ML18100B013

Public Svc Enterprise Group,Inc Annual Rept 1993.

ML18100B013
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Site:	Salem, Hope Creek
Issue date:	12/31/1993
From:	Ferland E PUBLIC SERVICE ENTERPRISE GROUP
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• Public Service Enterprise Group Incorporated Annual Report 1993 -NOTICE-THE ATTACHED FILES ARE OFFICIAL RECORDS OF THE INFORMATION

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Annual Dividend Payout and Earnings Per Share (in dollars) Contents (Thousands of Dollars where applicable)

Total Operating Revenues Total Operating Expenses Net Income Common Stock Shares Outstanding

-Average (Thousands)

Shares Outstanding

-Year-end (Thousands) Earnings Per Average Share Dividends Paid Per Share Book Value Per Share -Year-end Market Price Per Share -Year-end Ratio of Earnings to Fixed Charges Ratio of Earnings to Fixed Charges -PSE&G Gross Additions to Utility Plant Total Gross Utility Plant See Notes to Consolidated Financial Statements.

93 .... 92 91 90 89 507.0 II .11 93 2.16 2.50 92 2.16 2.17 91 2.43 90 ,. 1.90 1993 1992 % Change $ 5,705,559

$ 5,356,781

$ 4,598,712

$ 4,390,646

$ 600,933 $ 504,117 240,664 232,306 243,688 235,396 $ 2.50 $ 2.17 $ 2.16 $ 2.16 $21.07 $20.32 $32.00 $30.875 2.59 2.30 3.30 2.70 $ 890,374 $ 826,761 $15,861,484

$15,081,907 II

• Annual Dividend Payout Earnings Per Share -7 5 19 4 4 15 4 ' 4 8 5 2.5 Letter to Shareholders 2 PSE&G: Issues and Review 6 EDHI: Issues and Review 16 Financial Statements 20 Directors and Officers 48 Stockholder Information 49

• PSE&G Territory

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

Enterprise Diversified Holdings I ncorporated (EDH I), a subsidiary of Enterprise, is the parent company of Enterprise's nonutility businesses.

These activ i ties, which are focused on the unregulated energy industry, include investments in oil and gas exploration and production, pendent power production and other investments.

Dear Shareholders:

Y our company enjoyed favorable financial results and operating performance in 1993. Enterprise's consolidated earnings for the year were $600.9 million, or $2.50 per share, compared with $504.1 million and $2. 17 per share the previous year. Our earnings exceeded by a able margin the earnings of any prior year in our history This earnings increase resulted principally from: new, higher utility rates for our subsidiary, Public Service Electric and Gas Company (PSE&G); refinancing of $1.5 billion of debt to take advantage of lower interest rates, thereby reducing our annual interest expense by more than $23 million; and favorable weather conditions.

These factors, combined with rigorous cost-control efforts and productivity improvements throughout the corporation, helped achieve the new level of earnings. To further improve this performance, we have been positioning Enterprise so it can aggressively meet the increasing competition in the electric and gas industries.

We intend to place continuing emphasis on cost-cutting, productivity boosts, and development of new revenue sources to maintain our earnings momentum.

Winds of Change For the past several years, we have been talking about the development of competition in the gas and electric businesses.

Competition is reshaping the business landscape of the United States, and the energy industry is only the latest in a long line of industries feeling its effects. With the passage of the Energy Policy Act in late 1992, we see competition rapidly reshaping the electric and ural gas industries.

The reality of competition was driven home for us in October; when Standard & Poors (S&P), the credit rating agency, revised downward its long-term outlook for some 40 utilities, including PSE&G. 2 S&P listed several matters, particularly increased petition, that it believes may affect the long-term itability of many energy companies.

We have been aware of the issues raised by S&P and we are addressing them. Long before the S&P analysis, we had been responding with vigorous cost-cutting efforts , including staff tions and inventor y control initiatives. We continue to focus on and achieve success in the bulk power sales market and we continue to pursue significant efficiency ment in all aspects of our operations.

We are working actively to attract new business to our service area. And we have joined with other utilities, state lawmakers , lators, industry and labor officials to encourage new lation that will allow us new regulatory freedom to compete with all comers in the energy market. We maintained 1993 nuclear operations and nance expenses at 1992 levels. The Nuclear Regulatory Commission's assessment of our nuclear plant mance continues to refiect improvement, and 1993 marked a record-setting year in nuclear operating capacity, due principally to Hope Creek's 97.7% capacity factor. Despite these accomplishments , we do not mate the challenges facing us. We do believe that we understand the potential threats we face, as well as the emerging opportunities, and we are taking aggressive steps to meet them. Redefining the Business We are reorienting and redefining our entire company -PSE&G and Enterprise Diversified Holdings Incorporated (EDHI) -to be successful in the tive environment.

We are evolving from primarily a lated supplier of electricity and gas for New Jersey customers to an energy company providing a broad range of energy services to our customers in New Jersey, across the United States and in foreign countries.

• E. James Ferland Chairman of the Board, President and Chief Executive O fficer. Public Service Enterprise Group Incorporated In the future , EDHI will emphasize energy generation through its independent power company, Communit y Energy Alternatives Incorporated (CEA), an d energy ation, development and production through Energy Development Corporation (EDC). I t is clear th at PSE&G s bu sinesses are moving inexorably down a path where the only full y regulated activities will be the distribution of natu ral gas an d electricity.

We are, therefore, working to help shape the future ti v e environment and to prepare PSE&G to operate as a competitive bu s iness. Generall y, our efforts fall into three categories:

first. activities directed at impro ving the relative economics of existing PSE&G assets to position them to better compete in tomorrow's energy marketplace; second, the ment of new companies a nd businesses that capitalize on our knowledge and abilities; and third, actively working to shape the rules that will apply to the energy marketplace of the future. One example of our effort s is the creation, in Januar y 1994 , of a new unregulated subsidiary, Public Service Ga s Marketing Company, which will join with Cincinnati Gas and Electric Company to form a retail natural gas ing partnership to enhance our ability to offer gas sales on a multi-state basis. Another example is PSE&G's active pu rs uit of market opportunities to sell wholesale electric energy and ity both within and outside New Jer sey. We expect that the generation of electric power wil l continue to be a vital and important contributor to PSE&G earnings for the foreseeable future. We also are develop ing a broad spectrum of initiatives that will help us retain our existing customers, expand our product and service offerings and attract new customers. Customer Satisfaction To accomplish our goals, we are focusing on customer needs as never before. During 1993, we initiated a Customer Satisfaction Man ag ement system -a proce ss of continually surveying our customer population on the key factors that influence their perceptions of the compan y. We use customer-survey data to optimize our proces ses, guide our allocation of resources and, in general, to cantly improve the way we s er v e our customers.

We also have moved aggressively to make the Qualit y process our standard in e v er y PSE&G operation.

Qu a lit y teams of PSE&G employees began innovative process changes throughout the company during 1993. The result cost savings of $1 5 million, improved customer satisfa ction and shortened cycle time s. The se are but a few of the initiatives we are taking to meet the challenge s an d o pportunities of petition.

The y are part of a wel l-de v eloped plan to position ourselves for the energy indu st r y of the future, not the uti l ity industr y of the pa s t. 3 Legislative Initiatives The rules and regulation s created for a utilit y ol y e n v ironment are no longe r s uitable for the ti v e and fast-paced energy industr y of today This new en v ironment dictates that we must have greater flexibilit y to p r ice our s er v ice s and to re s pond quickl y to ti v e s ituation s. We s eek the opportunit y to compete in a fair and less r e s t ri ct iv e marketplace, unde r rules that will pro v ide the benefits of competition to all customers, not just a select few. A major step toward remo v ing the obstacles that der our abilit y to compete fairly would be passage of lislation that permits greater flexibility in the pricing of our s er v ice s. Such legislation also would provide considerable opportuni ty to attract new bu s iness to New Jersey , which would also greatl y assist the state's efforts to revitalize its busine s s environment.

We will continue in 1994 to pursue this and other tiatives with the legislature and with the administration of *New Jersey's new go v ernor, Christine Todd Whitman. Long-Term Objectives In the 1992 annual report, I outlined the efforts required to achieve our vision for Enterprise:

" Working together to set the standard of excellence in de l ivering energy services to customers." I listed some basic requirements for success -requirements that are e v en more important as we enter 1994. They are:

• We must strive to be the low-cost energy supplier in the Middle Atlantic region.

• We must work to attain the highest standards of cu s tomer service and satisfaction.

• We must ha ve a di v er s e , moti v ated and skilled workforce.

4

• We must achieve a level of operational performance that is the best in the industry.

• We must continue to provide leadership in New Jerse y and beyond on economic development, the ment and energy policy We are committed to achieving excellence in those fi v e ke y areas. During 1993, we made good progress in each of them, progress that must continue in the years ahead. We believe we have established a solid foundation for making a successful transit i on to the competitive marketplace, and we anticipate the future for Enterprise with considerable optimism.

E. James Ferland Chairman of the Board , Pres i dent and Chief E xecutive Officer Public Service Enterprise Group Incorporated February I 8, 1994 1

• Enterprise

• Allocation of A sse ts a t Dec e mber 31 , 1993 Sour c e of Con so lidated Net Income ($601 million) Source of 1993 Revenues (per dollar) Di s tribution of 1993 Re v enues (per dollar) Capitalization 1990-1993 (in billions)

Enterprise Total Assets PSE&G

• Electric 72% Gas 1'4% EDHI .PSRC8% EDC-4% *EGDC 1% CEA 1% Earnings Per Share (Rounded)

• Electric Gas *EDC PSRC *cEA EGDC * .65 Electric Revenues .28 Gas Revenues $16.3 Billion 11.7 Billion 2.2 Billion 1,319 Million 679 Million 203 Million 211 Million 2.05 .35 .19 .08 .06 (.23) * .07 Di v ersified R e v enues * .28 Fue l , Purcha se d Power & Gas .17Taxes * . I '4 Materia l s and Services .13 Reinvested in Business * . I 0 Dividends

.09 Interest * .09 Salaries & Wages

• Long-Term Debt Preferred Stock

• Common Equity 5 Issues and Review PSE&G Operations Overview he combination of a rate increase, a significant perfor-e&E G's electric revenue s totaled .69 bill'on and gas re v enue s 1.59 compared with ii ion and $1.59 billion 1th 1992 sales. Residential electric sales ustrial sales were down 1.0%. PSE&G gas sales were up 5.3% compared with 1992. Residential sales were up 1.2%, commercial up 0.4% and industrial up 18.5%. The increase in industrial sales was primarily due to higher sales for electric cogener ation. Gas transportation service increased 2.6%, compared with 1992. Total gas sold or transported increased 4.9%. PSE&G's earnings to fixed charges coverage was 3.30 times, up from 2.70 times in 1992. Cash flow was strong, and PSE&G met most of its $863 million construction expenditures through internally generated cash. 6 Lawr e nce R. Codey Presid e nt and Chie( O perati n g O fficer, PSE&G COMPETITION lnaeasing the efficiency of older plants like Bergen Generating Station ensures clean, aff o rdable power to meet our customers' ene'IY needs -now and well into the future. CHANGE "Sure we're buy-Ing In to the Quality effort. It's common ..,, ... Howel* .,. we going to hold on to our cu.tomers1" P aul R auch, underground technician During 1993, PSE&G sold $1.973 billion of mortgage bonds, including pollution control debt The proceeds from these issues were principally used to refund outstanding and maturing debt, lowerin g annual interest expense by more than $23 million. During the year, Enterprise sold a total of 8.3 million shares of common stock. Net proceeds of $273 million were used by Enterprise principally to make equity ments in PSE&G, which used the additional funds to repay a portion of its s hort-term debt obligations.

Also, PSE&G sold 750,000 shares of preferred stock. The net proceed s f $75 million were used b y PSE&G for general corporate r Performance i es inc reased significantly from the previou s yea r -for 1993 compared with 66% in 1992. This improve-th e best nuclear stations in the world. This performance enhanced PSE&G's average 1993 nuclear capacity factor for all units and, for the first time, earned a bonus of $3.9 million under the Ne w Jersey Board of Regulatory Commissioners

' (BRC) nuclear formance standard.

The Salem Revitalization Project, aimed at upgrading procedures, equipment and personnel performance at our Salem facilities, met s ignific a nt milestones in 1993, reducing maintenance backlogs by one-third and ing a three-year procedure upgrade project. The improvements at Salem were reflected in the ratings PSE&G received from the Nuclear Regulatory Commission (NRC) when that agency. made its Systematic 7

Assessment of Licensee Performance in September.

Of the s e ve n categories each nuclear powe r plant is graded on, Hope Creek received grades of "s uperior" in six and "good" in one. Salem Nucle ar Generating Stations I and 2 were graded "superior" in three areas and "g ood" in four. Cooling Tower Issue In June 1993, the New Jersey Department of mental Protection and Energy issued a revised draft New Jer sey Pollution Discharge Elimination System permit for the Salem Nuclear Generating Station. The draft permit does not require the construction of costly cooling towers, thus eliminating for our customers the $1-2 billion cost that construction of cooling towers would have imposed. It would, however; require a variety of environmental jects to help increase aquatic life in the Delaware River. Comments on the draft permit were filed in early 1994, and a final permit is being awaited. Weather Responses When two storms within less than I 0 days in March 1993 battered PSE&G's service area, 145,000 customers were left without power. A nor' easter whipped through New Jer sey on March 4 , affecting more than 121 ,000 tomers. Approximately 80% of the affected customers were restored within 24 hours2.777778e-4 days <br />0.00667 hours <br />3.968254e-5 weeks <br />9.132e-6 months <br />. A blizzard then struck on March I 3 interrupting service to another 26,000 tomers statewide. PSE&G crews -from both the electric and the gas business units -worked around the clock to restore se r vice. Then in early June, a severe thunderstorm battered PSE&G's service territor y. Some 95,000 customers, most of them in the central a rea of the state, were left without power by the high winds and hea vy rain from the storm. Approximatel y 80% of the affected customers were restored within 24 hour2.777778e-4 days <br />0.00667 hours <br />3.968254e-5 weeks <br />9.132e-6 months <br /> s. 8 Superior nuclear performance re-suited in a bonus of $3.9 million under the state's nuclear perfor-mance standard.

At 97. 7% capacity, Hope Creek ranked _J among the-best i Summer 1993 challenged the compan; with a record number of 90-degree-plu s days and record demand for electric energy, mainl y for air conditioning.

PSE&G met this demand without extraordinary difficulty Ho wever; Park Ridge, NJ., served by a municipal power cooperative, took advantage o( the new, competitive environment to negotiate a bulk power purchase agreement and substantial demand side management services.

Lou Nociti, s e ni or m a i ntenance sup e rvis o r, S a l em when the weather turned cold again, in J an u ary 1994, two ice storms in the first full week of the y ear interrupted se rvice to more than 2.00 , 000 customers th ro ughout its service territor y. PSE&G crews worked throughout the we ek end in freezing rain, s leet an d s now to restore service. Th is was followed b y record-setting cold weather -with temperatures dropping as low as seven below zero -which resulted in a regional energy emergency.

For the fi rst time since 1970, PSE&G was obliged to temporaril y interrupt customer service. More tha n 300 , 000 customers in I 07 Ne w Jer sey communities wer e affected.

The action , taken in conjunction wi th the Pennsylvania-New Jerse yM ary l and (P JM) regiona l power pool, was required to avert the possibility of a regional bl ack out. Energy Services I n the energy services sector, Public Service Conserva-tion Re sou rce s Corporation (PSCRC), a PSE&G subsidiary, is rapidly developing its energy conser va tion busine ss in New Jer sey, marketing a nd mana g ing the in sta llation of demand sid e management products.

These product s help PSCRC customers re du ce their energy costs and sa ve PSE&G and it s customers the cost of building additional e lect ric generation facilities , while also pro vi ding the potential to produce good returns fo r PSCRC. Recen t l y , Ne w Je rsey regulators reaffi rm e d PSE&G's ability to offer customers gas a pp liance servic e contracts and perform service call s. The compan y will not only tin ue tho se act i v ities but also wi ll investigate new, itively priced , be y ond-the-meter appliance service offerings to cu st omers. 9 I Environmental Initiatives During 1993, PSE&G continued to make substantial progress in meeting its goals of reducing emissions into the atmosphere and helping to improve the environment of New Jersey The Bergen and B urlington Generating Stations repowering projects, described below, will significantly decrease the impact these stations will have on the environment.

In addition, the installation of a new electrostatic cipitator at the Mercer Generating Station will reduce particulates emitted into the air with a removal efficiency of 99.8%. Major techno l ogica l upgrades at the station will allow the company to continue burning cost-effective coal most of the y ear while complying with the mandates of the 1990 Clean Air Act Amendments.

10 Andy Hep(lnger.

East Region Plant Bngineering UPS A selective noncatalytic reduction system was tested on the Mercer #2 unit during the summer of 1993. The test -co-funded by the Electric Power Research Institute

-demonstrated that the technology is a cost-effective method of reducing oxides of nitrogen (NOx) at the station. During the summer of 1993, for the second year in a row, PSE&G voluntarily burned natural gas instead of coal at its Hudson #2 generating plant in Jersey City The fuel switch was init i ated to reduce the emission of NOx from the unit during the period of maximum ozone tions in New Jerse y. --*.

>; \_ -Demand side management plans call for 150 MW of elec-trlc capacity sav-ings -enough to power 120,000 homes -and six million therms of natural gas sav-ings over ff11! next two years. During the fuel-change period , NOx emissions, which contribute to the formation of low-altitude ozone, were reduced by 50%. In addition, burning natural gas instead Quality groups are working to improve procedures to enhance customer (i won and increase efficiency.

The Customer Expectation Team (above) analyzes ways to reduce the number of steps, cost and speed of completing new customer gas supply connections.

of coal resulted in the elimination of close to I 00% of the sulfur dioxide and part iculate emissions at the plant and significant reduction of carbon dioxide emissions. During 1994, state-of-the-art low NOx burners will be installed at the Hudson #2 unit. This equipment change will enable the unit to achieve significant emissions tions while burning lower-cost coal. One hundred natural gas vehicles (NGVs) were delivered to PSE&Gs motor ve hicle fleet during the y ear. That brought the company's NGV count to more than 150 service vans, cars and trucks. As another indication of it s determination to be envi-ronmentally proactive, PSE&G has developed and is implementing a precedent-settin g demand side ment (DSM) program. Under this program, part ici pating customers can install energy-efficient equipment and receive payments reflecting a portion of the measured energy savings. Unlike traditional utility rebate programs, DSM is tored and payments to customers are based onl y on the actual measured savings. In addition, the company is tected by contract pro visions if savings fall below tracted amounts. These features make energy savings a firm, reliable resource, much like supply side options. Current plans call for 150 megawatts (MW) of electric capacity savings -enough power to provide electricity to 120,000 homes -and six million therms of natural gas savings over the next two years. The I 50 MW demand reduction will save DSM participants approximately

$48 million per year in energy costs and result in payments to them of about $25 million annually.

The program will reduce energy costs for customers, producing a stronger New Jersey economy and a cleaner environment.

II competitive gas industry of the future. A prototype version of the system is scheduled for testing by mid-1994.

• PSE&G's success in buying out the contract of one alternate power project is expected to reduce cus-tomer bills by more than $500 million over the 20-year term of that contract.

This move strengthens PSE&G's ability to compete. In contrast, many of its neighboring utilities are obliged to continue with high-cost alternate power purchase obligations

• PSE&G's negotiation of a special contract to keep the Bayway Refinery as its largest single customer was another positive development during the year: 14 Negotiation of this contract involved the State of New Jersey and the BRC. This joint negotiation may be viewed as an acknowledgment of the necessity for New Jersey utilities to have pricing flexibility in today's competitive environment.

• PSE&G continued working with the New Jersey Department of Environmental Protection and Energy to investigate and, where necessary, remediate 38 former manufactured gas plant s(tes. Sixteen sites were worked on in 1993, at a cost of approximately

$15.3 million.

• PSE&G also installed more than 1.2 million feet of new gas distribution mains, a 20 percent increase over 1992. The additional construction brings PSE&G's total gas distribution system to 15,000 miles.

• PSE&G reduced its overall gas unit material expenses in 1993 by $3.5 million through implementation of a company-wide proactive procurement strategy -----*.

PSE&G *Electric Kilowatt Hour Sales (percent)

Gas Therms Sold or Transported (Percent)

Nuclear Performance (percent capacity factor) Staffing Levels vs. Total Customers PSE&G's Proposed NOx Reduction Plan (pounds of NOx per MWHR) 93 92 91 90 89 93 92 91 90 89 93 92 91 90 89 93 92 91 15 12 9 6 3 ===-...... .... \ \ \ 47.7 47.7 46.9 46.9 45.9 *' 26.0 27.0 77.0 71.1 66.0 71.3 78.0 69.0 68.0 66.0 72.0 63.0 ** *-------..........

..... . ==========;;;;;;;;::="'===================

25.4 25.1 26.0 II

• Residential Commercial

• Industrial

• Res i dential Commercial

• Industr i al Transportation service gas

• PSE&G Operated Nuclear Planu U.S. Average for All Nuclear Planu *Employees

• Cumulative Total Customers , Electric and Gas _...,_Actual -*Target 1 5 EDHI Issues and Review I EDHI Operations Overview E arnings for Enterpr ise Di versifie d Holdin gs million, or per share. l's o per ating results were bu s in sses: Ener gy De velopment I Corpor tion (EDC), its oil and gas subsidiary, and Communit y Energy were adversely impacted b y the recor d-ing of an impairmen t in the va lue of certain propertie s b y (s real estate subsidiary, Enterpri se Group De v elopment Corporation (EGD C), w hich reduced consolidated Enteprise earnings b y $50.5 million, or 21 cents per share. E xcl usi v e of the impairment, ED Hi's net income would ha v e been $74.6 million for the year. w h i ch wou ld ha v e been a record for the company EDHl's assets remained relatively constant compared with 1992, repre sen ting about 15% of Enterprise's overall assets at y e ar-end. 16 P aul H. W ay P resident and Chief Op e rating Officer, E nt er prise D iversified Holdings Incorporated COMPETITION Newark Bay Cogenerotion Facility in New Jersey was completed in August, 1993. This 137 MW plant, fileled by natural gas, is 50% owned by CEA. Madeleine W Ludlow. vice presiden t and t r easurer. EDHI Future Direction Dur ing 1993 , EDHI redirected its efforts toward becoming a l eading inde pendent energy company, ing on its core businesses

-EDC and CEA -while tinuing the controlled exit from the real estate business b y EGDC, and limiting new investments in Public Services Resources Corporation (PSRC) to energy-related invest-ments and existing commitments.

EDHI intends to focus on the development of strong, core bu si nesses competing in independent power duction, oil and gas exploration, production and g , and other related business e s within the unregulated HI belie v es that th is focus on the rapidly e vo l v ing, a self-financing, global, independent energy company Energy Development Corporation EDC is an oil and gas exploration, development and production company based in Houston , Texas. At yend 1993, it had assets of $679 million , representing 29% of ED H i's total, compared w ith $703 mill ion for the previous y ear. Dur ing 1993 , EDC earned $46.3 mill io n, an i ncrea se of 60% over 1992 earnings.

This i n crease was primarily attributable to a s ubstantial increa se i n the market price of natural gas. It produced approximately I 1 9 billion cub i c 17 feet equivalent (BCFE) of natural gas and oil in 1993, which was comparable to its 1992 production, and it replaced 125% of its 1993 production

-increasing end oil and gas reserves to approximately 809 BCFE. Community Energy Alternatives Incorporated CEA is a developer of cogeneration and independent power projects.

At year-end 1993, CEA had invested in 19 projects, of which 17 were in operation and two were under construction.

CEA has investe d in projects currently operating or under construction with a total capacity of 1,658 MW, and its ownership share totals 478 MW. At the end of 1993, its assets totaled $211 million. Its earnings in 1993 were $13.8 million, compared with $10.9 million a y ear earlier. The po sitive operating results were due to strong formance by the Eagle Point and GWF projects.

Eagle Point is a 225 MW gas-fired, combined-cycle plant located in West Deptford, N.j. The GWF projects are a tion of five San F rancisco Ba y area plant s and a 27 MW cogeneration facility in Hanford, Calif Public Service Resources Corporation PSRC makes diversified investments in vari ous sec-tors, including leveraged lease s, limited partnerships and securities.

PSRC's asset level remained relatively constant during 1993 at $1.3 billion. Its earnings of $19.7 million in 1993 decreased 27% compared with the previous year's earnings of $27.0 million. This decrease was due primarily 18 Favorable move-ment in the market price of natural gas in 1993 resulted in a substantial increase in EDC's earnings.

to the increase in the federal in securi ties were offset by Community Energy Alternatives expects to complete its I 00 MW cogeneration plant john F. Kennedy Airport on long Island, N. Y. by the summer of 1994, bringing 'EA's operating capacity to 16 I 8 MW

--Lanze Th b mpson , business planning manager, EDHI I Enterprise Group Development Corporation , EGDC is a r ea estate de velopment and investment business with investmefi1t l in office and retail propertie s. At-year-end, EG6c had interests in I I properties in five states. Tbiese included office buildings, developable laod nd ashopping center. (, EGDC's assets at the end of 1993 totaled $203 million. It experienced a net loss in 1993 of $55.7 million, which refiects $50.5 million from recording an impairment in the value of certain properties.

1992 produced a loss of $6.8 million. EGDCs management recently decided to attempt to sell certain properties in the near term, rather than to hold them for long-term investment, in furtherance of the strategy for EGDC to prudently exit the real estate business.

As a result, the net realizable value on the books for such properties was required to be reduced. 19 EDHI Net Income (dollars in millions)

Cash From Operations (dollars in millions)

Total Assets (dollars in millions)

Community Energy Alternatives (e quit y megawatts-93 92 91 93 92 91 93 92 91 93 Operation

& Construction) 92 91 Energy Development 93 Corporation Natural Gas Reserves (billions cubic feet 92 equivalent, BCFE) 91 20 Without EGDC 1mpoinnent l 74.7 200. 159.2 '478 318 809 &40

.* Financial Contents Management's Discussion and Analysis Financial Statement Responsibility Consolidated Statements of Income Consolidated Balance Sheets Consolidated Statements of Cash Flows Consolidated Statements of Retained Earnings Independent Auditors's Report Notes to Consolidated Financial Statements Consolidated Financial Statistics Operating Statistics Officers and Directors Corporate and Stock Information 21 28 29 30 32 33 33 34 46 47 48 49 Management's Discussion and Analysis of Financial Condition and Results of Operations.

Enterprise Following are the significant factors affecting the consolidated cial 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 has two direct wholly-owned subsidiaries, Public Service Electric and Gas Company (PSE&G) and Enterprise Diversified Holdings Incorporated (EDHI). Enterprise's principal subsidiary, PSE&G, is an operating public utility providing electric and gas vice in certain areas in the State of New Jersey. PSE&G has a finance subsidiary, PSE&G Fuel Corporation (Fuelco), providing financing, unconditionally guaranteed by PSE&G, of up to $I 50 million aggregate principal amount at any one time of a 42.49% interest in the nuclear fuel acquired for Peach Bottom Atomic Power Station Units 2 and 3 (Peach Bottom). PSE&G also has a nonutility subsidiary, Public Service Conservation Resources Corporation (PSCRC), which offers demand side management (DSM) services to utilrty customers.

EDHI is the parent of Enterprise's other nonutility businesses:

Energy Development Corporation (EDC), *an oil and gas ration, development, production and marketing company; Community Energy Alternatives Incorporated (CEA), an investor in and developer of cogeneration and power production facilities; Public Service Resources Corporation (PSRC), which makes sified passive investments; and Enterprise Group Development Corporation (EGDC), a diversified nonresidential real estate opment and investment business.

EDHI also has two finance sidiaries:

PSEG Capital Corporation (Capital), which has provided up to $750 million of privately-placed debt financing on the basis of a support agreement from Enterprise and Enterprise Capital Funding Corporation (Funding), which provides privately-placed debt financing guaranteed by EDHI but without direct support from Enterprise.

As of December 31, I 993 and December 3 I, I 992, PSE&G comprised 86% and 83%, respectively, of Enterprise assets. For the years I 993, I 992 and I 99 I, PSE&G revenues were 93%, 93% and 94%, respectively, of Enterprise revenues and PSE&G earnings able to Enterprise for such years were 96%, 88% and 95%, tively, of Enterprise net income. Pursuant to the Focused Audit Implementation Plan approved by the New Jersey Board of Regulatory Commissioners (BRC) regarding operations and intercompany relationships between PSE&G and EDHI, in 1993 Enterprise agreed with the BRC, among other things, that it will not permit its investment in EDHI to exceed 20% of its consolidated assets without prior notice to the 21 BRC, that the PSE&G Board will make an annual certification that the business and financing plans of EDHI will not adversely affect PSE&G, that debt supported by the support agreement between Enterprise and Capital will be limited to $750 million, that a good faith effort will be made to eliminate such support over the next six to ten years and that EDHI will pay PSE&G an affiliation fee of $2 million a year, to be proportionately reduced as the amount of debt under the support agreement is reduced. The major factors which will affect Enterprise's future results include general and regional economic conditions, PSE&G's tomer retention and growth, the ability of PSE&G and EDHI to meet competitive pressures and to contain costs, the adequacy and timeliness of required regulatory approvals, including rate relief to PSE&G, continued access to the capital markets and continued favorable regulatory treatment of consolidated tax benefits. (See Note 2 -Rate Matters and Note I 2 -Commitments and Contingent Liabilities of Notes to Consolidated 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 and certain other costs as approved by the BRC, when compared to cost recovery included in base rates. Charges under the clauses are primarily based on energy and gas supply costs which are normally projected over twelve-month periods. The changes in the Levelized Gas Adjustment Clause (LGAC) and the Levelized Energy Adjustment Clause (LEAC) do not directly affect earnings because such costs are adjusted monthly to match amounts recovered through revenues.

However, the canrying of underrecovered costs ultimately increases financing costs. PSE&G is also required to pay interest on net overrecovered costs. Under the clauses, if actual costs differ from the costs recovered, the amount of the underrecovery or overrecovery is deferred and is reflected in the average cost used to determine the fuel and gy tariff rate adjustment for the period in which it is recovered or repaid. Actual costs otherwise includable in the LEAC are subject to adjustment by the BRC in accordance with PSE&G's nuclear performance standard. (See Note 2 -Rate Matters and Note 12 -Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements.)

22 Enterprise Earnings Earnings per share of Enterprise Common Stock were $2.50 in 1993, $2.17 in 1992 and $2.43 in 1991. The changes are summa-* rized as follows: 1993 vs. 1992 1992 vs. 199 I (Millions, except per share data) Amount Per Share Amount Per Share PSE&G Revenues (net of fuel costs and gross receipts taxes) $347 $1.49 $(43) $(.19) Peach Bottom Settlement (net of Federal income taxes of $17 million) (33) (.14) 33 .15 Other operation expenses (62) (.26) (49) (.22) Maintenance expenses 3 .01 8 .03 Depreciation and amortization expenses (15) (.06) (22) (.10) Federal income taxes (I 13) (.49) 53 .24 Other taxes (1) (9) (.04) Other income 2 .01 Interest charges 12 .05 (36) (.16) Allowance for Funds Used During Construction (AFDC) (4) (.02) Preferred Stock Dividend Requirements (6) (.02) (3) (.01) Other income and expenses I (2) (.01) Earnings Available to Enterprise 133 .58 (72) (.32) EDHI (36) (.16) 33 .14 Net Income $ 97 .42 $(39) (.18) Effect of additional shares of Enterprise Common Stock issued (.09) (.08) Total $ .33 $(.26) The average shares of Enterprise Common Stock outstanding were 240,663,599 for 1993 and 232,306,492 for 1992. PSE&G In 1993, excluding the $33 million net effect of the 1992 ment of litigation against Philadelphia Electric Company, now known as PECO Energy Company (PECO) in connection with the 1987 shutdown of Peach Bottom by the Nuclear Regulatory Commission ( 1992 Settlement), PSE&G's earnings available to Enterprise increased by $166 million. The principal contributing factors to the increase in earnings available to Enterprise were PSE&G's higher electric and gas base rates that became effective January I, 1993 and a substantial increase in electric kilowatthour sales. (See PSE&G Electric and Gas Revenues, below.) The increase in electric sales was primarily due to the abnormally warm er. Partially offsetting the increase in earnings were higher other operation expenses (comprised primarily of labor and employee benefits costs and miscellaneous nuclear production costs), higher depreciation and amortization and higher Federal income taxes resulting from increased pre-tax operating income and an increase in the Federal corporate income tax rate, effective January 1993. (See Note 9 -Federal Income Taxes of Notes to Consolidated Financial Statements.)

In 1992, excluding the $33 million net effect of the 1992 Settlement, PSE&G's earnings available to Enterprise declined by $105 million. This was principally due to the 1.7% decrease in electric kilowatthour sales resulting from significantly cooler weather during 1992 and higher other operation expenses prised primarily of labor and employee benefits costs and miscella-neous nuclear production costs). Also contributing to the decrease in earnings were increased interest charges resulting from timing of -refunding operations and higher depreciation and amortization expenses.

Partially offsetting the decrease in earnings were lower maintenance expenses at certain of PSE&G's fossil fuel generating stations and at Peach Bottom and lower Federal income taxes resulting from lower pre-tax operating income. EDHI The net income of EDHI was $24 milfion in 1993, a decrease of $36 million from 1992. As a result of a management review of each of EGDC's property's current value and the potential for increasing such value through operating and other improvements, EGDC recorded an impairment related to certain properties, including properties upon which management revised its intent from a long-term investment strategy to a short-term hold for sale status, reflecting such properties on its books at their net realizable value. This impairment reduced EDHI earnings by $51 million, after tax, or 21 cents per share of Enterprise Common Stock. Partially offsetting this decrease was an increase in the earnings of EDC due to the higher price of natural gas. Exclusive of the recorded ment, EDHI net income would have been $75 million for 1993. The net income of EDHI was $60 million in 1992, an increase of $33 million from 1991. The increase in EDHI net income was due primarily to an increase in EDC net income of $23 million resulting from higher natural gas prices and volumes and an $8 million increase in CEA net income due to improved performance of tain projects and the sale of its interest in various projects.

Dividends The ability of Enterprise to declare and pay dividends is contingent upon its receipt of dividend payments from its subsidiaries.

PSE&G has made regular payments to Enterprise in the form of dividends on outstanding shares of its common stock since Enterprise was formed in 1986. In addition, commencing in 1992, EDHI has also made payments to Enterprise in the form of dividends on its standing common stock. Dividends paid to holders of Enterprise Common Stock increased

$18 million during 1993 compared to 1992 and increased

$27 lion during 1992 compared to 199 I. The increase in the 1993 dend payment over 1992 was due to the issuance of additional shares of Enterprise Common Stock. The increase in the 1992 dend payment over 199 I was due to the issuance of additional shares of Enterprise Common Stock and a one cent per share increase in the quarterly dividend rate for the first three quarters of 1992 compared to the same periods of 199 I . Dividends paid to holders of PSE&G Preferred Stock increased

$6 million during 1993 compared to 1992 and $3 million during 1992 compared to 1991. The increase in 1993 dividend payments over 1992 dividend payments was due to the issuance and sale of 750,000 shares of 5.97% Preferred Stock on March 17, 1993 and the issuance and sale of 750,000 shares of 7.44% Preferred Stock on June 23, 1992, while the increase in 1992 dividend payments over 199 I dividend payments was due to the issuance and sale of the 7.44% Preferred Stock. Revenues PSE&G Electric Revenues increased

$285 million, or 8.4%, in 1993 from 1992; 1992 revenues decreased

$92 million, or 2.6%, compared to 1991. The significant components of these changes follow: Kilowatthour sales Base rate increase effective January I, I 993 Tax Reform Act of I 986 (TRA-86) Recovery of energy costs New Jersey Gross Receipts and Franchise Taxes (NJGRT) Other operating revenues Total Electric Revenues Increase or (Decrease)

I 993 vs. I 992 I 992 vs. I 99 I $ 67 244 13 (52) 17 (4) $285 (Millions)

$(65) (6) (6) (IS) $(92) Changes in kilowatthour sales by customer category are described below: Residential Commercial Industrial Increase or (Decrease)

I 993 vs. I 992 1992 vs. I 99 I 8.3% 3.7 (1.0) (6.6)% (0.8) (I. I) 1993 -The increase in electric revenues over 1992 was primarily due to the base rate increase which became effective January I, 1993, partially offset by the larger LEAC credit also effective January I, 1993. Abnormally warm weather resulted in a significant increase in weather sensitive sales during 1993. Increased tion from nonutility generators (NUGs) and an unscheduled tenance shutdown at PSE&G's largest industrial customer negatively impacted industrial sales. 1992 -The reduction in electric revenues from 199 I was due to a 1.7% reduction in kilowatthour sales resulting from reduced weather-sensitive load. Industrial and commercial sales also declined reflecting the effect of New jersey's weak economy. Competition from NUGs continued to negatively impact industrial sales. PSE&G Gas Revenues increased

$8 million, or 0.5%, during 1993 over 1992; 1992 revenues increased

$278 million or 21.3% over 199 I. The significant components of these changes follow: Increase or (Decrease)

I 993 vs. 1992 1992 vs. I 99 I Therm sales Base rate increase effective January I , I 993 TRA-86 Recovery offuel costs NJGRT Other operating revenues Total Gas Revenues $(29) 48 15 (5) (21) $ 8 (Millions)

$ 36 3 216 16 7 $278 23 Changes in gas sold or transported by customer category are described below: Residential Commercial Industrial Transportation Service Increase or (Decrease) 1993 vs. 1992 1992 vs. 1991 1.2% .4 18.5 2.6 10.9% 5.1 85.2 42.4 I 993 -The increase in gas revenues over 1992 was primarily attributable to the base rate increase which became effective January I, I 993 and the higher recovery of fuel related costs. Sales to cogenerators was the largest contributor to the increase in industrial sales as cogeneration average customer usage for electric generation continues to increase.

Transportation service sales reflect the movement of some interruptible customers to portation service. 1992 -Revenues for 1992 increased over 1991 due principally to the recovery of fuel costs resulting from higher levels of sensitive therm sales and an increase in the LGAC authorized by the BRC. effective January I , I 992. The increase in residential and firm commercial sales, which represent the majority of PSE&G gas revenues, was principally attributable to the colder weather. Higher industrial and transportation service sales over 1991 were due to cogeneration customer growth. EDHI EDHI revenues increased

$33 million, or 8% during I 993 over 1992; I 992 revenues increased

$72 million, or 22% in 1992 over 199 I. The significant components contributing to such results were as follows: Increase or (Decrease) (Millions) 1993 vs. 1992 1992 vs. 1991 EDC $30 $35 CEA 10 15 PSRC (I I) 15 EGDC 4 7 Total EDHI Revenues $33 $72 1993 -EDC was the largest contributor to the EDHI revenue increase due to the higher price of natural gas,. partially offset by lower sales to PSE&G. CEA revenues increased as a result of greater income from partnership operating projects.

PSRC enues decreased due to unrealized losses on investments and lower income from leases. 1992 increase in I 992 revenues over .I 99 I was due to higher revenues of each of EDHl's operating subsidiaries.

EDC's higher revenues were principally attributable to increased sales and higher gas prices in 1992. CEA's increased revenues were derived from higher partnership income and gains on the sales of certain partnership interests in I 992. PSRC's greater revenues were utable to increased gains on investments and higher income from partnerships and leases, net of pre-tax valuation allowances and a totaling $35 million, primarily related to the loss on its investment in the Second National Federal Savings Bank of Salisbury, Maryland.

EGDC's increased revenues resulted from higher rental and partnership income. 24 PSE&G Electric Energy Costs Electric energy costs decreased

$59 million or 7.7% in 1993 pared to 1992 and $5 million or .6% in 1992 compared to 1991.

• The significant com'ponents of these changes follow: (Millions)

Change in prices paid for fuel and power purchases Kilowatthour generation Adjustment of actual costs to match recoveries through revenues (A) Total Electric Energy Costs Increase or (Decrease) 1993 vs. 1992 1992 vs. 1991 $ 18 $ 7 29 (20) (106) 8 $ (59) $ (5) (A) Reflects the change in the deferred over(under)recovered energy costs, which in the years 1993, 1992 and 1991 amounted to $(93) million, $13 million and $5 million, respectively. (See PSE&G Energy and Fuel Adjustment Clauses and Note 2 -Rate Matters of Notes to Consolidated Financial Statements.)

I 993 -The decrease in total costs was the result of an ment in the recove*ry of energy costs resulting from the base rate case decision effective January I, I 993, partially offset by a I 7% increase in nuclear kilowatthour generation and an I I% increase in purchased power costs. 1992 -The decrease in total costs resulted from lower hour generation due primarily to a reduction in weather-sensitive load. Higher prices paid for fuel and power purchases resulted principally from the need to purchase power due to outages at various times of the Salem Nuclear Generating Station, Units I and 2 (Salem I and 2), in which PSE&G owns 42.59% of undivided interest.

Kilowatthour generation from the Salem units declined 3 I% in I 992 compared to 1991. (See Note 12 -Commitments and Contingent Liabilities

-Nuclear Performance Standard of Notes to Consolidated Financial Statements.)

Gas Supply Costs Gas supply costs increased

$39 million or 4.6% in I 993 compared to I 992 and $223 million or 35.0% in 1992 compared to I 99 I. The significant components of these changes follow: Increase or (Decrease) (Millions) 1993 vs. 1992 1992 vs. 1991 Change in prices paid for gas supplies Therm sendout Refunds from pipeline suppliers Adjustment of actual costs to match recoveries through revenues (A) Total Gas Supply Costs $117 41 33 (152) $ 39 $ 25 147 (33) 84 $223 (A) Reflects the change in the deferred over(under)recovered gas supply costs, which in the years 1993, 1992 and 1991 amounted to$( I 00) million, $52 million and $(32) million, respectively. (See PSE&G Energy and Fuel Adjustment Clauses and Note 2 -Rate Matters of Notes to Consolidated Financial Statements.)

• .

1993 -The increase in total costs was principally due to greater sales to NUGs and other customers, higher gas costs and higher 'therm sendout resulting from the colder 1993 winter season pared to the 1992 winter season. The increase ln costs was reduced by deferred underrecovered 1993 gas costs resulting from the BRC approved adjustment in PSE&G's LGAC, effective January I, 1993 of $71 million on an annualized basis through December 3 I, 1993. The adjustment reflects lower gas costs and the inclusion of $15. I million of conservation program costs in LGAC. In tion, gas customers received $45 million of credits during the first quarter of 1993. 1992 -The increase in total costs was principally due to greater therm sendout resulting from the colder 1992 weather compared to 199 I and increased sales to NUGs. Liquidity and Capital Resources Enterprise's liquidity is affected by maturing debt (see Note 6 -Schedule of Consolidated Long-Term Debt of Notes to Consolidated Financial Statements), investment and acquisition activities and the capital requirements of PSE&G's construction program. Capital resources available to meet such requirements depend upon the factors noted above under Overview.

PSE&G For 1993, PSE&G had utility plant additions, including AFDC, of $890 million, an increase of $63 million versus 1992 additions of $827 million. Additions in 1992 increased

$14 million from 1991 additions of $813 million. AFDC for 1993, 1992 and 1991 ed to $27 million, $26 million and $30 million, respectively.

Construction expenditures were related to improvements in PSE&G's existing power plants, transmission and distribution tem, gas system and common facilities.

Construction expenditures from 1994 through 1998 are expected to aggregate

$4.2 billion. (See Construction, Investments and Other Capital Requirements Forecast below.) PSE&G expects that it will be able to generate internally a ity of its capital requirements including construction expenditures over the next five years, assuming adequate and timely rate relief as to which no assurances can be given. (See Note 2 -Rate Matters and Note 12 -Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements.)

Legislation effective January I , 1992 phases in an acceleration of payment of the NJGRT during 1992-94, so that for 1994 and for each year thereafter PSE&G will be paying its estimated current year's NJGRT liability in April of each such year. In April 1993, PSE&G paid $899 million (its 1992 NJGRT plus 50% of its ed 1993 NJGRT). In April 1994, PSE&G will be required to pay approximately

$850 million (the remainder of its 1993 NJGRT plus its 1994 estimated NJGRT). Pending collection from customers, PSE&G is required to finance such NJGRT payments.

EDHI During the next five years, a majority of EDHl's capital ments are expected to be provided from operational cash flows. EDHI intends to focus its efforts on CEA and EDC. its related core businesses.

CEA is expected to be the primary vehicle for its business growth and EDC is projected to attain and maintain a reserve base at approximately 900 billion cubic feet equivalent, approximately I I% above the year-end 1993 level. PSRC will limit new investments, while EGDC will exit the real estate business in a prudent manner. This strategy places greater emphasis on its investment in the independent energy market. Over the next eral years, EDHI and its subsidiaries will also be required to nance a portion of their maturing debt in order to meet their tal requirements.

Any inability to extend or replace maturing debt at current levels and interest rates may affect future earnings and result in an increase in EDHl's cost of capital. PSRC is a limited partner in various partnerships and is ted to make investments from time to time, upon the request of the respective general partners.

On December 31, 1993, $139 .5 million remained as PSRC's unfunded commitment subject to call. EDHI and each of its subsidiaries are subject to restrictive ness and financial covenants contained in existing debt agreements and are required to not exceed various debt to equity ratios which vary from 3: I to 1.75: I. EDHI is also required to maintain a twelve months earnings before interest and taxes to interest (EBIT) age ratio of at least 1.35: I. As of December 3 I, 1993 and 1992,. EDHI had consolidated debt to equity ratios of 1.34: I and 1.84: I and, for the years ended December 3 I, 1993 and 1992, EBIT erage ratios, which exclude the effect of EGDC, of2. I 3: I and 1.88: I, respectively.

Compliance with applicable financial covenants will depend upon future levels of earnings, among other things, as to which no assurance can be given. (See Construction, Investments and Other Capital Requirements Forecast and Note 6 -Schedule of Consolidated Long-Term Debt of Notes to Consolidated Financial Statements.)

25 Construction, Investments and Other Capital While the above forecast includes capital costs to comply with Requirements Forecast revised Clean Air Act (CAA) requirements through 1998, it does The estimated construction requirements of PSE&G, including not include additional requirements being developed under the AFDC, investments and other capital requirements of PSE&G and CAA by Federal and State agencies.

Such additional costs cannot EDHI for 1994 through 1998 are based on expected project com-be reasonably estimated at this time. PSE&G believes that such pletion dates, and include anticipated escalation due to inflation of CAA costs would be recoverable from electric customers.

Not approximately 4% for utility projects and are as follows: included in PSE&G's estimated construction expenses is the capital (Millions of cost of compliance with the New Jersey Department of Dollars) 1994 1995 1996 1997 1998 Total Environmental Protection and Energy (NJDEPE) draft permit issued PSE&G October 3, 1990 pursuant to the Federal Water Pollution Control ELECTRIC Act with respect to Salem I and 2 which, if adopted as proposed, Nuclear would require the immediate shutdown of both units pending Production Facilities

$114 $82 $87 $95 $87 $465 retrofit with cooling towers. On June 24, 1993, NJDEPE issued a Nuclear Fuel 74 102 99 94 114 483 revised draft permit that would permit Salem to continue to oper-Transmission and ate with once-through cooling and would require PSE&G to make Distribution 218 196 204 216 221 1,055 Other Production 321 138 139 170 252 1,020 certain plant modifications and to take certain other actions to Conservation and enhance the ecology of the affected water body. The public com-Other 47 42 91 17 41 238 ment period with respect to the revised draft permit expired on Total Electric 774 560 620 592 715 3,261 January 15, 1994. While a final permit is expected to be issued GAS sometime in the second quarter of 1994, no assurances can be Production given as to the timing of any final agency determination.

The cost Facilities 2 2 2 6 of complying with the revised permit is estimated at approximately Transmission and Distribution 144 136 140 142 142 704 $90 million, PSE&G's share of which is included in the above fore-Total Gas 146 138 142 142 142 710 cast. Nevertheless, if cooling towers are ultimately required, PSE&G Miscellaneous estimates that it would take at least four years, and between $720 Corporate 56 47 45 46 48 242 million and $2.0 billion in capital, operation and maintenance costs Total and replacement power costs to retrofit Salem with cooling tow-Construction ers. PSE&G's share of any such costs would be 42.59%. In addition, Requirements the estimate does not include costs associated with the proposed of PSE&G 976 745 807 780 905 4,213 Phase II of the repowering of PSE&G's Bergen Generating Station. EDHI 326 177 193 194 285 1,175 Mandatory Internal Generation of Cash from Operations Retirement of Although net income increased

$97 million for 1993 (See Securities; Enterprise Earnings and Revenues), net cash provided by operating PSE&G 60 310 300 118 788 EDHI 106 190 91 125 204 716 activities decreased by $332 million from 1992 to $1.008 billion. 166 500 91 425 322 1,504 This decrease was primarily due to an underrecovery of electric Working Capital energy and gas costs through PSE&G's LEAC and LGAC, increased and Other -net 247 90 56 33 17 443 NJGRT payments and a decrease in amortization of property aban-Total Capital donments and write-downs.

Partially offsetting these cash outflows Requirements

$1,715 $1,512 $1,147 $1.432 $1,529 $7,335 were the increase in net income, increases in deferred income taxes and inventory decreases in fuel and materials and supplies.

Although net income decreased

$39 million for 1992 (See Enterprise Earnings and Revenues), Enterprise's cash provided by operating activities increased by $185 million from 199 I to $1.340 billion. This increase was primarily due to greater recovery of elec-tric energy and gas costs through PSE&G's LEAC and LGAC and increases in accounts payable. Partially offsetting these cash inflows were inventory increases in fuel and materials and supplies and decreases in deferred income taxes. *. 26 External Financings Cash Flows from Financing Activities

' (Millions of Dollars) 1993 1992 1991 Enterprise:

Issuance of Common Stock (A) $ 273 $ 237 $219 Cash Dividends paid on Common Stock (B) (522) (503) (476) PSE&G: (C) Net increase (decrease) in Short-Term Debt (D) 275 92 (321) Issuance of Long-Term Debt (E) 1,973 850 750 Redemptions of Long-Term Debt and Other Obligations (1,717) (1,032) (171) (Deferral)

Amortization of Debt Expense -net (58) ( 13) 5 Issuance of Preferred Stock (F) 75 75 Other (I) (I) Total PSE&G 547 (29) 263 EDHI: (G) Net decrease in Short-Term Debt (90) (89) (49) Issuance of Long-Term Debt 165 30 264 Redemptions of Long-Term Debt (367) (27) (81) Other (6) (4) 2 Total EDHI (298) (90) 136 Net cash provided by (used in) financing activities

$ $ (385) $142 (A) During 1993, Enterprise issued and sold 4,400,000 shares of Common Stock through a public offering through underwriters and 3,892,505 shares of Common Stock through its Dividend Reinvestment and Stock Purchase Plan (DRIP) and ous employee benefit plans. The net proceeds from such sales, aggregating mately $273 million, were used by Enterprise to make equity investments of $179 million in PSE&G and $94 million in EDHI. PSE&G utilized such funds for general corporate purposes, including payment of a portion of its construction tures. EDHI used the funds for general corporate purposes, including the payment of outstanding debt obligations.

Book value per share was $21 .07 at December 3 I , 1993 compared to $20.32 at December 31, 1992. (See Note 4 -Schedule of Consolidated Capital Stock of Notes to Consolidated Financial Statements.) (B) See DIVIDENDS. (C) Under the terms of PSE&G's First and Refunding Mortgage (Mortgage) and its Restated Certificate of Incorporation, as amended, at December 3 I, 1993, PSE&G would qualify to issue an additional

$4.488 billion of First and Refunding Mortgage Bonds (Bonds) at a rate of 7.375% or $4.10 I billion of Preferred Stock at a rate of7.0%. In addition, as a prerequisite to the issuance of additional Bonds, PSE&G's Mortgage requires a 2: I ratio of earnings to fixed charges as computed thereunder.

For the twelve months ended December 3 I, 1993 such ratio was 3.30: I. The BRC has authorized PSE&G to issue not more than $800 million of its term obligations at any one time outstanding, consisting of commercial paper and other unsecured borrowings from banks and other lenders through December 31, 1994. On December 31, 1993, PSE&G had $424 million of short-term debt outstanding.

PSE&G has a $600 million revolving credit agreement with, a group of commercial banks which expires on September 17, 1994. On December 31, 1993, there was no short-term debt outstanding under this credit agreement. (D) Includes commercial paper issued and/or redeemed by Fuelco and guaranteed by PSE&G pursuant to a commercial paper program supported by a bank revolving credit facility to finance the acquisition of a 42.49% undivided interest in the nuclear fuel for Peach Bottom. Fuelco has a $150 million commercial paper program through June 1996. On December 31, 1993, Fuelco had $109 million of its mercial paper outstanding. (E) Enterprise's long-term debt aggregated

$5.256 billion as of December 31, 1993, of which $4.364 billion was attributable to PSE&G and $892 million to EDHI. During 1993, PSE&G issued $1.973 billion principal amount of its Bonds. The net proceeds of these Bonds were used by PSE&G to refund and redeem certain of its higher-cost and maturing debt obligations including reimbursement of its treasury for funds expended for such purposes and for the payment of a portion of PSE&G's construction expenditures.

During 1993, PSE&G redeemed or paid at maturity $1.7 billion aggregate principal amount of its Bonds and Debenture Bonds. In February 1994, PSE&G issued $50 million principal amount of its Bonds to vice and secure an equal principal amount of tax-exempt revenue bonds issued by the Pollution Control Financing Authority of Salem County, New Jersey to finance pollution control facilities at the Hope Creek Generating Station.

• Under authority granted by the BRC, expiring December 31, 1994, PSE&G is authorized to issue an additional

$495 million principal amount of Bonds after giving effect to the 1994 issuance of Bonds. For more detail see Note 6-Schedule of Consolidated Long-Term Debt of Notes to Consolidated Financial Statements. (F) In March 1993, PSE&G sold 750,000 shares of Preferred Stock ($100 Par). The net proceeds of $75 million were used by PSE&G for general corporate purposes.

In February 1994, PSE&G sold 600,000 shares of Preferred Stock -$25 Par and 600,000 shares of Preferred Stock ($I 00 Par). The net proceeds of $15 million from the sale of the Preferred Stock -$25 Par were used by PSE&G to redeem all of the 150,000 outstanding shares of PSE&G's 8.08% Preferred Stock ($100 Par). The net proceeds of $60 million from the sale of the Preferred Stock ($100 Par) were added to the general funds of PSE&G and used to pay a portion of its then outstanding short-term debt obligations, which were principally incurred to fund a portion of its construction expenditures.

Under authority granted by the BRC. expiring December 31, 1995, PSE&G is authorized to issue an additional

$330 million of Preferred Stock after giving effect to the 1994 issuances of Preferred Stock. (See Note 4 -Schedule of Consolidated Capital Stock of Notes to Consolidated Financial Statements.) (G) Funding has a commercial paper program, supported by a commercial bank ter of credit and revolving credit facility, through November 18, 1995 in the amount .of $225 million. As of December 3 I, 1993, Funding had $45 million outstanding under its commercial paper program. Funding has a $225 million revolving credit facility which terminates on November 18, 1995. As of December 31, 1993, Funding had no debt outstanding under this facility.

In February 1993, Funding repaid $60 million of its 9.43% Series A Notes. In March 1993, Funding privately placed an aggregate of $60 million principal amount of its Senior Notes. In May 1993, Capital amended its Medium-Term Notes (MTNs) program to vide for an aggregate principal amount of up to $750 million of MTNs, provided that its total debt outstanding at any time, jncluding MTNs, shall not exceed such amount. During 1993, $88 million principal amount of Capital's MTNs were repaid, $42.5 million sinking fund payments on Capital's long-term debt obligations were made and $I 05 million principal amount of MTNs were issued. At December 3 I, 1993, Capital had $517 million of MTNs outstanding and total debt outstanding of $724.5 million. For additional detail see Note 6 -Long-Term Debt of Notes to Consolidated Financial Statements.

27 "* '

Financial Statement Responsibility Management of Enterprise is responsible for the preparation, integrity and objectivity of the consolidated financial statements and related notes of Enterprise.

The consolidated financial ments and related notes are prepared in accordance with generally accepted accounting principles.

The financial statements reflect estimates based upon the judgment of management where appropriate.

Management believes that the consolidated financial statements and related notes present fairly Enterprise's financial position and results of operations.

Information in other parts of this Annual Report is also the responsibility of management and is sistent with these consolidated financial statements and related notes. The fimi of Deloitte & T ouche, independent auditors, is engaged to audit Enterprise's consolidated financial statements and related notes and issue a report thereon. Deloitte & T ouche's audit is ducted in accordance with generally accepted auditing standards.

Management has made available to Deloitte & T ouche all the poration's financial records and related data, as well as the minutes of directors' meetings.

Furthermore, management believes that all representations made to Deloitte & T ouche during its audit were valid and appropriate.

Management has established and maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded, and that transactions are executed in accordance with management's authorization and recorded properly for the prevention and detection of fraudulent financial reporting, so as to maintain the integrity and reliability of the financial statements.

The system is designed to permit preparation of consolidated financial statements and related notes in accordance with generally ed accounting principles.

The concept of reasonable assurance ognizes that the costs of a system of internal accounting controls should not exceed the related benefits.

Management believes the effectiveness of this system is enhanced by an ongoing program of continuous and selective training of employees.

In addition, agement has communicated to all employees its policies on ness conduct, safeguarding assets and internal controls.

28 The Internal Auditing Department of PSE&G conducts audits and appraisals of accounting and other operations of Enterprise and its subsidiaries and evaluates the effectiveness of cost and other controls and recommends to management, where ate, improvements thereto. Management has considered the internal auditors' and Deloitte & T ouche's recommendations concerning the corporation's system of internal accounting controls and has taken actions that, in its opinion, are cost-effective in the circumstances to respond appropriately to these tions. Management believes that, as of December 3 I, 1993, the corporation's system of internal accounting controls is adequate to accomplish the objectives discussed herein. The Board of Directors of Enterprise carries out its responsibility of financial overview through its Audit Committee, which presently consists of six directors who are neither employees of Enterprise nor its affiliates.

The Audit Committee meets periodically with management as well as with representatives of the internal auditors and Deloitte & T ouche. The Audit Committee reviews the work of each to ensure that their respective responsibilities are being carried out and discusses related matters. Both the internal tors and Deloitte & T ouche periodically meet alone with the Audit Committee and have free access to"the Audit Committee, and its individual members, at any time. E. James Ferland Chairman of the Board, President and Chief Executive Officer Patricia A Rado Vice President and Comptroller Principal Officer February I 8, 1994 Vice President and Chief Financial Officer Consolidated Statements of Income (Thousands of Dollars) Operating Revenues Electric Gas 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 Property Impairment (note 16) Taxes Federal Income Taxes (note 9) New Jersey Gross Receipts Taxes Other Total Operating Expenses Operating Income Other Income Allowance for Funds Used During Construction

-Equity Peach Bottom Settlement

-net of Federal income taxes $16,985 Miscellaneous

-net Total Other Income Income Before Interest Charges and Dividends on Preferred Stock Interest Charges (note 6) Long-Term Debt Short-Term Debt Other Total Interest Charges Allowance for Funds Used During Construction

-Debt and Capitalized Interest Net Interest Charges Preferred Stock Dividend Requirements (note 4) Income before cumulative effect of accounting change Cumulative effect of change in accounting for income taxes (note 9) Net Income Shares of Common Stock Outstanding End of Year Average for Year Earnings Per Average Share of Common Stock Income before cumulative effect of accounting change Cumulative effect of change in accounting for income taxes Total Earnings Per Average Share of Common Stock Dividends Paid Per Share of Common Stock " See Notes to Consolidated Financial Statements For the Years Ended December 3 I , 1993 1992 1991 $3,693,083

$3,407,819

$3,500,043 1,594,341 1,586, 181 1,307,849 418,135 362,781 283,766 5,705,559 5,356,781 5,091,658 717,136 776,571 781,191 897,885 858,737 636,058 1,012,757 924,942 867, 182 304,403 307,726 315,372 600,264 642,548 585,919 77,637 314,759 221,694 264,856 597,898 585,770 583,071 75,973 72,658 60,855 4,598,712 4,390,646 4,094,504 1,106;847 966, 135 997, 154 12,265 12,828 7,092 32,970 (3,778) 30, 188 15,024 8,487 75,986 22,116 1,115,334 1,042,121 1,019,270 469,120 479,898 437,70 I 13,860 14,858 35,000 19,554 29,269 12,576 502,534 524,025 485,277 (20,833) (17,928) (38,054) 481,701 506,097 447,223 38,114 31,907 29,012 595,519 504,117 543,035 5,414 $ 600,933 $ 504, 117 $ 543,035 243,688,256 235,395,751 226,700,852 240,663,599 232,306,492 223,565,239

$2.48 $2.17 $2.43 .02 $2.50 $2.17 $2.43 $2.16 $2.16 $2.13 29 Consolidated Balance Sheets (Thousands of Dollars) Assets Utility Plant -Original cost Electric Gas Common Total Less accumulated depreciation and amortization Net Nuclear Fuel in Service, net of accumulated amortization

-1993, $284, 162; 1992, $223,857 Net Utility Plant in Service Construction Work in Progress, including Nuclear Fuel in Process -1993, $98,780; 1992, $68,789 Plant Held for Future Use (principally land) Net Utility Plant Investments and Other Property (notes 3, 7 and I 0) Long-Term Investments, net of valuation allowance

-1993, $18,018; 1992, $17,548 Oil and Gas Property, Plant and Equipment, net of accumulated depreciation and amortization

-1993, $695,791; 1992, $663,915 Real Estate, Property and Equipment, net of accumulated depreciation

-1993, $10,840; 1992, $1 I, 146 Other Plant, net of accumulated depreciation and amortization

-1993, $4,307; 1992, $3,073 Nuclear Decommissioning and Other Special Funds Other Investments

-net Total Investments and Other Property Current Assets Cash and Cash Equivalents (note 8) Accounts Receivable:

Customer Accounts Receivable Other Accounts Receivable Less allowance for doubtful accounts Unbilled Revenues Fuel, at average cost Materials and Supplies, at average cost Prepayments Deferred Income Taxes (note 9) Total Current Assets Deferred Debits (note 5) Property Abandonments

-net Oil and Gas Property Write-Down Unamortized Debt Expense Deferred Debit -OPEB (notes I and 13) Unrecovered Environmental Costs (notes 2 and 12) Unrecovered Plant and Regulatory Study Costs Under(Over)Recovered Electric Energy and Gas Costs -net Unrecovered SFAS I 09 Deferred Income Taxes (note 9) Deferred Decontamination and Decommissioning Costs (note 3) Other Total Deferred Debits Total See Notes to Consolidated Financial Statements 30 December 3 I, 1993 1992 $I I, 920,894 $1 1,565,669 2,177,841 2,044,944 520,285 479,972 14,619,020 14,090,585 4,772,942 4,386,738 9,846,078 9,703,847 205,237 252,299 10,051,315 9,956, 146 735,356 492,914 17,709 22,252 10,804,380 10,471,312 1,613,823 1,650,248 506,047 506,814 110,661 225,289 45,501 26,260 189,282 134,524 103,537 79,616 2,568,851 2,622,751 46,880 31,674 446,629 395,991 233,307 214,195 27,932 24,059 244,497 248,742 285,943 263,743 172,438 211,076 82,586 63,026 12,934 1,497,282 1,404,388 105,536 122,261 46,386 51,540 121,278 62, 134 58,593 138,531 108,047 35,196 23,091 62,034 ( 122,736) 789,795 56,055 21,247 11,921 1,434,651 256,258 $16,305, 164 $14,754,709 (Thousands of Dollars) Capitalization and Liabilities Capitalization (notes 4 and 6) Common Equity Common Stock Retained Earnings Total Common Equity Subsidiaries' Securities and Obligations Preferred Stock Without Mandatory Redemption With Mandatory Redemption Long-Term Debt (note 6) Capital Lease Obligations (note I 0) Total Capitalization Other Long-Term Liabilities Decontamination and Decommissioning Costs (note 3) Unrecovered Environmental Costs (notes 2 and 12) Total Other Long-Term Liabilities Current Liabilities Long-Term Debt and Capital Lease Obligations due within one year Commercial Paper and Loans (note I I) Accounts Payable New Jersey Gross Receipts Taxes Accrued Other Taxes Accrued Interest Accrued Other Total Current Liabilities Deferred Credits Accumulated Deferred Income Taxes (note 9) Accumulated Deferred Investment Tax Credits (note 9) Deferred Credit -OPEB (notes I and 13) Materials and Supplies Other Total Deferred Credits Commitments and Contingent Liabilities (note 12) Total December 3 I , 1993 1992 $ 3,772,662

$ 3,499, 183 1,361,018 1,282,931 5, 133,680 4,782, 114 429,994 429,994 150,000 75,000 5,256,321 4,977,579 52,530 53,104 11,022,525 I 0,317.791 56,055 111,000 93.169 167,055 93, 169 168,638 393,071 577,636 391,982 557,761 473,977 263,357 555,329 39,610 41,557 107,027 116, 165 157,751 134,768 1,871,780 2, 106,849 2,702,386 1,711,089 432,713 444,368 58,593 11,847 24,018 38,265 57,425 3,243,804 2,236,900

$16,305, 164 $14.754,709 31 Consolidated Statements of Cash Flows * (Thousands of Dollars) Cash Flows From Operating Activities:

Net Income Adjustments to reconcile net income to net cash flows from operating activities:

Depreciation and Amortization Amortization of Nuclear Fuel (Deferral)

Recovery of Electric Energy and Gas Costs -net Loss From Property Impairments Cumulative Effect of Change in Accounting for Income Taxes Amortization of Discounts on Property Abandonments and Disallowance Unrealized Gains on Investments

-net Provision for Deferred Income Taxes -net Investment Tax Credits -net Allowance for Funds Used During Construction

-Debt and Equity and Capitalized Interest Proceeds from Leasing Activities

-net Changes in certain current assets and liabilities Net increase in Accounts Receivable and Ui:-tbilled Revenues Net decrease (increase) in Inventory-Fuel and Materials and Supplies Net increase (decrease) in Accounts Payable Net (decrease) increase in Accrued Taxes Net change in Other Current Assets and Liabilities Other Net cash provided by operating activities Cash Flows From Investing Activities:

Additions to Utility Plant excluding AFDC Additions to Oil and Gas Property, Plant and Equipment, excluding Capitalized Interest Net decrease (increase) in Long-Term Investments and Real Estate Increase in Decommissioning and Other Special Funds, excluding interest Cost of Plant Removal -net Other Net cash used in investing activities Cash Flows From Financing Activities:

Net increase (decrease) in Short-Term Debt Issuance of Long-Term Debt Redemption of Long-Term Debt and Other Obligations Issuance of Preferred Stock (Deferral)

Amortization of Debt Expense -net Issuance of Common Stock Cash Dividends Paid on Common Stock Other Net cash provided by (used in) financing activities Net increase (decrease) in Cash and Cash Equivalents Cash and Cash Equivalents at Beginning of Year Cash and Cash Equivalents at End of Year Income Taxes Paid Interest Paid See Notes to Consolidated Financial Statements 32 For the Years Ended December 3 I, 1993 1992 1991 $ 600,933 $ 504,117 $ 543,035 600,264 642.548 585,919 102,718 91,903 96,420 (184,770) 121.371 (36, 146) 77,637 (5,414) (7,801) (I 1,293) (11.754) (8,694) (24,843) (11.264) 168,406 56,846 114,681 (11,655) (20.342) ( 19,779) (33,098) (30,756) (45, 146) 14,780 30,295 17,463 (61,632) (75,275) (50,052) 16,438 (37,084) 63,043 83,784 60,853 (52,535) (293,919) 37,892 (7,736) (18,649) 6,658 ( 16,592) (31,662) ( 12,987) (14.437) 1,007,666 1.339,903 I, 155, 120 (863,294)

(800.344)

(783, 175) I (87,968) (32.337) ( 183,673) 66,659 (61,099) (304,541)

(45,508) (9,262) (I 1,665) (47,791) (40, 111) (44, 199) (14,938) (6,000) 11,278 (992,840)

(949, 153) ( 1.3 15,975) 185,654 2,932 (369,809) 2,137,700 880,000 1,013.794 (2,083,965) ( 1,058,637)

(252,241) 75,000 75,000 (59,144) (12,490) 4.562 273,479 237,045 218,736 (521,572)

(503, 197) (476,099)

(6,772) (5,719) 2,838 380 (385,066) 141.781 15,206 5,684 (19,074) 31,674 25,990 45,064 $ 46,880 $ 31,674 $ 25,990 $ 140,172 $ 143,211 $ 148,171 $ 458,956 $ 486,396 $ 436,994 Consolidated Statements of Retained Earnings For the Years Ended December 3 I , (Thousands of Dollars) 1993 1992 1991 Balance January I $1,282,931

$1,282,029

$1,203,772 Add Net Income 600,933 504,117 543,035 Total 1,883,864 1,786, 146 1,746,807 Deduct Cash Dividends on Common Stock (A) 521,572 503, 197 476,099 Adjustments to Retained Earnings 1,274 18 ( 11,321) Total Deductions 522,846 503,215 464,778 Balance December 3 I $1,361,018

$1,282,931

$1,282,029 (A) The ability of Enterprise to declare and pay dividends is contingent upon its receipt of dividend payments from its subsidiaries.

PSE&G, Enterprise's principal subsidiary, has restrictions on the payment of dividends which are contained in its Restated Certificate of Incorporation, as amended, certain of the indentures supplemental to its Mortgage, and certain debenture bond indentures.

However, none of these restrictions presently limits the payment of dividends out of current earnings.

The amount of PSE&G's restricted retained earnings at December 31, 1993 was $10 million. See Notes to Consolidated Financial Statements Independent Auditors' Report To the Stockholders and Board of Directors of Public Service Enterprise Group Incorporated:

We have audited the accompanying consolidated balance sheets of Public Service Enterprise Group Incorporated and its subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income, retained earnings, and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards.

Those standards require that we plan and form the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit cludes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.

An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

We believe that our audits provide a reasonable basis for our opinion. Deloitte&

Touche In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Public Service Enterprise Group Incorporated and its subsidiaries at December 3 I, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 3 I , 1993 in conformity with generally accepted accounting principles.

As discussed in Note I to the Consolidated Financial Statements, in 1993 the Company changed its method of accounting for come taxes to conform with Statement of Financial Accounting Standards No. I 09 and changed its method of accounting for the costs of postretirement benefits other than pensions to conform with Statement of Financial Accounting Standards No. I 06. February I 8, I 994 Parsippany, New Jersey 33 Notes To Consolidated Financial Statements Note I. Organization and Summary of Significant Accounting Policies Organization Enterprise has two direct wholly-owned subsidiaries, Public Service Electric and Gas Company (PSE&G) and Enterprise Diversified Holdings Incorporated (EDHI). Enterprise's principal subsidiary, PSE&G, is an operating public utility providing electric and gas vice in certain areas in the State of New jersey. PSE&G has a finance subsidiary, PSE&G Fuel Corporation (Fuelco), providing financing, unconditionally guaranteed by PSE&G, of up to $150 million aggregate principal amount at any one time of a 42.49% interest in the nuclear fuel acquired for Peach Bottom Atomic Power Station Units 2 and 3 (Peach Bottom). PSE&G also has a nonutility subsidiary, Public Service Conservation Resources Corporation (PSCRC) which offers demand side management (DSM) services to utility customers.

EDHI is the parent of Enterprise's other nonutility businesses:

Energy Development Corporation (EDC), an oil and gas ration, development, production and marketing company; Community Energy Alternatives Incorporated (CEA), an investor in and developer of cogeneration and power production facilities; Public Service Resources Corporation (PSRC), which makes fied passive investments; and Enterprise Group Development Corporation (EGDC), a diversified nonresidential real estate opment and investment business.

EDHI also has two finance sidiaries:

PSEG Capital Corporation (Capital), and Enterprise Capital Funding Corporation (Funding).

Enterprise has claimed an exemption from regulation by the Securities and Exchange Commission (SEC) as a registered holding company under the Public Utility Holding Company Act of 1935, except for Section 9(a)(2) which relates to the acquisition of voting securities of an electric or gas utility company. Also, Enterprise is not subject to direct regulation by the New jersey Board of Regulatory Commissioners (BRC) or the Federal Energy Regulatory Commission (FERC). Consolidation Policy The consolidated financial statements include the accounts of Enterprise and its subsidiaries.

All significant intercompany accounts and transactions have been eliminated in consolidation.

Certain classifications of prior years' data have been made to conform with the current presentation.

Regulation

-PSE&G The accounting and rates of PSE&G are subject, in certain respects, to the requirements of the BRC and FERC. As a result, PSE&G maintains its accounts in accordance with their prescribed Uniform Systems of Accounts, which are the same. The applications of erally accepted accounting principles by PSE&G differ in certain spects from applications by non-regulated businesses.

34 Public Service Enterprise Group Incorporated

.. Utility Plant and Related Depreciation

-PSE&G Additions to utility plant and replacements of units of property are capitalized at original cost. The cost of maintenance, repairs and placements of minor items of property is charged to appropriate expense accounts.

At the time units of depreciable properties are retired or otherwise disposed of, the original cost less net salvage value is charged to accumulated depreciation.

For financial reporting purposes, depreciation is computed under the straight-line method. Depreciation is based on estimated age remaining lives of the several classes of depreciable property.

These estimates are reviewed on a periodic basis and necessary justments are made as approved by the BRC. Depreciation sions stated in percentages of original cost of depreciable property were 3.46% in 1993 and 3.48% in 1992 and 1991. Decontamination and Decommissioning

-PSE&G In September 199:1, FERC issued Order No. 557 on the accounting and ratemaking treatment of special assessments levied under the National Energy Policy Act (NEPA). Order No. 557 provides that special assessments are a necessary and reasonable current cost of fuel and shall be fully recoverable in rates in the same manner as other fuel costs. While PSE&G expects to recover such special sessments through its Levelized Energy Adjustment Clause (LEAC) no assurances can be given that the BRC will authorize such recovery from customers.

PSE&G cannot predict what actions the BRC will take concerning any recovery associated with this matter. Amortization of Nuclear Fuel -PSE&G Nuclear energy burnup costs are charged to fuel expense on a units-of-production basis over the estimated life of the fuel. Rates for the recovery of fuel used at all nuclear units include a provision of one mill per kilowatthour (Kwh) of nuclear generation for spent fuel disposal costs. (See Note 3 -PSE&G Nuclear ing and Amortization of Nuclear Fuel.) Revenues and Fuel Costs -PSE&G Revenues are recorded based on services rendered to customers during each accounting period. PSE&G records unbilled revenues representing the estimated amount customers will be billed for vices rendered from the time meters were last read to the end of the respective accounting period. Rates include projected fuel costs for electric generation, chased and interchanged power, gas purchased and materials used for gas production.

Any under or overrecoveries, together with interest (in the case of overrecoveries), are deferred and included in operations in the period in which they are reflected in rates. Long-Term Investments PSRC has invested in marketable securities and limited partnerships investing in securities, which are stated at fair value, and various leases and other limited partnerships.

EGDC is a participant in the nonresidential real estate markets. CEA is an investor in and oper of cogeneration and power production facilities. (See Note 7 -Long-Term Investments.) . '

Oil and Gas Accounting

-EDC EDC uses the successful efforts method of accounting under which proved leasehold costs are capitalized and amortized over the proved developed and undeveloped reserves on a production basis. Drilling and equipping costs, except exploratory dry holes, are capitalized and depreciated over the proved oped reserves on a units-of-production basis. Estimated future abandonment costs of offshore proved properties are depreciated on a units-of-production basis over the proved developed reserves.

Unproved leasehold costs are capitalized and not amortized, ing an evaluation of their exploration potential.

Unproved leasehold and producing properties costs are assessed periodically to mine if an impairment of the cost of significant individual properties has occurred.

The cost of an impairment is charged to expense in the period in which it occurs. Costs incurred for exploratory dry holes, exploratory geological and geophysical work and delay rentals are charged to expense as incurred.

Income Taxes Enterprise and its subsidiaries file a consolidated Federal income tax return and income taxes are allocated to Enterprise's subsidiaries based on taxable income or loss of each. Investment tax credits 0 are deferred and amortized over the ful lives of the related property including nuclear fuel. Deferred income taxes are provided for differences between book and taxable income. For periods prior to January I, 1993, PSE&G provided deferred income taxes to the extent permitted for ratemaking purposes.

Effective January I, 1993, Enterprise and its subsidiaries adopted Statement of Financial Accounting Standards No. I 09 "Accounting for Income Taxes" (SFAS I 09). Under SFAS I 09, deferred income taxes are provided for all temporary ences .between the financial statement carrying amounts and the tax bases of existing assets and liabilities irrespective of the ment for ratemaking purposes. (See Note 9 -Federal Income Taxes.) 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 amount 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 nent. The rates used for calculating AFDC in 1993, 1992 and 199 I were 6.96%, 7.80% and 7.50%, respectively.

These rates are within the limits set by the FERC. EDHI -The operating subsidiaries of EDHI capitalize interest costs allocable to construction expenditures at the average cost of borrowed funds. Pension Plan and Other Postretirement Benefits The employees of PSE&G and participating affiliates, after ing one year of service, are covered by a noncontributory trusteed pension plan (Pension Plan). The policy is to fund pension costs crued. PSE&G also provides certain health care and life insurance benefits to active and retired employees.

The portion of such costs pertaining to retirees amounted to $28 million, $24 million and $24 million in 1993, 1992 and 1991, respectively.

The current cost of these benefits is charged to expense when paid and is currently being reco.vered from ratepayers.

On January I, 1993, Enterprise and PSE&G adopted Statement of Financial Accounting Standards No. I 06, "Employers Accounting for Postretirement Benefits Other Than Pensions" (SFAS I 06), which requires that the expected cost of employees' ment health care benefits be charged to expense during the years in which employees render service. PSE&G elected to amortize over 20 years its unfunded obligation at January I, 1993. The effect of EDHl's adoption of SFAS I 06 was not material.

Prior to 1993, Enterprise and PSE&G recognized postretirement health care costs in the year in which the benefits were paid. (See Note 13 -Postretirement Benefits Other Than Pensions and Note 14 -Pension Plan.) Note 2. Rate Matters Base Rates On December 3 I, 1992, the BRC approved a settlement of PSE&G's base rate case that effectively provides additional annual base revenues of$295 million. At such time, the BRC also proved annual reductions of $66 million and $71 million, tively, in PSE&G's LEAC and Levelized Gas Adjustment Clause (LGAC). The BRC also approved stipulations resolving all electric and gas cost of service/rate design issues. The new base rates came effective January I, 1993. The settlement agreement allows PSE&G a 12% return on common equity and a I 0.08% return on rate base. In July 1993, PSE&G and its largest industrial customer submitted a proposed electric tariff modification to the BRC, providing for a $9 million or 23% rate discount, with PSE&G's shareholders ing $2.4 million or 27% of the discount.

The proposed tariff cation was designed to dissuade the customer from buying its electricity supply from a third party nonutility generator.

In December 1993, following extensive proceedings, the BRC nized the need for fiexible pricing in a competitive market, ap-. proved the requested discount but required PSE&G's shareholders to absorb $3.8 million or 42% of such discount.

The decision allows PSE&G a special tariff for certain large customers.

Levelized Gas Adjustment Clause On December 8, 1993, the BRC approved an interim LGAC ment which provides for an increase of $75.3 million for the proximate ten-month period ending September 1994. The LGAC increase principally refiects recent increases in the cost of natural gas. PSE&G Gas Plant Remediation Program On September 15, 1993, the BRC issued a written order allowing the continued collection of costs incurred by PSE&G to identify and clean up its former gas plant sites (Remediation Costs). The sion concluded that PSE&G had met its burden of proof for lishing the reasonableness and prudence of Remediation Costs incurred in operating and decommissioning these facilities in the past. The Remediation Costs incurred during the period July I, 1992 through September 30, 1992 are subject to verification and audit in PSE&G's 1992-1993 LGAC. The audit is currently ongoing. The order also approved a mechanism for costs incurred since October I, 1992. This mechanism allows the recovery of actual costs plus carrying charges, net of insurance recoveries, over a seven-year riod through a rider to PSE&G's LEAC and LGAC. Sixty percent of such costs will be charged to gas customers and forty percent charged to electric customers.

On November I, 1993, the Public 35 Advocate of New Jersey filed a motion requesting the BRC to consider its September 15, 1993 order. On January 21, 1994, the BRC denied the motion. (See Note 12 -Commitments and Contingent Liabilities.)

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

However, in a case affecting another utility in which nerther Enterprise nor PSE&G were parties, the BRC considered the extent to which tax savings generated by nonutility affiliates included in the consolidated tax return of that utility's holding company should be considered in setting that utility's rates. On September 30, 1992, the BRC approved an order in such case treating certain dated tax savings generated after June 30, 1990 by that utility's nonutility affiliates as a reduction of its rate base. On December 3 I, 1992 the BRC issued an order approving a stipulation in PSE&G's 1992 base rate proceeding which resolved the case without rate quantification of the consolidated tax issue. The stipulation does not provide final resolution of the consolidated tax issue for any subsequent base rate filing. While Enterprise continues to count for these entrties on a stand-alone basis, resulting in a tion of the tax benefits by the entrty generating the benefit, an ultimate unfavorable resolution of the consolidated tax issue could reduce PSE&G's future revenue and net income and the future net income of Enterprise.

In addition, an unfavorable resolution may versely impact Enterprise's nonutility investment strategy.

Enterprise believes that PSE&G's taxes should be treated on a stand-alone basis for ratemaking purposes, based on the separate nature of the utility and nonutility businesses.

However, neither Enterprise nor PSE&G is able to predict what action, if any, the BRC may take cerning consolidation of tax benefits in future rate proceedings. (See Note 9 -Federal Income Taxes.) Note 3. PSE&G Nuclear Decommissioning and Amortization of Nuclear Fuel PSE&G's 1992 base rate decision by the BRC utilized studies based on the prompt removal/dismantlement method of ing for all of PSE&G's nuclear generating stations.

This method sists of removing all fuel, source material and all other radioactive materials with activrty levels above accepted release limits from the nuclear sites. PSE&G has an ownership interest in five nuclear units: Salem I and Salem 2 -42.59% each, Hope Creek-95% and Peach Bottom 2 and 3 -42.49% each. In accordance with rate ders received from the BRC, PSE&G has established an external master nuclear decommissioning trust for all of its nuclear units. The Internal Revenue Service (IRS) has ruled that payments to the trust are tax deductible.

PSE&G's total estimated cost of ing its share of these nuclear units is estimated at $68 I million in year-end 1990 dollars, (the year that the site specific estimate was prepared), excluding contingencies.

The 1992 base rate decision provided that $15.6 million of such costs are to be collected through base rates and an additional annual amount of $7.0 million in 1993 and $14.0 million in 1994 and thereafter are to be ered through PSE&G's LEAC. At December 31, 1993 and 1992, the accumulated provision for depreciation and amortization included reserves for nuclear decommissioning for PSE&G's units of $21 I million and $179 million, respectively.

As of December 31, 1993 and 1992, PSE&G has contributed

$155 million and $109 million, respectively, into external qualified and non-qualified nuclear decommissioning trust funds. 36 Uranium Enrichment Decontamination and Decommissioning Fund In accordance with the NEPA. domestic utilities that own nuclear

• generating stations are required to pay a cumulative total of $150 million each year into a decontamination and decommissioning fund, based on their past purchases of enriched nuclear fuel from the United States Department of Energy (DOE) Uranium Enrichment Enterprise (now a federal government corporation known as the United States Enrichment Corporation (USEC)). These amounts are being collected over a period of 15 years or until $2.25 billion has been collected.

Under this legislation, the clear facilities operated by PSE&G, Salem and Hope Creek, gate 2.82% of the total amount of enrichment services sold to the domestic commercial nuclear industry and the nuclear facilities erated by PECO Energy Company, formerly known as Philadelphia Electric Company (PECO), Peach Bottom and other nuclear ties not co-owned by PSE&G, aggregate 3.89%. In 1993, PSE&G paid approximately

$4 million and deferred the balance of $56 million. PSE&G has included these costs in its LEAC. PSE&G cannot predict the outcome, amount or timing of any recovery associated with this matter. Spent Nuclear Fuel Disposal Costs In accordance wrth the Nuclear Waste Policy Act, PSE&G has tered into contracts with the USEC for the disposal of spent clear fuel. Payments made to the USEC for disposal costs are based on nuclear generation and are included in Fuel for Electric Generation and Net Interchanged Power in the Statements of Income. These costs are recovered through the LEAC. Note 4. Schedule of Consolidated Capital Stock Current Redemption Outstanding Price (Thousands of Dollars) Shares Per Share Enterprise Common Stock (no par) -authorized 500,000,000 shares; issued and outstanding at December 31, 1993, 24 3,688,256 shares, at December 3 I, 1992, 235,395,751 shares, and at December 3 I, 1991, 226,700,852 shares 0 December 31, 1993 1992 (note A). 3,772,662 3,499, 183 Enterprise Preferred Stock (note B) PSE&G Cumulative Stock (note C) Without Mandatory Redemption (note D) $1 00 par value -Series 4.08% 250,000 $ I 03.00 4.18% 249,942 I 03.00 4.30% 250,000 102.75 5.05% 250,000 103.00 5.28% 250,000 103.00 6.80% 250,000 102.00 7.40% 500,000 101.00 7.52% 500,000 101.00 8.08% 150,000 101.00 7.80% 750,000 101.00 7.70% 600,000 100.79 8.16% 300,000 100.74 Total Preferred Stock without Mandatory Redemption With Mandatory Redemption (notes D, E and F) $100 par value -Series 7.44% 750,000 $ I 03.72 5.97% 750,000 102.99 Preferred Stock with Mandatory Redemption

$ 25,000 $ 25,000 24,994 24,994 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 50,000 50,000 50,000 50,000 15,000 15,000 75,000 '75,000 60,000 60,000 30,000 30,000 $ 429,994 $ 429,994 $ 75,000 $ 75,000 75,000 $ 150,000 $ 75,0QO Notes to Schedule of Consolidated Capital Stock (A)' Total authorized and unissued shares include 7,571,442 shares of Enterprise Common Stock reserved for issuance through Enterprise's Dividend Reinvestment and Stock Purchase Plan (DRIP) and various employee benefit plans. In 1993, 8,292,505 shares of Enterprise Common Stock were issued and sold for $273,479,342, including a public offering of 4,400,000 shares issued and sold for $142,670,000; in 1992, 8,694,899 shares were issued and sold for $237,045,247, cluding a public offering of 5,000,000 shares issued and sold for $132,025,000; in 1991, 8,228,647 shares were issued and sold for $2'18,735,528, including a public fering of 5,000,000 shares issued and sold for $129,950,000. (B) Enterprise has authorized a class of 50,000,000 shares of Preferred Stock without par value, none of which is outstanding. (C) As of December 31, 1993, there were 1,700,060 shares of$ I 00 par value and I 0,000,000 shares of $25 par value Cumulative Preferred Stock which were rized and unissued, and which upon issuance may or may not provide for mandatory sinking fund redemption.

If dividends upon any shares of Preferred Stock are in rears in an amount equal to the annual dividend thereon, voting rights for the tion of a majority of PSE&G's Board of Directors become operative and continue until all accumulated and unpaid dividends thereon have been paid, whereupon all such voting rights cease, subject to being again revived from time to time. In January 1994, PSE&G called for redemption on March I, 1994 all of the standing shares of two series of securities:

300,000 shares of its 8.16% Cumulative Preferred Stock ($1 00 Par) and 150,000 shares of its 8.08% Cumulative Preferred Stock ($100 Par). In February 1994, PSE&G issued and sold 600,000 shares of 6.92% Cumulative Preferred Stock ($100 Par) which may not be redeemed before February I, 2004 and 600,000 shares of 6.75% Cumulative Preferred Stock -$25 Par which may not be redeemed before February I, 1999. The net proceeds from the sale of the 6.75% Cumulative Preferred Stock -$25 Par will be used by PSE&G to redeem the standing shares of the 8.08% Cumulative Preferred Stock ($100 Par). (D) At December 31, 1993, the annual dividend requirement and embedded dend for Preferred Stock without mandatory redemption were $29,012,000 and 6.75%, respectively and for Preferred Stock with mandatory redemption were $10,057,500 and 6.71 %, respectively. (E) In March 1993, PSE&G sold 750,000 shares of 5.97% Cumulative Preferred Stock ($100 Par). PSE&G will be required to redeem through the operation of a sinking fund 37,500 shares, plus accumulated dividends, on March I of each year ing March I, 2003 and shall redeem the remaining shares on March I, 2008, plus cumulated dividends. (F) In accordance with the requirements of Statement of Financial Accounting Standards No. I 07, "Disclosures about Fair Value of Financial Instruments" (SFAS I 07), the estimated fair value was determined using the ready market price for the Preferred Stock at the end of 1993. As of December 31, 1993, the estimated fair value of the Preferred Stock was $158 million. As of December 31, 1992, the mated fair value of the Preferred Stock was $78 million. Note S. Deferred Items Property Abandonments The BRC has authorized PSE&G to recover after-tax property donment costs from its customers.

The following table reflects the application of Statement of Financial Accounting Standards No. 90, "Regulated Enterprises

-Accounting for Abandonments and Disallowances of Plant Costs" (SFAS 90), as amended, on property abandonments for which no return is earned. The net-of-tax count rate used was between 4.44 3% and 7.80 I%. As part of its base rate decision of December 3 I, 1992, the BRC required the elimination of the amortization of the abandonment cost for Hope Creek Unit 2 as of December 3 I, 1992. The net maining balance was transferred to the LEAC. (See Note 2 -Rate Matters.)

The following table reflects the property abandonments and related tax effects on which no return is earned. December 3 I , (Thousands of Dollars) 1993 1992 Discounted Discounted Property Abandonments Cost Taxes Cost Taxes Atlantic Project $ 81,475 $34,229 $ 92,282 $38,778 LNG Project 11,362 4,227 15,231 5,738 Uranium Projects 12,699 5,442 14,450 6, 168 Other 298 $I 05,536 $43,898 $122,261 $50,684 Under(Over)Recovered Electric Energy And Gas Costs -Net Recoveries of electric energy and gas costs are determined by the BRC under the LEAC and LGAC. PSE&G's deferred fuel balances as of cember 31, 1993 and December 3 I, 1992, reflect an underrecovery of $62.0 million and an overrecovery of $122.7 million, respectively.

Unrecovered Plant and Regulatory Study Costs Amounts shown in the consolidated balance sheets consist of costs associated with developing, consolidating and documenting the specific design basis of PSE&G's jointly-owned nuclear generating stations, as well as PSE&G's share of costs associated with the cancellation of the Hydrogen Water Chemistry System Project at Peach Bottom. PSE&G has received both BRC and FERC approval to defer and amortize, over the remaining life of the Salem and Hope Creek nuclear units, costs associated with configuration line documentation projects.

PSE&G has received FERC approval to defer and amortize over the remaining life of the applicable Peach Bottom units, costs associated with the configuration baseline mentation and the cancelled Hydrogen Water Chemistry System Projects.

While PSE&G expects the BRC to authorize recovery of such costs from electric customers, no assurances can be given. Oil and Gas Property Write-Down On December 3 I, 1992, the BRC approved the recovery of the EDC write-down through PSE&G's LGAC over a ten year period beginning January I, 1993. At December 31, 1993, the remaining balance to be amortized was $46 million. Unamortized Debt Expense Gains and losses and the cost of redeeming long-term debt for PSE&G are deferred and amortized over the life of the applicabie debt Note 6. Schedule of Consolidated Long-term Debt (Thousands of Dollars) December 31, Interest Rates Due 1993 1992 PSE&G First and Refunding Mortgage Bonds (note A) 4Ya%-9Y,% 1993 $ $ 190,000 4Y,% 1994 60,000 60,000 4Y.%-6% 1995 310,000 310,000 9Y.% 1996 75,000 6Y,%-7Y,% 1997 300,000 375,000 6%-7% 1998 100,000 75,000 6%-8?1,% 1999-2003 1,200,000 798,600 6.30%-9Ya% 2004-2008 438,900 530,400 6.80% -I 0Ya% 2009-2013 73,710 137,710 8.10%-IOY,% 2014-2018 310,200 745,400 7Y,%-9Y,% 2019-2023 1,068,500 822,500 5.20%-7% 2024-2028 387,000 5.55% 2033 145,200 5%-8% 2037 15,001 15,001 Medium-term Notes 7.15%-7.18% 2023 40,500 Total First and Refunding Mortgage Bonds 4,449,011 4,134,611 Debenture Bonds Unsecured 7Y,% 1996 41,994 6% 1998 18,195 18,195 Total Debenture Bonds 18,195 60,189 Principal Amount Outstanding (note F) 4,467,206 4,194,800 Amounts Due Within One (note B) (61,700) (191,700)

Net Unamortized Discount (41,069) (24,962) Total Long-Term Debt of PSE&G 4,364,437 3,978, 138 37 Note 6. Schedule of Consolidated Long-Term Debt (Continued)

EDHI Capital (note C) 8.95%-9.72%

1993 88,000 7.40% 1994 50,000 50,000 5.65% -9.55% 1995 112,000 112,000 9.00% 1996 20,000 20,000 5.79% -5.92% 1997 27,000 9.875% -I 0.05% 1998 282,500 325,000 6.54% -9.93% 1999-2000 233,000 155,000 Principal Amount Outstanding (note F) 724,500 750,000 Amounts Due Within One Year (note B) (92,436) (130,431)

Net Unamortized Discount (1,746) (1,571) Total Long-Term Debt of Capital 630,318 617,998 Funding (note D) 9.43% 1993 $ $ 60,000 9.54% 1995 35,000 35,000 9.55% 1996 28,000 28,000 6.85% -9.59% 1997 55,000 40,000 9.95% 1998 83,000 83,000 7.58% 1999 45,000 4.5625% -5.0% Bank Loans 1994-95 175,000 Principal Amount Outstanding (note F) 246,000 421,000 Amounts Due Within One Year (note B) (60,000) Total Long-Term Debt of Funding 246,000 361,000 EGDC Mortgage Notes 5.18% -7.736% 1994 13,638 13,678 5.75% 1998 9,050 10,280 I 0.625% -12.75% 2012 6,806 6,913 Principal Amoi:nt Outstanding (note F) 29,494 30,871 Amounts Due' Within One Year (note B) (13,928) (I 0,428) Total Long-Term DebtofEGDC 15,566 20,443 Total Long-Term Debt of EDHI 891,884 999,441 Consolidated Long-Term Debt (note E) $5,256,321

$4,977,579 Notes: (A) PSE&G's Mortgage, securing the Bonds, constitutes a direct first mortgage lien on substantially all PSE&G property and franchises.

In January 1994, PSE&G called for redemption on March I, 1994 all of its First and Refunding Mortgage Bonds 4S/a% Series due 1994. In February 1994, PSE&G issued $50 million principal amount of its First and Refunding Mortgage Bonds Pollution Control Series 0 due 2032. (B) The aggregate principal amounts of mandatory requirements for sinking funds and maturities for each of the five years following December 31, 1993 are as follows: (Thousands of Dollars) Sinking Funds Maturities Year PSE&G Capital PSE&G Capital EGDC Funding Total 1994 $1,700 $ 42,500 $ 60,000 $ 49,936 $13,928 $ -$ 168,064 1995 200 42,500 310,000 112,000 305 35,000 500,005 1996 200 42,500 20,000 320 28,000 91,020 1997 200 42,500 300,000 27,000 337 55,000 425,037 1998 200 37,500 100,000 75,000 8,551 83,000 304,251 $2,500 $207,500 $770,000 $283,936 $23.441 $20 1,000 $1,488,377 For sinking fund purposes, certain First and Refunding Mortgage Bond issues require annually the retirement of an aggregate

$13.3 million principal amount of bonds or the utilization of bondable property additions at 60% of cost. The portion expected to be met by property additions has been excluded from the table above. (C) Capital is providing up to $750 million debt financing for EDHl's businesses on the basis of a support agreement with Enterprise. (D) Funding provides debt financing for EDHl's businesses other than EGDC on the basis of unconditional guarantees from EDHI. (E) At December 31, 1993, the annual interest requirement on long-term debt was $421.2 million of which $327.5 million was the requirement for Bonds.The ded interest cost on long-term debt on such date was 8.06%. (F) In accordance with the requirements of SFAS I 07, the estimated fair value was 38 determined using market quotations or values of debt with similar terms, credit ings and remaining maturities at the end of 1992. As of December 31, 1993, the timated fair value of PSE&G's and EDHl's long-term debt was $4.7 billion and $1.2 *. billion, respectively.

As of December 3 I, 1992, the estimated fair value of PSE&G's and EDHl's long-term debt was $4.4 billion and $1.3 billion, respectively.

Note 7. Long-Term Investments Long-Term Investments are primarily those of EDHI. A summary of Long-Term Investments is as follows: (Millions of Dollars) . Lease Agreements (see Note I 0 -Leasing Activities):

Leveraged Leases Direct-Financing Leases Other Leases Total Partnerships:

General Partnerships Limited Partnerships Total Joint Ventures Securities Valuation Allowances Corporate-owned Life Insurance (PSE&G) Total Long-Term Investments 1993 $ 738 85 8 831 152 433 585 35 82 (18) 99 $1,614 !992 $ 718 93 12 823 135 428 563 11 198 (17) 72 $.1,650 PSRC's leveraged leases are reported net of principal and interest on nonrecourse loans and unearned income, *including deferred tax credits. Income and deferred tax credits are recognized at a level rate of return from each lease during the periods in which the net investment is positive.

Partnership investments are those of PSRC, EGDC and CEA and are undertaken with other investors.

PSRC is a limited partner in various partnerships and is committed to make investments from time to time, upon the request of the respective general partners.

As of December 31, 1993, $139.5 million remained as PSRC's funded commitment subject to call. PSRC has invested in marketable securities and limited ships investing in securities, which are stated at fair value. Realized investment gains and losses on the sale of investment securities are determined utilizing the specific cost identification method. Note 8. Cash and Cash Equivalents The December 3 I, 1993 and 1992 balances consist primarily of working funds and highly liquid marketable securities (commercial paper) with a maturity of three months or less. Note 9. Federal Income Taxes A reconciliation of reported Net Income with pretax income and of Federal income tax expense with the amount computed by multiplying pretax income by the statutory Federal income tax rates of 35% in 1993 and 34% in 1992 and 1991 is as follows: (Thousands of Dollars) 1993 1992 1991 Net Income $600,933 $504,117 $543,035 Preferred stock dividend requirements 38,114 31,907 29,012 SFAS I 09 cumulative effect (5,414) Subtotal 633,633 536,024 572,047 *.

(Thousands of Dollars) 1993 1992 1991 Federal income taxes: Operating income: Current provision 152,076 152,225 146,408 Provision for deferred income taxes -net (A) 186,467 91,104 137,955 Investment tax credits -net (23,784) (21,635) (19,507) Total included in operating income 314,759 221,694 264,856 Miscellaneous other income: Current provision (15,419) 4,721 (11,396) Provision for deferred income taxes (A) 9,815 19,261 10,906 SFAS 90 deferred income taxes (A) 2,948 2,690 4,967 Total Federal income tax provisions 312,103 248,366 269,333 Pretax income $9°45,736

$784,390 $841,380 Reconciliation between total Federal income tax provisions and tax computed at the statutory tax rate on pretax income: Tax computed at the statutory rate $33 1,008 $266,693 $286,069 Increase (decrease) attributable to flow through of certain tax adjustments:

Depreciation 9,002 15,614 9,229 Amortization of plant abandonments and write-downs (2,239) (18,867) (4,497) Amortization of investment tax credrt:s (23, 784) (20,681) (22,004) Other ( 1,884) 5,607 536 Subtotal ( 18, 905) ( 18,327) ( 16,736) Total Federal income tax provisions

$312, I 03 $248,366 $269,333 Effective Federal income tax rate 33.0% 31.7% 32.0% (A) The provision for deferred income taxes represents the tax fects of the following items: (Thousands of Dollars) 1993 1992 1991 Deferred Credits: Additional tax depreciation and amortization

$112,814 $136,073 $123, 122 Leasing Activities 34,958 56,087 41,741 Property Abandonments (6,632) (34,739) (11,582) Oil and Gas Property Write-Down (2,45q (6,393) (6,393) Deferred fuel costs -net 63,330 (40,148) 9,285 Other (2,789) 2,175 (2,345) Total $199,230 $113,055 $153,828 Since 1987, Enterprise's Federal alternative minimum tax (AMT) bility has exceeded its regular Federal income tax liability.

This cess can be carried forward indefinitely to offset regular income tax liability in future years. Enterprise expects to utilize these AMT credits in the future as regular tax liability exceeds AMT. As of December 31, 1993, 1992 and 199 I, Enterprise had AMT credits of $247 million, $212 million and $185 million, respectively.

Since 1986, Enterprise has filed a consolidated Federal income. tax return on behalf of itself and its subsidiaries.

Prior to 1986, PSE&G filed consolidated tax returns. On March 20, 1992, the Internal Revenue Service (IRS) issued a Revenue Agents Report (RAR) following completion of examination of PSE&G's dated tax return for 1985 and Enterprise's consolidated tax returns for 1986 and 1987, proposing various adjustments for such years which would increase Enterprise's consolidated Federal income tax liability by approximately

$121 million, exclusive of interest and penalties, of which approximately

$1 I 8 million is attributable to PSE&G. Interest after taxes on these proposed adjustments is rently estimated to be approximately

$82 million as of December 3 I, 1993 and will continue to accrue at the Federal rate for large corporate underpayments, currently 9% annually.

The most significant of these proposed adjustments relates to the IRS contention that PSE&G's Hope Creek nuclear unit is a with a short 1986 taxable year. In addition, the IRS tends that the tax in-service date of that unit is four months later .. than the date claimed by PSE&G. On June 19, 1992, Enterprise and PSE&G filed a protest with the IRS disagreeing with certain of the proposed adjustments (including those related to Hope Creek) contained in the RAR for taxable years 1985 through 1987 and continues to contest these issues. Any tax adjustments resulting from the RAR would reduce Enterprise's and PSE&G's respective deferred credits for accumulated deferred income taxes. Enterprise expects PSE&G to recover all interest paid with respect to tax ments attributable to PSE&G from PSE&G's customers through rates. While PSE&G believes that assessments attributable to it are ally recoverable from its customers in rates, no assurances can be given as to what regulatory treatment may be afforded by the BRC. On January I, 1993, Enterprise adopted SFAS I 09 without stating prior years' financial statements which resulted in Enterprise recording a $5.4 million cumulative effect increase in its net income. Under SFAS I 09, deferred taxes are provided at the enacted tory tax rate for all temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities irrespective of the treatment for ratemaking purposes.

Since management believes that it is probable that the effects of SFAS I 09 on PSE&G. principally the accumulated tax benefits that previously have been treated as a flow through item to customers, will be recovered from utility customers in the future, an offsetting regulatory asset was established.

As of December 31, 1993, PSE&G had recorded a deferred tax liability and an offsetting regulatory asset of $790 million representing the future revenue expected to be covered through rates based upon established regulatory practices which permit recovery of current taxes payable. This amount was determined using the 1993 Federal income tax rate of 35%. SFAS 109 The following is an analysis of accumulated deferred income taxes: Accumulated Deferred Income Taxes 1993 1992 Assets: Current (net) Non-Current:

Unrecovered Investment Tax Credits Nuclear Decommissioning Hope Creek Cost Disallowance Uncollectibles Vacation Pay AMT Credit Real Estate lmpainment Other Total Non-Current Total Assets Liabilities:

Non-Current:

Plant Related Items Leasing Activities Property Abandonments Oil and Gas Property Write-Down Deferred Electric Energy & Gas Costs Unamortized Debt Expense Taxes Recoverable Through Future Rates Other Total Non-Current Total Liabilities Summary-Accumulated Deferred Income Taxes Net Current Assets Net Deferred Liabilrt:y Total (Thousands of Dollars) $ 12,934 143,125 25,211 20,231 9,716 6,721 246,862 27,173 14,880 $ 493,979 $ 506,913 $2,169,861 520,286 32,206 16,790 20,133 38,768 270,518 127,803 $3,196,365

$3,196,365

$ 12,934 $2,702,386

$2,689,452

$ 24,305 29,468 6,424 212,453 1,209 $ 273,859 $ 273,859 $1,395,725 451,733 50,684 24,518 (44,415) 17,082 89,621 $1,984,948

$1,984,948

$ $1.711,089

$1.711,089 39 The Revenue Reconciliation Act of 1993, enacted in August 1993, increased the Federal corporate income tax rate from 34% to 35% effective January 1, 1993. This resulted in an increase in Federal come tax expense for Enterprise of $18.1 million for the year 1993. Note I 0. Leasing Activities As Lessee 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 renewal and purchase options and also contain escalation clauses. Enterprise and its other subsidiaries are not lessees in any talized leases. Utility plant includes the following amounts for capital leases at December 3 1 : (Thousands of Dollars) 1993 1992 Common Plant $56,812 $56,812 Less: Accumulated Amortization 3,708 3,196 Net Assets under Capital Leases $53,104 $53,616 Future minimum lease payments for noncancelable capital and operating leases at December 31, 1993 were: (Thousands of Dollars) 1994 1995 1996 1997 1998 Later Years Minimum Lease Payments Less: Amount representing estimated executory costs, together with any profrt thereon, included in minimum lease payments Net minimum lease payments Less: Amount representing interest Present value of net minimum lease payments (A) Capital Operating Leases Leases $ 13,015 $14,353 13,016 14,056 13,017 12,942 13,017 10,982 13,018 7,820 212,521 24,184 277,604 $84,337 138,876 138,728 85,624 $ 53,104 (A) Reflected in the Consolidated Balance Sheets in Capital Lease Obligations of $52.530 million and in Long-Term Debt and Capital Lease Obligations due within one year of $574 thousand.

The following schedule shows the composition of rent expense included in Operating Expenses:

For The Years Ended December 31, (Thousands of Dollars) 1993 1992 1991 Interest on Capital Lease Obligations

$ 6,074 $ 6,129 $ 6,205 Amortization of Utility Plant under Capital Leases Sil 457 439 Net minimum lease payments relating to Capital Leases 6,587 6,586 6,644 Other Lease payments 22,095 21,739 26,290 Total Rent Expense $28,682 $28,325 $32,934 40 As Lessor PSRC's net investments in leveraged and direct financing leases are composed of the following elements:

December 3 I, 1993 December 31, 1992 Direct Direct (Millions Leveraged Financing Leveraged Financing of Dollars) Leases Leases Total Leases Leases Total Lease rents receivable

$ 980 $114 $1,094 $1,015 $130 $1,145 Estimated resid-ual value 595 12 607 599 12 611 1,575 126 1,701 1,614 142 1,756 Unearned and deferred income (837) (41) (878) (896) (49) (945) Total investments 738 85 823 718 93 811 Deferred taxes (267) (20) (287) (225) (18) (243) Net investments

$ 471 $ 65 $ 536 $ 493 $ 75 $ 568 PSRC's other leases are with various regional, state and city authorities for transportation equipment and aggregated

$8 million and $12 million as of December 3 I, 1993 and 1992, respectively.

Note II. 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. PSE&G Certain information regarding commercial paper follows: (Thousands of Dollars) 1993 1992 Principal amount outstanding at end of year Maximum principal amount outstanding at any month-end Average daily outstanding Weighted average annual interest rate Weighted average interest rate for commercial paper outstanding at year-end $532,728 $532,728 $310,400 3.20% 3.34% $257,536 $549,914 $279,900 3.76% 3.64% 1991 $165,857 $499,171 $400,000 5.98% 4.99% PSE&G has authorization from the BRC to issue and have ing not more than $800 million of its short-term obligations at any one time, consisting of commercial paper and other unsecured rowings from banks and other lenders. This authorization expires December 3 I, 1994. PSE&G expects to be able to renew such thority. PSE&G has a $600 million revolving credit agreement with a group of banks which expires in September 1994. As of December 31, 1993, there was no short-term debt outstanding under this agreement.

Fuelco has a $150 million commercial paper program to finance a 42.49% share of Peach Bottom nuclear fuel, supported by a $150 million revolving credit facility with a group of banks which expires in June 1996. PSE&G has guaranteed repayment of Fuelco's respective obligations.

As of December 31, 1993, 1992 and 1991, Fuelco had commercial paper of $108.7 million, $122.5 million and $I 35.9 lion, respectively, outstanding under such program, which amounts are included in the table above. .,*

.. EDHI Nuclear Insurance Coverages and Assessments Certain information regarding commercial paper follows: PSE&G's insurance coverages and maximum retrospective assess-(Thousands of Dollars) 1993 1992 1991 ments for its nuclear operations are as follows:

Amount outstanding at end of year Maximum amount outstanding at any month-end Average daily outstanding Weighted average annual interest rate Weighted average interest rate for commercial paper outstanding at year-end $ 44,908 $150,321 $ 91,800 3.24% 3.47% $134.446 $204,558 $156,400 3.78% 3.76% $223, 193 $326,537 $243.700 5.92% 5.04% At December 31, 1993 Funding had a $225 million commercial paper program supported by a direct pay commercial bank letter of credit and revolving credit facility and a $225 million revolving credit facility each of which expires in November 1995. Enterprise At each of December 3 I, 1993, 1992 and 199 I, Enterprise had $25 million of lines of credit supported by compensating balances under informal arrangements with banks. At each of December 3 I, 1993, 1992 and 1991, Enterprise had no line of credit sated for by fees. Note 12. Commitments and Contingent Liabilities Nuclear Performance Standard The BRC has established a nuclear performance standard (Standard) for nuclear generating stations owned by New Jersey electric utilities, including the five nuclear units in which PSE&G has an ownership interest:

Salem -42.59%; Hope Creek -95%; and Peach Bottom -42.49%. PSE&G operates Salem and Hope Creek, while Peach Bottom is operated*by PECO. The penalty/reward under the Standard is a percentage of placement power costs. (See table below.) The Standard provides that the penalties will be calculated to the edge of each capacity factor ra,nge. 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 less than 65% Equal to or greater than 45% and less than 55% Equal to or greater than 40% and less than 45% Below40% Reward Penalty 30% None None 30% 40% 50% BRC Intervenes Under the Standard, the capacity factor is calculated annually using maximum dependable capability of the five nuclear units in which PSE&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 allegations 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 1993, the five nuclear units in which PSE&G has an ownership interest aggregated a 77% bined capacity factor. In accordance with the Standard, PSE&G's combined capacity factor exceeded the 75% reward threshold, titling PSE&G to a reward of approximately

$3.9 million. PSE&G will the BRC to recover this reward through the LEAC mencing on June 30, 1994. " Type and Source of Coverages PSE&G Maximum Total Site Assessments for (Millions of Dollars) Coverages a Single Incident Public Liability:

American Nuclear Insurers $ 200.0 $ Indemnity (A) 9, 195.9 210.2 $9,395.9(B)

$ 210.2 Nuclear Worker Liability:

American Nuclear Insurers (C) $ 200.0 $ 8.3 Property Damage: Nuclear Mutual Limited $ 500.0 $ 17.4 American Nuclear Insurers 765.0(D) Nuclear Electric Insurance Ltd. (NEIL I) 85.0(E) Nuclear Electric Insurance Ltd. (NEIL II) 1.400.0(F)

I0.9(G) $2.750.0 $ 28.3 Replacement Power: Nuclear Electric Insurance Ltd. $ 3.S(H) $ I 1.3 (A) Retrospective premium program under the Price-Anderson liability provisions of the Atomic Energy Act of 1954, as amended, (Price-Anderson).

Subject to spective assessment wrth respect to loss from an incident at any licensed nuclear reactor in the United States. Assessment adjusted for infiation effective August 20, 1993. (B) Limrt of liability for each nuclear incident under Price-Anderson. (C) Industry aggregate limit representing the potential liability from workers claiming exposure to the hazard of nuclear radiation.

This policy includes automatic ments up to an aggregate of $200 million, thereby providing total coverage of $400 million. This policy does not increase PSE&G's obligation under Price-Anderson. (D) Includes $100 million sublimit for premature decommissioning costs. (E) New policy effective January I, 1994. (F) Includes up to $250 million for premature decommissioning costs. (G) In the event of a second industry loss triggering NEIL coverage, the maximum retrospective premium assessment can increase to $23.4 million. (H) Weekly indemnrty for 52 weeks which commences after the first 21 weeks of an outage. Beyond the first 52 weeks of coverage indemnity of $2.3 million per week for I 04 weeks is afforded.

Total coverage amounts to $425.9 million over three years. Price-Anderson 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 licens.ed nuclear reactors and is adjusted at least every five years based on the Consumer Price Index. The current "limit of liability" is $9.4 billion. All utilities owning a nuclear reactor, including PSE&G, have vided for this exposure through a combination of private insurance and mandatory participation in a financial protection pool as lished by Price-Anderson.

Under Price-Anderson, each party with an ownership interest in a nuclear reactor can be assessed its share of $79.3 million per reactor per incident, payable at $10 million per reactor per incident per year. If the damages exceed the "limit of liability", the President is to submit to Congress a plan for ing 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 is $210.2 million (based on PSE&G's ownership interests in Hope Creek, Peach Bottom and Salem) and its maximum aggregate nual assessment per incident is $26.5 million. 41 PSE&G purchases all property insurance available, including amination expense coverage and premature decommissioning erage, with respect to loss or damage to its nuclear facilities.

PECO has advised PSE&G that it maintains similar insurance coverage with respect to Peach Bottom. Under the terms of the various ance agreements, PSE&G could be subject to a maximum spective assessment for a single incident of up to $28.3 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 a site, issues a shutdown order with respect to such unit or issues a confirmatory order keeping such unit shut down. PSE&G is a member of an industry mutual insurance company, NEIL, which provides replacement power cost coverage in the event of a major accidental outage at a nuclear station. The policies provide for a weekly indemnity payment of $3.5 million for 52 weeks, subject to a 21-week waiting period. The policies provide for weekly indemnity payments of $2.3 million for a I 04 week riod beyond the first year's indemnity.

The premium for this age is subject to retrospective assessment for loss experience.

Under the policies, PSE&G's present maximum share of any retrospective assessment in any year is $1 1.3 million. Nuclear Fuel As a result of the NEPA, all United States nuclear utilities are sponsible to co-fund with the United States Government a tamination and decommissioning fund for DOE nuclear fuel enrichment facilities.

PSE&G is responsible for making annual ments into this fund for 15 years beginning in 1993. In September 1993, PSE&G paid its $4 million annual ment based on its proportionate share of the five nuclear units in which it has an ownership interest.

PSE&G deferred such amount and expects to recover it together with its estimated

$56 million future liability, from customers through its LEAC. (See Note 3 -PSE&G Nuclear Decommissioning and Amortization of Nuclear Fuel -Uranium Enrichment Decontamination and sioning Fund.) Construction and Fuel Supplies PSE&G has substantial commitments as part of its ongoing struction program which includes capital requirements for nuclear fuel. PSE&G's construction program is continuously reviewed and periodically revised as a result of changes in economic conditions, revised load forecasts, changes in the scheduled retirement dates of existing facilities, changes in business plans, site changes, cost calations under construction contracts, requirements of regulatory authorities and laws, the timing of and amount of electric and gas rate changes and.the ability of PSE&G to raise necessary capital. Pursuant to an integrated electric resource plan (IRP), PSE&G odically reevaluates its forecasts of future customers, load and peak growth, sources of electric generating capacity and DSM to meet such projected growth, including the need to construct new tric generating capacity.

The IRP takes into account assumptions concerning future demands of customers, effectiveness of vation and load management activities, the long-term condition of PSE&G's plants, capacity available from electric utilities and other suppliers and the amounts of cogeneration and other nonutility pacity projected to be available.

42 Based on PSE&G's 1994-1998 construction program, tion expenditures are expected to aggregate approximately

$4.2 billion, which includes $483 million for nuclear fuel and $133 mil-* lion of AFDC and capitalized interest during the years 1994 through 1998. The estimate of construction requirements is based on expected project completion dates and includes anticipated calation due to inflation of approximately 4%, annually.

Therefore, construction delays or higher inflation levels could cause significant increases in these amounts. PSE&G expects to generate internally a majority of the funds necessary to satisfy its construction tures over the next five years, assuming adequate and timely rate relief, as to which no assurances can be given. In addition, PSE&G does not presently anticipate any difficulties in obtaining sufficient sources of fuel for electric generation or adequate gas supplies during the years 1994 through 1998. Bergen Station Repowering PSE&G is presently engaged in Phase I of a construction project to renovate (or "repower")

the Bergen Station pursuant to an air lution control permit issued by New Jersey Department of Environmental Protection and Energy (NJDEPE) on May 27, 1993. The current effort would maintain the existing electric supply of the station (with a small increase from 629 MW to 669 MW), prove operational reliability and efficiency and significantly improve the environmental effects of operation of the facility.

Phase II ofthe project, if it is undertaken by PSE&G, would increase the capacity of Bergen by an additional 650 MW. On July 12, 1993, an association of competitors of PSE&G pealed the NJDEPE's issuance of the air permit for Phase I of the project to the Appellate Division of the New Jersey Superior Court, alleging that PSE&G is first required to obtain a Certificate of Need under the New Jersey Need Assessment Act (Need Assessment Act). The NJDEPE determined that the Need Assessment Act was inapplicable to this renovation project. Obtaining a Certificate of Need would be a complex procedure entailing proceedings of at least a two year duration before the NJDEPE, the outcome of which could not be assured. As of December 31, 1993, Phase I of the renovation project was about 20% complete and PSE&G had spent approximately

$169 million on this effort. The final cost is estimated to be approximately

$400 million. Briefs have been filed in the appeal and PSE&G believes that a Certificate of Need is not required for Phase I of the project. However, if a Certificate of Need were ultimately required by the courts after exhaustion of all appeals, the permits needed to ate the plant could not be issued until after a Certificate of Need was obtained.

PSE&G intends to continue this renovation project and to vigorously defend its position through all available means. Environment General Certain Federal and State laws authorize the United States Environmental Protection Agency (EPA) and the NJDEPE, among other agencies, to issue orders and bring enforcement actions to compel responsible parties to take investigative and remedial tions at any site that is determined to present an imminent and substantial danger to the public or the environment because of an actual or threatened release of one or more hazardous substances.

Because of the nature of PSE&G's business, 1nclud1ng the tion of electricity, the rl1stnbut1on of gas and, formerly, the f<lcture of gas, various by-products and substances are or were produced or handled which contain constituents classified as ardous. PSE&G generally provides for the disposal or processing of such substances through licensed independent contracto1"S.

However, these statutory provisions impose JOint and several spons1bil1ty wrthout regard to fault on all 1*espons1ble parties, 1nclud-1ng the generators of the hazardous substances.

for certain investigative and remediation costs at srtes where these substances were disposed of or processed.

PSE&G has been notified with spect to a number of such srtes and the remediation of these tentially hazardous sites 1s 1*ece1v1ng greater attention from the government agenoes involved.

Generally, actions directed at ing such site investigations and remediation include all suspected or known responsible parties. PSE&G does not expect rts tures for any such site to be material.

PSE&G Manufactured Gas Plant Remediation Program In March 1988, NJDEPE notified PSE&G that rt had 1dent1fied the need for PSE&G, pursuant to a formal arrangement.

to atically investigate and, 1f necessary, resolve environmental cerns extant at PSE&G's former manufactured gas plant sites. To date, NJDEPE and PSE&G have 1dent1fied 38 former gas plant sites. PSE&G 1s currently working with NJDEPE under a program to sess, 1nvest1gate and, 1f necessary, remed1ate environmental cerns at its former gas plant sites (Remed1at1on Prog1-am).

The Remediation Program 1s periodically reviewed and revised by PSE&G based on regulatory requirements, experience wrth the Remed1at1on Program and available technologies.

The cost of the Remed1at1on Program cannot be reasonably estimated, but ence to date 1nd1cates that costs of at least $20 million per year could be incurred over a penod of more than 30 years and that the overall cost could be matenal. Costs incurred through December 31, 1993 for the Remediation Program amounted to $44.5 million, net of insurance recoveries.

In addrt1on, at December 31, 1993, PSE&G's l1abilrty for estimated remediation costs, net of insurance recoveries, through 1996 aggregated

$1 I I million. In accordance wrth a St1pulat1on proved by the BRC on January 21 , 1992. PSE&G 1s recovering

$32 million of its actual remediation costs to reflect costs incurred through September 30, 1992, net of insurance recoveries, over a six-year penod. In its 1992-93 LGAC. PSE&G refunded $0.3 million dunng the 1993 LGAC year and will recover $5.3 million 1n each of its next three LGAC periods ending 1n 1996, net of insurance recoveries.

The regulatory treatment of the remediation costs ered by this St1pulat1on was not changed 1n the BRC's September 15, 1993 written order, allowing continued collection under the terms of the January 21, 1992 St1pulat1on.

The dern1on of Septembe1*

15, 1993 concluded that PSE&G had met its burden of proof for establishing the reasonableness and prudence of ation costs incurred 1n operating and decommissioning these t1es 1n the past. The remediation costs incurred during the period July I, 1992 through September 30, 1992 are subiect to verification and audit 1n PSE&G's 1992-93 LGAC. The audrt 1s currently ing. The order also app1*oved a mechanism for costs incurred since October I, 1992, allowing the recovery of actual costs plus can-y-1ng charges, net of insurance recoveries, over a seven-year penod through PSE&G's LEAC and LGAC. with 60% charged to gas totners and 40% charged to electric customers.

On November I, 1993, the Public Advocate of New jersey filed a motion 1*equest1ng the BRC to reconsider its September 15, 1993 order. On January 21, 1994, the BRC denied the motion. In November 1988, PSE&G filed suit against certain of its ers to recover the costs associated with addressing and resolving environmental issues of the Remediation Program. PSE&G has tled its claim with one insurer and there 1s a trial scheduled for September 1994 with the remaining insurers.

Pending full recovery of Remediation Program costs through rates or under its insurance policies, neither of which can be assured, PSE&G will be required to finance the unre1mbursed costs of rts Remediation Program. Note 13. Postretirement Benefits Other Than Pensions On January I, 1993. Enterprise and PSE&G adopted SFAS I 06, which requires that the expected cost of employees' ment heatth care and insurance benefrts be charged to expense during the years 1n which employees render service. PSE&G elected to amortize over 20 years its unfunded obligation of $609.3 million at January I, 1993. Prior to 1993, Ente1-pnse and PSE&G recognized postretirement health care and insurance costs in the year that the benefrts wei-e paid. The following table closes the significant components of the January I, 1993, lated postretirement benefit obligation amortization:

Net Postretirement Benefit Obligation (Millions)

January I, 1993 Accumulated postret1rement benefit obl1gat1on (PSE&G) Unrecognized transition obl1gat1on (PSE&G) Accrued postret1rement obligation

$(609.3) 578.8 $ (30.5) The following table discloses the significant components of the net periodic postretirement benefit obligation:

Net Periodic Postretirement Benefit Obligation Service cost Interest on accumulated postret1rement obligation Amortization of transrt1on obl1gat1ons Defenol of cuJTent expense Annual net expense $ $ 1993 11.7 44.4 30.5 (58.6) 28.0 The discount rate used 1n determining the PSE&G net periodic postretirement benefrt cost was 7.5%. A one-percentage-point increase 1n the assumed health care cost trend rate for each year would increase the aggregate of the service and interest cost components of net periodic ment health care cost by approximately

$2.4 million, or 6.0%, and increase the accumulated postretirement benefrt obligation as of December 31, 1993 by $29.3 million, or 6.0%. The assumed health care cost trend rates used 1n measuring the accumulated postret1rement benefit obl1gat1on in 1993 were: ical costs for pre-age sixty-five retirees -13.5%, medical costs for post-age retirees -9.5%, prescription drugs -18% and dental costs -7.5%, such rates are assumed to gradually decline to 5.5%, 5.0%. 5.5% and 5.0%. respectively, 1n 20 I 0. In its recent base rate case, PSE&G requested full 1*ecovery of the costs associated with postret1rement benefits other than sions (OPEB) on an accrual basis, in accordance with SFAS I 06. The BRC's December 31, 1992 base rate order, provided that (I) PSE&G's pay-as-you-go basis OPEB costs will continue to be cluded 1n cost of service and will be recoverable 1n base rates on a pay-as-you-go basis; (2) prudently incurred OPEB costs, that are 43 accounted for on an accrual basis in accordance with SFAS I 06, will be recoverable in future rates; (3) PSE&G should account for the differences between its OPEB costs on an accrual basis and the pay-as-you-go basis being recovered in rates as a regulatory asset; (4) the issue of cash versus accrual accounting will be revisited and in the event that the Financial Accounting Standards Board (FASB) or the SEC requires the use of accrual accounting for OPEB costs for ratemaking purposes, the regulatory asset will be recoverable, through rates, over an appropriate amortization period. Accordingly, PSE&G is accounting for the differences between its SFAS I 06 accruals cost and the cash cost currently recovered through rates as a regulatory asset OPEB costs charged to pense during 1993 were $28 million and accrued OPEB costs ferred were $58.6 million, including an increase of $25 million due to the recognition of PSE&G's obligation for life insurance benefits.

The amount of the* unfunded liability, at December 3 I, 1993, as shown below, is $657.0 million and funding options are currently being explored.

The primary effect of adopting SFAS I 06 on Enterprise's and PSE&G's financial reporting is on the presentation of their financial positions with minimal effect on their results of operations.

In accordance with SFAS I 06 disclosure requirements, a ciliation of the funded status of the plan as of December 31, 1993, is as follows: (Millions)

Accumulated postretirement benefit obligation:

Retirees Fully eligiule active plan participants Other active plan participants Total Plan assets at fair value Accumulated postretirement benefit obligation in excess of plan assets Unrecognized net loss from past experience different from that assumed and from changes in assumptions Unrecognized prior service cost Unrecognized transition obligation Accrued postretirement obligation December 31, 1993 $(406.4) (35.0) (215.6) $(657.0) $ $(657.0) $ 19.6 578.8 $ 58.6 *The discount rate used in determining the accumulated retirement benefit obligation as of December 3 I, 1993 was 7.25%. During January 1993 and subsequent to the receipt of the Order, the FAS B's Emerging Issues Task Force (EITF) concluded that deferral of such costs is acceptable, provided regulators allow SFAS I 06 costs in rates within approximately five years of the adoption of SFAS I 06 for financial reporting purposes, with any cost deferrals recovered in approximately twenty years. PSE&G tends to request the BRC for full SFAS I 06 recovery in accordance with the EITF's view of such standard and believes that it is ble that any deferred costs will be recovered from utility customers within such twenty year time period. Note 14. Pension Plan The discount rate, expected long-term return on assets and age compensation growth used in determining the Pension Plan's funded status as of December 31, 1993 and 1992, and net pension costs for 1993, 1992 and 1991, were as follows: 44 1993 1992 Discount Rate Used to Determine Pension Cost 7'/,% 7Y,% Discount Rate Used to Determine Benefit Obligations 7'1.% 7Y,% Expected Long-Term Return on Assets 8% 8% Average Compensation Growth to Determine Pension Cost 6% 6% Average Compensation Growth to Determine Benefit Obligations 5.5% 6% The following table shows the Pension Plan's funded status: (Thousands of Dollars) December 31, 1993 1992 Actuarial present value of benefit obligations:

Accumulated benefit obligations, including vested benefits of $1,045,035 and $993,867 $(I, 144,214) $( 1,065,842)

Effect of projected future compensation Projected benefit obligations Plan assets at fair value, primarily listed equity and debt securities Projected benefit obligations in excess of plan assets Unrecognized net gain (loss) from past experience and effects of changes in assumptions Prior service cost not yet recognized in net pension cost Unrecognized net obligations being recognized over 16.7 years Accrued pension expense $ (346,416)

(332,843) ( 1,490,630) ( 1,398,685) 1,312,619 I, 172,775 (178,011)

(225,910)

(20,981) 18,326 113,397 121,998 77,486 85,586 (8,109) $ The net pension cost for the years ending December 3 I, 1993, 1992 and 199 I, include the following components: (Thousands of Dollars) 1993 Service cost-benefits earned during year $ 42,948 Interest cost on projected benefit obligations 103,118 Return on assets (166,916)

Net amortization and deferral 90,958 Total $ 70,108 1992 $ 36,125 94,233 (62,323) (14,035) $ 54,000 1991 $ 33,652 89,324 ( 191,996) 119,020 $ 50,000 Supplemental pension costs in 1993, 1992 and 199 I, were $168,000, $299,000 and $419,000, respectively.

See Note I -Organization and Summary of Significant Accounting Policies.

Note 15. Financial Information By Business Segments Information related to the segments of Enterprise's business is detailed below: For the Year Ended December 31, 1993 Non utility (Thousands of Dollars) Electric Gas Activities( A) Total Operating Revenues $ 3,693,083

$1,594,341

$ 440, 120 $ 5,727,544 Eliminations (lnterseg-ment Revenues)

(21,985) (21,985) Total Operating Revenues 3,693,083 1,594,341 418,135 5,705,559 Depreciation and Amortization 439,831 69,375 91,058 600,264 Operating Income Before Income Taxes 1,117,739 173,916 135.472 1,427,127 Capital Expenditures 738,362 152,012 94,014 984,388 December 31, 1993 Net Utility Plant 9,451,581 1,352,799 10,804,380 Oil and Gas Property, Plant & Equipment 506,047 506,047 Other Corporate Assets 2,291,596 863,830 1,839.311 4,994,737 Total Assets $11,743,177

$2,216,629

$2,345,358

$16,305, I For the Year Ended December 31, 1992 Nonutjlity (Jhousands of Dollars) Electric Gas Activities( A) Total Operating Revenues $ 3,407,819

$1,586, 181 $ 407,404 $ 5,401,404 Eliminations (lnterseg-ment Revenues) (44,623) (44,623)

Total Operating Revenues 3,407,819 1,586, 181 362,781 5,356,781 Depreciation and Amortization 435, I 04 116,907 90,537 642,548 Operating Income Before Income Taxes 861,066 124,893 206,783 I, 192.742 Capital Expenditures 668,537 158,224 61,048 887,809 December 31, 1992 Net Utility Plant 9,224,543 1,246,769 10,471,312 Oil and Gas Property, Plant & Equipment 506,814 506,814 Other Corporate Assets 1,295,073 484,449 1,997,061 3,776,583 Total Assets $10,519,616

$1,731,218

$2,503,875

$14.754,709 Note 16. Property Impairment of Enterprise Group Development Corporation As a result of a management review of each property's current value and the potential for increasing such value through operating and other improvements, EGDC recorded an impairment related to certain of its properties, including properties upon which EDHl's management revised its intent from a long-term ment strategy to a hold for sale status, reflecting such properties on its books at their net realizable value. This impairment reduced Note 17. jointly-Owned Facilities

-Utility Plant For the Year Ended December 3 I , 199 I Non utility (Thousands of Dollars) Electric Gas Activities( A) Total Operating Revenues $ 3,500,043

$1,307,849

$ 335,073 $ 5, 142,965 Eliminations (lnterseg-ment Revenues)

(51,307) (51,307) Total Operating Revenues 3,500,043 1,307,849 283,766 5,091,658 Depreciation and Amortization 399,574 93,523 92,822 585,919 Operating Income Before Income Taxes 1,007,342 115,259 144,223 1,266,824 Capital Expenditures 672,852 140,297 249,078 1,062,227 December 3 I , 199 I Net Utility Plant 9,006, 125 I, 176,456 I 0, 182,581 Oil and Gas Property, Plant & Equipment 563,190 563, 190 Other Corporate Assets 1,254,559 570,918 1,881,317 3,706,794 Total Assets $ I 0,260,684

$1,747,374

$2,444,507

$14,452,565 (A) The Nonutilrty Activities include amounts applicable to Enterprise, the parent corporation.

the estimated value of EGDC's properties by $77.6 million and net come by $50.5 million, after tax, or 2 I cents per share of Enterprise common stock. EGDC's real estate held for sale of $33.B million and $6.7 million at December 3 I, I 993 and I 992 are presented in "Other Investments

-net" and "Current Assets", respectively, in the panying consolidated balance sheets. PSE&G. has ownership interests and is responsible for providing its share of the necessary financing for the following jointly-owned facilities.

All amounts reflect the share of jointly-owned projects and the corresponding direct expenses are included in Consolidatej Statements of Income as an operating expense. (See Note I -Organization and Summary of Significant Accounting Policies.) (Thousands of Dollars) Ownership Plant Accumulated Plant -December 3 I, 1993 Interest In Service Depreciation Coal Generating Conemaugh 22.50% $103,938 $35,101 Keystone 22.84 101,543 30,385 Nuclear Generating Peach Bottom 42.49 699,445 265,679 Salem 42.59 1,003,872 343,925 Hope Creek 95.00 4,096,287 819,595 Nuclear Support Facilities Various 153,147 23,414 Pumped Storage Generating Yards Creek 50.00 20,636 8,353 Transmission Facilities Various 119,979 32,359 Merrill Creek Reservoir 13.91 37,117 8,876 Linden Gas Plant 90.00 15,871 17,630 Note 18. Selected Quarterly Data (Unaudited)

The information shown below in the opinion of Enterprise includes all adjustments, consisting only of normal recurring accruals, necessary to a fair presentation of such amounts. Due to the seasonal nature of the utility business, quarterly amounts vary significantly during the year. Plant Under Construction

$ 63,428 4,742 26,545 33, 134 20,439 3,523 3,487 9 Calendar Quarter Ended March 31, June 30, September 30, December 3 I , (Thousands where applicable) 1993 1992 1993 1992 1993 1992 1993 1992 Operating Revenues Operating Income Net Income $1,594,708

$1,512,450

$1,246,337

$1, 190,798 $1,402,037

$1,248,772

$1,462,477

$1,404,761 Earnings Per Share of Common Stock Average Shares of Common Stock Outstanding

.. $ 336,505 $ 215,418 $ 0.91 236,919 $ 268,653 $ 186,333 $ 0.81 229,567 $ 248,658 $ 207,355 $ 119,782 $ 87,358 $ 0.49 $ 0.38 240,920 231,993 $ 318,785 $ 259,385 $ 202,899 $ 230,742 $ 192,231 $ 138,127 $ 73,502 $ 92,299 $ 0.79 $ 0.59 $ 0.30 $ 0.39 241,889 233, 192 242,848 234,442 45 Consolidated Financial Statistics (A) ,ii; (Thousands of Dollars where applicable) 1993 1992 1991 1990 1989 Selected Income Information Operating Revenues Electric $ 3,693,083

$ 3,407,819

$ 3,500,043

$ 3,332,417

$ 3,279,913 Gas 1,594,341 1,586, 181 1,307,849 1,236,747 1,362,470 Nonutility Activities 418,135 362,781 283,766 230,075 161,896 Total Operating Revenues $ 5,705,559

$ 5,356,781

$ 5,091,658

$ 4,799,239

$ 4,804,279 Net Income $ 600,933 $ 504,117 $ 543,035 $ 403,663 $ 523,435 Earnings per average share of Common Stock $2.50 $ 2.17 $ 2.43 $ 1.90 $ 2.53 Dividends Paid per Share $2.16 $ 2.16 $ 2.13 $ 2.09 $ 2.05 Payout Ratio 86% 100% 88% 110% 81% Rate of Return on Average Common Equity 11.91% 10.69% 12.24% 9.66% 13.13% Ratio of Earnings to Fixed Charges Before Income Taxes 2.59 2.30 2.54 2.09 2.60 Book Value per Common Share $21.07 $20.32 . $20.04 $19.44 $19.48 Utility Plant $15,861,483

$15,08 1,907 $14,426,560

$12,836,874

$12,960,093 Accumulated Depreciation and Amortization of Utility Plant $ 5,057,104

$ 4,610,595

$ 4,243,979

$ 3,963,093

$ 3,623,458 Total Assets $16,305, 164 $14,754,709

$14,452,565

$13,693,469

$12,799,398 Consolidated Capitalization Common Stock $ 3,772,662

$ 3,499, 183 $ 3,262, 138 $ 3,043,402

$ 2,857,974 Retained Earnings 1,361,018 1,282,931 1,282,029 1,203,772 1,253,515 Common Equity 5,133,680 4,782, 11.4 4,544, 167 4,247,174 4,111,489 Long-Term Debt 5,256,321 4,977,579 5, 128,373 4,668,024 4,293,578 Capital Lease Obligations 52,530 53,104 53,617 54,073 54,513 Preferred Stock without Mandatory Redemption 429,994 429,994 429,994 429,994 429,994 Preferred Stock with Mandatory Redemption 150,000 75,000 Total Capitalization

$11,022,525

$ I 0,3 17,79 I $10, 156, 151 $ 9,399,265

$ 8,889,574 (A) See Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes to Consolidated Financial Statements.

46 Operating Statistics I Public Service Electric and Gas Company (Thousands of Dollars where applicable) 1993 1992 1991 1990 1989 Electric Revenues from Sales of Electricity Residential

$1,175,875

$1,037,099

$1,116,699

$1,038,906

$1,015,065 Commercial 1,678,011 1,554,956 1,575,547 1,516,755 1'.464,431 Industrial 710,206 683,750 728,41 I 697,571 715,669 Public Street Lighting 51,019 47,729 46,400 45,418 46,750 Total Revenues from Sales to Customers 3,615,111 3,323,534 3,467,057 3,298,650 3,241,915 Interdepartmental 1,737 1,544 1,599 1,652 1,843 Non-Jurisdictional Sales 48,625 51,313 19,763 48,325 74,247 Total Revenues from Sales of Electricity 3,665,473 3,376,391 3,488,419 3,348,627 3,318,005 Other Electric Revenues 27,610 31,427 31,387 32, 115 36, 155 Total Operating Revenues $3,693,083

$3,407,818

$3,519,806

$3.380,742

$3,354, 160 Sales of Electricity

-megawatthours Residential I 0,631,402 9,816,046 I 0,505,547 9,875,569 9,950,773 Commercial 18,096,312 17,454,352 17,596,569 17,054,495 16,946,768 Industrial 9,203,839 9,298,741 9,406, 109 9,457,985 I 0,039,913 Public Street Lighting 329,828 325,545 320,900 314,936 310,073 Total Sales to Customers 38,261,381 36,894,684 37,829, 125 36,702,985 37,247,527 Interdepartmental 18,514 19,012 19,719 19,822 23,175 Non-Jurisdictional Sales 2,245,893 2, 116,049 1,858,590 1,625,016 1,409,208 Total Sales of Electricity 40,525,788 39,029,745 39,707,434 38,347,823 38,679,910 Gas Revenues from Sales of Gas Residential

$ 780, 195 $ 809,559 $ 699,696 $ 667,077 $ 772,344 Commercial 460,340 481,960 426,110 406,577 436,349 Industrial 299,762 243,527 138,394 130,273 134,272 Street Lighting 467 468 468 385 358 Total Revenues from Sales to Customers 1,540,764 1,535,514 1,264,668 1,204,312 1,343,323 Interdepartmental 3,078 2,572 2,689 2,157 3,613 Total Revenues from Sales of Gas 1,543,842 1,538,086 1,267,357 1.206,469 1,346,936 Transportation Service Gas Revenues 37,081 34,739 27,036 15,654 11,485 Other Gas Revenues 13,418 13,356 13,456 14,624 4,049 Total Operating Revenues $1,594,341

$1,586, 181 $1,307,849

$1,236,747

$1,362,470 Sales of Gas -kilotherms Residential 1,280,128 1,265,270 I, 140,887 1,097,034 1,253,800 Commercial 943,054 939,021 893,069 837,650 872,684 Industrial 876,421 739,508 399,385 341,467 342,928 Street Lighting 666 668 666 657 656 Total Sales to Customers 3, I 00,269 2,944,467 2,434,007 2,276,808 2,470,068 Interdepartmental 7,509 5,967 6,174 5, 144 8,705 Total Sales of Gas 3, I 07,778 2,950,434 2,440, 181 2,281,952 2,478,773 Transportation Service 557,403 543,097 381,497 182,056 149,586 Total Gas Sold or Transported 3,665,181 3,493,531 2,821,678 2,464,008 2,628,359

• r ... 47

• Officers and Directors Public Service Enterprise Group Incorporated Officers E. James Ferland Chairman of the Board, President and Chief Executive Officer Robert C. Murray Vice President and Chief Financial Officer Patricia A. Rado. Vice President and Comptroller R. Edwin Selover Vice President and General Counsel Francis J. Riepl Treasurer Robert S. Smith Secretary Directors Lawrence R. Codey President, Chief Operating Officer and director, PSE&G. Member of Executive Committee and Finance Committee.

Ernest H. Drew President, Chief Executive Officer and director, Hoechst Celanese Corporation (manufactures chemicals, fibers, film, specialties and advanced materials).

Member of Audit Committee.

T.J. Dermot Dunphy President, Chief Executive Officer and director, Sealed Air Corporation (manufactures protective packaging products and systems).

Chairman of Audit Committee, Member of Executive Committee and Organization and Compensation Committee.

Robert R. Ferguson, Jr. Retired Chairman of the Board, President, Chief Executive Officer and director:

First Fidelity Bancorporation; First Fidelity Bank, NA; and First Fidelity.

Inc. Chairman of Finance Committee, Member of Executive Committee, Nominating Committee and Organization and Compensation Committee.

E. James Ferland Chairman of the Board, President and Chief Executive Officer of the Corporation.

Chairman of Executive Committee.

Raymond V. Gilmartin Chairman of the Board, President and Chief Executive Officer, Becton Dickinson and Company (manufactures medical devices and diagnostic sytems). Member of Finance Committee and Organization and Compensation Committee.

48 Shirley A. Jackson Professor of Physics, Rutgers Uni\/ersity.

and Physics Consultant, AT&T Bell Laboratories.

Member of Audit Committee, Finance Committee and Nominating Committee.

Irwin Lerner Retired Chairman, Board of Directors and Executive Committee, La Roche, Inc. (manufactures pharmaceuticals, vitamins and fine chemicals, and provides home health care and diagnostic products and services).

Chairman of Nominating Committee, Member of Audit Committee and Organization and Compensation Committee.

William E. Marfuggi Retired Chairman, Tri-Maintenance

& Contractors, Inc. Member of Finance Committee and Nominating Committee.

Marilyn M. Pfaltz Partner of P and R Associates (communication specialists).

Member of Audit Committee and Organization and Compensation Committee.

James C. Pitney Partner in the law firm of Pitney. Hardin, Kipp & Szuch. Member of Audit Committee, Finance Committee and Organization and Compensation Committee.

Josh S. Weston Chairman of the Board and Chief Executive Officer, Automatic Data Processing, Inc. Chairman of Organization and Compensation Committee, Member of Executive Committee and Finance Committee.

Public Service Electric and Gas Company Officers E. James Ferland Chairman of the Board and Chief Executive Officer Lawrence R. Codey President and Chief Operating Officer Harold W. Borden, Jr. Senior Vice President

-External Affairs Thomas M. Crimmins, Jr. Senior Vice President

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

-Electric Robert C. Murray Senior Vice President

-Finance and Chief Financial Officer R. Edwin Selover Senior Vice President and General Counsel Rudolph D. Stys Senior Vice President

-Gas William J. Budney, Jr. Vice President

-Distribution Systems Frank Cassidy Vice President

-Transmission Systems Francis E. Delany, Jr. Vice President and Corporate Rate Counsel John A. Gartman Vice President

-Gas Supply and Planning Curtis W. Grevenitz Vice President

-Organization Effectiveness Joseph J. Hagan Vice President

-Nuclear Operations Stanley LaBruna Vice President

-Nuclear Engineering Pierre R.H. Landrieu Vice President

-Fossil Production Frederick W. Lark Vice President

-Marketing John H. Maddocks Vice President

-Public Affairs Steven E. Miltenberger Vice President and Chief Nuclear Officer Patricia A. Rado Vice President and Comptroller Francis J. Riepl Vice President and Treasurer Glenn M. Rogers Vice President

-Information Systems and Corporate Services Robert S. Smith Vice President and Secretary Gregory M. Thomson Vice President

-Hum an Resources Directors E. James Ferland Chairman of the Board and Chief Executive Officer Lawrence R. Codey President and Chief Operating Officer Robert R. Ferguson, Jr. Raymond V. Gilmartin Shirley A. Jackson Irwin Lerner James C. Pitney Enterprise Diversified Holdings Incorporated Officers E. James Ferland Chairman of the Board and Chief Executive Officer Paul H. Way President and Chief Operating Officer Paul T. Bradshaw Vice President and General Counsel Madeleine W. Ludlow Vice President and Treasurer John W. Nabial Vice President and Comptroller Directors Ernest H. Drew T.J. Dermot Dunphy E. James Ferland William E. Marfuggi Marilyn M. Pfaltz Paul H. Way Josh S. Weston Presidents of Subsidiary Companies Arthur S. Nislick President

-Community Energy Alternatives Incorporated John F. Schwarz President

-Energy Development Corporation Paul H. Way President

-Enterprise Group Development Corporation Eileen A. Moran President

-Public Service Resources Corporation Corporate and Stock Information Stockholder Information

-Toll Free New Jersey residents:

1-(800)242-0813 Outside New Jersey: 1-(800)526-8050 TDD/Hearing Impaired:

1-(800)732-3241 Telephone Hours: I 0 AM to 12 PM and I :30 to 3:30 PM Monday-Friday (Eastern Time) Security Analysts and Institutional Investors Director -Investor Relations (20 I )4 30-6564 Dividend Reinvestment Plan Enterprise has a Dividend Reinvestment and Stock Purchase Plan under which all _common and PSE&G preferred stockholders may reinvest dends and/or make direct cash investments to obtain Enterprise common stock Purchases of common stock are made for the Plan directly from Enterprise, at its sole discretion, and/or in the open market. All brokerage and other fees to acquire shares are absorbed by Enterprise.

To participate, call the toll-free number to obtain a prospectus and an authorization form. Stock Trading Symbol: PEG Annual Meeting Please note that the Annual Meeting of Stockholders of Public Service Enterprise Group Incorporated will be held at Newark Symphony Hall, I 020 Broad Street, Newark, N.j., on Tuesday, April 19, 1994, at 2:00 PM. A summary of the meeting will be sent to all stockholders of record at a later date. Additional Reports Available Form or other interested per5ons wishing to obtain a copy of Enterprise's or PSE&G's 1993 Annual Report to the Securities and Exchange Commission, filed on Form I 0-K, may obtain one without charge by writing to the Director -Investor Relations, Public Service Electric and Gas Company. P.O. Box 570, T6B, Newark. N.J. 0710 I, telephone (20 I) 430-6503.

The copy so provided will be without exhibits.

Exhibits may be purchased for a specified fee.

• Financial and Statistical Review A comprehensive statistical report containing financial and operating data will be available this spring. If you wish to receive a copy, please write to the Director -Investor Relations, Public Service Electric and Gas Company. P.O. Box 570, T6B, Newark, N.J. 0710 I, telephone (20 I )4 30-6503.

Broch Graulich Whelan Inc.

Transfer Agents All Stocks: First Chicago Trust Company of New York 14 Wall Street, Mail Suite 4680, New York, N.Y. I 0005 Stockholder Services, Public Service Electric and Gas Company 80 Park Plaza, P.O. Box I 17 I Newark, N.j. 07101-1171 Registrars All Stocks: First Fidelity Bank, NA 765 Broad Street, Newark. N.J. 0710 I First Chicago Trust Company of New York 14 Wall Street, Mail Suite 4680, New York, N.Y. I 0005 Stock Exchange Listings Common: New York Stock Exchange Philadelphia Stock Exchange Preferred of PSE&G: New York Stock Exchange Common Stock -Market Price and Dividends Per Share 1993 1992 High Low Div. High Low First Quarter 34 1/. 30 $.54 29!.-1 26!.-1 Second Quarter 3 5 31% .54 28Ya 25Ye Third Quarter 36'1a 34 .54 28Ye 26Ys Fourth Quarter 35'/.. 30 .54 31 Ya 27Ys The number of holders of record of Public Service Enterprise Group Incorporated common shares as of December 31, 1993 was 192,999. This Annual Report is printed on recycled paper. Div. $.54 .54 .54 *.54. 49 Public Service Enterprise Group Incorporated 80 Park Plaza P. 0. Box I 171 Newark, NJ 07101-1171

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