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Public Svc Enterprise Group Inc 1987 Annual Rept
	ML18093A740
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Site:	Salem, Hope Creek, 05000000
Issue date:	12/31/1987
From:	Ferland E; PUBLIC SERVICE ENTERPRISE GROUP
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CONTENTS 1

Financial Highlights 2

Message to Shateholders 6

Customer Service 10 Matketing 14 Energy Supply and Reliability 17 Efficiency and Competition 20 Community Service 22 Financial 24 Diversified Operations 27 M~agement's Discussion and Analysis of Financial Condition and Results of Operations 30 Organization and Summaty of Significant Accounting Policies 31 Financial Statement Responsibility 32 Consolidated Financial Statements 36 Independent Accountants' Opinion 39 Notes to Consolidated Financial Statements 48 Consolidated Financial Statistics 50 Operating Statistics 52 Officers and Directors Corporate and Stock Information ENTERPRISE PROFILE Eblic Service Enterprise Group Incorporated (Enterprise) is the par-ent holding company of Public Service Electric and Gas Company and five non-utility businesses. **As a diversified corporation, Enter-prise enters new markets when its experience and knowledge can be brought to bear and when market needs and opportunities can be pursued on a sound and profitable basis. These activities are designed to enhance the social and economic well-being of customers, em-ployees, shareholders and the communities in which Enterprise and its subsidiaries do business. **Public Service Electric and Gas Com-pany, the principal subsidiary of Enterprise, is dedicated to providing safe, dependable and competitively priced electric and gas energy to its two million customers... Community Energy Alternatives Incor-porated is an investor in and developer of cogeneration and small-power projects. **Public Service Resources Corporation is an investment subsidiary dedicated to earning a reasonable return to enhance Enterprise's overall financial strength and to provide a source of funds for future needs. **Energy Development Corporation is involved in gas and oil exploration and production and the acqui-sition of gas and oil reserves. **Enterprise Group Development Cor-poration, formed in 1987, will engage in real estate investment and development ventures focusing on income-producing properties in New fersey. nPSEG Capital Corporation, also formed in 1987, is a funding subsidiary dedicated to providing financing to and raising required capital for Enterprise and the other non-utility businesses.

Earnings Per Share of Common Stock

!Reflects 3-for-2 common stock split effective July 1, 1987.J

$3.00----------

2.61 2.55 2.40 2.18 1.00 R'l1---ftl!---r:t----l~l---ll'l'!l 83 84 85 86 87 FINANCIAL HIGHLIGHTS (Thousands of Dollars where applicable) 1987 Total Operating Revenues

$ 4,211,055 Total Operating Expenses

$ 3,388,756 Net Income 520,451 Common Stock (A)

Shares Outstanding-Average (Thousands) 203,873 Shares Outstanding-Year-end (Thousands) 205,350 Earnings Per Average Share

$ 2.55 Dividends Paid Per Share

$ 1.99 Book Value Per Share -

Year-end

$18.54 Market Price Per Share -

Year-end

$23.88 Return on Average Common Equity 13.88%

Ratio of Earnings to Fixed Charges 3.03 Ratio of Earnings to Fixed Charges -

PSE&G 3.55 Gross Additions to Utility Plant 658,641 Total Utility Plant

$11,998,816 (A) Reflects 3-for-2 common stock split effective July I, 1987.

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

Annual Dividend Rate Increased 12 Consecutive Years 1.81 1.89 1.76 1.63 1.71 1.55 1.41 1.47 1.40 1.20....

1.15

.70 Adjusted to reflect 3-for-2 common stock split effective July I, 1987 Increase 1986 (Decrease)

$ 4,498,416 (6)

$ 3,821,132 (11) 378,463 38 199, 709 2

202,324 1

$ 1.90 34

$ 1.95 2

$17.92 3

$26.83 (11) 10.56%

2.38 2.84

$ 1,019,552 (35)

$11,437,196 5

1

Eblic Service Enterprise Group enjoyed a very successful 1987, despite the less-than"favorable hand it was dealt in an electric rate case early in the year.

Earnings exceeded expecta-tions. The dividend paid out was higher for the 12th consecutive year. Residential and commercial sales by Public Service Electric and Gas Company (PSE&G) rose significantly. PSE&G's three nu-clear units provided outstanding service. Our non-utility subsidi-aries began making their mark on the bottom line. And, we made substantial headway in our plans to remain strong but flexible in an increasingly competitive mar-ketplace.

Financial Performance Our earnings for 1987 were $2.55 per share of common stock, exceed-ing forecasted levels. This very positive aspect of the financial picture was attributable primar-ily to better sales in the residen-tial and commercial sec tors of PSE&G's electric and gas markets.

In addition, strong manage-ment attention to controllable operating costs contributed favor-ably to the final results for 1987.

Earnings for 1987 were af-fected unfavorably, however, by the impact on PSE&G of the nu-clear performance standard im-2 TO OUR SHAREHOLDERS posed by the New Jersey Board of Public Utilities in the electric rate decision.

The standard is regarded by utility analysts as one of the most difficult to meet in the nation. It requires that, if the composite capacity factor-or combined output compared to maximum capability-of its nuclear units is less than 60%,

PSE&G should not recover 20%

of the cost of replacement power.

PSE&G operates the Salem and Hope Creek generating sta-tions, which had a combined capacity factor of 71 %, well above the industry average of 60%. This excellent performance was offset, however, by extended outages of the Peach Bottom units in Pennsylvania, which are operated by Philadelphia Electric Company but in which PSE&G shares ownership.

Operation of the Peach Bot-tom units was stopped last March 31 by the Nuclear Regulatory Commission (NRC) as it dealt with management problems at those plants. This long-term shutdown resulted in lowering PSE&G's overall nuclear capacity factor to about 54 %. We continue to monitor closely Philadelphia Electric's progress at Peach Bot-tom and are loaning PSE&G em-ployees to facilitate the return to service of this important generat-ing station.

Enterprise is in sound finan-cial condition. We have main-tained high credit ratings, a sound capital structure and a strong cash flow to provide a solid foundation for the future.

Our common stock divi-dend is secure, and we continue to strive for increases to the ex-tent that they do not unduly restrict future earnings growth.

At present, the annual indicated dividend is $2.00 per share, re-flecting the 3-for-2 common stock split that was effective on July 1, 198 7.

In 1987, we increased our investments in three of our non-utility subsidiaries -

Commu-nity Energy Alternatives Incorporated, Public Service Resources Corporation, and En-ergy Development Corporation.

Our five-year business plans for these companies and a newly formed real estate company call for additional investments in small power projects, gas and oil properties, passive financial in-vestments, and real estate to meet our goal of achieving at least 10% of consolidated net income from non-utility subsidi-aries by 1991.

For 1987, 3% of net income came from these activities. At year's end, we had more than

$500 million of assets and about

$200 million of common equity in our non-utility businesses.

While Enterprise's earnings base in the years ahead will con-tinue to be from PSE&G, growth in earnings will come primarily from our non-utility subsidiaries.

You can rest assured that man-agement will strive to avoid un-reasonable risks as we operate in the non-regulated arena. How-ever, you should know that we will not hesitate to pursue oppor-tunities which, while challeng-ing our ingenuity, will help Enterprise achieve satisfactory improvements in earnings.

Competition and Deregulation Deregulation of the electric and gas industries continues as an issue for utilities throughout the United States. Changes in the regulatory arena have fostered competition on several fronts.

Nationally, in the gas mar-ketplace, suppliers are dealing

directly with large industrial users, shutting out some local utilities. This can be especially attractive to New Jersey's indus-trial customers because they can avoid paying a state gross receipts and franchise tax, which utilities must collect, and save an imme-diate 13% on their bills. For its part, PSE&G has been able to keep larger customers on its system by offering alternative sources of supply and transporta-tion services.

In the New Jersey electric marketplace, cogeneration and self-generation are emerging as appealing alternatives for some larger customers, and both forms of customer generation have received support from govern-ment and regulatory officials.

On a national scale, the electric industry is now faced TO OUR SHAREHOLDERS E. James Ferland 3

with the prospect of competitive bidding for new power supplies by independent producers.

Another issue involves the avail-ability of high-voltage transmis-sion lines to those independent producers who want to transmit the electricity they generate in one place to a buyer in another location.

These and other develop-ments are changing the tradi-tional way that utilities have served their customers. We are entering an environment where uncertainty will abound, where changing regulation and greater competition will make a utility such as PSE&G less able to pre-dict future requirements.

This is why, in 1987, we began developing a strategy that places a high priority on the abil-ity of both Enterprise and PSE&G to adapt quickly and effectively to evolving market, competitive and regulatory forces.

Strategy for the Future The essence of our strategic plan-ning for PSE&G is, actually, quite fundamental to any successful business:

Make our best effort to find out

what customers want.

Provide it to them.

Do so at the lowest cost possible.

To help accomplish this, we have reorganized PSE&G into seven distinct business units.

These include electric, gas and customer operations business units that will develop and carry 4

TO OUR SHAREHOLDERS out strategies necessary to satisfy best the needs of customers. A finance and diversified busi-nesses unit will oversee Enter-prise's financial matters and manage its non-regulated activi-ties. An external affairs business unit will develop communica-tions programs to respond to and help shape such outside influ-ences as legislative action, environmental protection and economic development. A corpo-rate performance unit will plan and monitor our day-to-day busi-ness and provide controls to as-sure efficiency. And, a legal unit will direct corporate governance, legal matters and claims.

Strong emphasis will be placed on the need for each busi-ness unit to perform in a cost-effective and accountable man-ner and to encourage and reward personal initiative and innova-tion by PSE&G employees.

Compensation of the highest managers will hinge on the per-formance of the business units they are helping to direct.

A major objective will be to curtail the need for future base rate relief by keeping operating and maintenance costs well below the rate of inflation in the years ahead. Another objective will be to meet PSE&G's future construction expenditures with internally generated cash.

We have implemented a five-year marketing plan that will aggressively pursue incre-mental growth of both electric and gas sales. The plan empha-sizes efforts to clip electric and gas peaks to defer new construc-tion. It also entails programs to encourage customers to use en-ergy during off-peak hours. In addition, the plan promotes the development of rate structures that will enable PSE&G to com-pete more effectively across all customer segments. The cumula-tive estimated impact of the plan is an increase of $270 million in electric and gas revenues.

Energy Planning We are promoting conservation and load management activities, which, in combination with self-generation by some customers, will reduce peak demand about 1,185 megawatts by the end of the next decade. This will be aug-mented by our direct purchase of 750 megawatts of non-utility generation. On another front, we are extending the lives of existing generating facilities. Together, these developments should enable us to meet our electric customers' requirements without new con-struction of base load generating facilities through the year 2000.

There is, however, a serious issue that we must monitor as we address our plans for the fu-ture. It is the nation's growing reliance on natural gas and for-eign oil to produce electricity. It is easy to understand why this is happening: Supplies are ample and the current prices of both

fuels have been fairly attractive by recent standards.

We must be wary of this situation in light of recent his-tory. The United States currently imports 40% of its oil require-ments, and the figure is heading higher. Since more than half of the world's proven reserves are in the Middle East, it would not be surprising to see OPEC regroup in response to increasing demand for oil. Prices would be raised and supplies would be tightened. Our nation would then face the same kind of energy and economic squeeze it experienced in the 1970s and early 1980s.

As a country we must be very careful about overdepen-

dence on natural gas for electric generation. We must earmark our valuable domestic supplies of gas for heating, cooking and manu-facturing purposes.

It is apparent to us that solid planning for and develop-ment of a proper fuel mix is nec-essary to assure our electric customers the reliable, adequate, and economical supply of energy required to accommodate their diverse needs of the future.

Viewed from our 1988 per-spective, the most likely solution to meeting PSE&.G's -

and the nation's -

electric requirements over the next several decades appears to be nuclear-and coal-fueled generation. PSE&.G is already on the right track. Its 1987 fuel mix breakdown con-sisted of 36% nuclear, 27% coal, TO OUR SHAREHOLDERS 21 % purchased power, 12 % gas, and 4% oil.

In the decades ahead, we must nurture and protect our nuclear fuel and coal sources, which are plentiful in North America and still relatively inex~

pensive. At the same time, we will keep a close watch on energy trends and be prepared to modify our course, if necessary. We will keep you posted.

The Keys to Success As we began 1988, PSE&.G was well into an activity-by-activity review of the work being carried out by some 6,600 management and other mostly non-union em-ployees. In simple terms, the pro-gram's aim is to identify, through an exhaustive evaluation process, the most efficient way to c_arry out the activities that must continue to be done and to discontinue those tasks no longer required.

On a broader scale, Enter-prise has established four specific goals for the immediate future:

Achieve sufficient growth in all facets of the Enterprise Group to assure that earnings and divi-dends are improved regularly to provide adequate compensation to investors and fair electric and gas rates for customers.

Maintain a strong and flexible position in a business environ-ment and energy marketplace that is likely to be highly com-petitive and rapidly changing.

Broaden the Enterprise Group asset base by responding to business opportunities that would benefit from our manage-ment experience and skills.

Increase the overall efficiency of operations to achieve better productivity and reduce costs.

This corporate strategy focuses largely on understanding and responding to the needs of our customers and on providing a fair and reasonable return to our investors. But, these are not the only keys to success.

We continue to manage our businesses in a manner that rec-ognizes a qualified and well-trained workforce as the most important ingredient of our fu-ture success. To this end, we are striving to provide our employees with a safe and healthy work environment, competitive com-pensation, equal career opportu -

nities, and personal satisfaction.

Finally, we recognize the value of and encourage good cor-porate and individual citizenship.

When Enterprise employees take a strong and active interest in our communities, we help improve the places in which we live, work, and do business. In this way, we demonstrate our com-mitment to the economic, envi-ronmental, and social well-being of the state of New Jersey.

E. James Ferland Chairman of the Board, President and Chief Executive Officer February 12, 1988 5

Every hour of every day, the peo-ple of PSE&G put their technical skill, their pride in workmanship, and their concern at the service of customers. This tradition of service was demonstrated in many ways in 1987 among all classifications of customers. It was apparent in new programs designed to protect senior citi-zens and low-income residential customers. And it was evident in individual acts of kindness and caring on the part of employees.

L "The forthrightness with which Public Service Electric and Gas Company has reached out to help care for its vulnerable elderly customers through the Gatekeeper program has been beyond our expectation."

Ann Zahara Director -

Division on Aging State of New Jersey Department of Community Affairs Trenton, New Jersey 6

CUSTOMER SERVICE Elderly Receive Special Assistance In 1987, PSE&G launched a Gatekeeper program designed to ensure that senior citizens get help when they need it. **The Gatekeeper program represented a first for New Jersey. It was introduced in conjunction with the state Department of Com-munity Affairs' Division on Aging. *

Under the Gatekeeper program, PSE&G's customer con-tact employees, such as meter readers and electric and gas servicepersons, have been trained to identify elderly citizens who may be in distress, and make referrals to appropriate social service agencies. The highly suc-cessful program resulted in a total of 214 referrals that averted potentially life-threatening situa-tions. Several other utilities in New Jersey have expressed inter-est in implementing similar programs.** PSE&G also insti-tuted a new campaign to help eligible needy customers obtain energy assistance and benefits through state and federal pro-grams such as the Home Energy Assistance Program (HEAP) and the Lifeline program. *

The customer outreach effort is de-signed to inform needy residen-tial customers about these assistance programs, provide them with applications and nec-essary information about their utility bills, and put them in contact with social agencies to speed processing.

CUSTOMER SERVICE

'When our electric equipment failed and we thought we were faced with a long power outage, you guys saved our necks by getting us back in operation within 90 minutes."

Ronald f. Mount Ronald J. Mount and Company Jersey City, New Jersey

'We wish to express our appreciation for the cooperative effort we have had In dealing with your Company on the Ellls Island restoration."

Howard S. Rosenfield Senior Associate/Project Manager Syska & Hennessy New York City Doing All Jobs Well The measure of the service PSE&G provides is not only taken by how well it performs a big job for one of its major customers.

It's also taken by doing the day-to-day jobs with care and atten-tion to detail. Customers continue to commend employees for doing these jobs well, like replacing the mulch in a flower garden after installation of a new residential gas service line, or taking time and initiative to locate a hard-to-find part that will safely keep an aging gas range in service, or climbing down into a wet manhole to res-cue a frightened dog and reunite a family with its beloved pet.

Fast Action keeps GM in Production When General Motors faced po-tentially devastating delays in starting up the newly refurbished assembly lines at its sprawling 7

Linden plant, PSE&G marketing and electric transmission and distribution personnel worked out a way to get production started on time. *

The plant had been retooled and modernized to build Chevrolet Corsica and Beretta models, new GM entries in the highly competitive sports sedan market. When one of the plant's 26,000-volt transformers failed, however, it looked like the plant would be idled for a consid-erable amount of time. *

PSE&G responded quickly by arranging for the lease, delivery and onsite installation of a mobile substa-tion that allowed production to start up on schedule.

Comprehensive Training Supports Employees PSE&G is providing employees with the technical and interper-sonal skills needed to keep pace with changing working and busi-ness conditions through new and upgraded training programs and facilities. In 1987, work began on a new electric transmission and distribution training center in Edison that is expected to be completed and operational in 1988. New training programs have been implemented that 8

CUSTOMER SERVICE "PSE&G's fast a11ctno11"11 i1r11 suppiy!!'llg aurn eme~gelnlcy m'llit moillli!e s11JJbs1ta!ftaon arnowed OIUI~ [pl~alJ'ilt to sitay ope1!11 al1llll'I sllJlccessfl!.ll~!y Ha!.llnclhl Chev~o!et's i'ilew Corsica am!I D11ew IBeiretta pmllll1U1cfti!1111e."

Thomas[. Noble Administrator -

Engineering General Motors Corporation Linden, New Jersey

CUSTOMER SERVICE "Our gas service contracts and we sold over 100,000 this year -

give our customers low cost parts Insurance and peace of mind."

Michael McCann Dispatching Assistant stress the importance of manual skills, leadership, flexibility, and individual responsibility in pro-viding the highest level of cus-tomer service possible.

"Without hesitation, the entire crew came to the aid of two women trapped In the car...

provided first aid... assisted In traffic control... used their equipment to make It possible to move the Injured parties."

Thomas P. Dugan Director of Public Safety Glen Ridge, New Jersey Employees Set Record for Safety PSE&G employees demonstrated their dedication to serving cus-tomers safely by compiling their best-ever safety record. There were 16% fewer on-the-job acci-dents in 198 7 than in 1986, and the number of these accidents was the lowest in PSE&G's his-tory. **Another milestone was reached during the year when the corporate drug policy, in effect since 1983, was formally accepted by PSE&G's largest union, the International Brotherhood of Electrical Workers. The drug program is designed to ensure a safe, drug-free work environment for both employees and customers.

9

Listening and analyzing. Asking the right questions. Innovating.

Creating. Finding solutions.

These are the hallmarks of PSE&G's aggressive, customer-or-iented program to successfully market its products and services in an environment that is becom-ing increasingly deregulated and competitive. **This focus on the marketplace and on the needs of its distinct customer segments prompted the corporate reorgani-zation of PSE&G and the creation of the separate business units for electric, gas, and customer opera-tions. **A comprehensive mar-keting program will identify the needs of customers in all market segments, and the development and delivery of products and services geared to meet those "We are leveraging our opportunities by utlllzlng telemarketlng, cooperative advertising and telecomputer equipment and techniques."

Richard Comerford General Manager Marketing Services needs. **For PSE&G, this will mean a constant cycle of research and analysis to develop a fund of knowledge and a fluency with conditions that will result in the recognition of PSE&G as a full-service, efficient problem-solver 10 MARKETING

'We are strengthening our customer-driven culture.

Through Increased contact and expanded research, customer energy needs will be met more efficiently than ever."

Fredrick R. Desanti Senior Vice President Customer Operations and the expert in the energy field.

.. In 1987, PSE&G introdu~ed a five-year marketing plan that is expected to generate at least $270 million in additional electric and gas revenues.

PSE&G Experts Keep Project on 'Irack When Cali Associates, one of New Jersey's most respected commercial and residential de-velopers, was considering its first housing rehabilitation project in Newark, it faced a major hurdle in providing the housing at prices low-and middle-income residents could afford. *

PSE&G's market-ing personnel worked closely with the developer and devised an overall plan that included all of the building's energy systems.

Providing the right mix of elec-tric and gas equipment meant

MARKETING "PSE&G gave us their top marketing staff and showed us how to rehabilitate old apartment units -

at a profit to all concerned."

Al Spring Cali Associates Macey Bullock Partner with Cali Associates 11

_J

MARKETING 12 "A new marketing emphasis has been put on architectural lighting -

a field wide-open for expansion."

Anita L. Fleischer District Manager Marketing Services

keeping costs reasonable and the project on track. The 67-unit condominium development should be ready for occupancy in 1988.

Residential Programs Build Company Image PSE&G enhanced its reputation as the knowledgeable leader in the residential market through builder assistance programs and by educating leading real estate firms on available energy sys-tems. Information was brought directly to consumers through a series of home heating fairs and expos that were attended by more than 6,000 persons statewide. *

Aggressive use of the latest tele-marketing and telecomputing technology helped sell 12,000 residential oil-to-gas conversions in 1987, accounting for $10 mil-lion of additional revenues. An-other 12,000 conversions are expected in 1988 which will result in $10 million of additional revenues. PSE&G also actively promoted residential gas service contracts and approximately 100,000 were sold during the year.

MARKETING "The Gallup Survey showed the vast

. majority of people questioned were extremely satisfied with our service and our employees."

Charles Ttavisano General Manager Customer Services New Program Promotes Development in Cities PSE&G, in 1987, began an Urban Initiatives program designed to encourage revenue-producing development and economic ac-tivity in major cities it serves and implemented marketing programs promoting safety, secu-rity and aesthetic lighting. *

A highly successful news confer-

"New Jersey's development with the help of PSE&G's promotional efforts -

Is beginning to center on urban areas where the potential for growth is enormous."

Mayor Melvin R. Primas, fr.

Camden ence at Liberty State Park in Jer-sey City on October 6 kicked off the Urban Initiatives campaign that is calling attention to the potential for growth in New Jer-sey's major cities, most of which are in PSE&G's service territory.

The centerpiece of the campaign is a full-color brochure that high-lights the renewed economic activity that's already taking place in urban areas, and the various state, municipal, and private enterprise programs, in-cluding PSE&G's area develop-ment rate, which are supporting development.

13

Eviding an ample, safe, and reliable supply of electric and gas energy is at the core of PSE&G's service to customers. In 1987, PSE&G maintained this commit-ment through the ingenuity and dedicated effort of employees who helped meet a number of extraordinary challenges.

14 ENERGY SUPPLY AND RELIABILITY Innovative Plan Overcomes Loss of Transmission Line An incident in the Delaware River produced perhaps the most severe challenge. On the after-noon of March 1, the Seapride II, an empty oil tanker on the way out to sea, rammed one of five 3 79-foot transmission towers carrying the 500,000-volt Hope Creek-Keeney transmission line across the river. The collision destroyed the vital transmission link.** Within days of the acci-dent, however, PSE&G engineers had developed a plan to mitigate the effects of the line's loss through a specialized relay and supplemental control system that protected overall system stability. The plan permitted the Salem and Hope Creek nuclear plants to run at 95% of capacity, instead of a reduced output of 68%. With PSE&G employees actively supporting Delmarva Power & Light Co., in construc-tion management, design, and equipment procurement, the monumental task of rebuilding the Hope Creek-Keeney line was "About 85,000 customers had their service restored within 24 hours2.777778e-4 days 0.00667 hours 3.968254e-5 weeks 9.132e-6 months following two violent storms.

PSE&G also sent crews to other utilities in the northeast to help out."

Robert G. Dunn Assistant Division Manager Camden Electric Transmission and Distribution PSE&G Capacity Plan 1987to 2000 (Megawatts) o~~~~~~~~~~--'

1987 D Total Capacity-including 750 mw of non-utility generation

Estimated peak load without conservation and load management il Planned Peak Demand 2000 completed within three weeks of the target date.** The maxi-mized output from Salem and Hope Creek, plus performance by coal, oil and gas turbine generat-ing units, helped meet the record-setting customer demand during July's brutally hot weather.

Dedicated Action Restores Storm Damage Transmission and distribution crews performed admirably in restoring service to storm-dam-aged areas.** In July, a prolonged cycle of blistering hot, humid weather produced records for peak demand for electricity on four consecutive days, culminat-ing in an all-time peak demand record of 8,173 megawatts on July

24. Twice during the month, the heatwave spawned violent storms and they interrupted elec-tric service to about 85,000 cus-tomers. Most had power back within 24 hours2.777778e-4 days 0.00667 hours 3.968254e-5 weeks 9.132e-6 months , a remarkable

"Even under very difficult circumstances, we brought the Hope Creek-Keeney line back In service within three weeks of schedule."

foseph f. Papp, fr.

Supervising Engineer Trenton Electric Transmission and Distribution ENERGY SUPPLY AND RELIABILITY accomplishment considering the amount and nature of the damage.

Nuclear Plants Operated by PSE&.G Perform Well The three nuclear generating plants operated by PSE&G -

Salem 1 and 2 and Hope Creek-performed well during the year, operating at a combined capacity factor of 71 %, well above the industry average. Hope Creek followed its record fuel-loading, startup and power ascension program with a capacity factor of 77% in its first year of commer-cial operation. *

PSE&G also owns an interest in the two Peach Bottom nuclear units located in Pennsylvania and operated by Philadelphia Electric Company.

As a result of a shutdown ordered by the Nuclear Regulatory Com-mission on March 31, 198 7, the Peach Bottom units had a 16%

capacity factor for the year. This resulted in an aggregate capacity factor of 54% for the five nuclear units in which PSE&G shares ownership.

Refurbishment of Fossil Plants Continues New microprocessor-based controls and fiber-optics communications links that enhance reliability and efficiency are being installed at fossil-fuel generating stations and at switching stations and sub-stations in the transmission and*

distribution system. Other major equipment improvements also are under way at two coal-burning generating stations.

15

16 ENERGY SUPPLY AND RELIABILITY "Our Newport Substation serving the booming Hudson River Waterfront will use state-of-the-art computer technology and highly efficient fiber-optics communication."

Richard Vile Electric Distribution Engineer New Pipeline Will Serve Cogeneration Plant PSE&G completed installation of a new 18,000-foot, 12-inch gas transmission main through the Elizabeth seaport and under Newark Bay to serve a new co-generation facility under con-struction in Bayonne. The main will provide high-pressure natu-ral gas as a primary fuel for the plant. Community Energy Alter-natives Incorporated, an Enter-prise subsidiary, is a partner in the cogeneration project.

PSE&.G Works To A~sure Ample Gas Supply PSE&G also applied its keen knowledge of the natural gas market in a program designed to provide an optimum mix of gas sources that will meet short-term and long-term customer demand at the lowest cost possible. Gas is purchased from five interstate pipeline companies, from Energy Development Corporation, a subsidiary of Enterprise, and from two refineries in New Jersey.

.. In 1987, construction of new gas transmission and distribution facilities and other system im-provements kept pace with grow-ing demand among residential and commerCial customers. In Millstone Township in the Trenton district, for example, gas transmission and distribution crews installed more than 100,000 feet of pipe and brought service to 500 new single-family homes. Approx-imately 700 additional homes in this municipality will be connected to the system in 1988.

EFFICIENCY AND COMPETITION

Taking advantage of wellhead price deregulation and open-access transportation, new gas purchasing opportunities saved $70 million In 1987."

Tohn A. Gartman Assistant General Manager Fuel Supply Lere's no question that in the energy marketplace of today and the emerging, highly competitive marketplace of tomorrow, the ability to focus resources to take advantage of opportunities will be a key element of success.

PSE&G employees are incorporat-ing this quest for efficiency in everything they do, every day.

- In conjunction with the corpo-rate restructuring, PSE&G has begun implementation of a new corporate performance program designed to streamline operations and ensure that the talents of employees are applied only to those activities that are consis-tent with well-defined goals and objectives. **The quest for the competitive edge is evident in aggressive gas acquisition and power purchase programs, in fuel purchasing practices, in better utilization of labor, and in the continued application of labor-saving and cost-cutting computer equipment and systems.

"We are studying staff and support functions to more effectively allocate resources vital to operations and to Improve the budgeting process."

fohn Anderson Performance Services Manager Gas Purchase and Operating Costs Reduced Continuation of PSE&G's highly successful spot-market gas pur-chases generated $70 million in savings in 1987, and it's expected 17

this activity will continue in 1988. ** PSE&.G also took advan-tage of continued deregulation in the natural gas market by maxi-mizing purchases directly from producers, marketers, and other non-pipeline sources. PSE&.G expects to translate the increased competition among gas suppliers into future benefits for its cus-tomers over the long-term. *

PSE&.G continued to reduce gas operating costs through the auto-mation and enlargement of me-tering and regulating facilities at the sites of former gas production plants. Conversion work at the West End gas plant in Jersey City and the Central gas plant in Edi-son was completed in 1987, and conversion work is expected to be completed at Harrison gas plant, in Harrison, in 1988. These gas plant conversions and the retirement of the gas manufac-turing equipment greatly reduce personnel requirements and im-prove PSE&.G's ability to purchase gas from the lowest-cost suppliers.

EFFICIENCY AND COMPETITION

_ __._j Fuel Source -

Electric Generation 31%

Nuclear 36%

Nuclear 26% Coal 11,,. °""

i I 28%

Power Purchases 6% Gas 9%0il 1986 1987 21%

Power Purchases 12% Gas 4%0il

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18 "Fewer but more powerful computers helped us increase productivity and even reduced our work force by 8%."

Donald A. Osbourne Shift Supervisor Customer Operations I

Savings Realized on Coal and Nuclear Fuel Purchases Flexibility in sources of supply and the application of new coal-blending processes also are reduc-ing the costs of purchasing coal to generate electricity while maintaining PSE&.G's ability to meet stringent environmental regulations. **This strategy -

involves a combination of short-and long-term coal supply agree-ments that will enable PSE&.G to secure sources of low-sulfur coal at favorable costs. A coal-blend-ing program, meanwhile, has been developed that will enable use of lower-cost coal along with low-sulfur coal without compro-mising PSE&.G's rigid quality control standards. **On the nuclear fuel front, PSE&.G in 1987 acquired low-cost foreign "A robot used at Salem cost $54,000.

It saved us $650,000."

Harry T. Roman Principal Engineer - Research uranium, and through negotia-tion and rescheduling activities with the U.S. Department of Energy, reduced its uranium en-richment charges by $29.6 mil-lion. *

PSE&.G increased purchases of low-cost coal-fired electricity from the Allegheny Power System and participated in a precedent-setting entitlement auction for additional supplies of low-cost coal-fired power. Pur-chase of power from these sources resulted in additional savings in fuel and interchange expenses.

PSE&.G, Unions Agree on New Contracts In 1987, PSE&.G successfully completed negotiations for new two-year agreements with all unions. In addition to providing employees with equitable wage increases, the new contracts include provisions for improved EFFICIENCY AND COMPETITION l ~-

~

productivity, more comprehen-sive employee training and in-creased management flexibility to meet changing conditions.

New Systems Enhance Efficiency Development and installation of a computerized Executive Infor-mation System have put up-to-date operational information at the fingertips of PSE&.G executives, facilitating decision-making and improving their ability to man-age critical factors.

"Hope Creek and Salem had a combined capacity factor of 71 % -

well above the national average of 60%."

Randal Schmidt Senior Engineer Hope Creek Performance 19

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"PSE&G helps provide leadership in management training to educational leaders, thereby helping the educating process."

fohn Griffith Manager-Personnel Development 20 COMMUNITY SERVICE RE&G demonstrates its involve-ment in the communities it serves through a variety of pro-grams that demonstrate a high degree of commitment to good corporate citizenship. Employees supported this policy through their ongoing volunteer efforts and individual acts of courage and heroism. *

PSE&G again took a leadership role in United Way fundraising, and employees pledged more than $700,000-an 11 % increase over the 1986 amount -

to support the vital work performed by the United Way member organizations.

Employees also walked away, literally, with state honors for participation in the 1987 Team-Walk sponsored by the March of Dime's. A total of 569 PSE&G em-ployees raised more than $96,000 for the fight against birth defects.

E-TEAM Reaches Low-Income Customers PSE&G's award-winning E-Team program, which brings energy conservation information and materials to low-income cus-tomers through community

This PSE&G person Is a part of the community and responds as such."

Dennis f. Dalton Leonia workshops, continued in1987 with excellent results. As an outgrowth of the program, the conservation department spon-sored two summer youth pro-grams, the Summerscope 87

basketball camp in Camden and the Rory Sparrow Summer Ath-letic League in Paterson. Both activities helped project a posi-tive image for PSE&G while providing a much-needed com-munity service. **Also con-tinuing in 1987 was EPIC-Employees Participating in the Community. Under the program, employees and retired employees volunteered their time to tutor school children, worked with senior citizens and the handi-capped, and performed vital services for non-profit and community organizations. Em-ployees also served on the boards of directors and as executives of a "PSE&G contributes to the ~ealth and welfare of the community with numerous employees taking leadership roles In agency activities. n fack A. Sahlman Manager-Community Affait:s large number of community organizations. *

PSE&G became involved in efforts to improve education through MAPS -

Management Assistance Program to the Public Schools -

in which executives are working directly with public school systems. Em-ployees served as volunteer in-structors in the Minorities in Engineering Program sponsored by Union County College.

COMMUNITY SERVICE ff EMS* Si' "Our employees make energy-related presentations to more than 175,000 of our customers of all ages -

every year!"

Richard Dwyer Staff Assistant Community Affairs Employee Heroism Documents Concern for Others The spirit of concern and a will-ingness to help were ably demon-strated by employees who came to the aid of persons in distress.

These acts included rescuing a two-year-old boy who was being attacked by two large dogs; pull-ing accident victims from a twisted pile of auto wreckage and large tree limbs while co-workers provided traffic control around the scene; stopping to aid a woman who had been assaulted and left wandering injured and dazed on the Garden State Park-way, and coming to the assistance of motorists stranded by winter snowstorms.

21

Ente'Prise maintained itB financial strength during 198 7.

22

The cost of capital was reduced through the economical refund-ing of more than $300 million of high-cost debt and preferred stock. With PSE&G's nuclear construction program completed, Enterprise generated 100% of utility construction expenditures internally. Enterprise continued to maintain a strong capital structure. The common equity ratio of 50.0% remained above the industry average. New com-mon equity of $ 79 million was raised through the dividend rein-vestment and various stock pur-chase plans during 1987. The plans were revised effective October 1, so that investor con-tributions are now used to pur-chase Enterprise shares in the open market. PSE&G's earnings-to-fixed charges coverage ratio for 1987 was 3.6 times, which helped to support the maintenance of high credit ratings for its securi-ties.** Substantial growth in sales of electricity and gas by PSE&G, plus successful cost control measures, resulted in better-than-expected earnings.

- Consolidated results in 1987 were $520.5 million, or $2.55 per share of common stock, based on 203.9 million shares of stock outstanding. Earnings for 1986 were $378.5 million, or $1.90 per share, based on 199.7 million shares outstanding. The 65 cents per share gain in earnings is prin-cipally attributable to electric base rate relief in 1987 and to the FINANCIAL

'We have high credit ratings, a strong capitalization, high quality earnings and good cash flow."

Everett L. Morris Senior Executive Vice President and Chief Financial Officer disallowance in 1986 of costs associated with construction of the Hope Creek Nuclear Gener-ating Station. The results were also affected by reduced allow-ance for funds used during con-struction (AFDC), and greater depreciation, both attributable to Hope Creek. Earnings from non-utility subsidiaries accounted for $17 million, or 3% of the total, compared to $6 million, or less than 2 %, of the 1986 total.

New Jersey's Economy Boosts Sales New Jersey's vibrant economy and strong growth in the com-mercial and residential sectors spurred an increase in electric sales in 1987 of 4.3% over 1986 sales. Gas sales, led by increases in home heating and in the com-mercial sector, were up 2.4% in 198 7 over 1986 sales. *

Overall revenues in 1987 were $4.2 bil-lion, down 6.4 % from 1986 reve-nues of $4.5 billion. Electric operations accounted for $3.0 billion, or 70.3% of 1987 reve-nues, compared to $3.2 billion or 70.2 % of 1986 revenues. The decrease reflects significantly lower recovery of fuel costs through a reduction in the leve-lized energy adjustment clause implemented in the February, 1987 rate case decision. Gas ac-counted for $1.2 billion or 29.0%

of 1987 revenues, compared to

$1.3 billion or 29.4% of 1986 revenues. This decrease reflects the reductions in the raw mate-rials adjustment charge which became effective in October, 1986 and October, 1987.

FINANCIAL Common Stock aggregate capacity factor of 54%

Dividend Increased 1987 Revenue for the five nuclear units in The Board of Directors increased Where Where It which PSE&G shares ownership.

the common stock dividend It Came Went This figure was below the 60%

payout for the 12th year in a row.

From

$.27 level required to be met under

Fuel, The annual dividend is now $2.00 Purchased the performance standard, which Power&Gas per share. This reflects the three-is one of the toughest in the na-for-two common stock split

$.69 tion. **As a result, PSE&G wrote Electric effective July 1, 1987.

Revenues

.21 off $17 million against net Taxes income in 1987, amounting to Recovery of Higher

.12 5 cents per share of Enterprise Materials&

Fuel Costs Sought Services common stock after the tax In November, PSE&G petitioned I.12 effect. **The Peach Bottom units Reinvested the New Jersey Board of Public in Business remain shut down. The NRC is

.28 I

Utilities (BPU) for an annual Gas I.10 not expected to allow their return Revenues Salaries &

increase of $215.4 million in

.02 Wages to service at least until the sum-Other electric revenues. The overall Revenues

.IO mer of 1988. Consequently, PSE&G's

.01 I

Dividends request includes a proposed Allowance for

nuclear capacity factor may also funds used

.08

$298.6 million increase in during 1

Interest likely be below 60% in 1988.

construct10n PSE&G's levelized energy adjust-

$1.00

$1.00 ment clause to be partially offset Gas Rates Reduced by an $83.2 million reduction in PSE&G's gas customers received electric base rates resulting from rate reductions totaling $78.3 lower federal income tax rates Diversified million during the year and now effective in 1988.

Customer Base enjoy rates that are the lowest in Electric New Jersey and the lowest they Nuclear Performance Standard Gas have been in six years.** The Revenues Revenues Affects Earnings lower rates, in large measure, Although Salem and Hope Creek 32%

reflect PSE&G's ability to achieve Residential achieved an excellent perfor-57%

cost savings through aggressive mance record in 198 7, PSE&G Residential gas purchase policies, especially incurred a penalty under the on the spot market. * *The overall nuclear performance standard 45%

reduction includes a cut of $61 Commercial imposed by the BPU. This is million in the raw materials ad-largely attributable to the ex-30%

justment charge implemented in Commercial tended outages of two nuclear October, a further $4.0 million units at Peach Bottom that are 2.3%

reduction in the raw materials Indusrrial 13%

operated by Philadelphia Electric Industrial adjustment charge in line with a Company but partially owned by Revenues Revenues revised method of pricing gas PSE&G. **For 1987, the two

$3.0 Billion

$1.2 Billion purchased from Energy Develop-Customers Customers Peach Bottom uni ts had a capac-1.8 Million 1.4 Million ment Corporation, a subsidiary of ity factor of 16%, resulting in an Enterprise, and a $13.3 million reduction in base rates to reflect federal income tax savings.

23

DIVERSIFIED OPERATIONS 24 "Resources has invested In a variety of business Interests -

solar being just one of them -

all of which Indicate good earnings prospects."

Eileen Moran Vice President Public Service Resources Corporation

At the endof 1987, Enterprise had more than $500 million of assets and about $200 million of com-mon equity in non-regulated subsidiaries. The diversified ac-tivities are on track to exceed the original goal of producing 10% of Enterprise's net income by 1991.

In 1987, consolidated earnings from non-regulated businesses accounted for 3 % of Enterprise's total. Two new subsidiaries were established during the year-Enterprise Group Development Corporation, a real estate devel-opment company, and PSEG Cap-ital Corporation, which was formed to provide financing for the other non-regulated subsidiaries.

Public Service Resources Corporation (PSRC)

At year's end, PSRC had $289 million invested in a well-diver-sified portfolio of tax benefit transfers, leveraged leases, com-mercial property and marketable securities. It provided $12.million of earnings to Enterprise in 1987.

- PSRC's portfolio included $27 million invested in three operat-ing solar energy plants in Califor-nia; leveraged leases on five airplanes now in service with Delta, Continental, and North-west airlines; a leveraged lease on three transponder circuits of a communications satellite -

RCA's SATCOM K2; an invest-ment in Duquesne Power & Light Company's Beaver Valley 2 nu-clear generating plant, and a $39 million investment in a new DIVERSIFIED OPERATIONS paper mill operated by Lake Superior Paper Industries in Duluth, Minn.

Energy Development Corporation (EDC)

Because of the relatively de-pressed state of the oil and gas exploration industry, EDC in 1987 concentrated efforts on developing opportunities that will enable it to acquire proven reserves from other companies.

These efforts resulted in an agreement to purchase gas-and oil-producing properties located in the federal offshore waters of the Gulf of Mexico from TXP "This year, new markets opened for Gasdel a subsidiary of EDC. We received authorization to transport gas for not only PSE&G, but also for any company wanting to use our plpellne transportation system. This wlll mean new profits In the years ahead."

David W. Wohlfarth, President Energy Development Corporation Operating Company. The acqui-sition, scheduled to be consum-mated in the first quarter of 1988, will essentially double EDC's current reserve base. During the year, EDC also established a three-year, joint venture drilling program with industry partners.

Under the program, partner com-panies will finance a portion of the cost of drilling EDC's explor-atory wells in exchange for part ownership of the wells.* ii EDC also reached agreement in princi-ple with PSE&G on a longer-term supply contract to be based on competitive prices for similar types of gas available to PSE&G.

The agreement gives PSE&G a firm supply of gas while provid-ing EDC with a market for its production and an additional source of revenue for reserve replacement through acquisitions and exploratory drilling. *

Gas-del Pipeline System Incorporated, a subsidiary of EDC, has received Federal Energy Regulatory Com-mission approval to become an "open access" pipeline. This allows Gasdel to transact inter-state business from other compa-nies in addition to transportation services it provides PSE&G.

Community Energy Alternatives Incorporated (CEA)

During its second full year of operation, CEA, in an equal part-nership with Harbert Cogen, acquired GWF Power Systems Company, Inc. and Combustion Power Company, Inc. ( CPC), from Allied Signal. The acquisition of GWF adds two operating projects and eight more under develop-ment to CEA's portfolio. These projects, located in California, represent a combined total poten-tial capacity of 170 megawatts.

The acquisition of CPC brings CEA to the forefront of fluidized bed boiler technology for burning solid fuels in an environmentally acceptable manner. **A 17-mega-watt, wood-fired plant in Bridge-water, N.H., in which CEA has a 50% equity interest, was com-25

"Since October 1985, CEA has closed on six cogeneration projects totalling over 240 megawatts of capacity-including this wood-fired plant in Bridgewater, New Hampshire which went in service during 1987."

Arthur S. Nislick President Community Energy Alternatives pleted and went into operation during the year, and construction of a 165-megawatt combined cycle cogeneration plant in Bayonne, N.J., in which CEA has a 35 % equity partnership inter-est, was approximately 75% com-pleted at year's end. Construction began during the year on a 15-megawatt, $29 million hydro-electric project on the Cone-maugh River in Pennsylvania, in which CEA has a 50% equity interest, and construction contin-26 DIVERSIFIED OPERATIONS ued on a 15-megawatt, $48 mil-lion hydroelectric project on the Kennebec River in Maine, in which CEA owns a 16% interest.

CEA also purchased a 19% equity interest in a 23-megawatt, $51 million project in Maine that uses peat as a fuel. CEA has other prospects totaling more than 300 megawatts of potential capacity under development. * *These small-power projects are primar-ily funded with project financing, highly leveraged with non-re-course debt. As a result, CEA's investments at the end of 1987 totaled a modest $28 million.

Enterprise Group Development Corporation (EGDC)

Enterprise Group Development Corporation was formed in the last quarter of 1987 and will begin full operations in 1988. It will engage in real estate and development businesses, focus-ing on income-producing proper-ties in the New Jersey region.

"In 1988, Enterprise Group Development Corporation wlll be an active participant In the lndustrlal and commercial real estate markets In the New Jersey Region."

fohn H. Maddocks Executive Vice President Enterprise Group Development Corporation PSEG Capital Corporation (PSEGCC)

PSEG Capital Corporation began operations in 1987. It has author-ity to issue up to $250 million of commercial paper, currently rated Al/pl. At year's end, it had

$135 million of commercial paper outstanding. This subsidiary will also issue longer-term securities, all for the purpose of financing Enterprise's non-utility operations.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Following are the significant factors affecting the financial condition of Enterprise and its subsidiaries as reflected in their consolidated results of operations. This discussion refers to the consolidated financial statements and related notes of Enter-prise and should be read in conjunction with such statements and significant accounting policies.

Earnings and Dividends Earnings per share of common stock were $2.55 for 198 7, an increase of 65 cents or 34.2% from 1986, reflecting the 3-for-2 common stock split effective July 1, 1987. The gain in earnings is principally attributable to electric base rate relief in 1987 and to the nonrecurring write-off in 1986 of costs associated with construction of the Hope Creek Generating Station that were disallowed by the New Jersey Board of Public Utilities (BPU). The results were also affected by reduced allowance for funds used during construction (AFDC), and greater deprecia-tion, both attributable to Hope Creek.

In addition, 1987 reflects the write-off of approximately

$10.5 million, or 5 cents per share of common stock after the tax effect, because the aggregate capacity factor of PSE&G's five nuclear units was 53.6%, which is below the 60% limit required to avoid a penalty under the nuclear performance standard adopted by the BPU. Because of the current extended outage of the Peach Bottom units, PSE&G expects that the 1988 nuclear capacity factor may be below 60%. However, the amount of the associated penalty cannot be determined be-cause it is not known when or if the Peach Bottom units will return to service in 1988 or what the operating performance of the other three nuclear units may be.

Dividends paid to holders of common stock increased

$16.2 million over 1986, reflecting the increase in number of shares outstanding as well as the higher dividend rate.

Revenues and Sales Electric Revenues declined 6.2 % in 1987 primarily due to the return to customers of previously overrecovered energy costs, slightly offset by higher current energy costs. This decrease in recovery of energy costs was partially offset by an increase in base rates that became effective in February 1987, and by greater sales. In 1986 revenues increased 5.2% primarily due to greater sales and recoveries of energy costs.

Electric energy costs follow amounts recovered through revenues, as permitted by rate orders, and therefore have no direct effect on earnings.

The components of these changes follow:

(Millions of Dollars)

Changes in base rates Recoveries of energy costs Kilowatthour sales Other operating revenues Increase or !Decrease) 1987 vs. 1986 1986 vs. 1985

$ 3I7 1658) 62 144 94 1

Ill

$(196)

$155 1987 -

Electric kilowatthour sales increased 4.3%.

Growth in Residential and Commercial sales, aided by a 10.l %

rise in the temperature humidity index hours, accounted for the increase. Commercial sales reflect the result of a healthy commercial sector economy. Industrial sales declined slightly reflecting the lack of growth in the manufacturing sector of New Jersey's economy. Average number of customers rose 1.5%. A record 60-minute net peak load of 8,173 megawatts and a record day's output of 156,207 megawatthours were established on July 24, 1987.

1986 -

Electric kilowatthour sales increased 3.0%.

Growth in Residential and Commercial sales accounted for the increase. Temperature humidity index hours during the height of the air-conditioning season, June to August, were up 6.0%

over 1985, in addition there was a 1.3% increase in average number of customers. The ongoing weakness in the nation's manufacturing sector adversc:;ly affected Industrial sales. A record 60-minute net peak load of 7,735 megawatts was estab-lished on July 7, 1986.

Gas Revenues declined 7.9% in 1987 and 5.9% in 1986. The reduc-tions in revenues in 1987 are attributable to a decrease in base rates authorized by the BPU which became effective October 31, 1986. Also, the current cost of gas and total recoveries of gas costs have decreased in each of the last three years.

Gas fuel costs follow amounts recovered through reve-nues, as permitted by rate orders, and therefore have no direct effect on earnings.

The components of these changes are highlighted in the table below:

(Millions of Dollars)

Changes in base rates Recoveries of gas costs Therm sales Other operating revenues Increase or (Decrease) 1987 vs. 1986

$ 132) illl) 30 8

$1105) 1986 vs. 1985

18) 11011 25

$ (84) 198 7 -

Gas therm sales increased 2.4 %. Slightly colder weather during 1987 and higher usage by customers positively impacted Residential and Commercial sales. Commercial sales also benefited by the healthy commercial sector econ-omy. Industrial sales continue to be negatively impacted by the general weakness of the economy in the manufacturing sector, and the purchase of gas directly from suppliers by some customers. Average number of customers rose 1.6%.

1986 -

Gas therm sales were virtually unchanged from 1985. Residential sales registered significant growth, as the average number of gas heating customers rose 4.9%, despite the negative influence of the 1.4% decline in heating degree days. Commercial sales reflect strong growth in that sector of New Jersey's economy. Industrial sales reflect the ongoing weakness in the nation's manufacturing sector of the economy.

Lower oil prices continued to negatively impact Commercial and Industrial sales.

27

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Energy Costs Electric energy costs and gas fuel costs are adjusted to match amounts recovered through revenues and have no direct effect on earnings. However, the carrying of underrecovered energy costs ultimately increases financing costs.

A record total of 3 7.5 million megawatthours was gener-ated, purchased and interchanged, a 4% increase over 1986.

Higher generation from nuclear energy, natural gas and coal accounted for the increase.

As a member of the Pennsylvania-New Jersey-Maryland Interconnection (PJM) and as a party to several agreements which provide for the purchase of available power from neigh-boring utilities, PSE&G is able to optimize its mix of internal and external sources using the lowest cost energy available at any given time.

Total electric energy costs decreased 46% in 1987 primar-ily due to the adjustment to record lower recovery of such costs. Energy costs increased 7% in 1986. Contributing factors are shown below:

(Millions of Dollars)

Change in prices paid for fuel and power purchases Kilowatthour output Replacement energy costs for which recovery was disallowed by the BPU Nuclear Performance Penalty Adjustment of actual costs to match recover-ies through revenues (A)

Increase or (Decrease) 1987 vs. 1986 1986 vs. 1985

$ 115)

$(261) 28 31 (3)

(21) 18 (506) 318

$(478)

$ 67 (A) Reflects over(under)recovered energy costs, which in the years 1987, 1986 and 1985 amounted to $( 160) million, $346 million and $28 million, respectively.

Gas costs decreased 11%in1987 and 9% in 1986 primarily due to lower natural gas prices. Contributing factors are shown below:

[Millions of Dollars)

Change in prices paid for gas supplies Therm sendout Surcharge related to non-production gas costs Refunds from pipeline suppliers Adjustment of actual costs to match recover-ies through revenues (A)

Increase or (Decrease) 198 7 vs. 1986 1986 vs. 1985

$(61)

$(105) 15 (3)

(33) 24 (11) 9 13 9

$(77)

$ (66)

(A) Reflects over[under)recovered gas costs which in the years 1987, 1986 and 1985 amounted to $14 million, $1 million and $(8) million, respectively.

(See Notes 6 and 9 of Notes to Consolidated Financial Statements.)

Liquidity and Capital Resources Enterprise's liquidity is affected principally by the construction programs and investments of its subsidiaries and, to a lesser degree, by other capital requirements such as PSE&G's matur-ing debt, reacquisition of securities and sinking fund require-ments. The capital resources available to meet these requirements are funds from internal generation and external financing. Internally generated funds depend upon economic conditions and the adequacy of timely rate relief to PSE&G.

28 Access to the long-term and short-term capital and credit markets is necessary for obtaining funds externally.

PSE&G's construction program is focusing primarily on the upgrading of older generating stations and electric and gas transmission and distribution systems. Therefore, excluding refinancings and related expenditures, Enterprise expects to meet nearly all of its construction expenditures in 1988 with internally generated funds.

Construction Program Enterprise maintains a continuous construction program through its subsidiaries, principally PSE&G, which includes payments for nuclear fuel. This program is periodically revised as a result of changes in economic conditions, and depends on the ability of Enterprise and its subsidiaries to finance con-struction costs. Changes in 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 PSE&G for all projects aggregated $659 million in 198 7 and $1.0 billion in 1986 and include AFDC of $53 million and $241 million, respectively.

Construction expenditures are estimated at $2.8 billion for the five years ending in 1992 and include AFDC of about $173 million.

These estimates are based on expected project completion dates and include anticipated escalation due to inflation of approximately 4%. Therefore, construction delays or higher inflation levels could cause significant increases in these amounts. Enterprise expects to generate internally nearly all of its construction expenditures over the next five years.

Financing Activities Enterprise raised more than $434 million in 198 7 through sales of $198.5 million of PSE&G's First and Refunding Mortgage Bonds, $79 million of its common stock, together with $60 million of long-term bank loans by PSRC. An additional $100 million of EDC's long-term debt replaced existing short-term debt.

During 1987 PSE&G redeemed four First and Refunding Mortgage Bond issues for $210.8 million and four preferred stock issues for $160 million.

In November 1987, PSEGCC entered into a $250 million credit agreement with a group of 13 banks which expires Oc-tober 31, 1990. The credit agreement will be used primarily to support the issuance of short-term debt by PSEGCC to meet the debt capital needs of Enterprise's umegulated subsidiaries (PSRC, EDC, CEA and EGDC). The existing credit agreements of these subsidiaries were terminated. Long-term debt of the subsidiaries of $185 million was paid off during 1987. As of

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS December 31, 198 7, PSEGCC had $135.3 million in commercial paper outstanding.

In addition to periodic sinking fund redemptions, PSE&G has a $60 million mortgage bond issue that will mature in 1988. Three mortgage bond issues aggregating $140 million and one debenture bond issue of $31 million will also mature by the end of 1992.

Also, PSE&G has received regulatory authority to redeem, prior to maturity, up to approximately $300 million First and Refunding Mortgage Bonds during 1988.

Under the terms of PSE&G's Mortgage and Restated Cer-tificate of Incorporation, at December 31, 198 7 PSE&G could issue an additional $3.064 billion of mortgage bonds at a rate of 10.13% or $2.719 billion of preferred stock at a rate of 8.75%.

For interim financing PSE&G is authorized by the BPU to have up to a total of $300 million of short-term obligations outstanding at any given time. This provides PSE&G flexibility in the issuance of long-term securities. At year end PSE&G had $250 million of commercial paper outstanding.

In December 1987, PSE&G terminated its credit agree-ment with 12 domestic banks for the issuance of revolving loans up to an aggregate of $200 million to be outstanding at anytime.

In January 1988, PSE&G terminated its $75 million Euro-pean Revolving Credit Agreement and signed a new agreement for $75 million with eight foreign banks.

In the foreign markets, Enterprise lists its common stock on the London Stock Exchange, London, England and PSE&G's 9%% Series S First and Refunding Mortgage Bonds are listed on the Luxembourg Stock Exchange.

At December 31, 1987 book value per share amounted to

$18.54 compared to $17.92 at December 31, 1986. This reflects the 3-for-2 common stock split which took place July 1, 1987.

The market value of common shares expressed as a percentage of book value was 128.8% and 149.7% at year-end 1987 and 1986, respectively.

Customer Accounts Receivable At December 31, 198 7, customer accounts receivable approxi-mated $322 million, excluding unbilled revenues of $163 mil-lion. Net write-off of uncollectible accounts in 1987 was down 16% to approximately $18 million, a decrease of $3 million from last year. Net write-off per $100 of revenues was down 4 cents to 44 cents compared to 1986, the result of improved collection procedures and continued improvements in the economy. The level of PSE&G's rates and a BPU requirement prohibiting the termination of electric and gas service during winter months to financially needy customers have an impact upon the level of receivables, uncollectible accounts and net write-off thereof.

Effect of Inflation In the past several years the impact of inflation on Enterprise has decreased due to declining inflation rates. However, the cost of replacing utility plant would be significantly higher than historical cost reflected in the financial statements. Even though historical cost is the amount permitted to be recovered under the rate regulatory process for utilities in New Jersey, based on past practices of regulatory commissions, the com-pany anticipates it will recover the increased cost of facilities when replacement actually occurs.

29

ORGANIZATION AND

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES Organization In 1986 Enterprise acquired all of the issued and outstanding common stock of PSE&G pursuant to a Plan and Agreement of Merger. In addition, Enterprise is the parent company of the following subsidiaries: CEA, EDC, PSRC, EGDC and PSEGCC.

The restructuring did not result in any change in PSE&G's preferred stock or debt securities.

Enterprise is entitled to an exemption from regulation by the Securities and Exchange Commission as a registered hold-ing company under the Public Utility Holding Company.Act of 1935, except for Section 9(a)(2) thereof, and is not subject to regulation by the BPU or the Federal Energy Regulatory Com-mission (FERC).

Consolidation Policy The consolidated financial statements include the accounts of Enterprise and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Regulation The accounting and rates of PSE&G are subject in certain respects to the requirements of the BPU and FERC. As a result, PSE&G maintains its accounts in accordance with their pre-scribed Uniform Systems of Accounts, which are the same. As a result, the applications of generally accepted accounting principles by Enterprise differ in certain respects from applica-tions of other non-regulated businesses.

Utility Plant and Related Depreciation and Amortization -

PSE&G Additions to utility plant and replacements of units of property are capitalized at original cost. The cost of maintenance, re-pairs and replacements of minor items of property is charged to appropriate expense accounts. At the time units of depreci-able properties are retired or otherwise disposed of, the original cost less net salvage value is charged to accumulated depreciation.

For financial reporting purposes, depreciation is computed under the straight-line method. Depreciation is based on esti-mated average remaining lives of the several classes of depreci-able property. 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 depreciable property were 3.39% in 198 7, 3.54 % in 1986 and 3.52% in 1985.

Depreciation applicable to nuclear plant includes esti-mated costs of decommissioning. The BPU in its Decision of February 6, 1987 provided rates for the recovery of Hope Creek Generating Station costs and directed that PSE&G establish a trusteed escrow fund. PSE&G filed a request with the Internal Revenue Service for a ruling that it may be considered a quali-fied plan, which would make payments into the fund tax deductible.

Amortization of Nuclear Fuel Nuclear energy burnup costs are charged to fuel expense on a units-of-production basis over the estimated life of the fuel.

The rate calculated for fuel used at all nuclear units includes a provision of one mill per kilowatthour of nuclear generation for spent fuel disposal costs.

30 Gas and 011 Accounting EDC follows the full-cost method of accounting. Under this method, all exploration and development costs for successful and unsuccessful wells are capitalized and amortized on the units-of-production basis. (See Note 6-Deferred Items -

Gas and Oil Exploration Plant Write-Down.)

Long-Term Investments Enterprise, through its investment subsidiary, PSRC, has in-vested in marketable securities, which are valued at the lower of cost or market, as well as various leveraged leases and lim-ited partnerships.

Revenues and Fuel Costs -

PSE&G Revenues are recorded based on services rendered to customers during each accounting period. PSE&G records unbilled reve-nues representing the estimated amount customers will be billed for services rendered from the time meters were last read to the end of the respective accounting period.

Rates include projected fuel costs for electric generation, purchased and interchanged power, gas purchased and mate-rials used for gas production for twelve-month periods.

Any under or overrecoveries, along with interest in the case of an overrecovery, are deferred and included in operations in the period in which they are reflected in rates.

Income Taxes Enterprise and its subsidiaries file a consolidated Federal in-come tax return and income taxes are allocated, for reporting purposes, to Enterprise and its subsidiaries based on taxable income or loss of. each.

Deferred income taxes are provided for differences be-tween book and taxable income. For PSE&G the deferred in-come taxes are limited to the extent permitted for ratemaking purposes.

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

In December 1987, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 96 (SFAS 96), "Accounting for Income Taxes", which requires the recognition of deferred tax liabilities adjusted for the effects of enacted changes in tax laws or rates. The effective date of SFAS 96 is for fiscal years beginning after December 15, 1988.

As a result of the accounting and ratemaking requirements of the BPU and FERC with respect to PSE&G, the primary effect of adopting SFAS 96 upon Enterprise's financial reporting will be the presentation of its financial position with minimal effect on its income statement. Such effect is currently being quantified.

ORGANIZATION AND

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES Allowance for Funds Used During Construction AFDC represents the cost of debt and equity funds that finance the construction of new facilities. The amount of AFDC capi-talized is also reported in the Consolidated Statements of Income as a reduction of interest charges for the borrowed funds component and as other income for the equity funds component.

Since February 16, 1987 the rate used for calculating AFDC has been 10.33% on a compounded basis. Prior to Feb-ruary 16, 1987 the rate of 8.5% had been used for several years.

These rates are within the limits set by FERC.

Based upon the BPU's Decision of February 6, 1987, PSE&G is no longer allowed to recover a current return on amounts of CWIP through operating revenues. In the years 1986 and 1985, as a result of BPU rate orders, PSE&G had been allowed to include $550 million of CWIP in rate base, on which a current return was permitted to be recovered through operating revenues. No AFDC had been accrued on the amounts included in rate base.

Pension Plan The employees of Enterprise's subsidiaries completing one year of service are covered by a noncontributory trusteed pension plan. The policy is to fund pension costs accrued. In 1987, Enterprise adopted Statement of Financial Accounting Stan-dards No. 87 (SFAS 87), "Employers' Accounting for Pensions".

(See Note 8 of Notes to Consolidated Financial Statements.)

FINANCIAL STATEMENT RESPONSIBILITY Management of Enterprise and its subsidiaries is responsible for the preparation, integrity and objectivity of the consoli-dated financial statements and related notes of Enterprise. The consolidated financial statements and related notes are pre-pared in accordance with generally accepted accounting princi-ples applied on a consistent basis. The financial statements reflect estimates based upon the judgement of management where appropriate. Management believes that the consolidated financial statements and related notes present fairly and con-sistently Enterprise's financial position and results of opera-tions. Information in other parts of this Annual Report is the responsibility of management and is consistent with these consolidated financial statements and related notes.

The firm of Deloitte Haskins & Sells, independent certi-fied public accountants, is engaged to examine Enterprise's consolidated financial statements and related notes and issue an opinion thereon. Their examination is conducted in accor-dance with generally accepted auditing standards and includes a review of internal accounting controls and tests of transac-tions. Management has made available to Deloitte Haskins &

Sells all the corporation's financial records and related data, as well as the minutes of stockholders' and directors' meetings.

Furthermore, management believes that all representations made to Deloitte Haskins & Sells during its audit were valid and appropriate.

Management has established and maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded, and transactions are executed in accordance with management's authorization and recorded properly for the prevention and detection of fraudulent finan-cial reporting so as to maintain the integrity and reliability of the financial statements. The system is designed to permit preparation of consolidated financial statements and related notes in accordance with generally accepted accounting princi-ples. The concept of reasonable assurance recognizes that the costs of a system of internal accounting controls should not exceed the related benefits. Management believes the effec-tiveness 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, assets and internal control.

The Internal Auditing Department conducts audits and appraisals of accounting and other operations and evaluates the effectiveness of cost and other controls and recommends, where appropriate, improvements thereto. Management has considered the internal auditors' and Deloitte Haskins & Sells' recommendations concerning the corporation's system of internal accounting controls and has taken actions that are cost-effective in the circumstances to respond appropriately to these recommendations. Management believes that, as of December 31, 1987, the corporation's system of internal ac-counting controls is adequate to accomplish the objectives discussed herein.

The Board of Directors carries out its responsibility of financial overview through the Audit Committee, which as of February 16, 1988 consisted of six directors who are not cur-rent employees of Enterprise. The Audit Committee meets periodically with management as well as with representatives of the internal auditors and the independent certified public accountants. The Committee reviews the work of each to ensure that their respective responsibilities are being carried out, and discusses related matters. Both audit groups have full and free access to the Audit Committee.

E. James Ferland Chairman of the Board, President and Chief Executive Officer Everett L. Morris Vice President Parker C. Peterman Comptroller

.1 31

CONSOLIDATED STATEMENTS OF INCOME (Thousands of Dollars) For the Years Ended December 31, Operating Revenues Electric Gas Other Total Operating Revenues Operating Expenses Operation Fuel for Electric Generation and Net Interchanged Power Gas Purchased and Materials for Gas Produced Other Maintenance Depreciation and Amortization Amortization of Property Abandonments and Write-Down (note 6)

Taxes Federal Income Taxes (note 2)

New Jersey Gross Receipts Taxes Other Total Operating Expenses Operating Income Other Income Allowance for Funds Used During Construction -

Equity Miscellaneous -

net Total Other Income Appllcatlon of SFAS 90 (note 3)

Disallowed Plant Costs and Abandonments -

net Related Income Taxes Net Effect of SFAS 90 Income Before Interest Charges and Dividends on Preferred Stock Interest Charges (note 10)

Long-Term Debt Short-Term Debt Other Total Interest Charges Allowance for Funds Used During Construction -

Debt Net Interest Charges Preferred Stock Dividend Requirements Net Income Shares of Common Stock Outstanding (A)

End of Year Average for Year Earnings per Average share of Common Stock (A)

Dividends paid per share of Common Stock (A)

A. Reflects 3*for*2 common stock split effective July !, 1987.

1987

$2,959,549 1,219,955 31,551 4,211,055 555,405 614,861 634,494 302,362 380,109 22,526 292,169 522,870 63,960 3,388,756 822,299 34,001 6,031 40,032 27,266 (12,255) 15,011 877,342 304,494 10,644 21,655 336,793 (18,665) 318,128 38,763

$ 520,451 205,350,418 203,872,592

$2.55

$1.99 See Organization and Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements.

32 1986 1985

$3,156,010

$3,000,564 1,324,690 1,408,490 17,716 19,287 4,498,416 4,428,341 1,033,371 965,966 692,224 757,976 607,301 567,698 254,256 291,940 272,150 268,179 71,232 55,263 270,783 273,119 563,518 557,270 56,297 53,161 3,821,132 3,790,572 677,284 637,769 164,121 127,412 10,840 458 174,961 127,870 (295,244)

[109,717) 111,418 24,799 (183,826)

(84,918) 668,419 680,721 297,249 276,480 6,362 5,788 12,169 7,278 315,780 289,546 (77,196)

(68,459) 238,584 221,087 51,372 60,002

$ 378,463

$ 399,632 202,323,563 197,547, 776 199, 709,294 183,516,405

$1.90

$2.18

$1.95

$1.87

__J

CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION (Thousands of Dollars) For the Years Ended December 31, 1987 1986 1985 Funds Provided Net Income

$ 520,451

$ 378,463

$ 399,632 Add (Deduct) Items not affecting Working Capital Depreciation and Amortization 498,294 391,978 375,154 Recovery (Deferral) of Electric Energy and Gas Fuel Costs -

net (127,381) 350,882 43,422 Disallowed Plant Costs and Abandonments (note 3) 350,571 151,009 Amortization of Discounts on Disallowances (note 3)

(27,266)

(55,327)

(41,292)

Provision for Deferred Income Taxes -

net (notes 2 and 6) 298,330 (17,610) 18,434 Investment Tax Credits -

net (21,680) 13,205 132,398 Allowance for Funds Used During Construction (AFDC)

(52,666)

(241,317)

(195,871)

Other (4,329) 4,417 (9,042)

Total Funds from Operations 1,083,753 1,175,262 873,844 Net Funds from Financings Common Stock 78,640 103,330 499,905 Long-Term Debt 356,018 564,894 199,118 Increase in Capital Lease Obligations 548 Total Funds from Financings 434,658 668,224 699,571 Total Funds Provided

$1,518,411

$1,843,486

$1,573,415 Funds Applled Additions to Utility Plant, excluding AFDC

$ 605,980

$ 778,248

$1,024,244 Additions to Gas and Oil Exploration Plant, excluding AFDC 15,852 21,781 47,392 Cash Dividends on Common Stock 406,457 390,289 346,803 Long-Term Investments 176,549 136,290 4,230 Reductions of Long-Term Debt and Capital Lease Obligations 423,005 423,129 207,355 Reductions of Preferred Stock 166,760 72,750 Property Abandonments, Write-Down and Deferrals (note 6)

Reduction in Property Values (134,452)

(37,108)

Deferrals 134,452 37,108 Miscellaneous 19,596 8,479 17,848 Total Funds Applied 1,814,199 1,758,216 1,720,622 Increase (Decrease) In Working Capital Short-Term Debt (140,783)

(77,769)

(47,811)

Cash and Equivalents (150,230) 149,943 (86,738)

Accounts Receivable and Unbilled Revenues (24,846)

(25,905) 66,261 Fuel (5,186)

(20,090)

(52,137)

Other Current Assets 2,807 13,664 28,320 Accounts Payable and Other Accrued Liabilities (79,251) 49,417 (27,087)

Accrued Taxes 101,701 (3,990)

(28,015)

Net Increase (Decrease) in Working Capital (295,788) 85,270 (147,207)

Total Funds Applied and Increase (Decrease) in Working Capital

$1,518,411

$1,843,486

$1,573,415 Sec Organization and Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements.

33

Assets

[Thousands of Dollars) December 31, Utility Plant -

Original cost Electric Gas Common Nuclear Fuel Utility Plant in Service CONSOLIDATED BALANCE SHEETS Less Accumulated Depreciation and Amortization Net Utility Plant in Service Construction Work in Progress Plant Held for Future Use Net Utility Plant Other Plant and Long-Term Investments Gas and Oil Exploration Plant, net of accumulated depreciation and amortization -

198 7, $334,603; 1986, $317,739 Other Plant, net of accumulated depreciation and amortization-1987, $2,013; 1986, $1,362 Long-Term Investments (note 4)

Total Other Plant and Long-Term Investments Current Assets Cash and Temporary Investments [note 5)

Working Funds Accounts Receivable, net of allowance for doubtful accounts-1987, $16,455; 1986, $33,101 Unbilled Revenues Fuel, at average cost Materials and Supplies, at average cost Prepayments Total Current Assets Deferred Debits (note 6)

Property Abandonments (note 3)

Gas and Oil Exploration Plant Write-Down Underrecovered Electric Energy and Gas Fuel Costs -

net Unamortized Debt Expense Other Total Deferred Debits Total See Organization and Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements.

34 1987 1986

$ 9,564,835

$ 5,449,135 1,487,401 1,396,543 299,447 281,751 249,650 128,906 11,601,333 7,256,335 3,028,712 2,692,759 8,572,621 4,563,576 370,596 4, 153,988 26,887 26,873 8,970,104 8,744,437 150,425 159,040 25,360 26,224 318,882 133,180 494,667 318,444 53,380 206,008 24,274 21,876 389,749 407,737 162,723 169,581 198,793 203,979 80,720 80,197 33,159 30,875 942,798 1,120,253 229,834 227,033 112,044 112,044 40,538 62,007 49,102 5,559 6,509 449,982 394,688

$10,857,551

$10,577,822

Capitalization and Liabilities (Thousands of Dollars) December 31, Capitalization (see statements, pages 36-38)

Common Equity Common Stock Retained Earnings Total Common Equity Subsidiaries' Securities and Obligations CONSOLIDATED BALANCE SHEETS Preferred Stock Without Mandatory Redemption Preferred Stock With Mandatory Redemption Long-Term Debt Capital Lease Obligations (note 10)

Total Capitalization Current Liabilities Long-Term Debt and Capital Lease Obligations due within one year Commercial Paper and Bank Loans (note 7)

Accounts Payable New Jersey Gross Receipts Taxes Accrued Deferred Income Taxes on Unbilled Revenues (note 2)

Other Taxes Accrued Interest Accrued Other Total Current Liabilities Deferred Credits Accumulated Deferred Income Taxes (note 2)

Depreciation and Amortization Property Abandonments (note 6)

Gas and Oil Exploration Plant Write-Down (note 6)

Deferred Electric Energy and Gas Fuel Costs -

net Unamortized Debt Expense Other Overrecovered Electric Energy and Gas Fuel Costs -

net (note 6)

Accumulated Deferred Investment Tax Credits (note 2)

Other Total Deferred Credits Commitments and Contingent Liabilities (note 9)

Total 1987 1986

$ 2,710,343

$ 2,632,662 1,096,933 993,836 3,807,276 3,626,498 429,994 554,994 30,000 65,000 3,287,039 3,336,120 55,374 56,409 7,609,683 7,639,021 70,897 71,418 385,300 243,996 349,054 290,444 507,662 544,678 58,506 78,007 4,069 49,253 107,797 94,602 91,946 84,500 1,575,231 1,456,898 886,371 685,483 102,496 99,846 53,287 53,287 16,085 (39,947) 24,326 19,548 28,606 (2,924) 86,843 546,374 565,868 15,092 13,899 1,672,637 1,481,903

$10,857,551

$10,577,822 35

CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (Thousands of Dollars) For the Years Ended December 31, 1987 1986 1985 Balance January 1

$ 993,836

$1,013,285

$ 963,573 Add Net Income 520,451 378,463 399,632 Total 1,514,287 1,391,748 1,363,205 Deduct Cash Dividends on Common Stock (A) 406,457 390,289 346,803 Capital Stock Expenses 10,897 7,623 3,117 Total Deductions 417,354 397,912 349,920 Balance December 31

$1,096,933

$ 993,836

$1,013,285 A. The ability of Enterprise to declare and pay dividends is contingent upon its receipt of dividend payments from its subsidiaries. PSE&G, Enterprise's principal subsidiary, has restrictions on the payment of dividends which arc contained in its Charter, certain of the indentures supplemental to its Mortgage, and certain debenture bond indentures. However, none of these restrictions presently limit the payment of dividends out of current earnings. The amount of PSE&G's restricted retained earnings at December 31, 198 7 was $10,000,000.

See Organization and Summary of Significant Accounting Policies and Notes to Consolidated 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 Enterprise Group Incorporated:

We have examined the consolidated balance sheets and consolidated statements of capital stock and long-term debt of Public Service Enterprise Group Incorporated and its subsidiaries as of December 31, 1987 and 1986 and the related consolidated statements of income, retained earnings, and changes in financial position for each of the three years in the period ended December 31, 1987. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

36 In our opinion, such consolidated financial statements present fairly the financial position of the companies at December 31, 1987 and 1986 and the results of their operations and the changes in their financial position for each of the three years in the period ended December 31, 1987, in conformity with generally accepted accounting principles applied on a consistent basis.

February 12, 1988

CONSOLIDATED STATEMENTS OF CAPITAL STOCK December 31, Outstanding Shares Current Redemption Price Per Share 1987 1986

[Thousands of Dollars)

Enterprise Preferred Stock [note A)

PSE&G Nonparticipating Cumulative Preferred Stock With Mandatory Redemption (note C)

$100 par value -

Series 12.80%

11.62%

PSE&G Preferred Stock with Mandatory Redemption PSE&G Nonparticipating Cumulative Preferred Stock 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%

Z40%

Z52%

8.08%

Z80%

Z70%

8.16%

PSE&G Preferred Stock without Mandatory Redemption (no changes in 1986 and 1985)

Enterprise Common Stock (noteB) 300,000 250,000 249,942 250,000 250,000 250,000 250,000 500,000 500,000 150,000 750,000 600,000 300,000 111.62 103.00 103.00 102.75 103.00 103.00 102.00 101.00 101.00 101.00 101.00 100.79 104.82 30,000 30,000 25,000 24,994 25,000 25,000 25,000 25,000 50,000 50,000 15,000 75,000 60,000 30,000 429,994 35,000 30,000 65,000 40,000 50,000 25,000 24,994 25,000 25,000 25,000 25,000 35,000 50,000 50,000 15,000 75,000 60,000 30,000 554,994 Common Stock [no par) -

authorized 500,000,000 shares (note E); issued and outstanding at December 31, 1987, 205,350,418 shares and at December 31, 1986, 202,323,563 shares

[3,063,702 shares issued for $78,640,000 in 1987 (note F), 4,775,787 shares issued for

$103,488,000 in 1986, and 28,703,174 shares issued for $503,022,000 in 1985) reflects 3-for-2 split, effective July 1, 1987

}

$ 2110,343

$ 2,632,662 Notes:

A. At the Stockholders Annual Meeting held on April 21, 198 7, the stockholders approved a proposal authorizing the creation of a new class of 50 million shares of Preferred Stock without par value.

B. In addition, there are 2,900,058 shares of $100 par value and 10,000,000 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.

If dividends upon any shares of Preferred Stock are in arrears in an amount equal to the annual dividend thereon, voting rights for the election of a majority of 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. PSE&G is required to purchase or redeem a specified minimum number of shares of Cumulative Preferred Stock with mandatory redemption annually. Such redemptions are cumulative. PSE&G 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 divi-dends to the date fixed for redemption.

All outstanding shares of the 12.80% Series were redeemed on September 30, 1987.

At December 31, 1987, the annual dividend requirement and the embedded dividend cost were $3,486,000 and 11.72%, respectively, for Preferred Stock with mandatory redemption.

Prior to September 1, 1988 the redemption of shares of the 11.62 % Series is subject to certain restrictions. On September 30, 1989, the 11.62% Series will become subject to a mandatory annual sinking fund redemption of 15,000 shares which is cumulative, plus redemption of up to an additional 15,000 shares annually at the option of PSE&G, all at a redemption price of $100 per share.

D. At December 31, 1987, the annual dividend requirement and embedded divi-dend cost for Preferred Stock without mandatory redemption were $29,012,000 and 6.75%, respectively.

E. Total authorized shares includes 1,234,353 shares of Common Stock reserved for possible issuance under Enterprise's Dividend Reinvestment and Stock Pur-chase Plan, and PSE&G's Employee Stock Purchase Plan, Thrift and Tax-Deferred Savings Piao and Payroll-Based Employee Stock Ownership Plan.

F. Includes $959,000 paid in lieu of issuing 36,847 fractional shares.

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

37

PSE&G Interest Rates Due First and Refunding Mortgage Bonds (note A) 47/s%

1987 4%%

1988 51/s'Yo 1989 4%%

1990 4%%

1992 4%%-12%%

1993-1997 7%-9 1/s%

1998-2002 81/s%-12%

2003-2007 9%%-14%%

2008-2012 8%%-9 1/2%

2013-2017 5%-8%

2037 Pollution Control 6.30%

2003-2007 6.80%-10%%

2008-2012 8.10%-10 112%

2013-2017 Total First and Refunding Mortgage Bonds Debenture Bonds Unsecured 5%%

1991 71/4%-9%

1993-1997 6%

1998 Total Debenture Bonds Unsecured Amount Due Within One Year (note BJ Net Unamortized Discount Total Long-Term Debt of PSE&G Bank Loans Consolidated Long-Term Debt (note CJ 38 CONSOLIDATED STATEMENTS OF LONG-TERM DEBT December 31, 1987 1986 (Thousands of Dollars) 60,000 60,000 60,000 50,000 50,000 50,000 50,000 40,000 40,000 810,000 660,000 520,600 522,300 401,130 403,630 198,000 325,344 422,000 425,000 15,001 15,001 14,300 14,300 73,710 73,710 519,400 494,400 3,174,141 3,193,685 33,592 34,647 155,662 159,789 18,195 18,195 207,449 212,631 (69,862)

(69,491)

(24,689)

(25,705) 3,287,039 3,311,120 25,000

$3,287,039

$3,336,120 Notes:

A. PSE&G's Mortgage, securing the First and Refunding Mortgage Bonds, consti*

tutes a direct first mortgage lien on substantially all PSE&G property and franchises.

B. The aggregate principal amount of requirements for sinking funds and maturi-ties for each of the five years following December 31, 1987 are as follows:

(Thousands of Dollars)

Year Sinking Funds Maturities Total 1988

$ 9,862

$ 60,000

$ 69,862 1989 7,192 50,000 57,192 1990 7,200 50,000 57,200 1991 6,000 31,200 37,200 1992 6,000 40,000 46,000

$36,254

$231,200

$267,454 For sinking fund purposes, certain First and Refunding Mortgage Bond issues require annually the retirement of $18,950,000 principal amount of bonds or the utilization of bondable property additions at 60% of cost. The portion expected to be met by property additions has been excluded from the table above. Also, PSE&G may, at its option, retire additional amounts up to $6,200,000 annually through sinking funds of certain debenture bonds. Additional bonds, if any, resulting from the election of this option are included in long-term debt due within one year.

C. At December 31, 1987, the annual interest requirement on Long-Term Debt was $281,831,000 of which $265,940,000 was the requirement for First and Refunding Mortgage Bonds. The embedded interest cost on Long-Term Debt was 8.70%.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~

Rate Matters Electric On February 6, 1987, the BPU issued an oral decision, followed by a written Order in April 1987, authorizing an increase in PSE&G's electric base rates designed to produce additional annual revenues of $421.5 million. In addition, the decision reduced PSE&G's electric Levelized Energy Adjustment Clause (LEAC) by $697.7 million over a compressed 101/2 month period commencing February 16, 1987 and reduced electric base rates by $772 million for the recognition of the 1987 impact of the Tax Reform Act of 1986 (TRA), resulting in an overall electric revenue decrease of $353.4 million. The decision allows a return on common equity of 13% and an overall rate of return of 10.65%. As determined by the BPU, the increase in electric base rates was designed to reflect a recovery of PSE&G's rea-sonable costs of constructing Hope Creek Generating Station (Hope Creek). PSE&G's share of the cost of constructing Hope Creek through February 6, 1987 was $4.276 billion. The deci-sion disallowed the recovery of $431.5 million of PSE&G's share of Hope Creek's costs. Also, in accordance with the terms of the Cost Containment Incentive Penalty Agreement, the decision disallowed a return on an additional $5Z7 million resulting in a total allowed investment for Hope Creek by PSE&G in rate base of $3.787 billion. In addition, the decision continued the deferral of the $70.0 million of replacement energy costs of PSE&G resulting from failures of the electric generators at Salem in 1984 pending more definitive informa-tion from PSE&G's litigation against the generator manufac-turer with respect to one of such outages.

On November 6, 1987 PSE&G also filed a motion with the BPU to approve a reduction in electric base rates of $83.2 mil-lion on an annual basis to reflect changes in Federal income taxes as a result of the TRA. This amount is in addition to the base rate decrease of $77.2 million included in the February 1987 rates. Included within the November 6, 1987 filing was a motion for a $298.6 million annualized increase in revenues under the LEAC. It was proposed in the motion that the new LEAC rate become effective for the period January 1, 1988 through December 31, 1988. PSE&G cannot presently deter-mine the outcome and effective date of these proceedings.

On January 28, 1988, and on February 9, 1988, the Public Advocate of the State of New Jersey filed motions in PSE&G's current LEAC proceeding before the BPU seeking to remove Peach Bottom 2 and 3 from rate base because of the current extended outages, on the basis that the units are no longer "used and useful" as required by New Jersey law. The motions also seek to have the BPU immediately make interim, and subject to refund, PSE&G's base rates to the extent that they reflect expenses, return on rate base or any charges connected with Peach Bottom 2 and 3. PSE&G will oppose the Public Advocate's motions.

In an oral decision on February 4, 1988, the BPU stated it would assume jurisdiction over the issues raised by the Public Advocate's motions. PSE&G is presently determining what the rate effect would be if Peach Bottom and associated expenses were to be removed from base rates. However, preliminary indications are that PSE&G's base rates include annual revenues of approximately $150 million relating to Peach Bottom and that removal of Peach Bottom from rate base and disallowance of related expenses could reduce earnings by as much as $85 mil-lion on an annual basis, or 41 cents per share of common stock.

These recent motions by the Public Advocate to have Peach Bottom removed from rate base follows the BPU's Order dated January 27, 1988, wherein the BPU held that the recovery of replacement energy costs associated with PSE&G's five nuclear units are properly determined by the nuclear perfor-mance standard adopted by the BPU in setting PSE&G's base rates in February 1987, and that the prudence of each nuclear unit outage would not be examined. Hearings in the LEAC matter are continuing. PSE&G cannot determine the timing or result of any decision by the BPU in this matter.

For information concerning deferred Over(Under)recov-ered Electric Energy Costs, see Note 6 and for the Nuclear Performance Standard adopted by the BPU, see Note 9.

Gas On October 31, 1986, the BPU approved agreements by PSE&G and the major parties in PSE&G's gas base rate case, which provided for an annual reduction in gas base revenues of $30 million, effective October 31, 1986 and for the removal of EDC, at that time a wholly-owned gas and oil exploration subsidiary of PSE&G, from inclusion in its gas rate base for ratemaking purposes. In the BPU approved agreement, PSE&G was allowed to defer any loss on its investment in EDC as a result of any write-down of the value of reserves as of De-cember 31, 1986 and to seek recovery of such loss over a period of not less than 10 years in its next gas base rate proceeding.

On October 31, 1986, the price paid by PSE&G for natural gas from EDC was reduced as a result of a change in PSE&G's gas Raw Materials Adjustment Clause (RMAC) approved by the BPU. As a result of these regulatory actions, EDC wrote down the value of its reserves as of December 31, 1986 by $134.5 million, which amounts to $70.5 million after the ta.x effect, to reflect the lower net realizable value of its oil and gas re-serves. PSE&G has deferred $58.8 million of the after-tax Joss and will seek recovery of the entire $70.5 million in its next gas base rate case. Future regulatory action with respect to EDC's write-down of assets could require the amortization or imme-diate write-off of the $58.8 million being deferred by PSE&G.

On July 23, 1987, PSE&G petitioned the BPU to approve a reduction in gas base rates of $13.3 million on an annual basis to reflect changes in Federal income taxes as a result of the TRA. This reduction was approved by the BPU on December 23, 1987 and became effective January 1, 1988.

On September 24, 1987, the BPU approved a Stipulation for an annual reduction in the RMAC of $61 million for the period October 1, 1987 through September 30, 1988 which results primarily from the return of overrecoveries and associated interest from the prior RMAC period and is based on a projec-tion of relatively stable gas prices. The Stipulation was exe-cuted by all parties to the case with the exception of the Public Advocate. On November 9, 1987, PSE&G signed an agreement with the Public Advocate and the other parties to the RMAC proceeding which disposed of the remaining issues concerning EDC. Under the agreement, the cost PSE&G is allowed to re-cover for EDC gas will be based upon an index of the weighted average cost of gas of pipelines supplying gas to New Jersey.

This agreement was approved by the BPU in December 1987 and results in an additional reduction of $3.99 million in the RMAC for the period January l, 1988 through September 30, 1988.

For information concerning deferred Over(Under)recov-ered Gas Fuel Costs, see Note 6.

39

~

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 in-come tax rates of 39.95%, a transitional weighted rate for 1987, and 46% in 1986 and 1985 is as follows:

!Thousands of Dollars) 1987 1986 1985 Net Income

$520,451

$378,463

$399,632 Preferred stock dividend requirements 38,763 51,372 60,002 Subtotal 559,214 429,835 459,634 Federal income taxes included in:

Operating Income:

Current provision 65,214 180,132 74,987 Provision for deferred income taxes -

net IA) 248,635 42,236 63,881 Investment tax credits -

net (21,680) 48,415 134,251 Total included in operating income 292,169 270,783 273,119 Miscellaneous other income:

Current provision

{17,084) 7,546 4,189 Provision for deferred income taxes IA) 17,939 SFAS 90 deferred Federal income tax IA) 12,255 178,652)

(24,799)

SFAS 90 deferred investment tax credit (32,766)

Total Federal income tax provisions 305,279 166,911 252,509 Pre-tax income

$864,493

$596,746

$712,143 Tax expense at the statutory rate

$345,365

$274,503

$327,586 Adjustments to pre-tax income, computed at the statutory rate, for which deferred taxes are not provided under current ratemaking policies:

Tax depreciation under book depreciation

$ 18,087

$ 30,470

$ 15,510 Allowance for funds used during construction (21,038)

(111,000) 190,089)

Overhead costs capitalized

{694)

(20,538)

(18,083)

Other

{7,720) 10,576 33,109 Subtotal (11,365)

(90,492)

(59,553)

Amortization of investment tax credits (28,721)

(17,100)

(15,524)

Subtotal

{40,086)

(107,592)

(75,077)

Total Federal income tax provisions

$305,279

$166,911

$252,509 A. The provision for deferred income taxes represents the tax effects of the following items:

Current Liabilities:

Unbilled revenues

$ {19,501)

$ (18,784)

$ 20,648 Deferred Credits:

Property Abandonments 2,650 (7,946) 364 Additional tax depreciation and amortization 203,339 62,511 42,333 Deferred fuel costs -

net 56,033 (161,405)

(19,720)

Gas and Oil Exploration Plant Write-Down 53,287 Other 36,308 35,921 (4,543)

Subtotal 298,330 (17,632) 18,434 Total

$278,829

$ (36,416)

$ 39,082 Deferred income taxes are provided for differences be-tween book and taxable income. For PSE&G the deferred in-come taxes are limited to the extent permitted for ratemaking purposes. At December 31, 1987 the cumulative net amount of income tax timing differences was $1.3 billion for which de-ferred income taxes have not been provided.

See Organization and Summary of Significant Accounting Policies for a discussion of the effect of SFAS 96,

/1 Accounting for Income Taxes", issued in December 198Z See Note 1 for reductions in LEAC and RMAC related to the effect of the Tax Reform Act of 1986.

1111 40

~

Statement of Flnanclal Accounting

.;a I Standards No. 90 In 1986, Enterprise adopted Statement of Financial Accounting Standards No. 90 (SFAS 90), "Regulated Enterprises -Ac-counting for Abandonments and Disallowances of Plant Costs", and elected to restate prior periods. The following table illustrates the effect of adoption of SFAS 90:

!Thousands of Dollars)

For the Years Ended December 31, 1987 1986 1985 Disallowed Costs Hope Creek l INote 1)

Direct Disallowance

$1431,532)

Return Disallowance -

Discount 80,961 1135,139)

Amortizaton of Discount 1,940 12,157 Related Income Taxes (516) 122,818 35,961 Hope Creek-net 1,424 (215,596) 199,178)

Property Abandonments (Note 6)

Return Disallowance -

Discount 115,870)

Amortization of Discount 25,326 43,170 41,292 Related Income Taxes (11,739)

(11,400) 111,162)

Property Abandonments -

net 13,587 31,770 14,260 Effects of application of SFAS 90

$ 15,011

$jl83,826)

$ (84,918)

The tax effects of discounting of abandonments were calculated using the tax rates applicable to related deferred tax balances. The tax effect of the Hope Creek 1 disallowance was calculated using a rate of 35.8%, such rate reflects rates that will be in effect when the tax basis of this plant is depreciated (46% in 1986, 40% in 1987 and 34% thereafter) to determine the net realizable value of the tax benefit.

~

Long-Term Investments Long-Term Investments, primarily those of PSRC, are summarized as follows:

!Millions of Dollars) 1987 Lease Agreements

$154 Partnerships 77 Marketable Securities 76 Other 12

$319 51 Cash and Temporary Investments 1986

$ 34 30 63 6

$133 The balances at December 31, 1987 and 1986 consist primarily of temporary investments. The 1987 balance was invested in repurchase agreements and commercial paper while the 1986 balance was invested primarily in U.S. Government Securities.

At December 31, 1987 and 1986, Enterprise had $227 million of lines of credit supported by compensating balances and $35 million of lines of credit which were compensated for by fees.

There are no legal restrictions placed on the withdrawal or other use of the compensating bank balances.

~

Deferred Items Property Abandonments The following table reflects the application of SFAS 90 on property abandonments for which no return is earned. The discount rate range used to calculate the present value of the abandoned property was between 8.545% and 14.446%. (See Note3.)

(Thousands of Dollars)

December 31, Atlantic Project Hope Creek Unit 2 LNG Project Uranium Projects Other (Thousands of Dollars)

Atlantic Project Hope Creek Unit 2 LNG Project Uraniun1 Projects Atlantic Project Cost

$185,112 109,080 39,635 29,691 1,817

$365,335

$ 77,813 57,581 15,175 12,399

$162,968 Property Abandonments 1987 1986 Discounted Cost Discounted

$109,738

$200,172

$114,290 74,504 109,196 64,572 26,757 44,208 28,640 17,418 32,165 17,941 1,417 2,120 1,590

$229,834

$387,861

$227,033 Related Income Taxes

$ 46,148

$ 84,149

$ 48,065 38,739 57,628 33,310 10,295 16,950 11,034 7,314 16,329 7,437

$102,496

$175,056

$ 99,846 In December 1978, PSE&G cancelled the Atlantic nuclear plant project. The BPU authorized PSE&G to recover a portion of the costs of the project over a period of 20 years commenc-ing in April 1980. Such costs are being recovered at the rate of

$8.7 million annually, net of taxes. The related amortization of the discount, net of taxes, will result in a credit to income of

$5.8 million in 1988.

, Hope Creek Unit No. 2 In December 1981, PSE&G abandoned the construction of Hope Creek Generating Station Unit No. 2. In March 1982, the BPU authorized the recovery of all after-tax abandonment costs for Hope Creek 2 from customers through the LEAC.

The recovery is over 15 years on an accelerated method which commenced in Tune 1982. As a result of the February 6, 1987 BPU rate Decision, no Hope Creek 2 costs were recovered during 1987 to reflect an adjustment of estimated close-out costs. The amortization of the discount, net of taxes, will result in a credit to income of $4.5 million in 1988.

LNG Project In December 1984, PSE&G abandoned its investment in cer-tain facilities for the storage of liquefied natural gas. As a result of this abandonment and prior to regulatory approval, PSE&G's investment of approximately $69.3 million, less tax savings of

$27.9 million or the net amount of $41.4 million, was deferred and was being amortized over a seven-year period commencing in 1984.

On October 30, 1986, the BPU approved an agreement by the major parties in the gas rate proceeding recommending the recovery of $48.8 million, the unamortized balance of the LNG Project costs less tax savings of $18.7 million. This amor-tization will result in the recovery of approximately $2.8 mil-lion per year, net of taxes. The related amortization of the discount, net of taxes, will result in a credit to income of $1.5 million in 1988.

Uranium Projects In September 1985, PSE&G terminated a uranium supply agreement with Sequoyah Fuels Corporation (Sequoyah), a subsidiary of Kerr-McGee Corporation.

In December 1985, Philadelphia Electric Company termi-nated its Lee Mine uranium supply project, in which PSE&G had participated as a co-owner of Peach Bottom Generating Station. In addition, PSE&G terminated the Homestake Min-ing Company contract, dated February 25, 1976, for the explo-ration and development of uranium. The total loss of these projects when combined with the Sequoyah loss amounts to

$3 7.1 million.

As a result of the abandonment and prior to regulatory approval, PSE&G's net umecovered advances of $21.7 million, after related tax savings, were deferred and were being amor-tized over a seven-year period commencing in 1985.

On February 6, 198 7, the BPU issued a Decision adopting a 15-year amortization period commencing Tanuary 1, 1985. The annual amortization and recovery will be approximately $1.4 million, net of taxes. The related amortization of the discount, net of taxes, will result in a credit to income of $1.0 million in 1988.

Gas and Oii Exploratlon Plant Write-Down In the agreement between the major parties in the gas rate proceeding, approved by the BPU on October 30, 1986, the investment in EDC was removed from rate base. As a result EDC wrote down the carrying value of its assets under the full cost method of accounting to the present value of estimated future net revenues. The after-tax effect of the write-down made in December 1986 was $70.5 million ($134.5 million before tax).

In the BPU approved agreement PSE&G was allowed to defer the loss on its investment in EDC, generated by the rate base disallowance, and to seek recovery of such loss, over a period of not less than 10 years in its next gas base rate case.

PSE&G has deferred $58.8 million of the after-tax loss and will seek recovery of the entire $70.5 million in its next gas base rate case. Future regulatory action with respect to EDC's write-down of assets may require the amortization or immedi-ate write-off of the $58.8 million being deferred by PSE&G.

Over (Under) recovered Electrlc Energy and Gas Fuel Costs -

net Recoveries of electric and gas fuel costs are determine.cl by the BPU. Earnings are not directly affected by increases or de-creases in the costs of fuel or interchanged power, because such costs are adjusted monthly to match amounts recovered through revenues. These clauses also provide that any over or underrecoveries at the end of the period, along with interest in the case of an overrecovery, will be included in the average cost used to determine the rate for the succeeding levelized period.

At December 31, 1987, the underrecovery under the LEAC amounted to $75.8 million which includes $70 million of deferred replacement energy costs. At December 31, 1987 the overrecovery of the RMAC amounted to $35.3 million.

For information concerning PSE&G's LEAC filing of No-vember 6, 1987 and PSE&G's RMAC filing of September 24, 1987, see Note 1.

41

Unamortized Debt Expense Costs associated with the issuance of debt by PSE&G are de-ferred and amortized over the lives of the related issues.

Amounts shown in the Consolidated Balance Sheets consist principally of costs associated with PSE&G's reacquisition of the following First and Refunding Mortgage Bonds:

12 %

Series E due 2004 (tender offer 5/77) 12 %

Series L due 2009 (redeemed 6/86) 12Vs%

Series M due 2010 (redeemed 6/86) 15%%

Series N due 1991 (redeemed 8/86) 14%%

Series 0 due 2012 (redeemed 9/87) 121/s%

Series P due 2012 (redeemed 12/87)

The redemption costs of the above debt have been deferred and are being amortized over the lives of the new securities issued to replace older, higher-cost securities. PSE&G expects to amortize $4.6 million of these costs in 1988.

71 Commercial Paper and Bank Loans Commercial paper represents unsecured bearer promissory notes sold through dealers at a discount with a term of nine months or less. Certain information regarding commercial paper follows:

(Thousands of Dollars J 1987 1986 1985 Balance at end of year

$385,300

$139,000

$107,000 Maximum amount outstanding at any month end

$385,300

$286,000

$157,500 Average daily outstanding

$148,124

$ 98,100

$ 72,400 Weighted average annual interest rate 6.88%

6.29%

7.91%

Weighted average interest rate for commercial paper outstanding at year-end 7.65%

6.34%

8.09%

Bank loans represent unsecured promissory notes issued under credit arrangements with various banks and have a term of eleven months or less. Such notes were issued in 1986 by CEA and EDC. Certain information regarding bank loans follows:

(Thousands of Dollars) 1987 1986 1985 Balance at end of year

$ $104,996 None Maximum amount outstanding at any month end

$104,996

$104,996 NIA Average daily outstanding

$ 42,448

$ 13,069 NIA Weighted average annual interest rate 6.68%

6.62%

NIA Weighted average interest rate for bank loans outstanding at year-end NIA 6.58%

NIA 81 Pension Plan On January 1, 1987, PSE&G adopted the provisions of SFAS 87.

The discount rate, expected long-term return on assets and average compensation growth used in determining the plan's funded status as of December 31, 1987 and 1986 and 1987 net pension cost are as follows:

Discount Rate Used to Determine Pension Cost Discounted Rate Used to Determine Benefit Obligations Expected Long-Term Return on Assets Average Compensation Growth 42 71/2%

81/4'l'o 8%

6%

The following table shows the plan's funded status:

(Thousands of Dollars I Actuarial present value of benefit obligations:

Accumulated benefit obligations, including vested benefits of $609,052 and $586,381 Effect of projected future compensation Projected benefit obligati~ns Plan assets at fair value, primarily listed equity and debt securities Projected benefit obligations in excess of plan assets Unrecognized net gain from past experience and effects of changes in assumptions Unrecognized net obligation being recognized over 16.7 years Prepaid (accrued) pension expense December 31, 1987

$(638,876)

(204,199)

(843,075) 783,797 (59,278)

(66,808) 126,086

$ December 31, 1986

$(663,577)

(212,094)

(875,671) 741,484 (134,187) 134,187

$ The net pension cost for the year ending December 31, 1987 includes the following components:

(Thousands of Dollars J Service cost-benefits earned during 1987 Interest cost on projected benefit obligation Return on assets Net amortization Total

$27,000 64,200 (50,084)

(1,116)

$40,000 Pension costs of $57,671,000 in 1986 and $66,898,000 in 1985, including supplemental pension costs of $5,167,000 in 1986 and $10,847,000 in 1985, were computed based on generally accepted accounting principles in effect for those periods.

Supplemental pension costs in 1987 were $4,026,000.

~

Commitments and Contingent Liabilities Nuclear Performance Standard On February 6, 1987 the BPU issued an oral decision, subse-quently detailed in writing and reaffirmed on August 13, 198 7, which is more fully described in Note 1, establishing perfor-mance standards for the five nuclear units in which PSE&G has an ownership interest. (Salem 1 and Salem 2-42.59%

each; Hope Creek -

95%; and Peach Bottom 2 and 3 -

42.49% each. PSE&G operates Salem and Hope Creek while Peach Bottom is operated by Philadelphia Electric Company (PE)). The following performance standards are premised upon a targeted 70% aggregate capacity factor for the five units, with a deadband between 60% and 80% within which no penalty or reward would be incurred. The penalties or awards are based on targeted capacity factors as illustrated in the following table:

Capacity Factor Range Greater than 90%

Greater than 80% through 90%

Equal to or greater than 60% through 80%

Equal to or greater than 50% and less than 60%

Equal to or greater than 40% and less than 50%

Below40%

Difference in Replacement Power Cost vs. Target Capacity Factor of 70%

Award Penalty 25%

20%

None None 20%

25%

BPU Intervenes

Any penalties incurred would not be permitted to be recovered from customers and would reduce net income. The capacity factors of PSE&G's nuclear units were as follows:

Nuclear Units Salem I Salem2 Hope Creek Peach Bottom 2 Peach Bottom 3 CAPACITY FACTORS Aggregate total of Nuclear Units 1987 1986 63.6%

72.5%

63.2%

54.4%

77.9%

16.6%

73.9%

15.6%

52.4%

53.6%

63.2%

On November 6, 1987, PSE&G petitioned the BPU for a change in its electric LEAC (see Note 1) so that the new rate would be effective in January 1988. In accordance with the Nuclear Performance Standard, PSE&G did not request recov-ery of 20% of the difference in replacement energy costs be-tween the 70% target capacity factor under the Nuclear Performance Standard and the actual aggregate capacity factor of 53.6% for the year 198Z As a result of the application of the Nuclear Performance Standard for the year 1987, PSE&G wrote off $1Z6 million of replacement energy costs amounting to

$10.5 million in an after-tax earnings penalty against net in-come, or 5 cents per share of Enterprise common stock. The aggregate capacity factor of PSE&G's five nuclear units during 1987 was 53.6%, which is below the 60% limit required by the standard to avoid a penalty. The nuclear units operated by PSE&G -

Salem 1, Salem 2 and Hope Creek -

operated at a combined capacity factor of 71 % during 198Z The combined capacity factor for Peach Bottom 2 and 3 was 16% for the year.

Because of the extended Peach Bottom outages, PSE&G may again fall below the 60% aggregate capacity factor limit for its five nuclear units in 1988 required by the Nuclear Per-formance Standard to avoid a penalty. The amount of such penalty cannot be determined at this time because it cannot be known with certainty how long the Peach Bottom units will be out of service or what the actual operating experience of the other three units will be.

In its January 27, 1988 Order the BPU also required PSE&G to provide information as to the replacement energy costs associated with the Peach Bottom outage. This amount is being calculated. However, the outage of one Peach Bottom unit results in additional replacement energy costs of approxi-mately $5 million to $7 million per month.

PE and Delmarva Power & Light Company, another co-owner of Peach Bottom, have publicly announced that they will not seek recovery of increased replacement energy costs associated with the NRC ordered Peach Bottom shut down. In addition, PSE&G understands that, on February 11, 1988, the Pennsylvania Public Utility Commission disallowed PE's right to earn an equity return on its investment in Peach Bottom.

Hearings in PSE&G's LEAC proceeding are continuing.

PSE&G cannot determine the timing or result of any decision by the BPU in this matter.

Peach Bottom Shutdown On March 31, 1987, the NRC ordered PE to bring Peach Bottom 2 and 3 to cold shutdown within 36 hours4.166667e-4 days 0.01 hours 5.952381e-5 weeks 1.3698e-5 months . At that time, Peach Bottom 2 was out of service for planned refueling and mainte-nance. PE shut down Peach Bottom 3 in response to the order.

The NRC Order states that as a result of an investigation, which is still ongoing, it has established that at times, during various shifts, one or more of the Peach Bottom operations control room staff had, for at least the prior five-month period slept or otherwise been inattentive to licensed duties, and that the management of PE either knew or should have known of this situation and did not correct it. As a result, the NRC Staff determined that the continued operation of the facility was "an immediate threat to the public health and safety... (and) that the public health, safety and interest requires that PE should proceed to place or maintain its units in a cold condi-tion". The Order requires that before PE may restart either Peach Bottom unit, it must provide the NRC Staff with a de-tailed and comprehensive plan, and a schedule to accomplish the plan, to assure that the facility will operate and comply with all NRC and station requirements. It cannot be deter-mined when the NRC will authorize Peach Bottom 2 and 3 to be restarted.

PE is conducting its own detailed investigation of the matter and is cooperating with the NRC. PE has indicated Peach Bottom 2 will not be ready to return to service at least until the summer of 1988. Maintenance work continues on Peach Bottom 3 during the shutdown, which is expected to require the balance of 1988, regardless of any NRC authoriza-tion, during which time piping affected by intergranular stress corrosion cracking, a generic problem with boiling water reac-tors, is being repaired and/or replaced.

On April 6, 1987, PE announced a plan to investigate the conditions which resulted in the NRC Order and instituted a multiple-team approach to assess the situation, implement corrective actions and develop a recovery plan. One team includes senior management of PE. The Management Analysis Company, a consulting firm, has assisted PE in its investiga-tion and will continue to advise PE management on the action plan designed to lead to restart. The PE Board of Directors has also formed a special committee consisting of four outside PE directors to act independently to evaluate the problem and its solution. A past president of the Institute of Nuclear Power Operations (INPO) has agreed to serve as a consultant to this special PE committee. In addition, an assistance team of nu-clear industry senior management and operating personnel has been formed by INPO to perform an independent analysis of Peach Bottom operations, evaluate PE's investigation and pro-vide advice for corrective actions. INPO is an independent watchdog group composed of the 54 utilities operating nuclear plants and 60 other co-owners.

On August 7, 1987, PE submitted a restart plan (Plan) to the NRC in response to the requirement of the NRC Order.

There have been subsequent submittals since that time in response to NRC questions. The Plan must be approved by the NRC prior to PE being permitted to restart Peach Bottom. In such Plan, PE concluded that declining performance at Peach Bottom was a result of the following causes: (1) poor leadership by plant management; (2) failure to initiate timely licensed operator replacement training programs; (3) a station culture, which had its roots in fossil and pre-Three Mile Island opera-tions, that had not adapted to changing nuclear requirements; and (4) slowness on the part of corporate management to recog-43

nize the developing severity of these problems and take suffi-cient corrective action. At a meeting held on September 14, 1987, before the NRC Commissioners, PE summarized the contents of the Plan and the NRC staff provided critical com-ments based on its review as submitted, indicating, among other concerns, their disagreements with the Plan's emphasis on solutions to problems related to corporate management responsibility.

On September 28, 1987, PE submitted to the NRC Regional Administrator its responses to NRC Staff questions concerning the Plan. Calling certain responses "unclear and inconsistent",

others as "lacking sufficient detail" and still others as "ques-tionable", the NRC Regional Administrator, in a letter dated October 8, 1987, stated that the responses have "not addressed the fundamental concern regarding the past inability of PE to self-identify problems, and implement timely and effective corrective actions", and that "there is very little in your (Plan) which addresses concerns about the capabilities of corporate management to identify problems at the nuclear facilities promptly and independently of plant line management report-ing, to analyze and address such problems quickly, and to assess and evaluate the results of such actions". The letter further stated that the NRC staff is deferring further review of the Plan pending receipt of a plan revision "which addresses this fundamental concern".

On October 9, 1987, PE announced a major corporate reor-ganization of its entire nuclear operations and support ser-vices. PE has reconstituted its Nuclear Review Board to include membership of senior nuclear executives from outside PE, and to provide for a direct reporting relationship to the office of the Chief Executive and to the Board of Directors. The Nuclear Review Board will be responsible for reviewing and evaluating nuclear operations and management, early identification of potential problems and assurance of prompt corrective actions.

By letter dated October 15, 1987, the Governor of Mary-land submitted comments to the NRC Regional Administrator regarding the Plan, asserting various "shortcomings" including failure to "properly account for the role of corporate manage-ment in the problems leading to the shutdown" and failure to properly identify all tasks which should be addressed prior to restart and stating that the results of implementing the Plan should be evaluated prior to restart. By letter dated October 28, 1987, the Commonwealth of Pennsylvania submitted to the NRC Regional Administrator comments on the Plan, asserting among other things, that several Plan items should be imple-mented prior to, rather than after, restart, and indicating that most of the concerns raised by the NRC were also concerns of Pennsylvania. On November 20, 1987, the Commonwealth of Pennsylvania filed with the NRC a petition requesting a hear-ing before permitting Peach Bottom to resume operations which was denied by the NRC on January 13, 1988.

On November 25, 1987, PE submitted to the NRC a new restart plan entitled the Corporate Action Section of its Plan for Restart of Peach Bottom (Plan for Restart) detailing its nuclear reorganization announced October 9, 198Z This por-tion of the Plan for Restart is being reviewed by the NRC. The balance of the Plan for Restart must still be submitted by PE.

On December 23, 1987, the NRC issued a notice that its Staff proposed to determine that the requested Peach Bottom license amendment does not involve a "significant hazard consideration." The notice also provided for intervention and 44 an opportunity for a hearing with respect to the license amendment application. On January 22, 1988, the Common-wealth of Pennsylvania filed with the NRC a petition to inter-vene and requested a hearing in the license amendment proceeding. The petition (i) opposes any action by the NRC "authorizing restart of Peach Bottom before a full hearing is held on any license amendments, any organizational plans and any event or action leading to the March 31, 1987 shutdown order"; (ii) "challenges that proposed amendments as inade-quate to assure that the unsafe conditions at Peach Bottom have been and will remain eliminated"; (iii) opposes the NRC's proposed determination that the license amendments present no significant hazard considerations and (iv) states a "need to investigate corporate complicity in the failure of Peach Bot-tom's management." On February 8, 1988, PE filed its response opposing the petition.

PSE&G is providing assistance to PE in an effort to obtain authorization from the NRC to restart Peach Bottom 2 and 3.

However, as stated above, it cannot be determined when the NRC will grant such authorization.

At a press conference held on February 2, 1988, PE released to the public a letter which it had received on January 12, 1988 from INPO that is highly critical of PE, its Peach Bottom nu-clear operations and its corporate reorganization. At the press conference, several organization changes were also announced by PE, including the resignation of PE's President and Chief Operating Officer. As a result, the Commonwealth of Pennsyl-vania has renewed its request for an NRC hearing prior to restart.

It cannot be determined when PE will be permitted by the NRC to restart Peach Bottom 2 or 3. As a result of the outage at Peach Bottom, PSE&G will incur replacement energy costs relating to Peach Bottom amounting to approximately $5 mil-lion to $7 million per month, per unit.

Salem-Hope Creek Transmission Line Outage On March 1, 1987, a tanker collided with an electric transmis-sion tower in the Delaware River near Salem and Hope Creek.

The collision toppled the tower and dragged a part of the at-tached 500,000 volt transmission line into the river causing damage to several other towers. The cost of the restoration, which includes the damaged transmission line, is being shared by the owners (including PSE&G) of the Lower Delaware Val-ley Transmission System (LDV) in amounts proportionate to their respective percentages of ownership in the LDV system.

PSE&G's share of the cost is expected to be approximately $13 million. On March 4, 198 7, the LDV owners instituted a law-suit in the United States Dist1ict Court for the Eastern District of Pennsylvania against the tanker and its owners and operators seeking damages resulting from the collision. On March 17, 1987, the owners and operators of the tanker filed a Petition for Exoneration From and/or Limitation of Liability seeking to limit their liability for damages to the value of the tanker, approximately $3.5 million. On April 30, 1987, the LDV owners filed a Claim seeking dismissal of the Petition and approval of the Claim for damages in excess of $50 million.

other Related Matters On March 2, 1984 the NRC issued a report with respect to an inspection of Salem 1 in December 1983 and January 1984 for compliance with the NRC's fire protection requirements. The report indicates that certain areas are not in compliance with such requirements and that certain additional irlformation is required. In accordance with accepted NRC practices, PSE&G has submitted exemption requests with respect to certain of

such requirements and has supplied the additional information requested.

The NRC conducted a fire protection requirement audit of Salem 2 on September 14-18, 1987. The findings from this inspection indicate further exemption requests and modifica-tions will be necessary. PSE&G cannot determine what further action, if any, the NRC may take in this matter. PSE&G is also conducting an internal review of the NRC's fire protection requirements as they relate to Salem. The findings of such review combined with the recent inspection of Salem 2 could result in additional fire protection enhancements at Salem, the cost of which could be substantial.

Nuclear Insurance Coverages and Assessments PSE&G's insurance coverages and maximum retrospective assessments for its nuclear operations are as follows:

Type and Source of Coverages Public Liability:

American Nuclear Insurers Federal Government IA)

Property Damage:

Nuclear Mutual Limited (DJ Nuclear Electric Insurance Ltd. (DJ American Nuclear Insurers Replacement Power:

Nuclear Electric Insurance Ltd. (DI Maximum Retrospective Maximum Assessments for a Single Coverages Incident

!Millions of Dollars)

$ 160

$None 560 13.2IBI

$ 720(C)

$ 13.2

$ 500

$ 40.2 775 15.8 120 None

$1,395

$ 56.0

$ 3.S(EI

$ 16.9 (A) Retrospective premium program under the Price-Anderson Liability provi-sions 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.

(Bl Maximum assessment would be $26.5 million in the event of more than one incident in any year.

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

(DI Mutual insurance companies of which PSE&.G is a member. Subject to retrospective assessment with respect to loss at any nuclear generating station covered by such insurance.

(El Maximum weekly indemnity for 52 weeks which commences after the first 26 weeks of an outage. Also provides $1.75 million weekly for an additional 52 weeks.

The Atomic Energy Act provision [the Price-Anderson Act) in Notes [A), [BJ and (CJ above expired on August 1, 1987. However, the limitation of liability and contribution provisions continue in effect for presently licensed plants, including all plants in which PSE&G has an interest, until a new bill becomes effec-tive. On July 30, 1987, by a vote of 396-17, the House of Repre-sentatives approved a bill which would increase the limit of liability to $7 billion. Under the bill, after exhaustion of pri-vate insurance, all nuclear plants could be assessed up to $63 million each, payable at $10 million per year, per reactor and per incident. A similar bill was approved by the Senate Energy and Natural Resources Committee. Another bill approved by the Senate Environment and Public Works Nuclear Regulation Subcommittee also would establish a liability limit of approxi-mately $7 billion. A vote by the full Senate is still pending.

PSE&G is unable to predict the eventual outcome of this legis-lation. In 1984, in a case to which PSE&G was not a party, the United States Supreme Court held that the Atomic Energy Act, the Price-Anderson limitation of liability provisions thereunder and the extensive regulation of nuclear safety by the NRC do not pre-empt claims under State law for personal, property, or punitive damages related to radiation hazards.

Construction and Fuel Supplies Enterprise's principal subsidiary, PSE&G, has substantial com-mitments as part of its construction program. Construction expenditures of $2.8 billion, including approximately $173 million of allowance for funds used during construction

[AFDC), are expected to be incurred during the years 1988 through 1992. In addition, PSE&G does not anticipate any difficulties in obtaining sufficient sources of fuel for electric generation and adequate gas supplies.

Gas and Oil Exploration Plant Write-Down As described in Note 1, the after-tax loss of $58.8 million is subject to recovery in PSE&G's next gas base rate case.

Environmental Controls The Comprehensive Environmental Response, Compensation and Liability Act of 1980 and certain similar State statutes authorize various governmental authorities to seek court orders compelling responsible parties to take clean-up action at disposal sites determined to present an imminent and sub-stantial danger to the public and to the environment because of an actual or threatened release of hazardous substances.

Because of the nature of PSE&G's business, various by-products and substances are produced or handled which are classified as hazardous under these laws. PSE&G generally provides for the disposal of such substances through licensed independent contractors, but these statutory provisions generally impose potential joint and several responsibility on the generators of the wastes for clean-up costs without regard to fault. PSE&G has been notified with respect to a number of such sites, and the clean-up of hazardous wastes is receiving increasing atten-tion from the governmental agencies involved. This trend is expected to continue. PSE&G cannot determine, at this time, the costs which may result from these matters, but such costs could be substantial.

lO I Capital Lease Obligations The Consolidated Balance Sheets include assets and related obligations applicable to capital leases. The total amortization of the leased assets and interest on the lease obligations equals the net minimum lease payments included in rent expense for capital leases.

Capital leases of PSE&G relate primarily to its corporate headquarters and computer equipment. Certain of the leases contain renewal and purchase options and also contain escala-tion clauses.

Enterprise and its other subsidiaries do not presently have any capitalized leases.

Utility plant includes the following amounts for capital leases at December 31:

(Thousands of Dollars) 1987 1986 Common Plant

$62,619

$65,872 Less Accumulated Amortization 6,210 7,535 Net Assets under Capital Leases

$56,409

$58,337 45

Future minimum lease payments for noncancelable capital For the Year Ended December 31, 1986 and operating leases at December 31, 1987 are:

(Thousands of Dollars)

Electric Gas Other(AJ Total Capital Operating Operating Revenues

$3,156,010

$1,324,690

$ 77,531

$ 4,558,231 (Thousands of Dollars J Leases Leases Eliminations (Inter-1988

$ 13,863

$ 4,501 segment Revenues)

(59,815)

(59,815) 1989 13,114 4,382 Total Operating 1990 13,110 3,863 1991 13,046 3,059 Revenues 3,156,010 1,324,690 17,716 4,498,416 1992 13,014 1,052 Depreciation and Later Years 290,684 2,809 Amortization 176,489 58,721 171,392 406,602 Minimum lease payments 356,831

$19,666 Eliminations (Note 6)

(134,452)

Less: Amount representing estimated executory costs, Total Depreciation together with any profit thereon, included in and Amortization 176,489 58,721 36,940 272,150 minimum lease payments 177,417 Operating Income before Income Net minimum lease payments 179,414 Less Amount representing interest 123,005 Taxes 845,992 95,854 (125,990) 815,856 Present value of net minimum lease payments (Al

$ 56,409 Eliminations (Note 6) 134,452 134,452 Total Operating A. Reflected in the Consolidated Balance Sheets in Capital Lease Obligations of Income before

$55,374,000 and in Long-Term Debt and Capital Lease Obligations due within Income Taxes 845,992 95,854 8,462 950,308 one year of $1,035,000.

Capital Expenditures 893,788 125,764 21,794 1,041,346 The following schedule shows the composition of rent expense December 31, included in Operating Expenses:

Net Utility Plant 7,871,636 872,801 8,744,437 (Thousands of Dollars I Gas and Oil Explora-tion Plant 159,040 159,040 For the Years Ended December 31, 1987 1986 1985 Other Corporate Interest on Capital Lease Obligations

$ 6,658

$ 6,966

$ 7,344 Assets 923,876 529,485 220,984 1,674,345 Amortization of Utility Plant under Capital Total Assets

$8,795,512

$1,402,286

$380,024

$10,577,822 Leases 1,927 2,645 3,448 Net minimum lease payments relating to For the Year Ended December 31, 1985 Capital Leases 8,585 9,611 10,792 (Thousands of Other Lease payments 18,405 14,172 15,569 Dollars)

Electric Gas Other(AJ Total Total Rent Expense

$26,990

$23,783

$26,361 Operating Revenues

$3,000,,564

$1,408,490

$ 98,009

$ 4,507,063 Eliminations (Inter-segment Revenues)

(78,722)

(78,722) lll Financial Information by Business Segments Total Operating Revenues 3,000,564 1,408,490 19,287 4,428,341 Depreciation and Information related to the segments of Enterprise's business is Amortization 168,108 55,004 45,067 268,179 detailed below:

Operating Income before Income For the Year Ended December 31, 1987 Taxes 779,293 117,220 16,489 913,002 (Thousands of Capital Expenditures l,ll6,040 104,049 47,418 1,267,507 December 31, Dollars)

Electric Gas Other(AJ Total Operating Revenues

$2,959,549

$1,219,955

$ 77,679

$ 4,257,183 Net Utility Plant 7,536,326 803,262 8,339,588 Gas and Oil Explora-Eliminations (Inter-tion Plant 308,351 308,351 segment Revenues)

(46,128)

Other Corporate Total Operating Assets 1,123,051 439,586 23,714 1,586,351 Revenues 2,959,549 1,219,955 31,551 4,211,055 Total Assets

$8,659,377

$1,242,848

$ 332,065

$10,234,290 Depreciation and A. Other category primarily includes amounts that are derived from investments Amortization 292,164 63,008 24,937 380,109 and gas and oil exploration activities.

Operating Income before Income Taxes 977,467 115,622 21,779 1,114,868 Capital Expenditures 530,445 128,196 15,857 674,498 December 31, Net Utility Plant 8,029,567 940,537 8,970,104 Gas and Oil Explora-tion Plant 150,425 150,425 Other Corporate Assets 911,186 436,909 388,927 1,737,022 Total Assets

$8,940,753

$1,377,446

$ 539,352

$10,857,551 46

12 1 Jointly-Owned Facllltles -

Utlllty Plant Enterprise's subsidiary, PSE&G, has ownership interests and is responsible for providing its share of the necessary financing for the following jointly-owned facilities.

(Thousands of Dollars)

Plant Coal Generating Conemaugh Keystone Nuclear Generating Peach Bottom Salem Hope Creek Nuclear Support Facilities Pumped Storage Generating Yards Creek Transmission Facilities Merrill Creek Reservoir Linden Synthetic Natural Gas 13 1 Selected Quarterly Data (Unaudited)

The information shown below in the opinion of Enterprise includes all adjustments, consisting only of normal recurring accruals, necessary to a fair presentation of such amounts. Due Calendar Quarter Ended

March31, (Thousands where applicable) 1987 1986 1987 Operating Revenues Operating Income Net Income Earnings Per Share of Common Stock Average Shares of Common Stock Outstanding

$1,233,508

$ 209,007

$ 157,459 0.78 202,429 Reflects 3-for-2 common stock split effective July I, 198Z

$1,314,667

$931,024

$ 186,132

$207,173

$ 161,724

$126,271 0.82 0.62 197,631 203,340 All amounts reflect the share of jointly-owned projects and the corresponding direct expenses are included in Consoli-dated Statements of Income as an operating expense.

Ownership Plant Accumulated Plant Under Interest In Service Depreciation Construction 22.50%

84,222

$ 24,392

$ 1,376 22.84%

75,728 22,649 4,584 42.49%

526,000 194,381 46,467 42.59%

818,787 236,972 19,151 95.00%

3,971,805 109,183 13,657 Various 58,457 7,371 4,312 50.00%

18,978 5,558 1,137 Various 87,875 16,806 16.19%

31,676 90.00%

66,760 57,504 to the seasonal nature of the utility business, quarterly amounts vary significantly during the year.

June30, September 30, December 31, 1986 1987 1986 1987 1986

$1,007,304 $1,004,861

$1,057,678

$1,041,662 $1,118,767

$ 155,142 $ 242,473

$ 192,891

$ 163,646 $ 143,119

$ 133,016

$ 159,296 $ 174,888 77,425 $ (91,165) 0.67 $

0.78 0.87 0.38 $

(0.45) 199,192 204,336 200,472 205,348 201,491 47

CONSOLIDATED FINANCIAL STATISTICS (Thousands of Dollars where applicable) 1987 1986 Condensed Consolidated Statements of Income (A)

Amount Amount Operating Revenues Electric

$ 2,959,549 70

$ 3,156,010 70 Gas 1,219,955 29 1,324,690 30 Other 31,551 1

17,716 Total Operating Revenues 4,211,055 100 4,498,416 100 Operating Expenses Operation Fuel for Electric Generation and Interchanged Power-net 555,405 13 1,033,371 23 Gas Purchased and Materials for Gas Produced 614,861 15 692,224 15 Other 634,494 15 607,301 14 Maintenance 302,362 7

254,256 6

Depreciation and Amortization 380,109 9

272,150 6

Amortization of Property Abandonments and Write-Down 22,526 1

71,232 Taxes Federal Income Taxes 292,169 7

270,783 6

New Jersey Gross Receipts Taxes 522,870 12 563,518 13 Other 63,960 1

56,297 1

Total Operating Expenses 3,388,756 80 3,821,132 85 Total Operating Income 822,299 20 677,284 15 Allowance for Funds Used During Construction (Debt and Equity) 52,666 1

241,317 5

Other Income -

net 6,031 10,840 Application of SFAS 90 Disallowed Plant Costs and Abandonments -

net 27,266 (295,244)

(6)

Related Income Taxes (12,255) 111,418 2

Interest Charges (336,793)

(8)

(315,780)

(7)

Preferred Stock Dividend Requirements (38,763)

(1)

(51,372)

( 1)

Net Income 520,451 12 378,463 8

I' Shares of Common Stock Outstanding (Thousands)

End of Year 205,350 202,324 Average for Year 203,873 199,709 Earnings per average share of Common Stock

$ 2.55

$ 1.90 Dividends Paid per Share

$ 1.99

$ 1.95 Payout Ratio 78%

103%

Rate of Return on Average Common Equity 13.88%

10.56%

Ratio of Earnings to Fixed Charges Before Income Taxes 3.03 2.38 Book Value per Common Share

$18.54

$17.92 Utility Plant

$11,998,816

$11,437,196 Accumulated Depreciation and Amortization of Utility Plant

$ 3,028,712

$ 2,692,759 Total Assets

$10,857,551

$10,577,822 Consolidated Capitalization (A)

Mortgage Bonds

$ 3,082,073 40

$ 3,100,210 41 Debenture Bonds 204,966 3

210,910 3

Other Long-Term Debt 25,000 Total Long-Term Debt 3,287,039 43 3,336,120 44 Other Long-Term Obligations 55,374 1

56,409 Preferred Stock with Mandatory Redemption 30,000 65,000 1

Preferred Stock without Mandatory Redemption 429,994 6

554,994 7

Common Stock 2,710,343 36 2,632,662 34 Retained Earnings 1,096,933 14 993,836 13 Total Common Equity 3,807,276 50 3,626,498 47 Total Capitalization

$ 7,609,683 100

$ 7,639,021 100 All years reflect the application of SFAS 90, the 3-for-2 common stock split and the consolidation of wholly-owned subsidiaries.

A. Sec Management's Discussion and Analysis of Financial Condition and Results of Operations, Organization and Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements.

48

1985 1984 1983 1982 1977 Amount Amount Amount Amount Amount

$ 3,000,564 68

$2,816,241 67

$2,570,457 65

$2,543,191 65

$1,470,118 72 1,408,490 32 1,379,883 33 1,392,475 35 1,330,785 34 562,677 28 19,287 11,248 16,316 20,191 1

4,489 4,428,341 100 4,207,372 100 3,979,248 100 3,894,167 100 2,037,284 100 965,966 22 872,805 21 868,977 22 959,382 25 538,916 27 757,976 17 758,627 18 815,996 20 774,634 20 255,297 13 567,698 13 545,737 13 518,209 13 468,001 12 252,443 12 291,940 7

270,359 6

239,017 6

220,725 6

124,946 6

268,179 6

246,715 6

228,264 6

220,465 6

150,298 7

55,263 1

58,975 49,040 1

43,345 1

1,185 273,119 6

263,270 6

197,833 5

185,588 4

121,682 6

557,270 13 529,654 13 513,760 13 514,266 13 269,973 13 53,161 1

51,930 1

45,696 1

41,325 1

24,355 1

3,790,572 86 3,598,072 85 3,476,792 87 3,427,731 88 1,739,095 85 637,769 14 609,300 15 502,456 13 466,436 12 298,189 15 195,871 4

158, 792 4

128,592 3

91,427 2

49,540 2

458 2,674 4,108 5,616 234 (109,717)

(2)

(5,016) 32,499 34,060 229 24,799 2,172 (13,333)

(13,968)

(289,546)

(6)

[280,737)

(7)

(245,377)

(6)

(220,652)

(6)

(133,721)

(7)

(60,002)

( 1)

(60,221)

(2)

(58,234)

(2)

(53,865)

( 1)

(45,065)

(2)

I $

399,632 9

$ 426,964 10

$ 350,711 9

$ 309,054 8

$ 169,406 8

197,548 168,845 154,287 142,267 89,709 183,516 163,370 146,201 133,850 88,865

$ 2.18

$ 2.61

$ 2.40

$ 2.31

$ 1.91

$ 1.87

$ 1.80

$ 1.75

$ 1.69

$ 1.28 86%

69%

73%

67%

12.27%

15.19%

14.03%

13.88%

10.99%

2.67 2.81 2.65 2.64 2.30

$17.87

$17.64

$17.07

$16.58

$17.59

$10,842,182

$9,870,429

$9,017,951

$8,165,130

$5,654,094

$ 2,502,594

$2,320,140

$2,214,135

$2,046,372

$1,314,913

$10,234,290

$9,523,322

$8,472,538

$7,780,773

$5,141,631

$ 2,945,723 40

$2,877,518 42

$2,452,954 40

$2,341,142 41

$1,647,445 40 218,918 3

225,825 3

231,945 4

238,640 4

330,812 8

4,500 2,640 3,164,641 43 3,107,843 45 2,684,899 44 2,579,782 45 1,980,897 48 58,337 122,947 2

119,815 2

118,419 2

65,000 137,750 2

139,500 2

111,250 2

35,000 554,994 7

554,994 8

554,994 9

554,994 10 554,994 13 2,535,687 34 2,032,665 29 1,819,082 30 1,637,621 28 946,374 23 1,013,285 14 963,573 14 831,815 13 737,294 13 649,677 15 3,548,972 48 2,996,238 43 2,650,897 43 2,374,915 41 1,596,051 38

$ 7,391,944 100

$6,919, 772 100

$6,150,105 100

$5,739,360 100

$4,166,942 100 49

OPERATING STATISTICS PUBLIC SERVICE ELECTRIC AND GAS COMPANY

% Annual Increase (D_ecrease)--'--1987 compared with (Thousands of Dollars where applicable) 1987 1986 1986 1977 Electric Revenues from Sales of Electricity Residential 940,915 971,236 (3.12) 6.69 Commercial 1,273,819 1,333,144 (4.45) 9.14 Industrial 672,104 782,008 (14.05) 4.96 Public Street Lighting 46,248 43,726 5.77 5.29 Total Revenues from Sales to Customers 2,933,086 3,130,114 (6.29) 7.19 Interdepartmental 1,896 1,927 (1.61)

(.10)

Total Revenues from Sales of Electricity 2,934,982 3,132,041 (6.29) 7.18 Other Electric Revenues 24,567 23,969 2.49 23.69 Total Operating Reyenues

$ 2,959,549

$ 3,156,010 (6.22) 7.25 Sales of Electricity-megawatthours Residential 9,299,490 8,726,769 6.56 1.81 Commercial 14,990,376 14,118,028 6.18 4.40 Industrial 10,119,614 10,134,327

(.15)

(.49)

Public Street Lighting 296,377 295,639

.25 1.35 Total Sales to Customers 34,705,857 33,274,763 4.30 2.02 Interdepartmental 23,709 23,790

(.34)

(4.69)

Total Sales of Electricity 34,729,566 33,298,553 4.30 2.02 Megawatthours Produced, Purchased and Interchanged-net 37,531,~27 36,033,414 4.16 2.01 Load Factor 52.4%

53.2%

Capacity Factor 34.1%

33.0%

Heat Rate -

Btu of fuel per net kwh generated 10,634 10,716

(.77)

(.04)

Net Installed Generating Capacity at December 31 -

megawatts 10,032 10,032

.82 Net Peak Load-megawatts (60-minute integrated) 8,173 7,735 5.66 1.71 Temperature Humidity Index Hours.

16,441 14,934 10.09 1.00 Average Annual Use per Residential Customer -

kilowatthours 5,939 5,650 5.12

.95 Meters in Service at December 31 -

Thousands 1,838 1,812 1.43

.76

\\

Gas Revenues from Sales of Gas Residential 698,518 754,785 (7.45) 7.33 Commercial 360,834 390,811 (7.67) 10.10 Industrial 145,664 171,860 (15.24) 6.38 Street Lighting 363 355 2.25 7.39 Total Revenues from Sales to Customers 1,205,379 1,317,811 (8.53) 7.95 Interdepartmental 3;837 2,849 34.68 20.96 Total Revenues from Sales of Gas 1,209,216 1,320,660 (8.44) 7.97 Other Gas Revenues 10,739 4,030 166.48 24.52 Total Operating Revenues

$ 1,219,955

$ 1,324,690 (7.91) 8.05 Sales of Gas -

kilotherms Residential 1,118,609 1,065,630 4.97 1.33 Commercial 678,281 644,450 5.25 4.60 Industrial 373,947 413,072 (9.47) 1.28 Street Lighting 655 680 (3.68) 5.71 Total Sales to Customers 2,171,492 2,123,832 2.24 2.22 Interdepartmental 8,972 5,498 63.19 15.83 Total Sales of Gas 2,180,464 2,129,330 2.40 2.25 Gas Produced and Purchased -

kilotherms 2,260,902 2,212,175 2.20 2.24 Effective Daily Capacity at December 31 -

kilotherms 21,100 20,899

.96 1.09 Maximum 24-hour Gas Sendout -

kilotherms 16,517 14,871 11.07 1.66 Heating Degree Days 4,717 4,699

.38

(.88)

Average Annual Use per Residential Customer -

therms 905 876 3.31

.49 Meters in Service at December 31 -

Thousands 1,472 1,448 1.66

.87 50

1985 1984 1983 1982 1977 918,911 883,652 829,967 791,279 492,473 1,236,027 1,111,175 984,499 981,795 531,118 774,963 749,725 686,880 716,662 414,058 43,786 42,164 38,672 37,809 27,622 2,973,687 2,786, 716 2,540,018 2,527,545 1,465,271 1,877 1,810 1,863 1,709 1,916 2,975,564 2,788,526 2,541,881 2,529,254 1,467,187 25,000 27,715 28,576 13,937 2,931

$ 3,000,564

$ 2,816,241

$ 2,570,457

$ 2,543,191

$ 1,470,118 8,390,658 8,373,471 8,402,397 7,686,548 7,769,629 13,313,639 12,452,020 11,753,667 l l, 114,655 9,747,908 10,290,711 10,444,412 10,283,784 10,017,613 10,627,734 300,612 301, 702 302,053 301,603 259,277 32,295,620 31,571,605 30,741,901 29,120,419 28,404,548 24,888 25,796 27,800 25,154 38,331 32,320,508 31,597,401 30,769,701 29,145,573 28,442,879 34,869,192 34,178,862 33,391,011 31,563,231 30,771,719 51.6%

52.4%

52.6%

51.2%

50.9%

31.3%

32.6%

31.6%

34.7%

32.7%

10,692 10,616 10,717 10,677 10,677 9,007 8,999 8,999 8,995 9,247 7,721 7,422 7,244 7,042 6,895 15,720 16,677 17,262 12, 155 14,883 5,494 5,543 5,602 5,156 5,403 1,788 1,769 1,757 1,746 1,704 751,339 717,286 746,200 716,308 344,444 407,073 393, 197 396,159 371,027 137,811 242,767 263,080 246,408 241,437 78,474 372 369 358 350 178 1,401,551 1,373,932 1,389,125 1,329,122 560,907 1,321 1,682 1,011 1,068 572 1,402,872 1,375,614 1,390,136 1,330,190 561,479 5,618 4,269 2,339 595 1,198

$ 1,408,490

$ 1,379,883

$ 1,392,475

$ 1,330,785 562,677 1,019,850 1,019,025 995,686 994,647 980,570 634,059 628,855 596,868 581,739 432,810 468,489 495,719 460,601 465,835 329,211 736 339 327 331 376 2,123,134 2,143,938 2,053,482 2,042,552 1,742,967 2,540 3,377 1,857 2,090 2,064 2,125,674 2,147,315 2,055,339 2,044,642 1,745,031 2,218,818 2,249,352 2,151,417 2,148,839 1,811,019 19,990 19,856 19,129 19,139 18,933 17,994 14,927 15,612 16,201 14,006 4,764 4,743 4,677 4,820 5,155 853 863 850 853 862 1,422 1,404 1,392 1,384 1,350 51

Officers PUBLIC SERVICE ELECTRIC AND GAS COMPANY E. James Ferland Chairman of the Board, President and Chief Executive Officer Everett L. Morris Senior Executive Vice President Frederick W. Schneider Executive Vice President-Electric Lawrence R. Codey Senior Vice President - Gas Fredrick R. Desanti Senior Vice President-Customer Operations Robert W. Lockwood Senior Vice President - External Affairs Stephen A. Mallard Senior Vice President - Planning and Research Corbin A. McNeill, Jr.

Senior Vice President - Nuclear R. Edwin Selover Senior Vice President and General Counsel Donald A. Anderson Vice President - Information Systems Robert J. Dougherty, Jr.

Vice President - Marketing Curtis W. Grevenitz Vice President - Gas Operations Pierre R.H. Landrieu Vice President - Engineering and Construction John H. Maddocks Vice President-Public Affairs Charles E. Maginn, Jr.

Vice President - Human Resources Winthrop E. Mange, Jr.

Vice President - Corporate Services Steven E. Miltenberger Vice President - Nuclear Operations Parker C. Peterman Vice President and Comptroller Francis J. Riepl Vice President and Treasurer Louis L. Rizzi Vice President - Customer Services William Saller Vice President - Governmental Affairs Robert S. Smith Vice President and Secretary Robert F. Steinke Vice President-Fuel Supply Rudolph D. Stys Vice President-Transmission and Distribution Richard A. Uderitz Vice President - Production 52 OFFICERS AND DIRECTORS PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED E. James Ferland Chairman of the Board, President and Chief Executive Officer Everett L. Morris Vice President Frederick W. Schneider Vice President Parker C. Peterman Comptroller Francis J. Riepl Treasurer R. Edwin Selover General Counsel Robert S. Smith Secretary Directors T.J. Dermot Dunphy President, Chief Executive Officer and director, Sealed Air Corporation (manufactures protective packaging products and systems), Saddle Brook, New jersey.

Member of Diversified Activities Committee, Finance Committee and Organization and Compensation Committee.

Robert R. Ferguson, Jr.

President, Chief Executive Officer and director, First Fidelity Bancorporation and Chairman of the Board and director, First Fidelity Bank, National Association, both of Newark, New jersey.

Member of Diversified Activities Committee, Organization and Compensation Committee and Executive Committee.

E. James Ferland Chairman of the Board, President and Chief Executive Officer of the Corporation.

Chairman of Executive Committee.

Shirley A. Jackson Theoretical Physicist, AT&. T Bell Laboratories, Murray Hill, New jersey.

Member of Audit Committee, Diversified Activ-ities 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 diagnostic products and services), Nutley, New jersey.

Member of Audit Committee, 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.

Chairman of Diversified Activities Committee and member of Finance Committee and Nominating Committee.

Everett L. Morris Vice President of the Corporation.

Chairman of Finance Committee and member of Executive Committee.

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

Chairman of Nominating Committee and member of Audit Committee and Diversified Activities Committee.

James C. Pitney Partner of Pitney, Hardin, Kipp &. Szuch (law firm), Newark and Morristown, New jersey.

Chairman of Audit Committee and member of Organization and Compensation Committee and Nominating Committee.

Robert I. Smith Retired Chairman of the Board of Public Service Electric and Gas Company.

Member of Finance Committee and Nominating Committee.

Harold W. Soon Retired Chairman of the Board of the Corporation.

Member of Audit Committee, Diversified Activities Committee and 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 Committe and Finance Committee.

Josh S. Weston Chairman of the Board, Chief Executive Officer and director, Automatic Data Processing, Inc.,

Roseland, New jersey.

Member of Audit Committee, Diversified Activities Committee and Organization and Compensation Committee.

1987: TRANSITION BOARD OF DIRECTORS-Enterprise and PSE&.G Kenneth C. Rogers, a director since 1974, resigned on August 7 to accept an appointment by President Reagan as a member of the Nuclear Regulatory Commission. n James R. Cowan, M.D., a director since 1981, retired on April 21 in accordance with the retirement policy for directors. n Dr. Shirley A. Jackson, a theoretical physicist at AT&. T Bell Laboratories, was elected a director effective August 1.

OFFICERS-PSE&.G Under the reorganization of PSE&G effective January 1, 1988, the following officers were named heads of business units: n Everett L.

Morris, senior executive vice president, finance and diversified businesses business unit; Freder-ick W. Schneider, executive vice president-elec-tric, electric business unit; Lawrence R. Codey, senior vice president-gas, gas business unit; Fredrick R. DeSanti, senior vice president-cus-tomer operations, customer operations business unit; R. Edwin Selover, senior vice president and general counsel, legal business unit; Robert W.

Lockwood, senior vice president-external affairs, external affairs business unit. n The following were elected officers of PSE&.G effective January 1, 1988: Curtis W. Grevenitz, vice president-gas operations, and Robert J. Dougherty Jr., vice president-marketing. u In addition, Louis L.

Rizzi was redesignated vice president-customer operations. *

Charles E. Maginn Jr., vice president-human resources, announced his retirement, effective February 16, 1988.

CORPORATE AND STOCK INFORMATION Stockholder Information -

Toll Free New Jersey residents 1-(800) 242-0813 Outside New Jersey 1-(800) 526-8050 Security Analysts and Institutional Investors Manager - Investor Relations (201) 430-6564 Dividend Reinvestment Plan Enterprise has a Dividend Reinvestment and Stock Purchase Plan under which all common and PSE&G preferred stock-holders may reinvest dividends and/or make direct cash invest-ments to obtain Enterprise common stock through purchases in the open market. All brokerage and other fees are absorbed by Enterprise. To participate call the toll free number to obtain an authorization card.

Stock Trading Symbol: PEG Annual Meeting Please note that the Annual Meeting of Stockholders of Public Service Enterprise Group Incorporated will be held at the Newark Symphony Hall, 1020 Broad Street, Newark, N.J. on Tuesday, April 19, 1988 at 2:00 PM. A summary of the meeting will be sent to all stockholders of record at a later date.

Additional Reports Available -

Form 10-K Stockholders or other interested persons wishing to obtain a copy of Enterprise's or PSE&G's 1987 Annual Report to the Securities and Exchange Commission, filed on Form 10-K,

may obtain one without charge by writing to the Manager-Investor Relations, Public Service Electric and Gas Company,

,P.O. Box 570, T6B, Newark, N.J. 07101 (telephone (201)

'430-6503 ). The copy so provided will be without exhibits.

Exhibits may be purchased for a specified fee.

PSE&G TERRITORY Newark Trenton

.Camden Financial and Statistical Review A comprehensive statistical supplement to this report, con-taining financial and operating data will be available this Spring. If you wish to receive a copy, please write to the Man-ager - Investor Relations, Public Service Electric and Gas Company, P.O. Box 570, T6B, Newark, N.J. 07101 (telephone (201) 430-6503 ).

Transfer Agents All Stocks, Morgan Shareholder Services Trust Company 30 West Broadway, New York, N.Y. 10015 Stockholder Services, Public Service Enterprise Group Incorporated 80 Park Plaza, P.O. Box 1171 Newark, N.J. 07101-1171 Registrars All Stocks, First Fidelity Bank, N.A., New Jersey 765 Broad Street, Newark, N.J. 07101 Morgan Shareholder Services Trust Company 30 West Broadway, New York, N.Y. 10015 Stock Exchange Listings Common:

New York Stock Exchange Philadelphia Stock Exchange London Stock Exchange Preferred of PSE&G:

New York Stock Exchange Common Stock -

Market Price 1987 First Quarter Second Quarter Third Quarter Fourth Quarter Reflects 3-for-2 common stock split effective July 1, 198Z High Low

$30.58

$26.67

$27.25

$26.75

$25.83

$23.42

$23.50

$20.00

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ML18093A740

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SUMMARY

SUMMARY

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