ML18096A646

Public Svc Enterprise Group,Inc Annual Rept for 1991.

ML18096A646
Person / Time
Site:	Salem, Hope Creek
Issue date:	12/31/1991
From:	FERLAND E J PUBLIC SERVICE ENTERPRISE GROUP
To:
Shared Package
ML18096A644	List: ML18096A642 ML18096A645 ML18096A646 ML18096A647
References
NUDOCS 9204270203
Download: ML18096A646 (52)

Text

Public Service Enterprise Group Incorporated (Enterprise) is a diversified public utility holding company. Public Service Electric and Gas Company (PSE&G), the principal subsidiary of Enterprise, is a regulated utility providing electric and gas service to more than two million customers and more than five and a half million residents of New Jersey. It is the state's largest utility and one of America's largest combined electric and gas companies.

Enterprise Diversified Holdings Incorporated, a subsidiary of Enterprise, is the parent company of Enterprise's nonutility businesses.

These activities include investments, oil and gas exploration and production, cogeneration and small* power production, and commercial real estate investment and development

• About the Cover Contents Ron Boerum , GE Senior F ac ilit y Engineer, exa min es hi g hl y sop hi s ti-2 cated and se n s itiv e tim e mea s urin g devic es for s pace laborator y 5 a pp li cations at G e neral Electric Aerospace in Camden. T ec hnolo gy 15 has always been a leading N e w Jer s ey indu s tr y, demandin g in-d e pth 2 1 under s tandin g of need s and close coo p era ti o n between the c u s-48 tomer s' p l ant operating s taff and PSE&G. 49 Text pr in ted o n recycled paper. Le tt er t o Shareowners Our Customers R ev iew of Op era tion s Financial Stat e m e nt s Officer s a nd Direct o r s Corporate and Stock Information

• *

(Thousands of Dollar s where applicable) 1991 1990 % Change Total Operating Revenue s $ 5,093,210

$ 4,800,135 6 Total Operating Expenses $ 4,094,840

$ 3,826,655 7 Net Income $ 544,251 $ 542,278 Common Stock Shares Outstanding-Average (Tho u sa nds) 223,565 211 , 981 5 Shares Outstanding-Year-end (T h ousands) 226,701 2 18 ,472 4 Earnings Per Average Share $ 2.43 $ 2.56 (5) Dividends Paid Per Sh a re $ 2.13 $ 2.09 2 Book Value Per Share -Year-end $21.01 $20.44 3 Market Price Per Share -Year-end $29.375 $26.375 11 R a tio of Earnings to Fixed Charges 2.54 2.50 Ratio of Earnings to Fixed Charges -PSE&G 3.20 3.10 Gro ss Additions to Utility Pl a nt $ 813,149 $ 968 , 023 (16) Total Utility Pl a nt $14,426,560

$1 3,836,874 4 See Notes to Consolidated Fina ncial Statements .

• Net Income Dollars in Millions Annual Diviclencl Payout ancl Earnings Per Share In Dollars* 85 86 87 88 89 90 91 85 86 87 88 1 89 90 9 1

• An nu al Dividend Payout

• Earnings Per Share *Adjusted to reflect 3 for 2 common stock split effective July I , 1987. Dividends have been increased annually for 16 consecutive years.

Dear Shareowner P ublic Service Enterprise Group enjoyed a 1991 despite the of a cont inuing s10 n a nd weak financial results by two of our diversified companies.

Total 1991 earnings were $5 44.3 million , up from 1990's record level of $542.3 million. Thi s was due in l arge measure to unusually warm weather. Durin g the s ummer of 1991 , we experienced a record-breaking 41 days with tures in the 90-degree-plus range, almost twice the normal number for our service area. Electric and gas sa l es for the year were up 3.1 % and 6. 9% respectively , but on a weather-adjusted basis , our sa le s for the year increa sed only one percent for electric a nd about two percent for gas. Per-s hare earnings decrea se d 13 cents to $2.43, from $2.56 in 1990 , due in part to 11.6 million additional average shares outstanding. Public Service Electric and Gas Company (PSE&G) earnings for the year were $516.5 million , compared to $508.6 million in 1990. Earnings for Enterpris e Div ers ified Holding s Incorporated (Holdings) were $27.8 million , compared to $33.7 million in 1990. Enterprise

's Board of Director s in November increased the quarterly common s tock dividend from 53 to 54 cents per share. It was our 16th consecutive annual dividend increase. Need for Higher Rates Despite PSE&G's good earnings in 1991 , the cumulative effect of six years of inflation on our costs and the ad dition of $1.6 billion of new plant s ince our last ba se rate increases mad e it necessary for PSE&G to file in Novemb e r for higher electric and gas rates. The last time we requested an overall increas e in PSE&G base rates was in late 1985. Since th e end of that case in early 1987, PSE&G has invested approximately

$1.6 billion in electric and gas facilities to ensure continued r e liable and reasonably priced electricity and gas to our customers. This inve s tment included 1,435 mile s of additional gas main s, 18 electric tribution substations, 9,630 mile s of electric di s tribution lin es and 18 miles of transmission line s. During the sa me period: we added 200,000 customers and responded to their assorted service demands; our gas peak se ndout increased from 17.8 million therm s to 18.2 million therms; and we have seen our electric peak demand increase from 7,721 MW to 9,085 MW Over thi s sa me interval , we have reduced our work force by ap proximat ely 600. 2 Today , with more customers and fewer employees, we are providing reliable , safe, efficient service at rates that are l ower than the y were in 1985 -even though the New Jersey s umer Price Ind ex ha s risen 30 percent during that time. We have been able to provide this service at economically tive rates because our employees have aggressively managed our operating and maintenance costs over thi s period. This cost containment effo rt will continue , but it will not fully offset the need for higher electric and gas rates. To help cover the costs associated with new inve s tment , as well as to offset the effec ts of inflation on our expenses over thi s ex t en ded inter va l , we have petitioned the New Jer sey Board of Regulatory Commissioners (BRC) for a $669 million annual increase in electric and gas rates. The request , which would not go into effect until late 1992 , at the earliest, calls for an electric revenue increase of $507 million (14. 9%) and a gas revenue increase of $162 million (10.7% ). We have worked hard to maintain our position as the low-cost energy service provider in New Jersey, while at the sa. time providing shareholders a fair return on inve s tment. Wi are proud to have been able to maintain stable rates in the face of inflationary pre ss ures over the past six years. And we will continue to work hard to enhance the value of shareholder investment in Enterprise. Service Indicators The number of customer complaints to the BRC and to the officers of our busines s d ec rea se d by nearly 20 percent , pared to 1990 , and was the lowest number since we started to keep such records in 1978. This is the best indicator that 1991 was a good year. A broader mea s ure, our customer satisfaction indices , were also up. The results of our annual customer attitude survey s how that our Customer Satisfaction Ind ex (CSI) is up from 1990 survey results. The CSI i s a weighted evaluation of tomer attitudes concerning the quality of our business relations hip s, the quality of our social responsibi lit y efforts and the price we charge for our products and se rvice s. In addition , a very encouraging report on PSE&G's mance was contained in a management audit performed during the year for the BRC. We received an outstanding assessment

• 1 .e s Ferland, C hairman of the Board, President and Chief Executive Officer (left), meets with Plough Vice President and Treasurer Jack L. Wyszomierski at the pharmaceutical firm's Kenilworth, New Jersey, facility. PSE&G ment at all l evels tains customer contacts in a continuing program to improve mutual understanding and cooperation.

from the auditors.

The auditors concluded that , when pared to other leading U.S. electric and gas utilities, " PSE&G is among the best." Nuclear Performance PSE&G operates nuclear units -Salem 1 and 2 and Hope Creek, at Artificial Island in southern New Jersey-and we have an ownership interest in the Peach Bottom 2 and 3 units operated by the Philadelphia Electric Company in sylvania. In 1991, the aggregate capacity factor of all five units was 71 % . The aggregate capacity factor of the three PSE&operated units was at a record level of 78%. The high performance level attained by these units in 1991 *d espite a turbine failure and fire in November that in severe damage to Salem 2 's turbine and generator , nonnuclear components.

Fortunately, fire damage was contained , as our operators on the scene safely shut down the unit and the plant fire brigade quickly controlled the fire. There 3 were no injuries and no damage to the nuclear part of the unit. Most of the cost of equipment repair and replacement power is covered by insurance.

We expect Salem 2 to return to service during the second quarter of 1992. Nonutility Businesses The results for Holdings' companies were mixed in 1991 , but on balance were disappointing.

Energy Development Corporation , our oil and ga s tion and development subsidiary, had particularly disappointing results for the year , as mild weather and a continuation of the national recession combined to push natural gas prices to the lowest levels in 15 years. While we remain optimistic about the long-term outlook for this business , a continuation of record low natural gas prices will put extreme pressure on the term financial prospects for this company. Our real estate subsidiary , Enterprise Group Development Corporation , continued to suffer from depres s ed condition s in the real estate market. On the positive side , the results of Public Service Re s ource s Corporation , our investment company, and Community Energy Alternatives Incorporated , our cogeneration and power production subsidiary , have shown good progre s s. _J Our efforts over the last several years have focused on lishing and growing these diversified businesses.

In 1992 , we will shift our emphasis from growth to increased profitability. Our aim is for steady improvement in income and return for these companies over the next five years. With this strategy, we anticipate that the nonutility businesses will contribute some 10-15% of consolidated income by the mid-1990s , up from 5% in 1991. Other Is s ue s An encouraging step taken by the New Jersey State Legislature in 1991 was the change of the New Jersey Gross Receipts and Franchise Tax to an energy usage tax. It is a change that we have long sought. Under the new law , our customers will pay a fixed tax for each kilowatthour of electricity or therm of natural gas used, rather than a tax driven by energy price. Over a period of eral years , this should diminish the competitive advantage enjoyed by nonutility suppliers of electricity and natural gas over utilities, which alone are subject to this tax. Another issue I discussed last year remains unresolved

our opposition to the construction of cooling towers at our Salem Generating Station. In late 1990 , the New Jersey Department of Environmental Protection and Energy issued a draft permit requiring the construction of cooling towers to eliminate the potential for future harm to the aquatic life in the Delaware River. We will continue to press our belief that construction of cooling towers would be an unwarranted expense for our customers, and that there are less-costly alternatives that adequately address the Department's concerns. Look to the Futu r e 1992 will be an extremely challenging year , given our need for rate relief and the likelihood that the recession will continue through much of the year. Further, record low natural gas prices will continue to suppress the earnings of Energy opment Corporation. Our principal objectives are to obtain timely and adequate rate relief and to manage our utility and nonutility company expenses as efficiently as possible. We will continue to meet the challenges of the future by improving efficiency and increasing the reliability and desirability of our services , while minimizing the impact of our operations on the environment.

4 To help u s meet our ambitiou s goals , over the pa s t three years we have introduced a significant number of individual quality initiatives aimed at improving specific aspects of the business. Now, after careful study and in order to further hance customer satisfaction , we are integrating these initiatives and expanding them into an ongoing total quality process that will incorporate the principle of continuous improvement into everything we do. Just as an appropriate rate increase will give us the financial resources to maintain strong capitalization , good cash flow and solid credit ratings , a well-planned and implemented total quality improvement proces s will enable us to better deploy our resource s to the benefit of our employees and customers , and to provide a fair return to our investors. PSE&G Elect s Pr esi d e n t Before I conclude this letter , I want to note a very important management change at PSE&G in 1991. In September , the Board of Directors elected Lawrence R. Codey president

• chief operating officer of PSE&G and a director of Enterpn Larry, formerly senior vice president

-electric, brings unique qualifications to his new position. He has headed both of PSE&G's two principal business units -electric and gas -and , as a former corporate rate counsel , has considerable edge of the state's regulatory process. This appointment not only will enhance an already excellent management team, it also will position our company to better manage the challenges that we and our entire industry face in the coming years. E. James Ferland Chairman of the Board, President and Chief Executive Officer February 10 , 1992

• Working with Our Cu s tomer s S hift s in d e m og raphic s and work s t y le s pre se nt new cha ll enges to our notion s of premier s ervice. One respon se: evening and weekend meter readings to se rve our customers better. (I.) An overwhelming jorit y of customers give PSE&G a po s itive rating on the job the company is doing in providing electric and gas se r vice. This ex cee d s th e average rating given to utilities nationwide.

(r.) F o r severa l years, we ha ve b een d esc ribin g in o ur Annual R e p o rt s th e changes taking pl ace in our indu s tr y and th e ir effec ts o n o ur company. The se changes are driven b y new s tat e and federa l l eg i s l a tion , n ew e nergy regulations and th e d eve l om e nt of competition in both our gas and e l ec tric bu si n esses. To s u ccess fully ada pt a nd pro s p e r in thi s evo lvin g economic climat e, we are not m e r e ly a lterin g PSE&G to m eet n ew r egl a t ory r e quir e m e nts a nd competitive c h a ll e n ges; we a r e making fundamental changes in th e m a n y ways we s uppl y serv i ce a nd interact with our c u sto m e r s. Change, how ever, i s not co nfin ed t o PSE&G or to e n ergy s uppli e r s. Many o f our indu s tri a l a nd commercial customers a l so a r e experie n c ing s i g nifi ca nt s hift s in their bu s in ess e n vro nm e nt s because of th e recession a nd the e m erge n ce of g l o b a l econo mi c fo rc es a nd int e rn a tion a l co mp eti ti o n in th e ir m a rk e t s. We r ecog ni ze th at, ju st as PSE&G is m a n ag ing c h a n ge , so a re o ur customers, l a r ge a nd s m a ll. For th e ir well-being and o ur ow n , we must n o t o nl y provid e th e m with th e hi g he s t qu a lit y serv ic e th a t me e t s th e ir n ee ds at r easo n a bl e cos t , but we a l so mu st h e lp th em u se energy effic i e ntl y, w ith as littl e impact o n the e n v ironm e nt as po ss ible. T o acco mpli s h thi s, we hav e t o und e r s t a nd their o p era tion s, proc ed ur es and energy n ee d s just as well as the y d o. In this p o rti o n of o ur A nnu al R eport , we w ill exp l o r e some of the many changes we have instituted as part of a contin uin g effort to meet customer expectations better with our products and se rvice s. 6 Positive Rating on Prov i d i ng Electric and Gas Service Percent E l ec tri c it y Gas Changing Our Style 1 00 75 50 25

• PSE&G 1990

• PSE&G 1 991

• Average All U tiliti es 1 99 1

• It wasn't so long ago that a customer's power n ee d s were mined s tanding outside th e customer's pr e mi ses. All r es i-d e nti a l customers were treated mor e or l ess the sa m e. For co mmercial and indu s tri a l customers, it was only a littl e m o re co mpli ca t e d-a matt e r of calculating the s iz e of th e building a nd factoring in the n a tur e of the bu s in ess while allowing a margin for future grow th. But times ha ve c h a n ge d. Startin g in 19 87, when PSE&G d eve lop e d it s current "c ore values" -th e first of which focuses on Cu s tomer Satisfaction

-we b ega n to look m ore inten se ly a t cu s tomer ex pectation s. T o d ay, the PSE&G representative works from th e inside, s t a ndin g on th e factory floor , in the c u s t o mer's b ack office co mput e r room or in th e r es id e nt's li v in g room. On th e factory fl oor, th e repr ese nt a ti ve is s urr o und ed b y hu ge m ac hine s, operating at hi g h s p ee d , turning o ut a vas t array of product s and controlled by tiny electronic microprocessors that are highl y se n si tiv e t o routine pow er lin e di sturban ces that once would hav e go n e unnoticed. In th e co mput e r o p era tion s center , the repre se nt at i ve h ea r s a s teady hum from rows a nd rows of com put e r s, a ll of th e m totally d e pendent on r e liable , unint e rrupted power t o their t asks.

• feedback directly from business customers, our officers visit their facilities and their executives visit oun. A group of business customers (I.) dilcuss their gas supply needs, while becoming familiar with our gas distribution system. PSE.tG's Jack Hainthaler (2nd from

• right) and Joe Jansen (r.) explain the role of our Gas System Operations Center In Newark. the control site for gas distribution for our entire service area. The day-long program allo included a visit to our Electric System tions Center In Newark.

Our area development staff helped put together a single group of level state , count y , city, and telephone company representatives to sit down with Merrill Lynch to address the nous details required to make a major relocation decision. Then , to address their special energy ments , our marketing and electric distribution people came up with a unique proposal tailored to their needs. The result: a highly reliable network service , with potential cost savings. Reliable * * *

.nd in the home, the representative is surrounded by tive , power-hungry electronic devices , many of which were unheard of just a decade ago. In the family room , a maze of audio and video equipment covers an entire wall. In the kitchen , a microwave oven, the electric range and the di swasher are all controlled by digital timers -circuits that can be set to cook, bake and clean at precisely the correct time. A heat pump, which can function as an air conditioner in summer or as a heater in winter, maintains the desired temperature. An electric alarm system provides security.

If a power failure occurs -momentary or extended -there will be customer satisfaction problem s today that never existed before. The factory owner will have to shut down operations until the production line can be recalibrated. The computer firm may have scrambled an entire day's work. The homeowner will return to a hou se filled with blinking digital indicators; dinner still uncooked in the microwave oven. These are but a few examples of how customers rely on PSE&G. In a world increasingly dependent on the availabilit y and reliabilit y of energy and constantly in sea r c h of easier ways to do business , there are more and more opportunities to *o satisfy a customer, even with service that would have *totally acceptable just a few short years ago. 9 At an October press conference , PSE&G veiled a new economic development campaign to attract businesses and jobs to New Jersey. Held at the new offices of Merrill Lynch in Jersey City (r.), the event was attended by Gov. Jim Florio (center-left , with Jim Ferland).

The announcement received widespread press coverage, and advertising support erated over 5 , 000 ries in lat e 1991. In this time of changing expectations and increasing competition, PSE&G must better understand how energy i s being used , what the customer's perception of sa ti sfac tor y service i s, what types of services the cu s tomer prefers and how the tomer wants that service s upplied. Setting the Mark To determine the best ways to do this , we compare our ing methods with those of the be s t in our industry and with other leading businesse s throughout America. Thi s "marking" allows us to gauge our performance

-indicating where we exceed the mark , where we measure up a nd where we need to improve. Our benchmarking studies confirm that be s t-in-class nies have a culture and value system that make s customer faction their primary mission. They also define customer satisfaction by what the customer says it is, not by s ome nal performance index. To learn what satisfies the customer , we ask him or h e r. We se nd questionnaire s to gas a nd/or electric customers to determine their satisfaction with our service, h ow they judge that service, how much they are impacted by the cost of e ner gy and what their future busine ss prospect s are. We invite customers to participate in focus groups to uate new products and services.

This ongoing proce ss i s designed to gauge market reaction to our existing product line and determine where we have opportun iti es for future sio n of those offerings.

Decline i n Cu s tome r Complaint s T h o u sa nd s 86 87 88 89 9 0 91 Co n s t a nt a n a l ys i s of c u s tomer inquiri es h as led P S E&G to re v i se pr a cti c es a nd incr ease th e authorit y of c u s tomer se r v i ce repr ese nt a ti ves 1 6 like Kath y John so n (c.) t o r es ol ve inquiri es. C on s um e r A dvi s or y 1 2 Pane l s (r.) pr o vide a forum for c u s tomer s to m e et with man ag em e nt a nd propo se c h a n ges. 8 Meas ur es lik e th ese h ave co ntribut e d to a s h a rp d ec r e a s e (I.) in e x e cuti ve and r eg ul a tor y b o ard 4 c ompl a int s. W e do s p o t s ur veys of c u s t o m e rs w h o h ave ex p e ri e n ced se r v ice probl e m s, as kin g qu es ti o ns s u c h as, " H ow fas t a n d e ffi c i e ntly did PSE&G r es p o nd af t e r yo ur se r v i ce was in te rrupt e d?" Th e r es ults o f th ese inquiri es h e lp u s imp rove o ur r es p o n se tim es. Ea ch yea r we a l so eva lu a t e th e r es p o n ses of a l a r ge sam plin g of o ur e ntire c u s t o m er b ase t o d e t e rmin e th e ir a ttitud es a b o ut PSE&G. Th ese r es ult s co n s i s t e ntl y h ave b ee n ve r y p os iti ve. Mor e th a n 9 0% rat e PS E&G as goo d o r exce ll e nt a t s uppl y in g e l ec tric a nd gas se r v ic e, w ith es p ec i a ll y hi gh m a rk s fo r re lia bility a nd p ro mpt r es p o n se t o ca ll s fo r se r v i ce. Th ese and m a ny o th e r s ur vey t ec hniqu es a r e u se d th ro u g ho ut th e co mp a n y. A s the s ur veys a r e co mpl e t e d , th e ir r es ult s a r e co mp a r e d w ith r es ult s fro m pr ev i o u s yea r s , p inp o intin g t re nd s in th e l eve l of c u s t omer sa ti sfac ti o n w ith P SE&G. The Personal Touch A dd ed t o this s ur vey d a t a is a w ide a rr ay of in fo rmati o n co mpil e d fr o m v i s it to c u s t o m er l oca ti o n s. Ou r m a r ket in g r e pr e s e nt a ti ves c h a lk e d up so m e 10 , 000 vis it s to o u r la r ges t indu s t r i a l a nd co mm e r c i a l c u s t o m e r s ove r th e p ast t wo yea r s. The v i s it s w e r e d es i g n ed t o ga th e r in fo rm a ti o n a b o ut co mm e r c i a l a nd indu s tri a l c u s t o m e r s in o ur serv i ce a r ea. T o h e lp u s sa ti sfy the c u s t o m e r's n ee ds on b o th si d es of t h e m e t er , th e p rog ram foc u ses on t o t a l bu si n ess n ee d s , n o t j u st e n e r gy n ee d s. W ith th is broader p ers p ective, we th e n fa s hion s ol u t i o n s for spec i fic b u s in ess p ro bl e m s. 10 A pro g ram in vo l v ing o ur e x ec uti ve office r s is a n ex t e n s i o. of thi s effo rt. PSE&G of fi ce r s t o ur c u s t o m e r fac iliti es a nd di sc u ss c u s tom e r s' ex p ec t a tions w ith th e m. H e r e, t oo, th e di sc u ss i o n s fo c us o n the c u s t o m e r s' t o t a l bu s in ess n ee d s. Th e exec uti ve p rog r am o p e ns a co mmuni ca ti o ns w ind ow b e t wee n PS E&G a nd its c u s t o m ers a t th e hi g h est co rp ora t e l eve l s. It impro ves c h a n ces th a t futur e p ro bl e m s can b e so l ve d th ro u g h qui c k a nd s m oo th int e r co mp a n y co mmuni ca ti o n s. L a r ge indu s tri a l a nd co mm e r c i al u se rs a r e ju s t o n e p a rt of the c u s t o m e r s p ec trum. A l so in o p era ti o n a r e p rogra m s t o s timul a t e t wo-way , o n go in g co mmuni ca ti o n w i t h s m a ll bu sn ess a nd r es id e nti a l c u s t o m e r s. On e of th ese is a se ri es o f m ee tin gs w ith co n s um er r e pr ese nt a ti ves fro m th ro u g h o ut PS E&G 's se r v i ce t e rrit o r y. T h ese co mp a n y-s p o n so r e d co n s um er p a n e l s r e p rese nt a cross-sec ti o n of o ur c u s t o m e rs o n a broa d ra n ge of i ss u es. Th e p a n e l s foc u s m a inly on p a rt s o f th e bu s in ess th at of t e n a r e n o t cl ear t o th e publi c: s u c h as billin g lit era tur e, e n v i ro nm e nt a l co n ce rn s , safe ty a nd th e n ee d s of specia l int eres t gro ups w ithin t h e co mmunit y. Sin ce th e p a n e l s we r e fo rm e d in 1 982, th ey h ave m a d e 8 0 r eco mm e ndati o n s th at h ave b ee n impl e m e nt ed b y th e co mp a ny , in c luding e nl a r g in g print s i ze w h e n ever p oss ible o n co mm. ca ti on t o se ni or c it ize n s , p rov id i n g r ecor din g d evices wi th s p ec i a l numb e r s t o acce pt c u s t o m er m e t er r ea d i n gs a nd in stuting p l ai n-l a n guage c u stomer b il l s.

For 1\io Dyeing and Finishing Company, one of the largest dye boules in Paterson, we did an eneqy audit to analy7.e energy use and improve overall eflk:icocy.

We then worbd with 1\io to implcmart many of the cost-saving dations. We prorided 1\io with electJotecbnology

........ natives to their aunm drying processes to speed up drying and reduce operating cosCI. And we arranpd tacts to help 1\io to meet IOreian competition by eKpOrting its products when domestic demand was slow. *

• Use of computers and other controlled devices at home and at work has led to a demand for cleaner, more re l iab l e power , freer from surges and voltage drops that would once h ave gone u nnoticed. Reliability PSE&G Compared with Other Utilities Average int e nuption s per customer 2 1.8 1.6 1.4 1.2

• a Storm-tracking puter s (c.), automatic switching equipment and other measures improve reliability. PSE&G ha s the best regional record in prov i ding re l iab l e service at a low cost to customers , as shown in the comb i ned index at right. I 0.8 0.6 0.4 0.2 0 * --* --* 40 60 80 100 Cos t in d o llar s per c ust ome r to maint a in se r vice 0 120 140 emographic data also help u s to d es ign our se r v ice ings to meet the evolving need s of a changing soc iety. For example, among residential customers, more and more often there is no one home for daytime se rvice calls durin g the work week because both spouses are employed, or because of sing l e-parent households. And today , the language spoken in homes in our service area is les s likely to be English. From each of these information

-gathering method s -s urvey s, customer visits , consultations and analyses -we add another piece to the mo sa ic illu s trating customer expec tation s. Each technique fills in data n ee d e d to develop new produ cts and services to meet ri s ing customer expectations.

Changing Our Ways Based on the wea l th of information we gather, PSE&G i s making changes today to meet the customer need s of tomorrow.

Meter reader s now sc hedul e weekend visits to acco mm odate working couples. Custom e r se rvic e ce nters s ta y open in the evening for the sa m e r easo n. And w h ere the need exist s at customer service centers, translators are avai l ab l e t o h e lp o ur representatives and our customers comm uni ca t e. tl uring power outages, the company s uppli es c u s tomer s a carefully calculated estimate of re s toration time , so th e omer can p l an to cope with the outage m os t effec tively. 13

• PSE&G

• Other U tilitie s We are planning a program to offer oil-to-gas conversion customers the opportunity to have their old oil tank s removed or filled with sand or foam , eliminating hazardous waste problems and avoiding conflicts with state environmental regulations. We're working with electronic equipment and appliance associations to provide solutions to the problems caused to modern electronic equipment by power interruptions. We utilize computerized lightning tracking systems to cut response time to outages during major storms. The equipment tracks the path of the s torm as it approaches our se rvice area , allowing our man age rs to deploy r e p a ir crews at appropriate location s even before the s torm hit s. The company also ha s expanded it s use of protective devices s uch as s hield wire , which reduce s lightning damage , and animal guards, which help prevent animals from damaging power devices and causing se rvice outages. Both of these maintenance improvements increase the reliability and qua l ity of e n ergy serv ice a nd help u s reduce our customer outages total for the year. In fact, we r e duced customer outages b y two p e rcent in 1991. We've developed conservation initiatives to support the s tate's energy master plan goals and to i ncrea se the role of tion in meeting New Jer sey's energy needs in the coming decade. The proposal s will allow PSE&G and the customer to share in the financial rewards of conserving energy, which benefits the company, the customer and the e nvironment.

W e've a l so ex p a nd e d th e sco p e of o u r p ro m o ti o n of e l ec t r i c a nd n a tu ra l gas ve hicl es. In a dditi on t o u s ing e l ec tric a nd n ara l gas ve hi c l es w ithin o u r ow n se r v i ce fl ee t , we n ow h ave p ro j ec t s und e r way w ith NJ T ra n s it a nd N ew J e r sey B e ll T e lph o n e Co mp a n y. A t o ur e l ec t ro t ec hn o l ogy d e m o n s t ra ti o n fac ilit y in E di so n , we p ro vid e h a nd s-on d e m o n s t ra ti o n s to s h ow indu s tri a l c ut o m e r s h ow t o r e du ce th e ir h aza rdou s w as te a nd a ir e mi ss i o n p ro bl e m s th ro u gh n ew a nd inn ova ti ve p rod u ct i on t ec hniqu es. C u s t o m e rs w h o ow n th e ir ow n e l ec t r ic d i s tr ib uti o n s ub s t ati o n s t o ld us o f th e p ro bl e m s th ey e n co unt e r in m a int a inin g th ose s t a ti o n s. W e n ow offer th em m a int e n a n ce p ac k ages d es i g n ed t o p rov id e th e se r v i ce l eve l th ey r e quire a t a pri ce th ey ca n affo r d. R es p o n d in g to t h e r es ult s of t h e b e n c h mark st u dies th at eva lu a t ed th e p rac ti ces of b es t-in-cl ass compan i es , we n ow e mpl oy indu s try s p e ci a li s t s t o b e tt er h e lp o ur c u s t o m e r s with e n e r gy p ro bl e m s. We a l so h ave a n ex p erie n ced pe r so n se r v in g as a PSE&G li a i so n for l a r ge c u s t o m e r s t o h e l p th e m w ith th e ir e n e r gy n ee ds a t th e ir multipl e l oca ti o n s in the s t a t e. A nd we int ro du ce d a n ew Bu s in ess E nh a n ce m e nt P rog r a m t o h e lp improv e bu s in ess o pp o rtuniti es in N ew J e r sey. Th ro u g h thi s pro gra m , PS E&G , in p a rtn e r s hip w ith l oca l , co unty a nd s t a t e gove rnm e nt a l age n c i es , offe r s inn ovat i ve s o luti o n s to bu s in esses w ith e n e r gy , e n v i ro n me nt a l , fi n a n cia l , tec hn ical a n d ot h er b u s in ess p rob l em s. T h e goa l of the program i s t o keep t h e co m pa n ies in b u siness -and in New Jersey. 14 Ne w se r v ic es r e quir e g r e ater und e r s t a nding o f cu s tom e r need s but o ff e r r eve nue o pp o rtuniti es. A t P SE&G's E l ec trot en o l ogy D e mon s trati o n Fa cilit y, m a n age r M ik e P e rn a (I.) s how s c u stomer s how infr a r e d dr y ing a nd ultr a vio l et curin g c a n s p ee d p rocess es a nd r e du c e cos t s. S ub s t a ti on m a int e n a n ce pro g r a m s for l a r ge r pl a nt s, s u c h as thi s S quibb f a cilit y in Ne w Brun s wick (r.), pro v id e th ese c u s t o m e r s with th e b e n e fits o f our e mplo yees' s kill s and ex p e ri e nce. Continuing to Improve

• L a t e in 1 99 1 , building o n the ex p e ri e n ce ga in e d fr o m the se a nd o th e r o n go in g ac tiviti es , PSE&G introdu ce d a p rogra m to intgra te a ll th ese c u s t o m e r sa ti sfac ti o n initi a ti ves into a co rp ora t ew id e qu a lit y imp ro v e m e nt p rocess. Thi s pro cess w ill co n so lid a te a nd int eg rat e m a n y ex i s tin g pro g r a ms a im e d at b oos tin g qu a lit y l eve l s in every p a rt of o ur bu s in ess. It w ill e n s ur e that c u s t o m e r s' n ee ds g uide o ur e mpl oyees' d ec i s i o ns a nd fos t er th e co ntinu o u s imp rove m e nt of ex i s t i ng o ff e r i n gs a nd a s t ea d y stream of inn ova ti o n s t o m eet d eve l o ping c u s t o m er n ee d s. In effec t , th ro u g h a p roac ti ve foc us o n c u s t o m e r s, PSE&G i s fo rming a p a rtn e r s hip w ith o ur c u s t o m e r s. By a n a l yz in g h ow gas a nd e l ec tr ic e n e r gy imp ac t th e ir lif es t y l es a nd th e ir b o tt o m lin es , we h e lp th em b e tt er u se th e ir r eso ur ces , in c r ease th e ir p ro du c ti v it y , imp rove th e ir p ro fits a nd grow-i n PS E&G's se r v i ce a r ea. D o n e co rr ec tl y, it's a p a rtn e r s hip fr o m whi c h eve r yo n e b e n e fit s. 0

• 1 Financial Re s ult s and Bu s ine ss Highlight s .er reliabilit y of PSE&G's natural gaspowered vehicles (NGVs) a nd r e fueling eq uipm ent i s th e s ubj ect of di sc u ss i o n b e tw een newl y elected pr eside nt and c hi ef o peratin g officer Larr y Co de y (c.), A nit a F l e i sc her and Greg Dunlap , manager s in th e Gas Busin ess De ve lment unit r es pon s ible for mark e tin g NGVs a nd coordina ting s tate e nvi ronmenta l t es tin g of the ve hicl es. o n so lid ated ea rnin gs for 1 99 1 we r e $544.3 milli o n , or $2.43 per s h a r e of com mon s t ock, based on 224 milli o n average s h a r es o ut s t and in g. In 1 990, ea rnin gs were $542.3 million , or $2.56 p er s h a re , b ase d o n 212 million average common s h a r es o ut s t a ndin g. The r es ult s were favorably impact ed b y abnormal weather patterns -cooler weather in th e first qu a rt e r a nd a r ecose tting h ot s umm er -th at b oos t e d gas a nd e l ec tric sa l es throughout PSE&G 's serv i ce a r ea. The favorab l e impact of weather o n ea rnin gs was m os tl y offset b y high e r ex p e n ses fo r federa l income taxes , hi g h er m ai nt e n a n ce costs due to a refue lin g o ut age at H ope Creek , hi g h e r nucl ear produ c ti o n ex p e n ses, lab or a nd em pl oyee fit cos t s, int erest charge s a nd depreciation a nd a m or ti za ti o n

• nse s. Earnings p e r s h a r e were r ed uc e d as a resu lt of t h e ne e of additional s h ares in 19 9 1. Anoth e r effect on ea rnin gs was th e weak financial results of Enterpr i se's n onutility bu s in esses. Co ll ec ti ve ly , th e n o nutilit y bu s in esses of E nt e rpri se Di ve r s ified H o ldin gs In co rp ora t ed 15 (H o ldin gs) produ ced $28 milli o n o f ea rnin gs, o r approximate l y 12 ce nt s per s h a r e, a d ec r ease o f $6 million and thr ee cents p e r s h a re co mp a r ed t o 1990. Energy D eve lopment Corporation's (E DC) ea rnin gs were particularl y imp acted as pri ces for ral gas r eac h e d a 15-y ear l ow. T h e EDC s hort fa ll was p a rtiall y offset b y th e hi g h e r in ves tm e nt incom e of Public Serv i ce R eso ur ces Corporation (PSR C). Overall , Enterprise

's co n so lid a t ed r eve nu es in 1 99 1 were $5.1 billi o n , a n in c r ease ove r the $4.8 billion r eco rd e d in 1 990. PS E&G's e l ec tric revenues accounted for $3.5 billi o n , gas r eve nu es acco unt ed for $1.3 billion , a nd Holdin gs' n o nutilit y bu s ine sses added th e r e mainin g $.3 billi o n. PSE&G electric sa le s incr eased 3.1 % co mp a r ed t o 1 990 sa l es. R es id e nti a l e l ectric sa l es in crease d 6.4%; co mm e rcial sa l es in c r ease d 3.2%; w hil e indu s tri a l sa l es were down b y 0.5%. PSE&G gas sa l es for th e year w e re up 6.9%. Re s identi a l sa l es were up 4.0%; commercial up 6.6%; and indu s tri a l up 17.0%. Gas tran s p or t a ti o n service incr ease d 109.5% compa r ed t o 1 990 r es ult s. Total gas so ld or t ra n s p o rted in c r eased 14.5%. Cas h fl ow remain e d s t rong a nd th e utilit y m e t 8 1.1 % of it s $783 million co n struc ti on expe nditur es through int e rn a ll y ge n era t e d cas h .

At year-end, th e book va lue of Enterpri se's common s tock was $2 1.01 per s har e , up from $20.44 a t the en d of 1990. Thi s increase was achieved by r e taining earnings in th e bu si ne ss and by se lling additional common stock above book value. There were 226.7 million s hare s outstanding at year-end 1991. In March , Enterpri se so ld five million s har es of its common s tock , raising approximately

$130 million of new equity tal. In addition, Enterpri se sold approximately three million s hares of common s tock through its Dividend Reinve s tment Program , raising about $89 million in additional equity. The proceeds of these sa le s were u sed b y Enterpri se to make additional equity in vest m e nt s in its s ub si diari es -Public Service Electric and Ga s Company and Enterprise Diver s ified Holdin gs Incorporat e d. These e quit y infusions enabled both s ub s idiarie s to incre ase their assets while m ai ntainin g strong capital s tructure s. PSE&G's earnings to fixed charges coverage ratio was 3.2 time s , up from 3.1 time s in 1990. During the year , PSE&G so ld $750 million in mortgage bond s. Proceed s were u se d for ge neral corporate purpo ses, including repayment of s hort-term obligations and refunding of certain higher-co st debt sec uriti es. PSE&G called $125 million in mortgage bond s in July , 1991 for early redemption. gage and debenture bond maturities in 1991 , including sinking fund s , totaled approximately

$169 million. Approximately

$170 million of high-cost mort gage and debenture bond s were redeemed in early 1992. These ea rl y redemptions will save the company about $21 million in intere st charges. In June , Enterprise C a pital Funding Corporation (Funding) raised $151 million of long-term debt through the sa le of ganteed se nior note s. The proc ee d s were u sed to make loan s to the s ub s idiaries of Holdin gs. In the fourth quarter , th e Board of Director s incr ease d the co mmon stock dividend from 53 cents to 54 cents per s hare , a change in the annualized di vi d e nd rate from $2.1 2 to $2.16. The increase of approximately 2% marked the six te e nth se cutive year in which the company ha s raised the dividend on its common s to c k. In N ove mb e r , PSE&G p e titioned the N ew J e r sey Board of Regul a tory Commi ss ion e r s (BRC) for an in c r ease of $669 million in electric and gas ba se rates o n an a nnual b as i s. The co mpany la s t filed for an overa ll ba se rate increase in 1985. Since that time , the company ha s added $1.6 billion in new utility plant to se r vice the increasing demands of its e lectri c and gas customers.

16 The petition for a 13.6% overall increase reflected an tric revenue increase of $507 million or 14.9%, and a gas revenue increase of $162 million or 10.7%. The petition also a s ked the BRC to approve a return on common equity of 13.2 5% and a return on rate ba se of 10.89%. PSE&G i s currently allowed a 13% return on common e quity and 10.65% return on rate ba se. The test year for the case will be the 12 months ending June 30 , 1992. It is expected that hearing s will be conducted on the rate reque s t during the Spring and Summer of 1992. A s ion i s not expected before late in 1992 at the earliest.

Electric ' he electric business maintained high reliability of s ervice in the face of unu s ually s trong customer demand for electricity during the hot s ummer of 1991. The re s ult s turned in b y employees were outstanding.

• During the summer months there were 41 day s of 90-deg or higher temperatures , almost twice the normal number for our s ervice area. The continuous hot weather resulted in a record summer demand for electricity , including a new all-time peak of 9 , 085 MW on July 23. Despite the demand, system reliability remained excellent throughout the period. Extended interruptions of customer serv ice (two minutes or longer) from May through Augu s t declined by over 10% compared to the s ame period in 1990. For the entire year, the number of customers interrupted for an extended period declined by 16 ,38 7 from 1990. This was the lowest number of extended interruption s si nce 1981 , when the customer base was much s maller. In large part , the electric busine ss was able to deal fully with the high demand becau se of the exceptional performance of its nuclear units. Although Salem Unit 1 was forced off line in June by a lightning s trike to the main power tran s former , work crews made the nece ssa ry repairs within a week and the unit was back performing at near-peak ity. Overall , the nuclear department' s Artificial I s land units performed at 89% capacity factor for the critical September time period.

• Performance of gas turbine generating units was especially good, with the lowest forced outage rate in recent years -seven percent. Our fossil fuel units also performed very well during the entire summer. On the day of our system peak of 9,085 MW , we were able to meet our own demand while selling 3 , 050 MW to New York and New England. In November, Salem Unit 2 suffered significant equipment damage when, as a result of a failure of protection devices, a turbine failure and fire caused severe damage to the unit's turbine generator. The incident occurred on the nonnuclear side of Salem 2. There was no impact on the nuclear side of the operations.

The unit's reactor was shut down safely and automatically.

It is estimated that the unit will return to service in the second quarter of 1992, and that the equipment repair costs could total between $65 and $75 million. Insurance is expected to cover most of this cost, as well as most replacement power costs .

• is outage of Salem 2 had only a modest effect on the pany's Nuclear Performance Standard results for the year. In the aggregate, the company's nuclear units achieved a 71 % capacity factor in 1991. This is a level at which no penalty or reward applies. ----------17 Other electric business highlights include: > Initiation of the Burlington#

10 Unit rehabilitation project. The existing combustion turbines will be replaced with clean, efficient , state-of-the-art models. In addition to lessening the environmental impact of the facility , improved efficiencies and a change in fuel from oil to natural gas will save approximately

$30 million per year. > Opening of an Electrotechnology Demonstration Facility at the Edison Training and Development Center. The facility performs product testing and demonstrations for industrial and commercial customers. It currently showcases two nologies -an ultraviolet curing system and an infrared oven. Customers can test actual product s, which help s them decide on the best technology for their needs. > Achievement of international recognition as a leader in the evaluation and application of robotic devices in the electric utility industry.

The technology put to use during the year saved between $2 and $3 for every $1 spent on hardware.

> Development by PSE&G of a combustion oil-water fication process to significantly reduce nitrogen oxide (NOX) emissions from combustion turbine generating units. NOX reductions of more than 50% were obtained using the fuel produced by this process. > Purchase of eight electric-powered General Motors service vehicles as part of a three-to-five-year test of performance, reliability, operating costs and design features. > Establishment of a statewide Emergency Response Center to be used by the BRC as a command center during major emergencie

s. PSE&G linemen (I.) joined in a count of prey fledglings hatched on company transmission towers near the nuclear plants. Compressors being in s talled at the Harri s on (c.) and Central ga s plant s will increa se peaking capacity and improve reliability and air quality. Performance of pany-operated nuclear plants continued to exceed national averages.

The capacity factor of the three plants was a record 78%. (Chart) Nuclear Perfo r mance Percent Capacity Factor 8 7 88 89 9 0

• PS E&G Op e r a t ed Nucl ea r Pl a nt s

• U.S. A verage for a ll Nucl ea r Pl a nt s 100 9 1 Gas hil e m a int a inin g a s t ro n g n a tu ra l gas m a r ke tin g p rogra m a nd co ntinuin g ca r ef ul cos t co nt ro l ef fort s , o ur gas bu s in ess a lso so u g ht o ut n o ntraditi o n a l utilit y ga s s al es o pp o rtuniti es durin g 1 9 91. W e c o ntinu e d to a g gr ess iv e l y m a rk e t th e adv a nt ages of n a tural g a s he a t for the hom e. Th e ef fo rt re s ult e d in a pp ro xim a t e l y 1 2 , 000 c onv e r s i o n s from o il h e at in th e r es id e ntial m a rk e t. Indu s tri a l a nd c o mmer c i a l co n ve r s i o n s acco unt e d fo r a dditi o n a l sa l es of 4 8.5 milli o n th e rm s of n a tu ra l gas fo r th e yea r. We e nt e r e d into a j oint ve nture w ith E li za b e tht own G as t o pro v id e 5 3 6 milli o n th e rm s of natur a l gas a nnu a ll y to a n o nutilit y ge n e rat o r o f e l ec tri c it y, a t a s it e in Eli za b e tht ow n's se rvi ce t e rrit o r y. This c u s t o m er h as th e ca p ac it y t o ge n era t e 614 MW of e l ec tri c it y , whi c h w ill b e t ra n s mitt ed b y ca bl e und e r th e Arthur Kill t o C o n so lid a t e d Ed i so n Co mp a n y in Stat en I s land. On ce thi s fa c ilit y i s in o p e rati o n , it w ill b e the l a r ges t gas u se r in N ew J e r sey , as id e fr o m o ur o wn ge n e rating unit s. The g a s unit a l s o in s t a ll e d thr ee miles o f 12" t ra n s mi ss i o n main to provid e n a tural g a s to two a dditi o n a l e l ec tri c coge n ea tion facilitie s in Sayrevill e. The tw o fa c iliti es w ill co n s um e a pproximately 3 8 0 million therm s o f n a tural gas p e r yea r. W e continu ed t o mak e h ea dw ay in th e n a tu ra l gas ve hicl e mark e t. N e w Jer sey B e ll T e l e phon e Compan y h as co n v ert e d 2 5 of it s fl e et ve hicle s t o compr essed n a tural gas fuel. W o rkin g with New J e r sey B e ll , PSE&G will in s tall a r e fu e ling s tation a t the telephone company's gara ge in N e w a rk. In 1991 , PS E&G put into o p e ration 30 of o ur own se r v i ce va n s fu e l ed b y n a tural g a s. In addition, a r e fueling s t a tion at NJ Tran s it's O ra n ge ga ra ge was o p e n ed t o se r v i ce fi ve n ew n a tur a l gas bu ses. Our d eve lopm e nt g roup , working w ith th e G as R esea r c h In s titut e, in s t a ll e d a nd m o nitor e d a n a tu ra l gas-po w er e d , en g in e-dri ven h ea t pump in M a pl ewoo d , as part of a n a ti owide s tud y. Th e pump i s d es ign ed to e nh a n ce cu s t o m er c o m fo rt b y maint a ining a mor e c o n s tant t e mp e ratur e th a n co n ve nti o n a l h ea ting a nd a ir conditioning e quipm e nt, a nd a t th e sa m e tim e ac hi e ve a low op era ting c os t. Th e bu s ine ss unit a l so wo rk e d w ith th e G as R esea r c h In stute to ho s t the field t es t o f a 25-t o n roo ft o p a ir conditionin g unit. Th e unit was in s t a ll e d a t th e gas di s t r i ct h ea dqu a rt e r s in O ra n ge. It is p owe r ed by a n a ut o m o ti ve e n g ine f u e l ed b y n ara l gas. If t es t s p rove s u ccess ful , th e m a nu fac tur e r of th e unit pl a n s t o go int o p ro du ct i o n. A m o ng o th e r gas bu s in ess hi g hli g ht s we r e: > U p gra din g of LPA (liquid p ro p a ne a ir) p e akin g fa ciliti es a t th e H a rri so n a nd C e ntral gas pl a nt s. LPA i s u sed to a u g m e nt n a tural g as s uppli es o n th e co ld est d ays of the w int e r , w h e n 1 d e mand for h ea tin g in h o m es a nd bu s in esses is a t it s p e ak. 18 Th e p ro j ec t e nh a n ces sys t em r e li a bil i ty a nd incr eases pl a nt e ffi c i e n cy. It a l so w ill r e du ce a ir e mi ss i o n s by e limin a tin g o il-fir ed b o il e r s. > Up g radin g se v e ral m e t e ring s tation s in c o njun c ti o n with tw o pip e line c omp a ni es. Filt e r s crubb e r s w e r e in s t a lled in th e sys t e m , r es ultin g in in c r e a s ed m e t e rin g ca p ac ity a nd a l s o in e nhanced produ c t qualit y. > C o ntinuin g work with th e N ew J e r sey D e p a rtm e nt o f En vronm e nt a l Prot ec tion a nd En e r gy (DEPE) to inv es ti g at e an. wh e r e nec ess ar y r e m e di a t e 38 form e r manu fa ctured g a s pl s it es. El eve n s it es w e r e w o rk e d o n in 19 9 1. Th e co mpan y ex p e nd e d a ppro x im a t e l y $8.3 milli o n o n it s Ga s Plant di a tion Program. Enterprise Diversified Holdings Incorporated A ss et s of the nonutilit y bu s in esses incr eased t o $2.8 billion a t yea r-e nd 1 9 91 , a 16.7% in c r eas e o ve r the 1990 ye ar-e nd l eve l of $2.4 billion. H o ldin gs' ass et s r e pr es ent e d a b o ut 19% o f Ent epri se's o ve rall asse ts a t the e nd o f 1991. While in th e p as t s e ve ral ye ar s H o ldin gs h as ex p e ri e n ce d g rowth in a sse t s , curr e nt plan s ca ll for Holdin gs a nd it s nonutility bu s in esses t o fo c u s th e ir e ffort s on ass et m a n age m e nt a nd m a intainin g portfolio s e sse ntially a t pre se nt l e v e l s. Th e ir pr i mar y objecti ve i s to in c re ase net incom e and improv e e a rning s perform a nce.

• Public Service Resources Corporation Public Service Re so urc es Corporation (PS RC) makes fied inve stme nt s in various sec tors s u c h as l everage d le ases, limited partner s hip s and m arketab le sec uriti es. Currently , approximately 56% of it s investments is in l everaged lease s, including energy-related project s (s uch as nuclear power plant s and the Merrill Creek Re se rvoir), a tion s satellite, commercial real estate, transportation ment , and modern wide-bod y, fuel-efficient , low-noise a ircraft. Some 24% of it s portfolio i s in limited partner s hip s, in cing intere s t s in so l a r electric ge nerating sys t e m s, venture catal and leveraged buyout funds , real estate partn ers hip s, a n ethylene production facility and sec uriti es investment partner s hips. In addition , about 20% of the portfolio i s inve s ted in equity and debt sec uritie s. During 1991 , PSRC continued to grow and diversify it s portfolio , increa s ing assets by 20% to $1.4 billion. .gy Development Corporation Energy Development Corporation (EDC), an oil and gas expration, development and production company ba se d in Houton , Texa s, continued to expand its proven re serve ba se in 1991 through a combination of ac qui s ition s and exploratory and development activities.

EDC's operated propertie s are ge nerally lo ca ted both onshore and offshore in the Gulf of Mexico area. Through severa l purchase s in 1991 , EDC acquired pro ven reserves amounting to 145 billion cubic feet equivalent in th e Gulf Coast and in th e Hugoton B as in of Oklah o ma a nd K a n sas, increasing its reserves by about 22%. Durin g 1991 , EDC's assets rose about 9% to $1.0 billion. During the s ummer , however , gas price s were at their lowest level in 15 years. As a result , EDC voluntarily curtailed spot gas sales. Enterpri s e Group Development Corporation Enterprise Group Developm e nt Corporation (EG DC) i s a real es tate development and inve s tment bu si ne ss that inv ests in commercial office, retail and indu s trial prop e rti es over a wide geographical area. During 1991 , becau se of depres se d real estate sa le s and rental and lea si ng markets, EGDC made no new co mmitment s for additional propertie s and concentrated on the completion and management of developed propertie s to maximize their lon g-term va lue. It ha s intere s t s in 12 properties in five s tat es, including office building s, warehouses and shopping ce nt ers. At year-end, EGDC's assets totaled $238 million. Allocation of Assets at December 31, 1991 Enterprise Total Assets $14.8 Billion Total assets of Enterprise grew by 5.7% in 1991, despite the continuing rece ss ion. Assets of the nonutility business increased by 16.7%. PSE&G

• E l ectric 69% *Gas 1 2% Holdings PSRC 9%

• EDC7%

• EG DC2% *CEA 1% 10.3 Billion 1.7 Billion 1 ,357 Milli o n 1 ,038 Milli o n 238 Milli o n 1 52 Million U nder the direction of Eve rett L. Morris (c.), pre si dent and chief operating officer of Holdings , the nonutilit y subsidiaries will focus on increasing net income and improving earnings performance. ring with Mr. Morris are Eileen A. Moran , president , PSRC , and John W. Nabial , comptroller, Holdings. 19 Community Energy Alternatives Incorporated At year-end 1991, Community Energy Alternatives rated (CEA), a developer of cogeneration and small-power projects, had invested in 23 projects , of which 17 were in operation.

These projects all have been undertaken through partnerships or joint ventures.

During the year, construction was started on the Newark Bay Cogeneration Facility , which will be fueled by natural gas and will have a capacity of 137 MW The Eagle Point Cogeneration Facility , which is fueled by natural gas and has a capacity of 225 MW, attained mercial operating status in May, 1991. CEA owns 50% of the Newark Bay and Eagle Point facilities. Also this year, a settlement was reached in an tal-related dispute over permits for the 27 MW small power production facility in Hanford , California, in which CEA owns a 50% interest.

As a result of the settlement , the plant resumed operation in August, 1991 , after an eight-month delay. The capacity of projects currently operating or under struction in which CEA has invested total 954 MW, of which CEA's share is 319 MW. Projects that are under active ment total 1,260 MW , of which CEA's share will be 384 MW. At the end of the year, CEA's assets totaled $152 million. 0 The Bay Area IV power plant in California (I.), a jointly-owned project of CEA, contributes to meeting conservation and environmental goals. Offshore oil and natural gas facilities (c.) are part of Energy Development Corporation's reserves, which have increased tenfold in four years. Purchase of power through the PJM grid system helps maintain low rates. (r.) The prise Board of Directors visited the PJM control center in October , 1991. 20

• 21 Management's Discussion and Analysis 28 Financial Statement Responsibility 29 Independent Auditor's Report 30 Consolidated Statements of Income 31 Consolidated Statements of Cash Flows 32 Consolidated Balance Sheets 34 Consolidated Statements of R etained Earnings 35 Notes to Consolidated Financial Statements 46 Consolidated Financial Statistics 47 Operating Statistics 48 Officers a nd Director s 49 Corporate and Stock Information

• 21 Management's Discussion and Analysis of Financial Condition and Results of Operations Following are the significant factors affecting the consolidated financial condition and the results of operations of Public Service Enterprise Group Incorporated (Enterprise) and its subsidiaries.

This discussion refers to the consolidated financial statements and related notes of Enterprise and should be read in conjunction with such statements and notes. Overview Enterprise h as two wholly-owned s ub sidiar i es, Public Service tric a nd Gas Company (PSE&G) and Enterprise Diversified ings Incorporated (Ho ldin gs). E nt erprise's principal subsidiary, PSE&G , is a n operating public utility providing electric and gas service in certain areas in the State of New Jersey. Holdings is the parent of Enterprise

's nonutility businesses

Public Service Resources Corporation (PSRC), which makes diversified passive vestments; Energy D evelopment Corporation (EDC), an oil and gas exploration, development and production company; Community Energy Alternatives Incorporated (CEA), an investor in and oper of cogenera tion and small power production facilities; a nd Enterprise Group De ve l opme nt Corporation (EG DC), a diversified nonresidential real estate development and in vestme nt business . Holdings also has two subsidiaries that provide debt financing:

PSE&G Capital Corporation (Capital), and Enterprise Capital ing Corporation (Funding). As of December 31, 1991 , PSE&G prised 81 % of Enterprise

's assets , 94 % of Enterprise's revenues and 95% of Enterprise's net income. Rate Matters -Base Rates On November 14, 1991, PSE&G petitioned the Board of Regulatory Commissioners of the State of New Jersey (BRC) for a $669 million increase in its electric and gas base rates, based on a t est year of the twelve months ending June 30, 1992. The overall 13.6% request calls for an electric revenue increase of $507 million or 14.9%, and a gas revenue increase of $162 million or 10.7%. The petition also asks the BRC to approve a return on common equity of 13.25% and a return on rate base of 10.89%. PSE&G is currently allowed a 13% return on common equity and 10.65% return on rate base. As of February 1993, PSE&G's current base rates will have been in effect for over six years, except for minor revisions to reflect tax law changes. Adequate and timely rate relief is needed by PSE&G to earn a reasonable return and maintain current credit ratings. Any rate relief i s not expected to be effective until l ate 1992 at the est. (See Note 2 -R ate Matters of Notes to Co n so lid ated Financial Statements

.) PSE&G Energy and Fuel Adjustment Clauses PSE&G has fuel and energy tariff rate adjustment clauses which are designed to permit adjustments for changes in electric energy and gas supply costs, as approved by the BRC, whe n compared to l evels included in base rates. Charges under the clauses are based upon energy and gas s uppl y costs which are normally projected over twelve-month periods. The changes in the Levelized Gas Adj u stment Cla u se (LGAC), and the electr i c Levelized Energy Adjustment Clause (LEAC) do not directly affect earnings because such costs are adjusted monthly to match amounts recovered through revenue s. However, the carrying of underrecovered fuel costs ultimately creases financing costs. Under the clauses, if actual costs differ from the costs recovered, the amount of the underrecover y or recovery is deferred and is reflected in the average cost used to determine the fuel and energy tariff rate adjustment for the period in which it is recovered or repaid. In addition, actual costs otherwise includable in the LEAC are subject to adjustment by the BRC in accordance with PSE&G's nuclear performance s tandard. PSEr.G Gas Plant Remediation Program The overall costs of investigation and remediation of PSE&G's former manufactured gas plant sites (Remediation Costs) cannot be reasonably estimated, but experience to date indicates that costs of at least $20 million per year could be incurred for a period of more than 20 years and the overall costs could be material.

In accordance with a Stipulation approved by the BRC on January 21, 1992 , PSE&G will recover $15.9 million of s uch Remediation Costs during the 1991-92 LGAC period and $7.9 million in each of its next four LGAC period s ending in 1996 , net of insurance recoveries. The current base rate case will evaluate the reasonablenes s and regulatory ment of the Remediation Cost s covered by this Stipulation.

As of December 31, 1991 , PSE&G had incurred $28 million of s uch diation Costs and recorded a l iability of $108 million for 1992-1995. Any reasonable estimate of Remediation Costs to be incurred be yo nd this time cannot be made. Absent insurance recovery , denial of the recovery of any unamortized balance of suc h costs by the BRC would require an immediate write-off. (For additional information see Note 11 -Commitments a nd Contingent Liabilities

-PSE&G Manufactured Gas Plant Remediation Program , of Notes to dated Financial Statements.)

Consolidated Tax Benefits The BRC does not directly regulate Enterprise's nonutility activities.

However , in a case in which neither Enterprise nor PSE&G were parties, the BRC approved a settlement that treat s certain tax lo sses generated by nonutility busine sses and included in the consolidated return of a utility holding company as a reduction of that utility's rate base. Historically, the Internal Revenue Service (IRS) had taken the view that such action would violate its normalization rules , but has apparently withdrawn from this po si tion. The recognition of any portion of the consolidated tax losse s in setting utilit y rates would reduce PSE&G's revenue s and net income and therefore result in a reduction of the net income of Enterprise.

Enterprise believes that PSE&G's taxes should be treated on a s tand-a lone ba s i s for ing purposes , based on the separate nature of the utility and utility businesse s and prior BRC decisions.

However , neither Enterprise nor PSE&G i s able to predict what action, if any , the IRS or the BRC may take concerning consolidation of tax benefits , or the effect, if any, on Enterprise or its affiliates of any s uch action. New Jer s ey Gross Receipts Taxes PSE&G , as well a all other New Jersey electric and gas utilities , pays a New Jersey Gross Receipts and Franchise Tax (NJG RT) that, in effect, adds approximately 13% to the bills of most utility tomers and creates a competitive advantage for nonutility generators and supplit::rs.

Increased access of large volume electric and gas customers to nonutility sources not subject to NJGRT, including coge neration and gas transportation serv ic e, could result in a scant decrease in PSE&G's revenues and earnings. On June 30 , 1991 , New Jersey enacted legislation that , effective January 1 , 1992 , r placed the revenue based NJGRT with a unit tax based on electric kilowatthour sales and gas therm sa les. Over a period of severa l years, this unit based tax s hould diminish the competitive advantage alternative energy suppliers enjoy over utilitie s in New Jer sey. For additional information see Liquidity and Capital Re so urces -Capital Requirements

-PSE&G. Net Income Earnings per share of common stock were $2.43 in 1991 , $2.56 in 1990 and $2.62 in 1989. The changes are summarized as follows: (M illi o n s of Dollars except per s hare amounts) PSE&G R eve nues (n et of fuel costs and gross receipts taxes) Capacity deficiency credit Other operatio n expenses Maintenance expenses Depreciation and Amortization expe n ses Int eres t charges Federal in co me t axes Other taxe s Other income and expenses Total Holdin gs Net Income Effect of additional s h ares of Enterprise common stock issued Total 1991 vs. 1990 1990 VS. 1989 Cents Cents Amount per Share Amount per Share $ 147 $ .68 (1 1) (.05) (23) (.10) (29) (.14) (2 1) (.10) (14) (.07) (53) (.24) 7 .03 5 .03 8 .04 (6) (.03) $ 2 .01 (.14) $(.13) $ 32 11 (55) 30 (17) (10) 4 (7) 5 (7) 7 $-$ .15 .05 (.26) .15 (.08) (.05) .02 (.03) .02 (.06) $(.06) The Average Shares of Common Stock Outstanding were 223,565,239 for 1991 , 211,981,434 for 1990 and 206,878,500 for 1989. PSEr.G The increa se in PSE&G's net income during 1991 was due principally to increa se d revenue s re s ulting from a 3.1 % increase in electric kilowatthour sales re s ulting from the warmer weather durin g the seco nd and third quarters of 1991 and an increa se of 14.5% in gas therm sales resulting from the cooler weather during the first quarter of 1991. Partially offsetting the incr ease in revenue s were hi g her federal income taxes , hi g her maintenance costs due to a refueling outage at Hope Creek nuclear generating s tation , higher nuclear production expenses, labor and employee benefits costs, intere s t charges and depreciation and amortization expenses.

The increase in net income , being principally du e to weather-related sales, i s not nece ssa rily indicative of future re s ults. Any increa se in future ings will be principally dependent on increased sa le s and rate relief, neither of which can be assured. 22 The decrease in earnings in 1990 compared to 1989 was due primarily to lower electric kilowatthour sa les in 1990 of 1.5% r. s uiting principally from the cooler su mm er weather, when com to 19 89, and a decrease in firm gas r eve nue s of 10.7% due to the 1990 warm weather , higher labor and pension costs, uncollectible c u stomer accounts, interest expe n se and depreciation and amortization expenses.

r di sc u ss i o n of c e rt a in o th er m a tt e r s th at m ay a ff ec t f utur e n e t inc o m e, see N o t e 11 -C o mmitm e nts a nd Co ntin ge nt Li a biliti es of N o t es t o Co n so lidat e d Fin a n c i a l St a t e m e nt s. Holdings Th e n e t in co me of H o ldin gs was $28 milli o n in 1 99 1 , a d ec r ease o f $6 milli o n fro m 19 9 0 , a nd r e pr ese nt e d 5% of E nt e rpri se's 1 99 1 n e t in co m e. Th e d ec r ease in H o ldin g's n et in co m e was d u e pri mar il y t o l ower n e t in co me a t E D C of$1 6 milli on r es ultin g fr o m c urt a ilm e nt of n a tu ra l gas sa l es du e t o l owe r pri ces a nd a $5 milli o n in crease in EGD C's n et l oss, prin c ipall y du e t o a prop e rt y writ e-off. P a rti a ll y off se ttin g thi s d ec r ease w as PSRC's hi g h er n e t in co m e of $14 l ion , prin c ip a lly r es ultin g fr o m incr ease d in co me o n it s in ves tm e nt s. E DC se lls a s i g nificant p o rti o n of it s gas in the s p ot m a rk e t. Sp o t m a rk e t pri ces for natural gas durin g 19 9 1 d ro pp ed to a 15-yea r l o w. Su c h pri ces a r e ge n e rally a ff ec t ed by s upply a nd d e m a nd , co mp e tin g e n e r gy so ur ces (s uch as o il), a nd seas on a l fac t o r s, includin g w ea th e r. As a r es ult of l o w g a s pri ces durin g 1 99 1 , E D C s i g nifi ca ntly c urt a il e d it s n a tu ra l gas sa l es. Pri ces durin g 1 992 a r e ex p ec t ed t o rm a in d e pr esse d a nd f urth er c urt ai lm e nt s m ay occ ur. Co ntinu a t io n of th e soft n a tu ra l gas m a rk e t co uld r es ult in E D C be in g r e quir ed t o writ e d o wn a p o rti o n o f th e b oo k cos t of i ts r ese r ves in the f utur e , whi c h writ e-d o wn c o uld b e m a t e rial. For in fo rm a ti o n co n ce rnin g PSRC's $3 4 milli o n in ves tm e nt in Se co nd N a ti o n a l F e d era l S av in gs B a nk , see N o t e 11 -Co mmitm e nts a nd Co ntin ge nt Li a biliti es -Publi c S e r v i ce R eso ur ces Co r-_.o n of N o t es t o Co n so lid a t e d F in a n c i a l St a t e m e nt s. D C co ntinu es t o see a d e t e ri ora ti o n of th e r ea l es t a t e m a rk et a ll y, including a sof t e ning of d e m a nd for r e nt a ble s p ace i n man y of th e m a rk e t s in whi c h it o p era t es. E GD C m a n age m e nt ex-p ec t s th e r es ultin g d ow n wa rd tr e nd in r e nt a l ra t es co mbin ed w ith fi xe d o r in c r eas ing o p era tin g cos t s, t o co ntinu e t o n ega ti ve l y i m pac t ea rnin gs, t o r e quire a d d iti o n a l f undin g of p ro j ect l oa n s t o m eet deb t cove n a nt s a nd t o r e du ce f utur e ga in s , if a n y, up o n a n y di s p os iti o n of prop e rti es. Fo r inform a ti o n co n ce rnin g th e acce l e rati o n o f a n o nrc our se l oa n to a partn e r s hip proj ec t in whi c h EGD C ha s in ves t e d a ppro x im a t e l y $2 6 million , see N o t e 11 -Co mmitm e nts a nd Co nti ge nt Li a biliti es -E nt e rpri se G ro up D eve l o pm e nt Co rp ora ti o n of N o t es t o Co n so lid a t e d F in a n c i a l Sta t e m e nt s. Sou rc e of 1991 R e venue s P e r D o ll ar * .68 Elec t ri c R eve n u es * .26 Gas R eve nu es * .06 Di ve r s ified R eve nu es D is t ri butio n of 1991 Revenues Per Do ll ar .28 Fu e l , Pur c h ase d P owe r & Gas * .1 8 T axes * .1 3 Materia l s and Servic es * .1 3 Reinv es ted in Bu s ine ss * . I O Divid e n d s * .09 Sa l ar i es & W ages * .09 I nt e r es t 23 Th e n e t in co me of H o ldin gs w as $34 milli o n in 1990 a nd $2 7 milli o n in 1 989, r e pr ese nting a pproxim a t e l y 5% o f Ent e rpri se's n e t inc o m e in ea ch of tho se yea r s. H o ldin g's n e t in co m e in c r ease d durin g 1 99 0 co mp a red to 1 98 9 du e prim a ril y t o EDC's hi g h e r produti o n a nd sa l es o f natural gas r es ultin g fr o m it s acqui s ition o f a gas a nd o il co mp a n y in N ove mb e r 1 989 a nd th e ac qui s iti o n of p ro du c in g n a tu ra l gas we ll s in l a t e 1 990 , p a rti a ll y offset b y vo lunt a ry c urt a ilm e nt s o f gas p ro du c ti o n a nd sa l es b y E DC d u e t o l ow gas pri ces b eg innin g durin g 1 990 a nd b y l ower n e t in co m e of PSR C du e to a l ower r e turn o n in ves tm e nts a nd hi g h e r int e r es t ex p e n se. H o ldin gs h as adopt e d a bu s in ess s trat egy wh e r e b y asse t gro wth will b e h e ld to e xi s tin g ca pit a l c ommitm e nts a nd asset r e pl ace m e nt , as th e n o nutility s ub s idi a ri es co nc e ntrate o n improving o p e rati o n s a nd m a n ag ing e xi s tin g p o rt fo li os in a n e f fo rt t o incr ease profit a bilit y. Futur e ea rnin gs will b e d e p e nd e nt o n a numb e r o f fact o r s, in c ludin g th ose di sc u sse d ab ove. (Fo r a dditi o n a l in fo rm a ti o n , see Liquidit y a nd Ca pit a l R eso ur ces.) Dividends The a bilit y of E nt e rpri se t o d ecla re a nd p ay di v id e nd s i s co ntin ge nt up o n it s r ece ipt o f di v id e nd p ay m e nt s fro m its s ub s idi a ri es. P SE&G h as m a d e reg ul ar c ash p ay m e nt s t o Ent e rpri se in th e form o f di v id e nds o n o ut s t a nding s har es o f it s c o mm o n s tock s ince Ent e rpri se w as fo rm e d in 19 8 6. Divid e nd s p a id t o h o ld e r s of Ent e rpri se's Com o n St oc k in c r ease d $3 4 milli o n durin g 1 99 1 co mp a r e d t o 1 99 0 a nd $1 8 milli o n durin g 1 99 0 co mp a r ed t o 1 989. Th e in crease in di v id e nd p ay m e nt s durin g 1 99 1 , 1 990 a nd 1 989 was du e t o th e i ss u a n ce of a ddi t i o n a l s h a r es of E nt e rpri se Co mm o n St ock a nd a o n e ce nt p e r s h a r e in c r ease in th e qu a rt e rl y ra te o f di v id e nd s p a id in eac h o f th ose yea r s. Revenues PSE&G -Electric R e v e nu es in c r e a se d $1 68 milli o n o r 5.0% durin g 1 99 1; 1 99 0 r eve nu es in c r ease d $5 3 milli o n o r 1.6% co mp a r ed t o 1 98 9. The s i g nifi ca nt co mp o n e nt s of th ese c h a n ges fo ll ow: I n c re ase o r (De c r ease) (Milli o n s of D o llar s) 19 9 1 VS. 1 990 1 990 vs. 19 89 Ki l owa tth o ur sa l es $ 77 $(1 6) Pea c h B ottom reve nue c r edi t s (I) 50 Changes in ba se ra t es (T R A-86) 25 24 Re cove r y of energy cost s 49 (4) Gro ss r ece ipt s taxes ( JG R T) 19 5 O th e r r eve n ue s (I) (6) To t a l E l ec tri c Reve nu es $1 68 $ 53 19 9 1 -R eve nu es incr ease d in 1 99 1 prim a ril y du e to a 3.1 % in c r ease in k il owa tth o ur sa l es r es ultin g fr o m coo l e r w int er w ea th e r a nd war m er spr in g a n d s um me r we a th e r compa r e d w i t h 1 990. T h e hi g her recove r y of e n ergy costs a n d h i g h er g ros s rece i pts taxes a re bot h a re s ult of th e h ig h er sa l es vo lu me , w hil e base rate i ncrea ses effect i ve Se pt e mb e r 5 , 1 990 a n d Ja nu ary 1 , 1 991 r e fl ec t th e ex pi rati o n of the a m o rti z ati on r e l a t ed t o th e T ax R efo rm A c t of 1 986 (TR A-86). (See N o te 2 -R a t e M a tt e r s of N o t es t o Co n so lid a t e d F in a n c i a l S t a t e m e nt s.) 1 990-R eve nu es in c r eased in 1 99 0 co mp a r ed t o 1 989 as a r es ult of co mpl e ti o n of r e fund s of r eve nue c r e dit s to c u s t o m e r s in 1 989 in acco r da n ce w ith a 1 989 BRC S tipul a ti o n a ppli ca bl e t o th e ex t e nd e d o ut age of th e P ea ch B o tt o m nucl ea r ge n era ting s t a ti o n , the e nd of reve nu e cred i ts a tt ri bu tab l e to t h e T R A-86 and the increase in ba se ra t es, effec t ive Septem b er 5 , 1990. C h a n ges i n ki l owatt h o u r sa l es by customer category are de s cribed be l ow: R esidential Commercial I ndu s tr i al I ncre ase or (Decrea se) 1991 vs. 1990 6.4% 3.2 (0 5) 1990 vs. 1 989 (08)% 0.6 (5.8) 199 1 -Th e 3.1 % r ise in t o t a l k il owa tth o u r sa l es in 1 99 1 was d u e pri ma r i l y to wea th e r-se n sit i ve sa l es. Th e residentia l a n d commercial ca t ego ri es we re a l so b o l s t e r ed b y the s li g ht i n c r ease in average c ut o m e r s. Th e indu s tri a l sec t o r co ntinu ed t o decl in e du e t o th e effec t of th e eco n o mi c r ecess i o n a nd in c r ease d com p e titi o n from n o nutili ty ge n e r a t o r s. 1 99 0 -T o t a l kil o w a tth o ur sa l es d ecl in e d 1.5% in 1 990 co mp a r ed t o 1 989 r es ultin g fr o m th e l oss of wea th e r-se n s iti ve sa l es du e t o wa rm e r wint e r wea th e r a nd coo l er s umm er wea th e r durin g 1 990. Th e indu s tri a l sec t or d ec r ease r e fl ec t ed th e s l owdow n of New J e r sey's eco n o m y , th e l oss of t wo l a r ge c u s t o m ers t o coge n era ti o n co mp e tit o r s in July a nd Se pt e m ber 1 989, th e t e m porary sc h ed ul e d s hutd ow n of a majo r c u s t omer's faci lit y from April t o Jul y 1 990 a n d th e l oss of o ne w h o l esa le c u s t omer. PSE&G-Gas R eve nu es in c r ease d $7 1 mill io n o r 5.7% dur i n g 1 99 1; 1 990 reve n ues d ec r ease d $1 26 milli o n o r 9.2% co m pa r ed t o 1 989. The s i g ni fica n t co mp o n e nt s of the se c h a n ges fo ll ow: (Mi ll io n s of Do ll ars) T h erm sa l e s Change s in base rates (T R A-86) R ecove r y of fuel cos t s Gros s r eceip t s t axes (N J G R T) Othe r o p e r a t i n g reve nu es Tot a 1 Gas R evenu es Increase or (D ecrease) 199 1 vs. 1 990 $31 5 1 7 7 II $7 1 J 990 VS. 1 989 $(31) (87) (20) 12 $(126) 1 991 -R eve nu es in c r eased du e t o th e 1 4.5% ri se in th e rm s so ld o r t ra n s p o rt e d. C o ld e r wea th er e nh a n ce d fi rm gas sa l es. In a dditi o n , th e rm s al es for c o ge n era ti o n a nd gas t ra n s p o rt e d fo r o th e r s in c r ease d s i g nifi ca ntl y ove r 199 0. R ecove ry o f f u e l cos t s r e fl ec t e d a n in crease in th e LGAC c h a r ge co upl e d w ith a hi g h er l eve l of th er m sa l es. Hi g h e r NJGRT were th e r es ult of th e hi g h er l eve l of th er m sa l es. Oth e r o p era tin g r eve nu es, p rima r i l y r eve nu es from gas t ra n s p or t ed fo r o th e r s, in c r ease d as t h e vo lum e of gas tra n s p o rt ed m o r e th a n d o ubl e d. 1 990-R eve nu es d ecl in e d as a r es ult of 6.3% l owe r th e rm s so ld o r t ra n s p o rt e d du e t o th e r ecord-setti n g wa r m weat h e r in 1 990. P a rti a ll y offse tt i n g th is d ec r ease in t h erm sa l es was an in c r ease i n ot h er o p e r a tin g reve nu es , prim ar il y r es ultin g fro m th e sa l e of gas t o t wo coge n e rati o n pl a nts a nd a n in c r ease in c u s t o m e r s. Ch a n ges in th e rm sa l es by c u s t o m e r ca t egory are d esc rib ed b e l ow: Re s idential Commercial Industrial Tran s p o rtat i o n Service I ncrease or (Decrease) 1 991 vs. 1990 4.0% 6.6 17.0 1 09.5 1990 VS. 19 89 (12.5)% (4.0) (0.4) 21.7 1 99 1 -To t a l t h e r m sa l es, in clud in g tra n spor t a t ion service, were 14.5% above las t year. Weat h er-se n sit i ve r eside nt ia l a n d comme r cial sa l es in crease d du e t o th e co ld er wea th e r in 1 99 1. Int e rru p tibl e sa l es in th e comme r c i a l a nd indu s tri a l classifica ti o n s we r e d ow n re fl ec tin g m ove m e nt of so me c u s t o m e r s t o th e t ra n s p o rt a ti on serv i ce sa l es ca t ego r y. Coge n era ti o n sa l es in th e comme r c i al a nd indu s tri a l ca tgories in c r ease d 22.0% a n d 93.4%, r es p ec ti ve l y. In a dditi o n , th ere was a n i n c r eas e in th e u se of gas b y fi rm co mmer c i a l c u s t o m e rs a nd r es id e nti a l c u s t o m e rs w ith h ea tin g. Coge n e rati o n sa l es durin g 1 99 1 co mpri sed 1 9.4% of co mm e r c i a l sa l es a nd 45.6% of indu s tri a l sa l es. T ra n s p o rt a ti o n se r v i ce sa l es m o re t h a n do ubl ed r e fl ec tin g b o th c u s t o m er grow th thi s yea r a nd r eso luti o n of t h e pri or year's p ip e lin e s uppl y co n s t ra int s. 1 9 9 0-T o t a l therm sa l es, includin g t ra n s p o rt a ti o n se r v i ce, w e r e r e du ce d fr o m 1989 du e t o th e r eco rd-se ttin g w a rm w int er w ea th e r. Th e indu s tri a l sa l es d ec r ease w as du e t o the s l o wd ow n in th e m afac turin g sec tor of N ew J e r sey's eco n o my a nd th e m ove m e nt of so me c u s t o m e r s t o t ra n s p o rt a ti o n se r v i ce. Indu s tri a l coge n era ti o n sa l es in c r ease d 65.1 % a nd co mpri se d 27.6% o f indu s tri a l sa l es in 1 990. 24 Electric Kilowatthour Sales P e r ce nt 26.9 27.1 28.0 89 90 9 1

• R eside nti a l

• In du s t ria l

• Co mm erc i a l Nonutility Activities Gas Therm Sales P e r ce nt 50.8 35.3 89 90 R es i de nti a l

• Com m e r c i a l ** 48.2 46.9 36.8 36.7 9 1

• In d u s t r i a l R eve nu es in c r ease d $5 4 milli o n in 1 99 1 over 1990 a nd $68 m i ll io n in 1 990 ove r 1989. EDC was th e l a r ges t co ntribut or t o hi g h er rnu es in b o th 1991 a nd 1990 as it s gas sa l es c ontinu ed t o in c r ease d es pit e vo luntar y curt a ilm e nt s r es ultin g fr o m depr esse d s p ot m a rk e t pri ces fo r g a s. (S ee N e t In co me -H o ldin gs.) PSRC's in co m e fr o m in ves tm e nt s co nt r ibut e d s i g ni fica ntl y t o H o ldin gs' in c r eased r evenu es durin g 1991. CE A's m o d es t in c r ease in r e v e nu es was du e t o hi g h e r proj e ct in co m e. E GDC's r e v e nu es for 1991 d e clin e d fr o m 1990 as lo ss e s from p a rtn e r s hip s in c r ease d from th e pri o r ye ar. Th e incr e a s e in rev e nu es durin g 1 99 0 o v e r 19 89 w as du e prim. to E D C's incre ase d sa l es of n a tural gas a nd oil r es ultin g fro m it s ac qui s iti o n of a gas a nd o il co mp a n y in N ove mb er 1 989 a nd th e acq u isi t io n of p rod u ci n g gas l eases in Lo u isia n a in O ctobe r 1990 , a n d P S R C's hi g h e r in ves tm e nt i n co m e.

Electric energy costs in creased $64 million or 9% in 1991 compared to 1990 and decreased

$23 million or 3% in 1990 compared to 1989. The s i g nifi cant components of these changes fo ll ow: (Millions of Dollars) Change in prices paid fo r fuel and power purchases Kil owattho ur ge n erat i on Adjustment of actual costs t o match recoveries throu g h revenue s (A) T o tal E l ectric Energy Costs In crease or (Decrease) 1991 vs. 1990 $122 1 7 (75) $ 64 1 990 vs. 1989 $(55) (1 3) 45 $(23) (A) Refl ec t s the c han ge in the deferred ove rrec ove r ed e n ergy costs , which in th e years 19 9 1 , 1990 and 1989 amounted t o $5 million , $80 million and $35 million. respe c tiv e l y. (See PSE&G Energy and Fuel Adjustment Clauses.)

1991 -The increase was primarily due to increa se d tive load with a corresponding megawatthour increase of 3% over 1 990 due to purchase power agreements with other utilitie s and cogeneration purchases. 1990-T h e decrease was primarily due to the weather a nd the economic slowdown in New J ersey and PSE&G's abi lity to optim i ze it s mix of int e rn a l energy sources. *Supply Costs upply costs increased

$10 million or 2% in 1991 and decrea sed $84 million or 12% in 1 990. The significant components of the se changes fo ll ow: (Millio n s of Dollars) Change in prices paid for gas supplies Therm sendout Refunds from pipeline supp l iers Adjustment of ac tual costs to match recoveries throu g h revenues (A) Total Gas Supply Costs In c r ease or (Decrea se) 1991 vs. 1990 $(26) 54 40 (58) $ 10 1990 VS. J989 $(1 8) (69) (9) 12 $(84) (A) R eflects the c h ange in the deferred (underrecovered

)/overrecovered gas supply cos t s, which in th e years 1991 , 1990 and 19 89 amounted to $(32) million , $26 million and $14 million , respectively. (See PSE&G Energy and Fuel Adjustment Clau ses.) 1991 -The increase was due to weather-sensitive firm sales, creased sales to cogenerators and higher vo lum es of transported gas. 1990-Gas s uppl y costs declined primarily due to the warmer winter and spring weather. Liquidity and Capital Resources Overview Enterprise's liquidity is affected by maturing debt , Holdin gs' ments and acquisition activities and the capital requirements of *G's construction program. Capital resources avai l able to meet equirements depend upon general and regional economic tions , PSE&G's customer growth, the adequacy of timely rate relief to PSE&G and continued access to the capital markets. 25 Capital Requirements PSE&G For 1991 , PSE&G had utilit y plant additions, exclud in g allowance for funds u sed during construction (AFDC) of $783 million, a crease of $151 million versus 1990 additions of $934 million. 1990 additions increased

$290 million over 1989 additions of $644 million. The increase in 1990 reflect s the acquis ition of a 42.49% undivided interest in nuclear fuel for Peach Bottom by PSE&G's owned subsidiary, PSE&G Fuel Corporation (Fuelco) for $156.7 million on June 29, 1990. A ll owance for funds used during struction for 1991 , 19 90 and 1 989 amoun t ed to $30 million , $34 million and $30 million , respectively. Constructio n funds were u se d to continue to impro ve PSE&G's existing power plants , transmi ss ion and distribution system, gas system and common faci liti es. The construction expendit ur es from 1 992 through 1996 a r e expected to aggregate

$4.8 billion. (See Enterprise Construction , Investments and Other Capital Requirement s Forecast below.) PSE&G expects that it will be able to ge nerate internally a mity of its capital requirement s including construction expe nditure s over th e next five years , assuming adequate rate relief. (See R ate Matters -Base R ates and Note 2 -Rate Matters of Notes to solidated Financia l Statements.)

Legislation effective January 1 , 1992, wi ll phase in an tion of NJGRT unit tax during 1992-94 , so that for 1994 and for eac h year th ereaf t e r PSE&G will be payin g i ts estimated current year's NJGRT liability in April of s uch year. PSE&G currently p ays its NJGRT in arrears during the year following the year of collection from customers in approximately three equal payments.

This in will require PSE&G to pay it s 1991 NJGRT tax liability in Apri l , 1992 with one payment a nd to pay a pproximately 150% of its mated annual NJGRT liability in each of the years 1993 and 1994. PSE&G has requested that the BRC allow for the timely recovery in rates from its electric and gas customers of any costs , primarily financi n g costs attributable to the acceleration of payments , ciated with this le gis lati on, althoug h such recovery cannot be sured. (See New Jersey Gros s Receipts Taxes.) Holdings Holding s' inve s tment in oil a nd gas propert y, plant and equipment increased by $100 million in 1991 , compared to a $187 million increase in 1990. Holding s' inve st ment in PSRC's investment s creased by $232 million in 1991 , compared to a $333 million crease in 1990. Holdings' investment in EGDC's real estate property and investments increa sed by $18 million in 1991 , compared to a $25 million increase in 1990. PSRC is a limited partner in two leveraged buyout funds and is committed to make investments from time to time , upon the request of the general partner , in s u ch amounts as the genera l partner may require up to an aggregate of $250 million. As of December 3 1 , 1991 , $1 34 million had been invested in suc h funds and $116 million remained as PSRC's unfunded commitment subject to call. EGDC and three of the joint ve ntur es in which it is a partner are also currently negotiating to extend or replace certain financings which are maturing before December 31, 1992. Such l oans aggregate

$11 8.7 million, of which EGDC's share i s $77.7 million. Failure to extend or replace existing nonrecourse loan s at the currently sta n ding l oan balance , or at current intere s t rates , may result in an increa se in the amount of capital which EGDC will require. For

information see Note 11 -Commitments and Contingent Liab1ht1es

-Enterprise Group Development Corporation of Note s to Consolidated Financial Statements. CEA's projects are financed with construction and term loans which are typically nonrecourse to the partners. In certain instances the may need to refund and replace loans (typically

' construction loans) as they mature. Holdings has guaranteed CEA's 50% share ($80.6 million) of one such construction loan which March 31, 1992. Failure to extend or replace this loan in the ex1stmg amount when it matures may result in an increase in the amount of capital which CEA will require. In 1991, CEA and its partners converted a total of $238 million of debt from construction to nonrecourse term financing. . Over the next several years , Holdings is expected to meet a ity of it s capital requirements from operating cash flows. Holdings and will also be required to refinance maturing debt. Any mab1hty to extend or replace maturing debt at current levels and interest rates may affect Holdings' future earnings and result in an increase in the cost of capital required by Holdings.

Holdings and each of its subsidiaries are subject to restrictive business and financial covenants con t ained in existing debt me?ts and are required to not exceed various debt to equity ratios which vary from 3: I to 2: I. Holdings is also required to maintain a twelve months earnings before interest and taxes to interest (EBIT) coverage ratio of at least 1.35: I. As of December 31, 1991 , 1990, and 1989, Holding s h ad debt to equity ratios of 1.68: 1 , I. 98: I and 1.98: 1 and , for the years ended on those dates , EBIT ratios of 1.39: I , 1.42: I and 1.41: I , respectively.

Compliance with applicable financial co_venants will depend upon future level s of earnings , among other thmgs, as to which no assurance can be given. (See Net Income -

and Enterprise Construction, Inv estments and Other tal Reqmrement s Forecast and Note 5 -Schedule of Consolidated Long-Term Debt and Note 10-Short-Term Debt (Commercial Paper and Loans) of Notes to Consolidated Financial Statements

.) Enterprise Construction, Investments and Other Capital Requirements Forecast The estimated construction, including Allowance for Funds Used during Construction (AFDC), investments and other capital ments of PSE&G and Holdings for 1992 through 1996 are based on expected project completion dates and include anticipated escalation due to inflation of approximately 4% for utility projects and are as follows: (Millions of Dollar s) PSE&G Electric Nuclear Production Faci lit ies Nuclear Fuel Transmission and Distribution Other Production Total Electric Gas Production Facilitie s Transmission and Distribution Total Gas $ 1992 1993 147 $ 135 $ 95 92 266 271 246 358 754 856 10 2 140 122 150 124 1994 1995 1996 Total 108 $ 118 $ 114 $ 622 79 108 102 476 252 250 252 1 , 291 330 194 300 1 , 428 769 670 768 3,8 17 4 2 2 20 125 115 120 622 129 117 122 642 Mi sce llaneous Corporate 65 67 64 66 Total Construction Requirements of PSE&G (including AFDC) (A) 969 1 ,047 962 853 964 4,795 Holding s Investment s of Non-utility Subsidiaries (including Capitalized Intere st) 78 210 195 187 102 772 Mandatory Retirement of Securities

PSE&G 418 212 212 62 363 1 , 267 Holding s 2 201 206 259 91 759 420 413 418 321 454 2,026 Working Capital and Other -net 114 270 214 40 20 658 Total Capital Requirements

$1 , 581 $1,940 $1 , 789 $1 ,40 1 $1 , 540 $8 , 251 (A) PSE&G's AFDC (included above) $ 38 $ 53 $ 71 $ 41 $ 37 $ 240 While the above estimate includes capital costs to comply with revised Clean Air Act (CAA) requirements through 1996, it does not include additional requirements being developed under the CAA by Federal and State agencies.

Such additional costs cannot be ably estimated at this time , but could be material.

PSE&G will quest the BRC to allow the recovery of all such CAA costs from electric customers. Not included in PSE&G's estimated construction expenses is. capital cost of compliance with the New Jersey Department of _ ronmental Protection (now known as the Department of mental Protection and Energy (NJDEPE) Draft Permit issued October 3 , 1990 pursuant to the Federal Water Pollution Control Act with respect to Salem Generating Station which , if adopted as posed , would require the immediate shutdown of both Salem Units pending retrofitting the Station with cooling towers. PSE&G believes that cooling towers are not needed and cannot be l egally required 26 and is prepared to pursue all available legal remedies.

Nevertheless , if cooling towers are ultimately required , PSE&G estimates that it would take at least four years, and between $1 billion and $2.7 billion in capital, operation and maintenance costs and replacement power costs to retrofit Salem with cooling tow e rs. PSE&G owns 42.59% of Salem and would be responsible for its s hare of such costs. PSE&G will request the BRC to allow the recovery in rates from electric customers of all costs associated with constructing cooling towers at Salem. Also included are any expenditures that may be necessary to comply with any new regulatory requirements and to address public concerns associated with electric and magnetic fields, which amounts cannot be determined at this time , but could be material.

See also Note 11 -Commitments and Contingent Liabilitie s of Notes to Consolidated Financial Statements. Internal Generation of Cash from Operations Although net income increased

$2 million (See Net Income and Revenues), Enterprise

's net cash provided by operating activit *. e decreased

$82 million to $1.21 l billion for 1991 from 1990. decrease was primarily due to decrease s in accounts payable , nat gas refunds to customers and increases in acco unt s receivable. tially offsetting these cash outflows were decreases in fuel and terials a nd s upplies inventories , increases in deferred income taxes and sma ller decreases in accrued taxes.

1990, Enterprise

's net cash provided by operating activities increased

$159 million from 1989 to $1.293 billion. This increase was primarily due to increased collections of accounts receivable and the greater recovery of e l ectric energy and gas costs through PSE&G's LEAC and LGAC. Partially offsetting these cash inflows were increases in fuel and material s and supplies inventorie s, creases in accrued taxes, and decrea se d proceed s from PSRC's leasing activities.

External Financings Cash Flows from Financing Activities (Mi llion s of Dollars) 1 991 1990 19 89 Enterprise:

I ss u a nce of Common Stock (A) $ 219 $ 185 $ 148 Cash Dividend s p aid o n Common Stock (476) (442) (424) PS E&G: (B) Net (decrease) increase in Short-Term Debt (32 l)(C) 159(C) 138 I ss u a n ce of Long-Term Debt 750(D) 250 100 Redemptions of Long-Term Debt and Other Obligations (17 1) (57) (59) Other 5 6 6 Total PS E&G 263 358 1 85 H o ldin gs:(E) Net (decrease) increase in Short-Term Debt (49) 56 88 I ss u a nce of L o ng-Term D e bt 264 245 286 R e dempti o n s of L o n g-Term Debt (82) Other 4 1 33 30 1 378 e t cas h provided by financi n g activities

$ 1 39 $ 402 $ 287 (A) During 19 9 1 , E nt erprise issued and so ld 5,000,000 shares of Commo n Stock th ro u gh a public offe rin g through underwriters a nd 3 , 228,647 s h a re s of Common Stock t hrough its Dividend Reinvestment a nd Stock Purchase Plan (D RIP). The net proceeds were used t o make equity investments in PSE&G a n d H o ldin gs. PSE&G a nd H old in gs utilized s u c h funds provided to repay a portion of th eir respective s h ort-term deb t o bli gatio n s then o ut standing.

Enterprise expec t s t o cons umm ate the sa l e of 5 , 000,000 addit i o n a l s h ares of its Common Stock , short l y. The net proceeds from s uch sa le will be u sed by Enterprise t o make additional e quit y inv es tm e nt in PSE&G. PSE&G expects to utili ze funds pro vided by s u c h investment to r epay a portion of its s hort-term o bli gat i o n s then o ut sta ndin g. Enterp ri se h as authorized 5 , 7 1 9,389 agg r ega t e s h ares of Com m on Stock for i ss u ance and sa l e und er its DRIP a nd var i ous PSE&G employee benefit plan s. En t erp ri se expects t o receive approximately

$80 million from the sa le of s u ch s h ares during 1 992. Book va lu e per share of Commo n Stock was $2 1.01 as of D ecember 31 , 1991 compared to $20.44 as of December 3 1 , 1990. (See Note 3 -Schedule of Consolidated Capital Stock of Notes to Co n so lid ated Financial S t atemen t s.) (B) At December 31 , 1991 , PSE&G cou ld issue an addit i o n a l $2.828 billion of First a nd R efu ndin g Mortgage Bonds (Bo nd s) at a r ate of 8.590% or $2.740 billion of Preferred Stock a t a rate of 8.0% under the terms of PSE&G's Mort gage a nd R es t ated Cer tifi ca t e of In corporation.

On January 9, 1992 , PSE&G fi l ed a petition wi th the BRC requesting the a uth oriza ti on to issue an add iti o n a l $1.650 billion principal a m o unt of B o nd s throu g h December 3 1 , 1 993. PSE&G currently h as effec ti ve s h e l f re g istration sta t ements filed with the SEC (wit h related BRC a uth or i zation) to iss u e and sell n o t more than $250 million of Bond s and $170 mi lli o n aggrega te par value of Preferred Stock. PSE&G ha s BRC authorization to redeem up to $288 million aggregate princip a l amount of certain se rie s of it s Bond s through D ecem ber 31, 1992 and has requ ested authority to redeem up to $821 million of certa in o th e r ser ie s of Bonds and Debenture

• December 3 1 , 19 93. Suc h r edemp ti ons wou l d be m ade only if ing Februar y 1 992, the BRC r aised th e amo unt of s h ort-term debt that PSE&G orized t o i ss u e and have outstanding from $500 million to $8 00 million . f commercial paper of F u elco , described in note (C) below). PSE&G has a $600 million revolv ing c r edit ag reement w ith a gro up of com m e r c i a l banks which expires in December 1 992. As of December 3 1 , 1 99 1 there was no s hort-term debt o ut standi n g th ere und e r. PSE&G expects to be ab l e to renew this facility u po n ex pi rat i on. 27 (C) Include s commercial paper issued and/or rede e m ed by Fuelco a nd g u aran t eed b y PSE&G pur s uant to a $200 million commercial p aper program s upp o rt ed by a bank revolving c redit facility to finance th e acquisition of a 42.49% undi vided interest in the nucle a r fuel acquired for Peach B o ttom. (D) In Jun e and November 1 99 1 , PSE&G i ss u e d $300 million and $450 milli o n , re s pe c ti ve l y, of B o nd s. Th e n e t proceeds of the sa le s were u sed b y PS E&G fo r ge n e r a l co rp o rat e purp oses, includin g p ay m en t of a portion of its s h ort-t e rm o bli ga ti ons, and th e refundin g of ce rtain hi gher-cos t debt sec uriti es. (E) Funding ha s a $24 1 milli o n co mm e r c ial paper program s upp or t ed by a com m erc i al bank l e tter of credit and c redit fac ilit y which ex pir es o n August 1 992. As of December 31, 1991 , Funding h a d $223 million outstanding under the pro gr am. In add iti o n , Fundin g h as a $300 million thr ee-year rev o lving c r edit facility which c urr en tl y t e rminate s in 1 993 with repayment s due thereafter in four equal sem i-annu a l payments.

As of December 31 , 1991 , Fundin g had $200 milli on of l o n g-term d ebt o ut standi n g und er thi s facility. Funding pre se ntl y expects b o th the co mm e rcial p a per p rog ram a nd the revolving credit fac ility t o b e renewed upon expiration. In June 1991 , Funding priv a tely pl aced $151 million of it s Guaranteed S e ni o r Notes. Durin g 1991 , Capital redeemed at maturity $80 million aggregate prin c ipal amount of it s medium term note s, which had been i ss ued in 19 88. In November Capital priv a tel y pla ced $50 milli o n of it s 7.40% medium term n o te s due Novem b er 1 994. The net proceeds to Funding a nd Capital were u sed t o make intercompany loans to H oldi n gs' nonutility s ub s idi a ri es. (See Note 5 of Notes to Consolidated Financial Statements

-Schedule of Consolidated L o n g-Ter m Debt.) PSE&G's Customer Accounts Receivable At December 31, 1991and1990 , PSE&G's customer accounts able were $377 million and $373 million , re s pectively , excluding unbilled revenues. The net write-off of PSE&G's uncolle c tible accounts in 1991 was $27 million, an increa s e of $1 million over the previous year. The net write-off per $100 of revenues was 59 cents , up 2 cents from 1990, primarily as a re s ult of the deteriorating economic situation in New Jer sey and lower availability of Low Income Home Energy A ssis tance Funds and other s ub s idized funding for low income customers than in previou s years. The net incr ease in PSE&G's 1991 LEAC and LGAC billing s, the continued economic slowdown in New Jer sey and a BRC requirement prohibiting the termination of electric a nd gas se rvice during winter month s to financially needy cu s tomer s i s expected to continue to have an verse impact upon the level of receivable s, uncollectible accounts and net write-offs.

Effect of Inflation During the yea rs 1987-1990 the rate of incre ase in th e Average Con s umer Price Index (C PI) mo ved s teadil y from 3.7% in 1987 to 5.2% in 1990. During 1991 the CPI increa se s lowed to 4.2%. Infltionar y period s cause th e purch asi ng power of the dollar to d ecl in e. As a result , there i s a negative impact on the operations of Enterpri se as the cos t of replacing PSE&G 's utility plant would be higher than hi s torical cost , the amount permitted to be recovered under th e rate regulatory proces s. The historical costs reported in current financial s tatement s represent dollar s of varying purcha s ing power as such financial statements combine dollars spent at various time s in the pa s t with dollars c urrently being spe nt. PSE&G cannot maticall y increase it s rates to keep pace with inflation. The tor y process results in a tim e la g during w hi c h incre ased operating expenses are not fully recovered. PSE&G a nti c ip a t es recovery of the incr ease d cost of facilities when replacement actually occurs . Other Matters For inform a tion concerning financial acco unting standards th a t have been i ss ued or propo se d by the Financial Accounting Standards Board but not yet adopted by Enterprise, see Note 1 -Or ga nizati o n and Summary of Signifi ca nt Accounting Policie s of Not es to solidated Financial Statements.

Financial Statement Re s ponsibilit y Ma n agemen t of E nt e rpri se i s r es p o n si bl e fo r the p r epara ti o n , i ntrity and objec t iv it y of th e co n so lid a t e d fi n a n c ial s t a t e m e nts a nd re l a t ed n o t es of E nt e rpri se. Th e co n so lid a t e d fin a n c i a l s t a t e m e nt s a n d re l ated n otes are pr epare d in accorda n ce w ith ge n era ll y acce pt ed acco un t i ng p r i n c ipl es. Th e fin a n c i a l sta t e m e nt s r e fl ec t es tim a t es b ase d up o n th e jud g m e nt of m a n age m e nt w h e re a pp ro p r i a t e. M a nage m e nt b e li eves th a t th e co n so lid a t e d fin a n c i a l s t a t e m e nts a nd re l ated n o t es prese nt fa i r ly a nd co n s i s t e ntly E nt e rp r i se's fi nan cia l pos i tio n a n d r esu lt s of opera ti o n s. In fo rm a ti o n in o th er p a rt s of thi s A nnu al R e p o rt is a l so th e r es p o n s ibilit y of m a n age m e nt a nd i s cos i ste nt w ith th ese co n so lid a t e d fin a n c i a l s t a t e ments a nd rel a ted n o t es. Th e fi rm of D e l o itt e & T o u c h e, ind e p e nd e nt ce rtifi e d publi c acco un ta n ts , is e n gaged to a udit Ent e rpri se's co n so li da t e d fi n a n c i a l state m e nts a n d re l a t ed n o t es a nd i ss ue a r e p or t th ereo n. D e l o itte & To u c h e's a u dit i s co ndu c t ed in acco rd a n ce w ith ge n era ll y acce pt ed a u d iting s t a nd a r ds a nd includ es a r e vi ew of intern a l acco untin g co nt ro ls a nd t es t s of t ra n sac ti o n s. M a n age m e nt h as m a d e av ail a bl e t o D eloit t e & T o u c he a ll th e co rp ora t io n's fi n a n c i al r eco rds a nd re l ated d a t a , as we ll as the m inut es of d ir ec t o r s' mee tin gs. Furthmore, m a n ageme nt b e li eves t h a t a ll r e pr ese nt a ti o n s m a d e t o D e l o itt e & T o u c h e du r in g th e ir a udit we r e v a lid a nd a ppropri a t e. Ma n ageme n t h as esta bli s h ed a n d m a int a ins a syste m of i nt e rn a l acco u n tin g co nt ro l s t o p rovi d e r easo n a bl e ass u ra n ce th a t asse ts a r e safeg u a rd ed , a nd t ra n sac ti o ns a r e exec ut e d in acco rd a n ce with m aage m e nt's a uth o ri za ti o n a nd reco rd e d prop e rl y fo r th e pr e v e nti o n a nd de t ec ti o n of fr a udul e nt fi n a ncial r e p o rtin g so as t o m a int a in th e i n t eg r i ty a n d relia bilit y of th e fi nan c i a l s t a t e m e n ts. Th e sys tem i s d es i g n e d to pe rmit pr e p ara ti o n of c o n so lid a t e d fi n a n c i a l s t a t e m e nt s a n d r e l ated n o t es in acco rd a n ce w ith ge n era ll y acce pt e d ac countin g prin c ipl es. Th e co n c ept of r easo nabl e ass u ra nc e r ec o g ni z e s th a t the cos t s of a sys t e m of int e rn a l acco untin g co ntrols s h o uld n ot e xcee d th e re l a t ed b e n efi t s. M a n age m e nt b e li eves th e effec ti ve n ess of thi s sys t em is e nh a n ced by a n o n goi n g p rogram of co ntinu o us a nd se lt ive trai nin g of e mpl oyees. In a dd i ti o n , m a n age m e nt h as cca t ed to a ll e mpl oyees it s p o li c i es o n bu s in ess co ndu c t , ass ets a nd i nt e rn a l co nt ro l s. Th e In te rn a l A udit i n g D e p ar tm e nt co n d u cts a udits a nd a pp ra i sa l s of acco unt i ng a nd o th e r o p era ti o ns a n d eva lu a t es th e effec ti ve n ess of cos t a nd o th e r co ntrols a nd r eco mm e nd s t o m a n age m e nt , wh e r e app ro pri a t e, imp rove m e nt s th e r e t o. M a n age m e nt h as co n s i de r e d th e int e rn a l a udit o r s' a nd D e l oi tt e & T o u c h e's r eco mm e nd a ti o n s coc e rnin g th e corporati o n's sys t e m of intern a l acco untin g co nt ro ls a nd h as t ake n ac ti o n s th at a r e cos t-effect i ve in t he c i rc um s t a n ces to r es p o nd a ppropri a t e l y t o th ese r eco mm e nd a ti o n s. M a n age m e nt beli e v es that , a s of D ece mber 3 1 , 1 99 1 , th e co rp ora ti o n's sys t e m of intern a l a c c ountin g c o ntrol s is a d e qu a te t o acco mpli s h the o bj ec ti v e s di sc u sse d herein. Th e B oa rd o f Dir ec t o r s ca rri es o u t it s r es p o n s ibilit y of fin a n c i a l overvi e w throu g h th e Audit C o mmitt e e , whi c h pr ese ntl y co n s i s ts o f five dir ec tor s who ar e not emplo yees of Ent e rpri se. Th e Audit mittee m ee t s p e ri o di ca ll y with m a n age m e nt as w e ll as w ith r e prse nt a ti ves o f th e int e rn a l a udit o r a nd D e l o itt e & T o u c h e. Th e Committ ee re v i ews th e w o rk o f eac h to e n s ur e th a t th e ir r es p ec ti ve r es p o n s ibiliti es a r e b e in g ca rri e d o ut a nd di sc u sses r e l a t ed m a tt e r s. Both th e intern a l a uditors a nd D e l o itt e & T o uch e peri o dic a ll y m ee t al o n e with th e Audit C o mmitt ee a nd h ave free access t o the A udit C o mmitt ee, a nd it s indi v idu al m e mb ers, a t a n y tim e. 28 E. Jam es F e rland Chairman of the B oa rd, Pr es ident a nd Chi e f E xec uti ve Offi ce r Ri c h a rd E. H a ll e tt Vi ce Pr es ident and C o mptroll e r Prin c ip a l Accountin g Officer F e bru a r y I O, 19 92 Yi ce Pre s ident a nd Chi ef Fin a n c i al O f fi c er *

• Independent Auditors' Report Deloitte&

Touche To the Stockholders and Board of Directors of Public Service Enterprise Group Incorporated:

We h ave audited the accompanying con so lidated b a l a nce s heets of Public Service Enterpri se Group Incorporated and it s subsidiaries as of D ecember 31 , 1991 and 1990 , and the related conso lid ated s tatment s of income , retained earnings, a nd cas h flow s for eac h of the three yea rs in the period ended D ece mb e r 3 1 , 1991. These financial sta tem e nt s are the re s pon s ibility of the Company's mana ge m e nt. Our re s pon s ibilit y i s to express a n o pini o n on th ese financial s tment s based on our audits. We conducted our audits in accordance with generally acce pted auditing sta nd ar d s. Those standards require that we plan and form the audit to obtain reasonable assurance about w h ether the financial s t ateme nt s are free of material misstatement.

An a udit include s examining , o n a test ba s i s, evidence s upportin g th e amo unt s and di s clo s ure s in the financial sta tement s. A n a udit also includ es assessing the acco untin g principl es u sed a nd s i gn ifi ca nt es tim a t es made b y mana ge ment , as well as eva lu at in g the overa ll financial s tat e m e nt pre se ntation. We beli eve that o ur a udit s provide a able ba s is for our opinion. In our opinion , s u ch conso lid a t e d financial s t a t eme nt s present fa irl y, in all m aterial re s pect s, the financial po s iti o n of Publi c v ic e Enterprise Group Incorporat e d a nd its s ubsidi a rie s at D ecember 31 , 1991 a nd 1990, and the re s ult s of th e ir operations and th e ir cash flow s for each of the thre e yea r s in the p e riod e nded De cembe r 3 1 , 1991 in conformity wit h ge nerall y acce pt e d acco untin g principles. Deloitt e & Touche February 10, 1 992 Par s ippany , New Jer sey 07054 29 l Consolidated Statements of Income (Thousands of Dollars) For the Years Ended December 31 , Operating Revenues (note 2) Electric Ga s Nonutility Activities Total Operating Revenues Operating Expenses Operation Fuel for Electric Generation and Net Interchanged Power Gas Purchased and Materials for Gas Produced Other Maintenance Depreciation and Amortization (note 4) Taxe s Federal Income Taxe s (note 8) New Jersey Gross Receipt s Taxes Other Total Operating Expen s es Operating Income Other Income Allowance for Funds Used During Construction

-Equity Misce l la n eous -net (note 4) Total Other Income Income Before Interest Charges and Dividends on Preferred Stock Interest Charges (note 5) Long-Term Debt Short-Term Debt Other Total Interest Charges A ll owance for Funds Used During Con s truction -Debt and Capita l ized Interest Net Interest Charges Preferred Stock Dividend Requirement s Net Income Shares of Common Stock Outstanding End of Year Average for Year Earnings per Average Share of Common Stock Dividends Paid per Share of Common Stock See N o t es t o C o nsolidat e d Fin a n c i a l Statement s. 30 1991 $3,500,043 1,307,849 285,318 5,093,210 781,191 636,058 840,017 315,372 612,820 265,456 583,071 60,855 4,094,840 998,370 7,092 15,024 22,116 1,020,486 437,701 35,000 12,576 485,277 (38,054) 447,223 29,012 $ 544,251 226,700,852 223,565,239

$2.43 $2.13 1990 1989 $3 , 332,417 $3 , 279 , 913 1 , 236,747 1 , 362,470 230 , 971 162,469 4 , 800 , 135 4 , 804 , 852 717 , 370 740 , 665 626,156 710 , 549 802 , 594 730,707 285 , 871 316,200 561,484 524 , 514 208,385 208 , 261 558 , 642 574,145 66,153 60,001 3 , 826 , 655 3 , 865 , 042 973,480 939 , 810 16,987 10,519 27,506 26 , 154 1 , 000 , 986 965 , 964 404 , 289 370,643 37,845 19,598 20 , 091 21,565 462,225 411 , 806 (32 , 529) (16,991) 429 , 696 394 , 815 29,012 29 , 012 $ 542 , 278 $ 542 , 137 218 , 472 , 205 2 11 , 100 , 418 211 , 981 , 434 206 , 878 , 500 $2.56 $2.62 $2.09 $2.05 *

'olidated Statements of Cash Flows (Th o u sa nd s of D o ll a r s) For the Y ea r s E nd ed D ece mb e r 3 1, Cash Flow s from Operating Activitie s: Net In come Adjustments t o r eco n c il e n e t in co m e t o n e t cas h flows from operating ac ti v iti es: D e pr ecia ti o n a nd Amo rti zat i o n Amortization of Nucl ea r Fuel (D efe rr a l) R ecove r y of Electric Energy a nd Gas Cos t s -n et Amortization of Di sco unt s on Propert y Ab a ndonments a nd Di sa llow a nc e Provi s i o n for D e f e rr e d Inc o m e Taxes -n e t I nve s tment Tax Credits -net Allowance fo r Fund s Used Durin g Construction

-D eb t a nd Equity a nd Capitalized Inter es t Pr oceeds from Leasing Activities Change s in certa in c urr e nt asse t s a nd li a biliti es N e t (increa se) decrease in Account s R eceiva ble a nd U nbill ed R eve nu es Net d ec r ease (increase) in In ventory-F u e l and Material s a nd Supplie s Net (dec r ease) in c rea se in Account s P ayab l e Net (dec r ease) increase in Accrued Taxes Net c h a n ge in Other Curr e nt Assets an d Li a biliti es Oth e r N e t cash provid ed by o peratin g ac tiviti es -Flows from Investing Activities:

o n s t o Utility Pl a nt , ex cludin g AFDC o n s to Oil a nd Gas P rope rt y, Pl a nt a nd Eq uipm e nt , excl udin g Ca pit a li ze d Int erest Net in c r ease in Long-Term Inv es tm e nt s a nd R ea l E s t a t e P ro p er t y an d Eq uipm e nt In c r ease in Decommi ss ionin g a nd Other S p ecia l Funds Cost of Pl a nt R e m ova l -n e t Other N et cash u se d in in ves tin g ac ti v iti es Cash Flows from Financing Activities:

Net (d ec r ease) in c r ease in Sh o rt-T e rm D e bt I ss u a n ce of L o n g-Ter m Debt Red e mpti o n of L o n g-T erm D e bt a nd Other Obli ga tions I ss u a n ce of Commo n Stock Cas h Dividend s Paid o n Common Sto ck Other Net cas h pro v id ed by fi n ancing act i vities N e t (d ec r ease) in crease in Cash and Ca s h Equivalent s Cash an d Cas h Equivalents at B eg innin g of Y ea r Cash a nd Cash Equivalents at E nd of Y ea r Inc o m e Taxes P a id Int erest P a id See Notes t o Co n so lid ated Financial Statem e nts .

• 31 1991 $ 544 , 251 612 , 820 96,420 (36 , 146) (11 , 754) 115,281 (19,779) (45 , 146) 17,463 (50,052) 61 , 369 (52 , 317) (7,736) (16 , 592) 2 , 633 1 , 210,715 (783 , 175) (209 , 985) (304 , 075) (11 , 665) (44 , 199) (14 , 018) (1 , 367,117) (369 , 809) 1,013 , 794 (252 , 241) 218,736 (476 , 099) 4 , 616 138 , 997 (17 , 405) 60 , 491 $ 43,086 $ 148 , 171 $ 436,994 1 990 19 89 $ 542,278 $ 542 , 1 37 561,484 524 , 514 89,03 1 63,394 105 ,992 60,023 (13 , 566) (1 5 , 443) 74,678 70,541 (16 , 549) (2 4,424) (49, 516) (33, 655) 14 , 785 56,561 66 ,835 (134,070)

(1 16 ,29 4) (53,85 1) 94,162 72,5 4 3 (47 , 252) 33,262 (11,006) 3, 009 ( 1 , 662) (30,498) 1 , 293,400 I , 1 3 4,043 (933,803)

(644, 21 8) (286, 16 9) (378,555)

(339,60 1) (33 7 ,909) (23,86 1) (5 7 ,9 52) (9 1 ,62 7) (49,327) (42,678) 47 , 74 8 ( I , 717 , 739) ( 1,4 20,2 1 3) 214,535 225,7 1 7 495,000 386 , 270 (56,852) (59,430) 185 ,428 147 ,63 1 (442 ,4 66) (423 , 958) 5,935 1 0,78 1 401 , 580 287,0 11 (22,7 59) 8 41 83,2 50 82,409 $ 60,491 $ 83, 250 $ 135 , 804 $ 93 , 78 3 $ 39 7 ,78 5 $ 370,573 Consolidated Balance Sheets (Thousands of Dollar s) December 31 , Asset s Utility Plant-Original cost Electric Gas Common Total Less Accumulated Depreciation and Amortization Net Nuclear Fuel in Service , net of accumulated amortization

-1991 , $208,147; 1990 , $196,098 Net Utility Plant in Service Construction Work in Progre ss, includin g Nuclear Fuel in Proce ss -1991 , $143,881; 1990 , $174 , 975 Plant Held for Future U se, net of accumulated depreciation

-1991, $-0-(Land); 1990, $27,322 Net Utility Plant Investments and Other Property (note s 6 and 11) Long-Term Investments , net of valuation allowance

-1991 , $15,355; 1990, $8 , 665 Oil and Gas Property , Plant and Equipment , net of accumulated depreciation and amortization

-1991 $615 , 224; 1990 , $500,527 Real Estate Property and Equipment , net of accumulated depreciation

-1991 , $7 , 402; 1990 , $4,648; and valuation allowance

-1991 , $1,341; 1990 , $225 Other Plant , net of accumulated depreciation and amortization-1991 , $2,987; 1990, $3 , 701 Nuclear Decommissioning and Other Special Fund s Other Investment s -net T otal Investments and Other Property Current Assets Cash and Cash Equivalents (note 7) Accounts Receivable , net of allowance for doubtful accounts -1991 , $21,241; 1990 , $19,642 Unbilled Revenues Fuel, at average cost Materials and Supplie s, at average cost (note 4) Prepayments Total Current A sse t s Deferred Debit s (note 4) Property Abandonments

-n e t Oil and Ga s Property Write-Down (note 11) Unamortized D e bt Expense Deferred Take-or-Pay Gas Co s ts Unrecovered Environmental Cost s (note 11) Unamortized Los s on Sale of Naphtha Other Total Deferred Debit s Total See Notes to Co n so lid a t ed Financial Statement

s. 32 1991 1990 $11,152,003

$10,609,121 1,894,497 1,777,285 433,346 392,987 13,479,846 12 , 779 , 393 4,035,832 3,739,673 9,444,014 9,039,720 179,095 190 , 092 9,623,109 9 , 229,812 537,228 576,904 22,244 67,065 10,182,581 9,873,781 1,616,644 1,294,843 895,066 794 , 979 154,615 13 9 20,457 117,422 69,326 69 , 1 1 0 2,873,530 2 , 412 , 871 43,086 60 , 491 518,492 505,663 241,102 203,879 219,569 242,515 240,999 279,422 61,085 55 , 058 1,324,333 1,347 , 028 171,286 200,704 64,985 78 , 431 49,644 54 , 206 17,849 23,939 136,235 23,729 2,700 6 , 300 1,226 2 , 321 443,925 389 , 630 $14,824,369

$14,023,310

(T h ousands of Dollars) December 3I, Capltalization and Liabillties Capltalizatlon (notes 3 and 5) Common Equity Common Stock R etained Earnings T otal Commo n Eq u ity S ub sidiaries' Securities an d Obligations P referred Stock Wit h o u t Ma n datory R edemption Long-Term Debt (note 5) Capita l Lease Obligation s (note 9) Total Capitalization Current Liabilities Long-Term Debt and Capital Lease Obligation s due within one year Commercia l Paper and Loans (note 10) Acco un ts Payable New J ersey Gros s R eceipts Taxes Accrued O th er Taxes Acc ru ed est Accrued Deferred Credits Accumulated Deferred Income Taxes (not e 8) Depreciation and Amortization Lea si ng Activities Property Abandonments (note 4) Oi l and Gas Property Write-Down (note I I) Deferred E l ectric E n e r gy a n d Gas Costs -net Unamortized Debt Expense Other Total Accumulated Deferred Income Taxes Accumulated D efe rred Inve s tment Tax Credits (note 8) Deferred Take-or-Pay Gas Co s ts (n ote 4) Unrecovered Environmental Costs (note 11) Overreco ve red E l ectric Energy and Ga s Cost s -n et (note 4) Material s and S u pplie s (n ote 4) Ot h er Tota l Deferred Credits Co111111it111ents and Contingent Liabillties (no t e I l) Total

• 33 1991 1990 $ 3,262,138

$ 3,043 , 402 1,501,085 1,421 ,6 1 1 4,763,223 4 , 465,013 429,994 429,994 5,128,373 4,668,024 53,617 54,073 10,375,207 9 , 617,I04 420,401 118 , 741 389,050 758 , 859 413,124 465 , 44 1 535,766 527 ,5 75 23,228 39 , 155 121,351 133 , 755 120,983 I 19 , 144 2,023,903 2,I62 , 670 1,334,395 1 , 204,384 233,599 19 2,038 83,287 94,870 30,911 37,304 (4,266) (13 ,55 1) 13,466 14 , 864 17,939 22,580 1,709,331 1 , 552,489 464,710 484 , 489 12,511 23,939 107,990 1,365 37,511 36,188 51,712 93,164 93,396 2,425,259 2,243,536

$14,824,369

$14 , 023 , 310 Consolidated Statements of Retained Earnings (Thousands of Doll a r s) For the Years Ended Decemb er 31, 1991 1990 19 89 Balance January 1 $1,421,611

$1,332,739

$1 ,2 13 , 260 Add Net Income 544,251 542,278 542 , 1 37 Total 1,965,862 1 ,8 75 , 017 1 , 755 ,3 97 Deduct Cash Dividends on Common Stock (A) 476,099 442,466 423,958 Adjustments to Retained Earnings (11,322) 10 , 940 ( 1 ,300) Total Deduction s 464,777 453,406 422 , 658 Balance December 31 $1,501,085

$1,421 ,6 11 $1 ,332, 739 (A) The ability of Enterprise to declare and pay dividend s i s co ntin ge nt upon it s r ece ipt o f dividend payment s from it s subsidiaries.

PSE&G, En t erprise's prin c ip a l s ub s idiary , has r est ri ctions o n the payment of dividends which are co nt ained in it s Charter. ce rtain of th e ind e ntures s upplemental t o it s M o rt gage, and ce rtain debenture bond ind en tur es. H owever, none of these re s triction s pre se ntl y limit s th e p ay ment of dividends ou t of cu rrent ea rnin gs. The amount of PS E&G's restricted r e t ai n ed earnings at December 3 1 , 1 99 1 wa s $10 million. See Note s t o Consolidated Financial Statements. *

• 34 es t o C o n so l ida t ed Fi n ancial Stateme n ts 1. Organization and Summary of Significant Accounting Policies Organization Publi c S e r v i ce E nt e rpri se G ro up In co rp ora t ed (E nt e rpri se) h as t wo wh o ll y-o wn e d s ub s idi a ri es, Publi c S e r v i ce E l ec tric a nd Ga s Co mp a n y (P SE&G) a nd Ent e rpri se Di ve r s i fie d H o ldin gs In co rp ora t e d (H o ldin gs). E nt e rpri se's prin c ip a l s ub s idi a r y, PS E&G , is a pub l i c uti l ity o p era tin g in th e Stat e of N ew J e r sey. H o ldin gs w as in co rpr a t e d o n Jun e 20, 1 989, a nd o n Jul y 1 , 1 989 b eca m e th e p a r e nt o f E nt e rpri se's n o nutility s ub s idi a ri es: Publi c S erv i ce R eso ur ces Co rp o rati o n (PSR C), En e r gy D e v e l o pm e nt Co rp ora ti o n (E D C), Co mmunity E n e r gy A lt e rn a ti ves I n co rp ora t e d (CEA), E nt e rpri se G ro up D eve l op m e nt Co rp ora ti o n (E GD C), a nd P SEG Ca pit a l Co rp ora ti o n (Ca pit a l). E nt e rpri se Ca pit a l F undin g Co rp ora ti o n (F undin g), a w h o ll y-ow n ed s ub s idi a r y of H o ldin gs, was a l so fo rm e d o n Jun e 20, 1 989. PS E&G Fu e l C o rp ora ti o n (Fu e l co) was o r ga ni ze d in Jun e 1990 , as a wh o ll y-o wn e d s ub s i di a r y of PSE&G. Ent e rpri se h as cl a im e d a n exe mpti o n fr o m r eg ul a ti on b y th e S ec uriti es a nd Exc han ge C ommi ss i o n as a r eg i s t e r e d h o ldin g c o mp a n y und e r th e Publi c U tilit y H o ldin g Co mp a n y Ac t o f 19 3 5 , exce pt fo r -o n w hi c h r e l a t es to th e ac qui s iti o n of vo tin g sec u r iti es e l ec tri c o r gas utilit y co mp a n y. A l so, E nt e rpri se i s n o t s ubj ec t g ul a ti o n b y th e N e w J e r sey B oa rd of R eg ul a t o r y Co mmi ss i o n e r s (BR C) o r th e F e d e ral E n e r gy R eg ul a t o r y Co mmi ss i o n (F E R C). Consolidation Policy Th e co n so lid a t e d fi n a nc ia l s t a t e m e nt s in c lud e th e acco unt s of E nt e rpri se a nd its s ub s idiari es. A ll s i g nifi ca nt int e r co mp a n y acc o unt s a nd tran sa cti o n s h ave be e n e limin a t e d in co n so lid a ti o n. C e rtain r e cl ass ificat i on s of prior year s' d a t a h a v e b e en m a d e t o co nform with th e curr e nt pr ese nt a ti o n. Regulation

-PSE&G Th e acco unting a nd ra t es of P SE&G are s u bjec t in ce rt a in r es p ec t s t o th e r e qui re m e nt s of th e BR C a nd F E R C. As a res ult , PS E&G m a int a in s it s acco unt s i n ac co rd a n ce w ith th e ir pr esc rib e d U ni fo rm S ys t e ms of A cco unt s, w hi c h a r e th e sa m e. The a ppli ca ti o ns o f ge ne rall y acce pt e d acco untin g prin c ipl es b y P SE&G di ffe r in ce rt a in r es p ec t s fr o m a ppli ca ti o n s b y n o nr eg ul a t e d bu s in esses. Utility Plant and Related Depreciation

-PSE&G Additi o n s t o utilit y p l a nt a nd r e pl ace m e nts o f unit s of prop e rty a r e ca pit a li ze d a t o ri g in a l cos t. Th e cos t of m a int e n a n ce, r e p a i rs a nd r e pl ace m e nt s of min or i te m s of p ro p e rt y is c h arged to a pp ro pri a t e ex p e n se acco un ts. A t th e tim e unit s of de pr ec i a bl e pro p ert i es are ret i red o r o th e r wise di s p ose d of, th e or i g in a l cost l ess n e t sa l vage va lu e 1 s c h a r ged t o acc umul a t e d d e pr ec i a ti o n. *r r e p o rtin g purp oses , d e pr ec i a ti o n i s co mput e d und e r m e th o d. D e pr ec i a ti o n i s b ase d o n es timat e d average . 111111 g li ves o_f th e severa l cl asses of d e pr ec i a bl e prop e rt y. Th ese es tim a t es a r e r ev i e w e d o n a p e ri o di c b as is a nd n ecessa ry a d j u s t-m e nts a r e m a d e as a ppro ved b y th e BR C. D e pr ec i a ti o n pro v i s i o n s s tat e d 111 p e r ce nt ages o f o ri g in a l cos t of d e pr ec i a bl e prop e rt y were 3.4 8% 111 1 99 1 a nd 19 9 0 , a nd 3.47% in 1 989. 35 Nuclear Decommissioning Funds -PSE&G D e pr ec i a ti o n a ppli ca bl e t o nucl ea r pl a nt includes es tim a t e d cos t s of d eco mmi ss i o nin g. At D ece mb er 3 1 , 1 99 1 a nd 1 990 , th e acc umul a t ed p rov i s i o n for d e pr ec i a ti o n a nd a m o rti za ti o n includ ed r ese r ves fo r nucl ear d eco mmi ss i o nin g of $15 5.5 milli o n a nd $1 33.0 milli o n. In a c co rd a n ce with ord e r s fr o m th e BR C, PS E&G h as es t a bli s h e d et e rn a l nucl ea r d e c o mmi ss i o nin g tru s t f und s fo r a ll nucl ea r unit s. Th e I nt e rn a l R e v e nue Ser v ic e (I RS) h as rul e d th a t p ay m e nt s int o qu a lifi e d funds a r e t ax d e du c tib l e. As o f De ce mb e r 3 1 , 1991 a nd 1 99 0 , PSE&G h as co nt r ibut e d $93 milli o n a nd $78 mil l i o n i nt o ex t e rn a l qu a lifi e d a nd nonqu a l ifi e d nu c l ear d eco mmi ss i o nin g tru s t f und s. Amortization of Nuclear Fuel-PSE&G u clea r e n e r gy burnup cos t s a re c h a r ge d to f u e l ex p e n se o n a unitof-p rod u c ti on b as i s ove r th e es tim a t e d li fe of the f u e l. R a t es fo r th e r ecovery of f u e l u se d a t a ll nu clear unit s in cl u de a p rov i s i o n of o n e mill p e r kil o w a tthour o f nucl ea r ge n e rati o n fo r s p e nt fu e l di s p osa l cos t s, whi c h i s p a id qu a rt e rl y t o th e U nit e d St a t es D e p a rtm e nt of En e r gy. Revenues and Fuel Costs -PSE&G R eve nu es a r e r e cord ed b ase d o n se r v i ces r e nd e r ed to c u s t o m e r s durin g eac h acco untin g p e ri o d. PSE&G r eco rd s unbill e d reve nu es r e pr ese ntin g th e es tim a t e d a m o unt c u s t o m e r s w ill b e bill e d fo r se rvi ces r e nd e r e d from th e tim e m e t e r s w e r e l ast r ead t o the e nd of th e r es p ec ti ve a cc o untin g p e ri o d. R a t es includ e p ro j ec t e d f u e l cos t s fo r e l ec tr ic ge n era ti o n , purc h ased a nd int e r c h a n ged p ower , gas pur c h ased a n d m a t e ri a l s u sed fo r gas p ro ducti o n. An y und e r-o r overr ecove ri es, t oge th e r w ith int e r es t, a r e d e f e rr e d a nd included i n operati o n s in th e peri o d i n whi c h they ar e r e fl ec t e d in ra t es. Oil and Gas Accounting

-EDC E DC fo ll ows th e full-cost m e th o d of acco untin g. U nd e r thi s m e th od , a ll ex pl ora ti o n a nd d eve l o pm e nt cos t s fo r s u ccess ful a nd un s u ccessf ul w e lls a r e ca pit a li ze d a nd a m o rti ze d o n th e unit s-o f-produ c ti o n b as i s. Long-Term Investments-Holdings PSR C_ h as_ in ves ted in m a rk e t a bl e sec uriti es a nd limit ed p a rtn e r s hip s 111 ves t111 g 111 sec ur i ti es, w hi c h a re s t a t e d a t fa ir va lu e , a nd va ri o u s l eases a nd o ther li m i t e d p a rtn e r s hip s. (S ee N o t e 6 -L o n g-T e rm Inv es tm e nt s). EGDC is a p a rti c ip a nt in th e nonr es id e nti a l r ea l es t a t e m a rk e t s. C EA i s an inv es t o r a nd d e v e l o p e r o f cog en e rati o n a nd s m a ll p owe r produ c ti o n fac iliti es. Income Taxes E nt e rpri se a nd its s ub s i d i ar i es fi le a co n so li da t e d Fe d era l in co m e t ax re turn a nd in co me t axes a re a ll oca t ed to E nt e rpri se's s ub s idi a ri es b ase d o n t axa bl e income o r l oss o f eac h. D efe rr e d in co me t axes are p rov id e d for di ffe r e n ces b e tw een b ook a nd t axa bl e in co me. Fo r PS E&G , d efe rr e d in co m e t a x es a r e pv id ed t o th e ex t e nt p e rmitt e d for r a t e m ak in g purp oses.

Investment tax credits are deferred and amortized over the useful lives of the related property including nuclear fuel. In December 1987, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 96 (SFAS 96), "Acco unting for Income Taxes," which requires the recognition of deferred tax liabilities adjusted for the effects of enacted changes in tax laws or rates. The effective date of SFAS 96 was for fiscal years beginning after December 15 , 1988, s ubquently deferred to 1991. However , SFAS 108, Accounting for come Taxes -Deferral of the Effective Date of SFAS 96, was is s ued in December 1991 and defers the effective date of SFAS 96 to fiscal years beginning after December 15, 1992. FASB is continuing its deliberations and has issued an Exposure Draft (ED) that would also amend SFAS 96. The ED was issued in July 1991 and FASB i s pected to issue a Statement by the end of the second quarter of 1992. As a result of the accounting and ratemaking requirements of the BRC and FERC , the primary effect of adopting SFAS 96 or the prosposed amendment upon Enterprise

's financial reporting will be on the presentation of its financial po sitio n with minimal effect on its income s tatement.

Allowance for Funds Used During Construction (AFDC) and Capitalized Interest PSE&G -AFDC represents the cost of debt and equity funds used to finance the construction of new utility facilities.

The a mount of AFDC capitalized is also reported in the Consolidated Statements of Income as a reduction of interest charges for the borrowed funds component and as other income for the equity funds component.

The rates used for calculating AFDC in 1991 , 1990 and 1989 were 7.50%, 10.17% and 10.68%, respectively.

These rates are within the limits set by the FERC. Holdings -The operating subsidiaries of Holdings capitalize costs allocable to construction expenditures at the cost of borrowed funds. Pension Plan and Other Post* Employment Benefits The employees of PSE&G and participating affiliates completing one year of service are covered by a noncontributory trusteed sion plan. The policy is to fund pension costs accrued. PSE&:G also provides certain health care and life insurance to active and retired employees. The portion of such costs pertammg to retirees amounted to $23, $22 and $22 million in 1991 , 1990 and 1989, respectively.

The current cost of these benefit s is charged to expense when paid and is currently being recovered from ratepayers. (See Note 12-Pension Plan and Other Post-Employment Benefit s.) In December 1990, FASB issued Statement of Financial ing Standards No. 106 (SFAS 106), "E mployers' Accounting for Po s tretirement Benefits Other than Pensions" which requires ers to change from a "cas h basis" to an "accrual basis" of accounting for post-employment benefits.

SFAS 106 is effective for fiscal years beginning after December 15 , 1992.

• As permitted by SFAS 106 , Enterprise expects to elect a 20 tran s ition option. Upon adoption of SFAS 106, PSE&G expects its annual net cost to increase by five to seven times over the 1991 cost level. It is believed that the increased post-employment costs ing from the adoption of SFAS 106 will be recovered by PSE&G through the normal regulatory proce ss; however , the BRC ha s yet issued an order regarding the proper accounting and treatment for such costs. Funding options that currently exist are being explored. The amount of unfunded liability is significant and partial rate recovery has been requested in PSE&G's pending b rate case as an initial transition.

Because of ratemaking requirements of the BRC and FERC, the primary effect of adopting SFAS 106 on fina?cial porting is expected to be on the presentat10n of its fi.nancial pos1t1on with minimal effect on its income statement, assuming adequate and timely rate recovery. 2. Rate Matters Base Rates On November 14, 1991, PSE&G filed with the BRC a request for rate relief of $669 million ($507 million for electric and $162 million for gas) on an annual basi s. Any rate relief is not expected to be tive until late 1992 at the earliest.

Included in the ba se rate pet1t1on are request s for recovery of increased depreciation and nuclear decommissioning costs reflected in detailed studies filed with th e BRC during August 1991, recognition of cost of required changes associated with accounting for po st-employment expenses, recovery of the 1986 write-down of the value of oil and gas reserves a nd the recovery of the cost of the gas plant remediation program , as well as the costs related to the acce leration of gross receipts tax payments resulting from recent legislation. Electric Levelized Energy Adiustment Clause (LEAC) On Jul y 30, 1991 , the BRC approved a Stipulation which provided that PSE&G maintain it s current LEAC rates through Decembe __ ' 1992. The Stipulation included the recovery by PSE&G of $20. million, including intere st, resulting from the delay in implemen

• a base rate increase related to the Tax Reform Act of 1986 (TRA-86) for the period January 1, 1990 through September 4, 1990. Levelized Gas Adiustment Clause (LGAC) On July 16, 1991, PSE&G filed a reque st with the BRC to continue its current LGAC rate through September 30, 1992 , which matter remains pending. On October 24, 1991 , the BRC approved an terim stipulation which permitted PSE&G to return a total of $56 million as credits to gas customer bill s during November and cember 1991. On January 21, 1992 , the BRC approved a Stipulation which provided for recovery of $15.9 million of PSE&G's former manufactured gas plant remediation costs (Remediation Costs) ing the 1991-1992 LGAC period and a customer credit of $22 million during March 1992. During the next four LGAC period s ending with the 1995-96 LGAC , PSE&G will be allowed to recover $7.9 million of Remediation Costs for each period, net of insurance coveries.

In connection with the base rate filing of November 14, 1991 , the BRC will evaluate the reasonableness and regulatory ment of the Remediation Costs covered by this Stipulation. (See *Note 11 -Commitments a nd Contingent Liabilities PSE&G factured Gas Plant Remediation Pro gram.)

• 36 chedule of Consolidated Capital Stock (Th o u sa nd s of Do ll a r s) Enterpri se C ommon Stock C urr ent R ede mp tio n Out s t and in g P ri ce S h a r es P e r S h a r e Commo n S t ock (no par) -a u t h o r ized 500 , 000 , 000 s h a r es (n o t e A); iss u ed a nd o ut s t a n ding at December 3 1 , 1 99 1 , 226 , 700,852 s h ares, a t December 3 1 , 1 990, 2 1 8,472,205 s h ares, a nd at D ece mb e r 3 1 , 1 989 , 2 11 , 100, 41 8 s h a r es (5 , 0 0 0,0 0 0 s h a r es i ss u ed fo r $1 29 , 950 , 000 a nd 3,228, 647 s h a r es i ss u e d fo r $88 , 785 , 528 t hro u g h Di v id e nd R e in ves tm e nt and S t ock Pur c h ase Pl an (DRIP) in 1 99 1; 5.000.000 s h a r es iss u ed fo r $1 26,500 , 000 a nd 2 , 37 1 , 7 87 s h a r es iss u e d for $5 9 , 277,802 th ro u g h DRIP in 1 990: 5.750.000 s h ares i ssued for $1 47,63 1 ,250 in 1 989.) Enterpri s e Preferred Stock (n o t e B) PSE&G Cumu l ative Preferred Stock (no t e C) Wi th o ut M a n dato r y R edem pti on (no t e D) $100 p a r va lu e -Series 4.08% 4.1 8% 4.30% 5.05% 5.28% 6.80% 7.4 0% -5 2% 08% 80% 70% 8.1 6% 250,000 249,942 250,000 250 , 000 250,000 2 5 0 , 000 500 , 000 500 , 000 1 50 , 000 750 , 000 600,000 300,000 To t a l C umul a ti ve P r efe rr ed S t ock $1 03.00 1 03.00 1 02.75 1 03.00 1 03.00 1 0 2.00 1 0 1.00 1 0 1.00 1 01.00 1 0 1.00 1 00.79 1 04.82 Note s to Sch e du l e of C onsolidated C apital Stock D ecember 3 1 , 1991 1 990 $3 , 262 , 138 $3 , 043.402 $ 25 , 000 $ 24 , 994 25 , 000 25,000 25 , 000 25,000 50 , 000 50 , 000 15 , 000 .75 , 000 60,000 30 , 000 25,000 24,994 25 ,000 25 , 000 25,000 25,000 50,000 50 ,000 15,000 75,000 60,000 30,000 $ 429 , 994 $ 429,994 (A) Total a uth orized a n d uniss u ed s h a r es i n cl u de 5 ,7 19.389 sha r es of E n terprise Com m o n Stock reserved fo r issua n ce t h ro u g h t h e D iv i dend R einvestment and Stock P ur c h ase Pl an a n d vario u s PSE&G emp l oyee be n efit pl ans. (8) E nt e rp r i se h as a uth o r ized a class o f 50 mill io n s h a r es of P referre d Stock wi th o u t p a r va lu e , n o n e of w hi c h is o ut s t a ndin g. (C) Th e re a r e 3 , 200 , 058 s h a r es of C umul a ti ve Pr e f e rr ed Stoc k ($10 0 P a r) a nd 1 0 , 000 , 000 s h ares of Cumulative Preferred S t ock -$25 Par w hi ch a r e au t hor i zed and uniss u ed, and whi c h u pon is s uance may or may not provide fo r mandato r y si n kin g fund redemp t ion. I f dividends u pon any shares of Cumu l a t ive P referred St oc k are i n arrears in a n amo un t eq u a l to t he a nn ua l divide nd t h ereon. vo t i n g rig h ts for t h e elec t io n of a m a j o rity o f PS E&G's B oa rd of Dir ec t ors b eco me o p era ti ve a n d co ntinu e until a ll acc umul a t ed a nd un pa i d divide nd s th ereon h a v e been p a i d , w h e r e up o n a ll s u c h vo t i n g r i g ht s cease, s u bject to being again revive d fr o m t i me to tim e. As of December 3 1 , 199 1 a n d 1990 t h e r e were no s h are s outstanding of Cum ul at i ve P r efe rr ed Stock ($100 Par) w ith m a n da t o r y redemptio n a n d n o s hare s outs t andi n g of Cum ul a t ive Preferred Stock -$25 P a r. (D) At Dece m be r 3 1 , 1 99 1 t he a nnu a l d i v i de nd r eq ui re m e nt a n d embedded divide n d cos t for Pr e f e rr e d St oc k w i t h o ut m a nd a t o r y r e d e mpti o n we r e $29 , 0 1 2,000 a nd 6.75%, res p ec ti ve l y. 4. Deferred Items Statement of Financial Accounting Standard s No. 90 m o rti za tion of Di sc ount o n Prop e rty A b a nd o nments a nd ow a n c e s w as $6.8 milli o n fo r 1991; $7.7 milli o n fo r 19 9 0 a nd illi o n for 19 8 9 a nd includ es th e effec t o n in co me o f St a t e m e nt a n c i al A cco untin g St a nd a rd s N o. 9 0 (SFA S 90) " Re g ul a t e d Ent e rpri ses -Acco untin g for Ab a nd o nm e nts a nd Di sa ll o w a n ces of Pl a nt C os t s',' as am e nd ed b y T ec hni ca l Bull e tin N o. 8 7-2 (TB). Th e t ax e ff e c ts o f di sco untin g of a b a nd o nm e nt s w e r e ca lcul a t ed u s in g th e t ax rat es a ppli ca bl e t o r e l a t ed d efe rr ed t ax b a l a n ces. 3 7 Property Abandonm e nt s Th e BRC h as a uthori ze d PS E&G to r ec o ve r th e af t e r-tax a b a nd oment cos t s fr o m it s cu s tom e r s. The followin g table refl e ct s the acation o f SFAS 90 and th e TB on prop e rty a band o nm e nt s for whi c h no return i s e a rned. Th e di sc ount rate ran ge u s ed to calcul a t e th e pr es ent v alue o f the ab a nd o n e d prop e rt y und e r SFAS 90 was bt wee n 8.5 45% a nd 14.446%. The n e t-o f-t ax di s c o unt ra t e u se d in a cc ord a n ce w ith th e TB was b e t wee n 4.443% a nd 7.8 01 %. (Th o u sa n ds of D o llar s) De ce m be r 3 1 , 1991 1 990 Di sco unt e d D isco unt e d P ro p erty Aba n do n me nt s Cos t Taxes Cos t Taxes A tl a nti c Projec t $102 , 576 $43 , 111 $11 2 , 382 $47 , 238 H o p e Cr eek Un i t 2 33,115 26 , 147 47,396 3 1 , 5 88 L N G P ro j ec t 18 , 903 7 , 172 22,389 8,534 U r a niu m P ro j ec t s 16 , 111 6 , 857 1 7,686 7, 5 10 O t h e r 581 85 1 $171 , 286 $83 , 287 $200,704 $94 ,8 70 Und e r(Over)recover e d Electric Energy and Gas Costs -Net Re cove ri es o f e lectric e n e r gy a nd gas cos t s a r e d e t e rmin ed b y th e BRC und e r th e LEAC a nd LGAC. (S ee N o te 2 -R a t e M a tt e r s.) PS E&G's d e ferred fu el b a l a nc es as o f D ece mb e r 31 , 1991 a nd De c emb e r 3 1 , 1990 , r e fl e ct an overrecov e r y of $1.4 milli o n a nd $37.5 million , respecti ve l y, r es ulting from ove rre c overed LGAC a nd LEAC c os t s, l ess unam o rti zed d e ferred r e pl ace m e nt pow e r cos t s fo r Sal e m nucl ea r ge nerating s t a ti o n s . Unamortized Debt Exp e nse Co s t s a ssoc i a t e d with th e i ss uan ce of d e bt b y PSE&G a r e d efe rr e d and am o rti ze d o ver th e liv es o f th e r e l a t ed i ss u es. Amounts s h ow n i n the C o n so lid a t e d Bal a n ce Sh ee ts c on s i s t of cos t s asso ci a t e d w ith PS E&G's r eac qui s ition o f Fir s t a nd R e fundin g M o rt gage B o nd s. Th e red e mpti o n cos t s of th e t e nd e r e d or r e d ee m ed d e bt h ave b een d eferred a nd a r e being amorti ze d over th e li ves of th e n e w sec uriti es i s sued t o r e place higher-c o s t s ecurit i e s. PSE&G ex pect s to a m o rti ze $5.7 million of these cos t s in 1992. Deferr e d Tak e*or*Pay Ga s Co s t s On Janu ary 1 9, 1990 , th e BRC appro ve d a S ti pul a ti o n e nt ered i nt o b y PSE&G , th e BRC s t aff, a nd th e New J e r sey Indu s tri a l E n e r gy U se r s A ssoc i a tion r es olving a ll tak e-o r-p ay i ss u es. Und e r t h e t e rm s Capitalization 1987* 1991 In Billi o n s 8 7 88 89 90 9 1 1 2

• Co m mo n Eq uit y

• Pref e rred Stock

• Long-Term Debt 4.8 9 0.4 6 5.1 3 of the Stipulation all take-or-pa y charges already collected were no longer s ubj ec t to refund. The BRC permitted PSE&G to re cove r a ll take-or-pay costs. A portion of the p ay ment will be recovered over a nine-year period which b ega n in October 1987 , without recovery of related carrying charges. PSE&G estimates that it may in c ur imately $2 million in carrying charges pertaining to the eight-year recovery period related to certain payments , since it is required to meet its take-or-pay obligations over the next five years. Materials and Supplies Inventory In January 1989 , PSE&G changed it s method of accounting tain spare parts to the deferred (inventory) method , whereby all purchases of spare parts under inventory control are charged into the Materials and Supplies inventory account until s uch time that the item s are used or consumed and are then charged to the appropriate expense or capital accounts. Prior to 1989 , certain purchases of spare parts were being charged directly to expense at the time of purchase , with a current deduction being taken for tax purpo ses. As of January 1 , 1989 , PSE&G recorded an increase in it s Mat erials and Supplies inventory account for the value placed on the se spare parts. The reversal of such expenses was deferred and i s being amortized over a six-year period which began January 1 , 1989. As of December 31, 1991, the unamortized balance of this deferred credit was $36.2 million. In October 1988, PSE&G filed a request with the Internal Revenue Service (IRS) for a tax ruling concerning thi s change of accounting for spare parts inventory.

If PSE&G's reque st i s approved as s ubmitted, PSE&G would be permitted to account for the re s ulting tax adjustment over the six-year period beginning Janu a ry 1989. though PSE&G can neither predict the timing nor the nature of the IRS' final response to its request , it ha s received preliminary approval of its request, subject to certain adjustments which are being re v iewed. 5. Schedule of Consolidated Long* Term Debt (Th o u s and s of D o ll a r s) December 31 , Interest Rate s Du e 1991 19 90 PSE&G First a nd R efu ndin g Mortgage Bonds (note A) 4 3/so/o-8%% 1992 $ 240 , 000 $ 240,000 4 3/s o/o-91/s'J'o 19 93 190,000 1 90 , 000 45/s o/o-8%% 1994 210,000 210,000 4%% 19 95 60 , 000 60 , 000 7 1/2%-9%% 1996 325,000 325 , 000 6'1.'J'o-9V s% 199 7-200 1 8 1 8,600 569 , 600 6.30%-12% 2002-2006 625 , 930 477 , 530 6.90%-9%% 2007-2011 421,510 423 , 5 10 6.80%-IO W J'o 20 12-2016 815,500 943 , 500 8.10%-9%% 20 1 7-2021 498 , 750 150 , 000 5%-8% 2037 15 , 001 15 , 001 T o tal First and Refunding Mortgage Bonds 4,220 ,2 91 3,604 , 141 Debenture B onds Unsec ur ed 5 3/.'J'o 1 991 3 1 , 1 99 7 1/.% 1 993 21 , 419 21 , 923 9% 1 995 40 , 330 41,814 7%%-8%% 1 996 74 , 880 76 , 509 6% 1 998 18 , 195 1 8 , 1 95 Total Debenture Bonds 154,824 189,640 Principal Amount O ut standing 4,375 , 115 3 , 793 , 78 1 Amounts Due Within One Year (note B) (418 , 109) (38 , 274) Net Unamortized Di s count (23,6 17) (22 , 063) Tot a l Lon g-Term Debt of PSE&G 3,933,389 3 , 7 33 , 444 Holding s Capital (note C) 8.65%-Q.12% 1991 80 , 000 8.95%-9.72% 1993 88,000 88 , 000 7.40% 1994 50,000 9.30%-9.55% 1 995 82,000 82 , 000 9.00% 1 996 20,000 20 , 000 8.95%-10.05% 1 998-1 999 480,000 480,000 Principal Amount Outstanding 720 , 000 750 , 000 Amounts Due Within One Year (note B) (79 , 940) Net Unamort i ze d Discount (1 , 883) (2 , 088) Total Long-Term Debt of Capital 718 , 117 667 , 972 Funding (note D) 9.43% 1 993 60,000 60,000 9.54% 19 95 35,000 3 5 , 000 9.55% 1 996 28,000 9.59%-9.9 5% 19 97-1 998 123,000 6.00%-6.0625% Bank L oa n s 1995 200,000 150,000 Total Long-Term Debt of Funding 446 , 000 245,000 EGDC Mortgage Notes 7.75% 1 993 10 , 982 6.62%-7.736% 1 994 14 , 718 14 , 606 10.625%-1 2.7 5% 20 1 2 7 , 002 7 , 090 Prin c ip a l Amount Outstanding 32,702 2 1 , 696 Amounts Du e Within One Year (n o t e B) (l,835) (88) Total Long-Term Debt of EGDC 30,867 2 1, 608 Total Long-Term Debt of H o ldin gs 1 , 194 , 984 934 , 580 Co n so lidat e d Long-Term Debt (note E) $5,128,373

$4 , 6 Notes: (A) PSE&G's Mortgage , sec urin g the First a nd R efu ndin g Mortgage Bonds, co n stutes a dir ect fir s t mort gage lien o n s ub s t a ntially a ll P SE&G propert y and franchises. (B) The agg re ga t e pr inc ip a l amounts of requirements for s inkin g fund s and maturitie s fo r eac h of th e five years fo ll ow in g December 3 1 , 1 99 1 are as follows: (T h o u sa nd s of D o llar s)

• Sinking Funds Maturities Year PSE&G Cap ital PSE&G Capital EGDC Fund in g Total 1 992 $ 8 , 2 12 $ $ 409 , 897 $ $ 1 , 835 $ $ 419 , 944 1 993 1 ,700 42 , 500 210 , 6 1 9 88 , 000 10 , 430 60 , 000 413 , 249 19 94 1 , 700 42,500 210 , 000 50,000 1 3 , 762 1 00 , 000 417,962 1995 1 , 700 42 , 500 60 , 000 82 , 000 1 3 4 135 , 000 32 1 , 334 1996 200 42 , 500 363,043 20 , 000 14 9 28 , 000 453 , 892 $13 ,5 1 2 $1 70,000 $1 , 253 , 559 $240 , 000 $26,3 1 0 $323 , 000 $2 , 026 , 38 1 For si nkin g fund purp oses , cer t ai n First a nd Refundin g Mort g a g e Bond issues require a nnu a ll y th e retirement of $1 8 , 200 , 000 principal amo unt of bonds or t h e util izat i on of bondable property additions at 60% of cost. The portion expec t ed t o be me t by property a dditi ons h as been excl ud ed from the table above. Also , PSE&G may , at its op tion , r e tir e add ition a l amounts up to $5 , 000 , 000 annually through s inkin g funds of certai n debenture bonds. Ad di t i ona l bonds , if a n y , re s ultin g from the election of thi s opt i on are included in l o n g-t e rm debt due wit hin one year. (C) Capi t a l is providin g up to $750 million debt finan cing fo r the nonutility bu s in esses on the basis of a s upp o rt agreement with E nt erprise. (D) Funding provides debt financin g for the nonutility busine s ses on th e basis of un co nditi o n a l g u ara nt ees from H o ldin gs. (E) At D ecember 3 1 , 1 991, th e ann u al int eres t requirement on Long-Term Debt was $4 77.5 million of which $358.6 million was th e requirement for Fir s t and Refunding Mortgage Bonds. The embedded in t erest co s t o n long-term debt was 8.87%.

• 38 Long-Term Inve s tment s are primarily tho se of Enterpr i se's nonutilit y operating bu s in esses: PSRC (diversified pa ss ive inve s tment s), CEA (coge n era ti o n a nd small power production facilities) and EGDC (div ers ifi ed n o n re s idential real es t a te developm e nt and ments). A s umm ary of lon g-te rm in ves tm en t s i s as fo ll ows: (Milli o n s of Dollars) 1991 1 990 Lease Agreements:

Levera ged Leases $ 649 $ 517 Dir ec t-Fi n anc in g Leases 97 95 Other Leases 15 1 8 Total 761 630 Partner s hip s: General Partner s h ips 144 11 7 Limited Partn e r s hip s 387 322 Total 531 439 Joint Vent ur es 11 II Marketable Securities 277 204 Valuation Allowances (15) (9) Corporate-owned Life Insurance (PSE&G) 52 20 Total L ong-Te r m In ves tm ents $1,617 $1 ,295 PSRC's lev eraged lea ses are reported net of principal and intere st o n nonrecour se l oans and unearned income , includin g deferred tax d.t In co m e and deferred tax c r e dit s are r ecog niz e d at a lev e l r e turn from each l ease durin g the p e ri o d s in which the n et e nt is po s iti ve. e r s hip inve s tment s are tho se of PSRC , CEA a nd EGDC a nd a re undertak e n with other inv es t o r s. PSRC is a limit e d partn e r in two le veraged bu yo ut funds a nd is co mmitt ed to make inve s tm e nt s from tim e t o tim e, up o n th e r eq u es t of th e genera l partner, in s u ch amounts as the ge neral p ar tn er may requir e up to a n aggrega t e of $2 50 milli o n. As of December 31, 1991 , $1 34 million had been inve s ted in s uch fund s and $116 million r e m a in e d as PSRC's unfunded commitment s ubj ect to call. PSRC h as invested in m ar k e t a bl e sec uriti es a nd limited partn e rs hip s in ves tin g in sec uritie s, which are s t a t ed at fai r va lue. R ea l ized investment gai n s and lo sses o n th e sa l e of investment sec uriti es are determined utili zi n g the s p ecific cost identification method. (For a dd itio n a l information see Note 11 -Commitments a nd Contingent Liabilities

-Public Service R eso ur ces Corporation.)

7. Cash and Cash Equivalents The D ece mb e r 3 1 , 1991 a nd 1 990 b a lan ces co n s i st prim a ril y of working funds and highly liquid mark e t a bl e sec uriti es (co mmer c i a l paper) with a maturity of thr ee m o nth s or l ess.

• 39 8. Federal Income Taxes A recon ci liation of reported Net Income wit h pretax income and of Federal income tax expense with the amount computed by in g pretax in come b y the s t at utory Federal income tax rate of 3 4% i s as follows: (Thou sands of Dollars) 1991 1990 1 989 Net In come $544,251 $542,278 $542, 1 37 P r eferred s t ock dividend requirement s 29,012 29,0 1 2 29,0 1 2 Subtotal 573,263 571 , 290 571 , 1 49 Federal in co me t axes: Operating In come: C urr e nt provision 146 , 409 141 , 342 112 , 046 Provi s i o n fo r deferred in co m e t axes -n e t (A) 138,554 86,46 1 11 9,606 ln ve t ment t ax cre dit s -net (19 , 507) (19,4 1 8) (23,39 1) Total included in opera tin g in come 265 , 456 208 , 385 208,26 1 Miscellaneou s o th e r in co m e: C urr en t provi s i on (11 , 397) (11 , 480) (11 ,411) Provi sio n fo r deferred income tax es (A) 10 , 906 1 0,906 10 ,906 SFAS 90 deferred income t ax (A) 4 , 967 5 ,8 50 6 , 773 Total Federal income tax provi sio n s 269 , 932 213 , 661 214,529 Pretax income $843,195 $784,951 $785,678 Adjustments to pretax income , computed at the s tatutory rate, for which de fe rred taxe s are n o t provided und e r current ratemakin g policie s: Tax expe n se a t th e sta tut ory rate $286,686 $266,883 $267 , 1 3 1 Tax d ep reciation und e r book depr ec iation 9,229 9,534 17 , 82 1 A ll owance fo r fund s used durin g constructio n (10 , 191) (11 ,63 5) (10, 1 99) Capita l ized in te r est 12 , 770 9,954 7 , 6 1 5 Amortization of rate differential result in g from TRA-86 (23, 1 57) (43,203) Other (6 , 558) (11 , 821) (1 , 475) Subtot al 5,250 (27, 1 25) (29,441) Amo rti za t io n of investment tax credits (22 , 004) (26,097) (23, 161) Subtotal (16 , 754) (53,222) (52,602) Total Federa l in come t ax provision s $269,932 $2 1 3,661 $2 1 4,529 Effective Federal income tax r ate 32.0% 27.2% 27.3% (A) The provision for deferred in come taxes r e pr esents the tax effects of th e following items: Current Liabilities:

Unbilled revenues Other Subtota l Deferred C r edits: Additional t ax depreciation a nd amo rti za ti o n Leasing Activ iti es P roperty Abandonments Oil and Gas Propert y Write-Down Deferred fuel cos t s -net Other Subtotal Total $ 123,721 41,741 (11 , 582) (6 , 393) 9,285 (2,345) $(15 , 1 55) $(19,627) 150 1,05 1 (15 , 005) (18 , 576) 133 , 08 1 43 , 30 1 (11 ,690) (6,394) (36,822) (3,2 54) 1 09,024 85,641 (11 ,825) (6 , 393) (22, 414) 1 ,828 154,427 118,222 1 55,861 $154,427 $1 03 , 217 $1 37,285 Def erre d income taxes a r e pro v id e d for diff ere nce s between b oo k a nd t axa bl e income. F o r PS E&G th e def e rr e d in co me taxe s are limit ed t o the ex t e nt permitt e d fo r ratemaking purp oses. At D ece mb e r 3 1 , 1991 the c umulativ e n e t amount of incom e t ax timin g diff e r e n ces for which deferred income taxes have not been provided was $1 billion. See Note I -Organization and Summary of Significant ing Policies for a discussion of the effect of SFAS 96 , "Accounting for Income Taxes: ' and Note 2 -Rate Matters. 9. Capital Lease Obligations The Consolidated Balance Sheets include assets and related tions applicable to capital leases where PSE&G is a lessee. The total amortization of the leased assets and interest on the lease obligations equals the net minimum lease payments included in rent expense for capital leases. Capital leases of PSE&G relate primarily to its corporate quarters and other capital equipment.

Certain of the leases contain re n ewa l and purchase options and also contain escalation clauses. E n terprise and its other subsidiaries are not lessees in any ized leases. Utility plant includes the following amounts for capital leases at December 31: (Thousands of Dollars) 1991 1990 Common Plant $56,812 $57 ,226 Less Accumulated Amortization 2,738 2 , 714 Net Assets under Capital Leases $54,074 $54 , 512 Future minimum lease payments for noncancelable capital and ating leases at December 31, 1991 were: (Thousands of Dollars) 1992 1 993 1994 1995 1996 Later Years Minimum lease payments Less: Amount representing estimated executory costs , together with any profit thereon , included in minimum lease payments Net minimum l ease payments Less: Amount representing interest Present value of net minimum lease payments (A) Capital Leases $ 13 , 014 13,014 13,015 13 , 016 13 , 016 238 , 623 303 , 698 151 , 723 151,975 97,901 $ 54,074 Operating Leases $ 7 , 477 6,000 4 , 721 4 , 500 3 , 511 11 , 710 $37 , 919 (A) Reflected in the Consolidated Balance Sheets in Capital Lease Obligations of $53 , 617,000 and in Long-Term Debt and Capital Lease Obligations due within one year of $457,000. The following schedule shows the composition of rent expense included in Operating Expenses: (Thousands of Dollars) For the Years Ended December 31, 1991 1990 1989 Interest on Capital Lease Obligations

$ 6,205 $ 6,284 $ 6 , 322 Amortization of Utility Plant under Capital Leases 439 452 409 Net minimum lease payments relating to Capital Leases 6,644 6 , 736 6 , 731 Other lease payments 26,290 19,516 18,178 Total Rent Expense $32,934 $26 , 252 $24,909 10. Short* Term Debt (Commercial Paper and Loans) Commercial paper represents unsecured bearer promissory notes sold through dealers at a discount with a term of nine months or less. Certain information regarding commercial paper follows: PSE&G (Thousands of Dollar s) 1991 1990 1989 Principal amount outstanding at end of year $165,857 $486.818 $328.000 Maximum principal amount outstanding at any month end $499,171 $486.818 $328.000 Average daily outstanding

$400,000 $240.000 $113.900 Weighted average annual interest rate 5.98% 8.22% 9.04% Weighted average interest rate for commercial pape r outstanding at year-end 4.99% 8.34% 8.68% At December 3 1 , 1991, PSE&G had authorization from the BRC to issue and have outstanding not more than $500 million of its shortterm obligations at any one time , consisting of commercial paper and other unsecured borrowings from banks and other lenders. In February 1992 the BRC increased the authorization to $800 million. 40 PSE&G has a $600 million revolving credit agreement with a group of banks which expires in 1992. As of December 3 1 , 1991, there was no short-term debt outstanding under this agreement.

On June 28, 1990, Fuelco established a $200 million commercial paper program to finance its share of Peach Bottom nuclear fuel, supported by a $200 million revolving credit facility with a group of banks. PSE&G has guaranteed repayment of Fuelco's respectiv.e obligations. As of December 3 1 , 1991and1990, Fuelco had $1 million and $148.8 million outstanding under such program. Ho l dings (Thousands of Dollars) 1991 1990 1989 Amount outstanding at end of year $223,193 $272 , 041 $110,939 Maximum amount outstanding at any month end $326,537 $320,702 $110,939 Average daily outstanding

$243,700 $229 , 500 $ 18,800 Weighted average annual interest rate 5.92% 8.25% 8.68% Weighted average interest rate for commercial paper outstanding at year-end 5.04% 8.31% 8.61% Funding has a $241 million commercial paper program supported by a direct pay commercial bank letter of credit and a revolving credit facility which expires in August 1992. The December 1989 balance includes $10.4 million related to an outstanding capital note of Resources Capital Management tion, a subsidiary of PSRC, which was payable in installments through June 1990. Enterprise At December 31, 1 991, 1990 and 1989, Enterprise had $25 million , $273 million and $295 million, respectively, of lines of credit ported by compensating balances under informal arrangements with banks. At December 31 , 1990 and 1989, $150 million and $55 lion, respectively, of these lines of credit were compensated for by fees. At December 31, 1991, Enterprise had no such arrangements.

• 0111111itments and Contingent Liabilities Nuclear Perfor111ance Standard In 1987, the B RC issued an order establishing a performance dard for nuclear generating stations owned by New Jersey electric utilities including the five nuclear units in which PSE&G has an ownership interest:

Salem 1 and Salem 2-42.59% each; Hope Creek -95%; and Peach Bottom 2 and 3 -42.49% each. PSE&G operates Salem and Hope Creek while Peach Bottom is operated by Philadelphia Electric Company (PE). This nuclear performance standard (Standard) was revised by the BRC in June of 1990. The pena l ty/reward u nder the Standard is a percentage of ment power costs. (See table below.) The Standard provides that the penalties will be calculated to the edge of each capacity factor range. For example, a 30% penalty applies to replacement power costs incurred in the 55% to 65% range and a 40% penalty applies to replacement power costs in the 45% to 55% range. Capacity Factor Range Equal to or greater than 75% Equal to or greater than 65% and less than 75% Equal to or greater than 55% and les s than 65% Equal to or greater than 45% and less than 55% Equal to or greater than 40% and less than 45% Below40% Reward 30% None P ena lt y None 30% 40% 50% BRC Intervenes

-d the Sta n dard, the capacity factor is calculated annually using um dependable capability of the five nuclear units in which G owns an interest.

This method takes into account actual operating conditions of the units. While the Standard does not specifically have a gross negligence provision, the BRC has indicated that it would consider allegation s of gross negligence brought upon a sufficient factual basis. A finding of gross negligence could result in penalties other than those scribed under the Standard. During 1991, the five nuclear units in which PSE&G has an ership interest aggregated a 71 % combined capacity factor. Nuclear Insurance Coverage s and As s e ss 111e nts PSE&G's insurance coverages and maximum retrospective ments for its nuclear operations are as follows: Type and Source of Coverages Public Liability:

American Nuclear Insurer s Indemnity (A) Nucle a r Worker Liability:

American Nuclear In s urers (C) Property Dama ge: Nuclear Mutual Limited e rican Nuclear Insurers ar Electric Insurance Ltd. Replacement Power: Nuclear Electric Insurance Ltd. PSE&G Maximum Retro spective Total Site Assessment s for Coverages a Single Incident (Mi llions of Dollars) $ 200.0 $None 7,607.0 175.4 $7 , 807.0(B) $175.4 $ 200.0 $ 8.4 $ 500.0 $ 15.4 700.0(D) None 1 , 250.0(E) 11.6 $2, 450.0 $ 27.0 $ 3.5(F) $ 11.7 41 (A) Retrospective premium program under the Pric e-A nderson Liability provi s ions of the Atomic Energy Act of 1954, as amended (AE Act). Subject to retrospective assessment with respect to los s from an incident at any licensed nuclear reactor in the United State s. (B) Limit of liability for each nuclear incident under the AE Act. (C) Represent s the potential liability from workers claiming exposure to the hazard of nuclear radiation. This does not increase PSE&G's obligation under the Anderson Liability provision s of the AE Act. (D) Incre ase d to $765 million on January 1 , 1992. (E) Includes coverage for premature decommissioning of up to $200 million per si te. (F) Weekly indemnity for 52 week s which commences after the first 21 weeks of an outage. Also provides $2.4 million weekly for a second 52-week period, and $1.2 million weekly for a third 52-week period. The Price-Anderson Amendments Act of 1988, as amended , (Price-Anderson Act) sets the " limit of liability" for claims that could arise from an incident involving any licensed nuclear facility in the nation. The " limit of liability" is based on the number of licensed nuclear reactors and is adjusted at least every five years ba se d on the Consumer Price Index. The current " limit of liability" i s $7.8 billion. All utilities owning a nuclear reactor, including PSE&G , have provided for this exposure through a combination of private insurance and mandatory participation in a financial tion pool as established by the Price-Anderson Act. Under the Anderson Act , each party with an ownership interest in a nuclear reactor can be assessed up to $66.2 million per reactor per incident, payable at $10 million per reactor per incident per year. If the ages exceed the "limit of liability" the President is to submit to Congress a plan for providing additional compensation to the injured parties. Congress could impose further revenue raising measures on the nuclear industry to pay claims. PSE&G's maximum aggregate assessment per incident i s $175 million (based on PSE&G's ship interests in Hope Creek , Peach Bottom and Salem) and its maximum aggregate annual assessment per incident is $26.5 lion. In 1984 , in a case to which PSE&G was not a party, the Supreme Court of the United States held that the AE Act, the Price-Anderson Act limitation of liability and the extensive regulation of nuclear safety by the NRC do not preempt claims under state law for sonal, property or punitive damages related to radiation hazards. PSE&G maintains property insurance , including decontamination expense coverage and premature decommissioning coverage, with respect to loss or damage to its nuclear facilities.

The limit of these coverages is $2.450 billion per incident , per site. PE has advised PSE&G that it maintains similar insurance coverage with respect to Peach Bottom. Under the terms of the various insurance agreements , PSE&G could be subject to a maximum retrospective assessment for a single incident of up to $27.0 million. Certain of the policies also provide that the insurer may suspend coverage with respect to all nuclear units on a site without notice if the NRC suspends or revokes the operating license for any unit on the site, the NRC issues a down order with respect to such unit, or the NRC issues a tory order keeping such unit shut down. PSE&G is a member of an industry mutual in s urance company, Nuclear Electric Insurance Limited , which provides replacement power cost coverage in the event of a major accidental outage at a nuclear station. The policie s provide for a weekly indemnity payment of $3.5 million for 52 weeks, subject to a 21-week waiting period. Thereafter, the policies provide for weekly indemnity payments of $2.4 million for a second 52-week period, and $1.2 million weekly for a third 52-week period. The premium for this coverage is subject to retro s pective assessment for adverse loss experience.

Under the policies, PSE&G's present maximum share of any retrospective assessment in any year is $11.7 million.

Construction and Fuel Supplie s PSE&G ha s substantial commitments as part of its construction program which include s capital requirem e nt s for nuclear fuel. PSE&G's construction program is continuously reviewed and ically revised as a result of changes in economic conditions, revised load forecasts, changes in the scheduled retirement date s of existing facilities, changes in bu s ine ss plan s, s ite changes, cost escalations under construction contracts, changes in the requirements of tory authorities and Jaw s, the timing of and amount of electric and gas rate changes and the ability of PSE&G to raise necessary capital. PSE&G periodically reevaluates its forecasts of future customer s, load and peak growth and sources of electric generating capacity to meet such projected growth, including the need to construct n ew electric generating capacity. Forecasts take into account assumptions concerning future demands of customer s, effectiveness of tion and load management activities, the long-term condition of PSE&G's plants , capacity available from other electric utilitie s, and the amounts of cogeneration and other nonutility capacity projected to be available.

Construction expenditures of $4.8 billion , including

$240 million of allowance for fund s u se d during construction, are expected to b e incurred by PSE&G during the years 1992 through 1996. This mate of construction requirements is ba se d on expected project completion dates and include s anticipated escalation due to inflation of approximately 4%, annually.

Therefore , construction delay s or higher inflation levels cou l d cause significant increases in the se amounts. PSE&G expects to generate internally a majority of the funds necessary to satisfy it s construction expenditures over th e next five years. In addition, PSE&G does not pre se ntly anticipate any difficulties in obtaining sufficient sources of fuel for electric getion and adequate gas supplies during the years 1992 through 1996. Oil and Gas Property Write-Down On October 31, 1986 , the BRC approved agreements b y PSE&G and the major parties in PSE&G's gas base rate case, which provid e d for an annual reduction in gas base revenues of $30 million, effective October 31, 1986, and for the removal of EDC , at that time a wholly-owned subsidiary of PSE&G , from inclu s ion in it s gas rate base for ratemaking purpo ses. In the BRC-a pproved agreement, PSE&G was allowed to defer any los s on it s inve s tment in EDC as a result of any write-down of the value of re se rve s as of Decemb e r 31, 1986, and to seek recovery of such loss over a period of not l ess than 10 years in its next gas base rate proceeding.

On October 31, 1986 , the price paid by PSE&G for natural gas from EDC wa s reduced as a re s ult of a change in PSE&G's gas LGAC a ppro ved b y the BRC. As a re s ult of the se regulatory actions, EDC wrote down the value of it s re se rves as of December 31, 1986 by $134.5 million , which amounted to $70.5 million after the tax effect, to reflect the then lower net realizable value of its oil and gas reserve s. PSE&G deferred $58.8 million of the after-tax los s as of December 31, 1986. On July I , 1988 , PSE&G beg a n amortizing the $58.8 million deferr e d amount, absent regulatory approval, at the rate of 10% per year. As of Dec ember 31, 1991 , the balance remaining to be amortized was $34.1 lion. PSE&G is seeking recovery of the entire $70.5 million in its current gas base rate case. Denial of the recovery of any unamortized balance by the BRC would require an immediate write-off.

42 Envi r onment General The Federal Compr e hen s i ve En v ironmental Re s pon se , tion , and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986 , and the Federal Re so ur ce Conser va tion and Recover y Act of 1976 a uth or ize the United States Environmental Prot ec tion Agency to issue orders and/or to bring an enforcement action to compel respon s ible parties to take investigative and/or remedial actions at any site that i s mined to present an imminent and substantial danger to the public or to the environment because of an actual or threatened release of one or more hazardous s ubstance s. The New Jersey Spill tion and Control Act and the New York Environmental Conservation Law provide similar authority to the New Jersey Department of Environmental Protection (now known as the Department of ronmental Protection and Energy) (NJDEPE) and the New York Attorney General, re s pectively. Becau se of the nature of PSE&G's bu s ine ss, including the production of electricity, the di s tribution of gas a nd , formerly, the manufacture of gas, various by-product s and s ub s tances are or were produced or handl e d which contain ents cla ss ified as hazardous under one or more of th e above Jaw s. PSE&G ge nerally provide s for the di s po sa l or proce ss in g of s uch s ubstances through licen se d independent contractors.

However , these statutory provision s impose joint and seve ral responsibility without regard to fault on a ll responsible p a rtie s , including the ge nerator s of the hazardous substances, for certain inve s tigative and remedia. costs at s ites where the se s ub s tance s were di s posed or proce sse PSE&G ha s been notified with re s pect to a number of s uch s ites a the remediation of these potentially hazardous sites is receiving greater attention from the government agencies involved.

Generally, actions directed at funding such site inve s tigations and remediation include all suspected or known re s pon s ible parties. PS E&G doe s not expect it s expenditures for any such s ite to be materi a l. PSE&G Manufactured Gas Plant Remediation Program In March 1988, NJDEPE notified PSE&G that it had identified the need for PSE&G , pur s uant to a form a l arrangement, t o syscally inve s tigate and, if necessary , r eso l ve environmental concerns extant a t PSE&G's former manufactured gas plant s ite s. To date , NJDEPE and PSE&G have identified 38 former gas plant s ite s. At a minimum , some form of investigation will be required at each of these sites. PSE&G is currently working with NJDEPE under its Remedi a tion Pro gra m , pur s uant to which PSE&G would undertake to in ves ti ga te the se s it es. Upon completion of the se investigations, so me or a ll of the se s it es may requir e remedial ac tion. PSE&G h as co mpleted a preliminary assessment of 28 of such s it es. PSE&G anticipates that its Remediation Program , to assess, inve s tigate a nd , if nece ssa ry , remediate environmental concerns at it s former gas plant s ite s, will require a s ubstantial effo rt and may take more than 20 yea r s to complete.

The overall cost of the investi ga ti o n and di a tion cannot be rea onably estimated , but experience to date cates that costs of at lea s t $20 million per year could be incurred over a period of more than 20 years and that the overall cos t cou-be m a terial.

• A s of December 31 , 1991 , PSE&G had incurred approximate!

$28 million of R e m e diati o n Pro gram costs (R e medi a ti o n Costs) and recorded a li a bilit y of $10 8 million for suc h esti m ated costs through 1995. Any reasonabl e estima te of R e m edia tion Costs to b e incurr e d beyond this time ca nn o t be made. In accordance w ith a Stipulation ved b y the BRC on January 21, 199 2, PSE&G w ill recover $15.9 million of it s Remediati on C os t s durin g th e 1991-92 LGAC period and $7. 9 million in each of it s next four LGAC periods e ndin g in 1996 , net of insuran ce recoverie s. The ba se rate filing of Nvember 14 , 1991 , which i s not expected to b e effec tive until lat e 1992 , at the earliest, will eva lu a te the rea so n a bl e ne ss a nd r eg ul a t ory treatm e nt of th e Remedi a ti on Costs cove red by thi s Stipulation. Absent in s urance re covery, denial of th e re cove r y of a n y un a mtized balanc e of s u c h cos t s b y th e BRC would r eq uir e an immediate write-off.

(Se e Note 2 -Rat e M a tter s -Ba se R a t es a nd LGA C.) In November 198 8, PSE&G filed s uit against ce rt a in of it s insurers to recover the costs associated with a ddre ss ing a nd r eso lving e n vronmental i ss ue s of the Rem e di a tion Program. Th e litigation is currently in the di scove ry pha se with certain in s urer s and PSE&G has se tt l e d it s claim with one insurer. Pendin g full recovery of Rmediation Co s t s throu g h rates or under it s in s uran ce policie s, n e ither of which can b e assured, PSE&G will b e r e quir ed t o finance the unreimbur se d cos t s of it s R e m e di a tion Pro gra m. Public Service Resources Corporation As of De ce mber 3 1 , 1991 , PSRC h a d a n inv estme nt of $19 million in equity sec urities (prim a ril y pr eferre d s t ock) a nd $1 5 million in s ubordin a ted debt of Second National Federal Savings B a nk of Sali s bury, Maryland (SNFSB). On Dec e mb e r 3 1 , 1990 , SNFSB failed to meet certain of the pre sc ribed ca pit a l requirements of th e Federal Office of Thrift Super v i s ion (O TS). Subsequently, SNFSB *with OTS a nd h a d received approva l of a Capital Pl a n designed n g SNFSB b ack into com pli a nc e wi th OTS cap it al require-s b y th e third quarter of 19 94. On November I , 1991, SNFSB announced th a t it had a dd e d $29.7 milli o n to it s l oa n lo ss reserves in the quart e r e nd e d September 30, 1991. Such ad diti o n s were d e tmined by SNFSB in co njun c ti o n with a federal regulatory exa mintion o f it s major l oa n s. These actio n s ca u sed a $21 million l oss for SNFSB 's qu a rt e r e nd ed September 30, 1 991 and a deficiency in its tangible ca pit a l requirements of a ppro x im a t e l y $500 thousand.

In December 1991 , SNFSB filed a revised C a pit a l Plan (Plan) with OTS. The Plan s howed capital compliance b y D ece mber 31 , 1994 , the tim e p e ri od r e quir ed b y app li ca bl e l aw. The Plan r eflects th e exc h a n ge of PSRC's $15 milli o n in su b o rdin ated debt fo r $15 million of pr eferred s t ock. Such exc h ange has been approved by OTS and was effective February 5, 1992. Enterprise cannot predict whet h er OTS will a pprov e SNFSB's r ev i sed Capital Pl a n o r what o th e r action OTS may tak e. If , how eve r , OTS were to tak e over SNFSB, Enterpri se co uld b e required t o write off its r e l a t ed investment , amounting t o $22 million af ter the tax effect , or t e n cents per s h are of Enterprise Common Stock .

• 43 Energy Development Corporation (EDC) EDC i s required to perform a full co s t ceiling test with respect t o the r eco rded cost of it s oil a nd gas re se r ves, takin g into account current market price s. Failure to satisfy the te s t requir e ment s would require EDC to write down the capitalized costs of it s re se rv es to current market price s. Any s uch write-down would dir ec tl y affec t net in co me a nd ea rnin gs per s h a r e after th e tax effect. EDC sa t isfied the r eq uir eme nt s of s u c h test as of De cember 3 1 , 1991. H owever, continuation of the sof t natur a l gas market co uld re s ult in EDC bein g r e quir e d to write down a portion of the book cost of its se rv es in the future , which write-down co uld b e material.

Enterprise Group Deve l opment Corporation (EGDC) The c urrent ge neral deterioration of the re a l estate market a nd ation a l fundin g of project lo a n s to meet d e bt cove nants , ha s r e du ce d cash flows a nd return s fro m certain of EGDC's prop e rtie s. Further , s uch facto r s will reduc e futur e ga in s, if a ny , upon any ultimate sa l e of s uch propertie s. One s p ecific project being developed by a partnership in which EGDC h as a n indirect int e r es t co n s i s t s of a multipha se co mm e r c i a l office d eve lopment , the first phase of w hi c h is co mpl e te a nd partially leased. P rojec t financing h as been pro vi d ed by a nonr eco ur se co ns tructi on l oa n , wi th a b a l a nc e presently o ut s tanding of mat e l y $32 million. EGDC's partner ha s advised EGDC that it does not intend t o make any further capital contributions to th e proje c t. A s of D ece mber 31 , 1991 , EGDC had inv es t e d approximately

$26 milli o n in the project. E GDC is currently eval u a tin g its o pti o n s wit h respect to this proj ect and is ex pl o rin g wit h the lender th e potential for favorab l y re s tructurin g the l oa n. On January 14, 199 2 , the partnership was a d v i se d th a t th e l e nder was acce l erati n g the e ntir e c ipal amount of the l oa n , with full pa y ment r eq uir e d by January 30, 1992. Th e l oa n was accelerated due t o th e fa ilur e of the p ar tn ers hip to make certai n payments aggrega tin g $5.2 million in sa ti sfact i o n of covenants required by th e l oan agreement.

In th e eve nt that EG DC det e rmin es n ot to make f urth e r cap ital cont ribution s to this project and th e lender elects t o foreclose the lo a n , EGDC will be r eq uired to write off it s investment, which ba se d up o n its current inv es tment of approx im ate l y $26 million would result in an Enterprise l oss , net of Federal income taxes , of approximately

$17 million or mately eight ce nt s per share of Enterprise Common Stock. No a n ces can be given that Enterprise will n ot incur a l oss wit h respect to this project or other projects in EGDC's portfolio.

12. Pension Plan and Other Post-Employment Benefits The discount rate , expected long-term return on assets and average com pen sa tion growth used in determining the plan's funded s tatu s as of December 31 , 1991 and 1990, and net pen s ion cost s for 1991 , 1990 and 1989 , were as follow s: Di sco unt R ate Use d to Determine Pen s i o n Co s t Di sco unt ed R ate Used t o Detennine Benefit Obli g ations Expected Lo n g-Term Return on Assets Average Compensation Growth 1991 199 0 7'/*% 7 V 2% 9% 6% 7W 1'o 7 3/*% 8% 6% The following table shows the plan's funded s tatus: (T h ousa nd s of Dollar s) December 31, Act u aria l pr ese nt va lue of benefit obligations

Accumulated ben efit o bligation s, includin g ves ted be n efits of $9 1 3,041 and $817,837 Effec t of projected future co mp e n sa ti o n P rojec t e d b e n efi t obligations Pl a n asse t s at fair va lu e, primarily li s ted equity a nd debt secur iti es Projected benefit obligations in excess of plan assets Unrecog ni ze d net ga in (loss) from p as t experience and effects of c h a nge s in ass umption s Prior se r v i ce cos t not yet recognized in net pen s i o n cost U nr ecog ni ze d net obli ga ti o ns being re c ogni ze d over 1 6.7 years Prepaid (acc ru ed) pen s ion expense 1991 $ (977,710)

(298,618) (l,276,328) 1 , 140,660 (135,668)

(33,430) 75,411 93,687 $ 1990 $ (873,74 5) (292 , 658) (I , 166 , 403) 970 ,8 86 (195 , 517) 12 ,890 80,8 40 101 , 787 $ The net pen s ion cost for the years ended December 31 , 1991 , 1990 and 1989 , include the following components: (Thousa nd s of Dollars) Se r vice cost -benefit s ea rned durin g year Int e r es t cost o n proje cte d benefit o bli ga tion s R e turn on asse t s Net amortization and deferral Total 1991 1990 1989 $ 33,652 $ 34,323 $ 28 , 185 89,324 83,930 74 , 997 (191 , 996) 41,425 (159,767) ll9 , 020 (109 , 678) 98,585 $ 50,000 $ 50 , 000 $ 42 , 000 Supplemental pen s ion costs in 1991 , 1990 a nd 1989 , were $419,000, $947, 000 a nd $1,900,000, re s pectively. In addition to the pension plan , Enterprise also provides certain h ealt h care and life insurance benefit s to active and retired pl oyees. The cost of these benefits i s charged to expen s e when paid. (See Not e I -Organization and Summary of Significant in g Poli c i es.) 13. Financial Information by Business Segments Informat io n related to th e seg ment s of Enterprise

's bu s ine ss is detailed below: Fo r the Year Ended December 3 1 , 1991 Nonutility (Thousand s of Doll a r s) Electric Gas Activities (A) Total Operatin g Revenue s $ 3,500,043

$1 , 307,849 Eliminations (Interse g-ment Revenue s) Total Operating Revenue s 3 , 500 , 043 1,307 ,849 Depreciation and Amortization Operating Income before Income Taxes Capital Expenditures De ce mber 3 1 , 1991 Net Utility Plant Oil and G as Propert y, Plant & Equipment Other Corporate A ssets T o t al A ss ets 399,574 1,007,342 672,852 9 , 006 , 125 1,294,487

$10 , 300,612 For the Y ea r Ended December 3 1 , 1 990 (Thousand s of Dollar s) E l ec tri c Operatin g R ev enue s $ 3,332,4 1 7 Eliminations (Interseg-ment Revenues) Total Operating Revenue s 3 , 332,4 17 Depreciation and Am o rtization Operating In co me be fore Income Taxe s Capital Expenditure s De ce mb e r 31 , 1990 Net Utility Plant Oil and G as Property , Plant & Equipment Other Corporate Asset s T o t al Assets 385,567 972,806 82 1 , 242 8,768,462 1 , 33 1 , 729 $10 , 100 , 191 For the Year Ended December 31 , 19 89 (T h o u sa nd s of Dollar s) Operatin g Revenue s E limin a ti o n s ment R eve nue s) Total Operating Revenue s Depre c iati o n and Amortizati o n Operating Income befor e Income Taxes Capital Expenditures December 31 , 1989 N e t Utility Plant Oil and G as Propert y, Plant & Equipment Other Corporate Assets T o tal A ssets E l ec tri c $3,279,9 1 3 3,279,9 1 3 374,086 925 , 209 552 , 603 8 ,3 14 ,8 61 1 , 377,649 $ 9,692, 510 93,532 ll5,259 140 , 297 1,176 , 456 570,918 $1 , 747 , 374 Gas $1 ,236,747 1 , 236,747 88,864 73 ,682 146 , 781 1 , 105 ,3 1 9 426 , 919 $1 , 532,238 Gas $1 ,3 62,470 1 ,362,470 86 , 15 8 122 , 854 1 21 , 6 11 1 , 021 ,774 401 ,9 78 $1 , 423 , 75 2 $336,625 $5 , 144 , 517 (51 , 307) (51,307) 285,318 5,093,210 ll9,723 146,039 221 , 695 895 , 066 1,881 , 317 $2,776,383 Nonutilit y Activities(A)

$ 281,250 (50 , 279) 230 ,97 1 87,053 137 ,778 298 ,3 66 794,979 1 , 5 95,902 $2,390 , 88 1 Nonutility Activities (A) $ 207, 1 65 (44 , 696) 16 2,469 64 , 270 102 ,7 58 414 , 837 608 , 689 1 , 1 94 , 483 $1 , 803,172 612,820 1,268,640 1 , 304 , 844 10,182,581 895 , 066 3 , 746,722 $14,824,369 T o tal $ 4,850,4 14 561,484 1 , 1 84,266 1 ,2 66,389 9,873,78 1 794,979 3 , 354, 550 $1 4 , 023,310 Total $4,849 , 548 (44,696) 4,804,852 524 , 514 1 , 150 ,82 1 1 , 089,05 1 9,336,635 608,689 2,97 $1 2,9 (A) Th e N on ut i lit y Activities include amount s app li cab l e to Enterpri se, th e parent co rp ora ti o n. 44

• Jointly-Owned Facilities

-Utility Plant E nt e rpri s e's s ub s idi ary , PSE&G , h as ow n er s hip int e r es ts a nd i s res p o n s ibl e fo r pro v idin g its s h a r e of th e n ecessa r y fin a n c in g fo r t h e fo ll ow i n g jo intl y-ow n e d fac iliti e s. A ll a m o unt s r e fl ec t the s h a re of j o intl y-o wn ed p ro j ec ts a nd th e co rr es p o ndin g dir ec t ex p e n ses a r e includ ed in C o nso li da t e d S t a t e m e nt s of In co me a s a n o p era tin g ex p e n se. (S ee N o t e 1 -Or ga ni za ti o n a nd Summ ary of S i g ni fica nt Acco untin g P o li cie s.) (Th o u sa n ds of D o ll a r s) D ece mb e r 3 1. 1 99 1 P l ant Co a l G e n e r a tin g Co n e m a u g h K eys t o n e N u cl ear G e n e ra t in g P eac h B o tt o m S a l e m H o pe C r e ek N u cl ea r S u pp o rt Faci liti e s Pu mp e d St o r age G e n e r a ti n g Y a rds C r eek Tra n s mi ss i o n F ac il i ti es M e rri ll Cr eek R ese r voir Lind e n Gas P l a nt (cease d th e m a nu fac ture of S G e ff ec ti ve Jul y I. 1 989) 15. Selected Quarterly Data (U n a u dited) O w n e r s h ip In t e r es t 22.50% 22.8 4 42.49 4 2.59 95.00 Va ri o u s 50.00 Va ri ou s 1 3.9 1 90.00 Pl a nt Acc umul a t e d Pl a nt U n der In S e r v i ce Depr ec i a ti o n Co n s tru ct i o n $ 97.0 1 5 $ 30.842 $ 3.928 92.347 27 .2 5 7 3.205 672.393 239.927 22.757 9 1 8.3 09 3 1 7.3 4 7 53.78 1 4.0 72, 705 5 8 4 ,8 50 2 1.849 1 22.7 65 1 7.3 0 2 4.804 20.554 7.358 5 1 3 11 9, 90 1 27.623 8 36,832 5.664 1 5.927 1 6.202 T h e in fo rm a ti o n s h own b e l ow in the o pini o n of E n te rpri se includ e s a ll a dju s tm e nt s, co n s i s ting o nl y of n o rm al r ec urrin g acc ru a l s, n e ce ssa r y to a fa ir pr ese nt a ti o n of s u c h a m o unt s. Du e t o th e s easo n al n a tur e of th e utilit y bu s in ess , qu a rt e rly a m o unt s va ry s i g ni fica ntly d urin g t he y e a r. Ca l e ndar Q u a rt e r E n d e d M a r c h 3 1 , Jun e 3 0 , Sep t e mb e r 3 0 , D ece m be r 3 1. sa n ds wher e app li cab l e) 1991 1 990 1991 1 990 1991 1 99 0 1991 1 990 in g R eve nu es $1 , 416 , 288 $1 ,3 25 , 2 1 0 $1 , 150 , 995 $1.0 74 , 00 2 $1 ,2 58 , 553 $1.1 90.032 $1 , 2 67 , 3 74 $1.2 1 0.89 1 e r a t i n g I n co m e $ 275 , 43 2 $ 2 4 8,248 $ 2 26 , 470 $ 2 00, 229 $ 292 , 882 $ 29 1.887 $ 203 , 58 6 $ 233.11 6 Ne t In co m e $ 160 , 781 $ 1 44 , 660 $ 122 , 241 $ 9 8 ,292 $ 171 , 750 $ 1 8 1.898 $ 8 9 , 4 7 9 $ 11 7.428 Ea rnin gs P e r Sh a re o f Co mm o n St oc k $ 0.7 3 $ 0.69 $ 0.55 $ 0.4 7 $ 0.76 $ 0.86 $ 0.3 9 $ 0.54 Ave r age Sh a r es of Co mm o n St oc k Out s t a ndin g 21 8 , 7 89 2 11 , 1 00 2 24 , 290 2 1 1 , 11 6 2 2 5 , 1 3 7 2 11.884 2 25 , 9 49 2 1 3.797

• 4 5 Consolidated Financial Statistics (A) (Thousands of Dollars where applicable) 1991 1990 1989 1988 1987 Selected Income Information Operating Revenues Electric $ 3,500,043

$ 3,332 , 417 $ 3,279,913

$ 3 , 090 , 609 $ 2,959,549 Gas 1,307,849 1 , 236,747 1 , 362 , 470 1 , 203 , 435 1,219 , 955 Nonutility Activities 285,318 230,971 162 , 469 100 , 648 31,551 Total Operating Revenues $ 5,093,210

$ 4 , 800 , 135 $ 4 , 804 , 852 $ 4 , 394,692 $ 4,211,055 Net Income $ 544,251 $ 542,278 $ 542,137 $ 528 , 586 $ 520 , 451 Earnings per average share of Common Stock $ 2.43 $ 2.56 $ 2.62 $ 2.57 $ 2.55 Dividends Paid per Share $ 2.13 $ 2.09 $ 2.05 $ 2.0 1 $ 1.99 Payout Ratio 88% 82% 78% 78% 78% Rate of Return on Average Common Equity 11.67% 12.72% 13.41% 13.60% 13.88% Ratio of Earnings to Fixed Charges Before Income Taxes 2.54 2.50 2.66 2.81 3.03 Book Value per Common Share $21.01 $20.44 $19.85 $19.11 $18.54 Uti l ity Plant $14,426,560

$13,836 , 874 $12 , 960 , 093 $12,466 , 690 $11,998,816 Accumulated Depreciation and Amortization of Utility Plant $ 4,243,979

$ 3,963 , 093 $ 3 , 623,458 $ 3 , 377 , 187 $ 3,028,712 Total Assets $14,824,369

$14,023 , 310 $12 , 919 , 434 $11,690 , 369 $10,857,551 Consolidated Capitalization

• Common Stock $ 3,262,138

$ 3,043,402

$ 2,857,974

$ 2,710,343

$ 2,710 , 343 Retained Earnings 1,501,085 1 , 421 , 611 1 , 332 , 739 1 , 213 , 260 1,09 Common Eq u ity 4,763,223 4 , 465 , 013 4,190 , 713 3,923,603 3 , 80 , Long-Term Debt 5,128,373 4 , 668,024 4,293 , 578 3,944,776 3 , 287 , 039 Capital Lease Obligations 53,617 54,073 54 , 513 54 , 966 55,374 Preferred Stock with Mandatory Redemption 30,000 Prefeued Stock without Mandatory Redemption 429,994 429,994 429 , 994 429,994 429,994 Total Capitalization

$10,375,207

$ 9,617 , 104 $ 8 , 968 , 798 $ 8 , 353 , 339 $ 7,609 , 683 (A) S ee Mana ge ment's Discu ss i o n and An a l ys is of Financial Condition a nd Re s ult s of Op e ration s and N o tes t o C o n so lidated Fin a n c i a l Stat e ment s.

• 46 erating Stati stics Publi c Service Electric and Gas Company (T hous a nd s of Dollars where applicab l e) 1991 1990 1 989 198 8 198 7 Electric R eve nu es from Sales of Electricity R es id e nti a l $1,116,699

$1 , 038 , 906 $1 , 0 15 , 065 $ 992 , 1 2 1 $ 940 , 915 Commercial 1,575,547 1 , 516 , 755 1 ,464,431 1 ,335, 15 8 1,273,819 Indu s tri a l 728,411 697 , 571 715,669 686 , 854 672, 104 Publi c Street Li g htin g 46,400 45,418 46,750 45 , 620 46,248 Total Revenu es from Sales to Customers 3,467,057 3,298,650 3,24 1, 9 15 3,059,753 2,933,086 Interdepartmental 1,599 1 ,652 1 ,843 1 , 643 1 ,896 Tot al R even u es from Sales of Electricity 3,468,656 3 , 300,302 3 , 243 , 758 3,06 1 , 396 2,934 , 982 Other Electric R eve nu es 31,387 32, 115 36, 15 5 29,213 24,567 Total Operating R eve nu es $3,500,043

$3 , 332,4 1 7 $3 , 279,9 1 3 $3 , 090 , 609 $2 , 959,549 Sales of Electricity

-megawatthour s R es id e nti a l 10,505,547 9 , 875,569 9 , 950 , 773 9 , 94 1 ,003 9 , 299,490 Commercial 17,596,569 1 7,054 , 495 1 6,946,768 1 6,036,020 14 ,990,376 Indu s tri a l 9,406,109 9 , 457 , 985 1 0 , 039,9 1 3 10 , 17 9 , 340 10 , 11 9 , 6 14 Public Street Li g htin g 320,900 3 14 ,936 3 1 0,073 303,782 296,377 Total Sal es to C u s tomer s 37,829,125 36,702,98 5 37 , 247,527 36,460, 145 34,705,857 d e partm en t a l 19,719 1 9,822 23, 1 75 22 , 440 23,709 ales of E l ec tri c it y 37,848,844 36,722 , 807 37,270,702 36,482 , 585 34,729 , 566 Gas Rev e nu es from Sales of Gas R es id e nti a l $ 699,696 $ 667 , 077 $ 772 , 344 $ 695,9 1 8 $ 698,5 1 8 Commercial 426,110 406 , 577 436,349 366 , 776 360,834 Indu s tri a l 138,394 1 30,273 134,272 12 3 , 434 14 5 , 664 Street Li g htin g 468 385 358 359 363 Total R eve nu es fr o m Sales t o Customers 1,264,668 1 , 204,312 1 ,343 , 323 1 , 1 86,487 1 ,205,379 I nt e rd e p a rt m en t a 1 2,689 2, 1 57 3,6 1 3 3 , 059 3,837 T o t al R eve nu es from Sales of Gas 1,267,357 1 ,206,469 1 , 346 , 936 I , 1 89,546 1 ,209,2 1 6 Transportation Service Gas R eve nu es 27,036 15 , 654 11 ,485 1 0,505 7 , 508 Other Gas R even u es 13,456 14 , 624 4,049 3,384 3 , 23 1 Total Operating R even u es $1,307,849

$1 , 236 , 747 $1 , 3 62,470 $1 , 203,435 $1 ,2 1 9 , 955 Sales of Gas -kilotherms R es id e nti a l 1,140,887 1 , 097,034 1 , 253,800 1 , 1 88, 5 32 1 , 11 8 , 609 Commercial 893,069 837 , 650 872 , 684 748 , 283 678,28 1 Indu st ri a l 399,385 34 1 , 467 342 , 928 332,970 373,947 Street Li g htin g 666 657 656 657 655 T o t a l Sa l es t o Customers 2,434,007 2 , 276 , 808 2,470 , 068 2 , 270 , 442 2 , 1 7 1 ,492 Int e rd epa rtm e nt a l 6,174 5 , 144 8 , 705 7,640 8,972 T o tal Sales of Gas 2,440,181 2 , 28 1 , 952 2 , 478 , 773 2 ,278 , 082 2 , 1 80,464 Transportation Service 381,497 1 82 , 056 149 , 586 1 3 8 , 665 98 , 121 Total Ga s So l d or Transported 2,821,678 2 ,464,008 2 , 628,359 2,4 1 6,747 2,278,585

• 47 Officer s and Director s Public Service Enterprise Group Incorporated Officers E. Jame s Fe rland Chairma n of the Board, President a nd Chief Executive Officer Richard E. Hallett Vice Pr es id e nt and Comptroller Robert C. Murray Vice Pre s id e nt a nd Chief Financial Officer R. Edwin Se lo ver Vic e Pr es id e nt and G e n era l Counsel Francis J. Riepl Tre as ur e r Robert S. S mith Secretary Directors Lawr e nce R. Codey Pre s id e nt , Chief Operating Officer and dir ec t o r. PS E&G. M e mb er of Execwive Co mmitt ee and Finan ce Co mmitt ee. T.J. Dermot Dunph y Pr es id e nt , Ch i ef Execut i ve Officer a nd director , Seal e d Air Corpora ti on (m a nu fact ur es protective p ackagi n g produ c ts a nd sys t e m s). Chairma n of Aud i t Committee.

M e mb e r of £recutive Comm itt ee and Or ga nizati o n a nd Compensation Committee.

Robert R. Ferguson, Jr. R et ir e d Cha irm a n of the Board , Pre s ident , C hi e f Exec ut ive Officer and dir ec t o r: First Fidelity Ban corpora ti on; Fir s t Fidelity Bank , N.A.; and First Fidelit y, In c. Chairman of Finance Committee.

Member of Executive Committee, Nominating Committee and Organizat i o n and Compensation Committee.

E. Jame s Ferland Chairman of the B oa rd , Pre s ident a nd Chief Executive Officer o f th e Corpora l ion. Chairma n of Execwive Co mmitt ee. Shirley A. Jack so n Prof esso r of Phy s ic s, Rutgers University.

a nd The o reti ca l Ph ysic i s t , AT&T B e ll Laboratories (p a rt-time). M embe r of Audi t Comm itte e, Finan ce Committee and Nominating Comm itt ee. Irwin Lerner Pr eside nt , C hi ef Exec uti ve Officer a nd director , H offmann-La R oche In c. (manu fac ture s pharmaceutical s , v it a min s , fine c hemic a l s, a nd provides home h ea lth care a nd di ag n os ti c products a nd services).

C hairm a n of Nominating Committee.

M e mb e r of Audit Committee and Organization and Co mp e n satio n Committee. William E. Marfuggi Chairman, Tri-Maintenan ce & Contractors , In c. Member of Finance Commillee and Nominating Committee.

Everett L. Morris Pr es id e nt of Enterprise Di ve r s ifi ed H o ldin gs In co rporated. M e mb e r of £recwive Commillee and Finance Com mitt ee. Marilyn M. Pfaltz Partner of P and R Associates (co mmuni ca ti o n s pe c iali s ts). Member of Aud it Co mmitt ee and Organi z ation and Compe n sation Committee.

Jame s C. Pitney Partn e r in the l aw firm of Pitne y. H ardin, Kipp & Szuch. M e mb er of Audit Co mmitt ee. Finan ce Com mitt ee and Organization a nd Compensation Committee. Jo s h S. Weston C h a irm an of the Bo a rd a nd Ch i ef E xec utive Officer , Automati c Data Pr ocess in g, In c. Chairman of Organization and Co mp e n sa ti o n Committee.

M ember of Exec wi ve Co mmi11 ee and F inance Com mitt ee. Public Service Electric and Gas Company Officers & Directors E. James Ferland Chairman of th e Board and Chief Executive Offic e r Lawrence R. Co de y Pr es ident and Chief Operating Officer Harold W. Borden , Jr. Senior Vice Pre s ident -External Affair s Thomas M. Crimmins, Jr. Senior Vic e President

-Customer Operations Robert J. Dougherty , Jr. Senior Vice President

-Electric Robert C. Murray Senior Vi ce President

-Finance and Ch i ef F in a nci a l Offic e r R. Edw in Selover Senior Vic e President and General Coun se l Rudolph D. Stys S e nior Vi ce President

-Gas PaulH. Way Senior Vice Pr es id ent -Corporate Performance Officers Donald A. Anderson Vi ce Pre s ident-Inform a tion Systems and Corpora t e Services William J. Budne y, Jr. Vice President

-Distribution Systems Frank Cassidy Vi ce Pr es ident -Transmissi o n System s John A. Gartman Vice Pr es ident -Gas S uppl y and Pl a nnin g Curtis W. Grevenitz Vice President

-Ga s Operation s Richard E. Hallett Vice Pre s ident and Comptro ller Stanley LaBruna Vice President

-Nuclear Operations Pierre R.H. Landrieu Vi ce Pre s ident -Fo ss i l Production Frederick W. Lark Vic e Pre s ident -M a rketin g John H. Maddocks Vi ce Pre si dent -Publi c Affairs Steve n E. Miltenberger Vice Pre s i dent a nd Ch i ef Nucl ea r Officer Francis J. Riepl Vice Pr es i dent a nd Trea s ur e r Louis L. Rizzi Vic e Pre s id ent -Customer Servic es Robert S. Smith Vic e Pr es id ent and Secretary Gregory M. Thomson Vice President

-Hum an R eso urce s 48 Enterprise Diversified Holdings Incorporated Officers E. Jame s Ferland Chairman of the Board and Chief Execu tiv e Officer Everett L. Morris Pre s id en t a nd Chief Operating Officer Directors T.J. Dermot Dunph y E. Jame s Ferland William E. Marfuggi Marilyn M. Pfaltz Josh S. Weston (Se e biographica l data under Ente. Presidents of Subsidia Companies Arthur S. Nislick Pre s ident -Community Energy Alt i: rn atives In corpo r ated (CEA) John F. Sc hwar z Pr es id e nt -Energy D eve l opment Corporation (EDC) Albert E. Booth , II Pre s ident -E nterpri se Group Development Corpora ti o n (EGDC) Eileen A. Moran Pre s ident -Public Service R esources Corpora ti on (PS R C) 1991-92 Transition Directors-Enterprise Elected Lawrence R. Co d ey, 9/18 1 9 1 R e tir e d Harold W. Sonn, 4 1 1 6 1 9 1 R es igned Henr y E. Kates, 1 1 22192

• Retired Rob e rt F. Steinke, 8/1 1 9 1 Vice President

-Business and Technical Support orate and Stock Information Stockholder Information -Toll Free New J ersey r es id en t s 1-(8 0 0) 2 4 2-08 1 3 O ut s id e New Je r sey 1-(80 0) 526-8050 TDD/H ea rin g Imp a i red 1-(800) 732-324 1 Te l e ph o n e H o u rs: JO a.m. t o 1 2 p.m. an d 1: 30 to 3: 30 p.m. Mo nd ay-Fr i day (Eas t e rn T im e) Security Analysts and Institutional Investors Dir ector -In ves t or R e l a ti o n s (20 1) 430-6 5 64 Dividend Reinvestment Plan En t e rpri se h as a D iv id e nd R e in ves t me nt a n d Sto c k Pu rc h ase Pl a n und e r w hi c h a ll co mm o n a nd P SE&G p referre d s t oc kh o ld e r s may r e in ves t di v id e nds a n d/or m ake di rec t cas h in ves tm e nt s t o ob t a i n E nt e rpri se co m mo n s t oc k. Pu rc h ases of co mm o n stoc k are m ade fo r th e Pl a n dir ec tl y fro m E nt e rp r i se , a t it s so le d i scre ti o n , a n d/o r in th e o p en m a r ke t. A ll b rokerage a nd o th er fees to ac quire s h a r es a r e a b so rb ed by E nt e rpri se. T o p a r t i c ip a t e ca ll th e t o ll free numb er t o o bt a in a pro s p ect us a nd a n a uth or i za ti o n ca r d. -Trading Symbol: PEG 11Fua1Meeting Pl ease n o t e th a t the A nnu al M ee ting o f S t oc kh o l de r s of P ubli c S e r v ic e E nt e rp r i s e G ro up In corpora t e d w ill b e h e ld a t New a r k Sy mph o n y H a ll , 102 0 B roa d S tr ee t , Newa r k, N.J. o n T u es d ay , A pr i l 2 1 , 1 992 a t 2:00 PM. A s umm a r y of th e m ee ting w ill b e se nt to a ll s t oc kh o ld e r s of record a t a l a t er d a t e. Additional Reports Available-Form 10*K St oc kh o ld e rs o r o th e r int e r es t ed p e r so ns w i s hin g to o bt a in a co p y of E nt e rpri se's or PS E&G's 1 99 1 A nnu al R e p o rt t o th e S ec u r iti es a n d Exc h a n ge Co mmi ss i o n , fi l e d o n Form 1 0-K , m ay ob t a in o ne w ith o ut PSE&G Territory N e w a rk Tre nt o n Camd e n

• c h a r ge by w ritin g t o th e Dir ec t o r-In ves t or R e l a ti o n s , Publi c Se r v i ce E l ec t r ic a nd G as Co mp a n y , P.O. B ox 5 70 , T6 8 , Newa rk , N.J. 0710 1 (t e l e ph o n e (2 01) 4 30-6 5 03). Th e co p y so prov id e d w ill be w i t h o ut ex h i bit s. Ex hibit s m ay b e pur c h ased fo r a s p ec ifi e d fee. Financial and Statistical Review A co mp re h e n s i ve s t a ti s ti ca l re p o rt co nt a inin g fi n a n c i a l a nd o p era tin g d a ta w ill b e ava il a bl e this s prin g. I f yo u w i sh t o rece i ve a co p y, pl ease w rit e t o th e Dir ec t o r -In ves t or R e l a ti o n s , Publi c S e r v i ce E l ec t r ic a nd G as Co mp a n y, P.O. B ox 57 0 , T 6 B , N ewa r k , N.J. 0 7 1 0 1 (t e l e ph o n e (2 01) 430-6 5 03). Transfer Agents A ll S t oc k s: F ir st C hi cago Tru s t Co mp a n y of New Y o r k 30 W est B roa d way , New Y o rk , N. Y. 1 0 00 7 S t oc kh o ld e r S e rvi ces, Publi c Se r v i ce E l ec tric a n d Gas Co mp a n y 80 P a r k Pl aza, P.O. B ox 11 7 1 Newa rk , N.J. 0 71 0 1-1 1 7 1 Registrars A ll St ocks: F ir s t F id e lit y B a nk , N.A., New J ersey 765 B roa d S tr eet , N e w a rk , N.J. 0710 1 F ir s t C hi cago T ru s t Co mp a n y of New Y o r k 30 We st B roa d way, New Y o rk , N.Y. 1 0 0 07 Stock Exchange Listings Common: New Y ork S t oc k Exc h a n ge Phil a d e lphi a Stoc k Exc h a n ge L o nd on S t ock Exc h a n ge Preferred of PSE&G: New Y o r k S t oc k Exc h a n ge Common Stock-Market Price and Dividends Per Share 49 1 99 1 1 9 9 0 Hi g h L ow D i v. Hi gh L o w Di v. Fi r s t Quarter 2s 1 1s 25 1/2 $.53 2 9% 2 5 1/2 $.5 2 S eco nd Qua rt er 2 7 7/s 25 1/. .53 27 1;. 24 3/s .52 T hird Qu a rt e r 2 8% 25 7/s .5 3 261/s 221/2 .5 2 Fo urth Qu a rt e r 293/s 26% .5 4 27 23 .53 T he n u mber of h o ld ers of reco rd of Publi c Serv i ce E nt e rpri s e Gro up In co rp ora t e d co mm o n s h a r es a s of D ece m ber 3 1 , 1 99 1 wa s 1 92 , 1 65 . Des i g n: A rn o l d S aks Assoc i a t es M ajor Ph o t ogra ph y: Lee Y o un g b l ood Public Service Enterprise Group Incorporated 80 Park Plaza PO. Box 1171 Newark , NJ 07101-1171

• * *