Preferred Stock and the holders of Preferred Stock-$25 Par of voting rights to elect directors, a special meeting of the stockholders for the purpose of electing directors shall be held upon not less than 30 days' notice upon call of the Secretary at the written request of any holder of shares of Preferred Stock or Preferred Stock- $25 Par at the time outstanding, or, if the Secretary should fail or neglect to call such meeting within 30 days after receipt of such request, then upon call by any such holder. SECTION 7. At any meeting of the stockholders the holders of stock entitled to cast a majority of the votes at the meeting, present in person or by proxy, shall constitute a quorum of the stockholders for all purposes unless the representation of a larger number shall be required by law, and in that case the representation of the number so required shall constitute a quorum. If the holders of the amount of stock necessary to constitute a quorum shall fail to attend in person or by proxy at the time and place fixed for any meeting of the stockholders, the meeting may be adjourned from time to time by the vote of the majority of the votes cast by the holders of stock present in person or represented by proxy at such meeting, without notice other than by announcement at the meeting, and at any such adjourned meeting held more than one week after such time the holders of stock entitled to cast 40% of the votes at such meeting, present in person or represented by proxy, shall constitute a quorum of the stockholders for all purposes unless the representation of a larger number shall be required by law, and in that case the representation of the number so required shall constitute a quorum. At any such adjourned meeting, whenever held, at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting originally called. In any case where the holders of Preferred Stock and the holders of Preferred Stock-$25 Par are entitled to vote separately as a single class, or the holders of Common Stock are entitled to vote separately as a single class; meetings of each such class may be held and adjourned (by the vote of a majority of the votes cast by the holders of stock of such class present in person or represented by proxy at such meeting) without notice other than by announcement at the meeting, separately or together, and a quorum of each such class at any meeting or adjourned meeting thereof shall be the same percentage of the votes entitled to be cast by the stockholders of such class as is hereinabove required for a quorum of stockholders of the corporation entitled to vote at a meeting or adjourned meeting as the case may be. SECTION 8. Regular meetings of the Board of Directors shall be held monthly unless otherwise determined by resolution of the Board. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board, or by the President if he be the chief executive officer. The Secretary shall also call such meetings on the written request on a majority of the directors. No notice shall be required for regular meetings of the Board of Directors. The meeting for organization may be held on the day and after the annual meeting of stockholders. At least two days' notice of a special meeting of the Board of Directors shall be given, but this notice may be waived in writing or by telegraph, either before or after the meeting. A meeting may be held without notice at any time when all the directors are present. At all meetings of the Board of Directors a majority of the directors in office, or one-third of the entire Board, whichever is greater, shall constitute a quorum for the transaction of business. A less number than a quorum, however, may meet and adjourn to any day. SECTION 9. The Board of Directors may, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting or any adjournment thereof. If inspectors are not so appointed by the Board of Directors or shall fail to qualify, the person presiding at a meeting of stockholders may, and on the request of any stockholder entitled to vote thereat, shall make such appointment. In case any person appointed as inspector fails to appear or act, the vacancy may be filled by appointment made by the Board of Directors in advance of the meeting of stockholders or at the meeting by the person presiding at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. No person shall be elected a director at a meeting at which he has served as an inspector. ARTICLE X. RECORD DATE FOR DETERMINATION OF RIGHT OF STOCKHOLDERS. SECTION 1. For the purpose of determining the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to or dissent from any proposal without a meeting, or for the purpose of determining stockholders entitled to receive payment of any dividend or allotment of any right, or for the purpose of any other action, the Board of Directors may fix, in advance, a date as the record date for any such determination of stockholders. Such date shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. When a determination of stockholders entitled to notice of or to vote at any meeting of stockholders has been so made, such determination shall apply to any adjournment thereof, unless the Board of Directors fixes a new record date for the adjourned meeting. ARTICLE XI. COMMITTEES. SECTION 1. The Board of Directors, by resolution adopted by a majority of the entire Board, may appoint from among its members an Executive Committee and one or more other committees. Except as otherwise provided by law, the Executive Committee shall have and may exercise all the authority of the Board of Directors when the Board is not in session, and each such other committee of the Board shall have and may exercise the authority of the Board to the extent provided in the resolution of appointment. The Board of Directors, by resolution adopted by a majority of the entire Board, may (a) fill any vacancy in any committee of the Board, (b) appoint one or more directors to serve as alternate members of any such committee, to act in the absence or disability of members of any such committee with all the powers of such absent or disabled members, (c) abolish any such committee at its pleasure, and (d) remove any director from membership on such committee at any time, with or without cause. Actions taken at a meeting of any committee of the Board of Directors shall be reported to the Board at its next meeting following such committee meeting; except that, when the meeting of the Board is held within two days after the committee meeting, such report shall, if not made at the first meeting, be made to the Board at its second meeting following such committee meeting. SECTION 2. The Board of Directors may appoint and prescribe the powers duties of other committees, the members of which may be but need not be directors and shall serve at the pleasure of the Board. SECTION 3. One-third of the entire committee, or two members, whichever is greater, shall constitute a quorum for the transaction of business. SECTION 4. Each committee shall fix its own rules of procedure, shall meet where and as provided by such rules of procedure or by resolution of the Board of Directors, shall keep full records of its proceedings and shall report from time to time to the Board, as called upon by the Board. ARTICLE XII. VOTING UPON STOCK OWNED BY THE CORPORATION. SECTION 1. Unless otherwise ordered by the Board of Directors, the Chairman of the Board, the President, the Senior Executive Vice Presidents, the Executive Vice Presidents, the Senior Vice Presidents, and the Vice Presidents, severally, shall each have full power and authority on behalf of the corporation to attend, act, and vote at any meeting of the stockholders of any corporation in which this corporation may hold stock, and to appoint one or more other persons as proxy or proxies to attend, act, and vote at any such meeting, and such office or such proxy or proxies shall possess and may exercise on behalf of this corporation any and all rights and powers incident to its ownership of such stock. The Board of Directors or the Executive Committee from time to time by resolution may confer like powers upon any other person or persons. ARTICLE XIII. STOCK. SECTION 1. The certificates which shall be issued for shares of stock in this corporation shall be signed by the Chairman of the Board, the President, or a Vice President, and either the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary. If the certificate is countersigned by a transfer agent or registrar, who is not an officer or employee of the corporation, any and all other signatures may be facsimiles. SECTION 2. The shares issued by this corporation shall be transferable only on the books of the corporation by the holder or owner thereof in person or by power of attorney, on surrender of the certificate therefor. SECTION 3. The Treasurer shall make and certify a complete list of the stockholders entitled to vote at a meeting of stockholders or any adjournment thereof. Such list shall be arranged alphabetically within each class and series, with the address of, and the number of shares held by, each stockholder, shall be produced at the time and the place of the meeting, and shall be subject to the inspection of any stockholder during the whole time of the meeting. ARTICLE XIV. FISCAL YEAR. SECTION 1. The fiscal year of the corporation shall begin on January 1 of each year. ARTICLE XV. SEAL. SECTION 1. The seal of the corporation shall be circular in form, and shall have inscribed thereon the following words and figures: "PUBLIC SERVICE ELECTRIC AND GAS COMPANY INCORPORATED 1924." ARTICLE XVI. AMENDMENTS. SECTION 1. Except as otherwise provided by law, the Board of Directors shall have the power to make, alter, or repeal any by-laws. By-Laws made by the Board may be altered or repealed and new by-laws made, by the stockholders. EX-4.B4 3 EX-4.B4 EXHIBIT 4b(4) PUBLIC SERVICE ELECTRIC AND GAS COMPANY and FIRST FIDELITY BANK, NATIONAL ASSOCIATION, as Trustee INDENTURE Dated as of November 1, 1994 Providing for the Issuance of Deferrable Interest Subordinated Debentures in Series including 9-3/8% Deferrable Interest Subordinated Debentures, Series A TABLE OF CONTENTS Page ---- ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01 Definitions........................................ 2 SECTION 1.02 Other Definitions.................................. 7 SECTION 1.03 Incorporation by Reference of Trust Indenture Act.................................... 7 SECTION 1.04 Rules of Construction.............................. 8 SECTION 1.05 Acts of Holders.................................... 8 ARTICLE 2. THE DEBENTURES; THE SERIES A DEBENTURES SECTION 2.01 Issue of Debentures Generally...................... 9 SECTION 2.02 Terms and Form of the Series A Debentures....................................... 10 SECTION 2.03 Payment of Principal and Interest.................. 11 SECTION 2.04 Execution, Authentication and Delivery............. 13 SECTION 2.05 Registrar and Paying Agent......................... 15 SECTION 2.06 Paying Agent to Hold Money in Trust................ 16 SECTION 2.07 Debentureholder Lists.............................. 16 SECTION 2.08 Transfer and Exchange.............................. 16 SECTION 2.09 Replacement Debentures............................. 17 SECTION 2.10 Outstanding Debentures; Determinations of Holders' Action.................................. 18 SECTION 2.11 Temporary Debentures............................... 19 SECTION 2.12 Book Entry System.................................. 19 SECTION 2.13 Cancellation....................................... 21 ARTICLE 3. REDEMPTION SECTION 3.01 Redemption; Notice to Trustee...................... 21 SECTION 3.02 Selection of Debentures to be Redeemed............. 22 SECTION 3.03 Notice of Redemption............................... 22 SECTION 3.04 Effect of Notice of Redemption..................... 23 SECTION 3.05 Deposit of Redemption Price........................ 23 SECTION 3.06 Debentures Redeemed in Part........................ 23 ARTICLE 4. COVENANTS SECTION 4.01 Payment of Debentures.............................. 23 SECTION 4.02 Prohibition Against Dividends, etc. ............... 24 SECTION 4.03 SEC Reports........................................ 25 SECTION 4.04 Compliance Certificates............................ 25 SECTION 4.05 Relationship with the Partnership.................. 25 SECTION 4.06 Further Instruments and Acts....................... 26 SECTION 4.07 Payments for Consents.............................. 26 ARTICLE 5. SUCCESSOR CORPORATION SECTION 5.01 When the Company May Merge, Etc. .................. 26 ARTICLE 6. DEFAULTS AND REMEDIES SECTION 6.01 Events of Default.................................. 27 SECTION 6.02 Acceleration....................................... 28 i Page ---- SECTION 6.03 Other Remedies..................................... 29 SECTION 6.04 Waiver of Past Defaults............................ 29 SECTION 6.05 Control by Majority or the Special Representative................................... 30 SECTION 6.06 Limitation on Suits................................ 30 SECTION 6.07 Rights of Holders to Receive Payment............... 30 SECTION 6.08 Collection Suit by the Trustee..................... 31 SECTION 6.09 The Trustee May File Proofs of Claim............... 31 SECTION 6.10 Priorities......................................... 31 SECTION 6.11 Undertaking for Costs.............................. 32 SECTION 6.12 Waiver of Stay, Extension or Usury Laws............ 32 ARTICLE 7. THE TRUSTEE SECTION 7.01 Duties of the Trustee.............................. 32 SECTION 7.02 Rights of the Trustee.............................. 33 SECTION 7.03 Individual Rights of the Trustee................... 34 SECTION 7.04 The Trustee's Disclaimer........................... 34 SECTION 7.05 Notice of Defaults................................. 35 SECTION 7.06 Reports by Trustee to Holders...................... 35 SECTION 7.07 Compensation and Indemnity......................... 35 SECTION 7.08 Replacement of Trustee............................. 36 SECTION 7.09 Successor Trustee by Merger........................ 37 SECTION 7.10 Eligibility; Disqualification...................... 37 SECTION 7.11 Preferential Collection of Claims Against the Company...................................... 37 ARTICLE 8. SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE OF CERTAIN OBLIGATIONS; UNCLAIMED MONEYS SECTION 8.01 Satisfaction and Discharge of Indenture............ 38 SECTION 8.02 Application by Trustee of Funds Deposited for Payment of Debentures........................ 39 SECTION 8.03 Repayment of Moneys Held by Paying Agent........... 39 SECTION 8.04 Return of Moneys Held by the Trustee and Paying Agent Unclaimed for Three Years........... 39 ARTICLE 9. AMENDMENTS SECTION 9.01 Without Consent of Holders......................... 40 SECTION 9.02 With Consent of Holders............................ 40 SECTION 9.03 Compliance with Trust Indenture Act................ 41 SECTION 9.04 Revocation and Effect of Consents, Waivers and Actions.............................. 41 SECTION 9.05 Notation on or Exchange of Debentures.............. 42 SECTION 9.06 Trustee to Execute Supplemental Indentures....................................... 42 SECTION 9.07 Effect of Supplemental Indentures.................. 42 ii Page ---- ARTICLE 10. SUBORDINATION SECTION 10.01 Debentures Subordinated to Senior Indebtedness..... 43 SECTION 10.02 Priority and Payment of Proceeds in Certain Events; Remedies Standstill.............. 43 SECTION 10.03 Payments which May Be Made Prior to Notice......... 44 SECTION 10.04 Rights of Holders of Senior Indebtedness Not to Be Impaired............................... 44 SECTION 10.05 Trustee May Take Action to Effectuate Subordination.................................... 45 SECTION 10.06 Subrogation........................................ 45 SECTION 10.07 Obligations of Company Unconditional; Reinstatement.................................... 46 SECTION 10.08 Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice.................. 46 SECTION 10.09 Right of Trustee to Hold Senior Indebtedness..................................... 47 ARTICLE 11. MISCELLANEOUS SECTION 11.01 Trust Indenture Act Controls....................... 47 SECTION 11.02 Notices............................................ 48 SECTION 11.03 Communication by Holders with Other Holders........ 48 SECTION 11.04 Certificate and Opinion as to Conditions Precedent........................................ 49 SECTION 11.05 Statements Required in Certificate or Opinion...... 49 SECTION 11.06 Severability Clause................................ 49 SECTION 11.07 Rules by Trustee, Paying Agent and Registrar........................................ 50 SECTION 11.08 Legal Holidays..................................... 50 SECTION 11.09 Governing Law...................................... 50 SECTION 11.10 No Recourse Against Others......................... 50 SECTION 11.11 Successors......................................... 50 SECTION 11.12 Multiple Original Copies of this Indenture......... 50 SECTION 11.13 No Adverse Interpretation of Other Agreements...... 51 SECTION 11.14 Table of Contents; Headings, Etc. ................. 51 SECTION 11.15 Benefits of the Indenture.......................... 51 SECTION 11.16 Partnership Books and Records...................... 51 iii CROSS-REFERENCE TABLE of Provisions of the Indenture Required by the Trust Indenture Act of 1939 Trust Indenture Provision of Act Section Indenture --------------- ----------------- 310(a)(1)........................... 7.10 (a)(2)........................... 7.10 (a)(3)........................... Not Applicable (a)(4)........................... Not Applicable (a)(5)........................... Not Applicable (b).............................. 7.08; 7.10; 11.01 (c).............................. Not Applicable 311(a).............................. 7.11 (b).............................. 7.11 (c).............................. Not Applicable 312(a).............................. 2.07 (b).............................. 11.03 (c).............................. 11.03 313(a).............................. 7.06 (b)(1)........................... Not Applicable (b)(2)........................... 7.06 (c).............................. 7.06; 11.02 (d).............................. 7.06 314(a).............................. 4.03; 11.02 (b).............................. Not Applicable (c)(1)........................... 2.02; 11.04; 11.05 (c)(2)........................... 2.02; 11.04; 11.05 (c)(3............................ Not Applicable (d).............................. Not Applicable (e).............................. 11.05 (f).............................. Not Applicable 315(a).............................. 7.01(b) (b).............................. 7.05; 11.02 (c).............................. 7.01(a) (d).............................. 7.01(c) (e).............................. 6.11 316(a)(1)(A)........................ 6.05 (a)(1)(B)........................ 6.04 (a)(2)........................... Not Applicable (a)(last sentence)............... 2.10 (b).............................. 6.07 (c).............................. 2.02 317(a)(1)........................... 6.08 (a)(2)........................... 6.09 (b).............................. 2.06 318(a).............................. 11.01 (b).............................. Not Applicable (c).............................. 11.01 ------------------- Note: This Cross-Reference Table shall not, for any purpose, be deemed to be part of the Indenture. iv INDENTURE, dated as of November 1, 1994, by and between Public Service Electric and Gas Company, a corporation duly organized and existing under the laws of the State of New Jersey (the "Company"), and First Fidelity Bank, National Association, a national banking association duly organized and existing under the laws of the United States of America as trustee (the "Trustee"). WHEREAS, the Company is the general partner of Public Service Electric and Gas Capital, L.P., a New Jersey limited partnership (the "Partnership"), which intends to issue in series from time to time its limited partner interests and to loan the proceeds thereof, together with the investment by the Company, as its sole general partner, in the Partnership to the Company. WHEREAS, in order to evidence its intention to make such loans and to accept the Debentures as evidence of such loans, and its approval of the terms of the Series A Debentures (as hereinafter defined), the Partnership has joined in this Indenture. WHEREAS, the Company has authorized the issuance of its 9-3/8% Deferrable Interest Subordinated Debentures, Series A (the "Series A Debentures") to evidence its obligations with respect to a loan from the Partnership of the proceeds of a series of its preferred limited partner interests designated 9-3/8% Cumulative Monthly Income Preferred Securities, Series A and the related investment by the Company, as its sole general partner, in the Partnership, and to provide therefor, the Company has duly authorized the execution and delivery of this Indenture. WHEREAS, all things necessary to make the Series A Debentures, when duly issued and executed by the Company and authenticated and delivered hereunder, the valid obligations of the Company, and to make this Indenture a valid and binding agreement of the Company, in accordance with its terms, have been done. NOW THEREFORE: Each of the Company and the Trustee, intending to be legally bound hereby, agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders (as hereinafter defined) of the securities issued hereunder, including the Series A Debentures: ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01 Definitions. "Additional Interest," with respect to the Series A Debentures, means an amount equal to and payable at the same time as any Additional Amounts payable on the Series A Preferred Securities, as defined in the action pursuant to the Limited Partnership Agreement creating the Series A Preferred Securities, plus amounts, if any, which the Partnership would be required to pay as taxes, duties, assessments or governmental charges of whatever nature (other than withholding taxes) imposed by the United States, or any other taxing authority, with respect to the Series A Debentures so that the net amounts received and retained by the Partnership after paying any such taxes, duties, assessments or governmental charges will be not less than the amounts the Partnership would have received had no such taxes, duties, assessments or governmental charges been imposed. With respect to any other series of Debentures, "Additional Interest" shall have the meaning set forth in the supplemental indenture creating such series. "Affiliate" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. When used with respect to any Person, "control" means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Board of Directors" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board. "Board Resolution" means a copy of a resolution certified by the Secretary or the Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification and delivered to the Trustee. "Business Day" means any day that is not a Saturday, a Sunday or a day on which banking institutions in The City of New York or the State of New Jersey are authorized or required by law or executive order to close. "Capital Lease Obligations" of a Person means any obligation which is required to be classified and accounted for as a capital lease on the face of a balance sheet of such Person prepared in accordance with GAAP. "Capital Stock" means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) corporate stock. "Company" means Public Service Electric and Gas Company, a New Jersey corporation, or any successor thereto. "Company Order" means a written request or order signed in the name of the Company by an Officer of the Company and delivered to the Trustee. "Debentureholder" or "Holder" means a Person in whose name a Debenture is registered on the Registrar's books. "Debentures" shall mean any of the securities of any series issued, authenticated and delivered under this Indenture. "Default" means any event which is, or after notice or passage of time, or both, would be, an Event of Default pursuant to Section 6.01 hereof. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Extension Period" means a period, up to 60 consecutive months, in which the Company elects to extend the interest payment period on the Debentures pursuant to Section 4.01(b) hereof; provided that no Extension Period shall extend beyond the Stated Maturity Date or the Redemption Date of any Debenture. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board. "General Partner" means the Company, as the general partner of the Partnership, or any successor thereto or permitted assigns thereof that becomes a general partner of the Partnership pursuant to the Limited Partnership Agreement. "Guarantee Agreement" means that certain payment and guarantee agreement issued by the Company with respect to a series of Preferred Securities, in which the Company irrevocably and unconditionally agrees to pay the Guarantee Payments (as defined in the Guarantee Agreement) to the holders of the series of Preferred Securities issued concurrently therewith. "Indebtedness" means without duplication, (i) the principal of and premium (if any) in respect of (A) indebtedness of the Company for money borrowed and (B) indebtedness evidenced by securities, debentures, bonds or other similar instruments issued by the Company; (ii) all Capital Lease Obligations of the Company; (iii) all obligations of the Company issued or assumed as the deferred purchase price of property, all conditional sale obligations of the Company and all obligations of the Company under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); (iv) all obligations of the Company for the reimbursement of any obligor on any letter of credit, banker's acceptance, security purchase facility or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in (i) through (iii) above) entered into in the ordinary course of business of the Company to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the third Business Day following receipt by the Company of a demand for reimbursement following payment on the letter of credit); (v) all obligations of the type referred to in clauses (i) through (iv) of other Persons and all dividends of other Persons (other than the Preferred Securities) for the payment of which, in either case, the Company is responsible or liable as obligor, guarantor or otherwise (other than the Guarantee Agreement); and (vi) all obligations of the type referred to in clauses (i) through (v) of other Persons secured by any lien on any property or asset of the Company (whether or not such obligation is assumed by the Company), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured; provided, however, that Indebtedness will not include endorsements of negotiable instruments for collection in the ordinary course of business. "Indenture" means this indenture, as amended or supplemented from time to time in accordance with the terms hereof, including the provisions of the TIA that are deemed to be a part hereof. "Interest Payment Date," when used with respect to the Debentures of any series, means the stated maturity of any installment of interest on the Debentures of that series. "Issue Date," with respect to a series of Debentures, means the date on which the Debentures of such series are originally issued. "Limited Partnership Agreement" means the Amended and Restated Limited Partnership Agreement of the Partnership dated as of November 9, 1994, as it may be amended from time to time. "Officer" means, with respect to any corporation, the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Treasurer, Assistant Treasurer, Secretary or the Assistant Secretary of such corporation. "Officer's Certificate" means a written certificate containing the applicable information specified in Sections 11.04 and 11.05 hereof, signed in the name of the Company by any one of its Officers, and delivered to the Trustee. "Opinion of Counsel" means a written opinion containing the applicable information specified in Sections 11.04 and 11.05 hereof, by legal counsel who is reasonably acceptable to the Trustee. "Partnership" means Public Service Electric and Gas Capital, L.P., a New Jersey limited partnership, or any successor thereto. "Paying Agent" means any Person authorized by the Company to pay the principal of and premium, if any, and interest on the Debentures on behalf of the Company. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Predecessor Debentures" of any particular Debenture means every previous Debenture evidencing all or a portion of the same debt as that evidenced by such particular Debenture; and for purposes of this definition, any Debenture authenticated and delivered under Section 2.09 hereof in exchange for or in lieu of a mutilated, destroyed, lost or stolen Debenture shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Debenture. "Preferred Securities" means the limited partner interests issued from time to time in series by the Partnership. "Record Date," with respect to any series of the Debentures, means the Regular Record Date, the Special Record Date or any date set to determine the Holders of such series entitled to vote, consent, make a request or exercise any other right associated with such series. "Redemption Date," with respect to any Debenture to be redeemed, means the date specified for the redemption of such Debenture in accordance with the terms thereof and pursuant to Article 3 of this Indenture. "Redemption Price," with respect to any Debenture to be redeemed, means the price at which such Debenture is to be redeemed in accordance with the terms thereof and pursuant to Article 3 of this Indenture. "Regular Record Date," with respect to an interest payment on the Debentures of a series, means the date set forth in this Indenture or the supplemental indenture creating such series for the determination of Holders entitled to receive payment of interest on the next succeeding Interest Payment Date. "SEC" or "Commission" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Senior Indebtedness" means all Indebtedness, except for Indebtedness that is by its terms subordinated to or pari passu with the Debentures. Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness shall not include any Indebtedness between or among the Company and any Affiliates. "Series A Debentures" means any of the Company's 9-3/8% Deferrable Interest Subordinated Debentures, Series A issued under this Indenture. "Series A Preferred Securities" means the limited partner interests designated 9-3/8% Cumulative Monthly Income Preferred Securities, Series A issued by the Partnership. "Special Record Date" for the payment of any Defaulted Interest on the Debentures of any series means the date determined pursuant to Section 2.03 hereof. "Special Representative" means a special representative appointed by the holders of the Preferred Securities pursuant to Section 13.02(d) of the Limited Partnership Agreement, provided that any appointment of a Special Representative shall terminate upon the distribution of the Debentures to the holders of the Preferred Securities (if not previously terminated). "Stated Maturity Date," with respect to any Debenture, means the date specified for the Debentures as the fixed date on which the principal of the Debentures is due and payable. "Subsidiary" means any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) the Company, (ii) the Company and one or more Subsidiaries, or (iii) one or more Subsidiaries. "TIA" means the Trust Indenture Act of 1939, as amended and as in effect on the date of this Indenture; provided, however, that if the TIA is amended after such date, TIA means, to the extent required by any such amendment, the TIA as so amended. "Trust Officer," when used with respect to the Trustee, means the chairman or vice-chairman of the Board of Directors of the Trustee, the chairman or vice-chairman of the executive committee of the Board of Directors of the Trustee, the President, any vice president, any assistant vice president, any trust officer, senior corporate trust officer or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his or her knowledge of and familiarity with the particular subject. "Trustee" means First Fidelity Bank, National Association, until a successor replaces it pursuant to the applicable provisions of this Indenture and, thereafter, shall mean such successor. "U.S. Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable at the issuer's option. "Voting Stock" means, with respect to a corporation, all classes of Capital Stock then outstanding of such corporation normally entitled to vote in elections of directors. "Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of which (other than directors' qualifying shares) is owned by the Company or another Wholly Owned Subsidiary. SECTION 1.02 Other Definitions. TERM DEFINED IN SECTION -------------------- ------------------ "Act"...................................... 1.05 "Bankruptcy Law"........................... 6.01 "Custodian"................................ 6.01 "Defaulted Interest"....................... 2.03 "Depositary"............................... 2.12 "global Debenture"......................... 2.12 "Legal Holiday"............................ 11.08 "Notice of Default"........................ 6.01 "Register"................................. 2.05 "Registrar"................................ 2.05 "Successor"................................ 5.01 SECTION 1.03 Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, such provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Debentures. "indenture security holder" means a Debentureholder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company and any other obligor on the Debentures. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions. SECTION 1.04 Rules of Construction. Unless the context otherwise requires: (1) A term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) "including" means including, without limitation; (5) words in the singular include the plural, and words in the plural include the singular; and (6) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. SECTION 1.05 Acts of Holders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders, may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing or by the Special Representative and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved in any manner which the Trustee deems sufficient. (c) The ownership of Debentures shall be proved by the Register. (d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Debenture shall bind every future Holder of the same Debenture and the Holder of every Debenture issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Debenture. (e) If the Company solicits from the Holders any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, at its option, by or pursuant to a resolution of its Board of Directors, fix in advance a Record Date for the determination of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Company shall have no obligation to do so. If such a Record Date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such Record Date, but only Holders of record at the close of business on such Record Date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of outstanding Debentures have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the outstanding Debentures shall be computed as of such Record Date. ARTICLE 2 THE DEBENTURES; THE SERIES A DEBENTURES SECTION 2.01 Issue of Debentures Generally. The aggregate principal amount of the Debentures which may be authenticated and delivered under this Indenture is limited to the sum of the aggregate stated liquidation preference of the Preferred Securities and the aggregate capital contribution of the General Partner to the Partnership. The Debentures may be issued in one or more series as from time to time shall be authorized by the Board of Directors. The Debentures of each series and the Trustee's Certificate of Authentication shall be substantially in the forms to be attached as exhibits to the Indenture or supplemental indenture creating such series, but in the case of Debentures other than the Series A Debentures, with such inclusions, omissions and variations as to letters, numbers or other marks of identification or designation and such legends or endorsements printed, lithographed or engraved thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Indenture, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any securities exchange on which the Debentures may be listed, or to conform to usage. The several series of Debentures may differ from the Series A Debentures, and as and between series, in respect of any or all of the following matters: (a) designation; (b) Stated Maturity Date or Dates, which may be serial; (c) interest rate or method of determination of the interest rate and whether Additional Interest will be payable; (d) the basis upon which interest shall be computed if other than a 360-day year composed of twelve 30-day months; (e) Interest Payment Dates and the Regular Record Dates therefor; (f) Issue Date or Dates and interest accrual provisions; (g) authorized denominations; (h) the place or places for the payment of principal (and premium, if any) and interest; (i) the aggregate principal amount of Debentures of such series which may be issued; (j) the optional and mandatory redemption provisions, if any; (k) provisions, if any, for any sinking or analogous fund with respect to the Debentures of such series; and (l) any other provisions expressing or referring to the terms and conditions upon which the Debentures of such series are to be issued under this Indenture which are not in conflict with the provisions of this Indenture; in each case as determined by the Board of Directors and specified in the supplemental indenture creating such series. SECTION 2.02 Terms and Form of the Series A Debentures. The Series A Debentures shall be designated "Public Service Electric and Gas Company 9-3/8% Deferrable Interest Subordinated Debentures, Series A." The Series A Debentures and the Trustee's Certificate of Authentication shall be substantially in the form of Exhibit A attached hereto. The terms and provisions contained in the Series A Debentures shall constitute, and are hereby expressly made, a part of this Indenture. The Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. The aggregate principal amount of Series A Debentures outstanding at any time may not exceed $154,639,176 except as provided in Section 2.09 hereof to be initially authenticated and delivered from time to time upon delivery to the Trustee of the items specified in Section 2.04(d) hereof. The Stated Maturity Date of the Series A Debentures is November 17, 2043. The interest rate of the Series A Debentures is 9-3/8% per annum plus Additional Interest, if any. The Interest Payment Dates for the Series A Debentures are the last calendar day of each month of each year commencing November 30, 1994. In the event that any date on which interest is payable on the Series A Debentures is not a Business Day, then payment of interest payable on such date will be made on the next day which is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. The Regular Record Date for each Interest Payment Date for the Series A Debentures shall be the 15th day of each month, provided that if the Partnership is the sole Holder of the Series A Debentures or the Series A Debentures are issued in book-entry-only form, the Regular Record Date shall be the close of business on the Business Day next preceding such Interest Payment Date. Each Series A Debenture shall bear interest from its Issue Date or from the most recent Interest Payment Date to which interest has been paid or duly provided for with respect to such Series A Debenture; except that, so long as there is no existing Defaulted Interest or Extension Period on the Series A Debentures, any Series A Debenture authenticated by the Trustee between the Regular Record Date for any Interest Payment Date and such Interest Payment Date shall bear interest from such Interest Payment Date. Overdue principal of and interest on any Series A Debenture and interest which has been deferred pursuant to Section 4.01(b) hereof shall bear interest (to the extent that the payment of such interest shall be legally enforceable) at a rate per annum equal to the interest rate per annum, including Additional Interest, if any, payable on such Series A Debenture. The Series A Debentures shall be issuable only in registered form without coupons and only in denominations of $25 and any integral multiple thereof. SECTION 2.03 Payment of Principal and Interest. Unless otherwise specified pursuant to Section 2.01(d), interest on the Debentures shall be computed on the basis of a 360-day year composed of twelve 30-day months, and for any period shorter than thirty days, interest will be computed on the basis of the actual number of days elapsed in such period. Unless otherwise provided with respect to a series of Debentures, (i) the principal and Redemption Price of and interest on each Debenture shall be payable in such coin or currency of the United States of America as at the time of payment is legal tender for the payment of public and private debts; (ii) the principal and Redemption Price of any Debenture and interest payable on the Stated Maturity Date (if other than an Interest Payment Date) or Redemption Date shall be payable, upon surrender of such Debenture at the office or agency of any Paying Agent therefor; and (iii) interest on any Debenture on each Interest Payment Date therefor shall be payable by check mailed to the address of the Person entitled thereto as such address appears on the Register; provided that, at the written request of the Holder of at least $10,000,000 aggregate principal amount of Debentures received by the Registrar not later than the Regular Record Date for such Interest Payment Date, interest accrued on such Debenture will be payable by wire transfer within the continental United States in immediately available funds to the bank account number of such Holder specified in such request and entered on the Register by the Registrar. Except as specified pursuant to Section 2.01 or Section 4.01(b) hereof, interest on any Debenture which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Debenture (or one or more Predecessor Debentures) is registered at the close of business on the Regular Record Date for such interest. Any interest on any Debenture which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) and (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Debentures (or their respective Predecessor Debentures) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall, not less than 15 Business Days prior to the date of the proposed payment, notify the Trustee and the Paying Agent in writing of the amount of Defaulted Interest proposed to be paid on each Debenture and the date of the proposed payment, and at the same time the Company shall deposit with the Paying Agent an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Paying Agent for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. The Special Record Date for the payment of such Defaulted Interest shall be the close of business on the tenth calendar day prior to the date of the proposed payment. The Trustee shall, in the name and at the expense of the Company, cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be given to the Holder thereof, not less than 7 calendar days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been given, such Defaulted Interest shall be paid to the Persons in whose names the Debentures (or their respective Predecessor Debentures) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (2). (2) The Company may make payment of any Defaulted Interest on the Debentures in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Debentures may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee and the Paying Agent of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Paying Agent. Subject to the foregoing provisions of this Section, each Debenture delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Debenture shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Debenture. SECTION 2.04 Execution, Authentication and Delivery. (a) The Debentures shall be executed on behalf of the Company by its Chief Executive Officer, its President or one of its Vice Presidents, under its corporate seal imprinted or reproduced thereon and attested by its Secretary or one of its Assistant Secretaries. The signature of any such Officer on the Debentures may be manual or facsimile. (b) Debentures bearing the manual or facsimile signatures of individuals who were at any time the proper Officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Debentures or did not hold such offices at the date of such Debentures. (c) No Debenture shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Debenture a Certificate of Authentication duly executed by the Trustee by manual signature of a Trust Officer, and such Certificate of Authentication upon any Debenture shall be conclusive evidence, and the only evidence, that such Debenture has been duly authenticated and made available for delivery hereunder. (d) The Trustee shall authenticate and deliver Debentures of a series, for original issue, at one time or from time to time in accordance with the Company Order referred to below, upon receipt by the Trustee of: (1) a Board Resolution approving the form or forms and terms of such series; (2) a Company Order requesting the authentication and delivery of such Debentures and stating the sum of the aggregate stated liquidation preference of the Preferred Securities to be issued concurrently with such Debentures plus the aggregate capital contribution to be made by the General Partner to the Partnership concurrently with the issuance of such Debentures; (3) unless previously delivered, an indenture supplement hereto setting forth the form of such Debentures and establishing the terms thereof; (4) the Debentures of such series, executed on behalf of the Company in accordance with Section 2.04(a) hereof; (5) an Opinion of Counsel to the effect that: (i) the form or forms of such Debentures have been duly authorized by the Company and have been established in conformity with the provisions of this Indenture; and (ii) such Debentures, when authenticated and delivered by the Trustee and issued and delivered by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will have been duly issued under this Indenture and will constitute valid and legally binding obligations of the Company, entitled to the benefits provided by this Indenture, and enforceable in accordance with their terms, subject, as to enforcement to laws relating to or affecting generally the enforcement of creditors' rights, including, without limitation, bankruptcy and insolvency laws and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); and (iii) that any supplemental indenture referred to in clause (3) above has been duly authorized, executed and delivered by the Company and is a valid instrument legally binding upon the Company, enforceable in accordance with its terms, subject as to enforcement to laws relating to or affecting creditors' rights, including, without limitation, bankruptcy and insolvency laws and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); and (iv) that all consents, approvals and orders of any commission, governmental authority or agency required in connection with the issuance and sale of the Debentures have been obtained. (e) an Officer's Certificate certifying that no Default or Event of Default has occurred and is continuing. (f) The Trustee shall act as the initial authenticating agent. Thereafter, the Trustee may appoint an authenticating agent. An authenticating agent may authenticate Debentures whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. The Trustee shall pay any authenticating agent appointed by the Trustee reasonable compensation for its services and the Trustee shall be reimbursed for such payment by the Company pursuant to Section 7.07 hereof. The provisions set forth in Section 7.02, Section 7.03, Section 7.04 and Section 7.07 hereof shall be applicable to any authenticating agent. SECTION 2.05 Registrar and Paying Agent. The Company shall maintain or cause to be maintained, within or outside the State of New Jersey, an office or agency where the Debentures may be presented for registration of transfer or for exchange ("Registrar"), an office or agency where Debentures may be presented or surrendered for payment ("Paying Agent"), and an office or agency where notices and demands to or upon the Company in respect of the Debentures and this Indenture may be served. The Registrar shall keep a register (the "Register") of the Debentures and of their transfer and exchange. The Company may have one or more co-Registrars and one or more additional Paying Agents. The term Registrar includes any additional registrar and the term Paying Agent includes any additional paying agent. The corporate trust office of the Trustee in Newark, New Jersey, shall initially be the Registrar for the Series A Debentures and agent for service of notice or demands on the Company, and the Trustee shall initially be the Paying Agent for the Series A Debentures. The Company shall enter into an appropriate agency agreement with any Registrar, Paying Agent or co-Registrar (if not the Company or the Trustee or an affiliate of the Trustee). The agreement shall implement the provisions of this Indenture that relate to such agent. The Company shall give prompt written notice to the Trustee of any change of location of such office or agency. If at any time the Company shall fail to maintain or cause to be maintained any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 11.02 hereof. The Company shall notify the Trustee of the name and address of any such agent. If the Company fails to maintain a Registrar, Paying Agent or agent for service of notices or demands, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 7.07 hereof. The Company or any Affiliate of the Company may act as Paying Agent, Registrar or co-Registrar or agent for service of notices and demands. The Company may also from time to time designate one or more other offices or agencies where the Debentures may be presented or surrendered for any or all such purposes and may from time to time rescind such designations. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in location of any such other office or agency. SECTION 2.06 Paying Agent to Hold Money in Trust. Except as otherwise provided herein, prior to or on each due date of the principal of and premium (if any) and interest on any Debenture, the Company shall deposit with the Paying Agent a sum of money sufficient to pay such principal, premium (if any) and interest so becoming due. The Company shall require each Paying Agent (other than the Trustee or the Company) to agree in writing that such Paying Agent shall hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal of and premium (if any) and interest on the Debentures and shall notify the Trustee of any Default by the Company in making any such payment. At any time during the continuance of any such Default, the Paying Agent shall, upon the request of the Trustee, forthwith pay to the Trustee all money so held in trust and account for any money disbursed by it. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and to account for any money disbursed by it. Upon doing so, the Paying Agent shall have no further liability for the money so paid over to the Trustee. If the Company, a Subsidiary or an Affiliate of either of them acts as Paying Agent, it shall segregate the money held by it as Paying Agent and hold it as a separate trust fund. SECTION 2.07 Debentureholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Debentureholders. If the Trustee is not the Registrar, the Company shall cause to be furnished to the Trustee on or before the Record Date for each Interest Payment Date and at such other times as the Trustee may request in writing, within five Business Days of such request, a list, in such form as the Trustee may reasonably require of the names and addresses of Debentureholders. SECTION 2.08 Transfer and Exchange. When Debentures are presented to the Registrar or a co-Registrar with a request to register the transfer or to exchange them for an equal principal amount of Debentures of the same series of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its reasonable requirements for such transactions are met. To permit registrations of transfer and exchanges, the Company shall execute and the Trustee shall authenticate Debentures, all at the Registrar's request. Every Debenture presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Registrar duly executed by the Holder or his attorney duly authorized in writing. The Company shall not require payment of a service charge for any registration of transfer or exchange of Debentures, but the Company may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges that may be imposed in connection with the registration of the transfer or exchange of Debentures from the Debentureholder requesting such transfer or exchange (other than any exchange of a temporary Debenture for a definitive Debenture not involving any change in ownership). The Company shall not be required to make, and the Registrar need not register, transfers or exchanges of (a) any Debenture for a period beginning at the opening of business 15 days before the mailing of a notice of redemption of Debentures and ending at the close of business on the day of such mailing or (b) any Debenture selected, called or being called for redemption, except, in the case of any Debenture to be redeemed in part, the portion thereof not to be redeemed. SECTION 2.09 Replacement Debentures. If (a) any mutilated Debenture is surrendered to the Company or the Trustee, or (b) the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Debenture, and there is delivered to the Company and the Trustee such Debenture or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Debenture has been acquired by a bona fide purchaser, the Company shall execute in exchange for any such mutilated Debenture or in lieu of any such destroyed, lost or stolen Debenture, a new Debenture of the same series and of like tenor and principal amount, bearing a number not contemporaneously outstanding, and the Trustee shall authenticate and make such new Debenture available for delivery. In case any such mutilated, destroyed, lost or stolen Debenture has become or is about to become due and payable, or is about to be redeemed by the Company pursuant to Article 3 hereof, the Company in its discretion may, instead of issuing a new Debenture, pay or purchase such Debenture, as the case may be. Upon the issuance of any new Debentures under this Section 2.09, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) in connection therewith. Every new Debenture issued pursuant to this Section 2.09 in lieu of any mutilated, destroyed, lost or stolen Debenture shall constitute an original additional contractual obligation of the Company (whether or not the mutilated, destroyed, lost or stolen Debenture shall be at any time enforceable) by anyone, and shall be entitled to all benefits of this Indenture equally and ratably with any and all other Debentures duly issued hereunder. The provisions of this Section 2.09 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Debentures. SECTION 2.10 Outstanding Debentures; Determinations of Holders' Action. Debentures outstanding at any time are all the Debentures authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those mutilated, destroyed, lost or stolen Debentures referred to in Section 2.09 hereof, those redeemed by the Company pursuant to Article 3 hereof, and those described in this Section 2.10 as not outstanding. A Debenture does not cease to be outstanding because the Company or a Subsidiary or Affiliate thereof holds the Debenture; provided, however, that in determining whether the Holders of the requisite principal amount of Debentures have given or concurred in any request, demand, authorization, direction, notice, consent or waiver hereunder, Debentures owned by the Company or a Subsidiary or Affiliate (other than the Partnership, so long as any of its Preferred Securities are outstanding) shall be disregarded and deemed not to be outstanding. Subject to the foregoing, only Debentures outstanding at the time of such determination shall be considered in any such determination (including determinations pursuant to Articles 3, 6 and 9). If a Debenture is replaced pursuant to Section 2.09 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Debenture is held by a bona fide purchaser. If the Paying Agent (other than the Company) holds, in accordance with this Indenture, at the Stated Maturity Date or on a Redemption Date, money sufficient to pay the Debentures payable on that date, then immediately on the Stated Maturity Date or such Redemption Date, as the case may be, such Debentures shall cease to be outstanding, and interest, if any, on such Debentures shall cease to accrue. SECTION 2.11 Temporary Debentures. So long as the Partnership is the sole Holder of the Debentures, the Company may execute temporary Debentures, and upon the Company's Order, the Trustee shall authenticate and make such temporary Debentures available for delivery. Temporary Debentures shall be printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, in the same series and principal amount and of like tenor as the definitive Debentures in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the Officers of the Company executing such Debentures may determine, as conclusively evidenced by their execution of such Debentures. After the preparation of definitive Debentures, the temporary Debentures shall be exchangeable for definitive Debentures of the same series upon surrender of the temporary Debentures at the office or agency of the Company designated for such purpose pursuant to Section 2.05 hereof, without charge to the Holders thereof. Upon surrender for cancellation of any one or more temporary Debentures, the Company shall execute a like principal amount of definitive Debentures of the same series of authorized denominations, and the Trustee, upon written request of the Company signed by two Officers of the Company, shall authenticate and make such Debentures available for delivery in exchange therefor. Until so exchanged, the temporary Debentures shall in all respects be entitled to the same benefits under this Indenture as definitive Debentures. SECTION 2.12 Book Entry System. If the Partnership is not the sole Holder of the Debentures, in order to utilize a book-entry-only system for all or any portion of the Debentures of any series, all or a portion of the Debentures of any series may be issued in the form of one or more fully registered Debentures of the same series for the aggregate principal amount of such Debentures of each Issue Date, interest rate and Stated Maturity Date (a "global Debenture"), which global Debenture shall be registered in the name of the depositary (the "Depositary") selected by the Company or in the name of such Depositary's nominee. Each global Debenture shall be delivered by the Trustee to the Depositary or pursuant to the Depositary's instruction and shall bear a legend substantially to the following effect: "Except as otherwise provided in Section 2.12 of the Indenture, this Debenture may be transferred, in whole but not in part, only to another nominee of the Depositary or to a successor Depositary or to a nominee of such successor Depositary." Notwithstanding any other provision of this Section 2.12 or of Section 2.08 hereof, a global Debenture may be transferred in whole but not in part and in the manner provided in Section 2.08 hereof, only by a nominee of the Depositary for such series, or by the Depositary or any such nominee of a successor Depositary for such series selected or approved by the Company or to a nominee of such successor Depositary. If at any time the Depositary for global Debentures of any series of Debentures notifies the Company that it is unwilling or unable to continue as Depositary for such global Debentures or if at any time the Depositary for such global Debentures shall no longer be registered or in good standing under the Exchange Act or other applicable statute or regulation, and a successor Depository for such global Debentures is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such condition, as the case may be, then this Section 2.12 shall no longer be applicable to the global Debentures of such series and the Company will execute, and the Trustee will authenticate and deliver, Debentures of such series in definitive registered form without coupons, in authorized denominations, and in an aggregate principal amount equal to the principal amount of the global Debentures of such series in exchange for such global Debentures. In addition, the Company may at any time determine, in its sole discretion, that the Debentures of any series shall no longer be represented by one or more global Debentures and that the provisions of this Section 2.12 shall no longer apply to the Debentures of such series. In such event the Company will execute and the Trustee, upon receipt of an Officers' Certificate evidencing such determination by the Company, will authenticate and deliver Debentures of such series and of like tenor in definitive registered form, in authorized denominations, and in aggregate principal amount equal to the principal amount of the global Debentures of such series in exchange for such global Debentures. Upon the exchange of global Debentures for such Debentures in definitive registered form without coupons, in authorized denominations, the global Debentures shall be cancelled by the Trustee. Such Debentures in definitive registered form issued in exchange for global Debentures pursuant to this Section 2.12 shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. The Trustee shall deliver such Debentures to the Person in whose names such Debentures are so registered. Except as provided above, owners solely of beneficial interests in a global Debenture shall not be entitled to receive physical delivery of Debentures in definitive form and will not be considered the Holders thereof for any purpose under this Indenture. Members of or participants in the Depositary shall have no rights under this Indenture with respect to any global Debenture held on their behalf by the Depositary, and such Depositary or its nominee, as the case may be, may be treated by the Company, the Trustee, and any agent of the Company or the Trustee as the Holder of such global Debentures for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee, or any agent of the Company or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its members or participants, the operation of customary practices governing the exercise of the rights of a Holder of any Debenture, including without limitation the granting of proxies or other authorization of participants to give or take any request, demand, authorization, direction, notice, consent, waiver or other action which a Holder is entitled to give or take under this Indenture. SECTION 2.13 Cancellation. All Debentures surrendered for payment, redemption by the Company pursuant to Article 3 hereof or registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by the Trustee. The Company may at any time deliver to the Trustee for cancellation any Debentures previously authenticated and made available for delivery hereunder which the Company may have acquired in any manner whatsoever, and all Debentures so delivered shall be promptly canceled by the Trustee. The Company may not reissue or issue new Debentures to replace Debentures it has paid or delivered to the Trustee for cancellation. No Debentures shall be authenticated in lieu of or in exchange for any Debentures canceled as provided in this Section 2.13, except as expressly permitted by this Indenture. All canceled Debentures held by the Trustee shall be destroyed by the Trustee, and the Trustee shall deliver a certificate of destruction to the Company. ARTICLE 3 REDEMPTION SECTION 3.01 Redemption; Notice to Trustee. (a) The Series A Debentures are subject to redemption prior to maturity as provided therein. (b) The redemption terms for any additional series of Debentures shall be as specified in the supplemental indenture creating such series of Debentures; provided that each series of Debentures shall be subject to mandatory redemption upon the dissolution and winding up of the Partnership, unless, in connection therewith, the Debentures are distributed to the holders of the Preferred Securities. (c) If any or all of the Debentures are to be redeemed pursuant to Section 3.01 (a) or (b) hereof, the Company shall deliver to the Trustee at least 45 days prior to the Redemption Date a Company Order specifying the series and principal amount of Debentures to be redeemed and the Redemption Date and Redemption Price for such Debentures. Such Company Order shall be accompanied by a Board Resolution authorizing such redemption. SECTION 3.02 Selection of Debentures to be Redeemed. If less than all the outstanding Debentures are to be redeemed at any time, the Trustee shall select the Debentures to be redeemed by lot or by any other method the Trustee considers fair and appropriate. The Trustee shall make the selection at least 30 but not more than 60 days before the Redemption Date from outstanding Debentures not previously called for redemption. Provisions of this Indenture that apply to Debentures called for redemption also apply to portions of Debentures called for redemption. The Trustee shall notify the Company promptly of the Debentures or portions of Debentures to be redeemed. SECTION 3.03 Notice of Redemption. At least 30 days but not more than 60 days before the Redemption Date, the Trustee, in the Company's name and at the Company's expense, shall mail or cause to be mailed a notice of redemption by first-class mail, postage prepaid, to each Holder of Debentures to be redeemed at such Holder's last address as it appears in the Register. The notice of redemption shall identify the Debentures to be redeemed, the provision of the Debentures or this Indenture pursuant to which the Debentures called for redemption are being redeemed and shall state: (1) the Redemption Date; (2) the Redemption Price; (3) the name and address of the Paying Agent; (4) that payment of the Redemption Price of Debentures called for redemption will be made only upon surrender of such Debentures to the Paying Agent; (5) if fewer than all the outstanding Debentures of any series are to be redeemed, the identification and principal amounts of the particular Debentures to be redeemed and that, on and after the Redemption Date, upon surrender of such Debentures, a new Debenture or Debentures of the same series and of like tenor and in a principal amount equal to the unredeemed portion thereof will be issued; and (6) that, unless the Company defaults in paying the Redemption Price of the Debentures called for Redemption, plus accrued interest thereon to the Redemption Date, interest will cease to accrue on such Debentures on and after the Redemption Date. Any notice of redemption given in the manner provided herein shall be conclusively presumed to have been given, whether or not such notice is actually received. Failure to mail any notice or defect in the mailed notice or the mailing thereof in respect of any Debenture shall not affect the validity of the redemption of any other Debenture. SECTION 3.04 Effect of Notice of Redemption. If notice of redemption is required as set forth in Section 3.03 hereof, and after notice of redemption has been given, Debentures called for redemption shall become due and payable on the Redemption Date and at the Redemption Price and from and after the Redemption Date (unless the Company shall default in the payment of the Redemption Price and accrued interest), such Debentures shall cease to bear interest. Upon the later of the Redemption Date and the date such Debentures are surrendered to the Paying Agent, such Debentures shall be paid at the Redemption Price, plus accrued interest to the Redemption Date, provided that installments of interest on Debentures with an Interest Payment Date which is on or prior to the Redemption Date shall be payable to the Holders of such Debentures, or one or more Predecessor Debentures, registered as such at the close of business on the Regular Record Dates therefor according to their terms and provisions. SECTION 3.05 Deposit of Redemption Price. On or prior to the Redemption Date, the Company shall deposit with the Paying Agent (or if the Company or an Affiliate is the Paying Agent, shall segregate and hold in trust or cause such Affiliate to segregate and hold in trust) money sufficient to pay the Redemption Price of, and accrued interest on, all Debentures to be redeemed on that date. The Paying Agent shall return to the Company any money in excess of the amount sufficient to pay the Redemption Price of, and accrued interest on, all Debentures to be redeemed and any interest accrued on the amount deposited pursuant to this Section 3.05. SECTION 3.06 Debentures Redeemed in Part. Upon surrender of a Debenture that is redeemed in part, the Trustee shall authenticate for the Holder a new Debenture of the same series and in a principal amount equal to the unredeemed portion of such Debenture. ARTICLE 4 COVENANTS SECTION 4.01 Payment of Debentures. (a) The Company shall pay the principal of and premium, if any, and interest (including interest accruing on or after the filing of a petition in bankruptcy or reorganization relating to the Company, whether or not a claim for post-filing interest is allowed in such proceeding) on the Debentures on (or prior to) the dates and in the manner provided in the Debentures or pursuant to this Indenture. An installment of principal, premium, if any, or interest shall be considered paid on the applicable due date if on such date the Trustee or the Paying Agent holds, in accordance with this Indenture, money sufficient to pay all of such installment then due. The Company shall pay interest on overdue principal and interest on overdue installments of interest (including interest accruing during an Extension Period and/or on or after the filing of a petition in bankruptcy or reorganization relating to the Company, whether or not a claim for post-filing interest is allowed in such proceeding), to the extent lawful, at the rate per annum plus Additional Interest, if any, borne by the Debentures, which interest on overdue interest shall accrue from the date such amounts became overdue. (b) Notwithstanding the provisions of Section 4.01(a) hereof or any other provision herein to the contrary, the Company shall have the right in its sole and absolute discretion at any time and from time to time while the Debentures are outstanding, so long as an Event of Default has not occurred and is continuing, to extend the interest payment period for up to 60 consecutive months, provided that such extended interest period shall not extend beyond the Stated Maturity Date or Redemption Date of any Debenture, and provided further that at the end of each Extension Period the Company shall pay all interest then accrued and unpaid (together with interest thereon to the extent permitted by applicable law at the rate per annum borne by the Debentures). Prior to the termination of an Extension Period, the Company may shorten or may further extend the interest payment period, provided that such Extension Period together with all such previous and further extensions may not exceed 60 consecutive months. The Company shall give the Trustee notice of its selection of such extended or shortened interest payment period at least one Business Day prior to the date the Partnership or the Company is required to give notice of the record or payment date of the related distribution on the Preferred Securities or payment of interest on the Debentures to any national securities exchange on which the Preferred Securities or the Debentures are then listed or other applicable self-regulatory organization, but in any event not less than two Business Days prior to the Record Date fixed by the Company for the payment of such interest. If the Partnership is the sole holder of the Debentures, the Company shall cause the Partnership to give notice of the Company's selection of such extended interest payment period to the holders of the Preferred Securities by first class mail, postage prepaid. If the Partnership is not the sole Holder of the Debentures, the Company shall give or cause the Trustee to give notice (a form of which shall be provided by the Company to the Trustee) of the Company's selection of such extended interest payment period to the Holders by first class mail, postage prepaid. SECTION 4.02 Prohibition Against Dividends, etc. The Company shall not declare or pay any dividend on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its Capital Stock (i) during an Extension Period, (ii) if at such time there shall have occurred any Default or Event of Default, or (iii) if the Company shall be in default with respect to its payment or other obligations under the Guarantee Agreement. SECTION 4.03 SEC Reports. The Company shall file with the Trustee, within 15 days after it files them with the SEC, copies of its annual report and of the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) which the Company is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. If the Company is not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file with the Trustee such information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) which are specified in Sections 13 or 15(d) of the Exchange Act. The Company shall also comply with the provisions of Section 314(a) of the TIA. SECTION 4.04 Compliance Certificates. (a) The Company shall deliver to the Trustee, within 90 days after the end of each of the Company's fiscal years, an Officer's Certificate stating whether or not the signer knows of any Default or Event of Default. Such certificate shall contain a certification from the principal executive officer, principal financial officer or principal accounting officer of the Company as to his or her knowledge of the Company's compliance with all conditions and covenants under this Indenture. For purposes of this Section 4.04(a), such compliance shall be determined without regard to any period of grace or requirement of notice provided under this Indenture. If such Officer does know of such a Default or Event of Default, the Officer's Certificate shall describe any such Default or Event of Default, and its status. Such Officer's Certificate need not comply with Sections 11.04 and 11.05 hereof. (b) The Company shall deliver to the Trustee any information reasonably requested by the Trustee in connection with the compliance by the Trustee or the Company with the TIA. SECTION 4.05 Relationship with the Partnership. In the event that the Company has transferred its general partner interests in the Partnership to any Wholly Owned Subsidiary, the Company agrees (i) to maintain direct or indirect (through a Wholly Owned Subsidiary) 100% ownership of the General Partner and will cause the General Partner to maintain 100% ownership of the general partnership interests in the Partnership; (ii) to cause the General Partner to maintain a fair market value net worth of at least 10% of the total capital contributions less redemptions to the Partnership and to contribute capital to the Partnership in an aggregate amount equal to 3% of the aggregate capital contributed to the Partnership; (iii) to cause the General Partner to timely perform all of its duties as General Partner of the Partnership (including the duty to pay distributions on the Preferred Securities to the extent the Partnership has funds legally available therefor); and (iv) to use its reasonable efforts to cause the Partnership to remain a limited partnership and otherwise continue to be treated as a partnership for United States federal income tax purposes. SECTION 4.06 Further Instruments and Acts. Upon request of the Trustee, the Company shall execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purposes of this Indenture. SECTION 4.07 Payments for Consents. Neither the Company nor any Subsidiary shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Debentures for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Debentures unless such consideration is offered to be paid or agreed to be paid to all Holders of the Debentures who so consent, waive or agree to amend in the time frame set forth in the documents soliciting such consent, waiver or agreement. ARTICLE 5 SUCCESSOR CORPORATION SECTION 5.01 When the Company May Merge, Etc. The Company may not consolidate with or merge with or into, or sell, convey, transfer or lease its properties and assets as an entirety or substantially as an entirety (either in one transaction or a series of transactions) to, any Person unless: (1) the Person formed by or surviving such consolidation or merger or to which such sale, conveyance, transfer or lease shall have been made (the "Successor") if other than the Company, (a) is organized and existing under the laws of the United States of America or any State thereof or the District of Columbia, and (b) shall expressly assume by a supplemental indenture, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Debentures and the Indenture; (2) immediately prior to and after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Person or any Subsidiary as a result of such transaction as having been incurred by such Person or such Subsidiary at the time of such transaction), no Default or Event of Default shall have occurred and be continuing; and (3) the Company delivers to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, conveyance, transfer or lease and such supplemental indenture comply with this Indenture. The Successor will be the successor to the Company, and will be substituted for, and may exercise every right and power and become the obligor on the Debentures with the same effect as if the Successor had been named as the Company herein but, in the case of a sale, conveyance, transfer or lease of all or substantially all of the assets of the Company, the predecessor Company will not be released from its obligation to pay the principal of and premium, if any, and interest on the Debentures. ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.01 Events of Default. An "Event of Default" occurs if one of the following shall have occurred and be continuing: (1) The Company defaults in the payment, when due and payable, of (a) interest, including Additional Interest, on any Debenture and the default continues for a period of 10 days; provided, that during an Extension Period, failure to pay interest on the Debentures shall not constitute a Default or Event of Default hereunder, or (b) the principal of or premium, if any, on any Debentures when the same becomes due and payable on the Stated Maturity Date thereof, upon acceleration, on any Redemption Date, or otherwise; (2) The Company defaults in the performance of or fails to comply with any of its other covenants or agreements in the Debentures or this Indenture and such failure continues for 60 days after receipt by the Company of a "Notice of Default"; (3) The Company, pursuant to or within the meaning of any Bankruptcy Law: (a) commences a voluntary case or proceeding; (b) consents to the entry of an order for relief against it in an involuntary case or proceeding; (c) consents to the appointment of a Custodian of it or for all or substantially all of its property, and such Custodian is not discharged within 60 days; (d) makes a general assignment for the benefit of its creditors; or (e) admits in writing its inability to pay its debts generally as they become due; or (4) A court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (a) is for relief against the Company in an involuntary case or proceeding; (b) appoints a Custodian of the Company for all or substantially all of its properties; (c) orders the liquidation of the Company; (d) and in each case the order or decree remains unstayed and in effect for 60 days. The foregoing will constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body. The term "Bankruptcy Law" means Title 11, United States Code, or any similar federal or state law for the relief of debtors. "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator, custodian or similar official under any Bankruptcy Law. A Default under clause (2) above is not an Event of Default until (i) the Trustee provides a "Notice of Default" to the Company or the Holders of at least a majority in aggregate principal amount of the Debentures at the time outstanding or the Special Representative provides a "Notice of Default" to the Company and the Trustee of the Default and (ii) the Company does not cure such Default within the time specified in clause (2) above after receipt of such notice. Any such notice must specify the Default, demand that it be remedied and state that such notice is a "Notice of Default." SECTION 6.02 Acceleration. If any Event of Default other than an Event of Default under clause (3) or (4) of Section 6.01 hereof occurs and is continuing, the Trustee, the Holders of not less than 25% in principal amount of the Debentures then outstanding or the Special Representative may declare the principal of all such Debentures due and payable. Upon such a declaration, such principal and interest shall be due and payable immediately. If an Event of Default specified in clause (3) or (4) of Section 6.01 hereof occurs, the principal of and interest on all the Debentures shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee, any Debentureholders or the Special Representative. After such a declaration, (i) if the Partnership is the sole Holder of the Debentures, the Special Representative, if one has been appointed, or, if no Special Representative has been appointed, the Partnership, at the direction of the holders of 66 % of the aggregate stated liquidation preference of the Preferred Securities, or (ii) if the Partnership is not the sole Holder of the Debentures, the Holders of at least 66 % in aggregate principal amount of the Debentures at the time outstanding, in each case, by notice to the Trustee, may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of acceleration. No such rescission shall affect any subsequent Default or impair any right consequent thereto. SECTION 6.03 Other Remedies. If an Event of Default occurs and is continuing, the Trustee may, in its own name or as trustee of an express trust, institute, pursue and prosecute any proceeding, including, without limitation, any action at law or suit in equity or other judicial or administrative proceeding to collect the payment of principal of or premium, if any, or interest on the Debentures, to enforce the performance of any provision of the Debentures or this Indenture or to obtain any other available remedy. The Trustee may maintain a proceeding even if it does not possess any of the Debentures or does not produce any of the Debentures in the proceeding. A delay or omission by the Trustee, the Special Representative or any Debentureholder in exercising any right or remedy accruing upon an Event of Default shall not impair such right or remedy or constitute a waiver of, or acquiescence in, such Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative. SECTION 6.04 Waiver of Past Defaults. If a Default or Event of Default has occurred and is continuing, (i) if the Partnership is the sole Holder of the Debentures, the Special Representative or, if no Special Representative has been appointed, the Partnership, at the direction of the holders of 66 % of the aggregate stated liquidation preference of the Preferred Securities, or (ii) if the Partnership is not the sole Holder of the Debentures, the Holders of at least 66 % in aggregate principal amount of the Debentures at the time outstanding, in each case by notice to the Trustee, the Company and the Partnership (if the Partnership, at such time, holds any Debentures), may waive an existing Default or Event of Default and its consequences except a Default or Event of Default in the payment of the principal or premium, if any, or interest on any Debenture. When a Default or Event of Default is waived, it is deemed cured and shall cease to exist, but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any consequent right. SECTION 6.05 Control by Majority or the Special Representative. If an Event of Default has occurred and is continuing, (i) if the Partnership is the sole Holder of the Debentures, the Special Representative or, if no Special Representative has been appointed, the Partnership, at the direction of the holders of 66 % of the aggregate stated liquidation preference of the Preferred Securities, or (ii) if the Partnership is not the sole Holder of the Debentures, the Holders of at least 66 % in aggregate principal amount of the Debentures at the time outstanding, in each case may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or that the Trustee determines in good faith is unduly prejudicial to the rights of other Debentureholders or may involve the Trustee in personal liability. The Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, including withholding notice to the Holders of the Debentures of continuing default (except in the payment of the principal (other than any mandatory sinking fund payment) or premium, if any or interest on any Debentures) if the Trustee considers it in the interest of the Holders of the Debentures to do so. SECTION 6.06 Limitation on Suits. Except as provided in Section 6.07 hereof, neither the Special Representative nor any Debentureholder may pursue any remedy with respect to this Indenture or the Debentures unless: (1) the Holders or the Special Representative gives to the Trustee written notice stating that an Event of Default is continuing; (2) the Holders or the Special Representative provides to the Trustee reasonable security and indemnity against any loss, liability or expense satisfactory to the Trustee; and (3) the Trustee does not comply with the request within 60 days after receipt of the notice, the request and the offer of security and indemnity. SECTION 6.07 Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal and premium (if any) or interest on the Debentures held by such Holder, on or after the respective due dates expressed in the Debentures (in the case of interest, as the same may be extended pursuant to Section 4.01(b) hereof) or any Redemption Date, or to bring suit for the enforcement of any such payment on or after such respective dates shall not be impaired or affected adversely without the consent of each such Holder. SECTION 6.08 Collection Suit by the Trustee. If an Event of Default described in Section 6.01(1) hereof occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or any obligor on the Debentures for the whole amount owing with respect to the Debentures and the amounts provided for in Section 7.07 hereof. SECTION 6.09 The Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or its properties or assets, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise: (1) to file and prove a claim for the whole amount of the principal of and premium, if any, and interest on the Debentures and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding; and (2) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Debentures or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 6.10 Priorities. If the Trustee collects any money pursuant to this Article 6, it shall, subject to Article 10 hereof, pay out the money in the following order: FIRST: to the Trustee for amounts due under Section 7.07 hereof; SECOND: to Debentureholders for amounts due and unpaid on the Debentures for the principal amount, Redemption Price or interest, if any, as the case may be, ratably, without preference or priority of any kind, according to such amounts due and payable on the Debentures; and THIRD: the balance, if any, to the Company. The Trustee may fix a Record Date and payment date for any payment to Debentureholders pursuant to this Section 6.10. SECTION 6.11 Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant (other than the Trustee) in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 hereof, a suit by Holders of more than 10% in aggregate principal amount of the Debentures at the time outstanding or a suit by the Special Representative. SECTION 6.12 Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury or other law wherever enacted, now or at any time hereafter in force, that would prohibit or forgive the Company from paying all or any portion of the principal of or premium, if any, or interest on the Debentures as contemplated herein or affect the covenants or the performance by the Company of its obligations under this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE 7 THE TRUSTEE SECTION 7.01 Duties of the Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default, (i) the Trustee need perform only those duties that are specifically set forth in this Indenture and no others; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (i) this Section 7.01(c) does not limit the effect of Section 7.01(b) hereof; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to Section 7.01(a), (b), (c) and (e) and Section 7.02 hereof. (e) The Trustee may refuse to perform any duty or exercise any right or power or extend or risk its own funds or otherwise incur any financial liability unless it receives security and indemnity reasonably satisfactory to it against any loss, liability or expense (including reasonable counsel fees). (f) Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. Except as otherwise provided in Section 3.05 and Section 8.01 hereof the Trustee shall not be liable for interest on any money held by it hereunder. SECTION 7.02 Rights of the Trustee. (a) The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officer's Certificate and, if appropriate, an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officer's Certificate and Opinion of Counsel. (c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it reasonably believes to be authorized or within its rights or powers. (e) The Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders or the Special Representative pursuant to this Indenture, unless such Holders or the Special Representative, as the case may be, shall have offered to the Trustee reasonable security and indemnity against the costs, expenses and liabilities (including reasonable counsel fees) which might be incurred by it in compliance with such request or direction. SECTION 7.03 Individual Rights of the Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Debentures and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. Any Paying Agent, Registrar or co-registrar may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11 hereof. SECTION 7.04 The Trustee's Disclaimer. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Debentures. The Trustee shall not be accountable for the Company's use of the proceeds from the Debentures, and the Trustee shall not be responsible for any statement in this Indenture or the Debentures or any report or certificate issued by the Company hereunder or any registration statement relating to the Debentures (other than the Trustee's Certificate of Authentication), or the determination as to which beneficial owners are entitled to receive any notices hereunder. SECTION 7.05 Notice of Defaults. If a Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each Debentureholder, as their names and addresses appear in the Register, notice of the Default within 90 days after it becomes known to the Trustee unless such Default shall have been cured or waived. Except in the case of a Default described in Section 6.01(1) hereof, the Trustee may withhold such notice if and so long as a committee of Trust Officers in good faith determines that the withholding of such notice is in the interests of the Debentureholders. The Trustee shall not be charged with knowledge of any Default (except in the case of a Default under Section 6.01(1) hereof) unless a responsible Trust Officer assigned to the corporate trust administration department of the Trustee shall have actual knowledge of the Default. The second sentence of this Section 7.05 shall be in lieu of the proviso to TIA Section 315(b). Said proviso is hereby expressly excluded from this Indenture, as permitted by the TIA. SECTION 7.06 Reports by Trustee to Holders. Within 60 days after each October 31, beginning with the October 31 next following the date of this Indenture, the Trustee shall mail to each Debentureholder, and such other holders that have submitted their names to the Trustee for such purpose, a brief report dated as of such October 31 in accordance with and to the extent required under TIA Section 313. A copy of each report at the time of its mailing to Debentureholders shall be filed with the Company, the SEC and any securities exchange on which the Debentures are listed. The Company agrees to promptly notify the Trustee whenever the Debentures become listed on any securities exchange and of any listing thereof. SECTION 7.07 Compensation and Indemnity. The Company agrees: (1) to pay to the Trustee from time to time such compensation as shall be agreed in writing between the Company and the Trustee for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses, and advances of its agents and counsel, provided that prior to an Event of Default, the Trustee shall only have one counsel), including all reasonable expenses and advances incurred or made by the Trustee in connection with any Event of Default or any membership on any creditors' committee, except any such expense or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee, its officers, directors and shareholders, for, and to hold it harmless against, any and all loss, liability or expense, incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. Before, after or during an Event of Default, the Trustee shall have a claim and lien prior to the Debentures as to all property and funds held by it hereunder for any amount owing it for its fees and expenses or any predecessor Trustee pursuant to this Section 7.07, except with respect to funds held by the Trustee or any Paying Agent in trust for the payment of principal of, premium, if any, or interest on particular Debentures pursuant to Section 2.06 or Section 8.01 hereof. The Company's payment obligations pursuant to this Section 7.07 are not subject to Article 10 of this Indenture and shall survive the discharge of this Indenture. When the Trustee renders services or incurs expenses after the occurrence of a Default specified in Section 6.01 hereof, the compensation for services and expenses are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 7.08 Replacement of Trustee. The Trustee may resign at any time, by so notifying the Company in writing at least 30 days prior to the date of the proposed resignation; provided, however, no such resignation shall be effective until a successor Trustee has accepted its appointment pursuant to this Section 7.08. The Special Representative, if one has been appointed, or, if the Partnership is not the sole Holder of the Debentures, the Holders of a majority in aggregate principal amount of the Debentures at the time outstanding or, if the Partnership is the sole Holder of the Debentures, the Partnership, with the consent of the holder of 66 % of the aggregate stated liquidation preference of the Preferred Securities, may remove the Trustee by so notifying the Trustee in writing and may appoint a successor Trustee, which shall be subject to the consent of the Company unless an Event of Default has occurred and is continuing. The Trustee shall resign if: (1) the Trustee fails to comply with Section 7.10 hereof; (2) the Trustee is adjudged bankrupt or insolvent; (3) a receiver or public officer takes charge of the Trustee or its property; or (4) the Trustee otherwise becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Debentureholders. Subject to payment of all amounts owing to the Trustee under Section 7.07 hereof and subject further to its lien under Section 7.07, the retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee. If a successor Trustee does not take office within 30 days after the retiring Trustee resigns or is removed, the Company, the Special Representative or the Holders of a majority in aggregate principal amount of the Debentures at the time outstanding may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10 hereof, any Debentureholder may petition any court of competent jurisdiction for its removal and the appointment of a successor Trustee. SECTION 7.09 Successor Trustee by Merger. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to another corporation, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee. SECTION 7.10 Eligibility; Disqualification. The Trustee shall at all times satisfy the requirements of TIA Sections 310(a)(1) and 310(a)(2). The Trustee (or any Affiliate thereof which has unconditionally guaranteed the obligations of the Trustee hereunder) shall have a combined capital and surplus of at least $50,000,000 as set forth in its most recently published annual report of condition. The Trustee shall comply with TIA Section 310(b). In determining whether the Trustee has conflicting interests as defined in TIA Section 310(b)(1), the provisions contained in the proviso to TIA Section 310(b)(1) shall be deemed incorporated herein. SECTION 7.11 Preferential Collection of Claims Against the Company. If and when the Trustee shall be or become a creditor of the Company, the Trustee shall be subject to the provisions of the TIA regarding the collection of claims against the Company. ARTICLE 8 SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE OF CERTAIN OBLIGATIONS; UNCLAIMED MONEYS SECTION 8.01 Satisfaction and Discharge of Indenture. The Company shall be deemed to have paid and discharged the entire indebtedness on any series of the Debentures outstanding on the date the Company has irrevocably deposited or caused to be irrevocably deposited with the Trustee or any Paying Agent as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of the Debentures of such series (1) cash (which may be held in an interest bearing account insured by the Federal Deposit Insurance Corporation) in an amount, or (2) U.S. Government Obligations, maturing as to principal and interest at such times and in such amounts as will ensure the availability of cash, or (3) a combination thereof, sufficient to pay the principal of and premium, if any, and interest on all Debentures then outstanding, provided that in the case of redemption, notice of redemption shall have been given or the Company shall have irrevocably instructed the Trustee to give such notice; and further provided that the following conditions shall have been met: (A) no Default or Event of Default with respect to the Debentures has occurred and is continuing on the date of such deposit or occurs as a result of such deposit; (B) the Company has delivered to the Trustee an Officer's Certificate certifying that there does not exist (i) a default in the payment of all or any portion of any Senior Indebtedness or (ii) any other default affecting Senior Indebtedness permitting its acceleration as the result of which the maturity of Senior Indebtedness has been accelerated; (C) the Company has delivered to the Trustee (i) either a private Internal Revenue Service ruling or an Opinion of Counsel based on a ruling of the Internal Revenue Service or other change in Federal income tax law to the effect that the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to federal income tax on the same amount and in the manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred, and (ii) an Opinion of Counsel to the effect that (A) the deposit shall not result in the Company, the Trustee or the trust being deemed to be an "investment company" under the Investment Company Act of 1940, as amended, and (B) such deposit creates a valid trust in which such Holders of the Debentures have the sole beneficial ownership interest or that such Holders of the Debentures have a nonavoidable first priority security interest in such trust; and (D) the Company has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent relating to the defeasance contemplated by this provision have been complied with. Upon such deposit, provisions of this Indenture with respect to such series of Debentures shall no longer be in effect (except as to (1) the rights of registration of transfer and exchange of Debentures, (2) the replacement of apparently mutilated, defaced, destroyed, lost or stolen Debentures, (3) the rights of the Holders to receive payments of the principal thereof and premium, if any, and interest thereon, (4) the rights of the Holders as beneficiaries hereof with respect to the property so deposited with the Trustee payable to all or any of them, (5) the obligation of the Company to maintain an office or agency for payments on and registration of transfer of the Debentures, (6) the rights, obligations and immunities of the Trustee hereunder, and (7) the obligations of the Company to the Trustee for compensation and indemnity under Section 7.07 hereof; and the Trustee shall, at the request and expense of the Company, execute proper instruments acknowledging the same. SECTION 8.02 Application by Trustee of Funds Deposited for Payment of Debentures. Subject to Section 8.04 hereof, all moneys deposited with the Trustee pursuant to Section 8.01 hereof shall be held in trust and applied by it to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent), to the Holders for the payment or redemption of which such moneys have been deposited with the Trustee, of all sums due and to become due thereon for principal and interest; but such money need not be segregated from other funds except to the extent required by law. SECTION 8.03 Repayment of Moneys Held by Paying Agent. In connection with the satisfaction and discharge of this Indenture, all moneys then held by any Paying Agent under this Indenture shall, upon demand of the Company, be repaid to it or paid to the Trustee, and thereupon such Paying Agent shall be released from all further liability with respect to such moneys. SECTION 8.04 Return of Moneys Held by the Trustee and Paying Agent Unclaimed for Three Years. Any moneys deposited with or paid to the Trustee or any Paying Agent for the payment of the principal of and premium, if any, or interest on any Debenture and not applied but remaining unclaimed for three years after the date when such principal, premium, if any, or interest shall have become due and payable shall, unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property law, be repaid to the Company by the Trustee or such Paying Agent, and the Holder of such Debenture shall, unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property laws, thereafter look only to the Company for any payment which such Holder may be entitled to collect, and all liability of the Trustee or any Paying Agent with respect to such moneys shall thereupon cease. ARTICLE 9 AMENDMENTS SECTION 9.01 Without Consent of Holders. From time to time, when authorized by a resolution of the Board of Directors, the Company and the Trustee, without notice to or the consent of any Holders of the Debentures or the Special Representative, may amend or supplement this Indenture or the Debentures: (1) to cure any ambiguity, defect or inconsistency; (2) to comply with Article 5 hereof; (3) to provide for uncertificated Debentures in addition to or in place of certificated Debentures; (4) to make any other change that does not in the reasonable judgment of the Company adversely affect the rights of any Debentureholder; (5) to comply with any requirement of the SEC in connection with the qualification of this Indenture under the TIA; or (6) to set forth the terms and conditions, which shall not be inconsistent with this Indenture, of the series of Debentures (other than the Series A Debentures) that are to be issued hereunder and the form of Debentures of such series. SECTION 9.02 With Consent of Holders. The Company and the Trustee may amend this Indenture or the Debentures in any manner not permitted by Section 9.01 or may waive future compliance by the Company with any provisions of this Indenture or the Debentures (i) if the Partnership is the sole Holder of the Debentures, with the written consent of the Special Representative or if no Special Representative has been appointed, the Partnership, at the direction of the holders of 66 % of the aggregate stated liquidation preference of the Preferred Securities at the time outstanding, or (ii) if the Partnership is not the sole Holder of the Debentures, with the consent of the Holders of at least 66 % in aggregate principal amount of the Debentures at the time outstanding. Such an amendment or waiver may not, without the consent of (i) each Holder of the Debentures (if the Partnership is not the sole Holder of the Debentures) or (ii) each holder of the Preferred Securities (if the Partnership is the sole Holder of the Debentures): (1) reduce the principal of the Debentures; (2) reduce the principal amount of the Debentures the Holders of which must consent to an amendment of the Indenture or a waiver; (3) change the stated maturity of the principal of, premium, if any, or the interest on or rate of interest of, or Additional Interest with respect to, any Debentures, change adversely to the Holders the redemption provisions of Article 3 hereof, or impair the right to institute suit for the enforcement of any such payment or change the currency in respect of which the payments on any Debentures are to be made; (4) change the obligation of the Company to pay Additional Interest on the Debentures; (5) make any change in Article 10 hereof that adversely affects the rights of the Holders of the Debentures or any change to any other Section hereof that adversely affects their rights under Article 10 hereof; (6) change Section 6.07 hereof. It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof. If certain Holders agree to defer or waive certain obligations of the Company hereunder with respect to Debentures held by them, such deferral or waiver shall not affect the rights of any other Holder to receive the payment or performance required hereunder in a timely manner. After an amendment or waiver under this Section 9.02 becomes effective, the Company shall mail to the Special Representative and to each Holder a notice briefly describing the amendment or waiver. Any failure of the Company to mail such notices, or any defect therein, shall not, however, in any way impair or affect the validity of such amendment or waiver. SECTION 9.03 Compliance with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article 9 shall comply with the TIA. SECTION 9.04 Revocation and Effect of Consents, Waivers and Actions. Until an amendment, waiver or other action by Holders becomes effective, a consent to it or any other action by a Holder of a Debenture hereunder is a continuing consent by the Holder and every subsequent Holder of that Debenture or portion of the Debenture that evidences the same obligation as the consenting Holder's Debenture, even if notation of the consent, waiver or action is not made on the Debenture. However, any such Holder or subsequent Holder may revoke the consent, waiver or action as to such Holder's Debenture or portion of the Debenture if the Trustee receives the notice of revocation before the consent of the requisite aggregate principal amount of the Debentures then outstanding has been obtained and not revoked. After an amendment, waiver or action becomes effective, it shall bind every Debentureholder, except as provided in Section 9.02 hereof. The Company may, but shall not be obligated to, fix a Record Date for the purpose of determining the Holders entitled to consent to any amendment or waiver. If a Record Date is fixed, then, notwithstanding the first two sentences of the immediately preceding paragraph, those Persons who were Holders at such Record Date or their duly designated proxies, and only those Persons, shall be entitled to consent to such amendment, supplement or waiver or to revoke any consent previously given, whether or not such Persons continue to be Holders after such Record Date. No such consent shall be valid or effective for more than 90 days after such Record Date. SECTION 9.05 Notation on or Exchange of Debentures. Debentures authenticated and made available for delivery after the execution of any supplemental indenture pursuant to this Article 9 may, and shall, if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Debentures so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any such supplemental indenture may be prepared and executed by the Company and authenticated and made available for delivery by the Trustee in exchange for outstanding Debentures. SECTION 9.06 Trustee to Execute Supplemental Indentures. The Trustee shall execute any supplemental indenture authorized pursuant to this Article 9 if the supplemental indenture does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but need not, execute it. In executing such supplemental indenture the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Officer's Certificate and Opinion of Counsel stating that such supplemental indenture is authorized or permitted by this Indenture. SECTION 9.07 Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article 9, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes and every Holder of Debentures theretofore or thereafter authenticated and made available for delivery hereunder shall be bound thereby. ARTICLE 10 SUBORDINATION SECTION 10.01 Debentures Subordinated to Senior Indebtedness. Notwithstanding the provisions of Section 6.10 hereof or any other provision herein or in any Debenture, the Company and the Trustee or Holder by his acceptance thereof (a) covenants and agrees, that all payments by the Company of the principal of and premium, if any, and interest on the Debentures (other than Debentures which have been discharged pursuant to Article 8) shall be subordinated in accordance with the provisions of this Article 10 to the prior payment in full, in cash or cash equivalents, of all amounts payable on, under or in connection with Senior Indebtedness, and (b) acknowledges that holders of Senior Indebtedness are or shall be relying on this Article 10. SECTION 10.02 Priority and Payment of Proceeds in Certain Events; Remedies Standstill. (a) Upon any payment or distribution of assets or securities of the Company, as the case may be, of any kind or character, whether in cash, property or securities, upon any dissolution or winding up or total or partial liquidation or reorganization of the Company, whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or other proceedings, all amounts payable on, under or in connection with Senior Indebtedness (including any interest accruing on such Senior Indebtedness subsequent to the commencement of a bankruptcy, insolvency or similar proceeding) shall first be paid in full in cash, or payment provided for in cash or cash equivalents, before the Holders or the Trustee on behalf of the Holders shall be entitled to receive from the Company any payment of principal of or premium, if any, or interest on the Debentures or distribution of any assets or securities. (b) No direct or indirect payment by or on behalf of the Company of principal of or premium, if any, or interest on the Debentures (other than Debentures which have been discharged pursuant to Article 8) whether pursuant to the terms of the Debentures or upon acceleration or otherwise shall be made if, at the time of such payment, there exists (i) a default in the payment of all or any portion of any Senior Indebtedness and the Trustee has received written notice thereof from the Company, one or more holders of Senior Indebtedness or from any trustee, representative or agent therefor, or (ii) any other default affecting Senior Indebtedness permitting its acceleration, as the result of which the maturity of Senior Indebtedness has been accelerated and the Trustee has received written notice from any trustee, representative or agent for the holders of the Senior Indebtedness or the holders of at least a majority in principal amount of the Senior Indebtedness then outstanding of such default and acceleration, and such default shall not have been cured or waived by or on behalf of the holders of such Senior Indebtedness. (c) If, notwithstanding the foregoing provisions prohibiting such payment or distribution, the Trustee or any Holder shall have received any payment on account of the principal of or premium, if any, or interest on the Debentures (other than as permitted by subsections (a) and (b) of this Section 10.02) when such payment is prohibited by this Section 10.02 and before all amounts payable on, under or in connection with Senior Indebtedness are paid in full in cash or cash equivalents, then and in such event (subject to the provisions of Section 10.08 hereof) such payment or distribution shall be received and held in trust for the holders of Senior Indebtedness and, at the written direction of the trustee, representative or agent for the holders of the Senior Indebtedness, shall be paid to the holders of the Senior Indebtedness remaining unpaid to the extent necessary to pay such Senior Indebtedness in full in cash or cash equivalents. Upon any payment or distribution of assets or securities referred to in this Article 10, the Trustee and the Holders shall be entitled to rely upon any order or decree of a court of competent jurisdiction in which such dissolution, winding up, liquidation or reorganization proceedings are pending, and upon a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making any such payment or distribution, delivered to the Trustee for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of Senior Indebtedness and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10. SECTION 10.03 Payments which May Be Made Prior to Notice. Nothing in this Article 10 or elsewhere in this Indenture shall prevent (i) the Company, except under the conditions described in Section 10.02 hereof, from making payments of principal of or premium, if any, or interest on the Debentures or from depositing with the Trustee any monies for such payments, or (ii) the application by the Trustee of any monies deposited with it for the purpose of making such payments of principal of or premium, if any, or interest on the Debentures, to the Holders entitled thereto, unless at least one Business Day prior to the date when such payment would otherwise (except for the prohibitions contained in Section 10.02 hereof) become due and payable the Trustee shall have received the written notice provided for in Section 10.02(b)(i) or (ii) hereof. SECTION 10.04 Rights of Holders of Senior Indebtedness Not to Be Impaired. No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time or in any way be prejudiced or impaired by any act or failure to act in good faith by any such holder, or by any noncompliance by the Company with the terms and provisions and covenants herein regardless of any knowledge thereof any such holder may have or otherwise be charged with. The provisions of this Article 10 are intended to be for the benefit of, and shall be enforceable directly by, the holders of Senior Indebtedness. Notwithstanding anything to the contrary in this Article 10, to the extent any Holders or the Trustee have paid over or delivered to any holder of Senior Indebtedness any payment or distribution received on account of the principal of or premium (if any) or interest on the Debentures to which any other holder of Senior Indebtedness shall be entitled to share in accordance with Section 10.02 hereof, no holder of Senior Indebtedness shall have a claim or right against any Holders or the Trustee with respect to any such payment or distribution or as a result of the failure to make payments or distributions to such other holder of Senior Indebtedness. SECTION 10.05 Trustee May Take Action to Effectuate Subordination. Each Holder of a Debenture, by his acceptance thereof, authorizes and directs the Trustee on his behalf to take such action as may be required by the trustee, representative or agent for holders of Senior Indebtedness or by the Company to effectuate, as between the holders of Senior Indebtedness and the Holders, the subordination as provided in this Article 10 and appoints the Trustee his attorney-in-fact for any and all such purposes. SECTION 10.06 Subrogation. Upon the payment in full, in cash or cash equivalents, of all Senior Indebtedness, any Holder shall be subrogated to the rights of the holders of such Senior Indebtedness to receive payments or distributions of assets of the Company made on such Senior Indebtedness until the Debentures shall be paid in full; and for the purposes of such subrogation, no payments or distributions to holders of such Senior Indebtedness of any cash, property or securities to which such Holders of the Debentures would be entitled except for this Article 10, and no payment pursuant to this Article 10 to holders of such Senior Indebtedness by such Holders of the Debentures, shall, as between the Company, its creditors other than holders of such Senior Indebtedness and such Holders of the Debentures, be deemed to be a payment by the Company to or on account of such Senior Indebtedness, it being understood that the provisions of this Article 10 are solely for the purpose of defining the relative rights of the holders of such Senior Indebtedness, on the one hand, and such Holders of the Debentures, on the other hand. If any payment or distribution to which Holders of the Debentures would otherwise have been entitled but for the provisions of this Article 10 shall have been applied, pursuant to this Article 10, to the payment of all Senior Indebtedness, then and in such case, such Holders of the Debentures shall be entitled to receive from the holders of such Senior Indebtedness at the time outstanding any payments or distributions received by such holders of Senior Indebtedness in excess of the amount sufficient to pay, in cash or cash equivalents, all such Senior Indebtedness in full. SECTION 10.07 Obligations of Company Unconditional; Reinstatement. Nothing in this Article 10 or elsewhere in this Indenture or in any Debenture is intended to or shall impair, as between the Company and Holders of the Debentures, the obligations of the Company, which are absolute and unconditional, to pay to such Holders the principal of and premium, if any, and interest on the Debentures as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of such Holders of the Debentures and creditors of the Company other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the Trustee, the Special Representative or any Holder from exercising all remedies otherwise permitted by applicable law under this Indenture, subject to the rights, if any, under this Article 10 of the holders of such Senior Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy. The failure to make a scheduled payment of principal of or premium, if any, or interest on the Debentures by reason of Section 10.02 shall not be construed as preventing the occurrence of an Event of Default under Section 6.01 hereof; provided, however, that if (i) the conditions preventing the making of such payment no longer exist, and (ii) such Holders of the Debentures are made whole with respect to such omitted payments, the Event of Default relating thereto (including any failure to pay any accelerated amounts) shall be automatically waived, and the provisions of the Indenture shall be reinstated as if no such Event of Default had occurred. SECTION 10.08 Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice. The Trustee or Paying Agent shall not be charged with the knowledge of the existence of any default in the payment of all or a portion of any Senior Indebtedness or any other default affecting Senior Indebtedness permitting its acceleration, as a result of which the maturity of the Senior Indebtedness has been accelerated, unless and until the Trustee or Paying Agent shall have received written notice thereof from the Company or one or more holders of Senior Indebtedness or from any trustee or agent therefor or unless the Trustee or Paying Agent otherwise had actual knowledge thereof; and, prior to the receipt of any such written notice or actual knowledge of a responsible Trust Officer in the corporate trust administration department of the Trustee or Paying Agent, the Trustee or Paying Agent may conclusively assume that no such facts exist. Unless at least one Business Day prior to the date when by the terms of this Indenture any monies are to be deposited by the Company with the Trustee or any Paying Agent for any purpose (including, without limitation, the payment of the principal of or premium, if any, or interest on any Debenture), the Trustee or Paying Agent shall have received with respect to such monies the notice provided for in Section 10.02 or a responsible Trust Officer in the corporate trust administration department of the Trustee or Paying Agent shall have actual knowledge of default in the payment of all or a portion of any Senior Indebtedness or any other default affecting Senior Indebtedness permitting its acceleration, as the result of which the maturity of the Senior Indebtedness has been accelerated, the Trustee or Paying Agent shall have full power and authority to receive and apply such monies to the purpose for which they were received. Neither of them shall be affected by any notice to the contrary, which may be received by either on or after such date. The foregoing shall not apply to the Paying Agent if the Company is acting as Paying Agent. Nothing in this Section 10.08 shall limit the right of the holders of Senior Indebtedness to recover payments as contemplated by Section 10.02 hereof. The Trustee or Paying Agent shall be entitled to rely on the delivery to it of a written notice by a Person representing himself or itself to be a holder of such Senior Indebtedness (or a trustee or agent on behalf of, or other representative of, such holder) to establish that such notice has been given by a holder of such Senior Indebtedness or a trustee or representative on behalf of any such holder. The Trustee shall not be deemed to have any duty to the holders (and shall be fully protected in relying upon such notice) of Senior Indebtedness. SECTION 10.09 Right of Trustee to Hold Senior Indebtedness. The Trustee and any Paying Agent shall be entitled to all of the rights set forth in this Article 10 in respect of any Senior Indebtedness at any time held by them to the same extent as any other holder of such Senior Indebtedness, and nothing in this Indenture shall be construed to deprive the Trustee or any Paying Agent of any of its rights as such holder. ARTICLE 11 MISCELLANEOUS SECTION 11.01 Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by operation of subsection (c) of Section 318 of the TIA, the imposed duties shall control. The provisions of Sections 310 to 317, inclusive, of the TIA that impose duties on any Person (including provisions automatically deemed included in an indenture unless the indenture provides that such provisions are excluded) are a part of and govern this Indenture, except as, and to the extent, they are expressly excluded from this Indenture, as permitted by the TIA. SECTION 11.02 Notices. Any notice or communication shall be in writing and delivered in person or mailed by first-class mail, postage prepaid, addressed as follows: if to the Company: Public Service Electric and Gas Company 80 Park Plaza, T6B P.O. Box 570 Newark, New Jersey 07101 Attention: Treasurer if to the Trustee: First Fidelity Bank, National Association 765 Broad Street Newark, New Jersey 07101 Attention: Corporate Trust Department The Company or the Trustee, by giving notice to the other, may designate additional or different addresses for subsequent notices of communications. The Company shall notify the holder, if any, of Senior Indebtedness of any such additional or different addresses of which the Company receives notice from the Trustee. Any notice or communication given to a Debentureholder shall be mailed or delivered to the Debentureholder at the Debentureholder's address as it appears on the Register of the Registrar and shall be sufficiently given if mailed within the time prescribed. Failure to mail a notice or communication to a Debentureholder or any defect in it shall not affect its sufficiency with respect to other Debentureholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not received by the addressee. If the Company mails a notice or communication to the Debentureholders, it shall mail a copy to the Trustee and each Registrar, Paying Agent or co-Registrar. SECTION 11.03 Communication by Holders with Other Holders. Debentureholders may communicate, pursuant to TIA Section 312(b), with other Debentureholders with respect to their rights under this Indenture or the Debentures. The Company, the Trustee, the Registrar, the Paying Agent and anyone else shall have the protection of TIA Section 312(c). SECTION 11.04 Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officer's Certificate (complying with Section 11.05 hereof) stating that, in the opinion of such Officer, all conditions precedent to the taking of such action have been complied with; and (2) if appropriate, an Opinion of Counsel (complying with Section 11.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent to the taking of such action have been complied with. SECTION 11.05 Statements Required in Certificate or Opinion. Each Officer's Certificate and Opinion of Counsel with respect to compliance with a covenant or condition provided for in this Indenture shall include: (1) a statement that each Person making such Officer's Certificate or Opinion of Counsel has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such Officer's Certificate or Opinion of Counsel are based; (3) a statement that, in the opinion of each such Person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement that, in the opinion of such Person, such covenant or condition has been complied with; provided, however, that with respect to matters of fact not involving any legal conclusion, an Opinion of Counsel may rely on an Officer's Certificate or certificates of public officials. SECTION 11.06 Severability Clause. If any provision in this Indenture or in the Debentures shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 11.07 Rules by Trustee, Paying Agent and Registrar. The Trustee may make reasonable rules for action by or a meeting of Debentureholders. The Registrar and Paying Agent may make reasonable rules for their functions. SECTION 11.08 Legal Holidays. A "Legal Holiday" is any day other than a Business Day. If any specified date (including a date for giving notice) is a Legal Holiday, the action to be taken on such date shall be taken on the next succeeding day that is not a Legal Holiday, and if such action is a payment in respect of the Debentures, unless otherwise specified pursuant to Section 2.01 hereof no principal, premium (if any) or interest installment shall accrue for the intervening period; except that if any interest payment is due on a Legal Holiday and the next succeeding day is in the next succeeding calendar year, such payment shall be made on the Business Day immediately preceding such Legal Holiday. SECTION 11.09 Governing Law. This Indenture and the Debentures shall be governed by and construed in accordance with the laws of the State of New Jersey as applied to contracts made and performed within the State of New Jersey, without regard to its principles of conflicts of laws. SECTION 11.10 No Recourse Against Others. No director, officer, employee or stockholder, as such, of the Company shall have any liability for any obligations of the Company under the Debentures or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Debenture, each Debentureholder shall waive and release all such liability. The waiver and release shall be part of the consideration for the issue of the Debentures. SECTION 11.11 Successors. All agreements of the Company in this Indenture and the Debentures shall bind its successors and assigns. All agreements of the Trustee in this Indenture shall bind its successors and assigns. SECTION 11.12 Multiple Original Copies of this Indenture. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Any signed copy shall be sufficient proof of this Indenture. SECTION 11.13 No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or any Subsidiary. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 11.14 Table of Contents; Headings, Etc. The Table of Contents, Cross-Reference Table, and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. SECTION 11.15 Benefits of the Indenture. Except as expressly provided in Article 10 hereof, nothing in this Indenture or in the Debentures, express or implied, shall give to any person, other than the parties hereto and their successors hereunder, the Holders and the Special Representative, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 11.16 Partnership Books and Records. If at any time the consent or direction of all or a portion of the holders of the Preferred Securities is required hereunder, the Company will use its best efforts to cause the Partnership to provide to the Trustee such books and records of the Partnership as are necessary to determine if the consent or direction of the holders of the requisite amount of the Preferred Securities has been obtained, and the Trustee shall be entitled to rely on such books and records in making such a determination. SIGNATURES IN WITNESS WHEREOF, the undersigned, being duly authorized, have executed this Indenture on behalf of the respective parties hereto as of the date first above written. PUBLIC SERVICE ELECTRIC AND GAS COMPANY By: FRANCIS J. RIEPL Name: Francis J. Riepl Title: Vice President and Treasurer FIRST FIDELITY BANK, NATIONAL ASSOCIATION, as Trustee By: D. DOWDELL Name: D. Dowdell Title: Corporate Trust Officer Public Service Electric and Gas Capital, L.P. By: Public Service Electric and Gas Company, its sole general partner By: FRANCIS J. RIEPL Name:Francis J. Riepl Title:Vice President and Treasurer Solely for the purposes stated in the recitals hereto. Exhibit A PUBLIC SERVICE ELECTRIC AND GAS COMPANY __% Deferrable Interest Subordinated Debenture, Series A No. 1 Public Service Electric and Gas Company, a New Jersey corporation (the "Company," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to ______________________________ or registered assigns, the principal sum of ________________________ __________________________________ Dollars on __________, 2043, and to pay interest on said principal sum from _________, 1994 or from the most recent Interest Payment Date (as defined below) to which interest has been paid or duly provided for, monthly in arrears on the last day of each calendar month of each year commencing ________, 1994 (each, an "Interest Payment Date") at the rate of __% per annum plus Additional Interest, if any, until the principal hereof shall have become due and payable, and on any overdue principal and (to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the same rate per annum. The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months. In the event that any Interest Payment Date is not a Business Day, then interest will be payable on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the person in whose name this Debenture is registered at the close of business on the Regular Record Date for such interest installment, which shall be the 15th day of each month, provided that if all of the Series A Debentures (as defined below) are then held by the Partnership or the Series A Debentures are held in book-entry-only form, the Regular Record Date shall be the close of business on the Business Day next preceding such Interest Payment Date. Any such interest installment not punctually paid or duly provided for shall forthwith cease to be payable to the registered holders on such Regular Record Date, and may be paid to the person in whose name this Debenture is registered at the close of business on a Special Record Date to be fixed by the Trustee (as defined below) for the payment of such defaulted interest, notice whereof shall be given to the registered holders of the Series A Debentures not less than 7 days prior to such Special Record Date, as more fully provided in the Indenture. Payment of the principal of and interest on this Debenture will be made in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. Payments of interest on an Interest Payment Date will be made by check mailed to the registered holder hereof at the address shown in the Register or, at the option of the registered holder hereof, to such other place in the United States of A-1 America as registered holder hereof shall designate to the Trustee in writing. At the request of a registered holder of at least $10,000,000 aggregate principal amount of Series A Debentures, interest on such Debentures will be payable by wire transfer within the continental United States in immediately available funds to the bank account number specified in writing by such holder to the Registrar prior to the Regular Record Date. The principal amount hereof and any interest due on the Stated Maturity Date or a Redemption Date (other than an Interest Payment Date) will be paid only upon surrender of this Debenture at the principal corporate trust office of First Fidelity Bank, National Association, Paying Agent, in Newark, New Jersey, or at such other office or agency of the Paying Agent as the Company shall designate by written notice to the registered holder of this Debenture. The indebtedness evidenced by this Debenture is, to the extent provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness, and this Debenture is issued subject to the provisions of the Indenture with respect thereto. The registered holder of this Debenture, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination so provided and (c) appoints the Trustee his attorney-in-fact for any and all such purposes. The registered holder hereof, by his acceptance hereof, hereby waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each such Holder upon said provisions. This Debenture is one of a duly authorized series of Debentures of the Company (herein sometimes referred to as the "Series A Debentures"), specified in the Indenture, limited in aggregate principal amount to $___________, issued under and pursuant to an Indenture dated as of _________, 1994 (the "Indenture") executed and delivered between the Company and First Fidelity Bank, National Association, as trustee (the "Trustee"). Reference is made to the Indenture for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the registered holders of the Debentures. By the terms of the Indenture, subordinated debentures (the "Debentures") are issuable in series which may vary as to amount, date of maturity, rate of interest and in other respects as in the Indenture provided. The Series A Debentures are subject to mandatory redemption prior to maturity at 100% of the principal amount thereof plus accrued interest to the Redemption Date as follows: (i) in whole upon the dissolution and winding up of the Partnership, unless, in connection with such dissolution and winding up, the Series A Debentures are distributed to the holders of the Series A Preferred Securities (as defined in the Indenture); and A-2 (ii) in whole or in part upon a redemption of the Series A Preferred Securities, but if in part, in an aggregate principal amount equal to the aggregate stated liquidation preference of the Series A Preferred Securities redeemed. At the option of the Company, the Series A Debentures are redeemable prior to maturity (i) at any time after the Company is required to pay Additional Interest on the Series A Debentures, in whole or in part, (ii) at any time on or after ___________, 1999, in whole or in part, and (iii) if a Tax Event shall occur and be continuing, in whole (but not in part), in each case at 100% of the principal amount thereof plus accrued interest to the Redemption Date. "Tax Event" shall mean that the Partnership shall have received an opinion of counsel (which may be regular counsel to the Company or an Affiliate, but not an employee thereof) experienced in such matters to the effect that, as a result of any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein affecting taxation, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or such interpretation or pronouncement is announced on or after the date of original issuance of Preferred Securities, there is more than an insubstantial risk that (i) the Partnership is subject to United States Federal income tax with respect to interest received on the Debentures or the Partnership will otherwise not be taxed as a Partnership or (ii) interest payable by the Company to the Partnership on the Debentures will not be deductible for United States Federal income tax purposes or (iii) the Partnership is subject to more than a de minimis amount of other taxes, duties, assessments or other governmental charges. At least 30 days but not more than 60 days before the Redemption Date, the Trustee shall mail or caused to be mailed a notice of redemption by first-class mail, postage prepaid, to each Holder of Debentures to be redeemed. In the event of redemption of this Debenture in part only, a new Debenture or Debentures of this series for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of and premium, if any, and interest on all of the Debentures may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions for defeasance at any time of the entire indebtedness of this Debenture upon compliance by the Company with certain conditions set forth therein. Subject to certain exceptions in the Indenture which require the consent of every Holder, the Company and the Trustee may amend the Indenture or the Debentures issued thereunder or may waive future compliance by the Company with any provisions of the Indenture or the Debentures issued thereunder (i) if the Partnership is the sole holder of the Debentures issued A-3 thereunder, with the written consent of the Special Representative or, if no Special Representative has been appointed, the Partnership, at the direction of the holders of 66 % of the aggregate stated liquidation preference of the Preferred Securities at the time outstanding, or (ii) if the Partnership is not the sole Holder of the Debentures, with the consent of the Holders of at least 66 % in aggregate principal amount of the Debentures issued under the Indenture at the time outstanding. Subject to certain exceptions in the Indenture, without the consent of any Debentureholder, the Company and the Trustee may amend the Indenture or the Debentures to cure any ambiguity, defect or inconsistency, to bind a successor to the obligations of the Indenture, to provide for uncertificated Debentures in addition to certificated Debentures, to comply with any requirements of the Debentures and the Securities and Exchange Commission in connection with the qualification of the Indenture under the TIA, or to make any change that, in the reasonable judgment of the Company, does not adversely affect the rights of any Debentureholder. Amendments bind all Holders and subsequent Holders. No reference herein to the Indenture and no provision of this Debenture or the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Debenture at the time and place and at the rate and in the money herein prescribed. So long as an Event of Default has not occurred and is continuing, the Company shall have the right at any time and from time to time to extend the interest payment period of the Debentures issued under the Indenture, including the Series A Debentures, to up to 60 consecutive months (the "Extended Interest Payment Period"), provided that no Extended Interest Payment Period shall extend beyond the Stated Maturity Date or Redemption Date of any Debenture issued under the Indenture. At the end of the Extended Interest Payment Period, the Company shall pay all interest then accrued and unpaid (together with interest thereon at the rate specified for the Debentures, including the Series A Debentures to the extent that payment of such interest is enforceable under applicable law). During such Extended Interest Payment Period, the Company may not declare or pay any dividend on, redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock. Prior to the termination of any such Extended Interest Payment Period, the Company may further extend such Extended Interest Payment Period, provided that such Extended Interest Payment Period together with all such previous and further extensions thereof shall not exceed 60 consecutive months. At the termination of any such Extended Interest Payment Period and upon the payment of all amounts then due, the Company may select a new Extended Interest Payment Period, subject to the foregoing restrictions. Series A Debentures are issuable only in registered form without coupons in denominations of $25 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, this Debenture is exchangeable for a like aggregate principal amount of Series A Debentures of a different authorized denomination, as requested by the registered holder surrendering the same. A-4 As provided in the Indenture and subject to certain limitations therein set forth, this Debenture is transferable by the registered holder hereof upon surrender of this Debenture for registration of transfer at the office or agency of the Registrar accompanied by a written instrument or instruments of transfer in form satisfactory to the Registrar duly executed by the registered holder hereof or his attorney duly authorized in writing, and thereupon one or more new Series A Debentures of authorized denominations and for the same aggregate principal amount will be issued to the designated transferee or transferees. No service charge will be made for any such transfer, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in relation thereto. Prior to presentment for registration of transfer of this Debenture, the Company, the Trustee, any Paying Agent and any Registrar may deem and treat the registered holder hereof as the absolute owner hereof (whether or not this Debenture shall be overdue and notwithstanding any notice of ownership or writing hereon made by anyone other than the Registrar) for the purpose of receiving payment of or on account of the principal hereof and interest due hereon and for all other purposes, and neither the Company nor the Trustee nor any Paying Agent nor any Registrar shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of or the interest on this Debenture, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture, against any incorporator, stockholder, officer or director, past, present or future, as such, of the Company or of any predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issuance hereof, expressly waived and released. Each term used in this Debenture which is defined in the Indenture and not defined herein shall have the meaning assigned to it in the Indenture. This Debenture shall not be valid until an authorized officer of the Trustee manually signs and dates the Trustee's Certificate of Authentication below. IN WITNESS WHEREOF, the Company has caused this Debenture to be signed manually or by facsimile by its duly authorized officers and a facsimile of its corporate seal to be affixed hereto or imprinted hereon. PUBLIC SERVICE ELECTRIC AND GAS COMPANY By: ___________________________________ [SEAL] Name: Title: Attest: ___________________________ Assistant Secretary Dated: _____________, 1995 A-5 TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Debentures referred to in the within-mentioned Indenture. FIRST FIDELITY BANK, NATIONAL ASSOCIATION, as Trustee By: __________________________ Name Authorized Signatory A-6 ASSIGNMENT FORM To assign this Debenture, fill in the form below: (I) or (we) assign and transfer this Debenture to: _______________________________________________________________ (Insert assignee's social security or tax I.D. number) ________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint ______________________________ agent to transfer this Debenture on the books of the Debenture Register. The agent may substitute another to act for him. Dated: ________________ Signature: ________________________ (Sign exactly as your name appears on the other side of this Debenture) Signature Guaranty: ________________________ A-7 EX-10.A14 4 EX-10.A14 EXHIBIT 10a(14) Public Service Electric and Gas Company 80 Park Plaza, Newark, NJ 07101 201-430-5620 Mailing Address: P.O. Box 570, Newark, NJ 07101 E. James Ferland Chairman of the Board and Chief Executive Officer September 14, 1994 Mr. Leon R. Eliason 10435 61st Street, N.W. Stillwater, MN 55082 Dear Mr. Eliason: This letter will serve as an amendment and modification of the letter agreement (Agreement) between you and Public Service Electric and Gas Company (PSE&G) dated August 24, 1994, regarding your employment as Chief Nuclear Officer of PSE&G. A. Paragraph No. 1 of the Agreement is revised so that your effective Date of Employment (DOE) with PSE&G shall be September 26, 1994. B. Paragraph Nos. 3 and 4 of the Agreement are revised so that the payments called for therein, which are contingent upon your commencing employment with PSE&G, shall (i) be paid on January 2, 1995 and (ii) not be subject to advancement. If the foregoing is in accordance with your understanding of our agreement, please sign the enclosed copy of this letter and return it to me at your earliest convenience. Sincerely, Agreed to this 17th day of September, 1994. LEON R. ELIASON - -------------------------------- Leon R. Eliason Public Service Electric and Gas Company 80 Park Plaza, Newark, NJ 07101 201-430-5620 Mailing Address: P.O. Box 570, Newark, NJ 07101 E. James Ferland Chairman of the Board and Chief Executive Officer August 24, 1994 Mr. Leon R. Eliason 10435 61st Street, N.W. Stillwater, MN 55082 Dear Mr. Eliason: In conjunction with your employment as Chief Nuclear Officer of Public Service Electric and Gas Company (PSE&G) and President of PSE&G's Nuclear Business Unit, reporting to me as Chief Executive Officer, the agreed terms of employment are as follows: 1. The effective date of your employment with PSE&G shall be October 1, 1994 or such earlier date as may be agreed to in writing between you and I (the Date of Employment (DOE)). 2. You shall be paid a salary at the annual rate of $325,000, which salary may be increased, but shall not be reduced, thereafter during the five-year period commencing on the DOE. This initial annual rate of salary shall remain in effect until December 31, 1995. 3. PSE&G will make a cash payment to you on the DOE in the amount of $40,000 to compensate you for the loss of stock option and restricted stock benefits under plans of your present employer. 4. PSE&G will pay you $125,000 cash on the first business day of 1995 to compensate you for the loss of your 1994 annual bonus under the plan of your present employer. You shall have the option, upon five days written notice, to advance this payment to any date of your choice that is subsequent to the DOE. 5. You shall be entitled to those benefits from time to time available to officers and employees of PSE&G generally, except as otherwise provided in this letter. You shall be eligible for a minimum of six weeks of vacation per year, except that for calendar year 1994, you shall be eligible for three weeks of vacation. In addition, financial counseling will be available to you. 6. PSE&G will compensate you for reasonably incurred moving and relocation expenses in accordance with PSE&G's Relocation Program. Such compensation shall specifically include reimbursement of any sales commissions on your existing principal residence and on a second residential property located in Rapid City, South Dakota and will also include, if you so elect, the purchase of your principal residence and such second property. In addition, PSE&G will provide you and your spouse temporary living expenses in New Jersey for a period of up to six months and will provide for the taxes associated with providing you housing in New Jersey during such six-month period. PSE&G will pay for the cost of installation of a security system in your permanent home in New Jersey, or vicinity, and will maintain such a system in your permanent home as long as you are Chief Nuclear Officer of PSE&G. 7. You may be discharged with or without cause at any time. If you should be discharged without cause during the five-year period commencing on DOE, PSE&G will pay to you the salary in effect pursuant to Paragraph 1 above at the time of your discharge for a period of twelve months following such discharge, or for the remainder of such five-year period, whichever is less. "Cause" shall mean (i) the willful or negligent dereliction of, and continued failure by you to perform your duties with PSE&G (other than any such failure resulting from your incapacity due to physical or mental illness), after a written demand for performance is delivered to you by the Board of Directors or the Chief Executive Officer of PSE&G which identifies the manner in which the Board or CEO believes that you have not so performed your duties, or (ii) any conduct constituting a felony or moral turpitude. 8. Your participation in PSE&G's Management Incentive Compensation Plan (MICP) will begin effective as of January 1, 1995. Your target incentive award as Chief Nuclear Officer will initially be 30% of salary. This may be adjusted from time to time in accordance with established plan procedures. In addition, to provide an appropriate transition adjustment, because any MICP awards are paid out one-third annually over a three-year period, PSE&G will pay to you the following lump-sum cash payments in January of the following years: 1996 -- $100,000; 1997 -- $65,000; 1998 -- $35,000, in addition to any payouts which may result from your participation in the MICP itself. Copies of the MICP and the calculation determining the 1993 corporate factor have previously been forwarded to you. 9. As Chief Nuclear Officer, you will participate in the Long-Term Incentive Plan (LTIP) of Public Service Enterprise Group Incorporated (Enterprise), the parent of PSE&G. The LTIP provides senior officers selected by the Organization and Compensation Committee with options to purchase shares of Enterprise Common Stock. The options generally are granted in January and become exercisable three years after the date of grant, and the LTIP provides for payments to be made, dependent upon dividends paid by Enterprise and future financial performance by Enterprise in comparison to other corporations, to assist the officers in exercising the options granted. I will recommend to the Organization and Compensation Committee that you be granted 2,500 options in January 1995 (which would be exercisable in 1998). In addition, I will recommend to the Organization and Compensation Committee that you also be granted 600 stock options under the LTIP which are exercisable in 1995, 1,200 stock options exercisable in 1996, and 1,800 stock options exercisable in 1997. Such options would be subject to all of the provisions of the LTIP and would permit the purchase by you of numbers of shares granted by the Organization and Compensation Committee that appropriately reflect your responsibilities and ability to contribute to the long-term success of Enterprise. 10. In light of your allied work experience, you shall be granted credited service, in addition to that earned as a result of your employment by PSE&G, for the purpose of determining any pension benefits from PSE&G in accordance with the following schedule: Additional Years Date of Termination of Employment of Credited Service --------------------------------- ------------------- On or after DOE plus 3 years and prior to DOE plus 4 years 19 On or after DOE plus 4 years and prior to DOE plus 5 years 20 On or after DOE plus 5 years and prior to DOE plus 6 years 21 On or after DOE plus 6 years and prior to DOE plus 7 years 22 On or after DOE plus 7 years and prior to DOE plus 8 years 23 On or after DOE plus 8 years and prior to DOE plus 9 years 25 On or after DOE plus 9 years and prior to DOE plus 10 years 27 On or after DOE plus 10 years 29 The additional credited service shown in the table above is not cumulative, but is applied from the table depending upon when you retire. For example, assuming you are currently age 55, the additional credited service set forth above, together with the Board's current policy of granting 5 years of additional credited service to officers who retire between age 60 and age 65-1/2, and your actual credited service, will afford you a total of 31 years of credited service at age 60, and 44 years of credited service at age 65, dependent upon your actual date of birth and DOE. Under PSE&G's pension programs as presently in effect, you would be eligible to retire at age 58 with a reduced pension, or at age 60 with an unreduced pension, dependent upon your actual date of birth and DOE. The amount of your pension or survivorship benefits paid by your present employer (or any other employer) shall be deducted from the pension benefits payable to you or your beneficiary by PSE&G on account of such service with your present employer (or other employer). 11. In recognition of your need for an automobile for business purposes, PSE&G will provide you with a full-size American-made automobile (Oldsmobile, Buick or other comparable model) and shall provide the related maintenance, repairs, insurance and costs of operation thereof. 12. As part of PSE&G's requirement for a work force that is free from the influence of foreign chemical substances, you will be required to complete a medical examination which will include definitive analysis of a freshly voided urine specimen for the presence of commonly abused drugs, including marijuana. If the foregoing is in accordance with your understanding, please sign the enclosed copy of this letter and return it to me. Sincerely, E. JAMES FERLAND E. James Ferland Chairman of the Board and Chief Executive Officer Agreed to this 26th day of August, 1994. LEON R. ELIASON - -------------------------------- Leon R. Eliason EX-12 5 EX-12
EXHIBIT 12 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES PLUS PREFERRED SECURITIES DIVIDEND REQUIREMENTS YEARS ENDED DECEMBER 31, ---------------------------------------------------------------- 1990(A) 1991(A) 1992(A) 1993 1994 --------- --------- ---------- ---------- ---------- (THOUSANDS OF DOLLARS) Net Income............................ $ 403,663 $ 543,035 $ 504,117 $ 595,519(A) $ 679,033 Plus Income Taxes (B)................. 144,652 274,146 253,276 316,010 322,824 --------- --------- ---------- ---------- ---------- Income Before Income Taxes............ 548,315 817,181 757,393 911,529 1,001,857 --------- --------- ---------- ---------- ---------- Fixed Charges and Preferred Securities Dividend Requirements: Interest Charges (C)................ 457,017 478,321 524,025 502,534 495,925 Interest Factor in Rentals.......... 9,162 9,311 9,591 11,090 12,120 Preferred Securities Dividend Requirements (Pre-tax) (D)........ 38,544 42,676 46,748 58,112 60,589 --------- --------- ---------- ---------- ---------- Total....................... 504,723 530,308 580,364 571,736 568,634 --------- --------- ---------- ---------- ---------- Earnings Before Fixed Charges and Preferred Securities Dividend Requirements...................... $1,053,038 $1,347,489 $1,337,757 $1,483,265 $1,570,491 ========== ========== ========== ========== ========== Ratio................................. 2.09 2.54 2.30 2.59 2.76 (A) Excludes cumulative effect of $5.4 million credit to income reflecting a change in income taxes. (See Note 9 -- Federal Income Taxes of Notes to Consolidated Financial Statements.) (B) Includes state income taxes and federal income taxes for other incomes. (C) Excludes 1991 and 1992 interest expense on decommissioning costs of $6,956 and $5,208, respectively. Effective January 1, 1992, accounting was changed to follow Federal Energy Regulatory Commission guidelines. (D) Includes a reduction for tax-deductible preferred dividends in accordance with Sections 244(a) and 11(b) of the Internal Revenue Code of 1986, as amended, before applying accounting Rule S-K of Regulation 229.503. Item 503(6).
EX-12.A 6 EX-12.A
EXHIBIT 12(A) PUBLIC SERVICE ELECTRIC AND GAS COMPANY COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES YEARS ENDED DECEMBER 31, -------------------------------------------------------------- 1990 1991 1992 1993 1994 ---------- ---------- ---------- ---------- ---------- (THOUSANDS OF DOLLARS) Net Income....................... $ 537,619 $ 545,479 $ 475,936 $ 614,868 $ 659,406 Plus Income Taxes (A)............ 209,360 261,912 223,782 307,414 301,447 ---------- ---------- ---------- ---------- ---------- Income Before Income Taxes....... 746,979 807,391 699,718 922,282 960,853 ---------- ---------- ---------- ---------- ---------- Fixed Charges Interest Charges (B)........... 346,020 358,517 401,902 389,956 395,925 Interest Factor in Rentals..... 9,162 9,311 9,591 11,090 12,120 ---------- ---------- ---------- ---------- ---------- Total.................. 355,182 367,828 411,493 401,046 408,045 ---------- ---------- ---------- ---------- ---------- Earnings Before Fixed Charges.... $1,102,161 $1,175,219 $1,111,211 $1,323,328 $1,368,898 ========== ========== ========== ========== ========== Ratio............................ 3.10 3.20 2.70 3.30 3.35 ==== ==== ==== ==== ==== (A) Includes state income taxes and federal income taxes for other income. (B) Excludes 1991 and 1992 interest expense on decommissioning costs of $6,956 and $5,208, respectively. Effective January 1, 1992, accounting was changed to follow Federal Energy Regulatory Commission guidelines.
EX-12.B 7 EX-12.B
EXHIBIT 12(B) PUBLIC SERVICE ELECTRIC AND GAS COMPANY COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES PLUS PREFERRED SECURITIES DIVIDEND REQUIREMENTS YEARS ENDED DECEMBER 31, ------------------------------------------------------------- 1990 1991 1992 1993 1994 ---------- ---------- ---------- ---------- ---------- (THOUSANDS OF DOLLARS) Net Income................................ $ 537,619 $ 545,479 $ 475,936 $ 614,868 $ 659,406 Plus Income Taxes (A)..................... 209,361 261,912 223,782 307,414 301,447 ---------- ---------- --------- ---------- ---------- Income Before Income Taxes................ 746,980 807,391 699,718 922,282 960,853 ---------- ---------- --------- ---------- ---------- Fixed Charges and Preferred Securities Dividend Requirements: Interest Charges (B).................... 346,020 358,517 401,902 389,956 395,925 Interest Factor in Rentals.............. 9,162 9,311 9,591 11,090 12,120 Preferred Securities Dividend Requirements (Pre-tax) (C)............ 40,116 42,703 46,675 56,957 60,981 ---------- ---------- --------- ---------- ---------- Total........................... 395,298 410,531 458,168 458,003 469,026 ---------- ---------- --------- ---------- ---------- Earnings Before Fixed Charges and Preferred Securities Dividend Requirements............................ $1,102,162 $1,175,219 $1,111,211 $1,313,328 $1,368,898 ========== ========== ========== ========== ========== Ratio................................ 2.79 2.86 2.43 2.89 2.92 ==== ==== ==== ==== ==== (A) Includes state income taxes and federal income taxes for other income. (B) Excludes 1991 and 1992 interest expense on decommissioning costs of $6,956 and $5,208, respectively. Effective January 1, 1992, accounting was changed to follow Federal Energy Regulatory Commission guidelines. (C) Includes a reduction for tax-deductible preferred dividends in accordance with Sections 244(a) and 11(b) of the Internal Revenue Code of 1986, as amended, before applying accounting Rule S-K of Regulation 229.503. Item 503(6).
EX-21 8 EX-21
EXHIBIT 21 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED SIGNIFICANT SUBSIDIARIES STATE OF NAME OWNERSHIP % INCORPORATION - --------------------------------------------------------------------- ----------- ------------- Public Service Electric and Gas Company.............................. 100 New Jersey The remaining subsidiaries of Public Service Enterprise Group Incorporated are not significant subsidiaries as defined in Regulation S-X.
EX-23.A 9 EX-23.A EXHIBIT 23 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements Nos. 33-44581, 33-44582, 33-45491 and 33-4781 of Public Service Enterprise Group Incorporated on Form S-8 and Registration Statement No. 33-49123 of Public Service Enterprise Group Incorporated on Form S-3 of our report dated February 14, 1995, appearing in this Annual Report on Form 10-K of Public Service Enterprise Group Incorporated for the year ended December 31, 1994. DELOITTE & TOUCHE, LLP Parsippany, New Jersey February 23, 1995 EX-23.B 10 EX-23.B EXHIBIT 23 PUBLIC SERVICE ELECTRIC AND GAS COMPANY INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements Nos. 33-49367, 33-50197, 33-50199 and 33-51309 of Public Service Electric and Gas Company on Forms S-3 of our report dated February 14, 1995 appearing in this Annual Report on Form 10-K of Public Service Electric and Gas Company for the year ended December 31, 1994. DELOITTE & TOUCHE, LLP Parsippany, New Jersey February 23, 1995 EX-27.A 11 FDS ENTERPRISE
UT This schedule contains summary information extracted from SEC Form 10-K and is qualified in its entirety by reference to such financial statements. 0000788784 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED 1000 YEAR DEC-31-1994 DEC-31-1994 PER-BOOK 11098245 2673663 1356872 1588685 0 16717440 3801157 0 1510010 5311167 300000 384994 5180657 0 0 491586 499738 0 53770 0 4495528 16717440 5915843 322824 4433692 4751750 1164093 19219 1183312 495925 679033 42147 679033 528071 459158 1231790 $2.78 $2.78
State Income Taxes of $5,507 and Federal Income Taxes for Other Income of $4,766 were incorporated into this line for FDS purposes. In the referenced financial statements, State Income Taxes are included in Taxes - Other and Federal Income Taxes for Other Income are included in Other Income - Miscellaneous.
EX-27.B 12 FDS PSE&G
UT This schedule contains summary financial information extracted from Form 10-K and is qualified in its entirety by reference to such financial statements. 0000081033 PUBLIC SERVICE ELECTRIC AND GAS COMPANY 1000 YEAR DEC-31-1994 DEC-31-1994 PER-BOOK 11098245 331787 1247938 1586428 0 14264398 2563003 534395 1292201 4389599 300000 384994 4486787 0 0 401759 310200 0 53770 0 3937829 14264398 5511641 301447 4202290 4498971 1012670 19022 1031692 395925 659406 40467 618939 505300 366894 1060506 0 0
State Income Taxes of $2,152 and Federal Income Taxes for Other Income of $4,766 were incorporated into this line item for FDS purposes. In the referenced financial statements, State Income Taxes are included in Taxes - Other and Federal Income Taxes for Other Income are included in Other Income - Miscellaneous.
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