ML18078B025

Annual Rept 1978.

ML18078B025
Person / Time
Site:	Salem
Issue date:	12/31/1978
From:	Public Service Enterprise Group
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ML18078B026	List: ML18078B025 ML18078B027 ML18078B028 ML18078B029 ML19282B822
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NUDOCS 7903160226
Download: ML18078B025 (52)

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Contents Financial Highlights Message to Shareholders 2 Historical Reflection 4 Financial Results 6 Construction Expenditures 8 Financial Policy and Objectives 8 Electric and Gas Production 9 Offshore Pl ants Cancel Ied 10 Fuel Supplies 11 Transmission and Distribution 13 Load Management 14 Commercial and Consumer Affairs 15 Area Development 17 Public and Employee Affairs 20 Subsidiaries 22 Report on Nuclear Energy 25 Financial Statement Responsibility 29 Accounting Policies 29 Financial Statements 31 Operating Statistics 40 Financial Statistics 42 Management's Discussion and Analysis of the Statement of Income 44 Independent Accountants' Opinion 45 Directors and Officers 46 Transfer Agents and Registrars Inside Back Cover About the Cover About the Company Annual Meeting Photographs of an early gas house "gang" Public Service Electric and Gas Company, Please note that the Annual Meeting of and of employees at the Salem Generating with headquarters in Newark since its Stockholders of the Company will be held Station separated by 75 years - 1903 to founding in 1903, is the nation's third in the Company auditorium, 70 Park Place, 1978 - symbolize PSE&G's history of ser- largest combination electric and gas utility Newark, New Jersey on Tuesday, April 17, vice. Today, as throughout its history, the As New Jersey's largest utility, the Com- 1979, at 2 00 p.m A summary of the Company is moving forward, adapting ad- pany serves about 5.7 million people, meeting will be serrt to stockholders at a vanced technologies, to meet the require- more than three-quarters of the State's later date.

ments of its customers and of New Jersey. population The Company's service area stretches from the New York state border on the north across the State's industrial heartland to south of Camden. This highly diversified area includes the six largest cities in New Jersey as well as nearly 300 smaller cities, towns and rural communities.

Public Service Electric and Gas Company PS~G 80 Park Place Newark, New Jersey 07101 (201) 430-7000 Financial Highlights 1978 1977 Change Earnings per average share of Common Stock $2.95 $2.86 3 Shares of Common Stock Average 61,783,000 59,243,000 4 Year-end 64,120,000 59,806,000 7 Dividends paid per share of Common Stock $2.08 $1 .92 8 Book Va lue per share of Common Stock $26.13 $25.57 2 Total Operating Revenues $2,219,785,000 $2.032,795,000 9 Total Operating Expenses $1,899,385,000 $1,735,822,000 9 Earnings Available for Common Stock $ 181,987,000 $ 169,177,000 8 Gross Additions to Utility Plant $ 513,757,000 $ 430,675,000 19 Total Utility Plant $5,810,329,000 $5,654,097,000 3 Earnings and Dividends Per Share Times Fixed Charges Earned (Before Income Taxes)

$300 3 2.00 2 1.00 e Earnings e oividends 74 75 76 77 78 74 75 76 77 78

2 PSE&G: Message to Shareholders An anniversary is a time for reflection on Cancellation of Floating Nuclear Plants Additional Generating Capacity the past and for assessment of the future. An important decision during 1978, made in As long as the Company's electric load Our Company's 75-year history has spanned December by the Board of Directors, was continues to grow, even at the current most of this century - a time of vast to cancel the Company's contract with reduced rates. there will be need for som technological, industrial and social change Offshore Power Systems (OPS) for four additional sources of supply.

floating offshore nuclear generating units.

Throughout its history, the Company has At the end of 1978, the second 1100 demonstrated its adaptability to change in The decision to cancel the floating units megawatt unit of the Salem Generating fulfilling its obligations to customers, was made on the basis of the Fall 1978 Station. the first nuclear facility to be buil stockholders and the public. Each year has forecast of electric growth through 1995. and operated by the Company, was neari required difficult decisions, and 1978 The projection anticipates a growth rate in completion The first Salem unit went int certainly was no exception peak demand of 2.8%, down 04% from commercial operation on June 30, 1977.

the 1977 estimate of 3.2%. Originally Financial Results Work also progressed during 1978 on the scheduled for operation in 1980 and 1981, A rate increase of $153 million which Hope Creek Generating Station which is the first two units were ordered in 1972 became effective June 1. along with being constructed adjacent to the Salem when the growth rate was 7.7%. As the improvement in the New Jersey economy, facility At Hope Creek two 1100 megawa growth rate declined following the Mid-helped earnings to increase 7.6% to $182 nuclear units are expected to go on line i east oil embargo in 1973, the operating million in 1978 from $169 million in 1977. or 1984 and 1986. In 1978, about 24% of the date for the first unit was postponed until to $2.95 from $2.86 per share of Common Company's electric supply was generated 1985 and. subsequently, until 1988. The Stock, up 3%. Total revenues in 1978 by nuclear units and after the Hope Creek current forecast of 2.8% growth would amounted to $2.22 billion compared with units are in operation. more than half of call for a further postponement which was

$2.03 bi llion in 1977. an increase of 9.2%. the electric output wi ll be from nuclear deemed to be impractical power.

For the third time in three years. the In February the Company had reached an dividend on Common Stock was increased Gas Supply agreement with OPS delaying delivery of in 1978. Beginning with the June 30 The year 1978 was one of improvement in the units by three years, and limiting the payment. the quarterly dividend was the natural gas supply situation after a Company's liability to that which existed at increased by four cents. from 49 cents to long period of deterioration. Conservation the end of 1977. A deadline of December 53 cents a share. Divid8nds in 1978 totaled and attrition in demand plus improvement 1979 was established for a decision to pro-

$2.08 compared with $1.92 in 1977. in basic supplies brought about the chang ceed or to cancel . The decision to cancel Rate Case Decision was made before the end of 1978 because During the year there was a significant The rate increase order received from the of changes in the corporate income tax recovery from the reduced consumption New Jersey Board of Public Utilities law under the Federal Revenue Act of 1978 levels brought on by the gas emergency o resulted from a petition we had filed in which will provide the Company with a early 1977. Gas sales also increased as a November of 1977 for $395 million in significant tax advantage. result of two rulings by the New Jersey additional annual revenues. The Company Board of Public Utilities which permitted After the Federal income tax effect. there reduced the figure in February to $351 the Company to sell an additional 7.3 will remain $188 million in costs associated million on the basis of updated data. billion cubic feet. ending a moratorium on with the project to be accounted for. The new gas sales that had been in effect. By In May the Company agreed with other New Jersey Board of Public Utilities in the the end of 1978, 5.8 billion cubic feet had active parties in the rate case. including Company's last rate case approved a been committed to customers.

the New Jersey Department of Public stipulation by all active parties that. if the Advocate. to an order authorizing the project were cancelled, all legitimate costs, Merger Negotiations Terminated increase of $153 million in revenues. which will be determined by the board Discussions of a proposed merger of New after an appropriate investigation. should Jersey Natural Gas Company into PSE&G be amortized over a 20-year period The were terminated in June of 1978. The dee amortization would begin with the effective sion was based on New Jersey Natural's date of the Company's next rate order, but reassessment of its own long-term pros-not before March 1, 1980. pects which it believed to be much more Despite the cancellation of the contract for the floating plants. the Company still firmly believes that nuclear power is the best answer to the problem of supplying elec-trical energy in New Jersey. Company studies continue to show that nuclear is more economical as well as environ-mentally more desirable than coal for plants scheduled for operation through the 1990's.

arable than when the basic terms of the several state officials in state acquisition rger were agreed to in October 1977. We of a number of private bus companies.

pected the decision of New Jersey including Transport, and legislation has tural to withdraw from the merger and been proposed to permit such a state dged continued cooperation on matters takeover.

mutual interest.

New Corporate Headquarters G Plans As 1978 came to a close. structural steel e Company's plans to import liquefied was rapidly rising for the Company's new tural gas from Algeria showed littl e corporate headquarters building in down-gress in 1978. Late in the year we town Newark. Construction was begun armed the Federal Energy Regulatory after a ground-breaking ceremony in April.

mmission (FERC) that we were prepar-The Company will lease 22 floors of the an application for permission to use 26-story office tower and an adjoining e of two LNG tanks on Staten Island three-story plaza building Completion and ned by our subsidiary, Energy Terminal occupancy of the complex is expected in rvices Corporation. to store domestic 1980. The headquarters will serve as a tural gas. which would be liquefied at symbol of the Company's faith in the site.

future. not only of Newark. but also of scussions have been initiated by the the area and the state it serves.

mpany with other utilities regarding rti cipation in the liquefaction proposal As we observe the Company's 75th year, der which they wou ld be able to obtain we are especially cognizant of the talents.

s from the facility during peak demand service and dedication of our employees .

.ys in winter. The second tank would past and present. We also are appreciative main available to import LNG, or to pro- of the interest and support of you, our e for additional winter peaking service. stockholders, and we are dedicated to re-search Activity taining your confidence in the years ahead.

r research and development subsidiary, E&G Research Corporation, continued to ~; ~ . I I .-..... . / ~

pand its act1v1t1es in 1978. Work 1s being ~ *~

ne on a variety of programs designed to sist in finding solutions to near and Rb S *h o ert 1. m1t ng-term energy problems Ch . f h d airman o t e 8oar e first phase of the $600,000 Solar and Chief Executive Officer monstration Program was completed.

itial data indicates that years of energy vings are necessary to recoup invest-ents. At least two more years of opera- Portrait of the found er nal information will be collected of PSE&G, Thomas N.

John F. Betz Mccarter, forms a fitting ansport of New Jersey backdrop for John Betz President and (left) and Bob Smith as e Company's wholly-owned bus Chief Operating Officer Company completes 75 nsportation subsidiary, Transport of New years of service.

rsey, has been operating with a subsidy m the State of New Jersey since February 16, 1979 bruary 1974. Thi s subsidy, while not oviding for depreciation or return on vestment. has made up the deficit tween operating expenses and revenues.

ecently, because of the rapidly escalating 1

ost of the subsidy program, there have een expressions of interest on the part of f

4 PSE&G: 75 Years of Service 1903-1978 The bright star of electricity was just rising "At this juncture," McCarter said, "Public when the Company began business on Service was formed with $10 million of June 1, 1903. fully paid cash capital, without a drop of water in it, to acquire and take over thes Gas was used for illumination in larger various properties by lease and otherwis cities and towns. Oil lamps were a neces-to resuscitate the dilapidated railways, t sity beyond the gas lines.

build up the electric properties, and to Man's muscle was a major force in the provide the necessary capital for the gas work place, and a woman's energy kept companies."

the home. The horse car only recently had Mccarter, then 35 years old, was a lawy been replaced by the trolley and Attorney Genera l of the State. His As PSE&G reports on its accomplishments associates included prominent business-in 1978, backward glances are taken at the men, industrialists and bankers, most of Company's 75-year history - at the role whom had interests in the utilities.

PSE&G fulfilled in New Jersey's develop-The plan, as conceived by McCarter, was ment, and at the contributions it has made that the stronger properties would help to the improvement in the quality of life.

carry the weaker ones until all were Utility companies of the State were in self-supporting and profitable McCarter difficulty in 1903. No one, apparently, knew believed that the street railways would that better than Thomas N. Mccarter, the ultimately be the most profitable and tha founder and first president of Public the gas business would enjoy a healthy Service Corporation of New Jersey growth.

"There were many small railway, gas and "The marvelous growth of the electric electric utility companies in New Jersey, industry was not visualized," Mccarter most of them struggling and floundering," commented many years later after it had Mccarter recalled later. become the Company's largest operation.

Few in the early years of the century realized the potential of the electric "The marvelous growth of the electric industry.

industry was not visualized."

Thomas N. McCarter, founder and first president of Public Service Corporation of New Jersey.

75 Years of Service

1903 the electric business, except for the Gross revenues of the corporation and oper-wer to operate street railways, consisted ating companies totaled $18 million, of inly of street lighting. Indoor incandes- which street railways accounted for nearly nt lighting for the most part was in stores as much as that from gas and electric and saloons. The total capacity of the combi ned mpany's 19 small generating stations 1903 was 45,380 kilowatts. In 1978, PSE&G had total operating reve-nues of $2 220 billion of which electric e gas business, which dated back to accounted for $1565 billion or 70%, and 47, was a much larger operation and very gas $655 million, the other 30%.

mpetitive with electricity, the newcomer.

pacity of gas plants in 1903 was 22.9 mi I- Although the story of the Company's n cubic feet a day, and the gas flowed to growth can be told in statistics, PSE&G's stomers through 1,495 miles of main s. contribution to the economy of New ere were 187,384 gas meters in se rvi ce Jersey and the well-being of its peopl e is mpared with 18,262 electric meters. immeasurabl e.

erating revenues from subsidiary and While PSE&G marks its 75th year, the sed compani es in the seven months world is celebrating the "Centennial e corporation wa s in business in 1903 of Light" - the 100th anniversary of ounted to $9.5 million. Thomas A Edison's development of the incandescent light bulb on October 21, Steel rises for the new After the new ring 1904, the first full year of opera- PSE&G corporate headquarters is 1879, in Menlo Park, New Jersey headquarters in occu pied the present n, 43 million kilowatthours of electricity downtown Newark. The bui lding wi ll be d 5 billion cubic feet of gas were sold. PSE&G today, in the tradition of Edison, is Company wi ll occupy 22 demolished and the site se eking new sources of energy and ways floors of the 26-story developed as a to advance technology through research tower building and an landscaped plaza .

and development In the tradition of adjoining three-story Mccarter, the Company is moving forward structure. The Complex, to fulfill the growing needs of its cus- which will be known as Park Plaza. is scheduled tomers into the next century and beyond. for completion in 1980.

rse-drawn, hand-mped drip-tank wagon ed to remove wa ter d light oi l condensate m*gas mains.

Early version of platform truck for street lamp replacement.

Coal Street Generat ing Station. 1916.

6 PSE&G: Financial Results Earnings Up 3.1% The Company estimates, subject to Internal Stockholders participating in the Compan The Company's earnings per share of Revenue Service approval, that a portion of Automatic Dividend Reinvestment Plan a Common Stock in 1978 increased to $2.95 dividends paid in 1978 on Common. Prefer- year end numbered 38,625 compared wit from $2.86 in 1977. or 3.1%. The average ence and Preferred Stock, is nontaxable for 31.437 a year earlier. an increase of 19%

number of shares outstanding rose during current Federal income tax purposes. The The 5% di scount from the market price the year from 59,243,000 to 61.783,000. nontaxable portion constitutes a return on instituted during the second quarter of capital which should be applied to reduce 1977 for participants in the plan who Dividend Raised the cost of shares owned in computing reinvest their Common Stock dividends i The quarterly dividend on Common Stock gain or loss on a subsequent disposition additional shares aided in the greater was increased by four cents. from 49 cents participation. Participants may also pur-to 53 cents, beginning with the June 30 The following table indicates the taxability chase additional shares with optional ca.

payment As a result of the increase and dividend rate per quarter payments up to $3,000 per quarter at Common Stock dividends paid in 1978 Ra te Per market price totaled $2.08, up from $1 .92 in 1977. The Payment Date Share Nontaxable Taxable increase was the third in three years and Common Stock Revenues Rise 9.2%

boosted the annual rate to $2.12 from $1 .96 3/31178 $0.49 0.0% 100.0% Revenues in 1978 were $2.220 billion, up per share a year earlier. 6/30/78 0.53 96.8% 12% 9.2% from the 1977 total of $2.033 billio 9/29/78 0.53 100.0% 0.0% A major part of the increase. $91 .6 millio Dividends paid in 1978 and 1977 and the 12/29/78 0.53 100.0% 0.0%

represented rate increases for electric an price ranges of Common Stock and $140 $1.40 Dividend Preference Common Stock 3/3 1/78 $0.35 0.0% 100.0%

gas service which became effective in Dividend Preference Common Stock were:

6/30/78 0.35 0.0% 100.0% June.

$1 .40 Dividend 9/29178 0.35 100.0% 0.0%

12/29/78 0.35 100.0% 0.0% Electric revenues were $1565 billion, a ri Common Stock Preference Common Stock All Series of Cumulative Preferred Stock of 6.4%, and amounted to 70% of tota l 1978 1977 1978 1977 revenues. Gas revenues rose 16.4% to $65 3/31/78 0.0% 100.0%

Quarterly 6/30/78 0.0% 100.0% million and accounted for the other 30%

Dividends Paid 9/29178 44.4% 55.6%

Per Share 53c* 49c*

• 35c 35c 12/29/78 44.4% 55.6% The sources of 1978 revenues by custom Price Range: *Quarterly rate per share varies with each series. classification were :

First Quarter $23 -21 V2 $24'h-21V2 $16Ys- 15% $17 3/s-16% El ectric Gas Combir Second Quarter 17 -16Vs Stockholders Increase 2.7%

24Va-22 25Va-22 157/s- 145/s Reside ntial 33% 61% 4 Third Quarter 245/s-22'/* 26Vs -23% 16 -14'/2 17%-16Vs At the end of 1978 stockholders of record Fourth Quarter 233/.-20 25Vs-22Va 15%-14 1/s 16Ys-16 totaled 267,386, an increase of 27% over Commercial 37 25 3'

• 49c first quarter only **45c first quarter only 1977. They included 220.739 owners of Industrial 28 14 2 Common Stock, 13,694 holders of $1.40 Street Lighting Dividend Preference Common Stock, and and Other 32,953 holders of Preferred Stock. Total 100% 100%

Gas men serving The "newest" in customers in the 1920's motor-driven street still used bicycles. opening equipment Trench digger Between 1903 and 1916, boom yea rs for street ra ilways, annual ridership expanded from 215 mil lion to 451 million passengers.

he 1978 Income Dollar Expenses Higher By 9.4% Company has joined other utilities in legal Vhere It Came From Operating expenses in 1978 were $1 .9 action challenging the constitutionality of billion. an increase of $164 million. or the tax which was enacted in 1977 9.4% over the 1977 figure of $1.7 billion.

Rate Increase Authorized Total production expenses increased $817 On May 19, 1978, the Company received an million. or 8.8% compared to 1977 Of this order from the New Jersey Board of Public amount, electric costs increased $113 Utilities authorizing a rate increase of million. equal to 1.7%, and gas expenses $153.1 million. effective June 1. Of the rose $70.4 mi llion. or 25.9% amount, $130.7 million was for electric and

$22.4 million for gas service.

.69 Electric Revenues The increase in cost of gas purchased and produced resulted mainly from sharply The rate order was the result of a petition higher prices of natural gas. Cost of the Company filed November 21. 1977 for

.29 Gas Revenues materials to make gas also continued to $395 million in additional revenues . The increase during the year Company reduced the figure in February 1978 to $351.3 million on the basis of 1.00 The impact of higher costs to generate updated data. In May the Company agreed electricity during 1978 was softened by by stipulation with active parties in the greater nuclear production. which has case to accept an order authorizing the lower fuel costs, and by a 12.7% decrease $153.1 million increase.

ere It Went in the cost of power interchanged through the Pennsylvania-New Jersey-Maryland Agreement to the stipulation by the Interconnection. Company had advantages and disad-vantages. The advantages included the Labor costs increased $138 million. fact that the rate increase became effec-

.38 Fuel. Purchased Power & Gas mainly due to wage increases provided tive only six months and nine days from

.09 Salaries & Wages for in union contracts . the filing date of the original petition .

.08 Materials & Services New Jersey gross receipts taxes increased That was the shortest time in which the by $25.9 million. from $270 million to $296 Company had ever received a final rate million, because of higher revenues. A order It was also the first time that a rate

.22 Taxes gross receipts tax imposed by Pennsyl- order was based on a test year with less

.06 Interest vania, based on the Company's share than 12 months of actual data. However.

.08 Dividends of ownership of power plants in that the amount was much lower than filed for, state. amounted to $8.6 mil lion last year and the stipu lation prohibited a further

.09 Reinvested in Business compared with $7.2 million in 1977 The increase in base rates prior to March 1, 1.00 1980, except in case of emergency.

Groundbreaking takes functions will be place for new 84,000 expanded and square-foot auto productivity increased.

maintenance facility Outmoded quarters in being constructed on a present use formerly 10-acre site in Edison. housed Company's Coal Centrally located and Street Generating adjacent to the New Station.

Jersey Turnpike, service

8 Financial Results An important provision in the stipulation stantially lower than the five-year figures Dividend Reinvestment Plan and $3.5 stated that if the Atlantic Generating reported in last year's report as they reflect million from issuance of shares under the Station project were cancelled before cancellation of the Atlantic Generating Tax Reduction Act Employee Stock January 1, 1980, the Company should be Station project Ownership and the Employee Stock allowed to amortize all legitimate costs Purchase plans.

Spending over the next five years for determined after an appropriate investi-construction of nuclear generating units During the year the Company financed its gation. including Allowance for Funds and the fuel to run them will be about short-term capital needs through the sale Used During Construction (AFDC). over a

$2.3 billion. The fuel costs include advance of commercial paper. At year end, the Com-20-year period beginning with the first rate payments to uranium suppliers to help them pany had no short-term debt outstanding.

order received after the project's cancel-finance the mining and milling facilities lation. However. the unamortized portion The Company expects to raise approxi-needed to extract and process the ore.

would be excluded from rate base during mately $300 million in 1979 from the sale that period The project was cancelled by Assuming modest rate increases and of long-term securities.

the Company in December 1978 and is barring runaway inflation, the Company discussed on page 10 Financial Strength Emphasized expects to raise between 55% and 60% of Management's overall financial policy construction spending needs from internal Another provision in the stipulation was continues to stress the necessity for the sources. The balance will be financed by that the Company would decrease rates by Company to maintain a sound financial the sale of long-term securities.

$17 million annually if the Federal corpo- condition.

rate income tax rate was lowered from Estimated Construction Expenditures 48% to 46% before January 1, 1979. After Major elements in the Company's long-Year 1979 1980 1981 1982 1983 enactment of this legislation. the Company term financial policy include strong cash Total flow, adequate interest coverage, continu-filed new tariffs in December to reflect the (Millions) $631 $649 $788 $715 $710 lower Federal income taxes which became ation of high quality earnings and credit rat-effective January 1, 1979. ings, and conservative accounting practices.

Common Stock, Bonds Sold Construction Expenditures Up Financing plans are designed to maintain The Company raised more than $194 Expenditures for construction, including a sound C()pital structure so that the Com-million in 1978 through the sale of Common AFDC, payments for nuclear fuel and pany can raise the new capita l required to Stock and Mortgage Bonds. In June a sale advances to subsidiaries, increased to finance its construction program at reason-of three million shares of Common Stock

$536.8 million in 1978 from $452.6 million able cost The capitalization ratio objective to underwriters provided more than $66 in 1977. Construction expenditures in 1979 is approximately 48% debt 13% preferred million. In November, $100 million principal are estimated at $631.5 million. stock, and 39% common equity amount of First and Refunding Mortgage Estimated expenditures for the five years Bonds, 9%% Series J due 2008, were The Company ~ontinually strives for a fair through 1983 total $3.5 billion, including sold. The Company also raised $24.7 return on invested capital so that stock-

$490 million of AFDC. These figures are sub- million by sales of 1,160,955 shares of holders can be adequately compensated Common Stock through the Automatic for use of their funds Carrying steel up Tom Mccarter at mountain for celebration of construction of Com pany's 25th Roseland-Bushkill anniversary.

high-voltage transmission line.

Kearny Generati ng Station.

9 PSE&G: Meeting Customer Demand Electric Output Up 2.8% Generating Capacity A modest increase in electric output was At the end of 1978 the Company's installed experienced in 1978 Total kilowatthours electric generating capacity was 9,061 produced. purchased and interchanged megawatts. compared with 9,247 mega-during the year amounted to 316 bi ll ion. watts the previous year. The difference an increase of 2.8% over 1977. was the result of rerating some units and placing of others on inactive status. The The one-hour peak demand during 1978 installed generating reserve at the time of was 6.615 megawatts on August 17. This the 1978 peak was 36.5%.

was 4.1% less than the record hourly peak of 6.895 megawatts reached on July 21. Less than anticipated growth, development 1977. The maximum day's output in 1978 of load management policies and practices also occurred on August 17 and was 2.5% and the cancellation of the Atlantic less than in 1977. Both the hourly peak and Generating Station have resulted in a the daily output were affected by cooler complete revision of future peak loads to summer weather in 1978 compared with be served and the generating capacity 1977. required. The projected peak loads.

instal led capacity and reserves planned for Gas Sendout Increases 2.3%

the next ten years are shown on the The total sendout of gas during 1978 was accompanying table.

Salem Generating 1.85 billion therms. 2.3% more than the Station. upon 1.81 bi llion therms in 1977. In 1978 the Generating Capacity Forecast completion. will be one highest 24-hour sendout of 12,235,169 (Megawatts) of the world's largest therms occurred on January 10 when the Planning Installed  %

producers of nuclear Capacity Reserve average temperature was 18°F. This sendout Year Peak Load energy. Total capacity will be 2.200,000 was 12.6% below the single day all-time 1979 7.120 9.061 27 kilowatts. record of 14,005,789 therms set on January 1980 7,268 9.223 27 17, 1977. when the temperature averaged 1981 7,505 9,223 23 1982 7.732 9.535 23 30F. 7,887 22 1983 9.596 1984 8.088 9.596 19 The number of gas customers served under 26 1985 8.294 10.490 interruptible contracts was 71 at the end of 1986 8.510 10,811 27 1978 compared to 74 a year earlier. Inter- 1987 8.726 10,811 24 ruptions during 1978 totaled 136 ca lendar 1988 8.948 10.811 21 days compared with 102 days in 1977.

Tom Mccarter and Until the late 50's.

Thomas A. Edison at Company promoted sale Kearny Station of lamps and appliances dedication in 1926. in its commercial offices.

A "mod ern" telephone swi tchboard A forerunner of today's electric demand meters.

10 Meeting Customer Demand Salem No. 2 Near Start Up Offshore Plants Cancelled During 1978 construction on Salem No. 2 On December 19. 1978, the Board of nuclear unit was in its final phase and ship- Directors decided to cancel the Company's ments of fuel assemblies were received contract with Offshore Power Systems preparatory to its anticipated initial (OPS) for four floating nuclear plants.

operation in 1979. because of less than anticipated growth in peak demand for electricity The first two The second Salem unit has a capacity of units would have comprised the Atlantic

1. 115 megawatts. PSE&G and Philadelphia Generating Station.

Electric Company will each receive 42.59%

of its output and Atlantic City Electric Under an agreement with OPS reached in Company and Delmarva Power & Light February of 1978 PSE&G's liability under it Company will each receive 7.41 % of its contract was limited to that which existed output in accordance with the joint owner- at the end of 1977. and the Company had ship agreement. until the end of 1979 to decide whether to continue with the project. Cancellation PSE&G's share (474 megawatts) will in 1978 instead of 1979 provided a tax increase the Company's nuclear capacity savings to the Company of approximately from 14.8% to 19.1 % of its total installed

$5.5 million because of the reduction in capacity. In 1978 the Company generated the Federal corporate income tax rate fro An accurate design 24% of its electric output from nuclear 48% to 46%.

model of the Hope power compared with 17% in 1977. During Creek Generating 1979 the figure is expected to grow to When the first two units were ordered for Station is used to plan 29% with Salem No. 2 on line. the offshore plant. demand for electric location of piping, cable trays and all equipment. power was doubling every ten years and The Company has applied to the Nuclear This avoids interference peak demand was increasing at an annual Regulatory Commission to allow modifica-of one system with rate of 7.7% As the growth rate declined another and helps tion of spent fuel racks at Salem to permit following the Mid-east oil embargo, plant prevent costly changes on-site storage at least through 1993. The operating dates were twice postponed Th on location during need for increased on-site storage space construction. A total of Company s Fall 1978 energy forecast has resulted from the federal government's 53 modules are being projected an annual average growth rate i failure to develop a nuclear waste man-used in this advanced peak demand of 2.8% through 1995 which planning procedure. agement policy.

did not justify continuation of the project.

Construction of the Hope Creek Generating The total amount spent by the Company Station. adjacent to the Salem facility, on the offshore project was about $329 showed significant progress in 1978 on million. of which $45 million was accrued structures below ground level. The two Allowance for Funds Used During Construe units at Hope Creek. rated at 1,067 tion. After the Federal income tax effect megawatts each. are scheduled to begin there remains $188 million in unrecovered commercial operation in 1984 and 1986.

costs.

PSE&G owns 95% of the station and Atlantic City Electric Company the other As noted on page 7, the New Jersey Boar 5%. The first unit is expected to boost the of Public Utilities approved a stipulation in Company's output from nuclear power to the last rate case to which all active 40% of its total generation, and the sec- parties agreed. The stipulation included a ond unit to increase the amount to 51 %. provision that all legitimate costs associated with the Atlantic Project. to be determined after an appropriate investigation. should be amortized over a 20-year period beginning with the next rat order the Company receives on or after March 1, 1980.

Discontinuance of the project lowered estimated construction expenditures and 1 reduced the amount of capital that it will be necessary to raise through the sale of stocks and bonds.

11 PSE&G: Fuel Supplies Oil, Coal Adequate Gas Supply Fuel oil and coal supplies for the Compa- The Company's daily gas capacity, exclud-ny's electric production requirements were ing the effect of pipeline curtailments, adequate in 1978 despite harsh winter declined to 18,639,000 therms per day dur-weather and prolonged coa l and rail strikes. ing the year from 18,933,000 therms in 1977. The decrease resulted from the closing Coal prices escalated as a result of the of the Paterson Gas Plant because its con-mine strike settlement and higher trans- tinued operation was no longer econom-portation costs. The average delivered coal ically justified. The composition of the daily cost for 1978 was 11.4% above 1977. capacity on December 31, 1978 was:

Fuel oil prices dropped late in 1977 and Type of Gas Therms Per Day remained relatively stable for the first eight months of 1978. There were rapid increases Natural Ga s 13,892,000 Liquefied Petroleum Gas 1,981,000 during the last four months because of 1,325,000 Synthetic Natural Gas decreased availability of low sulfur heavy Oil Gas 1,186,000 fuel oil and light oils. In spite of the in- Refinery Gas 255,000 creases. the average delivered cost of heavy 18,639,000 fuel oil for the year was 4.3% below 1977. The average cost of light oils, how- The Company entered into a new long-term ever. was 3.1 % above 1977. contract with Transcontinental Gas Pipe he two units at Mercer enerating Station Uranium Prices Steady Line Corporation which replaced a short-ceive coal from Market prices for uranium remained stable term contract and increased total under-orfolk by a 6.000 ton ground gas storage capacity from 413.9 apacity barge. Six during 1978. The Company's agreements mailer barges also with Kerr-McGee Nuclear Corporation and million therms to 415.2 million.

eliver coal from with Homestake Mining Company are Natural Gas altimore on a regular expected to provide a substantial portion of huttle basis. The daily supply of natural gas included in the uranium required to operate the Salem the total capacity amounted to 13,892,000 and Hope Creek Generating Stations from therms at the end of 1978, unchanged from 1980 to 1995. the previous year About 48% of the daily During the last quarter of 1978 the natural gas capacity is composed of high-Company received the initial shipments of load-factor gas which is available every uranium from the South Powder River day of the year. The remainder of the gas Basin Project of Kerr-McGee in Wyoming. comes from field storage, liquefied storage, The Company anticipates that surface and contract peaking service.

mining operations. now under way, will In 1978 the natural gas sent out to cus-produce approximately 4.2 million pounds tomers amounted to 1.69 billion therms. an over the next 10 years. increase of 81.1 million therms or 5%

A partially developed underground mine at compared to 1977. The increase was made the project has been placed in standby possible principally by higher production of status for up to three years during surface Energy Development Corporation (EDC) and mining operations. Resumption of the increased emergency purchases.

development of the underground mine and development of additional properties after the standby period is at the option of PSE&G.

The Homestake Mining exploration program, in another area of Wyoming, Coal is also used to continued during 1978 and at the end of produce electricity in a unit at Hudson the year reserves of about three million Generating Station. pounds had been proven. The exploration Approximately a million program will continue in phases until tons of coa l is used enough reserves are proven to justify the annually at each station. development of a mining and milling complex.

72 Fuel Supplies Curtailments of contractual pipeline Supplementing its supplies of purchased deliveries averaged 29% or 1.9 million natural gas and refinery gas, the Compan therms per day in 1978, virtually the same produced synthetic natural gas (SNG) fro as during 1977. However, the Company was naphtha, oil gas from kerosene and lique-advised by its natural gas suppliers that fied petroleum gas from propane. The dail the supply situation was improving as a production capacity for these gases was resu lt of their efforts to develop new 4,492,000 therms, a decrease of 294,000 sources of gas and that deliveries to therms from 1977. because of the closing PSE&G would increase in 1979. Substantial of the Paterson Gas Plant Total productio improvement in the future supply picture is in 1978 fell to 412 million therms, from also indicated by the high level of explora- 103.4 mi llion therms in 1977 as a resu lt of tion drilling and the passage of Federal less severe cold weather in January and energy legislation which will allow the February of 1978. These manufactured Company's pipeline suppliers to compete gases amounted to 2.2% of PSE&G's tota l more effectively for onshore supplies in gas sendout during the year.

gas producing states.

Energy Legislation At year end, natural gas was being de- Congress enacted and President Carter livered by EDC at the rate of 110,000 signed into law in 1978 energy legislation therms a day. This rate is expected to which will have an impact on Company The Amerada-Hess increase as the exploration and develop- operations. The legi slation is designed to Terminal in Bayonne ment effort moves ahead. Additional decrease oil imports by creating greater pumps oil through underground pipelines to information on EDC will be found on reliance on domestic energy sources.

four of Company's page 22. Conservation and more efficient use of generating stations. This energy are encouraged.

method of transporting Cost of natural gas to PSE&G averaged oil is more reliable and $1.54 a million Btu's, an increase of 23c Among other things, the legislation (1) cheaper than either over the average in 1977. increases in increments the ceiling prices trucking or barging. of newly-discovered natural gas until 198 Supplemental Gas Supplies when price contro ls on new gas wil l be The Company bought 121 mi ll ion therms of removed; (2) prohibits use of natural gas refinery gas in 1978 from Exxon's Bayway or oil. with limited exceptions, by new refinery. This gas accounted for 6.5% of generating facilities, and some existing PSE&G's total gas supply for the year. The ones. which can burn coal; (3) requires cost of this gas averaged $3.21 a million utilities to provide certain energy conser-Btu's compared with $3.17 in 1977.

vation aid to customers; (4) requires state regulatory authorities to consider certain standards in rate design and in other practices; (5) requires in some emergency situations interconnections of power sys-tems. and (6) provides va rious tax crediits to encourage the development of addition energy sources and conservation.

Oil pipeline emerges from ground at Bergen Generating Station where fuel is sent to a 325.000 barrel storage tank, approximately a 15-day supply under normal operating conditions.

13 PSE&G: Plans and Accomplishments Instead of complete Transmission Line Completed replacement, the upper In October 1978, an additional 500,000 section of a pole volt overhead transmission line was com-damaged near ground level is set on a pleted and placed in service. The line runs concrete module and through central New Jersey from the New secured by a metal Freedom Switching Station in Camden sleeve. This eliminates County to Deans Switching Station in expensive transfer costs of all equipment and Middlesex County Completion of the line wires at top of pole. permits operation of the portion of the Lower Delaware Valley transmission project required to deliver power from the Salem Generating Station and the Peach Bottom Station in Pennsylvania. This is a signifi-cant addition to the Pennsylvania-New Jersey-Maryland (PJM) Interconnection and substantial ly improves reliability and efficiency After years of regulatory delay and legal challenges by opponents, the Company in 1978 cleared the final legal hurdle to build-ing of a 230,000 volt overhead transmission line in Union County Scheduled for com-pletion in 1980, the five-mile section wil l complete the transmission line between the Deans Switching Station and the Aldene Switching Station in Union County.

Distribution System Expanded The Company's distribution system was The first computer Performance is then further expanded in 1978 with the installa-graphic system analyzed prior to start of tion of one new substation and three new dedicated to planning any construction. 26,000 volt lines. Eight new 13,000 volt was developed by circuits were added while one 13,000 volt PSE&G. Company's electric system can be and four 4,000 volt circuits were removed.

simulated on screen and Design Work Automated proposed new fa cilities added to system. An advanced substation design method was introduced in 1978 which is expected to provide substantial savings in design costs. The traditional manual drafting or the first time process for new substations was replaced lnywhere, complete lubstation wiring design by computer technology which employs a ind layout is being done video screen. Drawings and diagrams can 1y computer graphics. be quickly displayed or hard copy prints his technology will be produced in minutes on a high speed

'xpanded to other lre as.

digital plotter. The system can automati-cally provide comp lete wiring and cable lists for a substation. The technology is expected to be expanded to other design Drawings from the activities.

computer are quickly displayed. Hard copy prints can be produ ced in minutes on a high-speed digital plotter.

14 Plans and Accomplishments Divisions Consolidated Load Management Advances In July the electric transmission and dis- Recognizing the contribution that load mar tribution divisions of Bergen and Hudson agement can make toward the optimum were reorganized into a new Palisades use of present and future facil ities. the Division with its main headquarters in Company in 1978 escalated its efforts in Secaucus. The merger was effected to this area.

make optimum use of personnel. As a A number of load management activities result, annual expenses will be reduced are currently being investigated and eval-by approximately $1 .5 million.

uated. Among these are industrial and Reservoir Project Planned commercial demand control. thermal stor-PSE&G, along with six other utilities using age heating and cooling, electric storage Delaware River water. is seeking approval water heating, time-of-day rates, revised from the Delaware River Basin Commission interruptible rates, utility control of selected for a reservoir project at Merrill Creek in customer appliances. the effects of im-Harmony Township, New Jersey. Operation proved air conditioning efficiencies, the of new steam electric generating plants in impact of solar and cogeneration instal-the basin now requires a make-up water lations, and the future of electric vehicles.

supply to compensate for consumption, Major field testing of some of these particularly in dry periods. The reservoir concepts is now under way A study of A test is being made would be used to store water for release with the cooperation of customer response to time-of-day rates is when needed to maintain adequate flow in 250 customers in entering its second year. The effects of Vincentown which the Delaware. Cost of the project is estimated at $104 million of which PSE&G's utility control of customer owned air allows control conditioners and electric water heaters ar equipment to turn air share would be $14.3 million.

conditioners and water being investigated in the Leisuretowne heaters on and off at retirement community in Vincentown. In intervals during peak addition, the Company has a contract with demand periods. On a the U S. Department of Energy to imple-large scale, it is expected that this could ment an experimental project involving defer the need for new thermal storage heating equipment. The generating facilities. equipment itself, the associated communi-cations system. customer reaction and the effect upon the Company system wil l be analyzed.

SCAOA, a computer- Sophisticated camera based supervisory and computer control and data equipment will be used acquisition system. can to file millions of pages locate problems in of documentation on seconds wi th in a 13.000 nuclear pl ants and othe volt distribution system projects. Images of so .that remedial action 110,000 letter-size page can be taken more - equal to 25 standard swiftly and customer file drawers - can be service improved. It also stored in a single ei ght-defers major capita l inch cartridge. Any pag expenditures as load Installation of a new can be displayed within can be transferred from computer system was four seconds.

one station to another. begun in 1978 to more efficiently handle customer inquiries.

billing and service orders.

September, the Company introduced a Compatibility also will be provided with ew residential electric rate schedule, other utilities which will facilitate the esidential Load Management (RLM). This interchange of information. particularly te schedule recognizes the generating on system planning with other PJM ost differentials which exist at different companies.

mes of the day and year. It is designed to Commercial Operations Streamlined ncourage the use of energy consuming Six commercial offices were consolidated evices during off-peak periods, and, in into three in 1978, three branch offices articular, thermal storage equipment.

were closed and one branch was relocated.

ustomer Payments Centralized The changes were made without reducing Electric heat pumps perations of the Customer Payment quality of service to customers, because provide heating comfort rocessing Center in Woodbridge, which most business is transacted by telephone. using 30% less energy Customers accustomed to paying bills in than standard el ectric as opened in 1977, continued to expand resistance units.

1978 with the addition of payments by person may continue to do so at desig-gencies. including several with "pay-by- nated banks and savings and loans in their hone." The facility centralizes the receipt, communities. There are now 12 company rediting and depositing of customer mail commercial offices and seven branch offices.

ayments formerly handled by commercial Home Heating Demand Grows ffices. By the end of 1978 an average of Uemand in 1978 for heating of new single-0,000 payments was being processed daily family homes and commercial facilities ew Computer System Introduced was exceptionally strong, particularly in ransition to International Business the southern part of the Company's service achines computer equipment began in area.

978. This will provide the capacity for eveloping and implementing a new, highly Authorization from the New Jersey Board of Public Utilities (BPU) to sell additional utomated system to handle customer nquiries. improve accounting and billing gas. coupled with heat pump marketing activities by the Company, resulted in the racti ces, and speed the processing and use of either electricity or gas for heating cheduling of service work orders.

of most new construction.

During the year. the BPU granted permis-sion for connection of 7.3 billion cubic feet of additional high-priority gas load.

Approximately 8,200 residential customers nergy-saving electric eat pumps are being nstalled in town houses t Larchmont. a

,ODO-unit housing evelopment in South ersey. Single family welling units will use as for heating.

Commercial use of electric heat pumps in PSE&G territory is growing, with a significant number of racquet clubs, offices, restaurants, banks and retail stores now using this method of heating.

16 Plans and Accomplishments and 1,100 industrial and commercial cus- customers so that proper action could be tomers were connected, representing an taken. Procedures were modified and annual estimated revenue of $4.7 mill ion. additional training for customer-contact The 7.3 billion cubic feet. when connected, personnel was conducted.

will produce annual revenues of $15.6 Street Lighting Improved million.

Municipal and state officials were urged ti Marketing service personnel worked improve street lighting, thus increasing closely with builders and consumers to off-peak electric use. A program is under increase awareness of the electric heat way to replace all remaining incandescent pump as an energy efficient way of heating fixtures on state highways with energy-and cool ing. More than 40% of the heat efficient mercury vapor units. These replace-pumps connected to Company lines at year ments along with municipal improvements end were added during 1978. resulted in a total of 9,549 vapor lights being instal led during 1978.

Customer Information Broadened Marketing personnel continued to offer More than 4,100 dusk-to-dawn private arec:

assistance. advice and guidance for proper lighting installations were added in 1978, and efficient utilization of energy to all bringing the total number of units to nearl\

classifications of customers. Over a half 50,000 .

An electron ic display of million contacts with customers were made Energy Thefts Prosecuted customer information by personal visits, group meetings, corre-Thefts of energy have been found to be an stored in a computer spondence and telephone. At the forefront makes possible a quick increasingly serious problem for utilities.

of these activities were Consumer Advisers and accurate response requiring expanded investigation of all type:

who conducted lectures and demonstra-to inquiries. of customer accounts. When evidence of tions on a variety*of subjects such as alter-energy theft is found the Company moves nate energy sources, the cost of energy, vigorously to obtain restitution and, if nuclear power, and the wise use of energy.

warranted, seeks prosecution of cases in In line with a trend in recent years. cus- court. Investigations and efforts to gain tomer inquiries in 1978 reflected broad restitution are the joint responsibility of interest in the Company's operations. several Company departments.

Detailed analysis of the inquiries was instituted to determine major concerns of 75 Years of Service Cooking and home-making classes attracted countless women.

18 PSE&G: The Growth of New Jersey New Firms Attracted Johnson & Johnson; Holt. Rinehart & PSE&G revenues for electric and gas The number of companies seeking loca- Winston, Inc.; and Stauffer Chemical Co. service in the Meadowlands area are tions within the Company's service area in currently between four and five million PSE&G's territory al so continued to be a 1978 continued at a high level. The activity dollars a year and the total is growing.

favorite location for office buildings. Corpo-resulted from improvement in the economy, rations have a choice of many campus-type The Hackensack Meadowlands Develop-a significant increase in firms moving from sites that meet or exceed the usual criteria ment Commission is reviewing proposals New York City, and the impact of a PSE&G for corporate or regional headquarters. from three competing developers for con-media campaign designed to attract indus-Companies which found locations included struction of major shopping malls and trial and commercial companies.

Ebasco, Inc . The Prudential Insurance office centers.

Welder at work During the year, 379 major industrial and Company, International Business Machines In 1978 the Meadowlands Commission preparing for the Raritan commercial firms employing approximately Corporation and the Liggett Group Inc.

River Steel Company granted Hartz Mountain Industries permis-16.700 persons located or expanded in which will become the New Jersey continues to be attractive to sion to proceed with the construction of Company's second PSE&G territory. A total of 71 companies.

foreign firms. The Company assisted an $80 million. 1,380-unit. high rise condo-largest customer when employing 5,200, moved from the State or Toshiba, a Japanese electronics manufac- minium complex. to be called Harmon operations start closed operations, leaving a net gain of sometime in mid-1979. turer. in moving its headquarters and distri- Cove 11, adjacent to its present residential about 11,500 jobs.

A 4V2 mile 230-kv bution facility from New York City to New development. A 300-room hotel and pipe-type ca bl e has Raritan River Steel Company, a subsidiary Jersey convention center, the Meadowlands Hilton, been run from PSE&G's of Co-Steel International Ltd. of Canada. was opened during the year.

Sewaren Switching Two locations also were found for major Station to the Perth started construction of a $94 million plant facilities of The Nestle Company, a Swiss Urban Industrial Parks Planned Amboy site to in Perth Amboy for the production of steel firm. and assistance was given to Lladro, a As a result of legislation enacted last year.

supplement existing rods. Anticipated annual revenues to electric facilities. It is Spanish manufacturer of fine porcelains. in the Port Authority of New York and New PSE&G from energy sales to the plant are estimated that use of moving from New York to northern New Jersey will embark on a 10-year program estimated at $117 million. when it begins electricity will be Jersey. to build $1 billion of inner-city industrial 360,000,000 production in 1979 facilities. The program holds promise for kilowatthours annually. Meadowlands Prospers Th is new company in Among other firms locating or expanding the creation of thousands of permanent as The Hackensack Meadowlands. covering New Jersey is expected manufacturing operations during the year well as construction jobs.

portions of 14 municipalities in Bergen and to provide 600 jobs. were such nationally-known companies as Hudson Counties, is prospering with a high Emerson Radio Corp.; E.R. Squibb & Sons; level of development activity Ortho Diagnostics. Inc .. a subsidiary of Success of the New Jersey Sports Complex, which includes Giants Stadium and the Meadowlands Race Track, has provided a spur for other development. A 20.000-seat arena is under construction.

75 Years of Service Company ferries operated between Bayonne and Staten Island. and Edgewater and 125th Street. New York City.

Electrically-powered buses made their debut in the 1930's.

ore and more orporate headquarters locate in New Jersey:

e State now ranks third in the nation in his important category.

Ingersoll-Rand Company CPC International E.R. Squibb and Sons. Inc. Union Camp Corporation AT&T Long Lines Meadowlands Racetrack-one of the busiest in the nation With growth of natural gas supplies. numerous metering and regulating stations were required.

Operations being checked within a gas metering and regulating station.

The one-millionth gas meter. installed in 1954.

Electric generating equipment became Maintenance of electric larger and more efficient. service improves.

20 PSE&G: Programs of Public Interest Community Activities Company representatives met frequently PSE&G during 1978 continued its participa- with officials of federal, state and local tion in various community activities in its environmental agencies as well as with service area. The activities, designed to private organizations. Testimony and fulfill many needs, were carried out commentary on various aspects of the by a number of Company departments. Company's operations in relation to the environment were provided at public Company personnel served in a variety of hearings and meetings.

volunteer positions in many civic, cultural and educational organizations. The Com- Communications Emphasized pany participated in community develop- The Company in 1978 conducted a wide-ment programs in al l the large cities it range communications program that serves. provided information about PSE&G and its activities to stockholders. the financial Survival of the cities and the well-being of community and the public.

their residents depends upon commitments by the business community to become Information was supplied by PSE&G on a actively involved in urban redevelopment regular basis to the financial community. In and revitalization. The beginning of addition. Company executives addressed construction on PSE&G's new corporate the New York Society of Security Analysts Trout from the headquarters in Newark during 1978 and other groups in Boston. Philadelphia, Company's aqua culture emphasizes the Company's commitment. Chicago, San Francisco, Los Angeles, project were provided Seattle, Phoenix, Miami, St. Petersburg an for a fun-filled fishing In addition to maintaining traditional Fort Lauderdale. At the meetings financial day for handicapped affiliations with community groups, the youngsters. Senior analysts, brokers, institutional investors Company was instrumental in providing citizens provided advice and individuals were provided with perti-financial and technical assistance. as well and assistance. nent information about the Company.

as making other contributions. to help solve problems of the disadvantaged The Speakers' Bu reau gave 272 presenta-

• citizens in the cities. tions before more than 9,500 persons in 1978. Company personnel conducted Special programs emphasizing educational generating station tours for nearly 4,000 development for minority youth continued persons and sponsored education programs to receive support. Numerous agencies for 177,000 students. More than 36,000 which help the needs of chi ldren were people visited the Second Sun, the Com-aided, such as day-care centers. cultural pany's floating information center. and the enrichment programs and recreational Salem Visitors' Center had 5.500 guests.

groups. Assi stance was given to higher education for minority students. A variety of audiences was reached through film, slide and lecture programs.

An increasing number of requests was Nearly 1.200 presentations on energy, received by the Company for assistance to conservation. safety, and other topics were community groups and schools. Responses made to civic, social and school groups were in many forms ranging from special totaling more than 192,500 persons.

senior citizen programs to development of high school art exhibits. In 1978 the Company received the "Best Utility Communications Program" award Environment Improved from the Public Utilities Communicators Approximately $177 million was spent in Association. This was the second time in 1978 to improve air and water quality and three years that the Company had received to minimize the impact of Company oper- the top award. PSE&Gwas cited for its com-ations on the environment. plete information program which included Company personnel are involved in numerous Construction was started during the year everything from energy-related printed community organizations material to displays and motion pictures.

such as Newark's on modifications required at generating YM-YWCA. Members of stations to meet limitations on chemical its talented gymnastics discharges that have been set by the team "Flip City" have Environmental Protection Agency. The work won international is expected to cost about $41 million.

recognition.

complete area development campaign titian into the health care system. More as created which featured testimonials than 10% of all employees are now en-ram chief executive officers of inter- rolled in the six HMOs currently available ationally-known companies located in the to PSE&G personnel.

tate, and appeared in national media. Dur-PSE&G continued to stress its Affirmative ng the year over 1,500 requests for infor-Action Program in relation to the employ-nation resulted from this program Many ment and progress of women and members f the inquiries developed into firm pros-of minority groups. In 1978 more than 24%

ects for locations within the Company's of all persons hired were women and over 25% were minorities At the end of the s part of the observance of the Com- yea r, the Company had 1.777 female em-any's 75th anniversary, a book entitled ployees and 1,661 employees from minority

'The Energy People, A History of PSE&G" groups. The Affirmative Action Program as published and distributed to employ- has resulted in a significant increase in

,,es and retirees. the number of minority group persons fi ll ing professional and managerial umber of Employees Reduced positions.

he number of Company employees at ear end was 13,166, a reduction of 173 The Company initiated during the year an ram 1977. which resulted wholly through Employee Relations Review Procedure PSE&G employees ttrition. which provides all non-union personnel provided clothing for with a formal mechanism by which claims hundreds of dolls which ages and salaries for the year totaled of discrimination and disciplinary problems the Salvation Army 274 million, including $10,061,000 for dis- distributed to needy may be reviewed and resolved.

bil ity benefits and workers' compensation. children.

PSE&G's management development efforts uring 1978, the Company's Pen sion Plan were expanded to include Harvard's as amended to conform to the 1978 Program for Management Development.

mendments to the Age Discrimination in and by the establishment of a central mployment Act. by extending the manda-source of performance information on ory retirement age from 65 to 70, effective management personnel and a corporate-anuary 1, 1979. For employees in certain wide selection process for key managerial collective bargaining units, the mandatory positions. In-house training programs focus-retirement age will remain at age 65 until ing on improving the skills of managers and anuary 1, 1980.

supervisors were conducted for 279 man-he Company's Tax Reduction Act Em- agement personnel.

ployee Stock Ownership Plan (TRASOP)

Approximately 750 first level supervisors provided a significant benefit to eligible were included in the performance-oriented employees for the 1977 tax year As per-Management Compensation Program. This mitted by federal tax laws, the Company placed all management employees in the Members of the claimed additional investment tax credits of Governmental Affairs program that was established in 1975 for

$1.847,000 on its 1977 Federal income tax Department are kept middle and upper level managers return and transferred cash in that amount aware of pending to the TRASOP Employees were permitted During the year an evaluation study of legislation which will directly affect Company to contribute to the TRASOP for the first non-union clerical and technical jobs was operations and customer time, and their contributions amounted to completed. The results of this study are service.

$480,000. Both the Company and employee being analyzed to determine whether or contributions were used by the trustee of not pay ranges for these employees re-the TRASOP to purchase a total of 100,333 quire modification.

shares of PSE&G Common Stock for th e benefit of employees.

PSE&G continued its participation in the Health Maintenance Organization (HMO) movement in New Jersey HMOs are a major part of a national effort to control rising health care costs. A basic objective of the HMO effort is to introduce compe-

22 PSE&G: Subsidiaries Energy Development Corporation east of Atlantic City, and two others some development. testing and demonstration Energy Development Corporation (EOC). 50 miles to the south. None of the wells of large-scale battery energy storage sys-the Company's exploration subsidiary, yielded hydrocarbons in commercial tems and power conversion equipment continued in 1978 its exploration in the quantities. EOC's interest in the wells was The $11 .1 million program is a cooperative Southwest and in the federal offshore 0.7%, 1.4%, and 3.5% respectively EDC venture of the Company, the U.S Depart-waters as part of its effort to develop new will participate in the drilling of at least ment of Energy (DOE), and the Electric supplies of natural gas for PSE&G. one more exploratory well approximately Power Research Institute (EPRI) 100 miles east of Cape May during During 1978 $19 million was spent for Based upon the Company's leadership 1979.

exploration, $9 million for development and role in applying electrochemical energy

$2 million to acquire offshore leases. EDC expects its first production from the technology to electric power systems, Revenues from sales of oil and gas were Gulf of Mexico exploration by mid-1979 PSE&G was awarded a $19 million con-

$10,561,000 in 1978 compared with from an area located about 10 miles off the tract by DOE to conduct a technical and

$8,227,000 in 1977. The 1978 earnings Louisiana coast Additional production is economic assessment of electrochemical were $1,190,000 compared with $1,213,000 expected from another area six miles to energy storage systems. The contract calls for 1977. The decrease in earnings was due the south by the latter part of 1979. EOC's for analysis of four advanced design primarily to greater tax reductions in 1977 interest in these blocks is 7.9% and 6.7%, batteries to identify the impact of battery and to a substantial increase in sales to respectively. Two other areas in the Gulf of systems on generation planning and PSE&G of lower-priced interstate gas. Mexico in which EDC has an interest of system operation.

approximately 8% are now in the develop-EOC's onshore program is concentrated in The first phase of the Company's Solar ment stages.

the Gulf Coast region of Texas and Demonstration Program was completed in Louisiana. In 1978 the onshore operations During the year, two federal lease sa les 1978. Operating data continues to be ana-resulted in the drilling of 16 wells of which were held for tracts in the Gulf of Mexico. lyzed for solar water heating, space heating, five were successful At year end EDC was EDC participated in these sales as a mem- and pool heating systems installed at 11 in the process of drilling nine additional ber of the Transco Exploration Company homes of customers.

onshore wells. (TXC) bidding group EDC bid $22.1 million The program is designed to assess the on 23 tracts at these sales and placed high In an effort to spread the exploratory risk potential and determine the feasibility of bids on four tracts totaling $2.0 million. In and permit the drilling of a greater number using solar energy as an alternate domes-addition, EDC purchased from TXC inter-of wells, EDC has solicited participation by tic heating source in New Jersey Another ests ranging from 4% to 7.5% in five other companies in its onshore program. aspect of the program is to evaluate the tracts located in the Southeast Georgia Three utility companies have committed potential for PSE&G participation in the Embayment. approximately 50 miles off nearly $5 million in a joint drilling program solar industry. First-year data indicate that the Atlantic coast with EDC. the cost of installing solar energy systems PSE&G Research Corporation is high and that these systems require years EDC is delivering gas from five of its PSE&G Research Corporation, formed as a of energy-saving for recoupment of their onshore discovery fields to PSE&G's market subsidiary in 1977, continued the Com- initial investment area at the rate of 110,000 therms a day.

pany's research and development program Deliveries are expected to increase as The study also has found that sociological aimed at assisting in obtaining solutions further development in existing fields is impacts, such as neighbor complaints, to near and long-term energy problems completed and regulatory approval is vanda lism, and conflicting municipal Funding received from competitively-won obtained on transportation of gas from ordinances can significantly affect the cost contracts enables the activity to expand several new fields . and acceptance of solar systems. At least while minimizing costs for internal work two more years of operating data will be EOC's offshore activity continues to and offsetting financial contributions made collected to gain greater insight into the increase as additional offshore tracts are for the Company's share in industry-wide operation and maintenance costs asso-acquired each year. During the year, eight programs.

ciated with these systems wells contained gas in commercial During 1978, the Company's total R&D quantities. 13 wells were plugged and A test-demonstration of photovoltaic solar expenditures were $9.9 million of which abandoned, and seven were still being systems is scheduled to begin in 1979 at

$2.4 million came from outside agencies.

drilled at year end. the Company's Research and Testing The Company's actual costs for internal Laboratory in Maplewood.

Exp Ioratory dri 11 ing off the coast of New R&D work was $4.4 million and $5.5 mil-Jersey became a reality in 1978. EDC lion for support of utility-industry research. Aquaculture research continued in 1978 at participated in the drilling of three the Mercer Generating Station to utilize Progress was made on construction of the exploratory wells as part of a group heated discharge water to enhance the Battery Energy Storage Test (BEST) Facility operated by Shell Oil Company. The first growth of aquatic food products.

at Hillsborough Wh en the BEST Facility well was drilled approximately 70 miles becomes operational, anticipated for mid-1980, it will serve as a center for national

• ... * .. \.

A prototype greenhouse has been built at Mercer which also will utilize the heated discharge water to extend the growing season of agricultural products such as Efforts are being made to utilize Newark's municipal solid waste for this purpose.

Methods to produce pipeline quality methane gas from wastes also are being

J Jiil*._;*

tomatoes and flowers. The programs prom-investigated. The Company is participating ise to provide a beneficial use for power-with John G. Reutter Associates in a DOE plant effluents and could lead to new study to determine the feasibility of con-industries in New Jersey, and additional verting refuse and sewage-sludge into sources of revenue for the Company.

pipeline quality methane gas.

PSE&G has joined with Gilbert Associates, a consu lting firm, and the Bergen County A $1 .1 million contract was awarded to Utility Authority in a DOE-sponsored study the Company in 1978 by DOE to conduct a to determine the techni cal and economic 21/i year demonstration project to study feasibil ity of integrating a fuel ce ll into existing underground transmission cables.

the sewage treatment process to produce The Company is seeking to determine cost heat and electricity from methane gas savings obtainable through more efficient derived from sewage. In another DOE- use of these ca bles.

funded study, Company power plants and During 1978 a mobile facility of the Research the communities adjacent to them are and Testing Laboratory began performing olar collectors tota ling A PSE&G engineer being analyzed to determine the potential automated tests on large turbine generator 60 square feet have checks a piping diagram of utilizing waste heat and steam for systems. The facility automatically gathers een retrofitted to a for a solar heat pump heating and cooling applications.

ustomer home to test system installed by and processes data to measure the perfor-upply portion of hot the Company. Exterior Work is continuing with Combustion mance of these large generating systems.

ater and space view of system is Equipment Associates (CEA) and the City of The Company expects to realize significant eating needs. shown to the left savings through use of this facility.

Newark to demonstrate th e use of a refuse derived fuel in electric production facilities.

n its simplest form, a Solar energy offers a competitive. PSE&G is olar heating system lon!f-term solution, but continuing its solar ses large collectors its costs today, energy research and ontaining flat pieces compared with savings support of practical f metal treated to realized, in many efforts to help make bsorb the sun's rays. cases do not justify solar energy 11e diagram below installation of a solar economically feasible.

llustrates how this system. However, as nergy is then the costs of istributed to the point conventional fuels rise, * ** * * ,... Hot f use. and solar technology Steel Tank Wa ter advances, solar energy Mixing Valve to House Approximately will become more 40.50 gal. to prevent Final Temp. scalding 140° F.

Existing Hot Water A System Cold City Auxiliary Heating Source Water

• * * * * * ,... Heat to Living Space Steel Tank Approximately 1.500*2,000 gal. (Existing)

Temps. to Conventional 1eo* F. Heating System

• * * * * * ....: Return from ombination Solar Living Space omestic Water eating and Space Solar Collector Storage System Auxiliary Heating Source eating System Outdoors Indoors or Outdoors Indoors

24 Subsidiaries Company support Since 1957 PSE&G has worked with the deliver gas to and from the plant through continues in research Princeton University Plasma Physics existing pipeline facilities in order to carried on at Princeton University to create Laboratory and has contributed $375,000 postpone construction of the proposed EPC energy by fus ing nuclei for research to develop a new type of pipeline.

of hydrogen isotopes. nuclear reactor which produces energy by Substantial progress PSE&G will continue to pursue the fusing nuclei of hydrogen isotopes. In 1978 was made in 1978. importation of LNG and would expect to the Princeton scientists made significant use the second tank for this purpose. If progress towards their goal of extracting circumstances prevent the Company from usable power from a nuclear fusion reactor.

obtaining a supply of imported LNG in a LNG Plans Revised timely manner, it may be necessary to use Energy Terminal Services Corporation (ETSC), the second tank to provide additional Energy Pipeline Corporation (EPC). and winter peaking service.

Eascogas LNG. Inc. are three wholly-owned Transport of New Jersey Company subsidiaries formed to implement Transport of New Jersey, the Company's a long-term project to import liquefied transportation subsidiary, and Maplewood natural gas (LNG).

Equipment Company, Transport's wholly-ETSC has assets consisting primarily of a owned operating transportation subsidiary, plant at Rossville, Staten Island equipped had a net loss of $117,000 in 1978 after to unload. store and process LNG . Because receiving $28,166,000 in operating assist-of continuing uncertainties involving the ance from the State of New Jersey to import project. the Company is now pro- supplement fare box revenue. This com-ceed ing with plans to use certain facilities pares with a net loss of $247 ,000 for the at the Rossvil le plant to provide needed year 1977 when $25,211 ,000 in operating winter peaking service. assistance was received from the State of New Jersey. Private Reinvestment In December 1978, PSE&G informed the Capital Corporation, a wholly-owned non-Federal Energy Regulatory Commission that operating subsidiary of Transport. had net application would be made for authoriza-income of $835.000 in 1978 compared wit tion to construct a liquefaction plant and

$420.000 in 1977.

to use one of the two existing tanks to liquefy and store gas from domestic sources.

Arrangements are also being sought to 75 Years of Service Synthetic natural gas plants help meet peak winter demands.

Bergen Generating Station. one of Company's modern ... and into fossil -fuel plants. the nuclear age.

26 PSE&G: A Special Report on Nuclear Energy Nuclear power will be relied upon increas- PSE&G's customers saved approximately is in operation the Nuclear Regulatory ingly by PSE&G to meet the needs of its $153 million in 1978 through the use of Commission and other agencies continue customers for electricity between now and nuclear generation compared with what to inspect the facility and review opera-the end of the century. The nuclear power the cost would have been to produce an tions throughout its lifetime.

will come from the Salem and Hope Creek equivalent amount of electricity using oil.

Generating Stations as well as the Peach PSE&G's Quality Assurance Department.

A total of 568 million gallons of oil were Bottom Station in Pennsylvania in which saved. created with the start of the first nuclear .

the Company shares ownership. plant at Salem. works with Federal Although coal will continue to make a regulatory agencies to assure that the When the second unit of the Hope Creek substantial contribution to the Company's design, construction and operation of Aerial view of Salem Generating Station goes on line in 1986 electric power output - projected at 24% nuclear faci lities meet required quality Generating Stati on as it more than half of the Company's electric in 1986 - its use is limited by New levels. Meeting quality requirements nears completion with output is expected to be generated by Jersey's strict air pollution control laws. provides for optimum plant availability for Hope Creek construction in background.

nuclear plants The Hope Creek Station. Nuclear plants. because there is no safe and reliable production of power.

now under construction. was about 12% combustion. do not release carbon dioxide.

The Salem and Hope Creek reactors are completed at the end of 1978. sulfur compounds or particulates into the of different designs but ones which are environment.

Greater use of nuclear power will make the widely used in the United States. The Company less dependent on imported oil Nuclear stations are designed and construct- Salem units are pressu rized water reactors and help to stabilize rising energy costs. In ed with safeg uards that virtually eliminate (PWRs). and the Hope Creek units are 1986 it is anticipated that oil will account the possibility of accidental release of radio- boiling water reactors (BWRs) Both are for only 17% of the Company's electric active materials which would affect the ca ll ed light water reactors (LWR s) because output com pared with 35% in 1978. health and safety of the public. their coolant or medium to transfer heat is ord inary water rather than "heavy" water.

In addition to barriers built into the plant called deuterium oxide. used in some other structure. there is a redundancy of safety designs.

systems designed to shut down the reactor if necessary. The systems cover all pos-si ble line breaks through wh ich the reactor coolant water might escape.

Construction and operation of a nuclear plant is subject to stringent governmental requirements and regulations. More than 60 permits and authori zations must be obtained for the construction. After a plant Salem Generating Care of the environment Station is located on a - air, soil, water.

700-acre si te called wildlife - is given Artificial Island. part of special attention in the Township of Lower the construction and Alloways Creek, Salem operation of a nuclear County, New Jersey generating station.

~e PWR reactor has a primary coolant tion sites. The research. combined with rstem in which water. under pressure high thorough construction planning provides iough to prevent it from boiling, flows outstanding care for the environment.

om the top of the reactor core and out of PSE&G is installing nuclear units to meet 1e pressu re vessel through pipes to an its basic responsibility to provide safe.

<ternal heat exchanger. called a steam reliable electric service to its customers at

~nerator. Steam produced in this vessel the lowest possible cost bws through a secondary system to the lrbine which turns the electric generator. The Company's comparison studies of coa l-fired versus nuclear plants continue to i the BWR design the coolant water show an economic advantage for nuclear

ianges to steam as it passes through the when al l costs are considered. The instal-

!actor core. Steam flows from the pres-lation of oil-fired generahng equipment Jre vessel directly through steam lines would not only be uneconomic but would 1 th e turbine.

increase dependence on foreign sources he Hope Creek Station will have two of supply arid be against national policy.

Joling towers to dissipate the unused Other means of producing electricity -

eat from the steam cycle. More than fu sion. solar. wind, geothermal - are 8% of the unused heat created will be either not yet available or inadequate.

ispersed through the natural draft towers.

After considering all available options.

ws minimizing the amount of heat PSE&G believes that nuclear power is the ischarged to the river.

best way to meet the electric requirements pch tower, in hyperbolic shape. will be of its customers in the yea rs ahead.

pout 500 feet high, 600 feet in base iameter and 230 feet at the top.

lince 1968 PSE&G has conducted pntinuous resea rch that has helped to binimize the effect of its nuclear plants on

' e environment. Several independent Construction advanced

~ams of scientists. and Company engi- significantly in 1978 on eers and technicians have carried on an structures below ground nprecedented amount of study of water, level at the Hope Creek Generating Station. At ir and soil in the area of plant construe- year end the station was about 12% com-pleted. The first unit is scheduled for operation in 1984 and the second in 1986.

Nuclear Regulatory Shipment of nuclear fuel ommission inspector assemblies arrives by nd PSE&G employees truck for Salem 2.

1eck component at Assemblies. 12 feet long uclear generating and 81/i inches square.

ration. Company quality are made up of metal

~surance personnel tubes filled with pellets ake certain that of uranium dioxide. Each esign, construction and pellet contains as much peration of nuclear energy as 162 gallons of cilities meet stringent fuel oil.

?quirements.

28 A Special Report on Nuclear Energy Nuclear Energy: 1,780 pounds of coal or PSE&G's Salem pressurized water - Reactor coolant water How It Works 162 gallons of fuel oil. Generating Station has passes from the vessel - Steam Eight pellets are two nuclear units. One through piping to a Condensate Electricity is produced enough to take care of has been in steam generator. In the - Cooling water from the river by nuclear plants in all energy needs of a commercial operation steam generator the essentially the same home for a year. There since June 30, 1977, water gives off heat way that it is are 12 million pellets and the other is to through tubing which generated by large in a reactor core. begin operation in changes water in a fossil-fuel steam units 1979. separate secondary except that there is a Controlled fission closed cycle system to different source of reaction of the uranium Each of these units has steam. The primary heat The nuclear provides the heat in a a 424-ton pressurized coolant water is reactor core takes the nuclear generating water reactor vessel pumped back to the place of the fire box unit Control rods are which houses the reactor core to begin where coal, oil or raised and lowered in reactor core. Water another cycle.

natural gas is burned the core to govern flows through the fuel to create heat in the operation of the assemblies in the core The force of the steam conventional plants. reactor. and is heated by the created in the nuclear fission. The secondary system The reactor core The rods contain water is kept under spins the rotors of a consists of small material that absorbs constant pressure to huge turbine which pellets of enriched neutrons which slows prevent it from boiling. turns a generator shaft.

uranium in 12-foot long down or halts the The heated, The generator rods which are fissioning process produces the arranged in fuel when they are lowered electrici.ty which is assemblies. A pellet is in the core. Raising the sent from the station smaller than the tip of rods from the core via transmission and a finger and contains reduces the surface distribution lines to as much energy as area for soaking up the consumers.

neutrons and increases the tempo of the fissioning.

Generator Cooling water from the river Reactor Condenser Coolant Pump

29 Financial Statement Responsibility The management of PSE&G is responsible for the integrity and The Board of Directors carries out its responsibility of financial objectivity of the financial statements of the Company These disclosure through the Audit Committee currently consisting of statements are prepared by the Company in accordance with four outside directors. The Audit Committee meets periodically generally accepted accounting principles applied on a consistent with management as well as representatives of the internal and basis. Management believes that they fully disclose the independent auditors and reviews the work of each to ensure Company's financial affairs. that their respective responsibilities are being carried out. and to discuss related matters. Internal and independent auditors have To facilitate the gathering of financial data, PSE&G maintains an full and free access to the Audit Committee.

accounting system established with sound accounting and business policies which are communicated to the appropriate personnel. The system, together with its related 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 enhanced by a program of continuous and selective training of our employees.

Summary of Significant Accounting Policies System of Accounts Prior to July 1, 1977, the date of establishment of the levelized The Company is under the jurisdiction of the Federal Energy electric adjustment clause, the Company recovered increases in Regulatory Commission (FERC) and the Board of Public Utilities electric energy costs approximately two months subsequent to of the State of New Jersey (BPU) and maintains its accounts in their incurrence and charged operations in the period in which accordance with their prescribed Uniform Systems of Accounts, these costs were recovered. The balance of unrecovered electric which are substantially the same. As a result of the rate-making fuel costs remaining from this procedure is classified as a process the applications of accounting principles by the Company deferred debit and is being amortized through base rates at differ in certain respects from applications by nonregulated $6,000,000 per year, in accordance with a rate order of the BPU .

businesses.

Prior to January 2, 1976, the date of the levelized gas adjustment clause, increases in costs of purchased gas and materials used Investments in Subsidiaries to produce gas were recovered in months subsequent to their The Company's investments in its subsidiaries, which in the incurrence and were charged to operations principally as they aggregate are not significant as defined by the Securities and were incurred. Effective June 1, 1978, unrecovered gas costs of Exchange Commission, are reported in the accompanying

$12,867,000, which were not included in the levelized rate financial statements on the equity method of accounting established December 2, 1977, are classified as a deferred debit and are being amortized through base rates over a period of Revenues three years in accordance with a rate order of the BPU.

Revenues are recorded based on estimated service rendered, but are generally billed to customers through monthly cycle billings Amortization of Nuclear Fuel on the basis of actual usage Nuclear energy burnup costs are charged to fuel expense on the basis of the number of units of thermal energy produced as Fuel Costs they relate to total thermal units expected to be produced over The Company projects the costs of fuel for electric generation, the life of the fuel . Th e rate calculated for fuel used at the interchanged power, gas purchased and materials for gas Company's Salem plant includes a provision for estimated future produced for twelve-month periods. Adjustment clauses in the storage and disposal costs (tail-end costs). In accordance with Company's rates allow the recovery of the excess of such procedures established by the operating company of the Peach projected costs over those included in the Company's base rates Bottom plant. the rates for fuel used at that plant assume a zero through levelized monthly charges over the period of projection.

net salvage value.

Any under or overrecoveries are deferred and reflected in sub-sequent periods. Fuel costs deferred under this procedure are Depreciation and Utility Plant classified as current items in the Balance Sheet and are charged Depreciation, for financial reporting purposes, is computed under to operations in the period in which they are recovered.

th e straight-line method and is based on estimated average remaining lives of the several classes of depreciable property.

Depreciation applicable to nuclear plant provides for estimated costs of dismantling or decommissioning. These estimates are

30 reviewed continuously and adjustments, as approved by the BPU, Pension Plan are made as required. Depreciation provisions tor the years 1978 Pension costs are accounted for on the basis of an acceptable and 1977 stated in percentages of original cost of depreciable actuarial method and are charged to operating expenses, utility property are 3.49% and 3.51 %, respectively. plant and other accounts. The Company's policy is to fund pen-sion costs accrued. In 1977 the Company increased its annual The cost of maintenance. repairs and replacements of minor payment to the fund for prior service costs. thereby reducing the items of property is cha rged to appropriate expense accounts.

funding period, which began January 1, 1967, from 40 to 35 The cost of replacements of units of property is charged to utility years.

plant. At the time depreciable properties are retired or otherwise disposed of, the original cost less net salvage value is charged Gross Receipts Tax to the appropriate accumulated depreciation As a result of rate orders received from the BPU, the Company, effective January 1, 1973, began accruing New Jersey gross Income Taxes receipts tax on current revenues rather than on the previous Th e Company and its subsidiaries file a consolidated Federal basis of taxes paid. The gross receipts tax on 1972 revenues wa~

income tax return and income taxes are allocated. tor reporting deferred and is being charged to operations by an amount equiv-purposes. to the Company and its subsidiaries based on the alent to 1/z % of revenues subject to the gross receipts tax.

taxable income or loss of each.

Deferred income taxes are provided tor differences between book Unamortized Debt Expense and taxable income to the extent permitted by the BPU or other Unamortized Debt Expense represents costs associated with the regulatory agencies tor rate-making purposes. issuance or reacquisition of debt which in accordance with BPU approval are deferred and amortized over the lives of the related Investment tax cred its are deferred and amortized over the issues. This amount consists principally of costs associated with average life of the related plant. the Company's tender offer for its 12% Series E Mortgage Bonds in May 1977.

Allowance for Funds Used During Construction Allowance tor funds used during construction (AFDC) is a cost Extraordinary Property Losses accounting procedure whereby the approximate net composite Extraordinary Property Losses are deferred and amortized over interest and equity costs of capital funds used to finance con- periods prescribed by the BPU. The 1978 amount consists struction are transferred from the income statement to construc- principally of unrecovered abandonment costs. before tax tion work in progress (CWIP) in the balance sheet. This procedure reduction, applicable to the Atlantic Project. The net loss after is intended to remove the effect of the cost of financing con- tax reduction is subject to determination by the BPU.

struction activity from the income statement. and results in (See Note 4 of Notes to Financial Statements) treating such cost in the same manner as construction labor and material costs. The rate used for calculating AFDC was 8% tor 1978 and 1977 whi ch was within the limits set by the FERC.

The BPU issued rate orders in 1975 allowing the Company to recover the financing cost on $250,000,000 of CWIP through current operating revenues, and si nce then no AFDC has been accrued on that amount of CWIP

31 Statement of Income For the Years Ended December 31, 1978 1977 Operating Revenues (Thousands of Dollars)

Electric $1,564,834 $1.470,118 Gas 654,951 562,677 Tota l Operating Revenues 2,219,785 2,032.795 Operating Expenses Operation Fuel for Electric Generation and Interchanged Power - net 54 1,802 536,801 Gas Purchased and Materials for Gas Produced 327,990 257,897 Other Operation Expenses 268,769 253,831 Maintenance 127,423 124,876 Depreciation 158,248 147,652 Taxes Other than Federal Income Taxes 328,216 293.796 Federal Income Taxes (note 1) 146,937 120,969 Tota l Operating Expenses 1,899,385 1.735,822 Operating Income 320,400 296,973 Other Income Allowance for Funds Used During Construction - Equity 26,609 32,028 Miscellaneous Other Income - net 3,722 852 Earnings of Subsidiaries - net (note 2) 793 595 Total Other Income 31, 124 33.475 Income Before Interest Charges 351 ,524 330.448 Interest Charges Long-Term Debt 133,605 129.782 Short-Term Debt 612 1,892 Other 3,217 2,044 Allowance for Funds Used During Construction - Debt (14,696) (17,512:

Net Interest Charges 122,738 116,206 Net Income 228,786 214,242 Dividends on Cumulative Preferred Stock and $140 Dividend Preference Common Stock 46,799 45,065 Earnings Available for Common Stock $ 181,987 $ 169,177 Shares of Common Stock Outstanding End of Year 64,120,433 59,805,916 Average for Year 61 ,782,737 59,243,392 Earnings per average share of Common Stock $2.95 $2.86 Dividends paid per share of Common Stock $2.08 $1.92 See Summary of Significant Accounting Policies. Notes to Financial Statements and Management's Di scussion and Analysis of the Statement of Income

32 Balance Sheet December 31 , 1978 191 Assets Utility Plant - original cost (Thousands of Dollars)

Electric Plant $3.793,434 $3,665, 1' Gas Plant 869,615 849,2 Common Plant 73,586 72,7f Nuclear Fuel 20,314 20,31 Utility Plant in Service 4,756,949 4,607,5~

Less Accumu lated Depreciation and Amortization 1,447,035 1,314,91 Net Utility Plant in Service 3,309,914 3,292,6:

Construction Work in Progress 1,033,249 1,023,8C Plant Held for Future Use 20,127 22,74 Net Utility Plant 4,363,290 4,339,lE Other Property and Investments Nonutility Property, net of accumulated depreciation - 1978, $508; 1977, $183 6,193 6,3"/

Investments in and Advances to Subsidiaries (note 2) 152,549 135,53 Total Other Property and Investments 158,742 141,91 Current Assets Cash (note 3) 22,139 23,74 Accounts Receivable, net of allowance for doubtful accounts - 1978, $4,900; 1977, $4,378 213,457 179,0E Unbilled Revenues 118,605 101,5:i Fuel, at average cost 134,671 127,27 Underrecovered Electric Fuel Costs 677 8,51 Materials and Supplies, at average cost 17,935 16,6 ~

Prepayments 3,246 5,4~

Tota l Current Assets 510.730 462,2:i Deferred Debits Extraordinary Property Losses (note 4) 324,443 5,57 Gross Receipts Tax 75,534 86,4:

Unamortized Fuel Costs 60,588 68,76 Unamortized Debt Expense 25,451 26,30 Tota l Deferred Debits 486,016 187,08 Tota l $5,518,778 $5, 130,39 See Summary of Si gnificant Accounti ng Policies and Notes to Financial Statements.

1978 1977 abilities bpitalization (Thousands of Dollars) ommon Equity:

Common Stock (see statement. page 35) $1 ,01~,184 $ 919.752 Premium on Cap ital Stock 557 557 Paid-In Capital 26,065 26,065 Retained Earnings 704,909 651,885 tal Common Equity 1,745,715 1,598.259

~ferred Stock (see statement. page 35) 589,994 589,994 tal Stockholders' Equity 2,335,709 2, 188,253 ng-Term Debt (see statement, page 36) 2,017,484 1,980,897 tal Capitalization 4,353,193 4,169,150 l!rrent Liabilities ng-Term Debt due within one year (see statement. page 36) 57,087 5,816 ommercial Paper (note 5) 96,892 counts Payable 131,597 67,126 xes Accrued, including New Jersey gross receipts tax - 1978, $306,390; 1977, $281,326 333,723 304,625 eferred Income Taxes (note 1) 49,791 50.463 verrecovered Gas Costs 10,614 4,902 erest Accrued 33,795 31.499 3s Purcha sed 39,383 30,375 her 36,511 33.448 tal Current Liabilities 692,501 625, 146 eferred Credits cumulated Deferred Income Taxes (note 1) 372,004 211,390 cumulated Deferred Investment Tax Credits (note 1) 95,736 11 7,312 her 5,344 7.40 1

,tal Deferred Credits 473,084 336,103 Dmmitments and Contingent Liabilities (note 7) tal $5,518,778 $5, 130,399

34 Statement of Retained Earnings For the Years Ended December 31, 1978 197

!Thousands of Dollars)

Balance January 1 $651,885 $596,74 Add Net Income 228.786 214,24 Total 880,671 810,98 Deduct Cash Dividends:

Preferred Stock. at required annual rates 44,918 43,18

$1.40 Dividend Preference Common Stock 1,881 1,88 Common Stock 128,485 113,73 Total Cash Dividends 175,284 158,80 Capital Stock Expenses 478 30 Total Deductions 175.762 159,10 Balance December 31 $704,909 $651,88 Statement of Changes in Financial Position For the Years Ended December 31 , 1978 197 Source of Funds !Thousands of Dollars)

Net Income $228.786 $214,24:

Non-cash Items:

Depreciation and Amortization 187,510 171,21 Provision for Deferred Income Taxes - Atlantic Project Abandonment 132,203 Provi sion for Deferred Income Taxes - Oth er - net 28,411 64,261 Investment Tax Credit Adjustments - net (21,576) 33,571 Allowance for Funds Used During Construction (41 ,305) (49,5ii:

Equity in Net Earnings of Subsidiaries (1,908) (1,38 Other 962 1,881 Total Funds from Internal Sources 513,083 434,24j Net proceeds from sales of:

Long-Term Debt 99,968 183.71 1 Preferred Stock 29,94.

Common Stock 93,957 19,131 Total Security Sales 193,925 232,79:

Total Funds Provided $707,008 $667,03!

Application of Funds Additions to Utility Plant. excluding allowance for funds used during construction $472,452 $381,13!

Atlantic Project Abandonment (note 4):

Total Costs. including allowance for funds used during construction - $45, 134 (329,467)

Extraordinary property loss 319,904 Other charges 9,563 Investments in and Advances to Subsidiaries 15,106 16.791 Unamortized Fuel Costs 30.47)

Reductions of Long-Term Debt 62.425 121.73 Cash Dividends 175,284 158,80(

Miscellaneous 587 3,89" Total Funds Applied 725,854 712,83 1 Changes in Working Capital:

Short-Term Debt - (Increase) Decrease 96,892 (92,19; Other (net) - Increase (Decrease) (115.738) 46,39'.

Net Decrease in Working Capital (18,846) (45,79~

Total Funds Applied and Changes in Working Capital $707,008 $667,03~

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

35 Statement of Capital Stock Current Refunding Redemption Restricted Outstanding Price Prior to December 31, Shares 1978 1977 Per Share (note Al Cumulative Preferred Stock (Thousands of Dollars)

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

4.08% 250,000 $ 25,000 $ 25,000 $103.00 4.18% 249,942 24,994 24,994 103.00 4.30% 250,000 25,000 25,000 102.75 5.05% 250,000 25,000 25,000 103.00 5.28% 250,000 25,000 25,000 103.00 6.80% 250,000 25,000 25,000 104.00 9.62% 350,000 35,000 35,000 10950 July 1, 1980 7.40% 500,000 50,000 50,000 10600 7.52% 500,000 50,000 50,000 106.00 8.08% 150,000 15,000 15,000 106.00 7.80% 750,000 75,000 75,000 106.00 7.70% 600,000 60,000 60,000 106.56 12.25% (note B) 350,000 35,000 35,000 112.00 February 1, 1985 8.16% (1977) 300,000 30,000 30,000 108.90 October 1, 1982 Unissued - 2.500,058 Shares

$25 par value - authorized 10,000,000 shares Series issued 9.75% 1,600,000 40,000 40,000 27.50 January 1, 1981 870% 2,000,000 50,000 50,000 27.00 October 1, 1981 Unissued - 6,400,000 shares Total Cumulative Preferred Stock (note C) $589,994 $589,994 Dividend Preference Common Stock and Common Stock

$1.40 Dividend Preference Common Stock (no par) -

1,343,999 shares authorized, issued and outstanding; current redemption price $35.00 per share (note D)

Common Stock (no par) - authorized 100,000,000 shares (note E): issued and outstanding as of December 31,

> $1,014,184 $919,752 1978, 64,120,433 shares (4,314,517 shares issued for

$94,432 in 1978 and 830,169 sha res issued for $19,368 in 1977)

Notes:

A. Prior to the date specified, none of the shares of each such C. As of December 31, 1978 the annual dividend requirement on series may be redeemed, other than through the operation of a Preferred Stock was $44,917,000 and the embedded dividend cost sinking fund, through refunding of such shares by the incurring of was 7.70%.

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

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

B. On Februa ry 1, 1980 and annually thereafter 17,500 shares E. Includes 1,997 ,625 shares of Common Stock reserved for must and up to an additional 17,500 shares may, be redeemed possible issuance under the Company's Automatic Dividend through the operation of a sinking fund at a redemption price of Reinvestment Plan, Tax Reduction Act Employee Stock Ownership

$100 per share plus accumulated and unpaid dividends to the date Plan and Empl oyee Stock Purchase Plan of such redemption The sinking fund requirement to redeem not less than 17,500 shares is cumul ative.

See Summary of Significant Accounting Polici es and Notes to Financial Statements.

36 Statement of Long-Term Debt December 31, 1978 1977 1978 197 First and Refunding (Thousands of Dollars) Debenture Bonds unsecured (Thousands of Dollars)

Mortgage Bonds 4% % October 1, 1981 32,429 33,01 Series (note A) 45/s % October 1, 1983 27,113 28,0C 5%% June 1. 1991 44,540 45 , 5~

2Ys% June 1, 1979 $ 53,242 $ 53,430 31 ,596 7% % December 1. 1993 32.4-2%% May 1, 1980 18,648 18,795 9 % November 1, 1995 60,276 63,Q(

3% % October 1. 1983 22,31 3 22.630 63,268 7% % August 15. 1996 65,3(

3%% May 1. 1984 50,000 50,000 8%% November 1. 1996 47,355 49, 1E 43/s % November 1. 1986 50,000 50,000 6 % July 1. 1998 18,195 18,1c 4Ys% September 1. 1987 60,000 60,000 Total Debenture Bonds 324,772 334,74 45/s % August 1. 1988 60,000 60,000 51/s % June 1, 1989 50,000 50,000 Other Long-Term Debt 6V2 % Note due serially to 4% % September 1, 1990 50,000 50,000 November 15. 1983 2,640 3,12 4%% August 1. 1992 40,000 40,000 43/s % June 1, 1993 40,000 40,000 Total Long-Term Debt 45/s % September 1. 1994 60,000 60,000 Principal amount '1 outstanding (notes B and C) 2,074,846 1,986,951 4% % September 1, 1995 60,000 60,000 Less amount due within 6%% June 1, 1997 75,000 75,000 one year (note D) 57,087 5,81 1 7 % June 1, 1998 75,000 75,000 7%% April 1, 1999 75,000 75,000 Long-Term Debt excluding amount due within one 91/s % March 1. 2000 98,000 98,000 year (note D) 2,017,759 1,981,13 83/s % A May 15, 2001 69,300 69,300 Net Unamortized Discount (275) (231 7%% B November 15, 2001 80,000 80,000 7V2 % C April 1. 2002 125,000 125,000 Long-Term Debt Less Net Unamortized Discount $2,017,484 $1,980,89 81/2% D March 1, 2004 90,000 90,000 12 % E October 1. 2004 11,730 12,730 83/4 % F April 1. 2006 60,000 60,000 845% G September 1. 2006 60,000 60,000 6.30% Pollution Control A October 1, 2006 14,300 14,300 8% % H June 1. 2007 125,000 125,000 81/s % I September 1. 2007 59,900 59,900 93/s % J November 1. 2008 100,000 8 % June 1, 2037 7,463 7,463 5 % July 1, 2037 7,538 7,538 Total First and Refunding Mortgage Bonds $1 ,747,434 $1,649,086 Notes: D. The aggregate principal amount of requirements for sinking A. The Company's Mortgage, securing the First and Refunding funds and maturities for each of the five years fol lowing Mortgage Bonds, constitutes a direct first mortgage lien on December 31, 1978 is as fol lows substantially all property and franchises. Sinking Year Funds Maturities Tot<

B. As of December 31. 1978 the annual interest requirement on (Thousands of Dollars)

Long-Term Debt was $141,409,000 of which $118.028,000 was 1979 $ 3.365 $ 53.722 $ 57.08 the requirement for First and Refunding Mortgage Bonds. The 1980 9,213 18.940 28. 15 embedded interest cost on Long-Term Debt was 7.05%. 1981 8,300 31.480 39.78 1982 8,300 480 8.78 C. As of December 31, 1978 the Company had unexercised 1983 7.200 46,820 54,02 commitments which expire June 30, 1979 from two banks for $36,378 $151.442 $187.82 five-year term loans totaling $100.000,000. The fees for these commitments are calcu lated at the rate of 112 of 1% per annum For sinking fund purposes. certain First and Refunding Mortgage on the unused portion. The Company may at any time cancel Bond issues require annually the retirement of $17,150,000 such commitments or prepay any such loans. in whole or in part. principal amount of bonds or the util ization of bondable property without penalty or premium. additions at 60% of cost. and the portion expected to be met b~

property additions has been excluded from the table above. Alsc the Company may, at its option. retire additional amounts up to

$6.200.000 annually through sinking funds of certain debenture bonds. The election of any such option is included in long-term debt due with in one year.

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

37 Notes to Financial Statements

1. Federal Income Taxes The Company has a Tax Reduction Act Employee Stock Owner-A reconciliation of reported Net Income with pre-tax income and ship Plan (TRASOP) under provisions of the Tax Reduction of Federal income tax expense with the amount computed by Act of 1975, as amended. Such provisions permit the Company multiplying pre-tax income by the statutory Fed eral income tax to elect an additional 1% investment tax credit if the Company rate of 48% is as follows: transfers to a TRASOP an equivalent amount of its Common 1978 1977 Stock or cash for the purchase of shares of Common Stock and

!Thousands of Dollars) thereby funds its TRASOP through a reduction in its Federal Net Income $228.786 $214,242 income tax payments. On March 21. 1978 the TRASOP was Federal income taxes included in: amended to permit the Company to claim an additional 112%

Operating income: investment tax credit for 1977 and subsequent tax years if it Current provision 8,233 8,660 contributes an equivalent amount of Common Stock or cash. but Provi sion for deferred income taxes - net' 159,941 74.732 only to the extent that such amount is matched by contributions Investment tax credit adjustments - net 121,237) 37.577 by participants Total 138.704 112,309 Total included in operating income 146,937 120,969 2. Investments in and Advances to Subsidiaries Miscellaneous other income - net 3,012 73 Investments in and advances to subsidiaries (including the Total Federal income tax provi sions 149,949 121,042 Company's equity in undistributed earnings or losses) are Total 378.735 335,284 summarized as follows Earnings of subsidiaries - net 1793) 1595)

December 31, 1978 1977 Pre-tax income $377.942 $334,689

!Thousands of Dollars)

Tax expense at 48% of pre-tax income $181.412 $160,651 Transport of New Jersey Investment $10.909 $10,192 Adjustments to pre-tax income, computed at 48%, for Energy Development Corporation which deferred taxes are not provided under current Investment 5,283 4,092 rate-making policies: Advances 54,404 41,652 Tax depreciation lover) under book depreciation 7.454 11.545) Other Subsidiaries, primarily LNG Project Allowance for funds used during construction 119,826) (23.779) Investments 4,118 4,118 Overhead costs capitalized 16.351) 16. 11 7) Advances 77.835 75.481 Other 198) 1,868 Total $152.549 $135,535 Total (18.821) 129.573)

Amortization of deferred tax items 112.642) 110.036)

The major subsidiary included in "Other Subsidiaries" above is Total 131.463) (39,609)

Energy Terminal Services Corporation (ETSC) The principal asset Total Federal income tax provisions $149,949 $121,042 of ETSC is an LNG terminal on Staten Island, in the New York

• The provision for deferred income taxes represents the City harbor area. Annual expenditures for protection and tax effects of the following items: maintenance of the terminal, including local real estate taxes, Current Liabilities are approximately $4.000.000.

Unbilled revenues $ 5,829 $ 1,155 Under (Over) recovered fuel costs 16.502) 9,3 17 The Company intended to utilize the terminal for the importation Total (673) 10.472 of LNG However. due to uncertainties and delays relating to the Deferred Credi ts importation project. including lack of regulatory approvals and a Atlantic Project Abandonment 132,203 supply of LNG, the terminal has not been placed in operation Additional tax depreciation 33,257 34,694 The Company is now pursuing the utilization of one of the two Repair allowance property 5.782 5,034 Gross receipts tax (5,233) 1,281 existing storage tanks to store domestic LNG in order to meet Unamortized fuel costs (3,923) 12,127 the demands of its customers for gas on the coldest winter days.

Loss on reacquired debt (434) 11,598 This will necessitate the construction of a liquefaction facility at Other (1,038) (474) the site. The additional construction will not proceed until the Total 160,614 64,260 necessary permits are obtained from the appropriate federal ,

Total $159.941 $ 74.732 state and local regulatory agencies.

Future plans include the use of one tank for the terminaling of The 1978 current provision for Federal income taxes is primarily imported LNG However, if circumstances prevent the Company due to the recapture of investment tax credits resulting from from obtaining a supply of imported LNG in a timely manner.

abandonment of the Atlantic Project. customer demands for additional winter peaking gas may force the Company to use both tanks to store domestic liquefied The balance of investment tax credits not utilized as of natural gas.

December 31, 1978 in the amount of $70 million is available as a carryover to future years. The entire carryover results from the The ultimate realization of the carrying value of the investment abandonment of the Atlantic Project. The Tax Reduction Act of may depend, among other things, upon the Company's ability to 1975 provides that for the year 1977 investment tax credits can place the facilities in operation and the treatment granted by the be utilized to offset 90% of tax liability, and for 1978, 80% of regulatory agencies for rate-making purposes.

tax liability before investment credit.

Any loss the Company may incur. if the above conditions 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 position of the Company or the results of its operations

_J

38

3. Compensating Balances previous year as a result of contributions (net of pension Cash at December 31 . 1978 and December 31. 1977 consisted payments), investment income, and a net appreciation in marke primarily of compensating balances under informal arrangements va lue. The Company's annual contribution is actuarially with various banks to compensate them for services and to determined to provide for full funding by December 31, 2001 su pport lines of cred it of $198,150,000 and $190,650,000, respec- Pension costs for the past two years were charged as follows:

tively There are no legal restrictions placed on the withdrawal or 1978 19 other use of these bank balances. (Thousands of Dalla Operating Expenses $32,426 $29,8

4. Abandonment of Atlantic Project Utility Plant and Other Accounts 9.681 8,9 In December 1978, the Company cance lled its floating nuclear Total Pension Costs $42.107 $38,8 plant project and terminated its contract with Offshore Power Systems for the construction of four generating units (See page 7. Commitments and Contingent Liabilities

10) Total costs applicable to the project are accounted for as The Company ha s substantial commitments as part of its con-follows stru ction program as well as commitments to obtain sufficient Unrecovered Costs cha rg ed to Extraordinary (Thousands of Dollars) sources of fuel for electric generation and adequate gas su p-Property Losses. before tax reduction $319.904* plies. Construction expenditures, including AFDC, of $3.5 billion Add other charges: are expected to be incurred during the years 1979 through 1983.I Nuclear fue l enrichment services:

Assigned to Hope Creek 2 $5,015 Amendments adopted in 1975 to the Price-Anderson liability Sold 3.453 provi sions of the Atom ic Energy Act of 1954 became effective ir Charged to various income. expense and property accounts 1.095 August 1977. Under that Act. there is a limit of $560 million on Total other charges 9.563 each nuclear generating unit for public liability claims that couli arise from a single nuclear incident The Company is insured fo Total costs. including AFDC of $45.134 $329.467 each unit to the extent of its ownership against this liabi lity to

• This amount plus $4,539 for other property losses represent the balance in maximum of $1 40 mi llion by private insurance (the maximum Extraordinary Property Losses at December 31. 1978.

amount presently available), and against the balance of $420 The tax reduction associated with unrecovered Atlantic Project million by a combination of a mandatory prog ram of retrospecti1 costs is $132,203,000 and is included in Accumu lated Deferred premiums to be assessed against owners of nuclear reactors Income Taxes. after a nuclear incident (up to $5 million per in cident but not more than $10 million in any calendar year, for each licensed In accordance with the latest rate order in May 1978, all legiti- nuclear reactor in the United States), and indemnity agreement*

mate costs applicable to the Atlantic Project. to be determined with the Nuclear Regulatory Commission. In the event of a by the BPU, are to be amortized over a period of 20 years, nuclear incident involving any licensed reactor in the United commenci ng with the effective date of the Company's next rate States the Company could be assessed. on the basis of the thn order, but not sooner than March 1. 1980. The Company believes reactors now in service in which it owns a percentage interest.

that all project costs are legitimate. and that the net loss after maximum of $6.38 million for any such incident. but not more tax reduction, $187,701.000. will be amortized and recovered than $12.76 million in any year.

through rates.

The Company is a member of Nuclear Mutual Limited (NML)

For additional tax information, see Note 1. which provides insurance coverages. up to $175 million, for property damage to nuclear generating facilities of member

5. Commercial Paper companies In the ev.ent of losses at any plant covered by NML Commercial paper represents the Company's unsecured bearer the Company would be subject to a maximum assessment of promissory notes sold to dealers at a discount with a term of fourteen ti mes its annual premium. Such maximum assessment nine months or less. Certain information regarding commercial would currently amount to approximately $10.4 million.

paper follows :

The Company, und er an agreement entered into in May 1972, 1978 1977 ag reed to provide a limited guaranty of not more than $76 (Thousands of Dollars) million of th e legal obligations of the Company's uncon-Maximum amount outstanding at any month-end $58,750 $96,892 Daily average outstanding (A) $ 9.010 $32.457 solidated subsidiary, Transport of New Jersey (Transport) under Weighted average annual interest rate (B) 6.79% 5.83% its pension plan 1n the event Transport failed to meet such Weighted average interest rate for commercial paper obligations. limited to pension benefits accrued to the date ofj outstanding at year end 6.66% the agreement As of December 31, 1978 th e actuarially computed value of the Company's obligation under the guaran (A) Computed by multiplying the principal amounts of commercial paper by the days outstanding and dividing the sum of the products by the number of days was approximately $49.3 million. Under an interpretation of thei' in the year. Employee Retirement Income Security Act of 1974, the Compan (B) Computed by dividing short-term interest expense by the daily average cou ld be liable to the Pension Benefit Guaranty Corporation, a short-term borrowings. corporation established within th e United States Department of1 Labor, for deficiencies in plan assets if the subsidiaries' pensio rl

6. Pension Plan The Company has a non-contributory, trusteed plan covering all employees who complete one year of service. As of December

31. 1978, the unfunded prior service cost was approximately

$296,631,000 and vested benefits were approximately

$331,843,000. The market va lue of the plan assets, $160,018,000 at December 31, 1978, increased by $29,351,000 over the

39 plans were terminated. As of December 31 , 1978, vested benefits of the Company's subsidiaries' pension plans exceeded fund assets by approximately $74 million. Any payments made under the guaranty would have the effect of reducing the Company's potential 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 manner 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. Jointly-Owned Facilities The utility industry has long recognized the benefits of the construction. operation and financing of jointly-owned electric and gas facilities. The Company has been a participant and has ownership interests in a number of such facilities. In compliance with reporting requirements of the Securities and Exchange Commi ssion, disclosure is made of certain data regarding the Company's interests in its jointly-owned projects in the annual report to the SEC on Form 10-K.

10. 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.

11. Financial Information by Business Segments Electric Gas Total For the Yea rs Ended December 31. 1978 1977 1978 1977 1978 1977 (Thousands of Dollars)

Operating Reven ues $1,564,834 $1,470,118 $654.951 $562,677 $2,2 19,785 $2,032,795 Depreciation 119.346 109,093 38.902 38.559 158,248 147,652 Operating Income Before Income Taxes 386.054 348,793 81.288 69.596 467.342 418,389 Additions to Utility Plant (Excluding AFDC) 431.979 351.762 40,473 29,373 472.452 381,135 December 31.

Net Utility Plant 3.799.254 3,779.534 564,036 559,647 4.363.290 4.339. 181 Gas Exploration Subsidiary and LNG Project 141.630 125,333 141,630 125.333 Other Corporate Assets 1,013.858 665,885 Total Assets $5,518,778 $5, 130,399

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, 1978 1977 1978 1977 1978 1977 1978 1977 (Thousands)

Operating Revenues $601 ,981 $542,685 $485.209 $460,862 $547,478 $498,290 $585, 117 $530.958 Operating Income 77.910 75,918 66,467 68.356 94.104 81.588 81.9 19 71, 111 Net Income 56,052 57,218 46,054 51,610 70,814 57,647 55,866 47,767 Earnings Available for Common Stock 44,352 46,130 34,354 40,522 59.115 46,458 44,166 36,067 Earnings per Average Share of Common Stock $.74 $.78 . $.57 $.69 $.95 $.78 $.69 $.61 Average Shares of Common Stock Outstanding 59,808 58,977 60,134 59,097 63,362 59,289 63,765 59.604

40 Operating Statistics

% Ann~

Increase - 19 compared w (000 omitted where applicable) 1978 1977 1977 19 Electric Revenues from Sales of Electricity (a)

Residential $ 512,071 $ 49f.473 3.98 13.

Commercial 574,557 53 1,118 8.18 15.

Industrial 444,595 414,058 7.38 13.

Publi c Street Lighting 29,925 27,622 8.34 9.

Total Revenues from Sales to Customers 1,561 ,148 1,465.271 6.54 14.

Interdepartmental 1,670 1,916 (1 2.84) 13.

Total Revenues from Sales of Electricity 1,562,818 1.467,187 6.52 14.

Other Electric Revenues 2,016 2,93 1 (31.22) 13.

Total Operating Revenues $1,564,834 $1.470,1 18 6.44 14.

Energy Adjustment Revenues (included above) $ 12,583 $ 257,902 (95.12) (7.

Sales of Electricity - kilowatthou rs (a)

Residential 7,760,868 7.769,629 (.11) 3.

Commercial 10,152,827 9.747,908 4.15 5.

Industria l 11, 134,634 10,627.734 4.77 Public Street Lighting 260,922 259,277 .63 1.

Total Sales to Customers 29,309,251 28.404,548 3.19 2.

Interdepartmental 32,638 38,331 (14.85) 2.

Total Sales of Electricity 29,341,889 28.442,879 3.16 2.

Kilowatthours Produced and Interchanged - net 31 ,628,876 30.771)19 2.79 2.

Load Factor 54.6% 50.9%

Heat Rate - Btu of fu el per net kwh generated 10,599 10,677 (.73)

Net Installed Generating Capacity at December 31 - kilowatts 9,061 9,247 (2.01) 4.

Net Peak Load - ki lowatts (60-minute integrated) 6,615 6,895 (4.06) 3.

Cooling Degree Hours 7,188 8,269 (13.07) (1.

Average Annual Use per Residential Customer - kwh 5,378 5.403 (.46) 2..

Meters in SeNice at December 31 1,713 1)04 .53 Gas Revenues from Sales of Gas (a)

Resid ential $ 399,134 $ 344.444 15.88 10.'

Commercial 163,931 137,8 11 18.95 13.

Industri al 90,240 78.474 14.99 13.

Street Lighting 248 178 39.33 12..

Total Revenues from Sales to Cu stomers 653,553 560,907 16.52 11.1 Interd epa rtmenta I 802 572 40.21 14..

Total Revenues from Sales of Gas 654,355 561.479 16.54 11.

Other Gas Revenues 596 1,198 (50.25) 18.

Total Operating Revenues $ 654,951 $ 562,677 16.40 11.*

Raw Materials Adjustment Revenues (included above) $ 25,554 $ 113.787 (77.54) 8.

Sales of Gas - therms (a)

Residential 1,013,043 980,570 3.31 1.1 Commercial 447,923 432,8 10 3.49 3..

Industrial 306,672 329,21 1 (6.85) (.

Street Lighting 367 376 (2.39) (1.

Total Sales to Customers 1,768,005 1.742,967 1.44 1.

Interdepartmental 2,490 2,064 20.64 2.

Total Sales of Gas 1,770,495 1)45,031 1.46 1.

Gas Produced and Purchased - therms 1,852,869 1,811,019 2.31 1.1 Effective Dail y Ca pacity at December 31 - therms 18,639 18,933 (1.55) 3.

Maximum 24-hour Gas Sendout - therms 12,235 14,006 (12.64)

Heating Degree Days (a) 5,317 5,155 3.14 Average Annual Use per Residential Customer - therms 893 862 3.60 Meters in SeNice at December 31 1,350 1,350 .~

la) Starting in 1973, revenues and sales by customer classification include recorded sales, heating degree days are also reported on a calendar-year accrued and unbilled dollar amounts and sales volumes from meter reading date basis effective with 1973. For 1968 heating degree days remain on a sales to the end of the calendar year. To better match temperature effects on these year basis.

1976 1975 1974 1973 1968

$ 443,531 $ 413,005 $ 364,674 $ 274,974 $ 148,678 474.791 429.428 377.184 264.450 137,313 367.470 341)49 336,250 216,543 122,635 25,863 23,375 20.473 17,086 11,845 1,311,655 1,207,557 1,098,581 773,053 420.471 1,585 1,573 1,183 750 472 1,313,240 1,209, 130 1,099.764 773,803 420,943 2,837 4,358 1.201 1,305 555

$1,316,077 $1 ,213.488 $1, 100,965 $ 775,108 $ 421.498

$ 307,530 $ 419,154 $ 414.798 $ 141,081 $ 28,239 7.711,953 7,598,964 7,514,365 8,008,127 5,687,701 9,514,574 8,994,855 8,687,964 8,916,829 5,822,649 10.472.054 10,144,917 11,244,117 11,830,307 10,097,003 259,151 256.755 253,395 249,837 228,535 27,957.732 26,995.491 27,699,841 29,005,100 21,835,888 34,996 39,910 31.072 29,160 24,396 27,992.728 27,035.401 27.730,913 29,034,260 21,860,284 30,376, 187 29,255,628 29.730.774 31,164,926 23,678,976 55.9% 53.3% 53.7% 52.2% 558 %

10,593 10,582 10,779 10,695 10,591 8.741 8,829 8,892 8,306 6,025 6,190 6,270 6,3 16 6,816 4,828 6 513 6 543 7 501 10 911 8196 5,395 5,348 5,312 5.703 4,199 1,697 1,689 1,683 1,672 1,620

$ 342,524 $ 259,095 $ 220.364 $ 186,325 $ 143,282 140,809 102,656 86.463 71,533 44,898 68,341 54,369 46,971 42,624 25,924 159 116 94 89 78 551,833 416,236 353,892 300,571 214, 182 476 647 481 464 212 552,309 416,883 354,373 301,035 214,394 1,149 154 535 117 105

$ 553.458 $ 417,037 $ 354,908 $ 301,152 $ 214.499

$ 154,526 $ 106.795 $ 62.448 $ 39,124 $ 11,361 1,045,627 968.487 977,994 977.468 909,394 468.761 447,600 459,074 457,955 324,023 307,949 344,987 407,840 494,320 336,815 389 404 428 444 448 1,822.726 1.761.478 1,845,336 1,930,187 1,570,680 1.764 3,204 3,088 3.472 1,985 1,824.490 1.764,682 1,848.424 1,933,659 1,572.665 1,895,041 1,823,191 1,913,826 2,002,206 1,661,838 19.449 19,575 19,324 17,668 13,512 12,803 11,077 11.763 12,341 11 ,127 5,349 4,653 4,629 4,245 5,006 924 862 872 873 825 1,354 1,355 1,352 1,347 1,309

42 Financial Statistics (000 omitted where applicable) 1978 1~

Condensed Statement of Income (a) Amount  % Amount Operating Rever:iues El ectric $1,564,834 70 $1,470,118 Gas 654,951 30 562,677 Total Operating Revenues 2,219,785 100 2,032,795 1 Operating Expenses Fu el for Electric Generation and Interchanged Power - net 541 ,802 24 536,801 Gas Purchased and Materials for Gas Produced 327,990 15 257,897 Other Operation Expenses 268,769 12 253,831 Maintena nce 127,423 6 124,876 Depreciation 158,248 7 147,652 Taxes Other than Federal Income Taxes 328,216 15 293,796 Federal Income Taxes 146,937 7 120,969 Total Operating Expenses 1,899,385 86 1,735,822 Operating Income Electri c 266,513 12 250,385 Gas 53,887 2 46,588 Total Operating Income 320,400 14 296,973 Allowance for Funds Used During Construction (Debt and Equity) 41,305 2 49,540 Other Income - net 4,515 1,447 Interest Charg es (137,434) (6) (133,718)

Income before cumulative effect of a change in accounting method 228,786 10 214,242 Cumulative effect to January 1, 1973 of accruing estimated unbilled revenu es of $41,488, net of related taxes Net Income 228,786 10 21 4,242 Preferred and Preference Stock Dividends 46,799 2 45,065 Earnings Available for Common Stock $ 181,987 8 $ 169,177 Shares of Common Stock Outstanding End of Year 64,120 59,806 Average for Year 61,783 59,243 Earnings per average share of Common Stock $2.95 $2.86 Dividends Paid per Share $2.08 $1 .92 Payout Ratio 71% 67%

Rate of Return on Average Common Equity (c) 11.00% 10.96%

Ratio of Earnings to Fixed Charges Before Income Taxes (d) 3.77 152 Book Value per Common Share (e) $26.13 $25.57 Utility Plant $5,810,329 $5,654,097 Accumulated Depreciation and Amortization $1 ,447,039 $1 ,314,916 Capitalization Mortgage Bonds $1,692,642 39 $1 ,647,445 Debenture Bonds 322,682 7 330,812 Other Long-Term Debt 2,160 2,640 Total Long-Term Debt 2,017,484 46 .1,980,897 Preferred Stock 589,994 14 589,994

$1.40 Dividend Preference Common Stock and Common Stock 1,014,184 23 919,752 Premium on Capi tal Stock 557 557 Paid-In Capital 26,065 1 26,065 Retained Earnings 704,909 16 651,885 Total Common Equity 1,745,715 40 1,598,259 Total Capitalization $4,353,193 100 $4,169,150 1(

(al See Summary of Significan t Accounting Policies, page 29, and Notes to (c) Balance available for $1.40 Dividend Preference Common Stock and Commor Financial Statements, page 37. Stock divided by the average of beginning and end-of-year Total Common Equi t)

(bl Excludes non-recurring special credit equal to $41 per share.

1976 1975 1974 1973 1968 Amount  % Amount  % Amount  % Amount  % Amount  %

$1,316,077 70 $1,213,488 74 $1, 100,965 76 $ 775,108 72 $ 421,498 66 553,458 30 417,037 26 354,908 24 301,152 28 .214,499 34 1,869,535 100 1,630,525 100 1.455,873 100 1,076,260 100 635,997 100 484,174 27 478,3 12 30 456,439 32 241,100 23 77,773 12 261 ,190 14 198,653 12 144,020 10 119,828 11 71,582 11 227,395 12 201 ,865 12 192,168 13 174,108 16 116,208 18 99,617 5 83.494 5 91.467 6 88,257 8 48,445 8 133,087 7 122,634 8 106,683 7 98,239 9 63,023 10 275,254 15 240,967 15 213,576 15 167,545 16 89,789 14 I 100,380 54,368 21,061 5 3 1 3,252 37,409 6 1,581,097 85 1,380,293 85 1,225,414 84 892,329 83 504.229 79 236,359 12 217,429 13 187,593 13 152,492 14 101,109 16 52,079 3 32,803 2 42,866 3 31,439 3 30,659 5 288,438 15 250,232 15 230,459 16 183,931 17 131,768 21 43,547 3 43,325 3 56,027 4 56,529 5 8,504 1 2,654 1,758 (2,037) 703 1,075 (130,615) (7) (136,709) (8) (130,609) (9) (109,680) (10) (51,270) (8 204,024 11 158,606 10 153,840 11 131,483 12 90,077 14 18,540 2 204,024 11 158,606 10 153,840 11 150,023 14 90,077 14 41,257 2 36,008 2 31,813 3 30,761 3 9,309 1

$ 162,767 9 $ 122,598 8 $ 122,027 8 $ 119,262 11 $ 80,768 13 58,976 56,523 52,531 47,861 31,004 58,308 54,513 51 ,918 45.680 31,004

$2.79 $2.25 $2.35 $2 20(b) $2.61

$1.78 $1.72 $1.72 $1.72 $1.61 64% 76% 73% 78% 62%

11.18% 9.01% 9.68% 8.87% 12.48%

3.34 2.56 2.33 2.22 3.49

$24.71 $24.02 $24.25 $24.14 $20.12

$5,255,286 $4,920,768 $4,636,344 $4,369,141 $2,577,619

$1 ,194,467 $1,078,124 $ 965,160 $ 916,346 $ 582,129

$1,549,579 39 $1,418,854 36 $1,422,525 38 $1.236.364 36 $826,109 43 341,511 9 380,619 10 389.640 10 420,387 12 280,065 14 3,120 153,600 4 153,600 4 103,600 3 1,894,2 10 48 1,953,073 50 1,965,765 52 1,760,351 51 1,106,174 57 559,994 14 509,994 13 434,994 12 434,994 13 149,994 8 900,384 22 855,874 22 797,386 21 710,078 21 333,398 17 550 550 550 550 252 26,065 1 26,065 1 26,065 1 26,065 1 26,065 1 596,745 15 540,041 14 515,267 14 483,543 14 318,192 17 1,523,744 38 1,422,530 37 1,339,268 36 1,220,236 36 677,907 35

$3,977,948 100 $3,885,597 100 $3,740,027 100 $3,415,581 100 $1,934,075 100 di Net Income plus Income Taxes. Deferred Income Taxes. Investment (e) Total Common Equity divided by year-end Common Stock shares plus double ax Credits and Fixed Charges divided by Fixed Charges . Fixed Charges the $1.40 Dividend Preference Common Stock shares.

nclude Interest on Long -Term and Short-Term Debt and Other Interest

xpense.

44 Management's Discussion and Analysis of the Statement of Income The following is a summary of the year-to-year changes followed Total energy costs increased 11 % and 1% in 1977 and 1978.

by a discussion of those items which had a significant effect on respectively. The increase experienced in 1977. amounting to $53 the Company's results of operations. million. was principally due to a higher unit cost for oil burned a1 increased demand for electric energy. In 1978 energy costs Increase or (Decrease) increased $5 million. A $34 million change in recovered energy 1978 VS. 1977 1977 VS. 1976 costs resulted from adjustment clause revenue in 1978 being $13 Amount  % Amount  % million greater than the energy costs. while such revenues in 197~

(Thousands of Dollars) were $21 million lower than energy costs. This was diminished b Electric Operating Revenues $94.716 6.4 $154,041 117 $15 million resulting from lower interchanged power costs and b Gas Operating Revenues 92.274 16.4 9, 219 17 $14 millien largely as a result of greater utilization of lower cost I Fuel for Electric Generation and nuclear generation.

Interchanged Power-net 5,001 .9 52,627 10.9 Gas Purchased and Materials for Gas Produced 70,093 27.2 (3.293) (13)

Gas Purchased and Materials for Gas Produced Other Operation Expenses 14,938 5.9 26,436 11.6 The $70 million or 27% increase experienced in 1978 can be Maintenance 2,547 2.0 25,259 25.4 traced primarily to: a $24 million or 8% rise in the cost per thern Depreciation 10.596 7.2 14,565 10.9 of gas. a $7 million cost increase associated with the 2%

Taxes Other than Federal Income Taxes 34,420 117 18,542 6.7 additional gas production; a $7 million lower level of refunds frol Federal Income Taxes 25.968 21.5 20,589 20.5 pipeli ne suppliers during 1978, and a $32 million swing in the Allowance for Funds Used recovered gas costs. This latter shift in recovered gas costs result During Construction (8,235) (166) 5.993 138 from the levelized adjustment clause revenue in 1978 being $8 million greater than gas costs while such revenue in 1977 was $2 million lower than gas costs Electric Operating Revenues Increases in electric operating revenues have been due principally Other Operation Expenses I to rate increases and greater sales. Kilowatthour sales rose 2% in Increases reflect the greater costs of labor. services. and material; 1977. Thi s gain in sales was attributable to a gradually improving and supplies. I economy in New Jersey and to unusually high temperatures during the summer of 1977. The 6% increase in electric operating Maintenance revenues in 1978 reflects the June 1. 1978 rate increase which In 1977 maintenance increased $6.5 million at certain of the I contributed $81 million and a 3% increase in kilowatthour sales Company's conventional steam generating stations and $7.3 partially offset by lower recoveries of energy costs through million at the nuclear generating stations. In addition, gas adjustment clause revenues and by the effect of a greater portion distribution maintenance rose $4.7 million due principally to the of sales being in the lower revenue per kilowatthour classes of extremely cold weather experienced at the beginning of the yea r, business. Commercial and Industrial sales rose 4% and 5%, and electric distribution maintenance increased $4.6 million as th1 respectively, responding to the improving economy. result of higher costs of labor. services. and materials and supplies.

Gas Operating Revenues In 1977 gas operating revenues increased due to the October 21. Depreciation 1976 rate increase partially offset by a 4% decline in gas sales In accordance with a rate order effective October 1976. the caused by the return to more normal weather conditions during Company raised its depreciation rates. resulting in an increase of the latter part of 1977. conservation by and attrition of customers. $4.4 million in 1977. The increase in 1977 also reflects depreciatio and curtailments to commercial and industrial interruptible on Salem 1 which was placed in service on June 30. 1977. The customers necessitated by the gas crisis. Greater recovery of 7% rise in 1978 can be traced to a full year's depreciation on increased gas costs contributed $70 mil lion to 1978 gas operating Salem 1 as well as the normal increase in other depreciable plant revenues and wa s the principal reason for the 1978 increase. The June 1. 1978 rate increase and a slight growth in therm sales were Taxes Other than Federal Income laxes also factors. The higher gas sa les reflect improvement in the Taxes Other than Federal Income Taxes consists principally of New State's economy as well as the colder weather experienced during Jersey gross receipts tax which varies in direct proportion to the year. Although tota l gas sales increased. interruptibl e sales electric and gas operating revenues. The gross receipts tax declined sharply as the result of 136 days of curtailments. a 33% increased $20.6 million in 1977 and $25.9 million in 1978.

rise over the previous year. and because a number of interruptible In 1977. Pennsylvania enacted a gross receipts tax affecting PSE&

customers turned to less expensive sources of fuel. because of its jointly-owned generating stations located in that state. This tax. which is being challenged as to its constitution-Fuel for El ectri c Generation and Interchanged Power-net ality, amounted to $7.2 million and $8.6 million in 1977 and 1978, The Company belongs to the Pennsylvania - New Jersey - respectively. Also in 1977. following a successful court appeal to Maryland Interconnection (PJM) and is thereby able to optimize which the Company was not a party. accrued Pennsylvania Public its generation - interchange mix. using the lowest cost energy Utility Realty taxes of $5.6 million applicable to years 1975 and available in the interconnection system at any given time. 1976 were reversed. affecting the increases in 1977 and 1978.

Federal Income Taxes for the test generation and continued to record AFDC without Increases in each period were due to greater pre-tax operating charging depreciation Fuel and other associated expenses were income and a decrease in tax depreciation in excess of book charged to the costs of generation during the test period depreciation for which deferred taxes are not provided. (See Note 1 of Notes to Financial Statements )

Form 10-K Available Allowance for Funds Used During Construction (AFDC)

The Company is requi red by Securities and Exchange Commission AFDC increased in 1977 principally as the result of a greater level (SEC) regulations to file with that agency a Form 10-K annual of Construction Work in Progress which was partially offset by a report containing certain detailed financial and other data. There transfer, on June 30, 1977, of Salem 1 to utility plant in service.

are no accounting differences between the financial statements The 17% decrease in 1978 in total AFDC resulted principally from presented in this Annual Report to Stockholders and those in the the suspension of accruals on the Atlantic floating power project Form 10-K report, but it does provide other information as required effective June 1, 1978 and the di scontinuance of AFDC on Salem 1 by SEC regulations due to the transfer in service.

Stockholders or other interested persons who wi sh to have a copy Net Income of the Company's Form 10-K report may obtain one without charge Regulatory accounting requirements followed by the Company after March 31 , 1979, by writing to the Vice President and during the test operation of Salem 1 resulted in a benefit to Treasurer, Public Service Electric and Gas Company, 80 Park Place, earnings of 32C per share in 1977 Under these requirements, the Newark, New Jersey 07101. The copy so obtained will be without Company received the benefit of revenues at the prescribed rates exhibits. Exhibits may be purchased for a specified fee.

Independent Accountants' Opinion Deloitte Haskins+Sells Certified Public Accountants 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 capital In our opinion, such financial statements, appearing on pages 29 stock and long-term debt of Public Service Electric and Gas to 39, inclusive, present fairly the financial position of Public Company as of December 31, 1978 and 1977 and the related Service Electric and Gas Company as of December 31. 1978 and statements of income, retained earnings, and changes in financial 1977 and the results of its operations and the changes in its finan-position for the years then ended. Our examinations were made cial position for the years then ended, in conformity with generally in accordance with generally accepted auditing standards and, accepted accounting principles applied on a consistent basis.

accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

Deloitte Haskins & Sells February 16, 1979

46 PSE&G: Directors and Officers Board of Directors John F. Betz President and Chief Operating Officer of the Company Member of Executive and Finance Committees Reynold E. Burch, M.D.

The Private Practice of Medicine in the specialty of obstetrics and gynecology, East Orange. New Jersey; Clinical Associate Professor of Obstetrics and Gynecology, New Jersey Medical School, Newark, New Jersey Member of Audit Committee Robert I. Smith C. Malcolm Davis Chairman of the Board Chairman of the Board and director.

and Chief Executive Officer Fidelity Union Bancorporation.

of the Company Newark, New Jersey Chairman of Executive Committee and Member of Executive and Finance Member of Finance Committee Committees and Chairman of Nominating Committee W Robert Davis 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; 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

Officers ard R. Eberle William E. Scott Robert I. Smith r Chairman of the Board Executive Vice President- Finance Chairman of the Board and Chief Executive Officer Company of the Company John F. Betz er of Finance and Member of Executive Committee and President and Chief Operating Officer ating Committees Chairman of the Finance Committee Edward G. Outlaw Executive Vice President-Corporate Planning William E. Scott Executive Vice President-Finance James B. Randel, Jr.

Senior Vice President of the Company and President of Energy Development Corporation Harold W. Sonn Senior Vice President of the Company and President of PSE&G Research Corporation Richard M. Eckert Senior Vice President-Energy Supply and Engineering gery Somers Foster Robert V. Van Fossan rsity Professor of Economics Chairman of the Board. Charles H. Hoffman rmer Dean of Douglass College. Chief Executive Officer and director. Senior Vice President-System Planning and Interconnections rs. The State University, The Mutual Benefit Life Robert W. Lockwood runswick. New Jersey Insurance Company, Senior Vice President-Administration er of Audit Committee Newark, New Jersey Member of Executive and John F. McDonald Senior Vice President-Governmental Affairs Finance Committees and Chairman of Organization and Everett L. Morris Compensation Committee Senior Vice President-Customer Operations Donald A. Anderson Vice President-Computer Systems and Services Frederick M. Broadfoot Vice President-Law Malcolm Carrington, Jr.

Vice President and Secretary ayne Hallstein Robert M. Crockett Nathan H. Wentworth Vice President-Fuel Supply and President of Eascogas LNG, Inc.

or and former President. Former Chairman of the Board, oil-Rand Company The Continental Corporation Fredrick R. Desanti sified manufacturer of (property and casualty, life and Vice President-Rates and Load Management inery. equipment and tools). accident and health, Gifford Griffin cliff Lake. New Jersey and other types of insurance. Vice President-Interconnections her of Finance Committee and other financial services) and rganization and The Continental Insurance Companies. Robert W. Hodge ensation Committee New York, New York. Vice President-Commercia l and Consumer Affairs Member of Audit and Finance Carroll D. James Committees and Organization and Vice President-Administrative Planning Compensation Committee Edward J. Lenihan Vice President-Public Relations Robert C. Lydecker Vice President and Assistant to the Chairman of the Board Charles E. Maginn, Jr.

Vice President-Human Resources eth

~

C. Rogers Changes in Organization ent. Wallace A. Maginn

,ns Institute of Technology, Stewa rt G. Pollock, who became a Di rector on November 16, Vice President and Treasurer

ken, New Jersey 1976, res igned effective February 14, 1978, because of his Stephen A. Mallard

!her of Nominating Committee appoi ntm ent as Counsel to th e Governor of New Jersey. Vice President-System Planning llrganization and Winthrop E. Mange, Jr.

~ensation Committee Milton Perl mutter, who was elected a Director on April 19, Vice President-Corporate Services I

1977, died suddenly on March 14, 1978.

Thomas J. Martin The Board of Directors and the management of the Company Vice President-Engineering and Construction deeply reg ret the loss of these two extremely able people. Parker C. Peterman Vice President and Comptrol ler After the resignation of Mr Pol lock and th e death of Mr Frederick W. Schneider Perlmutter, the Board of Directors adopted resolutions Vice President-Production reducing the number of Di rectors from 14 to 12. Robert J. Selbach Vice President-Transmission and Distribution

48 New York City Electric Territory Gas Territory

• Generating Station .A Natural Gas Metering Station

• Gas Plant and Metering Station The Company has 13 generating stations in New Jersey, two of

• Synthetic Natural Gas Plant which are co-owned, and shares in ownership of three others in + Liquefied Natural Gas Storage Plant Pennsylvania Installed generating capacity at the end of 1978 was 9,061 megawatts. The electric system includes 37 switching Natural gas received from three interstate pipeline companies stations, 253 substations and over 126,000 miles of transmission passes through 25 metering stations. The Company has five gas and distribution lines. Electric customers total more than 1.6 plants, including two with synthetic gas production facilities. Ga million in the service area of 1,400 square miles. capacity in 1978 was 18.6 million therms per day. The gas flows to the Company's 1.3 million gas customers through 12,000 mile of distribution mains in the service area of 2,350 square miles.

Financial and Statistical Review Stock Symbol PEG A comprehensive statistical supplement The Company's Common Stock and the to this report. containing financial and $1.40 Dividend Preference Common Stock operating data for the years 1968-1978, are traded on the New York Stock Exchange will be available this Spring. If you wish and the Philadelphia Stock Exchange.

to receive a copy, please write to the Vice President and Treasurer. Public Service Transfer Agents All Stocks Electric and Gas Company, PO. Box 570, Morgan Guaranty Trust Company of New York Newark. N.J. 07101. 30 West Broadway, New York, NY 10015 Stock Transfer Department Public Service Electric and Gas Company 80 Park Place. Newark. N.J. 07101 Registrars 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

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