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Annual Rept 1992 Public Svc Enterprise Group,Inc
	ML18100A304
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Site:	Salem, Hope Creek
Issue date:	12/31/1992
From:	Ferland E; Public Service Enterprise Group
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5000272 PDR Annual Report 1992 Public Service Enterprise Group lncor po rated VISIO

1992 Financial Highlights (Thousands of Dollars where applicable)

Total Operating Revenues Total Operating Expenses Net Income Common Stock Shares Outstanding -

Average (Thousands)

Shares Outstanding -

Year-end (Thousands)

Earnings Per Average Share Dividends Paid Per Share Book Value Per Share -

Year-end Market Price Per Share -

Year-end Ratio of Earnings to Fixed Charges Ratio of Earnings to Fixed Charges -

PSE&G Gross Additions to Utility Plant Total Gross Utility Plant 1992

$ 5,356, 781

$ 4,390,646 504, 117 232,306 235,396

$ 2.17

$ 2.16

$20.32

$30.875 2.30 2.70 826, 761

$15,081,907 199l(A)

$ 5,091,658

$ 4,094,504 543,035 223,565 226,701

$ 2.43

$ 2.13

$20.04

$29.375 2.54 3.20 813,149

$14,426,560

% Change 5

7 (7) 4 4

(11) 1 1

5 2

5 (A) Prior year restated to reflect the change in accounting principle by EOC to the successful efforts method of accounting for oil and gas operations from the full cost method.

See Notes to Consolidated Financial Statements.

Net Income Dollars in Millions*

600 480 360 240 120 it8l.5 87 88 89 90 91 92 PSE&G Territory Trenton Camden Annual Dividend Payout and Earnings Per Share In Dollars*t 3.0 2.4 1.8 °'

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0 C>

0 N

N

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--1 1.2

'° 0

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0.6 87 88 89 90 91 92 Annual Dividend Payout Earnings Per Share

Prior periods earnings per share and nee income cescaced co reflecc EDC change in accounting.

tAdjusced co reflecc 3 for 2 common scock splic effecciveJuly 1, 1987.

Contents Letter to Shareowners 2

Interview with the President, PSE&G 6

Interview with the President, Holdings 8 "

Topic Update 10 Review of Operations 14 Financial Statements 21 Corporate and Stock Information 48 Officers and Directors 49

2

Dear Shareholders:

1992 was a challenging and eventful year for our Company. It was marked by disappointing finan-cial results, good operating performance under difficult conditions, and legislative and regula-tory developments that will significantly change the electric and natural gas industries in years to come.

Enterprise earnings for 1992 were $504.1 million, or $2.17 a share, compared to $543.0 million, or $2.43 a share during the previous year. These results were not unexpected, as 1992 represented the end of a six-year interval during which PSE&G did not increase customers' base rates. Earnings were further depressed by a con-tinuing sluggish economy in New Jersey. On a more positive note, the earnings of Enterprise Diversified Holdings Incorporated rebounded to

$60 million from last year's poor performance of

$27 million, although this level of earnings remains below our expectations.

A brighter future looms ahead. On December 31st, the Board of Regulatory Commissioners (BRC) approved a $295 million increase in base electric and gas rates, which resulted from a settlement that had been reached earlier in De-cember. Offsetting the increases in base electric and gas rates are credits from our electric and gas adjustment clauses. The net effect is an in-crease in rates of 5. 0% for electric cusromers and a decrease of 4. 7% for gas cusromers. The new rates rook effect on January 1, 1993.

Our earnings results, while disappointing, benefitted from the imposition throughout the year of cost control measures in all areas of Enterprise. We intend not only tO continue these cost control measures during 1993 but to inten-sify them in recognition of our need t0 provide improved earnings, as well as the need tO con-tinue to enhance the cost position of PSE&G relative tO its competition.

Also, 1992 marks the first time in 16 years that your Board has not increased the dividend.

We recognize the desire of our shareholders for regular increases, but this is offset by the con-cern for our high payout ratio, which limits future earnings growth. We are committed to resuming dividend growth when our financial situation will justify it.

The Energy Policy Act Despite the many challenges we faced during the year, by far the most significant event of the year for our industry and business was the pas-sage by the U.S. Congress of the Energy Policy Act of 1992.

In our view this legislation marks a major turning point for the electric industry. Over the remainder of this decade and beyond, the com-petitive forces it will unleash will bring major structural changes in the industry. Although it is not possible tO predict how quickly these changes will occur, this process, now started, leads inexorably to a very different future.

Also during 1992, the Federal Energy Regu-larory Commission (FERC) completed the process of deregulating the gas supply segment of that industry and changing the interstate gas pipeline companies into common carriers. These changes, too, will have significant long-term effects on local gas distribution companies.

Global competitive pressures are driving these changes in national policy, the objectives of which are increasingly tO allow competition, as opposed to regulation, tO establish prices for wholesale electric power and natural gas. While

E. James Ferland Chairman of the Board, President and Chief Executive Officer, Public Service Enterprise Group Incorporated this process was actually started some years ago, the legislative and regularory action of the past year will greatly hasten the process.

These changes are not news to us. We have anticipated them for some time and discussed them in our Annual Report for several years.

We worked ro help shape some of those developments. In expectation of change, we have been working for several years to effect a transition of our Company ro this new, more competitive business environment.

Key Steps Among the efforts we have pursued over the past five years are steps to:

Restructure the utility company into business units ro improve our focus on meeting customer needs, operational efficiency and financial performance;

Reduce operating and maintenance expenses;

Eliminate layers of management and reduce staffing levels;

Invest in cost-efficient new technology;

Minimize the environmental impact of our operations by establishing aggressive targets to significantly reduce all emissions, produce less waste, assure environmental compliance and promote energy conservation;

Initiate a company-wide quality process intended ro improve our responsiveness ro customers and make PSE&G the low-cost producer in its markets; and

Adopt aggressive five-year targets and measures ro drive our performance on customer satisfaction, financial results and operations.

While we have not achieved all that we intend to accomplish, we believe these efforts have improved our competitive position. Our electric and gas rates remain the lowest in New Jersey. Our new gas rates are equivalent to rates we had in effect in 1985.

However, the changes ro be wrought by competition are only just beginning. To meet these challenges, not only must we intensify and improve our current efforts, we must seek out and develop new markets and new value-added services to meet new and changing customer needs.

The energy industry at the start of the 21st century will be markedly different from the highly regulated industry that has served customers so well for the past hundred years.

3

4 Those companies that are not successful at meeting the challenges, that are not able to meet the demands of a competitive marketplace, will not prosper. We intend to be one of the compa-nies that prospers.

Burgeoning Competition Ten years ago, there were virtually no non-utility generation projects in New Jersey. Today, there are dozens, with over 1,250 megawatts (MW) of capacity. To date, PSE&G has lost over 100 MW of load to cogenerators, and one co-generation company has displaced Atlantic Elec-tric Company as the third-largest producer of electricity in the state.

New Jersey's policymakers have encouraged cogeneration through favorable power purchase rates and tax advantages. In addition, state en-ergy policies over the decade have inhibited electric utilities' ability to build new, large-scale or baseload generation, opening the door still wider to competitors.

Federal policymakers have been pushing competition in the natural gas industry as well.

Efforts here are more advanced than in the elec-tric industry. For example, approximately 300 large customers in our service area now purchase their natural gas from sources other than PSE&G. New rules adopted by FERC in 1992 will encourage more customers to do the same.

The principal reason for these lost electric and gas sales is the 13. 5% gross receipts and fran-chise tax applied by the state to our bills but not to our competitors' bills.

By amending the Public Utility Holding Company Act of 1935, which for so long has shaped the structure and operation of our in-dustry, the new Energy Policy Act will bring fundamental structural change to the industry, which can, we think, provide substantial long-term benefits to all customers.

The law creates a new class of unregulated competitors, called Exempt Wholesale Genera-tors (EWGs), who will have the ability to sell bulk power at market rates. More importantly, as a result of FERC being granted greater author-ity to order wheeling (transportation of electric-ity across high-voltage transmission lines),

EWGs will be able to compete for wholesale power transactions anywhere.

While some view these developments as threatening, we see opportunities to compete for new customers.

PSE&G recently completed three wholesale transactions that we hope are representative of future opportunities. We contracted with the Borough of Butler, a municipal system in north-ern New Jersey, to sell 33 MW annually start-ing in 1994. A second wholesale transaction with Old Dominion Electric Cooperative, lo-cated in the State of Delaware, will involve the sale of 150 MW of capacity and energy for ten years starting in 1995. The third transaction is with Orange and Rockland Utilities in New York State for 100 to 300 MW, which will en-able that company to fulfill its power pool re-quirements over the next four years.

In the energy services area, we have estab-lished a new subsidiary of PSE&G, Public Ser-vice Conservation Resources Corporation, whose mission will be to market energy management products and services. This effort is designed to rake advantage of imaginative new incentive conservation regulations adopted by the BRC in 1992 and is expected to produce meaningful profits by 1995.

Evolving Business Opportunities As we see these changes occurring, we continue to reassess our company's role and future direc-tion. Fundamental to our continuing role will be a steadfast commitment to continue to provide the best and most reliable service to our customers at the lowest prices.

We expect to see the assets of the transmis-sion and distribution segments of our business continue under regulation. However, over time it is likely that segments of our business such as electric generation and gas marketing or supply will evolve away from traditional regulation and toward a competitive marketplace.

We no longer think of our company as being in electric, gas and diversified businesses. In-creasingly, we see the company involved in five segments of the energy industry: electric gener-ation, merchant gas (gas supply), regulated en-ergy delivery, energy services and strategic investments. These are all areas in which we believe we have existing strengths on which we can capitalize and add value for customers and shareholders.

All five segments are consistent with our new vision for Enterprise:

"Working together to set the standard of excellence in delivering energy services to customers."

This involves more than selling kilowatt hours and therms. Among other things, it means helping customers find new ways to use energy wisely. And it means finding ways to provide new, maybe untraditional services that our customers want and need.

Setting the standard of excellence means being the best. Moreover, it means having the best price and the highest quality and providing the best service. That is our goal.

Concentrated Focus Our ability to achieve this goal requires contin-uing concentrated efforts in five key areas.

First, we must strive to be the low-cost energy supplier in the Middle Atlantic region.

Second, we must work to attain the highest standards of customer service and satisfaction by knowing what our customers want and provid-ing existing and new services at the most com-pem1ve prices.

Third, we must have a diverse, motivated and skilled workforce that works as a team and is committed to achieving the highest levels of performance.

Fourth, we must achieve a level of operational performance that is the best in the industry.

Finally, we must continue to provide leader-ship in New Jersey and beyond on economic development, the environment and energy policy.

We have made considerable progress in each of these areas. We are directing our continuing efforts at positioning Enterprise for improved financial performance and long-range growth.

I believe we have made good progress with our transition to date and I am confident we are focused on the key elements to long-term future success. We are positioned to make a significant improvement in our earnings performance in 1993 and look to the future with considerable optimism.

E. James Ferland Chairman of the Board, President and Chief Executive Officer, Public Service Enterprise Group Incorporated February 9, 1993

6 Interview with the President, PSE&G Lawrence R. Codey, President and Chief Oper-ating Officer of PSE&G, considers Total Quality and Environmental Awareness to be key ele-ments in achieving the company's vision for the future. On the following pages he discusses what we have accomplished and what we intend to accomplish on both issues.

Q How will PSE&G succeed in the changing energy industry?

A We will succeed by understanding and to-tally satisfying the needs of our customers. We must provide them with value-added services.

We also must weed out waste and inefficiency in delivering those products and services. This will position the utility to successfully compete in the very competitive energy industry that we env1s1on.

Q How do you intend to accomplish that?

A Through Total Quality. I believe TQ is the key to positioning ourselves for the future. It will enable us to implement the level of change that we must achieve in our business if we are to successfully meet the challenges of a changing and increasingly competitive industry.

Total Quality was once a preferred strategy; now it is an absolute necessity. It's not a fad. It's not just another program. Rather, we must build it into everything we do.

Q What have you accomplished in TQ during the past year?

A Focusing on the basic elements of Total Quality, during the past year we:

Developed a state-of-the-art system to con-tinuously monitor and measure customer satisfaction.

Took the next step in aligning our strategies, business plans and individual goals to meet long-term stretch targets.

Lawrence R. Codey President and Chief Operating Officer, PSE&G

Continued developing the work environment and systems that support Quality initiatives and introduced the training, education and reinforcement needed to build the necessary Quality skills within our organization.

Identified key competitive processes and es-tablished the foundation needed to contin-uously improve business processes.

Expanded the use of benchmarking and began to formally assess the organization against the common set of criteria codified in the Mal-colm Baldrige National Quality Award.

Q What are your plans for the coming year?

A We will be doing significant work on our quality process improvement: how we do our work; how we relate to one another; how we relate to the external business environment.

And we will develop and display the analytical tools of quality to help us achieve our objective of continuous improvement.

Total Quality was once a preferred strategy; now it is an absolute necessity. It's not a fad. It's not just I

another program.

I Rather, we must build it into every-thing we do. "

Q How do environmental concerns fit into this Total Quality framework?

A As we laid the groundwork for Total Qual-ity, it became apparent that our Total Quality initiative and our stated environmental goals complement one another.

By paying close attention to environmental concerns in everything we do, we are moving closer to Total Quality by eliminating the sources of pollution, rather than treating the environmental effects of our operations. By doing both, we are better serving the needs and meeting the expectations of our customers. At the same time, we are improving the competi-tive position of our company, our customers and the State of New Jersey.

Bottom line: that's good business.

Below and Inset:

Stania Cortright, engineer, monitors stack emissions at Mercer Generating Station. Sophisticated, computerized controls maintain air quality and keep the plant In compliance with strict state standards.

7

8 Interview with the President, Holdings Everett L. Morris, President and Chief Operat-ing Officer of Enterprise Diversified Holdings, Inc. (Holdings), on the following pages con-siders the company's performance over the past few years and discusses his outlook for the future.

Q What is the current outlook for the com-panies of Enterprise Diversified Holdings Incorporated?

A Our current outlook is promising.

Prior to 1992, our results reflected the usual effects of a start-up operation. In 1991, these were compounded by the national recession and, especially, by the collapse of the real estate mar-ket and low natural gas prices.

However, our earnings in 1992 have more than doubled compared to 1991 -

to $60 mil-lion from $27 million. We look forward to con-tinued improvement in 1993 and in the years ahead.

Q What specifically makes you optimistic?

A We are now well positioned to fulfill the expectations that our management has always had for our diversified operations. The outlook in the independent power industry and in the oil and natural gas industry is very positive. We have solid interests in both industries and a very competent management team to capitalize on the opportunities.

Q What uncertainties do we face?

A Our investment in real estate -

less than two percent of Enterprise's total assets -

requires careful management of developed prop-erties to build value until market conditions improve. We have substantially reduced over-heads to accomplish this and are looking toward Everett L. Morris President and Chief Operating Officer, Enterprise Diversified Holdings, Inc.

sale of existing properties in the longer term on a controlled basis.

Also, the future role of Public Service Resources Corporation (PSRC) is uncertain pending the resolution of the treatment of con-solidated taxes with the Board of Regulatory Commissioners.

Q What are your plans for the future of Holdings?

A Our current emphasis will continue to be profitability rather than growth. We expect some modest growth in nonutility assets through reinvestment of internally generated cash in the business and through appreciation of our cur-rent investments.

We will focus on the replacement of oil and gas reserves of Energy Development Corporation (EDC), Holdings' oil and gas exploration and *

~have solid interests n both the indepen-

{ent power industry md in the oil and 1at11ral gas indmtry md a very competent l'/anagement team to apitalize on the pportunities.

production subsidiary. I have already discussed Enterprise Group Development Corporation's real estate plans. PSRC will focus on managing its current portfolio. New investments will be made to fulfill existing commitments. And we expect to be a more aggressive participant in the independent power industry through Com-munity Energy Alternatives Incorporated (CEA), our independent power production com-pany, which represents our best opportunity for future growth.

Below and Inset:

Construction of the new Newark Bay Cogeneratlng plant In Newark, N.J., a project of Community Energy Alternatives Incorporated, which will have a capacity of 137 megawatts and consume 10.4 bllllon cubic feet of gas annually.

9

10 Topic Update Focused Audit The Board of Regulatory Commissioners' (BRC) audit of Enterprise's nonutility businesses affi.rmed the company's position that nonutility investments have not had a negative impact on PSE&G, its financial integrity, its rates or abil-ity to serve customers.

In addition, the audit, conducted by The Liberty Consulting Group of Baltimore, Md.,

confirmed that:

Nonutility businesses have not grown at the expense of PSE&G's ratepayers.

PSE&G's financial needs have remained Enterprise's corporate priority and the utility has not been deprived of resources needed to support service to customers.

Management attention has remained focused on PSE&G and the needs of the utility customers.

The manner of implementation of a number of recommendations made by the auditor are still being negotiated by the company and the BRC. In these discussions, Enterprise has pro-posed to voluntarily limit Holdings' assets so as not to exceed 20% of total Enterprise assets without prior notification to the BRC. At De-cember 31, 1992, Holdings' assets comprised 17% of total Enterprise assets.

The company has positioned ltseH to respond successfully to regulatory change and competition.

Energy Conservation/PSCRC PSE&G and the BRC reached agreement in October on a comprehensive and innovative plan designed to encourage investment in energy-saving demand-side management (DSM) acttv1ttes.

PSE&G's plan is a two-phased approach. The first phase involves a series of 25 energy conser-vation core programs, essentially a continuation of our existing programs, that will show cus-tomers how to reduce energy use. The second phase involves an innovative performance-based program that offers customer incentives for in-troducing DSM technology that results in mea-surable energy savings. The plan is designed to save 150 megawatts (MW). It also includes a pilot program designed to reduce demand by six million therms of natural gas -

two million therms from the residential market and the remainder from our industrial and commercial customers.

11We're working harder than ever small busi-n in our local communities to set a standard of excel-lence so they can compete in a global market."

11We have an oppor-tunity to create new markets and a new source of revenue, while contributing to an improvement in the overall ec.yandthe e

ment."

john R. Smith Manager, Regional Public Affairs - Central Arthur R.. Cottghlin President, Public Service Con-servation Resources Corporation To directly participate in the DSM market-place, PSE&G formed a subsidiary company, Public Service Conservation Resources Corpora-tion (PSCRC). The subsidiary will actively pro-mote DSM projects in New Jersey and will form some joint ventures or partnerships with various energy servtee companies.

Customer Satisfaction During 1992, PSE&G intensified its efforts tO measure customer satisfaction in areas that customers have identified as most important.

Cusrnmers were asked to describe their priorities for the electric and/or gas utility. Once they es-tablished their preferences, the cusrnmers were asked tO rate them in order of their relative im-portance and appraise how well PSE&G met their expectations. The resulting satisfaction scores reflected actual customer-defined expecta-tions, rather than a company interpretation of their needs and expectations.

(Photo above) President George Bmh signed the Energy Policy Act on October 24, 1992. The act is reshaping the energy industry, and offers s11bstantial opportunities to those who are poised to capitalize on them.

11

12 Results of the research show that PSE&G, in general, has been allocating resources and di-recting its efforts toward those areas most im-portant to customers. However, the studies also found room for improvement in meeting specific needs within all customer segments.

During 1992, the number of customer com-plaints to the BRC and to the officers of our business decreased by eight percent.

Company Response to Storm With No Name Heavy rain, wind, snow and floods battered PSE&G's entire service area starting early in the morning of Friday, December 11, 1992. Known at first as the Storm With No Name, it later became the Nor' easter of '92. This extraordinar-ily violent storm caused extended outages to 234,000 PSE&G customers, about 12% of our Estimated meter readings continued to decline, reflecting an ongoing com-mHment to customer satisfaction.

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1987 1988 1989 1990 total 1.9 million electric customers. It was the sixth most severe storm in terms of customer outages in the history of our company.

PSE&G employees worked around the clock from Friday morning until midnight Sunday. In the first 24 hours2.777778e-4 days 0.00667 hours 3.968254e-5 weeks 9.132e-6 months , we restored service to more than 200,000 customers. Full restoration was completed by mid-day Monday.

Environmental Activities To describe its commitment to the environ-mental health and well-being of New Jersey, PSE&G has produced an environmental report, Our Commitment to the Earth. It outlines in detail the environmental principles that guide PSE&G planning, the objectives already achieved and the targets set for the near-and long-term future.

"We're getting to know more about tomersand eywant.And we're delivering.

The measurements show that, and it's just the beginning."

"Quality is the way we'll do business to achieve our corpo-rate objectives of customer and em-ployee satisfaction, operational excel-financial and public responsibility."

Manager - Customer Relatiom Peter A. Cistaro General Manager -

Corporate Quality &

Performance Improvement Those targets include:

To reduce NOx emissions by 60% by 1995 and 80% by 2000.

To stabilize C02 emissions at 1990 levels by 2000.

To assure that 60% of our automotive fleet is made up of alternative fuel vehicles by 2000.

To reduce miles traveled on the job 15% by December 1999.

To recycle 75% of all nonhazardous solid waste by 1995.

To reduce the generation of hazardous waste from our operations by 30% by 1995.

To develop and promote electric demand-side management (DSM) activities to achieve 1,052 MW peak demand savings by 2000.

To reduce the discharge of pollutants to sur-face and ground water.

Copies of Our Commitment to the Earth can be obtained through Stockholder Services listed on page 48.

(Photo above) Deborah Osmian, Associate Marketing Engineer, and Rick Wyckoff, Memorial Hospital of Burlington County, examine the new microwave medical waste sterilization unit that will help the hospital reduce its waste disposal costs and benefit the environment.

13

14 Review of Operations 1992 Financial Results Consolidated earnings for 1992 were $504.1 million, or $2.17 per share of common stock, based on 232 million average shares outstand-ing. In 1991, earnings were $543.0 million, or

$2.43 per share, based on 224 million average common shares outstanding.

The nonutility businesses of Enterprise Diver-sified Holdings Incorporated (Holdings) pro-duced $60 million of earnings, or approximately 26 cents per share, an increase of $33 million and 14 cents per share compared to 1991.

Consolidated Enterprise revenues in 1992 were $5.4 billion, a 5% increase compared to

$5.1 billion in 1991. PSE&G's electric revenues totaled $3.4 billion, gas revenues accounted for

$ 1.6 billion and Holdings' nonutility businesses for the remainder of $.4 billion.

PSE&G electric sales decreased 2.5% com-pared to 1991. Residential electric sales de-creased 6.6%; commercial sales decreased 0.8%;

industrial sales were down 1.1 %.

PSE&G gas sales for the year were up 20.9%.

Residential sales were up 10. 9%; commercial up 5.1%; and industrial up 85.2%, primarily because of increased sales to cogeneration plants of independent power producers. Gas transpor-tation service increased 42.4% compared to 1991.

Total gas sold or transported increased 23.8%.

At year-end, the book value of Enterprise's common stock was $20. 32 per share, up from

$20.04 at the end of 1991. This increase was achieved by retaining earnings in the business and by selling additional common stock above book value. There were 235.4 million shares outstanding at year-end 1992.

PSE&G's earnings to fixed charges coverage ratio was 2. 70:1, down from 3.20:1 in 1991.

Cash flow was strong and the utility met 84%

of its $800 million construction expenditures through internally generated cash.

During the year, PSE&G sold $850 million in mortgage bonds -

two issues totalling $250 million in February and another three issues totalling $600 million in June. The proceeds from these issues were used to refund outstand-ing and maturing debt. The company called

$784 million of high-coupon bonds for early redemption during 1992. In addition, $240 million of mortgage bonds matured in 1992.

During the year, Enterprise sold a total of

8. 7 million shares of common stock. Net pro-ceeds of $237 million were used by Enterprise to make equity investments in PSE&G, which used the additional funds to repay a portion of its short-term debt obligations. Also, PSE&G sold 750,000 shares of preferred stock. The net proceeds of $75 million were added to PSE&G's general funds and used for general corporate purposes.

Rate Case In November 1991, PSE&G petitioned the New Jersey Board of Regulatory Commissioners (BRC) for an increase of $669 million in electric and gas base rates. In July 1992, based on 12 months of actual data, PSE&G filed revised rate schedules supporting a net rate increase of

$621.8 million -

$476.3 million for electric and $145. 5 million for gas.

Rate case hearings, which were concluded at the end of August, included eight public hear-ings, 59 evidentiary hearings yielding over 13,000 pages of transcript and over 3,000 re-quests for information.

On December 31, the BRC approved a settle-ment of the rate increase request and other issues among PSE&G, the staff of the BRC, the NJ Public Advocate and the Federal Executive

Agencies. The settlement will result in an an-nual 2.1 % increase in revenues for PSE&G -

a 5% rate increase for electric customers and a

4. 7% decrease for gas customers.

Provisions of the settlement include:

An increase of $295 million in annual base revenues for PSE&G, including a $235 mil-lion increase in electric base rates and a $48 million increase in gas base rates.

A $13 million offset of the gas base increase crediting revenues from certain gas transpor-tation customers, previously considered as firm rates, to the levelized gas adjustment charge (LGAC).

A $66 million reduction in the levelized en-ergy adjustment charge (LEAC) over the next 18 months.

A total $71 million reduction to the LGAC over the next 12 months.

A $45 million refund to gas customers.

The settlement will allow PSE&G a 12%

return on common equity and a 10.08% return on rate base.

Electric Business The flat New Jersey economy and the contin-uing need for rate relief combined to challenge the electric business unit (EBU) in 1992.

Salem Nuclear Generating Units 1 & 2 had lower than expected capacity factors due to ex-tended outages. Our Hope Creek Nuclear Station, however, continued to perform at a superior level, with seven months above 90 percent capacity. In the aggregate, the company's nuclear units achieved a 66% capacity factor in 1992.

Combined Cycle electric generation units work by combining a jet e ngine CD with a s team turbine @. The jet e n-g in e drives one g e n e rator while the second la powe red by s te am pro-d u c e d from the je t e xha u st

Other electric business highlights include:

The turbine-generator at Salem Unit 2 that was damaged on November 9, 1991, when solenoid valves failed to operate properly, returned to service on May 10, three months earlier than originally predicted.

The first phase of the Burlington # 10 Unit rehabilitation project -

installation of four clean, efficient, state-of-the-art combustion turbines -

was completed in May. The re-maining phase of the project -

installation of four additional new turbines and com-bined-cycle equipment -

is scheduled for completion in June 1993. Use of combined-cycle equipment permits the use of waste heat from the combustion turbine to make steam, driving a conventional steam turbine. The combination of the new, efficient combustion turbines and the combined-cycle equipment (Photo above) Complex underground electrical network systems in major cities can now be monitored by computer, improving service reliability. Karen Kachele, lead engineer, checks the remote monitoring system with Al Ambacher (I.), network mechanic, and Nelson Dias, electric supervisor.

15

16 results in double the energy output from the same amount of fuel. In addition to markedly reducing the environmental impact of the facility, improved efficiencies and a change in fuel from oil to natural gas will save approxi-mately $30 million per year.

A $430 million repowering project at Bergen Generating Station in Ridgefield was started in 1992. This project will reduce air pollution emissions by 90% and completely eliminate thermal discharge to the Hackensack River while increasing the overall efficiency of the plant by more than 50%. The first phase of the project, which includes conversion of the existing Unit # 1 to combined-cycle opera-tion, is scheduled to be completed by the summer of 1995.

During 1992, the company's eight electric-powered GMC G-Vans continued to operate as part of a three-to-five-year test of perfor-mance, reliability, operating costs and design features. Evaluation of preliminary results at the end of the first year of the trial period indicate that the vans are compatible with many short-route service operations. PSE&G is one of 10 utilities participating in the U.S.

Department of Energy's Electric and Hybrid Vehicle Site Operator's program. Under the program, PSE&G is receiving partial funding from the DOE for its electric vehicle efforts.

PSE&G's Proposed NOx Reduction Plan Pounds ofNOx Per MWHR*

15 12 0

LO 20 c 30.S 40 g 9

-0

During the summer of 1992, the company used natural gas instead of coal at its Hudson

2 generadng plant in Jersey City and its Mercer #2 plant in Hamilton Township.

The fuel switch was initiated to reduce the emission of oxides of nitrogen (NOx) from these units during the period of maximum ozone concentrations in New Jersey. During the fuel-change period, NOx emissions, which contribute to the formation of low-altitude ozone, were reduced by 50 percent.

In addition, burning natural gas instead of coal resulted in the elimination of close to 100 percent of the sulfur dioxide emissions at the plants and significant reductions of car-bon dioxide emissions.

A construction project designed to bring the coal burning Conemaugh Station in western Pennsylvania into compliance with the acid rain provisions of the 1990 Clean Air Act amendments was started in April 1992. In-stallation of a new 525-foot concrete stack '

which will improve the ambient air quality 6 -----------------

5 0~

60 c

in the area, was completed in September 1992. Further work, including installation of scrubbers on Unit # 1 and #2, will continue for the next three to four years.

PSE&G participated in a pilot program to recycle old and broken utility poles into wood 70 ~

1995 Goal t-;---=-=-77"=-=-::-=-=77"=-=-::-=-=~=-=-==-=-=-=-=-=-::-=\\=-=-..,,....,,..,.--J so ~

3 2000 (;~ai -----------------

90

'--~---:::----::-:---~--~--J........1 100 90 92 94 96 98 00

- - - - Acrual Proposed NOx Reduction Plan

1 MWHR is the amount of energy required co light 10 000 l 00 wacr light bulbs for 1 hour1.157407e-5 days 2.777778e-4 hours 1.653439e-6 weeks 3.805e-7 months .

(Photo above) Improvements in the eqttipment and procedttres forrestoring property after pipeline imtatlation have increased cttstorner satisfaction and redttced costs.

fiber-based paper products and rayon. Ini-tially, 20 tons were shipped to a recycling plant in Louisiana, where an environmentally-safe biological remediation process removed chemicals from the wood.

In June, PSE&G began using an innovative new technology to monitor its underground distribution network system. Started on a trial basis, the new system monitors all net-work transformer locations instantaneously and remotely. It will reduce inspection and maintenance and provide early detection of faulty equipment, thereby improving reliabil-ity and service to customers.

The company also is testing new technology to monitor its underground transmission system. The new technology provides contin-uous measurement of the circuit loading and critical temperatures in the system, resulting in more efficient use of both the production and transmission system.

The electric business, working with the New Jersey Institute of Technology, successfully developed and installed the first working model of a robotic electric meter testing facil-ity in the utility industry.

PSE&G participated in developing and test-ing a new robot to clean and inspect light fuel oil tanks at its Bayonne Generating Sta-tion. The robot can clean and inspect full fuel tanks, eliminating the risk of fuel spills during tank draining operations and saving time and expense. Field testing continues with the expectation of putting the robot into commercial use within a year.

GAS Gas Business The gas business continued in 1992 to suc-cessfully market the advantages of natural gas to both residential and business customers in New Jersey. More than 8,800 homeowners de-cided to convert from oil heat to natural gas. In addition, industrial and commercial conversions accounted for additional sales of almost 48 mil-lion therms of natural gas for the year.

Among other gas business highlights were:

The business unit continued to conduct oper-ations with an eye on the environment. Many excavation practices now include using equipment that minimizes disruption to pub-lic and private property. New technologies for trenching and directional underground boring allow for almost trenchless excava-tions. This not only enhances customer ser-vice but also saves costs associated with lawn and pavement restorations.

New, high-tech gas air conditioners help bulld summer load. A natural gas fueled engine <D drives the compres-sor ~ and chiller @.

The business unit completed upgrading of liquid propane air (LPA) peaking facilities at its Harrison and Central gas plants. LPA is used to augment natural gas supplies on the coldest days of the winter when demand for heating in homes and businesses is highest.

The project was undertaken to enhance sys-tem reliability and to increase plant efficiency.

The upgrade also will reduce air emissions through elimination of oil-fired boilers.

17

18

PSE&G continued to work with the New Jersey Department of Environmental Protec-tion and Energy to investigate and, where necessary, remediate 38 former manufactured gas plant sites. Fifteen sites were worked on in 1992, at a cost of approximately $ 10.4 million for the company's Gas Plant Reme-diation Program.

PSE&G achieved a record gas sendout on January 16, 1992, when 19. 5 71 million therms (about 1.90 billion cubic feet) of nat-ural gas were sent out to customers. A sign of the changing gas industry, increased use of natural gas by cogenerators to generate elec-tricity was a major contributor to this peak, along with higher volumes of gas being transported to customers by PSE&G.

PSE&G continued to support the use of natu-ral gas vehicles (NGVs). We operate an NGV compressor at NJ Bell Telephone Company's Newark office to support that company's fleet of 25 NGVs while we are working to develop a local public refueling infrastructure. Con-struction of a refueling station was com-menced at the Department of Transportation's headquarters in Ewing Township to support the state's plan to convert 100 vehicles to natural gas. We also provided refueling units to Princeton University's Plasma Physics Lab to service its fleet of eight NGV vans. In addition, the company is seeking regulatory Transportation Gas Salas vs. Total Salas Millions of Dekatherms 3.5 Sales Transportation approval to construct a compressed natural gas refueling station at a public gasoline station.

The gas business unit completed two studies aimed at increasing the market for natural gas. The first, a study of a natural gas-powered, engine-driven heat pump in Maple-wood, was completed in January. The results showed that the pump maintains a more con-stant temperature than conventional equip-ment and has lower operating costs. The company is now sponsoring a second study to determine market potential for the product.

The company also sponsored a successful field test of a 25-ton rooftop air conditioner at the Orange gas headquarters. The air con-ditioner is now in commercial production and PSE&G has installed several units in other district facilities.

HOLDINGS Enterprise Diversified Holdings Incorporated Assets of the nonutility businesses remained at relatively constant levels compared to 1991.

Holdings' assets of $2. 5 billion at year-end 1992 represented about 17 % of Enterprise's overall assets at the end of 1992. During 1992, Hold-(Photo above) This equipment at EDC's South Lake Arthur field in Louisiana separates liquids from gas to condition the gas forsale.

ings and its subsidiaries focused their efforts on asset management and portfolio maintenance, with the primary objective of increasing income and improving earnings performance. Holdings' net income in 1992 totaled $60 million, more than double the 1991 earnings level of $27 mil-lion, and provided approximately 12% of Enter-prise's earnings or 26 cents per share.

Public Service Resources Corporation Public Service Resources Corporation (PSRC) makes diversified investments in various sectors such as leveraged leases, limited partnerships and marketable securities.

Currently, approximately 51 percent of its investments are in leveraged leases, including energy-related projects (such as nuclear power plants and the Merrill Creek Reservoir), a com-munications satellite, commercial real estate, transportation equipment and modern wide-body, fuel-efficient, low-noise aircraft.

Some 27 percent of its portfolio is in limited partnerships, including interests in solar electric generating systems, venture capital and lever-Allocation of Assets at December 31, 1992 Enterprise Total Assets PSE&G Electric 71 %

Gas 12%

Holdings PSRC 9%

EDC5 %

EGDC 2%

CEA 1%

Source of Consolidated Net Income

$504 Million Earnings Per Share (Rounded)

Electric $1. 70

. Gas $.22

EDC $. 12 PSRC $.12 CEA $.05 EGDC $(.03)

-0

$14.9 Billion

10. 5 Billion 1.8 Billion 1,428 Million 703 Million 260 Million 161 Million aged buyout funds, real estate partnerships, an ethylene production facility and securities investments.

In addition, about 15 percent of the portfolio is directly invested in equity and debt securities.

During 1992, PSRC's asset level, $ 1.4 billion at year-end 1992, remained constant and repre-sented 5 7 percent of Holdings' assets. PSRC's earnings of $27 million in 1992 increased 3 per-cent in comparison to 1991.

Holdings foresees opportunities tor growthlnthelndependentpowerand oll and gas Industries.

Energy Development Corporation Energy Development Corporation (EDC), an oil and gas exploration, development and pro-duction company based in Houston, Texas, had assets of $703 million at year-end 1992, com-pared to $771 million at year-end 1991. EDC's assets represented 28 percent of Holdings' total.

During 1992, a year that began with gas prices reaching their lowest level in 15 years and then steadily improving through year-end, EDC achieved earnings of $29 million, increasing by nearly five times the restated 1991 level. EDC produced reserves of 120 billion cubic feet equivalent (BCFE) in 1992, versus 99 BCFE in 1991, and replaced 49% of 1992 production.

19

20 As of the first quarter of 1992 EDC changed its method of accounting for oil and gas opera-tions to the successful efforts method from the full cost method. The change resulted in de-creases of $219 million and $218 million in retained earnings as of December 31, 1991 and December 31, 1990, respectively, by restating previously issued financial statements. The ef-fect of this change resulted in decreases of pre-viously reported net income of $1 million and

$139 million for 1991 and 1990, respectively, and the decrease in earnings per share of com-mon stock for 1991 and 1990 was $.004 and

$.66, respectively.

Community Energy Alternatives Incorporated At year-end 1992, Community Energy Alter-natives Incorporated (CEA), a developer of co-generation and small-power projects, had invested in 20 projects, of which 15 were in operation. These projects have all been under-taken through partnerships or joint ventures.

During the year, construction continued on the Newark Bay Cogeneration Facility, which will be fueled by natural gas and will have a capacity of 137 megawatts (MW). Construction also continued on the JFK Airport Cogeneration Facility, which is fueled by natural gas and has a capacity of 100 MW. CEA owns 50 percent of the Newark Bay and JFK Airport facilities.

CEA has invested in projects currently oper-ating or under construction with a total capacity of 968 MW, of which CEA's share will be 3 3 3 MW. Projects under active development total an additional 1, 187 MW, of which CEA's anticipated share will be 532 MW. At the end of the year, CEA's assets totaled $161 million.

During 1992, CEA's earnings of $11 million were four times the 1991 earnings level.

Enterprise Group Development Corporation Enterprise Group Development Corporation (EGDC) is a real estate development and invest-ment business that has invested in commercial office, retail and industrial properties over a wide geographical area.

During 1991 and 1992, because of depressed real estate sales, rental and leasing markets, EGDC made no new commitments for addi-tional properties and concentrated on the com-pletion and management of developed properties to maximize long-term value. It has interests in 12 properties in five states, includ-ing office buildings, warehouses and shopping centers.

At year end, EGDC's assets totaled $260 million. The company experienced a net loss of

$7 million in 1992 compared with a loss of $9 million in 1991.

(Photo above) EDC's new Interactive Interpretation Center allows the display and manipulation of two-and three-dimen-sional seismic data in assessing the presence of oil and gas deposits.

Flnanclal Contents M

ent's Discussion and Analysis Financial Statement Responsibility Consolidated Statements of Income Consolidated Balance Sheets Consolidated Statements of Cash Flows Consolidated Statements of Retained Earnings Notes co Consolidated Financial Statements Independent Auditors' Report Consolidated Financial Statistics Operating Statistics Corporate and Stock Information Officers and Directors 21 28 29 30 32 33 34 45 46 47 48 49 Management'* D iscussion and Analyala of Flnanclal Condition and Results of Operations Enterprise Following are the significant factors affecting the consolidated financial condition and the results of operations of Public Service Enterprise Group Incorporated (Enterprise) and its subsidiaries.

This discussion refers co the consolidated financial statements and related notes of Enterprise and should be read in conjunction with such statements and notes. Prior years financial statements have been reseated to reflect the change in accounting principle by En-ergy Development Corporation (EDC) to the successful efforts method of accounting for oil and gas operations from the full cost method.

Overview Enterprise has two wholly-owned subsidiaries, Public Service Elec-tric and Gas Company (PSE&G) and Enterprise Diversified Hold-ings Incorporated (Holdings). Enterprise's principal subsidiary, PSE&G, is an operating public utility providing electric and gas service in certain areas in the State of New Jersey. Holdings is the parent of Enterprise's nonutility businesses: Public Service Re-sources Corporation (PSRC), which makes diversified passive in-vestments; EDC, an oil and gas exploration, development, production and marketing company; Community Energy Alterna-tives Incorporated (CEA), an investor in and developer of cogenera-tion and power production facilities; and Enterprise Group Development Corporation (EGDC), a diversified nonresidential real estate development and investment business. Holdings also has two subsidiaries that provide debt financing: PSEG Capital Corporation (Capital), and Enterprise Capital Funding Corporation (Funding). As of December 31, 1992, PSE&G comprised 83% of Enterprise's assets, 93% of its revenues and 88% of its net income.

In approving the holding company structure for Enterprise in 1985, the New Jersey Board of Regulatory Commissioners (BRC) adopted a "no harm to (PSE&G) ratepayers standard". In 1992, the BRC ordered that an independent focused audit of Enterprise's nonutility businesses be performed in order to determine whether diversification activities have resulted in harm to PSE&G. The auditors, while concluding that no harm had resulted to PSE&G from such activities, nevertheless made 18 recommendations re-garding the operations and intercompany relationships between PSE&G and such nonutility businesses. On January 22, 1993, the BRC issued an Order accepting the audit, including all of the recommendations of the auditors, and directed PSE&G, Enterprise and the BRC Staff to formulate a detailed plan in a short time frame to implement all such recommendations. Enterprise and 21

22 PSE&G are presently working with the BRC Staff to reach an ac-ceptable implementation plan. In these discussions, on February 9, 1993, Enterprise proposed to voluntarily limit the level of Hold-ings' assets so as not to exceed 20% of the consolidated assets of Enterprise without prior notification to the BRC. On December 31, 1992, these assets amounted to 17% of Enterprise's consoli-dated assets. The January 22, 1993 Order, if implemented in its present form, would require (i) nonemployee directors on PSE&G's Board of Directors, (ii) no additional Enterprise credit support to its nonutility businesses without BRC approval, (iii) compensation to PSE&G for lower financing costs enjoyed by the nonutility businesses as a result of being a part of the Enterprise Group, and (iv) sharing of consolidated tax benefits with PSE&G.

At the commencement of the focused audit, Enterprise, without admitting jurisdiction of the BRC over it or its nonutility busi-nesses, also voluntarily agreed to limit the aggregate amount of its diversified investments during the pendency of such audit to $2. 5 billion, net of certain investment gains. This limit remains in effect until the implementation plan is approved by the BRC. At December 31, 1992, Enterprise's aggregate diversified investments were $2. 5 billion.

PSE&G Energy and Fuel Adjustment Clauses PSE&G has fuel and energy tariff rate adjustment clauses which are designed to permit adjustments for changes in electric energy and gas supply costs, as approved by the BRC, when compared to cost recovery included in base rates. Charges under the clauses are based upon energy and gas supply costs which are normally projected over twelve-month periods. The changes in the Levelized Gas Adjustment Clause (LGAC) and the electric Levelized Energy Ad-justment Clause (LEAC) do not directly affect earnings because such costs are adjusted monthly to match amounts recovered through revenues. However, the carrying of underrecovered fuel costs ultimately increases financing costs. Under the clauses, if actual costs differ from the costs recovered, the amount of the underrecovery or overrecovery is deferred and is reflected in the average cost used to determine the fuel and energy tariff rate ad-justment for the period in which it is recovered or repaid. Actual costs otherwise includable in the LEAC are subject to adjustment by the BRC in accordance with PSE&G's nuclear performance standard. In addition, PSE&G is currently recovering $32 million of its deferred costs relating to the investigation and remediation of former gas plant sites through the LGAC.

Net Income Earnings per share of common stock were $2.17 in 1992, $2.43 in 1991 and $1. 90 in 1990. The changes are summarized as follows:

1992 vs. 1991 1991 (Millions of Dollars Cencs except per share amouncs)

Amounc per Share Amount PSE&G Revenues (net of fuel costs and gross receipts taxes)

$(43)

$(.19)

$147

$.68 Capacity deficiency credit (11)

(.05)

Peach Botrom Settlement (net of Federal income taxes of $17 million) 33

.15 Other operation expenses (49)

(.22)

(23)

(.10)

Maincenance expenses 8

.03 (29)

(.14)

Depreciation and amortization expenses (22)

(. 10)

(21)

(.10)

Federal income taxes 53

.24 (53)

(.24)

Other taxes (9)

(.04) 7

.03 Other income 2

.01 4

.02 lncerest charges (36)

(. 16)

(14)

(.07)

Allowance for Funds used During Construction (AFOC)

(4)

(.02)

(4)

(.02)

Preferred Stock Dividend Requiremencs (3)

(.01)

Other (2)

(.01) 5

.03 Earnings Available ro Encerprise (72)

(.32) 8

.04 Holdings 33

. 14 132

.63 Net Income

$(39)

(.18)

$140 Effect of additional shares of Encerprise common stock issued

(.08)

(. 14)

Total

$(.26)

$.53 The average shares of common stock outstanding were 232,306,492 for 1992, 223,565,239 for 1991and211,981,434 for 1990.

PSE&G Excluding the $33 million net effect of the settlement of litigation against Philadelphia Electric Company (PE) in connection with the 1987 shutdown by the Nuclear Regulatory Commission (NRC) of the Peach Bottom Atomic Power Station Units 2 and 3 (Peach Bottom) in which PSE&G owns a 42.49% undivided interest, PSE&G's earnings available to Enterprise for the year ended De-cember 31, 1992 declined by $105 million. This decline was prin-cipally due to the 2. 5% decrease in electric kilowatthour sales resulting from significantly cooler weather during 1992 and higher other operation expenses (comprised primarily of higher labor and employee benefits costs and nuclear production expenses). Also contributing to the decrease in earnings were increased interest charges resulting from timing of refunding operations and higher depreciation and amortization expenses. Partially offsetting the decrease in earnings were lower maintenance expenses at c

of PSE&G's fossil generating stations and at Peach Bottom r

Federal income taxes resulting from lower pretax income.

_J

On December 31, 1992, the BRC approved a settlement of PSE&G's base rate case chat effectively provides PSE&G with addi-tional annual future revenues of $295 million or 2.1 %, the first sue ace case increase in six years. (See Nore 2 -

PSE&G Rat rs of Notes to Consolidated Financial Statements.)

crease in PSE&G's earnings during 1991 was due princi-pally ro increased revenues resulting from a 3.1 % increase in elec-tric kilowacchour sales resulting from the warmer weather during the second and third quarters of 1991 and an increase of 14. 5% in gas therm sales resulting from the cooler weather during the first quarter of 1991. Partially offsetting the increase in revenues were higher Federal income taxes, higher maintenance coses due co a refueling outage at Hope Creek nuclear generating station, higher nuclear production expenses, labor and employee benefits coses, interest charges and depreciation and amortization expenses.

Holdings The nee income of Holdings was $60 million in 1992, an increase of $33 million from 1991. The increase in Holdings' nee income was due primarily to higher nee income ofEDC of $23 million resulting from higher natural gas prices and volumes and an $8 million increase in CEA's net income due to improved performances of certain projects and the sale of its interests in various projects.

The nee income of Holdings was $27 million in 1991, an in-crease of $132 million from 1990. During 1991 EDC's net income increased by $121 million over 1990 due to a 1990 provision for impaired properties. PSRC's higher net income of $14 million resulted from increased investment income. EGDC's net loss y $5 million principally due to a property write-off.

Di The a 1 1ty of Enterprise to declare and pay dividends is contingent upon its receipt of dividend payments from its subsidiaries.

PSE&G has made regular cash payments to Enterprise in the form of dividends on outstanding shares of its common stock since Enter-prise was formed in 1986. In addition, in 1992 Holdings paid dividends of $20 million to Enterprise.

Dividends paid co holders of Enterprise's Common Srock in-creased $27 million during 1992 compared to 1991 and increased

$34 million during 1991 compared to 1990. The increase in the dividend payment of 1992 over 1991 was due to the issuance of additional shares of Enterprise Common Stock and a one cent per share increase in the quarterly dividend rate for the first three quarters of 1992 compared co the same periods of 1991. The in-crease in the dividend payment of 1991 over 1990 was due to the issuance of additional shares of Enterprise Common Stock and a one cent per share increase in the quarterly rate of dividends paid in that year.

Dividends paid to holders of PSE~G's Preferred Srock increased

$3 million during 1992 compared to 1991. The increase in divi-dend payments was due to the issuance and sale of750,000 shares of7.44% Preferred Srock on June 23, 1992.

Revenues PSE&G Electric Revenues decreased $92 million, or 2.6% in 1992 from 1991; 1991 revenues increased $ 168 million or 5% compared to 1990. The significant components of these changes follow:

Increase or (Decrease) 1992 VS. 1991 1991 VS. 1990 Kilowatthour sales Changes is base rates Tax Reform Act of 1986 (TRA-86)

Recovery of energy costs Gross receipts taxes (NJGRT)

Total Electric Revenues (Millions)

$(65)

$ 75 (6) 25 (6) 49 (15) 19

$(92)

$168 Changes in kilowatthour sales by customer category are described below:

Increase or (Decrease) 1992 vs. 1991 1991 vs. 1990 Residential Commercial Industrial (6.6)%

(0.8)

( 1. 1) 6.4%

3.2 (0.5) 1992 -

The reduction in electric revenues from 1991 was due to a

2. 5% reduction in kilowatthour sales resulting from reduced weather-sensitive load, as Temperature Humidity Index Hours for 1992 declined 24. 3% from 1991. Industrial and commercial sales also declined reflecting the effect of New Jersey's weak economy.

Competition from nonutility generators continued to negatively impact industrial sales.

Source of 1992 Revenues Per Dollar

.62 Electric Revenues

. 29 Gas Revenues

. 07 Diversified Revenues

.02 Ocher Distribution of 1992 Revenues Per Dollar

.30 Fuel, Purchased Power & Gas

. 17 Taxes

. 13 Materials and Services

.11 Reinvested in Business

. 10 Dividends

.10 Interest

.09 Salaries & Wages 23

24 1991-Revenues increased in 1991 over 1990 due to a 3.1 % in-crease in ki.lowatthour sales resulting from cooler winter weather and warmer spring and summer weather. Higher recovery of energy costs and higher NJGRT were both the result of the higher vol-ume, while base rate increases effective September 5, 1990 and January 1, 1991 reflected the expiration of the amortization related to the TRA-86. Industrial sales declined in 1991 from 1990 due to the weaker 1991 economy and increased competition from non-utility generators.

PSE&GGas Revenues increased $278 million, or 21.3%, during 1992 over 1991; 1991 revenues increased $71 million or 5. 7% over 1990. The significant components of these changes follow:

Increase or (Decrease) 1992 vs. 1991 1991 vs. 1990 (Millions)

Therm sales

$ 36

$31 Changes in base rares (TRA-86) 3 5

Recovery of fuel coses 216 17 NJGRT 16 7

Ocher operaring revenues 7

11 Tora! Gas Revenues

$278

$71 Changes in gas sold or transported by customer category are described below:

Increase or (Decrease) 1992 vs. 1991 1991 vs. 1990 Residenrial 10.9%

4.0%

Commercial

5. 1 6.6 lndusrrial 85.2 17.0 Transporrarion Service 42.4 109.5 1992 -

Revenues for 1992 increased over 1991 due principally to the recovery of fuel costs resulting from higher levels of weather-sensitive therm sales and an increase in the LGAC authorized by the BRC, effective January 1, 1992. The increase in residential and firm commercial sales, which represent the majority of PSE&G's gas revenues, was principally attributable to the colder weather.

Higher industrial and transportation service sales over 1991 were due to cogeneration customers growth.

1991-Revenues increased due to the 14.5% rise in therms sold or transported. Colder 1991 weather enhanced weather-sensitive residential and commercial sales. In addition, therm sales for co-generation and gas transported for others increased significantly over 1990. Cogeneration sales in the commercial and industrial categories increased 22% and 93.4%, respectively. Cogeneration sales during 1991 comprised 19.4% of commercial sales and

45. 6% of industrial sales. Transportation service sales more than doubled reflecting both customer growth during 1991 and resolu-tion of the prior year's pipeline supply constraints. Recovery of fuel costs reflected an increase in the LGAC charge coupled with a higher level of therm sales. Higher NJGRT were the result of the higher level of therm sales. Other operating revenues, primarily revenues from gas transported for others, increased as the volume of gas transported more than doubled. Interruptible sales in the commercial and industrial classifications were down reflecting movement of some customers to the transportation service sales category.

Holdings Holdings' revenues increased $72 million or 22% in 1992 over 1991. The increase was due to higher revenues of each of Holdings' n

operating subsidiaries. EDC's higher revenues of$35 mil

principally attributable to increased sales and higher g 1992. CEA's increased revenues of $15 million were deriv m

higher partnership income and gains on the sales of certain part-nership interests in 1992. PSRC's greater revenues of $15 million were attributable to increased gains on investments and higher income from partnerships and leases, net of pretax valuation allow-ances and write-offs totalling $35 million, primarily related to the loss on its investment in the Second National Federal Savings Bank of Salisbury, Maryland. EGDC's revenues increased by $7 million over 1991 due to higher rental and partnership income.

Holdings' revenues increased $55 million in 1991 over 1990.

EDC was the largest contributor to higher revenues in 1991 over 1990 as its gas sales increased despite voluntary curtailments re-sulting from depressed spot market prices for gas. PSRC's income from investments contributed significantly to Holdings' increased revenues during 1991 over 1990. CEA's modest increase in revenues was due to higher project income. EGDC's revenues for 1991 de-clined from 1990 as losses from partnerships increased from the prior year.

PSE&G Electric Energy Costs Electric energy costs decreased $5 million or 0.6% in 1992 com-pared to 1991 and increased $64 million or 9% in 1991 compared to 1990. The significant components of these changes follow:

Change in prices paid for fuel and power purchases Kilowarrhour generarion Adjusrmenr of acrual coses ro march recoveries rhrough revenues (A)

Tora! Elecrric Energy Coses 1992 vs. 1991

$ 7 (20) 8

$ (5)

(Millions)

$122 17 (75)

$ 64 990 (A) Reflecrs rhe change in rhe deferred overrecovered energy coses, which in rhe years 1992, 1991 and 1990 amounred ro $13 million, $5 million and

$80 million, respecrively. (See PSE&G Energy and Fuel Adjusrmenr Clauses and Nore 2 -

PSE&G Rare Marrers of Nores ro Consolidared Financial Sraremenrs.)

Electrlc Kiiowatt Hour Sale s Percenr 100

27. l 28.0 80 60 40 20 Residenrial Commercial 26.9 Indusrrial

1992 -

The decrease in total costs resulted from lower kilowatt-hour generation due primarily to a reduction in weather-sensitive load. Higher prices paid for fuel and power purchases resulted ly from the need to purchase power due to outages at va es of the Salem Nuclear Generating Station, Units 1 an lem 1 and 2), in which PSE&G owns 42. 59% of undi-vided interest. Kilowatthour generation from the Salem units declined 31% in 1992 compared to 1991. (See Note 12-Com-mitments and Contingent Liabilities -

Nuclear Performance Standard of Notes to Consolidated Financial Statements.)

1991 -

The increase in total costs was primarily due to increased weather-sensitive load with a corresponding megawatthour increase of 3% over 1990 due to purchase power agreements with other utilities and cogeneration purchases.

Gas Supply Costs Gas supply costs increased $223 million or 35% in 1992 compared to 1991 and increased $10 million or 2% in 1991 compared to 1990. The significant components of these changes follow:

Change in prices paid for gas supplies Therm sendout Refunds from pipeline suppliers Adjustment of actual costs to match recoveries through revenues (A)

Total Gas Supply Costs Increase or (Decrease) 1992 vs. 1991 1991 vs. 1990

$ 25 147 (33) 84

$223 (Millions)

$(26) 54 40 (58)

$ 10 the change in the deferred over(under)recovered gas supply costs, n the years 1992, 1991 and 1990 amounted to $52 million, million and $26 million, respectively. (See PSE&G Energy and Fuel Adjustment Clauses and Note 2 -

PSE&G Rate Matters of Notes to Consolidated Financial Statements.)

1992 -

The increase in total costs was principally due to greater sales resulting from the colder 1992 weather compared to 1991 and increased sales to cogenerators.

1991 -

The increase in total costs was due to increased weather-sensitive firm sales, higher sales to cogenerators and greater vol-umes of transported gas.

Liquidity and Capital Resources Overview Enterprise's liquidity is affected by maturing debt, Holdings' in-vestment and acquisition activities and the capital requirements of PSE&G's construction program. Capital resources available to meet such requirements depend upon general and regional economic conditions, PSE&G's customer growth, the adequacy and timeli-ness of required regulatory approvals including rate relief to PSE&G and continued access to the capital markets.

PSE&G For 1992, PSE&G had utility plant additions, excluding AFDC, of

$800 million, an increase of $17 million versus 1991 additions of

$7 "llion. Additions in 1991 decreased $151 million from 1

tions of $934 million. AFDC for 1992, 1991 and 1990 am to $26 million, $30 million and $34 million, respec-tively. Construction expenditures were used to continue to improve PSE&G's existing power plants, transmission and distribution system, gas system and common facilities. The construction ex-penditures from 1993 through 1997 are expected to aggregate $4. 7 billion. (See Construction, Investments and Other Capital Re-quirements Forecast below.)

PSE&G expects that it will be able to generate internally a majority of its capital requirements including construction expen-ditures over the next five years, assuming adequate rate relief.

(See Note 2 -

PSE&G Rate Matters of Notes to Consolidated Financial Statements.)

Legislation effective January 1, 1992 phases in an acceleration of NJGRT unit tax during 1992-94, so that for 1994 and for each year thereafter PSE&G will be paying its estimated current year's NJGRT liability in April of such year. Prior to 1992 PSE&G paid its NJGRT in arrears during the year following the year of collec-tion from customers in approximately three equal payments. This phase-in required PSE&G to pay its 1991 NJGRT tax liability of

$600 million in April 1992 with one payment. In 1993 and 1994, respectively, PSE&G is required to pay approximately $900 million or 150% of its estimated annual NJGRT liability.

Holdings During the next five years, substantially all of Holdings' capital requirements will be provided from operational cash flows. In the near term, Holdings has adopted a business strategy whereby asset growth will be held to existing capital commitments and asset replacement, as the nonutility businesses concentrate on improving operations and managing existing portfolios in an effort to increase profitability. Over the next several years, Holdings and its subsidi-aries will also be required to refinance a portion of their maturing debt in order to meet their capital requirements. Any inability to extend or replace maturing debt at current levels and interest rates may affect Holdings' future earnings and result in an increase in the cost of capital required by Holdings. (For additional informa-tion see Overview and Construction, Investments and Other Capital Requirements Forecast.)

PSRC is a limited partner in various partnerships and is com-mitted to make investments from time to time, upon the request of the respective general partners, in such amounts as they may require up to an aggregate of $291 million. On December 31, 1992, $146 million had been invested in such partnerships and

$145 million remained as PSRC's unfunded commitment subject to call.

Holdings and each of its subsidiaries are subject to restrictive business and financial covenants contained in existing debt agree-ments and are required to not exceed various debt to equity ratios which vary from 3:1to2:1. Holdings is also required to maintain a twelve months earnings before interest and taxes to interest (EBIT) coverage ratio of at least 1. 35:1. As of December 31, 1992 and 1991, Holdings had consolidated debt to equity ratios of 1.84:1, Gas Therm Sales Percent 100 80 48.2 46.9 42.9 60 40 20 90 91 92 Residential

Commercial

Industrial 25

26 and 2.19:1 and, for the years ended December 31, 1992 and 1991, EBIT coverage ratios of 1. 76:1 and 1. 37:1, respectively. Compli-ance with applicable financial covenants will depend upon future levels of earnings, among other things, as to which no assurance can be given. (See Construction, Investments and other Capital Requirements Forecast and Note 6 -

Schedule of Consolidated Long-Term Debt of Notes to Consolidated Financial Statements.)

Construction, Investments and Other Capital Requirements Forecast The estimated construction requirements of PSE&G, including AFDC, investments and other capital requirements of PSE&G and Holdings for 1993 through 1997 are based on expected project completion dates and include anticipated escalation due to inflation of approximately 4% for utility projects and are as follows:

(Millions of Dollars)

PSE&G Electric Nuclear Pro-duction Facilities Nuclear Fuel Transmission and Distri-bution Other Gas Production Total Electric Production Facilities Transmission and Distri-bution Total Gas Miscellaneous Corporate Total Con-struction Require-ments of 1993 1994

$ 125

$ 105 97 81 262 271 337 342 821 799 7

2 135 136 142 138 82 67 PSE&G 1,045 1,004 Holdings Investments of Non utility Subsidiaries 296 195 Mandatory Retirement of Securities:

PSE&G Holdings Working Capital and Other-net Total Capital 192 201 393 337 61 194 255 197 1995 1996

$ 104 94 113 107 240 157 614 2

144 146 61 821 195 3 12 277 589 49 243 235 679 2

141 143 70 892 187 113 90 203 78 1997 Total 88

$ 516 96 494 242 1,258 263 1,334 689 3,602 13 144 700 144 713 72 352 905 4,667 181 1,054 375 1,053 83 845 458 1,898 195 856 Requirements

$2,071

$1,651

$1,654

$1,360

$1,739

$8,475 While the above estimate includes capital costs to comply with revised Clean Air Act (CAA) requirements through 1997, it does not include additional requirements being developed under the CAA by Federal and State agencies. Such additional costs.

be reasonably estimated at this time. PSE&G will reques C

to allow the recovery of all such CAA costs from electric c ers.

Not included in PSE&G's estimated construction expenses is the capital cost of compliance with the New Jersey Department of Environmental Protection and Energy (NJDEPE) Draft Permit issued October 3, 1990 pursuant to the Federal Water Pollution Control Act with respect to Salem 1 and 2 which, if adopted as proposed, would require the immediate shutdown of both units pending retrofit with cooling towers. PSE&G is discussing a pro-posal with NJDEPE that would permit Salem to continue to oper-ate with once-through cooling and would require PSE&G to make certain plant modifications and to take certain other actions to enhance the ecology of the affected water body. Any such proposal would be required to be published for public comment before it could be implemented. Costs to implement the proposal would not be material. Nevertheless, if cooling towers are ultimately re-quired, PSE&G estimates that it would take at least four years, and between $1 billion and $2. 7 billion in capital, operation and maintenance costs and replacement power costs to retrofit Salem with cooling towers.

Also not included are any expenditures that may be necessary to comply with any new regulatory requirements and/or to address public concerns associated with electric and magnetic fields, al-though the amount of any such expenditure cannot be determined at this time.

Internal Generation of Cash from Operations Although net income decreased $39 million for 1992 (See Enter-prise -

Net Income and Revenues), Enterprise's cash provided by operating activities increased by $185 million from 1991 to $1. 340 billion. This increase was primarily due to greater recovery of electric energy and gas costs through PSE&G's LEAC and LGAC and increases in accounts payable. Partially offsetting these cash inflows were increases in fuel and materials and supplies inventories and decreases in deferred income taxes.

Although net income increased $139 million for 1991 (See En-terprise -

Net Income and Revenues), Enterprise's net cash pro-vided by operating activities decreased by $54 million from 1990 to

$1.155 billion. This decrease was primarily due to an underrecov-ery of electric energy and gas costs through PSE&G's LEAC and LGAC, increases in receivables, and decreases in accounts payable.

Partially offsetting these cash outflows were the increase in net income, increases in deferred income taxes, and decreases in fuel and materials and supplies inventories.

External Financings Cash Flows from Financing Activities

~Doll=)

1992 1991 1990

_I_s ___ -_ f Common Srock (A)

$ 237

$219

$185 Cash Dividends paid on Common Stock (B)

(503)

(476)

(442)

PSE&G: (C)

Net increase (decrease) in Short-Term Debt (D) 92 (321) 159 Issuance of long-Term Debt 850 (E) 750 250 Redemption of long-Term Debt and Other Obligations (1,032)

(171)

(57)

Issuance of Preferred Stock 75 (F)

Other (14) 5 6

Total PSE&G (29) 263 358 Holdings: (G) (H )

Net (decrease) increase in Short-Term Debt (89)

(49) 151 Issuance of Long-Term Debt 30 (I) 264 150 Redemption of Long-Term Debt (27)

(81)

Ocher (4) 2 Total Holdings (90) 136 301 Net cash (used in) provided by financing accivicies

$ (385)

$142

$402 (A) During 1992, Encerprise issued and sold 5,000,000 shares of Common Srock through a public offering chrough underwriters and 3,694,899 shares of Common Srock through ics Dividend Reinvescmenc and Stock Purchase Plan (DRIP) and various employee benefit plans. The nee proceeds from such sales, aggregacing approximately $237 million, were used by Encerprise co make equity invescmencs in PSE&G. PSE&G ucilized such funds provided co repay ics short-cerm debc obligacions then outstanding. Book value per share was

$20.

December 31, 1992, compared co $20.04 at December 31, 1991.

(Se Schedule of Consolidaced Capical Srock of Noces co Consoli-dac ial Scacements.)

(B) See

!DENOS.

(C) At December 31, 1992, PSE&G could issue an addicional $2.515 billion of Bonds ac a race of8.250% or $2.280 billion of Preferred Srock ac a race of 8.0% under che cerms of PSE&G's Mortgage and Restated Certificate of Incorporation.

In addition, as a prerequisite co che issuance of addicional Bonds, PSE&G's mortgage requires a 2: 1 ratio of earnings co fixed charges as computed there-under. Ac December 31, 1992 such racio was 2. 70: 1.

At December 31, 1992 PSE&G had auchorizacion from che BRC co issue and have oucscanding noc more chan $800 million of ics short-term obligacions ac any one cime, consiscing of commercial paper and ocher unsecured borrow-ings from banks and ocher lenders.

PSE&G has a $600 million revolving credic agreemenc wich a group of commercial banks which expires in November 1993. On December 31, 1992, there was no shore-term debt outstanding thereunder. PSE&G expects co be able co renew this facility upon expiration. (See Note 11 -

Short-Term Debt

[Commercial Paper and Loans} of Notes co Consolidated Financial Sratemencs.)

(D) Includes commercial paper issued and/or redeemed by Public Service Fuel Corporation and guaranteed by PSE&G pursuanc co a $200 million commer-cial paper program supported by a bank revolving credit facility co finance the acquisition of a 42.49% undivided incerest in the nuclear fuel acquired for Peach Bottom.

(E) On February 27, 1992, PSE&G issued $250 million aggregate principal amount of its First and Refunding Mortgage Bonds (Bonds). The net proceeds from the sale of the Bonds were used by PSE&G for general corporate purposes including payment of its short-term obligations. On June 16, 1992, PSE&G issued an additional $600 million aggregate principal amounc of its Bonds.

Th.

eeds from the sale of the Bonds were used by PSE&G to refund an certain of its higher cost and maturing debt obligations, including rei enc of its treasury of funds expended therefor and/or paymenc of short-term debt obligations incurred for such purpose. On February 2, 1993 PSE&G issued $250 million aggregate principal amount of its Bonds. The net proceeds from the sale of the Bonds were used by PSE&G co refund and re-deem certain of its higher cost and maturing debt obligations, including reimbursemenc of its treasury funds expended cherefor. PSE&G presencly has BRC auchority co issue chrough December 31, 1993 noc more chan $550 million of ics Bonds co refund and redeem ac maturicy or ac a premium cercain of its higher cosc long-cerm debt securicies. On February 3, 1993, PSE&G filed a Pecicion wich che BRC requescing an excension of such authority to December 31, 1994 and addicional authority co issue chrough such dare, noc more chan $2.05 billion addicional principal amounc of ics Bonds. Of such amount, PSE&G proposes co issue noc more than $700 million principal amounc for general corporate purposes, including paymenc of conscruccion expenditures wich che remaining principal amounc co be issued co refund and redeem addicional higher cost and maturing debc. PSE&G cannoc predicc whac accion, if any, che BRC may cake with respecc co its requesc. (See Noce 6 Schedule of Consolidaced Long-Term Debc of Notes co Consolidaced Finan-cial Scacemencs.)

(F) On June 23, 1992, PSE&G sold 750,000 shares of Preferred Srock. The nee proceeds of $75 million were added to che general funds of PSE&G and were used for general corporate purposes. PSE&G presencly has BRC authority co issue through December 31, 1993 not more chan $75 million of ics Pre-ferred Srock. (See Noce 4 -

Schedule of Consolidaced Capital Stock ofNoces to Consolidated Financial Scacements.)

(G) Funding has extended ics commercial paper program, supported by a commercial bank leccer of credit and credit facility, chrough December 15, 1993 in an amounc of $165 million. As of December 31, 1992, Funding had

$134 million outstanding under ics commercial paper program. Funding presently expeccs to be able co renew this facility upon expiracion. (See Note 11 -

Short-Term Debc [Commercial Paper and Loans} ofNoces co Consoli-dated Financial Scacemencs.)

(H) Funding has a $300 million chree-year revolving credit facility which currently terminates on September 18, 1993 wich repaymencs due beginning March 1994 in four equal semi-annual payments. As of December 31, 1992, Funding had $175 million oflong-cerm debt oucscanding under this facilicy. In addition, on February 1, 1993, Funding borrowed an additional $60 million under such facility in order co refund and redeem $60 million of ocher long-term debc. Funding presently expects co be able co renew chis facility upon expiracion. (See Noce 6 -

Schedule of Consolidaced Long-Term Debt of Notes co the Consolidated Financial Scacemencs.)

(I) During 1992, Capital issued $30 million of its medium cerm noces. (See Noce 6 -

Schedule of Consolidaced Long-Term Debc of Noces to Consolidated Financial Scacemencs.)

PSE&G Customer Accounts Receivable At December 31, 1992 and 1991, customer accounts receivable were $423 million and $377 million, respectively, excluding un-billed revenues. The net write-off of uncollectible accounts in 1992 was $26. 7 million, a decrease of $0.8 million compared to the previous year. The net write-off per $100 of revenues was 56 cents, down 3 cents from 1991. This improvement was achieved in spite of New Jersey's sluggish economy and relatively high unemploy-ment. However, higher levels of accounts receivable could affect uncollectible accounts and write-offs in 1993. While slow growth is being predicted for New Jersey's economy and a slight improve-ment is expected in the unemployment rate, it is not anticipated that this will materially improve the financial position of cus-tomers. This, coupled with BRC imposed limitations on service terminations, will continue to have an adverse impact on the level of receivables.

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

Other Matters For information concerning financial accounting standards that have been issued or proposed by the Financial Accounting Stan-dards Board but not yet adopted by Enterprise and PSE&G, see Note 1 -

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

27

28 Flnanclal Statement Responsiblllty Management of Enterprise is responsible for the preparation, in-tegrity and objectivity of the consolidated financial statements and related notes of Enterprise. The consolidated financial statements and related notes are prepared in accordance with generally ac-cepted accounting principles. The financial statements reflect estimates based upon the judgment of management where appro-priate. Management believes that the consolidated financial state-ments and related notes present fairly and consistently Enterprise's financial position and results of operations. Information in ocher parts of this Annual Report is also the responsibility of manage-ment and is consistent with these consolidated financial statements and related notes.

The firm ofDeloicce & Touche, independent auditors, is en-gaged co audit Enterprise's consolidated financial statements and related notes and issue a report thereon. Deloicce & Touche's audit is conducted in accordance with generally accepted auditing stan-dards and includes a review of internal accounting controls and rests of transactions. Management has made available co Deloitce

& Touche all the corporation's financial records and related data, as well as the minutes of directors' meetings. Furthermore, manage-ment believes chat all representations made co Deloicce & Touche during their audit were valid and appropriate.

Management has established and maintains a system of internal accounting controls co provide reasonable assurance that assets are safeguarded, and chat transactions are executed in accordance with management's authorization and recorded properly for the preven-tion and detection of fraudulent financial reporting, so as co main-tain the integrity and reliability of the financial statements. The system is designed co permit preparation of consolidated financial statements and related notes in accordance with generally accepted accounting principles. The concept of reasonable assurance recog-nizes chat the costs of a system of internal accounting controls should not exceed the related benefits. Management believes the effectiveness of this system is enhanced by an ongoing program of continuous and selective training of employees. In addic-n-

agement has communicated co all employees its policies~

ness conduce, assets and internal controls.

The Internal Auditing Department of PSE&G conducts audits and appraisals of accounting and ocher operations of Enterprise and its subsidiaries and evaluates the effectiveness of cost and other controls and recommends co management, where appropriate, improvements thereto. Management has considered the internal auditors' and Deloicce & Touche's recommendations concerning the corporation's system of internal accounting controls and has taken actions that, in its opinion, are cost-effective in the circumstances to respond appropriately co these recommendations. Management believes that, as of December 31, 1992, the corporation's system of internal accounting controls is adequate to accomplish the objec-tives discussed herein.

The Board ofDireccors of Enterprise carries out its responsibil-ity of financial overview through the Audie Committee, which presently consists of six directors who are neither employees of Enterprise nor its affiliates. The Audie Committee meets periodi-cally with management as well as with representatives of the inter-nal auditors and Deloicce & Touche. The Audie Committee reviews the work of each co ensure chat their respective responsibilities are being carried our and discusses related matters. Boch the internal auditors and Deloicce & Touche periodically meet alone wi Audit Committee and have free access co the Audie Com and its individual members, at any rime.

E. James Ferland Chairman of the Board, President and Chief Executive Officer Richard E. Hallett Vice President and Comptroller Principal Accounting Officer February 9, 1993

~~c~\\MA Robert C. Murray Vice President and Chief Financial Officer

Consolidated Statements Of Income s of Dollars)

For the Years Ended December 31, Operating Revenues Electric Gas Nonutility Activities Total Operating Revenues Operating Expenses Operation Fuel for Electric Generation and Net Interchanged Power Gas Purchased and Materials for Gas Produced Other Maintenance Depreciation and Amortization Taxes Federal Income Taxes (note 9)

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

Equity P

om Settlement -

net of Federal income taxes $16,985 (note 2) neous-net Total Other Income Income Before Interest Charges and Dividends on Preferred Stock Interest Charges (note 6)

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

Debt and Capitalized Interest Net Interest Charges Preferred Stock Dividend Requirements (note 4)

Net Income Shares of Common Stock Outstanding End of Year Average for Year Earnings per Average Share of Common Stock Dividends Paid per Share of Common Stock 1992

$3,407,819 1,586, 181 362, 781 5,356, 781 776,571 858, 737 924,942 307, 726 642,548 221,694 585,295 73,133 4,390,646 966, 135 12,828 32,970 30, 188 75,986 1,042, 121 479,898 14,858 29,269 524,025 (17,928) 506,097 31,907

$ 504, 117 235, 395, 751 232,306,492

$2.17

$2.16 199l(A) 1990(A)

$3,500,043

$3,332,417 1,307,849 1,236,747 283,766 230,075 5,091,658 4,799,239 781, 191 717,370 636,058 626, 156 867, 182 834,600 315,372 285,871 585,9 19 738,605 264,856 136,977 583,071 558,642 60,855 66, 153 4,094,504 3,964,374 997' 154 834,865 7,092 16,987 15,024 10,519 22,116 27,506 1,019,270 862,371 437,701 404,289 35,000 37,845 12,576 20,091 485,277 462,225 (38,054)

(32,529) 447,223 429,696 29,012 29,012

$ 543,035

$ 403,663 226, 700,852 218,472,205 223,565,239 211,981,434

$2.43

$1.90

$2.13

$2.09 (A) IE restated co reflect the change in accounting principle by EDC co the successful efforts method of accounting for oil and gas operations from the ethod.

See o

co Consolidated Financial Statements.

29

30 Consolidated Balance Sheets (Thousands of Dollars)

December 31, Assets Utility Plant -

Original cost Electric Gas Common Total Less accumulated depreciation and amortization Net Nuclear Fuel in Service, net of accumulated amortization -

1992, $223,857; 1991, $208, 147 Net Utility Plant in Service Construction Work in Progress, including Nuclear Fuel in Process -

1992, $68, 789; 1991, $143,881 Plant Held for Future Use (principally land)

Net Utility Plant Investments and Other Property (notes 3, 7 and 10)

Long-Term Investments, net of valuation allowance-1992, $17,548; 1991, $15,355 Oil and Gas Property, Plant and Equipment, net of accumulated depreciation and amortization -

1992, $663,915; 1991, $588,333 Real Estate, net of accumulated depreciation -

1992, $11, 146; 1991, $7,402; and valuation allowance-1992, $3,961; 1991, $1,341 Other Plant, net of accumulated depreciation and amortization -

1992, $3,073; 1991, $2,987 Nuclear Decommissioning and Other Special Funds Other Investments -

net Total Investments and Other Property Current Assets Cash and Cash Equivalents (note 8)

Accounts Receivable, net of allowance for doubtful accounts -

1992, $24,059; 1991, $21,241 Unbilled Revenues Fuel, at average cost Materials and Supplies, at average cost (note 5)

Prepayments Total Current Assets Deferred Debits (note 5)

Property Abandonments -

net Oil and Gas Property Write-Down (note 2)

Unamortized Debt Expense Deferred Take-or-Pay Gas Costs Unrecovered Environmental Costs (notes 2 and 12)

Unrecovered Plant and Regulatory Study Costs Unamortized Loss on Sale of Naphtha Other Total Deferred Debits Total 1992

$11,565,669 2,044,944 479,972 14,090,585 4,386, 738 9, 703,847 252,299 9,956, 146 492,914 22,252 10,471,312 1,650,248 506,814 225,289 26,260 134,524 79,616 2,622, 751 31,674 586, 127 248, 742 263, 743 2ll,076 63,026 1,404,388 122,261 51,540 62,134 11, 779 108,047 23,091 142 378,994

$14,877,445

$ll, 152,003 1,894,497 433,346 13,479,846 4,035,832 9,444,014 179,095 9,623, 109 537,228 22,244 10, 182,581 1,616,644 563, 190 2,541,655 25,990 518,492 241,102 219,569 218, 166 61,085 1,284,404 171,286 64,985 49,644 17,849 136,235 2,700 1,226 443,925 (A) Prior year restated to reflect the change in accounting principle by EOC to the successful efforts method of accounting for oil and gas operations cost method.

See Notes to Consolidated Financial Statements.

(f.,

ofDolfa~) December 31, 1992 199l(A)

Capitalization and Liabilities Capitalization (notes 4 and 6)

Common Equity Common Stock

$ 3,499, 183

$ 3,262, 138 Retained Earnings 1,282,931 1,282,029 Total Common Equity 4, 782, 114 4,544, 167 Subsidiaries' Securities and Obligations Preferred Srock Without Mandatory Redemption 429,994 429,994 With Mandatory Redemption 75,000 Long-Term Debt (note 6) 4,977,579 5, 128,373 Capital Lease Obligations (note 10) 53, 104 53,617 Total Capitalization 10,317, 791 10, 156, 151 Current Liabilities Long-Term Debt and Capital Lease Obligations due within one year 393,071 420,401 Commercial Paper and Loans (note 11) 391,982 389,050 Accounts Payable 473,977 413, 124 New Jersey Gross Receipts Taxes Accrued 555,329 535,766 Other Taxes Accrued 41,557 23,228 116, 165 121,351 134, 768 120,983 2, 106,849 2,023,903 Deferred Credits Accumulated Deferred Income Taxes (note 9)

Depreciation and Amortization 1,368,001 1,221,575 Leasing Activities 291,331 233,599 Property Abandonments (note 5) 50,684 83,287 Oil and Gas Property Write-Down (note 2) 24,518 30,911 Deferred Electric Energy and Gas Costs -

net (44,415)

(4,266)

Unamortized Debt Expense 17,082 13,466 Other 3,888 17,939 Total Accumulated Deferred Income Taxes 1, 711,089 1,596,511 Accumulated Deferred Investment Tax Credits (note 9) 444,368 464,710 31 Deferred Take-or-Pay Gas Costs (note 5) 2,734 12,511 Unrecovered Environmental Costs (notes 2 and 12) 93, 169 107,990 Overrecovered Electric Energy and Gas Costs -

net (note 5) 122, 736 1,365 Materials and Supplies (note 5) 24,018 36, 188 Other 54,691 53,236 Total Deferred Credits 2,452,805 2,272,511 Commitments and Contingent Liabilities (note 12)

To

$14,877,445

$14,452,565

Consolidated Statements of Cash Flows (Thousands of Dollars)

For the Years Ended December 31, Cash Flows from Operating Activities:

Net Income Adjustments to reconcile net income to net cash flows from operating activities:

Depreciation and Amortization Amortization of Nuclear Fuel Recovery (Deferral) of Electric Energy and Gas Costs -

net Amortization of Discounts on Property Abandonments and Disallowance Unrealized Gains on Investments -

net Provision for Deferred Income Taxes -

net Investment Tax Credits -

net Allowance for Funds Used During Construction -

Debt and Equity and Capitalized Inrerest Proceeds from Leasing Activities Changes in certain current assets and liabilities Net (increase) decrease in Accounts Receivable and Unbilled Revenues Net (increase) decrease in Inventory -

Fuel and Materials and Supplies Net increase (decrease) in Accounts Payable Net increase (decrease) in Accrued Taxes Net change in Other Current Assets and Liabilities Other Net cash provided by operating activities Cash Flows from Investing Activities:

Additions to Utility Plant, excluding AFDC Additions to Oil and Gas Property, Plant and Equipment, excluding Capitalized Interest Net increase in Long-Term Investments and Real Estate Increase in Decommissioning and Other Special Funds, excluding interest Cost of Plant Removal -

net Other Net cash used in investing activities Cash Flows from Financing Activities:

Net increase (decrease) in Short-Term Debt Issuance of Long-Term Debt Redemption of Long-Term Debt and Other Obligations Issuance of Common Stock 32 Issuance of Preferred Stock Cash Dividends Paid on Common Stock Other Net cash (used in) provided by financing activities Net increase (decrease) in Cash and Cash Equivalents Cash and Cash Equivalents at Beginning of Year Cash and Cash Equivalents at End of Year Income Taxes Paid 1992

$ 504, 117 642,548 91,903 121,371 (11,293)

(24,843) 56,846 (20,342)

(30, 756) 30,295 (75,275)

(37,084) 60,853 37,892 6,658 (12,987) 1,339,903 (800,344)

(32,337)

(61,099)

(9,262)

(40, 111)

(6,000)

(949, 153) 2,932 880,000 (1,058,637) 237,045 75,000 (503, 197)

(18,209)

(385,066) 5,684 25,990 31,674

$ 143,211 199l(A)

A)

$ 543,035

$ 403,663 585,919 738,605 96,420 89,031 (36, 146) 105,992 (11,754)

(13,566)

(11,264)

(14) 114,681 (9,932)

(19,779)

(16,549)

(45,146)

(49,516) 17,463 14,785 (50,052) 61,812 63,043 (114, 145)

(52,535) 47,564 (7,736)

(47,252)

(16,592) 19,651 (14,437)

(20,554) 1, 155, 120 1,209,575 (783, 175)

03)

(183,673)

(261,324)

(304,541)

(318,453)

(11,665)

(23,861)

(44, 199)

(91,627) 11,278 (11,071)

(1,315,975)

(1,640, 139)

(369,809) 309,535 1,013,794 400,000 (252,241)

(56,852) 218,736 185,428 (476,099)

(442,466) 7,400 5,933 141,781 401,578 (19,074)

(28,986) 45,064 74,050 25,990 45,064

$ 148, 171

$ 135,804 Interest Paid

$ 486,396

$ 436,994

$~85 (A) Prior years restated to reflect the change in accounting principle by EDC to the successful efforts method of accounting for oil and gas operations fi II cost method.

See Notes to Consolidated Financial Statements.

Conaolldated Statement* of Retained Earnings For the Years Ended December 31, 1992 1991(A) 1990(A)

Balance January 1

$1,282,029

$1,203,772

$1,253,515 Add Net Income 504, 117 543,035 403,(?63 Total 1, 786, 146 1,746,807 1,657,178 Deduct Cash Dividends on Common Stock (B) 503, 197 476,099 442,466 Adjustments to Retained Earnings 18 (11,321) 10,940 Total Deductions 503,215 464,778 453,406 Balance December 31

$1,282,931

$1,282,029

$1,203,772 (A) Prior years restated to reflect the change in accounting principle by EIX to the successful efforts method of accounting for oil and gas operations from the full cost method.

(B) The ability ofEnterprise 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, 1992 was $10 million.

See Notes to Consolidated Financial Statements.

33

34 Notes To Consolidated Financial Statements Note 1. Organization and Summary of Significant Accounting Policies Organization Public Service Enterprise Group Incorporated (Enterprise) has two wholly-owned subsidiaries, Public Service Electric and Gas Com-pany (PSE&G) and Enterprise Diversified Holdings Incorporated (Holdings). Enterprise's principal subsidiary, PSE&G, is a public utility operating in the State of New Jersey. Holdings was incorpo-rated on June 20, 1989, and on July 1, 1989 became the parent of Enterprise's nonutility subsidiaries: Public Service Resources Cor-poration (PSRC), Energy Development Corporation (EDC), Com-munity Energy Alternatives Incorporated (CEA), Enterprise Group Development Corporation (EGDC), and PSEG Capital Corpora-tion (Capital). Enterprise Capital Funding Corporation (Funding),

a wholly-owned subsidiary of Holdings, was also formed on June 20, 1989. PSE&G Fuel Corporation (Fuelco) was organized in June 1990, as a wholly-owned subsidiary of PSE&G.

Enterprise has claimed an exemption from regulation by the Securities and Exchange Commission (SEC) as a registered holding company under the Public Utility Holding Company Act of 1935, except for Section 9(aX2) which relates ro the acquisition of voting securities of an electric or gas utility company. Also, Enterprise is not subject ro direct regulation by the New Jersey Board ofRegula-rory Commissioners (BRC) or the Federal Energy Regularory Com-mission (FERC).

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

Certain reclassifications of prior years' data have been made to conform with the current presentation.

Regulation -

PSE&G The accounting and rates of PSE&G are subject in certain respects ro the requirements of the BRC and FERC. As a result, PSE&G maintains its accounts in accordance with their prescribed Uniform Systems of Accounts, which are the same. The applications of generally accepted accounting principles by PSE&G differ in cer-tain respects from applications by nonregulated businesses.

Utility Plant and Related Depreciation -

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

For financial reporting purposes, depreciation is computed under the straight-line method. Depreciation is based on estimated average remaining lives of the several classes of depreciable prop-erty. These estimates are reviewed on a periodic basis and necessary adjustments are made as approved by the BRC. Depreciation pro-visions stated in percentages of original cost of depreciable property were 3.48% in 1992, 1991 and 1990.

Public Service Enterprise Group Incorporated Amortization of Nuclear Fuel -

PSE&G

Nuclear energy burnup costs are charged to fuel expense on a unirs-of-producrion basis over the estimated life of the fuel. Rates for the recovery of fuel used at all nuclear units include a provision of one mill per kilowatthour of nuclear generation for spent fuel disposal costs. (See Note 3 -

PSE&G Nuclear Decommissioning and Amortization of Nuclear Fuel.)

Revenues and Fuel Costs -

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

Rares include projected fuel costs for electric generation, pur-chased and interchanged power, gas purchased and materials used for gas production.

Any under or overrecoveries, together with interest (in the case of overrecoveries), are deferred and included in operations in the period in which they are reflected in rates.

Oil and Gas Accounting -

EDC As of the first quarter of 1992 EDC, a wholly-owned subsidiary of Enterprise, changed its method of accounting for its oil j ad as operations to the successful efforts method from the fu method.

Under the successful efforts method of accounting, prove leasehold costs are capitalized and amortized over the proved devel-oped and undeveloped reserves on a units-of-production basis.

Drilling and equipping costs, except explorarory dry holes, are capitalized and depreciated over the proved developed reserves on a units-of-production basis. Estimated future abandonment costs of offshore proved properties are depreciated on a units-of-production basis over the proved developed and undeveloped reserves. Un-proved leasehold costs are capitalized and are not amortized, pend-ing an evaluation of their exploration potential. Unproved leasehold and producing properties costs are assessed periodically ro determine if an impairment of the cost of significant individual properties has occurred. The cost of an impairment is charged to expense in the period in which it occurs. Costs incurred for explor-atory dry holes, exploratory geological and geophysical work and delay rentals are charged to expense as incurred.

The consolidated balance sheers as of December 31, 1991 and 1990, and the related consolidated statements of income, retained earnings, cash flows and financial statement schedules for each of the two years in the period ended December 31, 1991 and related notes to consolidated financial statements have been restated ro show the effects of EDC's change in accounting principle ro the successful efforts method of accounting for oil and gas pro~rties from the full cost method. The change to the successful e~

method of accounting resulted in decreases of $219 milli

$218 million in retained earnings as of December 31, 1991 an December 31, 1990, respectively, by restating previously issued financial statements. The effect of this change resulted in decreases of previously reported net income of $1 million and $139 million for 1991 and 1990, respectively, and the decrease in earnings per share of common stock for 1991 and 1990 was $.004 and $.66, respectively.

Long-Term Investments -

Holdings PSRC has invested in marketable securities and limited parmer-shi s investing in securities, which are stated at fair value, and v

es and other limited partnerships. (See Note 7 -

Long-l estments). EGDC is a participant in the nonresidential real estate markets. CEA is an investor in and developer of cogen-eration and power production facilities.

Income Taxes Enterprise and its subsidiaries file a consolidated Federal income tax return and income taxes are allocated co Enterprise's subsidi-aries based on taxable income or loss of each.

Deferred income taxes are provided for differences between book and taxable income. For PSE&G, deferred income taxes are pro-vided to the extent permitted for ratemaking purposes.

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

Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes", was issued by the Financial Accounting Standards Board (FASB) in February 1992. SFAS 109 requires a change from the deferred method to the asset and liability method of accounting for income taxes and is effective for fiscal years beginning after December 15, 1992. Upon adoption, the provisions ofSFAS 109 may be applied without restating prior years' financial statements or may be applied retroactively by re-stating any number of prior years' financial statements. Under SFAS 109, deferred taxes are ro be provided for all temporary dif-ferences between the financial statement carrying amounts and the t

of existing assets and liabilities irrespective of the treat-m atemaking purposes. If it is probable that a regulated pub utility will pass the effect of the additional deferred taxes provided pursuant to SFAS 109 on to utility customers in the fu-ture, an offsetting regulatory asset or liability is to be recorded.

Enterprise and its subsidiaries will adopt SFAS 109 effective January 1993 without restating prior years' financial statements. It is estimated that adoption ofSFAS 109 will result in an increase in the deferred tax liability of approximately $700 million. Manage-ment believes that it is probable that the effects of SFAS 109 on PSE&G will be recovered from utility customers in the future, therefore an offsetting regulatory asset of approximately $700 million will be established. The impact on Net Income upon adoption of SFAS 109 will not be material.

Allowance for Funds Used During Construction (AFDC) and Capitalized Interest PSE&G -

AFDC represents the cost of debt and equity funds used to finance the construction of new utility facilities. The amount of AFDC capitalized is also reported in the Consolidated Statements of Income as a reduction of interest charges for the borrowed funds component and as other income for the equity funds component.

The rates used for calculating AFDC in 1992, 1991 and 1990 were 7.80%, 7.50% and 10.17%, respectively. These rates are within the limits set by the FERC.

Ho!

The operating subsidiaries of Holdings capitalize ble to construction expenditures at the cost of borrowed Pension Plan and Other Postretirement Benefits The employees of PSE&G and participating affiliates completing one year of service are covered by a noncontributory trusteed pen-sion plan (Pension Plan). The policy is to fund pension costs ac-crued. PSE&G also provides certain health care and life insurance benefits to active and retired employees. The portion of such costs pertaining to retirees amounted to $24 million, $24 million, and

$23 million in 1992, 1991 and 1990, respectively. The current cost of these benefits is charged to expense when paid and is cur-rently being recovered from ratepayers.

In December 1990, FASB issued SFAS 106, "Employers' Ac-counting for Postretirement Benefits Other than Pensions" which requires employers to change from a "cash basis" to an "accrual basis" of accounting for postretirement benefits. SFAS 106 is effec-tive for fiscal years beginning after December 15, 1992. On January 1, 1993, Enterprise will adopt SFAS 106 which requires that the expected cost of postretirement health care benefits be charged to expense during the years in which employees render service. Enter-prise has elected to amortize the unfunded obligation at January 1, 1993, over a period of 20 years. Prior to 1993, Enterprise recog-nized postretirement health care costs in the year that the benefits were paid.

See Note 13 -

Pension Plan and Other Postretirement Benefits.

Note 2. PSE&G Rate Matters Base Rates On December 31, 1992, the BRC approved a settlement of PSE&G's base rate case that effectively provides additional annual base revenues of $295 million. At such time, the BRC also ap-proved annual reductions of $66 million and $71 million, respec-tively, in PSE&G's electric Levelized Energy Adjustment Clause (LEAC) and Levelized Gas Adjustment Clause (LGAC). The BRC also approved stipulations resolving all electric and gas cost of service/rate design issues. The new base rates became effective January 1, 1993. Under the terms of the settlements, PSE&G will receive $235 million and $48 million annualized increases in its electric and gas base rates, respectively. Of the $48 million, $13 million will be offset by the crediting of firm gas transportation revenues, previously considered as firm rates, to PSE&G's LGAC.

The net $295 million in total additional base rate revenues also reflects the transfer to the LEAC and LGAC of $25 million in annual conservation program costs previously collected from cus-tomers through base rates. The overall impact of the changes in base rates and the adjustment clauses would result in an overall increase of5% in total electric revenues and a 4. 7% decrease in total gas revenues. The combined impact represents a 2.1% in-crease in total revenues. The settlement agreement also allows PSE&G a 12.0% return on common equity and a 10.08% return on rate base.

Levelized Energy Adjustment Clause (LEAC)

On December 31, 1992, the BRC approved a reduction in PSE&G's LEAC, effective January 1, 1993, of $66 million on an annualized basis through June 30, 1994. Under the settlement, the LEAC will reflect $44 million of net proceeds from the April 1992 settlement of litigation against Philadelphia Electric Company (PE) in con-nection with the 1987 shutdown by the Nuclear Regulatory Com-mission (NRC) of Peach Bottom, the transfer of $9.4 million in conservation program costs to its demand side management pro-gram, the elimination of Hope Creek 2 amortization, which had been previously recovered in the LEAC, and the collection of cer-tain nuclear decommissioning costs.

35

36 Peach Bottom Settlement In the first quarter of the year, Enterprise and PSE&G allocated 75% of the net proceeds of the Peach Bottom settlement to income attributable to shareholders and deferred 25% attributable to rate-payers. Pursuant to the base rate case settlement, such allocations were adjusted in December to an equal sharing of the benefits of the Peach Bottom settlement.

Levelized Gas Adjustment Clause (LGAC)

On December 31, 1992, the BRC approved a reduction in PSE&G's LGAC, effective January 1, 1993, of $71 million on an annualized basis through December 31, 1993 reflecting lower gas costs and the transfer of $15. 6 million of conservation program costs to its de-mand side management program. In addition, gas customers will receive credits of $15 million monthly in January, February and March, 1993.

Oil and Gas Property Write-Down In 1986, the BRC approved agreements by PSE&G and the major parties in PSE&G's gas base rate case, which provided for an annual reduction in gas base revenues of $30 million and for the removal ofEDC, at that time a wholly-owned subsidiary of PSE&G, from inclusion in its gas rate base for ratemaking purposes. In the BRC-approved agreement, PSE&G was allowed to defer its loss on its investment in EDC. PSE&G deferred $58.8 million of such 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, 1992, the balance remaining to be amortized was $27 million. On De-cember 31, 1992, the BRC approved the recovery of the $27 mil-lion balance through PSE&G's LGAC over a ten-year period beginning January 1, 1993.

PSE&G Gas Plant Remediation Program The December 31, 1992 base rate case settlement did not address PSE&G's request for the recovery of the costs it is incurring to investigate and remediate, if necessary, the environmental effects of former gas plant manufacturing operations and waste disposal. As of December 31, 1992, PSE&G had incurred approximately $33 million for such purposes, which has been deferred in accordance with a prior BRC Order permitting such deferral. The base rate case settlement provides for the matter to be decided by the BRC and briefs were filed on February 2, 1993. While PSE&G believes that it will recover such costs from its customers, no assurances can be given as to what regulatory treatment may be afforded by the BRC. Any amounts not recovered through rates or insurance would be required to be written off. (See Note 12 -

Commitments and Contingent Liabilities.)

Consolidated Tax Benefits The BRC does not directly regulate Enterprise's nonutility activi-ties. However, in a case affecting another utility in which neither Enterprise nor PSE&G were parties, the BRC considered the extent to which tax savings generated by nonuti!ity affiliates included in the consolidated tax return of that utility's holding company should be considered in setting that utility's rates. On September 30, 1992, the BRC approved an order in such case treating certain consolidated tax savings generated after June 30, 1990 by that utility's nonutility affiliates as a reduction of its rate base. On De-cember 31, 1992, the BRC issued an order approving a stipulation in PSE&G's most recent base rate proceeding which resolved the case without separate quantification of the consolidated tax issue.

The stipulation does not provide a final resolution of the consoli-dated tax issue for any subsequent base rate filings. The ultimate resolution of the consolidated tax issue, if unfavorable, could reduce PSE&G's future revenue and net income and the future net income of Enterprise. In addition, an unfavorable resolution may.

impact Enterprise's nonutility investment strategy. Enterp believes that PSE&G's taxes should be treated on a stand-alone basis for ratemaking purposes, based on the separate narure of the utility and nonutility businesses. However, neither Enterprise nor PSE&G is able to predict what action, if any, the BRC may take concerning consolidation of tax benefits in future rate proceedings.

Note 3. PSE&G Nuclear Decommissioning and Amortization of Nuclear Fuel PSE&G's 1992 base rate decision by the BRC utilized studies based on the prompt removal/dismantlement method of decommission-ing for all of PSE&G's nuclear generating stations. This method consists of removing all fuel, source material and all other radio-active materials with activity levels above accepted release limits from the nuclear sites. PSE&G has an ownership interest in five nuclear units: Salem 1 and Salem 2 -

42. 59% each, Hope Creek 95% and Peach Bottom 2 and 3-42.49% each. In accordance with rate orders received from the BRC, PSE&G has established external nuclear decommissioning trust funds for all of its nuclear units. The Internal Revenue Service (IRS) has ruled that payments into qualified funds are tax deductible. The total estimated cost of decommissioning PSE&G's ownership share of these nuclear units is estimated at $681 million in year-end 1990 dollars (the year that the site specific estimate was prepared), excluding conting The 1992 base rate decision provided that $15. 6 million o costs are to be collected through base rates and an additiona annual amount of $7.0 million in 1993 and $14.0 million in 1994, and thereafter, are to be recovered through PSE&G's LEAC. At Decem-ber 31, 1992 and 1991, the accumulated provision for depreciation and amortization included reserves for nuclear decommissioning trust funds for all PSE&G's units of $179 million and $156 million, respectively. As of December 31, 1992 and 1991, PSE&G has con-tributed $109 million and $93 million, respectively, into external qualified and nonqualified nuclear decommissioning trust funds.

Uranium Enrichment Decontamination and Decommissioning Fund In accordance with the National Energy Policy Act of 1992, do-mestic utilities that own nuclear generating stations will be re-quired to pay a cumulative total of $150 million each year into a decontamination and decommissioning fund, based on their past purchases of enriched nuclear fuel from the United States Depart-ment of Energy (DOE) Uranium Enrichment Enterprise (now a federal government corporation, the United States Enrichment Corporation -

USEC). These amounts are to be collected over a period of 15 years or until $2.25 billion has been collected. Under this legislation preliminary estimates indicate that the nuclear facilities operated by PSE&G, Salem and Hope Creek, account for 3.15% of the total amount of enrichment services sold to-mestic commercial nuclear industry which correlates to a ll payment of approximately $4. 7 3 million ( 100% ). The nu facilities operated by PE, including Peach Bottom and other nu-clear facilities not co-owned by PSE&G, account for 4.25% of the total enrichment services sold and correlates to annual payments of approximately $6. 38 million ( 100% ). The federal government has neither determined nor provided actual enrichment service totals

for individual reactors; therefore, co-owners' shares have not been determined. PSE&G will seek recovery of these costs through its LEA E&G cannot predict the outcome, amount, or timing of any y associated with this matter. However, it is not ex-pect ave a material effect on the Financial Statements.

Spent Nuclear Fuel Disposal Costs In accordance with the Nuclear Waste Policy Act, PSE&G has entered into contracts with the DOE for the disposal of spent nu-clear fuel. Payments made to the DOE for disposal costs are based on nuclear generation and are included in Fuel for Electric Genera-tion and Net Interchanged Power in the Statements of Income.

These costs are recovered through the LEAC.

Note 4. Schedule of Consolidated Capital Stock Current Redemption Outstanding Price December 31, (Thousands of Dollars)

Shares Per Share 1992 1991 Enterprise Common Stock (no par) -

authorized 500,000,000 shares; issued and outstanding at December 31, 1992, 235,395,751 shares, at December 31, 1991, 226, 700,852 shares, and at December 31, 1990, 218,472,205 shares (note A), $3,499, 183 $3,262, 138 Enterprise Preferred Stock (note B)

PSE&G Cumulative Preferred Stock (note C)

Without Mandatory Redemption (note D)

$100 r value -

Series 250,000

$103.00 $

25,000 $

25,000 249,942 103.00 24,994 24,994 250,000 102.75 25,000 25,000 5.05%

250,000 103.00 25,000 25,000 5.28%

250,000 103.00 25,000 25,000 6.80%

250,000 102.00 25,000 25,000 7.40%

500,000 101.00 50,000 50,000 7.52%

500,000 101.00 50,000 50,000 8.08%

150,000 101.00 15,000 15,000 7.80%

750,000 101.00 75,000 75,000 7.70%

600,000 100. 79 60,000 60,000 8.16%

300,000 100.74 30,000 30,000 Total Preferred Stock without Mandatory Redemption

$ 429,994 $ 429,994 With Mandatory Redemption (notes D, E and F)

$100 par value -

Series 7.44%

750,000

$103.72 75,000 Preferred Stock with Mandatory Redemption 75,000 Capitalization 1987-1992 In Billions 12 9

3.9 3.8 87 88 4.5 4.l 89 90 91 4.8 92 Common Equity Preferred Srock Long-Term Debt Notes to Schedule of Consolidared Capital Stock (A) Total authorized and unissued shares include 12,204,667 shares of Enterprise Common Stock reserved for issuance through Enterprise's Dividend Reinvestment and Stock Purchase Plan and various employee benefit plans.

8,694,899 shares issued for $237,045,247 in 1992, including a public offering of 5 million shares issued for $132,025,000; 8,228,647 shares issued for

$218,735,528 in 1991, including a public offering of5 million shares issued for $129,950,000; 7,371,787 shares issued for $185,427,802 in 1990, including a public offering of 5 million shares issued for $126, 150,000.

(B) Enrerprise has authorized a class of 50 million shares of Preferred Stock without par value, none of which is outstanding.

(C) There are 2,450,058 shares of $100 par value and 10,000,000 shares of

$25 par value Cumulative Preferred Stock which are authorized and unissued, and which upon issuance may or may not provide for mandatory sinking fund redemption.

If dividends upon any shares of Preferred Stock are in arrears in an amount equal to the annual dividend thereon, voting rights for the election of a majority of PSE&G's Board of Directors become operative and continue until all accumulated and unpaid dividends thereon have been paid, whereupon all such voting rights cease, subject ro being again revived from time ro time.

(D) At December 31, 1992, the annual dividend requirement and embedded dividend for Preferred Stock without mandatory redemption were $29,012,000 and 6. 75%, respectively and for Preferred with mandatory redemption

$5,580,000 and 7.44%, respectively.

(E) On June 23, 1992, PSE&G sold 750,000 shares of $100 par value 7.44%

cumulative preferred stock.PSE&G will be required to redeem through the operation of a sinking fund 37,500 shares, plus accumulated dividends, on June 1 of each year commencing June 1, 2002 and shall redeem the remaining shares on June 1, 2007, plus accumulated dividends.

(F) In accordance with the requirements of Statement of Financial Accounting Standards (SFAS) 107, "Disclosures about Fair Value of Financial Instruments;*

the estimated fair value was derermined using the ready market price for the preferred stock at the end of 1992. As of December 31, 1992, the fur value of the Preferred Stock was $76.8 million.

Note S. Deferred Items Property Abandonments The BRC has authorized PSE&G to recover after-tax property abandonment costs from its customers. The following table reflects the application ofSFAS 90, "Regulated Enterprises -Accounting for Abandonments and Disallowances of Plant Costs;* as amended, on property abandonments for which no return is earned. The net-of-tax discount rate used was between 4.443% and 7.801 %.

As part of PSE&G's base rate decision of December 31, 1992, the BRC required the elimination of the amortization of the aban-donment cost for Hope Creek Unit 2 as of December 31, 1992.

The net remaining balance was transferred to the LEAC. (See Note 2-PSE&G Rate Matters.)

The following table reflects the property abandonments and related tax effects on which no return is earned.

(Thousands of Dollars)

December 31, 1992 1991 Discounted Discounted Property Abandonments Cost Taxes Cost Taxes Aclantic Project

$ 92,282

$ 38,778

$102,576

$ 43, 111 Hope Creek Unit 2 33, 115 26, 147 LNG Project 15,231 5,738 18,903 7, 172 Uranium Projects 14,450 6,168 16, 111 6,857 Other 298 581

$122,261

$ 50,684

$171,286

$83,287 37

Under(Over)recovered Electric Energy and Gas Costs -

Net Recoveries of electric energy and gas costs are determined by the BRC under the LEAC and LGAC. PSE&G's deferred fuel balances as of December 31, 1992 and December 31, 1991, reflect an overre-covery of $122. 7 million and $1.4 million, respectively, resulting from overrecovered LGAC and LEAC costs less unamortized de-ferred replacement power costs for Salem nuclear generating sta-tions. (See Note 2 -

PSE&G Rate Matters.)

Unamortized Debt Expense Costs associated with the issuance of debt by PSE&G are deferred and amortized over the lives of the related issues. Amounts shown in the Consolidated Balance Sheets consist of costs associated with PSE&G's First and Refunding Mortgage Bonds. The redemption costs of the tendered or redeemed debt have been deferred and are being amortized over the lives of the new securities issued to re-place higher-cost securities. PSE&G expects to amortize $7. 2 million of these costs in 1993.

Deferred Take-or-Pay Gas Costs In January 1990, the BRC approved a Stipulation resolving all take-or-pay issues; all take-or-pay charges already collected are no longer subject to refund. The BRC permitted PSE&G to recover all take-or-pay costs; a portion of which are being recovered over a nine-year period which began in October 1987.

Materials and Supplies Inventory On April 29, 1992, PSE&G received IRS approval of its 1988 request for a tax ruling concerning the change in PSE&G's method of accounting for certain spare parts to the Deferred (Inventory)

Method. Under this method, all purchases of spare parts under inventory control are charged to the materials and supplies inven-tory account until such time that the items are used or consumed and are then charged to the appropriate expense or capital accounts.

Effective January 1, 1989, PSE&G recorded an increase in its mate-rial and supplies inventory account for the value placed on such spare parts. The reversal of expenses was deferred and is being amortized over a six-year period which began January 1, 1989. As of December 31, 1992, the unamortized deferred credit balance was $24.0 million.

Unrecovered Plant and Regulatory Study Costs PSE&G has received both BRC and FERC approval to defer and amortize, over the remaining life of the applicable nuclear units, 38 costs associated with configuration baseline documentation costs.

Amounts shown in the Consolidated Balance Sheers consist of costs associated with developing, consolidating and documenting the specific design bases of the nuclear generating stations owned and operated by PSE&G.

Note 6. Schedule of Consolidated Long-Term Debt (Thousands of Dollars)

December 31, Inrerest Rates Due 1992 -=

PSE&G First and Refunding Mortgage Bonds (note A) 4%%-8314%

1992

$ 240,000 431s%-9Ys%

1993 190,000 190,000 4'/s%-8314%

1994 60,000 210,000 4314%-6%

1995 310,000 60,000 7Y2%-9314%

1996 75,000 325,000 6Y.%-7Ys%

1997 375,000 225,000 7.00%-9Ys%

1998-2002 723,600 718,600 6.30%- 12%

2003-2007 680,400 685,830

6. 80%-10%%

2008-2012 73,7 10 264, 710

8. l0%-lOY2%

2013-2017 809,400 812,400 8Y2%-9314%

2018-2022 822,500 473, 750 5%-8%

2037 15,001 15,001 Total First and Refunding Mortgage Bonds 4, 134,611 4,220,29 1 Debenrure Bonds Unsecured 7Y.%

1993 21,4 19 9%

1995 40,330 7314%-8314%

1996 41,994 74,880 6%

1998 18, 195 18, 195 Total Debenrure Bonds 60, 189 154,824 Principal Amounr Outstanding (note F) 4, 194,800 4,375, 115 Amounrs Due Within One Year (note B)

(191, 700)

(4 18, 109)

Net Unamortized Discounr (24,962)

(23,6 17)

Total Long-Term Debt of PSE&G 3,978, 138 Holdings Capital (note C) 8.95%-9.72%

1993 88,000 88,000 7.40%

1994 50,000 50,000 5.65%-9.55%

1995 112,000 82,000 9.00%

1996 20,000 20,000 8.95%-10.05%

1998-1999 480,000 480,000 Principal Amounr Outstanding (note F) 750,000 720,000 Amounrs Due With in One Year (note B)

(130,431)

Net Unamortized Discounr (1,571)

(1,883)

Total Long-Term Debt of Capital 617,998 718, 117 Funding (note D) 9.43%

1993 60,000 60,000 9.54%

1995 35,000 35,000 9.55%

1996 28,000 28,000 9.59%-9.95%

1997-1998 123,000 123,000 4.5625%-5.0% Bank Loans 1994-1995 175,000 200,000 Principal Amounr Outstanding (note F) 421,000 446,000 Amounts Due Within One Year (note B)

(60,000)

Total Long-Term Debt of Funding 361,000 446,000 EGDC Mortgage Notes 5.75%

1993 10,280 10,982 6.35%-7.736%

1994 13,678 14,7 18 10.625%- 12.75%

2012 6,913 7,002 Principal Amounr Outstanding (note F) 30,871 Amounrs Due Within One Year (note B)

(10,428)

Total Long-Term Debt of EGDC 20,443 Total Long-Term Debt of Holdings 999,441 Consolidated Long-Term Debt (note E)

$4,977,579

$5, 128,373 Notes:

(A) PSE&G's Mortgage, securing the First and Refunding Mortgage Bonds, constitutes a direct first mortgage lien on substantially all PSE&G property and franchises.

On January 26, 1993, PSE&G called for redemption of the following issues of its First and Refunding Mortgage Bonds: $87.3 million of8Y2% Series D due 2004; $57.6 million of83/4% Series F due 2006; and $75 million of 9%%

S due 1996.

ry 2, 1993, PSE&G issued $150 million and LOO million prin-cipal r of its First and Refunding Mortgage Bonds 67/s% Series MM due 2003 and 6% Series NN due 1998, respectively.

(B) The aggregate principal amounts of mandarory requirements for sinking funds and maturities for each of the five years following December 31, 1992 are as follows:

(Thousands of Dollars)

Sinking Funds Maturities Year PSE&G Capital PSE&G Capital EGIX Funding Toca!

1993 $

1994 1995 1996 1997 1, 700 $ 42,500 190,000 87,931 L0,428 60,000 392,559 1,700 42,500 60,000 50,000 13,758 87,500 255,458 l, 700 42,500 310,000 112,000 134 122,500 588,834 200 42,500 112,494 20,000 149 28,000 203,343 200 42,500 375,000 166 40,000 457,866

$ 5,500 $212,500 $1,047,494 $269,931 $24,635 $338,000 $1,898,060 For sinking fund purposes, certain First and Refunding Mortgage Bond issues require annually the retirement of$ LO. 7 million principal amount of bonds or the utilization ofbondable property additions at 60% of cost. The portion expected robe mer by property additions has been excluded from the table above. Also, PSE&G may, ac its option, retire an additional amount up ro

$1. 5 million annually through the sinking fund of the 7%% Debenture Bonds due 1996.

(C) Capital is providing up ro $750 million debt financing for the nonuriliry businesses on the basis of a supp0rt agreement with Enterprise.

(D) provides debt financing for the nonuriliry business on the basis of ur nal guarantees from Holdings.

(E) mber 31, 1992, the annual interest requirement on Long-Term Debt was $451. 5 million of which $342. 7 million was the requirement for First and Refunding Mortgage Bonds. The embedded interest cost on long-term debt was 8.58%.

(F) In accordance with the requirements of SFAS !07, che estimated fair value was determined using marker quotations or values of debt with similar cerms, credit raring and remaining maturities ac the end of 1992. As of December 31, 1992 the fair value of PSE&G's and Holdings' long-cerm debt was $4.4 billion and $1. 3 billion, respectively.

Note 7. Long-Term Investments Long-Term Investments are primarily those of Enterprise's non-utility operating businesses: PSRC (diversified passive invest-ments), EGDC (diversified nonresidential real estate development and investments) and CEA (cogeneration and power production facilities). A summary of long-term investments is as follows:

(Millions of Dollars)

Lease Agreements: (See note 10 -

Leasing Activities)

Leveraged Leases Direct-Financing Leases Other Leases Total Partnerships:

Gen artnerships rtnerships Joint Ventures Marketable Securities Valuation Allowances Corporate-owned Life Insurance (PSE&G)

Total Long-Term Investments 1992 1991

$ 718

$ 649 93 97 12 15 823 761 135 144 428 387 563 531 11 11 198 277 (17)

(15) 72 52

$1,650

$1,617 PSRCs leveraged leases are reported net of principal and interest on nonrecourse loans and unearned income, including deferred tax credits. Income and deferred tax credits are recognized at a level rate of return from each lease during the periods in which the net investment is posmve.

Partnership investments are those of PSRC, EGDC and CEA and are undertaken with other investors. PSRC is a limited partner in various partnerships and is committed to make investments from time to time, upon the request of the respective general partners, in such amounts as they may require up to an aggregate of $291 million. As of December 31, 1992, $146 million had been invested in such partnerships and $145 million remained as PSRC's unfunded commitment subjeet to call.

PSRC has invested in marketable securities and limited partner-ships investing in securities, which are stated at fair value. Real-ized investment gains and losses on the sale of investment securities are determined utilizing the specific cost identification method.

Note 8. Cash and Cash Equivalents The December 31, 1992 and 1991 balances consist primarily of working funds and highly liquid marketable securities (commercial paper) with a maturity of three months or less.

Note 9. Federal Income Taxes A reconciliation of reported Net Income with pretax income and of Federal income tax expense with the amount computed by multi-plying pretax income by the statutory Federal income tax rate of 34% is as follows:

(Thousands of Dollars) 1992 1991 1990 Nee Income

$504, 117

$543,035

$403,663 Preferred stock dividend requirements 31,907 29,012 29,012 Subrocal 536,024 572,047 432,675 Federal income truces:

Operating income:

Current provision 152,225 146,408 141,342 Provision for deferred income truces

-nec(A) 91,104 137,955 15,053 Invescmenc cax credits -

net (21,635)

(19,507)

( 19,418)

Total included in operating income 221,694 264,856 136,977 Miscellaneous ocher income:

Current provision 4,721 (11,396)

(ll,480)

Provision for deferred income truces (A) 19,261 10,906 10,906 SFAS 90 deferred income truces (A) 2,690 4,967 5,850 Toca! Federal income true provisions 248,366 269,333 142,253 Precruc income

$784,390

$841,380

$574,928 Reconciliation between total Federal income tax provisions and tax computed at the statutory tax rate on pretax income:

True computed at the staturory rare

$266,693

$286,069

$195,475 Increase (decrease) acrribucable ro flow through of certain true adjustments:

Depreciation 15,614 9,229 9,534 Amortization of plane abandonments and write-downs (18,867)

(4,497)

(4,661)

Amortization of rate differential resulting from TRA-86 (23,157)

Amortization of investment true credits (20,681)

(22,004)

(26,097)

Or her 5,607 536 (8,84 l)

Subroral (18,327)

(16, 736)

(53,222)

Total Federal income true provisions

$248,366

$269,333

$ 142,253 Effective Federal income true rate 31.7%

32.0%

24.7%

39

40 (A) The provision for deferred income taices represents the caic effects of the following items:

1992 1991 1990 Current Liabilities:

Unbilled revenues

$ (15, 155)

Other 150 Subtotal (15,005)

Deferred Credits:

Additional taic depreciation and amortization 136,073 123, 122 61,673 Leasing Activities 56,087 41, 741 43,301 Property Abandonments (34, 739)

(l l,582)

(11,690)

Oil and Gas Property Write-Down (6,393)

(6,393)

(6,394)

Deferred fuel costs -

net (40,148) 9,285 (36,822)

Other 2, 175 (2,345)

(3,254)

Subrotal 113,055 153,828 46,8 14 Total

$113,055

$153,828

$ 3 1,809 Since 1987, Enterprise's Federal alternative minimum tax (AMT) liability has exceeded its regular Federal income tax liability. This excess can be carried forward indefinitely to offset regular income tax liability in future years. Enterprise expects to utilize these AMT credits in the future as regular tax liability exceeds AMT. As of December 31, 1992, 1991 and 1990, Enterprise had AMT credits of $212 million, $185 million and $135 million, respectively.

Deferred income taxes are provided for differences between book and taxable income. For PSE&G, the deferred income taxes are limited to the extent permitted for ratemaking purposes. At Decem-ber 31, 1992, the cumulative net amount of income tax timing difference for which deferred income taxes have not been provided was $1. 5 billion.

Since 1986, Enterprise has filed a consolidated Federal income tax return on behalf of itself and its subsidiaries. Prior to 1986, PSE&G filed consolidated tax returns. On March 20, 1992, the Internal Revenue Service (IRS) issued a Revenue Agents Report (RAR) following completion of examination of PSE&G's consoli-dated tax return for 1985 and Enterprise's consolidated tax returns for 1986 and 1987 proposing various adjustments for such years which would increase Enterprise's consolidated Federal income tax liability by approximately $121 million, exclusive of interest and penalties, of which approximately $118 million is attributable to PSE&G. Interest after taxes on these proposed adjustments is cur-rently estimated to be approximately $62 million as of December 31, 1992 and will continue to accrue at the Federal rate for large corporate underpayments, currently 9% annually.

The most significant of these proposed adjustments relates to the IRS contention that PSE&G's Hope Creek nuclear unit is a partnership with a short 1986 taxable year. In addition, the IRS contends that the tax in-service date of that unit is four months.

later than the date claimed by PSE&G. On June 19, 1992, Enter-prise and PSE&G filed a protest with the IRS disagreeing with certain of the proposed adjustments (including those related to the Hope Creek nuclear unit) contained in the RAR for taxable years 1985 through 1987 and continues to contest these issues. Any tax adjustments resulting from the RAR would reduce Enterprise's and PSE&G's respective deferred credits for accumulated deferred income taxes. Enterprise expects PSE&G to recover all interest paid with respect to tax adjustments attributable to PSE&G from PSE&G's customers through rates. While PSE&G believes that assessments attributable to it are generally recoverable from its customers in rates, no assurances can be given as to what regulatory treatment may be afforded by the BRC. See Note 1 -

Organiza-tion and Summary of Significant Accounting Policies fo-s-

sion of the effect ofSFAS 109, and Note 2 -

PSE&G R.

ers.

Note 10. Leasing Activities As Lessee The Consolidated Balance Sheets include assets and related obliga-tions applicable to capital leases where PSE&G is a lessee. The total amortization of the leased assets and interest on the lease obligations equals the net minimum lease payments included in rent expense for capital leases.

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

Enterprise and its other subsidiaries are not lessees in any capi-talized leases.

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

(Thousands of Dollars) 1992 1991 Common Plant

$56,812

$56,812 Less: Accumulated Amortization 3,1%

2,738 Net Assets under Capital Leases

$53,616

$54,074 Future minimum lease payments for noncancelable capital and operating leases at December 31, 1992 were:

(Thousands of Dollars)

Leases s

Capital ~

ting 1993 1994 1995 1996 1997 Later Years Minimum Lease Payments Less: Amount representing estimated executory costs, together with any profit thereon, included in minimum lease payments Net minimum lease payments Less: Amount representing interest Present value of net minimum lease payments (A)

$ 13,014

$ 8,651 13,015 8,903 13,016 8,530 13,017 7,708 13,017 5,602 225,605 15,375 290,684

$54, 769 145,300 145,384 91,768

$ 53,616 (A) Reflected in the Consolidated Balance Sheets in Capital Lease Obligations of $53, 104 and in Long-Term Debt and Capital Lease Obligations due within one year of $512.

The following schedule shows the composition of rent expense included in Operating Expenses:

(Thousands of Dollars)

For the Years Ended December 31, 1992 1991 1990 Interest on Capital Lease Obligations

$ 6, 129

$ 6,205

$ 6,2841 Amortization of Utility Plant under 457 439 452 Capital Leases Net minimum lease payments relating 6,586 6,64 to Capital Leases Other Lease payments 21, 739 26,290 19,516 Total Rent Expense

$28,325

$32,934

$26,252

As Lessor PSRC's net investments in leveraged and direct financing leases are of the following elements:

1992 1991 Direct Direct (Millions of Leveraged Financing Leveraged Financing Dollars)

Leases Leases Total Leases Leases Total Lease rents receivable

$ 916

$130

$1,046 $ 998

$141

$1, 139 Estimated resid-ual value 698 12 710 543 12 555 1,614 142 1, 756 1,541 153 1,694 Unearned and deferred income (896)

(49)

(945)

(892)

(56)

(948)

Total Investments 718 93 811 649 97 746 Deferred truces (225)

(18)

(243)

(168)

( 16)

(184)

Net Investments

$ 493

$ 75

$ 568 $ 481

$ 81

$ 562 PSRC's other leases are with various regional, state and city author-ities for transportation equipment and aggregated $12 million and

$15 million as of December 31, 1992 and 1991, respectively.

Note 11. Shorr-Term Debt (Commercial Paper and Loans)

Commercial paper represents unsecured bearer promissory notes sold th ough dealers at a discount with a term of nine months or less

n information regarding commercial paper follows:

Holdings (Thousands of Dollars)

Amount outstanding at end of year Mrucimum amount outstanding at any month-end Average daily outstanding Weighted average annual interest rate Weighted average interest rate for commercial paper outstanding at year-end 1992 1991 1990

$134,446

$223,193

$272,041

$204,558

$326,537

$320,702

$156,400

$243,700

$229,500 3.78%

5.92%

8.25%

3.76%

5.04%

8.31%

At December 31, 1992 Funding had a $165 million commercial paper program supported by a direct pay commercial bank letter of credit and a revolving credit facility which expires in December 1993 and a $300 million revolving credit and term loan facility which expires in October 1993.

Enterprise At December 31, 1992, 1991 and 1990, Enterprise had $25 mil-lion, $25 million and $273 million, respectively, of lines of credit supported by compensating balances under informal arrangements with banks. At December 31, 1990 $150 million of these lines of credit were compensated for by fees. At December 31, 1992 and 1991, Enterprise had no such arrangement.

Note 12. Commitments and Contingent Liabilities Nuclear Performance Standard The BRC has established a nuclear performance standard (Standard) for nuclear generating stations owned by New Jersey electric utilities, including the five nuclear units in which PSE&G has an (Thousands of Dollars) 1992 1991 1990 ownership interest: Salem 1 and Salem 2 -42. 59% each; Hope Principal amount outstanding at end of Creek-95 %; and Peach Bottom 2 and 3 -

42.49% each.

year

$257,536

$165,857

$486,818 PSE&G operates Salem and Hope Creek while Peach Bottom is Mrucimum principal amount operated by PE.

outstanding at any month-end

$549,914

$$d99, l 7 l

$$4!

0 6*~~~

The penalty/reward under the Standard is a percentage of re-Average daily outstanding

$279*900 oo5.o_9o8o ""o 2 8* _22""

0 placement power costs. (See table below.) The Standard provides Weighted average annual interest rate

3. 76%

n 7 <

Weighted average interest rate for that the penalties will be calculated to the edge of each capacity commercial paper outstanding at factor range. For example, a 30% penalty applies to replacement year-end 3.64%

4.99%

8.34% power costs incurred in the 55% to 65% range and a 40% penalty At December 31, 1992, PSE&G had authorization from the BRC to issue and have outstanding not more than $800 million of its short-term obligations at any one time, consisting of commercial paper and other unsecured borrowings from banks and other lenders.

PSE&G has a $600 million revolving credit agreement with a group of banks which expires in November 1993. As of December 31, 1992, there was no short-term debt outstanding under this agreement.

On June 28, 1990, Fuelco established a $200 million commer-cial paper program to finance its share of Peach Bottom nuclear fuel, supported by a $200 million revolving credit facility with a group of banks which expires in June 1993. PSE&G has guaranteed repa.

ofFuelco's respective obligations. As of December 31, 199 and 1990 Fuelco had $122. 5 million, $13 5. 9 million and

. million outstanding under such program.

applies to replacement power costs in the 45% to 55% range.

Capacity Factor Range Equal to or greater than 75%

Equal to or greater than 65% and less than 75%

Equal to or greater than 55% and less than 65%

Equal to or greater than 45% and less than 55%

Equal to or greater than 40% and less than 45%

Below40%

Reward 30%

None Penalty None 30%

40%

50%

BRC intervenes Under the Standard, the capacity factor is calculated annually using maximum dependable capability of the five nuclear units in which PSE&G owns an interest. This method takes into account actual operating conditions of the units.

While the Standard does not specifically have a gross negligence provision, the BRC has indicated that it would consider allegations of gross negligence brought upon a sufficient factual basis. A find-ing of gross negligence could result in penalties other than those prescribed under the Standard. During 1992, the five nuclear units in which PSE&G has an ownership interest aggregated a 66%

combined capacity factor.

41

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

Type and Source of Coverages Tora! Sire Coverages PSE&G Maximum Rerrospecrive Assessmenrs for a Single Incidenr (Millions of Dollars)

Public Liabiliry:

American Nuclear Insurers Indemniry (A)

Nuclear Worker Liabiliry:

American Nuclear Insurers (C)

Properry Damage:

Nuclear Murual Limired American Nuclear Insurers Nuclear Elecrric Insurance Lrd.

Replacemenr Power:

Nuclear Elecrric Insurance Lrd.

$ 200.0

$None 7,607.2 175 4

$7,807.2(B)

$175.4

$ 200 0 8 3

$ 500.0

$ 17.3 765.0(D)

None 1,325 O(E) l IO(F)

$2,590.0(G)

$ 28.3 3.5(H)

$ 11.4 (A) Rerrospecrive premium program under rhe Price-Anderson liabiliry provisions of rhe Aromic Energy Acr of 1954, as amended, (AE Acr). Subjecr ro rerrospecrive assessmenr wirh respecr ro loss from an incidenr ar any licensed nuclear reacror in rhe Unired Srares.

(B) Limir of liabiliry for each nuclear incidenr under rhe AE Acr.

(C) Indusrry aggregare limir represenring rhe porenrial liabiliry from workers claiming exposure ro rhe hazard of nuclear radiarion. This policy includes auromaric reinsraremenrs up roan aggregare of $200 million, rhereby provid-ing coral coverage of $400 million. This policy does nor increase PSE&G's obligarion under rhe Price-Anderson liabiliry provisions of rhe AE Acr.

(D) Increased ro $800 million effecriveJanuary I, 1993. Includes $100 million sublimir for premarure decommissioning cosrs.

(E) Includes up ro $250 million for premarure decommissioning cosrs.

(F) In rhe evenr of a second indusrry loss rriggering Nuclear Elecrric Insurance Limired (NEIL) II coverage, rhe maximum rerrospecrive premium assessmenr will increase ro $22.9 million.

(G) Increased ro $2.625 billion effecrive January l, 1993.

(H) Weekly indemniry for 52 weeks which commences afrer rhe firsr 21 weeks of an ourage. Beyond rhe firsr 52 weeks of coverage indemniry of $2.3 million per week for 104 weeks is afforded. Tora! coverage amounrs ro $425.9 million over rhree years.

The 1988 Amendment ro the Price-Anderson Act sets the "limit of liability" for claims that could arise from an incident involving any licensed nuclear facility in the nation. The "limit of liability" is based on the number of licensed nuclear reacrors and is adjusted at least every five years based on the Consumer Price Index. The current "limit of liability" is $7.8 billion. All utilities owning a nuclear reacror, including PSE&G, have provided for this exposure through a combination of private insurance and mandarory partici-pation in a financial protection pool as established by the Price-Anderson Act. Under the Price-Anderson Act, each party with an ownership interest in a nuclear reacror can be assessed their share of

$66. 2 million per reacror per incident, payable at $10 million per reacror per incident per year. If the damages exceed the "limit of liability", the President is ro submit ro Congress a plan for provid-ing additional compensation ro the injured parries. Congress could impose further revenue raising measures on the nuclear industry ro pay claims. PSE&G's maximum aggregate assessment per incident is $175 million (based on PSE&G's ownership interests in Hope Creek, Peach Bottom and Salem) and its maximum aggregate annual assessment per incident is $26. 5 million.

PSE&G purchases all property insurance available, including decontamination expense coverage and premature decommission-ing coverage, with respect ro loss or damage ro its nuclea-f; cilities.

The limit of these coverages will increase ro $2.625 bill site effective January 1, 1993. PE has advised PSE&G that it ins similar insurance coverage with respect ro Peach Botrom. Under the terms of the various insurance agreements, PSE&G could be subject ro a maximum retrospective assessment for a single incident of up ro $28. 3 million. Certain of the policies also provide that the insurer may suspend coverage with respect to all nuclear units on a site without notice if the NRC suspends or revokes the operating license for any unit on the site, issues a shutdown order with respect ro such unit or issues a confirmarory order keeping such unit shut down.

PSE&G is a member of an industry mutual insurance company, NEIL, which provides replacement power cost coverage in the event of a major accidental outage at a nuclear station. The policies provide for a weekly indemnity payment of $3. 5 million for 52 weeks, subject ro a 21-week waiting period. The policies provide for weekly indemnity payments of $2.3 million for a 104 week period beyond the first year's indemnity. The premium for this coverage is subject ro retrospective assessment for adverse loss expe-rience. Under the policies, PSE&G's present maximum share of any retrospective assessment in any year is $11.4 million.

Construction and Fuel Supplies PSE&G has substantial commitments as part of its ongoing con-struction program which includes capital requirements for nuclear fuel. PSE&G's construction program is continuously revi

. d periodically revised as a result of changes in economic co s,

revised load forecasts, changes in the scheduled retirement ates of existing facilities, changes in business plans, site changes, cost escalations under construction contracts, requirements of regula-rory authorities and laws, the timing of and amount of electric and gas rate changes and the ability of PSE&G ro raise necessary capi-tal. PSE&G periodically reevaluates its forecasts of future cus-romers, load and peak growth and sources of electric generating capacity ro meet such projected growth, including the need ro construct new electric generating capacity. These forecasts take inro account assumptions concerning future demands of cusromers, effectiveness of conservation and load management activities, the long-term condition of PSE&G's plants, capacity available from electric utilities and other suppliers and the amounts of cogenera-tion and other nonutility capacity projected robe available.

Based on PSE&G's current electric supply and demand forecast and changes in PSE&G's construction program, construction ex-penditures are expected ro aggregate approximately $4. 7 billion, which includes $494 million for nuclear fuel and $220 million of AFDC during the years 1993 through 1997. The estimate of con-struction requirements is based on expected project completion dates and includes anticipated escalation due ro inflation of ap-proximately 4%, annually. Therefore, construction delays or higher inflation levels could cause significant increases in these amounts.

PSE&G expects ro generate internally a majority of the.

ec-essary ro satisfy its construction expenditures over the ne years, assuming adequate and timely rate relief, as ro which no assurances can be given. (See Note 2 -

PSE&G Rate Matters.) In addition, PSE&G does not presently anticipate any difficulties in obtaining sufficient sources of fuel for electric generation or ade-quate gas supplies during the years 1993 through 1997.

Environment General C.

deral and Srate laws authorize the United Srates Envi-ro Protection Agency and the New Jersey Department of Environmental Protection and Energy (NJDEPE), among other agencies, to issue orders and bring enforcement actions to compel responsible parries to rake investigative and remedial actions at any site that is determined ro present an imminent and subsrantial danger to the public or the environment because of an actual or threatened release of one or more hazardous subsrances. Because of the nature of PSE&G's business, including the production of elec-tricity, the distribution of gas and, formerly, the manufacture of gas, various by-products and subsrances are or were produced or handled which contain constituents classified as hazardous. PSE&G generally provides for the disposal or processing of such subsrances through licensed independent contractors. However, these sratu-tory provisions impose joint and several responsibility without regard to fault on all responsible parries, including the generators of the hazardous subsrances, for certain investigative and remedia-tion costs at sites where these subsrances were disposed of or proc-essed. PSE&G has been notified with respect to a number of such sites and the remediation of these potentially hazardous sites is receiving greater attention from the government agencies involved.

Generally, actions directed at funding such site investigations and remediation include all suspected or known responsible parries.

PSE&G does not expect its expenditures for any such site to be P

anufactured Gas Plant Remediation Program In ch 1988, NJDEPE notified PSE&G that it had identified the need for PSE&G, pursuant to a formal arrangement, to system-atically investigate and, if necessary, resolve environmental con-cerns extant at PSE&G's former manufactured gas plant sites. To date, NJDEPE and PSE&G have identified 38 former gas plant sites. PSE&G is currently working with NJDEPE under a program to assess, investigate and, if necessary, remediate environmental concerns at its former gas plant sites (Remediation Program). The overall cost of the Remediation Program cannot be reasonably estimated, but experience to date indicates that costs of at least

$20 million per year could be incurred over a period of more than 20 years and that the overall cost could be material.

Through December 31, 1992, PSE&G has incurred approxi-mately $33 million of Remediation Program costs (Remediation Costs) and recorded a liability of $93 million for such estimated costs through 1996. Any reasonable estimate of Remediation Costs robe incurred beyond this time cannot be made. In accordance with a Stipulation approved by the BRC on January 21, 1992, PSE&G was permitted to recover $15.9 million of its Remediation Costs during the 1991-92 LGAC period. The Company filed a reconciliation in its 1992-93 LGAC and expects ro refund $0. 3 million during the 1993 LGAC year and recover $5.3 million in each of its next three LGAC periods ending in 1996, net of insur-a-

eries. As part of the November 14, 1991 base rate fil-in asonableness and regulatory treatment of the Reme 1ation Costs covered by this Stipulation are being consid-ered. While PSE&G believes that it will recover such costs from its cusromers, no assurances can be given as ro what regulatory treat-ment may be afforded by the BRC.

In November 1988, PSE&G filed suit against cerrain of its insurers to recover the costs associated with addressing and resolv-ing environmental issues of the Remediation Program. The litiga-tion is currently in the discovery phase with certain insurers and PSE&G has settled its claim with one insurer. Pending full recovery of Remediation Program costs through rates or under its insurance policies, neither of which can be assured, PSE&G will be required to finance the unreimbursed costs of its Remediation Program.

Note 13. Pension Plan and Other Postretirement Benefits The discount rate, expected long-term return on assets and average compensation growth used in determining the Pension Plan's funded status as of December 31, 1992 and 1991, and net pension costs for 1992, 1991 and 1990, were as follows:

1992 1991 Discount Rare Used to Determine Pension Cost 7'12%

7%%

7'12%

9%

6%

Discount Rare Used ro Determine Benefit Obligations 7'12%

Expected Long-Term Return on Assets 8%

Average Compensation Growth 6%

The following table shows the Pension Plan's funded status:

(Thousands of Dollars)

December 31, Actuarial present value of benefit obligations:

Accumulated benefit obligations, including vested benefits of $993,867 and 913,041 Effect of projected future compensation Projected benefit obligations Plan assets ar fair value, primarily listed equity and debt securities Projected benefit obligations in excess of plan assets Unrecognized net gain (loss) from past experience and effects of changes in assumptions Prior service cost nor yet recognized in net pension cosr Unrecognized net obligations being recognized over 16. 7 years Prepaid (accrued) pension expense 1992

$(1,065,842)

(332,843)

(l,398,685) 1, l 72, 775 (225,910) 18,326 121,998 85,586 1991

$ (977,7 10)

(298,618)

(1,276,328) 1, 140,660 (135,668)

(33,430) 75,411 93,687

$ The net pension cost for the years ending December 31, 1992, 1991 and 1990, include the following components:

(Thousands of Dollars) 1992 1991 1990 Service cost-benefits earned during year

$36, 125

$ 33,652

$ 34,323 I merest cost on projected benefir obligations 94,233 89,324 83,930 Return on assets (62,323)

(191,996) 41,425 Ner amorrizarion and deferral (14,035) 119,020 (109,678)

Tora!

$54,000

$ 50,000

$ 50,000 43

44 Upon adoption ofSFAS 106, PSE&G expects its annual net cost of postretirement benefits other than pensions to increase by three times over its earlier cost level, to approximately $62 million.

PSE&G requested full rate recovery in its current base rate case and effective January 1, 1993 in accordance with the BRC's stipulation, PSE&G's costs for postretirement benefits other than pensions will continue to be included currently in PSE&G's cost of service for ratemaking purposes and recoverable in rates on a pay-as-you-go basis. PSE&G will account for the differences between accrued costs as determined under SFAS 106 and the level of pay-as-you-go costs built into rates as a regulatory asset (offset by a liability) pursuant to deferral accounting under SFAS 71. The BRC also agreed that the issue of cash versus accrual accounting should be revisited, and, to the extent that it is determined that proper rate-making policy or regulation or policy statements issued by the FASB or the Securities and Exchange Commission require a change to accrual accounting for ratemaking purposes, the accumulated regulatory asset will be recoverable in rates over an appropriate amortization period. The amount of the unfunded liability is ap-proximately $448 million and funding options that currently exist are being explored. Because of ratemaking requirements of the BRC and FERC, the primary effect of adopting SFAS 106 on En-terprise's financial reporting is expected to be on the presentation of its financial position with minimal effect on its income statement, assuming adequate and timely rate recovery. In addition, liquidity and cash flow will not be affected.

(See Note 1-Organization and Summary of Significant Ac-counting Policies.)

Note 14. Financial Information by Business Segments Information related to the segments of Enterprise's business is detailed below:

For the Year Ended December 31, 1992 (Thousands of Dollars)

Electric Gas Nonutility Activities (A)

Total Operating Revenues Eliminations (lnterseg-ment Revenues)

$ 3,407,819 $1,586,181 $ 407,404 $ 5,401,404 (44,623)

(44,623)

Total Operating Revenues 3,407,819 l, 586, 181 362, 781 5,356, 781 Depreciation and Amortization 435, 104 116,907 90,537 642,548 Operating Income Before Income Taxes 861,066 124,893 206,783 l, 192, 742 Capital Expenditures 690,289 139,912 61, 164 891,365 December 31, 1992 Net Utility Plant 9,224,543 1,246,769 10,471,312 Oil and Gas Property, Plant & Equipment 506,814 506,814 Other Corporate Assets 1,350,899 551, 359 1,997,061 3,899,319 Total Assets

$10,575,442 $1,798,128 $2,503,875 $14,877,445 For the Year Ended December 31, 1991 (B)

(Thousands of Dollars)

Electric Gas Nonutility Activities (A)

Operating Revenues

$ 3,500,043 $1,307,849 $ 335,073 $

Eliminations (lntersegment Revenues)

Total Operating Revenues Depreciation and Amortization Operating Income Before Income Taxes Capital Expenditures December 31, 1991 Net Utility Plant Oil and Gas Property, Plant & Equipment Other Corporate Assets Total Assets (51,307)

(51,307) 3,500,043 1,307,849 283,766 5,091,658 399,574 93,532 92,813 585,919 1,007,342 115,259 144,223 1,266,824 672,852 140,297 249,078 1,062,227 9,006, 125 1, 176,456 10, 182,581 563, 190 563, 190 1,254,559 570,918 1,881,317 3,706,794

$10,260,684 $1,747,374 $2,444,507 $14,452,565 For the Year Ended December 31, 1990 (B)

(Thousands of Dollars)

Operating Revenues Eliminations (lntersegment Revenues)

Total Operating Revenues Depreciation and Amortization Operating Income Before Income Taxes Capital Expenditures December 31, 1990 Net Utility Plant Oil and Gas Property, Plant & Equipment Other Corporate Assets Total Assets Nonutility Electric Gas Activities (A)

Total

$ 3,332,417 $1,236,747 $ 280,354 $ 4,849,518 (50,279)

(50,279) 3,332,417 1,236,747 230,075 385,567 88,864 264,174 972,806 73,682 (72,245) 974,243 821,242 146, 781 330,687 1,298,710 8,768,462 1,105,319 9,873,781 465, 138 465, 138 1,295, 143 426,919 1,595,902 3,317,964

$10,063,605 $1,532,238 $2,061,040 $13,656,883 (A) The Nonutility Activities include amounts applicable to Enterprise, the parent corporation.

(B) Prior years restated to reflect the change in accounting principle by EDC to the successful efforts method of accounting for oil and gas operations from the full cost method.

Note 15. Jointly-Owned Facilities -

Utility Plant Enter rise's subsidiary, PSE&G, has ownership interests and is responsible for providing its share of the necessary financing for the fol-io

'ntly-owned facilities. All amounts reflect the share of jointly-owned projects and the corresponding direct expenses are included in dated Statements of Income as an operating expense. (See Note 1 -

Organization and Summary of Significant Accounting Policies.)

December 31, 1992 (Thousands of Dollars)

Ownership Plant Accumulated Plant Under Plant Interest In Service Depreciation Construction Coal Generating Conemaugh 22.50%

101,625

$ 32,487

$23, 143 Keyscone 22.84 97,406 28,092 515 Nuclear Generating Peach Bottom 42.49 694,517 260, 134 12,298 Salem 42.59 962,612 329,608 38,695 Hope Creek 95.00 4, 102,307 695,830 10,605 Nuclear Support Facilities Various 135,878 19,928 2, 191 Pumped Scorage Generating Yards Creek 50.00 20,650 7,857 2,069 Transmission Facilities Various 120,362 29,939 8

Merrill Creek Reservoir 1391 36,943 7,267 Linden Gas Plant 90.00 15,9 18 16,702 Note 16. Selected Quarterly Data (Unaudited)

The information shown below in the opinion of Enterprise includes all adjustments, consisting only of normal recurring accruals, neces-sary to a fair presentation of such amounts. Due to the seasonal nature of the utility business, quarterly amounts vary significantly during the year.

Calendar Quarrer Ended March 31, June 30, September 30, December 31, 1992 199l(A) 1992 199l(A) 1992 1991(A) 1992 199l(A) evenues

$1,514,083

$1,416,882

$1, 191,646

$1,151, 184

$1,249,254

$1,256,217

$1,401, 798

$1,267,375 Income

$ 268,653

$ 276,90 l

$ 207,355

$ 227,017

$ 259,385

$ 290,515

$ 230, 742

$ 202,721 Net Income

$ 186,333

$ 162,250 87,358

$ 122,788

$ 138, 127

$ 169,383 92,299 88,614 Earnings Per Share of Common Stock 0.81 0.74 0.38 0.55 0.59 0.75 0.39 0.39 Average Shares of Common Stock Outstanding 229,567 218,789 231,993 224,290 233, 192 225, 137 234,442 225,949 (A) Prior year restated co reflect the change in accounting principle by EDC co the successful efforrs method of accounting for oil and gas operations from the full cost method.

Independent Auditors* Report To the Stockholders and Board of Directors of Public Service Enterprise Group Incorporated:

We have audited the accompanying consolidated balance sheets of Public Service Enterprise Group Incorporated and its subsidiaries as of December 31, 1992 and 1991, and the related consolidated statements of income, retained earnings, and cash flows for each of the three years in the period ended December 31, 1992. These financial statements are the responsibility of the Company's man-agement. Our responsibility is to express an opinion on these finan-cial statements based on our audits.

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 fina 1 statements are free of material misstatement. An audit xamining, on a test basis, evidence supporting the and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits pro-vide a reasonable basis for our opinion.

Deloitte&

Touche In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Public Service Enterprise Group Incorporated and its subsidiaries at De-cember 31, 1992 and 1991, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1992 in conformity with generally accepted account-ing principles.

As discussed in Note 1 ro the consolidated financial statements, in 1992 Public Service Enterprise Group Incorporated and its subsidiaries changed its method of accounting for its oil and gas producing activities from the full cost method to the successful efforts method and, retroactively, restated the 1991 and 1990 consolidated financial statements for the change.

February 9, 1993 Parsippany, New Jersey 45

Consolldaled Flnanclal Statistics (A)

(Thousands of Dollars where applicable) 1992 199l(B) 1990(B) 1989(B)

Selected Income Information Operating Revenues Electric

$ 3,407,819

$ 3,500,043

$ 3,332,417

$ 3,279,913

$ 3,090,609 Gas 1,586, 181 1,307,849 1,236,747 1,362,470 1,203,435 Nonutility Activities 362, 781 283,766 230,075 161,896 100,648 Total Operating Revenues

$ 5,356, 781

$ 5,091,658

$ 4,799,239

$ 4,804,279

$ 4,394,692 Net Income 504, 117 543,035 403,663 523,435 506,997 Earnings per average share of Common Stock

$ 2.17

$ 2.43

$ 1.90

$ 2.53

$ 2.47 Dividends Paid per Share

$ 2.16

$ 2. 13

$ 2.09

$ 2.05

$ 2.01 Payout Ratio 100%

88%

110%

81%

Rate of Return on Average Common Equity 10.69%

12.24%

9.66%

13.13%

13.28%

Ratio of Earnings to Fixed Charges Before Income Taxes 2.30 2.54 2.09 2.60 2.73 Book Value per Common Share

$20.32

$20.04

$19.44

$19.48

$18.81 Utility Plant

$15,081,907

$14,426,560

$13,836,874

$12,960,093

$12,466,690 Accumulated Depreciation and Amortization of Utility Plant

$ 4,610,595

$ 4,243,979

$ 3,963,093

$ 3,623,458

$ 3,377' 187 Total Assets

$14,877,445

$14,452,565

$13,693,469

$12,799,398

$11,598,669 Consolidated Capitalization Common Stock

$ 3,499, 183

$ 3,262, 138

$ 3,043,402

$ 2,857,974

$ 2,710,343 Retained Earnings 1,282,931 1,282,029 1,203,772 1,253,515 38 Common Equity 4, 782, 114 4,544, 167 4,247,174 4, 111,489 3,

1 Long-Term Debt 4,977,579 5, 128,373 4,668,024 4,293,578 3,94,776 Capital Lease Obligations 53,104 53,617 54,073 54,513 54,966 Preferred Stock without Mandatory Redemption 429,994 429,994 429,994 429,994 429,994 Preferred Stock with Mandatory Redemption 75,000 Total Capitalization

$10,317, 791

$10, 156, 151

$ 9,399,265

$ 8,889,574

$ 8,292,817 (A) See Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes to Consolidated Financial Statements.

(B) Prior years restated tO reflect the change in accounting principle by EDC to the successful efforts method of accounting for oil and gas operations from the full cost method.

46

Operating Statistics vice Electric and Gas Company (Thousands of Dollars where applicable) 1992 1991 1990 1989 1988 Electric Revenues from Sales of Electricity Residential

$ 1,037,099

$ 1, 116,699

$ 1,038,906

$ 1,015,065 992, 121 Commercial 1,554,956 1,575,547 1,516,755 1,464,431 1,335, 158 Industrial 683, 750 728,411 697,571 715,669 686,854 Public Street Lighting 47, 729 46,400 45,4 18 46,750 45,620 Total Revenues from Sales to Customers 3,323,534 3,467,057 3,298,650 3,241,915 3,059,753 Interdepartmental 1,544 1,599 1,652 1,843 1,643 Total Revenues from Sales of Electricity 3,325,078 3,468,656 3,300,302 3,243, 758 3,061,396 Other Electric Revenues 82, 741 31,387 32, 115 36, 15 5 29,213 Total Operating Revenues

$ 3,407,819

$ 3,500,043

$ 3,332,417

$ 3,279,913

$ 3,090,609 Sales of Electricity -

megawatthours Residential 9,816,046 10,505,547 9,875,569 9,950,773 9,941,003 Commercial 17,454,352 17,596,569 17,054,495 16,946,768 16,036,020 Industrial 9,298, 741 9,406, 109 9,457,985 10,039,913 10, 179,340 Public Street Lighting 325,545 320,900 314,936 310,073 303,782 Total Sales to Customers 36,894,684 37,829,125 36, 702,985 37,247,527 36,460, 145 ental 19,012 19,719 19,822 23,175 22,440 36,913,696 37,848,844 36,722,807 37,270,702 36,482,585 Gas Revenues from Sales of Gas Residential 809,559 699,696 667,077 772,344 695,918 Commercial 481,960 426, 110 406,577 436,349 366,776 Industrial 243, 527 138,394 130,273 134,272 123,434 Street Lighting 468 468 385 358 359 Total Revenues from Sales to Customers 1,535,514 1,264,668 1,204,312 1,343,323 1, 186,487 Interdepartmental 2,572 2,689 2, 157 3,613 3,059 Total Revenues from Sales of Gas 1, 538,086 1,267,357 1,206,469 1,346,936 1, 189,546 Transportation Service Gas Revenues 39,412 27,036 15,654 11,485 10,505 Other Gas Revenues 8,683 13,456 14,624 4,049 3,384 Total Operating Revenues

$ 1,586,181

$ 1,307,849

$ 1,236,747

$ 1,362,470

$ 1,203,435 47 Sales of Gas -

kilotherms Residential 1,265,270 1, 140,887 1,097,034 1,253,800 1, 188,532 Commercial 939,021 893,069 837,650 872,684 748,283 Industrial 739,508 399,385 341,467 342,928 332,970 Street Lighting 668 666 657 656 657 Total Sales to Customers 2,944,467 2,434,007 2,276,808 2,470,068 2,270,442 Interdepartmental 5,967 6, 174 5, 144 8,705 7,640 I Tota fGas 2,950,434 2,440, 181 2,281,952 2,478,773 2,278,082 Tran

.ion Service 543,135 381,497 182,056 149,586 138,665 Total Gas Sold or Transported 3,493,569 2,821,678 2,464,008 2,628,359 2,416,747

48 P11blic Service EnterpriJe Group Board of Directon: Standing, I. to r., Irwin Lerner, James C. Pitney, j oJh S. Weston, Marilyn M. Pfaltz, Everett L. MorriJ, Ernest H. Drew, Robert R. Fergmon,J r. Seated, I. tor., Shirley A. Jachon, Lawrence R. Codey, E.james Ferland, Raymond V. Gilmartin.

(Not present: T J. Den11ott Dunphy, William E. Marf11ggi.)

Corporate and Stoc k Information Stockholder Information -

Toll Free 1-(800)242-0813 TDD/Hearing Impaired 1-(800)732-3241 Telephone Hours: 10 AM ro 12 PM and 1:30 ro 3:30 PM Monday-Friday (Eastern Time)

Security Analysts and Institutional Investors Direcror - Invesror Relations (201) 430-6564 Dividend Reinvestment Plan Enterprise has a Dividend Reinvestment and Srock Purchase Plan under which all common and PSE&G preferred srockholders may reinvest dividends and/or make direcr cash investments ro obtain Enterprise common srock. Purchases of common srock are made for rhe Plan directly from Enterprise, ar irs sole discretion, and/or in rhe open marker. All brokerage and orher fees ro acquire shares are absorbed by Enterprise. To participate call rhe roll free number ro obrain a prospec-tus and an aurhorizarion card.

Stock Trading Symbol: PEG Annual Meeting Please nore rhar rhe Annual Meering of Stockholders of Public Service Enterprise Group Incorporated will be held ar Newark Symphony Hall, 1020 Broad Srreer, Newark, N.J. on Tuesday, April 27, 1993 ar 2:00 PM. A summary of rhe meeting will be senr ro all srockholders of record ar a larer dare.

Additional Reports Available Form 10-K Enterprise's or PSE&G's 1992 Annual Report ro rhe Securities and Exchange Commission, filed on Form 10-K, may be obtained wirhour charge. The copy so provided will be wirhour exhibits. Exhibits may be purchased for a specified fee.

Financial and Statistical Review A comprehensive srarisrical report containing financial and operating dara will be available rhis spring.

If you wish ro receive a copy of any dara of rhe above reports, please wrire ro rhe Direcror-Invesror Relations, PSE&G, P.O. Box 570, T6B, Newark, N.J. 07101 or call (201) 430-6503.

Transfer Agents All Srocks:

Firsr Chicago Trusr Company of New York 30 Wesr Broadway, New York, N.Y. 10007 Stockholder Services, Public Service Electric and Gas Company 80 Park Plaza, P.O. Box 1171 Newark, N.J. 07101-1171 Registrars All Stocks:

Firsr Fidelity Bank, N.A., New Jersey 765 Broad Srreer, Newark, N.J. 07101 Firsr Chicago Trusr Company of New York 30 Wesr Broadway, New York, N.Y. 10007 Stock Exchange Listings Common:

New York Srock Exchange Philadelphia Srock Exchange Preferred of PSE&G:

New York Srock Exchange Common Stock -

Market Price and Dividends Per Share 1992 1991 High Low Div.

High Low Div.

Firsr Quarrer 29Yi 26'12

$.54 28'/s 25 '12

$.53 Second Quarter 28'/s 25%

.54 2T/s 25 '14

Third Quarrer 28%

26%

.54 28 ~/s 25 7/s Fourth Quarter 31%

27%

.54 29%

26%

The number of holders of record of Public Service Enterprise Group Incorporated common shares as of December 31, 1992 was 196,601.

Officers and Directors Public Service Enterprise Gro corporated E. James Ferland Chairman of the Board, President and Chief Executive Officer Richard E. Hallett Vice President and Comptroller Robert C. Murray Vice President and Chief Financial Officer R. Edwin Selover Vice President and General Counsel Francis J. Riepl Treasurer Robert S. Smith Secretary Directors Lawrence R. Codey President, Chief Operating Officer and director, PSE&G.

Member of Executive Committee and Finance Committee.

Ernest H. Drew Presi Chief Executive Officer and Hoechst Celanese Cor manufactures chem

, bers and film, engineering plastics and pharmaceuticals).

Member of Audit Committee.

T.J. Dermot Dunphy President, Chief Executive Officer and director, Sealed Air Corporation (manufactures prorecrive packaging produces and systems).

Chaim1an of Audit Committee, Member of Exeetttive Committee and Organization and Compensation Committee.

Robert R. Ferguson, Jr.

Retired Chairman of che Board, President, Chief Executive Officer and direcror: First Fideliry Bancorporarion; First Fideliry Bank, N.A.; and First Fidelity, Inc.

Chaim1an of Finance Committee, Member of Executive Committee, Nominating Committee and Organization and Compensation Committee.

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

Chainnan of Exeetttive Committee.

d V. Gilmartin che Board, President and ecucive Officer, Becton Dick nd Company (manufactures medical supplies and devices and diagnostic systems).

Member of Finance Committee and Organization and Compensation Committee.

Shirley A. Jackson Professor of Physics, Rutgers University, and Theoretical Physicist, AT&T Bell Laboratories (pare-rime).

Member of Audit Committee, Finance Committee and Nominating Committee.

Irwin Lerner Chairman, Board of Directors and Executive Commiccee, Hoffmann-La Roche Inc. (manufactures pharmaceuticals, vitamins, fine chemicals, and provides home health care and diagnostic produces and services).

Chaim1an of Nominating Committee, Member of Audit Committee and Organization and Compensation Committee.

William E. Marfuggi Chairman, Tri-Maintenance &

Conrraccors, Inc.

Member of Finance Committee and Nominating Committee.

Everett L. Morris President, Chief Operating Officer and director, Enterprise Diversified Holdings Incorporated.

Member of ExCC11tive Committee and Finance Committee.

Marilyn M. Pfaltz Partner of P and R Associates (communication specialises).

Member of Audit Committee and Organization and Compensation Committee.

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

Member of Audit Committee, Finance Committee and Organization and Compensation Committee.

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

Chainnan of Organization and Compensation Committee, Member of Exeetttive Committee and Finance Committee.

Public Service Electric and Gas Company Officers & Directors E. James Ferland Chairman of the Board and Chief Executive Officer Lawrence R. Codey President and Chief Operating Officer Harold W. Borden, Jr.

Senior Vice President - External Affairs Thomas M. Crimmins, Jr.

Senior Vice President - Customer Operations Robert]. Dougherty, Jr.

Senior Vice President - Electric Robert C. Murray Senior Vice President - Finance and Chief Financial Officer R. Edwin Selover Senior Vice President and General Counsel Rudolph D. Stys Senior Vice President - Gas Officers Donald A. Anderson Vice President - Information Systems and Corporate Services William]. Budney, Jr.

Vice President - Distribution Systems Frank Cassidy Vice President - Transmission Systems Francis E. Delany, Jr.

Vice President and Corporate Race Counsel John A. Gartman Vice President - Gas Supply and Planning Curtis W. Grevenitz Vice President - Organization Effectiveness Richard E. Hallett Vice President and Comptroller Stanley LaBruna Vice President - Nuclear Operations Pierre R.H. Landrieu Vice President - Fossil Producrion Frederick W. Lark Vice President - Marketing John H. Maddocks Vice President - Public Affairs Steven E. Miltenberger Vice President and Chief Nuclear Officer Francis J. Riepl Vice President and Treasurer Louis L. Rizzi Vice President - Customer Services Robert S. Smith Vice President and Secretary Gregory M. Thomson Vice President - Human Resources Enterprise Diversified Holdings Incorporated Officers E. James Ferland Chairman of the Board and Chief Executive Officer Everett L. Morris President and Chief Operating Officer PaulH. Way Senior Vice President Directors T.J. Dermot Dunphy E. James Ferland William E. Marfuggi Everett L. Morris Marilyn M. Pfaltz Josh S. Weston (See biographical data under Enterprise.)

Presidents of Subsidiary Companies Arthur S. Nislick President - Communiry Energy Alternatives Incorporated (CEA)

John F. Schwarz President - Energy Development Corporation (EDC)

PaulH. Way President - Enterprise Group Development Corporation (EGDC)

Eileen A. Moran President - Public Service Resources Corporation (PSRC)

This Annual Report is printed on recycled paper.

49

Publlc Service Enterprise Group Incorporated 80 Park Plaza P.O. Box 1171 Newark, NJ 07101-1171

ML18100A304

Text

Dear Shareholders:

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