ML19031A124

Submit 1975 Annual Report

ML19031A124
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Site:	Salem
Issue date:	07/28/1976
From:	Public Service Electric & Gas Co
To:	Office of Nuclear Reactor Regulation
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PS~G The Energy People

• 1975 Annual Report

- NOTICE -

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Regulatory Do~ket 1

til9 DEADLINE RETURN DATE

• . ;i:.>,;v~;'. *"l.5 .r,;.~e~.,~ So- ~7a 311 RECORDS FACILITY BRANCH

Public Service Electric and Gas Company 80 Park Place About the Cover Newark, N.J. 07101 America's freedom al-ways has been closely Contents intertwined with the Page quest for new sources 1 Highlights of energy, and New 2 President's Message to Stockholders Jersey always has been and Employees in the forefront of 4 Financial Review Construction Expenditures the quest - from the Two-year Stock History days of the earliest Rate Increases windmills and water-8 Electric Generating Capacity wheels to today's most 10 Gas Supply sophisticated nuclear 13 Research 15 Commercial and Marketing generating plants.

15 Area Development New Jerseif s 17 Community and Employee Activities pursuit of energy is a 19 Transport of New Jersey major saga. It is 20 Accounting Policies America's first steam 21 Financial Statements 29 Independent Accountant's Opinion engine, its first steamboat and its first steam locomotive. It is 30 Operating Statistics America's first planned industrial cihj -Paterson - founded in 32 Financial Statistics 1791 by Alexander Hamilton and others.

34 Management's Discussion and Herein New Jersey, Thomas A. Edison made the world's first Analysis of the Statement of Income incandescent lamp in 1879, and then put together the first com-36 Changes in Organization In side plete power generating and distribution system. Electronics is a Back Cover Officers and Board of Directors New Jersei; phenomenon, from the first audion tubes to the first transistors . Today, as the atom is being split or fused to provide Annual Meeting nearly unlimited energy fuels, New Jersey again leads the way.

Please note that the Annual Meeting of Stockholders of the Com-New Jersey's 200 years of energy leadership isa big story. It's pany will be held at the Robert Treat Hotel, 50 Park Place, Newark, a story worth knowing .

New Jersey, on Monday, April 19, 1976, at 2:00 p.m. A summary of the meeting will be sent to stockholders at a later date .

Transfer Agents All Stocks Morgan Guaranty Trust Company of New York 30 West Broadway, ew York, .Y. 10015 Stock Transfer Department Public Service Electric and Gas Company 80 Park Place, Newark, .J. 07101 Registrars

$1.40 Dividend Preference Common Stock and Common Stock Bankers Trust Company 485 Lexington Avenue, New York, .Y. 10017 Fidelity Union Trust Company 765 Broad Street, ewark, .J. 07101 Preferred Stocks Financial and Statistical Review A comprehensive statistical supplement to this report, containing The Chase Manhattan Bank (National Association) financial and operating data for the years 1965-1975, will be avail-1 New York Plaza, New York, N.Y. 10015 able this spring. If you wish to receive a copy, please write to the Fidelity Union Trust Company Vice President and Treasurer, Public Service Electric and Gas 765 Broad Street, Newark, N.J. 07101 Company, P.O. Box 570, Newark, N.J. 07101

Highlights Increase or 1975 1974 (Decrease)

Financial Earnings per average share of Common Stock $2.25 $2.35 (4)

Shares of Common Stock Average 54,513,000 51,918,000 5 Year end 56,523,000 52,531,000 8 Dividends paid per share of Common Stock $1.72 $1.72 Total Operating Revenues $1,630,525,000 $1,455,873,000 12 Total Operating Expenses $1,380,293,000 $1,225,414,000 13 Balance Available for Common Stock $122,598,000 $122,027,000 Gross Additions to Utility Plant $297 ,418 ,000 $385 ,700 ,000 (23)

Total Utility Plant $4,920,768,000 $4,636,344,000 6 Electric Operations Electric Operating Revenues $1,213,488,000 $1,100,965,000 10 Kilowatthour Sales to Customers 26,995,491,000 27,699 ,841,000 (3)

Peak Load-Kilowatts 6,270,000 6,316,000 (1)

Cooling Degree Hours 6,543 7,501 (13)

Gas Operations Gas Operating Revenues $417,037,000 $354,908,000 18 Therm Sales to Customers 1,761,478,000 1,845,336,000 (5)

Maximum Day's Sendout-Therms 11,077,000 11,763,000 (6)

Heating Degree Days 4,653 4,629 1 The Company has painted ten of its veh icles in commemora tion of the nation's Bicentennial. They carry the th eme "New fersei; -

200 Years of Energy Leadership!" throughout ou r service area.

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President's Message To Stockholders and Employees I e nation is obseroing its Bicentennial in 1976 and in keeping with the observance, your annual report has an added feature this year. It not only brings you the PSE&G story for 1975, but the history of energy in New Jersey for the past 200 years. The contributions made by our State are important and we hope you find the information of interest.

Another challenging year has passed and although we Order that it would not permit the financial health of your undoubtedly face more problems in the future, 1975 saw Company to deteriorate. In fact, a number of pronounce-your Company accomplish many things which will be ments by the Board in its final Order were noteworthy beneficial in the years ahead. because of their recognition of the problems this Com-Total revenues for 1975 amounted to $1.6 billion, pany faces with respect to its earnings, cash flow and the an increase of 12% over 1974. This increase reflects the maintenance of its credit standing. Nevertheless, the fact effect of rate increases and higher gas costs which were remains that the final Order was issued 18 months from passed on to consumers. Because of the industrial the date of our original filing. This repeated lag in obtain-recession, kilowatthour sales of electricity and therm sales ing needed relief has thwarted our efforts to catch up with of gas were below 1974 levels. Earnings were $2.25 per the past effects of inflation and made it necessary for us share, compared to $2.35 per share in th e previous year to file a new Petition for relief close on the heels of the final when there were 2,600,000 fewer average shares Order. This request, which was filed on January 5, 1976, outstanding. calls for approximately $447 million in new revenues.

The principal reasons for the decrease in per share Among our accomplishments in 1975 was the signing earnings, in addition to the substantial decline in electric of a new agreement with Algeria for a 22-year supply of and gas industrial sales, were higher depreciation charges liquefied natural gas . If all necessary approvals are received coupled with reduced allowance for funds during con- and sa tisfactory transportation is arranged, our gas supply struction, and higher interest charges, taxes and preferred problem will be resolved and we will be able to accept new stock dividends. The Common Stock dividend was gas customers once again.

maintained at $1.72 per share. Our subsidiary, Energy Development Corporation, The 1975 rate increases - $99 million in June and participated in the successful completion of five gas wells in

$59 million in ovember - along with the interim granted Texas and Louisiana in 1975. Late in the year the Federal in 1974, brought the total increase to $215.5 million from a Power Commission authorized the sale and transportation petition, filed April 30, 1974, for $257 million. Moreover, it of gas from a field discovered in Louisiana to PSE&G was particularly heartening to note that the New Jersey in New Jersey.

Board of Public Utility Commissioners stated in its final 2

The year 1975 also saw an increase in our generation During the latter part of the year we began seeing of nuclear power and progress in our nuclear power con- signs that the recession, which had slowed our growth struction program. Our customers saved some $80 million in the last two years, was coming to an end. Indications in fuel costs by the substitution of nuclear power for are that economic recovery will be clearly evident by mid-fossil -fueled power in 1975, and nuclear generation in 1976, and we are forecasting an average annual electric future years is expected to bring additional fuel cost savings. growth rate of 4% between now and 1990. Growth in The first of two 1,100-megawatt nuclear units at Salem the gas end of our business is dependent upon the avail-Generating Station is scheduled to go into service in 1976. ability of new supplies.

We are 42 .6% owners of this unit and have the respon - Your management recognizes the need to periodically sibility for design, construction, and operation of the increase the common dividend to keep up with inflation and station . Five other nuclear units of similar size have been maintain the attractiveness of our stock in the market place.

ordered for installation and operation between 1979 Hopefully, earnings will rise to a satisfactory level in the and 1987. The Company has sufficient electric generating near future to enable us to do this.

capacity now and we foresee no difficulty in maintaining The past two years have been unusually difficult ones an adequate reserve in the future . for the utility business in general and Public Service Electric All of us share a concern with our customers over the and Gas Company in particular. This period of rapid high prices of electricity and gas . In the near term, the inflation and industrial recession has called for decisive substitution of nuclear fission power for fossil -fueled power action in a constantly changing situation. The equilibrium of will tend to restrain the rising cost of electricity. Our studies the Company has been maintained through these trying show that, with all costs considered, the cost of nuclear times by the dedication and cooperative efforts of our power will still be substantially less than oil or coal employees and the encouraging support of our stock-generated power in 1985 when we expect 65% of our gen- holders. As we look toward the future , I am confident that eration to be nuclear. Looking to the turn of the century, continuation of this effort and support will enable the we are hopeful that nuclear fusion will prove to be a low Company to resume its traditional upward trend.

cost source of abundant energy, and we are providing In closing, I would like to pay particular tribute to funds for fusion research . At the same time, we are Edward R. Eberle who retired as Chairman of the Board of keeping abreast of progress in other energy research Directors and Chief Executive Officer of the Company on areas, such as solar power, and will be ready to take June 30, 1975. Mr. Eberle joined the Company in 1933 and advantage of any development which will benefit our served in a number of capacities, culminating in a four customers. and one half year period as Chief Executive Officer. During Gas supply has been one of our prime concerns in his many years, he served with distinction as a corporate recent years, and we have concentrated our efforts on and community leader.

projects to assure adequate quantities of gas for our cus-tomers . With regard to the cost of gas, our primary hope for stabilization appears to be the discovery of addi-tional domestic supplies . For this reason, we strongly advocate environmentally acceptable off-shore drilling, particularly in the Baltimore Canyon area off the New Jersey coast, and we are one of the parties in a joint venture which

, may lead to active participation in off-shore exploration .

We are continuing our efforts to reduce expenses wherever possible. In spite of a wage increase of 8 % which took effect in May, total wages and salaries decreased in 1975. This was due to continued emphasis on the elimination of overtime and a reduction in the work force from 14,032 to 13,348 employees . Our total number of employees is now less than it was 25 years ago, when electric kilowatthour sales were about one-fifth of the 1975 level.

Electric and gas energy represent valuable resources which should not be wasted, and public information programs to make our customers aware of how and where energy can be saved are being conducted . Further, we are engaged in a time-of-day metering experiment, sampling 600 homes, to see if the incentive of lower cost will persuade customers to shift their usage of electricity to off-peak hours. If this experiment is successful, the long-range result may be a reduction in peak demand and a corresponding reduction in the need for new generating capacity. February 17, 1976 3

Revenues Increase The 1975 Income Dollar

$175 Million Where It The effect of the rate increases was evident as revenues rose to $1.6 billion,12% higher than 1974. However, $49 million of the increase represents fuel and purchased energy charges which are passed on to customers without markup, resulting in no additional earnings . Electric revenues went Electric up 10% to $1.2 billion, 74 % of total revenues. The other 26 % Revenues came from gas revenues, which rose 18% to $417 million . 72¢ The sources of 1975 revenues by customer clas-sifications were: Gas Revenues Elrctric Gas Co111bi11 ed 25¢ Residential 34 % 62% 41 %

Commercial 36 25 33 Industrial 28 13 24 Street Lighting and Other 2 2 Total 100% 100% 100%

Allowance for Funds Used During Cons tru ction Operating Expenses Up $155 Million Operating expenses rose 13 % in 1975 to $1.4 billion . The The only expense to show a decline was maintenance, price of gas continued to rise and was directly responsible which was down by $8 million due to a decline in the use of for an increase of $55 million in raw material costs . Primarily gas turbine generating units.

because of New Jersey's stringent air pollution code and Allowance for funds used during construction higher fuel costs, we purchased greater quantities of more declined $13 million because large production facilities economic electricity from our power pool, the Pennsyl- had gone into service during the latter part of 1974 and vania -New Jersey-Maryland Interconnection, resulting because of the discontinuance of the allowance for funds in an increase of $57 million for net interchanged power. on $250 million of construction work in progress, as As a result of the $175 million increase in revenues, authorized by the state utility commission in our last rate State gross receipts taxes rose $23 million. Interest charges case. In so doing the commission, in effect, is allowing and preferred stock dividends increased $10 million, re- PSE&G to recover the related financing cost through current flecting the issuance of additional securities. revenues.

NEW JERSEY-200 YEARS OF ENERGY LEADERSHJ Indians who watched Henry Hudson's Half Moon sail into Sandy Hook Bay in 1609 might have sensed that a new energy-conscious people had come to America .

The ship's billowing sails dwarfed the energies of a hundred paddlers of canoes. The guns of the newcomers made arrows obsolete. Axes and saws amazed an Indian civilization that felled oaks by slowly burning the trunks until the trees toppled.

Colonists came to seek personal or philosophical freedoms of religion, thought, and government. They also sought space in which to use energy sources that transcended mere individual strength .

The muscles of the newcomers were no match for the Indians , but their tools were more than equalizers. One axe wielder could clear in two weeks a forest space that a full tribe might not open in a year. The loom of one woman could weave cloth beyond Indian dreams .

A nation of energy seekers had begun.

Financing In keeping with our objective to strengthen PSE&G's capital Where structure and improve financial flexibility, long-term It Went: financing in 1975 consisted only of equity securities . In January, $35 million of 12.25%, $100 par, Cumulative Preferred Stock was sold; in June, $50 million was raised Purchased Power through a 1-for-15 Common Stock rights offering at a price and Gas of $14.40 per share; and in December, $40 million of 40¢ 9.75%, $25 par, Cumulative Preferred Stock was sold. In addition, during the year, investments by stockholders Reinves ted through the Dividend Reinvestment Plan produced

$8 million through the sale of 484,808 shares of Common Stock .

The sale of commercial paper was used from time to time to meet short-term requirements, but on a more modest scale than in 1974. There were a number of months when we issued no short-term debt. At year end, out-standing short-term debt was $10 million, compared to

$99 million on December 31 , 1974.

Construction Expenditures During 1976, the Company expects to raise $300 million of long-term capital , of which $150 million Down $32 Million will be used to prepay our five- year bank loan.

Expenditures during 1975 for new facilities amounted to

$257 million, down from the $289 million estimated at the beginning of the year.

Investor Construction expenditures, including nuclear fuel, Relations are estimated at $372 million for 1976 and at $2 .9 billion for PSE&G expanded its program to keep the financial com-the five years from 1976 through 1980, as shown below: munity informed of Company progress and developments.

The basic objective of our program is to maintain open Estimated Expenditures channels of communications with members of th e invest-Year Total (in 111illions) ment community so they ma y properl y appraise th e value 1976 $ 372 of our securities.

1977 444 During 1975 management visited throughout the 1978 547 country with portfolio managers of many large financial 1979 671 institutions, appeared before major security anal yst 1980 886 groups, and also held a series of m ee tings with New Jersey security brokers. We will continue to pursue an active 5-Year Total $2,920 investor relations program in 1976.

Dutchmen, New Jersei/s first colonists, naturally sought out the fla t marsh lands beside th e Hudson River and along th e creeks meandering through the Hackensack meadows. Ju st as naturally, th ey turn ed for energy to th e wind, th e power most familiar in their homeland .

HARNESSING Windmills rose before 1700 on th e flats in what is now Huds on County. Th e slightest breezes were translated into energy to pump water, turn grindstones ,

THE WIND and drain swamps.

The Dutch idea of power lingered even after th e old Du tch town of Bergen becam e Jersei; City. Possibly th e nation's most famous windmill of all was built in 1815 by Isaac Edge to turn his fl our grindstones. Th e noted Jersey City landmark operated until 1839 when it was taken down to make way for railroad tracks.

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Stockholders Rate Increases Grow Needed Stockholders of record at the end of 1975 were as Increased operating costs and the delay in receiving rate follows: Common Stock holders, 218,744; $1.40 Divid end increases to offset them have compelled us to apply to the Preference Common Stock hold ers, 14,774; and Pre- ew Jersey Public Utility Com mission (PUC) for ari increase ferred Stock holders, 19,468. At year end 20,829 of our in rates to produce additional revenues of $447 million Common Stock holders were participating in the Automatic annually, based on estimated sales for 12 months ending Dividend Reinvestment Plan. June 1976. Of this amount, $342 million would come from electric sales and $105 million from gas sales.

$1.72 Dividend Regulatory lag is still a problem in ew Jersey but the Maintained PUC is aware of the problem and is adopting some new procedures to speed up the hearing process. Among them Dividends totaling $1.72 per share were paid on Common are prefiling of testimony, shorter deadlines for all parties Stock in 1975, the same as in 1974, despite the decline in in the case and greater use of stipulations to separate the per share earnings. All of the dividends are considered contested from the agreed upon issues . We are prepared to taxable for income tax purposes.

use these and any other meth ods allowed by the PUC to The Company's Common Stock and $1.40 Dividend expedite this next rate proceeding .

Preference Com mon Stock are traded on the New York Our management, and the New Jersey Commission, Stock Exchange with the stock symbol PEG. The range of recognize that the quality of senior securities relies on the trading prices and the dividends paid for the last two the strength of the common shareholder's position . This years are shown below:

attitude on the part of the Commission is illustrated by the following quote from th e final order in our last Dividends Paid rate case:

and Price Range "We are now acting several days after oral argument in Com111011 Stock $1.40 Dividend Preference this matter in order to take even) reasonable step to Com111011 Stock attempt to maintain petitioner's financial viability and 1975 1974 1975 1974 bond ratings. The speed of our determination and Quarterly th e overall revenue treatment of this case should Dividends Paid serve as an appropriate signal to the rating agencies Per Share $.43 $. 43 $.35 $.35 that we will not permit petitioner's financial health First Quarter 16%-12 21-183/s 151/4 -12 1/4 17%-163/4 to deteriorate."

Second Aside from the increased revenues, there were two Quarter 173/s-143/s 20-121/4 14% -131/z 16%-14 other factors in this rate case which will be of significant Third Quarter 163/4 -15 14% -101/2 145/s-135/s 14%-123/4 benefit in the future. One was the inclusion of the Fourth

$250 million of "construction work in progress" in the Quarter 19-15 3/4 13 %-10 5/s 15-135/s 14 5/s-115/s year-end rate base without an offset to operating income for "allowance for funds used during construction." This When Englishmen followed the Dutch and began settling New Jersey in earnest, THE POWER water power was their main energy source.

OF WATER Newark's first settlers quickly built mill races to run their gristmills and saw-mills. Westward in the northern New Jersey hills, tumbling streams attracted settlers who knew that this abundant power could make them prosperous and secure.

Water powered the iron forges in Passaic, Morris, and Sussex Counties .

Water, trapped in man-made dams in flatter southern New Jersey, operated glass furnaces and bog iron forges .

Dreamers looked to water in 1791, when Alexander Hamilton and others founded the country's first planned industrial town. They chose the most awesome water power source th en known - the Passaic Falls , cascading down 70 feet into a rocky gorge. Here they started a city and named it Paterson .

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will improve the quality of earnings and cash flow by allowing us to recover the financing cost of this portion of construction work in progress through current operating revenues. The second factor was the establishment of a projected 12-month gas raw material adjustment clause designed to permit us to recover increased gas costs on a levelized basis. This will eliminate the delay in collecting the increased costs and assure complete recovery which hadn't been the case under the former procedure, with the result that earnings suffered accordingly.

Electric and Gas Production Down Electric output was down in 1975. Total kilowatthours produced, purchased and interchanged amounted to 29.3 billion, which was a decrease of 1.6% from the preceding year. The 1975 peak demand of 6,270,000 kilowatts occurred on August 1 and it was slightly below the 6,316,000-kilowatt peak experienced the year before.

Total sendout of gas for the year was 1.8 billion therms, 4.7% less than in 1974. In 1975, the highest 24-hour sendout was 11,077,000 therms and it occurred on January 20, 1975 when the average temperature was l8°F. This sendout com-pared with 11,763,000 therms on February 5, 1974, a decrease of 6%, when the temperature averaged l7°F.

Chiefly responsible for these declines were the economic slowdown, the increased cost of energy, con-servation efforts, and moderate weather.

Th e Salem Generating Station is nearing completion with its first 1,100,000-kilowatt nuclear unit scheduled to begin operation in th e last half of 1976.

Englan d's mos t jealously guarded 18th cen tury secret was steam power. Thu s, Josiah THE Hornblower had to smuggle dismantled parts of a steam engine to America in PULL 1753 . He assembled th e engin e in Arlington , New Jersey, wh ere in 1755 this coun-try's first steam engin e pu mped water out of a flooded Bergen County copper mine.

OF People generally feared steam 's pulsing, fiery action . John Fitch, one-time STEAM Tren ton gunsmith , was an exception. In 1786, his steamboat, th e fi rst in A merica ,

began regular service fro m Burlington to Philadelphia .

America's mos t successful early steam en thusiast was John Stevens of Hoboken, whose steam fe rry lin ked Hoboken and New York before 1809 . Stevens turn ed his atten tion to steam railroading an d received America 's first railroad charter in 1815. Ten years later, Stevens built this country's first experim ental steam locomotive. A new age had da wned: America would follow steam from sea to shining sea.

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Electric Generating The Company's portion of the final cost of th e above units is currently es timated to be $3.8 billion, including $1.7 Capacity billion for Atlantic 1 and 2.

At th e end of the year ins talled generating capacity s tood The Company also ha s a contract wi th Offshore Power at 8,829,000 kilowatts, 63,000 kilowatts less than 1974. Sys tem s (OPS) for two ad ditiona l barge-mounted units Some units were rerated and at Bergen Generating Station a id entica l to Atlantic 1 and 2 w hich are scheduled for com-33,000-kilowatt combustion turbine unit was added . mercial opera tion in 1990 and 1992. An estima te of the Generating Capacity to tal cos t of these units is not yet available. However, it can be an ticipated that such costs will at leas t equal the cur-Forecast Peak Ins talled  % rent estimate for th e Atlan tic units . The size and sophistica-Load Capa ci ty Reseroe tion of today's electric utility plants and the complexity (Megawa tts ) (Megawatts )

and d elays encountered in obtaining licenses and oth er 1976 6,850 8,726 27 regulatory approvals have compelled the Company, as 1977 7,150 9,242 29 well as other electric utilities, to make subs tantial expen-1978 7,400 9,242 25 ditures and commitments for facilities prior to th e 1979 7,700 9,717 26 completion of licensing and regulatory proceedings.

1980 8,000 9,805 23 Although no positive assurances can be given that such 1981 8,350 10,055 20 permits and licenses will be forthcoming, the licensing 1982 8,700 10,455 20 activities are moving forward and the Company anticipates 1983 9,050 11,015 22 that the necessary licenses and a uthorizations will be 1984 9,450 11,487 22 received. The Company will continue to comply with all 1985 9,850 12,407 26 requirements necessary to receive such licenses.

1986 10,250 12,407 21 Salem 1 and 2 are being constructed under con-1987 10,700 13,327 25 s truction p ermits issued by the Nuclear Regulatory Commission in 1968. Salem 1 is nea ring completion and Nuclear Generating receipt of an operating licen se is exp ected shortly which will allow it to be placed in service in late 1976. Regula tory Facilities d ecisions with respect to an opera ting licen se for Salem 2 are To meet the expected long term growth in d emand for not expected until a d ate closer to its sch edul ed completion service, the Compa n y is und ertaking cons truction of the date .

following major nuclear generating units:

Compan y's PSE&G and Philadelphia Electric Company each Scheduled Expenditures own 42.59 % of the output from both of these units and Total Company Commercial through Unit Capacity Portion Operation Dec. 31, 1975 the remaining 14 .82% is divided equally between (Megawa tt s) (Millio ns)

Atlantic City Electric Company and Delmarva Power &

Salem 1 1,090 464 Light Company.

1976} $348 Salem 2 1,115 475 1979 A construction permit for th e Hope Creek G en era ting Hope Creek 1 1,067 960 Station was issued in November 1974 by the Atomic Energy 1982} 113 H op e Creek 2 1,067 960 1984 Commission. H owever, th e New Jersey Coastal Area Atlantic 1 1,150 920 Facility Permit, which is required to start construction, was 1985} 107 Atlantic 2 1,150 920 1987 not received. Early in 1975, due to the continued d elay by the State of New Jersey in issuing the permit, commer-John Stevens , the greatest of steam men, used horses on his first ferryboats . Those river horses also trod treadmills to turn the paddlewheels , and the " team boats" could carry six to eight loaded wagons and a hundred people in one boat.

The power was said to be "equal to 40 oars. "

Paterson's first cotton looms were driven by a bull plodding to nowh ere on a treadmill. Steam eventually wou ld move th e world, but du ring much of 19th century America followed horse-drawn wagons. Team power was the watchword.

Horses pulled th e cars when New Jersey's first railroad started in 1833, and horses also pulled the state's first trolleys in the 1860's.

New Jersey's most unusual use of animal power came in 1848. Jacob Wiss, on his way to Texas, stopped in Newark to sharpen shea rs on a grindstone driven by a St . Bernard dog on a treadmill . Wiss stayed in Newark, turned to steam as his energy source, and retired his faithful St. Bernard .

cial operation of Hope Creek 1 and 2 was rescheduled to December 1982 and May 1984, respectively.

In September 1975 the New Jersey Department of Environmental Protection announced its intent to grant the permit, provided there were no appeals by intervenor groups. Appeals were filed but the permit was subse-quently issued. With the delay due to these appeals, the start of construction has been delayed into 1976. This delay is making the 1982 and 1984 service dates increas-ingly questionable.

Applications for manufacturing licenses and site construction permits for Atlantic 1and2 were made in 1973 and hearings are in progress. Petitions to intervene by various environmental groups, government agencies and others have been granted in both proceedings. If regulatory approval is given the Atlantic station will be the world's first offshore floating nuclear power plant and will be located approximately 2.8 miles off the Atlantic coast about 12 miles northeast of Atlantic City. PSE&G's entitlement in this plant will be 80% with Atlantic City Electric Com-pany and Jersey Central Power & Light Company dividing the remaining 20% equally.

The concerns expressed by the groups intervening in the hearings for this unique plant are understandable; however, the Company firmly believes, having considered all the facts, that this installation is the best alternative for meeting future generating needs to serve our customers and will therefore ultimately receive regulatory approval.

Nuclear Fuel Five hundred thousand pounds of uranium concentrate (U30s), 35 % of the uranium requirement for the initial fuel core of Hope Creek 1, were purchased in February from Eldorado Nuclear Ltd . Uranium and related nuclear fuel services purchased previously will provide for operation of Salem 1 and 2 into 1980.

In response to requests for uranium supply, we re-ceived proposals for cooperative exploration, development, Delivery and storage of nuclear fu el for th e start of Unit# 1 at and mining ventures . Several such offers for long term Sale111 Generating Station has been started. In all, th ere will be a supply in the 1980-1990 period are being studied .

total of 193 fuel asse111blies in th e reactor core, totaling over 50, 000 rods and approximately 12, 000,000 uranium pellets .

BOATS TO CLIMB Theoretically, a floating boat uses little energy. Leaders of an emerging America asked themselves: "Why not build waterways from here to there and everywhere to MOUNTAINS save time and energy? "

So, canal fever struck America in the 1820's and two canals were in full opera-tion in New Jersey in the 1830's. One, the Delaware and Raritan Canal from Bordentown to New Brunswick, proved the canal proponents right. Mules tugged the barges; they found their energy in in expensive hay.

The Morris Canal, from sea level at Jersey City to Lake Hopatcong, 924 feet above sea level, was a different matter. That canal had to conquer mountains.

Mule power was not enough .

Ingen ius, bulky "cradles " carried canal barges up tracks on steep inclined planes . That took energy, supplied usually by water-operated winches which pulled boats up the grades. It worked. But it was wasteful of time and money -and eventu-ally doomed by railroad competition.

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Electric Peak Load a11d Gas Peak Se11dout and I11stalled Capacity at Time of Peak Daily Capacity at Time of Peak 9.0 Millions of Kw 20 Mi llions of Therms 8.76 18.287 6.27 11 .077 7.415 I cas Natura 3.5 High-Load-Factor 5.680 1966 67 68 69 70 71 72 73 74 75 1965 66 67 68 69 70 71 72 73 74 1966 67 68 69 70 71 72 73 74 75 Hea ting Seasons In December, our subsidiary, Energy Development Corporation, signed a contract with uclear Assurance Corporation to locate and investigate potential sources Gas Supply of uranium ore in the Colorado Plateau area of Utah and The daily gas capacity at December 31, 1975, excluding the Colorado. Other participants are Long Island Lighting effect of pipeline curtailments, was 19,575,000 therms .

Company and Pennsylvania Power & Light Company. Added during the year were 251,000 therms of delivery Fabrication of fuel rods for Salem 1 was completed capacity from temporary field storage service provided by during the year and nuclear fuel deliveries were made Consolidated Gas Suppl y Corporation and Transcontinen-during the period from October through January 1976. tal Gas Pipe Line Corporation .

Fossil Fuel Natural Gas Fossil fuel prices remain at the high levels reached in The daily supply of natural gas included in the total capacity 1974 although there were some upward and downward is 14,383,000 therms . High-load-factor gas, available every adjustments during the year. The cost of heavy fuel oil day of the year, accounts for 47%; the remainder comes delivered is down 7% , light oil up 14%, and coal up 4% from field storage, liquefied storage, and contract peaking as compared to December 31, 1974 prices . Price stabiliza- supply.

tion can be attributed to a reduced demand for all fuels as During 1975, the Company purchased and used 1,654 a result of the overall slowdown of economic activity million therms of natural gas including quantities of during the year 1975.

BURNING Grass grew in the streets of Dover and Rockaway in the 1830's. Iron furnaces languished everywhere. New Jersey was running out of wood, once thought THE BLACK to be a limitless source of energy.

DIAMONDS Westward, in Pennsylvania, rich anthracite coal fields offered the solu-tion , and in the 1840's and 1850's railroads fought to reach the "black diamonds ." The Delaware, Lackawanna & Western got there first , and by 1868 the D.L.&W. had earned the nickname of "The Road of Anthracite."

Ironically, the coal trains had to be towed by wood-burning locomotives until the Danforth & Cooke locomotive works in Paterson proclaimed -

and proved - in 1854 that it finally had made an anthracite-burning engine.

Paterson shot ahead to become a center of American locomotive man-ufacture. The rest of northern New Jersey - or at least that part with railroad spurs -found power in anthracite.

10

liquefied natural gas. This was a decrease of 182 million Imported therms or 10% und er 1974, due primarily to increased cur-tailments in pipeline deliveries. The average cost of the LNG Project natural gas was 90¢ per million Btu's, an increase of 20¢ per The Company ha s been engaged since 1972 in a joint ven-million Btu's over 1974. ture with Algonquin Gas TI-ansmission Company to import During each year since 1971, deliveries of natural year-round supplies of liquefied natural gas (L G) from gas to which the Company was contractually entitled were Algeria and to market this gas through a jointly-owned sub-cut back because of the nationwide shortage. Curtailments sidiary, Eascogas LNG, Inc. By mid-1972 a gas purchase were imposed by all three of our suppliers during 1975. contract with the Algerians and a transportation contract Curtailments of contracted supplies of natural gas with Burmah Oil Tankers Ltd. , had been signed providing averaged 27% orl.8 million therms per day during the yea r. for initial d eliveries in 1977. In addition, the Company had On the same basis, 1974 curtailments averaged 23% or signed an agreement with Distrigas of New York Corpora-1.5 million therm s per day. tion (DO Y) for the delivery of the Eascogas LNG to New Jersey via the Distrigas Staten Island Terminal and a pro-posed pipeline under the Arthur Kill. However, lack of Refinery Gas positive regulatory action resulted in project delays and Refinery gas purchased and used during 1975 totaled 111 cancellation of very favorably priced contracts.

million therms , 73% more than in 1974. A new three-year A new supply contract was negotiated with Sona-contract provides for increased annual deliveries at a higher trach, Algeria's state-owned gas and oil company, and was price . The average cost of this gas was $2. 28 per mil- signed on November 5, 1975. PSE&G's ultimate share of lion BTU's in 1975 compared to $1.78 in 1974 . the total projected Eascogas imports under this contract, after sales to other companies, is expected to be approxi-Manufactured Gas mately 21.9 billion therms of LNG over some 22 years.

The Company supplements its purchased natural gas and Deliveries could start as early as the winter of1977-78.

refinery gas with synthetic natural gas (S G) manufactured In order to do so, it will be necessary to amend the Federal from naphtha, oil gas from kerosene, and liquefied petro- Power Commission application and obtain the required leum gas produced from propane and butane . The daily authorization of th e FPC to import and sell the L Gin th e capacity for producing these gases is 4.9 million therms, United States, in addition to having available the required unchanged from 1974. During the year 58 million therms of liquefaction, shipping, and terminal facilities.

these gases were produced, 44 million therms more than in As part of its agreement with DONY, your Company 1974. The new jointly-owned SNG plant at Linden, which has participated in financing th e construction of the Dis-went operational on December 27, 1974, can contribute up trigas LNG terminal by purchasing $60 million of Distrigas' to 1,125,000 therms to our daily capacity. This represents first mortga ge notes. Because of many delays in bringing the 90% of the plant's total daily production capacity, as terminal into operation, DONY's parent, Cabot Corporation, Elizabethtown Gas Company is entitled to 10%. which had provided the balance of the approximately

$95 million already spent on the project, announced that it would provide no additional funds . Subsequently, in order to protect our interest and investment in their terminal, PSE&G nego tiated with DONY for the transfer of owner-HORSES Prentice Oil Compan y opened th e nation's first coastal oil refin en; at Bayonn e in 1875 . Two years later, a young Clevelander named John 0. Rockefeller UNDER came to compete. Th e refi ners made kerosene - th en burned th e waste products, THE HOOD including worthless gasolin e.

A way had to be found to use th e wastefu el. Th e Conn elly broth ers of Elizabeth bu ilt New Jersey's fi rst gasolin e motor in 1889 - to run a street car. Th ey never tried th e 111otor on a buggy as did th e Duryea broth ers of Springfield, Mass., who are acclai111 ed as America's fi rst automobile makers.

Th omas Edison tes ted batten) power on vehicles, th en in about 1903 encouraged HennJ Ford to push his idea of mass-producing cheap gasolin e-fed "horses."

New Jersey had its own makers of horseless carriages (at least 50 before 1920). Su ch names as Crane, Simplex, and Mercer still evoke sighs from old car en thu siasts.

11

ship of the terminal to th e Company. Tentative agreement Transmission and ha s bee n reached to purchase for $6 million th e stock of DONY and Distrigas Pipeline Corporation plus additional Distribu tion assets consisting of land and a pipeline easement on the In this period of lowered business activity, there ha s been New Jersey side of the Arthur Kill. PSE&G intends to a corresponding decline in the need for construction of negotiate agreements with other companies operating in new electric transmission and distribution facilities. In 1975, the New York-New Jersey area to share in the use of the the T&D work force was trimmed and, in order to make terminal. optimum u se of the remaining personnel, much construc-tion work formerly done by outside contractors was taken over by PSE&G employees.

Exploration and Over many years, the service reliability of our electric Development transmission and distribution system ha s been among Energy Development Corporation (EDC) continued its joint the best in the nation . This quality of service continued in exploration program for natural gas with North American 1975 despite a high incidence of severe lightning storms.

Roya lties, Inc. during 1975. Of th e 38 exploration wells Service reliability in our gas transmission and distribu-and 22 development wells drill ed to date in th e Gulf Coast tion system also remain ed at a high level.

region of Texas and Louisia na, approximately 45% have led To help prevent electric and gas service interruptions, to discovery of natural gas or oil in commercial quantities. PSE&G joined with 11 other New Jersey utiliti es in a move to Federal Power Commission approval for the trans- prevent excavation damage to underground lines by portation of gas discovered in Texas was received in 1974. establishing an underground utilities location service. Calls Gas from that source began flowing to the Company's mar- to a state-wide toll-free telephon e number by contractors ket area via pipeline on November 1, 1974. In late 1975 th e and others are received at a central office, which in turn Company received temporary Commission approval for the teletypes requests to member utilities to locate and mark transportation of gas from another field in Louisiana and the th eir underground facilities in th e area to be excava ted.

gas began flowing to New Jersey in December 1975.

In addition, during 1975, EDC entered into two other Energy gas exploration agreements, which will eventuall y aug-ment the Company's natural gas reserves. One agreement, Pooling with Cavalla Energy Exploration Company, provides An agreement between PSE&G, Consolidated Edison for drilling in the Texas Gulf Coast area. The other agree- Company of New York, and Orange and Rockland Utilities ment, with Era North American Inc. , provides for the was signed, covering th e interconnection betwee n Ramapo ,

acquisition and interpretation of seismic and geologic N.Y., and New Milford, N. J. Another agreement was data in the Atlantic Outer Continental Shelf. This data sig ned with Consolidated Edison for the interconn ection will help d eterm in e the highest potential hydrocarbon between our Hudson Gen erating Station in Jersey City bearing tracts which will be placed up for bid in the and their Farragut station in Brooklyn. These two ties sig-upcomin g Federal lease sales. nificantly strengthen our network of interconnections, providing greater reliability and economy of operation for our system. Also an agreement was entered into with the UGI Corporation, Pennsylvania, for UGI to share in the out-I 5 Thomas Edison set out at Menlo Park in th e summer of 1878 to pursue th e will- o'-

th e- wisp of a practical incandescent light. Th e ket) word was practical.

Electric lights were more than a dream. An arc light had been demonstraterl as early as 1809, and Newark had an electric arc street light in 1877 . Arc lights proved the potential, but thetJ were glaring and too costly for home use.

Edison quickly made a workable in candescent light, but th e platinum filam ent was far too expensive. Th e "Wizard of Menlo Park" tried hundreds of oth er filam ents . A ll were impractical: Too fragile, too unreliable, too costly.

Finally, on October 19, 1879, Edison turn ed on a lamp with a filam en t of carbon ized sewing thread. Th e lamp burned on and on -for 40 hours4.62963e-4 days <br />0.0111 hours <br />6.613757e-5 weeks <br />1.522e-5 months <br /> - until th e current was turned deliberately high to burn it out .

A practical in candescent lamp had been proved in th ose 40 October hours.

Th e world had found its way out of darkn ess on a piece of thread.

put of Essex Unit No.1 from June 1, 1975 until May 31 , 1977. Energy Capacity from thi s unit can be spared from our system and will fill a gap in UGI's suppl y of electricity for that period. from Refuse PSE&G is currently investigating resource recovery systems to convert municipal solid waste and sewage sludge into Research clean fuels for power generation or for additions to our gas Activities supply. It has been estimated that each day New Jersey To .maintain the scope of your Compan y's research and produces about 19,000 tons of waste and 400 tons of sludge .

development program, we put greater emphasis on seeking Almost all of these wastes are used as land fill or dumped outside funding from such national research agencies as in the ocean. Resource recovery systems would enhance the Electric Power Research Institute (EPRI) , the U.S. the environment while recovering useful materials Energy Research and Development Administration and energy.

(ERDA) and the National Science Foundation (NSF). In 1975 ourresearchactivitiesconcentrated on complet-At this tim e, 13 proposals are in various stages of pre- ing arrangements for the use of shredded refuse at Hudson paration or have been submitted for a total of $25 million Generating Station and processed refuse at Bergen Gen-in possible funding. erating Station. We are also working to develop waste man-One project - the $287,000-ERDA/EPRI-funded agement programs with the Hackensack Meadowlands "Assessment of Energy Storage Systems, Suitable for Use by Electric Utilities" was completed in 1975. It should prove to be a major contribution to the planned develop-ment of new, efficient, economical and environmentally acceptable mean s of energy storage.

In ovember, EPRI award ed PSE&G a $172,000 con-tract to perform an " Economic Assessment of the Utilization of Fuel Cells in Electric Utility Syste ms." The work is to be completed in seven months .

Aquaculture Project Our aquaculture program received $128,000 in additional support from the National Science Foundation, which will carry this first phase of the program to completion in November, 1976. Support for this project now totals

$212,000. Thu s far we have successfully used warm power plant discharge water to raise commercial-sized shrimp Represe11tatives from federal age11 cies, U.S. utilities, and th e and trout at Mercer Generating Station. U11ited Ki11gdo111 's Ce11tral Electricity Generating Board lisle11 lo an expla11atio11 of th e research at Mercer Generating Station duri ng a workshop 011 aquaculture spo11sored by PSE&G.

The Menlo Park lamp was a labora tory curiosity. What the world really needed was a means of generating and distributing electricity-plus such miscellaneous mundane things as lamp bases , sockets , switches, insu lated wire, and meters .

BIRTH OF Edison was determin ed to make electricity widely available. The genera tion and A GIANT distribution of power would become Edison's greatest task.

After completing th e famous Pearl Street generating station in New York in 1882 , with power to light 5,000 lamps, Edison installed a 330-volt generator in Roselle, New jersey. This was th e first community in th e world ligh fed by electricity.

Oth ers also pursued th e electric power ques t, most notably Edward Wes ton of Newark. Weston set up th e world's first commercial dynamo factory in Newark in 1877.

Electric energy was well on the way by 1890 . However, comparatively few people used th e new power at first . Electricity would bea 20th cen fury giant, despite its 19th century birth .

13

Commission, th e City of Newark, several counties and muncipalities. Our investiga tions of regional recycling schemes that could recover methan e gas from refuse slud ge mixtures continue. We are also attempting to recover gas from existing land fill sites .

Coal Gasification Your Company is contributing funds to the American Gas Association for a joint government-gas industry development program which is supporting several coal gasification projects. PSE&G is also contributing funds to the Electric Power Research Institute which is involved in developing o th er fuels from coal, including solven t refined coal and low Btu gas.

Electric Vehicles In 1975 the Company's electric vehicle program continued to provide research data and operating experience as part of a nationwide testing program sponsored by the Electric Vehicle Council. Our three electric vans are being used for meter work, carrying light loads and other tasks that involve sh ort trips. Experience to date has proven the vehicles to be well suited to urban and suburban traffic situatio ns . Electric vehicles hold the potential for practical, non-polluting transportation as well as a future market for off-peak electric power.

Fuel Cells PSE&G continued to participate, with eight other utilities, in a program sponsored by the Power Systems Division of United Technologies Corporation to develop 26 megawa tt In research condu cted jointly with Prin ceton University's Center for Environmental Studies and the Electric Power Research In stitute (E PRI) , PS E&G is tes t metering residential heat pump installa tions . This support of an important national effort is to determ ine heat pump efficiency, reliability, and energy-saving potential .

THE EDISON Experimenters testing carbon filament lamps at Menlo Park soon recognized tha t the lamps had a predictable black deposit of soot inside the glass. Then, in 1880, "EFFECT" one lamp showed a thin, clear, and unexplained line of "no-deposit" in the soot.

Thomas Edison studied the extraordinary effect. In 1883, he found that by inserting a piece of straight wire into a lit incandescent lamp, he could create a current of electricity without a physical connection.

Edison had discovered the basis for radio -an inexhaustible source of free electrons - at a time when the world had no use for free electrons. Edison filed away the then-useless "Effect," as it came to be known.

Free electrons came to full attention and use after 1901, when Guglielmo Marconi of Italy and Lee DeForest, a young technician working in his Jersey City laboratory, competed to make radio practical. DeForest's experiments led to his Audion radio tube, the useful application of the Edison Effect. A bright electronic era had dawned .

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fuel cell power plants for installation in substations. The Therm sales of gas decreased five per cent below the design has been initiated for a one megawatt demonstration previous year. Th e Company's inability to accept new or power plant which will validate the performance, operat- additional gas business, customers' conservation and ing characteristics and design features for 26 megawatt general economic conditions, all contributed to the decline.

substation size fuel cells. At year end, we were serving electricity to 1,641,353 customers and gas to 1,286,884 customers.

Commercial and Marketing Interruptible Every effort is being made to improve customer communi- Service cations. This has led to better understanding of the At the end of 1975, we were serving 83 gas customers under reasons for rising energy costs, the need for nuclear interruptible contracts. Interruptions totaled 108 equivalent power, and the wise u se of energy. fu ll days during the calendar year as compared with 101 In this regard, we have initiated several programs to days in 1974. In December a new provision was added to the train employees in customer relations. For example, 640 Company's gas tariff which permits certain high priority employees are undergoing 35 h ours of classroom training uses of gas by interruptible customers to be transferred to which will provide th em with techniques for improving firm gas rates. Th ese high priority uses are generally the relationships between th e customer and the Company. described as plant protection, feedstock and process use All customer-contact employees are also being trained in where a gaseous fu el is th e only feasible fuel.

telephone courtesy.

Kilowatthour sales declined by three per cent below Area 1974 . The decline was attributable to the depressed economy of th e state, the.low level of building construction, Development conservation of energy, and a summer which was 13 per During the year, 512 major industrial and commercial cent cooler than 1974. firms with approximately 20,000 employees located or Electric space heating sales were less than in recent expanded in PSE&G territory. A total of 77 companies years . In creasing costs of electric energy, decreased building employing 12,676 moved , leaving a net gain of approxi-activity in all markets and depressed economic conditions mately 6,900 jobs.

were responsible. The New Jersey Economic Development Authority In th e residential marke t, 1,207 installations were aided many smaller enterprises. The authority, established added, the smallest number since 1964. Total residential by the ew Jersey Legislature in 1974, is em powered to installations on th e lines at the end of the year were 24,917. issue tax exempt revenue bonds and lend the funds it raises In the industrial and commercial market, 541 installations to private companies at low interest rates. At a time when totaling 66,015 kilowatts, a 21 per cent increase over 1974, low interest, long-term capital is generally unavailable from were added. This will result in estimated additional annual other sources, this au th ority has arranged approximately revenue of $3,499,000. $204 million in loans for more than 113 new business development projects, crea ting approxima tely 11,500 permanent jobs and another 10,000 construction jobs.

On December 23 , 1947, three Bell Laboratory scientists started a world revolution whose end is not yet in sight. That day they demonstrated at Murray Hill that a small semi-conductor device could amplify a speech signal about 20 times.

The transistor had been born.

TO When the history of the 20th century is written, the key word should SHRINK be transistors. It has saved vast amounts of energy, spawned space exploration, THE created pocket radios, gave birth to the computer age, and changed every life.

WORLD The transistor has shrunk the world . Without it, man probably wou ld not have walked on the moon.

Transistors made possible the age of miniaturization . Today, a complete electric circuit containing a thousand transistors can fit into a space less than 1/sth inch square! Tiny is the transistor. Amazing is the world it has wrought.

15

In addition, the authority has been working to attract new industrial and commercial firms. It also plans to de-velop urban industrial parks in five orth Jersey cities -

Newark, Elizabeth, Jersey City, Bayonne and Hoboken.

Construction in the New Jersey meadowlands area continues to accelerate.

At the Sports Complex site in East Rutherford, the grandstand for a racetrack is nearing completion and the 77,000-seat football stadium, which is scheduled for use by the New York Giants in the fall of1976, is now taking shape .

An indoor arena, a hotel, an exposition center and other related facilities will be added.

Nearby Hartz Mountain Industries is now offering for sale townhouses which are part of the first phase of its

$25 million residential community on the east bank of the Hackensack River in Secaucus. The project will eventually include 640 condominium townhouses , to be built on a 134-acre site. This is the first housing project under the Hackensack Meadowlands Development Commission's Master Plan .

View of the 77 ,000-seat stadium , fut ure home of the New York Giants professional football tea111, under co11struction in East Ruth erford. The stadium is part of a 780-acre, $300 million sports complex, which will include a race track, indoor arena, and other supporting faci lities .

U.S . headquarters and distribution center of Panasonic, the Japanese manufacturer of electronic products . Located in Seca ucus, th e $50 million complex is one of over 280 faci lities operated by foreign fi rm s in the Co111pa11y's service area.

Prudential 111surance Compa11y's new 280,000 square foot corporate computer center in Rosela nd. Prudential has recen tly completed, or has under construction, three additional major office facilities in the Company 's territory.

The Greek philosopher, Democritus, who first used the word atom in 400 BC, THE believed the atom was "not cuttable". Ever since, scientists have sought to prove him wrong -and, in the proving have created new sources of energy.

WORLD Sden tis ts took up the search early in the 20th century. Albert Einstein suggested GOES in 1905 that mass and energy could be converted into one another (E =mc 2).

FISSION When two German scientists proved the theon; by splitting a uranium atom in 1938, Einstein had fled Germany to live in Princeton.

Theorists first concentrated on the splitting (fission) of heavy uranium atoms .

New jersey played a vital role. Bloomfield scientists had made pure uranium as early as 1922. During the 1940's, a Princeton professor "boiled" 75 tons of ordinary water down to 10 drops of heavy water, vital for atomic energy.

Since 1945, international leaders have been pledged to use atomic energy in the service of man. Electric generating stations using nuclear energy provide hope for a stable energy source to replace diminishing fossil fuels.

16

Th e Commissio n ha s also approved a large offi ce-mo tel compl ex on a 258-acre site. Currently, a 10-story office building is und er cons tructio n an d future plans call for cons tru ction of a 300-unit Hilto n H o tel. Hartz has alrea d y overseen $150 milli on in ind ustrial construction a t this loca tion .

Also in th e mead owlands area, th e Ne w York Times ha s leased 265,000 square feet of sp ace in Carlstadt. The Times is d eveloping a mod ern sa tellite printing plant requir-ing a capital inves tm ent of $35 millio n a t this location .

The Hackensack Mea d owlands Development Com-mission has also announced plans fo r a $26 million solid was te ma nagement progra m for th e a rea. The overall plan calls for baling and resource recovery facilities to be de-veloped a nd install ed by Jan ua ry 1, 1977 and November 1, 1977, res pectively.

Community Involvement During 1975, our Urban Affa irs Depa rtm ent activities have concentra ted on s treng th ening ti es with orga niza tions working on in ner-city problems . Th e Departmen t has also co ntinued to support, fin ancially an d through the participa tion of Compa ny p ersonnel, programs d esig ned to improve the quality of life for th e urban pop-ulatio n . Cultural, recreatio nal and educa tional youth program s were supported , as well as a number of min ority organizatio ns seeking to improve the employ-ment and h ousing situa tio n .

Ed ward R. Eberle, retired chairman of th e board of PSE&G , was chairman of G overn or Brendan T. Byrne's Economic Recovery Commissio n. Area develop ment perso nn el con tribu ted to this effort w hich in vestigated reaso ns beh ind New Jersey's cu rrent depressed economi c Co111pletely self-co11tai11ed 111011itori11g van operated by th e conditio n and recommended solutio ns. In addition to Company's Energy Laboratory is shown sa111pli11g efflue11 t fro111 stack at Lin den Gen era ting Sta ti on. All major gaseous cons ti tu en ts providing research and resource info rmatio n, our Area of flue gas are measured by this monitoring van to help 11iaintai11 Developm ent people worked with th e various committees strict e11viro11111e11tal sta11dards. This special tes ti11g supple111e11ts of th e Co mmission and assis ted in developing reco m- th e routin e e111issio11 control by th e fixed 111011itori11g equip111e11t menda tio ns aim ed a t improving th e Sta te's economy. at each ge11erati11g statio11.

Imagin e a pail of sea water being us ed to provide enough electricity to light an en tire city - and you get an idea of th e potential cheap energy available in th e fusing rath er than th e splitting (fission) of atoms.

HEAT Th ere is no si111ple way to explain eith er fission or fusion . Both provide vast AND amounts of energy. Thus far, however, only fission can be controlled fo r peace-LIGHT time purposes.

When th e fusing of ligh t atomic nuclei to fo r111 heavier nuclei is controlled, FROM much of th e credit will go to Prin ceton scientists who have been working on WATER such th ermonuclear reactions sin ce 1951. Strong industry and govern111ent support underlies this qu est fo r an almos t in exhaustible energy supply.

It has been es timated that if controlled th er111onuc/ear reactors can be 111ade, th ey will supply one thousand tim es th e annual present power consumption for a billion years. Equally importa11t, th e most likely fu sion fu el, deuterium, is found in water. Water! That's right! Tomorrow's world may be heated and lighted by water transfor111ed ! 17

Environmental Employees Affairs At yea r end, there were 13,348 employees working for In its continuing efforts to preserve and improve our air and the Company, a reduction of 684 during th e year. ormal water quality, as well as other aspects of our environment, attrition accounted for much of the decrease . However, the Company spent approximately $110 million in 1975, in- it was found necessary agai n this year to lay off more cluding the $74 million incremental cost of low sulfur fuels . than 200 employees in departments where the work Our Environmental Affairs Department worked load had decreased because of economic conditions.

closely with federal, state and local agencies, environmen ta! Wages and salaries for the year totaled $220,648,687, and civic groups, inter- and intra-Company associates, and including disability benefits and workmen 's compensation the general public on environmental matters. A special of $8,831,673. egotiations covering union-represented effort is being made to develop an improved working employees resulted in two- year agreements which pro-relationship with environmental groups. vided for general wage increases of 8.378% effective May 1, The department continues to represent the Compan y 1975 and 7.98 % in May of this yea r. Improvements in benefit at public hearings, giving testimony and written com- programs were also made.

ments on all related aspects of the environment and the Personnel development programs continued to attract Company' s operations. a high degree of participation at all organizational levels.

There were 475 employees who attended courses to sharpen their supervisory and managerial skills. During th e year, a Commu nications new program was developed to help management person-Efforts nel improve th eir commu ~ ication techniques . In addition, The Company's public information program continued to 536 employees attended job related courses in nearby empha size the importance of nuclear energy to help gain colleges under the Compan y's tuition aid program.

independence from foreign oil supplies and to help stabili ze With respect to the employment of women and energy costs. It was supplemented by audio-visual pro- minorities, our statistica l record is encouraging in light of grams and a variety of printed materials. th e reduction in th e work force. Of the more than 13,300 Our Community Relations staff, the Environmental employees, 11% are from minority groups. These statistics Affairs Department, and our home service advisers pre- are only part of the story. Affirmative action ha s led to th e sented programs to more than 400,000 people. Company placement of women and minorities in numerous manage-executives, members of the Environmental Affairs De- rial and engineering positions. Efforts continued to place partment, Information Services Department, and Home women in positions traditionally held in the past by men.

Service Department also appeared on a number of radio and television programs.

In preparation for our nation's bicentennial, a ne w multi-media show was created and produced for the Second Sun uclear Information Center. Titled " ew Jersey 200," it tells the story of New Jersey's contributions to the birth and growth of America.

Primitive 111an worshipped the sun as a giver of life (as do summer-time humans basking along the jersey Shore). Mankind always has dreamed of harnessing that sun - to save its warm th and light to use against th e cold and dark of night.

The dreams go on, tinged now with touches of realistic nightmare awareness that man's ability to use energy far outstrips his power to 111ake it.

Studies i11 many New ]ersei; laboratories are aimed at partially reining in the sun - through solar batteries, through saving daytime heat for nighttime use, through experiments in using th e sun's hea t to create new earthly energies.

Harness the su11? Make it work even more for humanity? Why not? Two centuries ago, it seemed absurd to suggest that steam could replace water power. A century ago, laughter greeted anyone who might suggest that electricity wou ld light homes and power factories . In pre-transistor days, a blast-off to th e 1110011 was bei;ond all logic.

Harn ess the sun? Why not? Mankind is yet young.

Transport of New Jersey In 1975 Transport of New Jersey (TNJ) and its subsidiaries The balance of the proceeds from the sale of the Buses experienced a net loss of $1.8 million compared with a net are retained by Transport as its assets for use in the im-loss of $3.6 million in 1974. The 1975 net loss reflected State provement of its bus transportation service.

subsidies of $17 .2 million under general service contracts between TNJ and its subsidiary, Maplewood Equipment Subsidies Company, and the Commuter Operating Agency (COA) of Necessary the ew Jersey State Department of Transportation . In 1974 TNJ, along with its subsidiary Maplewood Equipment TNJ received $8.5 million in state subsidies. Company, provides transportation for nearly one-half Fares million passengers daily. This is substantially more than the total number of passengers carried by all ew Jersey Increased commuter railroads and underscores the importance of In ovember, the COA directed TNJ to raise its intrastate TNJ's opera tions to the citizens - and to the economy - of fares by five cents for two-zone trips and ten cents for trips th e State. Unfortunately, despite strenuous cost-cutting of three and more zones, effective December 15. This measures, the future operation of TNJ is dependent upon represents the only fare increase for intrastate bus service the continuation of State or Federal subsidies.

since May 1972. The first zone fare of forty cents, which has been in effect for more than three years, remains the same .

Bus-Buy-Out Officers Program John J. Gilhooley The highlight of 1975 for Transport of ew Jersey was its Chairman of th e Board and Preside nt participation in the New Jersey " Bus-Buy-Out" program S. A. Caria which was first proposed in April 1973. This program, Executive Vice President jointly sponsored by the State Department of Transpor- Madison L. Edgerton tation and the Federal Urban Mass Transportation Adminis- Senior Vi ce President for Traffi c and tration, was designed to upgrade bus transportation Co mmunity Affairs facilities in New Jersey. Richard Fryling Vice President for Law and Secre tary In October 1975, TNJ sold to the New Jersey Department of Transportation 514 of its used buses at their George K. Klein Treasurer and Assistant Secretary appraised value of approximately $13 million . These buses were then leased back to the Company at no cost for use in Jesse J. Cooper Comptroller and Assistant Treasurer daily transit passenger service. The State agency eventually will install air conditioning and the latest anti-pollution devices on these buses.

Additionally, under this " Bus Buy-Out" program forty per cent of the monies which TNJ received from the sale of its buses will be returned to the Department of Transportation to be used as the State's local share which, along with federal funds, will purchase an additional 416 new commuter and transit buses for use by T J. Delivery of these buses is expected during 1976.

Because of the sale of equipment, Transport was required to deposit the sum of $1.3 million with the Trustee, under a First and Refunding Mortgage Bond Indenture, thereby cancelling the Mortgage lien on all of Transport's properties. A pa yment of $1.2 million was also made to the Trustee in Bankruptcy in the matter of Manufacturers Credit Corporation, et al, for the acquisition of real estate and garages of the Inter-City Complex for u se in the operations of TNJ's subsidiary, Maplewood Equipment Company.

Transport is receiving an annual rental from Maplewood Equipment Company for the use of these properties.

19

Summary of Significant Accounting Policies System of Accou 11 ts Income Taxes Th e Company and its subsidiaries file a consolida ted Federal income tax The Company is und er the jurisdiction of th e Federal Power Com mi ssion return and income taxes are allocated, for reporting purposes, to th e (FPC) and the Board of Public Utility Commissioners of th e State of Company and its subsidiaries based on the taxa ble income (loss) of each.

ew Jersey (PUC) and maintains its accounts in accordance with th ei r Deferred income taxes are provided for d ifferences between book prescribed Uniform Systems of Accounts, which are substa ntiaHy_the and ta xa ble income to the extent permitted by th e PUC for rate- makin g sa me. As a result of the rate-maki ng process the accountmg principles app li ed by th e Company differ in ce rta in respects from th ose applied by purposes. . ..

The Company prorates investment tax credits utili zed over th e nonregulated businesses.

ave rage life of th e related plant.

Investment Allowance for Funds in Subsidiaries Used During Construction The Company's investments in its subsidiari es, which in the aggregate are not significant as defined by the Securi ti es and Exchange Com- All owance for fund s used d uring const ru ctio n (ADC) is a cost acco unting mission , are reported in th e acco mpanying fin ancial sta tements o n th e procedure whereby th e approxima te net composite interes t a nd equity eq uity method of accounting. cos ts of capita l fund s used to finance constru ction are transferred from th e in co me statemen t to co nstru ctio n work in progress (CW IP)

Revenues in th e balance sh ee t. Thi s procedure is intended to rem ove th e effect of the cost of fina ncing cons tru cti on activity from the income sta tement, Revenues are recorded based on estimated service rendered, but are and results in treating such cost in th e same manner as construct10n genera ll y billed to customers th rough monthl y cycle bi ll in gs on th e basis labor and material cos ts. Th e rate used for calcul atin g ADC was 8%

of actu al usage.

in 1975 and 1974.

Fuel Costs In a rate order effective Jun e 16, 1975, th e PUC all owed th e Company to recover th e financing cost on $125,000,000 of CWIP th rough The Company's electric and gas rates include ad just ment cla uses whi ch current operati ng revenu es. As a result, no ADC has been accrued_ on permit recove ry of in creases in electri c fuel cos ts'. purchased gas and $125,000,000 of CWIP since th at date. In a su bsequent orde r, effectiv e ma teria ls used to manufacture gas over base penod cos ts m mon th s ovember7, 1975, th e PUC allowed the curren t recovery of th e financin g subseq uent to their incurrence. In accordance with regulato ry a pp rova l, cost on an additi o nal $125,000,000 of CWIP and sin ce th at date no ADC th e Compan y ha s charged op erations for in creases 111 electric fu el cos ts has bee n accrued on a to tal of $250,000,000 of CW IP .

in th e period of recovery while all gas costs have been charged to On May 20, 1975, the FPC issued fo r comm ent a notice of proposed opera ti o ns when in curred. . . revision of th e Uniform Systems of Accounts whi ch provides a formula Effective June 16, 1975, in accordance with a rate order received for determining maximum all owable ADC rates, and a credit to interes t from the PUC, an amount eq ual to th e balance of unbilled fuel costs, at cha rges fo r th e po rtion of ADC all ocable to borrowed funds, and limits December 31, 1974, is being amo rti zed over a period of eight yea rs . ADC currentl y reported as oth er in come and deductions to th at portion Effective Janu ary 2, 1976, in accorda nce with a PUC order received allocable to other funds used in construction. If the amendm en ts are la te in 1975, th e Co mpan y is all owed to recover th e projected cost of adopted as proposed, th e Company would not ex pect any material purchased gas and materials used to man u fac ture gas for the ye_ar 1976 o n ad verse effect on th e res ults of operatio ns. However, ea rnings ava 1Iable a current annual basis. The adjustmen t clause for gas costs will be at for coverage tests under the provisions in the Com pany's Mortgage and a fixed rate for a twelve- month period . Und er or over recoveries Restated Certificate of In co rp orati on could be redu ced , and thu s th e will be deferred and included in the following year's projected cost fo r amount of mortgage bonds and preferred stock that coul d be issued in the determining th e ad justm ent fac tor for gas rates . futur e mi ght be less than would be permitted und er th e present meth od of calculati o n.

Gross Receipts Tax As a result of rate orders received from the PUC, th e Company , effective Pension Plan January 1, 1973, bega n accruing gross receipts tax on current revenue Pension costs are accounted for on th e basis of an acceptable actuarial rath er than on th e previous basis of ta xes paid . The prov1s10n fo r meth od and are charged to o perating expenses, Utility Plant and gross receipts tax on 1972 revenues is being cha rged to operati o ns by an oth er accounts. The Company's poli cy is to fu nd pension costs accrued.

amount equi vale nt to .5% of revenues subject to th e gross receipts tax. Prio r service costs are being funded over a period of 31 yea rs from Janu a ry 1, 1976.

Dep recia tion and Utility Plant Extraordinary Depreciation, for financial reporting purposes, is computed u_nder the Property Losses straight-line meth od and is based on es tima ted average_ remammg li ves Extraordinary Property Losses are deferred and amorti zed over periods of th e several classes of depreciable property. Th ese estimates are prescribed by the PUC, the longest of whi ch ends December 1, 1993.

reviewed con tinu ously and ad justm ents, as a pp roved by the PUC, are made as required . Dep recia ti o n provisions for th e years 1975 and 1974 stated in percentages of ori ginal cost of depreciable property are 3.20%

an d 3.02%, respectively. . .

The cost of maintenance, repairs and repla cements of mmor items of property is charged to app ropriate expense accounts . The cost of replacements of units of property is charged _to Utility Plant. At thehm e depreciable properties are retired or otherwi se disposed of, th e on gm al cost less n et salvage value is charged to the a ppropriate accumulated provision for depreciati on .

20

Statement of Income Fo r the Years Ended December 31, 1975 1974 Operating Revenues (note 9) (Thousands of Dolla rs)

Electric $1,213,488 $1,100,965 Gas 417,037 354,908 Total Operating Revenues 1,630,525 1,455,873 Operating Expenses Operation Fuel for Electric Generation and Interchanged Power-net 478,040 456,104 Gas Purchased and Materials for Gas Produced 198,589 143,956 Other Operation Expenses 202,201 192,567 Maintenance 83,494 91,467 Depreciation 122,634 106,683 Taxes Other than Federal Income Taxes 240,967 213,576 Federal Income Taxes (note 1) :

Current 1,202 (10,263)

Deferred 53,166 31,324 Total Operating Expenses 1,380,293 1 ,225,414 Operating Income 250,232 230,459 Other Income Allowance for Funds Used During Construction 43,325 56,027 Miscellaneous Other Income-net (note 2) 2,913 (180)

Losses of Subsidiaries-net (note 3) (1,155) (1 ,857)

Total Other Income 45,083 53,990 Income Before Interest Charges 295,315 284,449 Interest Charges Long-Term Debt 134,411 114,267 Short-Term Debt 1,551 16,059 Other 747 283 Total Interest Charges 136,709 130,609 Net Income 158,606 153,840 Dividends on Cumulative Preferred Stock and

$1.40 Dividend Preference Common Stock 36,008 31,813 Balance Available for Common Stock $ 122,598 $ 122,027 Shares of Common Stock Outstanding End of Year 56,523,160 52,531,003 Average for Year 54,512,838 51,917,807 Earnings per average share of Common Stock $2.25 $2.35 Dividends paid per share of Common Stock $1 .72 $1.72 See Summary of Significant Accounting Policies and Notes to Financial Statements.

21

Balance Sheet December 31, 1975 and 1974 Assets 1975 1974 (Thousands of Dollars)

Utility Plant-original cost Electric Plant $3,175,218 $3,103,440 Gas Plant 820,171 785,596 Common Plant 35,463 33,470 Utility Plant in Service 4,030,852 3,922,506 Less Accumulated Depreciation 1,078,121 965,157 Net Utility Plant in Service 2,952,731 2,957,349 Construction Work in Progress, including nuclear fuel, 1975, $47,044; 1974, $30,131 869,261 695,655 Plant Held for Future Use, net of accumulated depreciation 20,652 18,180 Net Utility Plant 3,842,644 3,671,184 Other Property and Investments Nonutility Property, net of accumulated depreciation-1975, $465 ; 1974, $282 6,874 48,266 Investments in and Advances to Subsidiaries (note 3) 23,349 22,016 Other Security Investments, cost or less (note 2) 64,728 60,030 Total Other Property and Investments 94,951 130,312 Current Assets Cash (note 4) 24,528 30,669 Accounts Receivable, net of accumulated provision for doubtful accounts-1975, $2,860; 197 4, $2,603 224,582 210,982 Refundable Federal Income Taxes (note 1) 1,015 9,057 Fuel, at average cost 106,197 91,090 Unbilled Fuel Costs 45,422 41,635 Materials and Supplies, principally at average cost 16,084 22,743 Prepayments 2,133 2,267 Total Current Assets 419,961 408,443 Deferred Debits Gross Receipts Tax 105,580 113,595 Extraordinary Property Losses 7,708 5,676 Other, principally debt expense 2,629 2,051 Total Deferred Debits 115,917 121,322 Total $4,473,473 $4,331,261 See Summary of Significant Accounting Policies and Notes to Financial Statements.

22

Liabilities 1975 1974 (Thousands of Dollars)

Capitalization Common Equity Common Stock (see statement, page 25) $ 855,874 $ 797,386 Premium on Capital Stock 550 550 Paid-In Capital 26,065 26,065 Retained Earnings Reinvested in Business (note 5) 540,041 515,267 Total Common Equity 1,422,530 1,339,268 Preferred Stock (see statement, page 25) 509,994 434,994 Total Stockholders' Equity 1,932,524 1,774,262 Long-Term Debt (see statement, page 26) 1,953,073 1,965,765 Total Capitalization 3,885,597 3,740,027 Current Liabilities Long-Term Debt due within one year (see statement, page 26) 5,133 27,268 Commercial Paper (note 6) 10,000 99,422 Accounts Payable 56,613 61,352 Taxes Accrued, including gross receipts tax, 1975, $226,090; 1974, $185,469 241,375 197,106 Deferred Income Taxes (note 1) 69,859 46,191 Interest Accrued 31,383 30,029 Other 59,584 47,813 Total Current Liabilities 473,947 509,181 Deferred Credits Accumulated Deferred Income Taxes (note 1) 72,881 51,212 Accumulated Deferred Investment Tax Credits (note 1) 34,379 26,550 Other 6,669 4,291 Total Deferred Credits 113,929 82,053 Commitm ents and Contingent Liabilities (note 8)

Total $4,473,473 $4,331,261 23

Statement of Retained Earnings Reinvested in Business For the Years Ended December 31, 1975 1974 (Thousands of Dollars)

Balance January 1, $515,267 $483,543 Add Net Income 158,606 153,840 Total 673,873 637,383 Deduct Cash Dividends Preferred Stock at required annual rates 34,041 29,932

$1.40 Dividend Preference Common Stock 1,881 1,881 Common Stock 93,692 90,061 Total Cash Dividends 129,614 121,874 Capital stock expenses 4,218 242 Total Deductions 133,832 122,116 Balance D ecember 31 (note 5) $540,041 $515,267 Statement of Changes in Financial Position For the Years Ended Decem ber 31, 1975 1974 (Thousands of Dollars)

Sourc e of Funds:

Net Income $158,606 $153,840 Non-cash Items:

Depreciation 125,427 109,563 Amortization of Gross Receipts Tax 8,016 7,397 Provision for Def erred Income Taxes-net 21,669 15,153 Investment Tax Credit Adjustments-net 7,829 (5,837)

Allowance for Funds Used During Construction (43,325) (56,027)

Equity in Net Loss of Subsidiaries 1,262 3,245 Other (1,442) 1,648 Total from operations 278,042 228,982 Proceeds from sales of:

Long-Term Debt 238,404 Preferred Stock 72,415 Common Stock 56,855 87,104 Total Security Sales 129,270 325,508 Proceeds from the sale of nonutility equipment 40,027 Miscellaneous 3,592 1,688 Total Funds Provided $450,931 $556,178 A pplication of Funds:

Additions to Utility Plant, excluding allowance for funds used during construction $254,093 $329,673 Investment in Distrigas of New York Corp. 4,694 15,300 Reductions of Long-Term Debt 10,548 31,818 Dividends 129,614 121,874 Miscellaneous 5,230 10,067 Changes in Working Capital:

• Short-Term Debt-(Increase) Decrease 89,422 5,863 Other-Increase (Decrease) (42,670) 41,583 Total Funds Applied $450,931 $556,178 See Summary of Significant Accounting Policies and Notes to Financial Statements.

24

Statement of Capital Stock Current Refundin g Redemption Restricted Outstanding Price Prio r to Decemb er 31, Shares 1975 1974 Per Sha re (note A )

(Thousands of Dollars)

Cumulative Preferred Stock

$100 par value-authorized 7 ,500 ,000 shares Series issued :

4.08% 250,000 $ 25,000 $ 25,000 $103.00 4.18% 249,942 24,994 24,994 103.00 4.30% 250,000 25,000 25,000 102.75 5.05% 250,000 25,000 25,000 103.00 5.28% 250,000 25,000 25,000 104.00 6.80% 250,000 25,000 25,000 106.00 9.62% 350,000 35,000 35,000 109.50 July 1, 1980 7.40% 500,000 50,000 50,000 108.00 April 1, 1976 7.52% 500,000 50,000 50,000 108.00 April 1, 1977 8.08% 150,000 15,000 15,000 108.00 May 1, 1977 7.80% 750,000 75,000 75,000 108.00 November 1, 1977 7.70% 600,000 60,000 60,000 108.49 April 1, 1978 12.25% issued in 1975 (note B) 350,000 35,000 112.00 February 1, 1985 Unissued-2,800,058 shares

$25 par value-authorized 10,000,000 shares 9.75% Series issued in 1975 1,600,000 40,000 27.50 January 1, 1981 Unissued-8,400,000 shares Total Cumulative Preferred Stock (note C) $509,994 $434,994 Dividend Preference Common Stock and Common Stock

$1.40 Dividend Preference Common Stock (no par)-1,343,999 shares authorized, issued and outstanding current redemption price $35.00 per share (note D) $855,874 $797,386 Common Stock (no par)-authorized 100 ,000 ,000 shares (note E); issued and outstanding as of December 31, 1975, 56,523,160 shares (3,992,157 shares issued for $58,488 in 1975 and 4,670,294 shares issued for

$87,308 in 1974)

Notes :

A-Prior to the date specified, none of the shares of each C-As of December 31, 1975 the annual dividend require-such series may be redeemed, other than through the ment on Preferred Stock was $38,119,000. The em-operation of a sinking fund, through refunding of such bedded dividend cost was 7.54%.

shares by the incurring of debt or the issuance of D- Each share of $1.40 Dividend Preference Common Preferred Stock where the cost of such debt or such Stock is entitled to cumulative dividends, to two votes, Preferred Stock is less than the cost to the Company of and, on liquidation or dissolution, to twice as much each such series. as each share of Common Stock.

B-On February 1, 1980 and annually thereafter not less E-Includes 344,898 shares of Common Stock reserved for than 17,500 shares or more than 35,000 shares must be possible issuance under the Automatic Dividend redeemed through the operation of a sinking fund at a Reinvestment Plan.

redemption price of $100 per share plus accumulated and unpaid dividends to the date of such redemption.

The sinking fund requirement to redeem not less than 17,500 shares is cumulative.

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

25

Statement of Long-Term Debt December 31, 1975 197 4 1975 1974 (Thousands of Dollars) (Thousa nds of Dollars)

First and Refunding Debenture Bonds unsecured Mortgage Bonds 3Yz% October 1, 1975 22,250 Series (note A) 4 %% March 1, 1977 31,000 31,945 4 %% October 1, 1981 35,761 36,615 2Ys% June 1, 1979 $ 54,990 $ 56,050 4%% October 1, 1983 29,645 30,628 2%% May 1, 1980 19,160 19,485 5 %% June 1, 1991 48,306 49,597 3.Y-4% October 1, 1983 22,9 76 23,551 3.Y-4% May 1 , 1984 50,000 50,000 7 \14% December 1, 1993 34,298 35,000 4%% November 1, 1986 50,000 50,000 9 % November 1 , 1995 66,784 69,000 4Ys% September 1, 1987 60,000 60,000 7%% August 15, 1996 67,876 69,226 4 %% August 1, 1988 60,000 60,000 8 %% November 1, 1996 52,523 53,551 6 % July 1 , 1998 18,195 18,195 5Ys% June 1, 1989 50,000 50,000 Total Debenture Bonds 384,388 416,007 4 %% September 1, 1990 50,000 50,000 4%% August 1, 1992 40,000 40,000 Other Long-Term D ebt 4 %% June 1, 1993 40,000 40,000 Five-Year Term Notes due 4%% September 1, 1994 60,000 60,000 November 26, 1979 (note B) 150,000 150,000 6Yz% Note due serially from 4 %% September 1, 1995 60,000 60,000 May 15, 1977 to 6 .Y-4% June 1, 1997 75,000 75,000 November 15, 1983 3,600 3,600 7 % June 1, 1998 75,000 75,000 Total Other Long-Term Debt 153,600 153,600 7%% April 1, 1999 75,000 75,000 Total Long-Term D ebt 9 Ys% March 1, 2000 98,000 98,000 principal amount 8 %% A May 15, 2001 69,300 69,300 outstanding (note C) 1,956,415 1 ,990,994 7%% B November 15, 2001 80,000 80,000 Less amount due within 7Yz% C April 1, 2002 125,000 125,000 one year (note D) 5,133 27,268 8 Yz% D March 1, 2004 90,000 90,000 Long-Term D eb t excludin g 12 % E October 1, 2004 99,000 100,000 amount du e within on e 8 % June 1 , 2037 7,463 7,463 y ear (note D) 1 ,951,282 1,963,726 5 % July 1, 2037 7,538 7,538 Add Net Unamortized Premium 1 ,791 2,039 Total First and Refunding Long-Term D eb t and N et Mortgage Bonds 1 ,418,427 1,421,387 Unamortiz ed Premium $1,953,073 $1,965,765 Notes:

A-The Company's Mortgage, securing the First and D-The aggregate principal amount of requirements for Refunding Mortgage Bonds, constitutes a direct first sinking funds and maturities for each of the five years mortgage lien on substantially all property and fran- following December 31, 1975 is as follows :

chises. Sinking B-Five-Year Term Notes were issued to three banks Year Funds Maturities Total bearing interest at 117°/o of each bank' s prime or alter- {Thousands of Dollars) nate base rate in the first year, and increasing to a 1976 $ 5,133 $ $ 5,133 maximum of 121% of the prime or alternate base rate 1977 10,106 31,480 41,586 during the final year. The notes are subject to prepay- 1978 10,310 480 10,790 ment at any time without penalty. 1979 9,560 203,730 213,290 1980 9,300 18,940 28,240 C-As of December 31, 1975 the annual interest require-

$44,409 $254,630 $299,039 ment on Long-Term Debt was $132,604,000 of which

$92,811 ,000 was the requirement for First and Refund- For sinking fund purposes, certain First and Refunding ing Mortgage Bonds. The embedded interest cost on Mortgage Bond issues require annually the retirement Long-Term Debt was 6.76% . of $13,100,000 principal amount of bonds or the utilization of bondable property additions at 60% of cost and the portion expected to be met by property additions has been excluded from the table above. Also, the Company may, at its option, retire additional See Summary of Significant Accounting Policies and amounts up to $6,200,000 annually through sinking Notes to Financial Statements. fund s of certain debenture bonds.

26

Notes to Finandal Statements

1. Federal years. The Tax Reduction Act of 1975 provides that for the yea rs 1975 and 1976 investment tax credits can be utilized to Income Taxes offset 100% of tax liability before investment credit.

A reconciliation of reporte d Net Income with pre-tax Energy Development Corporation, the Company's income and of Federal income tax exp ens e with the amount wholly owned subsidiary engaged in exploration for natural computed by multiplyi ng pre-tax income by th e statutory gas, follows the full-cost method of accounting for book Federal income tax rate of 48 % is as follows:

purposes and provides for deferred income taxes res ulting 1975 1974 from the current d eduction for income tax purposes of (Thou sa nds of D ollars) intangible drilling costs.

Net Income $158,606 $153,840 Federal income taxes included in: 2. Other Operating income:

Current provision 1,202 (10,263) Security Investments

• Provision for deferred The Company has purchased $60,000,000 principal amount income taxes - net 45,337 37,161 of interest-bearing first mortgage notes of Distrigas of New Investm ent tax credit York Corporation (DONY), a non-affiliated company, to adjustments - net 7,829 (5,837) assist in the construction of DONY's Staten Island LNG terminal. In recognition of the serious problems being Total deferred 53,166 31,324 encountered by DONY in obtaining (a) sufficient quantities Total included in operating income 54,368 21 ,061 of LNG with related regulatory approvals to permit th e Miscellaneous other income - net 154 (495) economical operation of the terminal facilities and (b)

Total Federal income tax provisions 54,522 20,566 permits and authorizations to operate the facilities , the Total 213,128 174,406 Company in January 1975, effective for the year 1974, Losses of s ubsidiaries - net 1,155 1,857 deferred recognition of interest income on these notes, retroactive to the date interest began to accrue . Of th e total Pre-tax income $214,283 $176,263 interest deferred in 1974, which was charged to Miscellaneous Other Income, $2,154,000 related to 1973 .

Tax exp ense at 48 % of Approximately $95 ,000,000 has been expended on pre-tax income $102,856 $84,606 the terminal to date with Cabot Corporation, the parent Adjustments to pre-ta x income, company of DONY, having invested $35,000,000 of equity computed at 48%, for which funds . Cabot announced, in early 1975, that it would not deferred taxes are not provided provide any additional funds . As a result, in order to protect under current rate making policies: its interest and investment in the terminal, the Company Tax d epreciation in excess of has negotiated an agreement to purchase, early in 1976, the book depreciation (13,956) (21,930) capital stock of DONY, and its affiliate, Distrigas Pipeline Allowance for fund s u sed Corporation, together with certain interests in real estate during construction (20,796) (26,893) from Cabot for approximately $6,000,000. In addition ,

Overhead costs capitalized (4,408) (4,664) during the negotiations, the Company advanced to DONY Other (9,174) (10,553) about$4,600,000 for the pa yment of New York City taxes and Total (48,334) (64,040) other maintenance expenses.

Total Federal income tax provisions $54,522 $20,566 The conditions necessary to permit the successful operation of the terminal have not been met at this time .

• Represents the tax effects of Any loss the Company may incur if these conditions are not the following items: resolved is not presently determinable; however, in the Additional tax depreciation $20,685 $13,069 opinion of the management of the Company such loss, if Unbill ed revenues 7,514 10,647 any, would not have a material effect on the financial Unbilled fuel costs 1,818 15,049 position of the Company or the results of its operations . The Gross receipts taxes 14,336 (3,658) ultimate financial effect of these transactions may d epend, Other 984 2,054 among other things, upon the Company's ability to find Total $45,337 $37,161 alternate uses for the facilities and the treatment granted by the PUC for rate making purposes. Reference is made to Investment tax credits of approximately $36,000,000 Imported LNG Project on page 11 for additional are available as of December 31, 1975 as a carryover to future information.

27

3. Investment in or less. Commercial paper represents the Compan y's unsecured bearer promissory notes with a term of nine and Advances to Subsidiaries months or less sold to dealers at a discount. Average interest Inves tm ents (including th e Company's equity in undis- rates and average and maximum outstanding balances of tributed earnings or losses) and advances to subsidiaries are short-term debt are as follows:

summarized as follows:

1975 1974 Dece mber 31 , 1975 1974 (Thousa nds of D ollars)

(Thousands of Dollars) Maximum amount of short-term lransport of New Jersey borrowings outs tanding at any Inves tment $10,523 $12,277 month end during the yea r $52,200 $278,897 Energy Development Corporation Average short-term borrowings Investment 1,941 1,448 during the yea r (A) $24,435 $139 ,220 Advances 10,880 8,286 Weighted average interes t rate of Eascogas LNG, Inc. borrowings during the year (B) 6.35% 11.40%

Investment 5 5 Weighted average interest rates Total $23,349 $22,016 for commercial paper outstanding at yea r end 5.45 % 9.72 %

The Company's equity in the losses of lransport of New Jersey was $1,649,000 in 1975 and $2,163,000 in 1974, (A) Computed by multiplying the principal amounts of which are includ ed in losses of subsidiaries reported in the short-term debt by the days outstanding and dividing the statement of income. These losses of lransport are net of sum of the products by the number of days such short-term credits of $105,000 in 1975 and $1,388,000 in 1974 for the debt was outstanding in the respective years.

income tax effect of including lransport in the Compan y's consolidated Federal income tax returns. (B) Computed by dividing the total interest expense by the average short-term debt.

4. Compensating

7. Pension Plan Balances The Company has a non-contributory, trusteed plan At December 31, 1975 and December 31 , 1974 cash includes covering all permanent employees. Pension costs for the approximately $20,590,000 and $21 ,375,000, respectively, pas t two years were charged as follows:

representing compensating balances maintained under 1975 1974 informal arrangements with various banks to support lines (Thousands of Dollars) of credit of $187,200,000 and $158,950,000, respectively . Of Opera ting Expenses $24,456 $20,714 the amounts of compensating balances shown above, Utility Plant and Other Accounts 7,978 7,727

$11 ,742,000 at December 31, 1975 and $12,175,000 at Total Pension Costs $32,434 $28,441 December 31, 1974 were maintained to compensate for other bank services as well as to support lines of credit. As of December 31, 1975, the unfunded prior service cost was approximately $257,860,000 and vested benefits

5. Retained Earnings exceeded the fund assets plus accruals by approximately

$167,600 ,000.

and Dividend Restrictions Amendments to conform the Company's Pension Certain indentures supplemental to the First and Refunding Plan with the requirements of the Employee Retirement Mortgage, certain of the Debenture Bond indentures and Income Security Act of 1974 are expected to be adopted in the Restated Certificate of Incorporation, as amended, the near future . Additional pension costs resulting from the contain, among other things , provisions relating to the amendments are not expected to be material.

pa yment of dividends on both Common Stock and $1.40 Dividend Preference Common Stock and provisions relating to the use of retained earnings. These restrictions

8. Commitments and do not presently limit the pa yment of dividends out of Contingent Liabilities current earnings . The amount of retained earnings free of As part of the Company's construction program, substantial these restrictions as of December 31, 1975 was $530,041,000. construction commitments had been made. Cash expenditures for the years 1976 through 1980 are estimated to be $2.9 billion in connection with this program. Reference

6. Bank Loans is made to Nuclear Generating Facilities on page 8 for and Commercial Paper additional information .

Bank loans, none of which were outstanding at the end The Company is a member of Nuclear Mutual Limited of the periods, represent the Company's unsecured (NML) which provid es insurance coverages, up to promissory notes issued under informal credit arrange- $150,000,000, for property damage to nucl ear generating ments with various banks and have terms of eleven months facilities of member companies. In the event of losses at any 28

plant cove red by ML th e Compa ny would be subj ect as of Decem ber 31 , 1975. Any pay ments made un der to a max imum assess men t of fo urteen times its a nnual the gua ranty woul d have th e effect of red ucing th e premium , which cu rre ntly would no t be ma terial fo r a Company's potential liability to th e Pension Benefit single assess ment. Guara nty Corporation.

As of December 31, 1975, ves ted benefits exceed ed In July 1973, Philadelphia Electri c Company fund assets by approxi ma tely $70,000,000 und er pensio n consu mma ted arrangements for the su pply of all of th e plans of the Company's un consolid ated subsidiary, nud ea r fu el for Peach Bottom 2 and 3 th rough a nucl ea r Transp ort of New Jersey, and its subsidiary, Maplewood energy supply contract. The Company will be responsiple for Eq uipm ent Compa ny. Und er an interpreta ti o n of the payment of its p roportio nate interes t (42.49%) of th e cost of Empl oyee Re tirement In come Security Act of 1974, th e th e fuel burned and of certain operating cos ts an a interes t Co mpa ny could be liable to th e Pensio n Benefit Guaranty expense during the term of th e contra ct. Unit 2 was placed in Corpora tion, a corpora tion es tablished within th e United commercial op era tion in Jul y 1974 and Un it 3 in December S tates Depa rtm en t of Labor, for d eficiencies in plan asse ts if 1974. udear energy cos ts, calculated a t a zero net salvage th e s ubsid ia ri es' pension plans were termina ted . With valu e, have been charged to fu el expense on the basis of th e respect to a fa ilure of Tra ns port to mee t its legal obliga tio ns number of units of thermal energy produ ced as they rela te to und er its pensio n pla n, th e Company, und er an agree me nt total thermal units to be produced over the life of th e fu el.

entered into in Ma y 1972, agreed to p rov ide a limited For information regarding th e purchase of an L G guara nty of Transport's obliga tions und er its pension plan terminal and related faciliti es, see Note 2.

in th e event Tra nsport fa il ed to meet s uch obliga tio ns, limited to pensio n benefits accrued to the date of th e agree- 9. Other Matters ment in th e tota l amount of no t more than $76,000,000 . Info rmati on describing fina nci ng duri ng the yea r 1975 a nd The actu arially computed va lu e of th e Company's obliga- subsequent to December 31, 1975 appea rs on page 5 tion u nder the guaranty was approximately $50,000,000 and informa tion rega rding rate relief appea rs on page 6.

Independent Accountants' Opinion HASKINS & SELLS Certified Public Accountants 550 Broad Street, Newark, N.J. 07102 To the Stockholders and Board of Directors of Public Seroice Electric and Gas Company:

We have exa mined the bala nce sh eet of Public Service Electric a nd Gas Compan y as of December 31, 1975 and 1974 and the related sta tements of income, retain ed earnings .

reinves ted in business, and changes in fin ancial positio n for the yea rs th en ended. Our exa mina tio n was made in accordance with generally accepted auditing standards, and accordingly included s uch tes ts of the accounting records and such oth er auditing p rocedures as we considered necessary in the circumsta nces .

In our opinion, such fin a ncial sta tements presen t fa irly the fin ancial position of Public Service Electric and Gas Compa ny as of December 31 , 1975 and 1974 and th e results of its operations and the changes in its financial positio n fo r the years then ended , in conformity with generally accepted accounting principles applied on a consistent basis.

February 13, 1976 29

Operating Statistics

%Annual Increase-1975 compared with (000 omitted where applicable) 1975 1974 1974 1965 El ectric Revenues from Sales of Electricity (a)

Residential $ 413,005 $ 364,674 13.25 13.25 Commercial 429,428 377,184 13.85 14.52 Industrial 341,749 336,250 1.64 12.97 Public Street Lighting 23,375 20,473 14.17 8.84 Total Revenues from Sales to Customers 1,207,557 1,098,581 9.92 13.49 Interdepartmental 1,573 1,183 32.97 13.18 Total Revenues from Sales of Electricity 1,209,130 1,099,764 9.94 13.49 Other Electric Revenues 4,358 1,201 262.86 23.45 Total Operating Revenues $1,213,488 $1,100,965 10.22 13.51 Energy Adjustment Revenues '(included above) $ 419,154 $ 414,798 1.05 39.71 Sales of Electricity-kilowatthours (a)

Residential 7,598,964 7,514,365 1.13 5.80 Commercial 8,994,855 8,687,964 3.53 7.01 Industrial 1 0,144,917 11,244,117 (9.78) 1.72 Public Street Lighting 256,755 253,395 1.33 1.92 Total Sales to Customers 26,995,491 27,699,841 (2.54) 4.34 Interdepartmental 39,910 31,072 28.44 4.20 Total Sales of Electricity 27,035,401 27,730,913 (2.51) 4.34 Kilowatthours Produced, Purchased, and Interchanged-net 29,255,628 29,730,774 (1.60) 4.33 load Factor 53.3% 53.7";6 Heat Rate-Btu of fuel per net kwh generated 10,582 10,779 (1.83)

Net Installed Generating Capacity at December 31-kilowatts 8,829 8,892 (.71) 6.70 Net Peak Load- kilowatts (60-minute integrated) 6,270 6,316 (.73) 5.31 Cooling Degree Hours 6,543 7,501 (12.77) (1.20)

I Average Annual Use per Residential Customer-kwh 5,348 5,312 .68 4.89 Meters in Service at December 31 1,689 1,683 .36 .69 Gas Revenues from Sales of Gas (a)

Residential $ 259,095 $ 220,364 17.58 7.14 Commercial 102,656 86,463 18.73 11.02 Industrial 54,369 46,971 15.75 10.58 Street Lighting 116 94 23.40 4.74 Total Revenues from Sales to Customers 416,236 353,892 17.62 8.39 Interdepartmental 647 481 34.51 14.37 Total Revenues from Sales of Gas 416,883 354,373 17.64 8.39 Other Gas Revenues 154 535 (71.21) .20 Total Operating Revenues $ 417,037 $ 354,908 17.51 8.39 Raw Materials Adjustment Revenues (included above) $ 106,795 $ 62,448 71.01 23.47 Sales of Gas-therms (a)

Residential 968,487 977,994 (.97) 2.03 Commercial 447,600 459,074 (2.50) 6.46 Industrial 344,987 407,840 (15.41) 3.71 Street Lighting 404 428 (5.61) (2.34)

Total Sales to Customers 1,761,478 1,845,336 (4.54) 3.31 Interdepartmental 3,204 3,088 3.76 8.70 Total Sales of Gas 1,764,682 1,848,424 (4.53) 3.32 Gas Produced and Purchased-therms 1,823,191 1,913,826 (4.74) 3.05 Effective Daily Capacity at December 31-therms 19,575 19,324 1.30 5.98 Maximum 24-hour Gas Sendout- therms 11,077 11,763 (5.83) 2.62 Heating Degree Days (a) 4,653 4,629 .52 (1.10)

Average Annual Use per Residential Customer-therms 862 872 (1.15) 1.59 Meters in Service at December 31 1,355 1,352 .22 .59 (a) Starting in 1973, revenues and sales by customer classification include accrued and unbilled dollar amounts and sales volumes from meter reading date to the end of the calendar year. To better match temperature effects on these recorded sales, heating degree days are also reported on a calendar year basis effective with 1973. For years prior to 1973, heating degree days remain on a sales year basis.

30

1973 1972 1971 1970 1965

$274,974 $238,025 $219,614 $176,116 $119,052 264,450 230,176 205,318 163,996 110,661 216,543 188,667 172,902 138,407 100,963 17,086 15,773 14,947 13,114 10,023 773,053 672,641 612,781 491,633 340,699 750 646 605 506 456 773,803 673,287 613,386 492,139 341,155 1,305 1,546 1,251 816 530

$775,108 $674,833 $614,637 $492,955 $341 ,685

$141,081 $107,582 $111 ,506 $ 43,756 $ 14,793 8 ,008,127 7,399,963 7,183,821 6,835,470 4,323,572 8,916,829 8,289,066 7,633,053 7,045,161 4,567,356 11,830,307 11,375,579 11,091,985 11,053,298 8,553,109 249,837 246,496 241,449 235,488 212,253 29,005,100 27,311,104 26,150,308 25,169,417 17,656,290 29,160 25,807 25,500 25,634 26,444 29,034,260 27,336,911 26,175,808 25,195,051 17,682,734 31,164,926 29,509,136 28,055,190 27,022,247 19,144,548 52.2% 54.2% 54.0% 57.1 % 58.5%

10,695 10,685 10,642 10,878 9,973 8,306 7,836 7,483 6,597 4,615 6,816 6,201 5,92 5 5,398 3,737 10,911 7,287 8,717 8,307 7,386 5,703 5,307 5,184 4,967 3,318 1,672 1,656 1,643 1,633 1 ,577

$186,325 $183,953 $170,380 $159,259 $129,981 71,533 70,953 63,164 56,330 36,081 42,624 40,381 36,831 32,272 19,881 89 88 85 82 73 300,571 295,375 270,460 247,943 186,016 464 552 333 248 169 301,035 295,927 270,793 248,191 186,185 117 143 76 106 151

$301 ,152 $296,070 $270,869 $248,297 $186,336

$ 39,124 $ 34,913 $ 27,636 $ 17,577 $ 12,969 977,468 1 ,042,793 1,014,887 1,002,149 791,919 457,955 485,358 454,237 418,803 239,313 494,320 494,454 486,685 437,086 239,569 444 449 444 443 512 1,930,187 2,023,054 1,956,253 1 ,858,481 1 ,271,313 3,472 4,463 2,999 2,361 1,391 1,933,659 2,027,517 1,959,252 1 ,860,842 1,272,704 2,002,206 2,112,844 2,004,791 1,930,507 1,350,522 17,668 16,999 16,372 15,150 10,949 12,341 12,125 12,872 11,872 8,550 4,245 4,879 4,833 5,078 5,195 873 932 908 901 736 1,347 1,338 1 ,330 1.323 1,278 31

Financial Statistics (000 omitted from applica ble dollar amou n ts) 1975 1974 Sta tem ent of Incom e (a) Amount  % Amount  %

Operating Revenues Electric $1,213,488 74 $1 ,100,965 76 Gas 417,037 26 354,908 24 Total Operating Revenues 1 ,630,525 100 1,455,873 100 Operating Expenses Fuel for Electric Generation and Interchanged Power (net) 478,040 29 456,104 31 Gas Purchased and Materials for Gas Produced 198,589 12 143,956 10 Other Operations 202,201 12 192,567 13 Maintenance 83,494 5 91,467 6 Depreciation 122,634 8 106,683 7 Taxes Other than Federal Income T<\xes 240,967 15 213,576 15 Federal Income Taxes :

Current 1,202 (10,263) (1)

Deferred 53,166 4 31,324 3 Total Operating Expenses 1 ,380,293 85 1,225,414 84 Operating Income Electric 217,429 13 187,593 13 Gas 32,803 2 42,866 3 Total Operating Income 250,232 15 230,459 16 Other Income Allowance for Funds Used During Construction 43,325 3 56,027 4 M iscellaneous Other Income-net 2,913 (180)

Losses of Subsidiaries-net (1,155) (1,857)

Total Other Income 45,083 3 53,990 4 Income Before Interest Charges 295,315 18 284,449 20 Interest Charges Long-Term Debt 134,411 8 114,267 8 Short-Term Debt 1,551 16,059 1 Other 747 283 Total Interest Charges 136,709 8 130,609 9 Income before cumulative effect of a change in accounting method 158,606 10 153,840 11 Cumulative effect to January 1, 1973 of accruing estimated unbilled revenues of $41,488, net of related taxes Net Income 158,606 10 153,840 11 Preferred Stock Dividends 34,127 2 29,932 3 Balance 124,479 8 123,908 8

$1.40 Dividend Preference Common Stock D ividends 1,881 1,881 Balance Available for Common Stock $ 122,598 8 $ 122,027 8 Shares of Common Stock Outstanding End of Year 56,523 52,531 Average for Year 54,513 51,918 Earnings per average share of Common Stock $2.25 $2.35 Dividends Paid per Share $1.72 $1.72 Payout Ratio 76% 73%

Ratio of Earnings to Fixed Charges Before Income Taxes (c) 2.56 2.33 1 Book Value per Common Share (d) $24 .02 $24.25 Utility Plant $4,920,768 $4,636,344 Accumulated Depreciation and Amortization $1 ,078,124 $ 965,160 Capitalization Mortgage Bonds $1,418,854 36 $1,422,525 38 Debenture Bonds 380,619 10 389,640 10 Other Long-Term Debt 153,600 4 153,600 4 Total Long-Term D ebt 1,953,073 50 1,965,765 52 Preferred Stock 509,994 13 434,994 12

$1.40 Dividend Preference Common Stock and Common Stock 855,874 22 797,386 21 Premium on Capital Stock 550 550 Paid-In Capital 26,065 1 26,065 1 Retained Earnings 540,041 14 515,267 14 Total Common Equity 1,422,530 37 1,339,268 36 Total Capitalization $3,885,597 100 $3,740,027 100 (a) See Summary of Significant Accounting (c) Net Income plus Income Taxes, Investment (d) Total Common Equity divided b.y year-e Policies, page 20, and Notes to Financial

• Tax Credits a nd Fixed Charges divided b y Common Stock shares plus doubled the Statemel).ts, page 27. Fixed Charges. Fixed Charges include $1.40 D ividend Preference C ommon Sto (b) Excludes non-recurring special credit equal Interest on Long-Term and Short-Term D ebt share s.

to $.41 p er sh a re. a nd Other Interes t Expense .

32

1973 1972 1971 1970 1965 Amount  % A mount  % Amount  % Amount  % Amount  %

$ 775,108 72 $ 674,833 70 $ 614,637 69 $ 492,955 67 $ 341,685 65 301 ,152 28 296,070 30 270,869 31 248,297 33 186,336 3.;;

1 ,076,260 100 970,903 100 885,506 100 741 ,252 100 ' 528,021 100 240,782 22 203,204 21 171,323 20 119,889 16 52,816 10 119,746 11 117,838 12 100,205 11 86,286 11 60,255 11 174,508 17 168,381 17 153,457 17 139,621 19 97,510 18 88,257 8 80,215 8 66,789 8 62,204 8 40,744 8 98,239 9 91 ,03 7 10 84,474 9 78,291 11 52,862 10 167,545 15 132,827 14 112,576 13 103,108 14 73,304 14 (7,983) (15,433) (2) 16,682 2 9,498 1 35,848 7 11,235 1 14,442 2 1,484 (1,765) 2,293 1 892,329 83 792,511 82 706,990 80 597,132 80 415,632 79 152,492 14 141,181 14 142,585 16 109,315 15 84,649 16 31,439 3 37,211 4 35,931 4 34,805 5 27,740 5 183,931 17 178,392 18 178,516 20 144,120 20 112,389 21 56,529 5 45,011 5 33,465 4 20,435 3 1,617 2,566 913 1,226 2,130 472 (1,863) (6,079) (1) (2,504) (1 ,650) (1) 2,357 1 57,232 5 39,845 4 32,187 4 20,915 2 4,446 1 241 ,163 22 218,237 22 21 0,703 24 165,035 22 116,835 22*

104,322 10 101,413 10 84,199 10 70,444 10 37,008 7 5,092 505 2,768 2,999 267 266 116 237 (190) 423 109,680 10 102,034 10 87,204 10 73,253 10 37,698 7 131,483 12 116,203 12 123,499 14 91 ,782 12 79,137 15 18,540 2 150,0 23 14 116,203 12 123,499 14 91,782 12 79,137 15 28 ,880 3 19,236 2 13,564 2 9,153 1 5,722 1 121,143 11 96,967 10 109,935 12 82,629 11 73,415 14 1,881 1,881 1,881 1 ,881 1,881

$ 119,262 11 $ 95,086 10 $ 108,054 12 $ 80,748 11 $ 71,534 14 47,861 43,861 39,475 35,975 31,004 45,680 41,541 36,876 33,504 31,004

$2.20 (b) $2.29 $2.93 $2.41 $2.31

$1.72 $1. 7 0 $1.64 $1.64 $1.38Yi 78% 74% 56% 68% 60%

2.22 2 .08 2 .60 2 .34 4 .12

$24.14 $23.48 $23.14 $21.79 $1 7 .36

$4,369,141 $3,999,474 $3,577,248 $3,157,661 $2,070,280

$ 916,346 $ 831,673 $ 765,642 $ 703,173 $ 452,258

$1,236,364 36 $1 ,239,602 39 $1 ,116,127 40 $ 983,483 41 $ 689,196 43 420,387 12 430,857 14 440,028 16 398,837 16 198,793 12 103,600 3 1,760,351 51 1 ,670,459 53 1,556,1 55 56 1,382,320 57 887,989 55 434,994 13 374,994 12 234,994 9 184,994 8 124,994 8 710,078 21 622,8 78 20 528,577 19 4 42,565 18 333,398 21 550 539 252 252 138 26,065 1 26,065 1 26,065 1 26,065 1 26,065 2 483,543 14 443,443 14 420,919 15 373,411 16 225,253 14 1,220,236 36 1,092,925 35 975,813 35 842,293 35 584,854 37

$3,415,581 100 $3,138,378 100 $2,766,962 100 $ 2,409,607 100 $1,59 7,837 100 33

Management's Discussion and Analysis of the Statement of Income The results shown in the Statement of Income in the Gas Purchased and Materials foregoing Financial Statistics are not necessarily indicative of future earnings . Higher operating costs and for Gas Produced carrying charges on increased investment in plant, if not Although gas therm sales to the Company's customers offset by proportionate increases in operating revenues decreased by 4% in 1974 and 5% in 1975, the cost of resulting from periodic rate relief or sales growth, will gas purchased and materials for gas produced increased continue to adversely affect earnings. Whether the during these periods . Increases in both periods were Company will experience increases in sales in the future principalJy the result of price increases, and the increased will be affected by the extent of energy conservation use of naphtha for the manufacture of synthetic natural practiced by the Company's customers, the rate of eco- gas during 1975.

nomic growth in the State of New Jersey, and the ability of the Company to obtain fuel for electric generation and Maintenance Increases in 1972 and 1973 were attributable principally to natural gas and its supplements .

escalating costs of labor, materials, supplies, and services.

The following factors had a significant effect on the In addition, major repairs were necessary at Hudson Company's results of operations for the periods indicated.

Generating Station in 1972. The decrease in 1975 is pri-Electric marily attributable to reduced maintenance of gas turbine units due to a decline in their usage caused by the Operating Revenues availability of less expensive nuclear energy and pur-Increases in electric operating revenues in the periods 1971 chased power.

through 1975 are primarily attributable to rate increases and the recovery of increased energy costs through the Depreciation adjustment clauses contained in the Company's rates. The increase in 1975 is due to the increase in depreciable Although kilowatthour sales increased in 1971, 1972 and Utility Plant in Service principally as the result of Peach 1973, kilowatthour sales decreased 4% in 1974 and 3% in Bottom Generating Station and related transmission 1975 due to cooler summers, customer conservation efforts facilities and the Linden SNG plant being placed in service and the economic slowdown. during 1974.

Gas Taxes Other Than Operating Revenues Federal Income Taxes Increases in gas operating revenues in the periods 1971 The increases are principally due to substantial increases through 1975 are primarily attributable to rate increases in gross receipts tax resulting from greater revenues and greater recovery of increased raw material costs derived through the adjustment clauses in electric and gas through the adjustment clauses contained in the Com- rates and rate relief, and the change in the method of pany's rates . Although therm sales increased in 1971 accounting for gross receipts tax from the tax paid basis to and 1972, then~ sales decreased 5% in 1973, 4% in 1974 the basis of accruing such tax on current revenues ,

and 5% in 1975, as a result of warmer than usual heating effective January 1, 1973.

seasons, curtailments to interruptible customers, cus-tomer conservation efforts, and the economic slowdown . Federal Income Taxes Fuel for Electric Generation The negative provision for Federal Income Taxes - Current and Interchanged Power-net in 1972 was primarily attributable to the decrease in Cost to the Company of coal and oil increased significantly pre-tax income and the increase in timing differences during 1973 and 1974. Although unit costs continued to related to the class life asset depreciation range system.

increase in 1975, total fuel cost decreased by $35,000,000 The negative provision decreased $7,450,000 in 1973 due to the greater use of lower-cost nuclear generating principally because of the decreased allowable investment facilities and the increased purchase of interchanged tax credits as explained below. Additional negative power. Interchanged power purchased from the provisions of $2,280,000 for 1974 were substantially the Pennsylvania-New Jersey-Maryland Interconnection result of the increased current deduction of fuel costs increased by $63,000,000 in 1974 and by $57,000,000 in which was deferred on the books plus the deferral, for tax 1975, because it was more economical to purchase than purposes, of increased unbilled revenue . The provision produce the electricity with low sulfur fuels. increased $11,465,000 in 1975 primarily due to the in-34

crease in pre-tax income and the decrease in the current The increase in "Income before cumulative effect of deduction of fuel costs, substantially offset by the a change in accounting method" for 1974 was principally increased utilization of gross receipts tax previously the result of rate relief and the deferral of increased fuel deferred for tax purposes and increased allowable in- costs which were partially offset by increased interest vestment tax credits. charges. In addition, regulatory accounting requirements followed by the Company during the test operation of Deferred Peach Bottom 2 and 3 resulted in a non-recurring bene-Increases in Federal Income Taxes - Deferred are attrib-fit to earnings of 17¢ per share in 1974. Under these utable to increases in differences between book and requirements, the Company received the benefit of taxable income which are deferred to the extent permitted revenues at the prescribed rates for the tes t generation and by the PUC for rate-making purposes and in addition, the continued to record ADC, while not ch,arging depreciation increase in allowable investment tax credits in 1975. The expense.

decrease in 1973 was attributable to the decrease in the The increase in Net Income for 1975 was primarily allowable investment tax credits as a result of limitations due to rate relief. While revenues have increased, kilo-under the Internal Revenue Code and operating loss watthour and therm sales have decreased. The increases carryback provisions.

in revenues were partially offset by (1) increased charges Allowance for Funds for the cost of gas, (2) increased depreciation charges, (3) increased taxes, (4) a decrease in ADC, and (5) increased Used During Construction (ADC) interest charges on long-term debt.

The increases in ADC through 1973 are attributable to increased construction work in progress upon which ADC is computed. The decreases since 1973 are primarily due to Peach Bottom and related transmission facilities and the Linden S G plant being placed in service during 1974 and the discontinuance in the last half of 1975 of the accrual of ADC on a portion of Construction Work in Progress as authorized in our last rate case.

Losses of Subsidiaries A significant portion of the increase in losses in 1972 was attributable to a strike at Transport of New Jersey. Losses since 1972 have been minimized principally by receipt of state subsidies.

Total Interest Charges The increases in each of the periods are principally due to issuance of additional debt and to higher interest rates on such debt.

Net Income The decrease in Net Income for the year 1972 compared to the year 1971 was principally the result of increases in operating expenses (principally due to an increase in purchased power and major repairs at Hudson Gener-ating Station) and net losses of subsidiaries, of which a significant portion was attributable to the strike in 1972 at Transport of New Jersey.

The increase in "Income before cumulative effect of a change in accounting method" for 1973 was principally the result of rate relief and the deferral of increased fuel costs.

35

Changes In Organization Edward R. Eberle retired as chairman of the board and chief executive officer effective June 30.

The Board of Directors designated Robert I. Smith, president, as chief executive officer, effective July l.

The Board also elected John F. Betz, senior vice president- engineering and production, and William E.

Scott, senior vice president- finance, to the newly-created position of executive vice president, effective July l.

Edward G. Outlaw, senior vice president- planning and distribution, was redesignated senior vice president -

operations, and Carroll D. James, vice president and assistant to the senior vice president - planning and dis-tribution, was redesignated vice president and assistant to senior vice president - operations, also effective July l.

Robert W. Hodge was elected vice president-comrnercial and marketing, succeeding Donald S . Lord, who died in March.

PSE&G Seroice Territory 36

Board of Directors Officers Reynold E. Burch, M.D. Robert I. Smith Director ot Maternity & Infant Care Project, Director of Greater Newark President and Chi ef Executive Officer Coordinated Family Planning Project, and Clinical Associate Professor, John F. Betz Department of Obstetrics and Gynecology, New Jersey Medical School, Executive Vice President College of Medicine and Dentistry of ew Jersey, Newark, New Jersey Member of Audit Committee William E. Scott Executive Vice President C. Malcolm Davis Chairman of the Board and Director of Fidelity Union Bancorporation , and Everett L. Morris Chairman of the Board and Director of Fidelity Union Trust Company, Senior Vice President - Corporate Development Newark, New Jersey Edward G. Outlaw Member of Executive and Finance Committees, and Chairman of Senior Vice President - Operations Nominating Committee James B. Randel, Jr.

W. Robert Davis Senior Vice President - Consultant Chairman of the Board , Bancshares of New Jersey, Moorestown , New Harold W. Sonn Jersey; Chairman of the Board, The Bank of New Jersey, Camden, New Senior Vice President - Administration Jersey; and Chairman of the Board , The Bank of New Jersey, N.A .,

Moorestown, New Jersey Frederick M. Broadfoot Vice President - Law Member of Audit Committee Malcolm Carrington, Jr.

Edward R. Eberle Vice President and Secretary Consultant to and former Chairman of the Board of the Company Chairman of Executive Committee and member of Finance and John A . Casazza Nominating Committees Vice President - Planning and Research Margery Somers Foster Robert M. Crockett University Professor of Economics, former Dean of Douglass College, Vice President - Fuel Supply Rutgers, The State University of New Jersey, New Brunswick, New Jersey Richard M. Eckert Member of Audit Committee Vice President - Engineering and Construction D. Wayne Hallstein Robert W. Hodge Director and former President, Ingersoll-Rand Company, Woodcliff Lake, Vice President - Commercial and Marketing ew Jersey (diversified manufacturer of machinery, equipment and tools) Charles H . Hoffman Member of Compensation and Finance Committees Vice President - Energy Pooling Donald B. Kipp Carroll D. James Counsel to Pitney, Hardin & Kipp, Counsellors at Law, Newark and Vice President and Assistant to Senior Vice President -

Morristown , ew Jersey Operations Chairman of Audit and Compensation Committees, and member of Executive Committee Edward J. Lenihan Vice President - Public and Employee Relation s Kenneth C. Rogers Robert W. Lockwood President, Stevens Institute of Technology, Hoboken, New Jersey Vice President - Corporate Services Member of Compensation and Nominating Committees Robert C. Lydecker William E. Scott Vice President and Assistant to the President Executive Vice President of the Company Member of Executive Committee and Chairman of Finance Committee Wallace A. Maginn Vice Preside nt and Treasurer Clifford D. Siverd John F. McDonald Chairman of Finance Committee, Director and former Chairman of the Vice President - Governmental Affairs Board, American Cyanamid Company, Wayne, New Jersey (pharma-ceutical , consumer and building, agricultural and chemical products) Parker C. Peterman Member of Audit, Compensation, and Nominating Committees Vice President and Comptroller Robert I. Smith Frederick W. Schneider President and Chief Executive Officer of the Company Vice President - Production Member of Executive and Finance Committees Robert J. Selbach Vice President - Transmission and Distribution Edwin H . Snyder Former Chairman of the Board of the Company Robert V Van Fossan President, Chief Executive Officer, and Director, The Mutual Benefit Life Insurance Company, ewark, New Jersey Member of-Finance Committee Nathan H. Wentworth Chairman of Executive Committee, Director and former Chairman of the Board , The Continental Corporation, New York, New York (property and casualty, life and accident and health, and other types of insurance, and other financial services); and The Continental Insurance Companies, New York, New York Member of Compensation and Finance Committees

0 PS~G Public Service Electric and Gas Company Newark, New Jersey