ML19031A132

Submit 1977 Annual Report by Public Service Electric & Gas Company

ML19031A132
Person / Time
Site:	Salem
Issue date:	03/13/1978
From:	Public Service Electric & Gas Co
To:	Office of Nuclear Reactor Regulation
References
Download: ML19031A132 (44)

Text

1977 Annual Report PS~G The Energy People NOTICE -

THE ATTACHED FILES ARE OFFICIAL RECORDS OF THE DIVISION OF DOCUMENT CONTROL. THEY HAVE BEEN CHARGED TO YOU FOR A LIMITED TIME PERIOD AND MUST BE RETURNED TO THE RECORDS FACILITY BRANCH 016. PLEASE DO NOT SEND DOCUMENTS CHARGED OUT THROUGH THE MAIL. REMOVAL OF ANY PAGE(S) FROM DOCUMENT FOR REPRODUCTION MUST BE REFERRED TO FILE PERSONNEL.

DEADLINE RETURN DATE Doe'*~t #<50 -lV?c;> ~ ' ~ COPY Crrnirul # ?80£~/ - - - - - -

D1te-3/;<3/?~ of DocumeDt:

RfGULAnmv DOCKET FILE RECORDS FACILITY BRANCH

Earnings per average share of Common Stock $2.79 3 Shares of Common Stock Average 58 ,308,000 2 Year end 58,976,000 Dividends paid per share of Common Stock $1. 78 8 Total Operating Revenues $1,869,535,000 9 Total Operating Expenses $1 ,581 ,097 ,000 10 Balance Available for Common Stock $ l 62,767 ,000 4 Gross Additions to Utility Plant $ 350,576,000 23 Total Utility Plant $5,255,286,000 8 Electric Operating Revenu es $1 ,316,077 ,000 12 Kilowatthour Sales to Customers 27 ,957 ,732 ,000 2 Peak Load - Kilowatts 6,190,000 l1 Cooling Degree Hours 6,513 27 Gas Operating Revenues $ 553,458,000 2 Therm Sales to Customers l ,822,726,000 (4)

Maximum Day's Sendout- Therms 12,803,000 9 Heating Degree Days 5,349 (4)

• Record

0 Public Service Electric and Gas Company 80 Park Place Newark, New Jersey 07101 201 / 430-7000 PS~G The Energy People Annual Please note that the Annual Meeting of Stock- Contents Meeting holders of the Company will be held in the Highlights (Inside Front Cover)

Company auditorium, 70 Park Place, Newark, New Jersey on Tuesday, April 18, 1978, at 2:00 Message to Shareho lders 2 p.m . A summary of the meeting will be sent to Revenues and Operating Expenses 4 stockholders at a later date.

Earnings and Dividends 4 Construction Expenditures 6 Financial and A comprehensive statistical supplement to this Financial Policies and Objectives 7 Statistical report, containing financial and operating data Review for the years 1967-1977, will be available this Electri c and Gas Prod uction 7 Spring. If you wish to receive a copy, please write Gas Supply 9 to the Vice President and Treasurer, Public Serv-ice Electric and Gas Company, P.O. Box 570, Transmission and Distribution 11 Newark, N.J. 07101. Commercial and Consumer Affairs 12 Area Development 13 Stock Symbol PEG Human Resources 17 Subsidiaries 19 Transfer All Stocks Financial Statement Responsibility 23 Agents Morgan Guaranty Trust Company of New York 30 West Broadway, New York, N.Y. 10015 Acc0unting Policies 23 Stock Transfer Department Financial Statements 25 Public Service Electric and Gas Company Operating Statistics 34 80 Park Place, Newark, N.J. 07101 Financial Statistics 36 Registrars All Stocks Management's Discussion and Analysis of the Statement of Income 38 Fidelity Union Trust Company 765 Broad Street, Newark, N.J. 07101 Independent Accountant's Opinion 39 Morgan Guaranty Trust Company of New York Organization Chart 40 30 West Broadway, New York, N.Y. 10015 Officers and Board of Directors (Inside Back Cover)

About the cover: Shown is the new headquarters building PSE&G Territory planned for PSfa;G which has been designed to bring greater efficiency through consolidation of operations and achieve significant savings through energy conservation. Recovery of heat from light, computers and other office equipment is ex-pected to eliminate the need for supplemental heating on all but the coldest days. ew York City PSE&G plans to lease 21 floors of this 26-story office tower plus an adjoining three-story plaza building. The complex will house approximately 3 ,000 Company employees and provide space for rental by others. The present headquarters building, which adjoins the project site, will be demolished and a land-scaped plaza will be developed in its place. Groundbreaking is expected to take place before mid-year.

Many new buildings have been erected in Newark in recent years and this project will further enhance the economy of the City and the State.

(Rendering by Project Architects -Poor, Swanke, Hayden and Connell.)

1

year, about 3% of our annual sendout. On January 5, 1978, the ,

Board granted the Company's request with an order permitting us to take on new industrial customers immediately. The '

moratorium on small commercial and residential customers I was lifted effective March 1, 1978. An encouraging report on I the "1978 Economic Outlook for New Jersey, made by the I State's Economic Policy Council, predicts a 5% rate of real economic growth - which should be reflected in both electric I and gas sales.

Utilities today, particularly electric utilities, are operating in a vacuum of uncertainty. Prior to 1973, electric loads could be predicted 10 years in advance with reasonable accuracy. In our case the growth rate was 6 to 7% and we could plan on that basis because the factors influencing that growth rate were fairly visible. Today, individuals and companies, extremely con-scious of the cost of energy, are continuously seeking ways to reduce their energy consumption by changing life-styles and patterns of use. These changes are influencing the demand for February 22, 1978 energy but the extent and magnitude of that influence is pres-ently unpredictable. A year ago we predicted an electric peak demand growth rate of 4 %. Now, on the basis of our experience in 1977, particularly during the hot summer period, we are pre-dicting a long-range growth rate of 3%.

Message to Shareholders A change in the forecast of electric peak demand calls for changes in our electric generation construction program be-cause that program is based on large nuclear generating units Your Company's revenues exceeded $2 billion in 1977 - the which require long lead time - 10 years or more - and large highest level in our history. Total revenues amounted to $2.033 capital expenditures prior to operation. It was because of the ,

billion, up 8.7% over 1976. Earnings showed an increase of reduction in growth rate from 4% to 3% that we requested

$6.4 million as earnings per share of Common Stock rose Offshore Power Systems to delay the delivery of each of our from $2.79 to $2.86 four floating nuclear units for three years. The first two of these Quarterly Common Stock dividends were increased 4\:'. a units, originally scheduled for operation in 1985 and 1987, are share beginning with the second quarter of 1977. The addi- now scheduled for 1988 and 1990. We have negotiated an tional dividend brought quarterly payments to 49\:'. a share and agreement with Offshore Power Systems, a division of Westing-raised the annual rate from $1.80 to $1.96. This increase pro- house Corporation , which limits our liability under the contract vides a strong indication of the importance your management for the floating units to that which was incurred as of the end of attaches to increasing stockholder return. Future dividend in- 1977 until a clearer picture of the demand for electric energy creases will, of course, depend upon the continued satisfactory emerges.

financial condition of the Company. The uncertainty which plagues utilities has been com-The imposition of a moratorium on new gas customers as pounded by a lack of decision on federal energy policy. There the result of supply problems early in 1977, and the continued seems to be general agreement that we must reduce our de-hesitancy in New Jersey's recovery from the economic reces- pendence on foreign oil and that we must basically rely on both sion, served to dampen sales growth in both the electric and coal and nuclear power for new electric generation until the gas areas. Kilowatthour sales were up a modest 1.6%. Therm end of this century. With regard to nuclear, although the an-sales declined 4.4%. Conservation, loss of customers and rela- nounced federal policy appears to endorse the development of tively mild weather late in 1977, in addition to the moratorium, light water reactors - the type we are installing - there ap-affected gas sales. pears to be no real substance to that endorsement. Members Late in 1977, as a consequence of increased gas of the federal administration have confused the public with availability, we petitioned the New Jersey Board of Public anti-nuclear attitudes, particularly with regard to non-Utilities to lift the moratorium on new gas sales and permit us proliferation and the breeder reactor. The lack of strong and to take on customers at the rate of 4.8 billion cubic feet per positive support for *the light water reactor program reflects it-2

self in delayed licensing procedures and encouragement of in- changes. together with a chart of the new organization, are tervenors , which results in higher than necessary plant costs as shown on page 40. Basically, the reorganization was instituted well as increased uncertainty. to increase the effectiveness of the Company in meeting the Despite these handicaps, our nuclear program is moving challenges of a changing industry.

forward. The first of two 1.100 megawatt units at Salem went The establishment of a wholly-owned resea rch subsidiary, into full commercial operation in mid-1977. Construction is PSE&G Research Corporation, was a part of the reorganization .

proceeding on the second unit at Salem which is scheduled for This subsidiary will coordina te all of the Company's resea rch service in 1979. After a number of licensing delays, construc-activities and market the research and testing laboratory tion began on the two units at Hope Creek which are presently capabilities of the Company as a source of income.

scheduled for 1984 and 1986 operation.

Rate design , load forecasting , load management and The lack of a federal policy on liquefied natural gas (LNG) market planning activities were combined in 1977 to enable us mports has raised questions concerning our proposed pro-to accelerate responses to rapidly changing conditions and ram to import LNG from Algeria. Federal Department of eliminate lag during critical periods.

nergy hearings, designed to obtain the information necessary Our territory, as well as that of other utilities in the north-o develop a federal policy, were held early in January 1978. We eastern part of the cou ntry, appears to be lagging behind the ope the policy developed will enable us to proceed with the rest of th e nation in recovering from the economic recession.

lgerian project. Algonquin Gas Transmission Company with-To speed the recovery, our area development group has in-rew from the venture in June 1977 and, having reached tenta-creased its level of activity with positive results. The State gov-ive agreement with potential customers, we are planning to ernment is embarking on an all-out campaign to create jobs estructure the project at 60% of the original 4.4 trillion cubic and bring business and industry to New Jersey. The recently eet over a 22 year period. Permits to utilize the two storage created State Department of Energy, which has coordinating nks which we own in Rossville. Staten Island, N.Y. still have to responsibility for energy planning and allocation within the State, e obtained.

is dedicated to improving the industrial climate in New Jersey The Company gas supply situation improved during the as evidenced by the decision to release additional gas to indus-tter part of 1977 because of conservation and attrition, as well trial customers prior to the release to residential customers.

s basic supply increases, and we are predicting a modest Negotiations with our union-represe nted employees were rowth of about 2% in gas sales. Our subsidiary Energy De-successfully co ncluded during the year. A three year contract, elopment Corporation, for instance, is contin uing to provide effective May 1, 1977, provides for wage increases of 7% in creasing quantities of gas from its successful exploration ef-1977, 6.69% in 1978, and a wage reopener for the contract year orts in the Gulf Coast area.

expiring April 30, 1980.

Our prospects for additional gas sales will be enhanced if In this era of uncertainty we must act promptly when posi -

ur proposed merger with New Jersey Natural Gas Company tive signs appear. The Company has dedicated and talented roceeds to a satisfactory conclusion. An agreement in prin ci- employees who appreciate the need for flexibility in these le has been reached with the directors of New Jersey Natural. rapidly cha nging times. They are our most valuable resource in he merger still needs the approval of the stockholders of New meeting our future responsibilities to the State as a whole and ersey Natural and the Board of Public Utilities. If the merger is to our customers and investors, wherever they may be.

ccomplished , the potential for sales growth is indicated by th e To you , our shareholders. go our thanks for your support ct that New Jersey Natural's territory has only 130 customers in 1977 and our pledge to continue earning that support in the er square mile in a developing area compared to 550 cus- future.

mers per square mile in Public Service territory.

On November 21 . 1977 the Company filed with the Board f Public Utilities for a rate increase of nearly $395 million ,

304 million in electric rates and $91 million in gas rates. This /?~~-~

ep was absolutely necessary to maintain the Company's fi- " ( ~obert I. Smith, ancial integrity and to continue to provide safe and reliable Chairman of the Board rvice to our customers in the face of persistent inflation and and Chief Executive Officer creases in all costs of doing business. Hearings began on Jan-ary 4, 1978 and an early decision in the case is anticipated.

Partly as a result of an audit of management effectiveness nducted by McKinsey [, Company a number of chang es in e structure of the organization were made during 1977. The 3

1977 Revenues Exceed In 1977, revenues passed the $2 billion mark for The sources of 1977 revenues by customer

$2 Billion the fi rst time as they rose $163 million , or 8.7% classification were:

over the 1976 total , to $2.033 billion. Most of the Electric Gas Combined in crea se, about $112 million, represented rate rises for gas and electri c service made effective Residential 34% 61 % 41 %

in October 1976. Commercial 36 25 33 Electric revenues, up 11.7% to $1.470 bil- Industrial 28 14 24 lion , contributed 72 % of total revenues. The Street Lighting other 28% came from gas revenues which in- and other 2 2 creased 1.7% to $563 million although therm Total 100% 100% 100%

unit sales declined from the 1976 level.

Operating Expenses Total operating expenses increased 9.8% or $155 Depreciation charges went up $15 million, a Op10% million over 1976 to reach $1.7 billion. The reflection of higher depreciation rates allowed in modest increase of 1.3% in the systefTl output of the last rate case and Salem 1 going into service.

electri city was accompanied by an 11 % rise in fuel and interchanged energy costs. The major cost factor was the greater use of oil for genera- The 1977 Income Dollar tion with its 16% increase in the average. cost dur-ing 1977. ' Where It Higher costs of fossil fuels were tempered Came From by increases in nuclear energy from the two $.71 El ectri c Reve nu es Peach Bottom units operated by Philadelphia Electric Company and the Salem Generating .27 Gas Revenues All owance For Funds Station Unit 1 operated by PSE&G. The Salem unit went into commercial operation on June

.02 Used During Constru cti on 30, 1977.

Although gas sendout dropped 4.4% com- $1.00 pared to 1976, gas costs declined only 1.3%. This resulted primarily from the need to manufacture Where It Went Fu el. Purcha sed the more expensive synthetic natural gas due to curtailments by our principal pipeline suppliers

$.38 Power and Gas during the record cold weather in January and .11 Salaries and Wages February of 1977.

Labor costs rose $22.5 million, due in part .07 Materials and Services to wage increases negotiated with union-represented employees during the year.

.18 Taxes Expenses to maintain Company property .06 Interest and equipment increased $25 million to $125 million, or 25% over the 1976 level. This increase .08 Divid ends resulted from more maintenance on electric generation equipment as well as electric and gas

.12 Rei nvested in Business distribution facilities.

$1.00 Earnings and Earnings per share for Common Stock rose to 1976. The quarterly rate had been raised during Dividends Rise $2.86 from $2.79 in 1976. The number of aver- 1976 from 43 to 45 cents.

age shares outstanding increased during 1977 The Company's Common Stock and the from 58,308,000 to 59,243,000. $1.40 Dividend Preference Common Stock are Dividends on the Common Stock were in- traded on the New York Stock Exchange. The creased to an annual rate of $1.96 a share from Common Stock is also listed on the Philadelphia

$1.80 in 1976 commencing with the June 30, Stock Exchange. The following table indicates 1977 quarterly payment. The Company paid div- the quarterly dividends paid and the range of idends of $1.92 per share of Common Stock trading prices for the last two years.

during 1977 as compared to $1.78 per share in 4

$1 .40 Divid end Co mm o n Stock Preference Commo n Stock Exterior view of Hudson Generating Station.

Board members (part of group within circle) 1977 1976 1977 1976 were given insight into station operations.

Quarterly Dividends Paid Per Share $35 $35 Price Rang e First Quarter 24 V2-21 V2 20%- 175/s 173/s-16% 16-14V2 Second Quarter 25 Vs-22 19'l's -18 17-16Vs 15'l's-145/s Third Quarter 26 Vs-23 3/4 23 Vs-19 V4 17 V4 -16Vs 167/s- 15 Fourth Quarter 25 Vs -22 Vs 233/s-21 3/4 167/s-16 163/4-155/s

' $.45 first quarter o nly ':":' $.43 first quarter o nly Two of the most recently elected members of the Board of Directors, Stewart G. Pollock and Milton Perlmutter, toured various Company locations. Scene here is at the Hudson Generating Station control room with Ted Light, Manager, pointing out details of control room instrumentation.

5

Rate Increases On November 21 , 1977 we petitioned the New In our petitio n for rate in creases, we also Requested Jersey Boa rd of Public Utilities for rate in creases proposed that fu el and raw material costs be to produce additional annual revenues totaling rolled into th e base rates. (A favorable ruling

$395 million. This amount includes $304 mil- was issued effective February 1, 1978.)

lion for electric service and $91 million for gas. Gross rec eipts and fran chise taxes, which Our last rate increase, effective October 21 , we pay to the State of New Jersey and to munic-1976, was based on our costs of providing serv- ipalities, have nearly tripled since 1970. These ice during the 12 months ended June 30, 1976. taxes amounted to $270 million in 1977 and can By the time a decision is reached in the current be expected to grow larger each year.

case , our present rates will be based on costs Late in 1977 , th e State of Pennsylvania experienced more than two years ago. The cost enacted a gross receipts tax o n electric utilities of labor, a major factor, conti nu es to ri se - $19 that own shares in Pennsylvania power plants million in 1977-78, and another $20 million in and export power to service their customers.

1978-79 as established by a new wage agree - This tax, which is retroactive to January 1, 1977, ment effective May 1977. cost PSE&G about $7.2 million for 1977 be-In addition, two other substantial cost fa c- cause of th e Company's substantial interests in to rs involve the lengthy lead time required to d e- three generating plants in Pennsylvania. The tax sign and construct new generating stations and rate is 4.5 % on an apportionment basis. The the meeting of polluti on co ntrol and environ- Company expects to join with oth er utilities in m ental regulations. The cost of satisfying th ese legal action to chall eng e the constitutionality of regulations is now more than $160 million a th e new tax.

year, and this total can be expected to inc rease.

Construction Construction expe nditures, including payments revised load estimates have resulted in th e defer-Expenditures for nucl ear fuel and advances to subsidiaries, ral of in-service dates for certai n major projects Increase rose to $411 million in 1977 from $333 million in as dis c uss ed under Nuclear G en e rating 1976. Expenditures for 1978 are estimated at Facilities.

$565 million. This figure represents a downward Assuming adequate future rate inc reases, revision from ea rlier estimates because a re cent the Company expects to provide between 40%

load forecast indicated future demands for elec - and 50 % of its co nstruction exp enditure re-tricity and gas in our service area will increase at quirements through 1982 from internal sources.

slower rates than previously anticipated. These Construction estimates for the years 1978 Cash Flow, Earnings and Capitalization Ratios Times Fixed Charges Earned Dividends per Share (Before Income Taxes)

S7.00 100 5 36 36 37 38 38 6 .81 6.00 6.14 Common Equity 4 75 5.00 5.06 439 3 4.00 4.18 Cash Aow 50 3.00 2

2.00 25 1.72 1.72 1.72 1.78 1.00 DMdencls of Total Capitalization 1973 1974 197 5 1976 1977 1973 1974 1975 1976 1977 1973 1974 1975 1976 1977 6

through 1982, including nuclear fuel but exclud- Estimated Expenditures ing allowance for funds used during construction Year 1978 1979 1980 1981 1982 are as shown. The figures include a total of $619 million for the Atlantic Generating Station. Total (Millions) $565 $616 $577 $862 $823 Financing The Company raised $234 million in 1977 Cumulative Preferred Stock (Par value $100) for through sales of new securities including First $30 million.

and Refunding Mortgage Bonds , Common In addition, the Company raised $15 million Stock, and Preferred Stock. through sales of 666,899 shares of Common In June, an offering of $125 million of 8%% Stock to PSE&G stockholders through the Au-First and Refunding Mortgage Bonds was com- tomatic Dividend Reinvestment Plan and $4 mil-pleted. The proceeds were used to pay short- lion from the issuance of 163,270 shares under term obligations including those incurred in May the Company's Tax Reduction Act Employee when the Company purchased, through a tender Stock Ownership Plan.

offer, $84 million principal amount of the $98 Commercial paper and bank notes were million outstanding First and Refunding sold at various times during the year to satisfy Mortgage Bonds, 12% Series E due 2004. short-term needs. The Company's outstanding In September, PSE&G sold $60 million short-term debt was $97 million at year end.

principal amount of 81/s% First and Refunding In 1978, we expect to raise about $300 mil-Mortgage Bonds and 300,000 shares of 8.16% lion from sales of long-term securities.

Stockholders Stockholders of record at the end of 1977 in the Automatic Dividend Reinvestment Plan totaled 260,270, including 212,640 holders of had grown to 31,437 from 25,507 a year earlier.

Common Stock, 14,064 holders of $1.40 Div- Effective with the June 30 dividend, participants idend Preference Common Stock, and 33,566 in the plan were permitted to reinvest their divi-holders of Preferred Stock. At year end , the dends in additional shares at a 5% discount from number of Common Stock holders participating market price.

Financial Policies and Your Company's financial policies continue to re- earnings, and the maintenance of high quality Objectives flect management's strong commitment to credit ratings for all our securities. We have maintain PSEE:.G in a sound financial condition. made significant progress in recent years to-Financial strength and stability must be main- ward achieving these goals.

tained if we are to successfully compete for the We will continue to strive for a fair return on new capital required to finance our construction our invested capital in order to properly c'o m-program in the future. pensate the shareholders for the use of their The principal elements of our long-range funds. A sound financial condition, a fair return financial policy continue to be a sound capital on capital and an attractive dividend policy are structure comprised of approximately 48% debt. all essential factors in achieving a market price 13% preferred stock, and 39% common equity; for PSE&G's Common Stock at a reasonable the practice of following conservative account- premium over book value.

ing principles; strong cash flow, high quality Electric and Electric output increased slightly in 1977. Total compared to 1976 and weather-corrected fig-Gas Production kilowatthours produced, purchased, and inter- ures indicate differentials at only 1 to 2%.

changed totaled 30.8 billion, a modest increase Total sendout of gas was 1.8 billion therms, over 1976. 4.4% less than the 1976 amount. In 1977, the The year 's peak demand of 6,895 highest sendout for a single day was 14,006,000 megawatts occurred on July 21, 1977. This was therms on January 17 when the temperature av-11.4% greater than the hourly peak reached in eraged 2.6°F. This sendout, a new record for a 1976. It also established a new hourly peak for single day, was 9.4% greater than the 1976 single PSE&G, surpassing the previous mark of 6,816 day sendout high of 12,803,000 therms on Feb-megawatts reached in 1973. The 1977 max- ruary 2 when the temperature averaged 12°F.

imum day's output of 133,266,000 kilowatt- The 1977 record was 8.8 % greater than the pre-hours also occurred on July 21 and was 13.8% vious record 24-hour sendout of 12,872,000 larger than the 1976 highest daily output. How- therms reached on February 1, 1971 when the ever, both the peak and output were influenced temperature averaged 10°F.

by the higher Summer temperatures in 1977 7

Generating Capacity The Company's installed generating capacity at Generating Capacity Forecast  %

the end of 1977 reached 9,247 megawatts, an Year Pea k Load Installed Capacity Reserve increase of 506 megawatts from a year earlier, and a new high for PSE&G. Our reserve at the (M egawatts) 1977 peak was 34.1 %, based on the installed 1978 6,940 9,028 30 generating capacity. The increase in capacity 1979 7,250 9,383 29 during 1977 is basically the result of the 1980 7,500 9,383 25 Salem Generating Station Unit 1 being placed in 1981 7,750 9,383 21 commercial production on June 30. Salem 1, 1982 8,000 9,503 19 the first nuclear unit to be designed and oper- 1983 8,250 9,783 19 ated by our Company, can produce 1,079 1984 8,500 9,783 15 megawatts at full output. 1985 8,775 10,458 19 The peaks, installed capacity and reserves 1986 9,075 11 ,060 22 expected for the next ten years are as shown. 1987 9,400 11 ,060 18 Nuclear Generating Our Company generated 17% of its total electric Construction also continued on Hope Facilities output in 1977 from nuclear energy compared Creek Generating Station, where work was to 16% in 1976. Our nuclear capacity rose during started in 1976 following a number of delays.

the year to 14.6% from 10.1 % in 1976. The main excavation, 70 feet deep, was com-Construction continued on Salem Generat- pleted in May 1977. The initial structural con-ing Station Unit 2 and was 85% complete at year crete pouring on August 30, 1977 involved the end. This 1,115 megawatt unit, which will add 14-foot thick basemat which will provide the 475 megawatts of nuclear capacity to our sys- main support for the nuclear units.

tem, is scheduled to enter commercial operation The two nuclear units at Hope Creek are in mid-1979. When this unit delivers full power scheduled to enter commercial operation in output, it \vill lift our Company's nuclear genera- 1984 and 1986, respectively. PSE&G , which tion to 19.4% of total electric production. owns 95% of the Hope Creek Generating Station, PSE&G and Philadelphia Electric Company is entitled to 1,014 megawatts from Unit 1 and each are entitled to 42.59% of Salem 's output 1,013 megawatts from Unit 2. Atlantic City Elec-while Atlantic City Electric Company and Del- tric Company, with a 5% ownership interest in marva Power & Light Company are each entitled each, is entitled to a total of 107 megawatts.

to 7.41%. Efforts continued in 1977 to obtain the licenses and permits required to construct Atlan-tic Generating Station. PSE&G will own 80% of each 1,150 megawatt unit while Atlantic City Electric Company and Jersey Central Power &

Light Company will each own 10%.

The Nuclear Regulatory Commission (NRC) also conducted hearings on the applica-tion of Offshore Power Systems (OPS) for a manufacturing license to construct barge-mounted nuclear powered units. OPS, which applied to the NRC for a license early in 1973, hopes for a decision in 1978. ln December 1975, the NRC's Advisory Committee on Reactor Safeguards had issued an interim report indicat-ing that, subject to completion of their review, the barge-mounted nuclear units could be con-structed and operated without undue risk to the health and safety of the public.

Because of decreases in projected demand and uncertainties surrounding the rate of future growth, the Company requested and received a three-year delay in delivery of these units and a modification of our contract with OPS. This The Salem Generating Station Unit"#2 was 85% complete at year end and when put into commercial operation in mid-1979, modification provides for reduced payments will raise the stations capacity to 2,200,000 kilowatts. The Hope Creek site can be seen at top of photo.

8

Richard S Faltin , Senior Vice President, Arete Publishing Company, discussing plans with William T Nolan of K. S Sweet Associates, Project Managers for Princeton University's research development. Princeton Library, being heavily utilized by Arete ,

1s in background Approximately 25% of the nation 's private research dollars are expended in New Jersey with a large concentration of this activity also will be available to evaluate our capacity re-within a 25-mile radius of quirements for the 1990's and thereafter.

Princeton. This remarkable core of research and development No positive assurance can be given that facilities continues to attract and necessary licenses for the equipment and site stimulate business act1v1ty.

permits will be forthcoming or that these facilities will be completed. If as the result of fu-Princeton University, with the ob1ective of creating a practical ture developments this project is not completed, relationship between the academic the ultimate realization of our investments in sector and the corporate world , is developing the Princeton Forrestal these facilities, as with any major project of this Center. a 1600-acre research and type, will depend upon the sale of the Com-office complex ad1oin1ng its main pany's interests under the OPS contract and the campus. By providing access to the University s facilities. they have treatment that is accorded the investment for been successful 1n attracting a rate-making purposes.

large variety of major Both the projected Atlantic Station and the research-oriented organizations station at Hope Creek under construction will re-quire additional permits from the New Jersey during the deferral period. It also lim its our Department of Environmental Protection as well exposure under the contract until the end of as from other state and federal agencies.

1979 to the liabilities that had been incurred to The Company's expenditures for its nuclear December 29, 1977. This modification will allow projects, excluding nuclear fuel, at the end of OPS to continue to seek its manufacturing 1977 were: $440 million for Salem; $357 million license and allow us to work with the New Jersey for Hope Creek; and $215 million for Atlantic State Department of Energy and other gov- excluding allowance for funds used during con-ernmental agencies to select the best sites for struction of $102 million, $43 million and $36 the floating generating facilities. Additional time million, respectively.

Fuel for The Company's suppli es of fossil fuels remained und er contract to operate Salem 1 and 2 into Electric Generation adequate for its production needs in 1977. Coa l 1980. The Company has also been advised by prices remained relatively stable throughout the Philadelphia Electric Company that contra cts year. Declin es in the cost of coa l at th e mine have been negotiated to provide enough nuclear were offset by higher transportation costs. The fuel to operate Peach Bottom 2 and 3 into 1985.

net result was that the delivered cost of coa l rose In addition. the Company's agreeme nts with an average of 7.4% over the average delivered Kerr-Mc Gee Nuclear Corporation and with price in 1976. Homestake Mining Company are expected to Prices of heavy oil rose an average of 15.1 % provide the fuel required to operate Salem and over 1976 while light oil increased an average Hope Creek Generating Stations from 1980 of 16.7%. Heavy oil prices had risen rapidly in through 1995. Preparation for mining has started the first quarter when extremely cold weather in one of three projected Kerr-McGee mines.

caused a sudden shortage, but eased for most Over-burden stri pping for the open pit mine was of the rest of the year. comp leted in 1977 with mining scheduled to Both oi l and coal are expected to cost more start in 1978. The Homestake Mining exploration in 1978. Oil pri ces should increase moderately program has found additional proven reserves to as a result of anticipated actions by th e OPEC bring total reserves to about 2 million pounds.

nations. and also as a resu lt of Presid ent Carter's The first phase of th e exploration program - with proposed energy plan. High er coa l prices are a target of 3 million pounds of proven reserves -

expected in 1978 mainly because of new mine is expected to be completed in 1978. The explo-worker union agreements and also because of ration program will be continued in phases until higher costs stemming from the Surface Mining enough reserves are proven to develop a mining Control and Reclamation Act of 1977. and milling complex.

The Company moved closer in 1977 to its Market prices of uranium stabilized in 1977 goal of insuring that supplies of uranium will be after substantial increases in 1976. In addition to adequate to meet the needs of all its nuclear an essentially constan t price level , uranium also generating units. became more plentiful to buyers on an open PS Ec:.G has sufficient material and services market basis.

9

Gas Supply The Company's daily gas capacity, excluding the The capacity to store gas underground for effect of pipeline curtailments, as of December use during the winter heating season was in-31 , 1977 was: creased from 400 million therms in 1976 to 414 Type of Gas Therms Pe r Day million therms in 1977. The Company entered into new short-term contracts with Texas Eastern Natural Gas 13,892,000 Gas Pip eline Company and Trans co ntin ental Liquefied Petroleum Gas 2,068,000 Gas Pipe Line Corporation for a total of 75 mil-Oil Gas 1,393,000 lion therms of storage service and terminated 61 Synth etic Natural Gas 1,325,000 million therms of storage service provided by Refinery Gas 255,000 Transcontinental Gas Supply Corporation.

18,933,000 Natural Gas The daily supply of natural gas included in the m ent Corporation (EDC), th e Company's explo-total capacity declined to 13,892,000 therms ration and development subsidiary. This allowed from 14,257,000 therms at the end of 1976. storage inventories to be repl enished and even About 48% of the daily natural gas capacity is increased with additional natural gas purchases.

co mposed of high -load-factor gas which is Curtailments averag ed 29 %, or 1.9 million available every day of th e year. The remainder of th erms a day in 1977 co mpared with 31 % or 2.1 th e gas comes from fi eld storage, liqu efied stor- million therms a day in 1976. The 1977 curtail-age, and contract peaking supply. ments marked th e first decline since 1971 , the In 1977, PSEc:,G bought and used in send- yea r th ey started.

out to customers 1.6 billion therms of natural At year end, natural gas was bei ng delivered gas, including storage gas. This was a d ec rease by EDC at the rate of 111 ,000 therms a day. This of 125 million therms or 7% co mpared with rate is expected to inc rease as additional wells 1976, resulting from lower sales coupl ed with are drilled. Additional information on EDC will less natural gas fro m pipelines during th e cold be found on pages 19 and 20.

January and February of 1977. The availabl e Cost of natural gas to PSE&G averaged supply of natural gas increased, however, later in $1.31 a million BTU's, an increase of 19\'. over 1977. This was due to greater pipeline deliveries the average in 1976.

and to larger quantities from Energy Develop-Refinery Gas The Company bought 98 million therms of re - total gas supply for the year. The cost of this gas finery gas in 1977 from Exxon 's New Jersey re- averaged $3 .17 a million BTU compared with finery. This gas accounted for 5% of PSEc:, G's $2.82 in 1976.

Construction Expenditures and Electric Peak Load and Gas Peak Sendout and Internal Cash Generation Installed Capacity at Time of Peak Daily Capacity at Time of Peak

$500 Millions of Dollars 9.5 19 . lions of Thenns 18 9.0 17 8.5 16 400 411 8.0 15 364 7.5 14 328 333 13 300 7.0 12 267 6.5 II Construction Expenditures 6.0 10 200 Winter-Storage Natural Gas 7 .5 5.5 9 8

5.0 7

100 4.5 6

4.0 5

~"81un11Gas 3.5 4 I I 14 *7 1973 1974 1975 1976 1977 1968 69 70 71 72 73 74 75 76 77 1967 68 69 70 71 72 73 74 75 76 1968 69 70 71 72 73 74 75 76 77 10

Supplementary Gas To supplement its supplies of purchased natural 1976. Total production in 1977 rose to 103 mil-Supply gas and refinery gas, the Company manufac- lion therms, or 61 million more than in 1976.

tures synthetic natural gas (SNG) from naphtha, This additional production was necessitated by oil gas made from kerosene and liquefied petro- abnormally cold weather in January and Feb-leum gas produced from propane. The daily ruary of 1977. These manufactured gases capacity for producing these gases is 4 ,786,000 amounted to 6% of PSE0G's total gas sendout therms , a decrease of 117,000 therms from during the year.

Transmission and Our electric transmission system was expanded circuits were installed whil e four 4 ,000 volt dis-Distribution cons id erab ly in 1977. The Company's bulk tribution circuits were discontinued in 1977.

power capability in northern and central New In December, an advanced computer sys-Jersey was substantially strengthened with the tem - Supervisory Control and Data Acquisi-completion of a 500,000 volt overhead line, two tion (SCADA) - was placed in service in the 230,000 volt overhead lines, and the intercon- Camden Division to help defer the need for in-nection of a new substation to provide additional stallation of additional substation and switching circuits. A 500,000 volt line linking New Jersey facilities. SCADA will also improve distribution and Delaware was also completed . This line, operations and speed service restoration .

placed in service in December, will improve the Gas distribution operations were adversely reliability of power transmission from Sa lem affected by severe weather conditions at various Generating Station to PSEc, G customers and times. In January 1977, low natural gas supplies also to custome rs of other utiliti es that share in during th e extreme ly co ld weather forced us the Salem station 's output. to curtail service to some firm industrial and The Company's electric distribution system commercia l c ustom ers for th e first time in was also expanded by th e installation of three the Company's 74-year history. In November, substations. Three unit substations of limited several service areas were flooded by torrential capacity were discontinued during the year. In rains causing interruption of service to some addition, three new 26,000 volt subtransmission customers.

circuits and eight new 13,000 volt distribution Proportionate to size, New Jersey has more linear miles of rail- handling more than 60% of the total tonnage coming through the Charles L. H1ltzhe1mer, Chairman. way* highway super- highway and more square miles of airport, Port of New York- New Jersey; the new Newark International and Henry L. Gilbertson. President railroad yard and seaport than any other state. More cars, trucks. Airport, built at a cost of $500 million; the tracks of five ma1or rail-of Sea-Land Service, Inc. - the buses, railroads, airplanes and ships move into, through and roads, now consolidated under Conrail; and, surrounding the world's largest containerized about New Jersey than any similar area on earth. complex, five ma1or highways including the New Jersey Turnpike transportation firm - at their - the nat1on*s busiest roadway.

corporate headquarters in Edison. The Newark! Elizabeth area 1s one of the busiest and largest New Jersey. transportation hubs in the world Located here are two ma1or ports Sea-Land Service 1s the largest containerized shipping company Newark International Airport is served by 20 of the country's in the world . It has 130 offices and terminals worldwide, 8,000 domestic and overseas airlines and in 1977 handled eight million employees and serves 36 ports 1n 50 countries. Sea-Land 1s one passengers.

of the few shipping firms operating without the benefit of government subsidy 11

Energy Pooling As mentioned above, two important sections of PSE&G and Consolidated Edison Company Progresses the Lower Delaware Valley transmission system agreed to provide additional interconnections were completed in 1977 with the construction of between their systems. The plan calls for the two 500,000 volt lines. The lines linked Deans construction by 1982 of two 345,000 volt lines to Substation with Branchburg Substation in Cen- connect the two systems. In addition, PSE&G is tral New Jersey, and Salem Generating Station to expand its transmission facilities so that it can with the Delmarva Power & Light Company's deliver more power to New York City. The Com-Keeney Substation, located across the Delaware pany will be fully compensated by Con Edison.

River from Salem.

Commercial and A new Customer Payment Processing Center on off peak load opportunities, such as dusk-Consumer Affairs was opened in March 1977 in Metro Park. to-dawn lighting and electric space heating.

Woodbridge centralizing the receipt, crediting , Over 3,500 dusk-to-dawn installations were and depositing of customer mail payments for- made resulting in a year-end total of 46,000.

merly handled in each commercial office. Electric space heating installations totaled 1,640 Service to customers was further improved representing 44,543 kilowatts. Total electric heat-in December with the installation in commercial ing load now exceeds 825,000 kilowatts.

offices of equipment to electronically display Stalled contract negotiations with the union customer information. This interim system will representing employees in commercial offices improve response time for customer inquiries caused a three-week work stoppage from mid-until replaced by a more sophisticated informa- June to early July. Management and super-tion system now under development. visors staffed the offices, limiting the effect on Marketing personnel continued to capitalize Company operations.

Conservation Tests conducted by PSE&G and Princeton Uni- our lines at year end were added during 1977.

versity's Center for Environmental Studies have Additional evidence of the Company's con-demonstrated the electric heat pump to be an tinuing dedication to conservation is the PSE&G energy efficient way of heating and cooling Home Insulation and Energy Conservation Pro-homes. We anticipate that the use of heat gram which commenced in September. The pumps will become a significant source of focus is on providing customers with informa-increased revenue for the Company. Some tion on a wide variety of conservation options builders are already installing heat pumps in both technical and financial. The program has a number of major new housing developments. been well received. In a little over three months, Over 36% of the 935 heat pumps connected to 2,400 customers have been assisted.

Interruptible Service Interruptions to gas customers served under in-terruptible contracts totaled 102 calendar days in 1977 compared with 175 days in 1976. The number of interruptible customers declined Linden Chlorine Products Inc. is from 76 to 74. Revenues from interruptible cus-one of seven electric customers tomers rose 77% to $35 million as therm sales whose service can be interrupted when power is needed rose 40% from 1976.

elsewhere. By initiating interruptible We initiated lower rate interruptible electric electric service, costs for expensive peaking capacity can be kept service early in 1977. By the end of the year, to a minimum seven customers using a total of 87 ,729 kilowatts had signed contracts for the new serv-ice. During the year these customers had their electric service interrupted six times for a total of 45 hours5.208333e-4 days <br />0.0125 hours <br />7.440476e-5 weeks <br />1.71225e-5 months <br />.

Load Management A two-year experiment to determine how electric tomers and billings based on the new rate struc-rate schedules adjusted to time-of-day use may ture started November 15. Three different rate affect consumption patterns was started by schedules will be used for purposes of com -

PSE&G late in 1977. New meters to record elec- parison in compiling the data.

tricity use on a 24-hour cycle were installed in The purpose of the experiment is to see if the homes of several hundred residential cus- lower rates in off-peak hours can offer enough 12

incentive for customers to shift some of their management program could also increase the electric consumption from peak periods to efficiency of our energy generation. Greater off-times of low demand. If enough demand can be peak use of available capacity could also save switched from peak periods. the result would our customers money by cutting our depen-mean financial savings by reducing the need for dence on oil in favor of the cheaper energy new peak capacity. In addition, a successful load sources - coal and nuclear fuel.

Area Development Industrial and commercial development con- As a result of this expanded interest, a tinued to expand within the Company's service number of real estate developers have built or territory in 1977. The number of companies announced plans to build large office facilities.

seeking locations for offices, distribution and These ventures included a 350,000 square foot manufacturing facilities, stores and other com- structure completed in 1977 by Mack Construc-mercial enterprises increased as the national tion Company. Located in Paramus, it has at-economy gained strength. tracted a number of firms from New York City.

A total of 487 industrial and commercial It is also the new corporate headquarters of firms, employing about 20,900 persons, moved Becton, Dickinson and Company.

New Jersey's Economic Development Authority provides into or expanded their operations in Public Serv- The Hackensack Meadowlands, located in financial assistance to companies ice territory during 1977. A total of 72 com- Bergen and Hudson Counties, continues to be which invest in new plants and panies, employing 6,800, either moved away or an expanding area for industrial, commercial equipment in New Jersey. Since its inception in 1974, the Authority suspended operations, resulting in a net gain of and residential development. The New Jersey has arranged for nearly $600 14,100 jobs. Sports and Exposition Authority plans to build a million in low-interest financing for over 400 industrial and The market for office quarters within 20,000-seat arena adjacent to the 78,000-seat commercial projects. These PSE&G territory remained strong , helped to football stadium and the recently expanded projects have generated nearly a some extent by firms in New York City seeking Meadowlands Race Track. The arena, expected billion dollars of investment money within the State 's economy. suburban locations. to be completed in 1980, will be designed for Commissioner of Labor and Industry, John Horn (center) ,

discusses New Jersey's increasingly bright business outlook with Robert Powell (left) ,

Executive Director, New Jersey Economic Development Authority, and Robert Franklin , PSE&G 's General Manager of Urban Affairs and Area Development.

Sonny Werblin chatting with New Jersey's Governor Byrne at the Giants Stadium. Mr. Werblin was Chairman of the Board of the New Jersey Sports and Exposition Authority from its inception through 1977. Under his leadership, the Meadowlands Sports Complex became highly successful and has served as a catalyst for additional The New Jersey Nets, the State's first NBA professional commercial, residential and basketball team , play host to the New York Knicks at Rutgers industrial development in the area.

University Field House - an interim court while a new, 20,000-seat arena is being constructed at the huge Meadowlands Sports Complex. Here, the Giants Stadium , as a football facility, established the largest attendance record in the country during 1977. The racetrack, adjacent to the football stadium , attracted 5 million fans who wagered $526 million during the racing season ,

making it the most successful track in the country.

13

basketball , hockey, tennis, tra c k and boxing commercial space. Its tenants include Interna-events. It will also be available for concerts, con- tional Business Machines Corporation , S.B.

ventions, expositions and other public recre- Penick & Company, Rolls-Royce Ltd ., and ational activities. The New J ersey Nets of the Wedgwood, Ltd.

National Basketball Association has signed a Wedgwood, which recently established its contract to use the new arena as its home court. U.S. headquarters and a major distribution facil-In addition to stimulating large attendances ity in Lyndhurst, is one of many foreign com-at the stadium and the race track, the meadow- panies to locate within PSE&G's service territory.

lands has attracted investments totaling several New Jersey is now the U.S. base for more hundred million dollars. Hartz Mountain Indus- foreign companies than any other state. The tries, Inc., the largest developer in the meadow- largest number of foreign firms located here lands, has sold all 640 units of its residential continues to be Japanese although many coun-condominium development known as Harmon tries are represented in New Jersey through To help promote economic Cove. The industrial park owned by Hartz and commercial or industrial facilities. Japanese development within the State, PSE&G has prepared an covering 10 million square feet includes a high- companies which established new facilities in advertising program which rise office building of 190,000 square feet, now the State during 1977 include Yashica, Inc., Mit-features comments and profiles of subishi Boeki, Inc., Komatsu America, Marubeni almost fully rented , and a 300-room Hilton Hotel top management people with firms that are successfully operating in and convention center, scheduled to be com- America, Miida Electronics , and Sumitomo our State. Advertisements will pleted in July 1978. Federated Department Machinery.

appear in national media during 1978.

Stores has completed a 500,000 square foot dis- Large American companies which located tribution center in the park for its Abraham & manufacturing operations in PSE&G territory Straus division. during 1977 included E.I. duPont de Nemours,

'"'!:'~~-~~'""":!"""l,.P. Hartz has also acquired additional land in Ciba-Geigy, and Spiegel Company. In addition, the meadowlands and plans to build a 1.5 mil- Mattel, Inc. broke ground for a 375,000 square

__ -'!'_....;,.-_~ ...._ lion square foot shopping mall , 1.5 million foot plant in Edison, and Tuck Industries plans to square feet of campus-type office and research buy a 1.1 million square foot complex in Passaic, buildings, and 2 million square feet of industrial formerly owned by Uniroyal, to make pressure-sensitive tape.

Plans to occupy or build distribution facilities were announced during the year by R.H.

Macy, Addressograph-Multigraph , Eastman Kodak, and Johnson & Johnson.

New corporate center, Bellemead Development Corporation, Lyndhurst.

Gene Heller, President of Hartz Mountain Industnes, and Paramus Park, one of Bergen County's newest shopping malls.

Raymond Newman, Vice President of Industrial Development, discuss New Jersey has the nation's second highest per capita income Meadowland expansion plans. and the State's numerous shopping centers reflect the affluent buying power of its 7.3 million residents. Retail sales are estimated at over $23 billion .

Bergen County, for its size, is one of the nation's largest and richest marketplaces.

14

Although a number of companies started or coming less attractive to manufacturers. Several announced plans to start new facilities for man- large industrial companies eliminated, curtailed ,

ufacturing in New Jersey, the State continues to or moved their operations from New Jersey in suffer an erosion of its manufacturing base. The 1977.

combination of strict environmental regulations, As a partial counter to this, several plastics and the relatively high costs of land, labor, and companies, publishing firms and other large taxes, have contributed to a steady decline for users of energy have moved from New York City production operations. The growth potential of to New Jersey. Plans to build a $95 million steel the New Jersey metropolitan area has also been plant in Perth Amboy were completed in 1977.

diminished by the shifts of population and mar- The site for the steel rod production facility was kets to other regions. While the State's proximity chosen by Raritan River Steel Company, a sub-to major markets remains a strongly competitive sidiary of Co-Steel International, Ltd., Canada, factor. this appeal - when weighed against because it is in the center of the largest scrap other costs of operating in New Jersey - is be- steel market on the East Coast.

New Jersey leads the nation in the number of foreign firms network - as being the most important factors in choosing this located within its boundaries. Japanese firms outnumber all state. Representative companies as shown in these photographs others, citing New Jersey's location in the center of one of the are: (1) Panasonic, (2) Minolta and (3) Yashica.

world's richest markets - and its unsurpassed transportation One of the Japanese-owned companies to locate here is Sumitomo Machinery Corp. of America. President Akio Naritomi (left), confers with his associates.

Says he: "Our company 1s thoroughly Americanized, so we combined both Japanese and American business Judgement before building our new plant here.

We're delighted with the results.

An additional supply of labor was readily available. Transportation facilities are excellent, and that's especially important because we depend so much on shipments of materials from other parts of the world."

15

Newark, New Jersey*s largest city, 1s also one of the nation's University and 5) Essex County College. The schools are within ma1or "college towns. " More than $300 million has been invested blocks of each other and occupy more than 90 acres of land near 1n expanding higher learning facilities and approximately 24,000 the heart of Newark's business district.

students are enrolled 1n five educational institutions. They are:

New building in Newark - either under construction or on the

1) New Jersey College of Medicine and Dentistry, 2) Seton Hall planning board - presently totals an impressive $200 million.

University, 3) New Jersey Institute of Technology, 4) Rutgers There's new life in New Jersey's older cities! "New Brunswick Tomorrow" is a cooperative effort of government, business and community organizations working to revitalize the business district and neighborhoods. Leaders in this constructive endeavor include:

Mr. C. Roy Epps, Executive Director, Urban League of Greater New Brunswick; Richard B Sellars, Chairman of the Finance Committee, Johnson & Johnson and Chairman of the New Brunswick Development Corporation : and John J. Heidrich, J&J's Corporate Vice President of Administration and Chairman of New Brunswick Tomorrow.

Merrymaking during New Brunswick's Second Annual George Street Festival.

16

Community As a company whose operations are increasingly Center of the Arts, the Day Care Coordinating Involvement affected by the understanding of the members Council of Essex County, the New Jersey State of the various communities within its service ter- Special Olympics, and the State Resource ritory, PSE&G has become involved with many Mobilization Council. Special seminars were educational, civic and cultural organizations. held for Senior Citizens to discuss their areas of Through its Consumer Affairs, Urban Af- special interest as well as concerns of the Com-fairs, and Community Relations Departments, pany. Art contests were conducted for high PSE&G has initiated and participated in many school students with exhibits held in our Com-programs intended to serve a broad spectrum of mercial Offices.

needs. Many of these programs were designed PSE&G's Urban Affairs Department initiated to help the urban poor attain a fair chance for a series of management training programs for educational , cultural and economic parity. executives of non-profit service agencies. The PSE&G has also provided financial support and programs exemplified continued support of or-counseling for minority students, at both sec- ganizations which serve disadvantaged urban ondary and college levels. populations and also recognize that few com-Company personnel served a wide variety munity agencies have the structure or means to of community organizations such as the Newark develop effective management methods and Boys Chorus School, the Newark Community skills.

Environmental Affairs The Company has continued to meet frequently As environmental regulations become with representatives of federal and state gov- more complex and demanding , the cost of ernment environmental agencies. complying with these regulations becomes a The Environmental Affairs Department rep- matter of increasing concern for both the cus-resents the Company at public meetings on en- tomers and the stockholders of an electric and vironmental matters. It also presents a wide gas utility. PSE&G spent about $168 million in its range of information programs on energy and continuing effort to achieve a cleaner environ-the environment to the general public. ment during 1977.

Communications We maintained a broad communications pro- were designed to develop investment interest in gram in 1977 and an important facet of it was PSE&G.

our investor relations program. We again pro- Our Community Relations Department vided a regular flow of information on develop- reached many audiences through its film, slide ments at PSE&G to security analysts, portfolio and lecture programs. More than 1,500 managers, institutional investors and other pro- presentations on energy, conservation and other fessionals in the investment community. Com- topics related to our industry were made to civic, pany executives addressed several investment social, and school audiences totaling more than industry meetings and participated in a number 220,000 persons in 1977.

of investment-oriented seminars. PSE&G also Under the direction of our Environmental arranged several formal meetings with stock Affairs Department, our Speakers' Bureau gave brokers in New Jersey. These meetings held at 327 talks to 13,400 people. The Second Sun, the central locations provided brokers and individual Company's floating energy information center, investors with pertinent information on current was visited by 45,000 people and our Salem developments at PSE&G. Visitors' Center had 10,000 visitors. The depart-In recognition of the increasing importance ment also conducted generating station tours of European institutions as a potential source of for 2 ,800 visitors and sponsored high school capital , we held meetings in September with education programs for 200,000 students.

banking and investment executives in five key The Information Services Department con-European financial centers. The meetings, held tinued to be available round-the-clock, seven in London , Paris, Frankfurt, Zurich and Geneva, days a week, for the press, radio and television.

Human Resources The number of Company employees at year end covering union-represented employees resulted totaled 13 ,339, essentially un chang ed from in new three-year agreem ents providing for gen-1976. eral wage in creases of 7% the first year, effective Wages and salaries for the year totaled May 1, 1977, and 6.69% the second year. Th ere

$259,925,000, including $9,399,000 for disabil- will be a wage reopener for the third year which ity benefits and compensation. Negotiations begins on May 1, 1979. The agreements, ratified 17

by all of the seven unions representing PSE&G department contains the former Personnel De-employees, also provide improvements in ben- partment, the Equal Opportunities group, and efit programs and a resumption of employee the Industrial Relations groups.

contributions to health plan premiums. The Company has continued to stress its The Company established a Human Re- Affirmative Action program in relation to the sources Department in 1977 to consolidate employment of women and members of minor-employee-related activities and to emphasize ity groups. In 1977, 25% of all persons hired were the importance of human resources activities women and 26% were from minorities. At the under senior management leadership. The new end of 1977, the Company had 1,783 female As part of our Affirmative Action Program , special efforts have been made to recruit women for jobs which have traditionally been held by men at PSE&G. More and more women are expressing interest in these jobs - particularly in manual trade areas.

To aid in recruiting women, a twelve-minute film depicting women working for the Company in non-traditional jobs has been produced . In the film , the women are shown "on the job" and candidly express their feelings about the type of work they do.

This film will be used at recruitment Open Houses to be held by PSE&G , as well as shown at local career fairs and at high schools upon request.

Beth Grogan Lyn Horvath Service Mech anic. 1st Class Stock Handler 18

employees and 1,630 employees from minority positions. !COS is expected to result in a more groups. The Affirmative Action Program resulted efficient use of employee skills.

in a sizeable increase in the number of women In November, the Company distributed a and minority group persons in professional and comprehensive manual covering details of the managerial positions in 1977 as compared to Employee Benefits Program to all employees.

the previous year. The manual, a two-year project, is intended to As part of the continuing effort to improve play a major role in PSE&G 's efforts to com-managerial effectiveness, PSE&G expanded its municate more effectively with its employees.

management development activity by initiating a During the year the Company also im-Company Job Rotation Program. As a further plemented a computerized Employee Informa-indication of the Company's encouragement of tion System to centralize and consolidate per-self-development, a total of 545 employees at- sonnel records. Employees were given individual tended job-related courses during the year at statements containing the information in the nearby colleges under the Company's Tuition system. This will be an annual procedure which Aid Program. In April, the Company also intro- not only will keep employees informed of the duced an Internal Career Opportunity System information maintained about them by the (ICOS) designed to inform employees of job Company but also will improve the Company's vacancies in non-union and certain supervisory ability to keep the information up-to-date.

Energy Development Energy Development Corporation (EDC), the agreements with Cincinnati Gas and Electric Corporation Company's exploration subsidiary broadened its Company and Philadelphia Electric Company operations in 1977 as part of its continuing ef- for combined annual commitments of $4 mil-forts to locate and develop new sources of lion for the first 12 months. The two utilities have natural gas, primarily in the Texas and Louisiana agreed to pay 41.7% of the exploratory costs for Gulf Coast areas. a 31.3% interest in any oil or gas discoveries.

In 1977, $13.8 million was expended for ex- EDC last year participated in the drilling of ploration, $4.3 million for development, and 33 exploratory wells and 12 development wells,

$3.6 million to acquire offshore leases. EDC both onshore and in the offshore waters of the earned $1,213 ,000 in 1977 compared to Gulf of Mexico. Onshore activities are concen-

$938,000 in 1976. Revenues from the sales of oil trated in the coastal areas of Texas and and gas were $8,227 ,000, compared to Louisiana. In 1977, EDC's onshore operations

$4,741,000 in 1976. resulted in the drilling of 6 successful gas wells, To spread the economic risks inherent to ex- 1 successful oil well, and 6 dry holes. At year end, ploration, and also to help accelerate its offshore EDC was in the process of drilling 5 additional drilling, EDC entered into 3-year exploration onshore wells.

During the year, EDC obtained regulatory ap-Energy Development Corporation explores for gas in the Gu~ of proval to transport gas from two additional on-Mexico. In 1977, EDC participated shore fields to PSE&G 's market area. At the end in the successful drilling of 18 gas wells and 1 oil well. EDC has an of 1977, production from EDC wells was being increasing involvement in offshore delivered to PSE&G at the rate of 111,000 therms drilling and has been successful in a day compared to 48,000 therms a year earlier.

obtaining interest in 16 blocks off the Jersey coast. The daily rate is expected to increase as addi-tional wells are drilled and additional regulatory approvals are secured.

EDC's offshore activities, 60% of its total drilling operations last year, resulted in the drill-ing of 12 successful gas wells and 10 dry holes.

A total of 5 wells were being drilled as the year ended. One of the subsidiary's more significant discoveries occurred off the Louisiana shore on Vermilion Block 310 where EDC has an 8.34%

interest. The tract, acquired in 1976 for $34.2 million by a group headed by Transco Explora-tion Company, has had 11 wells drilled on it, in-cluding 9 where gas has been found. Develop-ment of the tract is expected to commence in 1978 upon the installation of two drilling plat-forms. Initial production is expected in the 19

summer of 1979. pations ranging from 1.4 % to 33 .3 %. The EDC's participation with the Transco group offshore blocks include 13 in the Gulf of Mexi co last year in bidding for additional blocks in the where exploratory drilling on most blocks was Gulf of Mexico resulted in six successful bids. Of completed by the end of the year. EDC also EDC's bids of $15.2 million, it was successful in owns interest in 16 blocks off the Atlantic Coast winning shares totaling $3.6 million. With ac- where drilling has been delayed by court action.

quisition of these new blocks, EDC now owns Drilling is expected to start, however, on several shares in 29 offshore blocks with interest partici- blocks in 1978.

PSE&G Research PSE&G Research Corporation was formed in in 1974, was expanded during 1977 to a pro-Corporation 1977 as a wholly-owned subsidiary of PSE&G to totype commercial aquaculture facility designed more effectively direct the parent company's re- to demonstrate the economic feasibility of rais-search and development program. obtain in- ing commercial size fresh water fish in warm creased outside research support and diversify water discharged from power plants. Expansion its testing capability to meet industrial needs. of the Mercer facility was financed by grants The new corporation was formed by combining from the National Science Foundation totaling Artist's rendering of BEST (Battery the Research and Development Department and $1.1 million. the largest grant ever awarded Energy Storage Test) Facility which is expected to play a vital the Energy Laboratory. under the Foundation's Research Applied to Na-role in developing new types of In addition to conducting research and de- tional Needs program. The expanded facility's batteries for storing energy during velopment programs related to current and first crop , some 58 ,000 trout, is expected to be periods of low demand for use during peak requirements. Large long-range energy problems, the new subsidiary ready in the spring of 1978, and will be marketed systems, if successful, could cut will explore other areas of technology as poten- to commercial food processors. If the larger-u S oil imports by as much as one tial new ventures for the parent corporation. The scale project proves to be economically feasible, million barrels a day.

Energy Laboratory will make its resources of it could aid in development of an aquatic food Harold Sonn, President of PSE&G specialized test equipment and the services of its industry.

Research Corporation, being interviewed by NBC's Jim Collis at personnel available on a commercial basis to Due to its experience in testing large elec-the BEST Facility ground- other industries. trical systems , PSE&G was selected as host util-breaking ceremonies. One new venture is the establishment of an ity for the Battery Energy Storage Test (BEST)

Local and national leaders help Aquaculture Research Center. The Mercer Facility. Construction on the $8.7 million facility to officially launch construction of Aquaculture facility, which became operational was started in 1977 and it is expected to be op-the $8.7 million BEST Facility.

erational in 1980. It will be used as a national test next phase, financed jointly by the U.S. Depart-center for advanced battery systems to evaluate ment of Energy and the Electric Power Research their effectiveness when used by electric utilities Institute, a 4 ,800 kilowatt fuel cell power plant to meet peak demands. Development of effi- will be installed and tested on an electric utility cient and economic batteries for large-scale system.

energy storage would permit power from nu- PSE&G is also testing solar energy systems clear and fossil fuel generating stations pro- for residential use. During 1977, PSE&G Re-duced during periods of low demand to be search Corporation installed and began testing stored for use at times of peak requirements. 11 solar water heating, space heating and pool Successful adaption of large-scale systems heating systems in customers' homes. Three could pare our country's need for expensive oil additional installations will be completed in 1978 imports by as much as one million barrels a day. as part of a three-year test program costing ap-It could also reduce the need for greater capacity proximately $500,000. The testing will provide to meet peak loads. PSE&G will spend about information on the performance of solar heating

$1.5 million to provide the building, associated systems in our territory. Four weather stations substation equipment, and the site, which is ad- have been operating since the spring of 1977 to jacent to a Company substation in Somerset provide comprehensive data for evaluation of County. The balance of the funding for the joint this program.

project will be supplied by the U.S. Department While expanding its research operations, of Energy and the Electric Power Research the new PSE&G enterprise will continue corpo-Institute. rate policy of seeking external funding for spe-Along with eight other utilities, PSE&G is cific programs from the Federal Government, continuing to support research to develop a research organizations and private industry. In 26,000-kilowatt fuel cell power plant for large- 1977, PSE&G was awarded 8 research contracts scale power applications. A major milestone was involving over $1 million in outside financing.

reached when a 1,000 kilowatt fuel cell pilot The parent company also allocated $8.5 million powerplant was successfully tested by United for its own research and development work and Technologies Corporation in 1977. During the to pay for its share of utility industry research.

These two banks of solar panels will be used to help provide heat and hot water for the home shown in background. This is part of PSE&G's three-year program to test solar water heating, space heating and pool heating systems in customers' homes.

21

Transport Transport of New Jersey, a transportation sub- pares to a net loss of $504,000 for the year 1976 of New Jersey sidiary of PSEE.G, and Transport's wholly-owned after receiving $20,976,000 in operating assis-operating transportation subsidiary, Maplewood tance from the State of New Jersey.

Equipment Company, recorded a net loss of Private Reinvestment Capital Corporation, a

$247 ,000 in 1977 after receiving $25,211 ,000 in wholly-owned non-operating subsidiary of operating assistance from the State of New Jer- Transport, formed in 1977, had net income of sey to supplement fare box revenue. This com- $420,000 for the year .

Energy Terminal Energy Terminal Services Corporation (ETSC), a obtained from federal, state and other regulatory Services Corporation wholly-owned subsidiary formerly known as Dis- agencies.

trigas of New York Corporation, was renamed Late in 1977, ETSC filed a motion with the after its purchase by PSEE.G from Cabot Corpo- Federal Energy Regulatory Commission ration in 1976. The assets of ETSC primarily (FERC) applying for "a conditional certificate of consist of a facility on Staten Island equipped to public convenience and necessity" for the LNG unload, process, and store liquefied natural gas facility. The granting of a conditional certificate (LNG). The terminal with two large storage tanks could be expected to help the Company in its is about 95% complete. When completed , the continuing negotiations to reach an agreement facility will be able to deliver gas at an average on the importation of LNG with Sonatrach ,

rate of 3.6 million therms a day and a maximum Algeria 's state-owned oil and gas company. Al-daily capacity of 7.6 million therms. Additional though ETSC requested FERC for a prompt construction has been suspended until the per- reply on its application, the federal agency had mits needed to import and store LNG can be taken no action by December 31.

Energy Pipeline Energy Pipeline Corporation, a wholly-owned the ETSC terminal on Staten Island to the PSEE.G Corporation subsidiary formerly known as Distrigas Pipeline system, this company is currently in a standby Corporation, was acquired from Cabot Corpora- status. Although the pipelines have not been tion along with ETSC. Intended to construct and built, most of the pipe and valves have been operate two pipelines to transport LNG from bought and are now in storage.

Eascogas LNG, Inc. Eascogas LNG, Inc. became a wholly-owned federal authorities as a result of New York State subsidiary in 1977 when PSEE.G purchased the legislation concerning terminalling, and other 50% interest held by Algonquin Gas Transmis- factors. PSEE.G has elected to restructure the sion Corporation. Eascogas, formed in 1972 to import project on a reduced basis and is import liquefied natural gas from Algeria , has negotiating a new agreement with Sonatrach for been unable to secure approval for imports from the purchase and transportation of LNG.

Methane gas can be found in landfill areas but no one has yet been able to discover how to accurately judge supply or determine the best way to recover what might become a valuable new energy source. At a large landfill site in Central New Jersey, Doug Nielsen, Gas Planning Department, 1s taking gas pressure and measuring methane output. This particular project is expected to recover one million cubic feet of gas per day generated by decomposing garbage.

22

Financial Statement lated internal controls, is reviewed by the Company's staff of internal auditors and its independent public accountants.

Responsibility Management feels the effectiveness of this system is en-The management of PSE&G is responsible for the integrity hanced by a program of continuous and selective training of and objectivity of the financial statements of the Company. our employees.

These statements, prepared by the Company in accordance The Board of Directors carries out its responsibility of with generally accepted accounting principles applied on a financial disclosure through the Audit Committee consisting co nsistent basis, make full disclosure of the Company's of five outside directors. The Audit Committee meets periodi-financial affairs. cally with management as well as representatives of the inter-To facilitate the gathering of financial data, PSE&G nal and independent auditors to review the work of each, en-maintains an accounting system established with sound ac- suring that their respective responsibilities are being carried counting and business policies effectively communicated to out, and to discuss related matters. Internal and independent the appropriate personnel. This system, together with its re- auditors have full and free access to the Audit Committee.

Summary of Significant Prior to January 2, 1976, the date of the levelized gas Accounting Policies adjustment clause , increases in costs of purchased gas and materials used to produce gas were recovered in months System of Accounts subsequent to their incurrence and were charged to opera-The Company is under the jurisdiction of the Federal Energy tions principally as they were incurred. An unrecovered gas Regulatory Commission (FERC) and the Board of Public balance of $12,487,000, which is not included in a new Utilities (BPU) of the State of New Jersey and maintains its levelized rate established December 2, 1977, will be consid-accounts in accordance with their prescribed Uniform Sys- ered for rate base treatment, with appropriate amortization, in tems of Accounts, which are substantially the same. As a re- the Company's current rate case.

sult of the rate -making process the accounting principles applied by the Company differ in certain respects from those Amortization of Nuclear Fuel applied by non-regulated businesses. Nuclear energy burnup costs are charged to fuel expense on Investments in Subsidiaries the basis of the number of units of thermal energy produced as they relate to total thermal units to be produced over the The Company's investments in its subsidiaries, which in the life of fuel. The rate calculated for fuel used at the Company's aggregate are not significant as defined by the Securities and Salem plant includes a provision for estimated future storage Exchange Commission, are reported in the accompanying and disposal costs. In accordance with procedures estab-financial statements on the equity method of accounting.

lished by the operating company of the Peach Bottom plant, Revenues the rates for fuel used at that plant assume a zero net salvage.

Revenues are recorded based on estimated service rendered ,

but are generally billed to customers through monthly cycle Depreciation and Utility Plant billings on the basis of actual usage. Depreciation, for financial reporting purposes, is computed under the straight-line method and is based on estimated av-Fuel Costs erage remaining lives of the several classes of depreciable The Company projects the costs of fuel for electric genera- property. These estimates are reviewed continuously and ad-tion , interchanged power, gas purchased and materials for justments, as approved by the BPU, are made as required.

gas produced for twelve month periods. Adjustment clauses Depreciation applicable to nuclear plant provides for esti-in the Company's rates allow the recovery of the excess of mated costs of dismantling or decommissioning. Deprecia-such projected costs over those included in the Company's tion provisions for the years 1977 and 1976 stated in percent-basic rates through levelized monthly charges over the period ages of original cost of depreciable property are 3.51% and of projection. Any under-or-over recoveries are deferred and 3.39%, respectively.

reflected in subsequent periods. Fuel costs are charged to The cost of maintenance, repairs and replacements of operations in the period in which they are recovered. Deferred minor items of property is charged to appropriate expense amounts under this procedure are classified as current items. accounts. The cost of replacements of units of property is Prior to July 1, 1977, the date of establishment of the charged to Utility Plant. At the time depreciable properties are levelized electric adjustment clause, the Company recovered retired or otherwise disposed of, the original cost less net sal-increases in electric energy costs approximately two months vage value is charged to the appropriate accumulated provi-subsequent to their incurrence and charged operations in th e sion for depreciation.

period in which these costs were recovered. The balance of unrecovered electric fuel costs remaining from this procedure Income Taxes is classified as a deferred debit and is being amortized The Company and its subsidiaries file a consolidated Federal through basic rates in accord with a rate order of the BPU. income tax return and income taxes are allocated, for report-23

ing purposes, to the Company and its subsidiaries based on by the FERC formula. The Company does not expect any the taxable income or loss of each. material change in its AFDC rate or adverse effects on the Deferred income taxes are provided for differences be- results of operations as a result of this order. However, earn-tween book and taxable income to the extent permitted by ings available for coverage tests under the provisions in the the BPU or other regulatory agencies for rate-making pur- Company's Mortgage and Restated Certificate of Incorpora-poses. tion will decrease by the amount of the debt component of Investment tax credits are deferred and amortized over AFDC. It is expected that this change will not affect the Com-the average life of the related plant. pany's financing.

Allowance for Funds Pension Plan Used During Construction Pension costs are accounted for on the basis of an accept-Allowance for Funds Used During Construction (AFDC) is a able actuarial method and are charged to operating ex-cost accounting procedure whereby the approximate net penses, utility plant and other accounts. The Company's pol-composite interest and equity costs of capital funds used to icy is to fund pension costs accrued. In 1977 the Company finance construction are transferred from the income state- increased its annual payment to the fund for prior service ment to Construction Work in Progress (CWIP) in the balance costs, thereby reducing the funding period, which began sheet. This procedure is intended to remove the effect of the January 1, 1967, from 40 to 35 years.

cost of financing construction activity from the income Gross Receipts Tax statement, and results in treating such cost in the same man-ner as construction labor and material costs. The rate used As a result of rate orders received from the BPU, the Com-for calculating AFDC was 8% in 1977 and 1976. pany, effective January 1, 1973, began accruing gross receipts The BPU issued rate orders in 1975 allowing the Com- tax on current revenues rather than on the previous basis pany to recover the financing cost on $250,000,000 of CWIP of taxes paid. The gross receipts tax on 1972 revenues was through current operating revenues, and since then no AFDC deferred and is being charged to operations by an amount has been accrued on this amount. equivalent to .5% of revenues subject to the gross receipts tax.

The FERC issued an order revising the Uniform Sys- Unamortized Debt Expense tems of Accounts, effective January 1, 1977, which provides a Unamortized Debt Expense includes costs associated with formula for determining the maximum allowable AFDC rate ,

the issuance or reacquisition of debt. Such amounts consist and for segregating AFDC into two component parts, debt principally of costs associated with the Company's tender and equity. The debt component for 1977 is included in the offer for mortgage bonds in May 1977. In accordance with Interest Charges section of the Statement of Income as a BPU approval, these amounts are deferred and amortized credit and the equity component remains as part of Other over the lives of the related issues.

Income. The Company has not reclassified AFDC into its debt and equity components prior to the effective date as it is Extraordinary Property Losses felt the allocation would not be representative of the condi-Extraordinary Property Losses are deferred and amortized tions which existed during that period. The rate currently over periods prescribed by the BPU, the longest of which used for calculating AFDC is 8% which is within the limits set ends December 1, 1993.

24

Statement of Income For the Years Ended December 3 1, 1977 1976 Operating Revenues (Th ousa nds of Dollars)

Electric $1,470,118 $1 ,316,077 Gas 562,677 553,458 Total Operating Revenues 2,032,795 1,869,535 Operating Expenses Operation Fuel for Electric Generation 416,760 362,257 Interchanged Power- net 120,041 121 ,917 Gas Purchased and Materials for Gas Produced 257,897 261,190 Other Operation Expenses 253,831 227 ,395 Maintenance 124,876 99,617 Depreciation 147,652 133,087 Taxes Other than Federal Income Taxes 293,796 275,254 Federal Income Taxes (note 1) 120,969 100,380 Total Operating Expenses 1,735,822 1,581,097 Operating Income 296,973 288,438 Other Income Allowance for Funds Used During Construction Debt and Equity 43 ,547 Equity 32,028 Miscellaneous Other Income-net 852 1,928 Earnings of Subsidiaries-net (note 2) 595 726 Total Other Income 33,475 46,201 Income Before Interest Charges 330,448 334,639 Interest Charges Long-Term Debt 129,782 127,643 Short-Term Debt 1,892 359 Other 2,044 2,613 Allowance for Funds Used During Construction - Debt (17,512)

Net Interest Charges 116,206 130,615 Net Income 214,242 204,024 Dividends on Cumulative Preferred Stock and

$1.40 Dividend Preference Common Stock 45,065 41,257 Balance Available for Common Stock $ 169,177 $ 162,767 Shares of Common Stock Outstanding End of Year 59,805,916 58,975,747 Average for Year 59,243,392 58,307,947 Earnings per average share of Common Stock $2.86 $2.79 Dividends paid per share of Common Stock $1.92 $1.78 See Summary of Significant Accounting Policies and Notes to Financial Statements.

25

Balance Sheet December 31 .

Assets 1977 1976 (Thousands of Dollars)

Utility Plant- original cost Electric Plant $3,665,195 $3,219,349 Gas Plant 849,272 843 ,315 Common Plant 72,767 41,948 Utility Plant in Service 4,587,234 4 ,1 04,612 Less Accumulated Depreciation 1,309,045 1,194,444 Net Utility Plant in Service 3,278,189 2,910,168 Construction Work in Progress 955,772 1,057,152 Nuclear Fuel, net of accumulated amortization - 1977, $5,868; 1976, $20 82,480 72,352 Plant Held for Future Use, net of accumulated depreciation - 1977, $3; 1976, $3 22,740 21,147 Net Utility Plant 4,339,181 4,060,819 Other Property and Investments Nonutility Property, net of accumulated depreciation-1977, $183; 1976, $380 6,379 6,535 Investments in and Advances to Subsidiaries (note 2) 135,535 117,354 Total Other Property and Investments 141,914 123,889 Current Assets Cash (note 3) 23,746 26,728 Accounts Receivable, net of accumulated provision for doubtful accounts-1977, $4,378; 1976, $4,039 179,064 168,604 Unbilled Revenues 101,520 99, 113 Fuel, at average cost 127,271 102,570 Underrecovered Electric Fuel Costs 8,511 Underrecovered Gas Costs 7,965 Materials and Supplies, at average cost 16,651 15,801 Prepayments 5,458 2,367 Total Current Assets 470,186 415,183 Deferred Debits Gross Receipts Tax 86,437 96,397 Electric Fuel Costs 55,893 43,492 Unamortized Debt Expense 26,309 2,241 Extraordinary Property Losses 5,577 6,761 Total Deferred Debits 174,216 148,891 Total $5,125,497 $4,748,782 See Summary of Significant Accounting Policies and Notes to Financial Statements.

26

Liabilities 1917 1976 (Thousands of Dollars)

Capitalization Common Equity Common Stock (see statement. page 29) $ 919,752 $ 900,384 Premium on Capital Stock 557 550 Paid-In Capital 26,065 26,065 Retained Earnings Reinvested in Business (note 4) 651,885 596,745 Total Common Equity 1,598,259 1,523,744 Preferred Stock (see statement, page 29) 589,994 559,994 Total Stockholders' Equity 2,188,253 2,083,738 Long-Term Debt (see statement, page 30) 1,980,897 1,894,210 Total Capitalization 4,169,150 3,977,948 Current Liabilities Long-Term Debt due within one year (see statement, page 30) 5,816 37 ,136 Commercial Paper (note 5) 96,892 4,700 Accounts Payable 67,126 66,457 Taxes Accrued, including gross receipts tax- 1977, $281 ,326; 1976, $257,498 304,625 276,410 Deferred Income Taxes (note 1) 56,639 39,991 Interest Accrued 31,499 33,1 83 Gas Purchased 30,375 27,202 Overrecovered Gas Costs 15,798 Other 33,448 31,432 Total Current Liabilities 626,420 532,309 Deferred Credits Accumulated Deferred Income Taxes (note 1) 205,214 147,130 Accumulated Deferred Investment Tax Credits (note 1) 117,312 83,735 Other 7,401 7,660 Total Deferred Credits 329,927 238,525 Commitments and Contingent Liabilities (note 7)

Total $5,125,497 $4,748,782 27

Statement of Retained Earnings Reinvested in Business For the Years Ended December 31 , 1977 1976 (Thousands of Dollars)

Balance January 1 $596,745 $540,041 Add Net Income 214,242 204,024 Total 810,987 744,065 Deduct Cash Dividends Preferred Stock at required annual rates 43,184 39,462

$1.40 Dividend Preference Common Stock 1,881 1,881 Common Stock 113,735 103,609 Total Cash Dividends 158,800 144,952 Capital Stock Expenses 302 2,368 Total Deductions 159,102 147,320 Balance December 31 (note4) $651,885 $596,745 Statement of Changes in Financial Position For the Years Ended December 3 1, 1977 1976 (Thousands of Dollars)

Source of Funds:

Net Income $214,242 $204,024 Non-cash Items:

Depreciation 150,195 135,833 Amortization of Nuclear Fuel 5,848 20 Amortization of Gross Receipts Tax 9,960 9,182 Amortization of Deferred Electric Fuel Costs

• 5,208 5,208 Provision for Deferred Income Taxes-net 58,084 44,302 Investment Tax Credit Adjustments -net (note 1) 33,577 49,966 Allowance for Funds Used During Construction (49,540) (43,547)

Equity in Net Earnings of Subsidiaries (l,387) (434)

Other 1,880 781 Total from operations 428,067 405,335 Proceeds from sales of:

Long-Term Debt 183,714 132,526 Preferred Stock 29,942 48,163 Common Stock 19,136 44,086 Total Security Sales 232,792 224,775 Total Funds Provided $660,859 $630,110 Application of Funds:

Additions to Utility Plant, excluding allowance for funds used during construction $381,135 $307,029 Investments in and Advances to Subsidiaries 16,794 28,877 Reductions of Long-Term Debt 121,738 190,504 Cash Dividends 158,800 144,952 Deferred Electric Fuel Costs 17,609 3 ,278 Miscellaneous 3,891 3,135 Total Funds Applied 699,967 677,775 Changes in Working Capital:

Short-Term Debt-(lncrease) Decrease (92,192) 5,300 Other (net)- Increase (Decrease) 53,084 (52,965)

Net Decrease in Working Capital (39,108) (47 ,665)

Total Funds Applied and Changes in Working Capital $660,859 $630,110 See Summary of Significant Accounting Policies and Notes to Financial Statements.

28

Statement Current Refundin g of Capital Stock Outstanding Redemption Pri ce Restri cted Pri or to December 31 . Shares 1977 1976 Per Share (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 $]03.00 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 25,000 103.00 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 50,000 106.00 7.52 % 500,000 50,000 50,000 106.00 8.08% 150,000 15,000 15,000 106.00 7.80% 750,000 75,000 75 ,000 106.00 7.70% 600,000 60,000 60,000 108.49 April 1, 1978 12.25% (note B) 350,000 35,000 35,000 112.00 February 1, 1985 8.16% (1977) 300,000 30,000 108.90 October 1. 1982 Unissued-2,500,058 shares

$25 par value-authorized 10,000,000 shares Series issued:

9.75% 1,600,000 40,000 40,000 27.50 January 1, 1981 8.70% (1976) 2,000,000 50,000 50,000 27.00 October 1, 1981 Unissued-6,400,000 shares Total Cumulative Preferred Stock (note C) $589,994 $559,994 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) $919,752 $900,384 Common Stock (no par)-authorized 100,000,000 shares (note E): issued and outstanding as of December 31 ,

1977, 59,805,916 shares (830,169 shares issued for $19,368 in 1977 and 2,452,587 shares issued for

$44,510 in 1976)

Notes:

A -Prior to the date specified, none of the shares of each C -As of December 31 , 1977 the annual dividend require-such series may be redeemed, other than through the opera- ment on Preferred Stock was $44,917 ,000 and the em-tion of a sinking fund, through refunding of such shares by bedded dividend cost was 7.70%.

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

on liquidation or dissolution, to twice as much as each share B - On February 1, 1980 and annually thereafter not less of Common Stock.

than 17,500 shares or more than 35,000 shares must be re-deemed through the operation of a sinking fund at a redemp - E -lncludes 1,225,412 shares of Common Stock reserved tion price of $100 per share plus accumulated and unpaid for possible issuance under the Automatic Dividend Rein-dividends to the date of such redemption . The sinking fund vestment Plan and 336.730 shares for possible issuance requirement to redeem not less than 17 ,500 shares is under the Company's Tax Reduction Act Employee Stock cumulative. Ownership Plan.

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

29

Statement of Long-Term Debt December 3 1, 1977 1976 1977 1976 First and Refunding (Thousa nds of Dollars) Debenture Bonds unsecured (Thousands of Dollars)

Mortgage Bonds 4%% March 1, 1977 31 ,000 Series (note A) 4 3/4% October 1, 1981 33,010 34,080 2'l"s% June 1, 1979 $ 53,430 $ 54,740 4 %% October 1. 1983 28,008 28,818 23/4% May 1, 1980 19,060 53/4% June 1, 1991 45,599 46,752 18,795 3 V4% October 1, 1983 22,630 22,833 7V4% December 1, 1993 32,438 32,931 50,000 50.000 9 % November 1, 1995 63,000 65,935 3V4% May 1, 1984 73/4% August 15, 1996 65,308 67 ,078 43/s% November 1, 1986 50,000 50,000 83/4% November 1, 1996 49,187 51.461 4 'l"s% September 1, 1987 60,000 60,000 6 % July 1, 1998 18,195 18,195 4%% August 1, 1988 60,000 60,000 334,745 376,250 Total Debenture Bonds 5Vs% June 1, 1989 50,000 50,000 Other Long-Term Debt 43/4% September 1, 1990 50,000 50,000 51123 Note due serially from 43/s% August 1, 1992 40,000 40,000 May 15, 1977 to 43/s% June 1, 1993 40,000 40,000 3,120 3,600 November 15, 1983 4%% September 1, 1994 60,000 60,000 Total Long-Term Debt 43/4% September 1, 1995 60,000 60,000 principal amount 6 V4% June 1, 1997 75,000 75,000 outstanding (note C) 1,986,951 1,931 ,084 7 % June 1, 1998 75,000 75,000 Less amount due within 7%% April 1, 1999 75,000 75,000 one year (note D) 5,816 37,136 9Vs% March 1, 2000 98,000 98,000 Long-Term Debt excluding 83/s% A May 15, 2001 69,300 69,300 amount due within one 7%% B November 15, 2001 80,000 80,000 year (note D) 1,981,135 1,893,948 7V2% C April 1, 2002 125,000 125,000 Add Net Unamortized Premium (Discount) (238) 262 8V2% D March 1, 2004 90,000 90,000 12 % E October 1, 2004 (note B) 12,730 98,000 Long-Term Debt and Net 83/4% F April 1, 2006 60,000 60,000 Gnamortized Premium 8.45% G September 1, 2006 60,000 60,000 or Discount $1,980,897 $1,894,210 6.30% Pollution Control D - The aggregate principal amount of requirements for A October 1, 2006 14,300 14,300 sinking funds and maturities for each of the five years follow-8 V4% H June 1, 2007 125,000 ing December 31 , 1977 is as follows:

8Vs% I September 1, 2007 59,900 7,463 7,463 Sinking 8 % June 1, 2037 7,538 Year Funds Maturities Total 5 % July 1, 2037 7,538 Total First and Refunding (Thousa nds of Dollars)

Mortgage Bonds $1,649,086 $1,551 ,234 1978 $ 5,336 $ 480 $ 5,816 1979 9,559 53,730 63,289 Notes: 1980 9,300 18,940 28,240 A- The Company's Mortgage, securing the First and Refund- 1981 8.300 31,480 39,780 ing Mortgage Bonds, constitutes a direct first mortgage lien 1982 8,300 480 8,780 on substantially all property and franchises.

$40,795 $105.110 $145,905 B- Reduced principally as a result of a tender offer in May 1977 at 127.75% of principal amount. For sinking fund purposes. certain First and Refunding C-As of Dec ember 31 , 1977 th e annual interest re- Mortgage Bond issues require annually the retirement of the quirement on Long-Term Debt was $132,960,000 of which aggregate of $] 6,150,000 principal amount of bonds or the

$108,793,000 was the requirement for First and Refunding utilization of bendable property additions at 60% of cost and Mortgage Bonds. The embedded interest cost on Long- the porti on expected to be met by property additions has Term Debt was 6.82%. been excluded from the tabl e above. Also, the Company may, See Summary of Significant Accounting Policies and Notes at its option. retire additional am ounts up to $6,200,000 an-to Financial Statements. nually through sinking funds of certain debenture bonds.

30

Notes Deferred Credits Additional tax depreciation 34,694 28,002 to Financial Repair allowance property 5,034 18,239 Statements Gross receipts tax 1,281 1,653 Electric fuel costs 5,951 (925)

Loss on reacquired debt 11 ,598

1. Federal Income Taxes Other (474) (2,667)

A reconciliation of reported Net Income with pre-tax income 58,084 44,302 and of Federal income tax expense with the amount com- $ 44,381 Total $ 74,732 puted by multiplying pre-tax income by the statutory Federal income tax rate of 48% is as follows:

1977 1976 The balance of investment tax credits not utilized in 1977 in the amount of $12,000,000 is available as a carry-(Tho usands of Dollars) over to future years. The Tax Reduction Act of 1975 provides Net Income $214,242 $204,024 that, for the year 1976, investment tax credits can be utilized Federal income taxes included in: to offset 100% of tax liability and, for 1977, 90% of tax liability Operating income: before investment credit.

8,660 6,033 The Company has a Tax Reduction Act Employee Current provision Stock Ownership Plan (TRASOP) under provisions of the Tax

• Provision for deferred Reduction Act of 1975, as amended. Such provisions permit income taxes-net 74,732 44,381 the Company to elect an additional 1% investment tax credit if Investment tax credit the Company transfers to a TRASOP an equivalent amount of adjustments-net 37 ,577 49,966 its common stock or cash for the purchase of shares of 112,309 94,347 common stock and thereby fund a TRASOP without cost.

Total deferred Such additional credits amounted to $4 ,000 ,000 and Total included in operating $610,000 for the years 1977 and 1976, respectively.

income 120,969 100,380 Miscellaneous other 2. Investments in income-net 73 232 and Advances to Subsidiaries Total Federal income Investments in and advances to subsidiaries (including the tax provisions 121,042 100,612 Company's equity in undistributed earnings or losses) are summarized as follows:

Total 335,284 304,636 Earnings of December 31 , 1977 1976 subsidiaries-net (595) (726) (Thousands of Dollars)

Pre-tax income $334,689 $303 ,910 Transport of New Jersey Investment $ 10, 192 $ 10,019 Tax expense at 48% of Energy Terminal Services pre-tax income $160,651 $145,877 Corporation Adjustments to pre-tax income, Investment 3,098 3,097 computed at 48%, for which Advances 75,085 69,598 deferred taxes are not pro- Energy Pipeline Corporation vided under current Investment 1,000 1,000 rate-making policies: Advances 396 400 Tax depreciation in excess of Energy Development book depreciation (1 ,545) (6,126) Corporation Allowance for funds used Investment 4,092 2,879 during construction (23 ,779) (20,902) Advances 41 ,652 30,356 Overhead costs capitalized (6,117) (4,652) Eascogas LNG , Inc.

Other 1,868 (600) Investment 10 5 Total (29,573) (32,280) PSE&G Research Corporation Amortization of deferred Investment 10 tax items (10,036) (12,985) Total $135,535 $117,354 Total (39,609) (45,265)

The Company owns all the outstanding capital stock of Total Federal income tax Energy Terminal Services Corporation (ETSC). An LNG ter-provisions $121 ,042 $100,612 minal under construction on Staten Island is ETSC's only

• Represents the tax effects of substantial asset The Company has made significant ad-th e following items: vances to ETSC through interest bearing notes. PSE&G is Current Liabiliti es negotiating for the importation of LNG from foreign sources and plans to use the terminal as the port of entry.

Unbilled revenues $1 ,155 $7 ,662 Construction on the terminal has been suspended until Unbilled fuel costs 15,493 (7 ,583) the necessary regulatory approvals, authorizations and per-16,648 79 mits are received as well as a supply of LNG for the operation 31

of the terminal facilities. Th e ultimate realization of the carry- Pension costs for the past two years, including contribu-ing value of this investm ent may depend , among other tions of $17,126,000 in 1977 and $15,550,000 in 1976 net of things, upon the Company's ability to find alternate uses for payments to pensioners and expenses, were as follows:

the facilities and the treatment granted by the BPU for rate-making purposes. 1977 1976 (Th ousa nds of Dollars)

Any loss the Company may incur, if the above condi -

tions are not resolved, is not presently determinable; however, Operating Expenses $29,856 $27 ,398 in the opinion of the manag ement of the Company su ch loss, Utility Plant and Other if any, would not have a material effect on the financial posi- Accounts 8,991 8,606 tion of the Company or the results of its operations. Until Total Pension Costs $38,847 $36,004 such time as these conditions are met, the Company will con -

tinue its policy of not recognizing any income on thi s invest-ment. See also subsidiary corporations - page 22. 7. Commitments and Contingent Liabilities

3. Compensating Balances The Company has substantial commitments as part of its Cash at December 31 , 1977 and December 31 , 1976 con- construction program as well as commitments to obtain suf-sisted primarily of compensating balances under informal ficient sources of fuel for electric generation and adequate arrangements with various banks to compensate them for gas supplies. Construction expenditures, excluding AFDC, of services and to support lines of credit of $190,650,000 and $3.5 billion are expected to be incurred during the years 1978

$189,250,000, respectively. There are no legal restrictions through 1982. For detailed information see Construction Ex-placed on the withdrawal or other use of these bank balances. penditures - page 6, Nuclear Generating Facilities - page 8, Fuel for Electric Generation - page 9, and subsidiary cor-

4. Retained Earnings porations - page 19.

and Dividend Restrictions As of December 31 , 1977, the Company's expenditures Certain indentures supplemental to the First and Refunding applicable to the Atlantic Generating Station {Atlantic) were Mortgage, certain of the Debenture Bond indentures and the $215 million. This amount excludes AFDC of $36 million Restated Certificate of Incorporation , as amended, contain and advances of $7 million for nuclear fuel enrichment. Be-provisions relating to the payment of dividends on both cause of decreases in projected demand and uncertain rate Common Stock and $1.40 Dividend Preference Common of future growth, the Company requested and received a Stock and provisions relating to the use of retained earnings. three-year delay in the delivery of the units by Offshore Power The amount of retained earnings available for the payment of Systems. The Company and OPS also agreed that PSE&G's dividends as of December 31 , 1977 was $641 ,885,000. additional liability, in the event the contract is terminated on or before December 29, 1979, was approximately $60 million

5. Short-Term Obligations as of December 29, 1977 and PSE&G will continue to make Commercial paper represents the Company's unsecured provisional monthly payments of $2.5 million over the next bearer promissory notes sold to dealers at a discount hav- two years. These payments are being made toward the ulti-ing terms of nine months or less. Average interest rates and mate completion of the project in anticipation that the neces-average and maximum outstanding balances of short-term sary licenses and permits will be obtained. However, in the obligations are as follows: event of cancellation , they will serve to discharge our termina-1977 1976 tion liability.

(Thousa nds of Dollars) No positive assurance can be given that the necessary Maximum amount outstanding licenses and permits will be obtained. If, as the result of future at any month-end $96,892 $50,650 developments this project is not completed , the ultimate Daily average outstanding (A) $32,457 $ 6,439 realization of our investment in these facilities, as with any Weighted average annual major project of this type, will depend upon the sale of the interest rate (B) 5.83% 5.58% Company's interests under the OPS contra ct and the treat-Weighted average interest rate ment that is accorded the investment for rate-making pur-for obligations outstanding poses. For a further discussion of Atlantic , see Page 8.

at year end 6.66% 4.63% Amendments adopted in 1975 to the Price-Anderson liability provisions of the Atomic Energy Act of 1954 became (A) Computed by multiplying the prin cipal amounts of effective in August 1977. Under that Act, there is a limit of short-term obligations by days outstanding and dividing the $560 million on each nuclear generating unit in the United sum of the products by number of days during the period. States for public liability claims that could arise from a nu -

(B) Computed by dividing short-term interest expense by the clear incident. In the event of any such incident, all owners of daily average short-term obligations. nuclear generating units licensed to operate would be re-quired to contribute toward satisfaction of such claims. The

6. Pension Plan own ers insure against this exposure by purchasing th e The Company has a non-contributory, trusteed plan cover- maximum availabl e private insurance (presently $140 mil -

ing all employees who complete one year of service. As of lion), and the remainder of $420 million is provided by indem-December 31 , 1977 the unfunded prior service cost was nity agreements with the Nuclear Regulatory Commission approximately $291,4 76,000 and vested benefits were ap- (NRC). Under the 1975 amendments to these provisions, proximately $312,385,000. The market value of the plan the $420 million of NRC indemnity started to decrease in Aug-assets, $130,667,000 at December 31 , 1977, increased by ust 1977 under a new system of retrospective premiums to

$11,486,000 as a result of contributions (net of pension pay- be assessed against the owners of nuclear reactors after a ments), investment income and a net decline in market value. nuclear incident if the damages exceed private insurance. In The Company's annual contribution is actuarially determined the event of such an incident, the Company, to the extent of and provides for full funding by December 31 , 2001. its ownership participation, could be assessed at the rate of 32

$5 million for each licensed reactor owned, with a maximum ner that historic costs and returns on investments are being assessment of $10 million per reactor in a year. recovered in current rates. In compliance with reporting In a proceeding to which the Company is not a party, requirements of the Securities and Exchange Commission, the United States District Court for the Western Distri ct of estimated replacement cost information is disclosed in the North Carolina issued a decision on March 31 , 1977 to the Company's annual report to the SEC on Form 10-K.

effect that th e $560 million limitation on liability described above is unconstitutional. This decision has been appealed to 9. Accounting for Leases th e Supreme Court of the United States. At this time, it is not The Company has certain leases for property and equipment possible to determine what effect the decision might have on which meet the criteria for capitalization, but in accordance th e Company if it should be uph eld on appeal. A contention with rate -making treatment are accounted for as operating that the limitation on liability is unconstitutional has also been leases. The capitalization of such leases would not have a made in an action against the Company and certain other significant effect on assets, liabilities or operating expenses.

utilities, which was commenced on October 6, 1977.

The Company is a m ember of Nuclear Mutual Limited 10. Other Matters (NML) which provides insurance coverages, up to $175 mil- Information regarding rate relief appears on page 6 and in-lion, for property damage to nuclear generating facilities of formation describing financing during the year 1977 and m ember companies. In the event of losses at any plant cov- subsequent to December 31 , 1977 appears on page 7, and ered by NML, the Company would be subject to a maximum information regarding discussions with New Jersey Natural assessment of fourteen times its annual premium, which cur- Gas Company as to a possible merger appears on page 3.

rently would not be material for a single assessment.

The Company, under an agreement entered into in May 11. Financial Information 1972, agreed to provide a limited guaranty of not more than by Business Segments

$76,000,000 of the legal obligations of the Company's un- Electric Gas Total consolidated subsidiary, Transport of New Jersey (Transport) (Thousands of Dollars) under its pension plan in the event Transport failed to meet such obligations, limited to pension benefits accrued to the For the Year Ended December 31, 1977 date of the agreement. As of December 31 , 1977, the actuar- Operating Revenues $1,470,11 8 $562,677 $2,032,795 ially computed value of the Company's obligation under th e Operating Income* $ 250,385 $ 46,588 $ 296,973 guaranty was approximately $49,900,000. Under an interpre- Depreciation $ 109,093 $ 38,559 $ 147,652 tation of th e Employee Retirement Income Security Act of Additions to Utility 1974, the Company could be liable to the Pension Benefit Plant (excluding Guaranty Corporation, a corporation established within the AFDC) $ 351,762 $ 29,373 $ 381,135 United States Department of Labor, for deficiencies in plan assets if the subsidiaries' pension plans were terminated. As December 31 , 1977 of December 31 , 1977 vested benefits of the Company's sub- Net Utility Plant $3 ,779,534 $559,647 $4,339,18 1 sidiaries' pension plans exceeded the fund *assets by approx- Gas Exploration imately $76,000,000. Any payments made under the guar- Subsidiary and anty would have the effect of reduci ng the Company's poten- LNG Program 125,333 125,333 tial liability to the Pension Benefit Guaranty Corporation .

Other Corporate Assets 660,983 Total Assets $5,125,497

8. Replacement Cost (Unaudited)

The impact of the rate of inflation experienced in recent years *Net of Federal has resulted in replacement cost of productive capacity which Income Tax $ 97,961 $ 23,008 $ 120,969 is greater than the historical cost of such assets as reported in the Company's financial statements. It is anticipated that the

12. Selected Quarterly Data (Unaudited) actual cost of replacing productive capacity, when incurred, The information shown below in the opinion of the Company will be recovered through depreciation recognized, together includes all adjustments, consisting only of normal recurring with a return on the unrecovered investment thereon , in accruals, necessary to a fair presentation of such amounts.

future rates allowed by regulatory bodies in the same man- Due to the seasonal nature of the business , quarterly amounts vary significantly during the year.

Calendar Quarter Ended March 31 , June 30, September 30, December 31 ,

1977 1976 1977 1976 1977 1976 1977 1976 (Thousands)

Operating Revenues $542,685 $515,138 $460,862 $426,634 $498,290 $427 ,676 $530,958 $500,087 Operating Income 75,918 74,667 68,356 63,169 81 ,588 69,375 71 ,111 81 ,227 Net Income 57,218 52,147 51 ,610 42,158 57,647 49,392 47,767 60,327 Balance Available for Common Stock 46,130 42,147 40,522 32,158 46,458 39,222 36,067 49,240 Earnings per Average Share of Common Stock $.78 $.74 $.69 $.55 $.78 $.66 $.61 $.84

.Average Shares of Common Stock Outstanding 58,977 56,986 59,097 58,626 59,289 58,743 59,604 58,866 33

Operating Statistics  % Annual lncrease-1977 compared with (000 omitted wh ere applicabl e) 1977 1976 1976 1967 Electric Revenu es from Sal es of Electri city (a)

Resid ential $ 492,473 $ 443 ,531 11.03 13.70 Commercial 531.118 474 .791 11.86 15.48 Industrial 414,058 367,470 12.68 13.82 Publi c Street Lightin g 27,622 25,863 6.80 9.54 Total Revenu es from Sal es to Custom ers 1,465,271 1,311 ,655 11.71 14.24 Interd epartm enta l 1.916 1,585 20.88 15.46 Total Revenu es from Sal es of El ectri city 1,467,187 1,313,240 11.72 14.25 Other Electri c Revenu es 2,931 2,837 3.31 23.97 Total Operating Revenu es $1,470,118 $1 ,316,077 11.70 14.26 Energy Adjustment Revenu es (includ ed above) $ 257,902 $ 307 ,530 (16.14) 29.56 Sales of El ectri city - kil owatth ours (a)

Residential 7,769,629 7,711 ,953 .75 4.21 Com mercial 9,747,908 9,514,574 2.45 6.27 Industri al 10,627,734 10,472,054 1.49 1.01 Publ ic Street Lighting 259,277 259,151 .05 1.66 Tota l Sa les to Custom ers 28,404,548 27 ,957 ,732 1.60 3.42 Interdepartm ental 38,331 34,996 9.53 4.36 Total Sal es of Electri city 28,442,879 27 ,992,728 1.61 3.42 Kilowatthours Produ ced, Purchased, and Interchanged - net 30,771,719 30,376, 187 1.30 3.48 Load Fa ctor 50.93 55.9%

Heat Rate - Btu of fu el per net kwh generated 10,677 10,593 .79 .23 Net Installed Generating Capa city at December 31 - kilowatts 9,247 8,741 5.79 6.06 Net Peak Load - kilowatts (60-minute integrated) 6,895 6,190 11.39 4.82 Cooling Degree Hours 8,269 6,513 26.96 6 .50 Average Annual Use per Residentia l Customer - kwh 5,403 5,395 .15 3.48 Meters in Service at Dece mber 31 1,704 1,697 .41 .58 Gas Revenu es from Sal es of Gas (a)

Residential $ 344,444 $ 342,524 .56 9.23 Commercial 137,811 140,809 (2.13) 12.38 Industrial 78,474 68,341 14.83 12.84 Street Lig hting 178 159 11.95 8.74 Total Reven ues from Sales to Custome rs 560,907 551 ,833 1.64 10.38 Interdepartm ental 572 476 20.17 10.23 Total Revenu es from Sa les of Gas 561,479 552,309 1.66 10.38 Oth er Gas Revenu es 1,198 1,149 4.26 22.85 Total Operating Revenu es $ 562,677 $ 553,458 1.67 10.40 Raw Materia ls Adj ustment Revenu es (included above) $ 113,787 $ 154,526 (26.36) 26.18 Sa les of Gas - th erms (a)

Residentia l 980,570 1,045,627 (6.22) .82 Commercia l 432,810 468,761 (7.67) 3.56 Industrial 329,211 307,949 6.90 .97 Street Lighting 376 389 (3.34) ( 1.84)

Tota l Sa les to Cu stomers 1,742,967 1,822 ,726 (4.38) 1.46 Interd epartm enta l 2,064 1,764 17.01 (.10)

Tota l Sales of Gas 1,745,031 1,824,490 (4.36) 1.45 Gas Produ ced and Purchased - therms 1,811,019 1,895,041 (4.43) 1.39 Effective Daily Capa city at December 3 I - th erms 18,933 19,449 (2.65) 4.66 Maximum 24-h our Gas Send out - th erms 14.006 12,803 9.40 4.16 Heating Deg ree Days (a) 5,155 5,349 (3.63) (.37)

Averag e Annual Use per Residential Custom er - therms 862 924 (6.71) .45 Meters in Service at December 31 1,350 1,354 (.30) :37 (a) Starting in 1973 . revenues and sal es by c ustom er c lassificatio n inc lud e these record ed sa les. heating degree days are also repo rted o n a calend1 acc rued and unbilled do ll ar amo unts and sa les vo lum es from m eter reading year basis effective with 1973. Fo r years prio r to 19 73. heatin g degree da 34 date to the end o f the calendar year. To better matc h temperature effects o n rem ain o n a sales-year ba sis.

1975 1974 1973 1972 1967

$ 413 ,005 $ 364,674 $ 274,974 $ 238,025 $ 136,434 429,428 377 ,184 264,450 230, 176 125,878 341,749 336,250 216,543 188,667 113,456 23 ,375 20,473 17 ,086 15,773 11 ,107 1,207 ,557 1,098,581 773,053 672,641 386,875 1,573 1,183 750 646 455 1,209, 130 1.099,764 773,803 673 ,287 387,330 4,358 1,201 1,305 1,546 342

$1 ,213,488 $1, I 00,965 $ 775, 108 $ 674 ,833 $ 387 ,672

$ 419, 154 $ 414 ,798 $ 141 ,081 $ 107,582 $ 19,354 7,598,964 7,514 ,365 8.008,127 7,399,963 5, 144,861 8,994,855 8,687,964 8,9 16,829 8,289,066 5,308,9 14 10,144,917 11,244, 117 11 ,830,307 11 ,375,579 9,613 ,821 256,755 253,395 249,837 246,496 219,977 26,995,491 27 ,699 ,841 29,005 ,100 27,311 ,104 20,287,573 39,910 31 ,072 29,160 25,807 25,018 27 ,035,40 1 27 ,730,913 29,034 ,260 27,336,911 20,312,591 29,255,628 29,730,774 31 ,164,926 29,509,136 21 ,863 ,292 53 .3% 53.7% 52.2% 54.2% 57 .9%

10,582 10,779 10,695 10,685 10,439 8,829 8,892 8,306 7,836 5,132 6,270 6,316 6,816 6,201 4,308 6,543 7,501 10,911 7,287 4,407 5,348 5,312 5,703 5,307 3,836 1,689 1,683 1,672 1,656 1,609

$ 259,095 $ 220.364 $ 186,325 $ 183,953 $ 142,428 102,656 86,463 71,533 70,953 42 ,905 54,369 46,971 42 ,624 40,381 23,454 116 94 89 88 77 416,236 353 ,892 300,571 295,375 208,864 647 481 464 552 216 416,883 354 ,373 301 ,035 295,927 209 ,080 154 535 117 143 153

$ 417 ,037 $ 354,908 $ 301 ,152 $ 296,070 $ 209,233

$ 106,795 $ 62,448 $ 39,124 $ 34 ,9 13 $ 11 , 124 968,487 977,994 977 ,468 1,042,793 903 ,917 447,600 459 ,074 457 ,955 485,358 304,933 344.987 407.840 494,320 494.454 298,940 404 428 444 449 451 1,76 1,478 1.845.336 1,930,187 2,023 ,054 1,508 ,241 3,204 3,088 3,472 4,463 2,084 1,764.682 1.848,424 1,933 ,659 2,027.517 1,510,325 1,823.191 1,913 ,826 2,002.206 2,1 12,844 1,577,412 19,575 19.324 17 ,668 16,999 12,011 11 ,077 11 ,763 12,341 12, 125 9,320 4,653 4,629 4,245 4,879 5,348 862 872 873 932 824

' 1,355 1,352 1.347 1,338 1,301 35

Financial Statistics (000 omitted where applicable) 1977 1976 Condensed Statement of Income (a) Amount  % Amount  %

O perating Revenu es Electri c Sl,470,118 72 $1,316.077 70 Gas 562,677 28 553.458 30 Tota l O perating Revenues 2,032.795 100 1,869.535 100 Operating Expenses Fu el for Electri c Generati on 416.760 21 362.257 20 Interc hanged Powe r - net 120,041 6 121,917 7 Gas Purchased and Material s for Gas Produ ced 257.897 13 261 .190 14 Oth er Operation Expenses 253,831 12 227.395 12 Maintenance 124,876 6 99.617 5 Depreciation 147,652 7 133.087 7 Taxes Other than Federal Inco m e Taxes 293,796 14 275.254 15 Federal Incom e Taxes 120,969 6 l 00.380 5 Total Operating Expenses 1,735,822 85 1,581 .097 85 Operating Income Electric 250,385 13 236,359 12 Gas 46,588 2 52.079 3 Total Operating Income 296,973 15 288.438 15 Al lowance for Funds Used During Construction (Debt and Equity) 49,540 2 43.547 3 Other Inco m e - net 1,447 2.654 Interest Charges (133,718) (7) (130,615) (7)

Income before cumulative effect of a change in accounting m ethod 214,242 10 204 ,024 11 Cum ul ative effect to January 1. 1973 of accruin g estimated unbil led revenu es of $41.488, net of related taxes Net Income 214,242 10 204,024 1I Preferred Stock Dividends 45,065 2 41.257 2 Balance Availabl e for Common Stock $ 169, 177 8 $ 162.767 9 Shares of Common Stock Outstanding End of Year 59.806 58.976 Averag e for Yea r 59.243 58.308 Earnings per average share of Common Stock $2.86 $2.79 Dividends Paid per Share $1.92 $1.78 Payout Ratio 67% 64%

Rate of Return on Average Common Equity (c) 10.96% 11.18%

Ratio of Earnings to Fixed Charges Before Income Taxes (d) 3.52 3.34 Book Value per Common Share (e) $25.57 $24.71 Utility Plant $5,654,097 $5.255.286 Accumulated Depreciation and Amortization $1,314,916 $1.194.467 Capitalization Mortgage Bonds $1,647.445 40 $1.549.579 39 Debenture Bond s 330,812 8 341.511 9 Oth er Long-Term Debt 2.640 3,120 Tota l Lo ng -Term Debt 1,980,897 48 1.894.210 48 Preferred Stock 589,994 14 559,994 14

$1.40 Divid end Preference Common Stock and Common Stock 919,752 22 900.384 22 Premi um on Capital Stock 557 550 Paid-In Capital 26,065 26.065 l Retained Ea rnin gs 651,885 16 596.745 15 Tota l Commo n Equi ty 1,598.259 38 1.523.744 38 Tota l Capitalization $4, 169.150 100 $3.977.948 100 (a) See Summary of Significant Accounting Policies, page 23, and Notes to (c) Balan ce available for S 1.40 Divid end Preference Com m on Stock a Financia l Statements, page 31. Com m on Stock divid ed by th e average of beginning and end -of-year Tot (b) Excludes non-recurring special credit equal to S.41 per share. Common Equity.

36

1975 1974 1973 1972 1967 Am ount  % Amount  % Amount  % Amount  % Amount  %

1.213.488 74 $1 , 100,965 76 $ 775 .108 72 $ 674,833 70 $ 387,672 65 417.037 26 354.908 24 301 ,152 28 296,070 30 209.233 35 1,630.525 100 1.455.873 100 1.076.260 100 970.903 100 596,905 100 339.296 21 374.519 26 221.724 21 171.638 18 73.440 12 139.016 9 81.920 6 19,376 2 31 ,737 3 (1 ,528) 198.653 12 144,020 10 119.828 11 117,910 12 66,075 11 201 ,865 12 192.168 13 174.108 16 168,138 17 109,867 19 83.494 5 91,467 6 88.257 8 80,215 8 47 ,362 8 122.634 8 106,683 7 98.239 9 91 ,037 10 58,922 10 240,967 15 213,576 15 167 ,545 16 132.827 14 85,056 14 54,368 3 21,061 1 3.252 (991) 32,276 5 1,380.293 85 1.225,414 84 892,329 83 792.511 82 471,470 79 217.429 13 187 ,593 13 152,492 14 141 ,181 14 90,969 15 32 .803 2 42 ,866 3 31.439 3 37 ,211 4 34,466 6 250.232 15 230,459 16 183.931 17 178,392 18 125.435 21 43.325 3 56,027 4 56.529 5 45,011 5 5.289 1 1,758 (2.037) 703 (5, 166) ( 1) 2.384 (136,709) (8) (130,609) (9) (109,680) (10) (102,034) (10) (44,324) (7) 158,606 10 153,840 11 131,483 12 116.203 12 88,784 15 18,540 2 158,606 10 153,840 11 150.023 14 116,203 12 88,784 15 36.008 2 31.813 3 30.761 3 21 , 117 2 7,603 1 122.598 8 $ 122,027 8 $ 119.262 11 $ 95,086 10 $ 8 1,181 14 56.523 52.531 47.861 43 .861 31 ,004 54.513 51.918 45 .680 4 1,541 31 ,004

$2.25 $2.35 $2.20(b) $2.29 $2.62

$1.72 $1.72 $1.72 $1 .70 $1.55 112 76% 73% 78% 74% 59%

9.01 % 9.68% 8.87% 9.37% 13.17%

2.56 2.33 2.22 2.08 3.74

$24.02 $24 .25 $24.14 $23 .48 $19.21 4.920.768 $4 .636.344 $4,369,141 $3 ,999,474 $2 .375,247 1.078. 124 $ 965.160 $ 916,346 $ 831 .673 $ 536.934 1.418.854 36 $1,422 .525 38 $1,236.364 36 $1.239.602 39 $ 752.026 42 380.619 10 389.640 10 420.387 12 430.857 14 247.421 14 153.600 4 153. 600 4 103.600 3 1.953.073 50 1.965.765 52 1.760.351 51 1,670,459 53 999,447 56 509.994 13 434.994 12 434.994 13 374.994 12 149.994 8 855.874 22 797.386 21 710.078 21 622.878 20 333.398 19 550 550 550 539 252 26.065 l 26.065 1 26.065 1 26.065 1 26.065 1 540.041 14 515.267 14 483.543 14 443.443 14 287,391 16 1.422.530 37 1.339.268 36 1.220.236 36 1,092 ,925 35 647 .106 36 i3 .885.597 100 $3 .740.027 100 $3 .415.581 100 $3 ,138,378 100 $1 ,796.547 100 N et Inco m e p lu s Inco m e Taxes. In vestm ent Tax C redi t s and Fixed (e) Total Co m m on Equ ity divid ed by year-end Comm o n Stock sha re s plus

~ rges divid ed by Fixed C harges. F ixed C harges in c lud e Interest o n doubl ed the $1.40 Divid end Preference Co mm on Stoc k shares.

g-Term and Sho rt -Te rm Debt and O th er Interest Expense.

37

Managem~nt's Discussion Other Operation Expenses and Analysis of the Increases since 1974 are due to higher costs of labor. serv-ices. and materials and supplies.

Statement of Income Maintenance The decrease in 1975 is primarily attributable to reduced The following factors had a significant effect on the Com-maintenance of gas turbine units due to a decline in their pany's results of operations for the periods indicated.

usage caused by the availability of less expensive nuclear Electric Operating Revenues energy and purchased power. The increases in 1976 and 1977 were principally due to maintenance at certain of the Com-Increases in electric operating revenues since 197 4 have pany's conventional steam generating stations. at the Peach been due principally to rate increases and greater sales in Bottom nuclear generating station. and for 1977 at the Salem 1976 and 1977. After a 3% decline in 1975, kilowatthour sales nuclear generating station. Also, for 1977, gas distribution have increased 4% and 2%, respectively, in 1976 and 1977.

maintenance rose principally due to the extremely cold These increases resulted from slightly improved economic weather at the beginning of 1977 and electric distribution conditions and higher than normal temperatures in the maintenance increased due to higher costs of labor, services, summer of 1977.

• and materials and supplies.

Gas Operating Revenues Depreciation Increases in gas operating revenues in the years 1975 and The increase in 1975 was due to an increase in depreciable 1976 were primarily attributable to rate increases, greater re-utility plant as Peach Bottom nuclear generating station and covery of increased raw material costs through the adjust-related transmission facilities, along with the Linden Synthetic ment clauses contained in the Company's rates, and a mod-Natural Gas Plant (Linden SNG). were placed in service in erate sales increase in 1976. The 1977 increase is attributable 1974. The increase in 1977 reflects depreciation on Unit to the 1976 increase in basic rates. Therm sales decreased 5%

No. 1 at Salem nuclear generating station which was placed in 1975, as the result of a warmer than usual heating season.

in service on June 30, 1977.

curtailments to interruptible customers, customer conserva-In accordance with rate orders effective November 1975 tion efforts and the economic slowdown. In 1976, therm sales and October 1976, the Company raised its depreciation rates.

showed an increase of 3% due to the extremely cold weather resulting in an increase of $7 ,600 ,000 in 1976 and during the last quarter of the year. Therm sales decreased in

$4,400,000 in 1977.

1977 by 4% due to the return to more normal weather condi-tions in the last three months of the year, conservation and Taxes Other than attrition of customers, and curtailments to commercial and industrial customers during the gas crisis in early 1977. Federal Income Taxes Taxes Other than Federal Income Taxes consist principally of the New Jersey gross receipts tax which varies in direct pro-Fuel for Electric Generation portion to electric and gas operating revenues.

and Interchanged Power - net In 1977, Pennsylvania enacted a gross receipts tax af-The Company belongs to the Pennsylvania-New Jersey- fecting PSE&G because of our jointly owned generating sta-Maryland Interconnection (PJM), and is therefore able to op- tions in that state. The tax, amounting to $7.2 million or 6~

timize its generation-interchange mix, using the lowest cost per share, is being challenged by the Company as to its con-energy available in the interconnection system at any given stitutionality.

time. Accordingly there can be fluctuations between Fuel for Also in 1977, the Company, after a successful court ap-Electric Generation and Interchanged Power - net. The total peal, reversed an accrual of $7.0 million or 6~ a share for of the two. however. represents the Company's aggregate Pennsylvania Public Utility Realty taxes applicable to years energy cost and is a better measure than the two items taken after 1974.

separately.

On this basis. total energy costs increased by 5%, 1% Federal Income Taxes and 11%, respectively. in 1975, 1976 and 1977. The moderate Increases in each period were due to greater pre-tax operat-increases of 1975 and 1976 reflect the most economical use ing income and a decrease in tax depreciation in excess of of the interchange, and greater generation by lower cost nu- book depreciation for which deferred taxes are not provided.

clear power. The increase in 1977 is principally due to a (See Note 1 of Notes to Financial Statements.)

higher unit cost for liquid fuel burned and the greater de-mand by our customers. Allowance for Funds Used During Construction (AFDC)

Gas Purchased and Materials The decrease in AFDC in 1975 was primarily due to Peach for Gas Produced Bottom and related transmission facilities and the Linden Although gas therm sales to the Company's customers de- SNG plant being placed in service during 1974. and the dis-creased 5% in 1975, the cost of gas purchased and materials continuance in the last half of 1975 of the accrual of AFDC for gas produced increased due to higher prices and the in- on a portion of Construction Work in Progress in accordance creased use of naphtha for the manufacture of synthetic with BPU rate orders. (See Summary of Significant Account-natural gas. The cost of gas purchased and materials for gas ing Policies.) The increase in 1977 resulted principally from a produced increased in 1976 due to higher prices and the greater level of Construction Work in Progress. offset some-greater sales volume. In 1977 this cost declined 1% due to the what by a transfer. on June 30, 1977, of Salem 1 to depreci-decrease in sales volume. able utility plant in service.

38

Total Interest Charges Net Income The increase in 1975 was principally due to the issuance of Regulatory accounting requirements followed by the Com-additional long-term debt. The decrease in 1976 was due to pany during the test operation of Salem 1 resulted in a benefit lower rates and prepayment of long-term debt. The 1977 in- to earnings of 32~ per share in 1977. Under these require-crease is attributable to greater amounts of short-term bor- ments, the Company received the benefit of revenues at the rowings outstanding at higher rates, and the issuance of addi- prescribed rates for the test generation and continued to re-tional long-term debt. cord AFDC. Operating expenses other than depreciation were charged to the costs of generation during the test period. The same accounting procedure used during test op-eration of Peach Bottom 2 and 3 resulted in a benefit to earn-ings of 21 ~ per share in 1974.

Form 10-K Available The Company is required by Securities and Exchange Com- Stockholders or other interested persons who wish to mission (SEC) regulations to file with that agency a Form have a copy of the Company's Form 10-K report may obtain 10-K annual report containing certain detailed finan cial and one without charge after March 31, 1978, by writing to the other data. There are no accounting differences between the Vi ce President and Treasurer, Public Service Electric and Gas financial statements presented in this Annual Report to Company, 80 Park Place, Newark, New Jersey 07101. The Stockholders and those in the Form 10-K report, but it does copy so obtained will be without exhibits. Exhibits may be provide other information as required by SEC regulations. purchased for a specified fee.

Independent Accountants' Opinion HASKINS & SELLS Certified Public Accountants INTERNATIONALLY DELOITTE , H ASKINS & SELLS 550 Broad Street, Newark, New Jersey 07102 To the Stockholders and Board of Directors of Public Service Electric and Gas Company:

We have examined the balance sheets and statements of cap- In our opinion, such financial statements, appearing on ital stock and long-term debt of Public Service Electric and pages 23 to 33 , inclusive, present fairly the financial position Gas Company as of December 31 , 1977 and 1976 and the of Public Service Electric and Gas Company as of December related statements of income, retained earnings reinvested in 31 , 1977 and 1976 and the results of its operations and the business, and changes in financial position for the years then changes in its financial position for the years then ended, in ended. Our examinations were made in accordance with conformity with generally accepted accounting principles generally accepted auditing standards and, accordingly, in- applied on a consistent basis.

~,~

cluded such tests of the accounting records and such other auditing procedures as we considered necessary in the cir-cumstances.

February 22, 1978 39

James B. Randel Jr.

President f---41 Office of the Chief Executive Energy Development Corp.

Robert I. Smith Chairman of the Board and Chief Executive Officer Harold W. Sonn Malcolm Carrington Jr.

President PSE&G Research Corp.

r--tl ......- Vice President and Secretary 11 II J ohn J . Gilhooley Edward G. Outlaw William E. Scott Robert C. Lydecker Chairman and President Executive Vice President - John F. Betz Executive Vice President - Vice President and

--I ~ Assistant to the Chairman Transport of New Jersey Corporate Planning President Finance of the Board I~

l l l l Robert W.Lockwood I Ri chard M. Eckert Everett L. M orris Charles H . Hoffman John F. McDonald I

Senior Vice President - Senior Vice President - Senior Vice President - Senior Vice President - Senior Vic e President -

Administration Energy Supply and Customer Operations System Planning Governmental Affairs Engineering and Interconnections Robert M. Crockett Fred rick R. D e Santi Gifford Griffin Parker C. Peterman Donald A . Anderson I I Vice President - Vice President - Vice President - Vice President - Vic e President Computer Systems Fuel Supply Rates and Load Interconnections and Comptroller and Servic es Management

' Frederick M. Broadfoot Vice President - Law 1 Thomas J . Martin Vice President -

Engineering and

' Robert W. H odge Vice President -

Commercial and

' Carroll D. James Vice President -

Administrative Planning

' Wallace A . Maginn Vice President and Treasurer Construction Consumer Affairs Edwa rd J . Lenihan Fred erick W. Schneider Ro bert J . Selbach Steph en A . Mallard Vice President - Vice President - Vice President - Vice President -

Public Relations Production Transmission and System Planning Distribution 1 Charles E. Maginn Jr.

Vice President -

Human Resources Changes In Organization distribution and rates and load management operations Milton Perlmutter, president of Supermarkets General as well as commercial operations.

Corporation, was elected a director at the Company's Richard M. Eckert, vice president-engineering and Winthrop E. Mange Jr. Annual Meeting on April 19. He succeeded Clifford D. construction. became senior vice president-energy Vice President - Siverd who retired from the PSE&G board after serving supply and engineering; Charles H. Hoffman. vice Corporate Services since 1968. president-energy pooling. advanced to senior vice Effective July 1. 1977, Robert I. Smith, president and president-system planning and interconnections, and chief executive officer. was elected chairman of the board Robert W. Lockwood. vice preStdent-corporate seMces and John F. Betz, executive vice president. was elected to senior vice president-administration.

president and chief operating officer. Mr. Smith continues Other appointments included Fredrick R. DeSanti, as chief executive officer. These two men together with vice president-rates and load management, Winthrop E.

William E. Scott, executive vice president, who was Mange. Jr., vice president-corporate services, Stephen A.

named executive vice president-finance, and Edward G. Mallard, vice president-system planning. and Thomas J.

Outlaw. formerly senior vice president-operations, who Martin, vice president-engineering and construction.

became executive vice president-corporate planning. Charles E. Maginn. Jr.. became vice president-make up the "Office of the Chief Executive." human resources, effective September 8. Also effective Other changes effective the same date included the same date was the designation of Edward J. Lenihan, Harold W. Sonn, a senior vice president. who was also vice president-public and employee relations, as vice named president of PSE&G Research Corporation, a new president-public relations.

subsidiary formed to direct internal and external research Donald A Anderson, former director of internal au-operations; James B. Randel, Jr.. a senior vice president. diting for Southern Company Services, Inc., Atlanta, Ga..

who was also named president of Energy Development joined PSE&G October 1 as vice president-computer Corporation, the Company's exploration subsidiary, and systems and services.

Everett L. Morris, formerly senior vice president- On October 18, Robert M. Crockett, vice president-corporate development, who was named senior vice fuel supply, also became president of Eascogas LNG, Inc.

president -customer operations, a new position which Gifford Griffin became vice president-interconnec-coordinates all of the electric and gas transmission and tions, effective December 20.

40

President of the Company Chairman of the Board and Chief Executive Officer Member of Executive and Finance Committees President The Private Practice of Medicine in the specialty of gynecology. East Orange.

New Jersey; Clinical Associate Professor of Obstetrics and Gynecology. Executive Vice President - Corporate Planning New Jersey Medical School; and former Trustee of the College of Medicine and Dentistry of New Jersey. Newark. New Jersey Executive Vice President - Finance Member of Audit Committee

• I*

Chairman of the Board and director. Fidelity Union Bancorporation. Senior Vice President of the Company and President of Energy Development Corporation Newark. New Jersey Member of Executive and Finance Committees and Chairman of Nominating Committee Senior Vice President of the Company and President of PSE&G Research Corporation

• '. I*

Chairman of the Board and director, Bancshares of New Jersey.

Moorestown, New Jersey; Chairman of the Board and director, The Bank Senior Vice President - Energy Supply and of New Jersey, Camden , New Jersey; and Chairman of the Board and Engineering director. The Bank of New Jersey N.A .* Moorestown, New Jersey Chairman of Audit Committee and member of Nominating Committee Former Chairman of the Board of the Company Senior Vice President - System Planning and Interconnections Member of Finance and Nominating Committees Senior Vice President - Administration University Professor of Economics and former Dean of Douglass College.

Rutgers. The State University of New Jersey. New Brunswick. New Jersey Member of Audit Committee

• Senior Vice President - Customer Operations Director and former President, Ingersoll-Rand Company (diversified manufacturer of machinery. equipment and tools),

Woodcliff Lake. New Jersey Member of Finance Committee and Organization Vice President - Law and Compensation Committee President and Director, Supermarkets General Corporation (supermarkets, department stores. drug stores. home improvement Vice President - Fuel Supply and President of centers and other retail and wholesale businesses), Woodbridge, Eascogas LNG, Inc.

New Jersey ia:i=i.:a.u

• I.

Member of Audit Committee Vice President - Rates and Load Management

~~m:iiill!l. ** * **

Partner of the firm Schenck. Price. Smith [, King. Counsellors-at-Law.

Morristown. New Jersey Member of Audit Committee Vice President - Interconnections Vice President - Commercial and Consumer Affairs President. Stevens Institute of Technology. Hoboken. New Jersey

• Vice President - Administrative Planning Member of Nominating Committee and Organization and Compensation Committee Vice President - Public Relations Executive Vice President - Finance of the Company Member of Executive Committee and Chairman of Finance Committee Vice President and Assistant to the Chairman of the Chairman of the Board and Chief Executive Officer of the Company Chairman of Executive Committee and member of Finance Committee Board

• • • • '(itJ.t]3~~

Chairman of the Board. Chief Executive Officer and director. The Mutual Benefit Life Insurance Company. Newark. New Jersey Member of Executive and Finance Committees and Chairman of the Organization and Compensation Committee Chairman of Executive Committee, director and former Chairman of the Board, The Continental Corporation (property and casualty. life and accident and health , and other types of insurance, and other financial Vice President - Engineering and Construction services), and The Continental Insurance Companies, New York.

New York. Vice President and Comptroller Member of Finance Committee and Organization and Compensation Committee Vice President - Transmission and Distribution

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