ML18095A878

Public Svc Enterprise Group,Inc Annual Rept for 1990.

ML18095A878
Person / Time
Site:	Salem, Hope Creek
Issue date:	12/31/1990
From:	Ferland E Public Service Enterprise Group
To:
Shared Package
ML18095A877	List: ML18095A876 ML18095A878 ML18095A879 ML18095A880 ML18095A881
References
NUDOCS 9104190184
Download: ML18095A878 (52)

Text

ul Service Enterprise roup Incorporated nnual Report for 1990 9104190184 910415 PDR ADOCK 05000272 I PDR

Public Service Enterprise Group Incorporated (Enterprise) is a diversified public utility holding company. Public Service Electric and Gas Company (PSE&G), the principal subsidiary of Enterprise, is a regulated utility providing electric and gas service to more than two million customers and more than five and a half million residents of New Jersey. It is the state's largest utility and one of America's largest combined electric and gas companies.

Enterprise Diversified Holdings Incorporated, a subsidiary of Enterprise, is the parent company of Enterprise's nonutility busi-nesses. These activities include investments, oil and gas exploration and production, cogeneration and small-power production, and commercial real estate investment and development.

Cover Contents PSE&G employees are a living part of the Letter to Shareowners 2 communities they serve, sharing the same Our World 5 aspirations as all New Jerseyans. Their Review of Operations 13 contribution of over 250 ,000 hours0 days <br />0 hours <br />0 weeks <br />0 months <br /> of vol- Financial Statements 19 unteer time extends from Scouting and Directors and Officers 48 Little League to volunteer fire and first aid Shareowner Information 49 squads , church activities , hospital aides ,

fund-raising efforts and appointed posi-tions. They bring the same enthusiasm ,

expertise and organizational skills to their communities as they display on their jobs.

Text printed on recycled paper.

Financial Highlights (Thousand s of Dolla rs where applicable) 1990 1989

--"-I..-

% Change Total Operating Revenues $ 4,800,135 $ 4,'804,852 Tota l Operating Expenses $ 3,826,655 $ 3,865 ,042 (I)

Net Income $ 542,278 $ 542 , 137 Common Stock Shares Outstanding - Average (Thousands) 211 ,981 206,879 2 Shares Outstanding - Year-end (T housand s) 218,472 211 , 100 3 Earnings Per Average Sha re $ 2.56 $ 2.62 (2)

Dividends Paid Pe r Share $ 2.09 $ 2. 05 2 Book Value Per Share - Year-e nd $20.44 $ 19.85 3 Market Price Per Share - Yea r-end $26.375 $29.25 (10)

Ratio of Earnings to Fixed C ha rges 2.50 2.66 Ratio of Earnings to Fixed C harges - PS E&G 3.10 3.2 1 Gross Additions to Util ity Pla nt $ 968 ,023 $ 674,214 44

. Tota l Utility Plant $13,836,874 $ 12,960,093 7 See Notes to Consolidated Fi nanc ia l Statements .

Earnings Per Share Annual Dividend Payout of Common Stock Increased 15 Consecutive Years In Dollars* In Dollars*

1.15 1.19 1.28 1.39 1.47 1.53 1. 63 1.69 1.75 1. 80 1. 87 1.95 1.99 2.01 2.05 2.09 85 86 87 88 89 90 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90

• adjusted to reflect 3 for 2 common stock *adjusted to reflect 3 for 2 common stock split effect ive July I, 1987 split effective July I, 1987 1

Dear Shareowner ublic Service Enterprise Group enjoyed a indicated that more than 90 percent of our customers rate successful 1990 despite declines in electric PSE&G as good or excellent at supplying electric and gas and gas sales due to a softening economy service, with especially high marks for reliability and and the warmest year in New Jersey since prompt response to calls for service.

meteorologists began keeping records in Reflecting its confidence in the company 's financial 1895. The weather particularly had an im- condition , in November the Enterprise Board of Directors pact on the sales and profitability of the company's natu- declared a modest increase in our common stock dividend ral gas distribution business. - from 52 to 53 cents per quarter, an increase of approx-Earnings in 1990 were imately two percent. It was

$542 .3 million , modestly the 15th consecutive annual above 1989's record level of dividend increase.

$542 .1 million . Earnings per share dropped 6 cents, to Nuclear Operations

$2.56 in 1990 from $2.62 Our nuclear generating facil-per share in 1989, due to the ities enjoyed their most pro-issuance of additional shares ductive year ever. The Salem over the past 12 months. The and Hope Creek units that year was especially sati sfy- we operate at Artificial Is-ing in that we were able to land in southern New Jersey, achieve these results while and the Peach Botto ts holding down the rates of in Pennsylvania in e both our gas and electric have an ownership in t, customers. In fact, we have had an aggregate capacity not filed a major base rate factor for the year of 74.8 %,

case in over five years, and compared to an industry our average electricity and average of 66%.. This reflects gas prices today are below the commitment to excel-those of 1985. lence that we have made at The talent and effort of our Salem and Hope Creek our employees that made nuclear operations, as well as these results possible will be the significant progress that severely tested during the has been made by Philadel-coming year, since we expect phia Electric Company in the the current economic down- operations of Peach Bottom.

turn to continue for at least As a result, during 1990 al-the first half of the year and Chairman£. James Ferland (c .) examines The sTarus of improvements aT most 47 % of the electricity Mercer Generating Sration with Plant Manager Al Rudge (r.) and Ray we continue to experience Tripodi , Manager, Environmental Affairs. Uniqu e construction of a new supplied to PSE&G cus-mild winter weather. The precipitator will enable the plant To comply with new air quality standards. tomers was produced from cumulative effects of five nuclear generation.

years of inflation on our costs acting in combination with Both regulators and industry experts have recognized a soft economy may make it necessary for our utility, the significant improvement in PSE&G 's operation of its Public Service Electric and Gas Company (PSE&G), to Salem nuclear facility, and the continuing excellen file for higher gas and electric rates in 1991. formance at Hope Creek.

Despite these challenges, we were able to achieve sat- Nuclear power will continue to be a significan isfactory financial performance in 1990, without sacrific- tributor to our electric business well into the next century.

ing the quality or reliability of our services . An Not only do these plants produce low-cost energy, they do independent customer survey completed during 1990 so without adding greenhouse gases or other emissions to 2

the atmosphere. we first introduced thi s service in 1983 , this popular of-Especially significant is the fact that these nuclear plants fering counted almost 240,000 customers under contract help to maintain New Jersey 's energy independence at a by last December.

time when events in the Persian Gulf have generated large For industrial electric customers, PSE&G initiated a fluctuations in the price levels of petroleum-based fuels. pilot electric substation maintenance program in 1990.

Customer substations reduce electrical voltage from Nonutility Earnings transmission line voltages to levels suitable for use at a Enterprise's four nonutility businesses produced earnings given location . These customer-owned substations re-during 1990 of $33.7 million , up 25.8 percent from 1989. quire periodic , expert maintenance. Thi s PSE&G service This contribution is significant , amounting to 6.2 percent offering supplies the required expertise and has proved of the earnings of Enterprise. popular with customers who place reliability at the top of While Energy Development Corporation (EDC), our their priority list.

oil and gas exploration and production company, re- We continued to focus on changing our way of thinking corded an increase in earnings resulting in part from about our businesses and our corporate culture to help us higher oil prices , our other major nonutility subsidiary, become better attuned to the new competitive world Public Service Resources Corporation (PSRC), which evolving around us.

makes passive investments , fell short of its planned re- Culture change is a demanding process that requires sults largely due to 1990's depressed securities markets commitment, patience and a clear understanding of ob-and the effects of a declining economy on the subsidiary 's jectives to be attained. The management initiatives we oth

• estments. are implementing and the programs we are developing ,

nutility companies will be challenged to con- from new budgeting systems to new suggestion programs, 0 percent of Enterprise earnings in 1991 - a involve all of our employees and are positive steps in a long-standing target for these companies. The continuing process that is already starting to show results. The abil-weakness in natural gas prices affecting EDC, the in- ity to drive initiative and accountability down to lower creased competition for attractive investments for PSRC , operating levels , and to engender greater teamwork across and the soft real estate market for Enterprise Group De- departmental lines , were among the keys to our success velopment Corporation , our real estate subsidiary, call for in 1990 , and will continue to be important elements significant efforts on our part to reach this target. for our success in the years to come.

New Initiatives External Issues The future we envision for PSE&G includes continued In addition to the unusual weather patterns and the eco-improvement in supplying traditional gas and electric nomic downturn that affected our utility sales, there were service, along with business expansion into closely re- a number of other external factors affecting our business lated areas that will allow us to use our experience and during 1990.

market knowledge to best advantage. Of vital importance is the need to ensure that all our A good example of our success in traditional markets operations are conducted in an environmentally sound was our aggressive campaign in 1990 to market oil-to-gas manner, meeting or exceeding all regulatory standards.

conversions to the industrial and commercial sectors of While we are committed to full compliance, we believe our market. Aided by sharply fluctuating oil prices and that environmental measures should produce meaningful strict environmental regulations governing oil storage benefits for our customers and for the State of New Jersey.

tanks , our marketing efforts resulted in the conversion of For this reason, we strongly oppose a preliminary recom-over illion therms of annual consumption from oil to mendation by the State Department of Environmental nat s. Protection (DEP) that we construct cooling towers at our y related to our gas business is our parts replace- Salem Nuclear Generating Station.

ment program . Under this program , gas customers insure The DEP asserts that the towers are necessary to elim-themselves against the cost of parts required to repair inate possible future harm to the aquatic life in the Dela-their natural gas house heaters and water heaters. Since ware River. We are convinced, after careful study of 3

22 years of river data, that Salem's operations have not PSE&G recognizes the important role that conservation harmed and will not harm the estuary. Constructing the must play in meeting New Jersey's energy needs now and cooling towers would impose an unnecessary and expen- in the future . We will continue to support effective con-sive burden on millions of ratepayers in New Jersey, servation efforts , with particular emphasis on the devel-Pennsylvania and Delaware while producing no meaning- opment of financial incentives that benefit those utilities ful improvement in the ecology of the river. that are successful at stimulating conservation among PSE&G estimates indicate that the cost of constructing their customers.

these towers combined with the cost of replacing the Through Enterprise Diversified Holdings Incorpo-power produced by the Salem plants during the extended rated , we will continue our diversification program ,

shutdown necessary during cooling tower construction which is aimed at long-term growth of shareowner value would range upward from $1 billion for the Salem by engaging in businesses related to the energy industry, co-owners. where our years of experience and know-how can be uti-While PSE&G and the DEP disagree on the cooling lized most efficiently.

tower issue, all of our interactions are characterized by a We intend to place continuing emphasis on empower-spirit of cooperation, a determination to correct problems ing all Enterprise employees to fully utilize their ingenu-and a commitment to protect our environment. ity, experience and initiative in supplying the kinds of With the concurrence of the DEP, for example , PSE&G products and services that our customers want at compet-made good progress in 1990 toward the cleanup of for- itive prices. We will stay close to our customers through mer gas manufacturing sites. Some of these sites are more our outreach efforts and surveys, to be sure we understand than a century old and most ceased gas manufacturing - and, in fact, anticipate - their changing needs operations decades ago. A preliminary assessment of 28 Finally, we remain sharply focused on our com nt sites has been completed and remedial activities are to provide our shareowners with a fair return on tli underway at 13 sites. investment and to enhance the value of Enterprise.

In another area , PSE&G has received national recogni-tion as a leader in responding to public concerns over possible health effects associated with electric and mag-netic fields (EMF). Company representatives have E. James Ferland appeared at public forums to speak about EMF in various Chairman of the Board, President municipalities and at state and national seminars devoted and Chief Executive Officer to the issue. And PSE&G has kept customers informed February 15, 1991 through a series of advertorial messages in newspapers throughout its service territory. We intend to continue our efforts in this area.

Strategic Summary While making appropriate short-term adjustments to evolving economic and business conditions, Enterprise relies on strategic consistency to guide our planning for the long term.

Many of our strategies were explored in last year's annual report, but a few bear repeating:

Over the balance of this decade , Enterprise will con-tinue to strive to be the low-cost provider of energy in the northeastern area of the country. We intend to continue to be a major factor in the generation segment of the elec-tric business, and we intend to compete efficiently and successfully against all competitors.

4

Our World: Dealing With a Changing Environment ust as our company is on in the world than ever before. Satisfying Customer significantly different This means anticipating change and Expectations than it was ten years ago, emerging issues better than before the world in which we and adapting ourselves and our poli- ot only are we working ef-operate is very different too. It is a world of con-tinuing change and numerous con-cies to deal with them in a positive and effective manner. It also means developing a keener appreciation of N fectively in our traditional markets , but we have ini-tiated new services to meet customer stituencies , including the public at customer needs and how those needs needs. One benchmark of success in large , customers, investors, elected can be satisfied by a company whose a service business is customer satis-government officials, regulators, employees understand a changing faction. Based on a 1990 customer competitors, environmentalists and society. survey, more than 90% of our cus-many others. Collectively and indi- Knowledge of customer needs and tomers rate PSE&G as being good or vidually these constituencies have the public concerns is gained through excellent in supplying electric and ability to impact the company sig- interaction with these constituents. gas service. While we are very nificantly either directly or indirectly. Whether they are private citizens, pleased with the results, we are not Two trends signifying marked major industrial customers , elected content. We understand the need to change over the past decade are the officials , environmental groups or continue providing the high quality emergence of competition with other charitable organizations , more than of electric and gas services that our energy suppliers and the develop- ever before , it is essential that we all customers want at affordable rates, ment of a heightened level of concern work together as partners in achiev- and at the same time to antic-*

over the quality of our physical envi- ing common goals. and develop new and improv ronment. These trends developed as vices to match their future nee .

a result of public concern , which eventually manifested itself in legis-lation and regulatory initiatives of considerable effect on our business.

Meeting the challenges posed by a changing world has required us to re-examine many fundamental as-sumptions. While in the past we may have been successful with a more reactive approach - not taking ac-tion until we were certain there was a problem - success today and to-morrow requires new and different approaches. One such approach is our effort to work in partnership with our public and private constitu-ents to identify areas of agreement and focus on achieving results in ways that benefit all parties.

Critical to success in our dealings with the public sector is a sensitivity to evolving or new values , ri sing Safety education plays an important role in the utility's communications efforts. Joe Duh , Safety Coor-expectations and changing public dinator, is one of 6 employees who regularly demonstrate electric safety principles to school children.

perceptions. We must know and un- Literature and educational materials on the safe use of gas and electricity are offered to all customers through PSE&C 's bill inserts and advertising.

derstand more about what is going 6

that highlighted development oppor-tunities in Newark , Jersey City, Camden and Trenton . Our aim is to bring economic vitality and jobs to these older ciiies in which PSE&G has a large investment in electric and gas distribution facilities. Generating new revenues here helps us to offset increasing costs that could force us to seek rate relief sooner than we might otherwise.

ion with Campbell Soup , other Camden-area corporations and the State government, PSE&G uted staff time, expertise and financial support to the Cooper 's Ferry project, part of Cam-den's economic redevelopment. Bill Fenimore, (r.) Manager, Public Affairs - South , discusses the progress of construction of the new aquarium with Ernie Miller, ass istam project manager for the contractor.

PSE&G is presently investigating Corporate Citizenship new electrotechnologies to help cus-tomers conserve energy and use it n addition to being responsive to more efficiently. For example, we have achieved positive results for commercial and industrial customers I customers, it is also essential today to be a good corporate citizen. This means working in part-Sixty teachers from f our communities currently using infrared drying , laser welding, nership with state , county and local participate in a program developed by Stevens waterjet and laser cutting, and induc- authorities and many other public In stitute of Technology and supported by PSE&G to enhance mathematics education. Students tion processes. We have innovative and private organizations in ways improve their skills through the use of mathemat-programs for the use of alternate fuel that are beneficial to the interests of ics soft ware as part of the program .

vehicles to provide clean , more effi- the state and its citizens, and consis-cient fleet operations to help business tent with company interests. Our efforts in the community also and industry in New Jersey meet the We have worked for many years to include working with the educational new requirements under the Clean foster economic development within establishment to help improve the Air Act Amendments of 1990. And, New Jersey, particularly in our ser- ski ll levels of the current and future we have customized services to sup- vice territory, collaborating with the work forces . We are concerned port the manufacturing and di stribu- state , local governments , the devel- about the ability of the work force of erations of industrial and opment community and others to tomorrow to meet increasing em-co ial customers. retain business already here and to ployer demand for good skills.

end to be sensitive to all of attract new companies. Among the many educational pro-our customers' needs to ensure our We have focused on rebuilding the grams we support is the Ready continuing ability to provide the best state's cities and provided leadership Scholars program in Newark , which possible services to them . for an urban revitalization campaign provides mentoring and counseling 7

we are working on urban revitaliza-tion and afford able housing.

Finally, good corporate citizenship includes corporate as well as individ-ual integrity. More than ever before ,

it is critical to success in our dealings with all constituencies.

Volunteerism A

nother key to corporate citi-zenship is having employees who are aware of what is goi ng on in the world around us and committed and involved both on and off the job. The vast majority of PSE&G 's employees live in New Jersey. They too are concerned about this state and their communities.

Leslie Wright and Sam Jones, volunteers from PSE&G's Nuclear Department, assist with tutoring pupils at the Salem Middle School. Employees from Salem and Hop e Creek generating stations have annually been leaders in the March of Dimes Walkathons, too .

to selected grade school children. The company also participates in The Public Service in Public Educa- philanthropic efforts that affect the tion program in Camden is directed social and economic hea lth of the at boosting students' science and state . We have concentrated our re-math scores . sources on three specific areas: chil-(Right) Through her volunteer work withAJDS-We work with state and loca l dren's issues, where we are worki ng infected babies at St . Clare's Home in Jersey City, agencies and rea l estate interests to in education , drug awareness and Rosemary Jefferson, Accounting Assistant, exem-plifies the volunteer spirit of P SE& G employees.

promote affordable housing, and with child care - our award win ning Her example has inspired others to join her in transportation officials to encourage ChildWatch and Yoo Hoo programs dealing with this tragic problem . (Above) Mike development of an adequate trans- are lead ing examples of child-related Young, Customer Service Outreach Re tive, presents the Energy Bingo progra portation infra structure. Our activities; the environment, where we niors in Allendale. Many special progra ~

involvement can also include direct are supporti ng organi zat ions in- been designed to assist the elderly. The company's outreach efforts have been recognized by an assistance in the form of company volved in public education, such as award from the National Council on Aging.

personnel serving as directors on the our video on the Livi ng Tidal Marsh; boards of civic organizations. and economic development, where 8

They breathe the same air, drink the Governmental Relations creased customer demand . This has same water, send their children to become an increasingly difficult the same schools, and share the same et another area vital to suc- challenge, and our goal is to antici-hopes and dreams as all New Jer-seyans. They are proud of New Jer-sey and work hard to make it a better Y cess in our changing world is maintaining communica-tions with elected and appointed pate concerns or issues and devise fair and acceptable solutions.

In the legislative area at all levels place to live. officials who represent our cus- of government, there is a steady flow PSE&G has more than 2,400 em- tomers at the federal , state and local of proposed legislation that can have ployees who are involved in a multi- levels. an impact on our business. At the tude of volunteer activities. Some Obviously, the facilities and oper- end of 1990, more than 500 such work in nursing homes; some coach ations of an electric and gas utility items were pending , requiring a sub-Little League; some provide shelter are critical to the welfare of the stantial effort to track , analyze and to the homeless; some are volunteer community. Problems can and do understand potential implications.

firemen; and some provide recreation arise and , frequently, government Because of the impact many of these opportunities and tutoring for chil- officials are called upon to assist proposed bills would have on our dren who might otherwise be on the citizens. When this occurs, we are customers in the form of higher costs ,

street. anxious to work with those officials much of our energy is devoted to The list of volunteer activities is in order to resolve their concerns. protecting our customers ' interests.

lengthy. In addition to the volunteer This is particularly important in the Occasionally, there are times activities that our employees perform areas of locating sites for our new when it is desirable to propose on their own, there is also PSE&G facilities and gaining approval for lation that can advance comp EPIC - Employee Participation In expansion when needed to meet in- public interests. Examples of 1 The Community. This program pro-vides employees with information about the many volunteer opportuni-ties available in New Jersey, and matches willing workers with needy causes.

All told, PSE&G volunteers do-nated more than 250,000 hours0 days <br />0 hours <br />0 weeks <br />0 months <br /> to their communities in 1990. The number of employees who are en-gaged in volunteer activities is grow-ing. Our employees have caught the volunteer spirit.

Many of the pictures on these pages show our volunteers in action .

They deserve the credit. They do it on their own with no reward except the satisfaction of helping and the heartfelt thanks of those they assist.

We are proud of their accomplishments.

New Jersey's roads and highways are among the busiest in the nation, contributing to a deten air qualit y. Vehicles fu eled by clean natural gas may be a solution. This message was emphasi fleet owners through corporate sponsorship at the Marlboro Grand Prix last summer. Research into electric vehicles is also supported.

10

tion that PSE&G advocates include the development of electric and natu-ral gas vehicle technology and re-form of gross receipts and franchise taxes.

The Environment A

final area of critical impor-tance is the physical envi-ronment. With the high level of public consciousness and concern for the quality of air, water and other resources, PSE&G works hard to be certain that all of its operations are conducted in a manner that respects the environment and meets all stan-dards and regulations. We strive to ensure that environmental considera-e factored into all our plan-m operations. This concern is inc din our corporate goals, and every employee is expected to con-tribute to meeting this goal.

The energy on which our modern world depends cannot be created without affecting the environment in some way. Providing the gas and electricity to power our state's in-dustry and to light, heat and cool our homes requires that we make envi-ronmentally sensitive decisions every day of the year. Our commitment is ,

however, to make those decisions based not only on meeting today 's standards and expectations for envi-ronmental protection , but also with the expectation that tomorrow 's stan-dards probably will be stricter. At the same time , we must balance this goal with our obligation to provide r~.i a e energy services at competi-t1 to ensure a strong economy Th e environment is one of PSE&G's key areas of concern and commitment. Monitoring water quality in . ersey. Accomplishing these and marine life offshore from our nuclear stations is a constant activity designed to assure tha t plant dual goals will be a major challenge operations do not cause adverse environmental impact . All slat ions have environmental engineers assigned to them to ensure that we continue to meet or exceed New Jersey's strict environmental standards.

in the 1990s.

11

Activities aimed at meeting our environmental goals include:

>converting a portion of our motor vehicle fleet to natural gas and in-stalling natural gas refilling stations at our facilities and those of NJ TRANSIT (NJT) for refueling their natural gas-powered buses that are used in northern New Jersey;

> testing the use of electric vans in a pilot program designed to demon-strate the va lue of electric vehicles to governmental agencies and other potential customers;

> purchasing cleaner fuels and in-stalling new technologies to reduce emissions from our generati ng plants;

> upgrading wastewater treatment and discharge fac ilities at many operating locations;

>a communication and outreach program on electric and magnetic fields (EMF) to inform customers Concern for the environment is shared by employees, many of whom are voluntarily engaged in projects in their own communities. Neil Patel (left), Associate Engineer in Distribution, works with others to protect the sensitive ecology of the wetlands at Cheesequake Park in Monmouth Count y and teach visitors about plants and wildlife found in the park .

and the public about possible health Key to Success effects from electric transmission and distribution faci lities as well as e believe that our future electric appliances;

> remediation programs at former manufactured gas plant sites; W success is dependent on our ability to be sensitive and responsive to changing customer

> introduction of long-range strategic and public needs. Success can only environmental goals as a vita l ele- be achieved when these constituen-ment in all our bu siness planning cies - the communities we serve operations; and, and our customers - also realize

>recycling programs at many com- their objectives.

pany sites to reduce waste flows con- Therefore , we realize we must sistent with state goals and objectives. work in harmony with those constit-uencies. That is always a challa Soil testing at former gas plant sites, some of but our future success depend.

which are now used for residential or commercial purposes, is being conducted as part of PSE&G's gas plant remediation program.

12

I Review of Operations 1990 Financial Results due largely to lower return on invest- vious year. Total gas sold or trans-ments of PSRC. ported decreased 6.3%.

combination of efficient Overall consolidated revenues in Earnings for the year were posi-A internal operations and pru-dent cost cutti ng by PSE&G ,

together with earnings growth from 1990 were $4.8 billion , about equal to 1989 revenues. PSE&G 's e lectric reven ues accounted for $3.3 billion tively impacted when the Board of Public Uti lities approved adju st-ments in PSE&G 's electric and gas nonutility businesses , kept Enter- and gas revenues accounted for $ 1. 2 base rates to reflect the completion pri se's earnings at record levels. This billion, with the balance com ing of deferred tax refunds to customers was especially significant because from Holdings' nonutility businesses. due to the reduction of federal cor-electric and gas sa les by PSE&G PSE&G 's overa ll electric sa les porate income taxes res ulting from were adversely affected by record- decreased 1.5 % from 1989 sales. the 1986 Tax Reform Act. On the setting warm weather in the first and Electric sa les in the residential and electric side , annual base rates in-fourth quarters of the yea r and by industrial markets decreased 0.8 % creased by about $23 million in 1990 the slackening of New Jersey 's econ- and 5.8% , respectivel y, while com- and will increase another $30 million omy, primarily in the industrial area . mercial sa les were up 0.6% from in 1991. On the gas side, annual base Consolidated earnings for the year 1989 sa les. rates increased by about $5 million were $542 .3 million , or $2.56 per Gas sales for 1990 were down in 1990 and wi ll increase another $6 share of common stock , based on 7.9%. Res idential , commercial and million in 1991.

212 million average shares out- industria l sales were down 12.5% , In the fourth quarter, the Board of standing. Earnings for the previous 4 .0% , and 0.4% , respectively from Directors increased the com year were $542. J million , or $2 .62 1989, while gas transportation ser- stock dividend from 52 cents per share , based on 206.9 million vice increased 21.7 % from the pre- cents per share, indicating a change average shares outstanding. in the annual dividend rate from Enterprise continued to produce a $2 .08 to $2.12 per share . Thi s in-strong cash flow and to maintain a crease of approximately 2% marked sound capital structure , ending 1990 the 15th consecutive year in which with a common equity ratio of 46.4%. the dividend was raised.

The year-end book value of common In December, Enterprise raised stock was $20.44 per share , up three approximately $126 million of new percent from $19. 85 at the end of equity capital through a public offer-1989, when there were 7.4 million ing of five million shares of common fewer shares outstanding. stock. The proceeds from the sale PSE&G 's earnings to fixed charges were used by Enterprise for general coverage ratio was 3.10 times. The corporate purposes, principally to utility met most of its construction make additional equity investments expenditures, approximately $765 in its subsidiaries , Holdings and million , through internally generated PSE&G . The subsidiaries used the fund s. money to repay portions of their The nonutilit y businesses of short-term debt.

Enterpri se Dive rsified Holdings Incorporated (Holdings) produced Electric 6 .2% of overall earnings, or approxi- The electric business in 1990- * -

mately 16 cents per share , an in- Engineers from marketing and the electric busi- ued its journey toward accom ness work closely with industrial customers, like crease of 25.8% and three cents per ing its long-range goal of ach1 ng Quantum Laser, to take advantage of emerging share over 1989. However, thi s earn- technologies. keeping New Jersey's companies national recognition for PSE&G as ings growth was below expectations more competitive . This is one of many marketing the premier electric company in the and customer contact programs strengthening ser vice and understanding of customer needs. Northeast.

14

The nuclear department led the With respect to Salem , the NRC way toward that vision of excellence concluded that Salem continued to with improved results at both Hope operate in a safe manner. The NRC Creek and Salem nuclear generating gave Salem the highest ratings in the stations as evaluated by the Nuclear areas of emergency preparedness Regulatory Commission (NRC). and security, while all other areas The PSE&G-operated nuclear received satisfactory ratings.

units , combined with the Peach Bot- PSE&G is committed to further Nuclear Performance tom units, posted their best genera- improving Salem 's SALP scores and Percent Capacity Factor tion year in 1990 with a 74.8 % has instituted many system and per-capacity factor, up from 72% in 1989. sonnel performance improvements to Hope Creek surpassed its previous achieve that goal. In addition , major 100% 100% 100% 100%

on-line record of 175 continuous days financial commitments were made at of operation on September 19 and Salem to further enhance and revital-continued for a record run of 221 days. ize the plant.

In the most recent Systematic Assessment of Licensee Performance In 1990 the electric business:

(SALP) report from the NRC, Hope Creek received the highest possible > Updated its electric systems opera-marks in six of seven categories and tions center, the command center the second highest mark in the cate- which interlaces production and gory of maintenance and surveillance. transmission of electric energy with energy from the Pennsylvania/Jersey/

Maryland Interconnection to insure reliable distribution of the lowest-cost

• PSE&G Operated Nuclear Plants power throughout our service area .

• U.S. Average for al l Nuclear Plants

> Continued pioneering work within

• U.S. Average is through October, 1990 the power industry on the applica-tion and development of robotics for testing and maintenance work .

PSE&G received its first royalty check for contributions to the devel-opment of the CECIL Robot, which is used to inspect and to remove sludge and foreign materials from nuclear plant steam generators.

> Demonstrated innovative thermal storage techniques for air condition-ing systems , which shift electrical demand from daytime peak periods to evening off-peak periods and thereby reduce energy costs to our Electric production and transmission decisions, customers. The program provides a including integration with the PJM grid, are guided by the powerful "artificial intelligence" of one-time cash rebate for customers computers interconnected by .fiberoptic cable. who install uch storage systems.

New soft ware capabilit y can process 43, 000 > Completed replacement of Unit #9 "fa cts" on the power system every three seconds f or analysis and response . at PSE&G's Essex Generating Sta-15

tion with a 77 MW industrial gas business conversions were completed. NJT will put into operation early in turbine unit. This was accomplished PSE&G also actively promoted 1991. The station and buses are part in record time. The new unit repre- the potential of natural gas vehicles of a joint PSE&G/NJT pilot project sents state-of-the-art technology as an alternative to gasoline and designed to test the long-term energy incorporating the latest environmen- diesel-powered vehicles, to improve and environmental effects of natural tal protection features . Experience the air we breathe and to reduce gas-powered transportation vehicles.

gained from this successful project America's reliance on foreign oil.

will be useful in upgrading other In addition to converting 30 Among other operational gas busi-generating facilities . PSE&G service vans to natural gas ness highlights were:

> Completed construction of a use, the gas business designed and 2,000-ton electrostatic precipitator constructed a natural gas refueling > Recognizing a substantial growth at the Mercer generating station, station, which has just become oper- market for gas sales, PSE&G has wpich will remove fly ash from the ational at its New Brunswick gas agreed to provide gas service to four stack emissions at the station. Using district. PSE&G service personnel large electric cogeneration facilities.

a highly innovative technique, use the vans in the New Brunswick When completed, these facilities PSE&G built the precipitator outside area during the workday. The vans will consume , on average, approxi-of the station structure and then are refueled overnight. mately 245 million cubic feet of rolled it into position using four 200- The gas business also designed natural gas per day.

ton hydraulic jacks. This procedure and constructed a refueling station at > PSE&G has begun work to com-resulted in savings in construction NJ TRANSi T's Orange , N.J., pletely rebuild and automate

• costs of $4 million, and in savings to garage. The station will be used to liquefied propane air/gas plan our customers of $5 million in re- fuel five new natural gas buses that Harrison and Edison. These con-placement power costs by reducing struction projects will enable the outage time for the unit. company to improve reliability.

> Completed an underground storage > In order to meet expanding market tank replacement program, with 70 needs, PSE&G initiated nine new gas tanks replaced or retrofitted. All new supply projects, such as the Texas tanks are equipped with sensitive Gas/CNG/TRANSCO expansion electronic leak detection systems, project, and new service from Co-overfill protection tubs, and vapor lumbia Gas Transmission Corpora-recovery devices on all pumps. The tion, which will provide additional project was completed two years pipeline supply in southern New ahead of federal compliance deadlines. Jersey. The nine proposed projects represent approximately 23 percent Gas of the peak day sendout as experi-During 1990, PSE&G 's gas business enced during December, 1989.

responded to the challenges and > And, during November PSE&G re-opportunities generated by the ceived its first firm supply of Cana-quickening pace of environmental dian natural gas delivered through awareness in the nation and the three U.S. pipeline systems -

growing national concern regarding National Fuel, Tennessee Gas Pipe-energy supplies. line Company and TRANSCO The gas business intensively mar- A unique computer "game" speeds training of gas keted the advantages of natural gas street workers at the Edison Training Center. This computerized gas leak simulator provides instant heat for the home , converting from feedback on decisions , enabling trainees to correct oil heat 14,319 additional residences their mistakes and reinforces correct answers.

Other utilities have expressed interest in the in its service area. In addition, 2,745 program .

16

Enterprise Diversified Public Service Resources Holdings Incorporated Corporation Public Service Resources Corpora-he nonutility businesses of tion (PSRC) makes diversified pas-T Enterprise Diversified Hold-ings Incorporated (Holdings) continued their planned program of sive investments to provide funds for future growth as well as incremental earnings for Enterprise. It has pas-measured growth. They contributed sive investments in diverse sectors

$33 .7 million or 16 cents per share to such as leveraged leases, venture Allocation of Assets December 31, 1990 1990 consolidated earnings, an in- capital fund s, leveraged buyout Percent crease of $6 .9 million or three cents funds, project financing , marketable per share compared to 1989. securities and real estate.

Total Assets Total Assets Its leveraged lease portfolio in-

$14.0 Billion $2.4 Billion Assets of the nonutilit y businesses increased from approximately $1.8 cludes investments ranging from billion at year-end 1989 to approxi - commercial aircraft to nuclear power mately $2.4 billion at the end of plants. One energy-related leveraged 1990. They represented about 17% lease investment involved the Mid-of Enterprise's overall assets at the land Cogeneration Facility in Michi-end of 1990. gan, which was originally planned as a nuclear unit and was subse-Enteiprise quently converted to a natural gas-Diversified Holdings fired cogeneration station.

Incoiporated During 1990, PSRC assets in-

• Electric 72%

• PSRC47%

$!0. l Billion $1,131 Million creased about 41 % to $1.13 billion .

• Nonutility 17%

• EDC 40%

$2.4 Billion $950 Million

• Gas 11 %

• EGDC 9% Energy Development Corporation

$1.5 Billion $215 Million Energy Development Corporation

• CEA4%

$93 Million (EDC) , an oil and gas exploration and production company based in Houston , Texas, continued to expand its proven reserve base in 1990 through a combination of acquisitions and exploratory and development drill-ing . The properties are located on-shore and offshore in the Gulf of Mexico area . In 1990, EDC acquired proven reserves in Loui siana at a price of about $220 million , increas-ing its reserves by about 40%.

During 1990, EDC's assets rose about 34 percent to $950.5 million .

In June, members of the Board of Directors Community Energy Alternatives visited offshore facilities of EDC in the Gulf of Incorporated Mexico. EDC increased its reser ves by 40% in 1990.

At year-end 1990, Community Energy Alternatives Incorporated (CEA), a developer of cogeneration 17

and small-power projects, had in- Enterprise Group Development vested in 22 projects, of which 18 Corporation had begun operation and four were Enterprise Group Development Cor-under development. These projects poration (EGDC) is a real estate are all undertaken as joint ventures. development and investment business One joint-venture project placed that invests in commercial office ,

into service during the year was the retail and industrial properties over a Eagle Point Cogeneration Facility in wide geographical area.

West Deptford , N.J. , which is fueled In 1990, EGDC closed on two Combined Net Income of Nonutility Subsidiaries by natural gas and has a capacity of projects with a net investment of Millions 225 megawatts. about $17 million . It now has inter-Also in 1990, CEA, in partnership ests in 13 properties including office

$22.6 $26.8 $33.7 with a subsidiary of Brooklyn Union buildings, warehouses and shopping Gas Company, was selected by the centers.

Port Authority of New York and New At year's end, EGDC's assets Jersey to develop a natural gas-fired totalled $214.7 million.

cogeneration facility to provide elec-tric power and thermal energy to PSEG Capital Corporation; New York's John F. Kennedy Inter- Enterprise Capital Funding national Airport. Corporation At the end of the year, CEA's PSEG Capital Corporation assets totalled $93. l million . (Capital) and Enterprise Capi Funding Corporation (Funding) are financing subsidiaries of Enterprise Diversified Holdings Incorporated .

They were created to serve the needs of Holdings' nonutility businesses through the issuance and sale of debt obligations.

At the end of the year, Capital, whose debt is supported by Enter-prise, had $750 million of long-term debt outstanding , $80 million of which was due within one year.

Funding, which was created in 1989 and whose debt is guaranteed by Holdings, had $272 million of short-term debt and $245 million of long-term debt obligations outstanding at year-end.

Vertical boring equipment was used to extend a 20-inch gas main in West Deptford to th e Eagle Point Cogeneration Plant . PSE&G will provide 2 .2 million cubic f eet of natural gas daily to this 225-megawatt fa cilit y. 50% owned by CEA . Over 140 mega watts of power are now provided to PSE&G by cogenerators .

18

Financial Contents Management's Discussion and Analysis of Financial Condition and Results of Operations 19 Management's Discussion and Analysis Following are the significant factors affecting the consolidated 28 Financial Statement Responsibility financial condition and the results of operations of Public Service 28 Report of Independent Public Accountants Enterprise Group Incorporated (Enterprise) and its subsidiaries.

29 Consolidated Statements of Income This discussion refers to the consolidated financial statements and 30 Consolidated Balance Sheets related notes:of Enterprise and should be read in conjunction with 32 Consolidated Statements of Cash Flows such statements and notes.

33 Consolidated Statements of Retained Earnings 34 Notes to Consolidated Financial Statements Overview 46 Consolidated Financial Statistics 47 Operating Statistics Enterprise has two wholly-owned subsidiaries, Public Service Elec-48 Officers and Directors tric and Gas Company (PSE&G) and Enterprise Diversified Hold-49 Shareholder Information ings Incorporated (Holdings). Enterprise's principal subsidiary, PSE&G, is an operating public utility pr:Oviding electric and gas service ~n certain areas in the State of New Jersey. Enterprise has claimed an exemption from regulation by the Securities and Ex-change 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 Commission (FERC). Holdings was incorporated on June 20, 1989, and on July 1, 1989 it became the parent of Enterprise's nonutility businesses: Public Service Re-sources ,Corporation (PSRC), which makes diversified passive in-vestments; 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 nonresidential real estate investment and development company; and PSEG Capital Corporation (Capital), which provides up to $750 million of privately placed debt financing for the nonutility subsidi-aries on the basis of a support agreement from Enterprise. Holdings' other financing subsidiary, Enterprise Capital Funding Corporation (Funding), currently provides privately placed debt financing for the nonutility subsidiaries on the basis of the consolidated financial position of Holdings without direct support from Enterprise.

Consolidated Tax Benefits The BPU does not directly regulate Enterprise's nonutility activities.

However, in a case to which Enterprise and PSE&G are not parties, the BPU is currently considering whether Federal income tax losses generated by the nonutility businesses of a holding company should be utilized by the BPU to benefit customers of the regulated utility in setting retail utility rates. The Internal Revenue Service (IRS) has issued for comment a proposed rule which effectively would provide that the tax benefits of a utility's nonregulated affiliates may be treated as a reduction of the utility's rate base for ratemaking pur-poses. If the utility's rate base is reduced by the BPU, a utility's revenues and net income would be reduc.ed. Although the net effect of any such loss of revenue would not be material to Enterprise in the short-term, no assurances can be given as to the effect of such losses on a long-term basis. Enterprise is monitoring the BPU and IRS proceedings to determine what action it, or any of its affiliates, should take.

19

Factors Affecting PSE&G's Electric and Gas Sales under rates that provide PSE&G with substantially the same margin New Jersey recorded its warmest year in 1990 since meteorologists as if PSE&G had sold the gas itself. This regulatory framework has began keeping records in 1895. New Jersey set a record for warm increased competition in the gas market by encouraging pipelines to weather during the first four months of 1990 and ended 1990 with its act as nondiscriminatory transporters of natural gas. Transportation second warmest December on record. This significantly reduced service gas accounted for 7.4% of PSE&G's total gas sold or trans-1990 gas sales. In addition, although the period from May through ported and 1.3% of total gas revenues as of December 31, 1990.

November 1990 was warm, there were no exceptional periods of hot Aggressive competition in the gas supply business can be expected or cold weather and the summer months of 1990 were cooler than to continue.

1989 and 1988. As a result, 1990 residential electric and gas sales were below 1989 sales. In addition to such adverse effect of weather, New Jersey Gross Receipts Taxes sales were negatively impacted, commencing in the third quarter of PSE&G, as well as all other electric and gas utilities in New Jersey, 1990, by the general economic slowdown in New Jersey, which is pays Gross Receipts Taxes that, in effect, add approximately 13% to expected to continue at least through the second quarter of 1991. the bills of most customers. Such taxes are not paid by vendors of other energy forms nor by nonutility suppliers of electricity and PSE&G Energy and Fuel Adjustment Clauses natural gas, thereby putting utilities at a competitive disadvantage.

PSE&G has fuel and energy tariff rate adjustment clauses which are On February 19, 1991, the New Jersey Division of Taxation adopted designed to permit adjustments for changes in electric energy and an amendment to a regulation which increases utility revenues sub-gas raw materials costs, as approved by the BPU, when compared to ject to this tax and which could have a material adverse effect upon levels included in base rates. Charges under the clauses are based PSE&G's financial condition if PSE&G were not permitted by the upon energy and gas supply costs which are normally projected over BPU to recover such increased taxes from customers on a timely twelve-month periods. The changes in the Levelized Gas Adjust- basis. PSE&G cannot predict what action the BPU might take.

ment Clause (LGAC), formerly the gas Raw Materials Adjustment Clause (RMAC), and the electric Levelized Energy Adjustment Earnings Clause (LEAC) do not directly affect earnings because the costs of gas, fuel and net interchanged and purchased power are adjusted Earnings per share of common stock were $2.56 in 1990, $2.62 in monthly to match amounts recovered through revenues. However, 1989 and $2.57 in 1988. Per share earnings and the increas the carrying of underrecovered fuel costs ultimately increases financ- (decreases) in earnings are summarized as follows:

ing costs. Under the clauses, if actual costs differ from the costs 1990 vs. 1989 1989 vs. 1988 recovered, the amount of the underrecovery or overrecovery is de-(Millions of Dollars Cents Cents ferred and is reflected in the average cost used to determine the fuel except per share amounts) Amount per Share Amount per Share and energy tariff rate adjustment for the period in which it is recov-PSE&G ered or repaid. In addition, actual costs otherwise includable in the Revenues (net of fuel costs and gross LEAC are subject to adjustment by the BPU in accordance with its receipts taxes) $ 32 $ .15 $ 68 $ .33 nuclear performance standard. Capacity deficiency credit '11 .05 Other operation expenses (55) (.26) (5) (.03)

Competition - Electric Maintenance expenses 30 .15 33 .16 Depreciation and Amortization PSE&G is experiencing competition from cogeneration and small expenses (17) (.08) (24) (.11) power production projects being constructed pursuant to the Public Interest charges (10) (.05) (20) (.10)

Utility Regulatory Policy Act of 1978 and otherwise from nonutility Federal income taxes 4 .02 (44) (.21) generation suppliers. The projects generally supply electric and Other expenses (2) (.01) 2 .01 steam energy to existing or new PSE&G industrial and commercial Total (7) (.03) 10 .05 customers and excess electricity is sold to PSE&G and others. If Holdings 7 .03 4 .02 large volume electric customers gain access to nonutility sources, a Effect of issuing additional shares of significant decrease in PSE&G's electric revenues and earnings Enterprise common stock (.06) (.02) could result. During 1990, PSE&G did not lose any large volume Total $- $(.06) $ 14 $.05 customers to nonutility sources. Nonutility generation is expected to account for a substantial portion of PSE&G's planned capacity addi- The Average Shares of Common Stock Outstanding were 211,981,434 tions through 1996. It can be expected that competition will increase for 1990, 206,878,500for1989 and 205,350,418for1988.

in the electric industry.

PSE&G Competition - Gas The decrease in PSE&G's net income during 1990 compared to 1989 In 1987 FERC issued Order 500 which allows gas pipeline compa- was due primarily to lower electric kilowatthour sales of 1.5% re-nies and producers enhanced access to certain PSE&G customers for sulting principally from the cooler summer weather, when compared the purpose of supplying gas service in competition with PSE&G. to 1989, and a decrease in firm gas sales of 10.7% due tot d-As of December 31, 1990, 204 former large scale gas customers setting warm weather during the winter and spring of 19 w purchased gas directly from producers and other sellers and arranged Jersey; a deterioration of New Jersey's economy, primarily I , e for the transportation of gas from the wellhead through PSE&G's gas industrial area; increasing competition from nonutility suppliers of mains. This procedure allows the producer or other seller of natural electricity (which resulted in the loss of two large industrial cus-gas to avoid the New Jersey Gross Receipts Taxes of approximately 13%. However, such gas is transported within New Jersey by PSE&G 20

tomers in 1989); and a temporary shutdown of a major electric cus- unamortized balance by the BPU would require an immediate write-tomer's facility from April to July 1990. In addition, earnings were off. (See Note 11 - Commitments and Contingent Liabilities, Oil reduced in 1990 by higher labor and pension costs, uncollectible and Gas Property Write-Down, of Notes to Consolidated Financial customer accounts, interest and depreciation. Partially offsetting the Statements.)

decrease in net income were lower maintenance expenses at Hope As of December 31, 1990, PSE&G comprised 82.8% of Enter-Creek, Peach Bottom and Hudson generating stations, the retention prise's assets, 95.2% of Enterprise's revenues and 93.8% of Enter-of $10.5 million of revenues approved by the BPU on February 7, prise's net income.

1990 in the LEAC Stipulation relating to the sale of capacity to The increase in earnings in 1989 compared to 1988 was primarily Atlantic Electric Company and Potomac Electric Company, pre- due to higher electric kilowatthour and gas therm sales, an increase viously recorded as a reduction in PSE&G's energy costs, and the in electric and gas customers and reduced 1989 operating expenses, termination as of December 31, 1989 ofrevenue credits attributable principally maintenance expenses and labor costs.

to the 1987-1989 outage of the Peach Bottom units. (See Revenues

- PSE&G - Electric below and Note 2 - Rate Matters of Notes to Holdings Consolidated Financial Statements.) The net income of the diversified businesses was $34 million in PSE&G's higher depreciation expense on its investment in plant 1990, an increase of $7 million over 1989, representing 6.2% of and equipment and greater operating costs, which include higher Enterprise's 1990 net income. Holdings' net income increased during uncollectible customer accounts, may be expected to continue to 1990 compared to 1989 primarily due to EDC's higher production adversely affect earnings to the extent that they are not recovered and sales of natural gas resulting from its acquisition of Pelto Oil through timely rate relief or offset by sales growth, neither of which Company in November 1989 and the acquisition of producing natural can be assured. PSE&G's present base rates have been in effect for gas wells in late 1990, partially offset by voluntary curtailments of four years, with only minor adjustments to reflect tax changes and gas production and sales by EDC due to low gas prices during LEAC and LGAC adjustments. Further, it is anticipated that mid-1990 and by lower net income of PSRC due to a lower return on PSE&G's electric and gas sales and collection of receivables will be investments and higher interest expense.

adversely affected by deteriorating economic conditions in New EDC sells gas and oil at prices that are largely dependent upon Jerse As a result, PSE&G may find it necessary to request base rate prevailing market conditions. Low gas prices during portions of for either or both electric and gas services during 1991. 1990, and in the early part of 1991, have therefore had a direct ad-idity and Capital Resources.) verse impact on earnings. In addition, low gas prices have in the past December 31, 1990, PSE&G's financial statements include and may in the future cause EDC to voluntarily curtail gas produc-

$41.3 million as a deferred balance remaining from a write down of tion and sales, further impacting earnings.

$134.5 million, or $70.5 million net of taxes, of the value ofEDC's PSRC's investments are diversified among a number of market reserves when EDC was removed from PSE&G's gas rate base for segments, including aircraft and other leases, marketable securities, ratemaking purposes. This balance is continuing to be amortized at including bank debt and equity, and real estate partnerships. Earn-approximately $7 million per year. Recovery of the full amount ings of PSRC could be affected by the ability of PSRC to produce associated with the write-down of reserves will be considered in expected returns due to the financial condition of the assets underly-PSE&G's next gas base rate case. Denial of the recovery of any ing the investment or the entity with which certain investments were made, and any additional capital contributions by PSRC that could be required. (For information regarding PSRC's $31 million invest-Electric Kilowatthour Sales Gas Therm Sales ment in Second National Federal Savings Bank, see Note 11 -

Commitments and Contingent Liabilities, Public Service Resources Percent Percent Corporation, of Notes to Consolidated Financial Statements.)

The projects in which EGDC has invested include a number of 100% 100%

buildings in various stages of completion, some of which were undertaken without prior lease commitments from tenants for such 52.3 50.8 48.2 buildings. Deterioration of the real estate markets in which those buildings are located may result in EGDC or the joint venture which owns those buildings receiving lower net operating income than they expected, requiring EGDC or the joint venture to make additional investments in the projects. No assurances can be given that EGDC's joint venture partners would be willing or able to contribute if addi-tional investment is required. Further, the deterioration of the real estate market has made lenders generally reluctant to lend on real estate projects. No assurances can be given that EGDC or the joint venture partners will be able to extend existing loans on certain of their respective projects or to obtain replacement loans in the amount of the existing loans when existing loans mature. Any additional investments made by EGDC, and the current general deterioration 88 89 90 88 89 90 of the real estate market, may reduce future prices upon any ultimate sale of properties and current cash flows and returns from such properties.

c:J Residential

• Industrial - i Residential

• Industrial Ii Commercial II Commercial 21

The net income of the diversified businesses was $27 million in rate was increased to 53 cents from 52 cents per share. On December 1989 and $23 million in 1988, representing 4.9% and 4.3% of 13, 1990, Enterprise sold 5,000,000 shares of its Common Stock Enterprise's net income, respectively. The growth in Holdings' net through a public offering and on December 21, 1990 and December income during 1989 was principally due to the activities of EDC and 31, 1990, issued 24,706 shares and 673,843 shares, respectively PSRC. through the DRIP. The purchasers of Common Stock through the The future earnings of Holdings will be affected by its ability to public offering and the DRIP issued in December were not entitled achieve continued growth of its businesses. Earnings and/or growth to the fourth quarter 1990 dividend payment, but will be entitled to of Holdings could be limited in the near term as a result of general 1991 common stock dividends if and when declared and paid.

economic conditions, availability of credit at reasonable rates ,and The increase in 1989 dividend payments over 1988 was due to the terms, the market price at which EDC is able to sell its gas, the higher quarterly dividend rate which was increased to 52 cents from availability of additional attractive investment opportunities for 51 cents per share in the fourth quarter of 1989 and the issuance and PSRC, operating losses of EGDC resulting from a weak real ((State sale pf 5,750,000 shares of Enterprise Common Stock in September market, and other factors. (For additional information, see Liquidity 1989.

and Capital Resources.) The outcome of the proceedings involving CEA's investment in the Hanford Plant discussed in Note 11 - Revenues Commitments and Contingent Liabilities, Community Energy Al-ternatives Incorporated, of Notes to Consolidated Financial State- PSE&G - Electric ments, may also have an adverse effect on Enterprise's earnings. Revenues increased $53 million or 1.6% during 1990; 1989 revenues increased $189 million or 6.1 % as compared to 1988. The signifi-Dividends cant components of these changes follow:

Increase or (Decrease)

The ability of Enterprise to declare and pay dividends is contingent (Millions of Dollars) 1990 vs. 1989 1989 vs. 1988 upon its receipt of dividend payments from its subsidiaries. PSE&G has made regular cash payments to Enterprise in the form of divi- Kilowatthour sales $(16) $ 53 Peach Bottom revenue credits 50 (21) dends on outstanding shares of its common stock since ~nterprise TRA-86 16 was formed in 1986. Dividends paid to holders of Enterprise's Com- Changes in base rates 8 mon Stock increased $18.5 million during 1990 compared to 1989 Recoyery of energy costs (4) and $11 million during 1989 compared to 1988. The increase in Gross receipts taxes 5 Other revenues (6) 9 1990 dividend payments over 1989 was due to the fourth quarter 1989 increase in dividends per share paid in December 1989 (~ee Total Electric Revenues $ 53 $189 below), the issuance of 5,750,000 shares of common stock iniSep-tember 1989, the issuance of 1,673,238 shares of common stock The number of customers increased by 14,192 or 0.8% during 1990.

through Enterprise's Dividend Reinvestment and Stock Purchflse 1990- Revenues increased in 1990 compared to 1989 as a result of Plan (DRIP) from June 1990 through November 30, 1990 and the 1 completion of refunds of revenue credits to customers in 1989 in higher fourth quarter 1990 common stock dividend payment which accordance with a 1989 BPU Stipulation applicable to the extended outage of the Peach Bottom generating station, the end of revenue credits attributable to the Tax Reform Act of 1986 (TRA-86) and the Sources and Distribution of 1990 Revenue increase in base rates, effective September 5, 1990. (See Note 2 -

Rate Matters of Notes to Consolidated Financial Statements.)

Per Dollar 1989 - Revenues increased in 1989 primarily due to the rise in kilowatthour sales and the increase in LEAC rates approved by the BPU in June 1988. Partially offsetting this increase were revenue credits attributable to the extended Peach Bottom outage which were greater in 1989 than in 1988.

Changes in kilowatthour sales by customer category are described below:

Increase or (Decrease) 1990 vs. 1989 1989 vs. 1988 Residential (0.8)% 0.1%

Commercial 0.6 5.7 Industrial (5.8) (1.4)

D .69 Electric Revenues L: .28 Fuel, Purchased Power & Gi15

• .26 Gas Revenues D .18 Taxes 1990 - Total kilowatthour sales declined 1.5% in 1990 c .

E .05 Diversified Revenues 11 .13 Materials & Services to 1989. The major factor for the decrease was the loss of

• .13 Reinvested in Business sensitive sales due to warmer winter weather and cooler su

• . IO Dividends weather during 1990. The temperature humidity index impacting

• .09 Salaries & Wages air-cbnditioning sales was down 6.9% from 1989.

• .09 Interest Source Distribution 22

The industrial sector decrease reflects the slowdown of New the movement of some customers to transportation service. Indus-Jersey's economy, the loss of two large customers to cogeneration trial cogeneration sales increased 65. l % and comprised 27.6% of competitors in July and September 1989, the temporary scheduled industrial sales in 1990.

shutdown of a major customer's facility from April to July 1990 and 1989-Therm sales increased 8.8%. The rise was attributable to the loss of one wholesale customer. Modest increases in residential customer growth, higher customer usage, the strength of the econ-and commercial wholesale sales attributable to increased customers omy within the commercial sector, partially reduced by lower sales were reduced and/or offset by the weather conditions described above. resulting from the warmer weather as reflected by a de<;:rease in 1989 - Electric kilowatthour sales increased 2.2%. Customer degree days of0.8%. The record one day sendout of 18,159 kilo-growth enhanced sales in the residential and commercial sectors therms was achieved on December 22, 1989, during the coldest and higher customer usage and the strength of the economy also December in seventy years.

bolstered sales in the commercial sector. Offsetting this positive activity was increased competition from cogeneration facilities Nonutility Activities which adversely affected industrial sales coupled with the loss of Revenues from the diversified businesses increased $68.5 million in some industrial customers. Cooler weather during the 1989 cooling 1990 over 1989 and $62 million in 1989 over 1988. The increase in season relative to 1988 also negatively impacted sales. revenues during 1990 was due primarily to EDC's increased sales of natural gas resulting from its acquisition of Pelto Oil Company in PSE&G-Gas November 1989 and the acquisition of producing oil and gas leases Revenues decreased $126 million or 9.2% during 1990; 1989 reve- in Louisiana in October 1990, and PSRC's higher limited partner-nues increased $159 million or 13.2% as compared to 1988. The ship income as well as dividend and interest income. The increase in significant components of these changes follow: EDC's revenues was partially offset by voluntary curtailments of natural gas production and sales by EDC due to low gas prices dur-Increase or (Decrease) ing mid-1990 resulting from weak market prices of natural gas. (See (Millions of Dollars) 1990 vs. 1989 1989 vs. 1988 Liquidity and Capital Resources.)

Therm sales $ (31) $ 27 The increase in revenues during 1989 compared to 1988 was the TRA-86 5 Cha result of higher revenues from PSRC and EDC. PSRC realized base rates (2) fuel costs (87) l 10 higher revenues from increased investments. EDC's increased reve-ts taxes (20) 15 nue was primarily the result of increased production from the oil 12 4 and gas properties acquired in 1989.

Total Gas Revenues $(126) $159 Electric Energy Costs The number of customers, including transportation customers, increased by 16, 130 or 1.1 % during 1990. Current forecasts indicate Electric energy costs decreased $23 million or 3% in 1990 compared that the average annual compound rate of growth in customers to 1989 and increased $98 million or 15% in 1989 compared to through 1995 is expected to approximate 1% . 1988. Contributing factors are shown below:

1990 - Revenues declined during 1990 as a result of 6.3% lower Increase or (Decrease) therms sold or transported due to the record-setting warm weather (Millions of Dollars) 1990 vs. 1989 1989 vs. 1988 in 1990. Partially offsetting this decrease in therm sales was an Change in prices paid for fuel and power increase in other operating revenues primarily resulting from the purchases $(55) $ (l l) sale of gas to two cogeneration plants and an increase in customers. Kilowatthour generation (13) 11 1989 - Revenues increased in 1989 primarily due to higher therm Nuclear Performance Penalty (25) sales and the increased LGAC rates approved by the BPU in January Adjustment of actual costs to match recoveries through revenues (A) 45 123 1989 and December 1989. (See Note 2 - Rate Matters of Notes to Consolidated Financial Statements.) Total Electric Energy Costs $(23) $.98 Changes in therm sales by customer category are described below:

(A) Reflects over(under)recovered energy costs, which in the years 1990, 1989 and Increase or (Decrease) 1988 amounted to $80 million, $35 million and $(88) million, respectively. (See 1990 vs. 1989 1989 VS. 1988 PSE&G Energy and Fuel Adjustment Clauses.)

Residential (12.5)% 5.5%

Commercial As a member of the Pennsylvania-New Jersey-Maryland Intercon-(4.0) 16.6 Industrial (0.4) 3.0 nection (PJM) and through various two-party power purchase and Transportation Service 21.7 7.9 interchange agreements with neighboring utilities, PSE&G is able to optimize its mix of internal and external energy sources using the 1990 - Total therm sales, including transportation service, de- lowest cost energy available at any given time.

cre .3%. Residential and commercial sales for 1990 were 1990 - The decrease in electric energy costs during 1990 compared re1 om last year due to the record-setting warm winter to 1989 was primarily due to less demand for electricity by cus-we egree days, the lowest on record, impacting heating sales tomers due to the 1990 weather, the economic slowdown in New were down 20.6%. The industrial sales decrease was due to the slowdown in the manufacturing sector of New Jersey's economy and 23

Jersey and the 19% decrease in usage of all fossil-fueled generation. Liquidity and Capital Resources A total of 39.4 million megawatthours was generated, purchased and interchanged in 1990, a 2% decrease from 1989. PSE&G was Overview able to optimize its mix of internal energy sources during 1990, Enterprise's liquidity is affected by maturing debt, Holdings' invest-further reducing costs due principally to the return to service of ments and acquisition activities and the capital requirements of Peach Bottom nuclear generating station. Nuclear generation during PSE&G's construction program. Capital resources available to meet 1990 increased by 33% over what was generated in 1989. such requirements depend upon general and regional economic The higher recovery of electric fuel costs during 1990 over 1989 conditions, PSE&G's customer growth, the adequacy of timely rate was primarily due to an increase in LEAC rates approved by the relief to PSE&G and continued access to the capital markets.

BPU on February 7, 1990 of $24.1 million for the period ending June 30, 1991. Capital Requirements 1989 - The increase in electric energy costs in 1989 compared to 1988 was primarily due to higher kilowatthour generation and higher PSE&G LEAC rates, effective June 17, 1988, reflecting the recovery of For 1990, PSE&G had utility plant additions, excluding allowance increased energy costs. A record total of 40.l million megawatt- for funds used during construction, of $933.8 million, an increase of hours were generated, purchased and interchanged during 1989, a $289.6 million over 1989 additions of $644.2 million. 1989 addi-2% increase over 1988. The increased electric production came tions were an increase of $107 million over 1988 additions of $537.2 largely from greater nuclear and coal-fired generation. Peach Bottom million. The increase in 1990 reflects the acquisition of a 42.49%

2 started generating electricity in April 1989 and returned to service undivided interest in nuclear fuel for Peach Bottom by PSE&G's July 1, 1989. Because of the return to service of Peach Bottom 2, wholly-owned subsidiary, PSE&G Fuel Corporation (Fuelco), for PSE&G decreased its reliance on more costly oil and natural gas and $156.7 million on June 29, 1990. (See Note (C) of Cash Hows from purchased less power from the PJM. Peach Bottom 3 began produc- Financing Activities below.) Allowance for funds used during con-ing electricity in December 1989 and returned to service January 1, struction for 1990 and 1989 amounted to $34.2 million and $30 1990. (See Note 2 - Rate Matters of Notes to Consolidated Finan- million, respectively. The remaining construction funds were used cial Statements.) to continue to improve PSE&G's existing power plants, transmission and distribution system, gas system and common facilities.

Gas Fuel Costs (Millions of Dollars) 1990 19 Gas fuel costs decreased $84 million or 12% in 1990 compared to Cash Flows from PSE&G's Investing Activities:

1989 and increased $110 million or 18% in 1989 compared to 1988.

Additions to Utility Plant, excluding AFDC $ 934 $644 $537 Contributing factors are shown below: Net increase in Long-Term investments II 7 I Increase or (Decrease) Net increase in Decommissioning and Other Special Funds 24 58 8 (Millions of Dollars) 1990 VS. 1989 1989 VS. 1988 Cost of Plant Removal - net 92 49 21 Change in prices paid for gas supplies $(18) $ 31 Other IO (50) (13)

Therm sendout (69) 51 Net cash used in investing activities $1,071 $708 $554 Refunds from pipeline suppliers (9) (11)

Adjustment of actual costs to match recoveries through revenues (A) 12 39 Based on PSE&G's current electric supply and demand forecast and Total Gas Fuel Costs $(84) $110 changes in PSE&G's construction program, construction expendi-tures from 1991through1995 are expected to aggregate $4.6 billion.

(A) Reflects over(under)recovered gas costs, which in the years 1990, 1989 and 1988 (See Construction, Investments and Other Capital Requirements and amounted to $26 million, $14 million and $(25) million, respectively. (See PSE&G Environment below.)

Energy and Fuel Adjustment Clauses.) PSE&G expects that it will be able to generate internally a major-ity of its capital requirements including construction expenditures 1990 - Gas fuel costs declined during 1990 compared to 1989 as over the next five years. External financing is expected to provide the result of a 9% decline in therm sendout due to the warmer the balance of such requirements.

weather during the winter and spring of 1990 and a 9% decrease in the cost of natural gas. The increase in recovered gas fuel costs is due to the BPU approved LGAC rate increases which became effec-tive December 6, 1989, and October 31, 1990. On October 31, 1990, the BPU approved a Stipulation in PSE&G's LGAC for an increase of $46.1 million for the eleven-month period ending September 30, 1991. (See Note 2 - Rate Matters of Notes to Consolidated Finan-cial Statements.)

1989- The increase in gas fuel costs in 1989 compared to 1988 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 ap-proved LGAC rate increases of $42.7 million effective January 11, 1989 for the nine-month period ending September 30, 1989 and

$23.7 million effective December 6, 1989, for the ten-month period ending September 30, 1990.

24

Construction, Investments and Other Capital Requirements pliance with applicable financial covenants will depend upon future The estimated construction, investments and other capital require- levels of earnings, among other things, as to which no assurance can ments of PSE&G and Holdings for 1991 through 1995 are based on be given. (See Earnings - Holdings.)

expected project completion dates and include anticipated escalation due to inflation of approximately 4% for utility projects and are as Internal Generation of Cash from Operations follows: Enterprise's net cash provided by operating activities increased (Millions of Dollars) 1991 1992 1993 1994 1995 Total $148.9 million to $1.3 billion for 1990 from 1989. This increase was primarily due to increased collections of accounts receivable and the PSE&G Electric greater recovery of electric energy and gas costs through PSE&G's Nuclear Production LEAC and LGAC clauses. Partially offsetting these cash inflows Facilities $ 126 $ 141 $ 126 $ 100 $ IOI $ 594 were increases in fuel and materials and supplies inventories, Nuclear Fuel 66 106 109 103 126 510 decreases in accrued taxes, and decreased proceeds from PSRC's Transmission and 245 1,235 leasing activities.

Distribution 231 255 255 249 Other Production 194 231 326 317 254 1,322 Enterprise's net cash provided by operating activities increased

$173.8 million to $1.1 billion for 1989 from 1988. This increase was Total Electric 617 733 816 769 726 3,661 primarily due to increases in accounts payable and greater recovery Gas of electric energy and gas costs through PSE&G's LEAC and LGAC Production Facilities 16 3 4 5 2 30 Transmission and clauses. Partially offsetting these cash inflows were increases in Distribution 132 136 127 124 123 642 fuel and materials and supplies inventories, decreases in deferred Total Gas 148 139 131 129 125 672 income taxes and increases in accounts receivable.

Miscellaneous Corporate 59 60 61 59 66 305 External Financings Total Construction Cash Flows from Financing Activities Requirements of PSE&G (including (Millions of Dollars) 1990 1989 1988 C) (A) 824 932 1,008 957 917 4,638 Enterprise:

Issuance of Common Stock (A) $ 185 $ 148 $ -

ts of Non- Cash Dividends paid on Common Stock (442) (424) (413) 549 462 502 642 758 2,913 PSE&G: (B)

Mandatory Retirement of Net increase (decrease) in Short-Term Debt 159(C) 138 (60)

Securities: Issuance of Long-Term Debt 250(D) JOO 350 PSE&G 38 246 216 215 100 815 Redemption of Long-Term Debt and Other Holdings 80 15 190 118 235 638 Obligations (57)(E) (59) (173) 118 261 406 333 335 1,453 Redemption of Preferred Stock (33)

Other 6 6 2 Working Capital and Other

-net (40) (40) (200) (122) (153) (555) TotalPSE&G 358 185 86 Total Capital Requirements $1,451 $1,615 $1,716 $1,810 $1,857 $8,449 Holdings:

Net increase (decrease) in Short-Term Debt (F) 56 88 (18)

(A) PSE&G's Allowance for Issuance of Long-Term Debt (G) 245(H) 286 464 Funds Used During Other 4 3 Construction (included above) $ 39 $ 52 $ 73 $ 87 $ 97 $ 348 Total Holdings 301 378 449 Net cash provided by financing activities $ 402 $ 287 $ 122 Holdings' net cash used in investing activities including property, plant and equipment were $654.0 million during 1990, compared to (A) Effective March I, 1990, the Dividend Reinvestment and Stock Purchase Plan (DRIP) of Enterprise was amended to provide for the issuance and sale, at its sole

$750.7 million during 1989 and $507.5 million during 1988. (See discretion, of up to 5,000,000 new issue shares of Common Stock with the proceeds Consolidated Statements of Cash Flows.) On October 31, 1990, to be used by Enterprise to make additional equity investments in its subsidiaries EDC acquired interests in oil and gas leases in Louisiana for approx- and/or for general corporate purposes. The sale of DRIP shares commenced June imately $220 million. 1990 and as of December 31, 1990, 2,628,213 shares remained to be issued. The net proceeds from the sales of common stock under DRIP were $59.2 million for 1990 Over the next several years, Holdings is expected to meet a major- and were used by Enterprise to make additional equity investments in Holdings.

ity of its capital requirements for its expansion plans from external On December 13, 1990, Enterprise sold 5,000,000 shares of it~ Common Stock sources. Further, Holdings will be required to refinance maturing through a public offering for $126.2 million. The net proceeds from the sale were debt. Holdings and each of its subsidiaries are subject to restrictive used by Enterprise to make additional equity investments in its subsidiaries, PSE&G business and financial covenants contained in existing debt agree- and Holdings, which utilized such investments to repay a portion of their respective short-term debt obligations then outstanding.

ments. For example, Holdings and its subsidiaries are required to At December 31, 1989, book value per share of common stock amounted to $20.44 not d various debt to equity ratios which vary from 3: 1 to 2: I. compared to $19.85 at December 31, 1989. The market value of common shares He s also required to maintain a twelve months earnings expressed as a percentage of book value was 129% and 147.4% at year-end 1990 and be erest and taxes coverage ratio (EBIT) of at least I. 35: I. As 1989, respectively.

(B) At December 31, 1990, PSE&G could issue an additional $2.406 billion of Mort-of December 31, 1990, 1989, and 1988, Holdings had debt to equity gage Bonds at a rate of 9.75% or $2.446 billion of Preferred Stock at a rate of 8.5%

ratios of 1.98:1, 1.98:1and2.52:1 and, for the years ended on those under the terms of PSE&G's Mortgage and Restated Certificate of Incorporation.

dates, EBIT ratios of 1.42: 1, 1.41: 1 and 1.66: 1, respectively. Com- 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 25

commercial paper and other unsecured borrowings from banks and other lenders. Environment (This authorization does not include commercial paper issued by Fuelco, described in note (C) below.) PSE&G has requested authority from the BPU to issue and sell through 1992 not more than $1 billion principal amount of its first and refunding Clean Air Act of 1990 mortgage bonds (Bonds) and through 1993, 1,700,000 shares of its Cumulative On November 15, 1990, the revised federal Clean Air Act (CAA)

Preferred Stock (par value $100 per share) or 6,800,000 shares of Cumulative Pre- was signed into law imposing more stringent emission requirements ferred Stock - $25 par value, in one or more series. The proceeds from any sale of which could result in scrubbers being installed at Conemaugh sta-the Bonds and Preferred Stock would be used by PSE&G for its general corporate purposes, including payment of a portion of its construction expenditures, short-term tion as early as 1995 and Keystone station by the year 2000. Both debt and funding of all or part of redemptions, refundings and purchases of its first plants are jointly-owned coal-fired mine-mouth generating stations, and refunding mortgage bonds and maturing bonds. . located in Pennsylvania and operated by Pennsylvania Electric (C) Includes commercial paper issued by Fuelco and guaranteed by PSE&G to finance Company. (See Note 14- Jointly-Owned Facilities.) Various alter-the acquisition of a 42.49% undivided interest in the nuclear fuel acquired for Peach natives for meeting the CA}\ requirements are being studied by the Bottom.

PSE&G has a $75 million revolving credit agreement with a group of foreign banks Conemaugh and Keystone owners, including the construction of which expires in 1992. As of December 31, 1990, there is no short-term debt outstand- scrubbers by the owners themselves. PSE&G's share of the related ing under this agreement. capital costs is preliminarily estimated at $90 million per station.

(D) On July 24, 1990, PSE&G issued an aggregate principal amount of $250 million PSE&G's two wholly-owned and operated coal-fired generating First and Refunding Mortgage Bonds. The net proceeds were used by PSE&G for the stations in New Jersey are not presently expected to require scrub-payment of its then outstanding unsecured short-term obligations, and for its general corporate purposes. bers, and are expected to be able to meet CAA requirements with (E) Includes $50 million of PSE&G's First and Refunding Mortgage Bonds, 431.% the expenditure of only modest amounts of capital. PSE&G expects Series, retired at maturity on September 1, 1990. to request the BPU to allow the recovery of all such CAA costs for (F) During 1989, Funding established a $350 million commercial paper program all of its electric generating stations from electric customers. Sub-supported by a commercial bank letter of credit and a credit facility which expires in August, 1991. Funding presently expects this credit facility to be renewed upon stantially all such amounts as may be necessary to comply with the expiration. As of December 31, 1990, Funding had $272 million of short-term debt revised CAA requirements through 1995 are included in PSE&G's outstanding under this program. estimate of construction expenditures. (See Note 11 - Commit-(G) During 1990, Funding established a $300 million three-year revolving credit ments and Contingent Liabilities, Construction and Fuel Supplies, facility which currently terminates in 1993, with repayments due thereafter in four of Notes to Consolidated Financial Statements.) In addition, the equal semiannual payments. Funding presently expects this credit facility to be renewed upon expiration. As of December 31, 1990, Funding had $150 million of revised CAA requirements will increase the cost ofproduc*

long-term debt outstanding under this facility. tricity for the Pennsylvania and Ohio Valley Region gener its (H) On February 27, 1990, Funding privately placed $60 million of its 9.43% Series A supplying electricity to New Jersey. All of PSE&G's current p -

Guaranteed Senior Notes due 1993 and $35 million of its 9.54% Series B Guaranteed chased power costs are included in PSE&G's LEAC. (See PSE&G's Senior Notes due 1995. The proceeds from the sale were used to reduce outstanding short-term debt.

Energy and Fuel Adjustment Clauses and Note 2 - Rate Matters of Notes to Consolidated Financial Statements.)

PSE&G's Customer Accounts Receivable At December 31, 1990 and 1989, PSE&G's customer accounts re- Cooling Towers at Salem Nuclear Generating Station ceivable were $373 million and $402 million, excluding unbilled As required by the Federal Water Pollution Control Act (FWPCA),

revenues. These amounts represent 84% and 89% of Enterprise's over the past 15 years, PSE&G has submitted to the United States customer accounts receivable, respectively, with the remainder Environmental Protection Agency and NJDEP its Discharge to spread over Holdings' subsidiaries. The net write-off of PSE&G's Surface Water demonstrations which concluded that structural mod-uncollectible accounts in 1990 was $26 million, an increase of $6 ifications including cooling towers are not required at Salem Gener-million over the previous year. The net write-off per $100 of revenues ating Station to achieve satisfactory environmental effects. However, was up 14 cents to 57 cents compared to 1989, primarily as a result on October 3, 1990, the NJDEP issued a Draft Permit which incor-of the deteriorating economic situation in New Jersey and lower porated numerous new and more stringent terms and conditions into availability of Low Income Home Energy Assistance Funds and the water discharge permit for Salem. The Draft Permit, if adopted other subsidized funding for low income customers than in previous as proposed, would require the immediate shutdown of both Salem years. The increase in PSE&G's 1990 LEAC and LGAC rates the Units pending retrofitting the Station with cooling towers. The continued economic slowdown in New Jersey and a BPU r;quire- Draft Permit does not provide a schedule allowing for a phased ment prohibiting the termination of electric and gas service during implementation of the recirculating cooling towers. PSE&G will winter months to financially needy customers is expected to con- seek a stay of this condition if it is included in the Final Permit. A tinue to have an adverse impact upon the level of receivables, uncol- public hearing was held on November 8, 1990, and the public com~

lectible accounts and net write-offs. ment period ended on January 14, 1991.

In its written comments submitted on January 14, 1991, PSE&G and its consultants concluded that Salem's operation is not having an adverse environmental effect on the Delaware River within the meaning of the FWPCA and that, even if there is an adverse envi-ronmental effect, cooling towers are not needed and c a n n .

legally required. Nevertheless, if cooling towers are ultim required, PSE&G estimates that it would take at least four y ,

assuming an immediate shutdown and very favorable permitting and good construction progress, to design, license and build cooling 26

towers at Salem. In analyzing such a scenario, PSE&G assumed able", to demonstrate that all steps within reason, including modest construction of three mechanical draft towers for each Salem unit cost, were taken to reduce EMFs. The outcome of EMF study and/or (for a total of six cooling towers) at a capital cost of approximately regulations and the public concerns will affect PSE&G's design and

$627 million in 1990 dollars. PSE&G's share would be 42.59% of location of future electric power lines and facilities and the cost this amount. Replacement power costs for PSE&G during such a thereof. Such amounts as may be necessary to comply with these four-year outage would amount to at least $120 million per year. new EMF rules and address public concerns cannot be determined at Further, the loss of both Salem units for a four-year period would this time, but such amounts could be material.

pose serious reliability problems for PSE&G and the PJM region, and could result in the loss of load (blackout) during such four-year PSE&G Gas Plant Sites period. It is estimated that brownouts would occur during such As of December 31, 1990, PSE&G has accrued approximately $23.7 period. PSE&G also analyzed a construction period of eight years to million associated with the clean up of former manufactured gas minimize outage times and the cost of retrofitting Salem with cool- plant sites in accordance with a BPU Order allowing such deferral.

ing towers with a design similar to those existing at the Hope Creek The overall costs of this investigation and cleanup cannot be esti-station. The capital cost of such towers would amount to approxi- mated with certainty, but experience to date indicates that costs of mately $490 million in 1990 dollars, of which PSE&G's share would approximately $20 million per year could be incurred over a period be 42.59%. In this scenario PSE&G estimates that a six to eight of more than 20 years and the overall costs of the investigation and month outage would be required for each Salem unit at the end of cleanup could be material. PSE&G is seeking recovery of such costs the construction period to tie the new system into the plant, resulting from its insurers and will also seek recovery through rates. Absent in replacement energy cost of at least $60 to $80 million. PSE&G's insurance recovery, denial of the recovery of any unamortized bal-comments conclude that under neither such scenario would the Salem ance of such costs by the BPU would require an immediate write-off.

station be able to coniply with the NJDEP's proposed limits. If the (For additional information see Note 11 - Commitments and Con-Salem station were backfitted with cooling towers, PSE&G estimates tingent Liabilities, PSE&G Gas Plant Sites, of Notes to Consolidated that there would be a permanent loss of approximately 5% of the Financial Statements.)

Station's capacity (approximately 120 megawatts) and increased

• and maintenance costs during the balance of the life of the Effect of Inflation costs of constructing cooling towers at Salem generating sta not included in PSE&G's estimate of construction re- During the past four years the rate of increase in the Average Con-quirements described above. (See Liquidity and Capital Resources, sumer Price Index (CPI) has steadily moved from 1.9% in 1986 to Construction, Investments and Other Capital Requirements.) 5.2% in 1990. In an inflationary period the purchasing power of the PSE&G would request the BPU to allow the recovery in rates dollar declines. As a result of this inflationary period there is a from electric customers of all costs associated with constructing negative impact on the operations of Enterprise as the cost of replac-cooling towers at Salem. PSE&G intends to vigorously defend its ing PSE&G's utility plant would be higher than historical cost, the demonstrations, as submitted. PSE&G also is prepared to pursue all amount permitted to be recovered under the rate regulatory process.

available legal remedies, including exercising its right to seek a stay, The historical costs reported in current financial statements repre-pending further administrative and judicial review, of any conditions sent dollars of varying purchasing power as such financial statements that may be imposed by the Final Permit. Enterprise and PSE&G combine dollars spent at various times in the past with dollars cur-cannot predict the outcome of this matter. rently being spent. PSE&G cannot readily increase its rates to keep pace with inflation. The regulatory process factors in a time lag Power Line Emissions - Electric and Magnetic Fields (EMFs) during which increased operating expenses are not fully recovered.

Public concern of possible health effects due to EMFs is an emerging PSE&G anticipates recovery of the increased cost of facilities when national issue and has resulted in some states considering setting replacement actually occurs.

limits on EMF. On September 19, 1990, the New Jersey Commission on Radiation Protection (CORP) decided against setting a limit on Other Matters magnetic fields produced by high-voltage power lines citing the lack of convincing evidence required to determine dangerous levels. For information concerning financial accounting standards that have Proposed power regulations are currently under study by CORP to been issued or proposed by the Financial Accounting Standards cover new power lines and allow existing power lines to continue to Board but not yet adopted by Enterprise, see Note 1 - Organiza-function regardless of new rule changes. As revised, the new rules tion and Summary of Significant Accounting Policies of Notes to would authorize the NJDEP to screen all new power line projects of Consolidated Financial Statements.

100 kilovolts or more using a principle "as low as reasonably achiev-27

Financial Statement Responsibility Management of Enterprise is responsible for the preparation, integ- The Internal Auditing Department conducts audits and appraisals rity and objectivity of the consolidated financial statements and of accounting and other operations and evaluates the effectiveness of related notes of Enterprise. The consolidated financial statements cost and other controls and recommends to management, where and related notes are prepared in accordance with generally accepted appropriate, improvements thereto. Management has considered the accounting principles. The financial statements reflect estimates internal auditors' and Deloitte & Touche's recommendations con-based upon the judgment of management where appropriate. Man- cerning the corporation's system of internal accounting controls and agement believes that the consolidated financial statements and has taken actions that are cost-effective in the circumstances to related notes present fairly and consistently Enterprise's financial respond appropriately to these recommendations. Management position and results of operations. Information in other parts of this believes that, as of December 31, 1990, the corporation's system of Annual Report is also the responsibility of management and is con- internal accounting controls is adequate to accomplish the objectives sistent with these consolidated financial statements and related notes. discussed herein.

The firm of Deloitte & Touche, independent certified public The Board of Directors carries out its responsibility of financial accountants, is engaged to audit Enterprise's consolidated financial overview through the Audit Committee, which presently consists of statements and related notes and issue a report thereon. Deloitte & six directors who are not current employees of Enterprise. The Touche's audit is conducted in accordance with generally accepted Audit Committee meets periodically with management as well as auditing standards and includes a review of internal accounting with representatives of the internal auditors and Deloitte & Touche.

controls and tests of transactions. Management has made available The Committee reviews the work of each to ensure that their respec-to Deloitte & Touche all the corporation's financial records and tive responsibilities are being carried out and discusses related related data, as well as the minutes of directors' meetings. Further- matters. Both the internal auditors and Deloitte & Touche periodi-more, management believes that all representations made to Deloitte cally meet alone with the Audit Committee and have free access to

& Touche during their audit were valid and appropriate. the Audit Committee, and its individual members, at any time.

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- EJ~-lU agement's authorization and recorded properly for the prevention E. James Ferland Everett L. Morris and detection of fraudulent financial reporting so as to maintain the Chairman of the Board, Vice President

• integrity and reliability of the financial statements. The system is President and Chief Principal Financ er designed fo permit preparation of consolidated financial statements Executive Officer 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 Richard E. Hallett system is enhanced by an ongoing program of continuous and selec- Vice President and Comptroller tive training of employees. In addition, management has communi- Principal Accounting Officer cated to all employees its policies on business conduct, assets and internal controls. February 15, 1991 Report of Independent Public Accountants We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and per-form the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.

An audit includes examining, on a test basis, evidence supporting Deloitte& the amounts and disclosures in the consolidated financial statements.

-Touche Certified Public Accountants 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 Newark, New Jersey 07102 that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to To the Stockholders and Board of Directors of above present fairly, in all material respects, the financial position of Public Service Enterprise Group Incorporated: Public Service Enterprise Group Incorporated and its subsidiaries at December 31, 1990 and 1989 and the results of their operations and We have audited the accompanying consolidated balance sheets of their cash flows for each of the three years in the period e~

Public Service Enterprise Group Incorporated and its subsidiaries as December 31, 1990, in conformity with generally accepte t-of December 31, 1990 and 1989, and the related consolidated state- ing principles.

ments of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1990. These consoli-dated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these ~~~9~

consolidated financial statements based on our audits. February 15, 1991 28

Consolidated Statements of Income (Thousands of Dollars) For the Years Ended December 31, 1990 1989 1988 Operating Revenues (note 2)

Electric $3,332,417 $3,279,913 $3,090,609 Gas 1,236,747 1,362,470 1,203,435 Nonutility Activities 230,971 162,469 100,648 Total Operating Revenues 4,800,135 4,804,852 4,394,692 Operating Expenses Operation Fuel for Electric Generation and Net Interchanged Power 717,370 740,665 642,811 Gas Purchased and Materials for Gas Produced 626,156 710,549 600,643 Other 802,594 730,707 727,709 Maintenance 285,871 316,200 349,931 Depreciation and Amortization (note 4) 561,484 524,514 477,426 Taxes Federal Income Taxes (note 8) 208,385 208,261 162,144 New Jersey Gross Receipts Taxes 558,642 574,145 534,789 Other 66,153 60,001 57,235 Total Operating Expenses 3,826,655 3,865,042 3,552,688 Operating Income 973,480 939,810 842,004 Other Income Allowance for Funds Used During Construction - Equity 16,987 16,664 14,926 Miscellaneous - net (note 4) 10,519 9,490 37,565 To r Income 27,506 26,154 52,491

'--~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-

e fore Interest Charges and Dividends on Preferred Stock 1,000,986 965,964 894,495 Interest Charges (note 5)

Long-Term Debt 404,289 370,643 311,970 Short-Term Debt 37,845 19,598 17,194 Other 20,091 21,565 18,464 Total Interest Charges 462,225 411,806 347,628 Allowance for Funds Used During Construction - Debt and Capitalized Interest (32,529) (16,991) (13,055)

Net Interest Charges 429,696 394,815 334,573 Preferred Stock Dividend Requirements 29,012 29,012 31,336 Net Income $ 542,278 $ 542,137 $ 528,586 Shares of Common Stock Outstanding End of Year 218,472,205 211,100,418 205,350,418 Average for Year 211,981,434 206,878,500 205,350,418 Earnings per Average share of Common Stock $2.56 $2.62 $2.57 Dividends paid per share of Common Stock $2.09 $2.05 $2.01 See Notes to Consolidated Financial Statements.

29

I Consolidated Balance Sheets (Thousands of Dollars) December 31, 1990 1989 Assets Utility Plant - Original cost Electric $10,609,121 $10,215,942 Gas 1,777,285 1,661,724 Common 392,987 357,327 Total 12,779,393 12,234,993 Less Accumulated Depreciation and Amortization 3,739,673 3,465,899 Net 9,039,720 8,769,094 Nuclear Fuel in Service, net of accumulated amortization - 1990, $196,098; 1989, $127,559 190,092 149,529 Net Utility Plant in Service 9,229,812 8,918,623 Construction Work in Progress, including Nuclear Fuel in Process - 1990, $174,975; 1989, $62,759 576,904 353,466 Plant Held for Future Use, net of accumulated depreciation - 1990, $27,322; 1989, $30,000 67,065 64,546 Net Utility Plant 9,873,781 9,336,635 Investments and Other Property Long-Term Investments (note 6) 1,291,356 925,307 Oil and Gas Property, Plant and Equipment, net of accumulated depreciation and amortization -

1990, $500,527; 1989, $416,893 794,819 Real Estate Property and Equipment, net of accumulated depreciation- 1990, $4,873; 1989, $2,426 130,513 Other Plant, net of accumulated depreciation and amortization- 1990, $3,701; 1989, $3,663 24,625 Nuclear Decommissioning and Other Special Funds 98,801 Other Investments - net 62,316 Total Investments and Other Property 2,402,430 Current Assets Cash and Cash Equivalents (note 7) 60,491 83,250 Accounts Receivable, net of allowance for doubtful accounts - 1990, $19,642; 1989, $16,202 509,150 516,262 Unbilled Revenues 203,879 255,092 Fuel, at average cost 242,515 169,833 Materials and Supplies, at average cost (note 4) 279,422 235,8 IO Prepayments 62,012 55,162 Total Current Assets 1,357,469 1,315,409 Deferred Debits (note 4)

Property Abandonments - net 200,704 230,741 Oil and Gas Property Write-Down (note II) 78,431 91,876 Underrecovered Electric Energy and Gas Costs - net 68,481 Unamortized Debt Expense 54,206 57,541 Deferred Take-or-Pay Gas Costs (note 2) 23,939 Unrecovered Environmental Costs (note 11) 23,729 18,883 Unamortized Loss on Sale of Naphtha (note 2) 6,300 10,405 Other 2,321 3,390 Total Deferred Debits 389,630 481,317 Total $14,023,310 $12,919,434 See Notes to Consolidated Financial Statements.

30

(Thousands of Dollars) December 31, 1990 1989 Capitalization and Liabilities Capitalization (notes 3 and 5)

Common Equity Common Stock $ 3,043,402 $ 2,857,974 Retained Earnings 1,421,611 1,332,739 Total Common Equity 4,465,013 4,190,713 Subsidiaries' Securities and Obligations Preferred Stock Without Mandatory Redemption 429,994 429,994 Long-Term Debt (note 5) 4,668,024 4,388,578 Capital Lease Obligations (note 9) 54,073 54,513 Total Capitalization 9,617,104 9,063,798 Current Liabilities Long-Term Debt and Capital Lease Obligations due within one year 118,741 54,599 Commercial Paper and Loans (note 10) 758,859 449,324 Accounts Payable 489,380 418,095 New Jersey Gross Receipts Taxes Accrued 527,575 555, 182 Deferred Income Taxes on Unbilled Revenues (note 8) 15,155 Other Taxes Accrued 39,155 43,645 Interest Accrued 133,755 113,597 Other 95,205 119,755 ent Liabilities 2,162,670 1,769,352 Deferred Credits Accumulated Deferred Income Taxes (note 8)

Depreciation and Amortization 1,217,586 1,084,749 Leasing Activities 178,836 135,131 Property Abandonments (note 4) 94,870 106,560 Oil and Gas Property Write-Down (note 11) 37,304 43,698 Deferred Electric Energy and Gas Costs - net (13,551) 23,271 Unamortized Debt Expense 14,864 17,940 Other 22,580 22,757 Accumulated Deferred Investment Tax Credits (note 8) 484,489 501,038 Deferred Take-or-Pay Gas Costs (note 2) 23,939 Overrecovered Electric Energy and Gas Costs - net 37,511 Other (note 4) 145,108 151,140 Total Deferred Credits 2,243,536 2,086,284 Commitments and Contingent Liabilities (note 11')

Total $14,023,310 $12,919,434 31

Consolidated Statements of Cash Flows (Thousands of Dollars) For the Years Ended December 31, 1990 1989 1988 Cash Flows from Operating Activities:

Net Income $ 542,278 $ 542,137 $ 528,586 Adjustments to reconcile net income to net cash flows from operating activities:

Depreciation and Amortization 561,484 524,514 477,426 Amortization of Nuclear Fuel 89,031 63,394 72,532 Recovery (Deferral) of Electric Energy and Gas Costs - net 105,992 60,023 (87,966)

Amortization of Discounts on Property Abandonments and Disallowance (13,566) (15,443) (69,966)

Provision for Deferred Income Taxes - net 74,678 70,541 140,078 Investment Tax Credits - net (16,549) (24,424) (22,478)

Allowance for Funds Used During Construction - Debt and Equity and Capitalized Interest (49,516) (33,655) (27,981)

Proceeds from Leasing Activities 14,785 56,561 27,421 Deferred Environmental Costs (4,846) (15,424) (3,459)

Recovery (Deferral) of Loss on Sale of Naphtha 4,105 (10,405)

Changes in certain current assets and liabilities Net decrease (increase) in Accounts Receivable and Unbilled Revenues 63,348 (134,070) (84,812)

Net increase in Inventory- Fuel and Materials and Supplies (116,294) (53,851) (8,642)

Net increase (decrease) in Accounts Payable 70,223 72,543 (3,502)

Net (decrease) increase in Accrued Taxes (47,252) 33,262 10,483 Net change in Other Current Assets and Liabilities (11,006) 3,009 687 Other 16,064 (4,669) 11,844 Net cash provided by operating activities 1,282,959 1,134,043 960,251 Cash Flows from Investing Activities:

Additions to Utility Plant, excluding AFDC (933,803) (644,218) 208)

Additions to Oil and Gas Property, Plant and Equipment, excluding Capitalized Interest (285,438) (384,335) 8)

Net increase in Long-Term Investments and Real Estate Property and Equipment (339,601) (337,909) 003)

Increase in Decommissioning and Other Special Funds (23,861) (57,952) (8,474)

Cost of Plant Removal - net (91,627) (49,327) (21,360)

Other (32,968) 53,528 12,235 Net cash used in investing activities (1,707,298) (1,420,213) ( 1,076, 748)

Cash Flows from Financing Activities:

Net increase (decrease) in Short-Term Debt 214,535 225,717 (77,770)

Issuance of Long-Term Debt 495,000 386,270 814,000 Redemption of Long-Term Debt and Other Obligations (56,852) (59,430) (173,265)

Issuance of Common Stock 185,428 147,631 Redemption of Preferred Stock (32,616)

Cash Dividends Paid on Common Stock (442,466) (423,958) (412,767)

Other 5,935 10,781 4,155 Net cash provided by financing activities 401,580 287,011 121,737 Net increase (decrease) in Cash and Cash Equivalents (22,759) 841 5,240 Cash and Cash Equivalents at Beginning of Year 83,250 82,409 77,169 Cash and Cash Equivalents at End of Year $ 60,491 $ 83,250 $ 82,409 Income Taxes Paid $ 135,804 $ 93,783 $ 43,337 Interest Paid $ 397,785 $ 370,573 $ 312,414 See Notes to Consolidated Financial Statements.

32

Con olidated Statements of Retained Earnings _,._

(Thousands of Dollars) For the Years Ended December 31, 1990 1989 1988 Balance January 1 $1,332,739 $1,213,260 $1 ,096,933 Add Net Income 542,278 542, 137 528,586 Total 1,875,017 1,755,397 1,625,519 Deduct Cash Dividends on Common Stock (A) 442,466 423,958 412,767 Adjustments to Retained Earnings (note 6) 10,940 (1 ,300) (508)

Total Deductions 453,406 422,658 412,259 Balance December 31 $1,421,611 $1,332,739 $1,213,260 (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 limits the payment of dividends out of current earnings. The amount of PSE&G's restricted retained earnings at December 31, 1990 was $10 million.

See Notes to Consolidated Financial Statements .

33

Notes to Consolidated Financial Statements

1. Organization and Summary of Significant Accounting Policies Nuclear Decommissioning Funds - PSE&G Depreciation applicable to nuclear plant includes estimated costs of Organization decommissioning. At December 31, 1990 and 1989, the accumulated Public Service Enterprise Group Incorporated (Enterprise) has two provision for depreciation and amortization included reserves for wholly-owned subsidiaries, Public Service Electric and Gas Com- nuclear decommissioning of $133.0 million and $113.0 million. In accordance with orders from the BPU, PSE&G has established exter-pany ~PSE&G) and Enterprise Diversified Holdings Incorporated nal nuclear decommissioning trust funds for all its nuclear units.

(~o.ldmgs). f'.nte1:Prise's principal subsidiary, PSE&G, is a public utility operatmg m the State of New Jersey. Holdings was incorpo- The Internal Revenue Service (IRS) has ruled that payments into rated on June 20, 1989, and on July 1, 1989 became the parent of qualified funds are tax deductible. As of December 31, 1990 and Enterprise's nonutility subsidiaries: Public Service Resources Cor- 1989, PSE&G has contributed $77.9 million and $59.7 million into external qualified and nonqualified nuclear decommissioning trust pora~ion (PSRC), Energy Development Corporation (EDC), Com-munity Energy Alternatives Incorporated (CEA), Enterprise Group funds.

Deve.lopment Corporation (EGDC), and PSEG Capital Corporation (Capital). Enterprise Capital Funding Corporation (Funding), a Amortization of Nuclear Fuel - PSE&G Nuclear energy burnup costs are charged to fuel expense on a units-wholly-owned subsidiary of Holdings, was also formed on June 20, of-production basis over the estimated life of the fuel. Rates for the 1989. PSE&G Fuel Corporation (Fuelco) was organized in June recovery of fuel used at all nuclear units include a provision of one 1990, as a wholly-owned subsidiary of PSE&G.

mill per kilowatthour of nuclear generation for spent fuel disposal

. ?nterprise has claimed an exemption from regulation by the Secu-costs, which is paid quarterly to the United States Department of rities and Exchange Commission as a registered holding company Energy.

und~r the Public lJ_tility 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 Revenues and Fuel Costs - PSE&G to regulation by the New Jersey Board of Public Utilities (BPU) or Revenues are recorded based on services rendered to customers the Federal Energy Regulatory Commission (FERC). during each accounting period. PSE&G records unbilled revenues representing the estimated amount customers will be billed services rendered from the time meters were last read to th Consolidation Policy The consolidated financial statements include the accounts of Enter- the respective accounting period.

Rates include projected fuel costs for electric generation, pur-prise and its subsidiaries. All significant intercompany accounts and chased and interchanged power, gas purchased and materials used transactions have been eliminated in consolidation. Certain reclassi-fications of prior years' data have been made to conform with the for gas production.

Any under or overrecoveries, together with interest, are deferred current presentation.

~nd included in operations in the period in which they are reflected m rates.

Regulation - PSE&G The accounting and rates of PSE&G are subject in certain respects to the requirements of the BPU and FERC. As a result, PSE&G Oil and Gas Accounting - EDC EDC follows the full-cost method of accounting. Under this method, maintains its accounts in accordance with their prescribed Uniform all exploration and development costs for successful and unsuccessful Systems of Accounts, which are the same. The applications of gen-erally accepted accounting principles by PSE&G differ in certain wells are capitalized and amortized on the units-of-production basis.

respects from applications by nonregulated businesses.

Long-Term Investments - Holdings PSRC has invested in marketable securities, which are valued at the Utility Plant and Related Depreciation - PSE&G lower of cost or market, and various leases and limited partnerships.

Additions to utility plant and replacements of units of property are

(~~e No~e 6 - Long-Term Investments.) EGDC has become a par-capitalized at original cost. The cost of maintenance, repairs and ticipant m the nonresidential real estate markets.

replacements of minor items of property is charged to appropriate ex~ense accounts. At the time units of depreciable properties are retire~ or otherwise disposed of, the original cost less net salvage Income Taxes value is charged to accumulated depreciation. Enterprise and its subsidiaries file a consolidated Federal income tax For financial reporting purposes, depreciation is computed under return and income taxes are allocated to Enterprise's subsidiaries the st.ra.ight~line method. Depreciation is based on estimated average based on taxable income or loss of each.

Deferred income taxes are provided for differences between book re~ammg hves o.f the several classes of depreciable property. These a~d taxable income. For PSE&G, deferred income taxes are pro-estimates are reviewed on a regular basis and necessary adjustments are made as approved by the BPU. Depreciation provisions stated in vided to the extent permitted for ratemaking purposes.

percentages of original cost of depreciable property were 3.48% in Investment tax credits are deferred and amortized over t i e seful 1990 and 3.47% in 1989 and 1988. lives of the related property including nuclear fuel.

In Dec~ber 1987, the Financial Accounting Standards (FASB) issued Statement of Financial Accounting Standards 1 o. 96 (SFAS 96), "Accounting for Income Taxes',' which requires the rec-ognition 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-34

tive date has been deferred to fiscal years beginning after December million of deferred replacement energy costs associated with the 15, 1991. FASB is continuing its deliberations with the objective of outages of the electric generators at both Salem units in 1983, 1984 issuing an exposure draft which could result in amending SPAS 96. and 1985 was denied; and (3) the previous decision by the BPU As a result of the accounting and ratemaking requirements of the concerning interest on overrecoveries was reversed and the BPU BPU and FERC, the primary effect of adopting SPAS 96 upon decided to allow PSE&G to offset intraperiod interest on monthly Enterprise's financial reporting will be on the presentation of its overrecoveries with monthly underrecoveries. Based on these deci-financial position with minimal effect on its income statement. sions $2. 9 million of interest previously returned to customers was allowed to be recovered by PSE&G.

Allowance for Funds Used During Construction (AFDC) and On August 29, 1990, the BPU issued its Order effective Septem-Capitalized Interest ber 5, 1990 which granted PSE&G's original request of September PSE&G - AFDC represents the cost of debt and equity funds used 15, 1989 for a 1990 and 1991 increase in electric base rates reflecting to finance the construction of new utility facilities. The amount of the expiration of the TRA-86 amortization. PSE&G's original request AFDC capitalized is also reported in the Consolidated Statements provided for an increase of $23.3 million in electric base rates to be of Income as a reduction of interest charges for the borrowed funds effective January 1, 1990, with an additional increase of $29.7 mil-component and as other income for the equity funds component. lion to be effective January 1, 1991. As a result of the August 29, The rates used for calculating AFDC in 1990, 1989 and 1988 1990 Order, the increase in electric base revenues plus interest for were 10.17%, 10.68% and 9.91 %, respectively. These rates are the period January 1, 1990, to September 5, 1990, will be recovered within the limits set by the FERC formula. from customers in accordance with PSE&G's next LEAC rate adjust-Holdings - The operating subsidiaries of Holdings capitalize ment which is expected to commence July 1, 1991.

costs allocable to construction expenditures at the prevailing cost of borrowed funds. Gas On December 6, 1989, the BPU approved a Stipulation among the Pension Plan and Other Post-Employment Benefits parties and granted an increase of $23.7 million, or 2% in the The employees of PSE&G and participating affiliates completing 1989-1990 LGAC for the period ending September 30, 1990. Addi-one ' f service are covered by a noncontributory trusteed pen- tional issues on which settlement was reached included recovery of sio ~he policy is to fund pension costs accrued. PSE&G also all take-or-pay charges for the 1989-90 LGAC period subject to pro' *ertain health care and life insurance benefits to active and refund (see paragraph below), changes in pricing of gas delivered to retired employees. The current cost of these benefits is charged to the electric department, recovery of a $10.7 million loss, without expense when paid and is currently being recovered from ratepayers. interest, on sale of naphtha over a three-year period without carrying (See Note 12- Pension Plan and Other Post-Employment Benefits.) charges resulting from the retirement of the Linden SNG plant in In December 1990, FASB issued Statement of Financial Account- July 1989 and a name change for the gas Raw Materials Adjustment ing Standards No. 106 (SFAS 106), "Employers' Accounting for Clause (RMAC) to Levelized Gas Adjustment Clause (LGAC).

Postretirement Benefits Other than Pensions" which requires em- On January 17, 1990 the BPU approved a Stipulation entered into ployers to change from a "cash basis" to an "accrual basis" of ac- by PSE&G, the BPU staff, and the New Jersey Industrial Energy counting for post-employment benefits. SPAS 106 is effective for Users Association resolving all take-or-pay issues. Under the terms fiscal years beginning after December 15, 1992. of the Stipulation all take-or-pay charges already collected were no Because of existing accounting and ratemaking requirements of longer subject to refund. The BPU permitted PSE&G to recover all the BPU and FERC, which regulate PSE&G, the primary effect of take-or-pay costs. A portion of the payments will be recovered over adopting SPAS 106 on Enterprise's financial reporting is expected to a nine-year period which began in October 1987, without recovery be on the presentation of its financial position with minimal effect of related carrying charges. PSE&G estimates that it may incur ap-on its income statement. proximately $2 million in carrying charges pertaining to the nine-year recovery period related to certain payments, since it is required

2. Rate Matters to meet its take-or-pay obligations over the next six years.

On October 31, 1990, the BPU approved a Stipulation of the Electric parties in the LGAC proceeding for an increase of $46.1 million for On February 16, 1990, the BPU approved a Stipulation providing for the eleven-month period commencing November 1, 1990, and ending a $24.l million annualized increase in the electric Levelized Energy September 30, 1991. In addition to the LGAC increase, the BPU Adjustment Clause (LEAC) for the period ending June 30, 1991. also approved PSE&G's proposal to directly credit firm customers' Additional issues included in the Stipulation provided for the reten- bills during the months of November and December 1990 and Jan-tion of $10.5 million of revenues related to the sale of capacity to uary 1991 with refunds totalling $80 million. On January 31, 1991,

, Atlantic Electric Company and Potomac Electric Company pre- the BPU approved an additional one-month refund to customers of viously recorded as a reduction in PSE&G's energy costs and an $28 million to be returned in February 1991. These credits are the 1 aver o reduction in street lighting customer rates. The collec- result of the receipt by PSE&G of substantial refunds from its pipe-tior unts related to previously accrued interest on overcollec- line suppliers and an overcollection of actual gas costs.

tion eferred pending a decision by the BPU. On August 29, 1990, the BPU issued an Order granting PSE&G's On June I and July 5, 1990, the BPU issued its decisions on the request, effective September 5, 1990, for a 1990 and 1991 increase interest issues previously deferred: (I) interest on the nuclear perfor- in gas base rates reflecting the expiration of the TRA-86 amortiza-mance penalty of 1987 was deferred to the generic proceeding con- tion. The increase in gas revenues of $4. 8 million plus interest which cerning the nuclear performance standard; (2) interest on the $70 were originally requested by PSE&G on September 15, 1989 to be 35

effective January 1, 1990, are being recovered from customers 4. Deferred Items under the LGAC which commenced November 1, 1990, and which remains in effect through September 30, 1991. The 1991 increase in Statement of Financial Accounting Standards No. 90 gas base rates of $6.2 million is being recovered from customers The Amortization of Discount on Property Abandonments and beginning January 1, 1991. Disallowances were $7.7 million for 1990; $8.7 million for 1989 and

$38.8 million for 1988 and includes the effect on income of State-

3. Schedule of Consolidated Capital Stock ment of Financial Accounting Standards No. 90 (SFAS 90) "Regu-Current lated Enterprises - Accounting for Abandonments and Disallowances Redemption of Plant Costs',' as amended by Technical Bulletin No. 87-2 (TB).

Outstanding Price December 31, The tax effects of discounting of abandonments were calculated (Thousands of Dollars) Shares Per Share 1990 1989 using the tax rates applicable to related deferred tax balances.

Enterprise Common Stock Common Stock (no par) - authorized 500,000,000 shares (note A); issued and outstanding at December Property Abandonments 31, 1990, 218,472,205 shares, at December 31, 1989, The BPU has authorized PSE&G to recover the after-tax abandon-211,100,418 shares, and at December 31, 1988, ment costs from its customers. The following table reflects the appli-205,350,418 shares (5,000,000 shares issued for cation of SFAS 90 and the TB on property abandonments for which

$126,150,000 and 2,371,787 shares issued for

$59,277,802 through Dividend Reinvestment and Stock no return is earned. The discount rate range used to calculate the Purchase Plan in 1990; 5,750,000 shares issued for present value of the abandoned property under SFAS 90 was be-

$147,631,250 in 1989; no shares issued in 1988.) $3,043,402 $2,857,974 tween 8.545% and 14.446%. The net-of-tax discount rate used in Enterprise Preferred accordance with the TB was between 4.443% and 7.801 %.

Stock (note B) (Thousands of Dollars)

PSE&G Cumulative December 31, 1990 1989 Preferred Stock (note C)

Without Mandatory Discounted Discounted Redemption (note D) Property Abandonments Cost Taxes Cost

$100 par value - Series Atlantic Project $112,382 $47,238 $121,723 4:08% 250,000 $103.00 $ 25,000 $ 25,000 Hope Creek Unit 2 47,396 31,588 63,031 4.18% 249,942 103.00 24,994 24,994 LNG Project 22,389 8,534. 25,697 4.30% 250,000 102.75 25,000 25,000 Uranium Projects 17,686 7,510 19,181 5.05% 250,000 103.00 25,000 25,000 Other 851 1,109 5.28% 250,000 103.00 25,000 25,000

$200,704 $94,870 $230,741 $106,560 6.80% 250,000 102.00 25,000 25,000 7.40% 500,000 101.00 50,000 50,000 7.52% 500,000 101.00 50,000 50,000 Under(Over)recovered Electric Energy and Gas Costs - Net 8.08% 150,000 101.00 15,000 15,000 7.80% 750,000 101.00 75,000 75,000 Recoveries of electric energy and gas costs are determined by the 7.70% 600,000 100.79 60,000 60,000 BPU. (See Note 2 - Rate Matters.)

8.16% 300,000 104.82 30,000 30,000 Total Preferred Stock Without Mandatory Redemption $ 429,994 $ 429,994 The following table reflects the balances in PSE&G's deferred fuel recovery accounts:

Notes to Schedule of Consolidated Capital Stock Cumulative (A) Total authorized and unissued shares include 3,678,503 shares of Enterprise (Millions of Dollars) Under(Over)Recovery Common Stock reserved for issuance through the Dividend Reinvestment and Stock December 31, 1990 1989 Purchase Plan and various employee benefit plans.

(B) Enterprise has authorized a class of 50 million shares of Preferred Stock without LEAC par value, none of which is outstanding. Deferred Fuel Cost $(10.0) $ 56. l (C) There are 3,200,058 shares of $100 par value and 10,000,000 shares of $25 par Deferred Replacement Power Costs - Salem 23.1 37.1 value Cumulative Preferred Stock which are authorized and unissued, and which upon TotalLEAC 13.1 93.2 issuance may or may not provide for mandatory sinking fund redemption.

LGAC Deferred Fuel Cost (50.6) (24.7)

If dividends upon any shares of Preferred Stock are in arrears in an amount equal to the annual dividend thereon, voting rights for the election of a majority of PSE&G's Net Under(Over)Recovery $(37.5) $ 68.5 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.

As of December 31, 1990 and 1989 there were no shares of Preferred Stock with mandatory redemption outstanding.

(D) At December 31, 1990 the annual dividend requirement and embedded dividend cost for Preferred Stock without mandatory redemption were $29,012,000 and 6.75%,

respectively.

36

Unamortized Debt Expense Holdings Costs associated with the issuance of debt by PSE&G are deferred Capital (note C) and amortized over the lives of the related issues. Amounts shown in 8.65%-9.12% 1991 80,000 80,000 the Consolidated Balance Sheets consist of costs associated with 8.95%-9.72% 1993 88,000 88,000 9.30%-9.55% 1995 82,000 82,000 PSE&G's reacquisition of First and Refunding Mortgage Bonds. The 8.95%-10.05% 1996-1999 500,000 500,000 redemption costs of the tendered or redeemed debt have been de-Principal Amount Outstanding 750,000 750,000 ferred and are being amortized over the lives of the new securities Amounts Due Within One Year (note B) (79,940) issued to replace higher-cost securities. PSE&G expects to amortize Net Unamortized Discount (2,088) (2,568)

$5.8 million of these costs in 1991. Total Long-Term Debt of Capital 667,972 747,432 Funding (note D)

Materials and Supplies Inventory 9.375% 1994-1995 150,000 In January 1989, PSE&G changed its method of accounting forcer- 9.43% 1993 60,000 tain spare parts to the deferred (inventory) method, whereby all 9.54% 1995 35,000 purchases of spare parts under inventory control are charged into the Total Long Term Debt of Funding 245,000 Materials and Supplies inventory account until such time that the EGDC Mortgage Notes items are used or consumed and are then charged to the appropriate 9.75% 1992 14,606 14,606 expense or capital accounts. Prior to 1989, certain purchases of 10.625%-12.75% 2012 7,090 7,169 spare parts were being charged directly to expense at the time of Principal Amount Outstanding 21,696 21,775 purchase, with a current deduction being taken for tax purposes. Amounts Due Within One Year (note B) (88) (79)

On October 4, 1988, PSE&G filed a request with the Internal Total Long-Term Debt of EGDC 21,608 21,696 Revenue Service (IRS) for a tax ruling concerning the change in EDCBankLoans-12% 1995 270 accounting for spare parts. If the request is approved as submitted, Amounts Due Within One Year (note B) (30) this would allow PSE&G to account for the resulting adjustment for Total Long-Term Debt of EDC 240 income tax purposes over a six-year period beginning January 1989.

Total Long-Term Debt of Holdings 934,580 769,368 PSE&G recorded an increase in its Materials and Supplies inven-Consolidated Long-Term Debt (note E) $4,668,024 $4,293,578 tor)! t for the value placed on these spare parts, as of January 1, 1 e associated income statement impact has been deferred and is mg amortized over a six-year period beginning January I, Notes:

(A) PSE&G's Mortgage, securing the First and Refunding Mortgage Bonds, consti-1989. As of December 31, 1990, the unamortized balance of this tutes a direct first mortgage lien on substantially all PSE&G property and franchises.

deferred credit was $51.7 million. (8) The aggregate principal amounts of requirements for sinking funds and maturities for each of the five years following December 31, 1990 are as follows:

5. Schedule of Consolidated Long-Term Debt (Thousands of Dollars)

(Thousands of Dollars) December 31, Sinking Funds Maturities Interest Rates Due 1990 1989 Year PSE&G Capital PSE&G Capital EGDC Funding Total PSE&G 1991 $ 7,o75 $ $ 31,199 $ 79,940 $ 88 $ $ 118,302 First and Refunding Mortgage 1992 6,200 . 240,000 14,703 260,903 Bonds (note A) 1993 5,400 42,500 210,323 88,000 108 60,000 406,331 4%% 1990 $ $ 50,000 1994 5,400 42,500 210,000 121 75,000 333,021 43/s%-8%% 1992 240,000 240,000 1995 3,630 42,500 95,814 82,000 134 110,000 334,078 43/s%-9 1/s% 1993 190,000 190,000 45/s%-8%% 1994 210,000 210,000 $27,705 $127,500 $787,336 $249,940 $15,154 $245,000 $1,452,635 4%% 1995 60,000 60,000 6Y*%-9%% 1996-2000 746,000 747,000 For sinking fund purposes, certain First and Refunding Mortgage Bond issues require 71/2%-12% 2001-2005 492,430 368,430 annually the retirement of $17,950,000 principal amount of bonds or the utilization of 6.30%-9%% 2006-2010 557,210 558,210 bondable property additions at 60% of cost. The portion expected to be met by 6.80%-101/2% 2011-2015 647,500 647,500 property additions has been excluded from the table above. Also, PSE&G may, at its 8.10%-9%% 2016-2020 446,000 322,000 option, retire additional amounts up to $5,000,000 annually through sinking funds of 5%-8% 2037 15,001 15,001 certain debenture bonds. Additional bonds, if any, resulting from the election of this Total First and Refunding Mortgage Bonds 3,604,141 3,408, 141 option are included in long-term debt due within one year.

Debenture Bonds Unsecured (C) Capital is providing up to $750 million long-term debt financing for the nonutility 5%% 1991 31,199 31,199 businesses on the basis of a support agreement with Enterprise.

71/4% 1993 21,923 22,614 (D) Funding provides long-term debt financing for the nonutility businesses on the 9% 1995 41,814 42,319 basis of unconditional guarantees from Holdings.

6%-8%% 1996-1998 94,704 97,154 (E) At December 31, 1990, the annual interest requirement on Long-Term Debt was

$418.5 million of which $307.2 million was the requirement for First and Refunding Total Debenture Bonds 189,640 193,286 Mortgage Bonds. The embedded interest cost on long-term debt was 9.04%.

unt Outstanding 3,793,781 3,601,427 ithin One Year (note B) (38,274) (54,038) 1zed Discount (22,063) (23,179)

Total Long-Term Debt of PSE&G 3,733,444 3,524,210 37

6. Long-Term Investments 8. Federal Income Taxes Long-Term Investments are primarily those of Enterprise's nonutility A reconciliation of reported Net Income with pretax income and of operating businesses: PSRC (diversified passive investments), CEA Federal income tax expense with the amount computed by multiply-(cogeneration and small power production facilities) and EGDC ing pretax income by the statutory Federal income tax rate of 34% is (diversified non-residential real estate development and invest- as follows:

ments). A summary of long-term investments is as follows: (Thousands of Dollars) 1990 1989 1988 (Millions of Dollars) 1990 1989 Net Income $542,278 $542,137 $528,586 Lease Agreements: Preferred stock dividend requirements 29,012 29,012 31,336 Leveraged Leases $ 516 $354 Subtotal 571,290 571,149 559,922 Direct-Financing Leases 95 98 Other Leases 17 19 Federal income taJCes:

Operating Income:

Total 628 471 Current provision 141,342 112,046 90,153 Partnerships: Provision for deferred income taJCes - net (A) 86,461 119,606 89,744 General Partnerships 111 90 Investment taJC credits - net (19,418) (23,391) (17,753)

Limited Partnerships 321 208 Total included in operating income 208,385 208,261 162,144 Total 432 298 Miscellaneous other income:

Current provision (11,480) (11,411) (14,300)

Joint Venture 11 10 Provision for deferred income taJCes (A) 10,906 10,906 13,087 Marketable Securities 200 137 SFAS 90 deferred income taJC (A) 5,850 6,773 31,205 Corporate-owned Life Insurance (PSE&G) 20 9 Total Federal income taJC provisions 213,661 214,529 192,136 Total Long-Term Investments $1,291 $925 PretaJC income $784,951 $785,678 $752,058 Leveraged leases are those of PSRC and are reported net of principal and interest on nonrecourse loans and unearned income, including Adjustments to pretax income, computed at the statutory rate, for deferred investment tax credits. Unearned and deferred income is which deferred taxes are not provided under current ratem

• recognized at a level rate of return from each lease during the periods policies:

in which the net investment is positive. TaJC expense at the statutory rate $266,883 $267,131 Partnership investments are those of PSRC, CEA and EGDC and TaJC depreciation under book depreciation 9,534 17,821 15,282 are undertaken with other investors. Allowance for funds used during construction (11,635) (10,199) (9,201)

Marketable securities are those of PSRC and are stated at the Capitalized interest 9,954 7,615 5,871 Amortization of rate differential resulting from lower of aggregate cost or market value, adjusted, where appro-TRA-86 (23,157) (43,203) (46,556) priate, for amortization of premium and discount computed using Other (11,821) (1,475) (22) the interest method. The net unrealized loss, which is the difference Subtotal (27,125) (29,441) (34,626) between the market price and the cost of equity securities, net of Amortization of investment taJC credits (26,097) (23,161) (28,938) applicable income taxes, is included in stockholders' equity. As of Subtotal (53,222) (52,602) (63,564)

December 31, 1990 and 1989, the cost of PSRC's marketable securi-Total Federal income taJC provisions $213,661 $214,529 $192, 136 ties was $212.l million and $137.5 million, respectively. Realized investment gains and losses on the sale of investment securities are Effective Federal income taJC rate 27.2% 27.3% 25.5%

determined utilizing the specific cost identification method. (For additional information see Note 11 - Commitments and Contingent (A) The provision for deferred income taJCes represents the taJC effects of the following Liabilities.) items:

Current Liabilities:

7. Cash and Cash Equivalents Unbilled revenues $(15,155) $(19,627) $(23,724)

Other 150 1,051 (1,704)

Subtotal (15,005) (18 ,576) (25 ,428)

The December 31, 1990 and 1989 balances consist primarily of highly liquid marketable securities (commercial paper) with a ma- Deferred Credits:

Additional taJC depreciation and amortization 133,081 109,024 110,862 turity of three months or less. Leasing Activities 43,301 85,641 19,386 Property Abandonments (11,690) (11,825) 15 ,888 Oil and Gas Property Write-Down (6,394) (6,393) (3,196)

Deferred fuel costs-net (36,822) (22,414) 29,600 Other (3,254) 1,828 (13,076)

Subtotal 118,222 155,861 159,464 Total $103,217 $ 1 3 7 , 2 .

Deferred income taxes are provided for differences between book and taxable income. For PSE&G the deferred income taxes are lim-ited to the extent permitted for ratemaking purposes. At December 31, 1990 the cumulative net amount of income tax timing differences 38

for which deferred income taxes have not been provided was $1.0 10. Commercial Paper and Loans billion. See Note 1 - Organization and Summary of Significant Accounting Policies for a discussion of the effect of SFAS 96, "Ac- Commercial paper represents unsecured bearer promissory notes counting for Income Taxes:' and Note 2 - Rate Matters for reduc- sold through dealers at a discount with a term of nine months or tions in LEAC and LGAC related to the effect of the TRA-86. less. Certain information regarding commercial paper follows:

9. Capital Lease Obligations PSE&G Consolidated (Thousands of Dollars) 1990 1989 1988 Principal amount outstanding at end of year $486,818 $328,000 $190,000 The Consolidated Balance Sheets include assets and related obliga- Maximum principal amount outstanding at any tions applicable to capital leases where PSE&G is a lessee. The total month end $486,818 $328,000 $213,000 amortization of the leased assets and interest on the lease obligations Average daily outstanding $240,000 $113,100 $ 94,900 Weighted average annual interest rate 8.22% 9.04% 7.80%

equals the net minimum lease payments included in rent expense for Weighted average interest rate for commercial capital leases. paper outstanding at year-end 8.34% 8.68% 9.43%

Capital leases of PSE&G relate primarily to its corporate head-quarters and other capital equipment. Certain of the leases contain PSE&G has received authorization from the BPU to issue and have renewal and purchase options and also contain escalation clauses.

outstanding not more than $500 million of its short-term obligations Enterprise and its other subsidiaries are not lessees in any capital-ized leases. at any one time, consisting of commercial paper and other unse-cured borrowings from banks and other lenders. At year-end PSE&G Utility plant includes the following amounts for capital leases at December 31: had $338 million principal amount outstanding.

PSE&G has a $75 million revolving credit agreement with a group (Thousands of Dollars) 1990 1989 of foreign banks which expires in 1992. As of December 31, 1990, Common Plant $57,226 $57,226 there is no short-term debt outstanding under this agreement.

Less Accumulated Amortization 2,714 2,261 On June 28, 1990, Fuelco established a $200 million commercial Net Assets under Capital Leases $54,512 $54,965 paper program to finance its share of Peach Bottom nuclear fuel, supported by a $200 million revolving credit facility with a group of iimum lease payments for noncancelable capital and oper- banks. PSE&G has guaranteed repayment ofFuelco's respective ases at December 31, 1990 were: obligations. At December 31, 1990, $148.8 million of Fuelco's com-mercial paper was outstanding.

Capital Operating (Thousands of Dollars) Leases Leases Holdings (Thousands of Dollars) 1990 1989 1988 1991 $ 13,070 $ 7,016 1992 13,014 5,243 Amount outstanding at end of year:

1993 13,014 3,801 Funding $272,041 $110,939 1994 13,015 2,986 Capital $117,530 1995 13,016 2,964 Maximum amount outstanding at any month end:

Later Years 251,639 14,850 Funding $320,702 $110,939 Capital $164,700 Minimum lease payments 316,768 $36,860 Average daily outstanding:

Less: Amount representing estimated executory Funding $229,500 $ 18,800 costs, together with any profit thereon, Capital $127,700 included in minimum lease payments 158,147 Weighted average annual interest rate:

Net minimum lease payments 158,621 Funding 8.25% 8.68%

Less Amount representing interest 104,109 Capital 7.63%

Weighted average interest rate for commercial Present value of net minimum lease payments (A) $ 54,512 paper outstanding at year-end:

Funding 8.31% 8.61%

(A) Reflected in the Consolidated Balance Sheets in Capital Lease Obligations of Capital 9.50%

$54,073,000 and in Long-Term Debt and Capital Lease Obligations due within one year of $439,000.

In November 1987 Capital entered into a three-year $250 million The following schedule shows the composition of rent expense credit agreement with a group of banks to support the issuance of included in Operating Expenses: commercial paper, which was terminated in September 1989. In August 1989 Funding established a $350 million commercial paper (Thousands of Dollars)

For the Years Ended December 31, 1990 1989 1988 program supported by a direct pay commercial bank letter of credit and a revolving credit facility which expires in August 1991.

Interest on Capital Lease Obligations $ 6,284 $ 6,322 $ 6,424 Amortization of Utility Plant under Capital Leases 452 409 1,036 Enterprise presently expects that Funding will be able to renew this program upon expiration.

Net lease payments relating to Capital 6,736 6,731 7,460 The December 1989 balance includes $10.4 million related to an ayments 18,863 18,178 16,396 outstanding capital note of Resources Capital Management Corpora-Total Rent Expense $25,599 $24,909 $23,856 tion, a subsidiary of PSRC, which was payable in installments through June 1990.

39

At December 31, 1990 and 1989, Enterprise had $273 million and change in the basis of calculation provides an estimated one percent

$295 million, respectively, of lines of credit supported by compen- increase in the capacity factor on the same level of generation.

sating balances under informal arrangements with banks. At Decem- The BPU also indicated in its July 26, 1990 Order that it was not ber 31, 1990 and 1989, $150 million and $55 million, respectively, incorporating a gross negligence standard into the nuclear perfor-of these lines of credit were compensated by fees. There are no legal mance standard, but would consider allegations of gross negligence restrictions placed on the withdrawal or other use of the compensat- brought upon a sufficient factual basis. A finding of gross negligence ing bank balances. could result in penalties other than those prescribed under the nu-clear performance standard.

11. Commitments and Contingent Liabilities PSE&G's nuclear units in which it has an ownership interest ag-gregated a combined capacity factor of 74.8% in 1990 and 72% in Nuclear Performance Standard 1989. In accordance with the BPU's 1989 Stipulation, the Peach In 1987, the BPU issued an Order establishing a performance stan- Bottom Units were excluded from any nuclear performance penalty dard for the five nuclear units in which PSE&G has an ownership and capacity factor calculation during 1989 while revenue credits of interest: Salem 1 and Salem 2 -42.59% each; Hope Creek- 95%; $46 million were being provided to PSE&G's electric customers.

and Peach Bottom 2 and 3 - 42.49% each. PSE&G operates Salem Nuclear Insurance Coverages and Assessments and Hope Creek while Peach Bottom is operated by Philadelphia Electric Company (PE). PSE&G's insurance coverages and maximum retrospective assess-On July 26, 1990, the BPU issued an Order confirming its June 6, ments for its nuclear operations are as follows:

1990 oral decision which revised its nuclear performance standard Maximum applicable to New Jersey electric utilities, adopted in 1987. Under Retrospective Assessments for the original standard PSE&G would incur penalties if the aggregate Type and Source of Coverages Coverages a Single Incident capacity factor of its five nuclear units fell below 60% in a calendar (Millions of Dollars) year or receive financial benefits if the factor was 80% or higher. Public Liability:

Such percentages were predicated upon a 70% target capacity factor. American Nuclear Insurers $ 200.0 There were no penalties if the capacity factor fell between 60% and Indemnity (A) 7,607.0 80%, a spread previously referred to as the "dead band." $7,807 .O(B)

Under the revised standard, based upon a 70% target capacity Nuclear Worker Liability:

factor, the BPU established a new dead band called the "zone of American Nuclear Insurers (C) $ 200.0 $ 8.4 reasonableness." The zone of reasonableness is a capacity factor Property Damage:

equal to or greater than 65% and less than 75%. This means that Nuclear Mutual Limited (D) $ 500.0 $ 17.4 PSE&G will be eligible for a reward if the aggregate capacity factor Nuclear Electric Insurance Ltd. 1,125.0(E) 12.0 of its five nuclear units reaches 75% or higher and will sustain a American Nuclear Insurers 700.0 None penalty if it falls below 65% for each calendar year. $2,325.0 $ 29.4 The penalty/reward percentages have been increased under the Replacement Power:

revised standard. (See table below.) However, the BPU Order pro- Nuclear Electric Insurance Ltd. $ 3.5(F) $ 12.9 vides that the penalties will not be calculated in each instance all the way back to the target capacity factor of 70% as in the original stan- (A) Retrospective premium program under the Price-Anderson Liability provisions of dard, but rather to the edge of each capacity factor range. For exam- the Atomic Energy Act of 1954, as amended. Subject to retrospective assessment with ple, a 30% disallowance will apply to replacement power costs 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, incurred in the 55% to 65% range and a 40% disallowance will as amended.

apply to replacement power costs in the 45% to 55% range. Under (C) Represents the potential liability from workers claiming exposure to the hazard of the original standard, the percentage disallowed at 45% capacity nuclear radiation. This does not increase PSE&G's obligation under the Price-factor was 25%, all the way back to the 70% target capacity factor. 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 Capacity Factor Range Reward Penalty retrospective assessment with respect to loss at any nuclear generating station covered Equal to or greater than 75% 30% by such insurance.

Equal to or greater than 65% and less than 75% None None (E) Includes coverage for premature decommissioning of up to $200 million per site.

Equal to or greater than 55% and less than 65% 30% (F) Weekly indemnity for 52 weeks which commences after the first 21 weeks of an Equal to or greater than 45% and less than 55% 40% outage. Also provides $2.4 million weekly for a second 52-week period, and $1.2 Equal to or greater than 40% and less than 45% 50% million weekly for a third 52-week period.

Below40% BPU Intervenes The Price-Anderson Amendments Act of 1988 sets the "limit of liability" for claims that could arise from an incident involving any Another change in the standard involves the basis for calculating the licensed nuclear facility in the nation. The "limit of liability" is capacity factor. The design electrical rating (the theoretical rating of based on the number of licensed nuclear reactors and is a d - a t the plant assigned by the manufacturer) was utilized in the original least every five years based on the Consumer Price Index.

standard. The revised standard uses maximum dependable capabil-rent "limit of liability" is $7.8 billion. All nuclear utilities, ing ity, which takes into account actual operating conditions. This PSE&G, have provided for this exposure through a combination of private insurance and mandatory participation in a financial protec-tion pool as established by the Price-Anderson Act. Under the Price-Anderson Act, as amended, each party with an ownership interest in 40 L

a nuclear reactor can be assessed up to $66.2 million per reactor per Construction and Fuel Supplies incident, payable at $10 million per reactor per incident per year. If PSE&G has substantial commitments as part of its construction the damages exceed the "limit of liability" the President is to submit program which includes the capital requirements for nuclear fuel.

to Congress a plan for providing additional compensation to the PSE&G's construction program is continuously reviewed and period-injured parties. Congress could impose further revenue raising ically revised as a result of changes in economic conditions, revised measures on the nuclear industry to pay claims. PSE&G's maximum load forecasts, changes in the scheduled retirement dates of existing aggregate assessment per incident is $175 million (based on PSE&G's facilities, changes in business plans, site changes and cost escala-ownership interests in Hope Creek, Peach Bottom and Salem) as of tions under construction contracts, and requirements of regulatory January 16, 1991, and its maximum aggregate annual assessment per authorities and laws, the timing of and amount of electric and gas incident is $26.5 million. In 1984, in a case to which PSE&G was not rate changes and the ability of PSE&G to raise necessary capital.

a party, the Supreme Court of the United States held that the Atomic PSE&G periodically reevaluates its forecasts of future customers, Energy Act, the Price-Anderson limitation of liability and the exten- load and peak growth and sources of electric generating capacity to sive regulation of nuclear safety by the Nuclear Regulatory Commis- meet such projected growth, including the need to construct new sion (NRC) do not pre-empt claims under state law for personal, electric generating capacity. Forecasts take into account assumptions property or punitive damages related to radiation hazards. concerning future demands of customers, effectiveness of conserva-PSE&G maintains property insurance, including decontamination tion and load management activities, the long-term condition of expense coverage and premature decommissioning coverage, with PSE&G's plants, capacity available from other electric utilities, and respect to loss or damage to its nuclear facilities. The limit of these the amounts of cogeneration and other nonutility capacity projected coverages is $2.325 billion per incident, per site. PE has advised to be available.

PSE&G that it maintains similar insurance coverage with respect to PSE&G's construction expenditures of $4.6 billion, including the Peach Bottom units operated by PE. Under the terms of the $330 million of allowance for funds used during construction, and various insurance agreements, PSE&G could be subject to a maxi- capitalized interest of $18 million are expected to be incurred during mum retrospective assessment for a single incident of up to $29.4 the years 1991 through 1995. The estimate of construction require-million. Certain of the policies also provide that the insurer may ments is based on expected project completion dates and includes suspend coverage with respect to nuclear units on a site without anticipated escalation due to inflation of approximately 4%, an-no he NRC suspends or revokes the operating license for any nually. Therefore, construction delays or higher inflation levels could un site, the NRC issues a shutdown order with respect to cause significant increases in these amounts. PSE&G expects to sucn mt, or the NRC issues a confirmatory order keeping such unit generate internally a majority of the funds necessary to satisfy its shut down. construction expenditures over the next five years. In addition, PSE&G is a member of an industry mutual insurance company, PSE&G does not presently anticipate any difficulties in obtaining Nuclear Electric Insurance Limited (NEIL), which provides re- sufficient sources of fuel for electric generation and adequate gas placement power cost coverage in the event of a major accidental supplies during the years 1991 through 1995.

outage at a nuclear station. Salem and Hope Creek are covered by replacement power cost policies which provide for a weekly indem- Oil and Gas Property Write-Down nity payment to the Salem and Hope Creek owners, respectively, of On October 31, 1986, the BPU approved agreements by PSE&G and

$3.5 million for 52 weeks, subject to a 21-week waiting period. the major parties in PSE&G's gas base rate case, which provided for Thereafter, the policies provide for weekly indemnity payments of an annual reduction in gas base revenues of $30 million, effective

$2.4 million for a second 52-week period, and $1.2 million weekly October 31, 1986, and for the removal of EDC, at that time a for a third 52-week period. PSE&G has been informed by PE that PE wholly-owned subsidiary of PSE&G, from inclusion in its gas rate has similar replacement power cost coverage with respect to Peach base for ratemaking purposes. In the BPU-approved agreement, Bottom. The premium for this coverage is subject to retrospective PSE&G was allowed to defer any loss on its investment in EDC as a assessment for adverse loss experience. Under the policies, PSE&G's result of any write-down of the value of reserves as of December 31, present maximum share of any retrospective assessment in any year 1986, and to seek recovery of such loss over a period of not less than is $12.9 million. 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 LGAC, formerly RMAC, ap-proved 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 then lower net realizable value of its oil and gas re-serves. PSE&G deferred $58. 8 million of the after-tax loss as of December 31, 1986. On July 1, 1988, PSE&G began amortizing the

$58.8 million deferred amount, absent regulatory approval, at the rate of 10% per year. As of December 31, 1990, the balance remain-ing to be amortized was $41.3 million. PSE&G will seek recovery of the entire $70.5 million in its next gas base rate case. Denial of the recovery of any unamortized balance by the BPU would require an immediate write-off.

41

Environment In furtherance of this effort, during 1990, PSE&G entered into Administrative Consent Orders (ACOs) with the NJDEP concerning General eight former manufactured gas plant sites located in South Amboy, The federal Comprehensive Environmental Response, Compensa- Morristown, Bordentown, Gloucester, Bayonne (Hobart Avenue),

tion and Liability Act of 1980 and certain similar State statutes Woodbury, Riverton and Paterson. These ACOs require PSE&G to authorize various governmental authorities to issue orders compel- investigate environmental conditions at these sites and, if an envi-ling responsible parties to take cleanup action at sites determined to ronmental problem related to gas manufacturing operations exists, present an imminent and substantial danger to the public and to the to clean up the sites in accordance with NJDEP requirements. Six of environment because of an actual or threatened release of hazardous the eight sites are owned by third parties. PSE&G completed a reme-substances. Because of the nature of PSE&G 's business, including dial investigation at one site, a preliminary screening at five sites, the production of electricity, the distribution of gas, and formerly and filed work plans with the NJDEP to investigate seven sites, also the manufacture of gas, various by-products and substances are or in 1990. Field work activities associated with the seven remedial were produced or handled which contain constituents classified as investigations will be initiated as soon as PSE&G receives NJDEP hazardous under the above laws. PSE&G generally provides for the approval of the work plans. The costs associated with conducting disposal or processing of such substances through licensed indepen- these investigations are expected to approximate $3.5 million. Upon dent contractors. However, these statutory provisions impose joint completion of the investigations, some or all of these sites may and several responsibility without regard to fault on all allegedly require remedial action.

responsible parties, including the generators of the hazardous sub- Remedial work activities have been undertaken at four additional stances, for certain investigative and cleanup costs at sites where sites, three of which are owned by third parties. Remedial work these substances were disposed or processed. PSE&G has been activities at one of these sites has been conducted at a cost to PSE&G notified with respect to a number of such sites, and the cleanup of of $5.6 million. In the second case, PSE&G entered into a settlement these potentially hazardous sites is receiving greater attention from agreement with the owner for approximately $10 million. With the government agencies involved. Generally, actions directed at respect to the other two sites, PSE&G expects the investigation costs funding such site investigations and cleanups include all suspected to approximate $2 million. The nature and duration of the industrial or known allegedly responsible parties. PSE&G does not expect its operations conducted at these latter two sites, as well as the prelimi-expenditures for any such site to be material. nary findings from these investigations, suggest that remed' n PSE&G's own sites also are subject to certain of these environ- will be necessary at these sites.

mental laws, and the nature and duration of certain of PSE&G's past The cleanup of former gas plant sites will require a substant1 operations suggest that some remedial action may be required. effort by PSE&G over a number of years. This overall cost of the PSE&G cannot determine, at this time, the costs which may result investigation and cleanup cannot be reasonably estimated, but expe-from these matters, but such costs could be material. rience to date'indicates that costs of approximately $20 million per year could be incurred over a period of more than 20 years and that PSE&G Gas Plant Sites the overall costs of the investigation and cleanup could be material.

In March 1988, the NJDEP notified PSE&G that it had identified the The BPU issued aii order on August 8, 1989, approving PSE&G's need for PSE&G, pursuant to a formal arrangement, to systemati- request to permit it to defer charging to income costs incurred in cally investigate and, if necessary, resolve environmental concerns connection with the investigation and remediation of its former gas extant at PSE&G's former manufactured gas plant sites. To date, the plant sites, pending a determination in a gas base rate proceeding of NJDEP and PSE&G have identified thirty-eight former gas plant the extent to which such costs may be recovered from customers.

sites. PSE&G has completed a preliminary assessment of twenty- PSE&G is also seeking to recover such costs from its insurers, (see eight of these sites. PSE&G is currently working with the NJDEP below.) As of December 31, 1990, PSE&G has deferred approxi-under a plan pursuant to which*PSE&G would undertake to investi- mately $23.7 million of such costs. Absent insurance recovery, denial gate these sites. At a minimum, some form of investigation will be of recovery by the BPU of such costs would require an immediate required at each of these sites. Upon completion of these investiga- write-off of the amount being deferred by PSE&G.

tions, some or all of these sites may require remedial action. PSE&G In November 1988, PSE&G filed suit against certain of its insurers anticipates that its program to assess, investigate and, if necessary, to recover the costs associated with addressing and resolving envi-remediate environmental *concerns at its former gas plant sites may ronmental issues at its former gas plant sites. The litigation is cur-take more than 20 years to complete. rently in the discovery phase. 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 cleanup of its former gas plant sites.

42

Community Energy Alternatives Incorporated In order to secure financing for Hanford, Enterprise had entered CEA, one of Enterprise's indirect nonutility subsidiaries, partici- into a subscription agreement for the purchase of capital stock of pates in the development of cogeneration and small power produc- CEA in the amount of approximately $32 million, which subscrip-tion facilities. GWF Power Systems, L.P. (Partnership), in which tion agreement has been pledged to the project lenders. CEA's 50%

CEA has an aggregate indirect 50% ownership interest, has con- partner in the Partnership has provided a support agreement of like structed a coal-fired cogeneration plant located in Hanford, Califor- amount which has also been pledged to the project lenders. Aban-nia (Hanford). CEA's wholly-owned subsidiary, CEA USA, Inc., donment of Hanford would enable the project lenders to demand and CEA USA, Inc. 's wholly-owned subsidiary, CEA GWF, Inc., repayment of the construction loan, requiring payments by Enter-are a limited partner and a general partner, respectively, in the Part- prise for additional shares of CEA capital stock pursuant to the nership. Physical construction of Hanford is complete. Hanford was subscription agreement. In the event that certain conditions are met, synchronized to the utility grid on October 14, 1990 and was oper- including issuance by the City of permits for Hanford to operate, the ated for testing until December 31, 1990 when it was shut down as lenders have agreed that the present fully guaranteed construction required by the court order discussed below. During the testing loan will terminate and that they will lend the Partnership funds period, Hanford successfully completed its power contract capacity relative to Hanford on a nonrecourse basis. The Hanford construction test. As of December 31, 1990, approximately $72.1 million had loan is otherwise payable in full on September 30, 1991, with Enter-been spent on development and construction of Hanford, and the prise obligated to provide funding for 50% of such payment as dis-Partnership or the contractor, a CEA affiliate, had committed an cussed above. As of December 31, 1990, the Partnership had additional $6 million, of which CEA's indirect share is 50%. Hanford construction loans outstanding of approximately $49.4 Hanford continues to be the subject of a legal challenge which in million.

1990 resulted in a determination that the permits necessary for Enterprise is presently unable to predict the resolution of this Hanford's operation are invalid. On June 21, 1990, the California matter. However, in the event that the City, after modification of the Court of Appeal issued its determination that the Environmental general (zoning) plan and the EIR, declines to issue the permits for Impact Report (EIR) prepared by the City of Hanford (City) for Hanford or a decision were made by the Partnership to abandon Hanford was inadequate under the California Environmental Quality Hanford, Enterprise would be required to write off its indirect equity Act a further, that the City's general (zoning) plan, under which investment in Hanford, which investment as of December 31, 1990, the for Hanford were issued, was in violation of California including its obligations under the subscription agreement, was la ptember 21, 1990, the California Supreme Court declined approximately $25.8 million, net of Federal income taxes, or ap-to heart e Partnership's appeal and remanded the matter to the proximately 12 cents per share of Enterprise Common Stock.

California Superior Court to determine and implement a remedy. On In addition, the Partnership may have responsibility to restore the October 26, 1990, following a hearing, the Superior Court after Hanford site to its pre-construction condition if Hanford is aban-declaring the permits invalid, (i) ordered the City to make corrective doned. The costs of any such restoration cannot be presently esti-amendments to its general (zoning) plan and the EIR within 120 mated but they could be material to the Partnership. Further, certain days from November 1, 1990 and (ii) ordered that Hanford could ofHanford's equipment may have resale or salvage value.

operate for testing purposes for up to sixty days from November 1, 1990. The Court also ordered the City, after completing the correc- Public Service Resources Corporation tive amendments, to reconsider the project, and to decide whether in PSRC has a diversified portfolio of investments across a number of the discretion of the City it should be approved. The Partnership is market segments. One investment consists of $16 million of equity presently attempting to resolve this matter on mutually acceptable securities (primarily preferred stock) and $15 million of subordi-grounds with the plaintiffs in the lawsuit, and with the City, which nated debt purchased from Second National Federal Savings Bank passed an ordinance prohibiting the burning of coal within the City's (SNFSB) of Salisbury, Maryland. As of December 31, 1990, SNFSB limits after originally approving permits to allow the construction of failed to meet certain of the prescribed capital requirements of the Hanford. Federal Office of Thrift Supervision (OTS). As a result, on January 25, 1991 SNFSB filed a Capital Plan with OTS designed to bring SNFSB back into compliance with the capital requirements of OTS by the third quarter of 1994. Enterprise cannot predict whether OTS will approve SNFSB 's Capital Plan or what other action OTS may take. If, however, OTS were to take over SNFSB, Enterprise could be required to write off its related investment, amounting to $20.5 million, after the tax effect, or nine cents per share of Enterprise Common Stock .

43

12. Pension Plan and Other Post-Employment Benefits 13. Financial Information by Business Segments The discount rate, expected long-term return on assets and average Information related to the segments~of Enterprise's business is compensation growth used in determining the plan's funded status detailed below:

as of December 31, 1990 and 1989, and net pension costs for 1990, For the Year Ended December 31, 1990 1989 and 1988, were as follows:

Nonutility 1990 1989 (Thousands of Dollars) Electric Gas Activities (A) Total Discount Rate Used to Determine Pension Cost 7V.% 7%% Operating Revenues $ 3,332,417 $1,236,747 $ 281,250 $ 4,850,414 Discounted Rate Used to Determine Benefit Obligations 7%% 7 1/4% Eliminations (lnterseg-Expected Long-Term Return on Assets  !!% 8% ment Revenues) (50,279) (50,279)

Average Compensation Growth 6% 6% Total Operating Revenues 3,332,417 1,236,747 230,971 4,800,135 Depreciation and The following table shows the plan's funded status: Amortization 385,567 88,864 87,053 561,484 Operating Income before (Thousands of Dollars) Income Taxes 972,806 137,778 73,682 1,184,266 December 31, 1990 1989 Capital Expenditures 821,242 146,781 298,366 1,266,389 December 31, 1990 Actuarial present value of benefit obligations:

Net Utility Plant 8,768,462 1,105,319 9,873,781 Accumulated benefit obligations, including vested Oil and Gas Property, benefits of $817,837 and $864,793 $ (873,745) $ (926,031)

Plant & Equipment 789,819 789,819 Effect of projected future compensation (292,658) (246,377)

Other Corporate Assets 1,331,729 426,919 1,601,062 3,359,710 Projected benefit obligations (1,166,403) (I, 172,408)

Total Assets $10,100,191 $1,532,238 $2,390,881 $14,023,310 Plan assets at fair value, primarily listed equity and debt securities 970,886 1,028,585 For the Year Ended December 31, 1989 Projected benefit obligations in excess of plan assets (195,517) (143,823) Nonutility Unrecognized net gain (loss) from past experience and (Thousands of Dollars) Electric Gas Activities (A) Total effects of changes in assumptions 12,890 (52,333)

Operating Revenues $3,279,913 $1,362,470 $ 207,165 Prior service cost not yet recognized in net pension cost 80,840 86,269 Eliminations (lnterseg-Unrecognized net obligations being recognized over ment Revenues) (44,696) 16.7 years 101,787 109,887 Total Operating Revenues 3,279,913 1,362,470 162,469 4,804,852 Prepaid (accrued) pension expense $ $ Depreciation and Amortization 374,086 86,158 64,270 524,514 The net pension cost for the years ended December 31, 1990, 1989 Operating Income before and 1988, include the following components: Income Taxes 925,209 122,854 102,758 1,150,821 Capital Expenditures 552,603 121,611 414,837 l ,089,05 l (Thousands of Dollars) 1990 1989 1988 December 31, 1989 Service cost - benefits earned during year $ 34,323 $ 28,185 $ 25,811 Net Utility Plant 8,314,861 l ,021,774 9,336,635 Interest cost on projected benefit obligations 83,930 74,997 70,485 Oil and Gas Property, Return on assets 41,425 (159,767) (111,175) Plant & Equipment 608,689 608,689 Net amortization and deferral (109,678) 98,585 56,879 Other Corporate Assets 1,377,649 401,978 l ,194,483 2,974, 110 Total $ 50,000 $ 42,000 $ 42,000 Total Assets $ 9,692,510 $1,423,752 $1,803,172 $12,919,434 For the Year Ended December 31, 1988 Supplemental pension costs in 1990, 1989 and 1988, were$ 947,000, Nonutility

$1,900,000, and $2,846,000, respectively. (Thousands of Dollars) Electric Gas Activities (A) Total In addition to the pension plan, Enterprise also provides certain Operating Revenues $ 3,090,609 $1.203,435 $161.122 $4,455, 166 health care and life insurance benefits to active and retired em- Eliminations (Interseg-ployees. The cost of these benefits is charged to expense when paid. ment Revenues) (60,474) (60,474)

(See Note 1 - Organization and Summary of Significant Account- Total Operating Revenues 3,090,609 1.203,435 100,648 4,394,692 ing Policies.) Depreciation and Amortization 353,306 76,248 47 ,872 477,426 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 Other Corporate Assets l,204,808 370,497 739.009 Total Assets $ 9,333,35 l $1,331.457 $1.025,561 (A) The Nonutility Activities include amounts applicable to Enterprise. the parent corporation.

44

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 Con-solidated Statements of Income as an operating expense. (See Note 1 - Organization and Summary of Significant Accounting Policies.)

(Thousands of Dollars) December 31, 1990 Ownership Plant Accumulated Plant Under Plant Interest In Service Depreciation Construction Coal Generating Conemaugh 22.50% $ 91,302 $ 28,956 $ 2,205 Keystone 22.84 88,208 26,150 2,510 Nuclear Generating Peach Bottom 42.49 640,652 221,768 27,350 Salem 42.59 903,365 288,045 25,514 Hope Creek 95.00 4,049,133 471,300 43,157 Nuclear Support Facilities Various 84,408 14,229 12,952 Pumped Storage Generating Yards Creek 50.00 20,682 7,019 226 Transmission Facilities Various 87,882 21,636 8 Merrill Creek Reservoir 13.91 36,483 4,029 Linden SNG Plant (ceased the manufacture of SNG effective July I, 1989) 90.00 16,739 16,195

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.

uarter Ended March31, June 30, September 30, December 31, where applicable) 1990 1989 1990 1989 1990 1989 1990 1989 Ope evenues $1,325,210 $1,296,140 $1,074,002 $1,047,694 $1,190,032 $1,155,033 $1,210,891 $1,305,985 Operating Income $ 248,248 $ 249,337 $ 200,229 $ 207,036 $ 291,887 $ 272,087 $ 233,116 $ 211,350 Net Income $ 144,660 $ 154,423 $ 98,292 $ 113,662 $ 181,898 $ 174,723 $ 117,428 $ 99,329 Earnings Per Share of Common Stock $ 0.69 $ 0.75 $ 0.47 $ 0.55 $ 0.86 $ 0.85 $ 0.54 $ 0.47 Average Shares of Common Stock Outstanding 211,100 205,350 211,116 205,350 211,884 205,663 213,797 211,100 45

Consolidated Financial Statistics (A)

(Thousands of Dollars where applicable) 1990 1989 1988 1987 1986 Selected Income Information Operating Revenues Electric $ 3,332,417 $ 3,279,913 $ 3,090,609 $ 2,959,549 $ 3,156,010 Gas 1,236,747 1,362,470 1,203,435 1,219,955 1,324,690 Nonutility Activities 230,971 162,469 100,648 31,551 17,716 Total Operating Revenues $ 4,800,135 $ 4,804,852 $ 4,394,692 $ 4,211,055 $ 4,498,416 Net Income $ 542,278 $ 542,137 $ 528,586 $ 520,451 $ 378,463 Earnings per average share of Common Stock $ 2.56 $ 2.62 $ 2.57 $ 2.55 $ l .90(B)

Dividends Paid per Share $ 2.09 $ 2.05 $ 2.01 $ 1.99 $ l.95(B)

Payout Ratio 82% 78% 78% 78% 103%(B)

Rate of Return on Average Common Equity 12.72% 13.41 % 13.60% 13.88% 10.56%

Ratio of Earnings to Fixed Charges Before Income Taxes 2.50 2.66 2.81 3.03 2.38 Book Value per Common Share $20.44 $19.85 $19.11 $18.54 $17.92(B)

Utility Plant $13,836,874 $12,960,093 $12,466,690 $11,998,816 $11,437' 196 Accumulated Depreciation and Amortization of Utility Plant $ 3,963,093 $ 3,623,458 $ 3,377,187 $ 3,028,712 $ 2,692,759 Total Assets $14,023,310 $12,919,434 $11,690,369 $10,857,551 $10,577,822 Consolidated Capitalization Common Stock $ 3,043,402 $ 2,857,974 $ 2,710,343 $ 2,710,343 $ 2,632,662 Retained Earnings 1,421,611 1,332,739 1,213,260 1,096,933 993,836 Common Equity 4,465,013 4,190,713 3,923,603 3,807,276 3,626,498 Long-Term Debt 4,668,024 4,293,578 3,944,776 3,287,039 3,336 120 Capital Lease Obligations 54,073 54,513 54,966 55,374 Preferred Stock with Mandatory Redemption 30,000 Preferred Stock without Mandatory Redemption 429,994 429,994 429,994 429,994 Total Capitalization $ 9,617,104 $ 8,968,798 $ 8,353,339 $ 7,609,683 $ 7,639,021 (A) See Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes to Consolidated Financial Statements.

(8) Reflects the July l, 1987 3-for-2 common stock split.

46

Operating Statistics p Service Electric and Gas Company

-u-(Thousands of Dollars where applicable) 1990 1989 1988 1987 1986 Electric Revenues from Sales of Electricity Residential $1,038,906 $1,015,065 $ 992,121 $ 940,915 $ 971,236 Commercial 1,516,755 1,464,431 1,335,158 1,273,819 1,333,144 Industrial 697,571 715,669 686,854 672,104 782,008 Public Street Lighting 45,418 46,750 45,620 46,248 43,726 Total Revenues from Sales to Customers 3,298,650 3,241,915 3,059,753 2,933,086 3, 130, 114 Interdepartmental 1,652 1,843 1,643 1,896 . 1,927 Total Revenues from Sales of Electricity 3,300,302 3,243,758 3,061 ,396 2,934,982 3,132,041 Other Electric Revenues 32,115 36,155 29,213 24,567 23,969 Total Operating Revenues $3,332,417 $3,279,913 $3,090,609 $2,959,549 $3,156,010 Sales of Electricity - megawatthours Residential 9,875,569 9,950,773 9,941,003 9,299,490 8,726,769 Commercial 17,054,495 16,946,768 16,036,020 14,990,376 14,118,028 Industrial 9,457,985 10,039,913 10,179,340 10,119,614 10,134,327 Public Street Lighting 314,936 310,073 303,782 296,377 295,639 Total Sales to Customers 36,702,985 37,247,527 36,460,145 34,705,857 33,274,763 Interdepartmental 19,822 23,175 22,440 23,709 23,790 Total Sales of Electricity 36,722,807 37,270,702 36,482,585 34,729,566 33,298,553 Gas Re from Sales of Gas R 1 $ 667,077 $ 772,344 $ 695,918 $ 698,518 $ 754,785

• rcial 406,577 436,349 366,776 360,834 390,811 Industrial 130,273 134,272 123,434 145,664 171,860 Street Lighting 385 358 359 363 355 Total Revenues from Sales to Customers 1,204,312 1,343,323 1,186,487 1,205,379 1,317,811 Interdepartmental 2,157 3,613 3,059 3,837 2,849 Total Revenues from Sales of Gas 1,206,469 1,346,936 1,189,546 1,209,216 1,320,660 Transportation Service Gas Revenues 15,654 11 ,485 10,505 7,508 1,192 Other Gas Revenues 14,624 4,049 3,384 3,231 2,838 Total Operating Revenues $1,236,747 $1,362,470 $1,203,435 $1,219,955 $1,324,690 Sales of Gas - kilotherms Residential 1,097,034 1,253,800 1, 188,532 1,118,609 1,065,630 Commercial 837,650 872,684 748,283 678,281 644,450 Industrial 341,467 342,928 332,970 373,947 413,072 Street Lighting 657 656 657 655 680 Total Sales to Customers 2,276,808 2,470,068 2,270,442 2,171,492 2,123,832 Interdepartmental 5,144 8,705 7,640 8,972 5,498 Total Sales of Gas 2,281,952 2,478,773 2,278,082 2, 180,464 2,129,330 Transportation Service 182,056 149,586 138,665 98,121 14,926 Total Gas Sold or Transported 2,464,008 2,628,359 2,416,747 2,278,585 2,144,256 47

I Officers and Directors Public Service Enterprise Shirley A. Jackson Josh S. Weston John A. Gartman Group Incorporated Theoretical Physicist, Chairman of the Board, Chief Vice President - Gas Supply and AT&T Bell Laboratories. Executive Officer and director, Planning Officers Member of Audit Committee and Automatic Data Processing, Inc.

Curtis W. Grevenitz Nominating Committee, and Member of Audit Committee, Vice President - Gas Operations director, Holdings. Executive Committee, and

• E. James Ferland . Organization and Compensation Richard E. Hallett Chairman of the Board, Henry E. Kates Committee, and director, Vice President and Comptroller President and Chief Executive President, Chief Executive Officer and director, The Mutual Holdings. Stanley LaBruna Officer (Chairman of the Board and Chief Executive Officer, Benefit Life Insurance Company. Vice President - Nuclear Operations Holdings) Irwin Lerner Public Service Electric and

• Everett L. Morris President, Chief Executive Gas Company Pierre R.H. Landrieu Vice President Officer and director, Hoffmann- Vice President - Fossil (President and Chief Operating La Roche Inc. (manufactures Officers & Directors Production Officer, Holdings) pharmaceuticals, vitamins, fine Frederick W. Lark chemicals, and provides home Vice President - Marketing Richard E. Hallett E. James Ferland health care and diagnostic Vice President and Comptroller Chairman of the Board, John H. Maddocks products and services).

President and Chief Executive Vice President - Public Affairs

• R. Edwin Selover Member of Audit Committee, Officer Vice President and General Executive Committee and Steven E. Miltenberger Counsel Organization and Compensation Everett L. Morris Vice President and Chief Committee. Senior Executive Vice President Nuclear Officer

• Francis J. Riepl Treasurer William E. Marfuggi Harold W. Borden, Jr. Francis J. Riepl Chairman, Tri-Maintenance & Senior Vice President - External Vice President and Trea

• Robert S. Smith Affairs Contractors Inc.

Secretary Louis L. Rizzi Chairman of Organization and Lawrence R. Codey Compensation Committee and Vice President - Custome Directors Senior Vice President - Electric Services member of Nominating Committee, and director, Robert J. Dougherty, Jr. Robert S. Smith T.J. Dermot Dunphy Holdings. Senior Vice President - Vice President and Secretary President, Chief Executive Customer Operations Everett L. Morris Robert F. Steinke Officer and director, Sealed Air R. Edwin Selover Vice President of the Vice President - Business and Corporation (manufactures Senior Vice President and Corporation. Technical Support protective packaging products General Counsel Chairman of Finance Committee and systems). Gregory M. Thomson and member of Executive Rudolph D. Stys Member of Finance Committee Vice President - Human Committee. Senior Vice President - Gas and Organization and Resources Compensation Committee, and Marilyn M. Pfaltz PaulH. Way director, Holdings. Partner of P and R Associates Senior Vice President -

(public relations and Corporate Performance 1990 Transition Robert R. Ferguson, Jr.

communication specialists).

Retired Chairman of the Board, Chairman of Nominating Officers Board of Directors -

and director: First Fidelity Committee and member of Audit Enterprise Bancorporation; First Fidelity Committee, and director, Elected Bank, N.A. and First Fidelity, Donald A. Anderson Holdings. Henry E. Kates, 10/17/90 Inc. Vice President - Information Member of Executive Committee, James C. Pitney Systems and Corporate Services Finance Committee and Partner in the law firm of Pitney, Officers - PSE&G Organization and Compensation Hardin, Kipp & Szuch. William J. Budney, Jr..

Vice President - Distribution Retired Committee. Chairman of Audit Committee Richard A. Uderitz, 5/3/90 and member of Nominating Systems E. James Ferland Vice President - Technical Committee and Organization Frank Cassidy Services Chairman of the Board, and Compensation Committee. Vice President - Transmission President and Chief Executive Officer of the Corporation. Harold W. Soon Systems *indicates Officer of En Chairman of Executive Retired Chairman of the Board Thomas M. Crimmins, Jr. Diversified Holdings Committee and member of of the Corporation. Vice President - Nuclear Incorporated (Holdings)

Finance Committee, and Member of Audit Committee and Engineering director, Holdings. Finance Committee, and director, Holdings.

48

Corporate and Stock Information Stockholder Information - Toll Free Financial and Statistical Review New Jersey residents 1-(800) 242-0813 A comprehensive statistical report containing financial and operat-Outside New Jersey 1-(800) 526-8050 ing data will be available this spring . If you wish to receive a copy, please write to the Manager - Investor Relations , Public Service Telephone Hours: 10 a.m. to 12 p.m . and 1:30 to 3:30 p.m. Electric and Gas Company, PO. Box 570, T6B , Newark, N.J. 07101 Monday- Friday (Eastern Time) (telephone (201) 430-6503) .

Security Analysts and Institutional Investors Manager - Investor Relations (201) 430-6564 Transfer Agents All Stocks:

Dividend Reinvestment Plan First Chicago Trust Company of New York Enterprise has a Dividend Reinvestment and Stock Purchase Plan 30 West Broadway, New York , N. Y. 10007 under which all common and PSE&G preferred stockholders may reinvest dividends and/or make direct cash investments to obtain Stockholder Services, Public Service Electric and Gas Company Enterprise common stock. Purchases of common stock are made for 80 Park Plaza, PO. Box 1171 the Plan directly from Enterprise, at its sole discretion , and/or in the Newark , N.J. 07101-1171 open market. All brokerage and other fees to acquire shares are absorbed by Enterprise. To participate call the toll free number to Registrars obtain a prospectus and an authorization card. All Stocks:

First Fidelity Bank, N.A. , New Jersey Stock Trading Symbol: PEG 765 Broad Street, Newark, N.J. 07101 Annual Meeting First Chicago Trust Company of New York Please note that the Annual Meeting of Stockholders of Public 30 West Broadway, New York, N.Y. 10007 Service Enterprise Group Incorporated will be held at Newark Symp Hall, 1020 Broad Street, Newark , N.J. on Tuesday, April Stock Exchange Listings 16, 2:00 PM . A summary of the meeting will be sent to all stoc s of record at a later date . Common:

New York Stock Exchange Additional Reports Available - Form 10-K Philadelphia Stock Exchange Stockholders or other interested persons wishing to obtain a copy of London Stock Exchange Enterprise's or PSE&G's 1990 Annual Report to the Securities and Exchange Commission, filed on Form 10-K, may obtain one without Preferred of PSE&G:

charge by writing to the Manager - Investor Relations, Public New York Stock Exchange Service Electric and Gas Company, P.O. Box 570, T6B , Newark ,

N.J. 07101 (telephone (201) 430-6503). The copy so provided will Common Stock - Market Price and Dividends Per Share be without exhibits. Exhibits may be purchased for a specified fee . 1990 1989 High Low Div. High Low Div.

PSE&G Territory First Quarter 29% 25 1/2 $.52 7 24 /s 23 $.51 Second Quarter 27 1/ 4 243/s .52 27 1/2 241/s .51 Third Quarter 26 1/s 22 1/2 .52 28 1/2 25'/s .51 Fourth Quarter 27 23 .53 293/s 26 .52 Newark The number of holders of record of Public Service Enterprise Group Incorporated common shares as of December 31, 1990 was 194,698 .

Trenton Camden Design: Arnold Saks Associates Major Photography: Lee Youngblood 49

Public Service Enterprise Group Incorporated 80 Park Plaza PO. Box 1171 Newark, NJ 07101-1171