ML18092A138

Annual Financial Rept 1983

ML18092A138
Person / Time
Site:	Salem, Hope Creek, 05000000
Issue date:	12/31/1983
From:	Sonn H Public Service Enterprise Group
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ML18092A137	List: ML18092A136 ML18092A138 ML18092A139 ML18092A140 ML18092A141
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NUDOCS 8404190320
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DEADLINE RETU RN DATE.,

RECORDS FACILITY BRANCH

1983 Annual Report Public Service Electric and Gas Company 80 Park Plaza. Newark, New Jersey 07101 (201) 430-7000 Stockholder Information -

Toll Free New Jersey residents (800) 242-0813 Outside New Jersey (800) 526-8050 Public Service Electric and Gas Company is the largest utility in New Jersey and serves approxi-mately 5.4 million people, nearly three-quarters of the state's popu-lation. The Company's service area.

covering some 2.600 square miles.

runs diagonally across the state's industrial and commercial corridor from the New York state border on the north to south of Camden. This highly diversified and heavily popu-lated area includes the six major cities of New Jersey as well as nearly 300 suburban and rural communities.

PSE&G's 26-story corporate head-quarters building in downtown Newark soars above Park Plaza.

which was completed in 1983. The plaza was constructed on the site of the Company's former headquarters building. Dedication ceremonies.

marking completion of the new headquarters complex. were held on October 18. Photographs of the dedication are on Page 6.

Additional Reports Available Form 10-K Stockholders or other interested persons wishing to obtain a copy of the Company's 1983 Annual Report to the Securities and Exchange Commission. filed on Form 10-K.

may obtain one without charge by writing to the Vice President and Treasurer. Public Service Electric and Gas Company. P.O. Box 570.

T6B. Newark. New Jersey 07101.

The copy so provided will be with-out exhibits. Exhibits may be purchased for a specified fee.

Financial and Statistical Review A comprehensive statistical supple-ment to this report. containing financial and operating data for the years 1973-1983 will be available this Spring. If you wish to receive a copy, please write to the Vice Presi-dent and Treasurer. Public Service Electric and Gas Company. P.O. Box 570, T6B. Newark. N.J. 07101.

1. Financial Highlights

2. Message to Shareholders

5. Financial Review

9. Construction Expenditures

11. Nuclear Operations

15. Gas Supplies

17. Customer & Marketing Services

19. Conservation Program

20. Area Development

21. Research & Development

23. Employee and Community Relations

24. Financial Statement Responsibility

25. Financial Statements

29. Independent Accountants' Opinion

32. Summary of Significant Accounting Policies

33. Notes to Financial Statements

41. Management's Discussion and Analysis of Financial Condition and Results of Operations

44. Operating Statistics

46. Financial Statistics

48. Officers and Directors

Earnings per average share of Common Stock Shares of Common Stock Average Year-end Dividends paid per share of Common Stock Book Value per share of Common Stock Total Operating Revenues Total Operating Expenses Earnings Available for Common Stock Gross Additions to Utility Plant Total Utility Plant A Balanced ComJXlllY lbised Grekh 1983 1982 Increase

$3.40

$3.24 5

97,467.000 89,233,000 9

102.858,000 94.845.000 8

$2.62

$2.53 4

$26.36

$25.90 2

$3,962,932,000

$3.873,976,000 2

$3,468,982,000

$3.419.517.,000

$ 331,545,000

$ 288,962.000 15

$ 890,885,000

$ 813.375,000 10

$8,950,476.000

$8, 100,579,000 10 The 1983 Income Dollar Where It Came From Electric Revenues

$.63 Gas Revenues

.34 Allowance for Funds Used During Construction

.03

$1.00 Where It Went Fuel. Purchased Power and Gas Salaries & Wages Materials & Services Taxes Interest Dividends Reinvested in Business

$.42

.08

.10

.17

.06

.08

.09

$1.00 Newark*

NEW YORK CITY Trenton 1

PHllADELPHIA

. Camden

2 Message to Shareholders A trend in New Jersey toward a predominantly service-oriented economy accelerated in 1983 and your Company continued to make the most of this change.

As a well-balanced. combina-tion electric and gas utility with a diversity of fuel sources. PSE&G is poised to meet the changing needs of the state's economy.

The trend taking place was highlighted by the beginning of what is expected to be a major re-development of the New Jersey side of the Hudson River waterfront.

Plans for the waterfront involve more than a dozen projects and the expenditure by developers of billions of dollars over the next 20 years. The area includes hun-dreds of acres of former railroad property that have become available.

The waterfront projects have the potential to surpass the devel-opment that has taken place in the Hackensack Meadowlands area which produces millions of dollars of revenue annually for the Company. Extensive development and economic revitalization also are taking place in central and southern New Jersey.

PSE&G has been a vital con-tributor to this growth through promotional campaigns that have attracted numerous companies to the state. During the year the Company launched the second phase of a program to attract addi-tional high-technology industry.

Earnings Improve Overall. the Company fared well in 1983 despite the absence of any base rate increase.

Earnings per share of Com-mon Stock in 1983 increased to

$3.40 per share from $3.24 in 1982. In the second quarter. the quarterly dividend was increased to 66 cents per share of Common Stock from 64 cents previously paid. This was the eighth consecu-tive year in which the dividend was increased and raised the annual rate to $2.64.

The gain in earnings was attributable in large part to higher electric sales that resulted from greater demand for air condition-ing during an abnormally hot summer. An improvement in the economy was also a factor.

Electric Demand Sets Record ity assurance procedures and to The petition was refiled During the heat wave. demand for conduct an overview of manage-promptly on July 1 and everything electricity on the Company's system ment organization. The firm made possible was done by the Company reached new highs. A record peak a number of recommendations.

to expedite the case. Hearings on load of 7.161 megawatts was set on most of which were carried out by the petition have been completed August s only to be surpassed on year-end and others that are being and a decision by the BPU is antici-September 6 when a new peak of implemented over a longer period pated during the first quarter of 7,244 megawatts was recorded.

of time.

1984.

The types of fuels used for In addition. the Company es-Meanwhile. the cost of pro-electric generation in 1983 tablished a Nuclear Oversight Com-viding service has continued to reflected both diversity and bal-mittee composed of independent increase. and a concerted, system-ance. During the year. 30 per cent outside experts. The committee wide program of budget cuts and of the Company's electric output evaluates the effectiveness of cost controls to hold down was generated by burning coal.

nuclear plant operation. with expenses has continued in effect to Purchased power -

most of it particular emphasis on safety, and help maintain the Company's finan-from coal-fueled plants -

accoun-reports to management. the Board cial health.

ted for 26 per cent. Nuclear power of Directors and the NRC.

Park Plaza Completed provided 17 per cent. natural gas Hope Creek Work Progresses Construction of Park Plaza was 19 per cent and oil 8 per cent.

Although nuclear power At the close of 1983 the Hope completed during the year on the receives a great deal of attention.

Creek Generating Station was more site of the Company's former head-all fuels used to generate electricity than 80 per cent completed. on quarters building.

present problems in one form or schedule and within budget. The A dedication ceremony for the another. and PSE&G's diversity in New Jersey Board of Public Utilities plaza was held on October 18 at supplies is a source of strength.

(BPU) in July approved a cost con-which an amphitheater in the plaza Coal. for example. is currently tainment incentive agreement was named in honor of Robert I.

the subject of a growing contra-among the Company, the Public Smith, who retired on September 9 3

versy over acid rain. There is pres-Advocate of New Jersey and state as chairman and chief executive of-sure for a quick political solution Department of Energy that is de-ficer after more than 43 years of that could increase electric bills signed to facilitate economic service with the Company. The dramatically. PSE&G. along with completion of the plant.

honor was especially fitting inas-other utilities. is cooperating in The Company has applied to much as Mr. Smith during his long efforts to solve the problem the NRC for a Hope Creek operat-career served the Company and the through additional research and ing license and the Commission has community with distinction.

scientific analysis.

begun the review process.

During 1983, as throughout Salem Problems Rectified Hope Creek is the Company's its 80-year history. the Company only major construction project.

was able to meet its responsibilities As we reported to shareholders After Hope Creek becomes opera-only with the dedicated service of during the year. problems were tional. scheduled for 1986. the employees and the support of experienced in February with Company's financing burden will shareholders. We look to the future No. 1 unit at the Salem Generating ease considerably as construction confident that with a continuation Station.

expenditures are reduced. The of this dedication and support the After an investigation and Company does not anticipate a Company will grow and prosper.

extensive hearings. the Nuclear need for any new large plant con-Regulatory Commission (NRC) struction until after the year 2000.

authorized restart of the unit. and Rate Increase Sought it was returned to service on

~~-<!~

May 21. During the remainder of A petition was filed with the BPU in the year the unit compiled an excel-January for an increase of $464.5 lent capacity and availability record.

million in annual revenues, or 11.6 Harold W. Sann In response to the February per cent. Unfortunately, the BPU President and Chief Executive Officer problems. which involved failure of dismissed the petition in February the unit's automatic shutdown sys-on the grounds that the Company's tern. PSE&G retained a consulting financial condition at that time did firm to review the Company's qual-not require a filing before July.

February 14, 1984

4 Verdell L. Roundtree, who was newly elected to the Company's Board of Directors in 1983, hears about latest improvement in distribution trans-formers on visit to Palisades Electric Transmission and Distribution Division headquarters from Jack Rosenmeier, division manager. Mrs. Roundtree visited a number of PSE&G facilities during the year to become more famil-iar with operations, as is customary for new directors.

Electric and Gas Sales Increase One of the brightest aspects of the Company's performance in 1983 was a gain of 5.6 per cent in elec-tric sales. The increase was a major factor in an improvement in earn-ings for the year. Sales were bolstered by demand for air condi-tioning during hot. humid summer weather and to some extent by the revival of the economy.

Gas sales increased slightly, by 0.5 per cent. compared with 1982.

Additional gas heating connections and conversions. as well as a colder December. helped offset lower demand for heating caused by milder weather during the first half of the year.

Total operating revenues rose to $3.96 billion from $3.87 billion in 1982.

Electric revenues increased to

$2.57 billion. a rise of 1.1 per cent.

and accounted for 65 per cent of the overall total. Gas revenues in-creased by 4.6 per cent to $1.39 billion and composed the other 35 per cent of total revenues.

Balanced Revenue Sources As in prior years. the composition of overall revenues by customer classification reflected the diversity in PSE&G's service area that provides stability and strength. This diversity results in a balance in revenue sources among residential.

commercial and industrial custom-ers. The sources of 1983 revenues by customer classification were:

Electric Gas Combined Residential 32%

54%

40%

Commercial 38 28 35 Industrial 27 18 23 Street Light-ing and other 3

2 Total 100%

100%

100%

A Balanced Company Poised for Growth Expenses Rise Operating expenses continued to rise in 1983 but at a slower rate.

increasing by $49 million. or 1.4 per cent to $3.47 billion from

$3.42 billion in 1982.

Overall production costs decreased by $29.6 million. a drop of 1.4 per cent.

Electric production expenses declined by 5.5 per cent compared with 1982. mainly because of lower fuel and purchased power costs.

Expenses. other than fuel and power purchases. increased by 9.9 per cent.

Gas production expenses.

which include the cost of natural gas. rose by 4.3 per cent.

The price of purchased natu-ral gas increased at a lower rate than in 1982. reflecting more than adequate supplies and efforts by pipeline suppliers to stabilize their average cost of gas.

Labor costs increased by

$29.7 million. or 10.0 per cent. The rise was attributable to increases in the second year of a two-year union contract reached in 1982.

The labor contract. which ended a 41-day strike. provided for wage increases of 8.25 per cent in the first year and 8.0 per cent in the second.

Earnings and Dividends per Share 3.50 3.00 Z.50 Z.00 1979 80 81 Earnings

• Dividends 82 83 Earnings Increase Benefiting from higher electric sales. earnings in 1983 increased to

$332 million. equal to $3.40 a share of Common Stock, compared with $289 million. or $3.24 a share in 1982. The Company's program of budget cutting and cost control also was a factor in the improvement. The average number of common shares outstanding rose to 97.5 million during the year from 89.2 million in 1982.

Dividend Boosted The quarterly dividend on Common Stock was increased to 66 cents a share in the second quarter from 64 cents paid in the first quarter.

The increase was the eighth in as many years and consistent with management's objective of raising dividends on a regular basis. subject to adequate levels of earnings.

Total dividends paid for the year amounted to $2.62 a share compared with $2.53 in 1982.

Dividends paid in 1983 on all classes of stock are fully taxable.

Due to special circumstances in some prior years. portions of divi-dends were determined to be a return of capital and. therefore.

non-taxable as current income.

Decisions on taxability of dividends are governed by Internal Revenue Service rules and are based on the Company's estimated tax liability.

Capitalization Ratios (Year-End) 1979 80 81 8Z 83

• Common Equity

• Preferred Stock

• Long-Term Debt

• Other Long-Term Obligations 5

6 A clown on stilts joined celebration at dedication ceremonies on October 18 for Park Plaza. The plaza. which fronts on Newark's historic Military Park, includes an amphitheater, a reflective pool and a seven-foot waterfall. The amphitheater was named in honor of Robert I. Smith, who is shown with Mrs. Smith at plaque unveiled during dedication. Mr. Smith retired in Sep-tember as chairman and chief executive officer after a career of more than 43 years with the Company. Park Plaza provides an attractive setting for PSE&G's headquarters complex.

Electric Bills Reduced On March 1, the electric levelized energy adjustment clause, which reflects changes in the cost of fuels used to generate electricity and purchased power, was revised to reduce revenues by $135 million over the 16 months ending June 30, 1984. The reduction, the sec-ond in less than a year, followed an adjustment on June 2. 1982. that lowered revenues by an estimated

$250 million over the ensuing 13-month period.

The reductions lowered bills of residential customers on average by approximately 10 per cent com-pared with those in effect after the Company's base rate increase in February 1982.

These decreases have no direct effect on earnings and were based mainly on anticipation of in-creased low-cost nuclear generation. lower oil prices and the completion of the collection of underrecoveries of energy charges from prior periods.

Electric Peak Load and Installed Capacity at Time of Peak (Millions of Kilowatts) 10.0 9.5 9.0 8.5 8.0 7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 I 2.5 2.0 1.5 I 1.0 0.5 0

I I

1974 75 76 77 78 79 80 81 82 83

• Peak Load Installed capacity A Balanced Company Poised for Growth On September 29, the New Jersey Board of Public Utilities authorized continuation of the cur-rent adjustment charge through June 1984. The impact of the extended outage of Salem No. 1 unit, following problems experi-enced in February. is being considered in a second phase of the adjustment charge proceeding. The Company's position is that replace-ment power costs relating to the outage were offset because the Company was able to move to an 18-month fuel cycle earlier than originally planned. In addition. the Company testified that its actions related to the outage were prudent.

The New Jersey Public Advocate contends that the outage increased costs by as much as $50.2 million.

and should not be recovered from customers.

Hearings have been concluded by the BPU and a decision is expected by the end of the first quarter of 1984. Any amount not recovered from customers would be charged to net income.

Gas Peak Sendout and Daily Capacity at Time of Peak (Millions of Therms) 21 20 19 18 17 16 15 14 13 12 11 10 9

8 7

6 5

4 3

2 1

0 I

1973 74 75 76 77 78 79 80 81 82

~ ~ ~ TI W N

80

~ ~ e Heating Season

• 24-Hour Peak Sendout Manufactured Gas Winter Storage Natural Gas High Load Factor Natural Gas Rate Increase Requested Foreseeing need for rate relief, the Company filed a petition on Janu-ary 7 with the BPU for an increase in base rates of $464.5 million. or 11.6 per cent. annually. The petition was rejected by the BPU in Febru-ary on grounds that the Company had not demonstrated that its financial condition required a filing prior to July 1.

The Company refiled the peti-tion on July 1 for the $464.5 million revenue increase. The request included an increase in annual electric revenues of $397.4 million, or 15.8 per cent. and $67.1 million in gas revenues, equal to 4.5 per cent.

Hearings on the petition before an Administrative Law Judge concluded in December. On February 14, 1984 the Administra-tive Law Judge recommended that the Company be granted an overall increase of $221 million. Of this amount. $197 million would be for electric service and $24 million for gas. A decision by the BPU is antici-pated before the end of March 1984.

Gas Bills Lowered Effective September 30, the BPU approved a reduction of $87.3 mil-lion in the gas levelized raw materials adjustment charge which reduced bills of typical residential heating customers by approxi-mately 6 per cent.

The adjustment charge, effec-tive through September 1984, reflects changes in the estimated cost to the Company of gas sup-plied by pipeline companies. The reduction was attributable to a moderation in the increase in pipe-line gas prices and the return to customers of an overrecovery of costs that occurred during the prior adjustment clause period.

7

8 Significant progress was made during 1983 on the construction of the Hope Creek Generating Station. The outside wall of the cooling tower was topped out in October and the control room complex was completed in December.

Inset photo shows Harold W. Sonn, president and chief executive officer.

accepting symbolic key to control room from Alden P. Yates, president of Bechtel Group, Inc., at ceremony mark-ing turnover of the control room.

Completion of the control room per-mitted extensive testing of major con-trol elements to begin preparatory to startup scheduled for 1986.

Construction Expenditures Rise Construction expenditures. includ-ing Allowance for Funds Used Dur-ing Construction (AFDC). payments for nuclear fuel and advances to subsidiaries. increased to $902 mil-lion in 1983 from $842 million. in 1982. Expenditures in 1984 are estimated at $894 million. includ-ing $154 million of AFDC.

In the three years through 1986. expenditures for all con-struction projects. including Hope Creek. are estimated at $2.5 billion.

including $550 million of AFDC.

Expenditures for nuclear generat-ing facilities and fuel will be about

$1.6 billion. or 65 per cent of the total.

Hope Creek has a targeted cost of $3.795 billion under a cost containment agreement reached in 1982 by the Company with the Public Advocate of New Jersey and the state Department of Energy and approved by the BPU in July of 1983.

At year-end the unit was more than 80 per cent complete and costs were closely tracking esti-mates. Under the agreement, there would be a penalty in the form of reduced earnings if the costs exceed $3.795 billion. unless over-runs were due to extraordinary events beyond the Company's con-trol. There would be a benefit to earnings if the unit should be com-pleted for less than $3.55 billion.

The Company owns 95 per cent of Hope Creek and Atlantic City Elec-tric Company owns the other 5 per cent.

Construction expenditures are projected to decline substantially after the completion of Hope Creek.

During the next three years.

the Company expects with ade-quate rate relief to generate at least half of its construction expen-ditures internally. excluding AFDC.

The balance will be provided through permanent financing by A Balanced Company Poised for Growth issuing Mortgage Bonds, Preferred Stock and Common Stock.

Estimated Construction Expenditures (Including AFDC)

Year 1984 1985 1986 (Millions)

Totals

$894

$885

$701 Balanced Financial Structure The Company continues to main-tain a conservative capital structure to protect its high credit standing and to provide financial flexibility.

More than- $372 million of capital funds were raised in 1983 through the sale of Mortgage Bonds. Pre-ferred Stock and Common Stock.

In June. the Company issued

$64,000.000 principal amount of 97/a%. 30-year First and Refunding Mortgage Pollution Control Bonds.

The Company in August sold

$100.000.000 principal amount of 12%%. 10-year First and Refund-ing Mortgage Bonds. At the same time 300.000 shares of 11.62%

Cumulative Preferred Stock, $100 par value were sold.

Two million shares of Com-mon Stock were sold in October to a group of underwriters at

$24.125 per share. Proceeds to the Company totaled $48.250,000.

The Company also raised

$105.6 million through the sale of 4.8 million shares of Common Stock under the Dividend Reinvest-ment and Stock Purchase Plan. and

$27.6 million through the issuance of 1.2 million shares under various employee stock ownership plans.

Proceeds from the sales of these securities were used to repay short-term debt incurred in con-nection with the Company's construction program.

Dividend Reinvestment Plan Adds Participants At the end of 1983 there were 79.025 holders of Common Stock participating in the Company's Divi-dend Reinvestment and Stock Purchase Plan. The number represented a 16.9 per cent increase from the 67,572 partici-pating at the close of 1982.

In addition to the reinvest-ment of dividends, stockholders in the plan may make optional cash.

investments at any time up to

$20,000 a year.

Common Stock dividends are reinvested at 95 per cent of the market price average.

Holders of record of $1.40 Dividend Preference Common Stock and Preferred Stock. both

$100 and $25 par. also may partici-pate in the Plan. Dividends on these issues are used to purchase Com-mon Stock at 100 per cent of market price average.

Under federal income tax rules. individuals may defer taxes on up to $750 in reinvested divi-dends and those filingjoint returns may defer taxes on up to $1.500 of reinvested dividends under quali-fied public utility plans each year.

This benefit is scheduled to expire at the end of 1985, unless extended by legislation.

Nuclear Insurance PSE&G has nuclear property insur-ance coverage of $1.020 billion provided primarily by two industry-owned mutual insurance companies of which the Company is a member.

The Company is also insured against the extra expense of obtain-ing replacement power during prolonged outages of nuclear power plants. After the first 26 weeks of an outage a weekly indemnity of up to $2.5 million is provided for 52 weeks. and $1.25 million for an additional 52 weeks.

With respect to nuclear liabil-ity insurance. the Company has

$160 million from a pool of com-mercial insurers and participates in an industry-wide retrospective assessment program that together provide a total of $580 million. the limit required by Federal legislation.

9

10 Stockholders Stockholders of record at the end of 1983 totaled 266.008 compared with 268,696 at the close of 1982.

They included 230,098 holders of Common Stock; 11.311 holders of

$1.40 Dividend Preference Com-mon Stock; 13.819 holders of Pre-ferred Stock- $100 Par; and 10,780 holders of Preferred Stock

$25 Par.

Investor Relations During the year. stockholders and the financial community were kept informed about developments at PSE&G through the Company's investor relations program.

At various times senior company executives addressed meetings of financial analysts and stockbrokers. The program also involves responding to frequent inquiries from members of the financial community.

In October. a regional stock-holder information meeting was held in Pennsauken. N.J.. attended by approximately 600 shareholders from portions of southern New Jersey and southeastern Pennsylva-nia. The meeting was the eighth such meeting since 1979. including three held in Florida where there is a large concentration of Company shareholders.

Stockholder Services Depart-ment representatives answered a wide range of inquiries from stock-holders during the year. More than 22.500 calls were received on toll-free inquiry numbers maintained for the convenience of stockhold-ers. The number for stockholders calling from outside New Jersey is 800-526-8050 and for those within the state. 800-242-0813.

Electric Output Up Electric output increased by 5.8 per cent in 1983 compared with 1982, as hot. more humid summer weather boosted demand for air conditioning and cooling. and the economy began to revive from the recession. Total megawatthours produced, purchased and inter-changed amounted to 33.4 million.

compared with 31.6 million in 1982.

An all-time peak demand of 7,244 megawatts was recorded on September 6, passing a high of 7,161 megawatts on August 8. The previous record was 7.159 mega-watts set on July 21, 1980.

In August a record output of 3.4 million megawatthours was reached. The output was 19.25 per cent higher than in August 1982.

The maximum day's output in 1983 was 135,775 megawatthours on August 8. up 0.8 per cent from the 1982 high of 134,654 mega-watthours on July 19 but below the all-time high of 140.591 megawatt-hours set on July 21, 1980.

At the time of the system peak load the Company had an in-stalled generating capacity of 8,999 megawatts. or an installed reserve margin of 24 per cent. At year-end the installed generating capacity also was 8,999 megawatts.

The accompanying chart shows the electric planning peak loads. installed operating capacities and the per cent reserves antici-pated for the next 10 years. The major capacity addition will be the Hope Creek nuclear generating unit.

Generating Capacity Forecast Planning Installed Per Cent Year Peak Load Capacity Reserve (Megawatts) 1984 7.140 8,999 26 1985 7.230 8.999 24 1986 7.330 8.999 23 1987 7.430 10.013 35 1988 7,510 10.013 33 1989 7.590 10.013 32 1990 7.660 10.013 31 1991 7.720 10,013 30 1992 7.790 9,888 27 1993 7.840 9.888 26 Oil Use Minimized The Company continued in 1983 to minimize the use of oil as a fuel for electric generation by substantially increasing the use of natural gas.

A total of 730 million therms of natural gas. equivalent to 12.0 million barrels of oil, was used at a cost savings of approximately $65 million. Additional savings of $3.4 million were realized through spot market purchases of coal and oil.

Oil use was curtailed also by purchases from other utilities of power generated by coal-fired plants. In order to take maximum advantage of coal-fueled energy available from utilities to the west.

the PSE&G transmission system was improved by installation of high voltage capacitors. Approxi-mately $42 million was saved by purchasing power from those utili-ties in 1983.

Oil and coal prices declined during 1983. The average price of low sulfur heavy oil purchased to generate electricity was $30.14 a barrel. 8.9 per cent less than the average price in 1982. The lower prices were the result of a world-wide surplus and resulting soft market conditions.

The average delivered price of coal purchased in 1983 to generate electricity was $55.50 per ton. 8.4 per cent less than 1982's average price. Lower coal prices reflected more favorable market conditions and substantially lower rates negotiated in railroad transporta-tion contracts.

Comparative fuel costs in 1983 per million British thermal units were: Oil $5.03; Coal $2.08; Gas $4.05. and Nuclear 82 cents.

Diversity in Fuel Sources The Company's electric output by sources in 1983 reflected the diver-sity of PSE&G's fuel supplies.

Sources in 1983 compared with 1982 follow:

Source 1983 1982 Coal 30%

30%

Oil 8

10 Natural Gas 19 12 Nuclear 17 34 Purchased and Interchanged 26 14 Total 100%

100%

The nuclear output came from four units in which the Company shares ownership with other utilities. Two are at the Salem Station. which the Company built and operates. and two at the Peach Bottom Station in Pennsylvania.

operated by Philadelphia Electric Company. Lower nuclear genera-tion in 1983 was mainly attributable to extended outages for maintenance work on Salem No. 2 and Peach Bottom No. 3, both of which had outstanding production records in 1982. The lower nuclear output in 1983 re-sulted in greater use of gas for gen-eration and of purchased power.

most of which was coal-fueled.

Nuclear Fuel Disposal Contracts Signed President Reagan signed into law in January the Nuclear Waste Policy Act of 1982 that ultimately provides for the permanent disposal of spen*t nuclear fuel by the Federal government. The Company.

along with other operators of nuclear plants. has signed fuel disposal contracts with the U.S.

Department of Energy.

The contracts require the Federal government to take title and provide necessary services to transport. package and place the spent fuel in underground repos-itories. Utilities are required to pay a fee of one mill per kilowatthour of nuclear energy produced. Funds collected are restricted by law to be used exclusively for the spent fuel disposal program. The Company is including disposal fees in its fuel costs.

Uranium Market Firms During the year the market for uranium firmed and prices on the spot market increased from a low of $17 a pound in late 1982 to about $24 a pound toward the end of 1983.

A Balanced Company Poised for Growth Major domestic producers continued their curtailment of min-ing and exploration activities which began in 1981.

The Company has contracts for uranium supplies with domestic and Canadian producers that will provide about 90 per cent of esti-mated requirements through the early 1990's. The balance will be met by spot purchases and short-term agreements.

Availability of lower cost uranium from other sources has resulted in continued deferment of deliveries under a long-term contract with Sequoyah Fuels Corporation. a wholly-owned sub-sidiary of Kerr-McGee Corporation.

The mining project supplying the uranium contracted for is expected to remain in standby condition until January 1986 with resumption of production after that date at the option of the Company.

Under the Kerr-McGee con-tract. $40.7 million had been advanced as of December 31. 1983, to finance mining and milling facili-ties. The Company advanced 70 per cent of the amount and the co-owners of the Salem and Hope Creek stations advanced the bal-ance. Of these advances. $14.5 mil-lion. including $4.7 million of interest. has been recovered through credits against the pur-chase price of uranium concen-trates delivered by Kerr-McGee.

Recoupment of unrecovered advance payments will depend upon the sale of uranium to the Company or other buyers. or sale of the project properties by Kerr-McGee.

Consolidation of Nuclear Operations Continues The Nuclear Department in 1983 continued the consolidation of all nuclear operations at the site of the Salem Generating Station. Further consolidation will be carried out in conjunction with the completion of the Hope Creek Generating Station.

Formed in 1981. the depart-ment has headquarters adjacent to the site of the stations and has the responsibility for efficient and safe operation as well as all other nuclear activities.

Although nuclear power gen-eration was lower in 1983 than in 1982. the Company's cumulative share of the output of the Salem station and Peach Bottom station in Pennsylvania by year-end had exceeded 63 billion kilowatthours.

If oil had been used to gener-ate this electricity there would have been an additional cost to custom-ers of more than $2 billion over the period that the nuclear units have been operating.

PSE&G and Philadelphia Elec-tric Company each own 42.59 per cent of the Salem station. Atlantic City Electric Company and Del-marva Power & Light Company each own a 7.41 per cent interest.

Ownership of the Peach Bottom station. which is operated by Phila-delphia Electric. is divided similarly with only fractional percentage differences.

Despite serious problems experienced with Salem No. 1 in February. the unit's performance was excellent after returning to service on May 21. The unit was available 94.7 per cent of the time and had a capacity factor of 92.9 per cent through the balance of the year.

On February 22 and 25. while the unit was in startup testing phases. following a scheduled refueling and maintenance outage.

operating conditions occurred that should have caused an automatic shutdown of the plant. However.

on both dates. reactor trip circuit breakers failed to operate and each time the unit was quickly shut down manually by operators with-out further incident. There was no damage to the plant and no release of radiation.

1 1

12 Performance excellence is emphasized in courses at the Nuclear Training Cen-ter where training is provided on Salem Control room simulator. Inset photo shows training supervisor at simulator console programming a training exer-cise. The center also contains class-rooms, laboratories, shops and other facilities in which a wide range of train-ing courses are conducted.

After lengthy hearings before the Nuclear Regulatory Commis-sion and an investigation by its staff. the Company was authorized to restart the unit. The authoriza-tion required certain short-term and long-term actions by the Company.

In response to one of the requirements. the Company re-tained an independent outside firm which examined management's per-formance with respect to Salem operations. The firm's study found no significant deficiencies requiring immediate corrective action but did identify some areas requiring attention in the near-term and in the future. The Company fulfilled the near-term recommendations and is implementing the longer-term ones.

On May 5, the NRC proposed civil penalties totaling $850,000 relating to the February incidents.

Although the Company asked for a reduction in the penalties. citing mitigating circumstances. the NRC denied the request. stating that the penalties would contribute to con-tinued efforts toward long-term compliance with the agency's requirements by the Company and other licensees. The Company paid the penalties in October inasmuch as the expense of appealing the matter further would not be justified.

Hope Creek 80 Per Cent Completed Construction of the Hope Creek Generating Station was more than 80 per cent complete at year-end.

The project schedule calls for com-mercial operation in December of 1986. Construction so far is on schedule and expenditures are within budget.

An application for an operat-ing license was submitted in March A Balanced Company Poised for Growth to the Nuclear Regulatory Commis-sion which began the review process. The final Safety Analysis Report and the Environmental Report also were submitted.

Among significant events in 1983 were the turnover by the contractor of the auxiliary boiler building and computer room in August and the control room com-plex in December.

The reactor cylinder dome was installed in July and the outside wall of the cooling tower was com-pleted in October.

A new program called PRIDE (People Respecting Integrity, Dedi-cation and Excellence) was initiated at Hope Creek during the year. The program involves the Company, the contractor and the work force in a cooperative effort to improve pro-ductivity.job conditions. quality of workmanship and safety. Signifi-cant improvements were realized in these areas with tangible gains for the project and overall cost savings.

Nuclear Training Center Dedicated Dedication ceremonies were held in April for the Nuclear Training Cen-ter built and operated by PSE&G to provide qualified plant personnel for the Salem and Hope Creek Generating Stations. The facility is located in the City of Salem.

The most important training equipment at the center is a control room simulator for the instruction of Salem operating personnel. A simulator for the control room of Hope Creek station is to be deliv-ered in 1984. These simulators are replicas of the actual control rooms at the generating stations.

The center testifies to the Company's dedication to excellence in training of nuclear plant opera-tors and other personnel.

Resource Improvement Program Successful Early in 1983 a division of the Elec-tric Transmission and Distribution Department launched a Resource Improvement Program. The pur-pose of the program is to improve job-site work performance through better use of resources such as labor. material and equipment. This is accomplished by tapping the valuable job knowledge and experi-ence of those employees who per-form the work. Success of the program led to its implementation at other department locations and the general office.

The methods of the program have been kept simple and it has re-sulted in strengthening the lines of communication between manage-ment and non-management employees. Recommendations and suggestions from employees are given to a local coordinator. The coordinator. a member of manage-ment. reviews the recommendation and provides feedback to the employees.

The coordinator. who is a key element in the success of the program. provides an open channel of communication for ideas to flow to those who can implement them.

A newsletter is published periodi-cally listing the more significant recommendations and the actions taken.

Employees have shown that they are interested in participating in the program to improve the manner in which their work is per-formed. An example of employee participation was a suggestion for developing a specialized tool to be used in clearing underground con-duits for repair of electric circuits.

The tool will provide significant savings annually in labor and material expense and a substantial suggestion award was made to the employee.

13

14 A computerized system utilizing bar code technology. the first in the utility industry for monitoring the testing and repair of meters. was installed dur-ing 1983. Called Computerization of Standard Meter Operations. or COSMO.

the system was originated by PSE&G.

Upper photos show a supervisor moni-toring the plant floor operations and a gas meter being read with identifying bar code. In the large photo a techni-cian enters test results and monitors information about the meter. COSMO has significantly improved testing procedures. inventory control. and response time to inquiries regarding meters.

Gas Sendout Up Slightly The Company's total gas sendout in 1983 was 2.15 billion therms.

slightly higher than in 1982. A colder-than-normal December in-creased demand for heating over that in December 1982. the warm-est on record. and made up for lagging overall sendout during the first 11 months of the year.

The highest 24-hour sendout of 15.612,000 therms occurred on December 25 when the average temperature was 7 degrees F.

This was 3.6 per cent lower than the all-time record of 16,201,000 therms set on January 17. 1982 when the average temperature was 4 degrees F below zero.

The Company's daily gas capacity was 19,129.000 therms as of December 31. It was com-posed of. in therms: Natural gas.

14,582.000: liquefied petroleum gas. 1.981.000: oil gas. 1,186,000:

synthetic natural gas. 1.125.000 and refinery gas. 255.000.

Natural gas supplies in 1983 were obtained under long-term contracts with three interstate pipelines. from wells owned by Energy Development Corporation.

a Company subsidiary. and through several short-term arrangements with other gas companies and producers.

For the first time since 1970.

there were no curtailments of deliveries under long-term pur-chase contracts with the three pipeline suppliers. Virtually full con-tract amounts have been available to the Company during the last four years. The largest cutback was 1.2 per cent in 1980.

The amount of natural gas purchased in 1983 for distribution to customers totaled 2.03 billion therms. compared with 2.02 billion therms in 1982.

The average cost of natural gas was $3.74 per million Btu in 1983, compared with $3.59 per million Btu in 1982. This increase A Balanced Company Poised for Growth of 4.2 per cent was substantially less than in other years since the passage of the Natural Gas Policy Act of 1978. Higher allowable well-head prices under the Act were partially offset by efforts of pipe-line suppliers to stabilize their aver-age cost of gas and by Company spot purchases of lower-cost gas.

Supplemental Supplies The Company supplements its natu-ral gas supplies with gas purchased from Exxon's Bayway Refinery and.

in the coldest periods of the winter season. with gas manufactured in Company-owned facilities.

Refinery gas purchases in 1983 amounted to 104.8 million therms. compared to 93.8 million therms in 1982. The cost of this gas averaged $4.18 per million Btu compared to $4.76 per million Btu in 1982. This cost is expected to decline further in 1984 as the result of renegotiation of the con-tract pricing provisions in late 1983.

The total production of manu-factured gases amounted to 11.1 million therms in 1983 compared to 30.2 million therms in 1982.

Gas Districts Merged for Greater Efficiency The Ridgewood and Pompton gas districts were combined in May in a new district headquarters building located in Oakland. The new head-quarters houses all gas operations in the northwest portion of the Company's service territory.

The merger was in line with efforts to reduce operating expenses and streamline service in gas transmission and distribution.

Annual savings of about $625.000 are expected to be realized by the merger. The Ridgewood district had been in existence for 78 years and the Pompton district for more than 50 years. These district properties have been sold.

Exploration Subsidiary Results Reflect Market The net income of Energy Develop-ment Corporation (EDC). the Company's exploration subsidiary.

was adversely affected by a reduc-tion in natural gas consumption that prevailed throughout much of the nation in 1983. This lower demand forced pipeline companies to cut back purchases from EDC's partners in various fields which re-sulted in a reduction in EDC's production levels.

A positive aspect of these conditions was that the cost of exploration has been reduced, which will improve EDC's ability to obtain long-term reserves for the Company at less expense.

Revenues from the sale of natural gas and oil totaled $61.3 million. a decrease of 16 per cent from 1982. Net income declined 28 per cent to $8.7 million.

During the year EDC drilled a total of 33 wells, a decline of 42 per cent from 1982. Of the total.

21 were onshore and 12 offshore.

At year-end six wells were still being drilled.

Onshore operations were con-ducted in the Gulf Coast region of Texas. Louisiana and Mississippi.

The result of onshore drilling was eight successful wells and 13 that were abandoned. At year-end five onshore wells were still being drilled.

Offshore activity included exploratory drilling on five un-tested lease blocks and develop-ment drilling to delineate prior discoveries. Development was com-pleted on four offshore blocks and these were placed on stream in 1983. During the year eight wells were classified as successful and four were abandoned. There was one offshore well still being drilled at year-end.

15

16 A reading from a customer's electric meter is recorded on a micro processor.

Meter readers began using the hand-held devices throughout the Company's system in 1983. Data from the micro processors is transmitted to Newark daily for processing and billing. Use of the micro processors has improved the efficiency and reliability of meter reading.

Authorization Sought for LNG Facilities The Company continued its efforts to obtain the required Federal Energy Regulatory Commission (FERC) authorizations to operate the two liquefied natural gas tanks and related facilities on Staten Island, New York, to store domestic natural gas for use by the Company and others during periods of peak demand.

Operation of the tanks, owned by Energy Terminal Services Corporation (ETSC), a Company subsidiary, will require construction of a liquefaction unit and other facilities including a pipeline under the Arthur Kill to New Jersey. The Company's investment in its LNG-related subsidiaries at the end of 1983 was $73.9 million.

During1983,theFERC proceeding continued with briefing by all participants of matters other than ETSC's compliance with certain U.S. Department of Transportation (DOT) regulations.

DOT issued a clarification of its regulations. and ETSC certified compliance to FERC after having studies conducted by an outside consultant.

An ETSC challenge of certain New York State and New York City laws on the basis of preemption was still pending at year-end in Federal District Court.

Changes Improve Customer and Marketing Services Strong emphasis was placed on evaluating efficiency, effectiveness and quality of service in 1983 to obtain maximum benefit from the reorganization and relocation of customer and marketing opera-tions completed in 1982.

An operations department was formed to monitor field office A Balanced Company Poised for Growth practices, to promote customer and marketing services objectives and to assist in finding and implement-ing additional cost reduction mea-sures. The department was formed by regrouping existing personnel.

Centralized tracking of departmental manpower, proce-dures and work performance is expected to result in operating sav-ings as well as to improve customer and employee relations.

Customer Relations Enhanced A new dimension was added to the Company's customer relations efforts with the establishment of a program entitled 'The Challenge of Caring."

The program began with a videotape presentation to all employees who are in contact with customers. Emphasis in the presen-tation was placed on the impor-tance of good customer relations.

As part of the effort to improve the Company's quality of service, training programs were expanded. Effective communication and customer relations skills were stressed in the curriculum which was designed to improve on-the-job performance. Additional train-ing centers equipped to simulate working conditions were opened.

Consumer Advisory Panels, established in 1982, made a num-ber of recommendations that were implemented during the year. There are three panels, geographically situated to serve the Company's three customer and marketing divi-sions. Membership on the panels is drawn from a cross-section of cus-tomer and consumer groups.

Company consumer advisers presented more than 2,500 programs on a variety of subjects to over 184,000 persons. The programs provided information on such subjects as energy conserva-tion, appliance purchasing, meter reading and billing.

Micro Processors Used for Meter Reading After a successful test program in 1982, a micro processor system for meter reading was adopted system-wide in 1983.

Each day more than 400 hand-held micro processors are used by the Company meter read-ers. The devices are employed in conjunction with 14 minicomput-ers. two in the Computer Systems and Services Department in New-ark, and the others at 12 meter reading locations.

Data for reading meters is transmitted daily by telephone lines from Newark to each of the meter reading offices. The data is then electronically sorted and placed into the micro processors for meter reading.

At the end of each work day data from the micro processors is transmitted to Newark for process-ing and billing. In addition to increasing efficiency, quality and reliability of operations, the system provides daily reports on meter reading activities at each location.

Bill Collection Efforts Expanded Efforts to improve bill collections and to prevent thefts of energy were intensified during the year.

A late payment charge for commercial and industrial custom-ers also helped the timeliness of bill payments.

There was an increase in the number of investigations of energy theft and of amounts billed. New computerized case tracking and billing systems were initiated and the BPU approved charging energy thieves for the cost of investiga-tions and legal work.

17

18 "Seal Up and Save-It's Elementary" is the theme of a broad promotional campaign, featuring Sherlock Holmes and Dr. Watson as energy detectives, designed to encourage customers to conserve energy. The program, which includes a multi-media advertising campaign, booklets and bill inserts.

promotes various elements of the Company's Conservation. Cogeneration and Load Management Plan. The plan is in response to an increasing desire of customers to conserve energy and also expected to reduce the Company's need for capital expenditures for new plant facilities.

Competition from Oil Countered A drop in oil prices caused a loss of gas sales during the first half of the year to some industrial and com-mercial interruptible customers who have dual-fuel capability. Most of these customers subsequently switched back after rate changes approved by the BPU made gas more competitive.

A number of firm service cus-tomers also switched to oil with the decline in oil prices. Many returned when gas rates were lowered by a reduction in the Levelized Raw Materials Adjustment Charge in October.

During the year 2,846 new gas industrial and commercial cus-tomers were added.

Conversions reported from oil to gas for residential heating totaled 13,189, the fifth highest number for a year in Company history. Gas heat also was installed in 7,038 newly-constructed homes.

In the electric heating market.

2,340 heat pumps were installed as customers continued to find them to be energy conserving and cost effective systems.

A total of 11,666 new high pressure sodium vapor lights for street lighting were installed. most of them replacing less efficient incandescent units as many munici-palities modernized. In addition.

6,127 dusk-to-dawn units were in-stalled, bringing the total on Company lines to more than 95,000. These units benefit cus-tomers by providing greater night-time security and the Company by use of electricity during off-peak periods.

Total new gas and electric connections in 1983 will provide an estimated $60 million annually in additional revenues.

A Balanced Company Poised for Growth Conservation Program Implemented The Company during 1983 began implementing various programs contained in a Conservation.

Cogeneration and Load Manage-ment Plan as directed and approved by the New Jersey Board of Public Utilities. The plan is expected to benefit the Company by reducing the need for capital expenditures for new plant facilities.

Customers were encouraged to conserve by using energy more efficiently through an advertising and promotional campaign with the theme "Seal-Up and Save -

It's Elementary." The elements of the conservation program include:

• An Energy Conservation Center which customers can call toll-free for answers to questions.

Staffed by six conservation special-ists. the center handled 160,000 mail and 60,000 telephone inquiries in 1983.

• A mobile van. "Conservation on Wheels," containing exhibits and literature on conservation which was visited by 34.000 persons at various locations throughout the Company's territory.

• A Home Energy Audit program under which the number of audits increased to 21,000 in 1983 from 5,600 in 1982. Resi-dential customers are advised on how they can save energy and reduce bills by installing insulation.

storm windows or other items in their homes.

• A conservation loan program which granted 383 zero interest loans totaling $984.000 to qualify-ing lower income customers and 78 loans at one-half the current inter-est rate totaling $200,000.

• A Customer Conservation Seal-Up Program under which more than 5.000 customers took advantage of services. such as weather stripping, caulking and water heater wrapping.

• Various programs for low-income families. Over 5,300 weatherization kits were supplied to community agencies for distribu-tion to needy customers. Free weatherization installations were provided to 280 customers under a low-income seal-up program. and

$250.000 was given to local com-munity action agencies to provide up to $250 of weatherization work in low-income residences.

While the major effort is to encourage residential customers to conserve energy, another phase of the plan is designed to help manage electric load placed on Company lines. This phase includes rebate programs on the purchase of effi-cient residential appliances and cogeneration and load management assessments for larger customers.

Over 13,000 rebates totaling more than $1.7 million were made in 1983 to customers for installing high efficiency window or central air conditioners and heat pumps.

The potential benefit of rebates for customers who purchase high effi-ciency refrigerators will be studied in 1984.

A cogeneration feasibility analysis program also will begin in 1984. Under the program a techni-cal and economic analysis of cogeneration feasibility will be made available to customers at no charge. The program will be cou-pled with an information program to be employed by the area devel-opment and marketing depart-ments in contacts with customers.

A load management assess-ment program for large customers has been developed and field tested. The program will provide statistical data and other informa-tion to customers at no charge so that they may use energy more efficiently and economically.

19

20 Momentum Picks Up in Area Development The Company historically has promoted New Jersey's economic development by encouraging indus-try to locate and expand in the state, especially in PSE&G's service area. As the economy began reviv-ing from the recession. efforts to attract and retain industry were intensified during 1983.

During the year the second phase of a program to attract high-technology firms was launched. An independent in-depth study com-missioned by the Company determined the criteria used by science-oriented firms to select one location over another and also found that New Jersey is in an especially strong position for high-technology industry. The state meets all the important criteria for such industry -

availability of qualified personnel, excellence of PSE&G's efforts to attract new industry to New Jersey were highlighted at a press conference in August at the office of Governor Thomas H. Kean in Trenton. Harold W. Sonn, Company higher education. quality of life and government support.

A key element of an advertis-ing and promotion campaign was the publication of a booklet entitled "Brainpower: High Technology in New Jersey." The booklet focuses on high-technology industries already located in New Jersey.

Efforts also were aimed at attracting corporate headquarters, regional offices and "back-office" operations for which New Jersey has advantages of lower cost for space and operations than New York City.

The Hudson River waterfront.

across from Manhattan. began developing into a new growth area.

particularly in Jersey City and Hoboken. There are development plans for some 1,000 acres of waterfront property and land-use studies are being conducted for another 600 acres. These plans call for over 20 million square feet of office and other commercial space and more than 23.000 housing units.

president and chief executive officer, was joined by Governor Kean, on left, at the conference which was held to announce PSE&G's program to bring additional high-technology companies More than 370 major indus-trial and commercial firms.

employing about 33.200 persons.

located or expanded in the Compa-ny's service area in 1983. Lost were 45 companies, employing about 3,600, leaving a net gain of some 29,600jobs.

The 20,000-acre Hackensack Meadowlands district continued to be a growth area. The Hackensack Meadowlands Development Com-mission, which oversees the area, issued 190 building permits for construction estimated at $46 million.

More than nine million per-sons attended events during 1983 at the New Jersey Sports and Expo-sition Authority's complex in the Meadowlands. Giants Stadium became the home of the New Jer-sey Generals of the new United States Football League, and the New York Jets completed plans to move to the stadium in 1984.

to the state. The Company's efforts complement actions being taken by state government to encourage science-oriented firms to locate in New Jersey.

New Electric Rate Proposed in Urban Areas The Company has proposed a new area development electric rate which would be available in a num-ber of major cities. including those designated under the New Jersey Urban Enterprise Zones Act. The rate, subject to New Jersey Board of Public Utilities approval, would be available to companies that expand or relocate operations in these cities.

Rates would be reduced for certain categories of industrial and commercial customers by 7 to 15 per cent for five years, and half that for the following two years. The lower rates are designed to attract industry to these urban areas where the Company has under-uti-lized facilities because of factory closings and relocations.

Extensive redevelopment programs continued during the year in the state's major cities. Ren-aissance Newark Inc. continued to encourage redevelopment of the downtown area where the $70 mil-lion Gateway Ill building neared completion.

Research and Development Focuses on Energy Problems The Company's research activities, coordinated by PSE&G Research Corporation, a subsidiary, contin-ued in 1983 to focus on solving current and future energy problems.

Overall research and develop-ment expenditures during the year totaled $16.5 million. The total was partially offset by $3.9 million obtained through sales and reimbursements. Of the balance,

$8.4 million supports research by industry-sponsored organizations, such as the Electric Power Research Institute and the Gas Research Institute.

In addition. the Company sup-ports university and college A Balanced Company Poised for Growth research programs, including those at Stevens Institute of Technology, Princeton University, Rutgers University, New Jersey Institute of Technology, Lehigh University, and Massachusetts Institute of Technology.

Other activities include research funded by outside organ-izations. and commercial opera-tions such as sales of trout from an aquaculture project and methane gas extracted from landfills.

Landfill Gas May Fuel Generator Under an agreement signed with the Hackensack Meadowlands Development Commission, PSE&G and Wehran Energy Corporation have agreed to recover methane gas from a landfill. The gas to be taken from a section of the Kings-land Landfill in Lyndhurst would be used to fuel a 300-kilowatt electric generator.

The project will provide first-hand experience in using landfill gas in electric generation and could lead to expansion to other landfills under the jurisdiction of the Commission.

There is a large potential for gas in the Meadowlands area. If the results of the one-year landfill test-ing and feasibility study show that gas is available in sufficient quantity and quality, plant construction will begin.

Electricity from Cogeneration Plant The Trenton Integrated Community Energy System (ICES), a cogenera-tion and district heating project, progressed in 1983 and will be completed in 1984. The project is being built and will be operated by Trenton District Energy Company, a private partnership.

PSE&G contracted to pur-chase 12 megawatts of the electri-cal output from the system. Two diesel engines. which supply elec-tricity and heat, were operated for a brief period on December 31, 1983 and synchronized with the PSE&G grid.

Thermal energy in the form of high temperature water is being sold and circulated to heat buildings in the state capitol complex and other facilities in the area.

The operation of the system will be studied in detail by the Company for possible application to other similar projects.

The generator is fueled by either natural gas, which PSE&G will supply, or oil.

Laboratory Operations Expanded PSE&G's Research and Testing Laboratory expanded its testing and analysis programs in 1983 with greater implementation of advanced data collection and pro-cessing methods. The Laboratory developed these programs to provide the Company with the in-house capability to evaluate the quality of material, equipment and processes used in its operations.

An example of the extensive expertise available as a result of the Laboratory's efforts, is a steam tur-bine test program. In order to evaluate all aspects of steam tur-bine reliability, boresonic inspection capabilities have been developed, as well as mobile vibration analysis and dynamic balancing systems.

reinforcing established non-destructive and performance test-ing efforts.

The Laboratory's role in radiological environmental moni-toring programs at Artificial Island, site of the Salem and Hope Creek Generating Stations. has been en-larged to include sample analysis.

previously handled by outside con-tractors. The Laboratory is also working in support of start-up activities for Hope Creek.

Meanwhile, the Laboratory continued during the year to com-mercially market its services.

enabling other utility, commercial 21

22 Technician checks one of advanced battery systems being tested at the Battery Energy Storage Test (BEST)

Facility. The system is the zinc-chloride battery of Energy Development Associ-ates (EDA). Chlorine, evolved from the battery 'stacks' (lower units) during charging is stored as a hydrate in refrigerated 'stores' (upper units). At lower left, an operating technician reviews procedures during startup of EDA zinc-chloride battery in BEST Facility control room. In foreground is one of three color video terminals of the Facility Monitor and Control Sys-tem, a computerized control and data acquisition system.

and industrial organizations to benefit from the testing and anal-ysis programs available. The Labo-ratory provides additional revenues to the Company from these non-traditional sources.

BEST Facility Has Successful Year The Battery Energy Storage Test (BEST) Facility, located adjacent to a Company substation in Hillsbor-ough Township, N.J.. successfully completed its first full year of operation.

This national research center tests load-leveling batteries and support sub-systems in a utility environment at commercial scale.

Utility personnel also receive opera-tional training in using battery storage.

During the year. tests were conducted on a state-of-the-art lead-acid battery. a solid-state power converter. and a computer for process control and data acquisition.

The lead-acid station battery exhibited stable capacity and reli-able operation. Because of the de-pressed price of lead. it is now possible that lead-acid batteries can economically meet some utility and energy storage needs until lower-cost advanced batteries become commercially available later in this decade.

Near the end of 1983. tests began on two new batteries. These batteries are a 500-kilowatthour zinc chloride battery developed by Energy Development Associates, a subsidiary of Gulf+ Western Indus-tries. and a 500- kilowatthour.

advanced lead-acid battery developed by GNB Batteries. a divi-sion of Gould Inc.

The successful development of advanced batteries for electric utility use would permit large amounts of energy produced by nuclear or coal generation during off-peak hours to be stored for dis-A Balanced Company Poised for Growth tribution during periods of heavy customer demand.

The BEST project is being funded principally by the U.S.

Department of Energy and the Electric Power Research Institute.

the research organization of the electric utility industry.

As part of the Company's ongoing conservation efforts. a Modular Lighting Control was in-stalled and tested in the administration area of the BEST facility. The control adjusts lighting output of each fluorescent fixture to a level selected for the task being performed in the area while auto-matically compensating for light contributed by windows. Test results show an energy savings of 52 per cent. providing an estimated payback period of three years.

Fusion Research Enters New Phase PSE&G is participating in the national fusion research program as an advisor and as a government contractor.

Fusion research has entered a new phase. The first of a new gen-eration of larger-scale experimental devices. the Tokamak Fusion Test Reactor (TFTR) began operation at Princeton Plasma Physics Labora-tory. The TFTR is expected to lead to the first demonstration of the scientific feasibility of fusion which could provide a virtually unlimited energy supply.

Employees: The Company's Greatest Resource There have been many technologi-cal advances by the Company in recent years that have produced significant improvements in opera-tions. Computerization. alone. has provided opportunities for greater efficiency and productivity and con-tinues to do so.

However. the Company's greatest resource today. as throughout its 80-year history, is made up of its dedicated employ-ees. They make it possible for the Company to provide the reliable service upon which customers depend.

Employment of qualified peo-ple with a variety of talents is the first step in ensuring that the Company's work force is capable of fulfilling PSE&G's responsibilities.

Although most new employees are hired locally. the Company also recruits at over 30 colleges and universities throughout the country for those with specialized backgrounds.

All employees have the oppor-tunity to advance within the Company. Any employee may apply for most positions that become vacant through internal job-posting programs.

The Company also has a com-prehensive management resource planning and development process which insures that managerial posi-tions will be filled by qualified replacements when vacancies occur.

Training programs fill an important role in keeping employ-ees prepared to meet the ever-changing operating demands.

Courses range from those on highly technical subjects to supervisory skills and management development.

A tuition-aid program encour-ages employees to take advantage of educational opportunities from which they and the Company bene-fit. A total of 678 employees par-ticipated in the program in 1983.

The Company's compensation and benefit programs contribute to employee effectiveness and produc-tivity. The benefit plans provide financial protection against unfore-seen problems as well as for retire-ment. The Company has been a leader in introducing innovative health coverage plans that provide quality care while simultaneously attempting to contain the costs of health insurance.

23

24 A variety of other Company activities also protect the health and safety of employees. Such activities include a blood pressure screening program, a personal security awareness program, instruction in first aid and the appli-cation of Cardio Pulmonary Resus-citation and Heimlich maneuver techniques.

A personal guidance program assists employees and their families experiencing personal problems.

especially those related to alcohol and drug abuse. The program has helped a number of employees avoid personal tragedies and made them more effective and produc-tive in their jobs.

Among the concerns of man-agement are operational changes resulting from the use of new equipment and technology. Modi-fications of work practices after discussions between management and unions have enhanced the abil-ities of employees to perform their work more effectively.

Employees at the end of 1983 totaled 13,283 compared with 13,118 at the end of 1982. Wages and salaries for the year totaled

$422.4 million including $12.3 mil-lion in disability benefits and work-ers compensation.

Affirmative Action Programs in the employment of women and members of minority groups con-tinued to be emphasized. At the end of 1983 there were 1,974 female employees and 1,924 minority group employees.

Community Relations during the year through a broad communication program to stock-holders. the financial community.

the media and the public at large.

The Company's Speakers' Bureau presented more than 290 talks before 12,000 persons.

The Second Sun, the energy information center located at the site of the Salem and Hope Creek stations. was visited by approxi-As in the past. the Company mately 23,000 people during 1983.

reached out in 1983 to the com-An Energy Education Advisory munities it serves by participating Committee assisted in the review in various civic, cultural and educa-and coordination of new programs tional activities. Improvement in designed to provide energy infor-the quality of life, especially in mation to schools. These new urban areas, was emphasized.

programs have reached more than Company employees filled 15,000 teachers and students and numerous voluntary positions in include distribution of energy community organizations. In sup-reference materials as well as the port of the volunteer movement in presentation of teacher energy the nation, the Company initiated a workshops in cooperation with the program which matches employee New Jersey Institute of Technology.

talents with needs of their communities.

In addition, two high school Community affairs represen-assembly shows. "Energy Today tatives made presentations to and Tomorrow" and "The Gas 186,000 persons on a variety of Works - Pipeline to the Future" energy and industry-related subjects.

have been presented to 115.000 C

. t*

New Jersey teachers and students.

ommumca ions Information about the Company and its operations was supplied Financial Statement Responsibility Management believes the effectiveness of this system is enhanced by a program of continuous and selective training of employees. In addition. management has communicated to all employees its Policies on Business Conduct. Company Assets and Internal Control.

The management of PSE&G is responsible for the integrity and objectivity of the financial statements of the Company. These statements are prepared by the Company in accordance with generally accepted accounting principles applied on a consistent basis and include the use of informed estimates where appro-priate. Management believes that they present fairly the Company's financial condition. Information in other parts of this Annual Report is consistent with these financial statements.

The Company maintains an accounting system established with sound accounting and business policies which are communi-cated to the appropriate personnel. The system is designed to provide reasonable assurance that transactions are executed in accordance with management's authorizations and that assets are safeguarded. The concept of reasonable assurance recog-nizes that the costs of internal controls should not exceed the related benefits. The system. together with its related internal controls. is continually reviewed by the Company's staff of internal auditors.

The firm of Deloitte Haskins & Sells. independent certified pub-lic accountants, is engaged to examine the Company's financial statements and issue an opinion thereon. Their examination is conducted in accordance with generally accepted auditing stan-dards and includes a review of internal accounting controls and tests of transactions.

The Board of Directors carries out its responsibility of finan-cial disclosure through the Audit Committee currently consist-ing of five directors who are not employees of the Company.

The Audit Committee meets periodically with management as well as with representatives of the internal auditors and inde-pendent certified public accountants and reviews the work of each to ensure that their respective responsibilities are being carried out. and to discuss related matters. Both groups have full and free access to the Audit Committee.

Statements of Income For the Years Ended December 31.

1983 1982 198 1 Operating Revenues (Thousands of Dollars)

Electric

$2,570,457

$2.543.191

$2.322.042 Gas 1,392.475 1.330,785 1.149,610 Total Operating Revenues 3,962,932 3,873,976 3.471,652 Operating Expenses Operation Fuel for Electric Generation and Interchanged Power -

net 868,977 959,382 1,059,539 Gas Purchased and Materials for Gas Produced 858.018 821.479 692,319 Other 503,568 452,115 385,149 Maintenance 238,766 220.456 192,768 Depreciation and Amortization 201,787 192.860 178,532 Amortization of Property Losses (note 4) 49,040 43,345 15,362 Taxes Other than Federal Income Taxes 557,793 553.241 474,979 Federal Income Taxes (note 1) 191,033 176,639 11 8,737 Total Operating Expenses 3,468,982 3.419,5 17 3.117,385 Operating Income 493,950 454.459 354.267 Other Income Allowance for Funds Used During Construction -

Equity 85,591 58.367 51,877 Earnings of Subsidiaries -

net (note 2) 7,061 10,460 9,490 Miscellaneous -

net 5,544 7,118 6,290 Total Other Income 98,196 75,945 67,657 Income Before Interest Charges 592.146 530,404 421,924 25 Interest Charges Long-Term Debt 228,189 198,413 184.133 Short-Term Debt 3,480 13,978 16,574 Other 13,699 8,246 882 Total Interest Charges 245,368 220,637 201,589 Allowance for Funds Used During Construction -

Debt (43,001)

(33,060)

(43,802)

Net Interest Charges 202,367 187,577 157,787 Net Income 389,779 342,827 264,137 Dividends on Cumulative Preferred Stock and

$1.40 Dividend Preference Common Stock 58,234 53,865 51,538 Earnings Available for Common Stock

$ 331,545

$ 288,962

$ 212,599 Shares of Common Stock Outstanding End of Year 102.857,989 94,844,596 86,089.491 Average for Year 97,467,431 89,233,028 80,962,344 Earnings per average share of Common Stock

$ 3.40

$ 3.24

$ 2.63 Dividends paid per share of Common Stock

$ 2.62

$ 2.53

$ 2.44 See Summary of Significant Accounting Policies and Notes to Financial Statements.

26 Balance Sheets Assets December 31.

1983 1982 Utility Plant -

Original cost Electric Plant (Thousands of Dollars)

Gas Plant Common Plant Nuclear Fuel Utility Plant in Service Less Accumulated Depreciation and Amortization Net Utility Plant in Service Construction Work in Progress Plant Held for Future Use Net Utility Plant Other Property and Investments Nonutility Property. net of accumulated depreciation -

1983. $2,711 ; 1982, $2,675 Investments in and Advances to Subsidiaries (note 2)

Total Other Property and Investments Current Assets Cash (note 3)

Working Funds Pollution Control Bonds Escrow Funds Temporary Cash Investments Accounts Receivable. net of allowance for doubtful accounts -

1983, $15.578; 1982. $13.291 Unbilled Revenues Fuel. at average cost Materials and Supplies, at average cost Prepayments Total Current Assets Deferred Debits (note 4)

Property Losses Hope Creek Unit 2 Atlantic Project Other Gross Receipts Taxes Underrecovered Electric Energy and Gas Fuel Costs -

net Unrecovered Nuclear Fuel Disposal Costs Unamortized Debt Expense Total Deferred Debits Total

$4,849,599 1,152.159 154,927 83,590 6,240,275 2.207,573 4,032,702 2,689,082 21.119 6,742,903 10.574 304,075 314,649 7.277 21,668 13,574 368,232 200,399 221,762 55,313 9,529 897,754 229,468 245,352 3,027 96,125 13,424 22,731 610.127

$8,565,433 Certain minor reclassifications have been made of previously reported 1982 amounts in order to conform to current classifications.

See Summary of Significant Accounting Policies and Notes to Financial Statements.

$4,638.440 1,083,183 137,650 60,987 5,920,260 2,041,904 3,878,356 2.157,900 22.416 6,058,672 11,702 287,934 299,636 9,981 24,308 4.108 49,900 376,589 182,287 261.917 44,659 8,743 962.492 262.767 260.412 3,330 12,899 25.471 23,096 587,975

$7,908,775

Liabilities December 31, 1983 1982 Capitalization (Thousands of Dollars)

Common Equity Common Stock (see statements, page 30)

$1,792.340

$1.610,879 Premium on Capital Stock 557 557 Paid-In Capital 26,185 26.185 Retained Earnings (see statements, page 29) 963,617 888,262 Total Common Equity 2,782,699 2,525,883 Preferred Stock without mandatory redemption (see statements, page 30) 554,994 554,994 Preferred Stock with mandatory redemption (see statements. page 30) 139,500 111.250 Long-Term Debt (see statements, page 31 )

2,684,899 2,579,782 Other Long-Term Obligations (note 4) 61,844 60.430 Total Capitalization 6,223,936 5,832,339 Current Liabilities Long-Term Debt due within one year 51,027 48,243 Preferred Stock to be redeemed within one year 1,750 381 Commercial Paper (note 5) 153,000 Accounts Payable 245,528 263,913 Taxes Accrued, including New Jersey Gross Receipts Taxes -

1983, $510,590; 1982. $514.378 531,867 535,318 Deferred Income Taxes, Unbilled Revenues (note 1) 92.183 83,852 Interest Accrued 64,494 57,925 Gas Purchased 100,397 107.583 Other 56,631 49,927 Total Current Liabilities 1,296,877 1.147,142 27 Deferred Credits Accumulated Deferred Income Taxes (note 1)

Depreciation and Amortization 438.480 358.545 Property Losses Hope Creek Unit 2 94,644 108.223 Atlantic Project 103, 157 109.493 Deferred Electric Energy and Gas Fuel Costs -

net 44,247 (32,595)

Other (744)

(6,851 )

Accumulated Deferred Investment Tax Credits (note 1) 335.196 301.420 Overrecovered Electric Energy and Gas Fuel Costs (note 4) 66,672 Other 29,640 24,387 Total Deferred Credits 1,044,620 929.294 Commitments and Contingent Liabilities (note 7)

Total

$8,565,433

$7,908,775

Statements of Changes in Financial Position For the Years Ended December 31.

1983 1982 1981 Funds Provided

{Thousands of Dollars)

Net Income

$389,779

$ 342,827

$264,137 Add (Deduct) Items not affecting Working Capital Depreciation and Amortization 292,532 304,319 231,431 Recovery (Deferral) of Electric Energy and Gas Fuel Costs -

net Provision for Deferred Income Taxes (note 1)

(162,797) 164,818 104.199 Depreciation and Amortization -

net 79,935 45,950 37,716 Property Losses -

net (19,915)

(24,507) 119,991 Deferred Electric Energy and Gas Fuel Costs -net 76,842 (78,214)

(48,188)

Other-net 6,107 (18.428)

(4,640)

Investment Tax Credits -

net 33,718 205,261 4,998 Allowance for Funds Used During Construction (AFDC)

(128,592)

(91,427)

(95,679)

Equity in Net Earnings of Subsidiaries (7,061)

(10,460)

(9,490)

Other 3,583 (963)

( 1,419)

Total Funds from Operations 564, 131 839,1 76 603,056 Net proceeds from sales of Long-Term Debt 161,081 221,022 99,320 Preferred Stock 29,739 34,646 49,456 Common Stock 181,276 186,883 171,420 Total Security Sales 372,096 442,551 320,196 Total Funds Provided

$936,227

$1.281.727

$923,252 Funds Applied Additions to Utility Plant. excluding AFDC

$762,293

$ 721,948

$588,170 Cash Dividends 313,989 281,459 249,061 Advances to Subsidiaries 9,080 16,464 31,026 Reductions of Long-Term Debt 55,060 50,553 5,572 28 Hope Creek Unit 2 Abandonment (note 4)

Total Construction Costs, including AFDC of $33,000 (223,000)

Recoverable Costs, including deferred cancellation costs 290,750 Miscellaneous 10.278 11,602 17.506 Total Funds Applied 1,150.700 1,082.026 959,085 Changes in Working Capital -

Increase (Decrease)

Short-Term Debt (153,000) 207,551 (26,686)

Long-Term Debt due within one year (2,784)

(46,013) 30,835 Cash (2,704) 4,386 1,844 Working Funds (2,640) 13,643 1,288 Pollution Control Bonds Escrow Funds 9,466 4,108 Temporary Cash Investments (49,900) 49,900 Accounts Receivable (8,357)

(1.335) 25,929 Unbilled Revenues 18.112 5,339 13,602 Fuel (40,155) 43,694 35,164 Materials and Supplies 10,654 4,588 9,647 Accounts Payable 18,385 (1,179)

(56,838)

Taxes Accrued 3,451 (43,308)

(55,860)

Deferred Income Taxes (note 1)

(8,331)

(2,456)

(6,257)

Interest Accrued (6,569)

(10.175)

(1.794)

Gas Purchased 7,186 (23,942)

(8,762)

Other (7,287)

(5.100) 2,055 Net Increase (Decrease) in Working Capital (214,473) 199,701 (35,833)

Total Funds Applied and Changes in Working Capital

$936,227

$1,281.727

$923,252 See Summary of Significant Accounting Policies and Notes to Financial Statements.

Statements of Retained Earnings For the Years Ended December 31.

1983 1982 1981 (Thousands of Dollars)

Balance January 1

$ 888,262

$ 827,497

$ 813,181 Add Net Income 389,779 342,827 264,137 Total 1.278,041 1.170,324 1,077,318 Deduct Cash Dividends Preferred Stock. at required rates 56,353 51,984 49,657

$1.40 Dividend Preference Common Stock 1,881 1,881 1,881 Common Stock*

255,755 227.594 197.523 Total Cash Dividends 313,989 281,459 249,061 Capital Stock Expenses 435 603 760 Total Deductions 314,424 282,062 249,821 Balance December 31

$ 963,617

$ 888,262

$ 827,497

• Restrictions on the payment of dividends are contained in the Charter. certain of the indentures supplemental to the Company's Mortgage. and certain debenture bond indentures. However, none of these restrictions presently limits the payment of dividends out of current earnings. The amount of retained earnings free of these restrictions at December 31. 1983 was $953,617,000.

See Summary of Significant Accounting Policies and Notes to Financial Statements.

Independent Accountants' Opinion Deloitte Haskins+Sells Certified Public Accountants Gateway One Newark. New Jersey 07102 To the Stockholders and Board of Directors of Public Service Electric and Gas Company:

We have examined the balance sheets and statements of capital stock and long-term debt of Public Service Electric and Gas Company as of December 31, 1983 and 1982 and the related statements of income. retained earnings, and changes in financial position for each of the three years in the period ended December 31, 1983. Our exami-nations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing proce-dures as we considered necessary in the circumstances.

In our opinion, such financial statements present fairly the financial position of Public Service Electric and Gas Company as of December 31, 1983 and 1982 and the re-sults of its operations and the changes in its financial position for.each of the three years in the period ended December 31, 1983. in conformity with generally ac-cepted accounting principles applied on a consistent basis.

February 14, 1984 29

30 Statements of Capital Stock December 31.

Outstanding Shares (note A)

Nonparticipating Cumulative Preferred Stock (note B)

With Mandatory Redemption (note C)

$100 par value -

Series 12.25%

13.44% (500.000 shares issued in 1981) 12.80% (350,000 shares issued in 1982) 11.62% (300,000 shares issued in 1983)

Less amount to be redeemed within one year Preferred Stock with Mandatory Redemption Without Mandatory Redemption (note D)

$25 par value-Series 9.75%

8.70%

$100 par value-Series 4.08%

4.18%

4.30%

5.05%

5.28%

6.80%

9.62%

7.40%

7.52%

8.08%

7.80%

7.70%

8.16%

Preferred Stock without Mandatory Redemption (no changes in 1982 and 1981) 262,500 500,000 350,000 300,000 1,600,000 2,000,000 250.000 249,942 250,000 250,000 250,000 250.000 350,000 500,000 500,000 150,000 750,000 600,000 300,000 Dividend Preference Common Stock and Common Stock Current Redemption Price Per Share

$112.00 113.44 112.80 111.62

$ 26.50 26.50 103.00 103.00 102.75 103.00 103.00 102.00 104.50 103.00 103.00 103.00 103.00 104.64 106.86

$1.40 Dividend Preference Common Stock (no par) -

1,343.999 shares authorized.

issued and outstanding; current redemption price $35.00 per share (note E)

Certain Refundings Restricted Prior to 2/1/85 4/1 /86 10/ 1/87 9/ 1/88 1983 1982 (Thousands of Dollars)

$ 26.250

$ 26,631 50.000 50,000 35,000 35,000 30,000 1,750 381

$139,500

$11 1.250

$ 40,000

$ 40,000 50,000 50,000 25,000 25,000 24,994 24,994 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 35,000 35,000 50,000 50,000 50,000 50,000 15,000 15,000 75,000 75,000 60,000 60,000 30,000 30,000

$554,994

$554,994 Common Stock (no par) -

authorized 150,000,000 shares (note F); issued and outstanding as

$1,792,340

$1,6 10,879 of December 31. 1983. 102.857,989 shares and as of December 31. 1982. 94,844,596 shares (8,013,393 shares issued for $181.461.000 in 1983; 8,755,105 shares issued for

$187,140,000 in 1982; and 9.474.496 shares issued for $171.636,000 in 1981 )

Notes:

A. In addition, there are 1.437,558 shares of $100 par value and 6.400.000 shares of $25 par value Cumulative Preferred Stock which are authorized and unissued. and which upon issuance may or may not provide for mandatory sinking fund redemption.

B. A5 of December 31. 1983 the annual dividend requirement and embedded dividend costs were $17.902.000 and 12.88%. respec-tively. for Preferred Stock with mandatory redemption and

$40,629,000 and 7.38%. respectively. for Preferred Stock with-out mandatory redemption.

If dividends upon any shares of such stock are in arrears in an amount equal to the annual dividend thereon. voting rights for the election of a majority of the 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.

C. The Company is required to purchase or redeem a specified minimum number of shares of Cumulative Preferred Stock with mandatory redemption annually commencing on the effective dates shown below. Such redemptions are cumulative. The Company may annually redeem. at its option, an aggregate of up to twice the number of shares shown for each such series. All such redemptions are at a redemption price of $100 per share. A redemption of shares of any series also requires payment of all accumulated and unpaid dividends to the date fixed for redemption.

Minimum Effective Aggregate Number of Shares Date of Shares Purchased and Redeemable Mandatory Redeemed During the Years Series Annually Redemption 1983 1982 1981 12.25%

17,500 211 /80 3,806 12.822 27.672 13.44%

25.000 3131 181 12.80%

17.500 9130188 11.62%

15.000 9130189 D. Preferred Stock without mandatory redemption is subject to re-demption solely at the option of the Company upon payment of the applicable redemption price plus accumulated and unpaid dividends to the date fixed for redemption.

E. Each share of $1.40 Dividend Preference Common Stock is enti-tled to cumulative dividends. to two votes. and. on liquidation or dissolution. to twice as much as each share of Common Stock. There were no changes in outstanding shares in 1983. 1982. or 1981.

E Includes 12,260,069 shares of Common Stock reserved for possible issuance under the Company's Dividend Reinvestment and Stock Purchase Plan. Tax Reduction Act Employee Stock Ownership Plan, Employee Stock Purchase Plan and Thrift Plan.

See Summary of Significant Accounting Policies and Notes to Financial Statements.

Statements of Long-Term Debt December 31.

First and Refunding Mortgage Bonds (note A)

Series 3 1/4% October 1. 1 983 31/4% May 1. 1984 4%% November 1. 1986 47/aO/o September 1. 1987 4%% August 1. 1988 5 1/aO/o June 1. 1989 4%% September 1. 1990 4%% August 1. 1 992 4%% June 1. 1993 4%% September 1. 1994 4%% September 1. 1995 6 1/40/o June 1. 1997 7

% June 1. 1998 7%% April 1. 1999 91/a'Yo March 1. 2000 8%% A May 15, 2001 7%% B November 15. 2001 71.12% C April 1. 2002 81;2% D March 1. 2004 12 % E October 1. 2004 8%% F April 1. 2006 8.45% G September 1. 2006 81/40/o H June 1. 2007 81/aO/o I September 1. 2007 9%% J November 1. 2008 9%% K July 1. 2009 12 % L November 1. 2009 121/aO/o M June 1. 2010 157/aO/o N August 1. 1 991 14%% 0 September 1. 2012 121/aO/o P December 1. 2012 12%% Q August 1. 1993 8

% June 1. 2037 5

% July 1. 2037 Pollution Control Series 6.30% A October 1. 2006 6.90% B September 1. 2009 6.90% C September 1. 2009 121;2% D April 1. 2012 97/aO/o E June 1. 2013 Total First and Refunding Mortgage Bonds Notes:

1983 1982 (Thousands of Dollars) 50,000 50,000 60,000 60,000 50,000 50,000 40,000 40,000 60,000 60,000 75,000 75,000 75,000 98,000 69,300 80,000 125,000 90,000 10,730 60,000 60,000 125,000 59,900 100,000 100,000 125,000 100,000 100,000 100,000 100.000 100,000 7,463 7,538 14,300 42,620 2.990 23,500 64,000 21,294 50,000 50.000 60.000 60,000 50,000 50,000 40,000 40,000 60,000 60,000 75,000 75,000 75.000 98,000 69,300 80.000 125.000 90,000 10,730 60,000 60,000 125.000 59.900 100.000 100.000 125,000 100,000 100,000 100,000 100.000 7.463 7.538 14.300 42.620 2.990 23,500

$2.510,341

$2.367,635 A. The Company's Mortgage. securing the First and Refunding Mortgage Bonds. constitutes a direct first mortgage lien on sub-stantially all property and franchises.

B. As of December 31. 1983 the annual interest requirement on Long-Term Debt was $237.341.000 of which $219.419.000 was the requirement for First and Refunding Mortgage Bonds. The embedded interest cost on Long-Term Debt was 8.90%.

C. As of December 31. 1983. the Company had unexercised com-mitments under a Credit Agreement with 12 domestic banks for issuance of revolving loans up to an aggregate amount of

$200.000.000 to be outstanding at any time to April 1. 1984. The Debenture Bonds unsecured 4%% October 1. 1983 5%% June 1, 1991 7WYo December 1. 1993 9

% November 1. 1995 7%% August 15. 1996 8%% November 1. 1996 6

% July 1. 1998 Total Debenture Bonds 61/2% Note Total Long-Term Debt Principal amount out-standing (notes Band C)

Less amount due within one year (note D)

Long-Term Debt excluding amount due within one year (note D)

Net Unamortized Discount Long-Term Debt less Net Unamortized Discount 1983 1982 (Thousands of Dollars) 24,800 37,907 39,597 27.432 28.385 52,819 54.694 55,949 57,340 40,827 42.010 18,195 18,195 233,129 265.021 720 2.743,470 2,633.376 51,027 48,243 2.692,443 2.585.133 (7.544)

(5,351)

$2.684.899 $2.579.782 Company may terminate the commitments. in whole or in part.

without penalty or premium. Under the agreement. any borrow-ings outstanding at April 1. 1984 are convertible. at the Company's option. into three year term loans. The Company is required to pay commitment fees of % of 1 % per annum on the first

$125.000.000 and 1/a of 1 % per annum on the next $75.000.000 of any unused portion. The Company has the right. with the con-sent of the banks. to extend the agreement on a year to year basis.

and a one-year extension has been requested.

D. The aggregate principal amounts of requirements for sinking funds and maturities for each of the five years following December

31. 1983 are as follows:

Sinking Year Funds Maturities Total (Thousands of Dollars) 1984

$ 1.027

$ 50.000

$ 51.027 1985 5,707 5.707 1986 6,200 50,000 56.200 1987 6.200 60.000 66.200 1988 6.200 60.000 66,200

$25.334

$220.000

$245.334 For sinking fund purposes. certain First and Refunding Mortgage Bond issues require annually the retirement of $21.900,000 princi-pal amount of bonds or the utilization of bondable property addi-tions at 60% of cost. The portion expected to be met by property additions has been excluded from the table above. Also. the Company may. at its option. retire additional amounts up to

$6.200.000 annually through sinking funds of certain debenture bonds. The election of any such option is included in long-term debt due within one year.

See Summary of Significant Accounting Policies and Notes to Financial Statements.

31

Summary of Significant Accounting Policies Accounting Principles Financial statements are presented in accordance with generally accepted accounting principles (GAAP). As a result of accounting requirements imposed under rate-making decisions by the Board of Public Utilities of the State of New Jersey (BPU) and the Federal Energy Regulatory Commis-sion (FERC). the applications of GAAP by the Company differ in certain respects from applications by non-regulated busi-nesses. The Company is under the jurisdiction of the FERC and the BPU and maintains its accounts in accordance with their prescribed Uniform Systems of Accounts. which are the same.

Investments in Subsidiaries The Company's investments in its subsidiaries. which in the aggregate are not significant as defined by the Securities and Exchange Commission. are reported in the accompanying financial statements on the equity method of accounting.

The carrying value of investments in subsidiaries is reported under Other Property and Investments in the Balance Sheets, and under the equity method of accounting is ad-justed for earnings or losses of such subsidiaries as reported under Other Income in the Statements of Income.

Revenues 32 Revenues are recorded based on estimated service rendered.

but are billed to customers monthly on a cycle basis.

Amortization of Deferred Items Deferred debits are amortized and recovered through rates as prescribed by the BPU. See note 4 of Notes to Financial Statements for further information.

Fuel Costs The Company projects the costs of fuel for electric genera-tion. purchased and interchanged power. gas purchased and materials for gas produced for twelve-month periods. Ad-justment clauses in the Company's rate structure allow the recovery of any excess of such projected costs over those included in the Company's base rates through levelized monthly charges over the period of projection. Any under or overrecoveries. along with interest in the case of an over-recovery, are deferred and included in operations in the period in which they are reflected in rates.

Utility Plant and Related Depreciation and Amortization The cost of replacements of units of property is charged to utility plant. The cost of maintenance. repairs and replace-ments 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 the appropriate provision for accumulated depreciation.

Depreciation and Amortization. for financial reporting pur-poses, are computed under the straight-line method.

Depreciation is based on estimated average remaining lives of the several classes of depreciable property. Amortization of leasehold improvements is based on the term of the lease. Depreciation applicable to nuclear plant includes esti-mated costs of dismantling or decommissioning. These estimates are reviewed on a regular basis and necessary adjustments are made as approved by the BPU. Depreciation provisions stated in percentages of original cost of deprecia-ble property are 3.53% for 1983, 3.52% for 1982 and 3.49% for 1981.

Amortization of Nuclear Fuel Nuclear energy burnup costs are charged to fuel expense on the basis of the number of units of thermal energy produced as they relate to total thermal units expected to be produced over the life of the fuel. The rate calculated for fuel used at all of the Company's nuclear units includes a provision of one mill per kilowatthour of nuclear generation for estimated spent fuel disposal costs.

Income Taxes The Company and its subsidiaries file a consolidated Federal income tax return and income taxes are allocated. for reporting purposes. to the Company and its subsidiaries based on taxable income or loss of each.

Deferred income taxes are provided for differences between book and taxable income to the extent permitted for rate-making purposes.

Investment tax credits are deferred and amortized over the useful lives of the related property including nuclear fuel.

The Company's tax normalization practices are in compliance with the requirements of the Economic Recovery Tax Act of 1981.

Allowance for Funds Used During Construction Allowance for funds used during construction (AFDC) is a cost accounting procedure whereby the cost of financing construction (interest and equity costs) is transferred from the income statement to construction work in progress (CWIP) in the balance sheet. The rates used for calculating AFDC were 8 1;2% for 1983 and 1982 and 8% for 1981.

which were within the limits set by FERC.

As a result of BPU rate orders. the Company is allowed to include a portion of CWIP in rate base on which a current return is permitted to be recovered through operating reve-nues. Starting in 1982, the BPU allowed the Company to include in rate base an additional $125 million of CWIP, rais-ing the total amount to $375 million. No AFDC is accrued on the amount of CWIP which is included in rate base.

Pension Plan Pension costs are determined on the basis of an acceptable actuarial method and are charged to operating expenses and utility plant. The Company's policy is to fund pension costs accrued. Prior service costs are being funded over a period of 35 years which began January 1, 1967.

Notes to Financial Statements

1. Federal Income Taxes A reconciliation of reported Net Income with pre-tax income and of Federal income tax expense with the amount computed by multiplying pre-tax income by the statutory Federal income tax rate of 46% is as follows:

1983 1982 1981

{Thousands of Dollars)

Net Income

$389,779 $342.827 $264, 137 Federal income taxes included in:

Operating income Current provision 6,015 34,762 2,603 Provision for deferred income taxes -

net*

151.300 (72,743) 111,136 Investment tax credits -

net 33,718 214,620 4,998 Total included in operating income 191,033 176,639 118,737 Miscellaneous other income -

net 4,825 3.265 3.586 Total Federal income tax provisions 195,858 179.904 122.323 Subtotal 585.637 522.731 386.460 Earnings of subsidiaries -

net (7,061 )

(10.460)

(9.490)

Pre-tax income

$578,576 $512.271 $376,970 Tax expense at the statutory rate

$266. 145 $235.645 $173.406 Adjustments to pre-tax income. computed at statutory rate.

for which deferred taxes are not provided under current rate-making policies:

Tax depreciation under book depreciation 27.806 21,837 18.608 Allowance for funds used during construction (59,152)

(42,056)

(44.012)

Overhead costs capitalized (1 3.810)

(11,500)

(8,858)

Other 3,853 (277) 445 Subtotal (4 1.303)

(31.996)

(33.817)

Amortization of deferred tax items (28,984)

(23,745)

(17,266)

Subtotal (70,287)

(55.741)

(5 1.083)

Total Federal income tax provisions

$195.858 $179,904 $122.323

• The provision for deferred income taxes represents the tax effects of the following items:

Current Liabilities Unbilled revenues 8.331 $

2.456 $

6.257 Deferred Credits Hope Creek Abandonment (1 3.579)

(18.104) 126.327 Atlantic Abandonment (6.336)

(6.403)

(6,336)

Additional tax depreciation 61,348 48,791 41,479 Repair allowance property 17.482 (4.524)

(5.236)

Gross receipts taxes (5,838)

(2,912)

(2.033)

Deferred fuel costs -

net 76.842 (78,214)

(48, 188)

Nuclear Plant Decommissioning Costs (5.408)

(4,651 )

Nuclear Fuel Disposal Costs 20.433 (10.150)

(1,775)

Loss on reacquired debt (417)

(415)

(571)

Other (1.558) 1,383 1.212 Subtotal 142,969 (75.199) 104.879 Total

$151,300 $(72.743)$111.136 33

34 As a result of Internal Revenue Service (IRS) audits for taxable years 1976 through 1980. the I RS has proposed an increase in taxable income which would increase tax liability by $72 mil-lion. Such liability would be reduced by using $66 million of in-vestment tax credits available. This is primarily the result of including unbilled revenues as taxable income in the year esti-mated services were provided. The taxability of unbilled reve-nues is an industry issue. The Company has appealed the tax assessments related to unbilled revenues. and the IRS has sus-pended any action on the appeal pending the outcome of vari-ous court cases involving other utilities. Deferred taxes have been provided for unbilled revenues and. if the Company is unsuccessful in its appeal. the effect on earnings would not be material.

Investment tax credits -

net for 1983 includes credits carried forward from 1982. The balance of investment tax credits not utilized as of December 31. 1983. in the amount of $72 million.

is available as a carryover to future years and will expire as fol-lows: 1997 -

$2 million. 1998 -

$70 million. Investment tax credits can be utilized to offset 85% of 1983 tax liability before investment tax credit. 90% of 1982 tax liability and 80% of 1981 tax liability.

The Company has a Tax Reduction Act Employee Stock Owner-ship Plan (TRASOP) under provisions of the Internal Revenue Code of 1954. as amended (the Code). Such provisions permit the Company to elect an additional 1 % investment tax credit if the Company transfers to the TRASOP an equivalent amount of cash for the purchase of shares of Common Stock. The Company may also claim an additional 1/2% investment tax credit if it contributes an equivalent amount of cash to the TRASOP. but only to the extent that such amount is matched by contributions by participants. Under present provisions of the Code. the additional investment tax credits. which form the basis of the TRASOP. are generally available only through the 1982 tax year. However. unused TRASOP credits may be carried forward and used on a tax return for a subsequent year.

The Company presently estimates that all TRASOP credits claimed will be used no later than its 1984 tax return.

2. Investments in and Advances to Subsidiaries Investments in and advances to subsidiaries are summarized as follows:

December 31.

Energy Development Corporation Investment Advances Other Subsidiaries. primarily LNG Project Advances Total 1983 1982 1981 (Thousands of Dollars)

$ 46.366 $ 37.628 $ 25.663 183,737 172.368 151.168 230.103 209.996 176.831 73.972 77.938 84.179

$304.075 $287.934 $261.010 The major subsidiary included in "Other Subsidiaries" above is Energy Terminal Services Corporation (ETSC). Its principal asset. which has not been placed in operation. is a Liquefied Natural Gas (LNG) terminal on Staten Island in the New York City harbor area. Annual expenditures for protection. mainte-nance and licensing efforts for the terminal. including local real estate taxes. are approximately $3.9 million.

The Company had originally intended to utilize the terminal for the importation of LNG. However. due to uncertainties and delays relating to the importation project. including lack of regulatory approvals which resulted in a loss of a supply of LNG. the terminal has not been placed in operation. ETSC is now pursuing the utilization of the two storage tanks at the terminal to provide an LNG peaking service for the Company and others. This will necessitate the construction of a liquefac-tion facility at the site. The additional construction will not pro-ceed until the necessary permits are obtained from the appropriate federal. state and local regulatory agencies. The proposed service will increase the Company's capability to store supplies of domestic natural gas in order to meet the demands of its customers for gas on the coldest winter days.

If necessary permits are not received and the facilities are not placed in service. the Company would anticipate seeking favora-ble rate treatment from the BPU to recover its investment. Any amount not recovered. in the opinion of management. would not have a material effect on the financial position or results of operations of the Company.

3. Compensating Balances Cash consists primarily of compensating balances under infor-mal arrangements with various banks to compensate them for services and to support lines of credit of $186.1 million and

$180.9 million at December 31. 1983 and December 31. 1982.

respectively. There are no legal restrictions placed on the with-drawal or other use of these bank balances. In addition. at De-cember 31. 1983 and December 31. 1982. the Company had lines of credit of $35.0 million which were compensated for by fees.

4. Deferred Items Abandonment of Hope Creek Unit No. 2 In December 1981. the Company abandoned the construction of Hope Creek Generating Station Unit No. 2. In March 1982. the BPU authorized the transfer of $112 million of Hope Creek 2 costs to Hope Creek 1 and recovery of all after-tax abandon-ment costs for Hope Creek 2 from customers through the elec-tric levelized energy adjustment clause. The recovery is over 15 years on an accelerated method which commenced June 1982.

During 1984, the amount to 'be recovered will be $32.1 million.

less related taxes of $13.1 million.

Abandonment of Atlantic Project In December 1978. the Company cancelled its floating nuclear plant project which was to have consisted of four generating units. The BPU has authorized the Company to recover the costs of the project over a period of 20 years commencing on April 17. 1980. Costs are being recovered at the rate of $15.1 million annually. less related taxes of $6.3 million.

Unamortized Debt Expense These costs. associated with the issuance or reacquisition of debt. are deferred and amortized over the lives of the related issues. Amounts shown in the balance sheets consist principally of costs associated with the Company's tender offer for its 12%

Series E Mortgage Bonds which will mature in October 2004.

The Company expects to amortize $1.1 million of these costs in 1984.

Underrecovered Electric Energy and Gas Fuel Costs -

net The net underrecovered costs as of December 31. 1983 consist of underrecovered electric energy costs of $146.4 million and

$50.3 million of overrecovered gas fuel costs. The electric costs will be recovered in subsequent periods to the extent permitted by the BPU. The gas overrecovery will be refunded to custom-ers through reduced bills during the remainder of the current levelized period.

Nuclear Fuel Disposal Costs In conformity with the Nuclear Waste Policy Act of 1982 (the Act). the Company entered into contracts with the Department of Energy (DOE) on June 13. 1983 for the disposal of spent nuclear fuel from the Salem and Hope Creek nuclear generating stations. Similarly, Philadelphia Electric Company contracted with the DOE in connection with the Peach Bottom nuclear generating station. Under these contracts. the DOE will take title to the spent fuel at the site. then transport and provide for its permanent disposal at a cost to utilities with nuclear facilities of 1 mill per kilowatthour of nuclear generation. Under the Act.

obligations for nuclear fuel disposal costs incurred after April 6.

1983 are being paid quarterly. The Company is presently study-ing three options permitted by the Act for payment of such costs incurred prior to April 7, 1983. Interest expense of ap-proximately $4 million has been recorded in connection with the liability for such costs and is reflected in Deferred Credits Other. The latest available payment date is 1998.

Other Long-Term Obligations represents the amount payable to DOE for Salem and Peach Bottom disposal costs incurred prior to April 7, 1983. The amount of $13.4 million in Deferred Debits represents the unrecovered balance of disposal costs incurred at Peach Bottom prior to April 7. 1983 which is ex-pected to be fully recovered from customers over the next thirteen months, less related taxes of $6.2 million.

S. Bank Loans and Commercial Paper Bank loans represent the Company's unsecured promissory notes issued under credit arrangements with various banks and have a term of eleven months or less.

Commercial paper represents the Company's unsecured bearer promissory notes sold to dealers at a discount with a term of nine months or less. Certain information regarding short-term debt follows:

Maximum amount outstanding at any month end Average daily outstanding Weighted average annual interest rate Weighted average interest rate for commercial paper outstanding at year end

6. Pension Plan 1983 1982 (Thousands of Dollars)

$161,900 $216.015

$37,004 $107.950 9.40%

12.95%

9.87%

None The Company has a non-contributory, trusteed plan covering all employees who complete one year of service. As of December 31.

1983. the unfunded prior service costs were approximately

$311.310,000. Information on accumulated plan benefits and net assets follows:

December 31,

Actuarial present value of accumulated plan benefits Vested Nonvested Assumed rate of return Market value of Plan Net Assets 1983 1982 (Thousands of Dollars)

$401,095 $357.290 56,066 45.782

$457, 161 $403.072 9.0%

10.0%

$458,551 $367.875 The Company's annual contribution is actuarially determined to provide for full funding by December 31. 2001. Pension costs for the past three years were charged as follows:

Operating Expenses Utility Plant Total Pension Costs 1983 1982 1981 (Thousands of Dollars)

$56,360

$50,317

$47.505 12.109 10.344 10.954

$68.469

$60.661

$58.459

7. Commitments and Contingent Liabilities Construction and Fuel Supp.lies The Company has substantial commitments as part of its con-struction program as well as commitments to obtain sufficient sources of fuel for electric generation and adequate gas sup-plies. Construction expenditures of $2.5 billion. including $539 million of AFDC. are expected to be incurred during the years 1984 through 1986.

Uranium Contracts A contract with Kerr-McGee Nuclear Corporation to supply uranium concentrates was amended in 1980 to substantially curtail open pit mine operations. In November 1982 an agree-ment was reached with Kerr-McGee which calls for an extension of the curtailed operations until January 1. 1986. Effective October 1. 1983, the Company's conversion and uranium con-tracts are with Sequoyah Fuels Corporation, a wholly-owned subsidiary of Kerr-McGee Corporation and are guaranteed by Kerr-McGee Corporation. As of December 31. 1983, the Company and the co-owners of the Salem and Hope Creek Generating Stations had advanced $40.7 million to Kerr-McGee against deliveries of uranium concentrates.

35

36 Credits have been received amounting to $14.5 million. includ-ing interest of $4.7 million. The recoupment of $30.9 million.

the balance of such advances. of which approximately 30% is the responsibility of the other co-owners. is dependent upon the sale of uranium concentrates by Kerr-McGee to the Company or other buyers or upon the sale by Kerr-McGee of the project properties. The Company cannot presently predict the extent to which such advance payments will ultimately be recovered.

Nuclear Insurance Coverages The Company's insurance coverages for its nuclear operations are as follows:

Maximum Retrospective Maximum Assessment for a Type and Source of Coverage Coverage single incident Public Liability American Nuclear Insurers Federal Government (A)

Property Damage Nuclear Mutual Limited (D)

Nuclear Electric Insurance Limited (D)

American Nuclear Insurers Replacement Power Nuclear Electric Insurance Limited (D)

(Millions of Dollars)

$160

$None 420

~(B)

$580 (C)

$ 8.5

$500

$33.5 435 8.0 85 None

$1.020

$41.5 2.5 (E)

$13.0 (A) Retrospective premium program under the Price-Anderson liabil-ity provisions of the Atomic Energy Act of 1954. as amended. Subject to retrospective assessment with respect to loss from an incident at any licensed nuclear reactor in the United States.

(B) Maximum assessment would be $17.0 million in the event of more than one incident in any year.

(C) Limit of liability under the Atomic Energy Act of 1954. as amended. for each nuclear incident.

(D) Utility-owned mutual insurance companies of which the Company is a member. Subject to retrospective assessment with respect to loss at any nuclear generating station covered by such insurance.

(E) Maximum weekly indemnity for 52 weeks which commences after the first 26 weeks of an outage. Also provides $1.25 million weekly for an additional 52 weeks.

Replacement Energy Costs On September 29. 1983 the New Jersey Board of Public Utili-ties (BPU) authorized continuation of the current electric Level-ized Energy Adjustment Clause (LEAC) until June 30. 1984.

thus sustaining the Company's position as to the current level of the LEAC. A second phase of this proceeding is continuing. and the Public Advocate of New Jersey. one of the parties in the proceeding, filed testimony on December 1. 1983, recommend-ing that the replacement power costs associated with the exten-sion of a refueling outage of Salem nuclear Unit 1 from January 1983 through May 1983 should not be permitted to be recov-ered from customers. The Public Advocate's testimony asserts that the additional replacement energy costs associated with such extension of the outage amounted to $45,461.280 or

$50.214,700. depending upon the method of calculation. How-ever. the Company's testimony in this proceeding indicated that.

by eliminating one refueling outage for the unit and moving to an 18-month fuel cycle earlier than originally planned. which was permitted by the extension of the previous outage, there are no additional replacement energy costs associated with the extension of such outage when compared with the original ex-pected generation of the unit. The Company has also testified that its actions with respect to the outage are sufficient to justify the recovery from customers of all costs associated with the outage.

In addition to the issues relating to Salem 1 referred to above, the second phase of the current LEAC proceeding may address the additional replacement energy costs resulting from addi-tional outages of Peach Bottom nuclear Units 2 and 3 during 1983 associated with inspection and repair of cracks in the pip-ing of the residual heat removal and reactor recirculating systems of such units. The Company is a joint owner in the Peach Bottom units which are operated by Philadelphia Electric Company (PE). During 1983, inspections of these systems re-vealed crack indications in some pipe welds which is a generic problem with boiling water reactors. The current repairs at Peach Bottom are not permanent. and PE has advised that addi-tional repairs which will involve the replacement of certain piping, will be undertaken during each unit's next refueling out-age. Peach Bottom 3 is expected to be out of service for ap-proximately 35 weeks commencing in the first quarter of 1984 for refueling and correction of such problems. and Peach Bot-tom 2 is expected to have a similar type extended outage during 1985.

A decision on the Salem 1 issues in the LEAC proceeding is ex-pected in the first quarter of 1984. and any consideration of the Peach Bottom outages would follow. The Company cannot predict the outcome of this proceeding. Any amounts which are not permitted to be recovered from customers would be charged against net income.

8. Accounting for Leases The Company has certain leases for property and equipment that meet the accounting criteria for capitalization but. in ac-cordance with rate-making treatment. are accounted for as operating leases. In 1983 the Financial Accounting Standards Board adopted accounting standards requiring regulated enter-prises to record capital leases on their balance sheets. The standard requires capital leases entered into in 1983 to be recorded in 1984 and capital leases entered into prior to 1983 to be recorded by 1987. The capitalization of leases would not have a material effect on the Company's financial statements.

9. Supplementary Information Concerning the Effect of Inflation (Unaudited)

The Company's financial statements are prepared in accordance with generally accepted accounting principles and are stated on the basis of historical costs. namely. the prices that were in ef-fect when the underlying transactions occurred. The following supplementary financial information. prepared in accordance with Financal Accounting Standards Board Statement No. 33 (FAS 33), is an estimate of the effects on the Company of general inflation (Constant Dollar) and changes in specific prices (Current Cost).

The Company advises readers of the imprecise nature of this data and of the many subjective judgments required in the restatement of selected historical costs to Constant Dollar and Current Cost. This data should not be used to make actfust-ments to the Company's primary financial statements and the related earnings per average share of Common Stock other than those actfustments shown in the following supplementary financial data.

Constant Dollar costs were determined by adjusting historical costs of Utility Plant and certain other items into dollars of the same general purchasing power by using the Consumer Price Index for All Urban Consumers (CPl-U).

Current Cost data purports to show the estimated cost of cur-rently replacing existing Utility Plant and was measured by applying primarily the Handy-Whitman Index of Public Utility Construction Costs to the historical costs of Utility Plant.

Depreciation and Amortization expense. and Amortization of Nuclear Fuel (included in Electric Fuel. Interchanged Power and Gas) were adjusted for Constant Dollar and Current Cost using the rates and methods for computing book depreciation and amortization applied to the appropriate inflation adjusted Utility Plant balances. In accordance with FAS 33. income tax expense was not adjusted.

FAS 33 requires the disclosure of the amount required to re-flect Net Utility Plant at its Recoverable Cost if that cost is lower than the inflation adjusted amounts. Also required under Current Cost is the disclosure of the increase in Current Cost of Net Utility Plant held during the year and the related effect of general inflation. The amounts shown in the following table illustrate that during 1983 the increase in general inflation was less than the increase in the Current Cost of Net Utility Plant after adjustment to Recoverable Cost. In addition. the amounts shown as Adjustments of Net Utility Plant to Recoverable Cost (both Constant Dollar and Current Cost) are adjustments to Historical Cost in average 1983 dollars. Historical Cost is the amount permitted to be recovered under the rate regulatory process for utilities in New Jersey.

During inflationary periods. holders of monetary assets. such as cash and receivables. suffer losses of general purchasing power while holders of monetary liabilities experience gains. In 1983 37 the Company's monetary liabilities. primarily long-term debt.

exceeded its monetary assets resulting in a gain. Since this gain is primarily attributable to long-term debt which has been used to finance Utility Plant. it is netted against the Adjustment of Net Utility Plant to Recoverable Cost for Constant Dollar and the Amount by which the increase in general inflation is (higher) lower than the increase in Current Cost of Net Utility Plant after adjustment to Recoverable Cost for Current Cost in the following table.

38 Supplementary Financial Data Adjusted for the Effects of Changing Prices for the Year Ended December 31. 1983 (Unaudited)

Operating Revenues Operating Expenses Electric Fuel, Interchanged Power and Gas Other Operation and Maintenance Depreciation and Amortization Taxes Total Operating Expenses Operating Income Other (including Interest Expenses)

Income from Continuing Operations (excluding Adjustment of Net Utility Plant to Recoverable Cost)

Increase in Current Cost of Net Utility Plant held during the year**

Adjustment of Net Utility Plant to Recoverable Cost Effect of the increase in General Inflation Amount by which increase in general inflation is lower than increase in Current Cost of Net Utility Plant after adjustment to Recoverable Cost Gain from decline in purchasing power of Net Monetary Liabilities Net Historical Cost (Condensed from the Financial Statements)

$3.962.932 1,726.995 791.374 201.787 748.826 3.468,982 493.950 (104.171)

$ 389.779 Constant Dollar (Average 1983 Dollars)

(Thousands of Dollars)

$3.962,932 1,728,082 791.374 467.425 748.826 3,735.707 227,225 (104.171)

$ 123,054*

29.241 118.253

$ 147.494 Current Cost (Average 1983 Dollars)

$3.962,932 1,729.584 791,374 521.237 748,826 3,791,021 171,911 (104,171) 67,740

$ 407,236 68,323 (391.004) 84,555 118.253

$ 202,808

• Including Adjustment of Net Utility Plant to Recoverable Cost. Income from Continuing Operations adjusted for Constant Dollar would have been

$152.295.000.

• • At December 31. 1983 the Current Cost of Net Utility Plant was $10.905.560.000. while historical (net recoverable) cost was $6.742.903.000.

Supplementary Five-Year Comparison of Selected Financial Data Adjusted for Effects of Changing Prices (Unaudited)

(000 omitted where applicable and all aqjusted figures are in average 1983 dollars)

For the Years Ended December 31.

1983 1982 Operating Revenues Historical

$3.962.932

$3.873.976 A<1}usted for General Inflation

$3.962.932

$3.998,597 Income (Loss) from Continuing Operations (excluding Adjustment of Net Utility Plant to Recoverable Cost)

Historical

$ 389.779

$ 342.827 A<1}usted for General Inflation

$ 123.054 95.309 A<1}usted for Current Cost 67.640 31.122 Income (Loss) from Continuing Operations per Average Common Share (excluding Adjustment of Net Utility Plant to Recoverable Cost)*

Historical

$ 3.40

$ 3.24 A<1}usted for General Inflation

$.67

.44 A<1}usted for Current Cost

.10

$ (.28)

Amount by which increase in general inflation is (higher) lower than increase in Current Cost of Net Utility Plant after a<1}ustment to Recoverable Cost 84.555

$ 100.293 Gain from decline in purchasing power of Net Monetary Liabilities

$ 118.253

$ 107.556 Net Assets at Year End**

Historical

$3.337.693

$3.080.877 A<1}usted for General Inflation and Current Cost

$3.281.620

$3.144,097 Cash Dividends Declared per Common Share Historical

$ 2.62

$ 2.53 A<1}usted for General Inflation

$ 2.62

$ 2.61 Market Price per Common Share at Year End Historical

$22.75

$23.25 A<1}usted for General Inflation***

$22.75

$24.13 Consumer Price Index ( 1967 = 100)

Average 298.4 289.1 Year End 303.5 292.4 1981 1980 1979

$3.471.652

$2.994.054

$2.416.707

$3.803.014

$3.620.039

$3.317.136

$ 264.137

$ 275.401

$ 233.329 48.440

$ 119.274

$ 106.425

$ (13.833) $

40.781 20,803

$ 2.63

$ 3.13

$ 2.85

$ (.10)

.87

.64

$ (.87)

$ (.21)

$ (.67)

$ (196.951) $ (409.739) $ (481.977)

$ 242,716

$ 341.804

$ 374,002

$2.832.930

$2.646.928

$2.435.516

$3.003.006

$3.056.669

$3.161.191

$ 2.44

$ 2.29

$ 2.20

$ 2.67

$ 2.77

$ 3.02

$18.00

$17.00

$19.25

$19.41

$19.97

$25.41 272.4 246.8 217.4 281.5 258.4 229.9

• After deducting Cumulative Preferred Stock and $1.40 Dividend Preference Common Stock dividends on a historical basis in 1983 and in Average 1983 Dollars for prior years.

• • Equals Common Equity and Preferred Stock without mandatory redemption.

• • • vear-end 1983 Dollars.

Prices have been increasing over the last five years. The average CPl-U increased from 217.4 in 1979 to 298.4 in 1983. an aver-age annual increase of 8.2%. The increase from 1982 to 1983 was 3.2%. an indication that the rate of inflation in 1983 has slowed.

Revenues for the five-year period increased from $2.417 billion in 1979 to $3.963 billion in 1983, an average annual increase of 13.2%. Restated in average 1983 dollars. revenues for the same period would have increased from $3.317 billion to

$3.963 billion. an average annual increase of only 4.5%.

Cash dividends declared per common share went from $2.20 in 1979 to $2.62 in 1983 or an average annual increase of 4.5%.

However. such dividends would have decreased at an average annual rate of 3.5% or from $3.02 in 1979 to $2.62 in 1983 when restated in average 1983 dollars.

Market price per common share at year end from 1979 to 1983 had an average annual increase of 4.3% or from $19.25 to $22.75. Restated in year-end 1983 dollars the 1979 market price would have been $25.41 instead of $19.25 resulting in an average annual decrease of 2.7% from 1979 to 1983.

As shown in the tables above. the gain from decline in purchas-ing power of net monetary liabilities was not enough to offset the significant effect of inflation on capital costs (utility plant).

nuclear fuel costs and depreciation.

Lack of adequate recognition of inflation in rate-making in addi-tion to delayed rate relief accelerates attrition. thereby contrib-uting to poorer cash flow.

39

10. Jointly-Owned Facilities 40 The Company has an ownership interest and is responsible for providing its share of the necessary financing for the following jointly-owned facilities. All amounts reflect the Company's share of eachjointly-owned project and the corresponding direct ex-penses are included in the Statements of Income as an operat-ing expense.

Plant Ownership Interest Coal Generating Conemaugh 22.50%

Keystone 22.84%

Nuclear Generating Peach Bottom 42.49%

Salem 42.59%

Hope Creek 95.00%

Nuclear Support Facilities Various Pumped Storage Generating Yards Creek 50.00%

Transmission Facilities Various Merrill Creek Reservoir 13.906%

Linden Synthetic Natural Gas 90.00%

11. Financial Information by Business Segments Electric For the Years Ended December 31.

1983 1982 1981 Thousands of Dollars)

Operating Revenues

$2.570.457 $2.543.191

$2.322.042 Depreciation and Amortization 152.874 146,643 134.050 Operating Income Before Income Taxes 584,508 533.855 378.082 Gross Additions to Utility Plant 813,872 735,997 615.976 December 31, Net Utility Plant

$6.047.185 $5.393.535 $4.813.875 Gas Exploration Subsidiary and LNG Project Other Corporate Assets 1.122.418 1.126,566 1.168.539 Total Assets

$7.169.603 $6.520.101

$5.982.414

12. Selected Quarterly Data (Unaudited)

Amount of Utility Plant In Service

$ 68,046 58,126 436.423 747,346 28.002 17.868 89.017 66,160 Gas 1983 1982

$1,392.475 $1.330.785 48.913 46.217 101,052 99,108 77,013 77,378

$ 695,718 $ 665.137 304,052 287,911 396.060 435,626

$1.395.830 $1.388.674 Accumulated Provision for Depreciation (Thousands of Dollars)

$ 19.296 19.091 127,022 124.429 771 3,845 11.327 39.228 1981 1983

$1.149.610 $3.962.932 44.482 201,787 94.937 685.560 67.873 890.885

$ 632.218 $6.742.903 261.000 304,052 401.457 1.518.478

$1.294,675 $8.565.433 Amount of Plant Under Construction Total

$2.363,260 14.811 40.722 4.163 1982 1981

$3.873.976 $3.471.652 192.860 178,532 632.963 473.01 9 813.375 683,84 9

$6.058.672 $5,446.093 287.911 261.00 0 1,562.192 1,569.99 6

$7.908,775 $7.277.089 The information shown below in the opinion of the Company includes all adjustments. consisting only of normal recurring accruals. necessary to a fair presentation of such amounts. Due to the seasonal nature of the business. quarterly amounts vary significantly during the year.

Calendar Quarter Ended March 31.

June 30.

1983 1982 1983 1982

{Thousands where applicable)

Operating Revenues

$1.150,076 $1.144.277

$860.584

$872,657 Operating Income 126.388 111.347 100.098 100,839 Net Income 101.772 83,389 75.377 71,530 Earnings Available for Common Stock 87,540 $

70,226

$ 61.146

$ 58,386 Earnings per Average Share of Common Stock

$.92

$.81

$.64

$.67 Average Shares of Common Stock Outstanding 94.948 86.181 96.136 87.176 September 30.

December 31.

1983 1982 1983 1982

$935,156

$872,292 $1.017.116

$984.750 147,728 126,805 119,899 98,289

$105,231

$ 84,975 $

$1.08

$.95 97.570 89,626 119,736 92,731 77,628

$.76 101.146 115.46 89.61 75.37 8

9 5

$.8 0 93.861

Management's Discussion and Analysis of Financial Condition and Results of Operations The Company's financial condition and results of operations are generally affected by a number of factors. including the timing and amount of rate relief. the extent of sales growth and the level of operating costs and carrying charges on in-creased investment in plant and equipment. as more fully discussed below. More specifically, the Company's financial condition reflects the ongoing construction of Hope Creek Generating Station Unit No. 1, a 1.067 megawatt nuclear unit owned 95% by the Company. As of December 31. 1983.

the unit was approximately 80% complete. and the Company had expended $2.364 billion with respect to the project. including $419 million of allowance for funds used during construction (AFDC). Construction is proceeding on schedule. with expenditures closely tracking estimated costs.

The Company's share of the cost of the project is estimated at approximately $3.56 billion. The Company is using its best efforts to complete Hope Creek on schedule and within budget. although such cannot be assured. Successful comple-tion of the project is of significant importance to the Company.

Hearings have been concluded in the Company's current rate case and an Initial Decision was issued by an Administra-tive Law Judge (ALJ) on February 14. 1984. The Board of Public Utilities of the State of New Jersey (BPU) is expected to render a Final Order by the end of the first quarter of 1984. The Company is seeking an additional $250 million of construction work in progress (CWIP) earning a current re-turn. which would bring the total CWIP with a current return to $625 million. in order to provide additional cash flow for the construction of Hope Creek. The BPU Staff has recommended an additional $175 million of CWIP earning a current return for a total of $550 million. while the Public Advocate of New Jersey. one of the parties in the rate case.

has recommended that the current allowance of $375 mil-lion be reduced to $250 million. The final positions of the parties and of the ALJ for an annual increase in base rates are: the Company -

$450.8 million. the BPU Staff -

$233.9 million, the ALJ- $221.1 million. and the Public Advocate -

$45.1 million. Regardless of the outcome. sig-nificant external financing will be required to complete Hope Creek.

As a result of the construction of Hope Creek. certain problems experienced by other utilities which are construct-ing nuclear generating units could have an indirect effect on the Company's operations and financial condition. because of common regulatory requirements. such as those of the Nu-clear Regulatory Commission (NRC). and because industry events in some cases may affect the price of the Company's securities in the capital markets. where the Company must compete for investors' funds. Reported events in January 1984 by other utilities that are constructing nuclear gener-ating units include the denial of an NRC operating license for a virtually completed unit. the decision by a utility to with-draw from a plant in which it had invested over $2 billion and to reduce its common stock dividends by 65% because of the associated financial burdens. the decision by another group of utilities to convert a substantially completed nuclear plant to coal. and the reduction of credit ratings of certain utilities with units under construction.

A discussion of the Company's operating results. liquidity and capital resources follows:

Earnings and Dividends Earnings per average share of Common Stock were $3.40 for 1983, an increase of 16C or 5% from 1982. The increase is primarily attributable to base rate increases which went into effect in February 1982, greater electric sales due to the extremely hot weather during the summer of 1983 and greater allowance for funds used during construction at the Hope Creek Generating Station. partially offset by increases in operating expenses (excluding fuel costs). and the increased carrying costs of utility plant investment.

Earnings per average share were $3.24 for 1982. an in-crease of 61 C or 23% from 1981. Increased revenues. re-flecting the February 1982 rate increase. outpaced the rise in operating costs.

Dividends paid to holders of Common Stock have grown over the last three years. rising to $2.62 per share in 1983 from $2.53 in 1982. and $2.44 in 1981. Such amounts re-sulted in payout ratios of 77%, 78%. and 93% respectively.

Total Common Stock dividend payments in 1983 increased 12% over 1982 and 29% over 1981 due to the increase in shares of Common Stock outstanding as well as the higher dividend rate.

Revenues and Sales Total revenues increased in 1983. primarily reflecting the benefit of higher sales. In 1982. the increase in total reve-nues was due largely to higher rates. Electric energy and gas fuel costs follow amounts recovered through revenues. as permitted by rate orders. and therefore have no effect on earnings.

Electric revenues increased 1.1%in1983 and 9.5% in 1982. The components of these changes are highlighted in the table below:

Changes in base rates Recoveries of energy costs Kilowatthour sales Other operating revenues Increase or (Decrease) 1983 vs. 1982 1982 vs. 1981 (Millions of Dollars)

$ 41

$291 (177)

(49) 148 (33) 15 12

$ 27

$221 1983 -

Electric kilowatthour sales increased 5.6%.

Residential. Commercial and Industrial sales increased 9.3%.

5.7%, and 2.7%, respectively. The warmer and more humid weather and the revival of the economy were the main rea-sons for the improvement in sales. A record monthly output of 3.401 million megawatthours was attained in August and on September 6th a record 60-minute net peak load of 7,244 megawatts was reached.

1982 -

Electric kilowatthour sales decreased 2.7%. The cooler and less humid weather in 1982 and continued cus-tomer conservation were the main reasons for the 1.4%

drop in Residential sales. Industrial sales declined 8.3% as a result of the economic recession. These decreases were slightly offset by the 1.6% increase in Commercial sales.

41

42 Gas revenues rose 4.6% in 1983 and 15.8% in 1982. The principal factors are shown below:

Changes in base rates Recoveries of gas costs Therm sales Other operating revenues Increase or (Decrease) 1983 vs. 1982 1982 vs. 1981 (Millions of Dollars)

$12

$ 39 31 136 17 6

2

$62

$181 1983 -

Gas therm sales increased by.5%. Residential sales remained relatively unchanged. increasing.1 %. the re-sult of the moderate weather conditions experienced earlier in the year. Commercial sales increased 2.6%. reflecting an increase in customers. Industrial sales fell 1.1 %. primarily the result of greater competition from oil causing fuel switching by customers with duel-fuel capability.

1982 -

Gas therm sales decreased 1.0%. Industrial sales fell 9.4% from 1981 primarily as a result of the continued economic recession. Commercial sales were up 4.7%. the re-sult of greater customer usage and an increase in customers.

Residential sales were held to an increase of.1 % principally due to moderate weather conditions experienced late in the year and continued conservation.

Energy Costs Electric energy costs and gas fuel costs are adjusted to match amounts recovered through revenues and have no ef-fect on earnings.

In 1983 a total of 33.391 million megawatthours was generated. purchased and interchanged, a new record and an increase of 6% over 1982. Megawatthours generated de-clined 9% while energy purchased from other utilities and the P JM increased 97% to meet the increased demand. The decline in generation was mainly due to the unavailability of nuclear generating units during the year. particularly Salem 2 and Peach Bottom 3. About one-half of the lost nuclear generation was replaced by the use of natural gas and gas turbines.

For information on the disputed recovery of replacement power costs associated with the outage of certain of the Company's nuclear units. see Note 7 of Notes to Financial Statements.

In 1983 the BPU revised the electric Levelized Energy Ad-justment Clause (LEAC) to reduce customer bills by $135 million for the 16-month period from March 1. 1983 through June 30. 1984. The decrease of $314 million in the table below is due to the deferral of energy costs and largely resulted from the reduction in the LEAC.

As a member of the P JM and as a party to several agree-ments which provide for the purchase of available power from neighboring utilities. the Company is able to optimize its mix of internal and external sources using the lowest cost energy available at any given time.

Total energy costs decreased 9% in 1983 and 1982 from previous years. as described below:

Change in prices paid for fuel supplies and power purchases Kilowatthour output Adjustment of actual costs to match recoveries through revenues Increase or (Decrease) 1983 vs. 1982 1982 vs. 1981 (Millions of Dollars)

$176 48 (314)

$ (90)

$(125)

(19) 44

$(100)

Gas costs were 4% higher in 1983 and 19% higher in 1982.

Contributing factors are shown below:

Higher prices paid for gas supplies Refunds from pipeline suppliers Therm sendout Adjustment of actual costs to match recoveries through revenues Liquidity and Capital Resources Increase or (Decrease) 1983 vs. 1982 1982 vs. 1981 (Millions of Dollars)

$39 14 1

(17)

$37

$104 4

1 20

$129 The Company's liquidity is affected principally by the con-struction program and. to a lesser degree. by other capital requirements such as maturing debt and sinking fund re-quirements. The capital resources available to meet these re-quirements are funds from internal generation and external financing. Internally generated funds depend upon economic conditions and adequate and timely rate relief. while access to the long-term and short-term capital and credit markets is necessary for obtaining funds externally.

Construction Program The Company maintains a continuous construction program.

which includes payments for nuclear fuel and investments in and advances to energy resource subsidiaries. This program is periodically revised as a result of changes in economic conditions. and depends on the ability of the Company to finance construction costs and to obtain timely rate relief.

Changes in the Company's plans and forecasts. price changes. cost escalation under construction contracts. and requirements of regulatory authorities may also result in revisions of the construction program.

Construction expenditures of $902 million in 1983 and

$842 million in 1982 include allowance for funds used dur-ing construction (AFDC) of $129 million and $91 million. re-spectively. Construction expenditures are estimated at $2.5 billion for the three years ending in 1986 and include AFDC of about $550 million. Approximately $1.2 billion of this amount. including about $500 million of AFDC. is required for the completion of Hope Creek.

These estimates are based on certain expected comple-tion dates and include anticipated escalation due to inflation of approximately 7.5%. Therefore. construction delays or inordinate inflation levels could cause significant increases in these amounts. However. the Company's estimates show that construction expenditures will decline substantially after the completion of Hope Creek. The Company expects that. with adequate rate relief. as to which no assurance can be given, it will generate internally approximately 50% of its construction expenditure requirements. excluding AFDC during the next three years. The balance will be provided by permanent financing through the sale of securities as well as term bank loans.

Long-Term Financing During 1983 the Company raised more than $372 million through the sale of $181 million of Common Stock, $161 million of Mortgage Bonds and $30 million of Preferred Stock. As a result, the Company's interest and dividend requirements have continued to increase.

At December 31. 1983 book value per common share amounted to $26.36 compared to $25.90 at December 31.

1982. The market value of common shares expressed as a percentage of book value was 86.3% and 89.8% at year end 1983 and 1982, respectively.

In addition to periodic sinking fund redemption require-ments. two mortgage bond issues aggregating $100 million will mature by 1986.

Under the terms of the Company's Mortgage and Re-stated Certificate of Incorporation. at December 31, 1983 the Company could issue an additional $1.168 billion princi-pal amount of Mortgage Bonds at a rate of 12.875% or

$916 million of Preferred Stock at a rate of 11.750%.

Present plans for 1984 call for the issuance of Mortgage Bonds, Common Stock and Preferred Stock.

The Company has requested a year's extension to April 1985 of its present domestic revolving credit agreement for a line of credit to $200 million. The agreement permits the Company to convert the outstanding balance at the end of the period to three-year term loans.

In 1982, PSE&G Overseas Finance N.V., a wholly-owned Netherlands Antilles subsidiary. was formed. The financial subsidiary will be able to provide the Company with access to long-term capital markets abroad.

Short-Term Financing For interim financing, the Company is authorized by the BPU to have up to a total of $300 million of short-term obliga-tions outstanding at any given time. The availability of short-term financing provides the Company flexibility in the issu-ance of long-term securities. The Company's average daily short-term debt during 1983 was $37 million -

$71 mil-lion under last year's average. At year end the Company had

$153 million of short-term debt outstanding.

In December 1983 the Company entered into a Letter Agreement establishing a $75 million Four-Year Revolving Credit Facility with a group of international banks. under which the Banks have agreed to make revolving loans for one month. three months or six months at a rate based upon the London Interbank Offered Rate for deposits in United States Dollars. BPU approval of the Letter Agreement has been applied for. This Agreement renewed a previous two-year agreement and provides the Company with an inter-mediate term source of funds in addition to that provided by a Domestic Credit Agreement for $200 million.

At the end of 1983 customer accounts receivable approx-imated $341 million (excluding unbilled revenues of $200 million). Although this is $20 million lower than last year. the Company is continuing to finance large receivables from its customers. Net write-off of uncollectible accounts in 1983 was $40 million. an $8 million or 25% increase over 1982.

These changes reflect intensified collection procedures de-veloped by the Company and, with respect to the reduction in accounts receivable. an improvement in the economy.

These matters are affected by the level of the Company's rates and a requirement of the BPU prohibiting the termina-tion of electric and gas service in winter months with re-spect to certain customers with financial need. More favorable collection guidelines approved by the BPU in the Fall of 1983 are expected to assist in the Company's collec-tion efforts.

Cash Position The Company's cash position declined $198.8 million since year-end 1982 as indicated by a lower level of cash and 43 temporary cash investments and the increase in commercial paper. This is a temporary condition caused primarily by the underrecovery of electric fuel costs discussed in Note 4 of Notes to Financial Statements and higher construction expenditures principally for Hope Creek generating station.

Effects of Inflation The impact of inflation in the national economy and the Company is not as severe as in several of the past few years when the Average Consumer Price Index (CPl-U) reflected increases of over 10%. The downward trend in the inflation rate in 1982 has continued through 1983. The CPl-U for 1983 was 298.4, only 3.2% above 1982 compared to a 6.1 % increase in 1982 over 1981. Even though the rate of inflation has decreased substantially in the last two years the cost of capital has remained high during a time when sub-stantial amounts must be raised in the capital markets to finance needed construction.

For additional information on the effects of changing prices, see Note 9 of Notes to Financial Statements.

Operating Statistics

% Annual Inc. (Dec.) -

1983 compared with (000 omitted where applicable) 1983 1982 1982 1973 Electric Revenues from Sales of Electricity Residential

$ 829,967

$ 791,279 4.89 11.68 Commercial 984,499 981.795

.28 14.05 Industrial 686,880 716.662 (4.16) 12.24 Public Street Lighting 38.672 37,809 2.28 8.51 Total Revenues from Sales to Customers 2,540,018 2,527,545

.49 12.63 Interdepartmental 1,863 1,709 9.01 9.53 Total Revenues from Sales of Electricity 2,541,881 2.529,254

.50 12.63 Other Electric Revenues 28,576 13,937 105.04 36.16 Total Operating Revenues

$2,570,457

$2,543,191 1.07 12.74 Sales of Electricity -

kilowatthours Residential 8.402,397 7,686,548 9.31

.48 Commercial 11,753,667 11,114.655 5.75 2.80 Industrial 10.283,784 10,017,613 2.66

( 1.39)

Public Street Lighting 302,053 301,603

.15 1.92 Total Sales to Customers 30,741,901 29.120,419 5.57

.58 Interdepartmental 27,800 25,154 10.52

(.48)

Total Sales of Electricity 30,769,701 29.145.573 5.57

.58 Kilowatthours Produced. Purchased and Interchanged -

net 33,391,011 31.563.231 5.79

.69 Load Factor 52.6%

51.2%

Capacity Factor 31.6%

34.7%

Heat Rate -

Btu of fuel per net kwh generated 10,717 10,677

.37

.02 44 Net Installed Generating Capacity at December 31 -

kilowatts 8,999 8,995

.04

.80 Net Peak Load -

kilowatts (60-minute integrated) 7,244 7,042 2.87

.61 Temperature Humidity Index Hours 17.262 12.155 42.02

(.99)

Average Annual Use per Residential Customer -

kwh 5,602 5,156 8.65

(. 18)

Meters in Service at December 31 1,757 1,746

.63

.50 Gas Revenues from Sales of Gas Residential

$ 746,200

$ 716,308 4.17 14.88 Commercial 396,159 371,027 6.77 18.67 Industrial 246.408 241.437 2.06 19.18 Street Lighting 358 350 2.29 14.93 Total Revenues from Sales to Customers 1,389,125 1.329,122 4.51 16.54 Interdepartmental 1,01 1 1,068 (5.34) 8.10 Total Revenues from Sales of Gas 1,390,136 1,330,190 4.51 16.53 Other Gas Revenues 2,339 595 293.11 34.92 Total Operating Revenues

$1,392,475

$1.330,785 4.64 16.55 Sales of Gas -

therms Residential 995,686 994.647

.10

.18 Commercial 596,868 581,739 2.60 2.68 Industrial 460,601 465,835

( 1.12)

(.70)

Street Lighting 327 331

( 1.21)

(3.01)

Total Sales to Customers 2,053,482 2,042,552

.54

.62 Interdepartmental 1,857 2,090

( 11.15)

(6.07)

Total Sales of Gas 2,055,339 2.044,642

.52

.61 Gas Produced and Purchased -

therms 2.151,417 2,148,839

.12

.72 Effective Daily Capacity at December 31 -

therms 19.129 19.139

(.05)

.80 Maximum 24-hour Gas Sendout-therms 15,612 16.201 (3.64) 2.38 Heating Degree Days 4,677 4,820 (2.97)

.97 Average Annual Use per Residential Customer -

therms 850 853

(.35)

(.27)

Meters in Service at December 31 1,392 1,384

.58

.33

1981 1980 1979 1978 1973

$ 728,642

$ 684.343

$ 545,049

$ 512,071

$274,974 871.377 765,356 625.596 574.557 264.450 684,976 598.716 484,037 444.595 216,543 33,249 32.693 31.437 29.925 17.086 2.318.244 2.081.108 1,686.119 1,561,148 773.053 1.612 1,720 1.559 1,670 750 2,319,856 2.082.828 1,687,678 1,562,818 773.803 2.186 1,072 2,179 2,016 1.305

$2.322,042

$2,083,900

$1.689.857

$1,564,834

$775.108 7,795,988 8, 129. 198 7.777,369 7,760.868 8.008,127 10.940.609 10.726.086 10.336.445 10,1 52.827 8,916,829 10.923.042 11.049.642 11.185.952 11.134,634 11,830.307 275.489 265.126 260.915 260.922 249,837 29.935.128 30.170,052 29.560.681 29.309.251 29.005,100 25.567 27.684 26.629 32.638 29.160 29.960,695 30,197,736 29.587,310 29,341.889 29,034,260 32,204,191 32.703.504 32,021.737 31.628.876

31. 164,926 52.3%

52.0%

54.3%

54.6%

52.2%

33.2%

35.6%

31.8%

34.4%

40.3%

10,725 10,713 10,566 10,599 10,695 9,101 9.242 9,023 9,061 8,306 45 7,034 7,159 6,736 6,615 6,816 15.494 16.526 14.545 13,899 19.063 5.261 5.443 5,233 5,378 5,703 1.739 1.732 1,724 1,713 1.672

$ 604.521

$ 515,013

$ 415.157

$ 399.134

$186.325 302.281 228.577 179,970 163,931 71.533 240,711 164.762 129.665 90.240 42.624 290 282 274 248 89 1.147.803 908.634 725.066 653,553 300,571 1,075 925 790 802 464 1.148,878 909.559 725.856 654.355 301.035 732 595 994 596 117

$1.149.610

$ 910.154

$ 726,850

$ 654.951

$301.152 993.527 1.023.027 970.462 1.013.043 977.468 555.806 506,550 456,902 447.923 457.955 514.136 447.474 410.605 306,672 494,320 334 335 350 367 444 2.063.803 1.977,386 1,838.319 1,768,005 1,930,187 2.430 2.322 2,328 2.490 3.472 2,066,233 1,979.708 1,840,647 1,770.495 1.933,659 2.145,325 2,077,653 1,931.549 1,852.869 2.002.206 19.010 18.439 18,639 18,639 17,668 14,812 14.444 13.349 12,235 12,341 5,082 5.256 4.677 5.317 4.245 857 875 833 893 873 1.378 1,370 1,357 1,350 1,347

Financial Statistics (000 omitted where applicable) 1983 1982 Condensed Statements of Income (a)

Amount Amount Operating Revenues Electric

$2,570,457 65

$2.543,191 66 Gas 1,392,475 35 1.330.785 34 Total Operating Revenues 3,962,932 100 3,873,976 100 Operating Expenses Fuel for Electric Generation and Interchanged Power -

net 868,977 22 959,382 25 Gas Purchased and Materials for Gas Produced 858,018 22 821.479 21 Other Operation Expenses 503,568 13 452.115 12 Maintenance 238,766 6

220,456 6

Depreciation and Amortization 201,787 5

192,860 5

Amortization of Property Losses 49,040 1

43.345 1

Taxes Other than Federal Income Taxes 557,793 14 553,241 14 Federal Income Taxes 191,033 5

176.639 4

Total Operating Expenses 3,468,982 88 3,419.517 88 Operating Income Electric 421,364 10 383.213 10 Gas 72,586 2

71,246 2

Total Operating Income 493,950 12 454.459 12 Allowance for Funds Used During Construction (Debt and Equity) 128,592 3

91,427 2

Other Income -

net 12,605 1

17.578 1

Interest Charges (245,368)

(6)

(220.637)

(6)

Income before Extraordinary Items 389,779 10 342.827 9

Extraordinary Items, net of income tax:

Cumulative effect of accruing estimated unbilled revenues Unrecoverable costs of Atlantic Project Gain on sale of Transport of New Jersey 46 Net Extraordinary Items Net Income 389,779 10 342.827 9

Preferred and Preference Stock Dividends 58,234 2

53.865 2

Earnings Available for Common Stock

$ 331,545 8

$ 288.962 7

Shares of Common Stock Outstanding End of Year 102,858 94.845 Average for Year 97,467 89.233 Earnings per average share of Common Stock

$3.40

$3.24 Dividends Paid per Share

$2.62

$2.53 Payout Ratio 77%

78%

Rate of Return on Average Common Equity (d) 12.68%

12.22%

Ratio of Earnings to Fixed Charges Before Income Taxes (e) 3.33 3.32 Book Value per Common Share (f)

$26.36

$25.90 Utility Plant

$8,950,476

$8.100.579 Accumulated Depreciation and Amortization

$2.207,573

$2.041.907(g)

Total Assets

$8,565,433

$7.908.775(g)

Capitalization

$2,452,954 Mortgage Bonds 39

$2,341,142 40 Debenture Bonds 231,945 4

238,640 4

Other Long-Term Debt Total Long-Term Debt 2,684,899 43 2.579.782 44 Other Long-Term Obligations 61,844 60,430(g) 1 Preferred Stock with Mandatory Redemption 139,500 2

111.250 2

Preferred Stock without Mandatory Redemption 554,994 9

554,994 10

$1.40 Dividend Preference Common Stock and Common Stock 1,792,340 29 1,610,879 28 Premium on Capital Stock 557 557 Paid-In Capital 26,185 26.185 Retained Earnings 963,617 16 888.262 15 Total Common Equity 2,782,699 45 2.525.883 43 Total Capitalization

$6,223,936 100

$5.832.339 100 (a) See Summary of Significant Accounting Policies. Notes to Financial (c) Excludes non-recurring cumulative effect of accruing estimated un-Statements. and Management's Discussion and Analysis of Financial billed revenues of $18.540.000 or $.41 per share.

Condition and Results of Operations.

(d) Balance available for $1.40 Dividend Preference Common Stock (b) Excludes the net extraordinary gain of $6.316.000 or $.09 per and Common Stock divided by the thirteen-month average of Common share.

Equity.

1981 1980 1979 1978 1973 Amount Amount Amount Amount Amount

$2,322,042 67

$2.083,900 70

$1.689,857 70

$1.564,834 70

$ 775,108 72 1.149,610 33 910.154 30 726.850 30 654,951 30 301,152 28 3.471.652 100 2,994,054 100 2.416,707 100 2,219,785 100 1.076.260 100 1.059,539 31 866,802 29 620,546 26 541.802 24 241,103 23 692.319 20 513,988 17 384,759 16 327,990 15 119.828 11 385,149 11 322.220 11 287.086 12 267,731 12 174.105 16 192.768 6

169.813 6

149,027 6

127.423 6

88.257 8

178,532 5

169.987 6

162,989 7

158,248 7

98.239 9

15,362 11.024 303 1.038 474,979 14 431,890 14 364.411 15 328.216 15 167.545 16 118,737 3

131,178 4

123.965 5

146,937 7

3,252 3.11 7.385 90 2.616.902 87 2.093,086 87 1,899.385 86 892.329 83 288.087 8

307.372 10 269,443 11 266.513 12 152.492 14 66.180 2

69,780 3

54,178 2

53.887 2

31.439 3

354.267 10 377.152 13 323.621 13 320.400 14 183.931 17 95.679 3

77.552 2

56.593 3

41.305 2

56,529 5

15.780 10.259 6.263 4.515 703 (201,589)

(6)

(189.562)

(6)

(153.148)

(6)

(137.434)

(6)

(109.680) (10) 264,137 7

275.401 9

233.329 10 228.786 10 131,483 12 18.540 2

(13.219) 19.535 6.316 18.540 2 47 264.137 7

281.717 9

233,329 10 228.786 10 150,023 14 51,538 1

46,341 1

46.799 2

46,799 2

30,761 3

$ 212,599 6

$ 235.376 8

$ 186.530 8

$ 181,987 8

$ 119.262 11 86.089 76.615 68.914 64.120 47,861 80,962 73,069 65.409 61.783 45,680

$2.63

$3.13 (b)

$2.85

$2.95

$2.20 (c)

$2.44

$2.29

$2.20

$2.08

$1.72 93%

73% (b) 77%

71 %

780/o(c) 9.79%

11.63%

10.46%

11.01 %

8.81 %

2.87 3.14 3.36 3.77 2.22

$25.66

$26.38

$26.26

$26.13

$24.14

$7.320,764

$6.881.209

$6.325.033

$5.810.329

$4.369,141

$1.874,671

$1.703.960

$1.589.049

$1.447.039

$ 916.346

$7.277.089

$6.724,860

$6.088,766

$5.508.164

$3.896,667

$2.140,835 40

$2.041.556 41

$1,940,513 41

$1,692.642 39

$1.236,364 36 269.268 5

276,590 5

314,726 7

322.682 7

420.387 12 720 1.200 1,680 2.160 103.600 3

2.410.823 45 2.319.346 46 2.256,919 48 2.017.484 46 1,760.351 51 77,913 2

29.750 31,500 35,000 554.994 10 554.994 11 554,994 12 554,994 13 434,994 13 1.423.739 27 1.252.103 25 1.106,824 23 1.014.184 23 710,078 21 557 557 557 557 550 26.143 26.093 1

26.065 1

26.065 1

26,065 1

827.497 16 813,181 16 747.076 16 704,909 16 483,543 14 2.277.936 43 2.091,934 42 1.880.522 40 1.745,715 40 1.220,236 36

$5,321,666 100

$4.996.024 100

$4.723,935 100

$4.353.193 100

$3.415,581 100 (e) Net Income plus Income Taxes. Deferred Income Taxes. Investment (f) Total Common Equity divided by year-end Common Stock shares Tax Credits and Fixed Charges divided by Fixed Charges. Fixed Charges plus double the $1.40 Dividend Preference Common Stock shares.

include Interest on Long-Term and Short-Term Debt. Other Interest Ex-(g) Restated to conform to current classification.

pense and. starting in 1980. an interest factor in rentals.

48 Officers Harold W. Sann President and Chief Executive Officer William E. Scott Executive Vice President-Finance Stephen A. Mallard Senior Vice President-Planning and Research and President of PSE&G Research Corporation James B. Randel. Jr.

Senior Vice President of the Company and President of Energy Development Corporation Richard M. Eckert Senior Vice President-Energy Supply and Engineering Robert W. Lockwood Senior Vice President-Administration Everett L. Morris Senior Vice President-Customer Operations Frederick W. Schneider Senior Vice President-Corporate Planning Changes in Organization Robert I. Smith. Chairman of the Board and Chief Executive Officer.

retired on September 9. 1983.

after more than 43 years of ser-vice. Harold W. Sonn. President.

succeeded Mr. Smith as Chief Executive Officer.

Donald A. Anderson Vice President-Computer Systems and Services Lawrence R. Codey Vice President and Corporate Rate Counsel Robert M. Crockett Vice President-Fuel Supply and President of Energy Pipeline Corporation and Energy Terminal Services Corporation Fredrick R. Desanti Vice President-Rates and Load Management Robert H. Franklin Vice President-Public Relations Carroll D. James Vice President-Administrative Planning Frank P. Librizzi Vice President-Production Charles E. Maginn. Jr.

Vice President-Human Resources Wallace A. Maginn Vice President and Treasurer Winthrop E. Mange. Jr.

Vice President-Corporate Services Thomas J. Martin Vice President-Engineering and Construction Parker C. Peterman Vice President and Comptroller Louis L. Rizzi Vice President-Customer and Marketing Services William Saller Vice President-Governmental Affairs Robert J. Selbach Vice President-Transmission and Distribution R. Edwin Selover Vice President and General Counsel Rudolph D. Stys Vice President-System Planning Richard A. Uderitz Vice President-Nuclear Robert S. Smith Secretary Transfer Agents All Stocks Morgan Guaranty Trust Company of New York.

30 West Broadway, New York, NY.

10015 Stockholder Services, Public Service Electric and Gas Company 80 Park Plaza. P.O. Box 570.

Newark. N.J. 07101 Registrars All Stocks Fidelity Union Bank.

765 Broad Street. Newark, N.J. 07101 Morgan Guaranty Trust Company of New York.

30 West Broadway. New York. NY. 10015

Directors James R. Cowan, M.D.

President and Chief Executive Officer. United Hospitals Medical Center. Newark. New Jersey.

Member of Finance Committee and Nominating Committee.

T.J. Dermot Dunphy President. Chief Executive Officer and director. Sealed Air Corporation (manufactures protective packaging systems). Saddle Brook. New Jersey.

Member of Nominating Committee and Organization and Compensation Committee.

Robert R. Ferguson. Jr.

President. Chief Executive Officer and director. First National State Bancorporation. Newark. New Jersey.

Member of Finance Committee and Organization and Compensation Committee.

Margery Somers Foster Professor of Economics Emeritus. and former Dean of Douglass College. Rutgers. The State University of New Jersey. New Brunswick. New Jersey.

Member of Audit Committee and Nominating Committee.

Irwin Lerner President. Chief Executive Officer. and director.

Hoffmann-La Roche Inc. (manufactures prescription pharmaceuticals. vitamins and fine chemicals and provides health testing services). Nutley. New Jersey.

Member of Executive Committee and Organization and Compensation Committee.

William E. Marfuggi Chairman of the Board and director. Victory Optical Manufacturing Company (manufactures ophthalmic frames) and Chairman of the Board and director.

Plaza Sunglasses. Inc. (manufactures sunglasses).

both of Newark. New Jersey.

Member of Audit Committee and Finance Committee.

Stock Symbol: PEG The Company's Common Stock and $1.40 Dividend Preference Common Stock are traded on the New York Stock Exchange and the Philadelphia Stock Exchange. The Com-pany's Common Stock was listed and trading began February 3. 1984 on the London Stock Exchange.

The following table shows the quarterly dividends paid for the periods indicated and the high and low NYSE Composite prices of such stocks:

Marilyn M. Pfaltz Partner of P and R Associates (public relations and publicity specialists). Summit. New Jersey.

Member of Audit Committee and Nominating Committee.

James C. Pitney Partner in the law firm of Pitney. Hardin. Kipp &

Szuch. Newark and Morristown. New Jersey.

Chairman of Audit Committee and Member of Organization and Compensation Committee.

Kenneth C. Rogers President. Stevens Institute of Technology.

Hoboken. New Jersey.

Chairman of Nominating Committee and Member of Organization and Compensation Committee.

Verdell L. Roundtree Vice President. National Programs. United Negro College Fund. New York. New York.

Member of Audit Committee.

William E. Scott Executive Vice President - Finance of the Company.

Chairman of Finance Committee and Member of Executive Committee.

Robert I. Smith Former Chairman of the Board of the Company.

Member of Executive Committee and Finance Committee.

Harold W. Sonn President and Chief Executive Officer of the Company.

Chairman of Executive Committee and Member of the Finance Committee.

Robert V. Van Fossan Chairman of the Board. Chief Executive Officer and director. The Mutual Benefit Life Insurance Company.

Newark. New Jersey.

Chairman of Organization and Compensation Committee and Member of Executive Committee and Finance Committee.

Common Stock 1983 1982 Dividend 66C*

64C**

Price First Quarter 24%-223/e 201/4-17%

Second Quarter 24%-2 1%

2 F/s-191/s Third Quarter 24 - 21 1/4 231/4-191/s Fourth Quarter 261/z-22 23%-20%

• 64C First Quarter only.

• • 61 c First Quarter only.

$1.40 Dividend Preference Common Stock 1983 1982 Dividend 35C 35C Price First Quarter 127/s-1 11/2 11 9%

Second Quarter 13 -1 1%

1Q7/s-91;2 Third Quarter 121/4-11 1/4 111/z-9%

Fourth Quarter 13 -1 11/s 12%- 107/s

PS~G Public Service Electric and Gas Company 80 Park Plaza. Newark. New Jersey 07101 Mailing Address:

P.O. Box 570. Newark. New Jersey 07101