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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Financial Highlights (Thousands of Dollars where applicable)
Total Operating Revenues Total Operating Expenses Net Income Common Stock Shares Outstanding -
Average (Thousands)
Shares Outstanding -
Year-end (Thousands)
Earnings Per Average Share Dividends Paid Per Share Book Value Per Share -
Year-end Market Price Per Share -
Year-end Ratio of Earnings to Fixed Charges Ratio of Earnings to Fixed Charges -
PSE&G Gross Additions to Utility Plant Total Utility Plant See Notes to Consolidated Financial Statements.
Cover From the Waste Reduction Control panel at the Hope Creek Nuclear Generating Station, operator Joe Devine manipulates remote devices that safely reduce the amount of low-level nuclear dry waste to one-seventh of its original volume for storage.
Contents Letter to Shareholders The 90's A Strategic Vision Review of Operations Financial Statements Directors and Officers Shareholder Information 2
5 20 25 56 57 1989
$ 4,804,852
$ 3,865,042 542,137 206,879 211,100
$ 2.62
$ 2.05
$19.85
$29.25 2.66 3.21 674,214
$12,960,093 Earnings Per Share of Common Stock In Dollars*
- adjusted to reflect 3 for 2 common stock split effective July I, 1987 1988
% Increase
$ 4,394,692
$ 3,552,688 528,586 205,350 205,350
$ 2.57
$ 2.01
$19.11
$24.50 2.81 3.24 564,276
$12,466,690 Annual Dividend Payout Increased 14 Consecutive Years In Dollars*
85 86 87 88 1.87 1.95 1.99 2.01 9
9 3
I 3
2 2
4 19 19 4
- adjusted to reflect 3 for 2 common stock split effective July I, 1987
Dear Shareowner his year's report focuses on your company's out-look for the future. We look toward the coming decade and the new century beyond with the knowledge that Public Service Enterprise Group is undergoing a period of fundamental change.
We approach this new era with confidence that Enterprise has the financial strength, the structure, and most impor-tantly, the people, with which to forge a successful future.
The excellent financial and operational results produced by our employees during the past year provide solid evi-dence that our confidence is fully justified.
Consolidated earnings reached record levels in 1989 while Public Service Electric and Gas Company's (PSE&G) customers enjoyed the second consecutive year without increases in base rates. The growing ability of PSE&G employees to respond innovatively to the needs of customers is reflected in measurements that indicate cus-tomer satisfaction is at an all-time high.
Financial Performance Enterprise produced record earnings during the year of
$542. l million, or $2.62 per share of common stock, an increase of 5 cents per share over 1988. Total revenues increased to $4.8 billion.
These results were achieved despite the $31.8 million impact on earnings in 1989 that resulted from the shutdown of the two units at Peach Bottom Atomic Power Station.
PSE&G owns 42.49% of the Peach Bottom station, which is operated by Philadelphia Electric Company.
Enterprise's non-utility businesses increased their con-tribution to overall earnings and are expected to meet their goal of providing 10% of net income by the end of 1991.
We also refined our corporate structure with the creation of Enterprise Diversified Holdings Incorporated (Hold-ings). Holdings, in mid-year, became the parent company for Enterprise's non-utility businesses. The restructuring consolidates non-utility operations and provides a greater distinction between utility and non-utility businesses.
Enterprise increased the dividend it pays out for the 14th consecutive year.
PSE&G's electric sales increased 2.2% compared to 1988. December's record-setting cold weather was a major factor in the 8.8% increase in gas sales.
Salem, Hope Creek Perform Well PSE&G's Salem and Hope Creek nuclear generating units operated well during the year. Salem and Hope Creek pro-duced a combined capacity factor of 72%, well above the industry average of 63%. Despite this achievement, we remain committed to the need for further improvements in 2
nuclear operations. We are aggressively pursuing pro-grams designed to bring Salem and Hope Creek stations up to the highest standards of nuclear performance.
Gas Sendout Record Set PSE&G met the challenge of the coldest December in 70 years through the well-coordinated and dedicated efforts of employees. We set a new gas sendout record of 1.8 billion cubic feet on December 22 and service personnel re-sponded admirably to an extraordinary number of heating service calls.
A PSE&G team took a national leadership position to develop and gain Federal Energy Regulatory Commission (FERC) approval of a more than $1 billion "take-or-pay" settlement involving Transcontinental Gas Pipeline Corpo-ration, our largest gas supplier. Settlement of this long-standing and complex issue saved PSE&G's gas customers more than $30 million in 1989 and should improve our gas business's competitive position in New Jersey. We also continued our aggressive purchase of gas on the spot mar-ket, which saved customers approximately $48 million in 1989.
Corporate Citizenship Cited In another notable achievement during the year, the com-mitment of our employees to good corporate citizenship gained national recognition and earned PSE&G a Presi-dential Citation. A survey conducted during the year indi-cated a record level of volunteer service among employees.
These activities clearly demonstrate our concern for the economic and social well-being of our state and the com-munities in which we live and work.
Evolution and Transition A number of regulatory, legislative and competitive issues are transforming the electric and gas industry in our state and our nation. This transformation will continue as we move toward the 21st century.
There are many factors involved in altering institutional relationships and rewriting the rules under which we oper-ate. These include political and economic developments in New Jersey, the Northeast, and on the national scene; the strong concern for the environment; and the general trend toward reliance on market forces and away from regulation.
Rapid Change and More Options This already rapid tempo of change is likely to quicken in the years ahead.
Continued deregulation of the bulk power industry will stimulate competition in the business of generating and
selling electricity. Electric customers will have an increas-ing array of options including cogeneration, self-generation and conservation to meet their energy requirements.
The rules and pricing arrangements under which inde-pendent and non-utility suppliers of electricity gain access to the high-voltage transmission network will be a major issue for the 1990s.
Although most states, including New Jersey, continue to regulate the sale of natural gas as they have for decades, federal regulations covering the production and transpor-tation of gas have been fundamentally revised in recent years. As a result, gas producers, brokers, pipeline compa-nies, and local distribution utilities now vigorously com-pete for customers, supplies of gas and pipeline capacity.
At PSE&G, we have seen these trends translated into the reality of a marketplace in which 57 industrial electric customers have opted for cogeneration arrangements and 151 former large-scale gas customers now purchase gas directly from producers and arrange for its transportation.
Meeting New Jersey's Needs New Jersey is the nation's most densely populated state and this presents unique challenges to those involved in meet-ing the future energy requirements of its residents.
The pressure on the state's limited resources and the growing concern of New Jersey residents about quality of life issues make it clear that conservation and environmen-tal protection must be major components in any formu la for the future.
Today's -
and tomorrow's -
technologies offer the potential to meet a significant portion of energy require-ments through conservation. A key task is to provide equi-tably the economic incentives and rewards for energy suppliers and users that will maximize this potential.
Another important element will be an improved process to plan for and approve new facilities that will be needed in the next century.
We joined the state's other electric utilities last year in supporting a policy forum that represented the important first step toward establishment of this new energy planning process. We look forward to continuing this dialogue with government, regulatory and industry representatives.
Renewed Focus on the Environment The people of New Jersey expect strict compliance with the state's environmental laws and regulations.
At the national level, this concern for the environment also will be reflected in enactment of new federal air qual-ity standards. It is readily evident that our commitment to provide safe and reliable energy services can tolerate no 4
compromise with environmental compliance and environ-mental quality.
Our environmental focus will encompass not only clean air and clean water standards, but the growing public con-cern about the possible health effects of electromagnetic field (EMF) exposure. We will continue to help fund EMF research projects and will support the establishment of reasonable EMF standards for transmission lines. While we believe present research indicates there is no cause for alarm about EMF exposure, we will work to ensure that our customers and employees are provided with timely and accurate information on this emerging issue.
During 1989, we accelerated development of an environ-mental action plan to investigate and, as necessary, clean up the locations of former gas manufacturing facilities.
Many of these facilities were owned by predecessor companies to PSE&G and their operation dates back to the 1800s. We have identified 38 sites that warrant investiga-tion for possible contamination.
A Framework for Success There is an ancient aphorism to the effect that "if you don't know where you're going, any road will take you there."
At Enterprise we not only believe we know where we are going, we continually map out strategic paths to lead us to our goals. As our business and our industry grow and evolve, so does Enterprise's ability to analyze new and unique challenges and develop strategies for turning chal-lenges into opportunities for continued success.
To help shareowners better understand these challenges and Enterprise's strategies for meeting them, we offer in the following section a discussion devoted not to the year just past, but to the decade ahead.
Enterprise's drive into the future is powered by a com-mitment to customer satisfaction and a devotion to excel-lence in all of our activities. With forward-looking strategies and highly skilled and dedicated employees to implement them, Enterprise intends to continue enhancing its hard-earned reputation for operational leadership and reliable service while building the value of shareowner investment and preparing our company for the next decade and the next century.
E. James Ferland Chairman of the Board, President and Chief Executive Officer February 20, 1990
urs is a different company today than it was ten years ago and it will be a different com-pany ten years in the future.
At Public Service Enterprise Group, our plans for the future are linked to the changes that are transforming our industry. As we develop the strategies that will lead us into this new era, it is with the knowledge that our company and its people have a long and proud history of successfully meeting the challenge of change.
The people of PSE&G have established a record of tech-nical and operational excellence, customer service leader-ship and the highest standards of individual and corporate citizenship.
In recent years, as our business environment has evolved, we have challenged employees with the complex task of reorienting behaviors and beliefs to meet the rigors of a competitive and customer-driven culture.
We have challenged employees with the necessity to reduce costs and increase productivity. And we have chal-lenged employees with a workplace that grows more com-plicated and demanding every day.
In each case the men and women of our company have responded admirably.
6 (left)
Clean. reliable natural gas has become the "fuel of choice," intensifying demand for supplies and pipeline capacity.
(center)
Responding to customer needs begins at the plan-ning stage, as Marketing Engineer Maureen Regan demonstrates to John Weisgerber (c.) and Gary Fisher ( r.) of Bellemead Development Corpora/ ion.
(right)
A quick response. Team-work. Innovative solutions.
These techniques enabled Energv People like John Redmon (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 for Raritan River Steel, PSE&G '.v second-largest customer.
It is because of the demonstrated abilities of our em-ployees and our confidence in their continued success that we can sum up Enterprise's vision for the future in this deceptively simple statement: our aim is to gain recogni-tion as being among the best diversified energy companies in the nation.
A Foundation for the Future The future of Enterprise will be built on two fundamental tenets:
> The electric and gas businesses of PSE&G will remain at the core of Enterprise activities. PSE&G will focus on gaining recognition as the premier electric and gas com-pany in the Northeast with a national reputation for excellence.
We will measure our progress toward this goal by com-paring our performance in key areas against established benchmarks of excellence, and with the realization that successful companies in the future will be those that do the best job of discerning and meeting customer needs.
> The non-utility businesses of Enterprise Diversified Holdings Incorporated (Holdings) are designed to provide strategic balance, financial flexibility and additional earn-ings growth. Our diversification program is geared toward
Jong-term growth of shareowner value through businesses related to the energy industry where our years of expe-rience and know-how can be utilized most effectively.
A Level Playing Field Decisions made in the coming years in Congress, the state legislature, the Federal Energy Regulatory Commission (FERC), and the New Jersey Board of Public Utilities (BPU) will have a strong impact on our ability to meet our objectives.
We seek an economic environment in which the risks and rewards of a competitive marketplace are balanced fairly, protecting both PSE&G 's customers and share-owners, and we seek institutional rules that acknowledge PSE&G's unique obligation as a public utility to provide its customers with safe and reliable service.
We intend to help shape this emerging environment through responsible leadership and active, ongoing dia-logue with lawmakers, customers, and the public. Asap-propriate, we will develop and promote creative solutions to the tough regulatory, economic and technical issues involved.
(left)
Demand f or natural gas for residential and commercial use continues to grow. Gas Business street groups worked throughout the year extending mains and ser-vice lines, especially in expanding suburban areas of Hunterdon and Burling-ton counties. Here, Lead Engineer Rich Worsinger (r. ) of Burlington District checks diagrams with Street Inspectors Ozzie Reyes and Maggie Hoyer.
(right)
PSE&G has set ambitious goals for its nuclear plants without compromising safety. Salem and Hope Creek stations experienced excellent production in 1989, with a combined 72% percent capacity factor, far above the na-tional average of 63%.
(Chart)
An Industry of Diverging Views One of the most dynamic changes in seeking these solu-tions is the utility industry's increasing difficulty in staking out consensus positions on the many major questions raised by deregulation and increased competition.
Regional economic, political and environmental con-cerns are reflected in strong differences of opinion in the industry on such important issues as acid rain legisla-tion, reform of the Public Utility Holding Company Act (PUHCA), and electric transmission system access.
PSE&G, for example, is strongly opposed to legislation that would impose on its customers costs incurred by mid-west utilities in meeting new federal air standards.
Planning New Jersey's Energy Future In New Jersey, existing law and regulatory practice is heavily tilted against construction of new electric generat-ing facilities by utilities such as PSE&G. We view conser-vation, cogeneration, non-utility generation and improved efficiency through load management as essential elements of any plan to meet future electric capacity requirements.
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 Nuclear Performance Maximum Dependable Capacity 100 80 60 40 20 1987 1988 1989*
- PSE&G Operated Nuclear Plants U.S. Average for all Nuclear Plants
- U.S. Average is through September 1989 9
1-include our proven reliability as a builder and operator of base load generating stations as an option for New Jersey's energy future.
This was one element of the message we brought to the policy forum on the state's electric energy requirements convened last year by Gov. Thomas H. Kean. The confer-ence included the governor's representatives, state legisla-tive leaders, the BPU, the Department of Commerce, Energy and Economic Development, the N.J. Public Advo-cate, and representatives of the cogeneration and indepen-dent power industry.
Forum participants agreed that the centerpiece of the state's energy policy for the future should be to maximize opportunities for energy conservation. They also agreed, however, that New Jersey will need new electric generation and transmission resources to serve the needs of residents in the coming century.
An important aspect of the session involved discussions on a more rational energy planning system that would re-place the state's cumbersome Certificate of Need process.
The framework for new planning procedures calls for a streamlined system that integrates long-term policy objec-tives with short-term action plans focused on specific projects.
IO (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 levelforflexibilily 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.
The transfer in 1989 of energy planning responsibilities from the state Commerce, Energy and Economic Develop-ment Department to the BPU follows the general direction of the planning recommendations made at the forum.
There is much work to be done in translating the general agreements reached at the forum into the reality of a new system of workable rules. PSE&G looks forward in the coming months and years to working with appropriate government and industry leaders to move this process forward.
A Fair Tax Structure We will also continue our leadership role in working for changes in New Jersey's tax structure, which now provides our competitors with a built-in and unfair advantage.
PSE&G, along with all other electric and gas utility companies in New Jersey, pays gross receipts and franchise taxes that add 13 per cent to the bills of all customers. This gives non-utility electric and gas suppliers, as well as mar-keters of other fuels who don't pay this tax, a considerable and anti-competitive price advantage. In effect, the users of utility-supplied energy are subsidizing non-utility sup-pliers and their customers.
Certificate of Need Application Process I
Yes 1
ls Cen i ficate BPU of Need No HeariD&s Required? --
l I
1 BPU Sllle Energy Bady Rerillw Malfa'Plan BPU A--=nl Report --
l l
Nomllility c.ertifiCllc of Gemming Need Bids Application l
l Evaluate BPU Bidllaad Review of Award Application Cmlncll We are in favor of initiatives that would even out the tax burden among all competitors and customers in the energy marketplace and this will be one of our legislative priori-ties for the 1990s.
The Decade of the Environment It is increasingly clear that the people of New Jersey along with Americans all over the country list protection of the environment as a leading social priority.
It's also clear that the new decade will see more rigorous enforcement of New Jersey's stringent environmental regu-lations and implementation of new and tougher federal air quality standards.
Discussion will continue on global climate change and greenhouse emissions and the growing concern over the possible health effects of electromagnetic fields (EMF).
New Jersey, as the nation's most densely populated state, often is on the leading edge of environmental issues. The debate on how best to cope with these problems will intensify.
Finding the Appropriate Balance We need to reexamine all the elements necessary to be a safe, efficient, clean and reliable supplier of electric and 12 Othts'
~
-- RMlll'i Cenificale of I Needbllled (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.
This was one of several urge111 topics discussed at the Governor's f orum convened in the spring of 1989. A continuing dia-logue with the new admin-istration in Tremon, the state's capital (left), is a priority.
(right)
The commercial sector of PSE&G's customer base continues to grow. spurring demand f or energy. Attrac-tive new buildings, like the Gateway Ce111er in Newark, are changing the face of the downtown business district and encouraging new retail and housing development. PSE&G's Area Development Depart-melll's focus on urban redevelopme/11 has contrib-uted to growth in New Jersey's revitalized cities.
gas energy. We must find the appropriate balance between the need for electric and gas service on which our cus-tomers depend and the environmental quality they demand.
We will continue to be forthright in answering the con-cerns and questions of customers and the public about such topics as EMF, acid rain, and greenhouse gases and we must be vigorous in remediating problems where they exist and where we are responsible.
We will continue, also, with a responsible program of cleaning up as necessary environmental problems asso-ciated with generations past, such as gas production facilities.
Our concern for the environment and our state's limited resources must be at the forefront of our plans to meet the need for new energy services and facilities. The clear mes-sage of the 1990s is that no company will prosper without demonstrating a commitment to environmental quality.
Strategies for the Future -
Electric PSE&G's electric business has earned a reputation for technical leadership and operational excellence in the tra-ditional utility environment. We intend to continue this leadership role as we expand the scope and range of ser-vices we provide our customers.
Our objective is to become the full-service supplier of choice in the electric energy market. This means fulfilling customer expectations by offering them the services they want at the lowest possible cost.
New Pricing Systems Successfully marketing new services such as energy man-agement systems, conservation techniques and substation and equipment maintenance will require alternatives to traditional rate-based pricing. We anticipate working closely with the regulatory community on the design of innovative pricing mechanisms that better meet the reali-ties of a competitive business environment, reflect the value of these services to customers, and provide an op-portunity to earn a fair return.
PSE&G's plans to remain an active player in the bulk power market include aggressive marketing of bulk power sales during off-peak periods in a way that will maximize the efficiency of existing facilities without creating the need for new capacity.
When the need for new generating capacity is docu-mented, PSE&G will marshal its engineering and technical experience to demonstrate its capability as a leading low-cost generator of electricity.
(left)
PSE&C is committed to conservation as an impor-tant part of its energy strategy. The installation of load management devices 0 11 central air conditioning units can help reduce peak 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 June. Ricki Burroughs, meter installer, prepares to hook up more meters at a housing construction site in Florence, N.J.
Embedded in this ambitious list of undertakings is the understanding that we will not be successful unless we continue to enhance our overall knowledge of the market-place, its distinct segments and our individual customers.
Excellence in Nuclear Operations Any blueprint for future success in the electric business must also incorporate our long-term goal of excellence in operations at our Salem and Hope Creek nuclear generat-ing facilities.
In this regard, we are working toward achieving ambi-tious milestones during the early part of this decade.
These goals include:
> Continual improvements in the combined capacity factor for the Salem and Hope Creek units that will rank them among the best in the world.
> Ongoing improvements in operations as rated by in-dustry performance measurements and the Nuclear Regu-latory Commission's Systematic Assessment of Licensee Performance (SALP) reports.
As in all aspects of our nuclear program, however, our first concern will be the safe operation of our nuclear plants. PSE&G tolerates no compromise with safety.
15
Strategies for the Future -
Gas During the coming decade, PSE&G's gas business will build on its record as New Jersey's largest and lowest cost natural gas utility. Our goal is to stimulate growth in the business and gain recognition as one of the region's and the nation's leading gas distribution companies.
As we look to the future we are aware that the sub-stantial price advantage natural gas now enjoys over other fuels may not be a permanent fixture of the energy market-place. As we build on our competitive price position in New Jersey, we are also developing strategies that stress the environmental benefits of gas and its availability from domestic sources.
Pursuing New Opportunities We will also develop new sales and service opportunities and explore alternatives to existing gas tariffs that better reflect the full cost and the value of service we provide customers.
If gas supplies tighten appreciably in the coming years, PSE&G 's position as the East Coast's largest gas company, its demonstrated knowledge of the gas supply market, and its ability to obtain supplies of gas at the lowest possible cost will become more valuable strategic assets.
Diversified Operations Contribution to Earnings Actual 1989 Contribution was 5%
Objective Mid - 1990s Contribution 15%
Earnings from Utility Operations Earnings from Nonutility Operations 16 We will build on this competitive edge to:
> Increase conversions to natural gas from other fuels among small industrial and commercial customers.
> Develop specialized contracts for the growing electric cogeneration industry.
> Expand appliance and equipment service offerings in the residential, industrial and commercial markets.
> Develop and expand new uses for natural gas, such as industrial air conditioning and residential gaslighting and grills.
> And pursue development of the natural gas vehicle market.
Strategies for the Future -
Diversified Businesses The creation of Enterprise Diversified Holdings Incorpo-rated as the parent company for Enterprise's non-utility businesses reflects the important role these businesses are expected to play in providing additional sources of earn-ings growth, strategic balance in a rapidly changing envi-ronment and yet another means to enhance shareowner value.
While an escalation in natural gas prices, for example, might pose challenges to PSE&G's regulated gas business, it could present revenue opportunities for Energy Develop-(Chart) Enterprise's non-utility businesses contrib-uted $26.8 million or 5% of consolidated earnings in 1989. The businesses are expected to achieve their goal of contributing 10% of consolidated earnings by the end of 1991 and 15% by the mid-1990s.
(center)
Energy Development Cor-poration's purchase of the Pelto Oil Company, with properties primarily in the Louisiana Gulf area, more than doubled EDC's proven reserves of oil and gas.
(right)
PSE&G, Texas Eastern, and other utilities worked closely to assure continued deliverabilityof natural gas. Improvements were made lO this Texas Eastern compressor station in Lam*
bertville, N.J., and to pipelines in Pennsylvania.
(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 our side irs sysrem.
ment Corporation, our oil and gas exploration and produc-tion business. Similarly, Community Energy Alternatives Incorporated, our cogeneration and small-power produc-tion affiliate, will be positioned to take advantage of legis-lative or regulatory developments favoring independent power producers.
Enterprise's investment in these businesses is based on a long-term perspective of measured growth at limited risk.
We have no plans to buy into businesses or industries in which we have no experience or management expertise.
Public Service Resources Corporation (PSRC) is focused on developing a diversified investment portfolio that reduces fi nancial risk to Enterprise while maximizing returns.
During the coming years, PSRC's goal will be to maintain a broad investment orientation, engage in a mix of inter-mediate and long-term transactions and strengthen its rep-utation for high-level investor reliability.
Community Energy Alternatives Incorporated (CEA) is building on its growing expertise in innovative technolo-gies in the non-utility power generation market.
Energy Development Corporation (EDC), in the coming decade, expects to increase its proven reserves of oil and gas through acquisition and exploration and development projects. It will work to expand its customer base and mar-keting expertise.
The strategy for Enterprise Group Development Corpo-ration (EGDC), a real estate subsidiary, is to make modest investments in commercial office, retail and industrial properties across a wide geographic area. While subject to short-term fluctuations in the real estate market, these investments offer long-term growth potential.
Enterprise's Strategic Advantage -
Its People We began this discussion about our expectations for the future with the statement that our confidence for a bright future is based on the ability of our employees to adapt to changing conditions and implement successfully new busi-ness strategies. It is appropriate to end this discussion on the same note.
We believe the outlook we have shared with you repre-sents the pathways to a new era of achievement for our company and our employees.
We have more work to do, but we are confident in our vision for the future and especially confident that the men and women of PSE&G and the non-utility companies have the talent and the will 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 NRC shut-down order. At the beginning of this new decade all five nuclear plants serving our cus-tomers, including Salem and Hope Creek, were producing at full power.
Exchange Place in Jersey City, one of the many new commercial developments rising along the Hudson River waterfront, is sym-bolic of the dramatic changes taking place in New Jersey's older cities.
nterprise overcame the continuing im-pact of the shutdown of Peach Bottom Atomic Power Sta-tion and ended 1989 in sound financial condition. The company maintained good cash flow and a strong capital struc-ture, ending 1989 with a common equity ratio of 46.7%. The year-end book value of common stock was $19.85 per share, up from
$19.11 at the end of 1988. Enter-prise's ratio of earnings to fixed charges was 2.66. PSE&G's earnings to fixed charges cover-age ratio was 3.21 times and the utility met most of its construc-tion expenditures, approximately
$674 million, through internally generated funds.
1989 Results PSE&G's strong electric and gas sales and commitment to cost controls, together with earnings growth from non-utility busi-nesses, helped Enterprise achieve 1989 consolidated earnings of
$542. l million, or $2.62 per share of common stock, based on 206. 9 million average shares outstanding. Earnings for the previous year were $528.6 mil-lion, or $2.57 per share, based on 205.4 million shares outstanding.
The non-utility businesses of Enterprise Diversified Holdings Incorporated produced 5% of overall earnings, or approxi-mately 13 cents per share, an increase of 18.5% and 2 cents per share over 1988. The non-utility businesses remain on track to meet the established goal of producing 10% of Enterprise earnings by the end of 1991.
Overall revenues in 1989 were
$4.8 billion, an increase of9.3%
over 1988 revenues of $4.4 bil-lion. PSE&G's electric revenues accounted for $3.3 billion and gas revenues accounted for $1.3 billion, with the balance coming from Holdings' non-utility subsidiaries.
Modifications continued on fossil-fueled generating stations to increase effi-ciency. Doug Stroud, control operator, monitors the operation of the No. 2 unit at Hudson Generating Station through the newly computerized control panel.
More than 300 miles of new gas pipeline and 240 miles of service lines were Laid in 1989, extending service to more than 16,000 new customers.
The Board of Directors, in the fourth quarter, increased the common stock dividend from an annual rate of $2.04 to $2.08.
The modest 2% increase marked the 14th consecutive year in which the dividend was raised.
PSE&G 's overall electric sales increased 2.2% over 1988. Elec-tric sales in the residential and commercial markets increased 0.1 % and5.7%, respectively, while industrial sales were off 1.4%.
Total gas sales, boosted by extraordinarily cold weather in December, increased 8.8%.
Residential, commercial and industrial sales increased 5.5%,
16.6%, and 3.0%, respectively.
Gas transportation service in-creased 7.9%.
Gas RMAC Increased The N.J. Board of Public Utilities (BPU), in December, approved a
$23.7 million increase in the levelized raw materials adjust-ment charge (RMAC) for PSE&G's gas customers. The increase will remain in effect for the 10-month period ending September 30, 1990. The in-crease reflects the rising cost of obtaining and transporting gas.
PSE&G, in June, originally petitioned the BPU for a $91.2 million RMAC increase but was able to reduce substantially the request following approval by the Federal Energy Regulatory Com-mission of settlements involving the costs associated with "take-or-pay" obligations under gas contracts with the Transcontinen-tal Gas Pipeline Company. These contracts were negotiated during the gas shortages of the 1970s.
Despite the RMAC increase, PSE&G's gas rates remain the lowest in New Jersey.
Increase in LEAC Approved The BPU, in February, 1990, approved a $24. l million in-crease in the electric Levelized Energy Adjustment Clause (LEAC). The new rate will be in effect through June 30, 1991.
21
PSE&G originally requested a
$24.8 million increase. The LEAC reflects the cost of fuels used to generate electricity, and purchased power.
Peach Bottom Shutdown The Peach Bottom Atomic Power Station began its return to ser-vice in April after a shutdown of more than two years. The shut-down has had a considerable negative impact on 1989 earnings.
The two-unit Peach Bottom station is operated by Philadel-phia Electric Company (PE) and is partially owned by PSE&G. It was ordered shut down by the Nuclear Regulatory Commission (NRC) in March 1987 after PE operators were found sleeping on the job and otherwise inattentive to control room duties. One of the Peach Bottom reactors reached full power in July. The second was restarted in No-vember and at year's end both units had operated at full power.
In March, 1989, PSE&G reached agreement on the treat-ment of rates associated with Peach Bottom for the year. The decision resulted in a one-time credit to electric customers of
$32 million and included provi-sion for additional refunds to electric customers based on the operational status of the two units for the remainder of the year. The total impact of the Peach Bottom penalty was $48 million, which reduced 1989 Enterprise earnings by a net of 15 cents per share.
Enterprise and PSE&G have sued Philadelphia Electric to recover increased costs asso-ciated with the outage. This liti-gation was pending at year's end.
Electric PSE&G's electric business is confronting our industry's chang-ing business environment with initiatives designed to meet the challenges of the future and secure its position as the low-cost supplier of electricity and energy services.
22 Corporate Performance staff members like Susan Docherty and Bob Hill, led by General Manager Glenn Rogers (c.), provided strategic planning support to other business units to help PSE&G confront a rapidly changing business environment.
Intensive work at all levels at Philadelphia Electrics Peach Bottom nuclear units, 42.49% owned by PSE&G, contributed to the restarting of both plants in 1989 after more than two years of shutdown.
These included development of a more responsive organiza-tion, a greatly strengthened plan-ning capability, and implemen-tation of programs designed to increase our knowledge of the marketplace.
We moved to improve our stand-ing as a low-cost supplier of elec-tricity through completion of a major study of possible modifica-tions to existing fossil generating stations. This study concluded that PSE&G's fossil stations have the capability to produce addi-tional capacity on a competitive basis.
In addition to these initiatives, we recorded impressive opera-tions accomplishments in 1989:
>Effective maintenance pro-grams and operational expertise helped PSE&G's fossil generating stations meet increased load requirements. Fossil generation increased 20% over 1988.
>By year's end, the nuclear department had made substantial progress in correcting weak-nesses identified in an NRC Systematic Assessment of Licensee Performance (SALP) report on Salem station.
>The Salem and Hope Creek nuclear generating stations pro-duced a combined capacity factor of 72%, well above the industry average.
>We successfully managed the first solicitation of bids for elec-tric power generation, capacity and conservation from non-utility sources. We requested bids for a total of 200 megawatts of energy, capacity and conservation.
>The electric business moved aggressively to improve com-pliance with environmental regulations by upgrading training and communications for em-ployees with environmental responsibilities.
>Two new substations were put in service and construction was completed on three cable circuits to serve growing demand along the Hudson River.
Hudson Switching Station improvements, at the interconnection with Con Edison, will improve reliability of service in the rapidly growing Jersey City area.
Gas PSE&G's gas business took major steps during the year to strengthen its competitive position as New Jersey's largest and lowest-cost supplier of natural gas to the residential, commercial and in-dustrial markets.
We've fashioned a strategic plan for the 1990s and worked during the year on a key element of that plan -
developing new pricing mechanisms designed to meet the requirements of chang-ing business conditions. The gas business also improved its com-petitive edge through an effective program of firm contract and spot market purchases of gas and completion of supply projects that will increase pipeline capacity.
A significant accomplishment in 1989 was the development of a responsible and effective plan to investigate and, where necessary, remediate the sites of former gas manufacturing facilities.
PSE&G is seeking approval from the state Department of Environmental Protection on a plan to investigate the sites, many of which were in operation in the last century and were owned and operated by prede-cessor companies to PSE&G.
We opened a comprehensive training center in Edison, Mid-dlesex County, that will provide employees with the knowledge and skills needed for changing technical and business conditions.
Among other significant oper-ational milestones achieved during the year:
>We helped keep customers warm during the frigid De-cember cold snap. A new record for gas sendout of 1.8 billion cubic feet was set on December 22 and the dedicated effort of service personnel kept response time for heating system repairs to a minimum.
>The gas supply department continued its leadership role in aggressively pursuing purchases Through its own pollution research and the utility industry's, PSE&G is committed to protecting the environment. Environmen-tal coordinators are as-signed to many electric operating locations, and the investigation of former gas plant sites, some not used since the late 1800s, is under way.
Commercial construction continued strongly in New Jersey, contributing to the increase in electric and gas sales. lnfact, electric sales were up 2.2% over 1988 sales and total gas sales increased 8.8%.
of lower cost gas on the spot market. This program resulted in approximately $48 million in savings in 1989 and enhanced the gas business's competitive posi-tion in New Jersey.
>Construction was completed on more than 79.5 miles of new gas main to serve burgeoning customer demand in Burlington County. In addition, we con-structed 9.5 miles of new gas main to inaugurate service in Tewskbury Township, Hunterdon County.
> The replacement of more than 61 miles of aging cast iron gas main with new steel and plastic facilities will help insure safe and reliable service well into the future.
>The Linden Synthetic Natural Gas (SNG) plant, the last of PSE&G's gas production facili-ties, was retired.
Non-utility Businesses Enterprise's non-utility busi-nesses made progress during the year, individually and collec-tively, on a program of measured growth toward established finan-cial objectives. Non-utility busi-nesses contributed $26.8 million, or 13 cents per share, to 1989 earnings, an increase of $4.2 million or 2 cents per share over 1988. These results are in accord with plans that foresee Public Service Resources Corpo-ration and Energy Development Corporation making the primary earnings contributions of the non-utility businesses over the next few years. At year's end the total assets of non-utility busi-nesses had grown from approxi-mately $1 billion in 1988 to $1.8 billion. Non-utility businesses now represent approximately 14% of Enterprise's overall assets.
The creation during the year of Enterprise Diversified Hold-ings Incorporated and Enterprise Capital Funding Corporation reflects the considerable growth of these businesses. Holdings is now the parent company of the non-utility businesses. Enterprise Gas storage facilities, such as this liquefied natural gas container in Burlington County, provide winter peaking reserves to supple-ment pipeline supplies. A new gas sendout record was set on December 22 during the extraordinarily cold weather early this winter.
23
Capital Funding will provide financing to the non-utility busi-nesses without support from Enterprise and is expected to become their primary financing arm.
Public Service Resources Corporation (PSRC)
Public Service Resources Corpo-ration, which makes passive investments, met its operational objectives of increasing its in-vestment level and diversifying its portfolio. Its achievements during the year included closing on major transactions involving leveraged leases on commercial aircraft and investments in lim-ited partnerships in real estate in a historic district of Philadelphia and a Texas chemical facility.
PSRC's assets grew to $801 million during the year, a 56%
increase over 1988.
Energy Development Corporation (EDC)
Energy Development Corpora-tion, an oil and gas exploration and production company, is our fastest growing non-utility busi-ness. It made excellent progress during the year toward its goal of expanding natural gas reserves and diversifying its exploration portfolio and customer base.
This was primarily accomplished through the acquisition of the Pelto Oil Company from South-down, Incorporated. The $320 million transaction more than doubled EDC's proven reserves of oil and gas and provided a substantial inventory of onshore and offshore exploration prospects.
In 1989, EDC's assets rose to
$709 million.
Community Energy Alternatives Incorporated (CEA)
Community Energy Alternatives Incorporated, a developer and investor in cogeneration and small-power projects, had 12 projects in operation and six under construction at year's end.
24 This 20.5 megawatt plant in Antioch, California, is one of several "clean" sources of energy in Com-munity Energy Alternative's geographically diversified portfolio of cogeneration and small power projects.
Harbert Center in Jackson-ville, Florida, an office complex in a park-like setting, is included in Enterprise Group Develop-ment Corporation's port-
! olio of commercial and industrial properties.
During 1989, CEA acquired a limited partnership interest in operating a resource recovery facility in Florida and made significant progress on projects in California employing the proprietary fluidized-bed tech-nology it owns. Two of these projects are operational, two are nearing completion and two others are under construction.
At year's end, CEA's assets totaled $90 million.
Enterprise Group Development Corporation (EGDC)
Enterprise Group Development Corporation is a real estate devel-opment and investment business that invests in commercial office, retail and industrial properties over a wide geographic area.
EGDC seeks projects that offer the potential for acceptable cur-rent rates of return and attractive capital gains on resale.
During 1989, EGDC success-fully closed on seven projects with a net investment of $80 million. At year's end, EGDC's assets totaled $185 million.
PSEG Capital Corporation; Enterprise Capital Funding Corporation PSEG Capital and Enterprise Capital Funding are financing subsidiaries of Holdings created to serve the needs of the non-util ity businesses through the issuance and sale of debt obliga-tions on a private placement basis.
At year's end, PSEG Capital had a total of $250 million of senior notes and $500 million of its medium-term notes outstand-ing supported by Enterprise.
PSEG Capital will not have more than $750 million of its debt obligations outstanding at any one time.
Enterprise Capital Funding, created during 1989, had, at year's end, obligations of $206 million outstanding consisting of commercial paper backed by a commercial bank's direct-pay letter of credit, without support from Enterprise.
Financial Contents Management's Discussion and Analysis 25 Responsibility for Financial Statements 33 Report of Accountants 34 Statements of Income 35 Balance Sheets 36 Statements of Cash Flows 38 Statements of Retained Earnings 39 Notes to Financial Statements 40 Financial Statistics 52 Operating Statistics 54 Officers and Directors 56 Shareholder Information 57
- a*
Management's Discussion and Analysis of Financial Condition and Results of Operations Following are the significant factors affecting the consolidated finan-cial condition and the results of operations of Enterprise and its sub-sidiaries. This discussion refers to the consolidated fi nancial statements and related notes of Enterprise and should be read in con-junction with such statements and notes.
Overview Public Service Enterprise Group Incorporated (Enterprise) has two wholly-owned subsidiaries, Public Service Electric and Gas Company (PSE&G) and Enterprise Diversified Holdings Incorporated (Hold-ings). Enterprise's principal subsidiary, PSE&G, is an operating public utility providing electric and gas service in certain areas in the State of New Jersey. Enterprise has claimed an exemption from regulation by the Securities and Exchange Commission (SEC) as a registered holding company under the Public Utility Holding Company Act of 1935, 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),
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 Atomic Power Station Units 2 and 3 (Peach Bottom) following a costly shutdown ordered by the Nuclear Regulatory Commission (NRC) in early 1987. The return to service of Peach Bottom places each unit under the BPU's nuclear performance standard. If the units operate as expected during 1990, PSE&G will have lower electric energy costs. PSE&G has a 42.49 % ownership interest in Peach Bottom.
> EDC, a subsidiary of Holdings, acquired Pelto Oil Company in November 1989 at a purchase price of $320 million as part of its effort toward acquiring proven oil and gas reserves. This purchase approxi-mately doubled EDC's proven oil and gas reserves.
In addition to the above, the following affected the operations of Enterprise and.is expected to have an impact on the future operating results of Enterprise.
Energy and Fuel Adjustment Clauses PSE&G has adjustment clauses which are designed to permit adjust-ments for changes in electric energy and gas raw materials costs, as approved by the BPU, when compared to levels included in base rates. Charges under the clauses are based upon energy and gas supply costs which are normally projected over twelve-month periods. The changes in the gas Raw Materials Adjustment Clause (RMAC) and the electric Levelized Energy Adjustment Clause (LEAC) do not directly affect earnings because the costs of gas, fuel and net inter-changed and purchased power are adjusted monthly to match amounts recovered through revenues. However, the carrying of underrecovered fuel costs ultimately increases financing costs. Under the clauses, if actual costs differ from the costs recovered, the amount of the under-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 Competition -
Gas On August 7, 1987 FERC issued Order 500 which allows gas pipeline companies and producers enhanced access to certain PSE&G cus-tomers for the purpose of supplying gas service in competition with PSE&G. As of December 31, 1989, 151 former large scale gas cus-tomers purchase gas directly from gas pipeline companies and pro-ducers and arrange for its transportation through PSE&G's gas mains.
Transportation service gas accounted for 6% of sales and transported gas and 1 % of total gas revenues as of December 31, 1989.
Electric Generating Facilities Cogeneration, non-utility generation, conservation and load manage-ment techniques are important elements of PSE&G's plan to meet electric capacity requirements. Based on its revised electric system forecast, PSE&G anticipates the need to construct a base load fossil-fueled generating unit to meet the demands of its customers late in this decade.
Environment PSE&G is currently working in concert with the New Jersey Depart-ment of Environmental Protection to implement a plan pursuant to which PSE&G would undertake to investigate and, where necessary, remediate its former manufactured gas plant sites. The overall cost of the investigation and remediation cannot be reasonably estimated, but amounts previously expended indicate the cost may approximate at least $10 million per year and that the overall cost of the investigation and remediation could be material. PSE&G has received approval from the BPU to utilize deferred accounting for costs related to inves-tigation and remediation.
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.
26 31% Nuclear 27% Power Purchases 26% Coal 8% Gas 8% 0il
~
35% Nuclear 28% Coal 21 % Power Purchases 8% Gas 8% 0il
Non-utility Businesses In 1989 Holdings contributed 4.9% of Enterprise's earnings, an in-crease of 18% over 1988. Holdings' assets now represent approxi-mately 14% of Enterprise's assets. Holdings' goal for its non-utility businesses is to achieve approximately 10% of consolidated earnings by the end of 1991 and possibly as much as 15% to 20% by the mid-to-late 1990's. Under the Public Utility Holding Company Act of 1935, there may be limits on the extent of non-utility investments permitted of exempt public utility holding companies.
Earnings Earnings per share of common stock were $2.62 in 1989, $2.57 in 1988 and $2.55 in 1987. Per share earnings and the increases or (de-creases) in earnings are summarized as follows:
(Millions of Dollars except per share amounts)
PSE&G Revenues (net of fuel costs, gross receipts taxes and Hope Creek abandonment costs)
Peach Bottom revenue credits Nuclear performance penalty for Peach Bottom outage Operating Expenses (excluding Federal income taxes)
Interest charges Federal income taxes Net effect of SFAS 90 Other Holdings (non-utility businesses)
Effect of issuing additional shares of common stock 1989 vs. 1988 1988 vs. 1987 Cents Cents Amount per Share Amount per Share
$ 89
$.43
$ 49
$.24 (21 )
(.10)
(27)
(.13) 25
.12 (7)
(.04) 4
.02 (162)
(.79)
(20)
(. 10) 8
. 04 (44)
(.21) 133
.65 (30)
(.14) 23
.II 7
.03 (17)
(.08) 4
.02 8
.04
(.02)
(.02)
$ 14
$.05
$ 8
$.02 The Average Shares of Common Stock Outstanding were 206,878,500 for 1989, 205,350,418 for 1988 and 203,872,592 for 1987, respectively.
The increase in earnings for the years shown in the table above are primarily due to higher electric k:ilowatthour and gas therm sales, an increase in electric and gas customers (see Revenues and Sales below), reduced 1989 operating expenses, principally maintenance expenses and labor costs, and continued improvement in the net in-come of Holdings' non-utility subsidiaries, primarily EDC and PSRC.
During 1989 PSE&G reduced its maintenance expenses by $33 million from 1988, $26 million of this amount was due to reduced maintenance expenses at Peach Bottom. If the Peach Bottom units operate as expected during 1990, PSE&G expects to further reduce maintenance costs at both units. Peach Bottom 2 is scheduled for a refueling and maintenance outage during the first quarter of 1991.
Peach Bottom 3 is scheduled for a similar outage during the fourth quarter of 1991.
On March 31, 1987, the NRC ordered PE to bring Peach Bottom 2 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-lished that some of the plant operations control room staff had period-ically slept while on duty and otherwise been inattentive to licensed duties. As a result of this shutdown and in compliance with BPU Orders and Stipulations for the period 1987 through 1989, PSE&G was required by the BPU to provide revenue credits to its electric customers of approximately $75 million and was not allowed to col-lect $43 million of replacement energy costs from its electric cus-tomers resulting from the application of the nuclear performance standard. Details of these reductions in earnings are shown below:
(Millions of Dollars except per share amounts) 1989 1988 1987 Peach Bottom revenue credits
$ 48
$ 27 Nuclear performance penalty for Peach Bottom outage (A) 25 18 48 52 18 Federal income taxes (16)
(18)
(7)
Reduction in net income
$ 32
$ 34
$ 11 Reduction in earnings per share
$.IS
$. 17
$.05 (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 being provided to electric customers.
The increased operating expenses of PSE&G during 1988 were pri-marily due to greater nuclear production expenses, higher mainte-nance expenses at Peach Bottom and higher labor costs. Such operating expenses included approximately $25 million of one-time costs relating to employee severance pay and health care continuation benefits made in accordance with PSE&G's Limited Incentive Separa-tion Program (LISP). The LISP program resulted in the elimination of positions following the review of nearly 6,000 jobs and their related functions.
On July 17, 1989, the BPU issued for comment proposed new rules by which the BPU would evaluate a utility's earnings on an ongoing basis. The proposed new rules if adopted would require monthly reporting requirements and establish procedures to address situations where earnings are in excess of those allowed. On October 2, 1989, PSE&G submitted comments regarding the proposed rulemaking stating that the proposal has economic flaws and in its present form would be invalid since it would permit retroactive ratemaking in vio-lation of established statutory, judicial and constitutional principles.
PSE&G cannot predict at this time whether any such rules will be adopted or the impact such rules would have upon future earnings.
The net income of Holdings was $27 million in 1989, representing
- 4. 9% of Enterprise's net income. This amount is net of the allowance for losses of PSRC's limited partnership investment in a Newark, N.J.
redevelopment project of $1.0 million and an investment by a subsidi-ary of CEA in a Maine peat burning cogeneration project of $1.6 million. The net income of the non-utility businesses was $23 million in 1988 and $17 million in 1987, representing 4.3% and 2.9% of En-terprise's net income in 1988 and 1987, respectively. The growth in the non-utility businesses' net income has come from EDC and PSRC.
Dividends The ability of Enterprise to declare and pay dividends is contingent upon its receipt of dividend payments from its subsidiaries. PSE&G has made regular cash payments to Enterprise in the form of dividends on outstanding shares of its common stock. Such cash was used by Enterprise to pay dividends on its shares of Common Stock and for such corporate purposes as determined by the Board of Directors of Enterprise. Dividends paid to holders of Enterprise Common Stock increased $11 million during 1989 compared to 1988 and $6 million 27
during 1988 compared to 1987. The increase of 1989 dividend pay-ments over 1988 is due to a higher quarterly dividend rate which was increased to 52 cents from 51 cents per share in the fourth quarter of 1989 and the issuance and sale of 5,750,000 shares of Enterprise Com-mon Stock in September 1989. The increase of 1988 dividend payments over 1987 was due to a higher dividend rate which was increased to 51 cents from 50 cents per share in the fourth quarter of 1988 and the increased number of Enterprise common shares outstanding in 1988.
PSE&G Revenues Electric Revenues increased $189 million or 6.1 % during 1989 as compared to 1988. Revenues increased $131 million or 4.4% during 1988 as com-pared to 1987. The significant components of these changes follow:
(Millions of Dollars)
Kilowatthour sales Peach Bottom revenue credits TRA-86 Changes in base rates Recovery of energy costs -
LEAC Gross receipts taxes Other revenues Total Electric Revenues Increase or (Decrease) 1989 vs. 1988
$ 53 (21) 41 (39) 123 23 9
$189 1988 vs. 1987
$111 (27)
(41)
(13) 80 17 4
$131 Revenues increased in 1989 primarily due to the rise in kilowatthour sales, the increase in LEAC rates approved by the BPU in June 1988 and revenue credits applicable to the Tax Reform Act of 1986 (TRA-86) recorded in 1988, which did not reoccur in 1989. Partially offsetting this increase were revenue credits attributable to the extended Peach Bottom outage which were greater in 1989 than in 1988. (See Earn-ings) Since Peach Bottom 2 returned to service in July 1989 and Peach Bottom 3 returned to service in January 1990, no further revenue credits to electric customers are anticipated.
Electric Kilowatthour Sales Gas Therm Sales Percent Percent 87 88 89 87 88 89 100%
100%
100%
100%
100%
100%
Residential
- Industrial
- Residential
- Industrial
- Commercial
- Commercial 28 Revenues increased in 1988 primarily due to higher kilowatthour sales and the increase in LEAC rates approved by the BPU in June 1988. Partially offsetting these increases were revenue credits re-corded in 1988 attributable to TRA-86 and the Peach Bottom outage.
The rate decrease relating to TRA-86, effective in June 1988, partially offset by the rate increase effective in February 1987 diminished the rise in revenues.
Changes in kilowatthour sales from the prior year for the three major sales categories are as follows:
Residential Commercial Industrial Increase or (Decrease) 1989 vs. 1988 0.1 %
5.7 (1.4) 1988 vs. 1987 6.9%
7.0 0.6 1989-Electric kilowatthour sales increased 2.2%. Customer growth enhanced sales in the residential and commercial sectors and higher customer usage and the strength of the economy also bolstered the commercial sector. Offsetting this positive activity was increased competition from cogeneration facilities which adversely affected industrial sales coupled with the loss of some industrial customers.
Cooler weather during the 1989 cooling season relative to 1988 also negatively impacted sales.
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 strong State economy, customer growth, and increasing saturation of residential weather-sensitive appliance usage. A record 60-minute net peak load of 8,745 megawatts and a record day's output of 173,500 megawatthours was established on August 15, 1988.
Gas Revenues increased $159 million or 13.2% during 1989 as compared to 1988. Revenues decreased $16 million or 1.4% during 1988 as compared to 1987. The significant components of these changes fol-low:
Increase or (Decrease)
(Millions of Dollars) 1989 vs. 1988 1988 vs. 1987 Therm sales
$ 27
$ 13 TRA-86 5
(2)
Changes in base rates (2)
(14)
Recovery of fuel costs -
RMAC 110 (14)
Gross receipts taxes 15 (3)
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.
Changes in therm sales from the prior year for the three major sales categories are as follows:
Residential Commercial Industrial Increase or (Decrease) 1989 vs. 1988 5.5%
16.6 3.0 1988 vs. 1987 6.3%
10.3 (11.0) 1989-Gas therm sales increased 8.8%. The rise was attributable to customer growth, higher customer usage, the strength of the economy within the commercial sector, partially reduced by lower sales result-ing from the warmer weather as reflected by a decrease in degree days of0.8%. The record day's sendout of 18,159 kilotherms was achieved on December 22, 1989, during the coldest December in seventy years.
1988 -Gas therm sales increased 4.5%. The Residential and Com-mercial sales increases were attributable to colder weather, customer growth, waning interest in conservation and the strong economy.
Degree days were 5.8% higher in 1988.
Non~utility Business Revenues Revenues, excluding intercompany sales, increased $62 million in 1989 over 1988 and $69 million in 1988 over 1987, the result of higher revenues from PSRC and EDC. PSRC realized higher revenues from increased investments. In 1989 and 1988, PSRC increased its long-term investments by $278 million and $216 million, respectively.
EDC's increased revenue is primarily the result of production from its oil and gas properties acquired in 1989 and 1988. (See Overview and Liquidity and Capital Resources)
Electric Energy Costs 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 to 1987. Contributing factors are shown below:
(Millions of Dollars)
Change in prices paid for fuel and power purchases Kilowatthour generation Nuclear Performance Penalty Adjustment of actual costs to match recoveries through revenues (A)
Total Electric Energy Costs Increase or (Decrease) 1989 vs. 1988
$(11)
II (25) 123
$ 98 1988 vs. 1987
$(29) 37 7
72
$ 87 (A) Reflects over(under)recovered energy costs, which in the years 1989, 1988 and 1987 amounted to $35 million, $(88) million and $(160) million, respectively.
As a member of the Pennsylvania-New Jersey-Maryland Interconnec-tion (PJM) and through several two-party power purchase agreements with neighboring utilities, PSE&G is able to optimize its mix of inter-nal and external energy sources using the lowest cost energy available at any given time.
1989-The increase in electric energy costs in 1989 was primarily due to higher kilowatthour generation and higher LEAC rates, effec-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-creased electric production came largely from greater nuclear and coal-fired generation. Peach Bottom 2 started generating electricity in April 1989, returned to full service under the nuclear performance standard July l, 1989 and contributed 12% of total nuclear generation for 1989. With increased nuclear and coal generation PSE&G de-creased its reliance on more costly oil and natural gas and purchased less power from the PJM. Peach Bottom 3 began producing electricity in December 1989 and returned to full service under the nuclear per-formance standard January 1, 1990. (See Overview and Earnings) 1988-The increase in electric energy costs in 1988 was primarily due to increased usage of oil-based generation and greater power purchases from the PJM and Allegheny Power System.
A total of 39.5 million megawatthours was generated, purchased and interchanged, a 5% increase over 1987. The increased electric production came largely from greater oil-fired generation and power purchases.
Subsequent Developments On February 7, 1990 the BPU adopted a Stipulation approving an 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 acting on a Motion filed by PSE&G on September 15, 1989 requesting an annual increase in base rates of $23.3 million and $29.7 million to be effective January 1, 1990 and January 1, 1991, respectively, relating to the TRA-86, pending action in a separate PSE&G RMAC case now before the BPU. (See Gas Fuel Costs below)
Gas Fuel Costs Gas fuel costs increased $110 million or 18% in 1989 as compared to 1988 and decreased $14 million or 2% in 1988 as compared to 1987.
Contributing factors are shown below:
Increase or (Decrease)
(Millions of Dollars) 1989 vs. 1988 1988 vs. 1987 Change in prices paid for gas supplies Therm sendout Refunds from pipeline suppliers Adjustment of actual costs to match recoveries through revenues (A)
Total Gas Fuel Costs
$ 31 51 (11) 39
$110
$ (4) 30 (I)
(39)
$(14)
(A) Reflects over(under)recovered gas costs, which in the years 1989, 1988 and 1987 amounted to $14 million, $(25) million and $14 million, respectively.
1989 -
The increase in gas fuel costs was primarily due to increased therm sendout at a higher cost. The increase in recovered gas fuel costs for 1989 is due to the BPU approved RMAC rate increase of
$42.7 million effective January ll, 1989 and the $23.7 million RMAC increase effective December 6, 1989 for the ten-month period ending September 30, 1990. Issues not stipulated which are subject to future settlement relate to the TRA-86 which would produce an annual in-crease of $4.8 million in retail gas base rates starting January I, 1990 and certain EDC issues.
1988 -
The decrease in gas fuel costs was primarily due to the ad-justment of actual costs to match recoveries through revenues, par-tially offset by increased therm sendout.
29
Subsequent Developments On January 17, 1990 the BPU approved a Stipulation resolving all take-or-pay issues under existing gas supply contracts. Under the terms of the Stipulation all take-or-pay charges already collected were no longer subject to refund to customers. The BPU is permitting PSE&G to recover from its gas customers $155 million of its estimated contractual take-or-pay costs. Two-thirds of these costs will be recov-ered as incurred and the other third will be recovered over a nine-year period which commenced in October 1987. PSE&G is required to finance all costs incurred prior to recovery.
Liquidity and Capital Resources Overview Enterprise's liquidity is principally affected by the cash flow require-ments of PSE&G's construction program and capital requirements and the investment and acquisition activities and capital requirements of Holdings' subsidiaries. Capital requirements generally consist of maturing debt, reacquisitions of securities and sinking fund require-ments. Capital resources available to meet such requirements depend upon economic conditions, PSE&G customer growth, expansion of Enterprise's businesses, the adequacy of timely rate relief to PSE&G and continued access to the capital markets.
Construction and Capital Requirements PSE&G's construction program is primarily focused on the upgrading of older generating stations and electric and gas transmission and distribution systems, and on construction of new transmission and distribution facilities to serve new load. PSE&G also anticipates the need for a new fossil-fueled base load generating station for service late in this decade. During 1989, PSE&G's construction expenditures, including Allowance for Funds Used During Construction (AFDC) aggregated $674 million.
The capital requirements of Holdings are based on the business plans of the non-utility businesses. During 1989, Holdings' capital Sources and Distribution of 1989 Revenue Per Dollar Source
.68 Electric Revenues
.28 Gas Revenues
.03 Diversified Revenues
.01 Other 30 Distribution
.30 Fuel, Purchased Power & Gas
.18Taxes
.13 Materials & Services
.13 Reinvested in Business
.09 Salaries & Wages
.09 Dividends
.08 Interest requirements were approximately $700 million, which included $320 million for the acquisition of Pelto Oil Company by EDC in November 1989. As of December 31, 1989 the long-term investments of PSRC, EGDC, and CEA aggregated $916 million, an increase of$358 mil-lion over 1988. As of December 31, 1989, the oil and gas properties of EDC were $608 million, net of accumulated depreciation and amorti-zation, an increase of $322 million over year-end 1988. This increase was principally due to the Pelto acquisition. The real estate property and equipment of EGDC, net of depreciation, was $121 million, an increase of $28 million over year-end 1988.
The estimated construction requirements of PSE&G for 1990 through 1994 are based on expected project completion dates and include anticipated escalation due to inflation of approximately 4%.
The capital requirements for Enterprise are as follows:
(Millions of Dollars) 1990 1991 1992 1993 1994 Total PSE&G Electric Nuclear Production Facilities $ 118 $ 112 $ 100 $ IOI $
98 $ 529 Nuclear fuel 79 58 72 71 70 350 Transmission and Distribution 260 279 299 276 321 1,435 Other Production 139 123
!07 116 83 568 596 572 578 564 572 2,882 Gas Production Facilities 1
2 2
2 2
9 Transmission and Distribution 137 151 136 126 120 670 138 153 138 128 122 679 Miscellaneous Corporate 46 42 43 43 43 217 Total Construction Requirements of PSE&G (incl. AFDC) (A) 780 767 759 735 737 3,778 Holdings -
Investments of Non-utility Subsidiaries 310 340 326 246 308 1,530 Mandatory Retirement of Securities:
PSE&G 54 37 246 219 215 771 Holdings 80 15 130 43 268 54 117 261 349 258 1,039 Working Capital and Other -
Net (23)
(41)
(31) 22 2
(71)
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 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 construction expenditure requirements over the next five years.
Holdings -
Holdings expects to internally generate only a portion of its capital requirements over the next five years.
External Financings Proceeds from the issuance of common stock and long-term financing activities, net of refundings and redemptions, during 1989, 1988 and 1987 were:
(Millions of Dollars) 1989 1988(A) 1987 Enterprise Common Stock
$147.6
$ 78.6 PSE&G Long-Term Debt 99.5 347.9 196.0 Refundings and Redemptions:
Long-Term Debt (59.4)
(175.0)
(238.5)
Preferred Stock (32.6)
(166.8) 40.1 140.3 (209.3)
Holdings:
Long-term Debt 283.7 461.7 160.0 Refundings and Redemptions of Long-Term Debt -
(185.0) 283.7 461.7 (25.0)
Total Proceeds
$471.4
$ 602.0
$(155.7)
(A) Effective July 1, 1988, PSE&G reset the annual interest rate of its $125 million First and Refunding Mortgage Bonds Series R to 8%% from 9V2% for the three-year period ending June 30, 1991.
Enterprise -
Enterprise is authorized to issue and sell up to 5,000,000 additional shares of Common Stock, at its option, through its Dividend Reinvestment and Stock Purchase Plan. The proceeds from any such sale will be used by Enterprise for general corporate purposes including investment in PSE&G and Holdings. Enterprise's Common Stock is listed on the New York, Philadelphia and London Stock Exchanges. At December 31, 1989 book value per share of common stock amounted to $19.85 compared to $19.11 at December 31, 1988. The market value of common shares expressed as a percent-age of book value was 147.4% and 128.2% at year-end 1989 and 1988, respectively.
PSE&G -
Proceeds from the sale of long-term debt, preferred stock and short-term debt are used for general corporate purposes, including the refunding of certain higher-cost securities and the payment of utility construction expenditures. PSE&G has an effective shelf regis-tration statement filed with the SEC relating to the issuance and sale of not more than $250 million of its First and Refunding Mortgage Bonds which may be sold in one or more series from time to time to provide funds for general corporate purposes including payment of its unsecured short-term obligations. PSE&G has approval from the BPU to redeem approximately $300 million of its higher cost First and Refunding Mortgage Bonds during 1990. Such redemptions will depend upon market interest rates and the cost of redemption. PSE&G has received authorization from the BPU to issue and have outstand-ing not more than $500 million of its short-term obligations at any one time, consisting of commercial paper and other unsecured bor-rowings from banks and other lenders. PSE&G also has a $75 million revolving credit agreement with a group of foreign banks which ex-pires in 1992. PSE&G's short-term debt aggregated $328 million as of December 31, 1989.
At December 31, 1989, PSE&G could issue an additional $2.590 billion of Mortgage Bonds at a rate of 9. 5 % or $2. 812 billion of Pre-ferred Stock at a rate of 8.375% under the terms of its Mortgage and Restated Certificate of Incorporation. All of PSE&G's Preferred Stock and certain of its First and Refunding Mortgage Bonds are listed on the New York Stock Exchange. The 9¥4% Series S First and Refunding Mortgage Bonds are listed on the Luxembourg Stock Exchange.
PSE&G's 9% Debenture Bonds are listed on the New York Stock Exchange.
Holdings -
The two finance subsidiaries of Holdings, Capital and Funding, borrow on behalf of the other non-utility businesses, as well as invest their short-term funds and those of Holdings. The other non-utility businesses generate cash from operating activities, enter into financial agreements with banks and others and obtain cash through intercompany borrowings from Capital and Funding. Short-term investments are made only if such funds cannot be employed in intercompany loans. Intercompany borrowing rates are established at the market rates of interest. As of December 31, 1989, the long-term and short-term debt of Holdings' subsidiaries aggregaled $769 million and $216 million, respectively.
Capital -
Capital is providing $750 million aggregate principal amount of long-term debt financing for the cash needs of the non-utility businesses under a support agreement with Enterprise. Capital will not have more than $750 million of debt at any one time out-standing. Funding is expected to provide both long and short-term capital for the non-utility businesses on the basis of an unconditional guaranty from Holdings, but without direct support from Enterprise.
It is expected that this will result in higher capital costs for the non-utility businesses. Funding has established a $350 million commercial paper program supported by a direct pay commercial bank letter of credit and a revolving credit facility which expires in 1991. (See Over-view-Non-utility Businesses and Internal Generation of Cash from Operations -
Holdings) Enterprise presently expects that Funding will be able to renew its short-term financing program on favorable terms before it expires. The ability of Holdings to raise capital at reasonable rates for investment in the non-utility businesses is de-pendent upon its financial performance, general economic conditions and conditions in the capital markets where it must compete for inves-tors' funds. As of December 31, 1989, Funding had $206 million of commercial paper outstanding.
The various financing agreements entered into by the non-utility businesses contain business and financial restrictive covenants. Hold-ings, PSRC, EDC and EGDC are required to maintain debt/equity ratios of3:1, 3:1, 2:1and3:1, respectively, at each year end and CEA is required to maintain a constant debt/equity ratio of 2: l. In addition, Holdings must maintain an earnings/interest coverage ratio of 1.35: l for any twelve consecutive month period. While Enterprise expects the non-utility businesses to be able to meet their respective financial covenants, failure to meet such obligations could result in all outstand-ing debt of the non-utility businesses being subject to acceleration.
PSE&G Customer Accounts Receivable At December 31, 1989 and December 31, 1988, customer accounts receivable were $402 million and $367 million, excluding unbilled revenues of $255 million and $169 million, respectively. Net write-off of uncollectible accounts in 1989 was $20 million, an increase of $4 million over the previous year. Net write-off per $100 of revenues was up 5 cents to 43 cents compared to 1988 as a result of two large bank-ruptcy credits and lower availability of Low Income Home Energy Assistance Funds and other subsidized funding for low income cus-tomers than in previous years. The record-setting cold weather in December 1989, which increased PSE&G's electric and gas sales, the increase in PSE&G's 1989 RMAC rates and a BPU requirement pro-hibiting the termination of electric and gas service during winter 31
months to financially needy customers had and will continue to have an impact upon the level of receivables, uncollectible accounts and net write-off.
Environment General The Comprehensive Environmental Response, Compensation and Liability Act of 1980 and certain similar State statutes authorize var-ious governmental authorities to issue orders compelling responsible parties to take clean up actions at sites determined to present an im-minent and substantial danger to the public and to the environment because of an actual or threatened release of hazardous substances.
Because of the nature of PSE&G's business, various by-products and wastes are produced or handled which contain constituents that are classified as hazardous substances under these laws. PSE&G provides for the disposal of its wastes through licensed independent contrac-tors, but these statutory provisions generally impose potential joint and several responsibility for clean up costs on the generators of the wastes without regard to fault. PSE&G has been notified with respect to a number of such sites, and the clean up of hazardous wastes is receiving increasing attention from the government agencies involved.
This trend is expected to continue. PSE&G's own sites also are sub-ject to certain of these environmental laws, and the nature and dura-tion of PSE&G's operations suggest that certain remedial action at certain sites may be required. PSE&G cannot determine, at this time, the costs which may result from these matters, but such costs could be material.
PSE&G Gas Plant Sites The New Jersey Department of Environmental Protection (NJDEP) has notified PSE&G that it has identified the need for PSE&G, pursu-ant to a formal arrangement, to systematically investigate and, if necessary, resolve environmental concerns extant at PSE&G 's former manufactured gas plant sites. To date, the NJDEP and PSE&G have identified thirty-eight (38) former gas plant sites.
PSE&G is currently working in concert with the NJDEP to imple-ment a plan pursuant to which PSE&G would undertake to investigate these sites. PSE&G anticipates that its program to assess, investigate and, if necessary, remediate environmental concerns at the 38 former gas plant sites may take up to ten (10) years to complete. PSE&G has completed a preliminary assessment of twenty-eight of these sites. At a minimum some form of investigation will be required at each of these sites. Upon completions of these remedial investigations, some or all of these sites may require remedial action.
Remedial work activities have been undertaken at four of the 38 sites, three of which are owned by third parties. Remedial work activ-ities at one of these sites have progressed to a level which permits PSE&G to estimate that the cost of the site remediation will approxi-mate $5 million. PSE&G has funded a substantial portion of these costs. In the second case, PSE&G entered into a settlement agreement with the owner in December 1989 for approximately $10 million.
With respect to the other two sites, PSE&G expects the investigation costs to approximate $1.5 million. The nature and duration of the industrial operations conducted at these latter two sites as well as the preliminary findings from these investigations suggest that some form of remedial action will be necessary.
32 PSE&G anticipates filing work plans with the NJDEP by the end of February 1990 to investigate seven sites. It is anticipated that field work activities at these sites will begin this spring or early summer.
The costs associated with conducting these remedial investigations is expected to approximate at least $2 million. Upon completion of these remedial investigations, some or all of these sites may require some form of remedial action. While the costs required to implement any required remedial action at these sites are not currently estimable, the costs may be material.
On October 7, 1988, PSE&G requested that the BPU permit it to defer charging to income costs previously incurred and costs to be incurred in connection with the investigation and, if necessary, reme-diation of its former gas plant sites, pending a determination in a gas base rate proceeding of the extent to which such costs may be recov-ered from customers. The BPU issued an order on August 8, 1989, approving PSE&G's request to utilize deferred accounting for such costs. As of December 31, 1989, PSE&G has deferred approximately
$18.9 million of costs associated with its gas plant clean up program.
In November 1988, PSE&G filed suit against certain of its insurers to recover the costs associated with addressing and resolving environ-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.
Clean Air At both the federal and state level various proposals are under active consideration which, if enacted, would further restrict emissions of pollutants related to acid rain, control toxic emissions and/or result in air permits for certain generating units being required for operation.
Such proposals could result in the installation of additional air pollu-tion control equipment at a substantial cost toPSE&G. These proposals could increase the cost of electricity for the Pennsylvania and Ohio Valley Region generating units supplying electricity to New Jersey and on certain of PSE&G's electric generating stations. PSE&G expects to request the BPU to allow the recovery of such costs from electric customers in rates, but such recovery cannot be assured. Such amounts as might be necessary to comply are not included in PSE&G's estimate of construction expenditures.
Effect of Inflation The effect of inflation on Enterprise, as indicated by the Average Consumer Price Index (CPl-U), has slightly increased over the past three years as shown by the following average CPI-U in 1985, 1986, 1987, 1988 and 1989 of 3.6%, 1.9%, 3.7%, 4.1%and4.8%, respec-tively. Enterprise is affected by the decline in the purchasing power of the dollar, even during periods of moderate inflation as the cost of replacing PSE&G's utility plant would be higher than historical cost reflected in the financial statements. Based on past practices of the BPU the historical cost is the amount permitted to be recovered under the rate regulatory process for utilities in New Jersey, including PSE&G. PSE&G will seek to recover the increased cost of facilities when replacement actually occurs.
Financial Statement Responsibility Management of Enterprise is responsible for the preparation, integrity and objectivity of the consolidated financial statements and related notes of Enterprise. The consolidated financial statements and related notes are prepared in accordance with generally accepted accounting principles. The financial statements reflect estimates based upon the judgment of management where appropriate. Management believes that the consolidated financial statements and related notes present fairly and consistently Enterprise's financial position and results of operations. Information in other parts of this Annual Report is also the responsibility of management and is consistent with these consoli-dated financial statements and related notes.
The firm of Deloitte & Touche, independent certified public accountants, is engaged to audit Enterprise's consolidated financial statements and related notes and issue a report thereon. Their audit is conducted in accordance with generally accepted auditing standards and includes a review of internal accounting controls and tests of transactions. Management has made available to Deloitte & Touche 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 during its audit were valid and appropriate.
Management has established and maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded, and transactions are executed in accordance with man-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 notes in accordance with generally accepted accounting principles.
The concept of reasonable assurance recognizes that the costs of a system of internal accounting controls should not exceed the related benefits. Management believes the effectiveness of this system is enhanced by 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' and Deloitte & Touche's recommendations concerning the corpora-tion's system of internal accounting controls and has taken actions that are cost-effective in the circumstances to respond appropriately to these recommendations. Management believes that, as of December 31, 1989, the corporation's system of internal accounting controls is adequate to accomplish the objectives discussed herein.
The Board of Directors carries out its responsibility of financial overview through the Audit Committee, which presently consists of six directors who are not current employees of Enterprise. The Audit Committee meets periodically with management as well as with representatives of the internal auditors and the independent certified public accountants. The Committee reviews the work of each to ensure that their respective responsibilities are being carried out, and dis-cusses related matters. Both the internal auditors and Deloitte &
Touche periodically meet alone with the Audit Committee and have free access to the Audit Committee, and its individual members, at any time.
EJ~-l.U E. James Ferland Chairman of the Board, President and Chief Executive Officer
~~~
Richard E. Hallett Vice President and Comptroller February 20, 1990 Everett L. Morris Vice President 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 Public Service Enterprise Group Incorporated and its subsidiaries as of December 31, 1989 and 1988, and the related consolidated state-ments of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1989. These consoli-dated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these 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 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 In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Public Service Enterprise Group Incorporated and its subsidiaries at December 31, 1989 and 1988 and the results of their operations and their cash flows for each of the three years in the period ended De-cember 31, 1989, in conformity with generally accepted accounting principles.
February 20, 1990
Consolidated Statements of Income (Thousands of Dollars)
For the Years Ended December 31, Operating Revenues (note 2)
Electric Gas Non-Utility Businesses Total Operating Revenues Operating Expenses Operation Fuel for Electric Generation and Net Interchanged Power Gas Purchased and Materials for Gas Produced Other Maintenance Depreciation and Amortization Amortization of Property Abandonments and Write-Down (note 4)
Taxes Federal Income Taxes (note 8)
New Jersey Gross Receipts Taxes Other Total Operating Expenses Operating Income Other Income Allowance for Funds Used During Construction -
Equity Amortization of Discounts on Property Abandonments and Disallowance -
net (note 4)
Miscellaneous -
net Total Other Income Income Before Interest Charges and Dividends on Preferred Stock Interest Charges (note 5)
Long-Term Debt Short-Term Debt Other Total Interest Charges Allowance for Funds Used During Construction -
Debt and Capitalized Interest Net Interest Charges Preferred Stock Dividend Requirements Net Income Shares of Common Stock Outstanding (A)
End of Year Average for Year Earnings per Average share of Common Stock (A)
Dividends paid per share of Common Stock (A)
(A) Reflects 3-for-2 common stock split effective July I, 1987.
See Notes to Consolidated Financial Statements.
1989
$3,279,913 1,362,470 162,469 4,804,852 740,665 710,549 730,707 316,200 466,739 57,775 208,261 574,145 60,001 3,865,042 939,810 16,664 8,670 820 26,154 965,964 370,643 19,598 21,565 411,806 (16,991) 394,815 29,012
$ 542,137 211,100,418 206,878,500
$2.62
$2.05 1988 1987
$3,090,609
$2,959,549 1,203,435 1,219,955 100,648 31,551 4,394,692 4,211,055 642,811 555,405 600,643 614,861 727,709 634,494 349,931 302,362 434,047 380,109 43,379 22,526 162,144 292,169 534,789 522,870 57,235 63,960 3,552,688 3,388,756 842,004 822,299 14,926 34,001 38,761 15,011 (l,196) 6,031 52,491 55,043 894,495 877,342 311,970 304,494 17,194 10,644 18,464 21,655 347,628 336,793 (13,055)
(18,665) 334,573 318,128 31,336 38,763
$ 528,586
$ 520,451 205,350,418 205,350,418 205,350,418 203,872,592
$2.57
$2.55
$2.01
$1.99 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
Con solidated Statements of Cash Flows usands of Dollars)
(Tho Cash Net I Ad ju For the Years Ended December 31, Flows from Operating Activities:
ncome stments to reconcile net income to net cash flows from operating activities:
predation and Amortization ortization of Nuclear Fuel covery (Deferral) of Electric Energy and Gas Costs -
net De Am Re Am Pr In¥ Al Pr De Un Ch ortization of Discounts on Property Abandonments and Disallowance ovision for Deferred Income Taxes -
net estment Tax Credits -
net lowance for Funds Used During Construction -
Debt and Equity and Capitalized Interest oceeds from Leasing Activities ferred Environmental Costs amortized Loss on Sale of Naphtha anges in certain current assets and liabilities Net decrease (increase) in Accounts Receivable and Unbilled Revenues Net decrease (increase) in Inventory-Fuel and Materials and Supplies Net increase (decrease) in Accounts Payable Net increase (decrease) in Accrued Taxes Net change in Other Current Assets and Liabilities Ot her Net cash provided by operating activities Flows from Investing Activities:
tions to Utility Plant, excluding AFDC tions to Oil and Gas Property, Plant and Equipment Cash Addi Addi Net i In ere Othe ncrease in Long-Term Investments ase in Decommissioning Funds r
Net cash used in investing activities Flows from Financing Activities:
ncrease (decrease) in Short-Term Debt Cash Net i Issua Rede Issua Rede Cash Othe nee of Long-Term Debt mption of Long-Term Debt and Other Obligations nee of Common Stock mption of Preferred Stock Dividends Paid on Common Stock r
Net cash provided by (used in) financing activities ncrease (decrease) in Cash and Cash Equivalents Net i Cash and Cash Equivalents at Beginning of Year Cash and Cash Equivalents at End of Year e Taxes Paid In com Inter est Paid SeeN otes to Consolidated Financial Statements.
38
[ _______ _ -
cf JU a
-u-1989 1988 1987
$ 542,137
$ 528,586
$ 520,451 534,148 486,567 408,160 63,394 72,532 90,134 60,023 (87,966)
(127,381)
(15,443)
(69,966)
(27,266) 70,541 140,077 261,197 (24,424)
(22,478)
(39,294)
(33,655)
(27,981)
(52,666) 56,561 27,421 68,830 (15,424)
(3,459)
(10,405)
(134,070)
(84,812) 24,846 (53,851)
(8,642) 4,663 72,543 (3,502) 58,610 33,262 10,483 (101,148) 3,009 687 18,357 (6,136) 9,317 5,392 1,142,210 966,864 1,112,885 (644,218)
(537,208)
(605,980)
(384,335)
(182,638)
(14,693)
(337,909)
(339,303)
(200,906)
(57,952)
(8,474) 4,201 (9, 125)
(16,876)
(1,420,213)
(1,076,748)
(838,455) 226,410 (77,770) 141,304 383,246 809,465 356,018 (59,440)
(175,048)
(423,526) 147,581 78,640 (32,616)
(166,760)
(423,958)
(412,767)
(406,457) 5,005 3,860 (2,720) 278,844 115,124 (423,501) 841 5,240 (149,071) 82,409 77,169 226,240 83,250 82,409 77,169 93,783 43,337 59,608
$ 370,573
$ 312,414
$ 295,025
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 Organization Public Service Enterprise Group Incorporated (Enterprise) has two wholly-owned subsidiaries, Public Service Electric and Gas Company
~PSE&G) and Enterprise Diversified Holdings Incorporated (Hold-mgs). ~nt~rprise's principal subsidiary, PSE&G, is a public utility 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 non-utility subsidiaries: Public Service Resources Corporation (PSRC), Energy Development Corporation (EDC), Community En-ergy Alternatives Incorporated (CEA), Enterprise Group Development Corporation (EGDC), and PSEG Capital Corporation (Capital). En-terprise Capital Funding Corporation (Funding), a wholly-owned subsidiary of Holdings, was also formed on June 20, 1989.
Enterprise has claimed an exemption from regulation by the Secu-rities and Exchange Commission as a registered holding company under the Public Utility Holding Company Act of 1935, except for Section 9(a)(2) which relates to the acquisition of voting securities of an elec~ric or gas utility company. Also, Enterprise is not subject to regulatmn by the New Jersey Board of Public Utilities (BPU) or the Federal Energy Regulatory Commission (FERC).
Consolidation Policy The consolidated financial statements include the accounts of Enter-prise and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifi-cation of prior years' data has been made to conform with the cur-rent presentation.
Regulation -
PSE&G The acc~unting and rates of PSE&G are subject in certain respects to the reqmrements of the BPU and FERC. As a result, PSE&G main-tains its accounts in accordance with their prescribed Uniform System of Accounts, which are the same. The applications of generally ac-cepted accounting principles by PSE&G differs in certain respects from applications for non-regulated businesses.
Utility Plant and Related Depreciation -
PSE&G Additions to utility plant and replacements of units of property are capitalized at original cost. The cost of maintenance, repairs and replacements of minor items of property is charged to appropriate expense accounts. At the time units of depreciable properties are retire~ or otherwise disposed of, the original cost less net salvage value 1s charged to accumulated depreciation.
For financial reporting purposes, depreciation is computed under the st.ra.ight~line method. Depreciation is based on estimated average remammg hves of the several classes of depreciable property. These estimates are reviewed on a regular basis and necessary adjustments are made as approved by the BPU. Depreciation provisions stated in percentages of original cost of depreciable property were 3.47% in 1989, 1988 and 1987.
Nuclear Decommissioning Funds -
PSE&G Depreciation applicable to nuclear plant includes estimated costs of decommissioning. At December 31, 1989 and 1988, the accumulated provision for depreciation and amortization includes a reserve for 40 nuclear decommissioning of $113.0 million and $95.4 million, re-spectively. In accordance with orders from the BPU, PSE&G has established external nuclear decommissioning trust funds for all its nuclear units. The IRS has ruled that payments into qualified funds are tax deductible. As of December 31, 1989 and 1988 PSE&G has contribu.ted $59.7 million and $8.5 million into external qualified and nonquahfied nuclear decommissioning trust funds, respectively.
Amortization of Nuclear Fuel -
PSE&G Nuclear energy burnup costs are charged to fuel expense on a units-of-production basis over the estimated life of the fuel. Rates for the recovery of fuel used at all nuclear units include a provision of one mill per kilowatthour of nuclear generation for spent fuel disposal costs, which is paid quarterly to the United States Department of Energy.
Revenues and Fuel Costs -
PSE&G Revenues are recorded based on services rendered to customers dur-ing each accounting period. PSE&G records unbilled revenues repre-senting the estimated amount customers will be billed for services rendered from the time meters were last read to the end of the respec-tive accounting period.
Rates include projected fuel costs for electric generation, purchased and interchanged power, gas purchased and materials used for gas production.
Any under or overrecoveries are deferred and included in operations in the period in which they are reflected in rates.
Oil and Gas Accounting -
EDC EDC follows the full-cost method of accounting. Under this method, all exploration and development costs for successful and unsuccessful wells are capitalized and amortized on the units-of-production basis.
Long-Term Investments -
Holdings Enterprise, through Holdings' subsidiary, PSRC, has invested in marketable securities, which are valued at the lower of cost or market and va:ious leases and limited partnerships. Through Holdings' real '
estate mvestment and development subsidiary, EGDC, it has become a participant in the non-residential real estate markets. (See Note 6.)
Income Taxes Enterprise and its subsidiaries file a consolidated Federal income tax return and income taxes are allocated to Enterprise's subsidiaries based on taxable income or loss of each.
Deferred income taxes are provided for differences between book and taxable income. For PSE&G, deferred income taxes are provided to the extent permitted for ratemaking purposes.
Investment and energy tax credits are deferred and amortized over the useful lives of the related property including nuclear fuel.
In December 1987, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 96 (SFAS 96), "Accounting for Income Taxes:' which requires the recog-nition of deferred tax liabilities adjusted for the effects of enacted changes in tax laws or rates. The effective date of SFAS 96 was for fiscal years beginning after December 15, 1988. However, the effec-tive date has been deferred to fiscal years beginning after December 15, 1991.
As a result of the accounting and ratemaking requirements of the BPU and FERC with respect to PSE&G, the primary effect of adopt-ing SFAS 96 upon Enterprise's financial reporting will be on the presentation of its financial position with minimal effect on its income statement.
Allowance for Funds Used During Construction (AFDC) and Capitalized Interest PSE&G -
AFDC represents the cost of debt and equity funds used to finance the construction of new utility facilities. The amount of AFDC capitalized is also reported in the Consolidated Statements of Income as a reduction of interest charges for the borrowed funds component and as other income for the equity funds component.
The compounded rate used for calculating AFDC in 1989 was
_10.68% and in 1988 was 9.91 %. From February 16, 1987 through December 31, 1987 the compounded rate used was 10.33%. Prior to February 16, 1987 the rate of 8.5%, which was not a compounded rate, had been used for several years. These rates are within the limits set by the FERC formula.
Holdings -
The operating subsidiaries of Holdings capitalize cost allocable to construction expenditures at the prevailing cost of bor-rowed funds.
Pension Plan and Other Postretirement Benefits The employees of PSE&G and participating affiliates completing one year of service are covered by a non-contributory trusteed pension plan. The policy is to fund pension costs accrued. PSE&G also pro-vides certain health care and life insurance benefits to its active and retired employees. The current cost of these benefits is charged to expense when paid and is currently being recovered from ratepayers.
In an exposure draft issued in February 1989, FASB indicated that it has tentatively decided that accrual accounting is appropriate for future postretirement benefits. Accrual accounting would require PSE&G to record a liability on its balance sheet for any projected benefit obligation in excess of plan assets.
- 2. Rate Matters Electric In 1987, the BPU issued an Order, authorizing an increase in PSE&G's electric base rates designed to produce additional annual revenues of
$421.5 million. Also, the decision reduced PSE&G's electric Level-ized Energy Adjustment Clause (LEAC) by $697.7 million over a compressed 101/z month period commencing February 16, 1987 and reduced electric base rates by $77.2 million for the recognition of the 1987 impact of the Tax Reform Act of 1986 (TRA). The net effect was an overall electric revenue decrease of $353.4 million. The decision allows a return on common equity of 13% and an overall rate of return of 10.65% on rate base. On June 15, 1988, the BPU announced ap-proval of an increase in PSE&G's LEAC of $294 million on an annual basis, effective June 17, 1988, which remained in effect through De-cember 31, 1989. The increase included the recovery and amortization over five years of $70 million of deferred replacement power costs associated with outages of the electric generators at the Salem Gener-ating Station during 1983, 1984 and 1985. (See Note 4 Deferred Items) The BPU's LEAC Order also included a reduction in electric base rates of $96 million on an annual basis attributable to the second year impact of the TRA which further reduced the federal income tax rate from the 1987 level of 39.95% to 34% for 1988 and forward.
Excluding the interest portion mentioned below, there was no effect on earnings resulting from the TRA ruling. As a result of these ac-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 to reduce its electric rates to customers by $10 million for interest on overrecovered electric energy costs in 1987, write off $5.3 million of interest previously accrued and increase the amount of the 1987 nu-clear performance standard penalty by $2 million. The write-off of interest and the increased amount of the 1987 nuclear performance penalty reduced PSE&G's 1988 net income by $4.8 million.
On September 15, 1989, PSE&G filed a Motion with the BPU re-questing an annualized increase of $24. 8 million in the LEAC to become effective with electric service rendered on and after January 1, 1990 and remain in effect for the 18-month period ending June 30, 1991.
On February 7, 1990 the BPU approved a Stipulation providing for a $24.1 million annualized increase in the LEAC for the period ending June 30, 1991. Additional issues included in the Stipulation provided for the retention of $10.5 million of revenues related to the sale of capacity to Atlantic Electric and Potomac Electric previously recorded 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 previously accrued interest on overcollections was deferred pending a decision by the BPU.
The BPU also approved a Stipulation on February 7, 1990 which provided that the TRA-86 issues raised in the LEAC, which requested annual increases in electric base rates of $23.3 million and $29.7 million effective January 1, 1990 and January 1, 1991, respectively, were identical to those previously litigated in the gas Raw Materials Adjustment Clause (RMAC) proceeding. The resolution of revenue requirements in that action now before the BPU (see Gas below) would also apply to electric.
Gas On September 24, 1987 the BPU approved a Stipulation for an annual 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-proved a reduction of $3 million in PSE&G's gas base rate related to the second year impact of the TRA. This reduction was in addition to the $13.3 million reduction previously approved by the BPU which became effective January 1, 1988. On July 20, 1988, PSE&G filed a petition with the BPU requesting a $45.6 million RMAC rate increase on an annual basis for the period October 1, 1988 through September 30, 1989. PSE&G also deferred $2.8 million of additional revenues relating to the TRA-86 which the BPU decided was to be refunded to customers during the RMAC period ending September 1989.
On January 11, 1989, the BPU approved a Stipulation providing for an increase of $42.7 million in the RMAC for the nine-month period ending September 30, 1989. A major area of disagreement between the parties had been the collection and allocation of FERC-approved take-or-pay costs being passed through by the gas pipeline companies to gas distribution companies such as PSE&G. The issue of take-or-pay charges was decided by the BPU on December 16, 1988 and allowed PSE&G to include such charges in the RMAC, subject to refund.
On June 30, 1989 PSE&G filed a Motion with the BPU requesting a
$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, 1989, as a result of a settlement agreement approved by FERC with Transcontinental Gas Pipe Line Corporation (TRANSCO) involving take-or-pay costs, the effect of which represented a cost reduction to PSE&G of $45 million, PSE&G filed revised cost estimates with the BPU requesting a $57.9 million increase in RMAC rates. On Decem-ber 6, 1989, the BPU approved a stipulation among the parties and granted an increase of $23.7 million, or 2% in the 1989-1990 RMAC for the period ending September 30, 1990. Additional issues that were approved included recovery of all take-or-pay charges for the 1989-90 RMAC period (see paragraph below), changes in pricing of gas deliv-ered to the electric department, recovery of $10.7 million in raw ma-terial costs (naphtha) over a three-year period resulting from the retirement of the Linden SNG plant in July 1989 and a name change for the RMAC to Levelized Gas Adjustment Charge (LGAC). Issues related to PSE&G's proposal to increase gas base rates $4.8 million effective January 1, 1990 to avoid overrefunding amounts related to
- 3. Schedule of Consolidated Capital Stock the TRA-86 and the pricing of Energy Development Corporation gas to PSE&G were not stipulated and are subject to BPU approval.
On January 17, 1990, the BPU approved a Stipulation entered into on December 18, 1989, by PSE&G, the BPU's staff, and the New Jersey Industrial Energy Users Association resolving all take-or-pay issues. Under the terms of the Stipulation all take-or-pay charges already collected are no longer subject to refund. The BPU is permit-ting PSE&G to recover $155 million of estimated contractual take-or-pay costs. 1\\vo-thirds of these costs will be recovered as incurred.
However about $43 million of the payments to TRANSCO will be recovered over a nine-year period which began in October 1987.
PSE&G estimates that it may incur approximately $2 million in carry-ing charges pertaining to the nine-year recovery period related to the TRANSCO payments, since it is required to meet its take-or-pay obligations to pipeline suppliers over five years.
PSE&G cannot predict the timing or result of any future decision by the BPU on the outstanding issues mentioned above.
(Thousands of Dollars)
Outstanding Shares Current Redemption Price Per Share December 31, 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%
4.18%
4.30%
5.05%
5.28%
6.80%
7.40%
7.52%
8.08%
7.80%
7.70%
8.16%
250,000 249,942 250,000 250,000 250,000 250,000 500,000 500,000 150,000 750,000 600,000 300,000 Total Preferred Stock Without Mandatory Redemption (no changes in 1988 and 1987)
Notes:
(A) Total authorized shares includes l,234,353 unissued shares of Common Stock under Enterprise's Dividend Reinvestment and Stock Purchase Plan, and PSE&G's Employee Stock Purchase Plan, Thrift and Tax-Deferred Savings Plan and Payroll-Based Stock Ownership Plan.
Enterprise's Dividend Reinvestment and Stock Purchase Plan has been amended, effective March 1, 1990, to authorize the issuance and sale of up to 5,000,000 additional Shares of Common Stock. Shares of Common Stock will be purchased for the plan directly from Enterprise at its sole discretion and/or in the open market.
(B) Includes $959,000 paid in lieu of issuing 36,847 fractional shares.
(C) Enterprise has authorized a class of 50 million shares of Preferred Stock without par value, none of which is outstanding.
(D) There are 3,200,058 shares of $100 par value and 10,000,000 shares of $25 par value Cumulative Preferred Stock which are authorized and unissued, and which upon issuance may or may not provide for mandatory sinking fund redemption.
42
$103.00 103.00 102.75 103.00 103.00 102.00 101.00 101.00 101.00 101.00 100.79 104.82 25,000 24,994 25,000 25,000 25,000 25,000 50,000 50,000 15,000 75,000 60,000 30,000
$ 429,994 25,000 24,994 25,000 25,000 25,000 25,000 50,000 50,000 15,000 75,000 60,000 30,000
$ 429,994 If dividends upon any shares of Preferred Stock are in arrears in an amount equal to the annual dividend thereon, voting rights for the election of a majority of the Board of Directors become operative and continue until all accumulated and unpaid dividends thereon have been paid, whereupon all such voting rights cease, subject to being again revived from time to time.
On October 1, 1987, PSE&G redeemed all of the 12.80% Series of Cumulative Pre-ferred Stock with mandatory redemption $100 par value, 350,000 shares.
On September 1, 1988, PSE&G redeemed all of the 11.62% Series of Cumulative Preferred Stock with mandatory redemption $100 par value, 300,000 shares.
As of December 31, 1989 and 1988 there were no shares of Preferred Stock with mandatory redemption outstanding.
(E) At December 31, 1989 the annual dividend requirement and embedded dividend cost for Preferred Stock without mandatory redemption were $29,012,000 and 6.75%,
respectively.
- 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 Year Period-Projects Abandoned Years Atlantic Project 1978 20 Hope Creek Unit 2 1981 15 LNG Project 1984 15 Uranium Projects 1985 & 1986 15 Other 1974 20 The following table reflects the application of SPAS 90 and the TB on property abandonments for which no return is earned. The discount rate range used to calculate the present value of the abandoned prop-(Thousands of Dollars)
December 31, 1989 Discounted Property Abandonments Cost Taxes Cost Atlantic Project
$154,992
$ 65,141
$121,723 Hope Creek Unit 2 72,808 42,762 63,031 LNG Project 30,489 11,624 25,697 Uranium Projects 24,745 10,434 19,181 Other 1,213 1,109
$284,247
$129,961
$230,741 Recovery 1990 Amortization of Amount Authorized After Tax Net Discount Pre-Tax After Tax 1989 1990 After Tax
$319.9
$174.5
$ 8.7
$ 8.7
$3.3 290.8 172.2 12.9 11.4 1.8 69.3 41.4 2.8 2.8
.8 37.l 21.7 1.4 1.4
.6 6.1 6.1
.3
.3 erty under SPAS 90 was between 8.545% and 14.446%. The net-of-tax discount rate used in accordance with the TB was between 4.443%
and 7.801%.
1988 Discounted Taxes Cost Taxes Cost Taxes
$ 51,171
$170,052
$ 71,477
$130,621
$ 54,916 37,434 94,831 51,770 80,020 43,699 9,826 35,062 13,399 28,837 11,052 8,129 27,219 11,460 20,599 8,717 1,515 1,356
$106,560
$328,679
$148,106
$261,433
$118,384 43
Under(Over)recovered Electric Energy and Gas Costs -
net Recoveries of electric energy and gas costs are determined by the BPU. (See Note 2) Earnings are not directly affected by increases or decreases in the costs of fuel or interchanged power, because such costs are adjusted monthly to match amounts recovered through reve-nues. However, the carrying of underrecovered fuel costs ultimately increases financing costs. These clauses also provide that any over or underrecoveries at the end of the period, along with interest in the case of an overrecovery, will be included in the average cost used to determine the rate for the succeeding levelized period.
The following table reflects the balances in PSE&G 's deferred fuel recovery accounts:
Cumulative (Millions of Dollars)
Under( Over )recovery December 31, 1989 1988 LEAC Deferred Fuel Cost
$56.1
$ 77.1 Deferred Replacement Power Costs -
Salem 37.1 61.8 Tota!LEAC 93.2 138.9 RMAC Deferred Fuel Cost (24.7)
(10.4)
Net Underrecovery
$68.5
$128.5 On June 15, 1988, the BPU announced approval of an increase in PSE&G's LEAC, which included the recovery and amortization, over five years, of $70 million of deferred replacement energy costs asso-ciated with the outages of the electric generators at both units of the Salem Generating Station in the years 1983, 1984 and 1985.
Unamortized Debt Expense Costs associated with the issuance of debt by PSE&G are deferred and amortized over the lives of the related issues. Amounts shown in the Consolidated Balance Sheets consist of costs associated with PSE&G's reacquisition of First and Refunding Mortgage Bonds.
The redemption costs of the tendered or redeemed debt have been deferred and are being amortized over the lives of the new securities issued to replace the older, higher-cost securities. PSE&G expects to recover $5.8 million of these costs in 1990.
Materials and Supplies Inventory In January 1989, PSE&G changed its method of accounting for certain spare parts to the deferred (inventory) method, whereby all purchases of spare parts under inventory control are charged into the Materials and Supplies inventory account until such time that the items are used or consumed and are then charged to the appropriate expense or capi-tal accounts. Prior to 1989, certain purchases of spare parts were being charged directly to expense at the time of purchase, with a current deduction being taken for tax purposes.
On October 4, 1988, PSE&G filed a request with the Internal Reve-nue Service for a tax ruling concerning the change in accounting for 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 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
- 5. Schedule of Consolidated Long-Term Debt (Thousands of Dollars)
December 31, Interest Rates Due 1989 1988 PSE&G First and Refunding Mortgage Bonds (note A) 5Ys%
1989 50,000 431.%
1990 50,000 50,000 43/s%-8%%
1992 240,000 240,000 43/s%-9Ys%
1993 190,000 190,000 4%%-8%%
1994 210,000 210,000 4%%-9%%
1995-1999 710,000 610,000 7Yz%-12%
2000-2004 465,430 466,430 8Ys%-9%%
2005-2009 498,300 500,300 8%%-9 1/s%
2015-2019 422,000 422,000 5%-8%
2037 15,001 15,001 Pollution Control 6.30%-6.90%
2006-2009 59,910 59,910 6.80%-10\\12%
2010-2014 522,500 522,500 8.10%
2017 25,000 25,000 Total First and Refunding Mortgage Bonds 3,408,141 3,361,141 Debenture Bonds Unsecured 5%%
1991 31,199 32,358 7Y.%
1993 22,614 23,447 6%-9%
1995-1998 139,473 143,775 Total Debenture Bonds Unsecured 193,286 199,580 Principal Amount Outstanding 3,601,427 3,560,721 Amounts Due Within One Year (note B)
(54,038)
(53,894)
Net Unamortized Discount (23,179)
(24,740)
Total Long-Term Debt of PSE&G 3,524,210 3,482,087 Capital (note C)
Senior Notes 9.875%-10.05%
1998 250,000 214,000 Medium-Term Notes 8.65%-9.12%
1991 80,000 80,000 8.95%-9.72%
1993 88,000 88,000 8.95%-9.93%
1995-1999 332,000 82,000 Principal Amount Outstanding 500,000 250,000 Net Unamortized Discount (2,568)
(1,311)
Total Medium-Term Notes 497,432 248,689 Total Long-Term Debt of Capital 747,432 462,689 EGDC Mortgage Notes 10.65%-12.75%
2012 7,169 10.4%
1992 14,606 21,775 Amounts Due Within One Year (79)
Total Long-Term Debt of EGDC 21,696 EDC Bank Loans -
12%
1995 270 Amounts Due Within One Year (note B)
(30)
Total Long-Term Debt of EDC 240 Total Long-Term Debt of Holdings 769,368 462,689 Consolidated Long-Term Debt (note D)
$4,293,578
$3,944,776 PSE&G has a $75 million Revolving Credit Agreement with a group of foreign banks which expires in 1992.
Notes:
(A) PSE&G's Mortgage, securing the First and Refunding Mortgage Bonds, constitutes a direct first mortgage lien on substantially all PSE&G property and franchises.
(B) The aggregate principal amounts of requirements for sinking funds and maturities for each of the five years following December 31, 1989 are as follows:
(Thousands of Dollars)
Sinking Funds Maturities Year PSE&G Capital PSE&G Capital EGDC EDC Total 1990
$ 4,038
$50,000 79
$ 30 54,147 1991 6,000 31,199 80,000 88 30 117,317 1992 6,000 240,000 14,703 30 260,733 1993 6,000 42,500 212,614 88,000 108 30 349,252 1994 5,200 42,500 210,000 121 30 257,851
$27,238
$85,000
$743,813
$168,000
$15,099
$150
$1,039,300 For sinking fund purposes, certain First and Refunding Mortgage Bond issues require annually the retirement of $18,450,000 principal amount of bonds or the utilization of bondable property additions at 60% of cost. The portion expected to be met by property additions has been excluded from the table above. Also, PSE&G may, at its option, retire additional amounts up to $6,200,000 annually through sinking funds of certain Deben-ture Bonds. Additional bonds, if any, resulting from the election of this option are included in Jong-term debt due within one year.
(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.
(D) At December 31, 1989, the annual interest requirement on Long-Term Debt was
$372, 995,000 of which $286,355,000 was the requirement for First and Refunding Mortgage Bonds. The embedded interest cost on Long-Term Debt was 8.97%.
- 6. Long-Term Investments Long-Term Investments are primarily those of Enterprise's non-utility operating businesses: PSRC (diversified passive investments), CEA (cogeneration and small power production facilities) and EGDC (diver-sified non-residential real estate development and investments). A summary of long-term investments is as follows:
(Millions of Dollars) 1989 1988 Lease Agreements:
Leveraged Leases
$354
$243 Direct-Financing Leases 98 JOO Other Leases 19 20 Total 471 363 Partnerships:
General Partnerships 90 29 Limited Partnerships 208 76 Total 298 105 Joint Venture 10 12 Marketable Securities 137 78 Corporate-owned Life Insurance (PSE&G) 9 3
Total Long-Term Investments
$925
$561 Leveraged leases are those of PSRC and are reported net of principal and interest on nonrecourse loans and unearned income, including deferred investment tax credits. Unearned and deferred income is recognized at a level rate of return from each lease during the periods in which the net investment is positive.
Partnership investments are those of PSRC, CEA and EGDC and are undertaken with other investors. PSRC is a limited partner in a leveraged buyout fund and is committed to make investments from 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-ber 31, 1989, $96 million had been invested.
Marketable securities are those of PSRC and are stated at the lower of aggregate cost or market value, adjusted, where appropriate, for amortization of premium and discount computed using the interest method. The net unrealized loss which is the difference between the market price and the cost of equity securities, net of applicable income taxes, is included in stockholders' equity. As of December 31, 1989 and December 31, 1988, the cost of PSRC's marketable securities were $137.5 million and $79.6 million, respectively. Realized invest-ment gains and losses on the sale of investment securities are deter-mined utilizing the specific cost identification method.
- 7. Cash and Cash Equivalents The balances at December 31, 1989 and 1988 consist primarily of highly liquid marketable securities and debt instruments purchased with a maturity of three months or less. The 1989 balance of tempo-rary investments was invested in commercial paper. In 1988 the bal-ances of temporary investments were invested in repurchase agreements and commercial paper.
- 8. Federal Income Taxes A reconciliation of reported Net Income with pre-tax income and of Federal income tax expense with the amount computed by multiplying pre-tax income by the statutory Federal income tax rates of 34% in 1989 and 1988 and 39.95%, a transitional weighted rate for 1987, is as follows:
(Thousands of Dollars) 1989 1988 1987 Net Income
$542,137 $528,586 $520,451 Preferred stock dividend requirements 29,012 31,336 38,763 Subtotal 571,149 559,922 559,214 Federal income taxes included in:
Operating Income:
Current provision 112,046 90,153 65,214 Provision for deferred income taxes -
net (A) 119,606 89,744 248,635 Investment tax credits -
net (23,391)
(17,753)
(21,680)
Total included in operating income 208,261 162,144 292,169 Miscellaneous other income:
Current provision (11,411)
(14,300)
(17,084)
Provision for deferred income taxes (A) 10,906 13,087 17,939 SPAS 90 deferred income tax (A) 6,773 31,205 12,255 Total Federal income tax provisions 214,529 192,136 305,279 Pre-tax income
$785,678 $752,058 $864,493 45
Adjustments to pre-tax income, computed at the statutory rate, for which deferred taxes are not provided under current ratemaking policies:
Tax expense at the statutory rate
$267,131 $255,700 $345,365 Tax depreciation under book depreciation 17,821 15,282 18,087 Allowance for funds used during construction (10,199)
(9,201)
(21,038)
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)
Subtotal (29,441)
(34,626)
(11,365)
Amortization of investment tax credits (23,161)
(28,938)
(28,721)
Subtotal (52,602)
(63,564)
(40,086)
Total Federal income tax provisions
$214,529 $192,136 $305,279 (A) The provision for deferred income taxes represents the tax effects of the following items:
Current Liabilities:
Unbilled revenues
$(19,627) $(23,724) $(19,501)
Other 1,051 (1,704) 552 Subtotal (18,576)
(25,428)
(18,949)
Deferred Credits:
Additional tax depreciation and amortization 109,024 110,862 167,081 Leasing Activities 85,641 19,386 36,580 Property Abandonments (11,825) 15,888 2,650 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 Subtotal 155,861 159,464 297,778 Total
$137,285 $134,036 $278,829 Deferred income taxes are provided for differences between book and taxable income. For PSE&G the deferred income taxes are limited to the extent permitted for ratemaking purposes. At December 31, 1989 the cumulative net amount of income tax timing differences, for which deferred income taxes have not been provided, was $1. l billion.
See Note 1 for a discussion of the effect of SFAS 96, "Accounting for Income Taxes'.'
See Note 2 for reductions in LEAC and RMAC related to the effect of the Tax Reform Act of 1986.
- 9. Capital Lease Obligations The Consolidated Balance Sheets include assets and related obliga-tions applicable to capital leases where PSE&G is a lessee. The total amortization of the leased assets and interest on the lease obligations equals the net minimum lease* payments included in rent expense for capital leases.
Capital leases of PSE&G relate primarily to its corporate head-quarters and other capital equipment. Certain of the leases contain renewal and purchase options and also contain escalation clauses.
Enterprise and its other subsidiaries are not lessees in any capital-ized leases.
46 Utility plant includes the following amounts for capital leases at December 31:
(Thousands of Dollars) 1989 1988 Common Plant
$57,226
$57,263 Less Accumulated Amortization 2,261 1,888 Net Assets under Capital Leases
$54,965
$55,375 Future minimum lease payments for noncancelable capital and operat-ing leases at December 31, 1989 were:
(Thousands of Dollars) 1990 1991 1992 1993 1994 Later Years Minimum lease payments Less: Amount representing estimated executory costs, together with any profit thereon, included in minimum lease payments Net minimum lease payments Less Amount representing interest Present value of net minimum lease payments (A)
Capital Leases
$ 13,110 13,046 13,014 13,014 13,014 264,656
$329,854 164,570 165,284 110,319
$ 54,965 Operating Leases
$ 6,964 6,139 4,350 2,962 2,346 17,017
$39,778 (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 of $452,000.
The following schedule shows the composition of rent expense in-cluded in Operating Expenses:
(Thousands of Dollars)
For the Years Ended December 31, Interest on Capital Lease Obligations Amortization of Utility Plant under Capital Leases Net minimum lease payments relating to Capital Leases Other lease payments Total Rent Expense
- 10. Commercial Paper and Loans 1989
$ 6,322 409 6,731 18,178
$24,909 1988
$ 6,424 1,036 7,460 16,396
$23,856 1987
$ 6,658 1,927 8,585 18,405
$26,990 Commercial paper represents unsecured bearer promissory notes sold through dealers at a discount with a term of nine months or less. Cer-tain information regarding commercial paper follows:
PSE&G (Thousands of Dollars) 1989 1988 1987 Balance at end of year
$328,000 $190,000 $250,000 Maximum amount outstanding at any month end
$328,000 $213,000 $265,000 Average daily outstanding
$113,100 $ 94,900 $138,100 Weighted average annual interest rate 9.04%
7.80%
6.83%
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.
Holdings (non-utility businesses)
(Thousands of Dollars) 1989 1988 1987 Balance at end of year:
Funding
$205,939 Capital
$117,530 $135,300 Maximum amount outstanding at any month end:
Funding
$205,939 Capital
$164,700 $135,300 Average daily outstanding:
Funding
$ 29,500 Capital
$127,700 $ 10,024 Weighted average annual interest rate:
Funding 8.68%
Capital 7.63%
7.53%
Weighted average interest rate for commercial paper outstanding at year-end:
Funding 8.61%
Capital 9.50%
7.83%
In November 1987, Capital entered into a three-year $250 million credit agreement with a group of banks to support the issuance of commercial paper. During 1988, $214 million of Capital's unsecured senior notes were issued or privately placed. A portion of these pro-ceeds were used to reduce the then outstanding short-term debt of Capital. (See note 5. Schedule of Consolidated Long-Term Debt). As of December 31, 1989 Funding had established a $350 million com-mercial paper program supported by a direct pay commercial bank letter of credit and a revolving credit facility which expires in 1991.
Enterprise presently expects that Funding will be able to renew its short-term financing program on favorable terms before it expires.
Bank loans represent unsecured promissory notes issued under credit arrangements with various banks and have a term of eleven months or less. Such notes were issued in 1986 by CEA and EDC.
Certain information regarding bank loans follows:
(Thousands of Dollars) 1989 Balance at end of year
$ Maximum amount outstanding at any month end
$ Average daily outstanding
$ Weighted average annual interest rate NIA Weighted average interest rate for bank loans outstanding at year-end NIA 1988
$ $ $ NIA NIA 1987
$ $104,996
$ 42,448 6.68%
NIA The December 1989 balance also mcludes $10.4 mlihon related to an outstanding capital note of Resources Capital Management Corpora-tion, a subsidiary of PSRC, which is payable in installments through June 1990.
At December 31, 1989 and 1988, Enterprise had $294.9 million and
$219 million, respectively, of lines of credit supported by compensat-ing balances under informal arrangements with banks. At December 31, 1989 and 1988, $55 million and $35 million, respectively, of these lines of credit were compensated by fees. There are no legal restric-tions placed on the withdrawal or other use of the compensating bank balances.
- 11. Commitments and Contingent Liabilities Nuclear Performance Standard In 1987, the BPU issued an Order establishing a performance standard for the five nuclear units in which PSE&G has an ownership interest:
Salem 1 and 2 -
42.59% each; Hope Creek -
95%; and Peach Bot-tom 2 and 3 -
42.49% each. PSE&G operates Salem and Hope Creek while Peach Bottom is operated by Philadelphia Electric Company (PE). The performance standard is premised upon a targeted 70%
aggregate capacity factor for the five units, with a deadband between 60% and 80% within which no penalty or reward would be incurred.
The penalties or awards are based on targeted capacity factors as illustrated in the following table:
Capacity Factor Range Greater than 90%
Greater than 80% through 90%
Equal to or greater than 60% through 80%
Equal to or greater than 50% and less than 60%
Equal to or greater than 40% and less than 50%
Below40%
Difference in Replacement Power Costs vs. Target Capacity Factor of 70%
Award Penalty 25%
20%
None None 20%
25%
BPU Intervenes The nuclear performance standard for 1989 was modified by a Stipulation approved by the BPU on March 14, 1989 to exclude Peach Bottom 2 and 3 from the nuclear performance standard computation until each unit returns to service. Peach Bottom 2 was restarted in April 1989 and returned to service under the nuclear performance standard July 1, 1989. Peach Bottom 3 began producing electricity in December 1989 and returned to service under the nuclear performance standard January 1, 1990. For 1989, PSE&G's nuclear units in which it has an ownership interest aggregated a combined capacity factor of 72% under the nuclear performance standard. PSE&G did not incur any nuclear performance standard penalty during 1989.
On August 23, 1989, the BPU, in accordance with the provisions of its 1987 Order establishing the nuclear performance standard, ini-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.
Neither Enterpnse nor PSE&G can predict what effect, rf any, the generic proceeding may have on the BPU's nuclear performance stan-dard as it presently applies to PSE&G.
Peach Bottom Law Suit On July 27, 1988, Enterprise and PSE&G filed suit in the United States District Court for the District of New Jersey against PE relating to the outage of Peach Bottom 2 and 3 resulting from the NRC's shut down order of March 31, 1987. On January 13, 1989, PE filed its answer to the claims for breach of contract in this proceeding. In filing its 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.
47
Nuclear Insurance Coverages and Assessments PSE&G's insurance coverages and maximum retrospective assess-ments for its nuclear operations are as follows:
Maximum Retrospective Maximum Assessments for
'fype and Source of Coverages Coverages a Single Incident (Millions of Dollars)
Public Liability:
American Nuclear Insurers
$ 200.0
$None Indemnity (A) 7,f!J7.0 175.4
$7,807.0(B)
$175.4 Nuclear Worker Liability:
American Nuclear Insurers (C)
$ 200.0
$ 9.2 Property Damage:
Nuclear Mutual Limited (D)
$ 500.0
$ 37.6 Nuclear Electric Insurance Ltd. (D) 975.0 14.3 American Nuclear Insurers 5ff.J.O None
$2,035.0
$ 51.9 Replacement Power:
Nuclear Electric Insurance Ltd. (D) 3.5(E)
$ 15.0 (A) Retrospective premium program under the Price-Anderson Liability provisions of the Atomic Energy Act of 1954, as amended. Subject to retrospective assessment with respect to loss from an incident at any licensed nuclear reactor in the United States.
(B) Limit of liability for each nuclear incident under the Atomic Energy Act of 1954, as amended.
(C) Represents the potential liability from workers claiming exposure to the hazard of 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.
(D) Mutual insurance companies of which PSE&G is a member. Subject to retrospective assessment with respect to loss at any nuclear generating station covered by such insurance.
(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 million weekly for a third 52-week period.
The Price-Anderson Amendment Act of 1988 sets the "limit of liability" for claims that could arise from an incident involving any licensed nuclear facility in the nation. The "limit of liability" is based on the number of licensed nuclear reactors and adjusts at least every five years based on the Consumer Price Index. The current "limit of liability" is $7. 8 billion. All nuclear utilities, including PSE&G, have provided for this exposure through a combination of private insurance and mandatory participation in a financial protection pool as estab-lished by the Price-Anderson Act. Under the Price-Anderson Act, as amended, all nuclear reactor operators can be assessed up to $66.2 million per reactor per incident, payable at $10 million per reactor per incident per year. If the damages exceed the "limit of liability" the President is to submit to Congress a plan for providing additional 48 compensation to the injured parties. Congress could impose further revenue raising measures on the nuclear industry to pay claims.
PSE&G's maximum aggregate assessment per incident is $175 million (based on PSE&G's ownership interests in Hope Creek, Peach Bottom and Salem) as of January 8, 1990 and its maximum aggregate annual assessment per incident is $26.5 million. In 1984, in a case to which PSE&G was not a party, the Supreme Court of the United States held that the Atomic Energy Act, the Price-Anderson limitation of liability and the extensive regulation of nuclear safety by the NRC do not pre-empt claims under state law for personal, property or punitive damages related to radiation hazards.
PSE&G maintains property insurance, including decontamination expense coverage, with respect to loss or damage to its nuclear facili-ties. Although it is impossible to determine the total amount of the Joss that may result from an occurrence at these facilities, as of Jan-uary 8, 1990, PSE&G maintained the maximum amount of insurance available on its Salem or Hope Creek Stations, to $2.035 billion per incident. PE has advised PSE&G that it maintains similar insurance coverage with respect to the Peach Bottom units operated by PE.
Under the terms of the various insurance agreements, PSE&G could be subject to a maximum retrospective assessment for a single incident ofup to $51. 9 million. Certain of the policies also provide that the insurer may suspend coverage with respect to nuclear units on a site without notice if the NRC suspends or revokes the operating license for any unit on the site, the NRC issues a shutdown order with respect to such unit, or the NRC issues a confirmatory order keeping such unit shut down.
PSE&G is a member of an industry mutual insurance company, Nuclear Electric Insurance Limited (NEIL), which provides replace-ment power cost coverage in the event of a major accidental outage at a nuclear station. Salem and Hope Creek are covered by replacement power cost policies which provide for a maximum weekly indemnity 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 policies provide for maximum weekly indemnity payments of $2.4 million for a second 52-week period, and $1.2 million weekly for a third 52-week period. PSE&G has been informed by PE that PE has similar replacement power cost coverage with respect to Peach Bot-tom. The premium for this coverage is subject to retrospective assess-ment for adverse Joss experience. Under the policies, PSE&G's present maximum share of any retrospective assessment in any year is $15.0 million.
Construction and Fuel Supplies PSE&G has substantial commitments as part of its construction pro-gram. Construction expenditures of $3.8 billion, including approxi-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.
Oil and Gas Property Write-Down On October 31, 1986, the BPU approved agreements by PSE&G and the major parties in PSE&G's gas base rate case, which provided for an annual reduction in gas base revenues of $30 million, effective October 31, 1986 and for the removal of EDC, at that time a wholly-owned subsidiary of PSE&G, from inclusion in its gas rate base for ratemaking purposes. In the BPU-approved agreement, PSE&G was allowed to defer any loss on its investment in EDC as a result of any write-down of the value of reserves as of December 31, 1986 and to seek recovery of such loss over a period of not less than 10 years in its next gas base rate proceeding. On October 31, 1986, the price paid by PSE&G for natural gas from EDC was reduced as a result of a change in PSE&G's gas RMAC approved by the BPU. As a result of these regulatory actions, EDC wrote down the value of its reserves as of December 31, 1986 by $134.5 million, which amounted to $70.5 million after the tax effect, to reflect the lower net realizable value of its oil and gas reserves. PSE&G initially deferred $58.8 million of the after-tax loss. Further, on July 1, 1988, PSE&G began amortizing the
$58.8 million deferred amount, absent regulatory approval, over a ten-year period. As of December 31, 1989 the balance remaining to be amortized is $49.5 million. PSE&G will seek recovery of the entire
$70.5 million in its next gas base rate case. Denial of this request by the BPU would require an immediate write-off of the amount being deferred by PSE&G.
Environmental Controls General The Comprehensive Environmental Response, Compensation and Liability Act of 1980 and certain similar State statutes authorize var-ious governmental authorities to issue orders compelling responsible parties to take clean up actions at sites determined to present an im-minent and substantial danger to the public and to the environment because of an actual or threatened release of hazardous substances.
Because of the nature of PSE&G's business, various by-products and wastes are produced or handled which contain constituents which are classified as hazardous substances under these laws.. PSE&G provides for the disposal of its wastes through licensed independent contrac-tors, but these statutory provisions generally impose potential joint and several responsibility for clean up costs on the generators of the wastes without regard to fault. PSE&G has been notified with respect to a number of such sites, and the clean up of hazardous wastes is receiving increasing attention from the government agencies involved.
This trend is expected to continue. PSE&G's own sites also are sub-ject to certain of these environmental laws, and the nature and dura-tion of PSE&G's operations suggest that certain remedial action at certain sites may be required. PSE&G cannot determine, at this time, the costs which may result from these matters, but such costs could be material.
PSE&G's Gas Plant Sites The New Jersey Department of Environmental Protection (NJDEP) has notified PSE&G that it has identified the need for PSE&G, pursu-ant to a formal arrangement, to systematically investigate and, if necessary, resolve environmental concerns extant at PSE&G's former manufactured gas plant sites. To date, the NJDEP and PSE&G have identified thirty-eight (38) former gas plant sites.
PSE&G is currently working in concert with the NJDEP to imple-ment a plan pursuant to which PSE&G would undertake to investigate these sites. PSE&G anticipates that its program to assess, investigate and, if necessary, remediate environmental concerns at the 38 former gas plant sites may take up to ten (10) years to complete. PSE&G has completed a preliminary assessment of twenty-eight of these sites. At a minimum some form of investigation will be required at each of these sites. Upon completions of these remedial investigations, some or all of these sites may require remedial action.
Remedial work activities have been undertaken at four of the 38 sites, three of which are owned by third parties. Remedial work activ-ities at one of these sites have progressed to a level which permits PSE&G to estimate that the cost of the site remediation will approxi-mate $5 million, and PSE&G has funded a substantial portion of these costs. In the second case, PSE&G entered into a settlement agreement with the owner in December 1989 for approximately $10 million.
With respect to the other two sites, PSE&G expects the investigation costs to approximate $1.5 million. The nature and duration of the industrial operations conducted at these latter two sites as well as the preliminary findings from these investigations suggest that some form of remedial action will be necessary.
PSE&G anticipates filing work plans with the NJDEP by the end of February 1990 to investigate seven sites. It is anticipated that field work activities at these sites will begin this spring or early summer.
The costs associated with conducting these remedial investigations is expected to approximate at least $2 million. Upon completion of these remedial investigations, some or all of these sites may require some form of remedial action. While the costs required to implement any required remedial action at these sites are not currently estima-ble, the costs may be material.
On October 7, 1988, PSE&G requested that the BPU permit it to defer charging to income costs previously incurred and costs to be incurred in connection with the investigation and, if necessary, reme-diation of its former gas plant sites, pending a determination in a gas base rate proceeding of the extent to which such costs may be recov-ered from customers. The BPU issued an order on August 8, 1989, approving PSE&G's request to utilize deferred accounting for such costs. As of December 31, 1989, PSE&G has deferred approximately
$18.9 million of costs associated with its gas plant clean-up program.
In November 1988, PSE&G filed suit against certain of its insurers to recover the costs associated with addressing and resolving environ-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 J
- 12. Pension Plan and Other Postretirement Benefits The discount rate, expected long-term return on assets and average compensation growth used in determining the pension plan's funded status as of December 31, 1989 and 1988 and net pension costs for 1989, 1988 and 1987 are as follows:
Discount Rate Used to Determine Pension Cost Discounted Rate Used to Determine Benefit Obligations Expected Long-Term Return on Assets Average Compensation Growth 1989 1988 7%%
7'14%
8%
6%
8\\/4%
7%%
8%
6%
The following table shows the plan's funded status:
(Thousands of Dollars)
December 31, Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested benefits of$864,793 and $703,153 Effect of projected future compensation Projected benefit obligations Plan assets at fair value, primarily listed equity and debt securities Projected benefit obligations in excess of plan assets Unrecognized net gain from past experience and effects of changes in assumptions Prior service cost not yet recognized in net pension cost Unrecognized net obligation being recognized over 16.7 years Prepaid (accrued) pension expense 1989 1988
$ (926,031) $(730,696)
(246,377) (249,648)
(1,172,408) (980,344) 1,028,585 888,005 (143,823)
(92,339)
(52,333)
(29,568) 86,269 3,920 109,887 117,987
$ $ The net pension cost for the years ending December 31, 1989, 1988 and 1987 include the following components:
(Thousands of Dollars)
Service cost-benefits earned during year Interest cost on projected benefit obligation Return on assets Net amortization and deferral Total 1989 1988
$ 28,185 $ 25,811 74,997 70,485 (159,767) (111,175) 98,585 56,879
$ 42,000 $ 42,000 1987
$27,000 64,200 (50,084)
(1,116)
$40,000 Supplemental pension costs in 1989, 1988 and 1987 were $1,900,000,
$2,846,000 and $4,026,000, respectively.
In addition to the pension plan, Enterprise also provides certain health care and life insurance benefits to active and retired employees.
The cost of these benefits is charged to expense when paid. (See Note 1 for details of Postretirement Benefits.)
50
- 13. Financial Information by Business Segments Information related to the segments of Enterprise's business is detailed below:
For the Year Ended December 31, 1989 Non-Utility (Thousands of Dollars)
Electric Gas Businesses (A)
Total Operating Revenues
$3,279,913
$1,362,470
$ 207,165
$4,849,548 Eliminations (Interseg-ment Revenues)
(44,696)
(44,696)
Total Operating Revenues 3,279,913 1,362,470 162,469 4,804,852 Depreciation and Amortization 334,329 68,140 64,270 466,739 Operating Income before Income Taxes 925,209 122,854 102,758 1,150,821 Capital Expenditures 552,603 121,611 414,837 1,089,051 December 31, 1989 Net Utility Plant 8,314,861 1,021,774 9,336,635 Oil and Gas Property, Plant & Equipment 608,250 608,250 Other Corporate Assets 1,377,649 401,978 1,194,922 2,974,549 Total Assets
$9,692,510
$1,423,752
$1,803,172
$12,919,434 For the Year Ended December 31, 1988 Non-Utility (Thousands of Dollars)
Electric Gas Businesses (A)
Total Operating Revenues
$3,090,609
$1,203,435
$161,122
$4,455,166 Eliminations (Interseg-ment Revenues)
(60,474)
(60,474)
Total Operating Revenues 3,090,609 1,203,435 100,648 4,394,692 Depreciation and Amortization 321,223 64,952 47,872 434,047 Operating Income before Income Taxes 843,595 109,314 52,370 1,005,279 Capital Expenditures 496,185 68,091 182,206 746,482 December 31, 1988 Net Utility Plant 8,128,543 960,960 9,089,503 Oil and Gas Property, Plant & Equipment 286,552 286,552 Other Corporate Assets 1,204,808 370,497 739,009 2,314,314 Total Assets
$9,333,351
$1,331,457
$1,025,561
$11,690,369 For the Year Ended December 31, 1987 Non-Utility (Thousands of Dollars)
Electric Gas Businesses (A)
Total Operating Revenues
$2,959,549
$1,219,955
$ 77,679
$ 4,257,183 Eliminations (Interseg-ment Revenues)
(46,128)
(46,128)
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.
- 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 J
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
\\ *-
Officers and Directors Public Service Enterprise Group Incorporate~
Officers
- E. James Ferland Chairman of the Board, President and Chief Executive Officer (Chairman of the Board and Chief Executive Officer, Holdings)
- Everett L. Morris Vice President (President and Chief Operating Officer, Holdings)
Richard E. Hallett Vice President and Comptroller
- R. Edwin Selover Vice President and General Counsel
- Francis J. Riepl Treasurer
- Robert S. Smith Secretary Directors
- T.J. Dermot Dunphy President, Chief Executive Officer and director, Sealed Air Corporation (manufactures protective packaging products and systems).
Member of Finance Committee and Organization and Compensation Committee.
Robert R. Ferguson, Jr.
Director: First Fidelity Bancorpora-tion; First Fidelity Bank, N.A. and First Fidelity, Inc.
Member of Executive Committee, Finance Committee and Organization and Compensation Committee.
- E. James Ferland Chairman of the Board, President and Chief Executive Officer of the Corporation.
Chairman of Executive Committee and member of Finance Committee.
- Shirley A. Jackson Theoretical Physicist, AT&T Bell Laboratories.
Member of Audit Committee and Nominating Committee.
Irwin Lerner President, Chief Executive Officer and director, Hoffmann-La Roche Inc. (manufactures pharmaceuticals, vitamins, fine chemicals, and pro-vides diagnostic products and services).
Member of Audit Committee, Execu-tive Committee and Organization and Compensation Committee.
56
- William E. Marfuggi Chairman, Tri-Maintenance &
Contractors Inc.
Chairman of Organization and Com-pensation Committee and member of Nominating Committee.
Everett L. Morris Vice President of the Corporation.
Chairman of Finance Committee and member of Executive Committee.
- Marilyn M. Pfaltz Partner of P and R Associates (communications specialists).
Chairman of Nominating Committee and member of Audit Committee.
James C. Pitney Partner in the law firm of Pitney, Hardin, Kipp & Szuch.
Chairman of Audit Committee and member of Nominating Committee and Organization and Compensation Committee.
- Harold W. Soon Retired Chairman of the Board of the Corporation.
Member of Audit Committee and Finance Committee.
- Josh S. Weston Chairman of the Board, Chief Exec-utive Officer and director, Automatic Data Processing, Inc.
Member of Audit Committee and Organization and Compensation Committee.
- indicates Officer or Director of Enterprise Diversified Holdings Incorporated Public Service Electric and Gas Company Officers & Directors E. James Ferland Chairman of the Board, President and Chief Executive Officer Everett L. Morris Senior Executive Vice President Harold W. Borden, Jr.
Senior Vice President -
External Affairs Lawrence R. Codey Senior Vice President -
Electric Robert J. Dougherty, Jr.
Senior Vice President -
Customer Operations R. Edwin Selover Senior Vice President and General Counsel Rudolph D. Stys Senior Vice President -
Gas PaulH. Way Senior Vice President -
Corporate Performance Officers Donald A. Anderson Vice President -
Information Systems and Corporate Services William J. Budney, Jr.
Vice President -
Distribution Systems Frank Cassidy Vice President -
Transmission Systems Thomas M. Crimmins, Jr.
Vice President -
Nuclear Engineering John A. Gartman Vice President -
Gas Supply and Planning Curtis W. Grevenitz Vice President -
Gas Operations Richard E. Hallett Vice President and Comptroller Stanley LaBruna Vice President-Nuclear Operations Pierre R.H. Landrieu Vice President -
Fossil Production Frederick W. Lark Vice President -
Marketing John H. Maddocks Vice President -
Public Affairs Steven E. Miltenberger Vice President and Chief Nuclear Officer Francis J. Riepl Vice President and Treasurer Louis L. Rizzi Vice President -
Customer Services Robert S. Smith Vice President and Secretary Robert F. Steinke Vice President -
Business Unit Development Gregory M.. Thomson Vice President-Human Resources Richard A. Uderitz Vice President -
Technical Services 1989 Transition Board of Directors -
Enterprise Retired Robert I. Smith, 4/18/89 Member, Finance and Nominating Committees Deceased Robert V. Van Fossan, 10/29/89 Chairman, Organization and Com-pensation Committee; Member, Executive and Finance Committees Officers -
Enterprise Retired Parker C. Peterman, 3/31/89 Vice President and Comptroller Elected Richard E. Hallett, l/l/90 Vice President and Comptroller Board of Directors -
PSE&G Retired Fredrick R. DeSanti, 9/ 15/89 Robert W. Lockwood, 12/29/89 Elected Robert J. Dougherty, Jr., 9/16/89 Harold W. Borden, Jr., l/l/90 Officers -
PSE&G Retired Fredrick R. DeSanti, 9/15/89 Senior Vice President -
Customer Operations Robert W. Lockwood, 12/29/89 Senior Vice President -
External Affairs Stephen A. Mallard, 11/3/89 Senior Vice President -
Transmission Systems Parker C. Peterman, 3/31189 Vice President and Comptroller Elected Harold W. Borden, Jr., 1/1/90 Senior Vice President -
External Affairs Robert J. Dougherty, Jr., 9/16/89 Senior Vice President -
Customer Operations Frank Cassidy, 11/4/89 Vice President -
Transmission Systems Thomas M. Crimmins, Jr., 5/15/89 Vice President-Nuclear Engineering Richard E. Hallett, l/l/90 Vice President and Comptroller Frederick W. Lark, 1/1/90 Vice President -
Marketing
Corporate and Stock Information Stockholder Information -
Toll Free New Jersey residents 1-(800) 242-0813 Outside New Jersey 1-(800) 526-8050 Telephone Hours: 10 a. m. to 12 p.m. and 1:30 to 3:30 p.m.
Monday-Friday Security Analysts and Institutional Investors Manager - Investor Relations (20 I) 430-6564 Dividend Reinvestment Plan Enterprise has a Dividend Reinvestment and Stock Purchase Plan under which all common and PSE&G preferred stockholders may reinvest dividends and/or make direct cash investments to obtain Enterprise common stock. Purchases of common stock are made for the Plan directly from Enterprise, at its sole discretion, and/or in the open market. All brokerage and other fees to acquire shares are ab-sorbed by Enterprise. To participate call the toll free number to obtain a prospectus and an authorization card.
Stock Trading Symbol: PEG Annual Meeting Please note that the Annual Meeting of Stockholders of Public Service Enterprise Group Incorporated will be held at Newark Symphony Hall, 1020 Broad Street, Newark, N.J. on Tuesday, April 17, 1990 at 2:00 PM. A summary of the meeting will be sent to all stockholders of record at a later date.
Additional Reports Available -
Form 10-K Stockholders or other interested persons wishing to obtain a copy of Enterprise's or PSE&G's 1989 Annual Report to the Securities and Exchange Commission, fi led on Form 10-K, may obtain one without charge by writing to the Manager - Investor Relations, Public Service Electric and Gas Company, P.O. Box 570, T6B, Newark, N.J. 07101 (telephone (201) 430-6503). The copy so provided will be without exhibits. E.v':ibits may be purchased for a specified fee.
PSE&G Territory Newark Trenton Camden Financial and Statistical Review A comprehensive statistical report containing financial and operating data will be available this spring. If you wish to receive a copy, please write to the Manager - Investor Relations, Public Service Electric and Gas Company, P.O. Box 570, T6B, Newark, N.J. 07101 (telephone (201) 430-6503).
Transfer Agents All Stocks:
First Chicago Trust Company of New York 30 West Broadway, New York, N. Y. 10007 Stockholder Services, Public Service Electric and Gas Company 80 Park Plaza, P.O. Box 1171 Newark, N.J. 07101-ll71 Registrars All Stocks:
First Fidelity Bank, N.A., New Jersey 765 Broad Street, Newark, N.J. 07101 First Chicago Trust Company of New York 30 West Broadway, New York, N. Y. 10007 Stock Exchange Listings Common:
New York Stock Exchange Philadelphia Stock Exchange London Stock Exchange Preferred of PSE&G:
New York Stock Exchange Common Stock -
Market Price and Dividends Per Share 1989 1988 High Low Div.
High Low Div.
First Quarter 247/s 23
$.51 267/s 22314
$.50 Second Quarter 271/2 24 1/s
.51 25 22
.50 Third Quarter 281/2 257/s
.51 243/4 22
.50 Fourth Quarter 293/s 26
.52 253/s 24
.51 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 affiliates note with sadness the death on October 29, 1989 of Robert Y. Van 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 from 1973 to 1988, Mr. Van Fossan was chairman of the organization and com-pensation committee and was a member of the executive and finance committees. He was president and chief executive officer at Mutual Benefit from 1972 until 1978 when he became chairman and CEO.
In addition to being a leading 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.
57
Public Service Enterprise Group Incorporated 80 Park Plaza P.O. Box 570 Newark, NJ 07101-1171