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

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 1977 Annual Report PS~G The Energy People

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 Revenues

$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 Annual Meeting Financial and Statistical Review Stock Symbol Transfer Agents Registrars PS~G The Energy People Please note that the Annual Meeting of Stock-holders of the Company will be held in the Company auditorium, 70 Park Place, Newark, New Jersey on Tuesday, April 18, 1978, at 2:00 p.m. A summary of the meeting will be sent to stockholders at a later date.

A comprehensive statistical supplement to this report, containing financial and operating data for the years 1967-1977, will be available this Spring. If you wish to receive a copy, please write to the Vice President and Treasurer, Public Serv-ice Electric and Gas Company, P.O. Box 570, Newark, N.J. 07101.

PEG All Stocks Morgan Guaranty Trust Company of New York 30 West Broadway, New York, N.Y. 10015 Stock Transfer Department Public Service Electric and Gas Company 80 Park Place, Newark, N.J. 07101 All Stocks Fidelity Union Trust Company 765 Broad Street, Newark, N.J. 07101 Morgan Guaranty Trust Company of New York 30 West Broadway, New York, N.Y. 10015 About the cover: Shown is the new headquarters building 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.

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.)

Contents Highlights (Inside Front Cover)

Message to Shareholders 2

Revenues and Operating Expenses 4

Earnings and Dividends 4

Construction Expenditures 6

Financial Policies and Objectives 7

Electric and Gas Production 7

Gas Supply 9

Transmission and Distribution 11 Commercial and Consumer Affairs 12 Area Development Human Resources Subsidiaries Financial Statement Responsibility Acc0unting Policies Financial Statements Operating Statistics Financial Statistics Management's Discussion and Analysis of the Statement of Income Independent Accountant's Opinion Organization Chart Officers and Board of Directors PSE&G Territory 13 17 19 23 23 25 34 36 38 39 40 (Inside Back Cover) ew York City 1

February 22, 1978 Message to Shareholders Your Company's revenues exceeded $2 billion in 1977 -

the highest level in our history. Total revenues amounted to $2.033 billion, up 8.7% over 1976. Earnings showed an increase of

$6.4 million as earnings per share of Common Stock rose from $2.79 to $2.86 Quarterly Common Stock dividends were increased 4\\:'. a share beginning with the second quarter of 1977. The addi-tional dividend brought quarterly payments to 49\\:'. a share and raised the annual rate from $1.80 to $1.96. This increase pro-vides a strong indication of the importance your management attaches to increasing stockholder return. Future dividend in-creases will, of course, depend upon the continued satisfactory financial condition of the Company.

The imposition of a moratorium on new gas customers as the result of supply problems early in 1977, and the continued hesitancy in New Jersey's recovery from the economic reces-sion, served to dampen sales growth in both the electric and gas areas. Kilowatthour sales were up a modest 1.6%. Therm sales declined 4.4%. Conservation, loss of customers and rela-tively mild weather late in 1977, in addition to the moratorium, affected gas sales.

Late in 1977, as a consequence of increased gas availability, we petitioned the New Jersey Board of Public Utilities to lift the moratorium on new gas sales and permit us to take on customers at the rate of 4.8 billion cubic feet per 2

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 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%.

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 which require long lead time -

10 years or more -

and large capital expenditures prior to operation. It was because of the reduction in growth rate from 4% to 3% that we requested Offshore Power Systems to delay the delivery of each of our four floating nuclear units for three years. The first two of these units, originally scheduled for operation in 1985 and 1987, are now scheduled for 1988 and 1990. We have negotiated an agreement with Offshore Power Systems, a division of Westing-house Corporation, which limits our liability under the contract for the floating units to that which was incurred as of the end of 1977 until a clearer picture of the demand for electric energy emerges.

The uncertainty which plagues utilities has been com-pounded by a lack of decision on federal energy policy. There seems to be general agreement that we must reduce our de-pendence on foreign oil and that we must basically rely on both coal and nuclear power for new electric generation until the end of this century. With regard to nuclear, although the an-nounced federal policy appears to endorse the development of light water reactors -

the type we are installing -

there ap-pears to be no real substance to that endorsement. Members of the federal administration have confused the public with anti-nuclear attitudes, particularly with regard to non-proliferation and the breeder reactor. The lack of strong and positive support for *the light water reactor program reflects it-

self in delayed licensing procedures and encouragement of in-tervenors, which results in higher than necessary plant costs as well as increased uncertainty.

Despite these handicaps, our nuclear program is moving forward. The first of two 1.100 megawatt units at Salem went into full commercial operation in mid-1977. Construction is proceeding on the second unit at Salem which is scheduled for service in 1979. After a number of licensing delays, construc-tion began on the two units at Hope Creek which are presently scheduled for 1984 and 1986 operation.

The lack of a federal policy on liquefied natural gas (LNG) mports has raised questions concerning our proposed pro-ram to import LNG from Algeria. Federal Department of nergy hearings, designed to obtain the information necessary o develop a federal policy, were held early in January 1978. We ope the policy developed will enable us to proceed with the lgerian project. Algonquin Gas Transmission Company with-rew from the venture in June 1977 and, having reached tenta-ive agreement with potential customers, we are planning to estructure the project at 60% of the original 4.4 trillion cubic eet over a 22 year period. Permits to utilize the two storage nks which we own in Rossville. Staten Island, N.Y. still have to e obtained.

The Company gas supply situation improved during the tter part of 1977 because of conservation and attrition, as well s basic supply increases, and we are predicting a modest rowth of about 2% in gas sales. Our subsidiary Energy De-elopment Corporation, for instance, is continuing to provide creasing quantities of gas from its successful exploration ef-orts in the Gulf Coast area.

Our prospects for additional gas sales will be enhanced if ur proposed merger with New Jersey Natural Gas Company roceeds to a satisfactory conclusion. An agreement in princi-le has been reached with the directors of New Jersey Natural.

he merger still needs the approval of the stockholders of New ersey Natural and the Board of Public Utilities. If the merger is ccomplished, the potential for sales growth is indicated by the ct that New Jersey Natural's territory has only 130 customers er square mile in a developing area compared to 550 cus-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-ancial integrity and to continue to provide safe and reliable rvice to our customers in the face of persistent inflation and 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 changes in e structure of the organization were made during 1977. The changes. together with a chart of the new organization, are shown on page 40. Basically, the reorganization was instituted to increase the effectiveness of the Company in meeting the challenges of a changing industry.

The establishment of a wholly-owned research subsidiary, PSE&G Research Corporation, was a part of the reorganization.

This subsidiary will coordinate all of the Company's research activities and market the research and testing laboratory capabilities of the Company as a source of income.

Rate design, load forecasting, load management and market planning activities were combined in 1977 to enable us to accelerate responses to rapidly changing conditions and eliminate lag during critical periods.

Our territory, as well as that of other utilities in the north-eastern part of the country, appears to be lagging behind the rest of the nation in recovering from the economic recession.

To speed the recovery, our area development group has in-creased its level of activity with positive results. The State gov-ernment is embarking on an all-out campaign to create jobs and bring business and industry to New Jersey. The recently created State Department of Energy, which has coordinating responsibility for energy planning and allocation within the State, is dedicated to improving the industrial climate in New Jersey as evidenced by the decision to release additional gas to indus-trial customers prior to the release to residential customers.

Negotiations with our union-represented employees were successfully concluded during the year. A three year contract, effective May 1, 1977, provides for wage increases of 7% in 1977, 6.69% in 1978, and a wage reopener for the contract year expiring April 30, 1980.

In this era of uncertainty we must act promptly when posi-tive signs appear. The Company has dedicated and talented employees who appreciate the need for flexibility in these rapidly changing times. They are our most valuable resource in meeting our future responsibilities to the State as a whole and to our customers and investors, wherever they may be.

To you, our shareholders. go our thanks for your support in 1977 and our pledge to continue earning that support in the future.

/?~~-~

" ( ~obert I. Smith, Chairman of the Board and Chief Executive Officer 3

1977 Revenues Exceed

$2 Billion Operating Expenses Op10%

Earnings and Dividends Rise 4

In 1977, revenues passed the $2 billion mark for the first time as they rose $163 million, or 8.7%

over the 1976 total, to $2.033 billion. Most of the increase, about $112 million, represented rate rises for gas and electric service made effective in October 1976.

Electric revenues, up 11.7% to $1.470 bil-lion, contributed 72% of total revenues. The other 28% came from gas revenues which in-creased 1.7% to $563 million although therm unit sales declined from the 1976 level.

Total operating expenses increased 9.8% or $155 million over 1976 to reach $1.7 billion. The modest increase of 1.3% in the systefTl output of electricity was accompanied by an 11 % rise in fuel and interchanged energy costs. The major cost factor was the greater use of oil for genera-tion with its 16% increase in the average. cost dur-ing 1977.

Higher costs of fossil fuels were tempered by increases in nuclear energy from the two Peach Bottom units operated by Philadelphia Electric Company and the Salem Generating Station Unit 1 operated by PSE&G. The Salem unit went into commercial operation on June 30, 1977.

Although gas sendout dropped 4.4% com-pared to 1976, gas costs declined only 1.3%. This resulted primarily from the need to manufacture the more expensive synthetic natural gas due to curtailments by our principal pipeline suppliers during the record cold weather in January and February of 1977.

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

Expenses to maintain Company property and equipment increased $25 million to $125 million, or 25% over the 1976 level. This increase resulted from more maintenance on electric generation equipment as well as electric and gas distribution facilities.

Earnings per share for Common Stock rose to

$2.86 from $2.79 in 1976. The number of aver-age shares outstanding increased during 1977 from 58,308,000 to 59,243,000.

Dividends on the Common Stock were in-creased to an annual rate of $1.96 a share from

$1.80 in 1976 commencing with the June 30, 1977 quarterly payment. The Company paid div-idends of $1.92 per share of Common Stock during 1977 as compared to $1.78 per share in The sources of 1977 revenues by customer classification were:

Electric Gas Combined Residential 34%

61%

41%

Commercial 36 25 33 Industrial 28 14 24 Street Lighting and other 2

2 Total 100%

100%

100%

Depreciation charges went up $15 million, a reflection of higher depreciation rates allowed in the last rate case and Salem 1 going into service.

The 1977 Income Dollar Where It Came From $.71

.27

.02

$1.00 Where It Went

$.38

.11

.07

.18

.06

.08

.12

$1.00 Electric Revenues Gas Revenues Allowance For Funds Used During Construction Fuel. Purchased Power and Gas Salaries and Wages Materials and Services Taxes Interest Dividends Reinvested in Business 1976. The quarterly rate had been raised during 1976 from 43 to 45 cents.

The Company's Common Stock and the

$1.40 Dividend Preference Common Stock are traded on the New York Stock Exchange. The Common Stock is also listed on the Philadelphia Stock Exchange. The following table indicates the quarterly dividends paid and the range of trading prices for the last two years.

Quarterly Dividends Paid Per Share Price Range First Quarter Second Quarter Third Quarter Fourth Quarter Common Stock 1977 1976 24V2-21 V2 25Vs-22 26Vs-23 3/4 25Vs-22Vs 20%-175/s 19'l's-18 23Vs-19V4 233/s-21 3/4

$1.40 Dividend Preference Common Stock 1977

$35 173/s-16%

17-16Vs 17V4-16Vs 167/s-16 1976

$35 16-14V2 15'l's-145/s 167/s-15 163/4-155/s

' $.45 first quarter only

':":' $.43 first quarter only 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.

Exterior view of Hudson Generating Station.

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

5

Rate Increases Requested Construction Expenditures Increase On November 21, 1977 we petitioned the New Jersey Board of Public Utilities for rate increases to produce additional annual revenues totaling

$395 million. This amount includes $304 mil-lion for electric service and $91 million for gas.

Our last rate increase, effective October 21,

1976, was based on our costs of providing serv-ice during the 12 months ended June 30, 1976.

By the time a decision is reached in the current case, our present rates will be based on costs experienced more than two years ago. The cost of labor, a major factor, continues to rise -

$19 million in 1977-78, and another $20 million in 1978-79 as established by a new wage agree-ment effective May 1977.

In addition, two other substantial cost fac-tors involve the lengthy lead time required to de-sign and construct new generating stations and the meeting of pollution control and environ-m ental regulations. The cost of satisfying these regulations is now more than $160 million a year, and this total can be expected to increase.

Construction expenditures, including payments for nuclear fuel and advances to subsidiaries, rose to $411 million in 1977 from $333 million in 1976. Expenditures for 1978 are estimated at

$565 million. This figure represents a downward revision from earlier estimates because a recent load forecast indicated future demands for elec-tricity and gas in our service area will increase at slower rates than previously anticipated. These Cash Flow, Earnings and Capitalization Ratios Dividends per Share S7.00 100 36 6.81 36 37 38 6.00 6.14 In our petition for rate increases, we also proposed that fuel and raw material costs be rolled into the base rates. (A favorable ruling was issued effective February 1, 1978.)

Gross receipts and franchise taxes, which we pay to the State of New Jersey and to munic-ipalities, have nearly tripled since 1970. These taxes amounted to $270 million in 1977 and can be expected to grow larger each year.

Late in 1977, the State of Pennsylvania enacted a gross receipts tax on electric utilities that own shares in Pennsylvania power plants and export power to service their customers.

This tax, which is retroactive to January 1, 1977, cost PSE&G about $7.2 million for 1977 be-cause of the Company's substantial interests in three generating plants in Pennsylvania. The tax rate is 4.5% on an apportionment basis. The Company expects to join with other utilities in legal action to challenge the constitutionality of the new tax.

revised load estimates have resulted in the defer-ral of in-service dates for certain major projects as discussed under Nuclear Generating Facilities.

Assuming adequate future rate increases, the Company expects to provide between 40%

and 50% of its construction expenditure re-quirements through 1982 from internal sources.

Construction estimates for the years 1978 Times Fixed Charges Earned (Before Income Taxes) 38 5

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 1975 1976 1977 1973 1974 1975 1976 1977 1973 1974 1975 1976 1977 6

Financing Stockholders Financial Policies and Objectives Electric and Gas Production through 1982, including nuclear fuel but exclud-ing allowance for funds used during construction are as shown. The figures include a total of $619 million for the Atlantic Generating Station.

The Company raised $234 million in 1977 through sales of new securities including First and Refunding Mortgage Bonds, Common Stock, and Preferred Stock.

In June, an offering of $125 million of 8%%

First and Refunding Mortgage Bonds was com-pleted. The proceeds were used to pay short-term obligations including those incurred in May when the Company purchased, through a tender offer, $84 million principal amount of the $98 million outstanding First and Refunding Mortgage Bonds, 12% Series E due 2004.

In September, PSE&G sold $60 million principal amount of 81/s% First and Refunding Mortgage Bonds and 300,000 shares of 8.16%

Stockholders of record at the end of 1977 totaled 260,270, including 212,640 holders of Common Stock, 14,064 holders of $1.40 Div-idend Preference Common Stock, and 33,566 holders of Preferred Stock. At year end, the number of Common Stock holders participating Your Company's financial policies continue to re-flect management's strong commitment to maintain PSEE:.G in a sound financial condition.

Financial strength and stability must be main-tained if we are to successfully compete for the new capital required to finance our construction program in the future.

The principal elements of our long-range financial policy continue to be a sound capital structure comprised of approximately 48% debt.

13% preferred stock, and 39% common equity; the practice of following conservative account-ing principles; strong cash flow, high quality Electric output increased slightly in 1977. Total kilowatthours produced, purchased, and inter-changed totaled 30.8 billion, a modest increase over 1976.

The year 's peak demand of 6,895 megawatts occurred on July 21, 1977. This was 11.4% greater than the hourly peak reached in 1976. It also established a new hourly peak for PSE&G, surpassing the previous mark of 6,816 megawatts reached in 1973. The 1977 max-imum day's output of 133,266,000 kilowatt-hours also occurred on July 21 and was 13.8%

larger than the 1976 highest daily output. How-ever, both the peak and output were influenced by the higher Summer temperatures in 1977 Estimated Expenditures Year 1978 1979 1980 1981 1982 Total (Millions) $565 $616 $577 $862 $823 Cumulative Preferred Stock (Par value $100) for

$30 million.

In addition, the Company raised $15 million through sales of 666,899 shares of Common Stock to PSE&G stockholders through the Au-tomatic Dividend Reinvestment Plan and $4 mil-lion from the issuance of 163,270 shares under the Company's Tax Reduction Act Employee Stock Ownership Plan.

Commercial paper and bank notes were sold at various times during the year to satisfy short-term needs. The Company's outstanding short-term debt was $97 million at year end.

In 1978, we expect to raise about $300 mil-lion from sales of long-term securities.

in the Automatic Dividend Reinvestment Plan had grown to 31,437 from 25,507 a year earlier.

Effective with the June 30 dividend, participants in the plan were permitted to reinvest their divi-dends in additional shares at a 5% discount from market price.

earnings, and the maintenance of high quality credit ratings for all our securities. We have made significant progress in recent years to-ward achieving these goals.

We will continue to strive for a fair return on our invested capital in order to properly c'om-pensate the shareholders for the use of their funds. A sound financial condition, a fair return on capital and an attractive dividend policy are all essential factors in achieving a market price for PSE&G's Common Stock at a reasonable premium over book value.

compared to 1976 and weather-corrected fig-ures indicate differentials at only 1 to 2%.

Total sendout of gas was 1.8 billion therms, 4.4% less than the 1976 amount. In 1977, the highest sendout for a single day was 14,006,000 therms on January 17 when the temperature av-eraged 2.6°F. This sendout, a new record for a single day, was 9.4% greater than the 1976 single day sendout high of 12,803,000 therms on Feb-ruary 2 when the temperature averaged 12°F.

The 1977 record was 8.8% greater than the pre-vious record 24-hour sendout of 12,872,000 therms reached on February 1, 1971 when the temperature averaged 10°F.

7

Generating Capacity Nuclear Generating Facilities 8

The Company's installed generating capacity at the end of 1977 reached 9,247 megawatts, an increase of 506 megawatts from a year earlier, and a new high for PSE&G. Our reserve at the 1977 peak was 34.1%, based on the installed generating capacity. The increase in capacity during 1977 is basically the result of the Salem Generating Station Unit 1 being placed in commercial production on June 30. Salem 1, the first nuclear unit to be designed and oper-ated by our Company, can produce 1,079 megawatts at full output.

The peaks, installed capacity and reserves expected for the next ten years are as shown.

Our Company generated 17% of its total electric output in 1977 from nuclear energy compared to 16% in 1976. Our nuclear capacity rose during the year to 14.6% from 10.1% in 1976.

Construction continued on Salem Generat-ing Station Unit 2 and was 85% complete at year end. This 1,115 megawatt unit, which will add 475 megawatts of nuclear capacity to our sys-tem, is scheduled to enter commercial operation in mid-1979. When this unit delivers full power output, it \\vill lift our Company's nuclear genera-tion to 19.4% of total electric production.

PSE&G and Philadelphia Electric Company each are entitled to 42.59% of Salem's output while Atlantic City Electric Company and Del-marva Power & Light Company are each entitled to 7.41%.

The Salem Generating Station Unit"#2 was 85% complete at year end and when put into commercial operation in mid-1979, will raise the stations capacity to 2,200,000 kilowatts. The Hope Creek site can be seen at top of photo.

Generating Capacity Forecast Year Peak Load Installed Capacity Reserve (Megawatts) 1978 6,940 9,028 30 1979 7,250 9,383 29 1980 7,500 9,383 25 1981 7,750 9,383 21 1982 8,000 9,503 19 1983 8,250 9,783 19 1984 8,500 9,783 15 1985 8,775 10,458 19 1986 9,075 11,060 22 1987 9,400 11,060 18 Construction also continued on Hope Creek Generating Station, where work was started in 1976 following a number of delays.

The main excavation, 70 feet deep, was com-pleted in May 1977. The initial structural con-crete pouring on August 30, 1977 involved the 14-foot thick basemat which will provide the main support for the nuclear units.

The two nuclear units at Hope Creek are scheduled to enter commercial operation in 1984 and 1986, respectively. PSE&G, which owns 95% of the Hope Creek Generating Station, is entitled to 1,014 megawatts from Unit 1 and 1,013 megawatts from Unit 2. Atlantic City Elec-tric Company, with a 5% ownership interest in each, is entitled to a total of 107 megawatts.

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 modification provides for reduced payments

Approximately 25% of the nation's private research dollars are expended in New Jersey with a large concentration of this activity within a 25-mile radius of Princeton. This remarkable core of research and development facilities continues to attract and stimulate business act1v1ty.

Princeton University, with the ob1ective of creating a practical relationship between the academic sector and the corporate world, is developing the Princeton Forrestal Center. a 1600-acre research and office complex ad1oin1ng its main campus. By providing access to the University s facilities. they have been successful 1n attracting a large variety of major research-oriented organizations during the deferral period. It also limits our exposure under the contract until the end of 1979 to the liabilities that had been incurred to December 29, 1977. This modification will allow OPS to continue to seek its manufacturing license and allow us to work with the New Jersey State Department of Energy and other gov-ernmental agencies to select the best sites for the floating generating facilities. Additional time Fuel for The Company's supplies of fossil fuels remained Electric Generation adequate for its production needs in 1977. Coal prices remained relatively stable throughout the year. Declines in the cost of coal at the mine were offset by higher transportation costs. The net result was that the delivered cost of coal rose an average of 7.4% over the average delivered price in 1976.

Prices of heavy oil rose an average of 15.1%

over 1976 while light oil increased an average of 16.7%. Heavy oil prices had risen rapidly in the first quarter when extremely cold weather caused a sudden shortage, but eased for most of the rest of the year.

Both oil and coal are expected to cost more in 1978. Oil prices should increase moderately as a result of anticipated actions by the OPEC nations. and also as a result of President Carter's proposed energy plan. Higher coal prices are expected in 1978 mainly because of new mine worker union agreements and also because of higher costs stemming from the Surface Mining Control and Reclamation Act of 1977.

The Company moved closer in 1977 to its goal of insuring that supplies of uranium will be adequate to meet the needs of all its nuclear generating units.

PSEc:.G has sufficient material and services 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 also will be available to evaluate our capacity re-quirements for the 1990's and thereafter.

No positive assurance can be given that necessary licenses for the equipment and site permits will be forthcoming or that these facilities will be completed. If as the result of fu-ture developments this project is not completed, the ultimate realization of our investments in these facilities, as with any major project of this type, will depend upon the sale of the Com-pany's interests under the OPS contract and the treatment that is accorded the investment for rate-making purposes.

Both the projected Atlantic Station and the station at Hope Creek under construction will re-quire additional permits from the New Jersey Department of Environmental Protection as well as from other state and federal agencies.

The Company's expenditures for its nuclear projects, excluding nuclear fuel, at the end of 1977 were: $440 million for Salem; $357 million for Hope Creek; and $215 million for Atlantic excluding allowance for funds used during con-struction of $102 million, $43 million and $36 million, respectively.

under contract to operate Salem 1 and 2 into 1980. The Company has also been advised by Philadelphia Electric Company that contracts have been negotiated to provide enough nuclear fuel to operate Peach Bottom 2 and 3 into 1985.

In addition. the Company's agreements with Kerr-Mc Gee Nuclear Corporation and with Homestake Mining Company are expected to provide the fuel required to operate Salem and Hope Creek Generating Stations from 1980 through 1995. Preparation for mining has started in one of three projected Kerr-McGee mines.

Over-burden stripping for the open pit mine was completed in 1977 with mining scheduled to start in 1978. The Homestake Mining exploration program has found additional proven reserves to bring total reserves to about 2 million pounds.

The first phase of the exploration program - with a target of 3 million pounds of proven reserves -

is expected to be completed in 1978. The explo-ration program will be continued in phases until enough reserves are proven to develop a mining and milling complex.

Market prices of uranium stabilized in 1977 after substantial increases in 1976. In addition to an essentially constant price level, uranium also became more plentiful to buyers on an open market basis.

9

Gas Supply Natural Gas Refinery Gas The Company's daily gas capacity, excluding the effect of pipeline curtailments, as of December 31, 1977 was:

Type of Gas Natural Gas Liquefied Petroleum Gas Oil Gas Synthetic Natural Gas Refinery Gas Therms Per Day 13,892,000 2,068,000 1,393,000 1,325,000 255,000 18,933,000 The daily supply of natural gas included in the total capacity declined to 13,892,000 therms from 14,257,000 therms at the end of 1976.

About 48% of the daily natural gas capacity is composed of high-load-factor gas which is available every day of the year. The remainder of the gas comes from field storage, liquefied stor-age, and contract peaking supply.

In 1977, PSEc:,G bought and used in send-out to customers 1.6 billion therms of natural gas, including storage gas. This was a decrease of 125 million therms or 7% compared with 1976, resulting from lower sales coupled with less natural gas from pipelines during the cold January and February of 1977. The available supply of natural gas increased, however, later in 1977. This was due to greater pipeline deliveries and to larger quantities from Energy Develop-The Company bought 98 million therms of re-finery gas in 1977 from Exxon's New Jersey re-finery. This gas accounted for 5% of PSEc:,G's Electric Peak Load and The capacity to store gas underground for use during the winter heating season was in-creased from 400 million therms in 1976 to 414 million therms in 1977. The Company entered into new short-term contracts with Texas Eastern Gas Pipeline Company and Transcontinental Gas Pipe Line Corporation for a total of 75 mil-lion therms of storage service and terminated 61 million therms of storage service provided by Transcontinental Gas Supply Corporation.

ment Corporation (EDC), the Company's explo-ration and development subsidiary. This allowed storage inventories to be replenished and even increased with additional natural gas purchases.

Curtailments averag ed 29%, or 1.9 million therms a day in 1977 compared with 31 % or 2.1 million therms a day in 1976. The 1977 curtail-ments marked the first decline since 1971, the year they started.

At year end, natural gas was being delivered by EDC at the rate of 111,000 therms a day. This rate is expected to increase as additional wells are drilled. Additional information on EDC will be found on pages 19 and 20.

Cost of natural gas to PSE&G averaged

$1.31 a million BTU's, an increase of 19\\'. over the average in 1976.

total gas supply for the year. The cost of this gas averaged $3.17 a million BTU compared with

$2.82 in 1976.

Gas Peak Sendout and Construction Expenditures 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 9.0 18 17 8.5 400 411 16 8.0 15 364 7.5 14 300 328 333 7.0 13 12 267 6.5 II 200 Construction Expenditures 6.0 10 5.5 9

Winter-Storage Natural Gas 7.5 5.0 8

7 100 4.5 6

4.0 5

~"81un11Gas 3.5 4

I I

14*7 1976 1977 1973 1974 1975 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 Supply Transmission and Distribution Charles L. H1ltzhe1mer, Chairman.

and Henry L. Gilbertson. President of Sea-Land Service, Inc. - the world's largest containerized transportation firm - at their corporate headquarters in Edison.

New Jersey.

To supplement its supplies of purchased natural gas and refinery gas, the Company manufac-tures synthetic natural gas (SNG) from naphtha, oil gas made from kerosene and liquefied petro-leum gas produced from propane. The daily capacity for producing these gases is 4,786,000 therms, a decrease of 117,000 therms from Our electric transmission system was expanded considerably in 1977. The Company's bulk power capability in northern and central New Jersey was substantially strengthened with the completion of a 500,000 volt overhead line, two 230,000 volt overhead lines, and the intercon-nection of a new substation to provide additional circuits. A 500,000 volt line linking New Jersey and Delaware was also completed. This line, placed in service in December, will improve the reliability of power transmission from Salem Generating Station to PSEc,G customers and also to customers of other utilities that share in the Salem station's output.

The Company's electric distribution system was also expanded by the installation of three substations. Three unit substations of limited capacity were discontinued during the year. In addition, three new 26,000 volt subtransmission circuits and eight new 13,000 volt distribution Proportionate to size, New Jersey has more linear miles of rail-way* highway super-highway and more square miles of airport, railroad yard and seaport than any other state. More cars, trucks.

buses, railroads, airplanes and ships move into, through and about New Jersey than any similar area on earth.

The Newark! Elizabeth area 1s one of the busiest and largest transportation hubs in the world Located here are two ma1or ports Sea-Land Service 1s the largest containerized shipping company in the world. It has 130 offices and terminals worldwide, 8,000 employees and serves 36 ports 1n 50 countries. Sea-Land 1s one of the few shipping firms operating without the benefit of government subsidy 1976. Total production in 1977 rose to 103 mil-lion therms, or 61 million more than in 1976.

This additional production was necessitated by abnormally cold weather in January and Feb-ruary of 1977. These manufactured gases amounted to 6% of PSE0G's total gas sendout during the year.

circuits were installed while four 4,000 volt dis-tribution circuits were discontinued in 1977.

In December, an advanced computer sys-tem -

Supervisory Control and Data Acquisi-tion (SCADA) -

was placed in service in the Camden Division to help defer the need for in-stallation of additional substation and switching facilities. SCADA will also improve distribution operations and speed service restoration.

Gas distribution operations were adversely affected by severe weather conditions at various times. In January 1977, low natural gas supplies during the extremely cold weather forced us to curtail service to some firm industrial and commercial customers for the first time in the Company's 74-year history. In November, several service areas were flooded by torrential rains causing interruption of service to some customers.

handling more than 60% of the total tonnage coming through the Port of New York-New Jersey; the new Newark International Airport, built at a cost of $500 million; the tracks of five ma1or rail-roads, now consolidated under Conrail; and, surrounding the complex, five ma1or highways including the New Jersey Turnpike

- the nat1on*s busiest roadway.

Newark International Airport is served by 20 of the country's domestic and overseas airlines and in 1977 handled eight million passengers.

11

Energy Pooling Progresses Commercial and Consumer Affairs Conservation Interruptible Service Linden Chlorine Products Inc. is one of seven electric customers whose service can be interrupted when power is needed elsewhere. By initiating interruptible electric service, costs for expensive peaking capacity can be kept to a minimum Load Management 12 As mentioned above, two important sections of the Lower Delaware Valley transmission system were completed in 1977 with the construction of two 500,000 volt lines. The lines linked Deans Substation with Branchburg Substation in Cen-tral New Jersey, and Salem Generating Station with the Delmarva Power & Light Company's Keeney Substation, located across the Delaware River from Salem.

A new Customer Payment Processing Center was opened in March 1977 in Metro Park.

Woodbridge centralizing the receipt, crediting, and depositing of customer mail payments for-merly handled in each commercial office.

Service to customers was further improved in December with the installation in commercial offices of equipment to electronically display customer information. This interim system will improve response time for customer inquiries until replaced by a more sophisticated informa-tion system now under development.

Marketing personnel continued to capitalize Tests conducted by PSE&G and Princeton Uni-versity's Center for Environmental Studies have demonstrated the electric heat pump to be an energy efficient way of heating and cooling homes. We anticipate that the use of heat pumps will become a significant source of increased revenue for the Company. Some builders are already installing heat pumps in a number of major new housing developments.

Over 36% of the 935 heat pumps connected to A two-year experiment to determine how electric rate schedules adjusted to time-of-day use may affect consumption patterns was started by PSE&G late in 1977. New meters to record elec-tricity use on a 24-hour cycle were installed in the homes of several hundred residential cus-PSE&G and Consolidated Edison Company agreed to provide additional interconnections between their systems. The plan calls for the construction by 1982 of two 345,000 volt lines to connect the two systems. In addition, PSE&G is to expand its transmission facilities so that it can deliver more power to New York City. The Com-pany will be fully compensated by Con Edison.

on off peak load opportunities, such as dusk-to-dawn lighting and electric space heating.

Over 3,500 dusk-to-dawn installations were made resulting in a year-end total of 46,000.

Electric space heating installations totaled 1,640 representing 44,543 kilowatts. Total electric heat-ing load now exceeds 825,000 kilowatts.

Stalled contract negotiations with the union representing employees in commercial offices caused a three-week work stoppage from mid-June to early July. Management and super-visors staffed the offices, limiting the effect on Company operations.

our lines at year end were added during 1977.

Additional evidence of the Company's con-tinuing dedication to conservation is the PSE&G Home Insulation and Energy Conservation Pro-gram which commenced in September. The focus is on providing customers with informa-tion on a wide variety of conservation options both technical and financial. The program has been well received. In a little over three months, 2,400 customers have been assisted.

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 from 76 to 74. Revenues from interruptible cus-tomers rose 77% to $35 million as therm sales rose 40% from 1976.

We initiated lower rate interruptible electric service early in 1977. By the end of the year, 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 />.

tomers and billings based on the new rate struc-ture started November 15. Three different rate schedules will be used for purposes of com-parison in compiling the data.

The purpose of the experiment is to see if lower rates in off-peak hours can offer enough

Area Development New Jersey's Economic Development Authority provides financial assistance to companies which invest in new plants and equipment in New Jersey. Since its inception in 1974, the Authority has arranged for nearly $600 million in low-interest financing for over 400 industrial and commercial projects. These projects have generated nearly a billion dollars of investment money within the State's economy.

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 commercial, residential and industrial development in the area.

incentive for customers to shift some of their electric consumption from peak periods to times of low demand. If enough demand can be switched from peak periods. the result would mean financial savings by reducing the need for new peak capacity. In addition, a successful load Industrial and commercial development con-tinued to expand within the Company's service territory in 1977. The number of companies seeking locations for offices, distribution and manufacturing facilities, stores and other com-mercial enterprises increased as the national economy gained strength.

A total of 487 industrial and commercial firms, employing about 20,900 persons, moved into or expanded their operations in Public Serv-ice territory during 1977. A total of 72 com-panies, employing 6,800, either moved away or suspended operations, resulting in a net gain of 14,100 jobs.

The market for office quarters within PSE&G territory remained strong, helped to some extent by firms in New York City seeking suburban locations.

management program could also increase the efficiency of our energy generation. Greater off-peak use of available capacity could also save our customers money by cutting our depen-dence on oil in favor of the cheaper energy sources -

coal and nuclear fuel.

As a result of this expanded interest, a number of real estate developers have built or announced plans to build large office facilities.

These ventures included a 350,000 square foot structure completed in 1977 by Mack Construc-tion Company. Located in Paramus, it has at-tracted a number of firms from New York City.

It is also the new corporate headquarters of Becton, Dickinson and Company.

The Hackensack Meadowlands, located in Bergen and Hudson Counties, continues to be an expanding area for industrial, commercial and residential development. The New Jersey Sports and Exposition Authority plans to build a 20,000-seat arena adjacent to the 78,000-seat football stadium and the recently expanded Meadowlands Race Track. The arena, expected to be completed in 1980, will be designed for The New Jersey Nets, the State's first NBA professional basketball team, play host to the New York Knicks at Rutgers 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

To help promote economic development within the State, PSE&G has prepared an advertising program which features comments and profiles of top management people with firms that are successfully operating in our State. Advertisements will appear in national media during 1978.

basketball, hockey, tennis, track and boxing events. It will also be available for concerts, con-ventions, expositions and other public recre-ational activities. The New Jersey Nets of the National Basketball Association has signed a contract to use the new arena as its home court.

In addition to stimulating large attendances at the stadium and the race track, the meadow-lands has attracted investments totaling several hundred million dollars. Hartz Mountain Indus-tries, Inc., the largest developer in the meadow-lands, has sold all 640 units of its residential condominium development known as Harmon Cove. The industrial park owned by Hartz and covering 10 million square feet includes a high-rise office building of 190,000 square feet, now almost fully rented, and a 300-room Hilton Hotel and convention center, scheduled to be com-pleted in July 1978. Federated Department Stores has completed a 500,000 square foot dis-tribution center in the park for its Abraham &

Straus division.

'"'!:'~~-~~'""":!"""l,.P.

Hartz has also acquired additional land in the meadowlands and plans to build a 1.5 mil-

__ -'!'_....;,.-_~...._ lion square foot shopping mall, 1.5 million New corporate center, Bellemead Development Corporation, Lyndhurst.

Gene Heller, President of Hartz Mountain I ndustnes, and Raymond Newman, Vice President of Industrial Development, discuss Meadowland expansion plans.

14 square feet of campus-type office and research buildings, and 2 million square feet of industrial commercial space. Its tenants include Interna-tional Business Machines Corporation, S.B.

Penick & Company, Rolls-Royce Ltd., and Wedgwood, Ltd.

Wedgwood, which recently established its U.S. headquarters and a major distribution facil-ity in Lyndhurst, is one of many foreign com-panies to locate within PSE&G's service territory.

New Jersey is now the U.S. base for more foreign companies than any other state. The largest number of foreign firms located here continues to be Japanese although many coun-tries are represented in New Jersey through commercial or industrial facilities. Japanese companies which established new facilities in the State during 1977 include Yashica, Inc., Mit-subishi Boeki, Inc., Komatsu America, Marubeni America, Miida Electronics, and Sumitomo Machinery.

Large American companies which located manufacturing operations in PSE&G territory during 1977 included E.I. duPont de Nemours, Ciba-Geigy, and Spiegel Company. In addition, Mattel, Inc. broke ground for a 375,000 square foot plant in Edison, and Tuck Industries plans to buy a 1.1 million square foot complex in Passaic, 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.

Paramus Park, one of Bergen County's newest shopping malls.

New Jersey has the nation's second highest per capita income 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.

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."

Although a number of companies started or announced plans to start new facilities for man-ufacturing in New Jersey, the State continues to suffer an erosion of its manufacturing base. The combination of strict environmental regulations, and the relatively high costs of land, labor, and taxes, have contributed to a steady decline for production operations. The growth potential of the New Jersey metropolitan area has also been diminished by the shifts of population and mar-kets to other regions. While the State's proximity to major markets remains a strongly competitive factor. this appeal -

when weighed against other costs of operating in New Jersey -

is be-New Jersey leads the nation in the number of foreign firms located within its boundaries. Japanese firms outnumber all others, citing New Jersey's location in the center of one of the world's richest markets - and its unsurpassed transportation coming less attractive to manufacturers. Several large industrial companies eliminated, curtailed, or moved their operations from New Jersey in 1977.

As a partial counter to this, several plastics companies, publishing firms and other large users of energy have moved from New York City to New Jersey. Plans to build a $95 million steel plant in Perth Amboy were completed in 1977.

The site for the steel rod production facility was chosen by Raritan River Steel Company, a sub-sidiary of Co-Steel International, Ltd., Canada, because it is in the center of the largest scrap steel market on the East Coast.

network - as being the most important factors in choosing this state. Representative companies as shown in these photographs are: (1) Panasonic, (2) Minolta and (3) Yashica.

15

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.

16 Newark, New Jersey*s largest city, 1s also one of the nation's ma1or "college towns." More than $300 million has been invested 1n expanding higher learning facilities and approximately 24,000 students are enrolled 1n five educational institutions. They are:

1) New Jersey College of Medicine and Dentistry, 2) Seton Hall University, 3) New Jersey Institute of Technology, 4) Rutgers University and 5) Essex County College. The schools are within blocks of each other and occupy more than 90 acres of land near the heart of Newark's business district.

New building in Newark - either under construction or on the planning board - presently totals an impressive $200 million.

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

Community Involvement Environmental Affairs Communications Human Resources As a company whose operations are increasingly affected by the understanding of the members of the various communities within its service ter-ritory, PSE&G has become involved with many educational, civic and cultural organizations.

Through its Consumer Affairs, Urban Af-fairs, and Community Relations Departments, PSE&G has initiated and participated in many programs intended to serve a broad spectrum of needs. Many of these programs were designed to help the urban poor attain a fair chance for educational, cultural and economic parity.

PSE&G has also provided financial support and counseling for minority students, at both sec-ondary and college levels.

Company personnel served a wide variety of community organizations such as the Newark Boys Chorus School, the Newark Community The Company has continued to meet frequently with representatives of federal and state gov-ernment environmental agencies.

The Environmental Affairs Department rep-resents the Company at public meetings on en-vironmental matters. It also presents a wide range of information programs on energy and the environment to the general public.

We maintained a broad communications pro-gram in 1977 and an important facet of it was our investor relations program. We again pro-vided a regular flow of information on develop-ments at PSE&G to security analysts, portfolio managers, institutional investors and other pro-fessionals in the investment community. Com-pany executives addressed several investment industry meetings and participated in a number of investment-oriented seminars. PSE&G also arranged several formal meetings with stock brokers in New Jersey. These meetings held at central locations provided brokers and individual investors with pertinent information on current developments at PSE&G.

In recognition of the increasing importance of European institutions as a potential source of capital, we held meetings in September with banking and investment executives in five key European financial centers. The meetings, held in London, Paris, Frankfurt, Zurich and Geneva, The number of Company employees at year end totaled 13,339, essentially unchanged from 1976.

Wages and salaries for the year totaled

$259,925,000, including $9,399,000 for disabil-ity benefits and compensation. Negotiations Center of the Arts, the Day Care Coordinating Council of Essex County, the New Jersey State Special Olympics, and the State Resource Mobilization Council. Special seminars were held for Senior Citizens to discuss their areas of special interest as well as concerns of the Com-pany. Art contests were conducted for high school students with exhibits held in our Com-mercial Offices.

PSE&G's Urban Affairs Department initiated a series of management training programs for executives of non-profit service agencies. The programs exemplified continued support of or-ganizations which serve disadvantaged urban populations and also recognize that few com-munity agencies have the structure or means to develop effective management methods and skills.

As environmental regulations become more complex and demanding, the cost of complying with these regulations becomes a matter of increasing concern for both the cus-tomers and the stockholders of an electric and gas utility. PSE&G spent about $168 million in its continuing effort to achieve a cleaner environ-ment during 1977.

were designed to develop investment interest in PSE&G.

Our Community Relations Department reached many audiences through its film, slide and lecture programs. More than 1,500 presentations on energy, conservation and other topics related to our industry were made to civic, social, and school audiences totaling more than 220,000 persons in 1977.

Under the direction of our Environmental Affairs Department, our Speakers' Bureau gave 327 talks to 13,400 people. The Second Sun, the Company's floating energy information center, was visited by 45,000 people and our Salem Visitors' Center had 10,000 visitors. The depart-ment also conducted generating station tours for 2,800 visitors and sponsored high school education programs for 200,000 students.

The Information Services Department con-tinued to be available round-the-clock, seven days a week, for the press, radio and television.

covering union-represented employees resulted in new three-year agreem ents providing for gen-eral wage increases of 7% the first year, effective May 1, 1977, and 6.69% the second year. There will be a wage reopener for the third year which begins on May 1, 1979. The agreements, ratified 17

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 Service Mechanic. 1st Class 18 by all of the seven unions representing PSE&G employees, also provide improvements in ben-efit programs and a resumption of employee contributions to health plan premiums.

The Company established a Human Re-sources Department in 1977 to consolidate employee-related activities and to emphasize the importance of human resources activities under senior management leadership. The new Lyn Horvath Stock Handler department contains the former Personnel De-partment, the Equal Opportunities group, and the Industrial Relations groups.

The Company has continued to stress its Affirmative Action program in relation to the employment of women and members of minor-ity groups. In 1977, 25% of all persons hired were women and 26% were from minorities. At the end of 1977, the Company had 1,783 female

Energy Development Corporation Energy Development Corporation explores for gas in the Gu~ of Mexico. In 1977, EDC participated in the successful drilling of 18 gas wells and 1 oil well. EDC has an increasing involvement in offshore drilling and has been successful in obtaining interest in 16 blocks off the Jersey coast.

employees and 1,630 employees from minority groups. The Affirmative Action Program resulted in a sizeable increase in the number of women and minority group persons in professional and managerial positions in 1977 as compared to the previous year.

As part of the continuing effort to improve managerial effectiveness, PSE&G expanded its management development activity by initiating a Company Job Rotation Program. As a further indication of the Company's encouragement of self-development, a total of 545 employees at-tended job-related courses during the year at nearby colleges under the Company's Tuition Aid Program. In April, the Company also intro-duced an Internal Career Opportunity System (ICOS) designed to inform employees of job vacancies in non-union and certain supervisory Energy Development Corporation (EDC), the Company's exploration subsidiary broadened its operations in 1977 as part of its continuing ef-forts to locate and develop new sources of natural gas, primarily in the Texas and Louisiana Gulf Coast areas.

In 1977, $13.8 million was expended for ex-ploration, $4.3 million for development, and

$3.6 million to acquire offshore leases. EDC earned $1,213,000 in 1977 compared to

$938,000 in 1976. Revenues from the sales of oil and gas were $8,227,000, compared to

$4,741,000 in 1976.

To spread the economic risks inherent to ex-ploration, and also to help accelerate its offshore drilling, EDC entered into 3-year exploration positions. !COS is expected to result in a more efficient use of employee skills.

In November, the Company distributed a comprehensive manual covering details of the Employee Benefits Program to all employees.

The manual, a two-year project, is intended to play a major role in PSE&G's efforts to com-municate more effectively with its employees.

During the year the Company also im-plemented a computerized Employee Informa-tion System to centralize and consolidate per-sonnel records. Employees were given individual statements containing the information in the system. This will be an annual procedure which not only will keep employees informed of the information maintained about them by the Company but also will improve the Company's ability to keep the information up-to-date.

agreements with Cincinnati Gas and Electric Company and Philadelphia Electric Company for combined annual commitments of $4 mil-lion for the first 12 months. The two utilities have agreed to pay 41.7% of the exploratory costs for a 31.3% interest in any oil or gas discoveries.

EDC last year participated in the drilling of 33 exploratory wells and 12 development wells, both onshore and in the offshore waters of the Gulf of Mexico. Onshore activities are concen-trated in the coastal areas of Texas and Louisiana. In 1977, EDC's onshore operations resulted in the drilling of 6 successful gas wells, 1 successful oil well, and 6 dry holes. At year end, EDC was in the process of drilling 5 additional onshore wells.

During the year, EDC obtained regulatory ap-proval to transport gas from two additional on-shore fields to PSE&G's market area. At the end of 1977, production from EDC wells was being delivered to PSE&G at the rate of 111,000 therms a day compared to 48,000 therms a year earlier.

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

PSE&G Research Corporation summer of 1979.

EDC's participation with the Transco group last year in bidding for additional blocks in the Gulf of Mexico resulted in six successful bids. Of EDC's bids of $15.2 million, it was successful in winning shares totaling $3.6 million. With ac-quisition of these new blocks, EDC now owns shares in 29 offshore blocks with interest partici-PSE&G Research Corporation was formed in 1977 as a wholly-owned subsidiary of PSE&G to more effectively direct the parent company's re-search and development program. obtain in-creased outside research support and diversify its testing capability to meet industrial needs.

The new corporation was formed by combining Artist's rendering of BEST (Battery the Research and Development Department and Energy Storage Test) Facility which is expected to play a vital the Energy Laboratory.

role in developing new types of In addition to conducting research and de-batteries for storing energy during velopment programs related to current and periods of low demand for use during peak requirements. Large long-range energy problems, the new subsidiary systems, if successful, could cut will explore other areas of technology as poten-u S oil imports by as much as one tial new ventures for the parent corporation. The million barrels a day.

Energy Laboratory will make its resources of Harold Sonn, President of PSE&G Research Corporation, being interviewed by NBC's Jim Collis at the BEST Facility ground-breaking ceremonies.

Local and national leaders help to officially launch construction of the $8.7 million BEST Facility.

specialized test equipment and the services of its personnel available on a commercial basis to other industries.

One new venture is the establishment of an Aquaculture Research Center. The Mercer Aquaculture facility, which became operational pations ranging from 1.4% to 33.3%. The offshore blocks include 13 in the Gulf of Mexico where exploratory drilling on most blocks was completed by the end of the year. EDC also owns interest in 16 blocks off the Atlantic Coast where drilling has been delayed by court action.

Drilling is expected to start, however, on several blocks in 1978.

in 1974, was expanded during 1977 to a pro-totype commercial aquaculture facility designed to demonstrate the economic feasibility of rais-ing commercial size fresh water fish in warm water discharged from power plants. Expansion of the Mercer facility was financed by grants from the National Science Foundation totaling

$1.1 million. the largest grant ever awarded under the Foundation's Research Applied to Na-tional Needs program. The expanded facility's first crop, some 58,000 trout, is expected to be ready in the spring of 1978, and will be marketed to commercial food processors. If the larger-scale project proves to be economically feasible, it could aid in development of an aquatic food industry.

Due to its experience in testing large elec-trical systems, PSE&G was selected as host util-ity for the Battery Energy Storage Test (BEST)

Facility. Construction on the $8.7 million facility was started in 1977 and it is expected to be op-

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.

erational in 1980. It will be used as a national test center for advanced battery systems to evaluate their effectiveness when used by electric utilities to meet peak demands. Development of effi-cient and economic batteries for large-scale energy storage would permit power from nu-clear and fossil fuel generating stations pro-duced during periods of low demand to be stored for use at times of peak requirements.

Successful adaption of large-scale systems could pare our country's need for expensive oil imports by as much as one million barrels a day.

It could also reduce the need for greater capacity to meet peak loads. PSE&G will spend about

$1.5 million to provide the building, associated substation equipment, and the site, which is ad-jacent to a Company substation in Somerset County. The balance of the funding for the joint project will be supplied by the U.S. Department of Energy and the Electric Power Research Institute.

Along with eight other utilities, PSE&G is continuing to support research to develop a 26,000-kilowatt fuel cell power plant for large-scale power applications. A major milestone was reached when a 1,000 kilowatt fuel cell pilot powerplant was successfully tested by United Technologies Corporation in 1977. During the next phase, financed jointly by the U.S. Depart-ment of Energy and the Electric Power Research Institute, a 4,800 kilowatt fuel cell power plant will be installed and tested on an electric utility system.

PSE&G is also testing solar energy systems for residential use. During 1977, PSE&G Re-search Corporation installed and began testing 11 solar water heating, space heating and pool heating systems in customers' homes. Three additional installations will be completed in 1978 as part of a three-year test program costing ap-proximately $500,000. The testing will provide information on the performance of solar heating systems in our territory. Four weather stations have been operating since the spring of 1977 to provide comprehensive data for evaluation of this program.

While expanding its research operations, the new PSE&G enterprise will continue corpo-rate policy of seeking external funding for spe-cific programs from the Federal Government, research organizations and private industry. In 1977, PSE&G was awarded 8 research contracts involving over $1 million in outside financing.

The parent company also allocated $8.5 million for its own research and development work and to pay for its share of utility industry research.

21

Transport of New Jersey Energy Terminal Services Corporation Energy Pipeline Corporation Eascogas LNG, Inc.

22 Transport of New Jersey, a transportation sub-sidiary of PSEE.G, and Transport's wholly-owned operating transportation subsidiary, Maplewood Equipment Company, recorded a net loss of

$247,000 in 1977 after receiving $25,211,000 in operating assistance from the State of New Jer-sey to supplement fare box revenue. This com-Energy Terminal Services Corporation (ETSC), a wholly-owned subsidiary formerly known as Dis-trigas of New York Corporation, was renamed after its purchase by PSEE.G from Cabot Corpo-ration in 1976. The assets of ETSC primarily consist of a facility on Staten Island equipped to unload, process, and store liquefied natural gas (LNG). The terminal with two large storage tanks is about 95% complete. When completed, the facility will be able to deliver gas at an average rate of 3.6 million therms a day and a maximum daily capacity of 7.6 million therms. Additional construction has been suspended until the per-mits needed to import and store LNG can be Energy Pipeline Corporation, a wholly-owned subsidiary formerly known as Distrigas Pipeline Corporation, was acquired from Cabot Corpora-tion along with ETSC. Intended to construct and operate two pipelines to transport LNG from Eascogas LNG, Inc. became a wholly-owned subsidiary in 1977 when PSEE.G purchased the 50% interest held by Algonquin Gas Transmis-sion Corporation. Eascogas, formed in 1972 to import liquefied natural gas from Algeria, has been unable to secure approval for imports from pares to a net loss of $504,000 for the year 1976 after receiving $20,976,000 in operating assis-tance from the State of New Jersey.

Private Reinvestment Capital Corporation, a wholly-owned non-operating subsidiary of Transport, formed in 1977, had net income of

$420,000 for the year.

obtained from federal, state and other regulatory agencies.

Late in 1977, ETSC filed a motion with the Federal Energy Regulatory Commission (FERC) applying for "a conditional certificate of public convenience and necessity" for the LNG facility. The granting of a conditional certificate could be expected to help the Company in its continuing negotiations to reach an agreement on the importation of LNG with Sonatrach, Algeria's state-owned oil and gas company. Al-though ETSC requested FERC for a prompt reply on its application, the federal agency had taken no action by December 31.

the ETSC terminal on Staten Island to the PSEE.G system, this company is currently in a standby status. Although the pipelines have not been built, most of the pipe and valves have been bought and are now in storage.

federal authorities as a result of New York State legislation concerning terminalling, and other factors. PSEE.G has elected to restructure the import project on a reduced basis and is negotiating a new agreement with Sonatrach for 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.

Financial Statement Responsibility The management of PSE&G is responsible for the integrity and objectivity of the financial statements of the Company.

These statements, prepared by the Company in accordance with generally accepted accounting principles applied on a consistent basis, make full disclosure of the Company's financial affairs.

To facilitate the gathering of financial data, PSE&G maintains an accounting system established with sound ac-counting and business policies effectively communicated to the appropriate personnel. This system, together with its re-Summary of Significant Accounting Policies System of Accounts The Company is under the jurisdiction of the Federal Energy Regulatory Commission (FERC) and the Board of Public Utilities (BPU) of the State of New Jersey and maintains its accounts in accordance with their prescribed Uniform Sys-tems of Accounts, which are substantially the same. As a re-sult of the rate-making process the accounting principles applied by the Company differ in certain respects from those applied by non-regulated businesses.

Investments in Subsidiaries The Company's investments in its subsidiaries, which in the aggregate are not significant as defined by the Securities and Exchange Commission, are reported in the accompanying financial statements on the equity method of accounting.

Revenues Revenues are recorded based on estimated service rendered, but are generally billed to customers through monthly cycle billings on the basis of actual usage.

Fuel Costs The Company projects the costs of fuel for electric genera-tion, interchanged power, gas purchased and materials for gas produced for twelve month periods. Adjustment clauses in the Company's rates allow the recovery of the excess of such projected costs over those included in the Company's basic rates through levelized monthly charges over the period of projection. Any under-or-over recoveries are deferred and reflected in subsequent periods. Fuel costs are charged to operations in the period in which they are recovered. Deferred amounts under this procedure are classified as current items.

Prior to July 1, 1977, the date of establishment of the levelized electric adjustment clause, the Company recovered increases in electric energy costs approximately two months subsequent to their incurrence and charged operations in the period in which these costs were recovered. The balance of unrecovered electric fuel costs remaining from this procedure is classified as a deferred debit and is being amortized through basic rates in accord with a rate order of the BPU.

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

Management feels the effectiveness of this system is en-hanced by a program of continuous and selective training of our employees.

The Board of Directors carries out its responsibility of financial disclosure through the Audit Committee consisting of five outside directors. The Audit Committee meets periodi-cally with management as well as representatives of the inter-nal and independent auditors to review the work of each, en-suring that their respective responsibilities are being carried out, and to discuss related matters. Internal and independent auditors have full and free access to the Audit Committee.

Prior to January 2, 1976, the date of the levelized gas adjustment clause, increases in costs of purchased gas and materials used to produce gas were recovered in months subsequent to their incurrence and were charged to opera-tions principally as they were incurred. An unrecovered gas balance of $12,487,000, which is not included in a new levelized rate established December 2, 1977, will be consid-ered for rate base treatment, with appropriate amortization, in the Company's current rate case.

Amortization of Nuclear Fuel Nuclear energy burnup costs are charged to fuel expense on the basis of the number of units of thermal energy produced as they relate to total thermal units to be produced over the life of fuel. The rate calculated for fuel used at the Company's Salem plant includes a provision for estimated future storage and disposal costs. In accordance with procedures estab-lished by the operating company of the Peach Bottom plant, the rates for fuel used at that plant assume a zero net salvage.

Depreciation and Utility Plant Depreciation, for financial reporting purposes, is computed under the straight-line method and is based on estimated av-erage remaining lives of the several classes of depreciable property. These estimates are reviewed continuously and ad-justments, as approved by the BPU, are made as required.

Depreciation applicable to nuclear plant provides for esti-mated costs of dismantling or decommissioning. Deprecia-tion provisions for the years 1977 and 1976 stated in percent-ages of original cost of depreciable property are 3.51% and 3.39%, respectively.

The cost of maintenance, repairs and replacements of minor items of property is charged to appropriate expense accounts. The cost of replacements of units of property is charged to Utility Plant. At the time depreciable properties are retired or otherwise disposed of, the original cost less net sal-vage value is charged to the appropriate accumulated provi-sion for depreciation.

Income Taxes The Company and its subsidiaries file a consolidated Federal income tax return and income taxes are allocated, for report-23

ing purposes, to the Company and its subsidiaries based on the taxable income or loss of each.

Deferred income taxes are provided for differences be-tween book and taxable income to the extent permitted by the BPU or other regulatory agencies for rate-making pur-poses.

Investment tax credits are deferred and amortized over the average life of the related plant.

Allowance for Funds Used During Construction Allowance for Funds Used During Construction (AFDC) is a cost accounting procedure whereby the approximate net composite interest and equity costs of capital funds used to finance construction are transferred from the income state-ment to Construction Work in Progress (CWIP) in the balance sheet. This procedure is intended to remove the effect of the cost of financing construction activity from the income statement, and results in treating such cost in the same man-ner as construction labor and material costs. The rate used for calculating AFDC was 8% in 1977 and 1976.

The BPU issued rate orders in 1975 allowing the Com-pany to recover the financing cost on $250,000,000 of CWIP through current operating revenues, and since then no AFDC has been accrued on this amount.

The FERC issued an order revising the Uniform Sys-tems of Accounts, effective January 1, 1977, which provides a formula for determining the maximum allowable AFDC rate, and for segregating AFDC into two component parts, debt and equity. The debt component for 1977 is included in the Interest Charges section of the Statement of Income as a credit and the equity component remains as part of Other Income. The Company has not reclassified AFDC into its debt and equity components prior to the effective date as it is felt the allocation would not be representative of the condi-tions which existed during that period. The rate currently used for calculating AFDC is 8% which is within the limits set 24 by the FERC formula. The Company does not expect any material change in its AFDC rate or adverse effects on the results of operations as a result of this order. However, earn-ings available for coverage tests under the provisions in the Company's Mortgage and Restated Certificate of Incorpora-tion will decrease by the amount of the debt component of AFDC. It is expected that this change will not affect the Com-pany's financing.

Pension Plan Pension costs are accounted for on the basis of an accept-able actuarial method and are charged to operating ex-penses, utility plant and other accounts. The Company's pol-icy is to fund pension costs accrued. In 1977 the Company increased its annual payment to the fund for prior service costs, thereby reducing the funding period, which began January 1, 1967, from 40 to 35 years.

Gross Receipts Tax As a result of rate orders received from the BPU, the Com-pany, effective January 1, 1973, began accruing gross receipts tax on current revenues rather than on the previous basis of taxes paid. The gross receipts tax on 1972 revenues was deferred and is being charged to operations by an amount equivalent to.5% of revenues subject to the gross receipts tax.

Unamortized Debt Expense Unamortized Debt Expense includes costs associated with the issuance or reacquisition of debt. Such amounts consist principally of costs associated with the Company's tender offer for mortgage bonds in May 1977. In accordance with BPU approval, these amounts are deferred and amortized over the lives of the related issues.

Extraordinary Property Losses Extraordinary Property Losses are deferred and amortized over periods prescribed by the BPU, the longest of which ends December 1, 1993.

Statement of Income For the Years Ended December 31, Operating Revenues Electric Gas Total Operating Revenues Operating Expenses Operation Fuel for Electric Generation Interchanged Power-net Gas Purchased and Materials for Gas Produced Other Operation Expenses Maintenance Depreciation Taxes Other than Federal Income Taxes Federal Income Taxes (note 1)

Total Operating Expenses Operating Income Other Income Allowance for Funds Used During Construction Debt and Equity Equity Miscellaneous Other Income-net Earnings of Subsidiaries-net (note 2)

Total Other Income Income Before Interest Charges Interest Charges Long-Term Debt Short-Term Debt Other Allowance for Funds Used During Construction - Debt Net Interest Charges Net Income Dividends on Cumulative Preferred Stock and

$1.40 Dividend Preference Common Stock Balance Available for Common Stock Shares of Common Stock Outstanding End of Year Average for Year Earnings per average share of Common Stock Dividends paid per share of Common Stock 1977 1976 (Thousands of Dollars)

$1,470,118 562,677 2,032,795 416,760 120,041 257,897 253,831 124,876 147,652 293,796 120,969 1,735,822 296,973 32,028 852 595 33,475 330,448 129,782 1,892 2,044 (17,512) 116,206 214,242 45,065

$ 169,177 59,805,916 59,243,392

$2.86

$1.92

$1,316,077 553,458 1,869,535 362,257 121,917 261,190 227,395 99,617 133,087 275,254 100,380 1,581,097 288,438 43,547 1,928 726 46,201 334,639 127,643 359 2,613 130,615 204,024 41,257

$ 162,767 58,975,747 58,307,947

$2.79

$1.78 See Summary of Significant Accounting Policies and Notes to Financial Statements.

25

Balance Sheet December 31.

Assets Utility Plant-original cost Electric Plant Gas Plant Common Plant Utility Plant in Service Less Accumulated Depreciation Net Utility Plant in Service Construction Work in Progress Nuclear Fuel, net of accumulated amortization -

1977, $5,868; 1976, $20 Plant Held for Future Use, net of accumulated depreciation -

1977, $3; 1976, $3 Net Utility Plant Other Property and Investments Nonutility Property, net of accumulated depreciation-1977, $183; 1976, $380 Investments in and Advances to Subsidiaries (note 2)

Total Other Property and Investments Current Assets Cash (note 3)

Accounts Receivable, net of accumulated provision for doubtful accounts-1977, $4,378; 1976, $4,039 Unbilled Revenues Fuel, at average cost Underrecovered Electric Fuel Costs Underrecovered Gas Costs Materials and Supplies, at average cost Prepayments Total Current Assets Deferred Debits Gross Receipts Tax Electric Fuel Costs Unamortized Debt Expense Extraordinary Property Losses Total Deferred Debits Total 1977 1976 (Thousands of Dollars)

$3,665,195 849,272 72,767 4,587,234 1,309,045 3,278,189 955,772 82,480 22,740 4,339,181 6,379 135,535 141,914 23,746 179,064 101,520 127,271 8,511 7,965 16,651 5,458 470,186 86,437 55,893 26,309 5,577 174,216

$5,125,497

$3,219,349 843,315 41,948 4,1 04,612 1,194,444 2,910,168 1,057,152 72,352 21,147 4,060,819 6,535 117,354 123,889 26,728 168,604 99, 113 102,570 15,801 2,367 415,183 96,397 43,492 2,241 6,761 148,891

$4,748,782 See Summary of Significant Accounting Policies and Notes to Financial Statements.

26

Liabilities Capitalization Common Equity Common Stock (see statement. page 29)

Premium on Capital Stock Paid-In Capital Retained Earnings Reinvested in Business (note 4)

Total Common Equity Preferred Stock (see statement, page 29)

Total Stockholders' Equity Long-Term Debt (see statement, page 30)

Total Capitalization Current Liabilities Long-Term Debt due within one year (see statement, page 30)

Commercial Paper (note 5)

Accounts Payable Taxes Accrued, including gross receipts tax-1977, $281,326; 1976, $257,498 Deferred Income Taxes (note 1)

Interest Accrued Gas Purchased Overrecovered Gas Costs Other Total Current Liabilities Deferred Credits Accumulated Deferred Income Taxes (note 1)

Accumulated Deferred Investment Tax Credits (note 1)

Other Total Deferred Credits Commitments and Contingent Liabilities (note 7)

Total 1917 1976 (Thousands of Dollars) 919,752 557 26,065 651,885 1,598,259 589,994 2,188,253 1,980,897 4,169,150 5,816 96,892 67,126 304,625 56,639 31,499 30,375 33,448 626,420 205,214 117,312 7,401 329,927

$5,125,497

$ 900,384 550 26,065 596,745 1,523,744 559,994 2,083,738 1,894,210 3,977,948 37,136 4,700 66,457 276,410 39,991 33,1 83 27,202 15,798 31,432 532,309 147,130 83,735 7,660 238,525

$4,748,782 27

Statement of Retained Earnings Reinvested in Business For the Years Ended December 31,

Balance January 1 Add Net Income Total Deduct Cash Dividends Preferred Stock at required annual rates

$1.40 Dividend Preference Common Stock Common Stock Total Cash Dividends Capital Stock Expenses Total Deductions Balance December 31 (note4)

Statement of Changes in Financial Position For the Years Ended December 31, Source of Funds:

Net Income Non-cash Items:

Depreciation Amortization of Nuclear Fuel Amortization of Gross Receipts Tax Amortization of Deferred Electric Fuel Costs Provision for Deferred Income Taxes-net Investment Tax Credit Adjustments -net (note 1)

Allowance for Funds Used During Construction Equity in Net Earnings of Subsidiaries Other Total from operations Proceeds from sales of:

Long-Term Debt Preferred Stock Common Stock Total Security Sales Total Funds Provided Application of Funds:

Additions to Utility Plant, excluding allowance for funds used during construction Investments in and Advances to Subsidiaries Reductions of Long-Term Debt Cash Dividends Deferred Electric Fuel Costs Miscellaneous Total Funds Applied Changes in Working Capital:

Short-Term Debt-(lncrease) Decrease Other (net)- Increase (Decrease)

Net Decrease in Working Capital Total Funds Applied and Changes in Working Capital See Summary of Significant Accounting Policies and Notes to Financial Statements.

28 1977 1976 (Thousands of Dollars)

$596,745

$540,041 214,242 204,024 810,987 744,065 43,184 39,462 1,881 1,881 113,735 103,609 158,800 144,952 302 2,368 159,102 147,320

$651,885

$596,745 1977 1976 (Thousands of Dollars)

$214,242

$204,024 150,195 135,833 5,848 20 9,960 9,182

• 5,208 5,208 58,084 44,302 33,577 49,966 (49,540)

(43,547)

(l,387)

(434) 1,880 781 428,067 405,335 183,714 132,526 29,942 48,163 19,136 44,086 232,792 224,775

$660,859

$630,110

$381,135

$307,029 16,794 28,877 121,738 190,504 158,800 144,952 17,609 3,278 3,891 3,135 699,967 677,775 (92,192) 5,300 53,084 (52,965)

(39,108)

(47,665)

$660,859

$630,110

Statement of Capital Stock December 31.

Cumulative Preferred Stock

$100 par value-authorized 7,500.000 shares Series issued:

4.08%

4.18%

4.30%

5.05%

5.28%

6.80%

9.62%

7.40%

7.52%

8.08%

7.80%

7.70%

12.25% (note B) 8.16% (1977)

Unissued-2,500,058 shares

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

9.75%

8.70% (1976)

Unissued-6,400,000 shares Outstanding Shares 250,000 249,942 250.000 250.000 250.000 250,000 350,000 500,000 500,000 150,000 750,000 600,000 350,000 300,000 1,600,000 2,000,000 Total Cumulative Preferred Stock (note C)

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)

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:

1977 1976 (Thousands of Dollars)

$ 25,000 24,994 25,000 25,000 25,000 25,000 35,000 50,000 50,000 15,000 75,000 60,000 35,000 30,000 40,000 50,000

$589,994

$919,752

$ 25,000 24,994 25,000 25,000 25,000 25,000 35,000 50,000 50,000 15,000 75,000 60,000 35,000 40,000 50,000

$559,994

$900,384 Current Redemption Price Per Share

$]03.00 103.00 102.75 103.00 103.00 106.00 109.50 106.00 106.00 106.00 106.00 108.49 112.00 108.90 27.50 27.00 Refunding Restricted Prior to (note A)

July 1. 1980 April 1, 1978 February 1, 1985 October 1. 1982 January 1, 1981 October 1, 1981 A -Prior to the date specified, none of the shares of each such series may be redeemed, other than through the opera-tion of a sinking fund, through refunding of such shares by the incurring of debt or the issuance of Preferred Stock where the cost of such debt or such Preferred Stock is less than the cost to the Company of each such series.

C -As of December 31, 1977 the annual dividend require-ment on Preferred Stock was $44,917,000 and the em-bedded dividend cost was 7.70%.

B - On February 1, 1980 and annually thereafter not less than 17,500 shares or more than 35,000 shares must be re-deemed through the operation of a sinking fund at a redemp-tion price of $100 per share plus accumulated and unpaid dividends to the date of such redemption. The sinking fund requirement to redeem not less than 17,500 shares is cumulative.

D - Each share of $1.40 Dividend Preference Common Stock is entitled to cumulative dividends, to two votes, and.

on liquidation or dissolution, to twice as much as each share of Common Stock.

E -lncludes 1,225,412 shares of Common Stock reserved for possible issuance under the Automatic Dividend Rein-vestment Plan and 336.730 shares for possible issuance under the Company's Tax Reduction Act Employee Stock Ownership Plan.

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

29

Statement of Long-Term Debt December 31, 1977 1976 First and Refunding (Thousands of Dollars)

Mortgage Bonds Series (note A) 2'l"s% June 1, 1979 53,430

$ 54,740 23/4% May 1, 1980 18,795 19,060 3V4% October 1, 1983 22,630 22,833 3V4% May 1, 1984 50,000 50.000 43/s% November 1, 1986 50,000 50,000 4'l"s% September 1, 1987 60,000 60,000 4%% August 1, 1988 60,000 60,000 5Vs% June 1, 1989 50,000 50,000 43/4% September 1, 1990 50,000 50,000 43/s% August 1, 1992 40,000 40,000 43/s% June 1, 1993 40,000 40,000 4%% September 1, 1994 60,000 60,000 43/4% September 1, 1995 60,000 60,000 6V4% June 1, 1997 75,000 75,000 7 % June 1, 1998 75,000 75,000 7%% April 1, 1999 75,000 75,000 9Vs% March 1, 2000 98,000 98,000 83/s% A May 15, 2001 69,300 69,300 7%% B November 15, 2001 80,000 80,000 7V2% C April 1, 2002 125,000 125,000 8V2% D March 1, 2004 90,000 90,000 12 % E October 1, 2004 (note B) 12,730 98,000 83/4% F April 1, 2006 60,000 60,000 8.45% G September 1, 2006 60,000 60,000 6.30% Pollution Control A October 1, 2006 14,300 14,300 8V4% H June 1, 2007 125,000 8Vs% I September 1, 2007 59,900 8 % June 1, 2037 7,463 7,463 5 % July 1, 2037 7,538 7,538 Total First and Refunding Mortgage Bonds

$1,649,086

$1,551,234 Notes:

A-The Company's Mortgage, securing the First and Refund-ing Mortgage Bonds, constitutes a direct first mortgage lien on substantially all property and franchises.

B-Reduced principally as a result of a tender offer in May 1977 at 127.75% of principal amount.

C-As of December 31, 1977 the annual interest re-quirement on Long-Term Debt was $132,960,000 of which

$108,793,000 was the requirement for First and Refunding Mortgage Bonds. The embedded interest cost on Long-Term Debt was 6.82%.

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

30 Debenture Bonds unsecured 4%% March 1, 1977 43/4% October 1, 1981 4%% October 1. 1983 53/4% June 1, 1991 7V4% December 1, 1993 9 % November 1, 1995 73/4% August 15, 1996 83/4% November 1, 1996 6 % July 1, 1998 Total Debenture Bonds Other Long-Term Debt 51123 Note due serially from May 15, 1977 to November 15, 1983 Total Long-Term Debt principal amount outstanding (note C)

Less amount due within one year (note D)

Long-Term Debt excluding amount due within one year (note D)

Add Net Unamortized Premium (Discount)

Long-Term Debt and Net Gnamortized Premium or Discount 1977 1976 (Thousands of Dollars) 33,010 28,008 45,599 32,438 63,000 65,308 49,187 18,195 334,745 3,120 1,986,951 5,816 1,981,135 (238)

$1,980,897 31,000 34,080 28,818 46,752 32,931 65,935 67,078 51.461 18,195 376,250 3,600 1,931,084 37,136 1,893,948 262

$1,894,210 D-The aggregate principal amount of requirements for sinking funds and maturities for each of the five years follow-ing December 31, 1977 is as follows:

Sinking Year Funds Maturities Total (Thousands of Dollars) 1978

$ 5,336 480 5,816 1979 9,559 53,730 63,289 1980 9,300 18,940 28,240 1981 8.300 31,480 39,780 1982 8,300 480 8,780

$40,795

$105.110

$145,905 For sinking fund purposes. certain First and Refunding Mortgage Bond issues require annually the retirement of the aggregate of $] 6, 150,000 principal amount of bonds or the utilization of bendable property additions at 60% of cost and the portion expected to be met by property additions has been excluded from the table above. Also, the Company may, at its option. retire additional amounts up to $6,200,000 an-nually through sinking funds of certain debenture bonds.

Notes to Financial Statements

1. Federal Income Taxes A reconciliation of reported Net Income with pre-tax income and of Federal income tax expense with the amount com-puted by multiplying pre-tax income by the statutory Federal income tax rate of 48% is as follows:

1977 1976 (Thousands of Dollars)

Net Income

$214,242

$204,024 Federal income taxes included in:

Operating income:

Current provision 8,660 6,033

• Provision for deferred income taxes-net 74,732 44,381 Investment tax credit adjustments-net 37,577 49,966 Total deferred 112,309 94,347 Total included in operating income 120,969 100,380 Miscellaneous other income-net 73 232 Total Federal income tax provisions 121,042 100,612 Total 335,284 304,636 Earnings of subsidiaries-net (595)

(726)

Pre-tax income

$334,689

$303,910 Tax expense at 48% of pre-tax income

$160,651

$145,877 Adjustments to pre-tax income, computed at 48%, for which deferred taxes are not pro-vided under current rate-making policies:

Tax depreciation in excess of book depreciation (1,545)

(6,126)

Allowance for funds used during construction (23,779)

(20,902)

Overhead costs capitalized (6,117)

(4,652)

Other 1,868 (600)

Total (29,573)

(32,280)

Amortization of deferred tax items (10,036)

(12,985)

Total (39,609)

(45,265)

Total Federal income tax provisions

$121,042

$100,612

• Represents the tax effects of the following items:

Current Liabilities Unbilled revenues

$1,155

$7,662 Unbilled fuel costs 15,493 (7,583) 16,648 79 Deferred Credits Additional tax depreciation 34,694 28,002 Repair allowance property 5,034 18,239 Gross receipts tax 1,281 1,653 Electric fuel costs 5,951 (925)

Loss on reacquired debt 11,598 Other (474)

(2,667) 58,084 44,302 Total

$ 74,732

$ 44,381 The balance of investment tax credits not utilized in 1977 in the amount of $12,000,000 is available as a carry-over to future years. The Tax Reduction Act of 1975 provides that, for the year 1976, investment tax credits can be utilized to offset 100% of tax liability and, for 1977, 90% of tax liability before investment credit.

The Company has a Tax Reduction Act Employee Stock Ownership Plan (TRASOP) under provisions of the Tax Reduction Act of 1975, as amended. Such provisions permit the Company to elect an additional 1 % investment tax credit if the Company transfers to a TRASOP an equivalent amount of its common stock or cash for the purchase of shares of common stock and thereby fund a TRASOP without cost.

Such additional credits amounted to $4,000,000 and

$610,000 for the years 1977 and 1976, respectively.

2. Investments in and Advances to Subsidiaries Investments in and advances to subsidiaries (including the Company's equity in undistributed earnings or losses) are summarized as follows:

December 31, 1977 1976 (Thousands of Dollars)

Transport of New Jersey Investment

$ 10, 192

$ 10,019 Energy Terminal Services Corporation Investment 3,098 3,097 Advances 75,085 69,598 Energy Pipeline Corporation Investment 1,000 1,000 Advances 396 400 Energy Development Corporation Investment 4,092 2,879 Advances 41,652 30,356 Eascogas LNG, Inc.

Investment 10 5

PSE&G Research Corporation Investment 10 Total

$135,535

$117,354 The Company owns all the outstanding capital stock of Energy Terminal Services Corporation (ETSC). An LNG ter-minal under construction on Staten Island is ETSC's only substantial asset The Company has made significant ad-vances to ETSC through interest bearing notes. PSE&G is negotiating for the importation of LNG from foreign sources and plans to use the terminal as the port of entry.

Construction on the terminal has been suspended until the necessary regulatory approvals, authorizations and per-mits are received as well as a supply of LNG for the operation 31

of the terminal facilities. The ultimate realization of the carry-ing value of this investment may depend, among other things, upon the Company's ability to find alternate uses for the facilities and the treatment granted by the BPU for rate-making purposes.

Any loss the Company may incur, if the above condi-tions are not resolved, is not presently determinable; however, in the opinion of the management of the Company such loss, if any, would not have a material effect on the financial posi-tion of the Company or the results of its operations. Until such time as these conditions are met, the Company will con-tinue its policy of not recognizing any income on this invest-ment. See also subsidiary corporations -

page 22.

3. Compensating Balances Cash at December 31, 1977 and December 31, 1976 con-sisted primarily of compensating balances under informal arrangements with various banks to compensate them for services and to support lines of credit of $190,650,000 and

$189,250,000, respectively. There are no legal restrictions placed on the withdrawal or other use of these bank balances.

4. Retained Earnings and Dividend Restrictions Certain indentures supplemental to the First and Refunding Mortgage, certain of the Debenture Bond indentures and the Restated Certificate of Incorporation, as amended, contain provisions relating to the payment of dividends on both Common Stock and $1.40 Dividend Preference Common Stock and provisions relating to the use of retained earnings.

The amount of retained earnings available for the payment of dividends as of December 31, 1977 was $641,885,000.

5. Short-Term Obligations Commercial paper represents the Company's unsecured bearer promissory notes sold to dealers at a discount hav-ing terms of nine months or less. Average interest rates and average and maximum outstanding balances of short-term obligations are as follows:

Maximum amount outstanding at any month-end Daily average outstanding (A)

Weighted average annual interest rate (B)

Weighted average interest rate for obligations outstanding at year end 1977 1976 (Thousa nds of Dollars)

$96,892

$32,457 5.83%

6.66%

$50,650

$ 6,439 5.58%

4.63%

(A) Computed by multiplying the principal amounts of short-term obligations by days outstanding and dividing the sum of the products by number of days during the period.

(B) Computed by dividing short-term interest expense by the daily average short-term obligations.

6. Pension Plan The Company has a non-contributory, trusteed plan cover-ing all employees who complete one year of service. As of December 31, 1977 the unfunded prior service cost was approximately $291,4 76,000 and vested benefits were ap-proximately $312,385,000. The market value of the plan assets, $130,667,000 at December 31, 1977, increased by

$11,486,000 as a result of contributions (net of pension pay-ments), investment income and a net decline in market value.

The Company's annual contribution is actuarially determined and provides for full funding by December 31, 2001.

32 Pension costs for the past two years, including contribu-tions of $17,126,000 in 1977 and $15,550,000 in 1976 net of payments to pensioners and expenses, were as follows:

Operating Expenses Utility Plant and Other Accounts Total Pension Costs

7. Commitments and Contingent Liabilities 1977 1976 (Thousa nds of Dollars)

$29,856

$27,398 8,991 8,606

$38,847

$36,004 The Company has substantial commitments as part of its construction program as well as commitments to obtain suf-ficient sources of fuel for electric generation and adequate gas supplies. Construction expenditures, excluding AFDC, of

$3.5 billion are expected to be incurred during the years 1978 through 1982. For detailed information see Construction Ex-penditures -

page 6, Nuclear Generating Facilities -

page 8, Fuel for Electric Generation -

page 9, and subsidiary cor-porations -

page 19.

As of December 31, 1977, the Company's expenditures applicable to the Atlantic Generating Station {Atlantic) were

$215 million. This amount excludes AFDC of $36 million and advances of $7 million for nuclear fuel enrichment. Be-cause of decreases in projected demand and uncertain rate of future growth, the Company requested and received a three-year delay in the delivery of the units by Offshore Power Systems. The Company and OPS also agreed that PSE&G's additional liability, in the event the contract is terminated on or before December 29, 1979, was approximately $60 million as of December 29, 1977 and PSE&G will continue to make provisional monthly payments of $2.5 million over the next two years. These payments are being made toward the ulti-mate completion of the project in anticipation that the neces-sary licenses and permits will be obtained. However, in the event of cancellation, they will serve to discharge our termina-tion liability.

No positive assurance can be given that the necessary licenses and permits will be obtained. If, as the result of future developments this project is not completed, the ultimate realization of our investment in these facilities, as with any major project of this type, will depend upon the sale of the Company's interests under the OPS contract and the treat-ment that is accorded the investment for rate-making pur-poses. For a further discussion of Atlantic, see Page 8.

Amendments adopted in 1975 to the Price-Anderson liability provisions of the Atomic Energy Act of 1954 became effective in August 1977. Under that Act, there is a limit of

$560 million on each nuclear generating unit in the United States for public liability claims that could arise from a nu-clear incident. In the event of any such incident, all owners of nuclear generating units licensed to operate would be re-quired to contribute toward satisfaction of such claims. The owners insure against this exposure by purchasing the maximum available private insurance (presently $140 mil-lion), and the remainder of $420 million is provided by indem-nity agreements with the Nuclear Regulatory Commission (NRC). Under the 1975 amendments to these provisions, the $420 million of NRC indemnity started to decrease in Aug-ust 1977 under a new system of retrospective premiums to be assessed against the owners of nuclear reactors after a nuclear incident if the damages exceed private insurance. In the event of such an incident, the Company, to the extent of its ownership participation, could be assessed at the rate of

$5 million for each licensed reactor owned, with a maximum assessment of $10 million per reactor in a year.

In a proceeding to which the Company is not a party, the United States District Court for the Western District of North Carolina issued a decision on March 31, 1977 to the effect that the $560 million limitation on liability described above is unconstitutional. This decision has been appealed to the Supreme Court of the United States. At this time, it is not possible to determine what effect the decision might have on the Company if it should be upheld on appeal. A contention that the limitation on liability is unconstitutional has also been made in an action against the Company and certain other utilities, which was commenced on October 6, 1977.

The Company is a member of Nuclear Mutual Limited (NML) which provides insurance coverages, up to $175 mil-lion, for property damage to nuclear generating facilities of member companies. In the event of losses at any plant cov-ered by NML, the Company would be subject to a maximum assessment of fourteen times its annual premium, which cur-rently would not be material for a single assessment.

The Company, under an agreement entered into in May 1972, agreed to provide a limited guaranty of not more than

$76,000,000 of the legal obligations of the Company's un-consolidated subsidiary, Transport of New Jersey (Transport) under its pension plan in the event Transport failed to meet such obligations, limited to pension benefits accrued to the date of the agreement. As of December 31, 1977, the actuar-ially computed value of the Company's obligation under the guaranty was approximately $49,900,000. Under an interpre-tation of the Employee Retirement Income Security Act of 1974, the Company could be liable to the Pension Benefit Guaranty Corporation, a corporation established within the United States Department of Labor, for deficiencies in plan assets if the subsidiaries' pension plans were terminated. As of December 31, 1977 vested benefits of the Company's sub-sidiaries' pension plans exceeded the fund* assets by approx-imately $76,000,000. Any payments made under the guar-anty would have the effect of reducing the Company's poten-tial liability to the Pension Benefit Guaranty Corporation.

8. Replacement Cost (Unaudited)

The impact of the rate of inflation experienced in recent years has resulted in replacement cost of productive capacity which is greater than the historical cost of such assets as reported in the Company's financial statements. It is anticipated that the actual cost of replacing productive capacity, when incurred, will be recovered through depreciation recognized, together with a return on the unrecovered investment thereon, in future rates allowed by regulatory bodies in the same man-ner that historic costs and returns on investments are being recovered in current rates. In compliance with reporting requirements of the Securities and Exchange Commission, estimated replacement cost information is disclosed in the Company's annual report to the SEC on Form 10-K.

9. Accounting for Leases The Company has certain leases for property and equipment which meet the criteria for capitalization, but in accordance with rate-making treatment are accounted for as operating leases. The capitalization of such leases would not have a significant effect on assets, liabilities or operating expenses.

10. Other Matters Information regarding rate relief appears on page 6 and in-formation describing financing during the year 1977 and subsequent to December 31, 1977 appears on page 7, and information regarding discussions with New Jersey Natural Gas Company as to a possible merger appears on page 3.

11. Financial Information by Business Segments Operating Revenues Operating Income*

Depreciation Additions to Utility Plant (excluding AFDC)

Net Utility Plant Gas Exploration Subsidiary and LNG Program Electric Gas Total (Thousands of Dollars)

For the Year Ended December 31, 1977

$1,470,11 8

$562,677

$2,032,795

$ 250,385

$ 46,588

$ 296,973

$ 109,093

$ 38,559

$ 147,652

$ 351,762

$ 29,373

$ 381,135 December 31, 1977

$3,779,534

$559,647

$4,339,18 1 125,333 Other Corporate Assets 125,333 660,983 Total Assets

• Net of Federal Income Tax

$5,125,497 97,961

$ 23,008

$ 120,969

12. Selected Quarterly Data (Unaudited)

The information shown below in the opinion of the Company includes all adjustments, consisting only of normal recurring accruals, necessary to a fair presentation of such amounts.

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

34 Operating Statistics (000 omitted where applicable)

Electric Revenues from Sales of Electricity (a)

Residential Commercial Industrial Public Street Lighting Total Revenues from Sales to Customers Interdepartmental Total Revenues from Sales of Electricity Other Electric Revenues Total Operating Revenues Energy Adjustment Revenues (included above)

Sales of Electricity -

kilowatthours (a)

Residential Com mercial Industrial Public Street Lighting Total Sales to Customers Interdepartmental Total Sales of Electricity Kilowatthours Produced, Purchased, and Interchanged -

net Load Factor Heat Rate -

Btu of fu el per net kwh generated Net Installed Generating Capacity at December 31 -

kilowatts Net Peak Load -

kilowatts (60-minute integrated)

Cooling Degree Hours Average Annual Use per Residential Customer -

kwh Meters in Service at December 31 Gas Revenues from Sales of Gas (a)

Residential Commercial Industrial Street Lighting Total Revenues from Sales to Customers Interdepartmental Total Revenues from Sales of Gas Other Gas Revenues Total Operating Revenues Raw Materials Adjustment Revenues (included above)

Sales of Gas -

therms (a)

Residential Commercial Industrial Street Lighting Total Sales to Customers Interdepartmental Total Sales of Gas Gas Produced and Purchased -

therms Effective Daily Capacity at December 3 I -

therms Maximum 24-hour Gas Sendout -

therms Heating Degree Days (a)

Average Annual Use per Residential Customer -

therms Meters in Service at December 31 (a) Starting in 1973. revenues and sal es by custom er classificatio n include accrued and unbilled dollar amounts and sales volumes from meter reading date to the end of the calendar year. To better match temperature effects on 1977 1976

$ 492,473

$ 443,531 531.118 474.791 414,058 367,470 27,622 25,863 1,465,271 1,311,655 1.916 1,585 1,467,187 1,313,240 2,931 2,837

$1,470,118

$1,316,077

$ 257,902

$ 307,530 7,769,629 7,711,953 9,747,908 9,514,574 10,627,734 10,472,054 259,277 259,151 28,404,548 27,957,732 38,331 34,996 28,442,879 27,992,728 30,771,719 30,376, 187 50.93 55.9%

10,677 10,593 9,247 8,741 6,895 6,190 8,269 6,513 5,403 5,395 1,704 1,697

$ 344,444

$ 342,524 137,811 140,809 78,474 68,341 178 159 560,907 551,833 572 476 561,479 552,309 1,198 1,149

$ 562,677

$ 553,458

$ 113,787

$ 154,526 980,570 1,045,627 432,810 468,761 329,211 307,949 376 389 1,742,967 1,822,726 2,064 1,764 1,745,031 1,824,490 1,811,019 1,895,041 18,933 19,449 14.006 12,803 5,155 5,349 862 924 1,350 1,354

% Annual lncrease-1977 compared with 1976 1967 11.03 13.70 11.86 15.48 12.68 13.82 6.80 9.54 11.71 14.24 20.88 15.46 11.72 14.25 3.31 23.97 11.70 14.26 (16.14) 29.56

.75 4.21 2.45 6.27 1.49 1.01

.05 1.66 1.60 3.42 9.53 4.36 1.61 3.42 1.30 3.48

.79

.23 5.79 6.06 11.39 4.82 26.96 6.50

.15 3.48

.41

.58

.56 9.23 (2.13) 12.38 14.83 12.84 11.95 8.74 1.64 10.38 20.17 10.23 1.66 10.38 4.26 22.85 1.67 10.40 (26.36) 26.18 (6.22)

.82 (7.67) 3.56 6.90

.97 (3.34)

( 1.84)

(4.38) 1.46 17.01

(.10)

(4.36) 1.45 (4.43) 1.39 (2.65) 4.66 9.40 4.16 (3.63)

(.37)

(6.71)

.45

(.30)

37 these record ed sales. heating degree days are also reported on a calend1 year basis effective with 1973. For years prior to 1973. heating degree da remain on a sales-year basis.

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 Operating Revenues Electric Sl,470,118 72

$1,316.077 70 Gas 562,677 28 553.458 30 Total Operating Revenues 2,032.795 100 1,869.535 100 Operating Expenses Fuel for Electric Generation 416.760 21 362.257 20 Interchanged Power -

net 120,041 6

121,917 7

Gas Purchased and Materials for Gas Produced 257.897 13 261.190 14 Other 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 Income Taxes 293,796 14 275.254 15 Federal Income 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 Allowance for Funds Used During Construction (Debt and Equity) 49,540 2

43.547 3

Other Income -

net 1,447 2.654 Interest Charges (133,718)

(7)

(130,615)

(7)

Income before cumulative effect of a change in accounting method 214,242 10 204,024 11 Cumulative effect to January 1. 1973 of accruing estimated unbilled revenues of $41.488, net of related taxes Net Income 214,242 10 204,024 1 I Preferred Stock Dividends 45,065 2

41.257 2

Balance Available for Common Stock

$ 169, 177 8

$ 162.767 9

Shares of Common Stock Outstanding End of Year 59.806 58.976 Average for Year 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 Bonds 330,812 8

341.511 9

Other Long-Term Debt 2.640 3,120 Total Long-Term Debt 1,980,897 48 1.894.210 48 Preferred Stock 589,994 14 559,994 14

$1.40 Dividend Preference Common Stock and Common Stock 919,752 22 900.384 22 Premium on Capital Stock 557 550 Paid-In Capital 26,065 26.065 l

Retained Earnings 651,885 16 596.745 15 Total Common Equity 1,598.259 38 1.523.744 38 Total Capitalization

$4, 169.150 100

$3.977.948 100 (a) See Summary of Significant Accounting Policies, page 23, and Notes to (c) Balance available for S 1.40 Dividend Preference Comm on Stock a Financial Statements, page 31.

Comm on Stock divided by the 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 Amount 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 1 1 150.023 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 81,181 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

$1.55112 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 Net Incom e plus Inco m e Taxes. Investm ent Tax Credits and Fixed (e) Total Com m on Equity divided by year-end Common Stock shares plus

~ rges divided by Fixed Charges. Fixed Charges inc lude Interest on doubled the $1.40 Dividend Preference Common Stock shares.

g-Term and Short-Term Debt and Other Interest Expense.

37

Managem~nt's Discussion and Analysis of the Statement of Income The following factors had a significant effect on the Com-pany's results of operations for the periods indicated.

Electric Operating Revenues Increases in electric operating revenues since 197 4 have been due principally to rate increases and greater sales in 1976 and 1977. After a 3% decline in 1975, kilowatthour sales have increased 4% and 2%, respectively, in 1976 and 1977.

These increases resulted from slightly improved economic conditions and higher than normal temperatures in the summer of 1977.

Gas Operating Revenues Increases in gas operating revenues in the years 1975 and 1976 were primarily attributable to rate increases, greater re-covery of increased raw material costs through the adjust-ment clauses contained in the Company's rates, and a mod-erate sales increase in 1976. The 1977 increase is attributable to the 1976 increase in basic rates. Therm sales decreased 5%

in 1975, as the result of a warmer than usual heating season.

curtailments to interruptible customers, customer conserva-tion efforts and the economic slowdown. In 1976, therm sales showed an increase of 3% due to the extremely cold weather during the last quarter of the year. Therm sales decreased in 1977 by 4% due to the return to more normal weather condi-tions in the last three months of the year, conservation and attrition of customers, and curtailments to commercial and industrial customers during the gas crisis in early 1977.

Fuel for Electric Generation and Interchanged Power -

net The Company belongs to the Pennsylvania-New Jersey-Maryland Interconnection (PJM), and is therefore able to op-timize its generation-interchange mix, using the lowest cost energy available in the interconnection system at any given time. Accordingly there can be fluctuations between Fuel for Electric Generation and Interchanged Power -

net. The total of the two. however. represents the Company's aggregate energy cost and is a better measure than the two items taken separately.

On this basis. total energy costs increased by 5%, 1%

and 11%, respectively. in 1975, 1976 and 1977. The moderate increases of 1975 and 1976 reflect the most economical use of the interchange, and greater generation by lower cost nu-clear power. The increase in 1977 is principally due to a higher unit cost for liquid fuel burned and the greater de-mand by our customers.

Gas Purchased and Materials for Gas Produced Although gas therm sales to the Company's customers de-creased 5% in 1975, the cost of gas purchased and materials for gas produced increased due to higher prices and the in-creased use of naphtha for the manufacture of synthetic natural gas. The cost of gas purchased and materials for gas produced increased in 1976 due to higher prices and the greater sales volume. In 1977 this cost declined 1% due to the decrease in sales volume.

38 Other Operation Expenses Increases since 1974 are due to higher costs of labor. serv-ices. and materials and supplies.

Maintenance The decrease in 1975 is primarily attributable to reduced maintenance of gas turbine units due to a decline in their usage caused by the availability of less expensive nuclear energy and purchased power. The increases in 1976 and 1977 were principally due to maintenance at certain of the Com-pany's conventional steam generating stations. at the Peach Bottom nuclear generating station. and for 1977 at the Salem nuclear generating station. Also, for 1977, gas distribution maintenance rose principally due to the extremely cold weather at the beginning of 1977 and electric distribution maintenance increased due to higher costs of labor, services, and materials and supplies.

Depreciation The increase in 1975 was due to an increase in depreciable utility plant as Peach Bottom nuclear generating station and related transmission facilities, along with the Linden Synthetic Natural Gas Plant (Linden SNG). were placed in service in 1974. The increase in 1977 reflects depreciation on Unit No. 1 at Salem nuclear generating station which was placed in service on June 30, 1977.

In accordance with rate orders effective November 1975 and October 1976, the Company raised its depreciation rates.

resulting in an increase of $7,600,000 in 1976 and

$4,400,000 in 1977.

Taxes Other than Federal Income Taxes Taxes Other than Federal Income Taxes consist principally of the New Jersey gross receipts tax which varies in direct pro-portion to electric and gas operating revenues.

In 1977, Pennsylvania enacted a gross receipts tax af-fecting PSE&G because of our jointly owned generating sta-tions in that state. The tax, amounting to $7.2 million or 6~

per share, is being challenged by the Company as to its con-stitutionality.

Also in 1977, the Company, after a successful court ap-peal, reversed an accrual of $7.0 million or 6~ a share for Pennsylvania Public Utility Realty taxes applicable to years after 1974.

Federal Income Taxes Increases in each period were due to greater pre-tax operat-ing income and a decrease in tax depreciation in excess of book depreciation for which deferred taxes are not provided.

(See Note 1 of Notes to Financial Statements.)

Allowance for Funds Used During Construction (AFDC)

The decrease in AFDC in 1975 was primarily due to Peach Bottom and related transmission facilities and the Linden SNG plant being placed in service during 1974. and the dis-continuance in the last half of 1975 of the accrual of AFDC on a portion of Construction Work in Progress in accordance with BPU rate orders. (See Summary of Significant Account-ing Policies.) The increase in 1977 resulted principally from a greater level of Construction Work in Progress. offset some-what by a transfer. on June 30, 1977, of Salem 1 to depreci-able utility plant in service.

Total Interest Charges The increase in 1975 was principally due to the issuance of additional long-term debt. The decrease in 1976 was due to lower rates and prepayment of long-term debt. The 1977 in-crease is attributable to greater amounts of short-term bor-rowings outstanding at higher rates, and the issuance of addi-tional long-term debt.

Form 10-K Available The Company is required by Securities and Exchange Com-mission (SEC) regulations to file with that agency a Form 10-K annual report containing certain detailed financial and other data. There are no accounting differences between the financial statements presented in this Annual Report to Stockholders and those in the Form 10-K report, but it does provide other information as required by SEC regulations.

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-ital stock and long-term debt of Public Service Electric and Gas Company as of December 31, 1977 and 1976 and the related statements of income, retained earnings reinvested in business, and changes in financial position for the years then ended. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, in-cluded such tests of the accounting records and such other auditing procedures as we considered necessary in the cir-cumstances.

Net Income Regulatory accounting requirements followed by the Com-pany during the test operation of Salem 1 resulted in a benefit to earnings of 32~ per share in 1977. Under these require-ments, the Company received the benefit of revenues at the prescribed rates for the test generation and continued to re-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.

Stockholders or other interested persons who wish to have a copy of the Company's Form 10-K report may obtain one without charge after March 31, 1978, by writing to the Vice President and Treasurer, Public Service Electric and Gas Company, 80 Park Place, Newark, New Jersey 07101. The copy so obtained will be without exhibits. Exhibits may be purchased for a specified fee.

In our opinion, such financial statements, appearing on pages 23 to 33, inclusive, present fairly the financial position of Public Service Electric and Gas Company as of December 31, 1977 and 1976 and the results of its operations and the changes in its financial position for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis.

~,~

February 22, 1978 39

James B. Randel Jr.

President Energy Development Corp.

Harold W. Sonn President PSE&G Research Corp.

J ohn J. Gilhooley Chairman and President Transport of New Jersey l

Robert W.Lockwood Senior Vice President -

Administration I

Donald A. Anderson Vice President -

Computer Systems and Services Frederick M. Broadfoot Vice President - Law Edward J. Lenihan Vice President -

Public Relations 1 Charles E. Maginn Jr.

Vice President -

Human Resources Winthrop E. Mange Jr.

Vice President -

Corporate Services 40 f---41 Office of the Chief Executive Robert I. Smith Chairman of the Board and Chief Executive Officer Malcolm Carrington Jr.

r--tl

......- Vice President and Secretary 11 II Edward G. Outlaw William E. Scott Robert C. Lydecker

--I Executive Vice President -

John F. Betz Executive Vice President -

~

Vice President and Corporate Planning President Finance Assistant to the Chairman of the Board I ~

l l

l I

Richard M. Eckert I

Everett L. Morris Charles H. Hoffman John F. McDonald Senior Vice President -

Senior Vice President -

Senior Vice President -

Senior Vice President -

Energy Supply and Customer Operations System Planning Governmental Affairs Engineering and Interconnections Robert M. Crockett Fred rick R. De Santi I

Gifford Griffin Parker C. Peterman Vice President -

Vice President -

Vice President -

Vice President Fuel Supply Rates and Load Interconnections and Comptroller Management 1 Thomas J. Martin Robert W. Hodge Carroll D. James Wallace A. Maginn Vice President -

Vice President -

Vice President -

Vice President and Engineering and Commercial and Administrative Planning Treasurer Construction Consumer Affairs Frederick W. Schneider Robert J. Selbach Stephen A. Mallard Vice President -

Vice President -

Vice President -

Production Transmission and System Planning Distribution Changes In Organization Milton Perlmutter, president of Supermarkets General Corporation, was elected a director at the Company's Annual Meeting on April 19. He succeeded Clifford D.

Siverd who retired from the PSE&G board after serving since 1968.

Effective July 1. 1977, Robert I. Smith, president and chief executive officer. was elected chairman of the board and John F. Betz, executive vice president. was elected president and chief operating officer. Mr. Smith continues as chief executive officer. These two men together with William E. Scott, executive vice president, who was named executive vice president-finance, and Edward G.

Outlaw. formerly senior vice president-operations, who became executive vice president-corporate planning.

make up the "Office of the Chief Executive."

Other changes effective the same date included Harold W. Sonn, a senior vice president. who was also named president of PSE&G Research Corporation, a new subsidiary formed to direct internal and external research operations; James B. Randel, Jr.. a senior vice president.

who was also named president of Energy Development Corporation, the Company's exploration subsidiary, and Everett L. Morris, formerly senior vice president-corporate development, who was named senior vice president -customer operations, a new position which coordinates all of the electric and gas transmission and distribution and rates and load management operations as well as commercial operations.

Richard M. Eckert, vice president-engineering and construction. became senior vice president-energy supply and engineering; Charles H. Hoffman. vice president-energy pooling. advanced to senior vice president-system planning and interconnections, and Robert W. Lockwood. vice preStdent-corporate seMces to senior vice president-administration.

Other appointments included Fredrick R. DeSanti, vice president-rates and load management, Winthrop E.

Mange. Jr., vice president-corporate services, Stephen A.

Mallard, vice president-system planning. and Thomas J.

Martin, vice president-engineering and construction.

Charles E. Maginn. Jr.. became vice president-human resources, effective September 8. Also effective the same date was the designation of Edward J. Lenihan, vice president-public and employee relations, as vice president-public relations.

Donald A Anderson, former director of internal au-diting for Southern Company Services, Inc., Atlanta, Ga..

joined PSE&G October 1 as vice president-computer systems and services.

On October 18, Robert M. Crockett, vice president-fuel supply, also became president of Eascogas LNG, Inc.

Gifford Griffin became vice president-interconnec-tions, effective December 20.

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

New Jersey; Clinical Associate Professor of Obstetrics and Gynecology.

New Jersey Medical School; and former Trustee of the College of Medicine and Dentistry of New Jersey. Newark. New Jersey Member of Audit Committee I*

Chairman of the Board and director. Fidelity Union Bancorporation.

Newark. New Jersey Member of Executive and Finance Committees and Chairman of Nominating Committee

• '. I*

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

Moorestown, New Jersey; Chairman of the Board and director, The Bank of New Jersey, Camden, New Jersey; and Chairman of the Board and 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 Member of Finance and Nominating Committees 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 Director and former President, Ingersoll-Rand Company (diversified manufacturer of machinery. equipment and tools),

Woodcliff Lake. New Jersey Member of Finance Committee and Organization and Compensation Committee President and Director, Supermarkets General Corporation (supermarkets, department stores. drug stores. home improvement centers and other retail and wholesale businesses), Woodbridge, New Jersey Member of Audit Committee

~~m:iiill!l. * *

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

Morristown. New Jersey Member of Audit Committee President. Stevens Institute of Technology. Hoboken. New Jersey Member of Nominating Committee and Organization and Compensation Committee Executive Vice President - Finance of the Company Member of Executive Committee and Chairman of Finance Committee Chairman of the Board and Chief Executive Officer of the Company Chairman of Executive Committee and member of Finance Committee

'(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 services), and The Continental Insurance Companies, New York.

New York.

Member of Finance Committee and Organization and Compensation Committee Chairman of the Board and Chief Executive Officer President Executive Vice President - Corporate Planning Executive Vice President - Finance Senior Vice President of the Company and President of Energy Development Corporation Senior Vice President of the Company and President of PSE&G Research Corporation Senior Vice President - Energy Supply and Engineering Senior Vice President - System Planning and Interconnections Senior Vice President - Administration Senior Vice President - Customer Operations Vice President - Law Vice President - Fuel Supply and President of Eascogas LNG, Inc.

ia:i=i.:a.u

• I.

Vice President - Rates and Load Management Vice President - Interconnections Vice President - Commercial and Consumer Affairs Vice President - Administrative Planning Vice President - Public Relations Vice President and Assistant to the Chairman of the Board Vice President - Engineering and Construction Vice President and Comptroller Vice President - Transmission and Distribution

Public Service Electric and Gas Company Newark. N. J. 07101 U.S. Postage PAID Bulk Rate Public Service Electric and Gas Company