ML18107A187

PSEG Annual Rept for 1998.

ML18107A187
Person / Time
Site:	Salem, Hope Creek
Issue date:	12/31/1998
From:	Ferland E Public Service Enterprise Group
To:
Shared Package
ML18107A186	List: ML18107A184 ML18107A187 ML18107A188
References
NUDOCS 9904210119
Download: ML18107A187 (28)

Text

HOW

• PSEG DID IN 1998 FOR SIX PEOPLE PSEG Summary Annual Report WHO 1998 REALLY MATTER TOUS I] llill * * *

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"We make things work for you" Also, last June, we renamed ou With the onset of competition, energy utilities are faced with better reflect their affiliation to the challenge of demonstrating the qualities that make us and to more accurately describe better - more efficient, more innovative, more technically skilled - evolved. As you review our 199 than competitors. for the future, please keep the fol In 1998, Public Service Enterprise Group (PSEG) reminded our

• PSEG Energy Holdings Inc.,

unregulated subsidiaries, was E - .- ~~ ..:.k';'.::*; *.:*i -;,

current and potential customers that energy plays a major role in all of our lives ... and that the PSEG family of companies provides Incorporated (EDHI), ;i.c);:/~\'{~~i*,\c";;;~~):* *::~:* .. ***/> .* * ;.  ;;~~i essential services to the community. Through a series of tele-

• PSEG Global Inc .. our global erf~iffe~'if_~~~,.~~~~arry;>-:,~; ' ~.. -'~

vision and radio commercials in the New York, New Jersey and was Community Energy AlternatWi~:~cotJD~t~iiqJ(QEA)~*~* * >*: *: ** ""

Philadelphia markets, we introduced the new tagline "We make

• PSEG Resources Inc., our mve5' :c.;,'\t~'S~~;~,: was P.ubfiC ~:~ * *:.:~

things work for you" to create an emotional connection to our Service Resources Corporation (P )'a~:;~\~***,, , ::... * . .  ;*. -~*!

work and the constantly improving standard ofliving made pos- .  ;.!; .. -_ ... ; .. 0 .* ,., ' * .*,:.:<*

sible through reliable energy and energy services.

• PSEG Energy Tuchnologies I * , t'~':,l{l~q~.g;ent .

solutions company, was Energis ~;n~_Qre~f!d: -

More detailed descriptions o~,' .,_ *- "9:;~o;Q1pa'ni~s ar!' _, .

located in the "At a Glance" chart;..~Paje:z'.t6Jind 17: *. *

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FINANCIAL HIGHLIGHTS ..  : ... I***' ..

Dollars in millions, where applicable 1998 1997  % Change Total Operating Revenues $ 5.931 $ 6,100 (3)

Total Operating Expenses $ 4,745 $ 4,985 (5)

Net Income $ 644 $ 560 15 Common Stock Shares Outstanding - Average (Thousands) 230,974 231,986 Earnings per Average Share $ 2.79 $ 2.41 16 Dividends Paid per Share $ 2.16 $ 2.16 Book Value per Share - Year-end $ 22.51 $ 22.47 Market Price per Share - Year- end $ 40.00 $ 31.81 Ratio of Earnings to Fixed Charges - PSEQ(A) 2.86 2.61 Ratio of Earnings to Fixed Charges - PSE&Q(A) 3.15 2.70 Gross Additions to Utility Plant $ 547 $ 557 (2)

Total Gross Utility Plant $18,236 $17,815 2 (A) Includes Preferred Securities Dividend Requirements.

The detailed Consolidated Financ1al Statemems and related d1scuss10n appear m Appendix A of the Proxy Statement.

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On Our Cover As the energy industry Public Service Enterprise shareholders, customers, ei ronment. ln this report, we who benefit from the com people of PSEG.

D Chairman's Letter 1 Condensed Consolidated D Six People Who Matter to Us 4 Directors and Officers At a Glance 16 Stockholder Information Operational Highlights 18 Meeting the Year 2000 Ch Consolidated Financial Statistics 19

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• CHAIRMAN'S l[ll[R

Dear Shareholder:

The year 1998 marked the close of one era for Public Service Separately, two major rating agencies, Standard and Poor's an Enterprise Group (PSEG) and the beginning of a dynamic new Moody's Investors Service, elevated their outlooks o one. The long-anticipated restructuring of the energy industry PSE&G's bonds from negative to stable following the restart o is under way in New Jersey, as it is across the nation and our Salem units.

around the world. Your company is in a strong position to pur-In anticipation of the regulatory approval of a technique know sue the unprecedented opportunities those changes bring. We as securitization in conjunction with the deregulation of the are executing strategies that position us for continued growth utility industry in New Jersey, we announced our intention to and success, both in the home territory of our largest sub-repurchase up to 10 million shares of PSEG common stock o sidiary, Public Service Electric and Gas Company (PSE&G), as the open market. At year end, we had completed just over ha!

well as in other markets around the world.

of this program.

PSEG reported consolidated earnings of $2.79 per share in In this period of unprecedented change in the utility industry, 1998, up from $2.41 in 1997. The comparatively higher earn-New Jersey legislators labored through the fall and into 1999 o ings in 1998 stemmed primarily from two factors. First, the the Electric Discount and Energy Competition Act. Enacted i increase in revenues from wholesale power activities of our early 1999, this law permits the New Jersey Board of Public utility subsidiary, PSE&G, offset the effects of moderate Utilities (BPU) to restructure the state's electric and gas utilit weather on the sale of natural gas. Second, 1997 results reflect industries, in effect "unbundling" our service into distinc a one-time charge of 27 cents per share resulting from the set-components: gas and electric cornrnodity sales, energy deliv-tlement of lawsuits related to the refurbishment outage of the ery, metering, billing and energy services. The new law has Salem nuclear station, which is now back in service. Excluding this charge, 1997 results were $2.68 per share.

REVENUE PER KWH (cents per kwh)

In addition to reduced operating and maintenance costs related to our nuclear operations, PSE&G enjoyed higher elec-tric sales in 1998 thanks to a comparatively warm summer and a healthy New Jersey economy.

PSEG Energy Holdings, the parent company of our unregulated ventures, contributed 21 cents per share, largely attributable to the overall strong performance of PSEG Resources' invest-ment portfolio.

Average revenue per kwh adjusted for inflation. Base year 1996.

PSEG common stock finished 1998 at a closing price of $40, up PSE&G supplies electricity at the lowest cost per kwh of all the more than $8 from the closing price of 1997. Your company has major utilities in New Jersey and intends to continue the trend.

continued to outperform key industry stock indices on a total return basis, which is a combination of price appreciation and granted the BPU the authority to implement these changes, and reinvested dividends. PSEG's 33 percent return exceeded the as this letter is being written, PSE&G is working to assure Standard & Poor's index of 26 electric utilities by nearly 18 per- positive decision by the regulatory agency on our restructurin cent and the Dow Jones Utilities index of 15 electric and gas plan. We expect a decision before the end of the second quarter. '

companies by almost 15 percent in 1998. PSEG also outpaced As we await the outcome of the BPU proceeding, I ca the strong performance of the Standard & Po or's 500 Index by describe to you the broad outline of the competitive retai more than 5 percent.

energy marketplace the legislation has established in the

Garden State. Under the legislation, starting in August 1999, Viewed collectively, we believe the many elements of tlihi" -

consumers will gain the opportunity to shop for energy while islation offer the BPU the means to construct a reg SE&G will continue to operate and maintain the pipes and decision that can provide desired rate reductions, ma _

ires that bring gas and electricity to our New Jersey cus- the financial viability of your company and assure New Jersey omers. Mandates have been made on the electric side of the residents the same high quality service and reliability they usiness for a 10 percent reduction from our April 1997 rates. have come to expect.

ter an initial rate reduction of 5 percent in August, the bal-In New Jersey and nationally, PSE&G has played a key role in ance of the mandated reduction will be phased in over a ensuring that restructuring does not create an unfavorable hree-year period.

impact on the environment. The leadership of PSE&G Provisions are also made for continued service reliability and President Larry Codey and the work of the corporate envi-he continuation of energy conservation measures and other ronmental and federal affairs teams, with partners in the societal benefit programs. Customers will have the option to environmental community, have helped to ensure that new form buying groups to negotiate prices with energy suppliers. competitors in New Jersey's energy market are required to For at least the first year after restructuring, PSE&G and other meet the same stringent emissions standards as industries utilities will continue to handle customer metering, billing that currently operate here.

and account administration. The BPU will determine whether Business in Redefined Markets customers will have the option to choose an alternate provider Energy market restructuring will present new opportunities, for these services after that first year.

new risks and new rewards. Historically, the majority of your While the new law does not specifically require retail gas sales company's assets, revenues and earnings have been under the to be separated from delivery, it enables the BPU to order that regulatory jurisdiction of the New Jersey BPU. In the future, separation and requires that customers gain full retail choice that will not be the case. Electric and gas distribution activi-of gas suppliers by the end of 1999. ties in New Jersey will continue to operate under BPU regula-tion as electric generation and gas supply activities become One of the key outcomes of deregulation that will affect your competitive, non-regulated businesses. While we w - *-

investment in PSEG is the treatment of stranded assets. This tinue to invest in PSE&G's energy delivery infrastru term relates to the difference in the value of PSE&G's generating maintain its world-class status, we will devote signi i nt resources to our other businesses that operate largely in com-PSEG ANNUAL EARNINGS AND DIVIDEND PAYOUT PER SHARE petitive, non-regulated markets. The risks in unregulated (dollars) businesses are greater, yet the potential rewards and growth prospects increase as well. We are continuing to execute 2.79 plans to pursue those opportunities by capitalizing on your company's strongest competencies.

Our efforts of the past several years to revitalize our nuclear program are paying dividends. In 1998 our five plants operated at a combined 85 percent capacity factor, a record for our com-94 95 96 97 98 pany. Our Salem, Hope Creek and Peach Bottom units oper-ated reliably over the summer, a time of peak demand. We

- Earnings per Share received further endorsement of our efforts last July when the

.,,.., Annual Dividend Payout Nuclear Regulatory Commission removed the Salem units stations in a regulated market, where historically the BPU has from its Watch List.

included all of the stations' costs plus a profit in the rates we Our domestic generation fleet has an opportunity to partici-charge our customers, versus the lower expected value in a pate in the Pennsylvania-New Jersey-Maryland Interconnection deregulated market, where the price of electricity will be (PJM), as well as adjacent power pools. Our energy marketing determined by market forces. While the legislation permits the capability, operating under strong risk management controls, is recovery of 100 percent of the stranded assets approved by the designed to participate in the wholesale and retail marketplace BPU, including the recovery of up to 75 percent through secu-while protecting the company from volatile price fluctu ritization, the ultimate level of recovery will be determined by the BPU. As demands for reliable energy grow in economies arou world, PSEG Global is making significant inroads in key regions

ALLOCATION OF ASSETS AT DECEMBER 31, 1998 PSEG TOTAL ASSETS- $18.0 BILLION PSE&G 82% PSE&G ll!I $2.58 Energy Holdings e Resources Global 10%

Energy Technologies 1%

• Other 6%

1%

Energy Holdings

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C-Resources Global S .24 S .03 Energy Technologies (S .06) through acquisition or development of generation and distri- talents, contributions and perspectives differentiate you bution facilities. Working with carefully selected partners, company in increasingly more competitive markets, and I a PSEG Global has established itself in more than a dozen key grateful for their enthusiasm, commitment and drive.

markets that, in total, represent more than half of the world's Of special note, the people of PSE&G have worked hard to projected new power needs.

ensure a fair and reasonable outcome to New Jersey's restruc-PSEG Resources will continue to capitalize on our energy exper- turing effort. In an outstanding display of mutual concern, rep-tise to structure financial investments in energy-related proj- resentatives of our labor unions joined company managemen ects that provide attractive earnings and cash flows. in testifying before legislative and regulatory bodies durin deliberation on restructuring. Their counsel and suppor PSEG Energy Technologies, your company's newest sub-underscore our shared commitment toward preserving fai sidiary, is laying the groundwork for PSEG's participation in opportunities for our skilled and talented work force to serve ail energy marketplace. This is a brand new market for ll for consumers. I~s development will be challenging but s to have significant potential.

As our non-regulated businesses have grown over the past sev-our customers and compete in the new marketplace.

We're also committed to a very basic - and crucial - part of ou current and potential success: the health and safety of ou employees. Through an atmosphere of trust, mutual respect an eral years, we have demonstrated our ability to consistently open communication, we are striving to create an accident-earn money in the competitive energy marketplace. Because of free workplace.

the regulatory changes described above, your future company will include a larger component of competitive businesses. As Individually and in teams, our employees have laid the founda-the unregulated component of our business continues to grow, tion for PSEG's success in the new energy marketplace - and our earnings volatility will likely increase. Required changes we're counting on them to explore new opportunities to gro to regulatory accounting that result from the BPU restructur- and prosper in the years to come. I speak on their behalf an ing decision could also have an impact on PSEG's financial mine when I thank you for your continued support and confi-results in the short term. The business experience we have dence in our commitment to provide you with outstandin acquired in operating our non-utility businesses, and our con- value for your investment.

tinued commitment to a stable regulatory base, will be signifi-cant components in achieving future success.

While my letter has necessarily focused on New Jersey's restructuring process, I encourage you to review the remain-der of this report, which highlights the exciting accomplish- E. James Ferland ments and opportunities of your PSEG companies.

Chairman of the Board, President Our People and Chief Executive Officer ility to compete in a changing operating environment is Public Service Enterprise Group rge part to the strong foundation created by the people Incorporated G, from our board of directors and executive officers to the employees who serve our customers every day. Their February 12, 1999

~----

Regional Growth ... and Possibilities New Jersey is home to PSEG's corporate headquarters, and our largest subsidiary, Pul:Jlic Service Electric and Gas Company (PSE&G), is the state's leading energy company. We serve the state's largest cities, and we're an integral part of what makes New Jersey a great place to live and do business.

PSE&G serves a mature, developed territory. In a regulated world, the prospects for growth were slim. Tuday, nothing could be further from the truth.

Possibilities are arising as never before. As northeastern states move through the energy deregulation process, PSEG continues to explore new opportunities to profit from our understanding of the regional market and our nearly 100 years of expertise in providing energy and related services.

Exploring the Potential in Power Production Our domestic generation fleet is well-situated to take advan-tage of opportunities in the Northeast market. Anchoring the Pennsylvania-New Jersey-Maryland Interconnection (PJM) and bordering the New York Power Pool, we can capitalize on opportunities in two major power grids. Industry restructur-ing is creating a burgeoning wholesale trading market, where utility-affiliated electricity generators and independent power producers can sell bulk quantities of electricity to other utili-ties and a growing number of third parties - like power mar-keters and traders - who do not generate power themselves.

The winners are likely to be those who can offer customers the most reliable, lowest price energy.

PSEG's internal risk management controls help our profession-als monitor and limit our exposure to fluctuations in the price of electricity and gas while enabling us to determine suitable counterparties that will meet their supply obligations. During the summer months of 1998, when many utilities and power

• 1 I IDURING

. THE. STOCK

. MARKET

, , VOLATILITY OF 1998, PSEG WAS A NATURAL CHOICE FOR JOANNE AND OTHER PEOPLE SEEKING

~TEADY PER~ORMERS FD' THEIR INVESTMENT PORTFOLIOS. FOR

~HE SECOND $TR~IG~T Y~AR, PSEG TOTAL SHAREHOLDER

~E'.JURN EXCEEDED T~E STANDARD &POOH'S ELECTRIC UTILITIES rNQEl AN' THE DOW~ON~S UTILITIES INDEX.

2.000%

1.500 1,000 500 0

• 500 80 82 84 86 88 90 92 94 96 98 I! PSEG

• Dow Jones Utilities Index iil S&P 500 Index

arketers experienced large losses in the wholesale market, with or purchase energy delivery companies that share our our trading operations performed well. commitment to quality service, safety and reliability.

• 1!Industry restructuring has created significant opportunities We're also actively considering ways to draw on the skills of for merchant power producers. Consequently, PSEG is explor- distribution employees to expand the "wires" portion of the jing new markets with an eye on selectively acquiring genera- business. Wireless and fiber optic communications are grow-tion facilities in the Northeast region. ing rapidly in the heavily-developed New York-to-Philadelphia

• ' jDelivering Energy to New Jersey Homes and Businesses corridor that PSE&G serves, and telecommunications compa-

• iDeregulation gives our customers the freedom to shop for nies seek economical, time-saving alternatives to building

• ~ower, but they'll still be served through PSE&G's electric and their own infrastructure. Available space for new towers and zlgas distribution system. While this part of the business will wiring is scarce, and local governments and residents often

'lstay regulated, its long-term profitability will depend on the balk at the prospect of locating new large wireless towers in

!efficiency and quality of our service, now more than ever. their neighborhoods. In response, we are exploring opportuni-ties to provide installation and maintenance services for com-t*erowth in our domestic energy delivery business relies in part on munications equipment on our own transmission towers and

!Productivity improvements. In 1998, the people of PSE&G con- distribution network.

Jtinued long-standing efforts to improve productivity and service l;ality and, ultimately, customer satisfaction. Combining gas Giving Customers What They Want

~nd electric delivery under a unified distribution organization Our customers count on safe, reliable PSE&G energy service,

as created new efficiencies. In concert with the unions that rep- and more and more New Jerseyans are counting on us to make 1 sure their appliances work just as reliably.

rresent our work force, we are also investigating new ways to use

• tjproductivity improvements to restore service to our customers In 1998, our appliance service business received regulatory fiore quickly following severe weather outages. approval to add more service offerings, including repair and PSE&G's energy delivery system may also grow geographi- service contracts to businesses for heating and cooling equip-cally through merger or acquisition. We will seek to combine ment. We also added refrigerators, dishwashers and washing I'

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THE SYSTEM TO MEET CUSTOMERS' CHANGING NEEDS. DURING THE RESTRUCTURING OF OUR INDUSTRY, CHIEF LINEMAN DAN SMiTH AND OTHER *IP:; 11 PSE&G UNION REPRESENTATIVES JOINED MANAGEMENT IN URGING THE NEW JERSEY LEGISLATURE FOR Af AIR OPPORTUNnY TO CONTINUE PROVHHNG CUSTOMERS WITH RELIABLE ENERGY SERVICE.

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machines to the roster of major home appliances we repair.

We hired new staff - more than 650 service technicians are currently on board - and have purchased additional equipment and vans.

State regulators are currently reviewing our statewide expan-sion and have halted additional service contract sales outside our utility service territory. During this review, we are continu-ing to service the contracts that we sold in the interim and hope to proceed with our business plans after receiving a final ruling from the BPU.

With the Strength of Our People on Our Side Succeeding in a changing marketplace demands changes in the way we work: That's been an enduring message at PSEG since industry restructuring began several years ago. We continue to develop new skills and institute dynamic culture change efforts

\ to enhance productivity and build internal strength.

Grassroots ownership and accountability for workplace safety encourages employees to preserve the well-being of our great-est resource - our people. From bargaining unit members to executive management, employees have taken on that respon-sibility in a shared commitment to health and safety.

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Through the work of scores of employees representing every and counseling skills that enhance team productivity, while operatin.*g. div~~io~ and all five' unions, we afe building an other programs focus on teamwork and individual initiative at

.-enhanced clim~te of trust, commitment, imploved training all levels of the company.

and open*cornmumcat1on I *

• to create an acc1.dient- f ree work - New systems and technology improvements are being put into place. EmployeJs ~re urged to voice their conderns and have place to help employees work more efficiently and effectively, the authority to 1st6p work that will endanger thb well-being of

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L-.11* I reduce costs and improve customer service. PSEG's Business Integration initiative is well under way, using SAP R/3 software

....We're alrea,dy seying results:. PSE&G's Re9ordable Case and activity-based management to provide an integrated view Incidence Rate,lwhich shows the number of occupational ill- of all of the process.es involved in getting work done, including nesses*an d -sepous . I m1unes

. . . per 100 emp1oy,ees I per year, maintenance, supply chain management, project management, dropped nearlyj201 percent in 1998, compared, with the year scheduling, staffing and budgeting. First implemented in our

'before. This *1s the second straight year that we established a Fossil Generation business unit in January 1998, Business 1 in:*o~r inp~stry.' II Emplo)'.ee ~mppwerment on health and safe! y is just one l

• 'new all~tii:ne ioJ fdr this standard measure of wbrk force safety Integration is being introduced throughout the rest of the busi-ness in 1999.

Providing Energy Solutions measure of the evdlving culture of mutual respeft that contin- Aggressive energy service companies stand to benefit from ue's 'fo st~erl'gthknbnes of communication between supervi- the opportunities opened up through industry restructuring .

.*s~rs1an,d line <<or~ers. TI:aining programs targfting first-line PSEG Energy Technologies provides a full menu of energy man-

.supervisors enable managers to develop effective coaching agement solutions for businesses in the Northeast corridor.

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~ Transmission and Distribution 42.1%

Hope Creek Saleml 26.4% D.

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Salem 2 3.9% D Nuclear Generation 38.9%

Peach Bottom 2 2.2% El Peach Bottom 3 2.3% D

• Fossil Generation 17.5%

ll Other 1.5%

Participation in energy choice pilot programs, such as those in Pennsylvania and New York, brought us nearly 1,700 new elec-tricity customers. These programs have also helped PSEG Energy Technologies gain name recognition and develop opportunities to sell business solutions to commercial and industrial customers. Despite the challenges of a continually changing regulatory environment, we have made inroads in these markets.

In Pennsylvania, PSEG Energy Technologies exceeded sales projections fourfold. Among its customers are the School District of Philadelphia, which includes 260 schools, and the Municipal Utility Alliance, an association of nearly 20 munici-palities in eastern Pennsylvania. In 1998, PSEG Energy Tuchnologies made its first venture into a residential-only pilot program in Bucks County, Pennsylvania.

We also participated in a retail choice pilot in New York City and Westchester County, New York, securing 1,000 customers who represent some 90 megawatts of electric capacity, includ-ing International Paper in Purchase, New York, as well as sev-eral Manhattan landmarks.

Two key acquisitions helped PSEG Energy Technologies expand the energy construction and management services we provide to commercial and industrial customers. Early in 1998, we acquired Fluidics, Inc., a Philadelphia-based mechanical contracting company, and in January 1999, we completed the acquisition of Arden Engineering, Inc., a premier Rhode Island-based mechanical contractor. Both companies, operating as subsidiaries of PSEG Energy Technologies, will help expand our business in the Northeast.

One example of how PSEG Energy Technologies provides energy solutions is its partnership with United Water Resources, the nation's second largest investor-owned water services firm. Combined, the two companies expect to provide several New Jersey municipalities with services that will reduce costs and improve efficiencies in water and waste-water operations.

PSEG Energy Technologies expects to begin marketing AlliedSignal's TurboGenerator rnicroturbines this year. We have the exclusive right to sell and service these compact, portable generators throughout the Northeast, as well as in Argentina and parts of Canada. The TurboGenerator can create enough power to meet the energy needs of many small businesses effi-ciently and cost-effectively.

Emerging Markets ... Globally Opportunity in the energy industry extends far beyond the borders of the United States, to nations all over the globe, where the potential for growth is substantial. Rapidly develop-ing nations need reliable energy to fuel the industrialization of th~ir economies and to improve the quality of life for their citizens. PSEG is capitalizing on its energy expertise to take part in those opportunities, whether by dedicating funds through passive investments, or by building, purchasing and operating generation and energy delivery systems in select areas of the world. *f.

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• PSEG Global achieved a milestone in December with the financial closure of our first project in India, a 330 MW power plant to be constructed in the coastal village of Pillaiperumalnallur (PPN) in the state-of Tu.mil Nadu. The com-pany holds a 20 percent equity share in the project and will be the operations and maintenance contractor. This majo~ com-mitment of time and resources by PSEG Global is expected to serve as a model for others. PPN is the first of several projects PSEG Global plans for India.

G Global held interests in private power In the fall, PSEG Global announced the purchase of a 30 per-ies and six U.S. states. The company cent interest in the Argentine electric distribution company, international network of experts, with Empresa Distribuiqora La Plata S.A. (Edelap). This transaction ters in Miami, London and Hong Kong, increases PSEG Global's asset portfolio in the highly competi-nine additional offices. PSEG Global's tive Argentine power market. Combined with two other distri-by our commitment to getting the best bution systems acquired in 1997, the Edelap acquisition kills close to customers and partners. makes PSEG Global and our partner the third largest power distributor in Argentina, providing over 6,500 gigawatt hours to a population of nearly two million in a service territory more than eight times the size of New Jersey.

PSEG Global's earlier distribution acquisition in Argentina, the combined EDEN/EDES system, has made significant strides in performance. The operation received an 85 percent approval rating in customer satisfaction, significantly reduced outages and improved operating practices and facilities.

PSEG Global's largest investment, the Brazilian distribution system, Rio Grande Energia (RGE), serves 870,000 customers in a territory nearly six and a half times the size of New Jersey.

The company is instituting improvements in its customer service and reliability similar to those initiated in Argentina. In 1998, the duration of customer outages dropped 28 percent and the frequency of outages fell 30 percent from the previous year. At the same time, 84 percent of the system's customers ranked service as good to excellent, an improvement of more than 5 percent from a 1997 survey.

The current downturn in the Brazilian economy will require adjustment to the carrying value of this asset on the balance sheet, based on the relationship of the Brazilian currency, the real, to the U.S. dollar. However, RGE's projected revenues are more than adequate under present conditions to sustain it as a profitable investment.

Strengthening our pipeline of development projects for future growth, PSEG Global advanced our Brazilian strategy when we were selected in August by Petrobras, the Brazilian national oil company, as its partner to jointly develop a 480 MW power plant at the REPAR refinery in Southern Brazil. With Rio Grande Energia, PSEG Global established a presence in the Brazilian distribution business. With the REPAR project, we expect to do the same in the Brazilian generation market.

When assessing development and purchase opportunities, PSEG Global identifies regions that demonstrate an increas-ing need for energy infrastructure and prospects for incre-mental growth that we believe will withstand short-term economic turbulence.

PSEG Global's potential for further growth is strong. Our port-folio includes four distribution companies, 21 operating plants totaling nearly 2,300 MW, and four projects under construction totaling nearly 500 MW. With projects in the United States, China, Brazil, Argentina, India and Venezuela, and a healthy

WHEN YOUR PRODUCT IS SOMETHING AS FUNDAMENTAL AS RE IT'S AGIVEN THAT YOU'RE PART OF YOUR NEIGHBORS' LIVES, A UNEXPECTED WAYS. IN PARTS OF ARGENTINA, CHILDREN LIKE OFTEN SENT HOME FROM SCHOOL DUE TO RECURRING POWER OUR PARTNERSHIP IN THE EDEN/EDES SYSTEM TERRITORY, RE HAS HELPED KEEP SCHOOLS IN SESSION.

backlog of prospects in active development or preliminary screening, PSEG Global continues its focus on worldwide expansion, exploring additional generation and distribution opportunities in those countries and in regions of Europe, Africa, the Middle East, Asia, and North and South America.

Investing for Growth Investments in energy infrastructure around the globe also create dynamic opportunities for knowledgeable energy com-panies to increase shareholder value through their industry acumen and deal-making capabilities.

PSEG Resources does just that, making investments that are designed to produce immediate, predictable earnings to bal-ance the corporation's overall portfolio. Other parts of the cor-poration can then focus on longer-term growth initiatives with more distant earnings horizons.

PSEG Resources makes financial investments, primarily in energy and infrastructure-related assets. Since its inception in November 1985, the subsidiary has produced consistent earnings and dividends for PSEG shareholders. Our successful track record is built on solid investment experience and the ability to structure transactions that create additional value for the corporation.

The year 1998 was one of the most successful in PSEG Resources' 13 years of activity as the corporation's investment arm. Despite a turbulent securities market, PSEG Resources generated earnings of $56 million, managing a diverse portfo-lio of some $1.8 billion and closing on new investments total-ing $255 million. The new investments included leases of energy facilities in the United States, the Netherlands and the United Kingdom, which, when combined with liquidations of

$119 million, resulted in a net increase of $136 million in invested capital for the year.

While the forward-looking statements about PSEG's expecta-tions made throughout this report are based on information cur-rently available and on reasonable assumptions, actual results could be materially different. For more information, please refer to PSEG reports that are filed periodically with the Securities and Exchange Commission.

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PUBLIC SERVICE group leadership ENJERPRISE GROUP*

INCORPORATED AJA:GlANOE *.* .,.. *1

~lie Servi~~ Ente~nise Group PSEG E. James Ferland Incorporated Chairman of the Board PSEG President and Chief Executive Officer 80 Park Plaza, T4B Newark, NJ 07102 973-430-7000 www.pseg.com

.. ~llplic Ser;Vl.qeEledtr1! and Gas PSE&G Lawrence R. Codey Company"'

President and Chief Operating Officer

',* . ,,: ,"~~~: PS~G 80 Park Plaza, T4B Newark, NJ 07102 973-430-7000 www.pseg.com PSEG Energy Holdings Inc. Robert J. Dougherty, Jr.

President and Chief Operat

• PSEG 80 Park Plaza, T4B Newark, NJ 07102 Energy Holdings 973-430-7750 www.pseg.com PSEG Energy Tuchnologies Inc. Frank Cassidy President PSEG 499 Thornall Street Edison, NJ 08837 Energy Technologies 888-336-3744 www.pseg.com PSEG Global Inc. Michael J. Thomson President PSEG Global 1200 East Ridgewood Avenue Ridgewood, NJ 07450 201-652-2772 www.pseg.com Eileen A. Moran President PSEG Resources 80 Park Plaza, T22 Newark, NJ 07102 973-456-3560 www.pseg.com

business scope products I services market outlook Publicly-traded diversified energy Collectively, PSE&G and PSEG

• Electricity and Gas Success in meeting our strategic and energy services holding com- Global, a subsidiary of PSEG

• Industrial and Commercial Gas objectives will be measured in pany located in New Jersey with Energy Holdings, have more than 90

• Industrial, Commercial and terms of earnings per share growth.

annual revenues of nearly $6 billion, years of power plant operating Residential Electric The objective for PSEG is a com-consisting of two main sub- experience, with active invest-

• Energy Consulting and Planning pound growth rate of five percent sidiaries: Public Service Electric ments in more than 50 power plants

• Integrated Energy Management annually over the next five years.

and Gas Company and PSEG fueled by coke, natural gas, oil, Services Energy Holdings Inc. petroleum coke and nuclear.

• Operations and Maintenance Support

• Residential Gas Products and Services Serves more than 5.5 million New PSE&G provides the lowest cost,

• Electricity and Gas While new business ventures will Jersey residents in more than 300 most reliable electric and gas serv-

• Industrial and Commercial Electric play a vital role in PSEG's long-term urban, suburban and rural commu- ice of any major New Jersey utility. It

• Energy Consulting and Planning growth and strength, PSE&G nities with electricity, gas and maintains a staff of over 650 highly

• Industrial and Commercial Gas remains the corporation's core busi-energy alternatives in a 2,600- trained service technicians on call

• Residential Gas Products and ness and currently comprises more square-mile diagonal corridor across 24 hours2.777778e-4 days <br />0.00667 hours <br />3.968254e-5 weeks <br />9.132e-6 months <br /> a day, 365 days a year to Services than 90 percent of its total revenues.

the state. PSE&G is one of the 10 repair a broad range of gas and

• Tl:adelink Export Assistance largest combined electric and gas electric appliances and HVAC equip- Program companies in the United States. ment, and backs up its performance

• Business Enhancement Program with nine service guarantees.

• Residential Electric Operates PSEG's noncutility busi- PSEG Energy Holdings builds on

• Electricity and Gas PSEG Energy Holdings will enter eeking to maintain and the nearly 100-year tradition of

• International Electric Distribution new markets in the energy arena ex energy services in the PSE&G by seeking out and devel-

• Energy Consulting and Planning when its experience and knowl-w sists of three primary oping additional energy-related

• Integrated Energy Management edge can be brought to bear and subs ries: PSEG Global, PSEG services as deregulation of the Services when market needs and opportuni-Energy Tuchnologies and PSEG industry progresses.

• Operations and Maintenance ties can be pursued on a sound and Resources. Support profitable basis.

• Energy Investments Provides a full menu of energy PSEG Energy Tuchnologies offers a

• Electricity and Gas PSEG Energy Tuchnologies serves management solutions for wide variety of services to custom-

• Energy Consulting and Planning industrial and commercial custom-businesses in the Northeast. ers in order to help them reduce

• Integrated Energy Management ers in the Mid-Atlantic and New costs and improve related energy Services England region through three prod-efficiencies. Along with offering

• Operations and Maintenance uct platforms: energy supply; con-several new services, PSEG Energy Support sulting, engineering and operations Tuchnologies also brings the

• Financing Solutions services; and financing solutions.

expertise of functions previously performed by a number of PSEG subsidiaries to northeastern mar-kets that it knows well.

Develops, acquires, owns and oper- More than 200 experts in project *Electric Generation PSEG Global pursues investments ates independent power production development and financing, engi-

• Electric Distribution Services in generation and distribution in and distribution facilities through- neering and facility operations, and strategic markets.

out the world. maintenance create effective teams that understand the dynam-ics of the areas they serve.

Enhances PSEG Energy Holdings' PSEG Resources' well-balanced

• Investments in assets which pro- PSEG Resources plans to build on trength with a strong, portfolio provides diversification, vide funds for future growth and its expertise in risk management di tfolio of more than 60 earnings stability and continued incremental earnings. and mitigation, transaction analy-se vestments across a wide incremental earnings growth sis and closing, and investment spectrum of industry sectors and to shareholders. management to exploit new oppor-asset types, with a focus on tunities that arise from energy energy infrastructure. industry deregulation.

This shows the value on December 31 of each year of $100 invested in PSEG on December 31, 1993 (assumes reinvested dividends).

RETURN ON AVERAGE COMMON EQUITY (percent) 12.9 12.3 12.4 95 97 98 Return on Average Common Equity for 1998was12.4%.

PSEG ENERGY HOLDINGS NET INCOME (dollars in millions)

- Income from Cominuing Operations

~ Income including Discominued Operations 79.6 81.5 PSEG Energy Holdings net income grew in 1998 due to strong performance by PSEG Resources.

CONSOLIDATED FINANCIAL STATISTICS<A)

Dollars in millions where applicable 1997 1996 1995 1994 Selected Income Information Operating Revenues Electric $ 3,918 $ 3,944 $ 4,021 $ 3,740 Gas 1,937 1,881 1,686 1,778 Non-utility Activities 245 216 186 177 Total Operating Revenues $ 6,100 $ 6,041 $ 5,893 $ 5,695 Income from Continuing Operations $ 560 $ 588 $ 627 $ 667 Income from Discontinued Operations 24 35 12 Net Income $ 560 $ 612 $ 662 $ 679 Earnings per Average Share (Basic and Diluted):

Income from Continuing Operations $ 2.41 $ 2.42 $ 2.57 $ 2.73 Income from Discontinued Operations 0.10 0.14 0.05 Total Earnings per Average Share $ 2.41 $ 2.52 $ 2.71 $ "2.78 Dividends Paid per Share $ 2.16 $ 2.16 $ 2.16 $ 2.16 Payout Ratio 90% 86% 80% 78%

Rate of Return on Average Common EquitylB) 10.8% 11.3% 12.3% 12.9%

Ratio of Earnings to Fixed Charges<c) 2.61 2.68 2.78 2.84 Book Value per Common Share

:Y Staterii~~-nt. NotestoConsolidatedFinancialStatements ~ '. *'  :* <**'  ;'* ~ ~. ,.,.~ " .t

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• • d' ,_

For the full text of Organization and Summary of Significant Accounting Policies refer to Note 1 to Consolidated Financial Statements in Appendix A of the Proxy Statement.* ,.,.,.,,~.c-- ... c-,_..-**~r~~~,,"~~~~*~,,.~: "'".7~"~: FINANCIAL STATEMENT OF RESPONSIBILITY INDEPENDENT AUDITORS' REPORT To the Stockholders of Public Service Enterprise Group Incorporated: Deloitte& The condensed financial statements in this Summary Annual ToucheLLP Report were derived from the consolidated financial state-ments included in the Public Service Enterprise Group 0 Incorporated (the "Company") Proxy Statement for the 1999 Annual Meeting of Stockholders, which has been enclosed To the Stockholders and Board of Directors of in the same mailing as this Summary Annual Report. The Public Service Enterprise Group Incorporated: integrity and objectivity of the financial information pre- We have audited the consolidated balance sheets of Public sented in the Proxy Statement and this Summary Annual Service Enterprise Group Incorporated and its subsidiaries Report are the responsibility of the Company's management. (the "Company") as of December 31, 1998 and 1997, and The financial statements report on management's accounta- the related consolidated statements of income, common bility for corporate operations and assets. Tu this end, man- stockholders' equity and cash flows for each of the three agement maintains a highly developed system of internal years in the period ended December 31, 1998. Such consoli-

• controls and procedures designed to provide reasonable dated financial statements and our report thereon dated assurance that the Company's assets are protected and that February 12, 1999, expressing an unqualified opinion (which are not presented herein) are included in Appendix A of the all transactions are accounted for in conformity with gener-Proxy Statement for the 1999 Annual Meeting of Stockholders.

ally accepted accounting principles. The system includes The accompanying condensed consolidated financial state-documented policies, guidelines and self-assessments, ments are the responsibility of the Company's management. augmented by a comprehensive program of internal and Our responsibility is to express an opinion on such con-independent audits conducted to monitor overall accuracy densed consolidated financial statements in relation to the of financial information and compliance with established complete consolidated financial statements. procedures. The consolidated financial statements included in the Proxy Statement were audited by Deloitte & Tuuche In our opinion, the information set forth in the accompanying LLP, independent auditors, whose report on the condensed condensed consolidated balance sheets as of December 31, 1998 consolidated financial statements appears herein. and 1997 and the related condensed consolidated statements of income, common stockholders' equity and cash flows for each of the three years in the period ended December 31, 1998 is fairly stated in all material respects in relation. E. James Ferland basic consolidated financial statements from which it Chairman of the Board, been derived. * . President and Chief Executive Officer R~c.~\AM\ February 12, 1999 Parsippany, New Jersey Robert C. Murray Vice President and Chief Financial Officer Patricia A. Rado Vice President and Controller, Principal Accounting Officer February 12, 1999 22 Iii * * *

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• n~e R. Codey has been a director since 1991.

E. James Ferland has been a director since 1986. Conrad K. Harper has been a director since Forrest J. Remic!r , has been a director since 199.5. ,- "'* '\\ '\ Has been President and Chief Has been Chairman of the May 1997. Has been a partner **Has been an engineering. Operating Officer of PSE&G Board, President and Chief in the law firm of Simpson cohsultant 1sitrce July 19f)4.*

• 1 since September 1991. Executive Officer of PSEG Thacher and Bartlett of Was'tommfssioner of the since July 1986, Chairman of New York City since October 1Jniteci states* N\1c;:l_ear Ernest H. Drew the Board and Chief Executive 1996 and from 1974 to .:R~Q111eytozy 't;on1mtss~9B fFoffi.

has been a director since 1993. Officer of PSE&G since May 1993. Was Legal Advisor, December .1989,to.Jurie 199,4. Was Chief Executive Officer Septemberi991,and U.S. Department of State from *Was.Associate Vice President-of Industries and Tuchnology Chairman of the Board and May 1993 to June 1996. Re'se'aich and Profos~or 0£ *** : Group, Westinghouse Electric Chief Executive Officer of N~clearEngirieeringat'

• Corporation, from July 1997 to PSEG Energy Holdings since Irwin Lerner Peni{sylV'ari1c{ sfate'uillv~rsity, December 1997. Was a member, June 1989. has been a director since 1981. <<frq_~: 1f)8~ tb J98*f)*.: ** *--* * ... * <<

Board of Management of Hoechst Was Chairman of the Board and AG, Frankfurt, Germany, a manu- Raymond V. Gilmartin Executive Committee of *Richard J.*.Swift ' facturer of pharmaceuticals, has been a director since 1993. Hoffmann-LaRoche, Inc., of h,l:s beeri a'director since 1994:- chemicals, fibers, film, special- Has been Chairman of the Nutley, New Jersey, a manu- *,Has beer\ Chaifrnarr of the' ties and advanced materials, Board, President and Chief facturer of prescription ]3ba;ct,'Pres.ident andChlef . ' ** from January 1995 to June 1997. Executive Officer of Merck & pharmaceuticals, vitamins ~Eiec~ti~e-Pfflcer'~otF?.ster. ** Was Chairman of the Board Co., Inc. of Whitehouse, and fine chemicals, and diag- *.WheeleP,Corporatjon, oL .. "' . and Chief Executive Officer of New Jersey, a global pharma- nostic products and services, .*81int6n,*New*Jersey; a fu*m Hoechst Celanese Corporation ceutical firm that discovers, from January 1993 to  :'providing design;e:iigineering,-' of Somerville, New Jersey from develops, produces and mar- September 1993 and President . con'strudtfon:, manillaCturing, *

• May 1994 until January 1995 kets human and animal health and Chief Executive Officer ~ managE?tn~I!t, plapt .o1?.er~t}9,tjs ~ ..

and was President and Chief products, since November from 1980 to December 1992. "'ari.d.environmentgl sery:\c;:.E;?s,,, Executive Officer from January 1994. Was President and Chief **since*April *199,4. 1 1988 to May 1994. Executive Officer of Merck & Marilyn M. Pfaltz Co., Inc. from June 1994 to has been a director since 1980. .*Jb'sh *s.wesfon' ermot Dunphy November 1994. Was Chairman Has been a partner of :n~$*~~eil ~~dir~c~9r:~iiice ,!'9~4; n a ditector since 1980. of the Board, President and P and R Associates of Summit,

• HasbeE)n Honorary. Chairmeyp.". ;,,

n Chairman of the Chief Executive Officer of New Jersey, a communications of Automatic Data Processing; . and Chief Executive Becton Dickinson and firm, since 1968. II).i::. of Roseland, New.tfetsey;* Officer of Sealed Air Corporation, a Saddle Brook, Company from November 1992 to June 1994. since'A' ., . , .- _., l?rii"' 'fg'9s:*wa.s; ,*, ;p-* ,,,,., ' ~* **** . "fl.' & .;" . Ghairman,ot tl;le cJ30.ard.9f New Jersey manufacturer of

• Automatic 8ata Rrocessingt .

protective packaging products and systems, since November 'foe. from April'1986 to Api:*il* 1996. Was President and Chief

• .' 1'998

~~** i.' ., an& Wa's Chief ~Ii>' ,,_~, '~- !'> /\, " f Executive ~ '-" . ' ', Executive Officer of Sealed Air ,. Qfficer from Jarn,iary 19n:to... Corporation from 1971 to

• j.\ug-ustr1996. , . : .. **

-~ f,..~t-;.. ~ November 1996. ,.ga,th9ia -~~do *" 4. '.'\  !  : ' ' .-' E. James Ferland Frank Cassidy Alfred C. Koeppe ,.*... Chairman of the Board, President of Senior Vice President - Viq,13 Pr!;3sidentapq.C9ntrqll~~; ,,. President and PSEG Energy Tuchnologies. Corporate Services and Vice President* and . Chief Executive Officer; External Affairs of PSE&G. Controller of PSE&G:~ Chairman of the Board and Robert J. Dougherty, Jr. Chief Executive Officer of President and Eileen A. Moran *:R. ':Ed.win Sefovec PSE&G; Chairman of the Board Chief Operating Officer of President of PSEG Resources; .l/i6~ h.¢~J~~nt'sir-d:

• and Chief Executive Officer of PSEG Energy Holdings. President of EGDC. General Coµnsei; * * , ....

PSEG Energy Holdings. Senior VicePres;ident and . ., Harold W. Keiser Robert C. Murray General Gounsel of PSE&G. ~ Lawrence R. Codey Chief Nuclear Officer Vice President and President and Chief Operating and President - Chief Financial Officer; *Ml.phaen:J. Thomson*' Officer of PSE&G. Nuclear Business Unit of Executive Vice President - PSE&G. Finance of PSE&G. *'President rsE:a a1~baL of 23 ,*...***o .4 + I t:l Ill 'r;;i * ( STOCKHOLDER INFORMATION Stock Exchange Listings New York (PSEG common and PSE&G preferred) i Enteq>ti*e Direct Stock Pmchaee and Dividend Reinvesument Plan .* l PSEG offers Enterprl~se Direct, a S.tock Phrchase and Dividend Philadelphia (PSEG common) Reinvestment Plan.tFo~ additfonal infor~*I ation, including a 'Il:ading Symbol: PEG prospectus and em~.Hin~ht for.[\l, "\;optCJ.C us through Internet e-mail at stkserv@[pse~.com"or~c?]L8J0-242-0813. Annual Meeting Please note that the annual meeting of Dividends . *

• stockholders of PUblic Service Enterprise Dividends on the co mon stock of PSE , as declared by the Group Incorporated will be held at the Board of Directors, o/e genetcilly PCJ.YaD1l. on the last business New Jersey Performing Arts Center day of March, June, September and December of each year.

(NJPAC), One Center Street, Newark, Regular quarterly d~Videii,ds on PSE&G'sjpreferred stock are New Jersey, on Tuesday, April 20, 1999 payaole on the last ~usiness day of Marci, June, September at2p.m. and December of each year.* * *

• I . . ...

Stockholder Services Direct Deposit of Dividends Stockholder inquiries about stock trans- No more dividend c~ec:ks del9y~d*in the yiail. No waiting in fer, dividends, dividend reinvestment, bank lines. Your quaft~rly ,qimmon anq Pireferred stock divi-direct deposit, missing or lost certifi- dend paym~nts can!b.e.deposited electrcmically to your .per-cates, change of address notification and sonal checkmg or savmgs account, Tu usk this free service, other account information should be call us at 800-242-0813. ' directed to: Stockholder Services 1*: .. . ... Department, PUblic Service Electric & Deposit of Certificr~eis , . . . Gas Company, P.O. Box 1171, Newark, NJ To eliminate the risl(and cost of loss, shareholders can 07101-1171. Please include your account deposit their certifibates with the comp~ny and still receive number or social security number. a paid dividend.  :: . . . * . . : . I

• Stockholders can also phone our toll-free Security Analysts ~.d Ih!'ltitutiQ..nal ~.nvestors number, 800-242-0813, Monday through For information conF'.'1-c:t: . "' . * , I Friday, with questions about stock trans- .Director - ~nveror Re!~tions 97~-i;t1l'l-'5564 fer and registration, Enterprise Direct transactions and our other stockholder services. Hours are: 10 a.m. to 3:30 p.m.

Available Pubhcatmns * ** ** Form 10-K: A copy ~f'PSEG's 1998'AimuaI Report to the l Eastern time. The telephone number for Securities and Exctlahge I, Corllinission, filed on Form 10-K, the hearing impaired with special equip- may be obtained byf calling, 973:~30~pq03 or writing to: ment is TDD 800-732-3241. Please have Director - Investor. Relations :I your account number or social security PUblic Service *le~tric and Gas Coclpany number ready when you call. 80 Park Plaza, 'F6B * * ** ' Newark, NJ 07lo2 * *

• provide~:wfll b~. ~thout er**.'bits. Exhibits may Stockholders can reach us by Internet e-mail at stkserv@pseg.com The copy so be purchased for a sr~cified f~e. . ..~ ...

Stockholders can also reach us by fax at 973-824-7056. Financial and Statistical Review: A co prehensive sta-Transfer Agents tistical report contdining fils.torical be obtained from tHe Director:. Investor Relations. fin:1ba1 data may also The transfer agents for the common and 1*** ... '*. . preferred stocks are: COMMON STOCK - MARKET PRICEJND DIVIDENDS PER SHARE

~

199~ 1997 Stockholder Services Department Public Service Electric and high low div. high low div. Gas Company First Quarter 1 $37 o/is * $30o/is *$.54 $29% $26Ys $.54 P.O. Box 1171 Second Quarter *3771,' '31% .54 26'/z 22% .54 Newark, NJ 07101-1171 Third Quarter 39 1Yi; 32%' : .54 26o/ia 241/is .54 First Chicago Trust Fourth Quarter 42% 3617\~ .54 31'o/is 24% .54 Company of New York C/o Equiserve The number of holders of record of PUblic1Service Enterprise 24 Group Incorporated common*shares*as of December 31, 1 P.O. Box 2500 was 144,218. Iii

• D* Jersey City, NJ 07303-2500

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• Printed on recycled paper, using environmentally friendly inks.

Meeting the Year 2000 Challenge With the millennium quickly approaching, energy providers around the world are working to ensure that when the clock strikes midnight on December 31, 1999, customers will enjoy uninterrupted service. PSEG's own Year 2000 (Y2K) team has been working for several years to inventory, assess, correct and test our computerized systems to provide the greatest possible assurance that the lights and heat will stay on for our customers. Because electric service is intertwined in large grids around the country, it's vital that every link is strong. PSEG is also working with other members of the Pennsylvania-New Jersey-Maryland Interconnection (PJM) grid, our supplier base and others to make sure that PJM systems remain functional. We are also helping to assure data sharing between PSEG and the New Jersey Board of Public Utilities, the Nuclear Regulatory Commission and the North American Electric Reliability Council. PSEG Public Service Enterprise Group Incorporated 80 Park Plaza Newark, NJ 07102 (973) 430-7000 www.pseg.com