ML18094B390
| ML18094B390 | |
| Person / Time | |
|---|---|
| Site: | Salem, Hope Creek  |
| Issue date: | 12/31/1989 |
| From: | Ferland E PUBLIC SERVICE ENTERPRISE GROUP |
| To: | |
| Shared Package | |
| ML18094B389 | List: |
| References | |
| NUDOCS 9004160154 | |
| Download: ML18094B390 (60) | |
Text
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-NOTICE-
Financial Highlights (Thousands of Dollars where applicable) 1989 1988 % Increase Total Operating Revenues $ 4,804,852 $ 4,394,692 9 Total Operating Expenses $ 3,865,042 $ 3,552,688 9 Net Income $ 542,137 $ 528,586 3 Common Stock Shares Outstanding - Average (Thousands) 206,879 205,350 I Shares Outstanding - Year-end (Thousands) 211,100 205,350 3 Earnings Per Average Share $ 2.62 $ 2.57 2 Dividends Paid Per Share $ 2.05 $ 2.01 2 Book Value Per Share - Year-end $19.85 $19.11 4 Market Price Per Share - Year-end $29. 25 $24.50 19 Ratio of Earnings to Fixed Charges 2.66 2 .81 Ratio of Earnings to Fixed Charges - PSE&G 3.21 3.24 Gross Additions to Utility Plant $ 674,214 $ 564 ,276 19 Total Utility Plant $12,960,093 $12,466,690 4 See Notes to Consolidated Financial Statements.
Cover Contents Earnings Per Share Annual Dividend Payout of Common Stock Increased 14 Consecutive Years In Dollars
- In Dollars
- 85 86 87 88 From the Waste Reduction Letter to Shareholders 2 1.87 1.95 1.99 2.01 Control panel at the Hope The 90 's Creek Nuclear Generating A Strateg ic Vision 5 Station, operator Joe Devine Review of Operations 20 manipulates remote devices that Financial Statements 25 safely reduce the amount of Di rectors and Officers 56 low-level nuclear dry waste to Shareholder Information 57 one-seventh of its original volume for storage.
- adjusted to reflect 3 for 2 common stock *adjusted to reflect 3 for 2 commo n stock split effective July I, 1987 split effective July I, 1987
Dear Shareowner his year's report focuses on your company's out- nuclear operations. We are aggressively pursuing pro-look for the future . We look toward the coming grams designed to bring Salem and Hope Creek stations decade and the new century beyond with the up to the highest standards of nuclear performance .
knowledge that Public Service Enterprise Group is undergoing a period of fundamental change. Gas Sendout Record Set We approach this new era with confidence that Enterprise PSE&G met the challenge of the coldest December in 70 has the financial strength, the structure, and most impor- years through the well-coordinated and dedicated efforts of tantly, the people, with which to forge a successful future. employees. We set a new gas sendout record of 1.8 billion The excellent financial and operational results produced cubic feet on December 22 and service personnel re-by our employees during the past year provide solid evi- sponded admirably to an extraordinary number of heating dence that our confidence is fully justified. service calls.
Consolidated earnings reached record levels in 1989 A PSE&G team took a national leadership position to while Public Service Electric and Gas Company's develop and gain Federal Energy Regulatory Commi ssion (PSE&G) customers enjoyed the second consecutive year (FERC) approval of a more than $1 billion "take-or-pay" without increases in base rates. The growing ability of settlement involving Transcontinental Gas Pipeline Corpo-PSE&G employees to respond innovatively to the needs of ration, our largest gas supplier. Settlement of thi s long-customers is reflected in measurements that indicate cus- standing and complex issue saved PSE&G's gas customers tomer satisfaction is at an all-time high. more than $30 million in 1989 and should improve our gas business's competitive position in New Jersey. We also Financial Performance continued our aggressive purchase of gas on the spot mar-Enterprise produced record earnings during the year of ket , which saved customers approximately $48 million
$542. l million , or $2.62 per share of common stock, an in 1989.
increase of 5 cents per share over 1988. Total revenues increased to $4.8 billion . Corporate Citizenship Cited These results were achieved despite the $31.8 million In another notable achievement during the year, the com-impact on earnings in 1989 that resulted from the shutdown mitment of our employees to good corporate citizenship of the two units at Peach Bottom Atomic Power Station. gained national recognition and earned PSE&G a Presi-PSE&G owns 42.49% of the Peach Bottom station, which dential Citation. A survey conducted during the year indi-is operated by Philadelphia Electric Company. cated a record level of volunteer service among employees.
Enterprise's non-utility businesses increased their con- These activities clearly demonstrate our concern for the tribution to overall earnings and are expected to meet their economic and social well-being of our state and the com-goal of providing 10% of net income by the end of 1991. munities in which we live and work.
We also refined our corporate structure with the creation of Enterprise Diversified Holdings Incorporated (Hold- Evolution and Transition ings) . Holdings, in mid-year, became the parent company A number of regulatory, legislative and competitive issues for Enterprise's non-utility businesses. The restructuring are transforming the electric and gas industry in our state consolidates non-utility operations and provides a greater and our nation . This transformation will continue as we distinction between utility and non-utility busi nesses. move toward the 21st century.
Enterprise increased the dividend it pays out for the 14th There are many factors involved in altering institutional consecutive year. relationships and rewriting the rules under which we oper-PSE&G 's electric sales increased 2.2% compared to ate. These include political and economic developments in 1988. December's record-sett ing cold weather was a major New Jersey, the Northeast, and on the national scene; the factor in the 8.8 % increase in gas sales. strong concern for the environment; and the general trend toward reliance on market forces and away from regulation.
Salem, Hope Creek Perform Well PSE&G's Salem and Hope Creek nuclear generating units Rapid Change and More Options operated well during the year. Salem and Hope Creek pro- This already rapid tempo of change is likely to quicken in duced a combined capacity factor of 72%, well above the the years ahead.
industry average of 63 %. Despite this achievement , we Continued deregulation of the bulk power industry will remain committed to the need for further improvements in stimulate competition in the business of generating and 2
selling electricity. Electric customers will have an increas- compromise with environmental compliance and environ-ing array of options including cogeneration, self-generation mental quality.
and conservation to meet their energy requirements. Our environmental focus will encompass not only clean The rules and pricing arrangements under which inde- air and clean water standards, but the growing public con-pendent and non-utility suppliers of electricity gain access cern about the possible health effects of electromagnetic to the high-voltage transmission network will be a major field (EMF) exposure. We will continue to help fund EMF issue for the 1990s. research projects and will support the establishment of Although most states, including New Jersey, continue to reasonable EMF standards for transmission lines. While regulate the sale of natural gas as they have for decades, we believe present research indicates there is no cause for federal regulations covering the production and transpor- alarm about EMF exposure, we wi ll work to ensure that tation of gas have been fundamentally revised in recent our customers and employees are provided with timely years. As a result, gas producers, brokers, pipeline compa- and accurate information on this emerging issue.
nies, and local distribution utilities now vigorously com- During 1989, we accelerated development of an environ-pete for customers, supplies of gas and pipeline capacity. mental action plan to investigate and, as necessary, clean At PSE&G , we have seen these trends translated into up the locations of former gas manufacturing facilities.
the reality of a marketplace in which 57 industrial electric Many of these facilities were owned by predecessor customers have opted for cogeneration arrangements and companies to PSE&G and their operation dates back to the 151 former large-scale gas customers now purchase gas 1800s. We have identified 38 sites that warrant investiga-directly from producers and arrange for its transportation. tion for possible contamination.
Meeting New Jersey's Needs A Framework for Success New Jersey is the nation's most densely populated state and There is an ancient aphorism to the effect that "if you don't this presents unique challenges to those involved in meet- know where you're goi ng , any road will take you there."
ing the future energy requirements of its residents. At Enterprise we not only believe we know where we The pressure on the state's limited resources and the are going, we continually map out strategic paths to lead growing concern of New Jersey residents about quality of us to our goals. As our business and our indu stry grow and life issues make it clear that conservation and environmen- evolve, so does Enterprise's ability to analyze new and tal protect ion must be major components in any formu la unique challenges and develop strategies for turning chal-for the future. lenges into opportunities for continued success.
Today's - and tomorrow's - technologies offer the To help shareowners better understand these challenges potential to meet a significant portion of energy require- and Enterprise's strategies for meeting them , we offer in ments through conservation . A key task is to provide equi- the following section a discussion devoted not to the year tably the economic incentives and rewards for energy just past, but to the decade ahead.
suppliers and users that will maximize this potential. Enterprise's drive into the future is powered by a com-Another important element will be an improved process mitment to customer sati sfaction and a devotion to excel-to plan for and approve new facilities that will be needed lence in all of our activities. With forward-looking in the next century. strategies and highly skilled and dedicated employees to We joined the state's other electric utilities last year in implement them, Enterprise intends to continue enhancing supporting a policy forum that represented the important its hard-earned reputation for operational leadership and first step toward establi shment of this new energy planning reliable service while building the value of shareowner process. We look forward to continuing this dialogue with investment and preparing our company for the next decade government , regulatory and industry representatives. and the next century.
Renewed Focus on the Environment The people of New Jersey expect strict compliance with the state's environmental laws and regulations. E. James Ferland At the national level, this concern for the environment Chairman of the Board, President also will be reflected in enactment of new federal air qual-and Chief Executive Officer ity standards. It is readily evident that our commitment to provide safe and reliable energy services can tolerate no February 20, 1990 4
(left)
Clean . reliable natural gas has become the "fu el of choice," intensifying demand f or supplies and pipeline capacit y.
(center)
Responding to customer needs beg ins at the plan-ning stage, as Marketing Engin eer Maureen Regan demonstrates to John Weisgerber (c.) and Gary Fisher (r.) of Bellemead Development Corpora/ ion.
(right)
A quick response. Team-work. Innovative solutions .
Th ese techniques enabled Energv People like John Redm on (c. ), manager -
planning and system de-sign , Electric Business Unit , and John Lombardini (r. ), regional accoum executive , Customer Oper-ations , to solve major supply and cost problems fo r Raritan River Steel, PSE&G '.v second-largest customer.
urs is a different company today than it was It is because of the demonstrated ab ilities of our em-ten yea rs ago and it will be a different com- ployees and our confidence in their continued success that pany ten years in the future. we can sum up Enterprise's vision for the future in thi s At Public Service Enterprise Group , our deceptively simple statement: our aim is to gai n recogni-plans for the future are linked to the tion as being among the best diversified energy companies changes that are transforming our indu stry. As we develop in the nation .
the strategies that wi ll lead us into thi s new era, it is with the knowledge that our company and its people have a long A Foundation for the Future and proud hi story of successfully meeting the challenge of The future of Enterprise will be built on two fundamental change. tenets:
The people of PSE&G have established a record of tech- > The electric and gas businesses of PSE&G w ill remain nical and operational excellence, customer service leader- at the core of Enterprise activities. PSE&G will focus on ship and the highest standards of indi vidual and corporate gai ning recognition as the premier e lectric and gas com-citizenship . pany in the Northeast with a national reputation for In recent years, as our business environment has evolved , excellence.
we have challenged employees with the complex task of We will measure our progress toward this goal by com-reorienting behaviors and beliefs to meet the ri gors of a paring our performance in key areas against established competitive and customer-driven culture. benchmarks of excellence, and with the realization that We have challenged employees with the necessity to successful companies in the fut ure will be those that do reduce costs and increase productivity. And we have cha l- the best job of discerning and meeting customer needs.
lenged employees with a workplace that grows more com- > The non-utility businesses of Enterpri se Diversified plicated and demanding every day. Holdings Incorporated (Holdings) are designed to provide In each case the men and women of our company have strategic balance , financial flexibility and additiona l earn-responded admirably. ings growth. Our diversification program is geared toward 6
Jong-term growth of shareowner value through businesses An Industry of Diverging Views related to the energy industry where our years of expe- One of the most dynamic changes in seeking these solu-rience and know-how can be utilized most effectively. tions is the utility industry's increasing difficulty in staking out consensus positions on the many major questions A Level Playing Field raised by deregulation and increased competition.
Decisions made in the coming years in Congress, the state Regional economic , political and environmental con-legislature, the Federal Energy Regulatory Commission cerns are reflected in strong differences of opinion in the (FERC), and the New Jersey Board of Public Utilities industry on such important issues as acid rain legisla-(BPU) will have a strong impact on our ability to meet tion , reform of the Public Utility Holding Company Act our objectives. (PUHCA) , and electric transmission system access.
We seek an economic environment in which the risks PSE&G, for example, is strongly opposed to legislation and rewards of a competitive marketplace are balanced that would impose on its customers costs incurred by mid-fairly, protecting both PSE&G 's customers and share- west utilities in meeting new federal air standards.
owners , and we seek institutional rules that acknowledge PSE&G's unique obligation as a public utility to provide its Planning New Jersey's Energy Future customers with safe and reliable service. In New Jersey, existing law and regulatory practice is We intend to help shape this emerging environment heavily tilted against construction of new electric generat-through responsible leadership and active , ongoing dia- ing facilities by utilities such as PSE&G. We view conser-logue with lawmakers, customers , and the public. Asap- vation, cogeneration , non-utility generation and improved propriate , we will develop and promote creative solutions efficiency through load management as essential elements to the tough regulatory, economic and technical issues of any plan to meet future electric capacity requirements.
involved. However, we believe that PSE&G can construct and operate generating facilities on a fully competitive basis with non-utility suppliers. It would be imprudent, in our view, not to (left)
Demand f or natural gas f or Nuclear Performance residential and commercial use continues to grow. Gas Maximum Dependable Capacity Business street groups worked throughout the year 100 extending mains and ser-vice lines, especially in 80 expanding suburban areas of Hunterdon and Burling-ton counties. Here, Lead 60 Engineer Rich Worsinger (r. ) of Burlington District checks diagrams with 40 Street Inspectors Ozzie Reyes and Maggie Hoyer.
20 (right)
PSE&G has set ambitious goals for its nuclear plants without compromising 1987 1988 1989*
safety. Salem and Hop e Creek stations experienced
- PSE&G Operated Nuclear Plants excellent production in
- U.S . Average for a ll Nuclear Plants 1989, with a combined
- U.S. Average is through September 1989 72% percent capacity fa ctor, far above the na-tional average of 63%.
(Chart) 9
(leji)
Success in meeling !he challenges of change and competition calls f or inten-sive strategic planning 10 assure adherence to a common goal and shared vision . This process is carried out at each level throughout the organiza-tion, encouraging decision-making al the lowest possible levelforflexibilil y and rapid response to emerging conditions.
(righl)
In 1989, the eleclric busi-ness sel new records for reliability, minimizing customer outages through preventive maintenance, improved training and the use of new equipment and technologies . As PSE&G slrives !award a nmional reputalionfor excellence, it recognizes the need 10 respond to cus!Omer de-mands in innovative and cost-effeclive ways 10 meet competition .
include our proven reliability as a builder and operator of The transfer in 1989 of energy planning responsibilities base load generating stations as an option for New Jersey 's from the state Commerce, Energy and Economic Develop-energy future . ment Department to the BPU follows the general direction This was one element of the message we brought to the of the planning recommendations made at the forum.
policy forum on the state's electric energy requirements There is much work to be done in translating the general convened last year by Gov. Thomas H. Kean . The confer- agreements reached at the forum into the reality of a new ence included the governor's representatives , state legisla- system of workable rules. PSE&G looks forward in the tive leaders, the BPU, the Department of Commerce , coming months and years to working with appropriate Energy and Economic Development, the N.J. Public Advo- government and industry leaders to move this process cate, and representatives of the cogeneration and indepen- forward.
dent power industry.
Forum participants agreed that the centerpiece of the A Fair Tax Structure state's energy policy for the future should be to maximize We will also continue our leadership role in working for opportunities for energy conservation . They also agreed , changes in New Jersey 's tax structure, which now provides however, that New Jersey will need new electric generation our competitors with a built-in and unfair advantage.
and transmission resources to serve the needs of residents PSE&G, along with all other electric and gas utility in the coming century. companies in New Jersey, pays gross receipts and franchise An important aspect of the session involved discussions taxes that add 13 per cent to the bills of all customers. This on a more rational energy planning system that would re- gives non-utility electric and gas suppliers, as well as mar-place the state 's cumbersome Certificate of Need process. keters of other fuels who don't pay this tax, a considerable The framework for new planning procedures calls for a and anti-competitive price advantage . In effect, the users streamlined system that integrates long-term policy objec- of utility-supplied energy are subsidizing non-utility sup-tives with short-term action plans focu sed on specific pliers and their customers.
projects.
Certificate of Need Application Process (Chan) Complex and time-consuming procedures to obtain permission to build new generating capacity present a chal-lenge to PSE&G and to the State's regulatory agencies.
I Yes 1
This was one of several urge111 topics discussed at the Governor's f orum convened in the spring of ls Cen ificate BPU 1989. A continuing dia -
of Need No HeariD&s logue with the new admin -
Required?
istration in Tremon , the state's capital (left), is a priorit y.
l I 1 (right)
Th e commercial sector of BPU Sllle Energy Bady
-- Rerillw Malfa'Plan BPU PSE&G's customer base A--=nl continues to grow. spurring Report demand f or energy. Attrac-tive new buildings, like the Gateway Ce111er in Newark ,
l Nomllility Gemming l
c.ertifiCllc of Need are changing the fa ce of the downtown business district and encouraging new retail and housing Bids Application development . PSE&G 's Area Development Depart-melll's f ocus on urban redevelopme/11 has contrib-l Evaluate BPU l Othts' Cenificale of I uted to growth in New Jersey's revitalized cities.
Bidllaad Award Cmlncll Review of Application
-- ~
RMlll'i
-- Needbllled We are in favor of initiatives that would even out the tax gas energy. We must find the appropriate balance between burden among all competitors and customers in the energy the need for electric and gas service on which our cus-marketplace and this will be one of our legislative priori- tomers depend and the environmental quality they demand.
ties for the 1990s. We will continue to be forthright in answering the con-cerns and questions of customers and the public about such The Decade of the Environment topics as EMF, acid rain, and greenhouse gases and we It is increasingly clear that the people of New Jersey along must be vigorous in remediating problems where they exist with Americans all over the country list protection of the and where we are responsible.
environment as a leading social priority. We will continue, also , with a responsible program of It's also clear that the new decade will see more rigorous cleaning up as necessary environmental problems asso-enforcement of New Jersey's stringent environmental regu- ciated with generations past , such as gas production lations and implementation of new and tougher federal air facilities.
quality standards. Our concern for the environment and our state's limited Discussion wi ll continue on global climate change and resources must be at the forefront of our plans to meet the greenhouse emissions and the growing concern over the need for new energy services and facilities . The clear mes-possible health effects of electromagnetic fields (EMF). sage of the 1990s is that no company will prosper without New Jersey, as the nation's most densely populated state , demonstrating a commitment to environmental quality.
often is on the leadi ng edge of environmental issues. The debate on how best to cope with these problems will Strategies for the Future - Electric intensify. PSE&G's electric business has earned a reputation for technical leadership and operational excellence in the tra-Finding the Appropr iate Balance ditional utility environment. We intend to continue this We need to reexamine all the elements necessary to be a leadership role as we expand the scope and range of ser-safe, efficient, clean and reliable supplier of electric and vices we provide our customers.
12
Our objective is to become the full-service supplier of Embedded in thi s ambitious list of undertakings is the choice in the electric energy market. This means fulfilling understanding that we will not be successful unless we customer expectations by offering them the services they continue to enhance our overall knowledge of the market-want at the lowest possible cost. place, its distinct segments and our individual customers.
New Pricing Systems Excellence in Nuclear Operations Successfully marketing new services such as energy man- Any blueprint for future success in the electric business agement systems , conservation techniques and substation must also incorporate our long-term goal of excellence in and equipment maintenance will require alternatives to operations at our Salem and Hope Creek nuclear generat-traditional rate-based pricing. We anticipate working ing facilities.
closely with the regulatory community on the design of In this regard , we are working toward achieving ambi-innovative pricing mechanisms that better meet the reali- tious milestones during the early part of this decade.
ties of a competitive business environment, reflect the These goals include:
value of these services to customers, and provide an op- > Continual improvements in the combined capacity factor portunity to earn a fair return. for the Salem and Hope Creek units that will rank them PSE&G's plans to remain an active player in the bulk among the best in the world .
power market include aggressive marketing of bulk power > Ongoing improvements in operations as rated by in-sa les during off-peak periods in a way that will maximize dustry performance measurements and the Nuclear Regu-the efficiency of existing facilities without creating the latory Commission's Systematic Assessment of Licensee need for new capacity. Performance (SALP) reports.
When the need for new generating capacity is docu- As in all aspects of our nuclear program , however, our mented, PSE&G will marshal its engineering and technical first concern will be the safe operation of our nuclear experience to demonstrate its capability as a leading low- plants. PSE&G tolerates no compromise with safety.
cost generator of electricity.
(left)
PSE&C is committed to conservation as an impor-tant part of its energy strategy. Th e installation of load management devices 0 11 central air conditioning units can help reduce p eak summer load , as Engineer-ing Assistant Ralph Cure explains to customers.
(center)
Through its Energy Thrift Homes program , PSE&C promotes insulation and other energy savings tech-niques that exceed building code standards.
(right)
PSE&C added its 1.5 millionth gas meter in Jun e . Ricki Burroughs, meter installer, prepares to hook up more meters at a housing construction site in Florence, N.J.
15
Strategies for the Future - Gas We will build on thi s competitive edge to:
During the coming decade, PSE&G 's gas business will > Increase conversions to natural gas from other fuel s build on its record as New Jersey 's largest and lowest cost among small industria l and commercial customers.
natural gas utility. Our goal is to stimulate growth in the > Develop specialized contracts for the grow ing electric business and gain recognition as one of the region's and cogeneration industry.
the nation's leading gas distribution companies. > Expand appliance and equipment service offerings in the As we look to the future we are aware that the sub- residential, industrial and commercial markets.
stantial price advantage natura l gas now enjoys over other > Develop and expand new uses for natural gas, such as fuels may not be a permanent fixture of the energy market- industrial ai r conditioning and residential gaslighting and place. As we build on our competitive price position in grills.
New Jersey, we are also developing strategies that stress > And pursue development of the natu ra l gas vehicle the environmental benefits of gas and its availability market.
from domestic sources.
Strategies for the Future - Diversified Businesses Pursuing New Opportunities The creation of Enterprise Diversified Holdings Incorpo-We will also develop new sales and service opportunities rated as the parent company for Enterprise's non-utility and explore alternatives to existing gas tariffs that better businesses reflects the important role these bu sinesses are reflect the full cost and the va lue of service we provide expected to play in providing additional sources of earn-customers. ings growth , strategic ba lance in a rapidly changing envi-If gas supplies tighten appreciably in the coming years, ronment and yet another means to enhance shareowner PSE&G 's position as the East Coast's largest gas company, va lue.
its demonstrated knowledge of the gas supply market, and While an escalation in natural gas prices, for example, its ability to obtain supplies of gas at the lowest possible might pose challenges to PSE&G 's regulated gas business, cost will become more valuable strategic assets. it could present revenue opportunities for Energy Develop-(Chart) Enterprise's non-utilit y businesses contrib-Diversified Operations uted $26 .8 million or 5% of Contribution to Earnings consolidated earnings in 1989. The businesses are Actual 1989 expected to achieve th eir Contribution goal of contributing 10% of was 5% consolidated earnings by the end of 1991 and 15% by the mid-1990s .
(center)
Energy Development Cor-poration's purchase of the Objective Pelto Oil Company, with Mid - 1990s properties primarily in the Contribut ion Louisiana Gulf area, more 15% than doubled EDC's proven reser ves of oil and gas.
(right)
PSE&G, Texas Eastern , and other utilities worked closely to assure continued
- Earnings from Utility Operations deliverabilityof natural
- Earnings from Nonutility Operations gas. Improvements were made lO this Texas Eastern compressor station in Lam*
bertville, N. J ., and to pipelines in Pennsylvania.
16
(left)
Maryellen Kmiec at PSE&G's Maplewood Research and Testing Lab-oratory checks for the presence of hazardous chemicals in water from test wells and discharges.
Environmental concerns will be on the minds of employees during the next decade as PSE&G con-tinues to strive to meet New Jersey's rigorous environ-mental concerns.
(center)
"Pipemouse," a miniature video camera carried through pipes by a robotic "mouse ," has the potential to contribute substantial savings annually in impec-tions, avoided leaks and outages .
(right)
PSE&G periodically in-spects waterways to moni-tor levels of acidity to determine long-term rrends . The urility will acr responsibly to prorecr rhe environmenr, while work -
ing 10 prorecr irs cusromers from an unfair allocation of cosrs incurred ourside irs sysrem.
ment Corporation , our oil and gas exploration and produc- projects. It will work to expand its customer base and mar-tion business. Similarly, Community Energy Alternatives keting expertise.
Incorporated, our cogeneration and small-power produc- The strategy for Enterprise Group Development Corpo-tion affi liate, will be positioned to take advantage of legis- ration (EGDC), a real estate subsidiary, is to make modest lative or regulatory developments favoring independent investments in commercial offi ce, retail and industrial power producers. properties across a wide geographic area. While subject to Enterprise's investment in these businesses is based on a short-term fluctuations in the rea l estate market, these long-term perspective of measured growth at limited risk. investments offer long-term growt h potent ial.
We have no plans to buy into businesses or industries in which we have no experience or management expertise. Enterprise's Strategic Advantage - Its People Public Service Resources Corporation (PSRC) is focused We began thi s discussion about our expectations for the on developing a diversified investment portfolio that reduces future with the statement that our confide nce for a bright fi nancial risk to Enterprise while maximizing returns. future is based on the abi lity of our employees to adapt to Duri ng the coming years, PSRC 's goal will be to maintain changing conditions and implement successfull y new bu si-a broad investment orientation , engage in a mix of inter- ness strategies. It is appropriate to end this discussion on mediate and long-term transactions and strengthen its rep- the same note .
utation for high-level investor reliability. We believe the outlook we have shared with you repre-Community Energy Alternatives Incorporated (CEA) is sents the pathways to a new era of achievement for our building on its growing expertise in innovative technolo- company and our employees.
gies in the non-utility power generation market. We have more work to do , but we are confi dent in our Energy Development Corporation (EDC), in the coming vision for the future and especially confide nt that the men decade, expects to increase its proven reserves of oil and and women of PSE&G and the non-ut ility companies have gas th rough acquisition and exploration and development the talent and the wi ll to fu lfi ll this vision.
19
(left)
The return to production of the two Peach Bottom nuclear units, operated by Philadelphia Electric Co .
but partly owned by PSE&G , ends the costly outage resulting from the nterprise overcame The Board of Directors, in the NRC shut-down order. At the continuing im- fourth quarter, increased the the beginning of this new pact of the shutdown common stock dividend from an decade all five nuclear plants serving our cus- of Peach Bottom annual rate of $2.04 to $2.08.
tomers, including Salem Atomic Power Sta- The modest 2% increase marked and Hope Creek, were tion and ended 1989 the 14th consecutive year in producing at full power. in sound financial condition. The which the dividend was raised.
company maintained good cash PSE&G 's overall electric sales flow and a strong capital struc- increased 2.2% over 1988. Elec-ture, ending 1989 with a common tric sales in the residential and equity ratio of 46.7%. The year- commercial markets increased end book value of common stock 0.1 % and5 .7%, respectively, was $19.85 per share, up from while industrial sales were off
$19.11 at the end of 1988. Enter- 1.4%.
prise's ratio of earnings to fixed Total gas sales, boosted by charges was 2.66. PSE&G's extraordinarily cold weather in earnings to fixed charges cover- December, increased 8.8%.
age ratio was 3.21 times and the Residential , commercial and Modifications continued on utility met most of its construc- fossil-fueled generating industrial sales increased 5.5%,
tion expenditures , approximately stations to increase effi- 16.6%, and 3.0%, respectively.
$674 million , through internally ciency. Doug Stroud, Gas transportation service in-generated funds. control operator, monitors creased 7.9%.
the operation of the No . 2 1989 Results unit at Hudson Generating Gas RMAC Increased PSE&G's strong electric and gas Station through the newly The N.J. Board of Public Utilities sales and commitment to cost computerized control panel. (BPU), in December, approved a controls, together with earnings $23.7 million increase in the growth from non-utility busi- levelized raw materials adjust-nesses, helped Enterprise achieve ment charge (RMAC) for 1989 consolidated earnings of PSE&G's gas customers. The Exchange Place in Jersey $542. l million, or $2.62 per increase will remain in effect for City, one of the many new share of common stock, based on the 10-month period ending commercial developments 206. 9 million average shares September 30, 1990. The in-rising along the Hudson outstanding . Earnings for the crease reflects the rising cost of River waterfront, is sym-bolic of the dramatic previous year were $528 .6 mil- obtaining and transporting gas.
changes taking place in lion , or $2.57 per share, based PSE&G, in June , originally New Jersey's older cities. on 205.4 million shares petitioned the BPU for a $91.2 outstanding. million RMAC increase but was The non-utility businesses of able to reduce substantially the Enterprise Diversified Holdings request following approval by the Incorporated produced 5% of Federal Energy Regulatory Com-overall earnings, or approxi- mission of settlements involving mately 13 cents per share, an the costs associated with "take-increase of 18 .5% and 2 cents per or-pay" obligations under gas share over 1988. The non-utility contracts with the Transcontinen-businesses remain on track to tal Gas Pipeline Company. These meet the established goal of contracts were negotiated during producing 10% of Enterprise the gas shortages of the 1970s.
More than 300 miles of earnings by the end of 1991. new gas pipeline and 240 Despite the RMAC increase, Overall revenues in 1989 were miles of service lines were PSE&G 's gas rates remain the
$4.8 billion, an increase of9.3% Laid in 1989 , extending lowest in New Jersey.
over 1988 revenues of $4.4 bil- ser vice to more than lion . PSE&G's electric revenues 16,000 new customers. Increase in LEAC Approved accounted for $3.3 billion and The BPU, in February, 1990, gas revenues accounted for $1.3 approved a $24. l million in-billion, with the balance coming crease in the electric Levelized from Holdings ' non-utility Energy Adjustment Clause subsidiaries. (LEAC). The new rate will be in effect through June 30, 1991.
21
PSE&G originally requested a These included development
$24.8 million increase. The of a more responsive organiza-LEAC reflects the cost of fuels tion, a greatly strengthened plan-used to generate electricity, and ning capability, and implemen-purchased power. tation of programs designed to increase our knowledge of the Peach Bottom Shutdown marketplace.
The Peach Bottom Atomic Power We moved to improve our stand-Station began its return to ser- ing as a low-cost supplier of elec-vice in April after a shutdown of tricity through completion of a more than two years. The shut- major study of possible modifica-down has had a considerable tions to existing fossil generating negative impact on 1989 earnings. stations. This study concluded The two-unit Peach Bottom that PSE&G's fossil stations have station is operated by Philadel- the capability to produce addi-phia Electric Company (PE) and tional capacity on a competitive is partially owned by PSE&G. It basis.
was ordered shut down by the In addition to these initiatives, Corporate Performance Nuclear Regulatory Commission staff members like Susan we recorded impressive opera-(NRC) in March 1987 after PE Docherty and Bob Hill, led tions accomplishments in 1989:
operators were found sleeping on by General Manager Glenn >Effective maintenance pro-the job and otherwise inattentive Rogers (c.), provided grams and operational expertise to control room duties. One of strategic planning support helped PSE&G's fossil generating the Peach Bottom reactors to other business units to stations meet increased load reached full power in July. The help PSE&G confront a requirements. Fossil generation second was restarted in No- rapidly changing business increased 20% over 1988.
vember and at year's end both environment. >By year's end, the nuclear units had operated at full power. department had made substantial In March, 1989, PSE&G progress in correcting weak-reached agreement on the treat- nesses identified in an NRC ment of rates associated with Systematic Assessment of Hudson Switching Station Peach Bottom for the year. The Licensee Performance (SALP) improvements, at the decision resulted in a one-time report on Salem station. interconnection with Con credit to electric customers of >The Salem and Hope Creek Edison, will improve reliability of service in the
$32 million and included provi- nuclear generating stations pro-rapidly growing Jersey sion for additional refunds to duced a combined capacity factor City area.
electric customers based on the of 72%, well above the industry operational status of the two average.
units for the remainder of the >We successfully managed the year. The total impact of the first solicitation of bids for elec-Peach Bottom penalty was $48 tric power generation, capacity million, which reduced 1989 and conservation from non-utility Enterprise earnings by a net of sources. We requested bids for a 15 cents per share. total of 200 megawatts of energy, Enterprise and PSE&G have capacity and conservation.
sued Philadelphia Electric to >The electric business moved recover increased costs asso- aggressively to improve com-ciated with the outage. This liti- pliance with environmental Intensive work at all levels gation was pending at year's end. at Philadelphia Electrics regulations by upgrading training Peach Bottom nuclear and communications for em-Electric units, 42 .49% owned by ployees with environmental PSE&G's electric business is PSE&G, contributed to the responsibilities.
confronting our industry's chang- restarting of both plants in >Two new substations were put ing business environment with 1989 after more than two in service and construction was initiatives designed to meet the years of shutdown. completed on three cable circuits challenges of the future and to serve growing demand along secure its position as the low-cost the Hudson River.
supplier of electricity and energy services.
22
Gas of lower cost gas on the spot PSE&G's gas business took major market. This program resulted in steps during the year to strengthen approximately $48 million in its competitive position as New savings in 1989 and enhanced the Jersey's largest and lowest-cost gas business's competitive posi-supplier of natural gas to the tion in New Jersey.
residential, commercial and in- >Construction was completed dustrial markets. on more than 79.5 miles of new We've fashioned a strategic gas main to serve burgeoning plan for the 1990s and worked customer demand in Burlington during the year on a key element County. In addition, we con-of that plan - developing new structed 9.5 miles of new gas pricing mechanisms designed to main to inaugurate service in meet the requirements of chang- Tewskbury Township, Hunterdon ing business conditions. The gas County.
business also improved its com- > The replacement of more than petitive edge through an effective 61 miles of aging cast iron gas program of firm contract and Through its own pollution main with new steel and plastic spot market purchases of gas and research and the utility facilities will help insure safe completion of supply projects industry's, PSE&G is and reliable service well into the that will increase pipeline committed to protecting the future.
capacity. environment. Environmen- >The Linden Synthetic Natural A significant accomplishment tal coordinators are as- Gas (SNG) plant, the last of in 1989 was the development of a signed to many electric PSE&G's gas production facili-responsible and effective plan to operating locations, and ties, was retired.
investigate and, where necessary, the investigation offormer remediate the sites of former gas gas plant sites, some not Non-utility Businesses used since the late 1800s, manufacturing facilities. Enterprise's non-utility busi-is under way.
PSE&G is seeking approval nesses made progress during the from the state Department of year, individually and collec-Environmental Protection on a tively, on a program of measured Gas storage facilities, such plan to investigate the sites, growth toward established finan- as this liquefied natural many of which were in operation cial objectives. Non-utility busi- gas container in Burlington in the last century and were County, provide winter nesses contributed $26.8 million, peaking reserves to supple-owned and operated by prede- or 13 cents per share, to 1989 ment pipeline supplies. A cessor companies to PSE&G. earnings, an increase of $4.2 new gas sendout record We opened a comprehensive million or 2 cents per share was set on December 22 training center in Edison, Mid- over 1988. These results are in during the extraordinarily dlesex County, that will provide accord with plans that foresee cold weather early this employees with the knowledge Public Service Resources Corpo- winter.
and skills needed for changing ration and Energy Development technical and business conditions. Corporation making the primary Among other significant oper- earnings contributions of the ational milestones achieved non-utility businesses over the during the year: next few years. At year's end the
>We helped keep customers total assets of non-utility busi-warm during the frigid De- nesses had grown from approxi-cember cold snap. A new record mately $1 billion in 1988 to $1.8 Commercial construction for gas sendout of 1.8 billion billion. Non-utility businesses continued strongly in New cubic feet was set on December Jersey, contributing to the now represent approximately 22 and the dedicated effort of increase in electric and gas 14% of Enterprise's overall assets.
service personnel kept response sales. lnfact, electric sales The creation during the year time for heating system repairs to were up 2 .2% over 1988 of Enterprise Diversified Hold-a minimum. sales and total gas sales ings Incorporated and Enterprise
>The gas supply department increased 8.8%. Capital Funding Corporation continued its leadership role in reflects the considerable growth aggressively pursuing purchases of these businesses. Holdings is now the parent company of the non-utility businesses. Enterprise 23
Capital Funding will provide During 1989, CEA acquired a financing to the non-utility busi- limited partnership interest in nesses without support from operating a resource recovery Enterprise and is expected to facility in Florida and made become their primary financing significant progress on projects arm. in California employing the proprietary fluidized-bed tech-Public Service Resources nology it owns. Two of these Corporation (PSRC) projects are operational, two are Public Service Resources Corpo- nearing completion and two ration, which makes passive others are under construction.
investments, met its operational At year's end, CEA's assets objectives of increasing its in- totaled $90 million.
vestment level and diversifying its portfolio. Its achievements Enterprise Group Development during the year included closing Corporation (EGDC) on major transactions involving Enterprise Group Development leveraged leases on commercial This 20.5 megawatt plant Corporation is a real estate devel-aircraft and investments in lim- in Antioch, California, is opment and investment business ited partnerships in real estate in one of several "clean" that invests in commercial office, a historic district of Philadelphia sources of energy in Com- retail and industrial properties and a Texas chemical facility. munity Energy Alternative's over a wide geographic area.
PSRC's assets grew to $801 geographically diversified EGDC seeks projects that offer million during the year, a 56% portfolio of cogeneration the potential for acceptable cur-increase over 1988. and small power projects. rent rates of return and attractive capital gains on resale.
Energy Development During 1989, EGDC success-Corporation (EDC) fully closed on seven projects Energy Development Corpora- with a net investment of $80 tion, an oil and gas exploration million. At year's end, EGDC's and production company, is our assets totaled $185 million.
fastest growing non-utility busi-ness. It made excellent progress PSEG Capital Corporation; during the year toward its goal of Enterprise Capital Funding expanding natural gas reserves Corporation and diversifying its exploration PSEG Capital and Enterprise portfolio and customer base. Capital Funding are financing This was primarily accomplished subsidiaries of Holdings created through the acquisition of the to serve the needs of the non-Pelto Oil Company from South- util ity businesses through the down, Incorporated. The $320 issuance and sale of debt obliga-million transaction more than tions on a private placement basis.
doubled EDC's proven reserves At year's end, PSEG Capital of oil and gas and provided a had a total of $250 million of substantial inventory of onshore senior notes and $500 million of and offshore exploration its medium-term notes outstand-prospects. ing supported by Enterprise.
In 1989, EDC's assets rose to Harbert Center in Jackson- PSEG Capital will not have more
$709 million. ville, Florida, an office than $750 million of its debt complex in a park-like obligations outstanding at any Community Energy setting , is included in one time.
Alternatives Incorporated Enterprise Group Develop- Enterprise Capital Funding, (CEA) ment Corporation's port- created during 1989, had, at Community Energy Alternatives !olio of commercial and year's end, obligations of $206 Incorporated, a developer and industrial properties. million outstanding consisting of investor in cogeneration and commercial paper backed by a small-power projects, had 12 commercial bank's direct-pay projects in operation and six letter of credit, without support under construction at year's end. from Enterprise.
24
Financial Contents Management's Discussion and Analysis of Financial Condition and Results of Operations Following are the significant factors affecting the consolidated finan-Management's Discussion cial condition and the results of operations of Enterprise and its sub-and Analysis 25 sidiaries. This discussion refers to the consolidated fi nancial Responsibil ity for statements and related notes of Enterprise and should be read in con-Financial Statements 33 junction with such statements and notes.
Report of Accountants 34 Statements of Income 35 Overview Balance Sheets 36 Statements of Cash Flows 38 Public Service Enterprise Group Incorporated (Enterprise) has two Statements of wholly-owned subsidiaries, Public Service Electric and Gas Company Retained Earnings 39 (PSE&G) and Enterpri se Diversified Holdings Incorporated (Hold-Notes to Financial ings). Enterprise's principal subsidiary, PSE&G, is an operating public Statements 40 utility providing electric and gas service in certain areas in the State Financial Statistics 52 of New Jersey. Enterprise has claimed an exemption from regulation Operating Statistics 54 by the Securities and Exchange Commission (SEC) as a registered Officers and Directors 56 holding company under the Public Utility Holding Company Act of Shareholder Information 57 1935, except for Section 9 (a) (2) which relates to the acquisition of voting securities of an electric or gas utility company. PSE&G , but not Enterprise, is subject to regulation by the New Jersey Board of Public Utilities (BPU) and the Federal Energy Regulatory Commis-sion (FERC) . Holdings was incorporated on June 20 , 1989, and on July I, 1989 it became the parent of Enterprise's non-utility busi-nesses: Public Service Resources Corporation (PSRC), which makes diversified passive investments; Energy Development Corporation (EDC), an oil and gas acquisition, exploration, development and production company; Community Energy Alternatives Incorporated (CEA), an investor in and developer of cogeneration and small power production facilities; Enterprise Group Development Corporation (EGDC), a diversified non-residential real estate investment and development company; and PSEG Capital Corporation (Capital),
a*
which provides up to $750 million of privately placed debt financing for the non-utility subsidiaries on the basis of a support agreement from Enterprise. Holdings ' other financing subsidiary, Enterprise Capital Funding Corporation (Funding) , organized June 20 , 1989,
- currently provides privately-placed debt financing for the non-utility subsidiaries on the basis of the consolidated financial position of Holdings without direct support from Enterprise. This structure faci l-itates consolidation of non-utility operations into a discreet entity, Holdings, providing a greater organizational distinction between Enterprise's utility and non-utility businesses.
In 1989, Enterprise posted a five cent gain in earnings per share and an increase of $14 million in net income. This achievement re-sulted from strong electric and gas sales , reduced maintenance ex-penses , primarily at the Peach Bottom generating station, and an increase in non-utility earnings. Certain highlights were:
> PSE&G increased electric kilowatthour and gas therm sales over 1988 by 2.2% and 8.8%, respectively. PSE&G 's forecast for 1990 through 1994 (based on normal weather conditions) estimates that the average compounded annual rate of growth in electric kilowatthour sales and gas therm sales will be approximately 1.4% and 2%,
respectively.
> As of December 31 , 1989, PSE&G provided service to 1,848,755 electric customers and 1,448 ,732 gas customers, an increa e of 16,074 electric customers and 16,096 gas customers over year end-1988, representing a growth of approximately I% in each business segment.
PSE&G forecasts that the average annual compound rate of growth through 1994 for electric customers and gas customers will each approximate I%.
25
> Philadelphia Electric Company (PE) restarted Peach Bottom Competition - Gas Atomic Power Station Units 2 and 3 (Peach Bottom) following a On August 7, 1987 FERC issued Order 500 which allows gas pipeline costly shutdown ordered by the Nuclear Regulatory Commission companies and producers enhanced access to certain PSE&G cus-(NRC) in early 1987. The return to service of Peach Bottom places tomers for the purpose of supplying gas service in competition with each unit under the BPU's nuclear performance standard. If the units PSE&G. As of December 31 , 1989, 151 former large scale gas cus-operate as expected during 1990, PSE&G will have lower electric tomers purchase gas directly from gas pipeline companies and pro-energy costs. PSE&G has a 42.49 % ownership interest in Peach ducers and arrange for its transportation through PSE&G's gas mains.
Bottom. Transportation service gas accounted for 6% of sales and transported
> EDC, a subsidiary of Holdings, acquired Pelto Oil Company in gas and 1% of total gas revenues as of December 31, 1989.
November 1989 at a purchase price of $320 million as part of its effort toward acquiring proven oil and gas reserves. This purchase approxi- Electric Generating Facilities mately doubled EDC's proven oil and gas reserves. Cogeneration, non-utility generation , conservation and load manage-In addition to the above , the following affected the operations of ment techniques are important elements of PSE&G's plan to meet Enterprise and .is expected to have an impact on the future operating electric capacity requirements. Based on its revised electric system results of Enterprise. forecast , PSE&G anticipates the need to construct a base load fossil-fueled generating unit to meet the demands of its customers late in Energy and Fuel Adjustment Clauses this decade .
PSE&G has adjustment clauses which are designed to permit adjust-ments for changes in electric energy and gas raw materials costs , as Environment approved by the BPU, when compared to levels included in base PSE&G is currently working in concert with the New Jersey Depart-rates. Charges under the clauses are based upon energy and gas supply ment of Environmental Protection to implement a plan pursuant to costs which are normally projected over twelve-month periods. The which PSE&G would undertake to investigate and , where necessary, changes in the gas Raw Materials Adjustment Clause (RMAC) and remediate its former manufactured gas plant sites. The overall cost of the electric Levelized Energy Adjustment Clause (LEAC) do not the investigation and remediation cannot be reasonably estimated , but directly affect earnings because the costs of gas , fuel and net inter- amounts previously expended indicate the cost may approximate at changed and purchased power are adjusted monthly to match amounts least $10 million per year and that the overall cost of the investigation recovered through revenues. However, the carrying of underrecovered and remediation could be material. PSE&G has received approval fuel costs ultimately increases financing costs. Under the clauses , if from the BPU to utilize deferred accounting for costs related to inves-actual costs differ from the costs recovered , the amount of the under- tigation and remediation .
recovery or overrecovery is deferred and is reflected in the average cost used to determine the adjustment for the period in which it is recovered or repaid . In addition, actual costs otherwise includable in the LEAC are subject to adjustment by the BPU in accordance with the nuclear performance standard.
Competition - Electric PSE&G is presently experiencing competition from cogeneration and small power production projects being constructed pursuant to the Public Utility Regulatory Policy Act of 1978 (PURPA) . The projects Sources of Electric Output supply electric and steam energy to existing PSE&G or new industrial and commercial customers and excess electricity is sold to PSE&G or other electric utilities pursuant to the purchase requirements of PURPA . FERC is presently reviewing policies and regulations which Pe_rce_n_t_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _~
had been implemented pursuant to PURPA and in 1988 released three 88 89
~
notices of proposed rulemaking that recommend changes in existing FERC regulations. If these or other rules concerning deregulation are adopted and upheld in the courts such rules could create an environ-ment in which a substantial portion of PSE&G's future generation needs would be furnished by non-utility entities. As large volume electric customers gain access to non-utility sources, a significant decrease in PSE&G's electric revenues could result.
- 31 % Nuclear
- 35% Nuclear 27% Power Purchases 28% Coal
- 26% Coal 21% Power Purchases
- 8% Gas
- 8% Gas
- 8% 0il
- 8% 0il 26
Non-utility Businesses lect $43 million of replacement energy costs from its electric cus-In 1989 Holdings contributed 4.9% of Enterprise's earnings, an in- tomers resulting from the application of the nuclear performance crease of 18% over 1988. Holdings ' assets now represent approxi- standard. Details of these reductions in earnings are shown below:
mately 14% of Enterprise's assets. Holdings ' goal for its non-utility (Millions of Dollars except businesses is to achieve approximately 10% of consolidated earnings per share amounts) 1989 1988 1987 by the end of 1991 and possibly as much as 15% to 20% by the mid- $ 27 $--
Peach Bottom revenue credits $ 48 to-late 1990's. Under the Public Utility Holding Company Act of Nuclear performance penalty for Peach Bottom outage (A) 25 18 1935 , there may be limits on the extent of non-utility investments 48 52 18 permitted of exempt public utility holding companies. Federal income taxes (16) (18) (7)
Reduction in net income $ 32 $ 34 $ 11 Earnings Earnings per share of common stock were $2.62 in 1989, $2.57 in Reduction in earnings per share $.IS $ . 17 $.05 1988 and $2.55 in 1987. Per share earnings and the increases or (de-creases) in earnings are summarized as follows: (A) In accordance with the BPU's 1989 Stipulation, the Peach Bottom units were ex-cluded from the nuclear performance penalty during 1989 while revenue credits were 1989 vs. 1988 1988 vs. 1987 being provided to electric customers.
(Millions of Dollars Cents Cents except per share amounts) Amount per Share Amount per Share The increased operating expenses of PSE&G during 1988 were pri-PSE&G marily due to greater nuclear production expenses, higher mainte-Revenues (net of fuel costs, gross nance expenses at Peach Bottom and higher labor costs. Such receipts taxes and Hope Creek operating expenses included approximately $25 million of one-time abandonment costs) $ 89 $ .43 $ 49 $ .24 Peach Bottom revenue credits (21 ) (.10) (27) (.13) costs relating to employee severance pay and health care continuation Nuclear performance penalty for benefits made in accordance with PSE&G's Limited Incentive Separa-Peach Bottom outage 25 .12 (7) (.04) tion Program (LISP). The LISP program resulted in the elimination Operating Expenses (excluding of positions following the review of nearly 6,000 jobs and their related Federal income taxes) 4 .02 (162) (.79)
.04 functions .
Interest charges (20) (. 10) 8 Federal income taxes (44) (. 21) 133 .65 On July 17, 1989, the BPU issued for comment proposed new rules Net effect of SFAS 90 (30) (. 14) 23 . II by which the BPU would evaluate a utility's earnings on an ongoing Other 7 .03 ( 17) (.08) basis. The proposed new rules if adopted would require monthly Holdings (non-utility businesses) 4 .02 8 .04 reporting requirements and establish procedures to address situations Effect of issuing additional shares of common stock (.02) (.02) where earnings are in excess of those allowed . On October 2, 1989, PSE&G submitted comments regarding the proposed rulemaking
$ 14 $ .05 $ 8 $ .02 stating that the proposal has economic flaws and in its present form would be invalid since it would permit retroactive ratemaking in vio-The Average Shares of Common Stock Outstanding were 206,878,500 lation of established statutory, judicial and constitutional principles.
for 1989, 205,350,418 for 1988 and 203 ,872,592 for 1987, respectively. PSE&G cannot predict at this time whether any such rules will be The increase in earnings for the years shown in the table above are adopted or the impact such rules would have upon future earnings.
primarily due to higher electric k:ilowatthour and gas therm sales, an The net income of Holdings was $27 million in 1989, representing increase in electric and gas customers (see Revenues and Sales 4. 9% of Enterprise's net income. This amount is net of the allowance below), reduced 1989 operating expenses, principally maintenance for losses of PSRC's limited partnership investment in a Newark , N.J.
expenses and labor costs, and continued improvement in the net in- redevelopment project of $1.0 million and an investment by a subsidi-come of Holdings' non-utility subsidiaries, primarily EDC and PSRC. ary of CEA in a Maine peat burning cogeneration project of $1.6 During 1989 PSE&G reduced its maintenance expenses by $33 million. The net income of the non-utility businesses was $23 million million from 1988, $26 million of this amount was due to reduced in 1988 and $17 million in 1987, representing 4.3% and 2.9% of En-maintenance expenses at Peach Bottom . If the Peach Bottom units terprise's net income in 1988 and 1987, respectively. The growth in operate as expected during 1990, PSE&G expects to further reduce the non-utility businesses' net income has come from EDC and PSRC.
maintenance costs at both units. Peach Bottom 2 is scheduled for a refueling and maintenance outage during the first quarter of 1991. Dividends Peach Bottom 3 is scheduled for a similar outage during the fourth The ability of Enterprise to declare and pay dividends is contingent quarter of 1991. upon its receipt of dividend payments from its subsidiaries. PSE&G On March 31, 1987, the NRC ordered PE to bring Peach Bottom 2 has made regular cash payments to Enterprise in the form of dividends and 3 to cold shutdown within 36 hours4.166667e-4 days <br />0.01 hours <br />5.952381e-5 weeks <br />1.3698e-5 months <br /> because the NRC had estab- on outstanding shares of its common stock. Such cash was used by lished that some of the plant operations control room staff had period- Enterprise to pay dividends on its shares of Common Stock and for ically slept while on duty and otherwise been inattentive to licensed such corporate purposes as determined by the Board of Directors of duties. As a result of this shutdown and in compliance with BPU Enterprise. Dividends paid to holders of Enterprise Common Stock Orders and Stipulations for the period 1987 through 1989, PSE&G increased $11 million during 1989 compared to 1988 and $6 million was required by the BPU to provide revenue credits to its electric customers of approximately $75 million and was not allowed to col-27
during 1988 compared to 1987. The increase of 1989 dividend pay- Revenues increased in 1988 primarily due to higher kilowatthour ments over 1988 is due to a higher quarterly dividend rate which was sales and the increase in LEAC rates approved by the BPU in June increased to 52 cents from 51 cents per share in the fourth quarter of 1988. Partially offsetting these increases were revenue credits re-1989 and the issuance and sale of 5,750,000 shares of Enterprise Com- corded in 1988 attributable to TRA-86 and the Peach Bottom outage.
mon Stock in September 1989. The increase of 1988 dividend payments The rate decrease relating to TRA-86, effective in June 1988, partially over 1987 was due to a higher dividend rate which was increased to 51 offset by the rate increase effective in February 1987 diminished the cents from 50 cents per share in the fourth quarter of 1988 and the rise in revenues.
increased number of Enterprise common shares outstanding in 1988. Changes in kilowatthour sales from the prior year for the three major sales categories are as follows:
PSE&G Revenues Increase or (Decrease) 1989 vs. 1988 1988 vs. 1987 Electric Revenues increased $189 million or 6.1 % during 1989 as compared to Residential 0.1 % 6.9%
Commercial 5.7 7.0 1988. Revenues increased $131 million or 4.4% during 1988 as com- Industrial (1.4) 0.6 pared to 1987. The significant components of these changes follow:
Increase or (Decrease) 1989-Electric kilowatthour sales increased 2.2%. Customer growth (Millions of Dollars) 1989 vs. 1988 1988 vs. 1987 enhanced sales in the residential and commercial sectors and higher Kilowatthour sales $ 53 $111 customer usage and the strength of the economy also bolstered the Peach Bottom revenue credits (21) (27) commercial sector. Offsetting this positive activity was increased TRA-86 41 (41) competition from cogeneration facilities which adversely affected Changes in base rates (39) (13)
Recovery of energy costs - LEAC 123 80 industrial sales coupled with the loss of some industrial customers.
Gross receipts taxes 23 17 Cooler weather during the 1989 cooling season relative to 1988 also Other revenues 9 4 negatively impacted sales.
Total Electric Revenues $189 $131 1988 - Electric kilowatthour sales increased 5.0%. The growth was a result of an extended heat wave in July and August, which resulted in an increase of 7.1 % in the temperature humidity index hours, a Revenues increased in 1989 primarily due to the rise in kilowatthour strong State economy, customer growth, and increasing saturation of sales, the increase in LEAC rates approved by the BPU in June 1988 residential weather-sensitive appliance usage. A record 60-minute net and revenue credits applicable to the Tax Reform Act of 1986 (TRA-86) peak load of 8,745 megawatts and a record day's output of 173,500 recorded in 1988, which did not reoccur in 1989. Partially offsetting megawatthours was established on August 15, 1988.
this increase were revenue credits attributable to the extended Peach Bottom outage which were greater in 1989 than in 1988. (See Earn-Gas ings) Since Peach Bottom 2 returned to service in July 1989 and Peach Revenues increased $159 million or 13.2% during 1989 as compared Bottom 3 returned to service in January 1990, no further revenue to 1988. Revenues decreased $16 million or 1.4% during 1988 as credits to electric customers are anticipated.
compared to 1987. The significant components of these changes fol-low:
Electric Kilowatthour Sales Increase or (Decrease)
Gas Therm Sales (Millions of Dollars) 1989 vs. 1988 1988 vs. 1987 Therm sales $ 27 $ 13 TRA-86 5 (2)
Changes in base rates (2) (14)
Percent Percent Recovery of fuel costs - RMAC 110 (14) 87 88 89 87 88 89 Gross receipts taxes 15 (3) 100% 100% 100% 100% 100% 100% Other operating revenues 4 4 Total Gas Revenues $159 $(16)
Revenues increased in 1989 primarily due to higher therm sales and the increased RMAC rates approved by the BPU in January 1989 and December 1989.
Revenues declined in 1988 primarily due to decreases in base revenues which became effective in January 1988 and June 1988 relating to the TRA-86 coupled with the lower RMAC approved by the BPU in October 1987. Partially offsetting these declines was the positive effect resulting from the rise in therm sales.
Residential
- Industrial
- Residential
- Industrial
- Commercial
- Commercial 28
Changes in therm sales from the prior year for the three major sales creased electric production came largely from greater nuclear and categories are as follows: coal-fired generation. Peach Bottom 2 started generating electricity Increase or (Decrease) in April 1989, returned to full service under the nuclear performance standard July l, 1989 and contributed 12% of total nuclear generation 1989 vs. 1988 1988 vs. 1987 for 1989. With increased nuclear and coal generation PSE&G de-Residential 5.5% 6.3% creased its reliance on more costly oil and natural gas and purchased Commercial 16.6 10.3 less power from the PJM. Peach Bottom 3 began producing electricity Industrial 3.0 (11.0) in December 1989 and returned to full service under the nuclear per-formance standard January 1, 1990. (See Overview and Earnings) 1989- Gas therm sales increased 8.8%. The rise was attributable to 1988- The increase in electric energy costs in 1988 was primarily customer growth, higher customer usage, the strength of the economy due to increased usage of oil-based generation and greater power within the commercial sector, partially reduced by lower sales result- purchases from the PJM and Allegheny Power System.
ing from the warmer weather as reflected by a decrease in degree A total of 39.5 million megawatthours was generated, purchased days of0.8%. The record day's sendout of 18,159 kilotherms was and interchanged, a 5% increase over 1987. The increased electric achieved on December 22, 1989, during the coldest December in production came largely from greater oil-fired generation and power seventy years. purchases.
1988 -Gas therm sales increased 4.5%. The Residential and Com-mercial sales increases were attributable to colder weather, customer Subsequent Developments growth, waning interest in conservation and the strong economy. On February 7, 1990 the BPU adopted a Stipulation approving an Degree days were 5.8% higher in 1988. increase in LEAC rates of $24.1 million which will remain in effect through June 30, 1991 to cover higher energy costs. The BPU deferred Non~utility Business Revenues acting on a Motion filed by PSE&G on September 15, 1989 requesting Revenues, excluding intercompany sales, increased $62 million in an annual increase in base rates of $23.3 million and $29.7 million to 1989 over 1988 and $69 million in 1988 over 1987, the result of higher be effective January 1, 1990 and January 1, 1991, respectively, relating revenues from PSRC and EDC. PSRC realized higher revenues from to the TRA-86, pending action in a separate PSE&G RMAC case now increased investments. In 1989 and 1988, PSRC increased its long- before the BPU. (See Gas Fuel Costs below) term investments by $278 million and $216 million, respectively.
EDC's increased revenue is primarily the result of production from its Gas Fuel Costs oil and gas properties acquired in 1989 and 1988. (See Overview and Gas fuel costs increased $110 million or 18% in 1989 as compared to Liquidity and Capital Resources) 1988 and decreased $14 million or 2% in 1988 as compared to 1987.
Contributing factors are shown below:
Electric Energy Costs Increase or (Decrease)
Electric energy costs increased $98 million or 15% in 1989 as com-pared to 1988 and increased $87 million or 16% in 1988 as compared (Millions of Dollars) 1989 vs. 1988 1988 vs. 1987 to 1987. Contributing factors are shown below: Change in prices paid for gas supplies $ 31 $ (4)
Therm sendout 51 30 Increase or (Decrease) Refunds from pipeline suppliers (11) (I)
(Millions of Dollars) 1989 vs. 1988 1988 vs. 1987 Adjustment of actual costs to match recoveries through revenues (A) 39 (39)
Change in prices paid for fuel and power purchases $(11) $(29) Total Gas Fuel Costs $110 $(14)
Kilowatthour generation II 37 Nuclear Performance Penalty (25) 7 (A) Reflects over(under)recovered gas costs, which in the years 1989, 1988 and 1987 Adjustment of actual costs to match recoveries amounted to $14 million, $(25) million and $14 million, respectively.
through revenues (A) 123 72 Total Electric Energy Costs $ 98 $ 87 1989 - The increase in gas fuel costs was primarily due to increased therm sendout at a higher cost. The increase in recovered gas fuel (A) Reflects over(under)recovered energy costs, which in the years 1989, 1988 and 1987 costs for 1989 is due to the BPU approved RMAC rate increase of amounted to $35 million, $(88) million and $(160) million, respectively. $42.7 million effective January ll, 1989 and the $23.7 million RMAC increase effective December 6, 1989 for the ten-month period ending As a member of the Pennsylvania-New Jersey-Maryland Interconnec- September 30, 1990. Issues not stipulated which are subject to future tion (PJM) and through several two-party power purchase agreements settlement relate to the TRA-86 which would produce an annual in-with neighboring utilities, PSE&G is able to optimize its mix of inter- crease of $4.8 million in retail gas base rates starting January I, 1990 nal and external energy sources using the lowest cost energy available and certain EDC issues.
at any given time. 1988 - The decrease in gas fuel costs was primarily due to the ad-1989-The increase in electric energy costs in 1989 was primarily justment of actual costs to match recoveries through revenues, par-due to higher kilowatthour generation and higher LEAC rates, effec- tially offset by increased therm sendout.
tive June 17, 1988, reflecting the recovery of increased energy costs.
(See Overview - Energy and Fuel Adjustment Clauses)
A record total of 40.l million megawatthours was generated, pur-chased and interchanged in 1989, a 2% increase over 1988. The in-29
Subsequent Developments requirements were approximately $700 million, which included $320 On January 17, 1990 the BPU approved a Stipulation resolving all million for the acquisition of Pelto Oil Company by EDC in November take-or-pay issues under existing gas supply contracts. Under the 1989. As of December 31, 1989 the long-term investments of PSRC, terms of the Stipulation all take-or-pay charges already collected were EGDC, and CEA aggregated $916 million, an increase of$358 mil-no longer subject to refund to customers. The BPU is permitting lion over 1988. As of December 31, 1989, the oil and gas properties of PSE&G to recover from its gas customers $155 million of its estimated EDC were $608 million, net of accumulated depreciation and amorti-contractual take-or-pay costs. Two-thirds of these costs will be recov- zation, an increase of $322 million over year-end 1988. This increase ered as incurred and the other third will be recovered over a nine-year was principally due to the Pelto acquisition. The real estate property period which commenced in October 1987. PSE&G is required to and equipment of EGDC, net of depreciation, was $121 million, an finance all costs incurred prior to recovery. increase of $28 million over year-end 1988.
The estimated construction requirements of PSE&G for 1990 Liquidity and Capital Resources through 1994 are based on expected project completion dates and include anticipated escalation due to inflation of approximately 4%.
Overview The capital requirements for Enterprise are as follows:
Enterprise's liquidity is principally affected by the cash flow require- (Millions of Dollars) 1990 1991 1992 1993 1994 Total ments of PSE&G's construction program and capital requirements and PSE&G the investment and acquisition activities and capital requirements of Electric Holdings' subsidiaries. Capital requirements generally consist of Nuclear Production Facilities $ 118 $ 112 $ 100 $ IOI $ 98 $ 529 maturing debt, reacquisitions of securities and sinking fund require- Nuclear fuel 79 58 72 71 70 350 ments. Capital resources available to meet such requirements depend Transmission and Distribution 260 279 299 276 321 1,435 Other Production 139 123 !07 116 83 568 upon economic conditions, PSE&G customer growth, expansion of Enterprise's businesses, the adequacy of timely rate relief to PSE&G 596 572 578 564 572 2,882 and continued access to the capital markets. Gas Production Facilities 1 2 2 2 2 9 Construction and Capital Requirements Transmission and Distribution 137 151 136 126 120 670 PSE&G's construction program is primarily focused on the upgrading 138 153 138 128 122 679 of older generating stations and electric and gas transmission and Miscellaneous Corporate 46 42 43 43 43 217 distribution systems, and on construction of new transmission and Total Construction Requirements distribution facilities to serve new load. PSE&G also anticipates the of PSE&G (incl. AFDC) (A) 780 767 759 735 737 3,778 need for a new fossil-fueled base load generating station for service Holdings - Investments of late in this decade. During 1989, PSE&G's construction expenditures, Non-utility Subsidiaries 310 340 326 246 308 1,530 including Allowance for Funds Used During Construction (AFDC) Mandatory Retirement of aggregated $674 million. Securities:
The capital requirements of Holdings are based on the business PSE&G 54 37 246 219 215 771 plans of the non-utility businesses. During 1989, Holdings' capital Holdings - 80 15 130 43 268 54 117 261 349 258 1,039 Working Capital and Other - Net (23) (41) (31) 22 2 (71)
Sources and Distribution of 1989 Revenue Total Capital Requirements $1 , 121 $1 , 183 $1,315 $1 ,352 $1,305 $6,276 (A) PSE&G's Allowance for Funds Used During Construction (included above) $ 30 $ 37 $ 39 $ 40 $ 37 $183 Per Dollar Source Distribution Cash provided by operations of PSE&G and Holdings' subsidiaries and the financing activities of Enterprise, PSE&G and Holdings con-tinue to be the primary source of funds needed to finance the con-struction expenditures and capital requirements shown above. During the last three years, 1989, 1988, and 1987, PSE&G provided 95.1 %,
95.7% and 97.1 %, respectively, of Enterprise's consolidated net in-come. (See Overview, Earnings, Dividends and Revenue and Sales)
Internal Generation of Cash from Operations PSE&G - PSE&G expects to internally generate nearly all of its
- .68 Electric Revenues * .30 Fuel, Purchased Power & Gas
.28 Gas Revenues construction expenditure requirements over the next five years.
- .18Taxes
- .03 Diversified Revenues * .13 Materials & Services Holdings - Holdings expects to internally generate only a portion of
- .01 Other .13 Reinvested in Business its capital requirements over the next five years.
- .09 Salaries & Wages
- .09 Dividends
- .08 Interest 30
External Financings Mortgage Bonds are listed on the Luxembourg Stock Exchange.
Proceeds from the issuance of common stock and long-term financing PSE&G's 9% Debenture Bonds are listed on the New York Stock activities, net of refundings and redemptions, during 1989, 1988 and Exchange.
1987 were:
(Millions of Dollars) 1989 1988(A) 1987 Holdings - The two finance subsidiaries of Holdings, Capital and Funding, borrow on behalf of the other non-utility businesses, as well Enterprise Common Stock $147.6 $ - $ 78.6 as invest their short-term funds and those of Holdings. The other non-utility businesses generate cash from operating activities, enter PSE&G Long-Term Debt 99.5 347.9 196.0 into financial agreements with banks and others and obtain cash Refundings and Redemptions: through intercompany borrowings from Capital and Funding. Short-Long-Term Debt (59.4) (175.0) (238.5) term investments are made only if such funds cannot be employed in Preferred Stock - (32.6) (166.8) intercompany loans. Intercompany borrowing rates are established at 40.1 140.3 (209.3) the market rates of interest. As of December 31, 1989, the long-term Holdings: and short-term debt of Holdings' subsidiaries aggregaled $769 million Long-term Debt 283.7 461.7 160.0 and $216 million, respectively.
Refundings and Redemptions of Long-Term Debt - - (185.0) Capital - Capital is providing $750 million aggregate principal 283.7 461.7 (25.0) amount of long-term debt financing for the cash needs of the non-Total Proceeds $471.4 $ 602.0 $(155.7) utility businesses under a support agreement with Enterprise. Capital will not have more than $750 million of debt at any one time out-(A) Effective July 1, 1988, PSE&G reset the annual interest rate of its $125 million First standing. Funding is expected to provide both long and short-term and Refunding Mortgage Bonds Series R to 8%% from 9V2% for the three-year period capital for the non-utility businesses on the basis of an unconditional ending June 30, 1991. guaranty from Holdings, but without direct support from Enterprise.
It is expected that this will result in higher capital costs for the non-Enterprise - Enterprise is authorized to issue and sell up to utility businesses. Funding has established a $350 million commercial 5,000,000 additional shares of Common Stock, at its option, through paper program supported by a direct pay commercial bank letter of its Dividend Reinvestment and Stock Purchase Plan. The proceeds credit and a revolving credit facility which expires in 1991. (See Over-from any such sale will be used by Enterprise for general corporate view-Non-utility Businesses and Internal Generation of Cash from purposes including investment in PSE&G and Holdings. Enterprise's Operations - Holdings) Enterprise presently expects that Funding Common Stock is listed on the New York, Philadelphia and London will be able to renew its short-term financing program on favorable Stock Exchanges. At December 31, 1989 book value per share of terms before it expires. The ability of Holdings to raise capital at common stock amounted to $19.85 compared to $19.11 at December reasonable rates for investment in the non-utility businesses is de-31, 1988. The market value of common shares expressed as a percent- pendent upon its financial performance, general economic conditions age of book value was 147.4% and 128.2% at year-end 1989 and 1988, and conditions in the capital markets where it must compete for inves-respectively. tors' funds. As of December 31, 1989, Funding had $206 million of PSE&G - Proceeds from the sale of long-term debt, preferred stock commercial paper outstanding.
and short-term debt are used for general corporate purposes, including The various financing agreements entered into by the non-utility the refunding of certain higher-cost securities and the payment of businesses contain business and financial restrictive covenants. Hold-utility construction expenditures. PSE&G has an effective shelf regis- ings, PSRC, EDC and EGDC are required to maintain debt/equity tration statement filed with the SEC relating to the issuance and sale ratios of3:1, 3:1, 2:1and3:1, respectively, at each year end and CEA of not more than $250 million of its First and Refunding Mortgage is required to maintain a constant debt/equity ratio of 2: l. In addition, Bonds which may be sold in one or more series from time to time to Holdings must maintain an earnings/interest coverage ratio of 1.35: l provide funds for general corporate purposes including payment of its for any twelve consecutive month period. While Enterprise expects unsecured short-term obligations. PSE&G has approval from the BPU the non-utility businesses to be able to meet their respective financial to redeem approximately $300 million of its higher cost First and covenants, failure to meet such obligations could result in all outstand-Refunding Mortgage Bonds during 1990. Such redemptions will ing debt of the non-utility businesses being subject to acceleration.
depend upon market interest rates and the cost of redemption. PSE&G has received authorization from the BPU to issue and have outstand- PSE&G Customer Accounts Receivable ing not more than $500 million of its short-term obligations at any At December 31, 1989 and December 31, 1988, customer accounts one time, consisting of commercial paper and other unsecured bor- receivable were $402 million and $367 million, excluding unbilled rowings from banks and other lenders. PSE&G also has a $75 million revenues of $255 million and $169 million, respectively. Net write-off revolving credit agreement with a group of foreign banks which ex- of uncollectible accounts in 1989 was $20 million, an increase of $4 pires in 1992. PSE&G's short-term debt aggregated $328 million as of million over the previous year. Net write-off per $100 of revenues was December 31, 1989. up 5 cents to 43 cents compared to 1988 as a result of two large bank-At December 31, 1989, PSE&G could issue an additional $2.590 ruptcy credits and lower availability of Low Income Home Energy billion of Mortgage Bonds at a rate of 9. 5 % or $2. 812 billion of Pre- Assistance Funds and other subsidized funding for low income cus-ferred Stock at a rate of 8.375% under the terms of its Mortgage and tomers than in previous years. The record-setting cold weather in Restated Certificate of Incorporation. All of PSE&G's Preferred Stock December 1989, which increased PSE&G's electric and gas sales, the and certain of its First and Refunding Mortgage Bonds are listed on increase in PSE&G's 1989 RMAC rates and a BPU requirement pro-the New York Stock Exchange. The 9¥4% Series S First and Refunding hibiting the termination of electric and gas service during winter 31
months to financially needy customers had and will continue to have PSE&G anticipates filing work plans with the NJDEP by the end of an impact upon the level of receivables, uncollectible accounts and net February 1990 to investigate seven sites. It is anticipated that field write-off. work activities at these sites will begin this spring or early summer.
The costs associated with conducting these remedial investigations is Environment expected to approximate at least $2 million. Upon completion of these remedial investigations, some or all of these sites may require General some form of remedial action. While the costs required to implement The Comprehensive Environmental Response, Compensation and any required remedial action at these sites are not currently estimable, Liability Act of 1980 and certain similar State statutes authorize var- the costs may be material.
ious governmental authorities to issue orders compelling responsible On October 7, 1988, PSE&G requested that the BPU permit it to parties to take clean up actions at sites determined to present an im- defer charging to income costs previously incurred and costs to be minent and substantial danger to the public and to the environment incurred in connection with the investigation and, if necessary, reme-because of an actual or threatened release of hazardous substances. diation of its former gas plant sites, pending a determination in a gas Because of the nature of PSE&G's business, various by-products and base rate proceeding of the extent to which such costs may be recov-wastes are produced or handled which contain constituents that are ered from customers. The BPU issued an order on August 8, 1989, classified as hazardous substances under these laws. PSE&G provides approving PSE&G's request to utilize deferred accounting for such for the disposal of its wastes through licensed independent contrac- costs. As of December 31, 1989, PSE&G has deferred approximately tors, but these statutory provisions generally impose potential joint $18.9 million of costs associated with its gas plant clean up program.
and several responsibility for clean up costs on the generators of the In November 1988, PSE&G filed suit against certain of its insurers wastes without regard to fault. PSE&G has been notified with respect to recover the costs associated with addressing and resolving environ-to a number of such sites, and the clean up of hazardous wastes is mental issues at its former gas plant sites.
receiving increasing attention from the government agencies involved. Pending recovery of such costs through rates or under its insurance This trend is expected to continue. PSE&G's own sites also are sub- policies, neither of which can be assured, PSE&G will be required to ject to certain of these environmental laws, and the nature and dura- finance the clean up of its former gas plant sites. This clean up will tion of PSE&G's operations suggest that certain remedial action at require a substantial effort over a number of years. The overall cost of certain sites may be required. PSE&G cannot determine, at this time, the investigation and clean up cannot be reasonably estimated, but the costs which may result from these matters, but such costs could be amounts previously expended indicate that costs of at least $10 million material. per year could be incurred, and that the overall costs of the investiga-tion and clean up could be material.
PSE&G Gas Plant Sites The New Jersey Department of Environmental Protection (NJDEP) Clean Air has notified PSE&G that it has identified the need for PSE&G, pursu- At both the federal and state level various proposals are under active ant to a formal arrangement, to systematically investigate and, if consideration which, if enacted, would further restrict emissions of necessary, resolve environmental concerns extant at PSE&G 's former pollutants related to acid rain, control toxic emissions and/or result in manufactured gas plant sites. To date, the NJDEP and PSE&G have air permits for certain generating units being required for operation.
identified thirty-eight (38) former gas plant sites. Such proposals could result in the installation of additional air pollu-PSE&G is currently working in concert with the NJDEP to imple- tion control equipment at a substantial cost toPSE&G. These ment a plan pursuant to which PSE&G would undertake to investigate proposals could increase the cost of electricity for the Pennsylvania these sites. PSE&G anticipates that its program to assess, investigate and Ohio Valley Region generating units supplying electricity to New and, if necessary, remediate environmental concerns at the 38 former Jersey and on certain of PSE&G's electric generating stations. PSE&G gas plant sites may take up to ten (10) years to complete. PSE&G has expects to request the BPU to allow the recovery of such costs from completed a preliminary assessment of twenty-eight of these sites. At electric customers in rates, but such recovery cannot be assured. Such a minimum some form of investigation will be required at each of amounts as might be necessary to comply are not included in PSE&G's these sites. Upon completions of these remedial investigations, some estimate of construction expenditures.
or all of these sites may require remedial action.
Remedial work activities have been undertaken at four of the 38 Effect of Inflation sites, three of which are owned by third parties. Remedial work activ- The effect of inflation on Enterprise, as indicated by the Average ities at one of these sites have progressed to a level which permits Consumer Price Index (CPl-U), has slightly increased over the past PSE&G to estimate that the cost of the site remediation will approxi- three years as shown by the following average CPI-U in 1985, 1986, mate $5 million. PSE&G has funded a substantial portion of these 1987, 1988 and 1989 of 3.6%, 1.9%, 3.7%, 4.1%and4.8%, respec-costs. In the second case, PSE&G entered into a settlement agreement tively. Enterprise is affected by the decline in the purchasing power of with the owner in December 1989 for approximately $10 million. the dollar, even during periods of moderate inflation as the cost of With respect to the other two sites, PSE&G expects the investigation replacing PSE&G's utility plant would be higher than historical cost costs to approximate $1.5 million. The nature and duration of the reflected in the financial statements. Based on past practices of the industrial operations conducted at these latter two sites as well as the BPU the historical cost is the amount permitted to be recovered under preliminary findings from these investigations suggest that some form the rate regulatory process for utilities in New Jersey, including of remedial action will be necessary. PSE&G. PSE&G will seek to recover the increased cost of facilities when replacement actually occurs.
32
Financial Statement Responsibility Management of Enterprise is responsible for the preparation, integrity and Deloitte & Touche's recommendations concerning the corpora-and objectivity of the consolidated financial statements and related tion's system of internal accounting controls and has taken actions that notes of Enterprise. The consolidated financial statements and related are cost-effective in the circumstances to respond appropriately to notes are prepared in accordance with generally accepted accounting these recommendations. Management believes that, as of December principles. The financial statements reflect estimates based upon the 31, 1989, the corporation's system of internal accounting controls is judgment of management where appropriate. Management believes adequate to accomplish the objectives discussed herein.
that the consolidated financial statements and related notes present The Board of Directors carries out its responsibility of financial fairly and consistently Enterprise's financial position and results of overview through the Audit Committee, which presently consists of operations. Information in other parts of this Annual Report is also six directors who are not current employees of Enterprise. The Audit the responsibility of management and is consistent with these consoli- Committee meets periodically with management as well as with dated financial statements and related notes. representatives of the internal auditors and the independent certified The firm of Deloitte & Touche, independent certified public public accountants. The Committee reviews the work of each to ensure accountants, is engaged to audit Enterprise's consolidated financial that their respective responsibilities are being carried out, and dis-statements and related notes and issue a report thereon. Their audit is cusses related matters. Both the internal auditors and Deloitte &
conducted in accordance with generally accepted auditing standards Touche periodically meet alone with the Audit Committee and have and includes a review of internal accounting controls and tests of free access to the Audit Committee, and its individual members, at transactions. Management has made available to Deloitte & Touche any time.
all the corporation's financial records and related data, as well as the minutes of stockholders' and directors' meetings. Furthermore, man-agement believes that all representations made to Deloitte & Touche EJ~-l.U during its audit were valid and appropriate. E. James Ferland Everett L. Morris Management has established and maintains a system of internal Chairman of the Board, Vice President accounting controls to provide reasonable assurance that assets are President and Chief safeguarded, and transactions are executed in accordance with man- Executive Officer agement's authorization and recorded properly for the prevention and
~~~
detection of fraudulent financial reporting so as to maintain the integ-rity and reliability of the financial statements. The system is designed to permit preparation of consolidated financial statements and related Richard E. Hallett notes in accordance with generally accepted accounting principles. Vice President and Comptroller The concept of reasonable assurance recognizes that the costs of a system of internal accounting controls should not exceed the related February 20, 1990 benefits. Management believes the effectiveness of this system is enhanced by a program of continuous and selective training of em-ployees. 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, im-provements thereto. Management has considered the internal auditors' 33
Reportoflndeperident Public Accountants Deloitte & Tonche Certified Public Accountants Newark, New Jersey 07102 Deloitte&
Touche To the Stockholders and Board of Directors of Public Service Enterprise Group Incorporated:
We have audited the accompanying consolidated balance sheets of In our opinion, the consolidated financial statements referred to Public Service Enterprise Group Incorporated and its subsidiaries as above present fairly, in all material respects, the financial position of of December 31, 1989 and 1988, and the related consolidated state- Public Service Enterprise Group Incorporated and its subsidiaries at ments of income, retained earnings and cash flows for each of the December 31, 1989 and 1988 and the results of their operations and three years in the period ended December 31, 1989. These consoli- their cash flows for each of the three years in the period ended De-dated financial statements are the responsibility of the Company's cember 31, 1989, in conformity with generally accepted accounting management. Our responsibility is to express an opinion on these principles.
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consoli-dated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts February 20, 1990 and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
34
Consolidated Statements of Income (Thousands of Dollars) For the Years Ended December 31, 1989 1988 1987 Operating Revenues (note 2)
Electric $3,279,913 $3,090,609 $2,959,549 Gas 1,362,470 1,203,435 1,219,955 Non-Utility Businesses 162,469 100,648 31,551 Total Operating Revenues 4,804,852 4,394,692 4,211,055 Operating Expenses Operation Fuel for Electric Generation and Net Interchanged Power 740,665 642,811 555,405 Gas Purchased and Materials for Gas Produced 710,549 600,643 614,861 Other 730,707 727,709 634,494 Maintenance 316,200 349,931 302,362 Depreciation and Amortization 466,739 434,047 380,109 Amortization of Property Abandonments and Write-Down (note 4) 57,775 43,379 22,526 Taxes Federal Income Taxes (note 8) 208,261 162,144 292,169 New Jersey Gross Receipts Taxes 574,145 534,789 522,870 Other 60,001 57,235 63,960 Total Operating Expenses 3,865,042 3,552,688 3,388,756 Operating Income 939,810 842,004 822,299 Other Income Allowance for Funds Used During Construction - Equity 16,664 14,926 34,001 Amortization of Discounts on Property Abandonments and Disallowance - net (note 4) 8,670 38,761 15,011 Miscellaneous - net 820 (l,196) 6,031 Total Other Income 26,154 52,491 55,043 Income Before Interest Charges and Dividends on Preferred Stock 965,964 894,495 877,342 Interest Charges (note 5)
Long-Term Debt 370,643 311,970 304,494 Short-Term Debt 19,598 17,194 10,644 Other 21,565 18,464 21,655 Total Interest Charges 411,806 347,628 336,793 Allowance for Funds Used During Construction - Debt and Capitalized Interest (16,991) (13,055) (18,665)
Net Interest Charges 394,815 334,573 318,128 Preferred Stock Dividend Requirements 29,012 31,336 38,763 Net Income $ 542,137 $ 528,586 $ 520,451 Shares of Common Stock Outstanding (A)
End of Year 211,100,418 205,350,418 205,350,418 Average for Year 206,878,500 205,350,418 203,872,592 Earnings per Average share of Common Stock (A) $2.62 $2.57 $2.55 Dividends paid per share of Common Stock (A) $2.05 $2.01 $1.99 (A) Reflects 3-for-2 common stock split effective July I, 1987.
See Notes to Consolidated Financial Statements.
35
Consolidated Balance Sheets (Thousands of Dollars) December 31, 1989 1988 Assets Utility Plant - Original cost Electric $10,215,942 $ 9,878,787 Gas 1,661,724 l,602,414 Common 357,327 328,098 Total 12,234,993 11,809,299 Less Accumulated Depreciation and Amortization 3,465,899 3,210,678 Net 8,769,094 8,598,621 Nuclear Fuel, net of accumulated amortization - 1989, $127,559; 1988, $136,509 149,529 131,110 Net Utility Plant in Service 8,918,623 8,729,731 Construction Work in Progress 353,466 295,497 Plant Held for Future Use, net of accumulated depreciation- 1989, $30,000; 1988, $30,000 64,546 64,275 Net Utility Plant 9,336,635 9,089,503 Other Plant and Investments Long-Term Investments (note 6) 925,307 560,690 Oil and Gas Property, Plant and Equipment, net of accumulated depreciation and amortization -
1989, $416,893; 1988, $367,650 608,250 286,552 Real Estate Property and Equipment, net of accumulated depreciation - 1989, $2,426; 1988, $450 121,040 92,576 Other Plant, net of accumulated depreciation and amortization - 1989, $3,663; 1988, $3,045 25,277 25,785 Nuclear Decommissioning and Other Special Funds 69,732 8,635 Other Investments - net 36,028 12,016 Total Other Plant and Investments 1,785,634 986,254 Current Assets Cash and Cash Equivalents (note 7) 83,250 82,409 Accounts Receivable, net of allowance for doubtful accounts - 1989, $16,202; 1988, $15,224 516,262 468,764 Unbilled Revenues 255,092 168,520 Fuel, at average cost 169,833 175,866 Materials and Supplies, at average cost (note 4) 235,810 112,289 Prepayments 55,601 41,142 Total Current Assets 1,315,848 1,048,990 Deferred Debits (note 4)
Property Abandonments 230,741 261,433 Oil and Gas Property Write-Down (note 11) 91,876 105,321 Underrecovered Electric Energy and Gas Costs - net 68,481 128,504 Unamortized Debt Expense 57,541 62,430 Unrecovered Environmental Costs (note 11) 18,883 3,459 Unamortized Loss on Sale of Naphtha (note 2) 10,405 Other 3,390 4,475 Total Deferred Debits 481,317 565,622 Total $12,919,434 $11,690,369 See Notes to Consolidated Financial Statements.
36
(Thousands of Dollars) December 31, 1989 1988 Capitalization and Liabilities Capitalization (notes 3 and 5)
Common Equity Common Stock $ 2,857,974 $ 2,710,343 Retained Earnings 1,332,739 1,213,260 Total Common Equity 4,190,713 3,923,603 Subsidiaries' Securities and Obligations Preferred Stock Without Mandatory Redemption 429,994 429,994 Long-Term Debt 4,293,578 3,944,776 Capital Lease Obligations (note 9) 54,513 54,966 Total Capitalization 8,968,798 8,353,339 Current Liabilities Long-Term Debt and Capital Lease Obligations due within one year 54,599 54,303 Commercial Paper and Loans (note 10) 544,324 307,530 Accounts Payable 418,095 345,552 New Jersey Gross Receipts Taxes Accrued 555,182 513,955 Deferred Income Taxes on Unbilled Revenues (note 8) 15,155 34,782 Other Taxes Accrued 43,645 31,983 Interest Accrued 113,597 112,329 Other 119,755 103,555 Total Current Liabilities 1,864,352 1,503,989 Deferred Credits Accumulated Deferred Income Taxes (note 8)
Depreciation and Amortization 1,084,749 975,513 Leasing Activities 135,131 48,660 Property Abandonments (note 4) 106,560 118,384 Oil and Gas Property Write-Down (note 11) 43,698 50,091 Deferred Electric Energy and Gas Costs - net 23,271 45,685 Unamortized Debt Expense 17,940 23,452 Other 22,757 15,417 Accumulated Deferred Investment Tax Credits (note 8) 501,038 525,687 Other (note 4) 151,140 30,152 Total Deferred Credits 2,086,284 1,833,041 Commitments and Contingent Liabilities (note 11)
Total $12,919,434 $11,690,369 37
Consolidated Statements of Cash Flows cfJUa
-u-(Thousands of Dollars) For the Years Ended December 31, 1989 1988 1987 Cash Flows from Operating Activities:
Net I ncome $ 542,137 $ 528,586 $ 520,451 Adju stments to reconcile net income to net cash flows from operating activities:
Depredation and Amortization 534,148 486,567 408,160 Am ortization of Nuclear Fuel 63,394 72,532 90,134 Re covery (Deferral) of Electric Energy and Gas Costs - net 60,023 (87 ,966) (127,381)
Amortization of Discounts on Property Abandonments and Disallowance (15,443) (69,966) (27 ,266)
Provision for Deferred Income Taxes - net 70,541 140,077 261,197 In¥estment Tax Credits - net (24,424) (22,478) (39,294)
Al lowance for Funds Used During Construction - Debt and Equity and Capitalized Interest (33,655) (27,981) (52,666)
Proceeds from Leasing Activities 56,561 27,421 68,830 Deferred Environmental Costs (15,424) (3,459)
Un amortized Loss on Sale of Naphtha (10,405)
Changes in certain current assets and liabilities Net decrease (increase) in Accounts Receivable and Unbilled Revenues (134,070) (84,812) 24,846 Net decrease (increase) in Inventory-Fuel and Materials and Supplies (53,851) (8,642) 4,663 Net increase (decrease) in Accounts Payable 72,543 (3,502) 58,610 Net increase (decrease) in Accrued Taxes 33,262 10,483 (101,148)
Net change in Other Current Assets and Liabilities 3,009 687 18,357 Ot her (6,136) 9,317 5,392 Net cash provided by operating activities 1,142,210 966,864 1,112,885 Cash Flows from Investing Activities:
Addi tions to Utility Plant, excluding AFDC (644,218) (537,208) (605,980)
Addi tions to Oil and Gas Property, Plant and Equipment (384,335) (182,638) (14,693)
Net increase in Long-Term Investments (337,909) (339,303) (200,906)
Inerease in Decommissioning Funds (57,952) (8,474)
Other 4,201 (9, 125) (16,876)
Net cash used in investing activities (1,420,213) (1,076,748) (838,455)
Cash Flows from Financing Activities:
Net increase (decrease) in Short-Term Debt 226,410 (77,770) 141,304 Issuanee of Long-Term Debt 383,246 809,465 356,018 Redemption of Long-Term Debt and Other Obligations (59,440) (175,048) (423,526)
Issuanee of Common Stock 147,581 78,640 Redemption of Preferred Stock (32,616) (166,760)
Cash Dividends Paid on Common Stock (423,958) (412,767) (406,457)
Other 5,005 3,860 (2,720)
Net cash provided by (used in) financing activities 278,844 115,124 (423,501)
Net increase (decrease) in Cash and Cash Equivalents 841 5,240 (149,071)
Cash and Cash Equivalents at Beginning of Year 82,409 77,169 226,240 Cash and Cash Equivalents at End of Year $ 83,250 $ 82,409 $ 77,169 Income Taxes Paid $ 93,783 $ 43,337 $ 59,608 Interest Paid $ 370,573 $ 312,414 $ 295,025 SeeN otes to Consolidated Financial Statements.
38
[ ________
Consolidated Statements of Retained Earnings (Thousands of Dollars) For the Years Ended December 31, 1989 1988 1987 Balance January 1 $1,213,260 $1,096,933 $ 993,836 Add Net Income 542,137 528,586 520,451 Total 1,755,397 1,625,519 1,514,287 Deduct Cash Dividends on Common Stock (A) 423,958 412,767 406,457 Adjustments to Retained Earnings (1,300) (508) 10,897 Total Deductions 422,658 412,259 417,354 Balance December 31 $1,332,739 $1,213,260 $1,096,933 (A) The ability of Enterprise to declare and pay dividends is contingent upon its receipt of dividend payments from its subsidiaries. PSE&G, Enterprise's principal subsidiary, has restrictions on the payment of dividends which are contained in its 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, 1989 was $10,000,000.
See Notes to Consolidated Financial Statements.
39
Notes to Consolidated Financial Statements
- 1. Organization and Summary of Significant Accounting Policies nuclear decommissioning of $113.0 million and $95.4 million, re-spectively. In accordance with orders from the BPU, PSE&G has Organization established external nuclear decommissioning trust funds for all its Public Service Enterprise Group Incorporated (Enterprise) has two nuclear units. The IRS has ruled that payments into qualified funds wholly-owned subsidiaries, Public Service Electric and Gas Company are tax deductible. As of December 31, 1989 and 1988 PSE&G has
~PSE&G) and Enterprise Diversified Holdings Incorporated (Hold- contribu.ted $59.7 million and $8.5 million into external qualified and mgs). ~nt~rprise's principal subsidiary, PSE&G, is a public utility nonquahfied nuclear decommissioning trust funds, respectively.
operatmg m the State of New Jersey. Holdings was incorporated on June 20, 1989, and on July 1, 1989 it became the parent of Enterprise's Amortization of Nuclear Fuel - PSE&G non-utility subsidiaries: Public Service Resources Corporation Nuclear energy burnup costs are charged to fuel expense on a units-(PSRC), Energy Development Corporation (EDC), Community En- of-production basis over the estimated life of the fuel. Rates for the ergy Alternatives Incorporated (CEA), Enterprise Group Development recovery of fuel used at all nuclear units include a provision of one Corporation (EGDC), and PSEG Capital Corporation (Capital). En- mill per kilowatthour of nuclear generation for spent fuel disposal terprise Capital Funding Corporation (Funding), a wholly-owned costs, which is paid quarterly to the United States Department of subsidiary of Holdings, was also formed on June 20, 1989. Energy.
Enterprise has claimed an exemption from regulation by the Secu-rities and Exchange Commission as a registered holding company Revenues and Fuel Costs - PSE&G under the Public Utility Holding Company Act of 1935, except for Revenues are recorded based on services rendered to customers dur-Section 9(a)(2) which relates to the acquisition of voting securities of ing each accounting period. PSE&G records unbilled revenues repre-an elec~ric or gas utility company. Also, Enterprise is not subject to senting the estimated amount customers will be billed for services regulatmn by the New Jersey Board of Public Utilities (BPU) or the rendered from the time meters were last read to the end of the respec-Federal Energy Regulatory Commission (FERC). tive accounting period.
Rates include projected fuel costs for electric generation, purchased Consolidation Policy and interchanged power, gas purchased and materials used for gas The consolidated financial statements include the accounts of Enter- production.
prise and its subsidiaries. All significant intercompany accounts and Any under or overrecoveries are deferred and included in operations transactions have been eliminated in consolidation. Certain reclassifi- in the period in which they are reflected in rates.
cation of prior years' data has been made to conform with the cur-rent presentation. Oil and Gas Accounting - EDC EDC follows the full-cost method of accounting. Under this method, Regulation - PSE&G all exploration and development costs for successful and unsuccessful The acc~unting and rates of PSE&G are subject in certain respects to wells are capitalized and amortized on the units-of-production basis.
the reqmrements of the BPU and FERC. As a result, PSE&G main-tains its accounts in accordance with their prescribed Uniform System Long-Term Investments - Holdings of Accounts, which are the same. The applications of generally ac- Enterprise, through Holdings' subsidiary, PSRC, has invested in cepted accounting principles by PSE&G differs in certain respects marketable securities, which are valued at the lower of cost or market from applications for non-regulated businesses. and va:ious leases and limited partnerships. Through Holdings' real '
estate mvestment and development subsidiary, EGDC, it has become a Utility Plant and Related Depreciation - PSE&G participant in the non-residential real estate markets. (See Note 6.)
Additions to utility plant and replacements of units of property are capitalized at original cost. The cost of maintenance, repairs and replacements of minor items of property is charged to appropriate Income Taxes expense accounts. At the time units of depreciable properties are Enterprise and its subsidiaries file a consolidated Federal income tax retire~ or otherwise disposed of, the original cost less net salvage return and income taxes are allocated to Enterprise's subsidiaries value 1s charged to accumulated depreciation. based on taxable income or loss of each.
For financial reporting purposes, depreciation is computed under Deferred income taxes are provided for differences between book the st.ra.ight~line method. Depreciation is based on estimated average and taxable income. For PSE&G, deferred income taxes are provided remammg hves of the several classes of depreciable property. These to the extent permitted for ratemaking purposes.
estimates are reviewed on a regular basis and necessary adjustments Investment and energy tax credits are deferred and amortized over are made as approved by the BPU. Depreciation provisions stated in the useful lives of the related property including nuclear fuel.
percentages of original cost of depreciable property were 3.47% in In December 1987, the Financial Accounting Standards Board 1989, 1988 and 1987. (FASB) issued Statement of Financial Accounting Standards No. 96 (SFAS 96), "Accounting for Income Taxes:' which requires the recog-Nuclear Decommissioning Funds - PSE&G nition of deferred tax liabilities adjusted for the effects of enacted Depreciation applicable to nuclear plant includes estimated costs of changes in tax laws or rates. The effective date of SFAS 96 was for decommissioning. At December 31, 1989 and 1988, the accumulated fiscal years beginning after December 15, 1988. However, the effec-provision for depreciation and amortization includes a reserve for tive date has been deferred to fiscal years beginning after December 15, 1991.
40
As a result of the accounting and ratemaking requirements of the year impact of the TRA which further reduced the federal income tax BPU and FERC with respect to PSE&G, the primary effect of adopt- rate from the 1987 level of 39.95% to 34% for 1988 and forward.
ing SFAS 96 upon Enterprise's financial reporting will be on the Excluding the interest portion mentioned below, there was no effect presentation of its financial position with minimal effect on its income on earnings resulting from the TRA ruling. As a result of these ac-statement. tions, PSE&G's net increase in electric rates amounted to approxi-mately $198 million on an annual basis. The BPU also ordered PSE&G Allowance for Funds Used During Construction (AFDC) and to reduce its electric rates to customers by $10 million for interest on Capitalized Interest overrecovered electric energy costs in 1987, write off $5.3 million of PSE&G - AFDC represents the cost of debt and equity funds used to interest previously accrued and increase the amount of the 1987 nu-finance the construction of new utility facilities. The amount of clear performance standard penalty by $2 million. The write-off of AFDC capitalized is also reported in the Consolidated Statements of interest and the increased amount of the 1987 nuclear performance Income as a reduction of interest charges for the borrowed funds penalty reduced PSE&G's 1988 net income by $4.8 million.
component and as other income for the equity funds component. On September 15, 1989, PSE&G filed a Motion with the BPU re-The compounded rate used for calculating AFDC in 1989 was questing an annualized increase of $24. 8 million in the LEAC to
_10.68% and in 1988 was 9.91 %. From February 16, 1987 through become effective with electric service rendered on and after January December 31, 1987 the compounded rate used was 10.33%. Prior to 1, 1990 and remain in effect for the 18-month period ending June 30, February 16, 1987 the rate of 8.5%, which was not a compounded 1991.
rate, had been used for several years. These rates are within the limits On February 7, 1990 the BPU approved a Stipulation providing for set by the FERC formula. a $24.1 million annualized increase in the LEAC for the period ending June 30, 1991. Additional issues included in the Stipulation provided Holdings - The operating subsidiaries of Holdings capitalize cost for the retention of $10.5 million of revenues related to the sale of allocable to construction expenditures at the prevailing cost of bor- capacity to Atlantic Electric and Potomac Electric previously recorded rowed funds. as a reduction to PSE&G's energy costs and an average 9% reduction in street lighting customer rates. The collection of amounts related to Pension Plan and Other Postretirement Benefits previously accrued interest on overcollections was deferred pending a The employees of PSE&G and participating affiliates completing one decision by the BPU.
year of service are covered by a non-contributory trusteed pension The BPU also approved a Stipulation on February 7, 1990 which plan. The policy is to fund pension costs accrued. PSE&G also pro- provided that the TRA-86 issues raised in the LEAC, which requested vides certain health care and life insurance benefits to its active and annual increases in electric base rates of $23.3 million and $29.7 retired employees. The current cost of these benefits is charged to million effective January 1, 1990 and January 1, 1991, respectively, expense when paid and is currently being recovered from ratepayers. were identical to those previously litigated in the gas Raw Materials In an exposure draft issued in February 1989, FASB indicated that it Adjustment Clause (RMAC) proceeding. The resolution of revenue has tentatively decided that accrual accounting is appropriate for requirements in that action now before the BPU (see Gas below) future postretirement benefits. Accrual accounting would require would also apply to electric.
PSE&G to record a liability on its balance sheet for any projected benefit obligation in excess of plan assets. Gas On September 24, 1987 the BPU approved a Stipulation for an annual
- 2. Rate Matters reduction in PSE&G's RMAC of $61 million for the period October 1, 1987 through September 30, 1988. On June 15, 1988, the BPU ap-Electric proved a reduction of $3 million in PSE&G's gas base rate related to In 1987, the BPU issued an Order, authorizing an increase in PSE&G's the second year impact of the TRA. This reduction was in addition to electric base rates designed to produce additional annual revenues of the $13.3 million reduction previously approved by the BPU which
$421.5 million. Also, the decision reduced PSE&G's electric Level- became effective January 1, 1988. On July 20, 1988, PSE&G filed a ized Energy Adjustment Clause (LEAC) by $697.7 million over a petition with the BPU requesting a $45.6 million RMAC rate increase compressed 10 1/z month period commencing February 16, 1987 and on an annual basis for the period October 1, 1988 through September reduced electric base rates by $77.2 million for the recognition of the 30, 1989. PSE&G also deferred $2.8 million of additional revenues 1987 impact of the Tax Reform Act of 1986 (TRA). The net effect was relating to the TRA-86 which the BPU decided was to be refunded to an overall electric revenue decrease of $353.4 million. The decision customers during the RMAC period ending September 1989.
allows a return on common equity of 13% and an overall rate of return On January 11, 1989, the BPU approved a Stipulation providing for of 10.65% on rate base. On June 15, 1988, the BPU announced ap- an increase of $42.7 million in the RMAC for the nine-month period proval of an increase in PSE&G's LEAC of $294 million on an annual ending September 30, 1989. A major area of disagreement between basis, effective June 17, 1988, which remained in effect through De- the parties had been the collection and allocation of FERC-approved cember 31, 1989. The increase included the recovery and amortization take-or-pay costs being passed through by the gas pipeline companies over five years of $70 million of deferred replacement power costs to gas distribution companies such as PSE&G. The issue of take-or-associated with outages of the electric generators at the Salem Gener- pay charges was decided by the BPU on December 16, 1988 and allowed ating Station during 1983, 1984 and 1985. (See Note 4 Deferred PSE&G to include such charges in the RMAC, subject to refund.
Items) The BPU's LEAC Order also included a reduction in electric On June 30, 1989 PSE&G filed a Motion with the BPU requesting a base rates of $96 million on an annual basis attributable to the second $91.2 million increase in RMAC rates on an annual basis for the 41
period October 1, 1989 through September 30, 1990. On October 3, the TRA-86 and the pricing of Energy Development Corporation gas 1989, as a result of a settlement agreement approved by FERC with to PSE&G were not stipulated and are subject to BPU approval.
Transcontinental Gas Pipe Line Corporation (TRANSCO) involving On January 17, 1990, the BPU approved a Stipulation entered into take-or-pay costs, the effect of which represented a cost reduction to on December 18, 1989, by PSE&G, the BPU's staff, and the New PSE&G of $45 million, PSE&G filed revised cost estimates with the Jersey Industrial Energy Users Association resolving all take-or-pay BPU requesting a $57.9 million increase in RMAC rates. On Decem- issues. Under the terms of the Stipulation all take-or-pay charges ber 6, 1989, the BPU approved a stipulation among the parties and already collected are no longer subject to refund. The BPU is permit-granted an increase of $23.7 million, or 2% in the 1989-1990 RMAC ting PSE&G to recover $155 million of estimated contractual take-or-for the period ending September 30, 1990. Additional issues that were pay costs. 1\vo-thirds of these costs will be recovered as incurred.
approved included recovery of all take-or-pay charges for the 1989-90 However about $43 million of the payments to TRANSCO will be RMAC period (see paragraph below), changes in pricing of gas deliv- recovered over a nine-year period which began in October 1987.
ered to the electric department, recovery of $10.7 million in raw ma- PSE&G estimates that it may incur approximately $2 million in carry-terial costs (naphtha) over a three-year period resulting from the ing charges pertaining to the nine-year recovery period related to the retirement of the Linden SNG plant in July 1989 and a name change TRANSCO payments, since it is required to meet its take-or-pay for the RMAC to Levelized Gas Adjustment Charge (LGAC). Issues obligations to pipeline suppliers over five years.
related to PSE&G's proposal to increase gas base rates $4.8 million PSE&G cannot predict the timing or result of any future decision effective January 1, 1990 to avoid overrefunding amounts related to by the BPU on the outstanding issues mentioned above.
- 3. Schedule of Consolidated Capital Stock Outstanding Current Redemption December 31, (Thousands of Dollars) Shares Price Per Share 1989 1988 Enterprise Common Stock Common Stock (no par) - authorized 500,000,000 shares (note A); issued and outstanding at December 31, 1989, 211,100,418 shares, and at December 31, 1988, 205,350,418 shares (5,750,000 shares issued for $147,631,250 in 1989; no shares issued in 1988; and 3,063,702 shares issued for $78,640,000 in 1987, (note B). $2,857,974 $2,710,343 Enterprise Preferred Stock (note C)
PSE&G Cumulative Preferred Stock (note D)
Without Mandatory Redemption (note E)
$100 par value - Series 4.08% 250,000 $103.00 $ 25,000 $ 25,000 4.18% 249,942 103.00 24,994 24,994 4.30% 250,000 102.75 25,000 25,000 5.05% 250,000 103.00 25,000 25,000 5.28% 250,000 103.00 25,000 25,000 6.80% 250,000 102.00 25,000 25,000 7.40% 500,000 101.00 50,000 50,000 7.52% 500,000 101.00 50,000 50,000 8.08% 150,000 101.00 15,000 15,000 7.80% 750,000 101.00 75,000 75,000 7.70% 600,000 100.79 60,000 60,000 8.16% 300,000 104.82 30,000 30,000 Total Preferred Stock Without Mandatory Redemption (no changes in 1988 and 1987) $ 429,994 $ 429,994 Notes: If dividends upon any shares of Preferred Stock are in arrears in an amount equal to (A) Total authorized shares includes l,234,353 unissued shares of Common Stock under the annual dividend thereon, voting rights for the election of a majority of the Board of Enterprise's Dividend Reinvestment and Stock Purchase Plan, and PSE&G's Employee Directors become operative and continue until all accumulated and unpaid dividends Stock Purchase Plan, Thrift and Tax-Deferred Savings Plan and Payroll-Based Stock thereon have been paid, whereupon all such voting rights cease, subject to being again Ownership Plan. revived from time to time.
Enterprise's Dividend Reinvestment and Stock Purchase Plan has been amended, On October 1, 1987, PSE&G redeemed all of the 12.80% Series of Cumulative Pre-effective March 1, 1990, to authorize the issuance and sale of up to 5,000,000 additional ferred Stock with mandatory redemption $100 par value, 350,000 shares.
Shares of Common Stock. Shares of Common Stock will be purchased for the plan On September 1, 1988, PSE&G redeemed all of the 11.62% Series of Cumulative directly from Enterprise at its sole discretion and/or in the open market. Preferred Stock with mandatory redemption $100 par value, 300,000 shares.
(B) Includes $959,000 paid in lieu of issuing 36,847 fractional shares. As of December 31, 1989 and 1988 there were no shares of Preferred Stock with (C) Enterprise has authorized a class of 50 million shares of Preferred Stock without par mandatory redemption outstanding.
value, none of which is outstanding. (E) At December 31, 1989 the annual dividend requirement and embedded dividend cost (D) There are 3,200,058 shares of $100 par value and 10,000,000 shares of $25 par for Preferred Stock without mandatory redemption were $29,012,000 and 6.75%,
value Cumulative Preferred Stock which are authorized and unissued, and which upon respectively.
issuance may or may not provide for mandatory sinking fund redemption.
42
- 4. Deferred Items Statement of Financial Accounting Standards No. 90 The following table illustrates the effect on income of Statement of Financial Accounting Standards No. 90 (SPAS 90) "Regulated Enter-prises - Accounting for Abandonments and Disallowances of Plant Costs," as amended by Technical Bulletin No. 87-2 (TB):
(Thousands of Dollars)
For the Years Ended December 31, 1989 1988 1987 Property Abandonments Amortization of Discount $13,739 $68,255 $25,326 Related Income Taxes (6,320) (30,750) (11,739)
Property Abandonments - net 7,419 37,505 13,587 Disallowed Costs Hope Creek I Amortizaton of Discount 1,704 1,711 1,940 Related Income Taxes (453) (455) (516)
Hope Creek - net 1,251 1,256 1,424 Effects of application of SFAS 90 $ 8,670 $38,761 $15,011 The tax effects of discounting of abandonments were calculated using the tax rates applicable to related deferred tax balances.
Property Abandonments The BPU has authorized PSE&G to recover the after-tax abandonment costs from customers as follows:
(Millions of Dollars)
Recovery Recovery 1990 Amortization of Amount Authorized After Tax Year Period- Net Discount Projects Abandoned Years Pre-Tax After Tax 1989 1990 After Tax Atlantic Project 1978 20 $319.9 $174.5 $ 8.7 $ 8.7 $3.3 Hope Creek Unit 2 1981 15 290.8 172.2 12.9 11.4 1.8 LNG Project 1984 15 69.3 41.4 2.8 2.8 .8 Uranium Projects 1985 & 1986 15 37.l 21.7 1.4 1.4 .6 Other 1974 20 6.1 6.1 .3 .3 The following table reflects the application of SPAS 90 and the TB on erty under SPAS 90 was between 8.545% and 14.446%. The net-of-property abandonments for which no return is earned. The discount tax discount rate used in accordance with the TB was between 4.443%
rate range used to calculate the present value of the abandoned prop- and 7.801%.
(Thousands of Dollars)
December 31, 1989 1988 Discounted Discounted Property Abandonments Cost Taxes Cost Taxes Cost Taxes Cost Taxes Atlantic Project $154,992 $ 65,141 $121,723 $ 51,171 $170,052 $ 71,477 $130,621 $ 54,916 Hope Creek Unit 2 72,808 42,762 63,031 37,434 94,831 51,770 80,020 43,699 LNG Project 30,489 11,624 25,697 9,826 35,062 13,399 28,837 11,052 Uranium Projects 24,745 10,434 19,181 8,129 27,219 11,460 20,599 8,717 Other 1,213 1,109 1,515 1,356
$284,247 $129,961 $230,741 $106,560 $328,679 $148,106 $261,433 $118,384 43
Under(Over)recovered Electric Energy and Gas Costs - net 5. Schedule of Consolidated Long-Term Debt Recoveries of electric energy and gas costs are determined by the (Thousands of Dollars) December 31, BPU. (See Note 2) Earnings are not directly affected by increases or Interest Rates Due 1989 1988 decreases in the costs of fuel or interchanged power, because such PSE&G costs are adjusted monthly to match amounts recovered through reve-First and Refunding Mortgage nues. However, the carrying of underrecovered fuel costs ultimately Bonds (note A) increases financing costs. These clauses also provide that any over or 5Ys% 1989 $ $ 50,000 underrecoveries at the end of the period, along with interest in the 431.% 1990 50,000 50,000 case of an overrecovery, will be included in the average cost used to 43/s%-8%% 1992 240,000 240,000 determine the rate for the succeeding levelized period. 43/s%-9Ys% 1993 190,000 190,000 4%%-8%% 1994 210,000 210,000 The following table reflects the balances in PSE&G 's deferred fuel 4%%-9%% 1995-1999 710,000 610,000 recovery accounts: 7Yz%-12% 2000-2004 465,430 466,430 8Ys%-9%% 2005-2009 498,300 500,300 Cumulative 8%%-9 1/s% 2015-2019 422,000 422,000 (Millions of Dollars) Under( Over)recovery 5%-8% 2037 15,001 15,001 December 31, 1989 1988 Pollution Control 6.30%-6.90% 2006-2009 59,910 59,910 LEAC 6.80%-10\12% 2010-2014 522,500 522,500 Deferred Fuel Cost $56.1 $ 77.1 8.10% 2017 25,000 25,000 Deferred Replacement Power Costs - Salem 37.1 61.8 Total First and Refunding Mortgage Bonds 3,408,141 3,361,141 Tota!LEAC 93.2 138.9 (10.4) Debenture Bonds Unsecured RMAC Deferred Fuel Cost (24.7) 5%% 1991 31,199 32,358 Net Underrecovery $68.5 $128.5 7Y.% 1993 22,614 23,447 6%-9% 1995-1998 139,473 143,775 Total Debenture Bonds Unsecured 193,286 199,580 On June 15, 1988, the BPU announced approval of an increase in PSE&G's LEAC, which included the recovery and amortization, over Principal Amount Outstanding 3,601,427 3,560,721 Amounts Due Within One Year (note B) (54,038) (53,894) five years, of $70 million of deferred replacement energy costs asso-Net Unamortized Discount (23,179) (24,740) ciated with the outages of the electric generators at both units of the Total Long-Term Debt of PSE&G 3,524,210 3,482,087 Salem Generating Station in the years 1983, 1984 and 1985.
Capital (note C)
Unamortized Debt Expense Senior Notes Costs associated with the issuance of debt by PSE&G are deferred and 9.875%-10.05% 1998 250,000 214,000 amortized over the lives of the related issues. Amounts shown in the Medium-Term Notes Consolidated Balance Sheets consist of costs associated with PSE&G's 8.65%-9.12% 1991 80,000 80,000 reacquisition of First and Refunding Mortgage Bonds. 8.95%-9.72% 1993 88,000 88,000 8.95%-9.93% 1995-1999 332,000 82,000 The redemption costs of the tendered or redeemed debt have been deferred and are being amortized over the lives of the new securities Principal Amount Outstanding 500,000 250,000 Net Unamortized Discount (2,568) (1,311) issued to replace the older, higher-cost securities. PSE&G expects to recover $5.8 million of these costs in 1990. Total Medium-Term Notes 497,432 248,689 Total Long-Term Debt of Capital 747,432 462,689 Materials and Supplies Inventory EGDC Mortgage Notes In January 1989, PSE&G changed its method of accounting for certain 10.65%-12.75% 2012 7,169 spare parts to the deferred (inventory) method, whereby all purchases 10.4% 1992 14,606 of spare parts under inventory control are charged into the Materials 21,775 and Supplies inventory account until such time that the items are used Amounts Due Within One Year (79) or consumed and are then charged to the appropriate expense or capi- Total Long-Term Debt of EGDC 21,696 tal accounts. Prior to 1989, certain purchases of spare parts were EDC Bank Loans - 12% 1995 270 being charged directly to expense at the time of purchase, with a Amounts Due Within One Year (note B) (30) current deduction being taken for tax purposes. Total Long-Term Debt of EDC 240 On October 4, 1988, PSE&G filed a request with the Internal Reve- Total Long-Term Debt of Holdings 769,368 462,689 nue Service for a tax ruling concerning the change in accounting for Consolidated Long-Term Debt (note D) $4,293,578 $3,944,776 spare parts. If approved, this would allow PSE&G to account for the resulting adjustment for income tax purposes over a six-year period beginning January 1989. PSE&G has a $75 million Revolving Credit Agreement with a group of foreign banks which expires in 1992.
PSE&G recorded an increase in its Materials and Supplies inventory account for the value placed on these spare parts, as of January 31, 1989. The associated income statement impact has been deferred and is being amortized over a six year period. As of December 31, 1989, the unamortized balance of this deferred credit was $63.6 million.
44
Notes: deferred investment tax credits. Unearned and deferred income is (A) PSE&G's Mortgage, securing the First and Refunding Mortgage Bonds, constitutes recognized at a level rate of return from each lease during the periods a direct first mortgage lien on substantially all PSE&G property and franchises.
in which the net investment is positive.
(B) The aggregate principal amounts of requirements for sinking funds and maturities Partnership investments are those of PSRC, CEA and EGDC and for each of the five years following December 31, 1989 are as follows: are undertaken with other investors. PSRC is a limited partner in a (Thousands of Dollars) leveraged buyout fund and is committed to make investments from Sinking Funds Maturities time to time, upon the request of the general partner, in such amounts as the general partner may require up to $150 million. As of Decem-Year PSE&G Capital PSE&G Capital EGDC EDC Total ber 31, 1989, $96 million had been invested.
1990 $ 4,038 $ $50,000 $ $ 79 $ 30 $ 54,147 Marketable securities are those of PSRC and are stated at the lower 1991 6,000 31,199 80,000 88 30 117,317 1992 6,000 240,000 14,703 30 260,733 of aggregate cost or market value, adjusted, where appropriate, for 1993 6,000 42,500 212,614 88,000 108 30 349,252 amortization of premium and discount computed using the interest 1994 5,200 42,500 210,000 121 30 257,851 method. The net unrealized loss which is the difference between the
$27,238 $85,000 $743,813 $168,000 $15,099 $150 $1,039,300 market price and the cost of equity securities, net of applicable income taxes, is included in stockholders' equity. As of December 31, 1989 For sinking fund purposes, certain First and Refunding Mortgage Bond issues require and December 31, 1988, the cost of PSRC's marketable securities annually the retirement of $18,450,000 principal amount of bonds or the utilization of were $137.5 million and $79.6 million, respectively. Realized invest-bondable property additions at 60% of cost. The portion expected to be met by property ment gains and losses on the sale of investment securities are deter-additions has been excluded from the table above. Also, PSE&G may, at its option, retire mined utilizing the specific cost identification method.
additional amounts up to $6,200,000 annually through sinking funds of certain Deben-ture Bonds. Additional bonds, if any, resulting from the election of this option are included in Jong-term debt due within one year. 7. Cash and Cash Equivalents (C) Capital is providing $750,000,000 aggregate principal amount of Long-Term debt financing for cash needs of the non-utility businesses under a support agreement with Enterprise.
The balances at December 31, 1989 and 1988 consist primarily of (D) At December 31, 1989, the annual interest requirement on Long-Term Debt was highly liquid marketable securities and debt instruments purchased
$372, 995 ,000 of which $286,355 ,000 was the requirement for First and Refunding with a maturity of three months or less. The 1989 balance of tempo-Mortgage Bonds. The embedded interest cost on Long-Term Debt was 8.97%. rary investments was invested in commercial paper. In 1988 the bal-ances of temporary investments were invested in repurchase
- 6. Long-Term Investments agreements and commercial paper.
Long-Term Investments are primarily those of Enterprise's non-utility 8. Federal Income Taxes operating businesses: PSRC (diversified passive investments), CEA (cogeneration and small power production facilities) and EGDC (diver- A reconciliation of reported Net Income with pre-tax income and of sified non-residential real estate development and investments). A Federal income tax expense with the amount computed by multiplying summary of long-term investments is as follows: pre-tax income by the statutory Federal income tax rates of 34% in (Millions of Dollars) 1989 1988 1989 and 1988 and 39.95%, a transitional weighted rate for 1987, is as follows:
Lease Agreements:
Leveraged Leases $354 $243 (Thousands of Dollars) 1989 1988 1987 Direct-Financing Leases 98 JOO Net Income $542,137 $528,586 $520,451 Other Leases 19 20 Preferred stock dividend requirements 29,012 31,336 38,763 Total 471 363 Subtotal 571,149 559,922 559,214 Partnerships:
Federal income taxes included in:
General Partnerships 90 29 Operating Income:
Limited Partnerships 208 76 Current provision 112,046 90,153 65,214 Total 298 105 Provision for deferred income taxes - net (A) 119,606 89,744 248,635 Investment tax credits - net (23,391) (17,753) (21,680)
Joint Venture 10 12 Marketable Securities 137 78 Total included in operating income 208,261 162,144 292,169 Corporate-owned Life Insurance (PSE&G) 9 3 Miscellaneous other income:
Current provision (11,411) (14,300) (17,084)
Total Long-Term Investments $925 $561 Provision for deferred income taxes (A) 10,906 13,087 17,939 SPAS 90 deferred income tax (A) 6,773 31,205 12,255 Leveraged leases are those of PSRC and are reported net of principal Total Federal income tax provisions 214,529 192,136 305,279 and interest on nonrecourse loans and unearned income, including Pre-tax income $785,678 $752,058 $864,493 45
Adjustments to pre-tax income, computed at the statutory rate, for Utility plant includes the following amounts for capital leases at which deferred taxes are not provided under current ratemaking December 31:
policies: (Thousands of Dollars) 1989 1988 Tax expense at the statutory rate $267,131 $255,700 $345,365 Common Plant $57,226 $57,263 Tax depreciation under book depreciation 17,821 15,282 18,087 Less Accumulated Amortization 2,261 1,888 Allowance for funds used during construction (10,199) (9,201) (21,038) Net Assets under Capital Leases $54,965 $55,375 Capitalized interest 7,615 5,871 5,561 Amortization of rate differential resulting from TRA (43,203) (46,556) (9,532)
Other (1,475) (22) (4,443) Future minimum lease payments for noncancelable capital and operat-Subtotal (29,441) (34,626) (11,365) ing leases at December 31, 1989 were:
Amortization of investment tax credits (23,161) (28,938) (28,721)
Capital Operating Subtotal (52,602) (63,564) (40,086) (Thousands of Dollars) Leases Leases Total Federal income tax provisions $214,529 $192,136 $305,279 1990 $ 13,110 $ 6,964 1991 13,046 6,139 (A) The provision for deferred income taxes represents the tax effects of the following 1992 13,014 4,350 items: 1993 13,014 2,962 1994 13,014 2,346 Current Liabilities: Later Years 264,656 17,017 Unbilled revenues $(19,627) $(23,724) $(19,501)
Minimum lease payments $329,854 $39,778 Other 1,051 (1,704) 552 Less: Amount representing estimated executory Subtotal (18,576) (25,428) (18,949) costs, together with any profit thereon, included in minimum lease payments 164,570 Deferred Credits:
Additional tax depreciation and amortization 109,024 110,862 167,081 Net minimum lease payments 165,284 Leasing Activities 85,641 19,386 36,580 Less Amount representing interest 110,319 Property Abandonments (11,825) 15,888 2,650 Present value of net minimum lease payments (A) $ 54,965 Oil and Gas Property Write-Down (6,393) (3,196)
Deferred fuel costs - net (22,414) 29,600 56,033 Other 1,828 (13,076) 35,434 (A) Reflected in the Consolidated Balance Sheets in Capital Lease Obligations of
$54,513,000 and in Long-Term Debt and Capital Lease Obligations due within one year Subtotal 155,861 159,464 297,778 of $452,000.
Total $137,285 $134,036 $278,829 The following schedule shows the composition of rent expense in-cluded in Operating Expenses:
Deferred income taxes are provided for differences between book and taxable income. For PSE&G the deferred income taxes are limited to (Thousands of Dollars) the extent permitted for ratemaking purposes. At December 31, 1989 For the Years Ended December 31, 1989 1988 1987 the cumulative net amount of income tax timing differences, for which Interest on Capital Lease Obligations $ 6,322 $ 6,424 $ 6,658 deferred income taxes have not been provided, was $1. l billion. Amortization of Utility Plant under Capital Leases 409 1,036 1,927 See Note 1 for a discussion of the effect of SFAS 96, "Accounting Net minimum lease payments relating to Capital for Income Taxes'.' Leases 6,731 7,460 8,585 Other lease payments 18,178 16,396 18,405 See Note 2 for reductions in LEAC and RMAC related to the effect of the Tax Reform Act of 1986. Total Rent Expense $24,909 $23,856 $26,990
- 9. Capital Lease Obligations 10. Commercial Paper and Loans The Consolidated Balance Sheets include assets and related obliga- Commercial paper represents unsecured bearer promissory notes sold tions applicable to capital leases where PSE&G is a lessee. The total through dealers at a discount with a term of nine months or less. Cer-amortization of the leased assets and interest on the lease obligations tain information regarding commercial paper follows:
equals the net minimum lease* payments included in rent expense for PSE&G capital leases. (Thousands of Dollars) 1989 1988 1987 Capital leases of PSE&G relate primarily to its corporate head- Balance at end of year $328,000 $190,000 $250,000 quarters and other capital equipment. Certain of the leases contain Maximum amount outstanding at any month end $328,000 $213,000 $265,000 renewal and purchase options and also contain escalation clauses. Average daily outstanding $113,100 $ 94,900 $138,100 Enterprise and its other subsidiaries are not lessees in any capital- Weighted average annual interest rate 9.04% 7.80% 6.83%
ized leases. Weighted average interest rate for commercial paper outstanding at year-end 8.68% 9.43% 7.56%
PSE&G has received authorization from the BPU to issue and have outstanding not more than $500 million of its short-term obligations at any one time, consisting of commercial paper and other unsecured borrowings from banks and other lenders.
46
Holdings (non-utility businesses) 11. Commitments and Contingent Liabilities (Thousands of Dollars) 1989 1988 1987 Balance at end of year: Nuclear Performance Standard Funding $205,939 In 1987, the BPU issued an Order establishing a performance standard Capital $117,530 $135,300 Maximum amount outstanding at any month end: for the five nuclear units in which PSE&G has an ownership interest:
Funding $205,939 Salem 1 and 2 - 42.59% each; Hope Creek - 95%; and Peach Bot-Capital $164,700 $135,300 tom 2 and 3 - 42.49% each. PSE&G operates Salem and Hope Creek Average daily outstanding: while Peach Bottom is operated by Philadelphia Electric Company Funding $ 29,500 Capital (PE). The performance standard is premised upon a targeted 70%
$127,700 $ 10,024 Weighted average annual interest rate: aggregate capacity factor for the five units, with a deadband between Funding 8.68% 60% and 80% within which no penalty or reward would be incurred.
Capital 7.63% 7.53% The penalties or awards are based on targeted capacity factors as Weighted average interest rate for commercial illustrated in the following table:
paper outstanding at year-end:
Funding 8.61% Difference in Replacement Capital 9.50% 7.83% Power Costs vs. Target Capacity Factor of 70%
Capacity Factor Range Award Penalty In November 1987, Capital entered into a three-year $250 million credit agreement with a group of banks to support the issuance of Greater than 90% 25% -
commercial paper. During 1988, $214 million of Capital's unsecured Greater than 80% through 90% 20% -
Equal to or greater than 60% through 80% None None senior notes were issued or privately placed. A portion of these pro- Equal to or greater than 50% and less than 60% - 20%
ceeds were used to reduce the then outstanding short-term debt of Equal to or greater than 40% and less than 50% - 25%
Capital. (See note 5. Schedule of Consolidated Long-Term Debt). As Below40% BPU Intervenes of December 31, 1989 Funding had established a $350 million com-mercial paper program supported by a direct pay commercial bank The nuclear performance standard for 1989 was modified by a letter of credit and a revolving credit facility which expires in 1991. Stipulation approved by the BPU on March 14, 1989 to exclude Peach Enterprise presently expects that Funding will be able to renew its Bottom 2 and 3 from the nuclear performance standard computation short-term financing program on favorable terms before it expires. until each unit returns to service. Peach Bottom 2 was restarted in Bank loans represent unsecured promissory notes issued under April 1989 and returned to service under the nuclear performance credit arrangements with various banks and have a term of eleven standard July 1, 1989. Peach Bottom 3 began producing electricity in months or less. Such notes were issued in 1986 by CEA and EDC. December 1989 and returned to service under the nuclear performance Certain information regarding bank loans follows: standard January 1, 1990. For 1989, PSE&G's nuclear units in which it (Thousands of Dollars) 1989 1988 1987 has an ownership interest aggregated a combined capacity factor of Balance at end of year $ $ $ 72% under the nuclear performance standard. PSE&G did not incur Maximum amount outstanding at any month end $ $ $104,996 any nuclear performance standard penalty during 1989.
Average daily outstanding $ $ $ 42,448 On August 23, 1989, the BPU, in accordance with the provisions of Weighted average annual interest rate NIA NIA 6.68% its 1987 Order establishing the nuclear performance standard, ini-Weighted average interest rate for bank loans outstanding at year-end NIA NIA NIA tiated a generic proceeding to examine the nuclear standard. Hearings were concluded December 5, 1989 with Initial Briefs and Reply Briefs filed on J~nuary 10, 1990 and Fe~ruary 8, 1990, ~espectively.
The December 1989 balance also mcludes $10.4 mlihon related to an Neither Enterpnse nor PSE&G can predict what effect, rf any, the outstanding capital note of Resources Capital Management Corpora- generic proceeding may have on the BPU's nuclear performance stan-tion, a subsidiary of PSRC, which is payable in installments through dard as it presently applies to PSE&G.
June 1990.
At December 31, 1989 and 1988, Enterprise had $294.9 million and Peach Bottom Law Suit
$219 million, respectively, of lines of credit supported by compensat- On July 27, 1988, Enterprise and PSE&G filed suit in the United States ing balances under informal arrangements with banks. At December District Court for the District of New Jersey against PE relating to the 31, 1989 and 1988, $55 million and $35 million, respectively, of these outage of Peach Bottom 2 and 3 resulting from the NRC's shut down lines of credit were compensated by fees. There are no legal restric- order of March 31, 1987. On January 13, 1989, PE filed its answer to tions placed on the withdrawal or other use of the compensating bank the claims for breach of contract in this proceeding. In filing its balances. answer, PE also asserted a number of counterclaims against PSE&G on a contingent basis with respect to the Salem Generating Station (Salem). PSE&G thereafter filed an amended complaint so as to in-clude with respect to Peach Bottom claims similar to those asserted by PE with respect to Salem. The Court stayed all further action with respect to PE's counterclaims, including discovery, pending further order of the Court.
Enterprise and PSE&G will vigorously oppose the claims made by PE. The outcome of this litigation cannot be predicted.
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Nuclear Insurance Coverages and Assessments compensation to the injured parties. Congress could impose further PSE&G's insurance coverages and maximum retrospective assess- revenue raising measures on the nuclear industry to pay claims.
ments for its nuclear operations are as follows: PSE&G's maximum aggregate assessment per incident is $175 million Maximum (based on PSE&G's ownership interests in Hope Creek, Peach Bottom Retrospective and Salem) as of January 8, 1990 and its maximum aggregate annual Maximum Assessments for assessment per incident is $26.5 million. In 1984, in a case to which
'fype and Source of Coverages Coverages a Single Incident PSE&G was not a party, the Supreme Court of the United States held (Millions of Dollars) that the Atomic Energy Act, the Price-Anderson limitation of liability Public Liability: and the extensive regulation of nuclear safety by the NRC do not American Nuclear Insurers $ 200.0 $None pre-empt claims under state law for personal, property or punitive Indemnity (A) 7,f!J7.0 175.4 damages related to radiation hazards.
$7,807.0(B) $175.4 PSE&G maintains property insurance, including decontamination Nuclear Worker Liability: expense coverage, with respect to loss or damage to its nuclear facili-American Nuclear Insurers (C) $ 200.0 $ 9.2 ties. Although it is impossible to determine the total amount of the Property Damage: Joss that may result from an occurrence at these facilities, as of Jan-Nuclear Mutual Limited (D) $ 500.0 $ 37.6 uary 8, 1990, PSE&G maintained the maximum amount of insurance Nuclear Electric Insurance Ltd. (D) 975.0 14.3 American Nuclear Insurers 5ff.J.O None available on its Salem or Hope Creek Stations, to $2.035 billion per incident. PE has advised PSE&G that it maintains similar insurance
$2,035.0 $ 51.9 coverage with respect to the Peach Bottom units operated by PE.
Replacement Power: Under the terms of the various insurance agreements, PSE&G could Nuclear Electric Insurance Ltd. (D) $ 3.5(E) $ 15.0 be subject to a maximum retrospective assessment for a single incident ofup to $51. 9 million. Certain of the policies also provide that the (A) Retrospective premium program under the Price-Anderson Liability provisions of the Atomic Energy Act of 1954, as amended. Subject to retrospective assessment with insurer may suspend coverage with respect to nuclear units on a site respect to loss from an incident at any licensed nuclear reactor in the United States. without notice if the NRC suspends or revokes the operating license (B) Limit of liability for each nuclear incident under the Atomic Energy Act of 1954, as for any unit on the site, the NRC issues a shutdown order with respect amended. to such unit, or the NRC issues a confirmatory order keeping such (C) Represents the potential liability from workers claiming exposure to the hazard of unit shut down.
nuclear radiation. This does not increase PSE&G's obligation under the Price-Anderson Liability provisions of the Atomic Energy Act of 1954, as amended. PSE&G is a member of an industry mutual insurance company, (D) Mutual insurance companies of which PSE&G is a member. Subject to retrospective Nuclear Electric Insurance Limited (NEIL), which provides replace-assessment with respect to loss at any nuclear generating station covered by such ment power cost coverage in the event of a major accidental outage at insurance. a nuclear station. Salem and Hope Creek are covered by replacement (E) Maximum weekly indemnity for 52 weeks which commences after the first 21 weeks of an outage. Also provides $2.4 million weekly for a second 52-week period, and $1.2 power cost policies which provide for a maximum weekly indemnity million weekly for a third 52-week period. payment to the Salem and Hope Creek owners, respectively, of $3.5 million for 52 weeks, subject to a 21-week waiting period. Thereafter, The Price-Anderson Amendment Act of 1988 sets the "limit of the policies provide for maximum weekly indemnity payments of $2.4 liability" for claims that could arise from an incident involving any million for a second 52-week period, and $1.2 million weekly for a licensed nuclear facility in the nation. The "limit of liability" is based third 52-week period. PSE&G has been informed by PE that PE has on the number of licensed nuclear reactors and adjusts at least every similar replacement power cost coverage with respect to Peach Bot-five years based on the Consumer Price Index. The current "limit of tom. The premium for this coverage is subject to retrospective assess-liability" is $7. 8 billion. All nuclear utilities, including PSE&G, have ment for adverse Joss experience. Under the policies, PSE&G's provided for this exposure through a combination of private insurance present maximum share of any retrospective assessment in any year and mandatory participation in a financial protection pool as estab- is $15.0 million.
lished by the Price-Anderson Act. Under the Price-Anderson Act, as amended, all nuclear reactor operators can be assessed up to $66.2 Construction and Fuel Supplies million per reactor per incident, payable at $10 million per reactor per PSE&G has substantial commitments as part of its construction pro-incident per year. If the damages exceed the "limit of liability" the gram. Construction expenditures of $3.8 billion, including approxi-President is to submit to Congress a plan for providing additional mately $183 million of allowance for funds used during construction (AFDC), are expected to be incurred during the years 1990 through 1994. In addition, PSE&G does not anticipate any difficulties in ob-taining sufficient sources of fuel for electric generation and adequate gas supplies. These estimates are based on expected project comple-tion dates and include anticipated escalation due to inflation of ap-proximately 4%. Therefore, construction delays or higher inflation levels could cause significant increases in these amounts. PSE&G expects to generate internally nearly all the funds necessary to satisfy its construction expenditures over the next five years.
48
Oil and Gas Property Write-Down PSE&G's Gas Plant Sites On October 31, 1986, the BPU approved agreements by PSE&G and The New Jersey Department of Environmental Protection (NJDEP) the major parties in PSE&G's gas base rate case, which provided for has notified PSE&G that it has identified the need for PSE&G, pursu-an annual reduction in gas base revenues of $30 million, effective ant to a formal arrangement, to systematically investigate and, if October 31, 1986 and for the removal of EDC, at that time a wholly- necessary, resolve environmental concerns extant at PSE&G's former owned subsidiary of PSE&G, from inclusion in its gas rate base for manufactured gas plant sites. To date, the NJDEP and PSE&G have ratemaking purposes. In the BPU-approved agreement, PSE&G was identified thirty-eight (38) former gas plant sites.
allowed to defer any loss on its investment in EDC as a result of any PSE&G is currently working in concert with the NJDEP to imple-write-down of the value of reserves as of December 31, 1986 and to ment a plan pursuant to which PSE&G would undertake to investigate seek recovery of such loss over a period of not less than 10 years in its these sites. PSE&G anticipates that its program to assess, investigate next gas base rate proceeding. On October 31, 1986, the price paid by and, if necessary, remediate environmental concerns at the 38 former PSE&G for natural gas from EDC was reduced as a result of a change gas plant sites may take up to ten (10) years to complete. PSE&G has in PSE&G's gas RMAC approved by the BPU. As a result of these completed a preliminary assessment of twenty-eight of these sites. At regulatory actions, EDC wrote down the value of its reserves as of a minimum some form of investigation will be required at each of December 31, 1986 by $134.5 million, which amounted to $70.5 these sites. Upon completions of these remedial investigations, some million after the tax effect, to reflect the lower net realizable value of or all of these sites may require remedial action.
its oil and gas reserves. PSE&G initially deferred $58.8 million of the Remedial work activities have been undertaken at four of the 38 after-tax loss. Further, on July 1, 1988, PSE&G began amortizing the sites, three of which are owned by third parties. Remedial work activ-
$58.8 million deferred amount, absent regulatory approval, over a ities at one of these sites have progressed to a level which permits ten-year period. As of December 31, 1989 the balance remaining to PSE&G to estimate that the cost of the site remediation will approxi-be amortized is $49.5 million. PSE&G will seek recovery of the entire mate $5 million, and PSE&G has funded a substantial portion of these
$70.5 million in its next gas base rate case. Denial of this request by costs. In the second case, PSE&G entered into a settlement agreement the BPU would require an immediate write-off of the amount being with the owner in December 1989 for approximately $10 million.
deferred by PSE&G. With respect to the other two sites, PSE&G expects the investigation costs to approximate $1.5 million. The nature and duration of the Environmental Controls industrial operations conducted at these latter two sites as well as the preliminary findings from these investigations suggest that some form General of remedial action will be necessary.
The Comprehensive Environmental Response, Compensation and PSE&G anticipates filing work plans with the NJDEP by the end of Liability Act of 1980 and certain similar State statutes authorize var- February 1990 to investigate seven sites. It is anticipated that field ious governmental authorities to issue orders compelling responsible work activities at these sites will begin this spring or early summer.
parties to take clean up actions at sites determined to present an im- The costs associated with conducting these remedial investigations is minent and substantial danger to the public and to the environment expected to approximate at least $2 million. Upon completion of because of an actual or threatened release of hazardous substances. these remedial investigations, some or all of these sites may require Because of the nature of PSE&G's business, various by-products and some form of remedial action. While the costs required to implement wastes are produced or handled which contain constituents which are any required remedial action at these sites are not currently estima-classified as hazardous substances under these laws ..PSE&G provides ble, the costs may be material.
for the disposal of its wastes through licensed independent contrac- On October 7, 1988, PSE&G requested that the BPU permit it to tors, but these statutory provisions generally impose potential joint defer charging to income costs previously incurred and costs to be and several responsibility for clean up costs on the generators of the incurred in connection with the investigation and, if necessary, reme-wastes without regard to fault. PSE&G has been notified with respect diation of its former gas plant sites, pending a determination in a gas to a number of such sites, and the clean up of hazardous wastes is base rate proceeding of the extent to which such costs may be recov-receiving increasing attention from the government agencies involved. ered from customers. The BPU issued an order on August 8, 1989, This trend is expected to continue. PSE&G's own sites also are sub- approving PSE&G's request to utilize deferred accounting for such ject to certain of these environmental laws, and the nature and dura- costs. As of December 31, 1989, PSE&G has deferred approximately tion of PSE&G's operations suggest that certain remedial action at $18.9 million of costs associated with its gas plant clean-up program.
certain sites may be required. PSE&G cannot determine, at this time, In November 1988, PSE&G filed suit against certain of its insurers the costs which may result from these matters, but such costs could be to recover the costs associated with addressing and resolving environ-material. mental issues at its former gas plant sites.
Pending recovery of such costs through rates or under its insurance policies, neither of which can be assured, PSE&G will be required to finance the clean up of its former gas plant sites. This clean up will require a substantial effort over a number of years. The overall cost of the investigation and clean up cannot be reasonably estimated, but amounts previously expended indicate that costs of at least $10 million per year could be incurred, and that the overall costs of the investiga-tion and clean up could be material.
49
- 12. Pension Plan and Other Postretirement Benefits 13. Financial Information by Business Segments The discount rate, expected long-term return on assets and average Information related to the segments of Enterprise's business is detailed compensation growth used in determining the pension plan's funded below:
status as of December 31, 1989 and 1988 and net pension costs for For the Year Ended December 31, 1989 1989, 1988 and 1987 are as follows:
Non-Utility 1989 1988 (Thousands of Dollars) Electric Gas Businesses (A) Total Discount Rate Used to Determine Pension Cost 7%% 8\/4% Operating Revenues $3,279,913 $1,362,470 $ 207,165 $4,849,548 Discounted Rate Used to Determine Benefit Obligations 7'14% 7%% Eliminations (Interseg-Expected Long-Term Return on Assets 8% 8% ment Revenues) (44,696) (44,696)
Average Compensation Growth 6% 6%
Total Operating Revenues 3,279,913 1,362,470 162,469 4,804,852 Depreciation and The following table shows the plan's funded status: Amortization 334,329 68,140 64,270 466,739 Operating Income before (Thousands of Dollars) Income Taxes 925,209 122,854 102,758 1,150,821 December 31, 1989 1988 Capital Expenditures 552,603 121,611 414,837 1,089,051 December 31, 1989 Actuarial present value of benefit obligations: Net Utility Plant 8,314,861 1,021,774 9,336,635 Accumulated benefit obligations, including vested Oil and Gas Property, benefits of$864,793 and $703,153 $ (926,031) $(730,696) Plant & Equipment 608,250 608,250 Effect of projected future compensation (246,377) (249 ,648) Other Corporate Assets 1,377,649 2,974,549 401,978 1,194,922 Projected benefit obligations (1,172,408) (980,344) Total Assets $9,692,510 $1,423,752 $1,803,172 $12,919,434 Plan assets at fair value, primarily listed equity and debt securities 1,028,585 888,005 For the Year Ended December 31, 1988 Projected benefit obligations in excess of plan assets (143,823) (92,339) Non-Utility Unrecognized net gain from past experience and effects of (Thousands of Dollars) Electric Gas Businesses (A) Total changes in assumptions (52,333) (29 ,568) Operating Revenues $3,090,609 $1,203,435 $161,122 $4,455,166 Prior service cost not yet recognized in net pension cost 86,269 3,920 Eliminations (Interseg-Unrecognized net obligation being recognized over 16.7 years 109,887 117,987 ment Revenues) (60,474) (60,474)
Prepaid (accrued) pension expense $ $ Total Operating Revenues 3,090,609 1,203,435 100,648 4,394,692 Depreciation and The net pension cost for the years ending December 31, 1989, 1988 Amortization 321,223 64,952 47,872 434,047 and 1987 include the following components: Operating Income before Income Taxes 843,595 109,314 52,370 1,005,279 (Thousands of Dollars) 1989 1988 1987 Capital Expenditures 496,185 68,091 182,206 746,482 December 31, 1988 Service cost-benefits earned during year $ 28,185 $ 25,811 $27,000 Net Utility Plant 8,128,543 960,960 9,089,503 Interest cost on projected benefit obligation 74,997 70,485 64,200 Return on assets (159,767) (111,175) (50,084) Oil and Gas Property, Plant & Equipment 286,552 286,552 Net amortization and deferral 98,585 56,879 (1,116)
Other Corporate Assets 1,204,808 370,497 739,009 2,314,314 Total $ 42,000 $ 42,000 $40,000 Total Assets $9,333,351 $1,331,457 $1,025,561 $11,690,369 For the Year Ended December 31, 1987 Supplemental pension costs in 1989, 1988 and 1987 were $1,900,000, Non-Utility
$2,846,000 and $4,026,000, respectively. (Thousands of Dollars) Electric Gas Businesses (A) Total In addition to the pension plan, Enterprise also provides certain $ 77,679 $ 4,257,183 Operating Revenues $2,959,549 $1,219,955 health care and life insurance benefits to active and retired employees. Eliminations (Interseg-The cost of these benefits is charged to expense when paid. (See Note ment Revenues) (46,128) (46,128) 1 for details of Postretirement Benefits.) Total Operating Revenues 2,959,549 1,219,955 31,551 4,211,055 Depreciation and Amortization 292,164 63,008 24,937 380,109 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, 1987 Net Utility Plant 8,029,567 940,537 8,970,104 Oil and Gas Property, Plant & Equipment 150,910 150,910 Other Corporate Assets 911,186 436,909 388,442 1,736,537 Total Assets $8,940,753 $1,377,446 $ 539,352 $10,857,551 (A) Non-Utility Businesses include minor amounts applicable to Enterprise, the parent corporation.
50
- 14. Jointly-Owned Facilities - Utility 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. 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. (See Note I.)
(Thousands of Dollars) December 31, 1989 Ownership Plant Accumulated Plant Under Plant Interest In Service Depreciation Construction Coal Generating Conemaugh 22.50% $ 90,388 $ 26,836 $ 1,146 Keystone 22.84% 84,967 24,917 2,467 Nuclear Generating Peach Bottom 42.49% 598,489 202,146 41,007 Salem 42.59% 871,886 262,051 22,945 Hope Creek 95.00% 4,026,251 348,645 24,086 Nuclear Support Facilities Various 75,774 11,735 5,030 Pumped Storage Generating Yards Creek 50.00% 20,315 6,526 313 Transmission Facilities Various 87,858 20,026 31 Merrill Creek Reservoir 13.91% 34,759 2,469 Linden SNG Plant (ceased the manufacture of SNG effective July I, 1989) 90.00% 16,741 15,521
- 15. 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 to the seasonal nature of the utility business, quarterly amounts vary significantly during the year.
Calendar Quarter Ended March 31, June 30, September 30, December 31, (Thousands where applicable) 1989 1988 1989 1988 1989 1988 1989 1988 Operating Revenues $1,296,140 $1,197,821 $1,047,694 $915,064 $1,155,033 $1,127,352 $1,305,985 $1,154,455 Operating Income $ 249,337 $ 228, IOI $ 207,036 $164,827 $ 272,087 $ 272,784 $ 211,350 $ 176,292 Net Income $ 154,423 $ 151,481 $ 113,662 $107,296 $ 174,723 $ 185,447 $ 99,329 $ 84,362 Earnings Per Share of Common Stock $ 0.75 $ 0.74 $ 0.55 $ 0.52 $ 0.85 $ 0.90 $ 0.47 $ 0.41 Average Shares of Common Stock Outstanding 205,350 205,350 205,350 205,350 205,663 205,350 211,100 205,350 51
Consolidated Financial Statistics (Thousands of Dollars where applicable) 1989 1988 Condensed Consolidated Statements of Income (A) Amount % Amount %
Operating Revenues Electric $ 3,279,913 68 $ 3,090,609 70 Gas 1,362,470 28 1,203,435 28 Other 162,469 4 100,648 2 Total Operating Revenues 4,804,852 100 4,394,692 100 Operating Expenses Operation Fuel for Electric Generation and Net Interchanged Power 740,665 15 642,811 15 Gas Purchased and Materials for Gas Produced 710,549 15 600,643 14 Other 730,707 15 727,709 16 Maintenance 316,200 7 349,931 8 Depreciation and Amortization 466,739 10 434,047 10 Amortization of Property Abandonments and Write-Down 57,775 1 43,379 1 Taxes Federal Income Taxes 208,261 4 162,144 4 New Jersey Gross Receipts Taxes 574,145 12 534,789 12 Other 60,001 1 57,235 1 Total Operating Expenses 3,865,042 80 3,552,688 81 Total Operating Income 939,810 20 842,004 19 Allowance for Funds Used During Construction - Debt and Equity and Capitalized Interest 33,655 1 27,981 1 Amortization of Discounts on Property Abandonments and Disallowance - net 8,670 38,761 1 Other Income - net 820 (I, 196)
Interest Charges (411,806) (9) (347,628) (8)
Preferred Stock Dividend Requirements (29,012) (1) (31,336) (I)
Net Income $ 542,137 11 $ 528,586 12 Shares of Common Stock Outstanding (Thousands)
End of Year 211,100 205,350 Average for Year 206,879 205,350 Earnings per average share of Common Stock $ 2.62 $ 2.57 Dividends Paid per Share $ 2.05 $ 2.01 Payout Ratio 78% 78%
Rate of Return on Average Common Equity 13.41 % 13.60%
Ratio of Earnings to Fixed Charges Before Income Taxes 2.66 2.81 Book Value per Common Share $19.85 $19.11 Utility Plant $12,960,093 $12,466,690 Accumulated Depreciation and Amortization of Utility Plant $ 3,623,458 $ 3,377,187 Total Assets $12,919,434 $11,690,369 Consolidated Capitalization (A)
Mortgage Bonds $ 3,332,068 37 $ 3,283,514 39 Debenture Bonds 192,142 2 198,573 2 Other Long-Term Debt 769,368 9 462,689 6 Total Long-Term Debt 4,293,578 48 3,944,776 47 Other Long-Term Obligations 54,513 54,966 Preferred Stock with Mandatory Redemption Preferred Stock without Mandatory Redemption 429,994 5 429,994 5 Common Stock 2,857,974 32 2,710,343 32 Retained Earnings 1,332,739 15 1,213,260 15 Total Common Equity 4,190,713 47 3,923,603 47 Total Capitalization $ 8,968,798 100 $ 8,353,339 100 All years reflect the application cif SFAS 90, the 3-for-2 common stock split and the consolidation of wholly-owned subsidiaries.
(A) See Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes to Consolidated Financial Statements.
52
1987 1986 1985 1984 Amount % Amount % Amount % Amount %
$ 2,959,549 70 $ 3,156,010 70 $ 3,000,564 68 $ 2,816,241 67 1,219,955 29 1,324,690 30 1,408,490 32 1,379,883 33 31,551 1 17,716 19,287 11,248 4,211,055 100 4,498,416 100 4,428,341 100 4,207,372 100 555,405 13 1,033,371 23 965,966 22 872,805 21 614,861 15 692,224 15 757,976 17 758,627 18 634,494 15 607,301 14 567,698 13 545,737 13 302,362 7 254,256 6 291,940 7 270,359 6 380,109 9 272,150 6 268,179 6 246,715 6 22,526 1 71,232 l 55,263 1 58,975 1 292,169 7 270,783 6 273,119 6 263,270 6 522,870 12 563,518 13 557,270 13 529,654 13 63,960 1 56,297 1 53,161 1 51,930 1 3,388,756 80 3,821, 132 85 3,790,572 86 3,598,072 85 822,299 20 677,284 15 637,769 14 609,300 15 52,666 1 241,317 5 195,871 4 158,792 4 15,011 (183,826) (4) (84,918) (2) (2,844) 6,031 10,840 458 2,674 (336,793) (8) (315,780) (7) (289,546) (6) (280,737) (7)
(38,763) (1) (51,372) (1) (60,002) (1) (60,221) (2)
$ 520,451 12 $ 378,463 8 $ 399,632 9 $ 426,964 10 205,350 202,324 197,548 168,845 203,873 199,709 183,516 163,370
$ 2.55 $ 1.90 $ 2.18 $ 2.61
$ 1.99 $ 1.95 $ 1.87 $ 1.80 78% 103% 86% 69%
13.88% 10.56% 12.27% 15.19%
3.03 2.38 2.67 2.81
$18.54 $17.92 $17.87 $17.64
$11,998,816 $11,437,196 $10,842,182 $ 9,870,429
$ 3,028,712 $ 2,692,759 $ 2,502,594 $ 2,320,140
$10,857,551 $10,577,822 $10,234,290 $ 9,523,322
$ 3,082,073 40 $ 3,100,210 41 $ 2,945,723 40 $ 2,877,518 42 204,966 3 210,910 3 218,918 3 225,825 3 25,000 4,500 3,287,039 43 3,336,120 44 3,164,641 43 3,107,843 45 30,000 65,000 1 65,000 1 137,750 2 429,994 6 554,994 7 554,994 7 554,994 8 55,374 1 56,409 1 58,337 1 122,947 2 2,710,343 36 2,632,662 34 2,535,687 34 2,032,665 29 1,096,933 14 993,836 13 1,013,285 14 963,573 14 3,807,276 50 3,626,498 47 3,548,972 48 2,996,238 43
$ 7,609,683 100 $ 7,639,021 100 $ 7,391,944 100 $ 6,919,772 100 53
Operating Statistics Public Service Electric and Gas Company
% Annual Increase (Decrease) 1989 compared with (Thousands of Dollars where applicable) 1989 1988 1988 Electric Revenues from Sales of Electricity Residential $ 1,015,065 $ 992,121 2.31 Commercial 1,464,431 1,335,158 9.68 Industrial 715,669 686,854 4.20 Public Street Lighting 46,750 45,620 2.48 Total Revenues from Sales to Customers 3,241,915 3,059,753 5.95 Interdepartmental 1,843 1,643 12.17 Total Revenues from Sales of Electricity 3,243,758 3,061,396 5.96 Other Electric Revenues 36,155 29,213 23.76 Total Operating Revenues $ 3,279,913 $ 3,090,609 6.13 Sales of Electricity - megawatthours Residential 9,950,773 9,941,003 .10 Commercial 16,946,768 16,036,020 5.68 Industrial 10,039,913 10,179,340 (1.37)
Public Street Lighting 310,073 303,782 2.07 Total Sales to Customers 37,247,527 36,460,145 2.16 Interdepartmental 23,175 22,440 3.28 Total Sales of Electricity 37,270,702 36,482,585 2.16 Megawatthours Produced, Purchased and Interchanged - net 40,146,119 39,533,514 1.55 Load Factor 55.0% 51.5%
Capacity Factor 36.3% 33.2%
Heat Rate - Btu of fuel per net kwh generated 10,284 10,622 (3.18)
Net Installed Generating Capacity at December 31- megawatts 9,936 9,850 .87 Net Peak Load - megawatts (60-minute integrated) 8,324 8,745 (4.81)
Temperature Humidity Index Hours 17,438 17,611 (.98)
Average Annual Use per Residential Customer- kilowatthours 6,221 6,271 (.80)
Meters in Service at December 31-Thousands 1,885 1,860 1.34 Gas Revenues from Sales of Gas Residential $ 772,344 $ 695,918 10.98 Commercial 436,349 366,776 18.97 Industrial 134,272 123,434 8.78 Street Lighting 358 359 (.28)
Total Revenues from Sales to Customers 1,343,323 1,186,487 13.22 Interdepartmental 3,613 3,059 18.11 Total Revenues from Sales of Gas 1,346,936 1,189,546 13.23 Transportation Service Gas Revenues 11,485 10,505 9.33 Other Gas Revenues 4,049 3,384 19.65 Total Operating Revenues $ 1,362,470 $ 1,203,435 13.22 Sales of Gas - kilotherms Residential 1,253,800 1,188,532 5.49 Commercial 872,684 748,283 16.62 Industrial 342,928 332,970 3.00 Street Lighting 656 657 (.15)
Total Sales to Customers 2,470,068 2,270,442 8.80 Interdepartmental 8,705 7,640 13.94 Total Sales of Gas 2,478,773 2,278,082 8.81 Gas Produced and Purchased - kilotherms 2,549,292 2,370,779 7.53 Transportation Service Gas - kilotherms 149,586 138,665 7.88 Effective Daily Capacity at December 31 - kilotherms 21,873 21,629 1.13 Maximum 24-hour Gas Sendout - kilotherms 18,159 17,173 5.74 Heating Degree Days 4,950 4,989 (.78)
Average Annual Use per Residential Customer - therms 986 946 4.23 Meters in Service at December 31 -Thousands 1,519 1,495 1.61 54
1987 1986 1985 1984
$ 940,915 $ 971,236 $ 918,911 $ 883,652 1,273,819 1,333,144 1,236,027 1,111,175 672,104 782,008 774,963 749,725 46,248 43,726 43,786 42,164 2,933,086 3,130,114 2,973,687 2,786,716 1,896 1,927 1,877 1,810 2,934,982 3,132,041 2,975,564 2,788,526 24,567 23,969 25,000 27,715
$ 2,959,549 $ 3,156,010 $ 3,000,564 $ 2,816,241 9,299,490 8,726,769 8,390,658 8,373,471 14,990,376 14,118,028 13,313,639 12,452,020 I
10,119,614 10,134,327 10,290,711 10,444,412 I 296,377 295,639 300,612 301,702 I 34,705,857 33,274,763 32,295,620 31,571,605 23,709 23,790 24,888 25,796 I 34,729,566 33,298,553 32,320,508 31,597,401 I
37,531,827 36,033,414 34,869,192 34,178,862 52.4% 53.2% 51.6% 52.4%
34.1% 33.0% 31.3% 32.6%
10,634 10,716 10,692 10,616 10,032 10,032 9,007 8,999 8,173 7,735 7,721 7,422 16,441 14,934 15,720 16,677 5,939 5,650 5,494 5,543 1,838 1,812 1,788 1,769
$ 698,518 $ 754,785 $ 751,339 $ 717,286 360,834 390,811 407,073 393,197 145,664 171,860 242,767 263,080 363 355 372 369 1,205,379 1,317,811 1,401,551 1,373,932 3,837 2,849 1,321 1,682 1,209,216 1,320,660 1;402,872 1,375,614 7,508 1,192 197 3,231 2,838 5,421 4,269
$ 1,219,955 $ 1,324,690 $ 1,408,490 $ 1,379,883 1,118,609 1,065,630 1,019,850 1,019,025 678,281 644,450 634,059 628,855 373,947 413,072 468,489 495,719 655 680 736 339 2,171,492 2,123,832 2,123,134 2,143,938 8,972 5,498 2,540 3,377 2,180,464 2,129,330 2,125,674 2,147,315 2,260,902 2,212,175 2,218,818 2,249,352 98, 121 14,926 2,772 21,100 20,899 19,990 19,856 16,517 14,871 17,994 14,927 4,717 4,699 4,764 4,743 905 876 853 863 1,472 1,448 1,422 1,404 55
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Officers and Directors Public Service Enterprise *William E. Marfuggi Rudolph D. Stys 1989 Transition Chairman, Tri-Maintenance & Senior Vice President - Gas Group Incorporate~ Contractors Inc.
PaulH. Way Board of Directors - Enterprise Chairman of Organization and Com-Officers Senior Vice President - Corporate Retired pensation Committee and member of Performance Robert I. Smith, 4/18/89
- E. James Ferland Nominating Committee.
Chairman of the Board, President Member, Finance and Nominating Everett L. Morris Officers Committees and Chief Executive Officer Vice President of the Corporation.
(Chairman of the Board and Chief Donald A. Anderson Deceased Chairman of Finance Committee and Executive Officer, Holdings) Vice President - Information Robert V. Van Fossan, 10/29/89 member of Executive Committee.
Systems and Corporate Services Chairman, Organization and Com-
- Everett L. Morris *Marilyn M. Pfaltz William J. Budney, Jr. pensation Committee; Member, Vice President Partner of P and R Associates Executive and Finance Committees (President and Chief Operating Vice President - Distribution (communications specialists).
Officer, Holdings) Systems Chairman ofNominating Committee Officers - Enterprise Richard E. Hallett and member ofAudit Committee. Frank Cassidy Retired Vice President and Comptroller Vice President - Transmission James C. Pitney Parker C. Peterman, 3/31/89 Systems Vice President and Comptroller
- R. Edwin Selover Partner in the law firm of Pitney, Vice President and General Counsel Hardin, Kipp & Szuch. Thomas M. Crimmins, Jr. Elected Chairman of Audit Committee and Vice President - Nuclear
- Francis J. Riepl Richard E. Hallett, l/l/90 member of Nominating Committee Engineering Treasurer Vice President and Comptroller and Organization and Compensation
- Robert S. Smith Committee. John A. Gartman Vice President - Gas Supply and Board of Directors - PSE&G Secretary
- Harold W. Soon Planning Retired Retired Chairman of the Board of Fredrick R. DeSanti, 9/ 15/89 Directors Curtis W. Grevenitz the Corporation. Robert W. Lockwood, 12/29/89
- T.J. Dermot Dunphy Member of Audit Committee and Vice President - Gas Operations President, Chief Executive Officer Finance Committee. Richard E. Hallett Elected and director, Sealed Air Corporation Vice President and Comptroller Robert J. Dougherty, Jr., 9/16/89
- Josh S. Weston Harold W. Borden, Jr., l/l/90 (manufactures protective packaging Chairman of the Board, Chief Exec- Stanley LaBruna products and systems).
utive Officer and director, Automatic Vice President- Nuclear Operations Member of Finance Committee and Officers - PSE&G Data Processing, Inc.
Organization and Compensation Pierre R.H. Landrieu Retired Member ofAudit Committee and Committee. Fredrick R. DeSanti, 9/15/89 Organization and Compensation Vice President - Fossil Production Robert R. Ferguson, Jr. Committee. Senior Vice President - Customer Director: First Fidelity Bancorpora-Frederick W. Lark Operations
- indicates Officer or Director of Vice President - Marketing Robert W. Lockwood, 12/29/89 tion; First Fidelity Bank, N.A. and First Fidelity, Inc. Enterprise Diversified Holdings John H. Maddocks Senior Vice President - External Member of Executive Committee, Incorporated Vice President - Public Affairs Affairs Finance Committee and Organization Stephen A. Mallard, 11/3/89 and Compensation Committee. Public Service Electric Steven E. Miltenberger Senior Vice President -
and Gas Company Vice President and Chief Nuclear Transmission Systems
- E. James Ferland Officer Parker C. Peterman, 3/31189 Chairman of the Board, President Vice President and Comptroller Officers & Directors Francis J. Riepl and Chief Executive Officer of the Corporation. E. James Ferland Vice President and Treasurer Chairman of the Board, President Elected Chairman of Executive Committee Louis L. Rizzi and Chief Executive Officer Harold W. Borden, Jr., 1/1/90 and member of Finance Committee. Vice President - Customer Services Senior Vice President - External
- Shirley A. Jackson Everett L. Morris Robert S. Smith Affairs Theoretical Physicist, AT&T Bell Senior Executive Vice President Vice President and Secretary Robert J. Dougherty, Jr., 9/16/89 Laboratories. Senior Vice President - Customer Harold W. Borden, Jr. Robert F. Steinke Member ofAudit Committee and Operations Senior Vice President - External Nominating Committee. Vice President - Business Unit Frank Cassidy, 11/4/89 Affairs Development Vice President - Transmission Irwin Lerner Lawrence R. Codey Systems President, Chief Executive Officer Senior Vice President - Electric Gregory M .. Thomson Thomas M. Crimmins, Jr., 5/15/89 and director, Hoffmann-La Roche Vice President- Human Resources Vice President- Nuclear Inc. (manufactures pharmaceuticals, Robert J. Dougherty, Jr. Richard A. Uderitz Engineering vitamins, fine chemicals, and pro- Senior Vice President - Customer Richard E. Hallett, l/l/90 Vice President - Technical Services vides diagnostic products and Operations Vice President and Comptroller services). Frederick W. Lark, 1/1/90 R. Edwin Selover Member ofAudit Committee, Execu- Vice President - Marketing Senior Vice President and General tive Committee and Organization and Counsel Compensation Committee.
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Corporate and Stock Information Stockholder Information - Toll Free Financial and Statistical Review New Jersey residents 1-(800) 242-08 13 A comprehensive stati stical report containing financial and operating Outside New Jersey 1-(800) 526-8050 data wi ll be available thi s spring. If you wish to receive a copy, please write to the Manager - Investor Relations, Public Service Electric and Telephone Hours: 10 a. m. to 12 p.m . and 1:30 to 3:30 p.m. Gas Company, P.O. Box 570 , T6B , Newark , N.J. 07101 (telephone Monday- Friday (201) 430-6503) .
Security Analysts and Institutional Investors Transfer Agents Manager - Investor Relations (20 I) 430-6564 All Stocks:
First Chicago Trust Company of New York Dividend Reinvestment Plan 30 West Broadway, New York, N. Y. 10007 Enterprise has a Dividend Reinvestment and Stock Purchase Plan Stockholder Services, Public Service Electric and Gas Company under which all common and PSE&G preferred stockholders may 80 Park Plaza , P.O. Box 1171 reinvest dividend s and/or make direct cash investments to obtain Newark , N.J. 07101-ll71 Enterpri se common stock. Purchases of common stock are made for the Plan directly fro m Enterprise , at its sole discretion, and/or in the Registrars open market. All brokerage and other fees to acquire shares are ab-All Stocks:
sorbed by Enterprise. To participate call the toll free number to obtai n First Fidelity Bank , N.A., New Jersey a prospectus and an authorization card . 765 Broad Street, Newark , N.J. 07101 Stock Trading Symbol: PEG First Chicago Trust Company of New York 30 West Broadway, New York , N. Y. 10007 Annual Meeting Please note that the Annual Meeting of Stockholders of Public Service Stock Exchange Listings Enterpri se Group Incorporated will be held at Newark Symphony Common:
Hall , 1020 Broad Street, Newark, N.J. on Tuesday, April 17, 1990 at New York Stock Exchange 2:00 PM . A summary of the meeting will be sent to all stockholders Philadelphia Stock Exchange of record at a later date.
London Stock Exchange Additional Reports Available - Form 10-K Preferred of PSE&G:
Stockholders or other interested persons wishing to obtain a copy of New York Stock Exchange Enterpri se's or PSE&G's 1989 Annual Report to the Securities and Exchange Commission, fi led on Form 10-K , may obtain one without Common Stock - Market Price and Dividends Per Share charge by writing to the Manager - Investor Relations, Public Service 1989 1988 Electric and Gas Company, P.O. Box 570, T6B, Newark, N.J. 07101 High Low Div. High Low Div.
(telephone (201 ) 430-6503) . The copy so provided will be without exhibits. E.v':ibits may be purchased for a specified fee. First Quarter 247/s 23 $.51 267/s 22314 $.50 Second Quarter 271/2 24 1/s .5 1 25 22 .50 Third Quarter 281/2 257/s .51 243/4 22 .50 Fourth Quarter 293/s 26 .52 253/s 24 .5 1 PSE&G Territory The number of holders of record of Public Service Enterprise Group Incorporated common shares as of December 31, 1989 was 200,292.
The officers, directors, and employees of Enterprise and its affi liates note with sadness the death on October 29, 1989 of Robert Y. Van Newark Fossan, chairman of the board and chief executive officer of Mutual Benefit Life Insurance Company and a member of the Enterprise board of directors.
A board member of Enterprise since 1986, and of PSE&G fro m 1973 Trenton to 1988 , Mr. Van Fossan was chai rman of the organization and com-pensation committee and was a member of the executive and fi nance Camden committees. He was president and chief executive officer at Mutual Benefit from 1972 until 1978 when he became chairman and CEO.
In addition to bei ng a leadi ng executive in the insurance industry and a diligent and dedicated member of Enterprise's Board , Mr. Van Fossan was an outstanding representative of New Jersey 's business community and an eloquent spokesperson for corporate involvement in civic affairs. He was a founder of the Partnership for New Jersey and served on many civic and community organizations.
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Public Service Enterprise Group Incorporated 80 Park Plaza P.O. Box 570 Newark, NJ 07101-1171