ML18092B466

Public Svc Enterprise Group 1986 Annual Rept.

ML18092B466
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Site:	Salem, Hope Creek, 05000000
Issue date:	12/31/1986
From:	Ferland E PUBLIC SERVICE ENTERPRISE GROUP
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RECORDS FACILITY BRANCH

CONTENTS 1 Financial Highlights 1 Enterprise Profi le 3 Message to Shareholders 6 The Financia l Picture 9 Public Service Electric and Gas Company 25 Energy Development Corporation 26 Community Energy Alternatives Incorporated 26 Public Service Resources Corporation 27 Management's Discussion and Analysis of Financial Condition and Results of Operations 30 Organization and Summary of Significant Accounting Policies 31 Financia l Statement Responsibility 32 Consolidated Financial Statements 36 Independent Accountants' Opinion 39 Notes to Consilidated Financial Statements 46 Consolidated Financia l Statistics 48 Operating Statistics 50 Officers 51 Directors 52 Corporate and Stock Information Stockholder Information - Toll Free New Jersey residents 1-(800) 242-0813 Outside New Jersey 1-( 800) 526-8050 Security Analysts and Institutional Investors Manager-Investor Relations ( 201) 430-6564 Dividend Reinvestment Plan Enterprise has a Dividend Reinvestment and Stock Purchase Plan under which all common and PSE&G preferred stock-holders may reinvest dividends or make direct cash purchases to obtain additional Enterprise common stock. All brokerage and other fees are absorbed by Enterprise. Call the toll free number to obtain an authorization card.

Stock Trading Symbol: PEG Annual Meeting Please note that the Annual Meeting of Stockholders of Public Service Enterprise Group Incorporated will be held in Newark Symphony Hall, 1020 Broad Street, Newark. N. J.

Tuesday, April 21. 1987 at 2:00 p.m. A summary of the meeting will be sent to all stockholders of record at a later date.

FINANCIAL HIGHLIGHTS

%

Increase (Thousands of Dollars where applicable) 1986* 1985* (Decrease)

Total Operating Revenues $ 4,498,416 s 4,428,341 2 Total Operating Expenses $ 3,821,132 s 3,790,572 1 Net Income $ 378,463 s 399,632 (5)

Common Stock Shares Outstanding - Average (Thousands) 133,140 122,344 9 Shares Outstanding - Year-end (Thousands) 134,882 131 ,699 2 Earnings Per Average Share $ 2.84 s 3.27 (13)

Dividends Paid Per Share $ 2.93 s 2.81 4 Book Value Per Share - Year-end $26.89 $26.81 Market Price Per Share - Year-end 4014 31 % 27 Return on Average Common Equity 10.56% 12.27%

Gross Additions to Utility Plant $ 1,019,552 s 1,220,089 (16)

Total Utility Plant $11,437,196 $10,842, 182 5

• Reflects the adoption of SFAS 90 and the consolidation of wholly-owned subsid iaries.

See Organization and Summary of Significant Accounting Policies and Note 1 of Notes to Consolidated Financial Statements.

ENTERPRISE PROFILE Public Service Enterprise Group Incorporated (Enterprise) became the parent holding company of Public Service Electric and Gas Company (PSE&G) on May 1, 1986 as the result of the corporate restructuring of PSE&G. It was formed with the approval of holders of common stock and $1.40 dividend preference common stock at PSE&G's annual meeting on April 15, 1986.

The new corporate structure allows Enterprise to diversify into non-regulated bus-inesses in a manner that affords the rewards and risks of non-utility ventures to the common stockholders of Enterprise. This structure is also designed to protect PSE&G's customers from such risks.

Enterprise's principal subsidiary is PSE&G, and its primary purpose is to provide the utility's customers safe, dependable, and competitively priced electric and gas energy.

Other subsidiaries are Community Energy Alternatives Incorporated (CEA), an investor in and developer of cogeneration and small-power projects; Public Service Resources Corporation (PSRC), an investment subsidiary, and Energy Development Corporation (EDC), a gas and oil exploration and production company.

E. James Ferland was elected president of Enterprise and PSE&G, effective June 1, 1986, and chairman of the board, effective July 1, 1986. He succeeded Harold W. Sonn, who had held both posts and who retired on June 30. Mr. Ferland had been president and chief operating officer of Northeast Utilities in Connecticut.

Hope Creek and the rate case comprehensive program to meet its obligation The largest construction project in PSE&G's 83- to provide energy at the lowest cost possible, with year history was concluded officially in December no more than reasonable risk on shareholders.

when the 106 ?-megawatt Hope Creek station We can always count on uncertainty in the joined the Pennsylvania-New Jersey-Maryland future, given the unpredictability of legislative and Interconnection. regulatory actions and economic and social con-In completing the project, PSE&G recorded an ditions. We must be sensitive, therefore, to trends, international fuel-loading record of 12 days, set a and be prepared to cope with them.

national record of 245 days for the startup of a While we have reduced our dependence on boiling water reactor, and managed 30% fewer oil as a fuel for electric generation-down from test-related shutdowns than occurred at similar 38% a decade ago to about 9% in 1986-we are plants being readied for commercial operation. concerned about an increase nationally toward These are remarkable accomplishments at a a renewed reliance on oil, particularly imported time when many companies have found it neces- oil. We should not be misled by the decline in oil sary to walk away from uncompleted nuclear sta- and gas costs over the last two years. It would tions or have not been able to secure the required be a mistake to become overly dependent on oil permits or licenses to build and operate their and gas as long-term sources of fuel for our elec-plants. tric generating stations.

With the addition of Hope Creek to our system, With this in mind, we intend to make the best nuclear power will account for about 43% of use of our present generating capacity by improv-PSE&G's electric generation in 1987. We would ing system load factors and minimizing increases need 27 million barrels of oil to produce an equiv- in peak loads.

alent amount of electric energy. Our nuclear capa- We have begun a thorough examination of life bility provides balance to our fuel mix and supports extension possibilities for our older generating the country's pursuit of energy independence. plants. We are upgrading aging portions of elec-PSE&G's share of the construction cost of Hope tric and gas transmission and distribution systems Creek through February 6, 1987, was $4.276 billion. and extending modern, efficient service to grow-A spending cap of $3. 795 billion was established ing regions of New Jersey.

in a 1982 cost containment agreement and We are continuing to develop and promote called for certain penalties for any excess costs. cogeneration, load management and conserva-On February 6, 1987, the BPU rendered an oral tion programs, thereby reducing the need for decision to conclude the extremely complex, future generating capacity, which will benefit all widely publicized case that covered several key our customers. We expect to spend at least $100 issues: the inclusion of Hope Creek costs in elec- million through 1990 on a variety of activities to tric base rates, the reasonableness of construction help customers save both energy and money.

costs for the plant and resulting penalties for over- It is crucial to stay on top of emerg ing sources runs, nuclear performance standards and the of energy. At the moment, certain coal-burning revision of the energy adjustment charge in technologies appear promising for the future and response to lower prices for oil and other fuels. could prove important if accelerated load The BPU's decision resulted in a net reduction growth prompts the need for some additional in electric rates of $353.4 million. This decision generating capacity before the year 2000.

reflected, of course, the disallowance of Hope Creek costs, which has resulted in reduced earn- Customer satisfaction ings for 1986. Even as we explore new opportunities, we re-We remain extremely disappointed with all main committed to the heart of our business-aspects of the decision. We found the amount of electric and gas service. This is especially impor-and the reason for the Hope Creek disallowance tant in an environment which is increasingly particularly discouraging. During extensive hear- characterized by deregulation and competition ings held in the final months of 1986, we demon- and is providing more choices to customers.

strated that all costs were prudently incurred. We Preserving and expanding our customer base emphasized, for example, that several indepen- depends, to a great degree, on holding the dent audits of Hope Creek's construction man- bottom line of the monthly b ill. We are taking agement showed that the plant compared well aim on this in several ways. We are rein-with other nuclear projects in the United States. forcing with our employees the importance of carrying out our operations efficiently. We are Energy for the future setting realistic goals to improve productivity A responsible utility's reliability depends and reduce costs, and, in doing so, we are on good planning, and PSE&G is developing a stressing accountability.

4

• The formation of Enterprise as a holding com-TO OUR SHAREHOLDERS pany gave the management of PSE&G the flexibil-ity to diversify into non-utility businesses when the associated risks and rewards offer opportunities to enhance financial strength.

• Our aggressive purchasing activities allowed us to obtain about 40% of our total gas supply from the low-cost spot market. and contributed to a reduction in gas rates for PSE&G's customers of $180 million.

• The redemption of high-cost securities and the issuance of lower-interest debt will mean savings of more than $87 million in the years ahead.

B y most measures, 1986 was a very successful year for Public Service Enterprise Group. These and other achievements were especially However, the February, 198 7 decision in significant because they occurred during a year which the New Jersey Board of Public Utilities (BPU) in which our business environment continued to disallowed $431 .5 million of Public Service Electric change dramatically. Cogenerators and small and Gas Company's (PSE&G) costs for the con- power producers are creating competition for struction of the Hope Creek Generating Station electric utilities. And, the production and delivery certainly tempered our view of the year and our of natural gas have become largely deregulated.

outlook for the immediate future. These trends make several facts clear to us:

The disallowance of Hope Creek costs was We must be innovative and assertive in finding charged against 1986 earnings. This had the the best ways to control our costs and market effect of significantly reducing 1986 reported our services. We must enhance the public under-earnings per share and will continue to suppress standing of the challenges which confront us.

twelve-month earnings per share through And we must have the support and cooperation November, 1987. The write-off of the disallowance of regulators, legislators, and other government and other accounting adjustments, under a new and political leaders to best meet our obligations rule of the Financial Accounting Standards Board, to our customers and shareholders.

had the effect of reducing earnings per share by $1 .38. Financial performance.

In addition, because of the overall negative Our operating revenues climbed modestly-less effect of the rate order, the credit ratings on than 2% - in 1986, but our operating income rose PSE&G's debt and preferred stock were lowered more than 6%. Electric sales improved, especially by one rating agency, and a second agency in the growing commercial markets in New Jersey, announced it was reviewing such securities for and this contributed favorably to our 1986 results.

possible downgrading. The earnings of $2.84 per share of common Despite these developments, Enterprise stock, which reflected the write-off of the Hope remains in a satisfactory financial condition. Creek disallowance, resulted in a decrease of 13.1%

Our current common stock dividend is secure from restated earnings per share of $3.27 in 1985.

although our ability to provide future dividend We have set a goal of achieving 10% of total growth will be hampered as a result of the dis- net income by 1991 from our non-regulated sub-allowance and other unfavorable elements sidiaries. Two of them, Public Service Resources of the February, 198 7 rate decision. We are Corporation (PSRC) and Community Energy Al-clearly disappointed with this prospect. since ternatives Incorporated (CEA), completed 1986-our 1986 operating results were so good and our their first full year of operation-in good health.

accomplishments during the year so meaningful. PSRC made investments totaling more than $130 Despite the rate decision, and its effect on million, while CEA committed up to $33 million to earnings, 1986 was a very successful year four cogeneration or small power projects.

in most respects: In December, Energy Development Corpora-

• Construction of Hope Creek was completed tion (EDC), a gas and oil exploration and pro-and the unit was declared ready for commercial duction subsidiary of PSE&G, became Enterprise's operation, according to a schedule established fourth subsidiary. EDC was removed from the more than four years ago. utility's gas rate base under a settlement of the

• Our operating income reached an unprece- gas base rate case. As a result. PSE&G's board of dented level, our dividend was increased for the directors declared a dividend of EDC stock to 11th consecutive year, and our common stock Enterprise, making it a subsidiary. EDC had assets rose to an all-time high. of $170 million at year's end.

3

We intend to reduce forced outages at both our nuclear and fossil generating stations. We will continue decreasing our uncollectible customer accounts, which have declined nearly 50% since 1984. We will not let up in our search for the lowest-cost, spot market gas. We will consider innovative pricing of electricity and gas to keep us competi-tive in the energy marketplace.

Anticipating and responding to the needs of customers will remain fundamental to our future success. We will work closely with consumer ad-visory panels to gather ideas to make our seNice better, answer inquiries swiftly and clearly, and provide assistance in cases of need or hardship.

Social responsibilities Enterprise is doing business in perhaps the most dynamic region of the United States, and we rec-ognize our role in contributing regularly to the well-being of the communities we seNe.

Through a variety of ongoing programs and activities, we will be aggressive in preseNing the environment, promoting the benefits of our cities, assuring affirmative action, and encouraging employees to volunteer their time and skills to help others.

Enterprise will face many tests as the turn of the century approaches. But, because of the steps we took in 1986, we will be able to welcome the challenges as opportunities to help us satisfy our customers and provide a reasonable return to our shareholders.

E. James Ferland Chairman of the Board ,

President and Chief Executive Offic er February 17, 1987 5

THE FINANCIAL PICTURE Overall revenues for 1986 were $4.5 billion, up 1.6% from 1985 revenues of $4.4 billion. Of the 1986 total, electric revenues accounted for $3.2 billion, while gas revenues amounted to $1.3 billion.

Operating income for the year was $677.3 million, up $39.5 million from the 1985 amount.

Electric sales for the year rose 3.0%, when compared with sales for 1985. Sales in the com-mercial market, which were up 6.0%, remained the brightest sources of revenues as New Jersey-and PSE&G-continued to enjoy a building boom in certain areas of the state ranging from the E

arnings in 1986 are reduced Hudson River waterfront to the Route 1 corridor in Enterprise concluded 1986 in a satisfactory Princeton.

financial condition despite the negative Benefitting from a sharp rise in house heating effects on earnings of adopting Statement No. 90 in the month of November because of particularly of the Financial Accounting Standards Board cold weather, PSE&G managed to record a (SFAS 90) and the relat- modest 0.2% increase in gas sales for the year. In Earnings and Dividends ed effects of the BPU's general, however, gas sales were adversely Per Common Share (in dollars) disallowance of $431 .5 affected by fuel switching among large industrial Prior Years Restated to Reflect the Adoption of SFAS 90 million of Hope Creek's customers who took advantage of the lowest oil

• Earnings

• Dividends cost in its February 6, prices in years.

5.00 198 7 electric rate deci-sion. The effect of the Dividend is raised for 11th consecutive year direct disallowance re- The quarterly dividend on common stock was in-duced 1986 earnings by creased from 71 cents to 74 cents per share, rais-

$283.9 million or$2.13 ing the annual indicated per share. Overall Return rate from $2.84 to $2.96.

The adoption of SFAS to Investors This marked the 11th (For the 5 Years Ended Dec . 31) 90 also resulted in a re- year in a row in which Compound Annual Return statement of prior years' the common stock divi-earnings for abandon- dend was raised.

ments, principally Atlan- 30% Overall in 1986, divi-tic Generating Station dends paid totaled $2.93 and a second unit at Hope Creek, on which no per common share, com-return is being earned on unamortized balances. 20% pared with $2.81 in 1985.

This had the net effect of increasing 1986 earnings by 75 cents per share. Common stock price The overall effect of adopting SFAS 90 resulted reaches a new high in a charge to 1986 earnings, after taxes, of $183.8 Enterprise common stock million, or $1.38 per share. Consolidated earnings closed 1986 at 40%.

available for common stock were $378.5 million, The high for the year, or $2.84 per share, based on 133.1 million average achieved in August, was shares outstanding . 48%, an all-time market price record. In January, By comparison, 1985's restated earnings were PSE&G's common stock had recorded the year's

$399.6 million, or $3.27 per share, when there were low price of 303/,i.

10.8 million fewer average shares outstanding. Based on reinvested dividends and common The 1986 results were also favorably affected stock price appreciation over the last five years, by better overall sales to PSE&G's electric and gas the total return to stockholders over that period customers, reduced maintenance costs and great- was 30% annually.

er allowance for funds used during construction (AFDC) credits associated with the construction of Lower rates are approved for electric customers the Hope Creek station. AFDC is a cost account- As a result of the BPU's decision on February 6, ing procedure required by regulatory authorities 1987, PSE&G's electric customers received a net to show the cost of financing a construction pro- rate decrease of $353.4 mill ion or nearly 12%. The ject in the capital cost of the plant. These credits monthly bill of a customer using 500 kilowatthours for 1986 reflect the final stages of construction of declined from $54.12 to $50.41 under a winter rate Hope Creek. schedule, and from $58.72 to $50.41 under a 6

summer schedule. Another issue in the rate case involved adop-The reduction stemmed from the BPU's author- tion of performance standards for PSE&G's nu-ization of an annual increase of $421.5 million in clear plants-Hope Creek and the two units of additional revenues, the Salem Generating Station as well as the two Residential Electric Rates which was offset by a Peach Bottom units operated by Philadelphia Cents per Kilowotthour

$697. 7 million decrease Electric Company.

in the levelized energy In its decision, the BPU set 70% as the targeted 15 adjustment clause over annual aggregate capacity factor for the units.

a 10%- month period These performance standards call for a financial and a reduction in base penalty when the units operate below a 60%

rates of $77.2 million to capacity factor and an award when they operate

..-- ...*

• 10 cover the first year's im- above 80%.

pact of the Tax Reform

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Act of 1986. Natural gas rates are also reduced In its decision, the BPU PSE&G's gas customers received rate reductions also allowed a return totaling $180 million as a result of lower costs for on common equity of gas supplies, particularly Residential Gas Rates 13% and an overall rate on the spot market. in

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• of return of 10.65%.

Cents per Therm 1986 and the expecta-The BPU's ruling came tion that the downward 100 after more than a year's consideration of PSE&G's trend will continue request to increase rates. PSE&G's final position in through 1987.

the proceeding sought $725 million in additional 75 The decrease in rates, revenues, to be offset by a $503 million reduction commencing October in the adjustment charge, for a net increase of 31. came on two fronts:

$222 million. a $150 million reduction The amount of PSE&G's proposed increase was in the gas adjustment based principally on the reflection of Hope Creek charge on customers' construction costs in the rate base, while the bills for an 11-month proposed reduction in the adjustment charge period, and a $30 million stemmed from considerably lower prices for oil annual decrease in gas and other fuels in the last two years and better base rates. Together, the performance by the utility's nuclear units. reductions meant that PSE&G's share of Hope Creek's cost was $4.276 a residential customer, using gas for heating, billion, including $970 million of AFDC. would see his monthly charge for 200 therms de-The treatment of Hope Creek in base rates cline from $136.11 to $116.82.

became the central issue of the case before the Gas costs have dropped steadily in recent BPU. Hearings were conducted over a period of years. The latest changes in rates bring gas costs several months to determine the reasonableness for customers to their lowest point since 1981.

of expenditures incurred during the construction The $30 million reduction in gas revenues result-of Hope Creek. ed primarily from a BPU-approved agreement of In 1982, the cost containment agreement re- the major parties in the rate proceeding to re-ferred to earlier was approved by PSE&G, the move Energy Development Corporation (EDC)

Public Advocate and other parties, setting the from the gas rate base. As a result. PSE&G's board targeted cost of Hope Creek at $3. 795 billion. The of directors declared a dividend of the EDC stock agreement required certain penalties against earn- to Enterprise and EDC became a subsidiary of the ings for expenditures in excess of the targeted holding company.

cost, and this also was an issue in the rate case.

During the hearings, PSE&G's witnesses testified Savings realized through redemptions that all costs incurred for the construction of the In 1986, PSE&G responded to declining interest plant were prudent, including those above the rates. It redeemed three mortgage bond issues targeted cost. PSE&G also emphasized that the totaling $307 million principal amount with interest first priority was to get Hope Creek operating as rates of 12% or higher and two preferred stock quickly as possible without sacrificing quality. They issues totaling $69 million in par value with divi-noted that PSE&G accomplished this by meeting dend rates of 13.44% and 12.25%. Also, the com-a commercial operation target of December, pany issued $550 million of lower-interest debt.

1986, which was established under the cost con- By taking advantage of favorable economic tainment agreement. opportunities, PSE&G has realized savings of more 7

than $8 7 million in future interest costs. In addition. Stockholder communications strengthened its embedded cost of long-term debt declined to Stockholder Services representatives received 8.8%. from 9.2% in 1985. 69.605 telephone inquiries in 1986, many of PSE&G may redeem additional high-cost them over two toll-free telephone numbers: (800) security issues in 1987. which would result in further 242-0813 in New Jersey and (800) 526-8050 savings on interest and dividend costs. outside New Jersey.

While there were no In late 1986, an updated Guide to Stockhold-Construction Financing public offerings of com- ers Services, bearing the Enterprise imprint. was 1986-1991 (m illions of dollars)

• Actua l mon stock in 1986, Enter- produced. It featured a description of the divi-Projected prise and PSE&G raised dend reinvestment plan. which underwent modi-

$103 million from the fications at the start of the year.

sale of common stock At yea(s end. 72.366 or 33.2% of Enterprise's through its dividend re- 217,961 common stockholders participated in the investment and stock dividend reinvestment plan. Under the plan. com-purchase plan and em- mon stock can be purchased without commis-ployee benefits plans. sions through reinvested dividends or cash contri-butions. Authorization forms to join the plan can Construction budget be obtained by calling Enterprise on the toll-free declines in 1986 numbers.

Construction expendi-tures. including AFDC

'87 '88 '89 '90

• and payments for nu-clear fuel. totaled $1 .0 billion. compared with $1.2 billion in 1985.

With the completion of Hope Creek. PSE&G's construction program will now be smaller. focusing primarily on the upgrading of other generating stations and both electric and gas transmission and distribution systems. Over the next three years.

the estimated annual construction budget is

$650 million.

During the last several years of Hope Creek's construction. internal cash sources provided about half of PSE&G's total capital requirements.

Starting in 1987 and continuing into the next decade. PSE&G anticipates it should meet nearly all its capital requirements with internally gen-erated funds.

Audit describes PSE&G as well-managed Shortly before Enterprise was formed, a manage-ment audit conducted by the consulting firm Temple. Barker. and Sloan, concluded that PSE&G was a very well-managed utility with no major deficiencies affecting cost or quality of services.

The audit involved an in-depth examination of activities-financial and operational-over a 10-month period. beginning in April. 1985. It had been mandated by a 1982 state law which re-quires utilities in New Jersey to undergo a review every three to six years. The BPU authorized PSE&G's review in 1984.

In its final report. the auditing firm said. "PSE&G would rank among the best of the utilities with which we have had experience." The firm made a total of 178 recommendations involving man-agement and operations. many of which were implemented by yea(s end.

8

Pennsylvania-New Jersey-Maryland (PJM) power pool meet a record peak demand of 3 7.680 megawatts. also set on July 7. The previous PJM record was 37.110 megawatts. established on August 15. 1985.

• Electricity was generated during the year with a diverse mix of fuels. In 1986. electric output by fuel source was nuclear-31%, coal-26%, natural gas-6%, oil-9%. and purchased and inter-changed-28%.

• Power purchases provided savings in 1986.

By buying advantageously priced electricity from Public Service Electric and Gas Company other companies. particularly mid-western util ities (PSE&G) is the largest utility in New Jersey and with coal-fired generating stations. PSE&G realized one of the largest combined electric and gas util- savings of $48 million in overall production costs ities in the United States. It serves 2 m illion cus- for the year. Energy purchased totaled 10.3 million tomers-5.5 million people-living and working in megawatthours.

an area covering some 2.600 square miles. PSE&G

• The addition of the Hope Creek Generating was able to meet the demands of customers Station gave PSE&G an ample reserve margin . At through the dedicated efforts of more than 13.000 year's end. the installed capacity had increased employees. to 10,032 megawatts. The table below shows PSE&G's activities in 1986, outlined on the fol- PSE&G's anticipated annual reserve for the next lowing pages. demonstrated in various ways its decade.

commitment to efficient operations. financial integrity, customer service and satisfaction. solid Electric Generation Capacity Forecast planning. good communications and corporate Planning Installed Percent Year Peak Load Capacity Reserve responsibility.

1987 7830 ---

10063 29 1988 7950 10147 28 Production - 1989 8070 10347 28 Electric peak demand record is established 1990 8140 10617 30 With temperatures soaring to 100 degrees in some 1991 8220 10652 30

---

areas of its service territory. PSE&G's electric peak 1992 8280 10672 29 demand reached a record-breaking 7.735 mega- --

1993 8330 10692 28 watts on July 7. The in-Output by Source of Fuel stalled capacity at the 1994 8380 10712 28

• Purchased

• Gas Nuclear time was 9.007 mega- 1995 8420 10732 27

• 0;1

• coal 1996 8510 10742 26 watts. giving the utility a 100%

reserve margin of slight-ly more than 16%. The

• PSE&G began work in 1986 to upgrade its mark surpassed the pre- energy dispatching operations. A $15 m illion reno-vious all-time high of vation of the utility's electric system operations 7.721 megawatts set on center in Newark will involve installation of the August 15, 1985. latest computer and telecommunications tech-The generally solid nology. The improvements, scheduled for comple-performance of PSE&G's tion in 1989. will expand the center's ability to nuclear. coal, oil and monitor. forecast and respond to problems within gas turbine generating the utility's system. perform various power system units and electric trans- security-related functions. and exchange data mission system enabled with the PJM.

the utility to meet cus-tomers' demands during the summer of 1986.

Electric output for the year. which includes energy produced. purchased. and interchanged.

was 3.3% higher than the amount recorded during 1985. increasing to 36.03 million megawatthours from 34.9 million megawatthours.

Output from the PSE&G system helped the 9

NUCLEAR:

• Nuclear security forces received high marks in Hope Creek has a banner year a surprise inspection. The overall security at the Rigorous, record-setting site of the Salem and Hope Creek stations scored testing of the Hope highly in all phases of testing during an unan-Creek Generating Sta- nounced three-day evaluation by the NRC in May.

tion was completed on

• PSE&G became a member of the National December 20 when the Academy of Nuclear Training in 1986. This highly unit was declared ready regarded industry accomplishment stemmed from for commercial opera- approval by the Institute of Nuclear Power Opera-tion. At that time, the tions (INPO) of all 10 training programs at PSE&G's 1067-megawatt unit was nuclear training center. INPO is an industry organ-released for dispatch to ization dedicated to the safe operation of nuclear the PJM power pool for plants.

continuous and reliable operation.

The completion of Hope Creek marked the FOSSIL:

conclusion of nearly two decades of PSE&G's in- Life extension is set for older fossil stations volvement in a nuclear construction program, With the completion of which also involved the building of the two units its nuclear construction of the Salem Generating Station. PSE&G owns 95% program, PSE&G began of Hope Creek and the Atlantic City Electric Com- focusing in 1986 on ways pany owns the other 5%. to extend the operating The 245 days between the loading of fuel in lives of its fossi l generat-April and the end of testing in December was the ing stations. Collectively, fastest startup period for a boiling water reactor these units, which use in the United States. A combination of good oil, coal, and natural gas planning and execution-without sacrifice of to produce electricity, quality-accounted for the record. have an average age of The all-time mark for startup followed the pace 30 years.

for initial fuel loading of the unit, which took only In the immediate 12 days, an international record . The project en- years ahead, the life ex-compassed the loading of 764 bundles of fuel tension program will be an integral part of and the testing of 185 control rods that govern the PSE&G's strategy to meet customer demand reli-reacto(s power level. ably for the balance of the century, without hav-A major milestone in the Hope Creek project ing to engage in the more costly construction of came on July 21 when the unit was granted a full- new generating units.

power operating license by the Nuclear Regula- Under the program in 1987, PSE&G will gather tory Commission (NRC). A low-level operating and analyze complex engineering data necessary license, permitting fuel loading and testing up to to move ahead with life extension activities at its 5% of reactor power, had been approved three various fossil stations.

months earlier.

• An aggressive program to control PSE&G's

• Salem 1 's annual refueling and maintenance production costs netted savings of more than $20 outage lasted 46 days. The duration of the out- million in operating and maintenance expenses.

age, completed in May, represented the best The savings were realized by reducing the services mark to date achieved by either unit at the sta- of outside contractors and using PSE&G personnel tion . Salem 2's annual outage lasted 81 days, more efficiently, and, after careful evaluation, by concluding in December. scaling down some major projects.

• Emergency drills were conducted for both the

• One project involving the upgrade of pumps Hope Creek and Salem stations. The drills were saved PSE&G $5 million. By rebuilding the high-held to test the ability of PSE&G and state, county, speed boiler pumps at a central maintenance and local officials to respond to an accident at shop, PSE&G was able to avoid high outside con-either plant. The exercises-Salem's in September tractor costs.

and Hope Creek's in November-were monitored

• In 1986, PSE&G opened a new production by the NRC and the Federal Emergency Manage- maintenance training center. The facility is located ment Agency. in Sayreville, Middlesex County, and will provide 10

11

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12

training to PSE&G employees involved in the

• Increased spot market purchases at more maintenance and inspection of large turbine gen- favorable prices reduced coal cost by about $2.1 erators. A training feature of the new center is a million. The mix of spot market and contract pur-turbine generator once used at the Burlington chases provided more flexibility in responding to Generating Station. lower prices while assuring supply.

• Increased spot market buying cut fuel oil costs Gas sendout holds steady $950,000. This, together with new contract pricing The increased use of natural gas in PSE&G's resi- and leasing temporary off-site storage, enabled dential and commercial markets offset a decline PSE&G to take maximum advantage of the sub-in the industrial sector and kept the sendout in stantial decline in oil prices by mid-year.

1986 at nearly the same level recorded in 1985.

• Prices paid for uranium were lower than the The 1986 sendout was 2.21 billion therms, while industry average. PSE&G obtained the fuel the 1985 sendout was 2.22 billion therms. needed for its nuclear stations from sources in the Frigid temperatures on January 14 resulted in a United States and Canada at an average price of maximum daily sendout for the year of 14,871.000 $19.58 a pound. Although Canadian supplies were therms. less costly, half of PSE&G's purchases in 1986 were

• The oil ga s facil ities at PSE&G's Central Gas made domestically to provide protection against Plant were retired in 1986 as natural gas supplies a potential embargo on foreign producers. The improved. The aged facilities, located in Edison. threat of an embargo stems from both federal Middlesex County, were no longer required to court and legislative action on behalf of domestic produce supplementary gas. An additional 1.26 producers affected by the lower-cost Canadian million therms daily of pipeline gas and firm stor- uranium.

age service economically replaced the 352,000 therms a day of manufactured gas capacity provided by the plant. Transmission and Distribution -

New Jersey's "Gold Coast" boosts business PSE&G remained at the heart of the bustling Fuel Supply - development along the Hudson Riverwaterfront-Aggressive buying reduces costs New Jersey's Gold Coast-as work unfolded to The ever-changing provide electric and gas service to such highly energy marketplace of publicized, multi-million-dollar projects as Lincoln the 1980s has produced Harbor, Newport City, Liberty State Park, and Port an increased supply of Liberte. Activities ranged from the installation of natural gas, and PSE&G gas distribution and service lines to scores of con-has taken advantage dominiums, shopping malls, restaurants, and of its abundance for the office buildings, to the construction of 230,000-volt benefit of its customers. underground transmission circuits to provide elec-PSE&G moved ag- tricity to three new substations needed to serve gressively in 1986 to pur- the burgeoning area.

chase lower-cost natural PSE&G's commitment to quality electric and gas on the spot market. gas service took on a new dimension with the and take advantage of negotiated flexibility in announcement that construction of a customer pipeline contracts. The results were savings of $69 operations training center will begin in 1987. The million in gas costs. facility will be located on 13 acres in Edison, near PSE&G obtained approximately 90 billion cubic the New Jersey Turnpike. It will house state-of-the-feet-almost 40% of the total gas supply-on the art equipment and provide skills. technical. and spot market. It passed along the benefits of these supervisory training for some 7,000 employees rapid moves in the natural gas marketplace to who work in the Electric and Gas Transmission and customers through significant rate reductions. Distribution Departments as well as the Customer These efforts drew praise from Barbara A Cur- and Marketing Services Department.

ran, President of the Board of Public Utilities. who Reinforcing its determination to develop favor-lauded the utility for "pursuing these spot market able contact between electric and gas service purchases with such vigor ... and succeeding in personnel and residential. commercial, and in-bringing the benefits of the current gas glut to the dustrial customers. PSE&G took the additional step small residential and commercial customer." of establishing a program to improve employees' The benefits were realized without sacrificing interpersonal skills. Its importance was driven long-term contracts that may be important in the home by the fact that gas service employees uncertain future. alone handled more than 2.3 million calls in 1986.

13

ELECTRIC:

• Use of helicopters in the replacement of equip-PSE&G serves a most famous customer ment on 500,000-volt power lines saved $200,000.

Growth in many areas of A Florida-based company, which has perfected PSE&G's electric service an airborne technique to service equipment on territory, especially resi- energized high-voltage overhead transmission dential sections in south- lines, was hired to replace spacers along 37 miles ern communities, ac- of lines in the western section of PSE&G's service counted for a note- territory. Spacers keep power lines from hitting worthy upsurge in the each other, and the technique to replace them number of new electric saved time, manpower, and money.

customers in 1986. More

• Five obsolete substations were replaced in than 24,000 new meters 1986. The substations, each at least 50 years old, were installed, up 32% were taken out of service because of increased from the 1985 figure, maintenance costs and diminishing availability of which was the greatest gain since 1965. parts.

PSE&G was particularly proud in 1986 to help

• A storm-tracking system was expanded to the Statue of Liberty shine brightly during her cen- South Jersey. Computerized lightning-detection tennial celebration on July 4. The utility directed the installation of 17.5 miles of overhead and underground power lines, 496 poles, and 313 street lights to brighten Liberty Island as well as Liberty Stat a Park in Jersey City. About $667,000 in annual revenues will be realized from service to PSE&G's most famous customer.

14

and weather-radar equipment was installed in the removal of approximately 4,700 groups of PCB-1986 at the electric transmission and distribution containing capacitors, their disposal in an environ-headquarters in Camden. This doubles the moni- mentally safe manner and their replacement toring network to help PSE&G brace for oncoming, with environmentally acceptable equipment. This potentially damaging storms. In 1985, similar comprehensive replacement program was com-equipment had been installed in Newark. pleted almost two years ahead of the October 1,

• Electrical capacitors containing polychlori- 1988 deadline for removal established by the U.S.

nated biphenyl (PCB) insulating material were Environmental Protection Agency.

removed from PSE&G's system in 1986. The pro-gram focused on elimination of publicly located capacitors. Started in September 1981, it involved 15

GAS:

Service is improved at a record pace There was good news, too, on the gas side of PSE&G's business. The addition of new mains and services occurred at a record pace in 1986 with the installation of more than 3.3 mil-lion feet of pipe. Some 440,000 feet of mains and 700,000 feet of ser-vices were replaced, and, about 30,000 new meters were installed.

• Construction of a centralized gas service dis-patching center approached completion in 1986.

When operational in 1987, the facility in Harding Township, Morris County, will enable consolidation of 13 dispatch offices now scattered throughout PSE&G's service territory. As a result of a new com-puterized communications system, work orders will be transmitted to personnel through mini-terminals in service vans. This will reduce the time it takes PSE&G to respond to calls from customers reporting problems ranging from gas odors to faulty furnaces.

• Replacement of two large mains was accom-plished during the year. More than 1,400 feet of 42-inch main was replaced in downtown Newark in connection with the construction of the Legal and Communications Center. In Jersey City, 900 feet of pipe, also measuring 42 inches, were re-placed near PSE&G's new West End Meter and Regulating Station. These were the largest diameter pipes installed in the gas distribution system in three decades.

Engineering and Construction -

Construction continues at Merrill Creek Progress was made at the Merrill Creek Reser-voir project in Harmony Township, Warren Coun-ty, despite environmen-tal problems encoun-tered during the year.

The reservoir is a pro-ject of seven utilities in New Jersey and Pennsyl-vania which maintain generating stations on the Delaware River. The stations draw river water for cooling purposes. When completed, the res-ervoir will help assure acceptable water flow volumes in the river during low-flow periods. The project was mandated by the Delaware River 16

Basin Commission, and work was begun in 1985.

Construction is being managed by PSE&G, which is a 16.2% owner of the facility. In mid-1986, work was delayed for nearly six weeks to take cer-tain steps at the site to control soil erosion and .

sedimentation. The action was in response to an order by the Warren County Soil Conservation Ser-vice. Later in the year, naturally occurring asbestos was found at the site. Remediation measures were instituted to contain the veins of the mineral that were uncovered during construction. At year's end, the project was 45% completed.

Work at Merrill Creek is being carried out under a project management system used successfully during the construction of the Hope Creek station.

The system, which emphasizes efficient coordina-tion among participants in a project, will be ex-tended to other construction activities in 1987.

• During 1986, fiber optic technology was intro-duced in the monitoring of large electric equip-ment. The technology incorporates fiber optic probes and video processing, to observe genera-tors and transformers. It helped avert a costly generator failure in 1986 by providing an early warning of an impending problem.

• A microcomputer-based control system was installed at the Deans Switching Station in 1986.

Installation of the system at the facility in South Brunswick, Middlesex County, is an industry first. It will improve operating economy and power sys-tem reliability and security.

Customer and Marketing Services -

Collection challenges are met with care Using innovative pro-grams and a motivat-ed workforce, PSE&G's Customer and Market-ing Services Depart-ment substantially re-duced the number of unpaid customer bills.

The net write-off of uncollectible accounts declined, as a result of the effort, to $21.7 million, down 21% from the 1985 amount of $27.6 million. This improvement reflects the benefits of increased collection activities-along with a better economy-which have brought write-offs down from an all-time high of

$40.2 million in 1984.

The challenging job of encouraging customers to avoid late or unpaid bills was made easier, in large measure, by the department's close work with consumer advisory panels, which offered a variety of ideas for improving customer service and relations. For example, PSE&G now provides Spanish-speaking interpreters at walk-in customer 17

service centers. Conservation and Load Management -

Additional employee training emphasized the PSE&G and its customers team up for efficiency importance of quality service and concern for the PSE&G, with the co-people served by PSE&G. Employee recognition operation of both large activities were also expanded. and small customers,

• Customers received newly designed bills in maintained its leader-1986. By modernizing its computerized billing sys- ship role in 1986 in find-tem, PSE&G's electric and gas customers began ing innovative ways to receiving two-page monthly bills that provide save energy and pro-more detailed information about their energy duce and distribute it usage, including a comparison of consumption more efficiently.

in the most recent three months with the same Residential custom-period a year earlier. ers-homeowners and

• A program was instituted to enable customers renters-took advantage of a wide variety of con-to phone in their own meter readings. Under the servation programs geared specifically to their program, customers who cannot be at home for needs.

regular meter readings can dial a special local A focal point for communicating information number and give the readings themselves. about activities and programs was the Energy

• Another new program gave PSE&G the ability Conservation Center located in the PSE&G head-to contact hard-to-reach customers. Using tele- quarters in Newark. The conservation experts marketing recording equipment and techniques, who staff the center responded to approximately customers can now be informed off-hours about 200,000 telephone inquiries last year. The con-the need for meter readings in their homes or servation message also was taken on the road to about the prompt payment of bills. customers via the "Conservation on Wheels"

• An automatic meter reading project was also mobile exhibit.

launched during the year. In conjunction with a One of PSE&G's programs-weatherization local water company, PSE&G began testing the workshops for low-income customers-received feasibility of reading meters through a direct tele- the U.S. Department of Energy's National Award for phone link. The pilot project involved 100 gas cus- Energy Innovation. The workshops provided infor-tomers in Bergen County. mation about low-cost energy-saving measures

• Efforts to curb energy theft were expanded . and were sponsored by Community Action Pro-PSE&G opened an office in Lawrence Township gram agencies, churches, and civic groups. More to conduct investigations of energy theft cases in than 13,000 persons participated in the workshops the southern half of its service territory. The utility during the year.

also worked with the New Jersey Division of Crimi-

• PSE&G launched an incentive program for nal Justice in an investigation leading to the indict- thermal energy storage at new and existing build-ment of three men on meter tampering charges. ings. Financial incentives to customers will be The case involved 93 commercial establishments, based on the amount of peak demand load shift-and the customers have been rebilled for a total ed to off-peak through development of systems of $2.6 million. that store "coolness" during the night for use dur-

• Gas conversions mounted despite the lowest ing daytime hours. The program's aim is to help oil prices in years. Nearly 11,000 homeowners PSE&G avoid construction of new generating switched from oil to natural gas for heating pur- facilities.

poses in 1986. In addition, gas heating was in-

• PSE&G increased conservation efforts in the stalled in about 20,000 new homes, nearly 3,000 commercial sector. New programs for commer-more than in 1985. cial customers included the commercial and

• Heat pump installations increased by nearly apartment building energy use survey, a commer-50%. Units were installed in 4,246 new dwellings in cial cash rebate program, and multiple-family 1986, shattering the 1985 record of 2,884. Space dwelling loans for installing conservation measures.

heating was also installed in more than 60% of industrial and commercial construction, for 69,747 kilowatts in new load.

• Dusk-to-dawn lighting sales continued at a brisk pace. During the year, 9,758 units of high-pressure sodium and other vapor lighting were installed in PSE&G's territory, down slightly from the record 10,637 units sold in 1985.

18

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Planning and Research - PSE&G also helped launch a research effort to New technologies are explored determine if the burning of coal and other fossil Planning and research fuels at generating stations is contributing to acid are where the present rain in New Jersey. PSE&G is joining Jersey Central and the future come to- Power & Light Co. and Atlantic City Electric Co. in gether. Throughout the funding the three-year study that will focus on the year, PSE&G explored Pine Barrens area of the state.

new and emerging tech-

• In 1986, PSE&G continued its pioneering role in nologies, to chart the bringing robotics into utility operations. A mobile, best course to meet the submersible robot device was used, for example, challenges of growth. to clean construction debris from the spent fuel PSE&G's fuel research pool at the Hope Creek Generating Station. In the laboratory, located at future, a robot will allow PSE&G to perform work the Harrison Gas Plant, in the pool without exposing workers to radiation has been analyzing coal being burned at gener- from spent fuel eventually placed in it.

ating stations to develop a database of accept-

• PSE&G's Battery Energy Storage Test (BEST) able characteristics. This database is then used facility completed various studies of advanced to identify lower-cost coal which meets PSE&G's systems. Results of the testing on lead acid and specifications and which helps foster more com- zinc chloride batteries indicated that the systems petitive pricing. could play a role in helping meet future needs of 20

electric customers. Testing is continuing on lead rated new accounting procedures to meet the acid batteries. The facility is in Hillsborough, Somer- requirements of the changing business and regu-set County, and, to date, much of the work there latory environment.

has been funded by the U.S. Department of Ener- The heart of this and other new systems is gy and the Electric Power Research Institute. Both computing power, and, during the year, PSE&G have announced, however, that certain funds will continued to install state-of-the-art mainframe no longer be provided for the facility and PSE&G computers, completing the replacement of will scale back operations accordingly. equipment in service nearly 20 years. The mod-

• During the year, a customer-based fuel cell ern computers now being operated include the test was conducted by PSE&G. In the program, up-to-date features offered by the major data sponsored by the Gas Research Institute and the processing equipment manufacturers.

U.S. Department of Energy, PSE&G installed, oper- In the area of telecommunications, PSE&G ated and maintained two 40-kilowatt fuel cells at signed a 10-year lease with New Jersey Bell to customer locations. The testing indicated that fuel extend fiber-optic communications capacity re-cells can operate successfully in a customer ceived from LightNet to Artificial Island, the site environment. of Salem and Hope Creek.

The Nuclear Department was provided tele-communications improvements, including a new Information Systems - emergency response callout procedure and up-High-tech communications improve operations graded telephone service. The emergency pro-PSE&G, like other pro- cedure incorporates electronic beepers, a com-gressive companies, is puterized electronic mail system and the nuclear becoming more depen- emergency telecommunications system that will dent on the ability to enable PSE&G to notify individuals and receive gather, manage, ana- acknowledgement of instructions. The procedure lyze, and move vast was unveiled during the 1986 emergency drill at amounts of information Salem station and earned praise from the NRC.

quickly, reliably, and effi-

• Addition of personal computers improved pro-ciently. Through its Infor- ductivity. A total of 250 personal computers was mation Systems Depart- installed throughout PSE&G in 1986. The estimated ment, PSE&G made productivity savings through use of the equipment strides in 1986 to satisfy exceeds $7 million.

the demands of the In-

• Also in 1986, a program was started to deter-formation Age for the benefit of customers, share- mine long-term needs for computer equipment holders and employees. and services. The new system will allow the Infor-A new stockholder inquiry and accounting mation Systems Department to better serve other system completed its first full year of operation. departments through improved communications The system enhanced the processing of and and planning.

access to shareholder information. It also incorpo-21

Public Affairs:

Company takes an active role in the community New Jersey is dynamic and diverse, and no large company can make its way there with-out maintaining a strong and active presence.

PSE&G did not let up in its search for ways to meet its obligations as a good corporate neigh-bor in the cities and towns which it serves and in which its employees live, work, and play. During 1986, a program called EPIC-Employee Participation in the Community-guided more than 60 employees into volunteer programs ranging from scouting to tutoring. An aggressive United Way program elicited record pledges from 11,804 employees-a 20% jump over the number who were contributing at the start of the campaign. In addition, 367 employees partici-pated in TeamWalk, raising more than $81,000 for the March of Dimes, a 16% jump from the 1985 mark.

PSE&G also supported programs aimed at introducing minority youngsters to the utility bus-iness. Employees served as mentors for student interns selected for their academic achievements and leadership potential under a program called INROADS. Four employees honored under the na-tional Black Achievers program provided year-long career counseling for selected high school students.

• Shorebirds on the Delaware Bay received new protection during the year under a mitigation program. PSE&G and the states of New Jersey and Delaware developed the program to help preserve more than one million birds-some 20 species in all-which use an area south of Artificial Island for feeding and resting during annual migration. PSE&G's involvement began with the widening of an access road to Artificial Island. In issuing permits, state and federal regulators required the utility's participation in a mitigation project to replace seven acres of wetlands dis-rupted by the construction.

• A news conference, featuring Governor Thomas Kean , focused on area development. PSE&G sponsored the conference in which New Jersey's governor unveiled an advertising program to pro-mote the economic development of the state.

• PSE&G's site location activities increased dur-ing the year. Area development representatives assisted more than 600 clients in search of new business sites. This figure is twice the number of clients assisted in 1985, an indication of a stronger economy in New Jersey. Direct aid to 22 major 22

firms will account for approximately four million square feet of new business space.

• "Dreams of Distant Shores" won five prestigious awards, including a 1986 Emmy. The documentary film produced by PSE&G's Advertising Department traced the struggles and triumphs of the nation's immigrants. The film was shown nationwide by the Statue of Liberty-Ellis Island Foundation and overseas through the sponsorship of the United States Information Agency.

• Another film promoted the understanding of nuclear power. William Shatner of "Star Trek" fame appeared in the production, which featured computerized special effects. The film was made for continuous presentation at The Second Sun, PSE&G's energy information center located at the site of the Salem and Hope Creek stations.

• An energy assembly program reached 38,500 students. PSE&G and other electric utilities in New Jersey sponsored a theater presentation for young-sters in kindergarten through sixth grade. It pro-vided entertaining information about electricity sources, generation, and safety.

• Energy education conferences attracted 250 teachers. As a member of the New Jersey Energy Education Council, PSE&G helped organize three sessions for elementary and junior high school teachers to outline creative ways to teach young-sters about energy.

Human Resources -

PSElrG recognizes a topflight workforce While PSE&G has billions of dollars invested in the technology and facili-ties necessary for doing business, it continued to recognize that its most valuable asset is its employees.

In 1986, PSE&G em-barked on a number of new programs designed to allow employees to be more productive and to improve the environ-ment in which they work.

A corporate-wide program stressed health consciousness among employees through a stop-smoking promotion, colorectal and oral cancer testing, and blood pressure screening. For its ef-forts, PSE&G earned an award from the American Cancer Society.

Programs were initiated to reduce levels of management, broaden areas of responsibility, and eliminate duplication of effort in both staff and line organizations. In order to insure the opti-mum continuity in operations, a management 23

succession planning process was extended to lower levels in the organization.

During the year, two employees demonstrated the benefits of working smarter with suggestions that will save PSE&G more than $100,000 a year.

The suggestions resulted in the highest-ever Sug-gestion Plan awards. Joseph Conrey of the Nu-clear Department received a $13,800 award for his suggestion to change the type of pump in Salem Generating Station's circulating water system.

Norberto LaGuardia of the Customer and Market-ing Services Department received $13,000 for an idea involving check handling procedures at the customer payment processing center in Wood-bridge.

• One program introduced in 1986 improved orientation for new employees. The Program, called PEOPLE, stresses the benefits and opportuni-ties available in PSE&G for employees who dem-onstrate consistently high levels of performance and productivity.

• On-site drug screening of nuclear contractor employees was initiated during the year. The pro-gram supported PSE&G's comprehensive internal drug screening program in the continuing effort to insure a drug-free work environment.

• Mortgage refinancing for relocated em-ployees meant considerable savings. Employees receiving mortgage interest differential payment under the corporate relocation policy were en-couraged to refinance their mortgages to gain benefit through lower mortgage interest pay-ments. As a result, PSE&G will also realize savings of more than $23 7,000 a year.

1986: Transition In addition to the election of E. James Ferland as chairman of the board, president and chief executive officer of Enterprise and PSE&G, the fol-lowing occurred:

• Verdell L. Roundtree, a director of PSE&G since 1983 and a director of Enterprise, died on August

26. The board of directors and management deeply regret the loss of this distinguished and able director.

• Everett L. Morris, a vice president of Enterprise, was elected to its board of directors, effective June 1. In addition, he was elected senior execu-tive vice president and a director of PSE&G, also effective June 1.

• Richard M . Eckert retired as senior

• Thomas J. Martin retired as vice president- vice president-nuclear and engineering engineering and construction of PSE&G, and of PSE&G on October 31.

Pierre R.H. Landrieu was elected his successor,

• Wallace A. Maginn, vice president effective March 8. and treasurer of PSE&G and treasurer of

• Robert H. Franklin retired as vice president- Enterprise, announced his retirement in public relations of PSE&G, and John H. Maddocks December. Francis J. Riepl was elected was elected vice president-public affairs, effective his successor, effective March 1, 1987.

June 1.

24

EDC becomes Enterprise subsidiary Energy Development Corporation (EDC) became the fourth subsidiary of Enterprise under action by PSE&G's board of directors on December 16. The change resulted from the removal of costs of EDC and its wholly owned subsidiary, Gasdel Pipeline System Incorporated, from PSE&G's customer rates, stemming from settlement of the gas base rate case in 1986.

EDC was created as a subsidiary of PSE&G dur-ing the natural gas shortages of the 1970s, and it successfully supplemented the utility's gas supplies over the years. In 1986 it accounted for 7% of PSE&G's supplies.

In the agreement between the major parties in PSE&G's gas rate proceeding, approved by the BPU on October 30, 1986, the investment in EDC was removed from rate base. As a result, EDC wrote down the carrying value of its assets under the full cost method of accounting to the present value of estimated future net revenues. The after-tax effect of the write-down made in December was $70.5 million.

In the BPU-approved agreement, PSE&G was allowed to defer the loss on its investment in EDC, generated by the rate base disallowance, and to seek recovery of such loss, over a period of not less than 10 years in its next base rate case. As a result, PSE&G has deferred $58.8 million of the after-tax loss anticipated to be recovered sub-sequent to the next base rate increase.

Excluding the adjustment of the carrying value, EDC's earnings were $4.3 million on revenues of

$70.3 milion, down 55% and 25%, respectively, from 1985 results. The lower earnings, for the most part, were attributable to lower oil and natural gas prices.

• During 1986, EDC participated in the drilling of 35 wells , 51 % of which were productive. The num-ber of wells drilled represented a 22% reduction, when compared to the 1985 number. EDC's reduced drilling activity reflected a continued downturn in the oil and gas industry as a result of lower prices caused, for the most part, by excess production capacity.

25

Agreements are reached on four projects Investment subsidiary seizes opportunities In its first full year of operation, Community Energy Public Service Resources Corporation (PSRC) also Alternatives Incorporated (CEA) concluded agree- completed its first full year of operation in 1986. It ments to participate in four non-regulated energy reviewed a number of investment opportunities projects having a combined generating capacity and selected only those which offered the pros-of 227 megawatts and a total asset value of $285 pect of a favorable return with a minimum of risk.

million. CEA's aggregate equity investment is ex- It contributed $3.0 million to the net income of pected to be about $21 million for an interest Enterprise.

equal to about 70 megawatts. During the year, PSRC invested in the SEGS Ill CEA is also exploring opportunities involving solar electric generating project, in which CEA the development of 600 megawatts of non- decided to participate, and it also invested in a regulated cogeneration and small power projects similar project called SEGS IV. In addition, PSRC throughout the country, including New Jersey. participated in a tax benefit transfer with the At year's end, CEA's major activity involved a Metropolitan Transit Authority of New York.

35% equity partnership in a $120 million cogen-

• PSRC also became a limited partner in two eration project in Bayonne, New Jersey. The 165- venture capital funds. One fund invests in megawatt gas turbine facility, scheduled for op- advanced technology companies in the Middle eration in 1988, will provide steam to local indus- Atlantic states, including New Jersey. and the try and electricity to Jersey Central Power & Light other in selected real estate in major metropolitan Company under a 20-year transmission service areas.

contract with PSE&G. More than 12 billion cubic

• Investments totaling $64 million were made in feet of natural gas will be provided annually by mutual funds and stocks. They included invest-PSE&G. CEA will invest $10.5 million in the project. ments in both the common and preferred stock of

• During the year, CEA invested in a wood-fired utilities and the preferred stock of banks and other project. CEA formed a partnership with Harbert corporations. Corporate stock owners benefit by International of Alabama and a group of local paying lower federal taxes on dividends.

developers to build and operate a 17-mega-watt wood-fired electric generating plant in New Hampshire. Its operation is planned for 1987.

• Investment was also made in a hydro plant.

CEA acquired a 16% limited partnership interest in a 15-megawatt hydroelectric project on the Ken-nebec River in Maine.

• CEA became a limited partner in a solar project. It invested $5.5 million in the SEGS Ill 30-megawatt solar electric generating project in the Mohave Desert in southern California.

26

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Following are the significant factors affecting the financial 1986-Electric kilowatthour sales increased 3.0%.

condition of Enterprise and its subsidiaries as reflected in Growth in Residential and Commercial sales accounted their consolidated results of operations. This discussion re- for the increase. Temperature humidity index hours during fers to the consolidated financiat statements and related the height of the air-conditioning season, June to August, notes of Enterprise and should be read in conjunction with were up 6.0% over 1985, in addition to a 1.3% increase in such statements and significant accounting policies: average customers. The ongoing weakness in the nation's For a discussion of the Decision of the Board of Public manufacturing sector adversely affected Industrial sales. A Utilities of the State of New Jersey (BPU) in PSE&G's base record 60-minute net peak load of 7,735 megawatts was established on July 7, 1986.

rate case made on February 6, 1987, and the effect of Statement of Financial Accounting Standards No. 90, 1985-Electric kilowatthour sales increased 2.3%. Resi-Regulated Enterprises-Accounting for Abandonments dential sales were relatively flat, improving slightly over and Disallowances of Plant Costs (SFAS 90), see Notes 1 1984. Both the Residential and Commercial sales cate-and 2 of Notes to Consolidated Financial Statements. gories reflect the impact of the overall cooler, less humid summer weather experienced compared to 1984. Tern- -

Earnings and Dividends perature humidity index hours dropped 5.7% from 1984.

Enterprise concluded 1986 in a satisfactory financial posi- Sales lost in the Commercial category due to the cooler tion, despite the adjustment to earnings resulting from the weather conditions were more than offset by the ongoing implementation of SFAS 90 which included the effects of growth in this service oriented category. The lackluster per-Hope Creek 1 costs disallowed by the BPU and prior plant formance of New Jersey's manufacturing sector through-abandonments. The net effect of the application of out 1985 depressed sales in the Industrial category. On SFAS 90 (see Notes 1 and 2 of Notes to Consolidated August 15, 1985 records were set for a 60-minute net peak Financial Statements) was to reduce 1986 net income by load of 7,721 megawatts and the maximum day's output

$183.8 million, or $1 .38 per share. Earnings per share of of 149,457 megawatthours.

Common Stock were $2.84for1986, a decrease of 43¢ or 13.1 % from 1985. Excluding the effect of the application of Gas SFAS 90, earnings were $4.22 for 1986 and $3.96 for 1985, Revenues declined 5.9% in 1986. The reduction in revenues an increase of 26¢ or 6.6%. is attributable to decreases in base rates authorized by the The increase is principally the result of PSE&G's higher BPU which became effective October 31, 1986. In addition, electric sales, explained below, greater AFDC due to the lower gas Raw Materials Adjustment Charge (RMAC) rates construction of Hope Creek, and reduced maintenance were in effect during 1986. Lower oil prices adversely im-costs. The increase was tempered by the effect of a pacted parity priced sales. In 1985, gas revenues increased greater number of shares outstanding, PSE&G's increased 2.1 % principally due to the impact of the March 1984 rate operating expenses (excluding fuel costs)-principally increase. This increase was negatively impacted by a one-higher labor costs, taxes and depreciation-as well as in- time refund to customers of $13.2 million and a reduction creased interest charges. in the RMAC charge, both approved by the BPU during the

• Common Stock dividends paid have increased for the latter part of 1985.

last three years, rising to $2.93 from $2.81 in 1985 and $2.70 Gas fuel costs follow amounts recovered through re-in 1984. The current Common Stock dividend is secure venues, as permitted by rate orders, and therefore have no although Enterprise's ability to provide future dividend direct effect on earnings.

growth will be hampered as a result of the Hope Creek 1 The components of the above changes are highlighted disallowance and other unfavorable elements of the in the table below:

February 6, 1987 rate decision.

Increase or (Decrease)

Revenues and Sales (Millions of Dollars) 1986 vs. 1985 1985 vs. 1984 Electric Changes in base rates s (8) $20 Revenues increased 5.2% in 1986 primarily due to greater Recoveries of gas costs (A) (101) 10 sales and recoveries of energy costs. In 1985, electric rev- Therm *sales 25 (2)

Other operating revenues 1 enues increased 6.5% due to higher rates and improved sales.

s (84) $29 Electric energy costs follow amounts recovered A. Includes the effect of $13.2 million refund to customers In 1985 and through revenues, as permitted by rate orders, and there- $42.9 million in 1984.

fore have no direct effect on earnings. 1986-Gas therm sales were virtually unchanged from The components of the above changes are highlighted 1985. Residential sales registered significant growth, as in the table below: the average number of gas heating customers rose 4.9%,

despite the negative influence of the 1.4% decline in heat-Increase or (Decreas!3) ing degree days. Commercial sales reflect strong growth (Millions of Dollars) 1986 vs. 1985 1985 vs. 1984 in that sector of New Jersey's economy. Industrial sales Changes in base rates s s 58 reflect the ongoing weakness in the nation's manufactur-Recoveries of energy costs 62 56 Kilowatthour sales 94 73 ing sector of the economy. Lower oil prices continued to Other operating revenues (1) (3) negatively impact Commercial and Industrial sales.

$155 $184 1985-0verall gas heating sales remained relatively flat 27

when compared to 1984. Heating degree days increased With the completion of Hope Creek, PSE&G's construc-only .4%. Since early 1985, switching of certain dual-fuel tion costs will be lower, focusing primarily on the up--

Commercial and Industrial customers from gas to lower grading of other generating stations and electric and gas priced oil has depressed sales in these categories. Indus- transmission and distribution systems. Therefore, excluding trial sales have also been affected by the ongoing slow- refinancings and related expenditures, Enterprise expects down in New Jersey's manufacturing activity. to meet nearly all of its capital requirements in 1987 with Energy Costs internally generated funds.

Electric energy costs and gas fuel costs are adjusted to Construction Program match amounts recovered through revenues and have no Enterprise maintains a continuous construction program, direct effect on earnings. However, the carrying of under- through its subsidiaries (principally PSE&G) which includes recovered *energy costs ultimately increases financing costs. payments for nuclear fuel. This program is periodically re-A record total of 36.033 million megawatthours was vised as a result of changes in economic conditions, and generated, purchased and interchanged, a 3% increase depends on the ability of Enterprise's subsidiaries to finance over 1985. Higher generation due to the improved per- construction costs and for PSE&G to obtain timely rate re-formance of Peach Bottom Station, generation from Hope lief. Changes in plans and forecasts, price changes, cost Creek Station and energy purchased from the Pennsylvania- escalation under construction contracts, and requirements New Jersey-Maryland Interconnection (PJM) accounted of regulatory authorities may also result in revisions of the for the increase. construction program.

As a member of the PJM and as a party to several Construction expenditures of $1.0 billion in 1986 and agreements which provide for the purchase of available $1.2 billion in 1985 include AFDC of $241 million and power from neighboring utilities, PSE&G is able to optimize $196 million, respectively. Construction expenditures are its mix of internal and external sources using the lowest estimated at $3.1 billion for the five years ending in 1991 cost energy available at any given time. and include AFDC of about $209 million.

Total electric energy costs increased 7% in 1986 after These estimates are based on certain expected com-an increase of 11 % in 1985, as described below: pletion dates and include anticipated escalation due to inflation of approximately 4°k. Therefore, construction Increase or (Decrease) delays or inordinate inflation levels could cause significant (Millions of Dollars) 1986 VS. 1985 1985 VS. 1984 increases in these amounts. PSE&G expects that, with ad-Change in prices paid for fuel and power purchases $(261) $(167) equate rate relief, as to which no assurance can be given, Kilowatthour output 31 21 it will be able to generate internally nearly all of its con-Adjustment of actual costs to match recoveries through revenues (A) 318 225 struction expenditure requirements for the next five years.

Replacement energy costs for which recovery was disallowed by the BPU (21) 14 Long-Term Financing

$ 67 93 Enterprise raised more than $668 million in 1986 principally through sales of $103 million of Common Stock and $550 A. Reflects over (under) recovered energy costs, which in the years 1986, 1985 million of PSE&G's First and Refunding Mortgage Bonds.

and 1984 amounted to $346 million, $28 million and $(197) million, respectively.

During 1986 three First and Refunding Mortgage Bond Gas costs decreased 9% in 1986 and decreased less issues for $307.3 million and two Preferred Stock issues for than 1% in 1985. Contributing factors are shown below: $69.3 million were redeemed.

In addition to periodic sinking fund redemptions, a $60 Increase or (Decrease) million mortgage bond issue will mature in 198 7. Three (Millions of Dollars) 1986 vs. 1985 1985 vs. 1984 mortgage bond issues aggregating $160 million and one Change in prices paid for gas supplies $(105) $ (4)

Surcharge related to non-production debenture bond issue of $35 million will also mature by the gas costs 24 9 end of 1991.

Refunds from pipeline suppliers 9 (10) Also, PSE&G has requested or received regulatory Therm sendout (3) (12)

Adjustment of actual costs to match authority to redeem certain higher cost securities through recoveries through revenues (A) 9 16 future financings of approximately $160 million of various

$ (66) $ (1) First and Refunding Mortgage Bonds and $160 million of various Preferred Stock series during 1987 and approxi-A.Reflects over (under) recovered gas costs which in the years 1986, 1985 and 1984 amounted to $1 million, $(8) million and $(24) million, respectively. mately $296 million of various First and Refunding Mortgage The underrecovery of $8 million in 1985 reflects gas fuel cost refunds to customers Bonds during 1988.

of $11 million.

At December 31, 1986 book value per share amounted (See Note 5 of Notes to Consolidated Financial Statements.) to $26.89 compared to $26.81 at December 31, 1985. The market value of common shares expressed as a percent-Liquidity and Capital Resources age of book value was 149.7% and 118.0% at year-end Enterprise's liquidity is affected principally by the construc-1986 and 1985, respectively.

tion programs of its subsidiaries and, to a lesser degree, by Under the terms of PSE&G's Mortgage and Restated other capital requirements such as PSE&G's maturing debt Certificate of Incorporation, at December 31, 1986 PSE&G reacquisition of securities and sinking fund requirements. could issue an additional $3.178 billion principal amount The capital resources available to meet these require- of Mortgage Bonds at a rate of 8.63% or $3. 750 billion of ments are funds from internal generation and external Preferred Stock at a rate of 7.25%.

financing. Internally generated funds depend upon eco- In February 1986, PSE&G, by an additional amendment, nomic conditions and the adequacy of timely rate relief to extended its Credit Agreement with 12 domestic banks to PSE&G, as to which no assurance can be given. Access to May 1, 198 7 for the issuance of revolving loans up to an the long-term and short-term capital and credit markets aggregate of $200 million to be outstanding at any time.

is necessary for obtaining funds externally.

28

The agreement permits PSE&G to convert the outstanding needy customers have an impact upon the level of balance at the end of the period to three-year term loans. receivables, uncollectible accounts and net write-off Also, PSE&G has the right, with the consent of the banks, thereof.

to extend the agreement on a year-to-year basis.

In the foreign markets Enterprise lists its Common Stock Long-Term Investments on the London Stock Exchange, London, England and Long-Term Investments increased $124 million primarily as PSE&G's 9%% Series S First and Refunding Mortgage Bonds the result of the activity of PSRC. The increase is made up are listed on the Luxembourg Stock Exchange. of the following:

On October 31, 1986 PSRC entered into a Credit (Millions of Dollars) Increase or (Decrease)

Agreement that provides for revolving credit loans up to Marketable Securities $ 64

$25 million. PSRC may terminate the commitment, in Limited Partnerships 34 whole or in part, without penalty or premium. Under the Lease Agreements 25 other 1 agreement, any borrowings outstanding at October 31,

$124 1989 are convertible, at PSRC's option, into three-year term loans. PSRC is required to pay a commitment fee on any Effect of Inflation unused portion. At December 31, 1986, $25 million of bor-The effect of inflation on Enterprise, as indicated by the rowings was outstanding under the agreement.

Average Consumer Price Index (CPl-U), has moderated Short* Term Financing since 1981. The increases in the CPl-U in 1982, 1983, 1984, For interim financing PSE&G is authorized by the BPU to 1985 and 1986were 6.1%, 3.2%, 4.3%, 3.6% and 1.9%,

have up to a total of $300 million of short-term obligations respectively.

outstanding at any given time. This availability of short-term financing provides PSE&G flexibility in the issuance of long-term securities. PSE&G's average daily short-term debt during 1986 was $98 million-$26 million above last year's average. At year-end PSE&G had $139 million of short-term debt outstanding.

PSE&G has a $75 million revolving credit agreement, that expires in January 1988, with 16 foreign banks, under which the Banks have agreed to make revolving loans for one month, three months or six months at a rate based upon the London Interbank Offered Rate for deposits in United States dollars. These agreements provide PSE&G with an intermediate-term source of funds.

On November 1, 1986, EDC entered into a Credit Agreement that provides for revolving credit loans up to

$100 million. EDC may terminate the commitment, in whole or in part, without penalty or premium. Under the agreement, EDC has the option, on September 30, 1987, to extend the maturity date of the agreement to Octo-ber 31, 1991. EDC is required to pay a commitment fee on any unused portion. At December 31, 1986, $100 million of borrowings was outstanding under the agreement.

Cash Position Enterprise's cash position increased $13 million since year-end 1985. The components of the increase are:

(Millions of Dollors) Increase or (Decrease)

Cash and Temporary Cash Investments (A) $ 185 Working Funds (5)

Pollution Control Escrow Funds (30)

Bank Loans (105)

Commercial Paper (32)

$ 13 A. Temporary Cash Investments consist primarily of U.S. Treasury Notes.

Customer Accounts Receivable At December 31, 1986, customer accounts receivable approximated $352 million, excluding unbilled revenues of

$170 million. Net write-off of uncollectible accounts in 1986 was down 21% to approximately $22 million, a decrease of

$6 million from last year. Net write-off per $100 of revenues was down 16 cents to 48 cents compared to 1985, the result of improved collection procedures and continued improvements in the economy. The level of PSE&G's rates and a BPU requirement prohibiting the termination of elec-tric and gas service during winter months to financially 29

ORGANIZATION AND

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES rates for the recovery of such costs and directed that Organization PSE&G establish an escrow fund by means of external Effective May 1, 1986, Enterprise became the owner of all funding.

of the outstanding Common Stock of PSE&G as a result Amortization of leasehold improvements and capital of a corporate restructuring of PSE&G pursuant to a Plan lease assets is based on the term of the lease.

and Agreement of Merger. In the merger and restructuring, each share of outstanding Common Stock of PSE&G was Amortization of Nuclear Fuel converted on a share-for-share basis into Common Stock Nuclear energy burnup costs are charged to fuel expense of Enterprise and each share of $1.40 Dividend Preference on the basis of the number of units of thermal energy Common Stock of PSE&G was either converted into one-produced as they relate to total thermal units expected to half a share of Common Stock of Enterprise or exchanged be produced over the life of the fuel. The rate calculated for $18 cash, at the option of the holder. The restructuring for fuel used at all nuclear units includes a provision of one did not result in any change in PSE&G's Preferred Stock or mill per kilowatthour of nuclear generation for spent fuel debt securities.

disposal costs.

Enterprise is entitled to an exemption from regulation by the Securities and Exchange Commission as a registered holding company under the Public Utility Holding Com- Gas and Oil Accounting pany Act of 1935, except for Section 9( a)(2) thereof, and is Energy Development Corporation follows the full-cost not subject to regulation by the BPU or the Federal Energy method of accounting. Under this method, all exploration Regulatory Commission (FERC). and development costs. both for successful and unsuc-cessful wells, are capitalized and amortized on the units-of-production basis. (See Note 5-Deferred Items-Gas and Consolidation Policy and Accounting Principles Oil Exploration Plant Write-Down.)

The consolidated financial statements include the accounts of Enterprise and its subsidiaries, PSE&G, CEA PSRC, and EDC. All significant intercompany accounts Long-Term Investments and transactions have been eliminated in consolidation. Enterprise, through its investment subsidiary. PSRC. has in-Certain restatements have been made of previously re- vested in marketable securities, which are valued at the ported unconsolidated amounts in order to conform to the lower of cost or market. as well as various leveraged leases 1986 presentation. Such restatements had no effect on and limited partnerships. In accordance with GAAP. Enter-net income. prise records a valuation loss on its investments in market-The accounting and rates of Enterprise's wholly-owned able securities, whenever indicated.

subsidiary, PSE&G, are subject in certain respects to the requirements of the BPU and FERC and. as a result, main-Revenues and Fuel Costs tains its accounts with their prescribed Uniform Systems of Revenues are recorded based on services rendered to Accounts, which are the same. As a result. the applica-customers during each accounting period. PSE&G records tions of generally accepted accounting principles (GAAP) unbilled revenues representing the estimated amount by Enterprise differ in certain respects from applications of customers will be billed for services rendered from the time other non-regulated businesses.

meters were last read to the end of the respective account-ing period.

Utility Plant and Related Depreciation PSE&G projects the costs of fuel for electric generation.

and Arnortization-PSE&G purchased and interchanged power, gas purchased and Additions to utility plant and replacements of units of materials for gas produced for twelve-month periods.

property are capitalized at cost. The cost of maintenance, Adjustment clauses in PSE&G's rate structure allow the repairs and replacements of minor items of property is recovery of fuel costs over those included in PSE&G's base charged to appropriate expense accounts. At the time rates through levelized monthly charges. Any under or over-units of depreciable properties are retired or otherwise dis- recoveries. along with interest in the case of an overrecov-posed of, the original cost less net salvage value is ery, are deferred and included in operations in the period charged to accumulated depreciation. in which they are reflected in rates.

For financial reporting purposes, depreciation is com-puted under the straight-line method. Depreciation is Income Taxes based on estimated average remaining lives of the several Enterprise and its subsidiaries file a consolidated Federal classes of depreciable property. These estimates are re-income tax return and income taxes are allocated, for viewed on. a regular basis and necessary adjustments are reporting purposes. to Enterprise and its subsidiaries based made as approved by the BPU. Depreciation provisions on taxable income or loss of each.

stated in percentages of original cost of depreciable prop-Deferred income taxes are provided for differences be-erty were 3.54% in 1986, 3.52% in 1985. and 3.53% in 1984.

tween book and taxable income. For PSE&G the deferred Depreciation applicable to nuclear plant includes esti-income taxes are limited to the extent permitted for rate-mated costs of decommissioning except for Hope Creek.

making purposes.

To ensure that adequate money is available to meet Investment tax credits are deferred and amortized over decommissioning costs for the Hope Creek Generating the useful lives of the related property including nuclear Station. the BPU in its Decision of February 6. 1987 provided fuel.

30

included in rate base. However, based upon the BPU's Allowance for Funds Used During Construction Decision of Febuary 6, 1987, PSE&G is no longer allowed to Allowance for funds used during construction (AFDC) is a recover a current return on amounts of CWIP through cost accounting procedure whereby the cost of financing operating revenues.

construction (interest and equity costs) is transferred from the income statement to construction work in progress (CWIP) in the balance sheet. The rate of 8%% used for cal- Pension Plan culating AFDC was within the limits set by FERC. Enterprise's subsidiaries participate in a non-contributory As a result of BPU rate orders, PSE&G has been allowed trusteed pension plan covering substantially all employees to include a portion of CWIP in rate base on which a cur- completing one year of service. The policy is to fund pen-rent return is permitted to be recovered through operating sion costs accrued. Contributions include current service revenues. The amounts of CWIP included in rate base have costs and amounts required to fund prior service costs over remained at $550 million since the end of 1984. No AFDC a 35-year period beginning January 1, 1967.

has been accrued on the amounts of CWIP which were FINANCIAL STATEMENT RESPONSIBILITY Management of Enterprise is responsible for the prepara- is enhanced by a program of continuous and selective tion, integrity and objectivity of the consolidated financial training of employees. In addition, management has statements and related notes of Enterprise. The consolidat- communicated to all employees its policies on business ed financial statements and related notes are prepared conduct, assets and internal control.

in accordance with generally accepted accounting prin- The Internal Auditing Department conducts audits and ciples applied on a consistent basis and reflect estimates appraisals of accounting and other operations and eval-based upon the judgement of management where ap- uates the effectiveness of cost and other controls.

propriate. Management believes that the consolidated The firm of Deloitte Haskins & Sells, independent certified financial statements and related notes present fairly and public accountants, is engaged to examine Enterprise's consistently Enterprise's financial position and results of consolidated financial statements and related notes and operations. Information in other parts of this Annual Report issue an opinion thereon. Their examination is conducted in is consistent with these consolidated financial statements accordance with generally accepted auditing standards and related notes. and includes a review of internal accounting controls and Enterprise maintains a system of internal accounting tests of transactions.

controls to provide reasonable assurance that assets are The Board of Directors carries out its responsibility of fi-safeguarded and that transactions are executed in ac- nancial overview through the Audit Committee, currently cordance with management's authorization and recorded consisting of five directors who are not employees of Enter-properly. The system is designed to permit preparation of prise. The Audit Committee meets periodically with man-consolidated financial statements and related notes in agement as well as with representatives of the internal accordance with generally accepted accounting princi- auditors and the independent certified public account-ples. The concept of reasonable assurance recognizes that ants. The Committee reviews the work of each to ensure the costs of a system of internal controls should not exceed that their respective responsibilities are being carried out, the related benefits. and discusses related matters. Both audit groups have full Management believes the effectiveness of this system and free access to the Audit Committee.

31

CONSOLIDATED STATEMENTS OF INCOME (Thousands of Dollars) For the Years Ended December 31, 1986 1985 1984 Operating Revenues Electric $3,156,010 $3,000,564 $2,816,241 Gas 1,324,690 1,408,490 1,379,883 Other 17,716 19,287 11,248 Total Operating Revenues 4,498,416 4,428,341 4,207,372 Operating Expenses Operation Fuel for Electric Generation and Interchanged Power- net 1,033,371 965,966 872,805 Gas Purchased and Materials tor Gas Produced 692,224 757,976 758,627 Other 607,301 567,698 545,737 Maintenance 254,256 291,940 270,359 Depreciation and Amortization 272,150 268,179 246,715 Amortization of Property Abandonments and Write-Down (note 5) 71,232 55,263 58,975 Taxes Federal Income Taxes (note 3) 270,783 273,119 263,270 New Jersey Gross Receipts Taxes 563,518 557,270 529,654 Other 56,297 53,161 51,930 Total Operating Expenses 3,821,132 3,790,572 3,598,072 Operating Income 677,284 637,769 609,300 Other Income Allowance for Funds Used During Construction-Equity 164,121 127,412 104,803 Miscellaneous - net 10,840 458 2,674 Total Other Income 174,961 127,870 107,477 Application of SFAS 90 (note 1 )

Disallowed Plant Costs and Abandonments-net 295,244 109,717 5,016 Related Income Taxes . (111,418) (24,799) (2, 172)

Net Effect of SFAS 90 183,826 84,918 2,844 Income Before Interest Charges 668,419 680,721 713,933 Interest Charges (note 9)

Long-Term Debt 297,249 276,480 257,194 Short-Term Debt 6,362 5,788 5,428 Other 12,169 7,278 18,115 Total Interest Charges 315,780 289,546 280,737 Allowance for Funds Used During Construction - Debt (77,196) (68,459) (53,989)

Net Interest Charges 238,584 221,087 226,748 Preferred Stock Dividend Requirements of PSE&G 51,372 60,002 60,221 Net Income $ 378,463 $ 399,632 $ 426,964 Shares of Common Stock Outstanding End of Year 134,882,375 131,698,517 112,563,068 Average for Year 133,139,529 122,344,270 108,913,276 Earnings per Average Share of Common Stock $2.84 $3.27 $3.92 Dividends Paid Per Share of Common Stock $2.93 $2.81 $2.70 Prior years restated to reflect the adoption of SFAS 90 and the consolidation of wholly-owned subsidiaries.

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

32

CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION (Thousands of Dollars) For the Years Ended December 31. 1986 1985 1984 Funds Provided Net Income $ 378,463 $ 399,632 $ 426,964 Add (Deduct) Items not affecting Working Capital Depreciation and Amortization 391,978 375,154 335,393 Recovery (Deferral) of Electric Energy and Gas Fuel Costs-net 350,882 43,422 (211,337)

Disallowed Plant Costs and Abandonments (note 1) 350,571 151,009 35,346 Amortization of Discounts on Disallowances (note 1) (55,327) (41.292) (30,330)

Provision for Deferred Income Taxes-net (note 3)

Depreciation and Amortization 62,511 42,334 79,462 Property Abandonments (note 5) (7,946) 364 - 2,220 Gas and Oil Exploration Plant Write-Down (note 5) 53,287 Deferred Electric Energy and Gas Fuel Costs (161,405) (19,720) 96,931 Other 35,943 (4,544) ( 14,031)

Investment Tax Credits-net 13,205 132,398 94,996 Allowance for Funds Used During Construction (AFDC) (241,317) ( 195,871) (158,792)

Other 4,417 (9,042) 5,724 Total Funds from Operations 1,175,262 873,844 662,546 Net Funds from Financings Common Stock 103,330 499,905 213,492 Long-Term Debt 564,894 199,118 426,110 Increase in Capital Lease Obligations 548 5,910 Total Funds from Financings 668,224 699,571 645,512 Total Funds Provided $1,843,486 $1,573,415 $1,308,058 Funds Applied Additions to Utility Plant, excluding AFDC $ 778,248 $1,024,244 $ 808,573 Additions to Gas and Oil Exploration Plant, excluding AFDC 21,781 47,392 52,891 Cash Dividends on Common Stock 390,289 346,803 295,078 Long-Term Investments 136,290 4,230 R~ductions of Long-Term Debt and Capital Lease Obligations 423,129 207,355 7,054 R~ductions of Preferred Stock 72,750 Rtoperty Abandonments, Write-Down and Deferrals (note 5)

• Reduction in Property Values (134,452) (37,108) (69,313)

Deferrals 134,452 37,108 69,313 Miscellaneous 8,479 17,848 37,341 Total Funds Applied 1,758,216 1,720,622 1.200,937 Changes in Working Capital - Increase (Decrease)

Short-Term Debt (77,769) (47.811) 18,885 Cash and Equivalents 149,943 (86,738) 120.230 Accounts Receivable and Unbilled Revenues (25,905) 66.261 (41,691)

Fuel (20,090) (52,137) 54,444 Other Current Assets 13,664 28,320 4,024 Accounts Payable and Other Accrued Liabilities 49,417 (27,087) (33,221)

Accrued Taxes (3,990) (28,015) (15,550)

Net Increase (Decrease) in Working Capital 85,270 ( 147.207) 107,121 Total Funds Applied and Changes in Working Capital $1,843,486 $1,573,415 $1,308,058 Prior years restated to reflect the adoption of SFAS 90 and the consolidation of wholly-owned subsidiaries.

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

33

CONSOLIDATED BALANCE SHEETS Assets (Thousands of Dollars) December 31, 1986 1985 Utility Plant - Original cost Electric Plant $ 5,449,135 $ 5,268, 113 Gas Plant 1,396,543 1,290,330 Common Plant 281,751 264,106 Nuclear Fuel 128,906 120,888 Utility Plant in Service 7,256,335 6,943,437 Less Accumulated Depreciation and Amortization 2,692,759 2,502,594 Net Utility Plant in Service 4,563,576 4,440,843 Construction Work in Progress 4,153,988 3,862,633 Plant Held for Future Use 26,873 36,112 Net Utility Plant 8,744,437 8,339,588 Other Plant and Long-Term Investments Gas and Oil Exploration Plant, net of accumulated depreciation -

1986, $183,286; 1985, $158,100 159,040 308,351 Other Plant, net of accumulated depreciation - 1986, $1,362; 1985, $943 26,224 17,136 Long-Term Investments 133,180 9,508 Total Other Plant and Long-Term Investments 318,444 334,995 Current Assets Cash and Temporary Cash Investments (note 4) 206,008 20,909 Working Funds 21,876 26,566 Pollution Control Escrow Funds 30,466 Accounts Receivable, net of allowance for doubtful accounts -

1986, $33, 101; 1985, $20,733 407,737 392,807 Unbilled Revenues 169,581 210,416 Fuel, at average cost 203,979 224,069 rylaterials and Supplies, at average cost 80,197 75,551

_Prepayments 30,875 21,857

_;Jotal Current Assets 1,120,253 1,002,641

....

.-

Deferred Debits (note 5)

Property Abandonments (note 1) 227,033 269,601 Gas and Oil Exploration Plant Write-Down 112,044 Underrecovered Electric Energy and Gas Fuel Costs - net 264,039 Unamortized Debt Expense 49,102 23,426 Other 6,509 Total Deferred Debits 394,688 557,066 Total $10,577,822 $10,234,290 Prior year restated to reflect the adoption of SFAS 90 and the consolidation of wholly-owned subsidiaries.

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

34

Capitalization and Liabilities (Thousands of Dollars) December 31, 1986 1985 Capitalization (see statements, pages 36-38)

Common Equity Common Stock $ 2,632,662 $ 2,535,687 Retained Earnings 993,836 1,013,285 Total Common Equity 3,626,498 3,548,972 Subsidiaries' Securities Preferred Stock Without Mandatory Redemption 554,994 554,994 Preferred Stock With Mandatory Redemption 65,000 65,000 Long-Term Debt 3,336,120 3,164,641 Capital Lease Obligations (note 9) 56,409 58,337 Total Capitalization 7,639,021 7,391,944 Current Liabilities Preferred Stock to be redeemed within one year 72,750 Long-Term Debt and Capital Lease Obligations due within one year 71,418 57,895 Bank Loans (note 6) 104,996 Commercial Paper (note 6) 139,000 107,000 Accounts Payable 215,386 272,324 New Jersey Gross Receipts Taxes Accrued 544,678 545,802 Deferred Income Taxes on Unbilled Revenues (note 3) 78,007 96,791 Other Taxes Accrued 49,253 25,355 Interest Accrued 94,602 84,101 Gas Purchases Accrued 75,058 87,669 Other 84,500 74,869 Total Current Liabilities 1,456,898 1,424,556 Deferred Credits Ac;c:::umulated Deferred Income Taxes (note 3)

.pepreciation and Amortization 685;483 635,868

~roperty Abandonments (note 5) *99,846 107,792

• ~as and Oil Exploration Plant Write-Down (note 5) 53,287 Deferred Electric Energy and Gas Fuel Costs - net '(39,947) 121,458 Unamortized Debt Expense 19,548 7,791 Other (2,924) (27,110)

Overrecovered Electric Energy and Gas Fuel Costs - net (note 5) 86,843 Accumulated Deferred Investment Tax Credits (note 3) 565,868 551,779 Other 13,899 20,212 Total Deferred Credits 1,481,903 1,417,790 Commitments and Contingent Liabilities (note 8)

Total $10,577,822 $10,234,290 I

35

CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (Thousands of Dollars) For the Years Ended December 31, 1986 1985 1984 Balance January 1, as previously reported $ $ $ 963,617 Cumulative effect of retroactively applying SFAS 90 (note 1) (131,802)

Balance January 1 1,013,285 963,573 831,815 Add Net Income 378,463 399,632 426,964 Total 1,391,748 1,363,205 1,258,779 Deduct Cash Dividends on Common Stock (A) 390,289 346,803 295,078 Capital Stock Expenses 7,623 3.117 128 Total Deductions 397,912 349,920 295,206 Balance December 31 $ 993,836 $1,013,285 $ 963.573 A. The ability of Enterprise to declare and pay dividends is contingent upon its prior 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 Charter, 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 restricted retained earnings at December 31, 1986 was $10,000,000.

Prior years restated to reflect the adoption of SFAS 90 and the consolidation of wholly-owned subsidiaries.

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

INDEPENDENT ACCOUNTANTS' OPINION

• -.**

Deloitte

.'Haskins+Sells Certified Public Accountants Gateway One Newark. New Jersey 07102 To the Stockholders and Board of Directors of Public Service Enterprise Group Incorporated:

We have examined the consolidated balance sheets and In our opinion. such consolidated financial statements consolidated statements of capital stock and long-term present fairly the financial position of the companies at debt of Public Service Enterprise Group Incorporated and December 31. 1986 and 1985 and the results of their its subsidiaries as of December 31, 1986 and 1985 and the operations and the changes in their financial position for related consolidated statements of income, retained each of the three years in the period ended December 31.

earnings, and changes in financial position for each of 1986, in conformity with generally accepted accounting the three years in the period ended December 31, 1986. principles applied on a consistent basis, after restatement Our examinations were made in accordance with for the change. with which we concur. in the method of generally accepted auditing standards and, accordingly, accou*nting for abandonments and disallowances of included such tests of the accounting records and such plant costs as described in Note 1 to the consolidated other auditing procedures as we considered necessary in financial statements.

the circumstances.

February 17, 1987 36

CONSOLIDATED STATEMENTS OF CAPITAL STOCK Current Certain Outstanding Redemption Refundings Shares Price Restricted 1986 1985 December 31. (note A) Per Share Prior to (Thousands of Dollars)

Nonparticipating Cumulative Preferred Stock of PSE&G (note B)

With Mandatory Redemption

$100 par value - Series 12.25% $ $ $ 22.750 13.44% 50,000 12.80% 350,000 112.80 10/1/87 35,000 35.000 11.62% 300,000 111.62 9/1/88 30,000 30,000 Less amount to be redeemed within one year 72,750 PSE&G Preferred Stock with Mandatory Redemption $ 65,000 $ 65.000 Without Mandatory Redemption

$25 par value - Series 9.75% 1,600,000 $ 25.75 $ 40,000 $ 40,000 8.70"/o 2,000,000 26.50 50,000 50,000

$100 par value - Series 4.08% 250,000 103.00 25,000 25,000 4.18% 249,942 103.00 24,994 24,994 4.30% 250,000 102.75 25,000 25,000 5.05% 250,000 103.00 25,000 25,000 5.28"/o 250,000 103.00 25,000 25,000 6.80% 250,000 102.00 25,000 25,000 9.62% 350,000 102.00 35,000 . 35,000 7.40% 500,000 101.00 50,000 50,000 7.52% 500,000 101.00 50,000 50,000 8.08% 150,000 101.00 15,000 15,000 7.80% 750,000 101.00 75,000 75,000 7.70"/o 600,000 100.79 60,000 60,000 8,16% 300,000 106.86 30,000 30,000 PSE&G Preferred Stock without Mandatory Redemption (n9 changes in 1985 and 1984) $ 554,994 $ 554,994 Enterprise Dividend Preference Common Stock and Common Stock

$1.4Q;pividend Preference Common Stock (no par) (note C)

Common Stock (no par) - authorized 150,000,000 shares (note D); issued and outstanding l $2,632,662 $2,535,687 l

at December 31, 1986, 134.882,375 shares and at December 31, 1985, 131,698,517 shares (3. 183,858 shares issued for $103,488,000 in 1986; 19, 135,449 shares issued for $503,022,000 in 1985; and 9,705,079 shares issued for $213,583,000 in 1984)

Notes: Preferred Stock without mandatory redemption Is subject to redemption sole-A. In addition, there are 1.472.558 shares of $100 par value and 6.400,000 shares ly at the option of PSE&G upon* payment of. the applicable redemption price of $25 par value Cumulative Preferred Stock which are authorized and un- plus accumulated and unpaid dividends to the date fixed for redemption.

issued, and which upon issuance may or may not provide for mandatory sink- The 1985 statement reflects the redemption in 1986 of all shares of the Pre-ing fund redemption. ferred Stock of the 12.25% Series and the 13.44% Series. As a result the annual dividend requirement and the embedded dividend cost were $7,966.000 and B. If dividends upon any shares of Preferred Stock are in arrears in an amount 12.37%, respectively, for Preferred Stock with mandatory redemption. The equal to the annual dividend thereon, voting rights for the election of a majority annual dividend requirement and embedded dividend cost for Preferred Stock of the Board of Directors become operative and continue until all accumulat-without mandatory redemption were $40,629,000 and 7.38%, respectively.

ed and unpaid dividends thereon have been paid. whereupon all such voting PSE&G has requested or received regulatory approval to redeem the rights cease, subject to being again revived from time to time.

12.80%, 9. 75%, 8. 70% and 9.62% Series of Preferred Stock.

PSE&G is required to purchase or redeem a specified minimum number of shares of Cumulative Preferred Stock with mandatory redemption annually C. In 1985 there were 1.343,999 shares outstanding, 982,152 of these shares commencing on the effective dates shown below. Such redemptions are were converted on a 2 for 1 basis into Enterprise Common Stock as part of the cumulative. PSE&G may annually redeem. at its option, an aggregate of up to corporate restructuring whereby Enterprise became the parent holding com-twice the number of shares shown for each such series. All such redemptions pany of PSE&G on May 1. 1986. The remaining 361.847 shares were repurchased are at a redemption price of $100 per share. A redemption of shares of any at a cost of $6,513.000.

series also requires payment of all accumulated and unpaid dividends to the D. Includes 3,659.045 shares of Common Stock reserved for possible issuance date fixed for redemption.

under Enterprise's Dividend Reinvestment and Stock Purchase Plan, and PSE&G's Employee Stock Purchase Plan, Thrift and Tax-Deferred Savings Plan Aggregate Number of and Payroll-Based Employee Stock Ownership Plan.

Minimum Effective Shares Purchased and Shares Date of Redeemed During the Years See Organization and Summary of Significant Accounting Policies and Notes Redeemable Mandatory Series Annually Redemption 1986 1985 1984 to Consolidated Financial Statements.

12.25% 17,500 2/1/80 227,500 17.500 17.500 13.44% 25.000 3/31/87 500,000 12.80% 17.500 9/30/88 11.62% 15,000 9/30/89 37

CONSOLIDATED STATEMENTS OF LONG-TERM DEBT (Thousands of Dollars) (Thousands of Dollars)

December 31, 1986 1985 1986 1985 First and Refunding Mortgage Debenture Bonds of PSE&G unsecured Bonds of PSE&G (note A)

Maturity Date Series Maturity Date 5%% June 1, 1991 $ 34,647 $ 35,787 4%% November 1, 1986 $ $ 50,000 714% December 1, 1993 24,800 25,380 4Ys% September 1, 1987 60,000 60,000 9 % November 1, 1995 47,607 49,345 4%% August 1, 1988 60,000 60,000 5%% June 1, 1989 50,000 50,000 7%% August 15, 1996 50,898 52,152 8%% November 1, 1996 36,484 38,198 4%% September 1, 1990 50,000 50,000 6 % July 1, 1998 18,195 18,195 4%% August 1, 1992 40,000 40,000 4%% June 1, 1993 40,000 40,000 Total Debenture Bonds 212,631 219,057 4%% September 1, 1994 60,000 60,000 Principal amount outstanding 4%% September 1, 1995 60,000 60,000 (note B) 3,406,316 3,237,448 June 1, 1997 75,000 75,000 Amount due within one year 614%

7 % June 1, 1998 75,000 75,000 (note C) (69,491) (55,250)

April 1, 1999 75,000 75,000 Net Unamortized Discount (25,705) (17,557) 7%%

March 1, 2000 98,000 98,000 Long-Term Debt of PSE&G 3,311,120 3,164,641 9%%

8%% A May 15, 2001 69,300 69,300 Bank Loans of PSRC-7%% B November 15, 2001 80,000 80,000 714- 71"2% (note D) 25,000 7Y2% C April 1, 2002 125,000 125,000 Consolidated 8Y2% D March 1, 2004 90,000 90,000 Long*Term Debt (note E) $3,336,120 $3,164,641 12 % E October 1, 2004 8,730 9,730 60,000 Notes:

8%% F April 1, 2006 60,000 A. PSE&G's Mortgage. securing the First and Refunding Mortgage Bonds, con-8.45% G September 1, 2006 60,000 60,000 stitutes a direct first mortgage lien on substantially all property and franchises.

814% H June 1, 2007 125,000 125,000 B. At December 31. 1986, PSE&G had unexercised commitments under a Credit Agreement with 12 domestic banks for issuance of revolving loans up to an 8%% I September 1, 2007 59,900 59,900 aggregate amount of $200.000,000 at any time to May 1, 1987. PSE&G may 9%% J November 1, 2008 99,000 100,000 terminate the commitments, in whole or in part, without penalty or premium.

,-93,!,i% K July 1, 2009 99,000 100,000 Under the agreement. any borrowings outstanding at May 1. 1987 are convert-ible, at PSE&G's option. into three-year term loans. PSE&G is required to pay a

<12 % L November 1, 2009 119,750 commitment fee on any unused portion. PSE&G has the right, with the consent of the banks, to extend the agreement on a year-to-year basis.

~2%% M June 1, 2010 87,500 N August 1, 1991 100,000 C. PSE&G has requested or received regulatory approval to redeem

'15Ys%

$159,574,000 and $296.000.000 principal amount of First and Refunding Mort-14%% 0September1, 2012 42,300 43,300 gage Bonds prior to maturity in the years 1987 and 1988, respectively. Assum-ing such redemptions, the aggregate principal amount of requirements for 12%% P December 1, 2012 85,044 98,500 sinking funds and maturities for each of the five years following December 31, 12%0,{, Q August 1, 1993 100,000 100,000 1986 are as follows:

9Y2% R July 1, 2015 125,000 125,000 (Thousands of Dollars) 9%% S January 14, 1996 75,000 75,000 Sinking Funds Maturities Total Vear 9%% T March 1, 2016 100,000 1987 $ 9,491 $ 60,000 $ 69,491 1988 10,845 60,000 70,845 7Y2% U April 1, 1996 250,000 1989 8,100 50,000 58,100 8%% V April 1, 2016 200,000 1990 8,100 50,000 58,100 8 % June 1, 2037 7,463 7,463 1991 6,900 31,200 38,100 5 % July 1, 2037 7,538 7,538 $43,436 $251,200 $294,636 For sinking fund purposes, certain First and Refunding Mortgage Bond issues Pollution Control Series require annually the retirement of $21.550,000 principal amount of bonds or the*

utilization of bendable property additions at 60% of cost. The portion expected 6.30% A October 1, 2006 14,300 14,300 to be met by property additions has been excluded from the table above.

6.90% B September 1, 2009 42,620 42,620 Also, PSE&G may, at its option, retire additional amounts up to $6,200,000 an-2,990 2,990 nually through sinking funds of certain debenture bonds. The election of any 6.90% C September 1, 2009 such option is included in long-term debt due within one year.

121"2% D April 1, 2012 23,500 23,500 D. At December 31. 1986 PSRC had $25.000,000 outstanding under a Credit 9Ys% E June 1, 2013 64,000 64,000 Agreement that provides for revolving credit loans up to $25.000,000. PSRC may terminate the commitment, in whole or in part, without penalty or premium.

101"2% F July 1, 2014 150,000 150,000 Under the agreement, any borrowings outstanding at October 31, 1989 are 10%% G September 1, 2014 150,000 150,000 convertible, at PSRC's option, into three-year term loans. PSRC is required to 101"2% H November 1, 2014 130,400 130,400 pay a commitment fee on any unused portion.

103/a"/o I November 1, 2012 4,600 4,600 E. At December 31. 1986 the annual interest requirement on Long-Term Debt was $290.253.000 of which $272.112.000 was the requirement for First and Re-Total First and Refunding funding Mortgage Bonds. The embedded interest cost on Long-Term Debt was Mortgage Bonds $3,193,685 $3,018,391 8.80%.

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

38

-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Statement of Financial Accounting Standards Rate Matters 1 No. 90 (SFAS 90)

In December 1986, the Financial Accounting Stan-dards Board (FASB) issued SFAS 90-Regulated Enterprises-2 On February 6, 1987, the Board of Public Utilities of the State of New Jersey (BPU) issued a Decision authorizing an increase in PSE&G's electric base rates de-Accounting for Abandonments and Disallowances of Plant signed to produce additional annual revenues of $421.5 Costs which amends the previously prescribed accounting million. Also, the Decision reduced PSE&G's electric Level-standards for these two types of events that have occurred ized Energy Adjustment Clause (LEAC) by $697.7 million primarily in the electric utility industry. over a compressed 10112 month period commencing Feb-This new statement requires that a loss be recognized ruary 16, 1987 and reduced electric base rates by $77.2 if the carrying amounts of abandoned assets exceed the million for the recognition of the 1987 impact of the Tax present value of future revenues generated by those assets Reform Act of 1986, resulting in an overall electric revenue in the regulatory process. Previous accounting standards decrease of $353.4 million. The Decision allows a return on required that abandoned assets be reported at the lesser common equity of 13% and an overall rate of return of of cost or probable gross revenues. 10.65%. As determined by the BPU, the increase in electric This new statement also requires any disallowance of base rates is designed to reflect a recovery of PSE&G's the cost of a recently completed plant to be recognized reasonable costs of constructing Hope Creek Generating as a loss (cost defined to include a return on capital). Station (Hope Creek). PSE&G's share of the cost of con-Previous accounting standards did not require the recog- structing Hope Creek through February 6, 1987 was $4.276 nition of a loss if the total cost of the plant (exclusive of a billion, including $970 million of allowance for funds used return on capital after construction) would be recovered. during construction (AFDC). The Decision disallowed While SFAS 90 is not required to be implemented until $431.5 million of PSE&G's share of Hope Creek's costs. In 1988, earlier adoption is encouraged and Enterprise has addition, in accordance with the terms of the Cost Con-chosen to adopt the provisions of this new accounting tainment Incentive Penalty Agreement explained below, statement in 1986. Consistent with the recommendation the Decision disallowed a return on an additional $57.7 of SFAS 90, prior years' financial statements have been million resulting in a total allowed investment for Hope restated to reflect the application of the new statement. Creek by PSE&G in rate base of $3. 787 billion.

The following tables illustrate the effect of adoption PSE&G'switnesses had testified that all costs incurred in of SFAS 90: connection with the construction of Hope Creek were pru-dently incurred and should be recovered from customers (Thousands of Dollars) through rates. PSE&G was subject to the terms of a Cost For the Years Ended December 31, 1986 1985 1984 Containment Incentive Penalty Agreement (Agreement)

Income b<;ifore application of SFAS 90 $ 562,289 $484,550 $429,808 signed in 1982 by PSE&G, the New Jersey Department of Disallowed.Costs Energy, the New Jersey Public Advocate and the other Hope CrE;ek 1 (Note 2) co-owner of Hope Creek, and approved by the BPU in Direct.~isallowance 431,532 Return Disallowance-Discount (80,961) 135,139 1983. The Agreement established the targeted cost of Amortization of Discount (12,157) Hope Creek at $3. 795 billion, of which PSE&G's share was Related Income Taxes (122,818) (35.935) $3.556 billion, and a target-in-service date of December Hope Creek-net 215,596 99.204 1986. The Agreement provided an earnings penalty where-Property Abandonments (Note 5) by PSE&G's revenue requirement related to rate base, as Return Disallowance-Discount 15.870 35,346 Amortization of Discount (43,170) (41.292) (30,330) determined by the BPU, will be based on the exclusion from Related Income Taxes 11,400 11,136 (2,172) the rate base of 20% of allowed costs incurred in excess of Property Abandonments-net (31,770) (14,286) 2.844 the cost cap.

Effects of application of SFAS 90 183,826 84.918 2.844 Also, the February 6, 1987 Decision continues the defer-Net Income $ 378,463 $399,632 $426.964 ral of the $70.0 million of replacement energy costs of Earnings per Average Share PSE&G resulting from failures of the electric generators at of Common Stock Salem in 1984 pending more definitive information from Income before application of SFAS 90 PSE&G's litigation against the generator manufacturer with

$4.22 $3.96 $3.95 Effects of application of SFAS 90 1.38 .69 .03 respect to one of such outages.

Net Income $2.84 $3.27 $3.92 In addition, the BPU, in its Decision adopted perform-ance standards for all of PSE&G's nuclear units. The The tax effects of discounting of abandonments were cal- penalties or awards are based on targeted capacity culated using the tax rates applicable to related deferred factors as illustrated in the following table:

tax balances. The tax effect of the Hope Creek 1 disallow-ance was calculated using a 35.8 percent rate. Such rate Difference in Replacement Power Costs vs. Target reflects rates that will be in effect when the tax basis of this Capacity Factor of 70%

plant is depreciated (46% in 1986, 40% in 1987 and 34% Capacity Factor Range Award Penalty thereafter) to determine the net realizable value of the tax 90-100% 25%

benefit. 80- 90% 20%

60- 80% None None Retained earnings as of December 31, 1983 have 50- 60% 20%

been reduced by $131.8 million to reflect the retroactive 40- 50% 25%

discounting of the abandonments occurring prior to that Below40% BPU Intervenes date, principally the Atlantic Project and Hope Creek Unit 2.

39

The application of these performance standards could Deferred income taxes are provided for differences be-have a significant effect on future results of operations. tween book and taxable income. For PSE&G the deferred On October 30, 1986, the BPU approved agreements by income taxes are limited to the extent permitted for rate-the major parties in PSE&G's recent gas base rate case making purposes. At December 31, 1986 the cumulative and gas levelized Raw Materials Adjustment Clause net amount of income tax timing differences for which de-(RMAC) proceedings which provided, among other things, ferred income taxes have not been provided was $1.3 bil-for an annual reduction in gas base revenues of $30 million lion. The related deferred income taxes, at the current effective October 31, 1986 and for the removal of Energy statutory rate of 46%, would be $600 million. In September Development Corporation (EDC), at that time a wholly- 1986, the Financial Accounting Standards Board issued owned gas and oil exploration subsidiary of PSE&G, from an Exposure Draft of a proposed Statement of Financial inclusion in its gas rate base for ratemaking purposes. The Accounting Standards that would, if adopted; require agreements also established a reduced price for gas sold PSE&G to record a liability on its balance sheet for these by EDC to PSE&G during the twelve-month period ending future taxes at the applicable future tax rates. However, October 30, 1987. As a result, EDC wrote down the value of since PSE&G expects to continue to recover through rates its assets at December 31, 1986 to reflect the lower net the taxes due as such timing differences reverse, an asset realizable value of its oil and gas reserves, which reduced for the same amount would also be recorded. The pro-EDC's net income by $70.5 million. (See Note 5-Deferred posed effective date of the Statement would be for fiscal Items-Gas and Oil Exploration Plant Write-Down.) years beginning after December, 15, 1987.

The Tax Reform Act of 1986 enacted on October 22, 1986 made major changes regarding corporate taxes.

The major provisions which affect Enterprise are as follows:

Federal Income Taxes 3

• A decrease in the corporate rate from 46 to 34 percent A reconciliation of reported Net Income with pre-tax effective July 1. 1987.

income and of Federal income tax expense with the

• The repeal of investment tax credit for property placed amount computed by multiplying pre-tax income by the in service after December 31, 1985.

statutory Federal income tax rcite of 46% is as follows:

• Changes in depreciable asset lives and methods.

• A requirement to capitalize interest and overheads on (Thousands of Dollars) 1986 1985 1984 capital projects effective January 1. 1987.

Net lnconie $ 378,463 $399,632 $426,964 The last three provisions do not apply for property cov-Preferred stock dividend require:-

ments of PSE&G 51,372 60,002 60,221 ered by transition rules. Since deferred income taxes are a Subtotal 429,835 459,634 487.185 source of internally generated funds, the reduction in the Federal income Taxes included in:

corporate tax rate could adversely impact cash flows in Operating income future periods.

Current provision 180,132 74.987 15.474 The February 6, 1987 decision of the BPU in PSE&G's Provision for deferred income taxes-net (A) 42,236 63,881 150,623 base rate case ordered PSE&G to pass the tax benefits de-Investment tax credits-net 48,415 134.251 97,173 rived from the Tax Reform Act of 1986 to customers com-Total included in operating income 270,783 273,119 263,270 mencing February 16, 1987. The BPU ordered a reduction Miscellaneous other income-net 7,546 4,189 3.339 of $77.2 million in 1987 electric rates primarily attributable SFAS 90 deferred Federal income tax (A) (78,652) (24,799) (2,172)

SFAS 90 deferred investment tax credit (32,766) to a decrease in the corporate tax rate. The BPU will Total Federal income tax provisions 166,911 252,509 264.437 make a further review to consider additional reductions Pre-tax income $ 596,746 $712,143 $751.622 during the next RMAC and LEAC proceedings to reflect the Tax expense at the statutory rate $ 274,503 $327,586 $345,746 corporate tax rate change applicable to 1988 and any change as may be required to the 1987 amounts.

Adjustments to pre:-tax income. computed at the statutory rate. for which deferred taxes are not provided under current rate-making policies:

As a result of Internal Revenue Service (IRS) audits for taxable years 1976 through 1980. the IRS has proposed Tax depreciation under book an increase in taxable income which would increase the depreciation $ 30,470 $ 15,510 $ 11.454 Allowance for funds used during current tax liability by $72 million due to the inclusion of construction (111,000) (90,089) (73,044) unbilled revenues as taxable income in the year estimated Overhead costs capitalized (20,538) (18,083) (15,992) services were provided. In accordance with the Tax Reform Other 10,576 33,109 8.447 Act of 1986, the balance of unbilled revenues at December Subtotal (90,492) (59.553) (69.135)

Amortization of investment tax credits (17,100) (15,524) (12,174) 31, 1986, $169.6 million, will be included in taxable income Subtotal (107,592) (75,077) (81,309) ratably over a four-year period commencing in 1987. It is Total Federal income tax provisions . $ 166,911 $252,509 $264.437 anticipated that the IRS will drop its proposal for the tax-able years 1976 through 1980. Nevertheless, if the IRS pro-A. The provision for deferred income taxes represents the tax effects of the following items:

posal is upheld and PSE&G is unsuccessful in its appeal, there will be little effect on consolidated earnings as de-Current Liabilities ferred taxes have been provided for the unbilled revenues.

Unbilled revenues $ (18,784) $ 20,648 $(16.039)

Deferred Credits Property abandonments (7,946) 364 2,220 Additional tax depreciation and amortization 62,511 42.333 79.462 Deferred fuel costs-net (161,405) (19,720) 96,931 Gas and Oil Exploration Plant Write-Down 53,287 Other 35,921 (4,543) (14,123)

Subtotal (17,632) 18.434 164.490 Total $ (36,416) $ 39.082 $148.451 40

Cash and Temporary Cash Investments million, was deferred and was being amortized over a 4 The balance at December 31, 1986 consists primarily of temporary cash investments, mainly U.S. Govern-ment Securities. At December 31, 1985 it consisted princi-seven-year period commencing in 1984.

On October 30, 1986, the BPU approved an agreement by the major parties in the gas rate proceeding recom-mending the recovery of $48.8 million, the unamortized pally of compensating balances under informal arrange-balance of the LNG Project costs less tax savings of $18.7.

ments with various banks to compensate them for services million. This amortization will result in the recovery of ap-and to support lines of credit. At December 31, 1986 and proximately $2.8 million per year, net of taxes. The related 1985, Enterprise had $202 million of lines of credit sup-amortization of the discount, net of taxes, will result in a ported by compensating balances and $35 million of lines credit to income of $1.7 million in 1987.

of credit which were compensated for by fees. There are no legal restrictions placed on the withdrawal or other use Uranium Projects of the compensc;:iting bank balances. In September 1985, PSE&G terminated a uranium supply agreement with Sequoyah Fuels Corporation (Sequoyah),

a subsidiary of Kerr-McGee Corporation.

In December 1985, Philadelphia Electric Company Deferred Items 5

terminated its Lee Mine uranium supply project, in which Property Abandonments PSE&G had participated as a co-owner of Peach Bottom The following table reflects the application of SFAS 90 Generating Station. In addition, PSE&G terminated the on property abandonments for which no return is earned. Homestake Mining Company contract, dated February 25, (See Note 1.) 1976, for the exploration and development of uranium.

The total loss of these projects when combined with the (Thousands of Dollars) Property Abandonments Sequoyah loss amounts to $37.1 million.

December 31, 1986 1985 Cost Discounted Cost Discounted As a result of the abandonment and prior to regulatory Atlantic Project $200,172 $114,290 $215.232 $118.437 approval, PSE&G's net unrecovered advances of $21. 7 Hope Creek Unit 2 109,196 64,572 174.076 105,023 million, after related tax savings, were deferred and were LNG Project 44,208 28,640 48.823 26,683 being amortized over a seven-year period commencing in Uranium Projects 32,165 17,941 31.623 16.268 othe~ 2,120 1,590 3.862 3,190 1985.

$387,861 $227,033 $473,616 $269,601 On February 6, 1987, the BPU issued a Decision adop-ting a 15-year amortization period commencing January 1, 1985. The annual amortization and recovery will be ap-Related Income Taxes proximately $1.4 million, net of taxes. The related amortiza-Atlantic Project $ 84,149 $ 48,065 $ 90,485 $ 49,811 tion of the discount, net of taxes, will result in a credit to Hope Creek Unit 2 57,628 33,310 69.105 40,946 LNG Project 16,950 11,034 18.725 10.290 income of $1.0 million in 1987.

Uranium Projects 13,329 7,437 13.106 6.745 Gas and Oil Exploration Plant Write-Down

$172,056 $ 99,846 $191.421 $107.792 In the agreement between the major parties in the. gas rate proceeding, approved by the BPU on October 30,

,: Atlantic Project 1986, the investment in EDC was removed from rate base.

In D~"¢ember 1978, PSE&G cancelled the Atlantic nuclear As a result EDC wrote down the carrying value of its assets planfproject. The BPU authorized PSE&G to recover a por- under the full cost method of accounting to the present tion of the costs of the project over a period of 20 years value of estimated future net revenues. The after tax effect.

commencing in April 1980. Such costs are being recovered of the write-down made in December was $70.5 million at the rate of $8. 7 million annually, net of taxes. The related ($134.5 million before tax).

amortization of the discount net of taxes, will result in a In the BPU approved agreement PSE&G was allowed to credit to income of $6.1 million in 198 7. defer the loss on its investment in EDC, generated by the rate base disallowance, and to seek recovery of such loss, Hope Creek Unit No. 2 over a period of not less than 10 years in its next base rate In December 1981, PSE&G abandoned the construction of case. As a result PSE&G has deferred $58.8 million, net of Hope Creek Generating Station Unit No. 2. In March 1982, taxes, anticipated to be recovered subsequent to the next the BPU authorized the recovery of all after-tax abandon-base rate increase.

ment costs for Hope Creek 2 from customers through the Future action of the BPU with respect to such recovery electric levelized energy adjustment clause. The recovery may require adjustment to the carrying value of the is over 15 years on an accelerated method which com-deferral and the related amortization.

menced in June 1982. As a result of the February 6, 1987 BPU rate Decision, no Hope Creek 2 costs will be recovered during 1987 to reflect an adjustment of estimated close-out costs. The amortization of the discount net of taxes, will result in a credit to income of $4.6 million in 1987.

LNG Project In December 1984, PSE&G abandoned its investment in certain facilities for the storage of liquefied natural gas. As a result of this abandonment and prior to regulatory ap-proval, PSE&G's investment of approximately $69.3 million, less tax savings of $27.9 million or the net amount of $41.4 41

Over (Under) recovered Electric Energy and 6

Gas Fuel Costs-net Bank Loans and Commercial Paper Recoveries of electric and gas fuel costs are determined Bank loans represent unsecured promissory notes by the BPU. Earnings are not directly affected by increases issued under credit arrangements with various banks or decreases in the costs of fuel or interchanged power, and have a term of eleven months or less. Such notes were because such costs are adjusted monthly to match issued in 1986 by CEA and EDC. Certain information re-amounts recovered through revenues. These clauses also garding bank loans follows:

provide that any over or underrecoveries at the end of the (Thousands of Dollars) 1986 1985 1984 period, along with interest in the case of an overrecovery, Balance at end of year $104,996 None None will be included in the average cost used to determine Maximum amount outstanding the rate for the succeeding levelized period. at any month end $104,996 N/A N/A Average daily outstanding $ 13,069 N/A N/A At December 31, 1986, the overrecovery under the LEAC Weighted average annual amounted to $63.2 million which is net of $70 million of interest rate 6.62% N/A N/A deferred replacement energy costs described below. At Weighted average interest rate for bank loans outstanding December 31, 1986 the overrecovery of the RMAC at year-end 6.58% N/A N/A amounted to $20.8 million.

Commercial paper represents PSE&G's unsecured Electric bearer promissory notes sold through dealers at a discount On February 6, 1987, the BPU Decision adjusted the LEAC with a term of nine months or less. Certain information rates to reduce revenues by $697.6 million over a com- regarding commercial paper follows:

pressed 101h month period commencing February 16, 1987.

(Thousands of Dollars) 1986 1985 1984 Also, the BPU continued the deferral of the recovery of Balance at end of year $139,000 $107,000 $185.000

$70 million of replacement energy costs relating to the ex- Maximum amount outstanding tended outages of the Salem Generating Station Units 1 at any month end $286,000 $157,500 $185.000 and 2 during the year 1984. (See Note 2.) Average daily outstanding $ 98,100 $ 72,400 $ 55,300 Weighted average annual interest rate 6.29% 7.91% 9.80%

Gas Weighted average interest rate for On October 16, 1986, the BPU approved a Stipulation en- commercial paper outstanding at year-end 6.34% 8.09% 8.26%

tered into by PSE&G which will reduce revenues under the RMAC by $150 million for the period October 31, 1986 through September 30, 1987. This reduction reflects pro-jected price declines and spot market savings from natural gas purchases.

Unamortized Debt Expense Costs associated with the issuance of debt by PSE&G are deferred and amortized over the lives of the related issues.

Amounts shown in the Consolidated Balance Sheets con-sist principally of costs associated with PSE&G's reacquisi-tion of the following First and Refunding Mortgage Bonds:

12 % Series E due 2004 (tender offer 5/77) 12 % Series L due 2009 (redeemed 6/86) 12%% Series M due 2010 (redeemed 6/86) 15Vs% Series N due 1991 (redeemed 8/86)

The redemption costs of the above debt have been de-ferred and are being amortized over the lives of the new securities issued to replace older, higher-cost securities.

PSE&G expects to amortize $2.5 million of these costs in 1987.

42

Nuclear Insurance Coverages Pension Plan 7 Information on accumulated plan benefits and net assets of the pension plan of Enterprise is as follows:

(Thousands of Dollars)

PSE&G's insurance coverages for its nuclear operations are as follows:

(Millia.ns of dollars) Maximum Retrospective December 31, 1986 1985 Maximum Assessment for Actuarial present value of accumulated Type and Source of Coverage Coverage a single incident plan benefits Public Liability:

Vested $575,000 $491.000 American Nuclear Insurers 160 $None Nonvested 92,000 75,000 Federal Government (A) 535 13.2(B)

$667,000 $566.000 S 695(C) $ 13.2 Assumed rate of return 7.5% 8.5% Property Damage:

Nuclear Mutual Limited (D) 500 $ 39.8 Market Value of Plan Net Assets $741,870 $647,087 Nuclear Electric Insurance Limited (D) 575 16.0 American Nuclear Insurers 85 None Pension costs for the past three years were charged as $1,160 $ 55.8 follows: Replacement Power:

Nuclear Electric Insurance Limited (D) $ 3.3(E) $ 9.9 (Thousands of Dollars) 1986 1985 1984 A Retrospective premium program under the Price-Anderson Liability provi-Operating expenses $43,844 $52,155 $55,294 sions of the Atomic Energy Act of 1954, as amended. Subject to retro-Utility plant 13,827 14,743 13.296 spective assessment with respect to loss from an incident at any licensed nuclear Total pension costs $57,671 $66,898 $68,590 reactor in the United States.

B. Maximum assessment would be $26.4 million in the event of more than In December 1985 the Financial Accounting Standards one incident in any year.

Board issued Statement No. 87-Employer'sAccounting for C. Limit of liability under the Atomic Energy Act of 1954, as amended for each nuclear incident.

Pensions which requires future changes for the accounting D. Mutual insurance companies of which PSE&G is a member. Subject to and reporting of pension costs. The Statement requires a retrospective assessment with respect to loss at any nuclear generating sta-standardized method for measuring pension cost, expand- tion covered by such insurance.

ed disclosure of the components of pension plans in the E. Maximum weekly indemnity for 52 weeks which commences after the first 26 weeks of an outage. Also provides $1.65 million weekly for an additional Notes to Consolidated Financial Statements, and record- 52 weeks.

ing of a liability on the Consolidated Balance Sheets when The Atomic Energy Act provisions (the Price-Anderson Act) in Notes (A), (B) the accumulated pension benefit obligation exceeds the and (C) above expire on August 1, 1987, unless extended by Congress: The fair market value of the pension plan assets. The provisions most recent such proposal considered by Congress would establish a l1m1t of liability of $6.5 billion per incident with the maximum assessment per reactor of Statement No. 87 are effective for calendar year 1987 to be limited to $63 million. but no more than $10 million per reactor per financial statements, except that the liability recognition year. Congress will again consider the matter in 1987. Certain proposals would provisions, if any, are not effective until 1989. PSE&G may be eliminate any limit on liability. PSE&G cannot predict whether the Price-Anderson provisions will be extended or what provisions will be enacted if required to defer the difference between net periodic pen- they are extended. In 1984, in a case to which PSE&G was not a party, the sion cost, as defined in Statement No. 87, and the amount United States Supreme Court held that the Atomic Energy Act. the Price-Anderson limitation of liability provisions thereunder and the extensive regu-of pension cost recovered for rate-making purposes. lation of nuclear safety by the NRC do not pre-empt claims under State law for personal, property, or punitive damages related to radiation hazards.

Environmental Controls The Comprehensive Environmental Response, Compensa-Commitments and Contingent Liabilities 8 Construction and Fuel Supplies Enterprise's principal subsidiary, PSE&G, has substan-tial commitments as part of its construction program. Con-tion and Liability Act of 1980 and certain similar State stat-utes authorize various governmental authorities to seek court orders compelling responsible parties to take clean-up action at disposal sites determined to present an im-struction expenditures of $3. 1 billion, including approxi- minent and substantial danger to the public and to the mately $209 mil Ion of allowance for funds used during con- environment because of an actual or threatened release struction (AFDC), are expected to be incurred during the of hazardous substances. Because of the nature of PSE&G's years 1987 through 1991. In addition, PSE&G has commit- business, various by-products and substances are pro-ments to obtain sufficient sources of fuel for electric gen- duced or handled which are classified as hazardous.under eration and adequate gas supplies. these laws. PSE&G generally provides for the disposal of Construction expenditures for all projects in 1986 were such substances through licensed individual contractors,

$1.0 billion, including $241 million of AFDC, which is an in- but these statutory provisions generally impose potential crease of $281 million, including $82 million of AFDC, over joint and several responsibility on the generators of the the construction expenditures estimated in PSE&G's 1985 wastes for clean-up costs. PSE&G has been notified with re-Annual Report to the Securities and Exchange Commis- spect to a number of such sites, and the clean-up of haz-sion (SEC) on Form 10-K. The increase principally reflects addi- ardous wastes is receiving increasing attention from the tional costs associated with the completion of construction governmental agencies involved This trend is expected to of Hope Creek Generating Station. continue. PSE&G cannot estimate the costs which may re-Gas and Oil Exploration Plant Write-Down sult from these matters, but such costs could be substantial.

As described in Note 5, the recovery of $58.8 million, after income taxes, is subject to recovery in PSE&G's next base rate case.

43

9 Financial Information by Business Segments 10 capital Lease Obligations The Consolidated Balance Sheets include assets and Information related to the segments of related obligations applicable to capital leases. The Enterprise's business is detailed below:

total amortization of the leased assets and interest on the lease obligations equals the net minimum lease payments For the Year Ended December 31, 1986 included in rent expense for capital leases. (Thousands of Dollars) Electric Gas other Total Capital leases of PSE&G relate primarily to its corporate Operating Revenues $3,156,010 $1,324,690 77,531 $ 4,558,231 Eliminations headquarters and computer equipment. Certain of the (lntersegment Revenues) (59,815) (59,815) leases contain renewal and purchase options and also Total Operating contain escalation clauses. Revenues 3,156,010 1,324,690 17,716 4,498,416 Enterprise and its other subsidiaries do not presently Depreciation and have any capitalized leases. Amortization 176,489 58,721 171,392 406,602 Eliminations (Note 5) (134,452) (134,452)

Utility plant includes the following amounts for capital Total Depreciation leases at December 31: and Amortization 176,489 58,721 36,940 272,150 (Thousands of Dollars) Operating Income 1986 1985 Before Income Taxes 845,992 95,854 (125,990) 815,856 Common Plant $65,872 $65.872 Eliminations (Note 5) 134,452 134,452 Less Accumulated Amortization 7,535 4,890 Total Operating Income Net Assets under Capital Leases $58,337 $60,982 Before Income Taxes 845,992 95,854 8,462 950,308 Capital Expenditures 893,788 125,764 21,794 1,041,346 Future minimum lease payments for noncancelable December 31.

capital and operating leases at December 31, 1986 are:

Net Utility Plant 7,871,636 872,801 8,744,437 Gas and Oil Capital Operating Exploration Plant 159,040 159,040 (Thousands of Dollars) Leases Leases other Corporate Assets 923,876 529,485 220,984 1,674,345 1987 $ 14,998 $ 3.526 Total Assets $8,795,512 $1,402,286 $ 380,024 $10,577,822 1988 13,863 3,287 1989 13,114 3,135 1990 13,110 2,694 1991 13,046 2.115 For the Year Ended December 31, 1985 Later Years 303.698 2,662 (Thousands of Dollars) Electric Gas Other Total Minimum lease payments 371,829 $17.419 Operating Revenues $3,000,564 $1.408.490 98,009 $ 4,507.063 Less: Amount representing estimated executory Eliminations costs, together with any profit thereon. (lntersegment Revenues) (78.722) (78,722) included in minimum lease payments 183,841 Total Operating Net minimum lease payments 187,988 Revenues 3,000,564 1.408.490 19.287 4.428.341 Less: Amount representing interest 129,651 Depreciation and

,'

Present value of net minimum lease payments (A) $ 58,337 Amortization 168,108 55.004 45,067 268,179 Operating Income

• ,';:;-.11.. Reflected in the Consolidated Balance Sheets in Capital Lease Obliga- Before Income Taxes 779,293 117.220 16.489 913,002

,;~;:tions of $56.409.000 and in Long-Term Debt and Capital Lease Obligations due Capital Expenditures 1.116,040 104.049 47.418 1.267,507

,;;.,;~0ithin one year of $1.928,000.

. ,.-: . :.......** December 31,

,_ '?:ffie following schedule shows the composition of rent Net Utility Plant 7,536,326 803,262 8,339,588 Gas and Oil expense included in Operating Expenses: 308,351 308,351 Exploration Plant other Corporate Assets 1.123,051 439,586 23.714 1.586.351 (Thousands of Dollars) 1984 Tota I Assets $8,659,377 $1,242,848 $ 332,065 $10,234.290 For the Years Ended December 31. 1986 1985 Interest on Capital Lease Obligations $ 6,966 $ 7,344 $ 7,533 Amortization of Utility Plant under Capital Leases 2,645 3,448 2,942 For the Year Ended December 31. 1984 Net minimum lease payments (Thousands of Dollars) Electric Gas Other Total relating to Capital Leases 9,611 10,792 10.475 16,514 Operating Revenues $2,816,241 $1,379,883 83,373 $ 4,279.497 Other Lease payments 14,172 15,569 Eliminations Total Rent Expense $23,783 $26,361 $26.989 (lntersegment Revenues) (72,125) (72.125)

Total Operating Revenues 2,816,241 1.379,883 11.248 4.207,372 Depreciation and Amortization 159.512 51.800 35.403 246.715 Operating Income Before Income Taxes 753,669 101.275 18,669 873,613 Capital Expenditures 879,458 87,907 52.891 1.020,256 December 31.

Net Utility Plant 6,797.809 752,480 7,550,289 Gas and Oil Exploration Plant 305,999 305,999 other Corporate Assets 1.238,501 416.719 11.814 1,667,034 Total Assets $8,036,310 $1,169,199 $ 317.813 $ 9,523,322 44

Jointly-Owned Facilities All amounts reflect the share of jointly-owned projects and 11 Enterprise's subsidiaries have ownership interests and are responsible for providing their share of the necessary financing for the following jointly-owned the corresponding direct expenses are included in Consoli-dated Statements of Income as an operating expense.

facilities.

(Thousands of Dollars) Ownership Plant Accumulated Plant Under Plant Interest In SeNice Depreciation Construction Coal Generating Conemaugh 22.50% s 74,121 s 22,807 s 5,564 Keystone 22.84% 74,311 21,028 1,717 Nuclear Generating Peach Bottom 42.49% 514,907 175,769 23,202 Salem 42.59% 797,616 208,649 20,919 Hope Creek 95.00% 3,808,184 Nuclear Support Facilities Various 67,724 6,429 76 Pumped Storage Generating Yards Creek 50.00% 18,718 5,157 375 Transmission Facilities Various 135,502 17,558 374 Merrill Creek ReseNoir 16.19% 14,940 Linden Synthetic Natural Gas 90.00% 66,754 52,852 Gas and Oil Exploration Plant (Primarily jointly-owned) Various 296,520 183,286 45,806 Selected Quarterly Data (Unaudited) presentation of such amounts. Due to the seasonal nature

• 12 The information shown below in the opinion of

. Enterprise includes all adjustments, consisting only of normal recurring accruals, necessary to a fair of the utility business, quarterly amounts vary significantly during the year.

Calendar Quarter Ended March 31, June 30, September 30, December 31, (Thousands where applicable) 1986 1985 1986 1985 1986 1985 1986 1985 Operatir;ig Revenues $1,314,667 $1,286.229 $1,007,304 $ 942,930 $1,057,678 $1,062,680 $1,118,767 $1,136,502

,.,,_

Operating Income 186,132 182,286 155,142 139,195 192,891 172,020 143,119 144,268 NetJricome $ 161,686 $ 143,095 $ 133,050 $ 118,184 $ 174,888 $ 126,498 $ (91;161) $ 11,855 Ear11fi;lgs*per Share of Common Stock $1.23 $1.21 $1.00 $.98 $1.31 $1.03 $(.68) $.09 Average Shares of Common Stock Outstanding 131,754 117,889 132,795 121,038 133,648 122,329 134,327 128,010 Prior quarters restated to reflect the adoption of SFAS 90 and the consolidation of wholly-owned subsidiaries.

45

CONSOLIDATED FINANCIAL STATISTICS Public Service Enterprise Group Incorporated (Thousands of Dollars where applicable) 1986 1985 Condensed Consolidated Statements of Income (A) Amount  % Amount  %

Operating Revenues Electric $ 3,156,010 70 $ 3,000,564 68 Gas 1,324,690 30 1,408,490 32 Other 17,716 19,287 Total Operating Revenues 4,498,416 100 4,428,341 100 Operating Expenses Operation Fuel for Electric Generation and Interchanged Power- net 1,033,371 23 965,966 22 Gas Purchased and Materials for Gas Produced 692,224 15 757,976 17 Other 607,301 14 567,698 13 Maintenance 254,256 6 291,940 7 Depreciation and Amortization 272,150 6 268,179 6 Amortization of Property Abandonments and Write-Down 71,232 1 55,263 1 Taxes Federal Income Taxes 270,783 6 273,119 6 New Jersey Gross Receipts Taxes 563,518 13 557,270 13 Other 56,297 1 53,161 1 Total Operating Expenses 3,821,132 85 3,790,572 86 Operating Income Electric 602,801 13 547,343 12 Gas 67,664 2 80,443 2 Other 6,819 9,983 Total Operating Income 677,284 15 637,769 14 Allowance for Funds Used During Construction (Debt and Equity) 241,317 5 195,871 4 Other Income- net 10,840 458 Application of SFAS 90 Disallowed Plant Costs and Abandonments-net (295,244) (6) ( 109,717) (2)

Related Income Taxes 111,418 2 24,799 l,nterest Charges (315,780) (7) (289,546) (6)

<8referred Stock Dividend Requirements of PSE&G (51,372) (1) (60,002) ( 1)

.Net Income $ 378,463 8 $ 399,632 9

• . Shares of Common Stock Outstanding (Thousands)

End of Year 134,882 131,699 Average for Year 133,140 122,344 Earnings per average share of Common Stock $2.84 $3.27 Dividends Paid per Share $2.93 $2.81 Payout Ratio 103% 86%

Rate of Return on Average Common Equity 10.56% 12.27%

Book Value per Common Share $26.89 $26.81 Utility Plant $11,437,196 $10,842, 182 Accumulated Depreciation and Amortization of Utility Plant $ 2,692,759 $ 2,502,594 Total Assets $10,577,822 $10,234,290 Consolidated Capitalization (A)

Mortgage Bonds of PSE&G $ 3,100,210 41 $ 2,945,723 40 Debenture Bonds of PSE&G 210,910 3 218,918 3 Other Long-Term Debt 25,000 Total Long-Term Debt 3,336,120 44 3,164,641 43 Other Long-Term Obligations of PSE&G 56,409 1 58,337 1 Preferred Stock of PSE&G with Mandatory Redemption 65,000 1 65,000 1 Preferred Stock of PSE&G without Mandatory Redemption 554,994 7 554,994 7 Common Stock 2,632,662 34 2,535,687 34 Retained Earnings 993,836 13 1,013,285 14 Total Common Equity 3,626,498 47 3,548,972 48 Total Capitalization $ 7,639,021 100 $ 7,391,944 100 Prior years restated to reflect the adoption of SFAS 90 and the consolidation of wholly-owned subsidiaries.

A. See Management's Discussion and Analysis of Financial Condition and Results of Operations. Organization and Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements.

46

1984 1983 1982 1981 1976 Amount  % Amount  % Amount  % Amount  % Amount  %

$2,816,241 67 $2,570,457 65 $2,543,191 65 $2,322,042 67 $1,316,077 70 1,379,883 33 1,392,475 35 1,330,785 34 1,149,610 33 553,458 30 11,248 16,316 20,191 1 18,419 3,093 4,207,372 100 3,979,248 100 3,894,167 100 3,490,071 100 1,872,628 100 872,805 21 868,977 22 959,382 25 1,059,539 31 484,194 26 758,627 18 815,996 20 774,634 20 . 641,796 18 260,306 14 545,737 13 518,209 13 468,001 12 400,468 12 226,722 12 270 359 6 239 017 6 220 725 6 192 917 6 99677 6 246,715 6 228,264 6 220,465' 6 208,201 6 133,970 7 58,975 1 49,040 1 43,345 1 15,362 1,996 263,270 6 197,833 5 185,588 4 127,661 4 100,821 5 529,654 13 513,760 13 514,266 13 462,095 13 249,356 13 51,930 1 45,696 1 41,325 1 16,346 26,210 1 3,598,072 85 3,476,792 87 3,427,731 88 3,124,385 90 1,583,252 84 527,625 13 421,364 11 383,213 10 288,087 8 236,359 13 70,513 2 72,586 2 71,246 2 66,180 2 52,079 3 11,162 8,506 11,977 11,419 938 609,300 15 502,456 13 466,436 12 365,686 10 289,376 16 158,792 4 128,592 3 91,427 2 95,679 3 43,547 2

,. 2,674 4,108 5,616 4,362 1,716 (5,016) 32,499 1 34,060 1 (133,107) (4) 235 2,172 (13,333) (13,968) 54,200 2 (280,737) (7) (245,377) (6) (220,652) (6) (201,590) (6) (130,615) (7 )

( 60,221) (2) (58,234) (2) (53,865) (1) (51,538) (1) (41,257) (2 )

'.$ 426,964 10 $ 350,711 9 $ 309,054 8 $ 133,692 4 $ 163,002 9 112,563 102,858 94,845 86,089 58,976 108,913 97,467 89,233 80,962 58,308

$3,92 $3.60 $3.46 $1,65 $2,80

$2,70 $2.62 $2.53 $2.44 $1,78 69% 73% 73% 147% 64%

15.19% 14,03% 13,88% 6,60% 11.21%

$26.46 $25.61 $24.86 $24.28 $25.50

$9,870,429 $9,017,951 $8,165,130 $7,385,315 $5,255,286

$2,320,140 $2,214,135 $2,046,372 $1,877,815 $1,194,467

$9,523,322 $8,472,538 $7,780,773 $7,113,764 $4,742,341

$2,877,518 42 $2,452,954 40 $2,341,142 41 $2,140,835 41 $1,549,579 39 225,825 3 231,945 4 238,640 4 269,268 5 341,511 9 4,500 720 3,120 3,107,843 45 2,684,899 44 2,579,782 45 2,410,823 46 1,894,210 48 122,947 2 119,815 2 118,419 2 60,086 1 137,750 2 139,500 2 111,250 2 77,913 2 35,000 1 554,994 8 554,994 9 554,994 10 554,994 11 524,994 13 2,032,665 29 1,819,082 30 1,637,621 28 1,450,439 28 926,999 23 963,573 14 831,815 13 737,294 13 656,437 12 594,308 15 2,996,238 43 2,650,897 43 2,374,915 41 2,106,876 40 1,521,307 38

$6,919,772 100 $6,150,105 100 $5,739,360 100 $5,210,692 100 $3,975,511 100 47

OPERATRNG STATISTICS Public Service Electric and Gas Company

% Annual Increase (Decrease)-1986 compared with (Thousands of Dollars where applicable) 1986 1985 1985 1976 Electric Revenues from Sales of Electricity Residential $ 971,236 $ 918,911 5.69 8.15 Commercial 1,333,144 1,236,027 7.86 10.88 Industrial 782,008 774,963 .91 7.84 Public Street Lighting 43,726 43,786 (.14) 5.39 Total Revenues from Sales to Customers 3,130,114 2,973,687 5.26 9.09 Interdepartmental 1,927 1,877 2.66 1.97 Total Revenues from Sales of Electricity 3,132,041 2,975,564 5.26 9.09 Other Electric Revenues 23,969 25,000 (4.12) 23.79 Total Operating Revenues $ 3,156,010 $ 3,000,564 5.18 9.14 Sales of Electricity - megawatthours Residential 8,726,769 8,390,658 4.01 1.24 Commercial 14,118,028 13,313,639 6.04 4.03 Industrial 10,134,327 10,290,711 ( 1.52) (.33)

Public Street Lighting 295,639 300,612 (1.65) 1.33 Total Sales to Customers 33,274,763 32,295,620 3.03 1.76 Interdepartmental 23,790 24,888 (4.41) (3.79)

Total Sales of Electricity 33,298,553 32,320,508 3.03 1.75 Megawatthours Produced, Purchased and Interchanged - net 36,033,414 34,869,192 3.34 1.72 Load Factor 53.2% 51.6%

Capacity Factor 33.0% 31.3%

, Heat Rate - Btu of fuel per net kwh generated 10,716 10,692 .22 11.55 Net Installed Generating Capacity at December 31 - megawatts 10,032 9,007 11.38 1.39 Net Peak Load - megawatts ( 60-minute integrated) 7,735 7,721 .18 2.25

• • Temperature Humidity Index Hours 14,934 15,720 (5.00) 1.63

-*Average Annual Use per Residential Customer - kilowatthours 5,650 5,494 2.84 .46

• Meters in Service at December 31 - Thousands 1,812 1,788 1.34 .66

,Gas

• 'Revenues from Sales of Gas Residential $ 754,785 $ 751,339 .46 8.22 Commercial 390,811 407,073 (3.99) 10.75 Industrial 171,860 242,767 (29.21) 9.66 Street Lighting 355 372 (4.57) 8.36 Total Revenues from Sales to Customers 1,317,811 1,401,551 (5.97) 9.09 Interdepartmental 2,849 1,321 115.67 19.59 Total Revenues from Sales of Gas 1,320,660 1,402,872 (5.86) 9.11 Other Gas Revenues 4,030 5,618 (28.27) 13.37 Total Operating Revenues $ 1,324,690 $ 1,408,490 (5.95) 9.12 Sales of Gas - kilotherms Residential 1,065,630 1,019,850 4.49 .19 Commercial 644,450 634,059 1.64 3.23 Industrial 413,072 468,489 (11.83) 2.98 Street Lighting 680 736 (7.61) 5.74 Total Sales to Customers 2,123,832 2,123,134 .03 1.54 Interdepartmental 5,498 2,540 116.46 12.04 Total Sales of Gas 2,129,330 2,125,674 .17 1.56 Gas Produced and Purchased - kilotherms 2,212,175 2,218,818 (.30) 1.56 Effective Daily Capacity at December 31 - kilotherms 20,899 19,990 4.55 .72 Maximum 24-hour Gas Sendout - kilotherms 14,871 17,994 ( 17.36) 1.51 Heating Degree Days 4,699 4,764 ( 1.36) ( 1.29)

Average Annual Use per Residential Customer - therms 876 853 2.70 (.53)

Meters in Service at December 31 - Thousands 1,448 1,422 1.83 .67 48

1984 1983 1982 1981 1976 s 883.652 s 829.967 s 791 ,2 79 s 728,642 s 443,531 1.111,175 984.499 981.795 871.377 474.791 749,725 686,880 716,662 684,976 367.470 42.164 38,672 37.809 33.249 25,863 2 786 716 2 540 018 2 527 545 2 318 244 1311655 1,810 1,863 1,709 1,612 1.585 2.788.526 2.541,881 2.529.254 2.319.856 1,313.240 27.715 28.576 13,937 2.186 2.837 s 2.816.241 s 2,570.457 s 2.543,191 s 2.322.042 s 1.316.077 8.373.471 8.402.397 7.686.548 7.795,988 7.711,953 12.452.020 11.753.667 11.114,655 10,940,609 9,514,574 10.444.412 10.283.784 10.017,613 10,923.042 10.472.054 301.702 302.053 301.603 275.489 259.151 31,571.605 30.741,901 29,120.419 29.935.128 27.957.732 25,796 27.800 25.154 25.567 34,996 31.597.401 30.769.701 29.145.573 29,960,695 27,992.728 34,178,862 33.391.011 31.563.231 32.204,191 30.376,187 52.4% 52.6% 51.2% 52.3% 55.9%

32.6% 31.6% 34.7% 33.2% 32.0%

10.616 10.717 10.677 10,725 10,593 8,999 8.999 8,995 9.101 8.741 7.422 7.244 7,042 7.034 6.190 16.677 17,262 12.155 15.494 12.701 5.543 5.602 5.156 5.261 5.395 1.769 1.757 1,746 1.739 1.697 s 717.286 s 746.200 s 716.308 s 604.521 s 342,524 393, 197 396,159 371.027 302.281 140.809 263.080 246.408 241.437 240.711 68,341 369 358 350 290 159 1,373,932 1,389.125 1.329.122 1,147,803 551.833 1,682 1,011 1,068 1,075 476 1,375,614 1.390,136 1.330.190 1.148,878 552.309 4,269 2.339 595 732 1.149 s 1,379,883 s 1.392.475 s 1.330.785 s 1.149,610 s 553.458 1.019,025 995,686 994,647 993.527 1,045,627 628.855 596,868 581.739 555.806 468.761 495.719 460.601 465,835 514.136 307.949 339 327 331 334 389 2,143,938 2.053.482 2.042.552 2.063,803 1,822.726 3.377 1.857 2.090 2.430 1.764 2.147,315 2.055.339 2,044,642 2.066,233 1.824.490 2.249,352 2.151.417 2,148,839 2. 145,325 1.895.041 19.856 19.129 19,139 19,010 19.449 14,927 15.612 16.201 14,812 12,803 4.743 4,677 4.820 5.082 5,349 863 850 853 857 924 1.404 1,392 1,384 1,378 1,354 49

OFFICERS Public Service Electric and Gas Company E. James Ferland Winthrop E. Mange, Jr.

Chairman of the Board, President and Chief Executive Officer Vice President - Corporate SeNices Everett L. Morris Corbin A. McNeill, Jr.

Senior Executive Vice President Vice President - Nuclear Frederick W. Schneider Parker C. Peterman Executive Vice President - Operations Vice President and Comptroller Fredrick R. DeSanti Louis L. Rizzi Senior Vice President - Customer Operations Vice President - Customer and Marketing SeNices Robert W. Lockwood William Saller Senior Vice President - Administration Vice President - Governmental Affairs Stephen A. Mallard R. Edwin Selover Senior Vice President - Planning and Research Vice President and General Counsel Donald A. Anderson Robert S. Smith Vice President - Information Systems Vice President and Secretary Lawrence R. Codey Robert F. Steinke Vice President and Corporate Rate Counsel Vice President - Fuel Supply Pierre R.H. Landrieu Rudolph D. Stys Vice President - Engineering and Construction Vice President - Transmission and Distribution John H. Maddocks Richard A. Uderitz Vice President - Public Affairs Vice President - Production Charles E. Maginn, Jr.

Vice President - Human Resources Wallace A. Maginn Vice President and Treasurer

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50

DIRECTORS Public Service James R. Cowan, M.D.

Enterprise Group Incorporated President and Chief Executive Officer.

United Hospitals Medical Center. Newark. New Jersey.

E. James Ferland -Member of Finance Committee and Nominating Committee.

Chairman of the Board. President and Chief Executive Officer T.J. Dermot Dunphy Everett L. Morris President. Chief Executive Officer and director.

Vice President Sealed Air Corpcration (manufactures protective packaging products and systems). Saddle Brook. New Jersey.

Frederick W. Schneider -Member of Nominating Committee and Organization and Vice President Compensation Committee.

Wallace A. Maginn Robert R. Ferguson, Jr.

Treasurer President. Chief Executive Officer and director.

Parker C. Peterman First Fidelity Bcncorpcration and Chairman of the Board Comptroller and director. First Fidelity Bank. National Association. both of Newark. New Jersey.

Robert S. Smith

-Member of Finance Committee and Organization and Compensation Committee.

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

-Chai rman of Executive Committee and member of Finance Committee.

Irwin Lerner President. Chief Executive Officer and director.

Hoffmann-La Roche Inc. (manufactures prescription pharmaceuticals. vitamins and fine chemicals and provides diagnostic products and seNices). Nutley, New Jersey.

-Member of Audit Committee. Executive Committee and Organization and Compensation Committee.

William E. Marfuggi Chairman of the Board and director. Victory Optical Manufacturing Company (manufactures ophthalmic frames) and Chairman of the Board and director. Plaza Sunglasses. Inc.

(manufactures sunglasses). both of Newark. New Jersey.

-Member of Audit Committee and Finance Committee.

Everett L. Morris Vice President of the Company.

-Chairman of the Finance Committee and member of Executive Committee.

Marilyn M. Pfaltz Partner of P and R Associates (public relations and publicity specialists). Summit. New Jersey.

-Member of Audit Committee and Nominating Committee.

James C. Pitney Partner in the law firm of Pitney. Hardin. Kipp & Szuch.

Newark and Morristown. New Jersey.

-Chairman of Audit Committee and member of Organization and Compensation Committee.

Kenneth C. Rogers President. Stevens Institute of Technology. Hoboken. New Jersey.

-Chairman of Nominating Committee and member of Organization and Compensation Committee.

Robert I. Smith Retired Chairman of the Board of Public SeNice Electric and Gas Company.

- Member of Finance Committee and Nominating Committee.

Harold W. Sonn Retired Chairman of the Board of the Company.

- Member of Executive Committee and Finance Committee.

Robert V. Van Fossan Chairman of the Board. Chief Executive Officer and director.

The Mutual Benefit Life Insurance Company, Newark. New Jersey.

- Chairman of Organization and Compensation Committee and member of Executive Committee and Finance Committee.

Josh S. Weston Chairman of the Board. Chief Executive Officer and director.

Automatic Data Processing. Inc .. Roseland. New Jersey.

- Member of Audit Committee and Organization and Compensation Committee.

51

CORPORATE AND STOCK INFORMATION Additional Reports Available - Form 10-K PSE&G Territory Stockholders or other interested persons wishing to obtain a copy of Enterprise's or PSE&G's 1986 Annual Report to the Securities and Exchange Commission, filed on Form 10-K.

may obtain one without charge by writing to the Manager-Investor Relations, Public Service Electric and Gas Company. Newark - - - - -

P.O. Box 570, T6B, Newark. N.J. 07101 (telephone 201-430-6503).

The copy so provided will be without exhibits. Exhibits may be purchased for a specified fee.

Financial and Statistical Review A comprehensive statistical supplement to this report.

containing financial and operating data will be available this Spring. If you wish to receive a copy, please write to the Manager-Investor Relations, Public Service Electric and Gas Company, P.O. Box 570, T6B. Newark, N.J. 07101 (telephone 201-430-6503).

Transfer Agents All Stocks, Morgan Shareholder Services Trust Company.

30 \/\/est Broadway, New York. N.Y. 10015 Stockholder Services.

Public Service Enterprise Group Incorporated 80 Park Plaza, P.O. Box 1171 Newark. N.J. 07101-1171 Registrars All Stocks, First Fidelity Bank, N.A., New Jersey 765 Brood Street. Newark. N.J. 07101 Morgan Shareholder Services Trust Company.

30 West Brocdway. New York. N.Y. 10015 Stock Exchange Listings Common:

New York Stock Exchange Philadelphia Stock Exchange London Stock Exchange Preferred of PSE&G:

New York Stock Exchange Common Stock High Low First Quarter 381/a 30 3/,i Second Quarter 383,1, 34%

Third Quarter 48%* 36%

Fourth Quarter 433/a 391/a "All -time market price record 52