ML18100B013

Public Svc Enterprise Group,Inc Annual Rept 1993.

ML18100B013
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Site:	Salem, Hope Creek
Issue date:	12/31/1993
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I I

Public Service I Enterprise II I

I Group Incorporated Annual Report 1993

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. 1

1993 Financial Highlights (Thousands of Dollars where applicable) 1993 1992  % Change Total Operating Revenues $ 5,705,559 $ 5,356,781 -7 Total Operating Expenses $ 4,598,712 $ 4,390,646 5 Net Income $ 600,933 $ 504,117 19 Common Stock Shares Outstanding - Average (Thousands) 240,664 232,306 4 Shares Outstanding - Year-end (Thousands) 243,688 235,396 4 Earnings Per Average Share $ 2.50 $ 2.17 15 Dividends Paid Per Share $ 2.16 $ 2.16 Book Value Per Share - Year-end $21.07 $20.32 4 '

Market Price Per Share - Year-end $32.00 $30.875 4 Ratio of Earnings to Fixed Charges 2.59 2.30 Ratio of Earnings to Fixed Charges - PSE&G 3.30 2.70 Gross Additions to Utility Plant $ 890,374 $ 826,761 8 Total Gross Utility Plant $15,861,484 $15,081,907 5 See Notes to Consolidated Financial Statements.

Net Income (dollars in millions) 93 92 91 90 89 507.0 II .11 II Annual Dividend Payout 2. 16

• Annual Dividend Payout 93 and Earnings Per Share 2.50 Earnings Per Share (in dollars) 2.16 92 2.17 91 2.43 90 1.90 89 "1!!!!!1!!!!!1!!!!!~1!!!!!~!!1!!!!!!1!!!!~~==~===== 2.5 Contents Letter to Shareholders 2 PSE&G: Issues and Review 6 EDHI: Issues and Review 16 Financial Statements 20 Directors and Officers 48 Stockholder Information 49

PSE&G Territory Enterprise Public Service Enterprise Group Incorporated (Enterprise) is a diversi-fied public utility holding company.

Public Service Electric and Gas Company (PSE&G). the principal sub-sidiary of Enterprise, is a regulated utility providing electric and gas service to more than two million customers and more than five-and-a-half million residents of New Jersey.

It is the state's largest utility and one of America's largest combined elec-tric and gas companies.

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

These activities, which are focused on the unregulated energy industry, include investments in oil and gas exploration and production, inde-pendent power production and other investments.

Dear Shareholders:

S&P listed several matters, particularly increased com-petition, that it believes may affect the long-term prof-Your company enjoyed favorable financial results and itability of many energy companies. We have been aware operating performance in 1993. Enterprise's consolidated of the issues raised by S&P and we are addressing them.

earnings for the year were $600.9 million, or $2.50 per Long before the S&P analysis, we had been responding share, compared with $504.1 million and $2. 17 per share with vigorous cost-cutting efforts, including staff reduc-the previous year. Our earnings exceeded by a consider- tions and inventory control initiatives. We continue to focus able margin the earnings of any prior year in our history on and achieve success in the bulk power sales market This earnings increase resulted principally from: new, and we continue to pursue significant efficiency improve-higher utility rates for our subsidiary, Public Service ment in all aspects of our operations. We are working Electric and Gas Company (PSE&G); refinancing of $1.5 actively to attract new business to our service area. And billion of debt to take advantage of lower interest rates, we have joined with other utilities, state lawmakers, regu-thereby reducing our annual interest expense by more lators, industry and labor officials to encourage new legis-than $23 million; and favorable weather conditions. These lation that will allow us new regulatory freedom to factors, combined with rigorous cost-control efforts and compete with all comers in the energy market.

productivity improvements throughout the corporation, We maintained 1993 nuclear operations and mainte-helped achieve the new level of earnings. nance expenses at 1992 levels. The Nuclear Regulatory To further improve this performance, we have been Commission's assessment of our nuclear plant perfor-positioning Enterprise so it can aggressively meet the mance continues to refiect improvement, and 1993 increasing competition in the electric and gas industries. marked a record-setting year in nuclear operating capacity, We intend to place continuing emphasis on cost-cutting, due principally to Hope Creek's 97.7% capacity factor.

productivity boosts, and development of new revenue Despite these accomplishments, we do not underesti-sources to maintain our earnings momentum. mate the challenges facing us. We do believe that we understand the potential threats we face, as well as the Winds of Change emerging opportunities, and we are taking aggressive For the past several years, we have been talking about steps to meet them.

the development of competition in the gas and electric businesses. Competition is reshaping the business land- Redefining the Business scape of the United States, and the energy industry is We are reorienting and redefining our entire company only the latest in a long line of industries feeling its effects. - PSE&G and Enterprise Diversified Holdings With the passage of the Energy Policy Act in late 1992, Incorporated (EDHI) - to be successful in the competi-we see competition rapidly reshaping the electric and nat- tive environment. We are evolving from primarily a regu-ural gas industries. lated supplier of electricity and gas for New Jersey The reality of competition was driven home for us in customers to an energy company providing a broad range October; when Standard & Poors (S&P), the credit rating of energy services to our customers in New Jersey, across agency, revised downward its long-term outlook for some the United States and in foreign countries.

40 utilities, including PSE&G.

2

our asset~, knowledge and abilities; and third, actively working to shape the rules that will apply to the energy marketplace of the future.

One example of our efforts is the creation, in January 1994, of a new unregulated subsidiary, Public Service Gas Marketing Company, which will join with Cincinnati Gas and Electric Company to form a retail natural gas market-ing partnership to enhance our ability to offer gas sales on a multi-state basis.

Another example is PSE&G's active pu rsuit of market opportunities to sell wholesale electric energy and capac-ity both within and outside New Jersey. We expect that the generation of electric power wil l continue to be a vital and important contributor to PSE&G earnings for the foreseeable future.

We also are developing a broad spectrum of initiatives that will help us retain our existing customers, expand our E. James Ferland Chairman of the Board, President and Chief Executive Officer. product and service offerings and attract new customers.

Public Service Enterprise Group Incorporated Customer Satisfaction To accomplish our goals, we are focusing on customer In the future, EDHI will emphasize energy generation needs as never before. During 1993, we initiated a through its independent power company, Community Customer Satisfaction Management system - a process Energy Alternatives Incorporated (CEA), and energy explor- of continually surveying our customer population on the ation, development and production through Energy key factors that influence their perceptions of the company.

Development Corporation (EDC). We use customer-survey data to optimize our processes, It is clear th at PSE&G s businesses are moving inex- guide our allocation of resources and, in general, to signifi-orably down a path where the only fully regulated activities cantly improve the way we serve our customers.

will be the distribution of natural gas an d electricity. We We also have moved aggressively to make the Quality are, therefore, working to help shape the future competi- process our standard in every PSE&G operation.

tive environment and to prepare PSE&G to operate as a Quality teams of PSE&G employees began innovative competitive business. process changes throughout the company during 1993.

Generally, our efforts fall into three categories: first. The result cost savings of $1 5 million, improved customer activities directed at improving the relative economics of satisfaction and shortened cycle times.

existing PSE&G assets to position them to better compete These are but a few of the initiatives we are under-in tomorrow's energy marketplace; second, the develop- taking to meet the challenges and o pportunities of com-ment of new companies and businesses that capitalize on petition. They are part of a wel l-developed plan to position ourselves for the energy industr y of the future, not the utility industry of the past.

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1 Legislative Initiatives

• We must achieve a level of operational performance The rules and regulation s created for a utility monop- that is the best in the industry.

oly environment are no longer suitable for the competi-

• We must continue to provide leadership in New Jersey tive and fast-paced energy industry of today This new and beyond on economic development, the environ-environment dictates that we must have greater flexibility ment and energy policy t o price our services and to respond quickly to competi- We are committed to achieving excellence in those tive situations. five key areas. During 1993, we made good progress in We seek the opportunity to compete in a fair and less each of them, progress that must continue in the years rest rictive marketplace, under rules that will provide ahead. We believe we have established a solid foundation the benefits of competition to all customers, not just a for making a successful transition to the competitive select few. marketplace, and we anticipate the future for Enterprise A major step toward removing the obstacles that hin- with considerable optimism.

der our ability to compete fairly would be passage of leg-islation that permits greater flexibility in the pricing of our services. Such legislation also would provide considerable E. James Ferland opportunity to attract new business to New Jersey, which Chairman of the Board, President would also greatly assist the state's efforts to revitalize its and Chief Executive Officer Public Service Enterprise Group Incorporated business environment.

We will continue in 1994 to pursue this and other ini- February I 8, 1994 tiatives with the legislature and with the administration of

• New Jersey's new governor, Christine Todd Whitman.

Long-Term Objectives In the 1992 annual report, I outlined the efforts required to achieve our vision for Enterprise: "Working together to set the standard of excellence in delivering energy services to customers."

I listed some basic requirements for success -

requirements that are even more important as we enter 1994. They are:

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

• We must work to attain the highest standards of customer service and satisfaction.

• We must have a diverse, motivated and skilled workforce.

4

Enterprise

• Allocation of Asset s at Enterprise December 31, 1993 Total Assets $16.3 Billion PSE&G

• Electric 72% 11.7 Billion Gas 1'4% 2.2 Billion EDHI

. PSRC8% 1,319 Million EDC-4% 679 Million

• EGDC 1% 203 Million CEA 1% 211 Million Source of Consolidated Earnings Per Share Net Income (Rounded)

($601 million)

• Electric 2.05 Gas .35

• EDC .19 PSRC .08

• cEA .06 EGDC (.23)

Source of * .65 Electric Revenues 1993 Revenues .28 Gas Revenues (per dollar) * .07 Diversified Revenues Distribution of * .28 Fuel, Purchased Power & Gas 1993 Revenues .17Taxes (per dollar) * . I'4 Materials and Services

.13 Reinvested in Business

• . I0 Dividends

.09 Interest

• .09 Salaries & Wages Capitalization 1990-1993

• Long-Term Debt (in billions) Preferred Stock

• Common Equity 5

PSE&G Operations Overview he combination of a rate increase, a significant perfor-e&E G's electric revenues totaled

.69 bill'on and gas revenues Lawrence R. Codey President and Chie(

1.59 b l~ , compared with Operating Officer, PSE&G ii ion and $1 .59 billion 1th 1992 sales. Residential electric sales ustrial sales were down 1.0%.

PSE&G gas sales were up 5.3% compared with 1992.

Residential sales were up 1.2%, commercial up 0.4% and industrial up 18.5%. The increase in industrial sales was primarily due to higher sales for electric cogeneration.

Issues COMPETITION and Review Gas transportation service increased 2.6%, compared with 1992. Total gas sold or transported increased 4.9%.

PSE&G's earnings to fixed charges coverage was 3.30 times, up from 2.70 times in 1992. Cash flow was strong, and PSE&G met most of its $863 million construction expenditures through internally generated cash.

6

lnaeasing the efficiency of older plants like Bergen Generating Station ensures clean, affordable power to meet our customers' ene'IY needs - now and well into the future.

During 1993, PSE&G sold $1.973 billion of mortgage bonds, including pollution control debt The proceeds from these issues were principally used to refund outstanding and maturing debt, lowering annual interest expense by more than $23 million.

During the year, Enterprise sold a total of 8.3 million shares of common stock. Net proceeds of $273 million were used by Enterprise principally to make equity invest-ments in PSE&G, which used the additional funds to repay a portion of its short-term debt obligations. Also, PSE&G sold 750,000 shares of preferred stock. The net proceeds f $75 million were used by PSE&G for general corporate r Performance ies increased significantly from the previous year -

for 1993 compared with 66% in 1992. This improve-the best nuclear stations in the world .

This performance enhanced PSE&G's average 1993 nuclear capacity factor for all units and, for the first time, earned a bonus of $3.9 million under the New Jersey Board of Regulatory Commissioners' (BRC) nuclear per-

"Sure we're buy- formance standard.

Ing In to the The Salem Revitalization Project, aimed at upgrading CHANGE Quality effort. procedures, equipment and personnel performance at It's common our Salem facilities, met significant milestones in 1993, Paul Rauch, reducing maintenance backlogs by one-third and complet-

..,,... Howel*

underground

.,. we going to technician ing a three-year procedure upgrade project.

hold on to our The improvements at Salem were reflected in the cu.tomers1" ratings PSE&G received from the Nuclear Regulatory Commission (NRC) when that agency.made its Systematic 7

Superior nuclear Assessment of Licensee Performance in September. Of performance re-the seven categories each nuclear power plant is graded suited in a bonus on, Hope Creek received grades of "superior" in six and of $3.9 million "good" in one. Salem Nuclear Generating Stations I and 2 under the state's were graded "superior" in three areas and "good" in four.

nuclear perfor-Cooling Tower Issue mance standard. At In June 1993, the New Jersey Department of Environ- 97. 7% capacity, mental Protection and Energy issued a revised draft New Hope Creek ranked _J Jersey Pollution Discharge Elimination System permit for among the- best i the Salem Nuclear Generating Station. The draft permit does not require the construction of costly cooling towers, thus eliminating for our customers the $1 -2 billion cost that construction of cooling towers would have imposed. Summer 1993 challenged the compan; with a record It would, however; require a variety of environmental pro- number of 90-degree-plus days and record demand for jects to help increase aquatic life in the Delaware River. electric energy, mainly for air conditioning. PSE&G met Comments on the draft permit were filed in early 1994, this demand without extraordinary difficulty However; and a final permit is being awaited.

Weather Responses When two storms within less than I 0 days in March 1993 battered PSE&G's service area, 145,000 customers were left without power. A nor' easter whipped through New Jersey on March 4, affecting more than 121 ,000 cus-tomers. Approximately 80% of the affected customers were restored within 24 hours2.777778e-4 days <br />0.00667 hours <br />3.968254e-5 weeks <br />9.132e-6 months <br />. A blizzard then struck on March I 3 interrupting service to another 26,000 cus-tomers statewide. PSE&G crews - from both the electric and the gas business units - worked around the clock to restore service.

Then in early June, a severe thunderstorm battered PSE&G's service territory. Some 95,000 customers, most of them in the central area of the state, were left without power by the high winds and heavy rain from the storm.

Approximately 80% of the affected customers were restored within 24 hours2.777778e-4 days <br />0.00667 hours <br />3.968254e-5 weeks <br />9.132e-6 months <br />. Park Ridge, NJ., served by a municipal power cooperative, took advantage o( the new, competitive environment to negotiate a bulk power purchase agreement and substantial demand side management services.

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Lou Nociti, Energy Services senior maintenance In the energy services sector, Public Service Conserva-supervisor, Salem tion Resou rces Corporation (PSCRC), a PSE&G subsidiary, is rapidly developing its energy conservation business in when the weather turned cold again, in January 1994, two New Jersey, marketing and managing the in stallation of ice storms in the first full week of the year interrupted demand side management products. These products help service to more than 2.00,000 customers th roughout its PSCRC customers reduce their energy costs and save service territory. PSE&G crews worked throughout the PSE&G and its customers the cost of building additional weekend in freezing rain, sleet and snow to restore service. electric generation facilities, while also providing the This was followed by record-setting cold weather - potential to produce good returns for PSCRC.

with temperatures dropping as low as seven below zero Recent ly, New Jersey regulators reaffi rm ed PSE&G's

- which resulted in a regional energy emergency. For the ability to offer customers gas app liance service contracts fi rst time since 1970, PSE&G was obliged to temporarily and perform service calls. The company will not only con-interrupt customer service. More than 300,000 customers tinue those activities but also wi ll investigate new, compet-in I 07 New Jersey communities were affected. The action, itively priced, beyond-the-meter appliance service taken in conjunction with the Pennsylvania-New Jersey- offerings to customers.

Maryland (PJM) regional power pool, was required to avert the possibility of a regional blackout.

9

Environmental Initiatives Andy Hep(lnger. East Region Plant Bngineering UPS During 1993, PSE&G continued to make substantial progress in meeting its goals of reducing emissions into the atmosphere and helping to improve the environment of New Jersey A selective noncatalytic reduction system was tested The Bergen and Burlington Generating Stations on the Mercer #2 unit during the summer of 1993. The repowering projects, described below, will significantly test - co-funded by the Electric Power Research Institute decrease the impact these stations will have on the environment.

In addition, the installation of a new electrostatic pre-

- demonstrated that the technology is a cost-effective method of reducing oxides of nitrogen (NOx) at the station.

cipitator at the Mercer Generating Station will reduce During the summer of 1993, for the second year in a particulates emitted into the air with a removal efficiency row, PSE&G voluntarily burned natural gas instead of coal of 99.8%. Major technological upgrades at the station will at its Hudson #2 generating plant in Jersey City The fuel allow the company to continue burning cost-effective coal switch was initiated to reduce the emission of NOx from most of the year while complying with the mandates of the unit during the period of maximum ozone concentra-the 1990 Clean Air Act Amendments. tions in New Jersey.

10

Demand side management plans call for of coal resulted in the elimination of close to I 00% of the sulfur dioxide and particulate emissions at the plant and 150 MW of elec-trlc capacity sav- significant reduction of carbon dioxide emissions.

During 1994, state-of-the-art low NOx burners will be ings - enough to installed at the Hudson #2 unit. This equipment change power 120,000 will enable the unit to achieve significant emissions reduc-homes - and six

\_ million therms of tions while burning lower-cost coal.

natural gas sav- One hundred natural gas vehicles (NGVs) were

- ings over ff11!

next two years.

delivered to PSE&Gs motor vehicle fleet during the year.

That brought the company's NGV count to more than 150 service vans, cars and trucks.

As another indication of its determination to be envi-During the fuel-change period, NOx emissions, which ronmentally proactive, PSE&G has developed and is contribute to the formation of low-altitude ozone, were implementing a precedent-setting demand side manage-reduced by 50%. In addition, burning natural gas instead ment (DSM) program. Under this program, participating customers can install energy-efficient equipment and receive payments reflecting a portion of the measured energy savings.

Unlike traditional utility rebate programs, DSM is moni-tored and payments to customers are based only on the actual measured savings. In addition, the company is pro-tected by contract provisions if savings fall below con-tracted amounts. These features make energy savings a firm, reliable resource, much like supply side options.

Current plans call for 150 megawatts (MW) of electric capacity savings - enough power to provide electricity to 120,000 homes - and six million therms of natural gas savings over the next two years. The I 50 MW demand reduction will save DSM participants approximately $48 million per year in energy costs and result in payments to them of about $25 million annually.

The program will reduce energy costs for customers, producing a stronger New Jersey economy and a cleaner Quality groups are working to improve procedures to enhance customer savs-environment.

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

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

• PSE&G's success in buying out the contract of one alternate power project is expected to reduce cus-

• PSE&G continued working with the New Jersey tomer bills by more than $500 million over the 20-year Department of Environmental Protection and Energy term of that contract. This move strengthens PSE&G's to investigate and, where necessary, remediate 38 ability to compete. In contrast, many of its neighboring former manufactured gas plant s(tes. Sixteen sites utilities are obliged to continue with high -cost alternate were worked on in 1993, at a cost of approximately power purchase obligations $15.3 million.

• PSE&G's negotiation of a special contract to keep the

• PSE&G also installed more than 1.2 million feet of new Bayway Refinery as its largest single customer was gas distribution mains, a 20 percent increase over another positive development during the year: 1992. The additional construction brings PSE&G's total Negotiation of this contract involved the State of New gas distribution system to 15,000 miles.

Jersey and the BRC. This joint negotiation may be

• PSE&G reduced its overall gas unit material expenses in viewed as an acknowledgment of the necessity for 1993 by $3.5 million through implementation of a New Jersey utilities to have pricing flexibility in today's company-wide proactive procurement strategy competitive environment.

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PSE&G

• Electric Kilowatt Hour Sales

• Residential 93 47.7 (percent) Commercial

• Industrial 92 47.7 25.4 91 46.9 25. 1 90 46.9 26.0 89 45.9 Gas Therms Sold

• Residential 93 26.0 or Transported Commercial (Percent)

• Industrial 92 27.0 Transportation service gas 91 90 89 Nuclear Performance 93 77.0

• PSE&G Operated Nuclear Planu (percent capacity factor) 71.1 U.S. Average for All Nuclear Planu 92 66.0 71.3 91 78.0 69.0 90 68.0 66.0 89 72.0 63.0

• • II Staffing Levels

• Employees vs. Total Customers

• Cumulative Total Customers, 93 Electric and Gas 92 91 PSE&G's Proposed NOx 15 _ ...,_ Actual Reduction Plan -* Target (pounds of NOx per MWHR) 12

===-.. . . ~ -- ....

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3 15

EDHI Operations Overview I Earnings for Enterprise Diversified Holdings million, or EDHI per share.

l's o perating results were Paul H. Way President and Chief Operating Officer, Enterprise Diversified Holdings Incorporated busin sses: Energy Development I

Corpor tion (EDC), its oil and gas subsidiary, and Community Energy

--~e_,n,.,,d-:-:

ent ~?bsidiary.

EDl::ll'~lts were adversely impacted by the record-ing of an impairment in the value of certain properties by (sreal estate subsidiary, Enterprise Group Development Corporation (EGDC), w hich reduced consolidated Enter-prise earnings by $50.5 million, or 21 cents per share.

COMPETITION Issues and Review Exclusive of the impairment, ED Hi's net income would have been $74.6 million for the year. w hich wou ld have been a record for the company EDHl's assets remained relatively constant compared with 1992, representing about 15% of Enterprise's overall assets at year-end.

16

Newark Bay Cogenerotion Facility in New Jersey was completed in August, 1993. This 137 MW plant, fileled by natural gas, is 50% owned by CEA.

Future Direction During 1993, EDHI redirected its efforts toward becoming a leading independent energy company, focus-ing on its core businesses - EDC and CEA - while con-tinuing the controlled exit from the real estate business by EGDC, and limiting new investments in Public Services Resources Corporation (PSRC) to energy-related invest-ments and existing commitments.

EDHI intends to focus on the development of strong, core busi nesses competing in independent power pro-duction, oil and gas exploration, production and market-g, and other related businesses within the unregulated HI believes that th is focus on the rapidly evolving, a self-financing, global, independent energy company Energy Development Corporation EDC is an oil and gas exploration, development and production company based in Houston, Texas. At year-end 1993, it had assets of $679 million, representing 29%

of ED Hi's total, compared w ith $703 mill ion for the previous year.

During 1993, EDC earned $46.3 million, an increase of 60% over 1992 earnings. This increase was primarily attributable to a substantial increase in the market price of natural gas. It produced approximately I 19 billion cubic Madeleine W Ludlow.

vice presiden t and treasurer.

EDHI 17

feet equivalent (BCFE) of natural gas and oil in 1993, which was comparable to its 1992 production, and it Favorable move-replaced 125% of its 1993 production - increasing year-ment in the market end oil and gas reserves to approximately 809 BCFE.

price of natural gas Community Energy Alternatives Incorporated in 1993 resulted in CEA is a developer of cogeneration and independent a substantial power projects. At year-end 1993, CEA had invested in increase in EDC's 19 projects, of which 17 were in operation and two were earnings.

under construction.

CEA has invested in projects currently operating or under construction with a total capacity of 1,658 MW, and its ownership share totals 478 MW. At the end of 1993, to the increase in the federal in its assets totaled $211 million. Its earnings in 1993 were

$13.8 million, compared with $10.9 million a year earlier.

The positive operating results were due to strong per-securities were offset by formance by the Eagle Point and GWF projects. Eagle Point is a 225 MW gas-fired, combined-cycle plant located in West Deptford, N.j. The GWF projects are a combina-tion of five San Francisco Bay area plants and a 27 MW cogeneration facility in Hanford, Calif Public Service Resources Corporation PSRC makes diversified investments in various sec-tors, including leveraged leases, limited partnerships and securities.

PSRC's asset level remained relatively constant during 1993 at $1.3 billion. Its earnings of $19.7 million in 1993 decreased 27% compared with the previous year's earnings of $27.0 million. This decrease was due primarily Community Energy Alternatives expects to complete its I00 MW cogeneration plant john F. Kennedy Airport on long Island, N. Y. by the summer of 1994, bringing 'EA 's operating capacity to 16 I 8 MW 18

Lanze Thbmpson, EGDCs management recently decided to attempt to business planning sell certain properties in the near term, rather than to manager, EDHI hold them for long-term investment, in furtherance of I the strategy for EGDC to prudently exit the real estate Enterprise Group Development Corporation business. As a result, the net realizable value on the books EGDC is a rea estate development and investment for such properties was required to be reduced.

business with investmefi1tl in office and retail properties.

At-year-end, EG6c had interests in I I properties in

- five states. Tbiese included office buildings, developable

(,

laod nd ashopping center.

EGDC's assets at the end of 1993 totaled $203 million.

It experienced a net loss in 1993 of $55.7 million, which refiects $50.5 million from recording an impairment in the value of certain properties. 1992 produced a loss of

$6.8 million.

19

EDHI Without EGDC 1mpoinnent l Net Income 74.7 93 (dollars in millions) 92 91 Cash From Operations 93 (dollars in millions) 200.

92 159.2 91 Total Assets 93 (dollars in millions) 92 91 Community Energy 93 '478 Alternatives (equity megawatts-Operation & Construction) 92 91 318 Energy Development 93 809 Corporation Natural Gas Reserves (billions cubic feet 92 equivalent, BCFE) 91 &40 20

Financial Contents Management's Discussion and Analysis of Financial Condition and Results of Operations.

Management's Discussion and Analysis 21 Enterprise Financial Statement Responsibility 28 Following are the significant factors affecting the consolidated finan-Consolidated Statements of Income 29 cial condition and the results of operations of Public Service Consolidated Balance Sheets 30 Enterprise Group Incorporated (Enterprise) and its subsidiaries.

Consolidated Statements of Cash Flows 32 This discussion refers to the Consolidated Financial Statements and Consolidated Statements of Retained Earnings 33 related Notes of Enterprise and should be read in conjunction with Independent Auditors's Report 33 such statements and notes.

Notes to Consolidated Financial Statements 34 Overview Consolidated Financial Statistics 46 Enterprise has two direct wholly-owned subsidiaries, Public Service Operating Statistics 47 Electric and Gas Company (PSE&G) and Enterprise Diversified Officers and Directors 48 Holdings Incorporated (EDHI). Enterprise's principal subsidiary, Corporate and Stock Information 49 PSE&G, is an operating public utility providing electric and gas ser-vice in certain areas in the State of New Jersey.

PSE&G has a finance subsidiary, PSE&G Fuel Corporation (Fuelco), providing financing, unconditionally guaranteed by PSE&G, of up to $I 50 million aggregate principal amount at any one time of a 42.49% interest in the nuclear fuel acquired for Peach Bottom Atomic Power Station Units 2 and 3 (Peach Bottom). PSE&G also has a nonutility subsidiary, Public Service Conservation Resources Corporation (PSCRC), which offers demand side management (DSM) services to utilrty customers.

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

Energy Development Corporation (EDC), *an oil and gas explo-ration, development, production and marketing company; Community Energy Alternatives Incorporated (CEA), an investor in and developer of cogeneration and power production facilities; Public Service Resources Corporation (PSRC), which makes diver-sified passive investments; and Enterprise Group Development Corporation (EGDC), a diversified nonresidential real estate devel-opment and investment business. EDHI also has two finance sub-sidiaries: PSEG Capital Corporation (Capital), which has provided up to $750 million of privately-placed debt financing on the basis of a support agreement from Enterprise and Enterprise Capital Funding Corporation (Funding), which provides privately-placed debt financing guaranteed by EDHI but without direct support from Enterprise.

As of December 31, I 993 and December 3 I, I 992, PSE&G comprised 86% and 83%, respectively, of Enterprise assets. For the years I 993, I 992 and I 99 I, PSE&G revenues were 93%, 93% and 94%, respectively, of Enterprise revenues and PSE&G earnings avail-able to Enterprise for such years were 96%, 88% and 95%, respec-tively, of Enterprise net income.

Pursuant to the Focused Audit Implementation Plan approved by the New Jersey Board of Regulatory Commissioners (BRC) regarding operations and intercompany relationships between PSE&G and EDHI, in 1993 Enterprise agreed with the BRC, among other things, that it will not permit its investment in EDHI to exceed 20% of its consolidated assets without prior notice to the 21

BRC, that the PSE&G Board will make an annual certification that Enterprise Earnings the business and financing plans of EDHI will not adversely affect Earnings per share of Enterprise Common Stock were $2.50 in PSE&G, that debt supported by the support agreement between 1993, $2.17 in 1992 and $2.43 in 1991. The changes are summa-

• Enterprise and Capital will be limited to $750 million, that a good rized as follows:

faith effort will be made to eliminate such support over the next 1993 vs. 1992 1992 vs. 199 I six to ten years and that EDHI will pay PSE&G an affiliation fee of (Millions, except per share data) Amount Per Share Amount Per Share

$2 million a year, to be proportionately reduced as the amount of PSE&G debt under the support agreement is reduced. Revenues (net of fuel The major factors which will affect Enterprise's future results costs and gross receipts taxes) $347 $1.49 $(43) $(.19) include general and regional economic conditions, PSE&G's cus-Peach Bottom Settlement tomer retention and growth, the ability of PSE&G and EDHI to (net of Federal income meet competitive pressures and to contain costs, the adequacy taxes of $17 million) (33) (.14) 33 .15 Other operation expenses (62) (.26) (49) (.22) and timeliness of required regulatory approvals, including rate relief Maintenance expenses 3 .01 8 .03 to PSE&G, continued access to the capital markets and continued Depreciation and amortization favorable regulatory treatment of consolidated tax benefits. (See expenses (15) (.06) (22) (.10)

Federal income taxes (I 13) (.49) 53 .24 Note 2 - Rate Matters and Note I 2 - Commitments and Other taxes (1) (9) (.04)

Contingent Liabilities of Notes to Consolidated Financial Other income 2 .01 Statements.) Interest charges 12 .05 (36) (.16)

Allowance for Funds Used During PSE&G Energy and Fuel Adjustment Clauses Construction (AFDC) (4) (.02)

Preferred Stock Dividend PSE&G has fuel and energy tariff rate adjustment clauses which are Requirements (6) (.02) (3) (.01) designed to permit adjustments for changes in electric energy and Other income and expenses I (2) (.01) gas supply costs and certain other costs as approved by the BRC, Earnings Available to when compared to cost recovery included in base rates. Charges Enterprise 133 .58 (72) (.32) under the clauses are primarily based on energy and gas supply EDHI (36) (.16) 33 .14 costs which are normally projected over twelve-month periods. Net Income $ 97 .42 $(39) (.18)

The changes in the Levelized Gas Adjustment Clause (LGAC) and Effect of additional shares of the Levelized Energy Adjustment Clause (LEAC) do not directly Enterprise Common Stock affect earnings because such costs are adjusted monthly to match issued (.09) (.08) amounts recovered through revenues. However, the canrying of Total $ .33 $(.26) underrecovered costs ultimately increases financing costs. PSE&G is The average shares of Enterprise Common Stock outstanding also required to pay interest on net overrecovered costs. Under were 240,663,599 for 1993 and 232,306,492 for 1992.

the clauses, if actual costs differ from the costs recovered, the amount of the underrecovery or overrecovery is deferred and is PSE&G reflected in the average cost used to determine the fuel and ener- In 1993, excluding the $33 million net effect of the 1992 settle-gy tariff rate adjustment for the period in which it is recovered or ment of litigation against Philadelphia Electric Company, now repaid. Actual costs otherwise includable in the LEAC are subject known as PECO Energy Company (PECO) in connection with the to adjustment by the BRC in accordance with PSE&G's nuclear 1987 shutdown of Peach Bottom by the Nuclear Regulatory performance standard. (See Note 2 - Rate Matters and Note 12 Commission ( 1992 Settlement), PSE&G's earnings available to

- Commitments and Contingent Liabilities of Notes to Enterprise increased by $166 million. The principal contributing Consolidated Financial Statements.) factors to the increase in earnings available to Enterprise were PSE&G's higher electric and gas base rates that became effective January I, 1993 and a substantial increase in electric kilowatthour sales. (See PSE&G Electric and Gas Revenues, below.) The increase in electric sales was primarily due to the abnormally warm weath-er. Partially offsetting the increase in earnings were higher other operation expenses (comprised primarily of labor and employee benefits costs and miscellaneous nuclear production costs), higher depreciation and amortization and higher Federal income taxes resulting from increased pre-tax operating income and an increase in the Federal corporate income tax rate, effective January 1993.

(See Note 9 - Federal Income Taxes of Notes to Consolidated Financial Statements.)

In 1992, excluding the $33 million net effect of the 1992 Settlement, PSE&G's earnings available to Enterprise declined by

$105 million. This d~cline was principally due to the 1.7% decrease in electric kilowatthour sales resulting from significantly cooler weather during 1992 and higher other operation expenses (com-prised primarily of labor and employee benefits costs and miscella-22

neous nuclear production costs). Also contributing to the decrease Revenues in earnings were increased interest charges resulting from timing of PSE&G Electric

-refunding operations and higher depreciation and amortization Revenues increased $285 million, or 8.4%, in 1993 from 1992; expenses. Partially offsetting the decrease in earnings were lower 1992 revenues decreased $92 million, or 2.6%, compared to 1991.

maintenance expenses at certain of PSE&G's fossil fuel generating The significant components of these changes follow:

stations and at Peach Bottom and lower Federal income taxes resulting from lower pre-tax operating income. Increase or (Decrease)

I993 vs. I992 I992 vs. I99 I EDHI (Millions)

The net income of EDHI was $24 milfion in 1993, a decrease of Kilowatthour sales $ 67 $(65)

$36 million from 1992. As a result of a management review of Base rate increase effective January I, I993 244 each of EGDC's property's current value and the potential for Tax Reform Act of I986 (TRA-86) 13 (6)

Recovery of energy costs (52) (6) increasing such value through operating and other improvements, New Jersey Gross Receipts and Franchise EGDC recorded an impairment related to certain properties, Taxes (NJGRT) 17 (IS) including properties upon which management revised its intent Other operating revenues (4) from a long-term investment strategy to a short-term hold for sale Total Electric Revenues $285 $(92) status, reflecting such properties on its books at their net realizable value. This impairment reduced EDHI earnings by $51 million, after Changes in kilowatthour sales by customer category are tax, or 21 cents per share of Enterprise Common Stock. Partially described below:

offsetting this decrease was an increase in the earnings of EDC due Increase or (Decrease) to the higher price of natural gas. Exclusive of the recorded impair- I993 vs. I992 1992 vs. I99 I ment, EDHI net income would have been $75 million for 1993.

Residential 8.3% (6.6)%

The net income of EDHI was $60 million in 1992, an increase of Commercial 3.7 (0.8)

$33 million from 1991. The increase in EDHI net income was due Industrial (1.0) (I. I) primarily to an increase in EDC net income of $23 million resulting 1993 - The increase in electric revenues over 1992 was primarily from higher natural gas prices and volumes and an $8 million due to the base rate increase which became effective January I, increase in CEA net income due to improved performance of cer-1993, partially offset by the larger LEAC credit also effective tain projects and the sale of its interest in various projects. January I, 1993. Abnormally warm weather resulted in a significant Dividends increase in weather sensitive sales during 1993. Increased competi-The ability of Enterprise to declare and pay dividends is contingent tion from nonutility generators (NUGs) and an unscheduled main-upon its receipt of dividend payments from its subsidiaries. PSE&G tenance shutdown at PSE&G's largest industrial customer negatively has made regular payments to Enterprise in the form of dividends impacted industrial sales.

on outstanding shares of its common stock since Enterprise was 1992 - The reduction in electric revenues from 199 I was due to formed in 1986. In addition, commencing in 1992, EDHI has also a 1.7% reduction in kilowatthour sales resulting from reduced made payments to Enterprise in the form of dividends on its out- weather-sensitive load. Industrial and commercial sales also declined standing common stock. reflecting the effect of New jersey's weak economy. Competition Dividends paid to holders of Enterprise Common Stock increased from NUGs continued to negatively impact industrial sales.

$18 million during 1993 compared to 1992 and increased $27 mil-PSE&G Gas lion during 1992 compared to 199 I. The increase in the 1993 divi-Revenues increased $8 million, or 0.5%, during 1993 over 1992; dend payment over 1992 was due to the issuance of additional 1992 revenues increased $278 million or 21.3% over 199 I. The shares of Enterprise Common Stock. The increase in the 1992 divi-significant components of these changes follow:

dend payment over 199 I was due to the issuance of additional Increase or (Decrease) shares of Enterprise Common Stock and a one cent per share increase in the quarterly dividend rate for the first three quarters of I993 vs. 1992 1992 vs. I99 I 1992 compared to the same periods of 199 I . (Millions)

Therm sales $(29) $ 36 Dividends paid to holders of PSE&G Preferred Stock increased Base rate increase effective January I, I993 48

$6 million during 1993 compared to 1992 and $3 million during TRA-86 3 1992 compared to 1991. The increase in 1993 dividend payments Recovery offuel costs 15 216 NJGRT (5) 16 over 1992 dividend payments was due to the issuance and sale of Other operating revenues (21) 7 750,000 shares of 5.97% Preferred Stock on March 17, 1993 and Total Gas Revenues $ 8 $278 the issuance and sale of 750,000 shares of 7.44% Preferred Stock on June 23, 1992, while the increase in 1992 dividend payments over 199 I dividend payments was due to the issuance and sale of the 7.44% Preferred Stock.

23

Changes in gas sold or transported by customer category are PSE&G Electric Energy Costs described below: Electric energy costs decreased $59 million or 7.7% in 1993 com-Increase or (Decrease) pared to 1992 and $5 million or .6% in 1992 compared to 1991.

• The significant com'ponents of these changes follow:

1993 vs. 1992 1992 vs. 1991 Residential 1.2% 10.9% Increase or (Decrease)

Commercial .4 5.1 (Millions) 1993 vs. 1992 1992 vs. 1991 Industrial 18.5 85.2 Transportation Service 2.6 42.4 Change in prices paid for fuel and power purchases $ 18 $ 7 I993 - The increase in gas revenues over 1992 was primarily Kilowatthour generation 29 (20)

Adjustment of actual costs to match attributable to the base rate increase which became effective recoveries through revenues (A) (106) 8 January I, I993 and the higher recovery of fuel related costs. Sales Total Electric Energy Costs $ (59) $ (5) to cogenerators was the largest contributor to the increase in (A) Reflects the change in the deferred over(under)recovered energy costs, which industrial sales as cogeneration average customer usage for electric in the years 1993, 1992 and 1991 amounted to $(93) million, $13 million and generation continues to increase. Transportation service sales $5 million, respectively. (See PSE&G Energy and Fuel Adjustment Clauses and reflect the movement of some interruptible customers to trans- Note 2 - Rate Matters of Notes to Consolidated Financial Statements.)

portation service. I993 - The decrease in total costs was the result of an adjust-1992 - Revenues for 1992 increased over 1991 due principally to ment in the recove*ry of energy costs resulting from the base rate the recovery of fuel costs resulting from higher levels of weather- case decision effective January I, I993, partially offset by a I7%

sensitive therm sales and an increase in the LGAC authorized by increase in nuclear kilowatthour generation and an I I% increase in the BRC. effective January I, I992. The increase in residential and purchased power costs.

firm commercial sales, which represent the majority of PSE&G gas 1992 - The decrease in total costs resulted from lower kilowatt-revenues, was principally attributable to the colder weather. Higher hour generation due primarily to a reduction in weather-sensitive industrial and transportation service sales over 1991 were due to load. Higher prices paid for fuel and power purchases resulted cogeneration customer growth. principally from the need to purchase power due to outages at various times of the Salem Nuclear Generating Station, Units I and EDHI 2 (Salem I and 2), in which PSE&G owns 42.59% of undivided EDHI revenues increased $33 million, or 8% during I993 over interest. Kilowatthour generation from the Salem units declined 1992; I992 revenues increased $72 million, or 22% in 1992 over 3 I% in I992 compared to 1991. (See Note 12 - Commitments 199 I. The significant components contributing to such results were and Contingent Liabilities - Nuclear Performance Standard of as follows: Notes to Consolidated Financial Statements.)

Increase or (Decrease)

Gas Supply Costs (Millions) 1993 vs. 1992 1992 vs. 1991 Gas supply costs increased $39 million or 4.6% in I993 compared EDC $30 $35 to I992 and $223 million or 35.0% in 1992 compared to I99 I.

CEA 10 15 The significant components of these changes follow:

PSRC (I I) 15 Increase or (Decrease)

EGDC 4 7 (Millions) 1993 vs. 1992 1992 vs. 1991 Total EDHI Revenues $33 $72 Change in prices paid for gas supplies $117 $ 25 1993 - EDC was the largest contributor to the EDHI revenue Therm sendout 41 147 increase due to the higher price of natural gas,. partially offset by Refunds from pipeline suppliers 33 (33)

Adjustment of actual costs to match lower sales to PSE&G. CEA revenues increased as a result of recoveries through revenues (A) (152) 84 greater income from partnership operating projects. PSRC rev- Total Gas Supply Costs $ 39 $223 enues decreased due to unrealized losses on investments and (A) Reflects the change in the deferred over(under)recovered gas supply costs, lower income from leases. which in the years 1993, 1992 and 1991 amounted to$( I00) million, $52 1992 ~The increase in I992 revenues over .I 99 I was due to million and $(32) million, respectively. (See PSE&G Energy and Fuel higher revenues of each of EDHl's operating subsidiaries. EDC's Adjustment Clauses and Note 2 - Rate Matters of Notes to Consolidated Financial Statements.)

higher revenues were principally attributable to increased sales and higher gas prices in 1992. CEA's increased revenues were derived from higher partnership income and gains on the sales of certain partnership interests in I992. PSRC's greater revenues were attrib-utable to increased gains on investments and higher income from partnerships and leases, net of pre-tax valuation allowances and a write~off totaling $35 million, primarily related to the loss on its investment in the Second National Federal Savings Bank of Salisbury, Maryland. EGDC's increased revenues resulted from higher rental and partnership income.

24

1993 - The increase in total costs was principally due to greater EDHI sales to NUGs and other customers, higher gas costs and higher During the next five years, a majority of EDHl's capital require-

'therm sendout resulting from the colder 1993 winter season com- ments are expected to be provided from operational cash flows.

pared to the 1992 winter season. The increase ln costs was EDHI intends to focus its efforts on CEA and EDC. its energy-reduced by deferred underrecovered 1993 gas costs resulting from related core businesses. CEA is expected to be the primary vehicle the BRC approved adjustment in PSE&G's LGAC, effective January for its business growth and EDC is projected to attain and maintain I, 1993 of $71 million on an annualized basis through December a reserve base at approximately 900 billion cubic feet equivalent, 3 I, 1993. The adjustment reflects lower gas costs and the inclusion approximately I I% above the year-end 1993 level. PSRC will limit of $15. I million of conservation program costs in LGAC. In addi- new investments, while EGDC will exit the real estate business in a tion, gas customers received $45 million of credits during the first prudent manner. This strategy places greater emphasis on its quarter of 1993. investment in the independent energy market. Over the next sev-1992 - The increase in total costs was principally due to greater eral years, EDHI and its subsidiaries will also be required to refi-therm sendout resulting from the colder 1992 weather compared nance a portion of their maturing debt in order to meet their capi-to 199 I and increased sales to NUGs. tal requirements. Any inability to extend or replace maturing debt at current levels and interest rates may affect future earnings and Liquidity and Capital Resources result in an increase in EDHl's cost of capital.

Enterprise's liquidity is affected by maturing debt (see Note 6 -

PSRC is a limited partner in various partnerships and is commit-Schedule of Consolidated Long-Term Debt of Notes to ted to make investments from time to time, upon the request of Consolidated Financial Statements), investment and acquisition the respective general partners. On December 31, 1993, $139 .5 activities and the capital requirements of PSE&G's construction million remained as PSRC's unfunded commitment subject to call.

program. Capital resources available to meet such requirements EDHI and each of its subsidiaries are subject to restrictive busi-depend upon the factors noted above under Overview.

ness and financial covenants contained in existing debt agreements PSE&G and are required to not exceed various debt to equity ratios which For 1993, PSE&G had utility plant additions, including AFDC, of vary from 3: I to 1.75: I. EDHI is also required to maintain a twelve

$890 million, an increase of $63 million versus 1992 additions of months earnings before interest and taxes to interest (EBIT) cover-

$827 million. Additions in 1992 increased $14 million from 1991 age ratio of at least 1.35: I. As of December 3 I, 1993 and 1992,.

additions of $813 million. AFDC for 1993, 1992 and 1991 amount- EDHI had consolidated debt to equity ratios of 1.34: I and 1.84: I ed to $27 million, $26 million and $30 million, respectively. and, for the years ended December 3 I, 1993 and 1992, EBIT cov-Construction expenditures were related to improvements in erage ratios, which exclude the effect of EGDC, of2. I 3: I and PSE&G's existing power plants, transmission and distribution sys- 1.88: I, respectively. Compliance with applicable financial covenants tem, gas system and common facilities. Construction expenditures will depend upon future levels of earnings, among other things, as from 1994 through 1998 are expected to aggregate $4.2 billion. to which no assurance can be given. (See Construction, (See Construction, Investments and Other Capital Requirements Investments and Other Capital Requirements Forecast and Note 6 Forecast below.) - Schedule of Consolidated Long-Term Debt of Notes to PSE&G expects that it will be able to generate internally a major- Consolidated Financial Statements.)

ity of its capital requirements including construction expenditures over the next five years, assuming adequate and timely rate relief as to which no assurances can be given. (See Note 2 - Rate Matters and Note 12 - Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements.)

Legislation effective January I , 1992 phases in an acceleration of payment of the NJGRT during 1992-94, so that for 1994 and for each year thereafter PSE&G will be paying its estimated current year's NJGRT liability in April of each such year. In April 1993, PSE&G paid $899 million (its 1992 NJGRT plus 50% of its estimat-ed 1993 NJGRT). In April 1994, PSE&G will be required to pay approximately $850 million (the remainder of its 1993 NJGRT plus its 1994 estimated NJGRT). Pending collection from customers, PSE&G is required to finance such NJGRT payments.

25

Construction, Investments and Other Capital While the above forecast includes capital costs to comply with Requirements Forecast revised Clean Air Act (CAA) requirements through 1998, it does The estimated construction requirements of PSE&G, including not include additional requirements being developed under the AFDC, investments and other capital requirements of PSE&G and CAA by Federal and State agencies. Such additional costs cannot EDHI for 1994 through 1998 are based on expected project com- be reasonably estimated at this time. PSE&G believes that such pletion dates, and include anticipated escalation due to inflation of CAA costs would be recoverable from electric customers. Not approximately 4% for utility projects and are as follows: included in PSE&G's estimated construction expenses is the capital (Millions of cost of compliance with the New Jersey Department of Dollars) 1994 1995 1996 1997 1998 Total Environmental Protection and Energy (NJDEPE) draft permit issued PSE&G October 3, 1990 pursuant to the Federal Water Pollution Control ELECTRIC Act with respect to Salem I and 2 which, if adopted as proposed, Nuclear would require the immediate shutdown of both units pending Production Facilities $114 $82 $87 $95 $87 $465 retrofit with cooling towers. On June 24, 1993, NJDEPE issued a Nuclear Fuel 74 102 99 94 114 483 revised draft permit that would permit Salem to continue to oper-Transmission and ate with once-through cooling and would require PSE&G to make Distribution 218 196 204 216 221 1,055 Other Production 321 138 139 170 252 1,020 certain plant modifications and to take certain other actions to Conservation and enhance the ecology of the affected water body. The public com-Other 47 42 91 17 41 238 ment period with respect to the revised draft permit expired on Total Electric 774 560 620 592 715 3,261 January 15, 1994. While a final permit is expected to be issued GAS sometime in the second quarter of 1994, no assurances can be Production given as to the timing of any final agency determination. The cost Facilities 2 2 2 6 Transmission and of complying with the revised permit is estimated at approximately Distribution 144 136 140 142 142 704 $90 million, PSE&G's share of which is included in the above fore-Total Gas 146 138 142 142 142 710 cast. Nevertheless, if cooling towers are ultimately required, PSE&G Miscellaneous estimates that it would take at least four years, and between $720 Corporate 56 47 45 46 48 242 million and $2.0 billion in capital, operation and maintenance costs Total and replacement power costs to retrofit Salem with cooling tow-Construction ers. PSE&G's share of any such costs would be 42.59%. In addition, Requirements the estimate does not include costs associated with the proposed of PSE&G 976 745 807 780 905 4,213 Phase II of the repowering of PSE&G's Bergen Generating Station.

EDHI 326 177 193 194 285 1,175 Mandatory Internal Generation of Cash from Operations Retirement of Although net income increased $97 million for 1993 (See Securities; Enterprise Earnings and Revenues), net cash provided by operating PSE&G 60 310 300 118 788 EDHI 106 190 91 125 204 716 activities decreased by $332 million from 1992 to $1.008 billion.

166 500 91 425 322 1,504 This decrease was primarily due to an underrecovery of electric energy and gas costs through PSE&G's LEAC and LGAC, increased Working Capital and Other - net 247 90 56 33 17 443 NJGRT payments and a decrease in amortization of property aban-Total Capital donments and write-downs. Partially offsetting these cash outflows Requirements $1,715 $1,512 $1,147 $1.432 $1,529 $7,335 were the increase in net income, increases in deferred income taxes and inventory decreases in fuel and materials and supplies.

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

26

External Financings

• Under authority granted by the BRC, expiring December 31, 1994, PSE&G is authorized to issue an additional $495 million principal amount of Bonds after giving Cash Flows from Financing Activities effect to the 1994 issuance of Bonds.

'(Millions of Dollars) 1993 1992 1991 For more detail see Note 6 - Schedule of Consolidated Long-Term Debt of Notes to Consolidated Financial Statements.

Enterprise: (F) In March 1993, PSE&G sold 750,000 shares of Preferred Stock ($100 Par). The Issuance of Common Stock (A) $ 273 $ 237 $219 net proceeds of $75 million were used by PSE&G for general corporate purposes.

Cash Dividends paid on Common Stock (B) (522) (503) (476) In February 1994, PSE&G sold 600,000 shares of Preferred Stock - $25 Par and 600,000 shares of Preferred Stock ($I 00 Par). The net proceeds of $15 million PSE&G: (C) from the sale of the Preferred Stock - $25 Par were used by PSE&G to redeem all Net increase (decrease) in Short-Term Debt (D) 275 92 (321) of the 150,000 outstanding shares of PSE&G's 8.08% Preferred Stock ($100 Par).

Issuance of Long-Term Debt (E) 1,973 850 750 The net proceeds of $60 million from the sale of the Preferred Stock ($100 Par)

Redemptions of Long-Term Debt were added to the general funds of PSE&G and used to pay a portion of its then and Other Obligations (1,717) (1,032) (171) outstanding short-term debt obligations, which were principally incurred to fund a (Deferral) Amortization of Debt Expense - net (58) ( 13) 5 portion of its construction expenditures.

Issuance of Preferred Stock (F) 75 75 Under authority granted by the BRC. expiring December 31, 1995, PSE&G is Other (I) (I) authorized to issue an additional $330 million of Preferred Stock after giving effect Total PSE&G 547 (29) 263 to the 1994 issuances of Preferred Stock. (See Note 4 - Schedule of Consolidated Capital Stock of Notes to Consolidated Financial Statements.)

EDHI: (G) (G) Funding has a commercial paper program, supported by a commercial bank let-Net decrease in Short-Term Debt (90) (89) (49) ter of credit and revolving credit facility, through November 18, 1995 in the amount Issuance of Long-Term Debt 165 30 264 .of $225 million. As of December 3 I, 1993, Funding had $45 million outstanding Redemptions of Long-Term Debt (367) (27) (81) under its commercial paper program.

Other (6) (4) 2 Funding has a $225 million revolving credit facility which terminates on Total EDHI (298) (90) 136 November 18, 1995. As of December 31, 1993, Funding had no debt outstanding under this facility.

Net cash provided by (used in) financing activities $ $ (385) $142 In February 1993, Funding repaid $60 million of its 9.43% Series A Notes. In (A) During 1993, Enterprise issued and sold 4,400,000 shares of Common Stock March 1993, Funding privately placed an aggregate of $60 million principal amount through a public offering through underwriters and 3,892,505 shares of Common of its Senior Notes.

Stock through its Dividend Reinvestment and Stock Purchase Plan (DRIP) and vari- In May 1993, Capital amended its Medium-Term Notes (MTNs) program to pro-ous employee benefit plans. The net proceeds from such sales, aggregating approxi- vide for an aggregate principal amount of up to $750 million of MTNs, provided that its total debt outstanding at any time, jncluding MTNs, shall not exceed such mately $273 million, were used by Enterprise to make equity investments of $179 '

million in PSE&G and $94 million in EDHI. PSE&G utilized such funds for general amount. During 1993, $88 million principal amount of Capital's MTNs were repaid, corporate purposes, including payment of a portion of its construction expendi- $42.5 million sinking fund payments on Capital's long-term debt obligations were tures. EDHI used the funds for general corporate purposes, including the payment made and $I 05 million principal amount of MTNs were issued. At December 3 I, of outstanding debt obligations. Book value per share was $21 .07 at December 3 I, 1993, Capital had $517 million of MTNs outstanding and total debt outstanding of 1993 compared to $20.32 at December 31, 1992. (See Note 4 - Schedule of $724.5 million.

Consolidated Capital Stock of Notes to Consolidated Financial Statements.) For additional detail see Note 6 - Long-Term Debt of Notes to Consolidated (B) See DIVIDENDS. Financial Statements.

(C) Under the terms of PSE&G's First and Refunding Mortgage (Mortgage) and its Restated Certificate of Incorporation, as amended, at December 3 I, 1993, PSE&G would qualify to issue an additional $4.488 billion of First and Refunding Mortgage Bonds (Bonds) at a rate of 7.375% or $4.10 I billion of Preferred Stock at a rate of7.0%.

In addition, as a prerequisite to the issuance of additional Bonds, PSE&G's Mortgage requires a 2: I ratio of earnings to fixed charges as computed thereunder.

For the twelve months ended December 3 I, 1993 such ratio was 3.30: I.

The BRC has authorized PSE&G to issue not more than $800 million of its short-term obligations at any one time outstanding, consisting of commercial paper and other unsecured borrowings from banks and other lenders through December 31, 1994. On December 31, 1993, PSE&G had $424 million of short-term debt outstanding.

PSE&G has a $600 million revolving credit agreement with, a group of commercial banks which expires on September 17, 1994. On December 31, 1993, there was no short-term debt outstanding under this credit agreement.

(D) Includes commercial paper issued and/or redeemed by Fuelco and guaranteed by PSE&G pursuant to a commercial paper program supported by a bank revolving credit facility to finance the acquisition of a 42.49% undivided interest in the nuclear fuel for Peach Bottom. Fuelco has a $150 million commercial paper program through June 1996. On December 31, 1993, Fuelco had $109 million of its com-mercial paper outstanding.

(E) Enterprise's long-term debt aggregated $5.256 billion as of December 31, 1993, of which $4.364 billion was attributable to PSE&G and $892 million to EDHI.

During 1993, PSE&G issued $1.973 billion principal amount of its Bonds. The net proceeds of these Bonds were used by PSE&G to refund and redeem certain of its higher-cost and maturing debt obligations including reimbursement of its treasury for funds expended for such purposes and for the payment of a portion of PSE&G's construction expenditures. During 1993, PSE&G redeemed or paid at maturity $1.7 billion aggregate principal amount of its Bonds and Debenture Bonds.

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

27

Financial Statement Responsibility Management of Enterprise is responsible for the preparation, The Internal Auditing Department of PSE&G conducts audits integrity and objectivity of the consolidated financial statements and appraisals of accounting and other operations of Enterprise and related notes of Enterprise. The consolidated financial state- and its subsidiaries and evaluates the effectiveness of cost and ments and related notes are prepared in accordance with generally other controls and recommends to management, where appropri-accepted accounting principles. The financial statements reflect ate, improvements thereto. Management has considered the estimates based upon the judgment of management where internal auditors' and Deloitte & T ouche's recommendations appropriate. Management believes that the consolidated financial concerning the corporation's system of internal accounting controls statements and related notes present fairly Enterprise's financial and has taken actions that, in its opinion, are cost-effective in the position and results of operations. Information in other parts of this circumstances to respond appropriately to these recommenda-Annual Report is also the responsibility of management and is con- tions. Management believes that, as of December 3 I, 1993, the sistent with these consolidated financial statements and related corporation's system of internal accounting controls is adequate to notes. accomplish the objectives discussed herein.

The fimi of Deloitte & T ouche, independent auditors, is engaged The Board of Directors of Enterprise carries out its responsibility to audit Enterprise's consolidated financial statements and related of financial overview through its Audit Committee, which presently notes and issue a report thereon. Deloitte & T ouche's audit is con- consists of six directors who are neither employees of Enterprise ducted in accordance with generally accepted auditing standards. nor its affiliates. The Audit Committee meets periodically with Management has made available to Deloitte & T ouche all the cor- management as well as with representatives of the internal auditors poration's financial records and related data, as well as the minutes and Deloitte & T ouche. The Audit Committee reviews the work of directors' meetings. Furthermore, management believes that all of each to ensure that their respective responsibilities are being representations made to Deloitte & T ouche during its audit were carried out and discusses related matters. Both the internal audi-valid and appropriate. tors and Deloitte & T ouche periodically meet alone with the Audit Management has established and maintains a system of internal Committee and have free access to"the Audit Committee, and its accounting controls to provide reasonable assurance that assets individual members, at any time.

are safeguarded, and that transactions are executed in accordance with management's authorization and recorded properly for the

~~~"j~~

prevention and detection of fraudulent financial reporting, so as to maintain the integrity and reliability of the financial statements. The system is designed to permit preparation of consolidated financial E. James Ferland statements and related notes in accordance with generally accept- Chairman of the Board, Vice President and ed accounting principles. The concept of reasonable assurance rec- President and Chief Chief Financial Officer ognizes that the costs of a system of internal accounting controls Executive Officer should not exceed the related benefits. Management believes the effectiveness of this system is enhanced by an ongoing program of continuous and selective training of employees. In addition, man-agement has communicated to all employees its policies on busi-ness conduct, safeguarding assets and internal controls. Patricia A Rado Vice President and Comptroller Principal Accounti~g Officer February I8, 1994 28

Consolidated Statements of Income For the Years Ended December 3 I, (Thousands of Dollars) 1993 1992 1991 Operating Revenues Electric $3,693,083 $3,407,819 $3,500,043 Gas 1,594,341 1,586, 181 1,307,849 Nonutility Activities 418,135 362,781 283,766 Total Operating Revenues 5,705,559 5,356,781 5,091,658 Operating Expenses Operation Fuel for Electric Generation and Net Interchanged Power 717,136 776,571 781,191 Gas Purchased and Materials for Gas Produced 897,885 858,737 636,058 Other 1,012,757 924,942 867, 182 Maintenance 304,403 307,726 315,372 Depreciation and Amortization 600,264 642,548 585,919 Property Impairment (note 16) 77,637 Taxes Federal Income Taxes (note 9) 314,759 221,694 264,856 New Jersey Gross Receipts Taxes 597,898 585,770 583,071 Other 75,973 72,658 60,855 Total Operating Expenses 4,598,712 4,390,646 4,094,504 Operating Income 1,106;847 966, 135 997, 154 Other Income Allowance for Funds Used During Construction - Equity 12,265 12,828 7,092 Peach Bottom Settlement - net of Federal income taxes $16,985 32,970 Miscellaneous - net (3,778) 30, 188 15,024 Total Other Income 8,487 75,986 22,116 Income Before Interest Charges and Dividends on Preferred Stock 1,115,334 1,042,121 1,019,270 Interest Charges (note 6)

Long-Term Debt 469,120 479,898 437,70 I Short-Term Debt 13,860 14,858 35,000 Other 19,554 29,269 12,576 Total Interest Charges 502,534 524,025 485,277 Allowance for Funds Used During Construction - Debt and Capitalized Interest (20,833) (17,928) (38,054)

Net Interest Charges 481,701 506,097 447,223 Preferred Stock Dividend Requirements (note 4) 38,114 31,907 29,012 Income before cumulative effect of accounting change 595,519 504,117 543,035 Cumulative effect of change in accounting for income taxes (note 9) 5,414 Net Income $ 600,933 $ 504, 117 $ 543,035 Shares of Common Stock Outstanding End of Year 243,688,256 235,395,751 226,700,852 Average for Year 240,663,599 232,306,492 223,565,239 Earnings Per Average Share of Common Stock Income before cumulative effect of accounting change $2.48 $2.17 $2.43 Cumulative effect of change in accounting for income taxes .02 Total Earnings Per Average Share of Common Stock $2.50 $2.17 $2.43 Dividends Paid Per Share of Common Stock $2.16 $2.16 $2.13

" Notes to Consolidated Financial Statements See 29

Consolidated Balance Sheets December 3 I, (Thousands of Dollars) 1993 1992 Assets Utility Plant - Original cost Electric $I I, 920,894 $1 1,565,669 Gas 2,177,841 2,044,944 Common 520,285 479,972 Total 14,619,020 14,090,585 Less accumulated depreciation and amortization 4,772,942 4,386,738 Net 9,846,078 9,703,847 Nuclear Fuel in Service, net of accumulated amortization - 1993, $284, 162; 1992, $223,857 205,237 252,299 Net Utility Plant in Service 10,051,315 9,956, 146 Construction Work in Progress, including Nuclear Fuel in Process - 1993, $98,780; 1992, $68,789 735,356 492,914 Plant Held for Future Use (principally land) 17,709 22,252 Net Utility Plant 10,804,380 10,471,312 Investments and Other Property (notes 3, 7 and I0)

Long-Term Investments, net of valuation allowance - 1993, $18,018; 1992, $17,548 1,613,823 1,650,248 Oil and Gas Property, Plant and Equipment, net of accumulated depreciation and amortization -

1993, $695,791; 1992, $663,915 506,047 506,814 Real Estate, Property and Equipment, net of accumulated depreciation - 1993, $10,840; 1992, $1 I, 146 110,661 225,289 Other Plant, net of accumulated depreciation and amortization - 1993, $4,307; 1992, $3,073 45,501 26,260 Nuclear Decommissioning and Other Special Funds 189,282 134,524 Other Investments - net 103,537 79,616 Total Investments and Other Property 2,568,851 2,622,751 Current Assets Cash and Cash Equivalents (note 8) 46,880 31,674 Accounts Receivable:

Customer Accounts Receivable 446,629 395,991 Other Accounts Receivable 233,307 214,195 Less allowance for doubtful accounts 27,932 24,059 Unbilled Revenues 244,497 248,742 Fuel, at average cost 285,943 263,743 Materials and Supplies, at average cost 172,438 211,076 Prepayments 82,586 63,026 Deferred Income Taxes (note 9) 12,934 Total Current Assets 1,497,282 1,404,388 Deferred Debits (note 5)

Property Abandonments - net 105,536 122,261 Oil and Gas Property Write-Down 46,386 51,540 Unamortized Debt Expense 121,278 62, 134 Deferred Debit - OPEB (notes I and 13) 58,593 Unrecovered Environmental Costs (notes 2 and 12) 138,531 108,047 Unrecovered Plant and Regulatory Study Costs 35,196 23,091 Under(Over)Recovered Electric Energy and Gas Costs - net 62,034 ( 122,736)

Unrecovered SFAS I09 Deferred Income Taxes (note 9) 789,795 Deferred Decontamination and Decommissioning Costs (note 3) 56,055 Other 21,247 11,921 Total Deferred Debits 1,434,651 256,258 Total $16,305, 164 $14,754,709 See Notes to Consolidated Financial Statements 30

December 3 I, (Thousands of Dollars) 1993 1992 Capitalization and Liabilities Capitalization (notes 4 and 6)

Common Equity Common Stock $ 3,772,662 $ 3,499, 183 Retained Earnings 1,361,018 1,282,931 Total Common Equity 5, 133,680 4,782, 114 Subsidiaries' Securities and Obligations Preferred Stock Without Mandatory Redemption 429,994 429,994 With Mandatory Redemption 150,000 75,000 Long-Term Debt (note 6) 5,256,321 4,977,579 Capital Lease Obligations (note I0) 52,530 53,104 Total Capitalization 11,022,525 I 0,317.791 Other Long-Term Liabilities Decontamination and Decommissioning Costs (note 3) 56,055 Unrecovered Environmental Costs (notes 2 and 12) 111,000 93.169 Total Other Long-Term Liabilities 167,055 93, 169 Current Liabilities Long-Term Debt and Capital Lease Obligations due within one year 168,638 393,071 Commercial Paper and Loans (note I I) 577,636 391,982 Accounts Payable 557,761 473,977 New Jersey Gross Receipts Taxes Accrued 263,357 555,329 Other Taxes Accrued 39,610 41,557 Interest Accrued 107,027 116, 165 Other 157,751 134,768 Total Current Liabilities 1,871,780 2, 106,849 Deferred Credits Accumulated Deferred Income Taxes (note 9) 2,702,386 1,711,089 Accumulated Deferred Investment Tax Credits (note 9) 432,713 444,368 Deferred Credit - OPEB (notes I and 13) 58,593 Materials and Supplies 11,847 24,018 Other 38,265 57,425 Total Deferred Credits 3,243,804 2,236,900 Commitments and Contingent Liabilities (note 12)

Total $16,305, 164 $14.754,709 31

Consolidated Statements of Cash Flows

• For the Years Ended December 3 I, (Thousands of Dollars) 1993 1992 1991 Cash Flows From Operating Activities:

Net Income $ 600,933 $ 504,117 $ 543,035 Adjustments to reconcile net income to net cash flows from operating activities:

Depreciation and Amortization 600,264 642.548 585,919 Amortization of Nuclear Fuel 102,718 91,903 96,420 (Deferral) Recovery of Electric Energy and Gas Costs - net (184,770) 121.371 (36, 146)

Loss From Property Impairments 77,637 Cumulative Effect of Change in Accounting for Income Taxes (5,414)

Amortization of Discounts on Property Abandonments and Disallowance (7,801) (I 1,293) (11.754)

Unrealized Gains on Investments - net (8,694) (24,843) (11.264)

Provision for Deferred Income Taxes - net 168,406 56,846 114,681 Investment Tax Credits - net (11,655) (20.342) ( 19,779)

Allowance for Funds Used During Construction -

Debt and Equity and Capitalized Interest (33,098) (30,756) (45, 146)

Proceeds from Leasing Activities - net 14,780 30,295 17,463 Changes in certain current assets and liabilities Net increase in Accounts Receivable and Ui:-tbilled Revenues (61,632) (75,275) (50,052)

Net decrease (increase) in Inventory- Fuel and Materials and Supplies 16,438 (37,084) 63,043 Net increase (decrease) in Accounts Payable 83,784 60,853 (52,535)

Net (decrease) increase in Accrued Taxes (293,919) 37,892 (7,736)

Net change in Other Current Assets and Liabilities (18,649) 6,658 ( 16,592)

Other (31,662) ( 12,987) (14.437)

Net cash provided by operating activities 1,007,666 1.339,903 I, 155, 120 Cash Flows From Investing Activities:

Additions to Utility Plant excluding AFDC (863,294) (800.344) (783, 175) I Additions to Oil and Gas Property, Plant and Equipment, excluding Capitalized Interest (87,968) (32.337) ( 183,673)

Net decrease (increase) in Long-Term Investments and Real Estate 66,659 (61,099) (304,541)

Increase in Decommissioning and Other Special Funds, excluding interest (45,508) (9,262) (I 1,665)

Cost of Plant Removal - net (47,791) (40, 111) (44, 199)

Other (14,938) (6,000) 11,278 Net cash used in investing activities (992,840) (949, 153) ( 1.3 15,975)

Cash Flows From Financing Activities:

Net increase (decrease) in Short-Term Debt 185,654 2,932 (369,809)

Issuance of Long-Term Debt 2,137,700 880,000 1,013.794 Redemption of Long-Term Debt and Other Obligations (2,083,965) ( 1,058,637) (252,241)

Issuance of Preferred Stock 75,000 75,000 (Deferral) Amortization of Debt Expense - net (59,144) (12,490) 4.562 Issuance of Common Stock 273,479 237,045 218,736 Cash Dividends Paid on Common Stock (521,572) (503, 197) (476,099)

Other (6,772) (5,719) 2,838 Net cash provided by (used in) financing activities 380 (385,066) 141.781 Net increase (decrease) in Cash and Cash Equivalents 15,206 5,684 (19,074)

Cash and Cash Equivalents at Beginning of Year 31,674 25,990 45,064 Cash and Cash Equivalents at End of Year $ 46,880 $ 31,674 $ 25,990 Income Taxes Paid $ 140,172 $ 143,211 $ 148,171 Interest Paid $ 458,956 $ 486,396 $ 436,994 See Notes to Consolidated Financial Statements 32

Consolidated Statements of Retained Earnings For the Years Ended December 3 I, (Thousands of Dollars) 1993 1992 1991 Balance January I $1,282,931 $1,282,029 $1,203,772 Add Net Income 600,933 504,117 543,035 Total 1,883,864 1,786, 146 1,746,807 Deduct Cash Dividends on Common Stock (A) 521,572 503, 197 476,099 Adjustments to Retained Earnings 1,274 18 ( 11,321)

Total Deductions 522,846 503,215 464,778 Balance December 3 I $1,361,018 $1,282,931 $1,282,029 (A) The ability of Enterprise to declare and pay dividends is contingent upon its receipt of dividend payments from its subsidiaries. PSE&G, Enterprise's principal subsidiary, has restrictions on the payment of dividends which are contained in its Restated Certificate of Incorporation, as amended, certain of the indentures supplemental to its Mortgage, and certain debenture bond indentures. However, none of these restrictions presently limits the payment of dividends out of current earnings. The amount of PSE&G's restricted retained earnings at December 31, 1993 was $10 million.

See Notes to Consolidated Financial Statements Independent Auditors' Report Deloitte&

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

We have audited the accompanying consolidated balance sheets of In our opinion, such consolidated financial statements present Public Service Enterprise Group Incorporated and its subsidiaries fairly, in all material respects, the financial position of Public Service as of December 31, 1993 and 1992, and the related consolidated Enterprise Group Incorporated and its subsidiaries at December 3 I, statements of income, retained earnings, and cash flows for each 1993 and 1992, and the results of their operations and their cash of the three years in the period ended December 31, 1993. flows for each of the three years in the period ended December 3 I, These financial statements are the responsibility of the Company's 1993 in conformity with generally accepted accounting principles.

management. Our responsibility is to express an opinion on these As discussed in Note I to the Consolidated Financial Statements, financial statements based on our audits. in 1993 the Company changed its method of accounting for in-We conducted our audits in accordance with generally accepted come taxes to conform with Statement of Financial Accounting auditing standards. Those standards require that we plan and per- Standards No. I09 and changed its method of accounting for the form the audit to obtain reasonable assurance about whether the costs of postretirement benefits other than pensions to conform financial statements are free of material misstatement. An audit in- with Statement of Financial Accounting Standards No. I06.

cludes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a February I8, I994 reasonable basis for our opinion. Parsippany, New Jersey 33

Notes To Consolidated Financial Statements Public Service Enterprise Group Incorporated Note I. Organization and Summary of Significant Utility Plant and Related Depreciation - PSE&G Accounting Policies Additions to utility plant and replacements of units of property are capitalized at original cost. The cost of maintenance, repairs and re-Organization placements of minor items of property is charged to appropriate Enterprise has two direct wholly-owned subsidiaries, Public Service expense accounts. At the time units of depreciable properties are Electric and Gas Company (PSE&G) and Enterprise Diversified retired or otherwise disposed of, the original cost less net salvage Holdings Incorporated (EDHI). Enterprise's principal subsidiary, value is charged to accumulated depreciation.

PSE&G, is an operating public utility providing electric and gas ser-For financial reporting purposes, depreciation is computed under vice in certain areas in the State of New jersey.

the straight-line method. Depreciation is based on estimated aver-PSE&G has a finance subsidiary, PSE&G Fuel Corporation age remaining lives of the several classes of depreciable property.

(Fuelco), providing financing, unconditionally guaranteed by PSE&G, These estimates are reviewed on a periodic basis and necessary ad-of up to $150 million aggregate principal amount at any one time of justments are made as approved by the BRC. Depreciation provi-a 42.49% interest in the nuclear fuel acquired for Peach Bottom sions stated in percentages of original cost of depreciable property Atomic Power Station Units 2 and 3 (Peach Bottom). PSE&G also were 3.46% in 1993 and 3.48% in 1992 and 1991.

has a nonutility subsidiary, Public Service Conservation Resources Corporation (PSCRC) which offers demand side management Decontamination and Decommissioning - PSE&G (DSM) services to utility customers. In September 199:1, FERC issued Order No. 557 on the accounting EDHI is the parent of Enterprise's other nonutility businesses: and ratemaking treatment of special assessments levied under the Energy Development Corporation (EDC), an oil and gas explo- National Energy Policy Act (NEPA). Order No. 557 provides that ration, development, production and marketing company; special assessments are a necessary and reasonable current cost of Community Energy Alternatives Incorporated (CEA), an investor in fuel and shall be fully recoverable in rates in the same manner as and developer of cogeneration and power production facilities; other fuel costs. While PSE&G expects to recover such special as-Public Service Resources Corporation (PSRC), which makes diversi- sessments through its Levelized Energy Adjustment Clause (LEAC) fied passive investments; and Enterprise Group Development no assurances can be given that the BRC will authorize such Corporation (EGDC), a diversified nonresidential real estate devel- recovery from customers. PSE&G cannot predict what actions the opment and investment business. EDHI also has two finance sub- BRC will take concerning any recovery associated with this sidiaries: PSEG Capital Corporation (Capital), and Enterprise Capital matter.

Funding Corporation (Funding).

Amortization of Nuclear Fuel - PSE&G Enterprise has claimed an exemption from regulation by the Nuclear energy burnup costs are charged to fuel expense on a Securities and Exchange Commission (SEC) as a registered holding units-of-production basis over the estimated life of the fuel. Rates company under the Public Utility Holding Company Act of 1935, for the recovery of fuel used at all nuclear units include a provision except for Section 9(a)(2) which relates to the acquisition of voting of one mill per kilowatthour (Kwh) of nuclear generation for spent securities of an electric or gas utility company. Also, Enterprise is fuel disposal costs. (See Note 3 - PSE&G Nuclear Decommission-not subject to direct regulation by the New jersey Board of ing and Amortization of Nuclear Fuel.)

Regulatory Commissioners (BRC) or the Federal Energy Regulatory Commission (FERC). Revenues and Fuel Costs - PSE&G Revenues are recorded based on services rendered to customers Consolidation Policy during each accounting period. PSE&G records unbilled revenues The consolidated financial statements include the accounts of representing the estimated amount customers will be billed for ser-Enterprise and its subsidiaries. All significant intercompany accounts vices rendered from the time meters were last read to the end of and transactions have been eliminated in consolidation. Certain re-the respective accounting period.

classifications of prior years' data have been made to conform with Rates include projected fuel costs for electric generation, pur-the current presentation.

chased and interchanged power, gas purchased and materials used Regulation - PSE&G for gas production.

The accounting and rates of PSE&G are subject, in certain respects, Any under or overrecoveries, together with interest (in the case to the requirements of the BRC and FERC. As a result, PSE&G of overrecoveries), are deferred and included in operations in the maintains its accounts in accordance with their prescribed Uniform period in which they are reflected in rates.

Systems of Accounts, which are the same. The applications of gen-Long-Term Investments erally accepted accounting principles by PSE&G differ in certain re-PSRC has invested in marketable securities and limited partnerships spects from applications by non-regulated businesses.

investing in securities, which are stated at fair value, and various leases and other limited partnerships. EGDC is a participant in the nonresidential real estate markets. CEA is an investor in and devel-oper of cogeneration and power production facilities. (See Note 7

- Long-Term Investments.)

34

Oil and Gas Accounting - EDC On January I, 1993, Enterprise and PSE&G adopted Statement EDC uses the successful efforts method of accounting under which of Financial Accounting Standards No. I06, "Employers Accounting proved leasehold costs are capitalized and amortized over the for Postretirement Benefits Other Than Pensions" (SFAS I06),

proved developed and undeveloped reserves on a units-of- which requires that the expected cost of employees' postretire-production basis. Drilling and equipping costs, except exploratory ment health care benefits be charged to expense during the years dry holes, are capitalized and depreciated over the proved devel- in which employees render service. PSE&G elected to amortize oped reserves on a units-of-production basis. Estimated future over 20 years its unfunded obligation at January I, 1993. The effect abandonment costs of offshore proved properties are depreciated of EDHl's adoption of SFAS I06 was not material. Prior to 1993, on a units-of-production basis over the proved developed reserves. Enterprise and PSE&G recognized postretirement health care costs Unproved leasehold costs are capitalized and not amortized, pend- in the year in which the benefits were paid. (See Note 13 -

ing an evaluation of their exploration potential. Unproved leasehold Postretirement Benefits Other Than Pensions and Note 14 -

and producing properties costs are assessed periodically to deter- Pension Plan.)

mine if an impairment of the cost of significant individual properties has occurred. The cost of an impairment is charged to expense in Note 2. Rate Matters the period in which it occurs. Costs incurred for exploratory dry holes, exploratory geological and geophysical work and delay Base Rates rentals are charged to expense as incurred. On December 3 I, 1992, the BRC approved a settlement of PSE&G's base rate case that effectively provides additional annual Income Taxes base revenues of$295 million. At such time, the BRC also ap-Enterprise and its subsidiaries file a consolidated Federal income tax proved annual reductions of $66 million and $71 million, respec-return and income taxes are allocated to Enterprise's subsidiaries tively, in PSE&G's LEAC and Levelized Gas Adjustment Clause based on taxable income or loss of each.

0 (LGAC). The BRC also approved stipulations resolving all electric Investment tax credits are deferred and amortized over the use- and gas cost of service/rate design issues. The new base rates be-ful lives of the related property including nuclear fuel. came effective January I, 1993. The settlement agreement allows Deferred income taxes are provided for differences between PSE&G a 12% return on common equity and a I0.08% return on book and taxable income. For periods prior to January I, 1993, rate base.

PSE&G provided deferred income taxes to the extent permitted for In July 1993, PSE&G and its largest industrial customer submitted ratemaking purposes. Effective January I, 1993, Enterprise and its a proposed electric tariff modification to the BRC, providing for a subsidiaries adopted Statement of Financial Accounting Standards $9 million or 23% rate discount, with PSE&G's shareholders absorb-No. I09 "Accounting for Income Taxes" (SFAS I09). Under SFAS ing $2.4 million or 27% of the discount. The proposed tariff modifi-I09, deferred income taxes are provided for all temporary differ- cation was designed to dissuade the customer from buying its ences .between the financial statement carrying amounts and the electricity supply from a third party nonutility generator. In tax bases of existing assets and liabilities irrespective of the treat- December 1993, following extensive proceedings, the BRC recog-ment for ratemaking purposes. (See Note 9 - Federal Income nized the need for fiexible pricing in a competitive market, ap-Taxes.) . proved the requested discount but required PSE&G's shareholders Allowance for Funds Used During Construction (AFDC) to absorb $3.8 million or 42% of such discount. The decision allows and Capitalized Interest PSE&G a special tariff for certain large customers.

PSE&G - AFDC represents the cost of debt and equity funds used Levelized Gas Adjustment Clause to finance the construction of new utility facilities. The amount of On December 8, 1993, the BRC approved an interim LGAC settle-AFDC capitalized is also reported in the Consolidated Statements ment which provides for an increase of $75.3 million for the ap-of Income as a reduction of interest charges for the borrowed proximate ten-month period ending September 1994. The LGAC funds component and as other income for the equity funds compo- increase principally refiects recent increases in the cost of natural nent. The rates used for calculating AFDC in 1993, 1992 and 199 I gas.

were 6.96%, 7.80% and 7.50%, respectively. These rates are within the limits set by the FERC. PSE&G Gas Plant Remediation Program EDHI - The operating subsidiaries of EDHI capitalize interest On September 15, 1993, the BRC issued a written order allowing costs allocable to construction expenditures at the average cost of the continued collection of costs incurred by PSE&G to identify and borrowed funds. clean up its former gas plant sites (Remediation Costs). The deci-sion concluded that PSE&G had met its burden of proof for estab-Pension Plan and Other Postretirement Benefits lishing the reasonableness and prudence of Remediation Costs The employees of PSE&G and participating affiliates, after complet- incurred in operating and decommissioning these facilities in the ing one year of service, are covered by a noncontributory trusteed past. The Remediation Costs incurred during the period July I, 1992 pension plan (Pension Plan). The policy is to fund pension costs ac- through September 30, 1992 are subject to verification and audit in crued. PSE&G also provides certain health care and life insurance PSE&G's 1992-1993 LGAC. The audit is currently ongoing. The benefits to active and retired employees. The portion of such costs order also approved a mechanism for costs incurred since October pertaining to retirees amounted to $28 million, $24 million and $24 I, 1992. This mechanism allows the recovery of actual costs plus million in 1993, 1992 and 1991, respectively. The current cost of carrying charges, net of insurance recoveries, over a seven-year pe-these benefits is charged to expense when paid and is currently riod through a rider to PSE&G's LEAC and LGAC. Sixty percent of being reco.vered from ratepayers. such costs will be charged to gas customers and forty percent charged to electric customers. On November I, 1993, the Public 35

Advocate of New Jersey filed a motion requesting the BRC to re- Uranium Enrichment Decontamination and consider its September 15, 1993 order. On January 21, 1994, the Decommissioning Fund BRC denied the motion. (See Note 12 - Commitments and In accordance with the NEPA. domestic utilities that own nuclear

• Contingent Liabilities.) generating stations are required to pay a cumulative total of $150 million each year into a decontamination and decommissioning Consolidated Tax Benefits fund, based on their past purchases of enriched nuclear fuel from The BRC does not directly regulate Enterprise's nonutility activrties.

the United States Department of Energy (DOE) Uranium However, in a case affecting another utility in which nerther Enrichment Enterprise (now a federal government corporation Enterprise nor PSE&G were parties, the BRC considered the extent known as the United States Enrichment Corporation (USEC)).

to which tax savings generated by nonutility affiliates included in the These amounts are being collected over a period of 15 years or consolidated tax return of that utility's holding company should be until $2.25 billion has been collected. Under this legislation, the nu-considered in setting that utility's rates. On September 30, 1992, clear facilities operated by PSE&G, Salem and Hope Creek, aggre-the BRC approved an order in such case treating certain consoli-gate 2.82% of the total amount of enrichment services sold to the dated tax savings generated after June 30, 1990 by that utility's domestic commercial nuclear industry and the nuclear facilities op-nonutility affiliates as a reduction of its rate base. On December 3 I, erated by PECO Energy Company, formerly known as Philadelphia 1992 the BRC issued an order approving a stipulation in PSE&G's Electric Company (PECO), Peach Bottom and other nuclear facili-1992 base rate proceeding which resolved the case without sepa-ties not co-owned by PSE&G, aggregate 3.89%. In 1993, PSE&G paid rate quantification of the consolidated tax issue. The stipulation approximately $4 million and deferred the balance of $56 million.

does not provide final resolution of the consolidated tax issue for PSE&G has included these costs in its LEAC. PSE&G cannot predict any subsequent base rate filing. While Enterprise continues to ac-the outcome, amount or timing of any recovery associated with this count for these entrties on a stand-alone basis, resulting in a realiza-matter.

tion of the tax benefits by the entrty generating the benefit, an ultimate unfavorable resolution of the consolidated tax issue could Spent Nuclear Fuel Disposal Costs reduce PSE&G's future revenue and net income and the future net In accordance wrth the Nuclear Waste Policy Act, PSE&G has en-income of Enterprise. In addition, an unfavorable resolution may ad- tered into contracts with the USEC for the disposal of spent nu-versely impact Enterprise's nonutility investment strategy. Enterprise clear fuel. Payments made to the USEC for disposal costs are based believes that PSE&G's taxes should be treated on a stand-alone on nuclear generation and are included in Fuel for Electric basis for ratemaking purposes, based on the separate nature of the Generation and Net Interchanged Power in the Statements of utility and nonutility businesses. However, neither Enterprise nor Income. These costs are recovered through the LEAC.

PSE&G is able to predict what action, if any, the BRC may take con-cerning consolidation of tax benefits in future rate proceedings. Note 4. Schedule of Consolidated Capital Stock (See Note 9 - Federal Income Taxes.) Current 0 Redemption December 31, Outstanding Price Note 3. PSE&G Nuclear Decommissioning and (Thousands of Dollars) Shares Per Share 1993 1992 Amortization of Nuclear Fuel Enterprise Common Stock (no par) - authorized PSE&G's 1992 base rate decision by the BRC utilized studies based 500,000,000 shares; issued and outstanding at on the prompt removal/dismantlement method of decommission- December 31, 1993, 24 3,688,256 shares, at December 3 I, 1992, 235,395,751 shares, and at ing for all of PSE&G's nuclear generating stations. This method con- December 3 I, 1991, 226,700,852 shares sists of removing all fuel, source material and all other radioactive (note A). 3,772,662 3,499, 183 materials with activrty levels above accepted release limits from the Enterprise Preferred Stock (note B) nuclear sites. PSE&G has an ownership interest in five nuclear units: PSE&G Cumulative ~referred Stock (note C)

Salem I and Salem 2 - 42.59% each, Hope Creek- 95% and Without Mandatory Redemption (note D)

$1 00 par value - Series Peach Bottom 2 and 3 - 42.49% each. In accordance with rate or-ders received from the BRC, PSE&G has established an external 4.08% 250,000 $ I 03.00 $ 25,000 $ 25,000 4.18% 249,942 I 03.00 24,994 24,994 master nuclear decommissioning trust for all of its nuclear units. The 4.30% 250,000 102.75 25,000 25,000 Internal Revenue Service (IRS) has ruled that payments to the trust 5.05% 250,000 103.00 25,000 25,000 are tax deductible. PSE&G's total estimated cost of decommission- 5.28% 250,000 103.00 25,000 25,000 6.80% 250,000 102.00 25,000 25,000 ing its share of these nuclear units is estimated at $68 I million in 7.40% 500,000 101.00 50,000 50,000 year-end 1990 dollars, (the year that the site specific estimate was 7.52% 500,000 101.00 50,000 50,000 prepared), excluding contingencies. The 1992 base rate decision 8.08% 150,000 101.00 15,000 15,000 7.80% 750,000 101.00 75,000 '75,000 provided that $15.6 million of such costs are to be collected 7.70% 600,000 100.79 60,000 60,000 through base rates and an additional annual amount of $7.0 million 8.16% 300,000 100.74 30,000 30,000 in 1993 and $14.0 million in 1994 and thereafter are to be recov- Total Preferred Stock without ered through PSE&G's LEAC. At December 31, 1993 and 1992, the Mandatory Redemption $ 429,994 $ 429,994 accumulated provision for depreciation and amortization included With Mandatory Redemption (notes D, E and F) reserves for nuclear decommissioning for PSE&G's units of $21 I $100 par value - Series million and $179 million, respectively. As of December 31, 1993 7.44% 750,000 $ I 03.72 $ 75,000 $ 75,000 5.97% 750,000 102.99 75,000 and 1992, PSE&G has contributed $155 million and $109 million, respectively, into external qualified and non-qualified nuclear Preferred Stock with Mandatory Redemption $ 150,000 $ 75,0QO decommissioning trust funds.

36

Notes to Schedule of Consolidated Capital Stock Under(Over)Recovered Electric Energy (A)' Total authorized and unissued shares include 7,571,442 shares of Enterprise Common Stock reserved for issuance through Enterprise's Dividend Reinvestment And Gas Costs - Net and Stock Purchase Plan (DRIP) and various employee benefit plans. In 1993, Recoveries of electric energy and gas costs are determined by the BRC 8,292,505 shares of Enterprise Common Stock were issued and sold for under the LEAC and LGAC. PSE&G's deferred fuel balances as of De-

$273,479,342, including a public offering of 4,400,000 shares issued and sold for cember 31, 1993 and December 3 I, 1992, reflect an underrecovery

$142,670,000; in 1992, 8,694,899 shares were issued and sold for $237,045,247, in-cluding a public offering of 5,000,000 shares issued and sold for $132,025,000; in of $62.0 million and an overrecovery of $122.7 million, respectively.

1991, 8,228,647 shares were issued and sold for $2'18,735,528, including a public of-fering of 5,000,000 shares issued and sold for $129,950,000. Unrecovered Plant and Regulatory Study Costs (B) Enterprise has authorized a class of 50,000,000 shares of Preferred Stock without Amounts shown in the consolidated balance sheets consist of costs par value, none of which is outstanding.

associated with developing, consolidating and documenting the (C) As of December 31, 1993, there were 1,700,060 shares of$ I00 par value and I0,000,000 shares of $25 par value Cumulative Preferred Stock which were autho- specific design basis of PSE&G's jointly-owned nuclear generating rized and unissued, and which upon issuance may or may not provide for mandatory stations, as well as PSE&G's share of costs associated with the sinking fund redemption. If dividends upon any shares of Preferred Stock are in ar-cancellation of the Hydrogen Water Chemistry System Project at rears in an amount equal to the annual dividend thereon, voting rights for the elec-tion of a majority of PSE&G's Board of Directors become operative and continue Peach Bottom. PSE&G has received both BRC and FERC approval until all accumulated and unpaid dividends thereon have been paid, whereupon all to defer and amortize, over the remaining life of the Salem and such voting rights cease, subject to being again revived from time to time.

Hope Creek nuclear units, costs associated with configuration base-In January 1994, PSE&G called for redemption on March I, 1994 all of the out-standing shares of two series of securities: 300,000 shares of its 8.16% Cumulative line documentation projects. PSE&G has received FERC approval to Preferred Stock ($1 00 Par) and 150,000 shares of its 8.08% Cumulative Preferred defer and amortize over the remaining life of the applicable Peach Stock ($100 Par).

Bottom units, costs associated with the configuration baseline docu-In February 1994, PSE&G issued and sold 600,000 shares of 6.92% Cumulative Preferred Stock ($100 Par) which may not be redeemed before February I, 2004 mentation and the cancelled Hydrogen Water Chemistry System and 600,000 shares of 6.75% Cumulative Preferred Stock - $25 Par which may not Projects. While PSE&G expects the BRC to authorize recovery of be redeemed before February I, 1999. The net proceeds from the sale of the 6.75%

such costs from electric customers, no assurances can be given.

Cumulative Preferred Stock - $25 Par will be used by PSE&G to redeem the out-standing shares of the 8.08% Cumulative Preferred Stock ($100 Par). Oil and Gas Property Write-Down (D) At December 31, 1993, the annual dividend requirement and embedded divi-On December 3 I, 1992, the BRC approved the recovery of the dend for Preferred Stock without mandatory redemption were $29,012,000 and 6.75%, respectively and for Preferred Stock with mandatory redemption were EDC write-down through PSE&G's LGAC over a ten year period

$10,057,500 and 6.71 %, respectively. beginning January I, 1993. At December 31, 1993, the remaining (E) In March 1993, PSE&G sold 750,000 shares of 5.97% Cumulative Preferred Stock balance to be amortized was $46 million.

($100 Par). PSE&G will be required to redeem through the operation of a sinking fund 37,500 shares, plus accumulated dividends, on March I of each year commenc- Unamortized Debt Expense ing March I, 2003 and shall redeem the remaining shares on March I, 2008, plus ac-Gains and losses and the cost of redeeming long-term debt for PSE&G cumulated dividends.

(F) In accordance with the requirements of Statement of Financial Accounting are deferred and amortized over the life of the applicabie debt Standards No. I07, "Disclosures about Fair Value of Financial Instruments" (SFAS I07), the estimated fair value was determined using the ready market price for the Note 6. Schedule of Consolidated Long-term Debt Preferred Stock at the end of 1993. As of December 31, 1993, the estimated fair (Thousands of Dollars) December 31, value of the Preferred Stock was $158 million. As of December 31, 1992, the esti-Interest Rates Due 1993 1992 mated fair value of the Preferred Stock was $78 million.

PSE&G Note S. Deferred Items First and Refunding Mortgage Bonds (note A)

Property Abandonments 4Ya%- 9Y,% 1993 $ $ 190,000 The BRC has authorized PSE&G to recover after-tax property aban- 4Y,% 1994 60,000 60,000 4Y.%- 6% 1995 310,000 310,000 donment costs from its customers. The following table reflects the 9Y.% 1996 75,000 application of Statement of Financial Accounting Standards No. 90, 6Y,%- 7Y,% 1997 300,000 375,000 "Regulated Enterprises - Accounting for Abandonments and 6%-7% 1998 100,000 75,000 6%-8?1,% 1999-2003 1,200,000 798,600 Disallowances of Plant Costs" (SFAS 90), as amended, on property 6.30%- 9Ya% 2004-2008 438,900 530,400 abandonments for which no return is earned. The net-of-tax dis- 6.80% - I0Ya% 2009-2013 73,710 137,710 count rate used was between 4.44 3% and 7.80 I%. 8.10%- IOY,% 2014-2018 310,200 745,400 7Y,%- 9Y,% 2019-2023 1,068,500 822,500 As part of its base rate decision of December 3 I, 1992, the BRC 5.20%- 7% 2024-2028 387,000 required the elimination of the amortization of the abandonment 5.55% 2033 145,200 cost for Hope Creek Unit 2 as of December 3 I, 1992. The net re- 5%-8% 2037 15,001 15,001 maining balance was transferred to the LEAC. (See Note 2 - Rate Medium-term Notes Matters.) The following table reflects the property abandonments 7.15%- 7.18% 2023 40,500 and related tax effects on which no return is earned. Total First and Refunding Mortgage Bonds 4,449,011 4,134,611 December 3 I, Debenture Bonds Unsecured (Thousands of Dollars) 1993 1992 7Y,% 1996 41,994 Discounted Discounted 6% 1998 18,195 18,195 Property Abandonments Cost Taxes Cost Taxes Total Debenture Bonds 18,195 60,189 Atlantic Project $ 81,475 $34,229 $ 92,282 $38,778 LNG Project 11,362 4,227 15,231 5,738 Principal Amount Outstanding (note F) 4,467,206 4,194,800 Uranium Projects 12,699 5,442 14,450 6, 168 Amounts Due Within One Yea~ (note B) (61,700) (191,700)

Other 298 Net Unamortized Discount (41,069) (24,962)

$I 05,536 $43,898 $122,261 $50,684 Total Long-Term Debt of PSE&G 4,364,437 3,978, 138 37

Note 6. Schedule of Consolidated Long-Term Debt determined using market quotations or values of debt with similar terms, credit rat-ings and remaining maturities at the end of 1992. As of December 31, 1993, the es-(Continued) timated fair value of PSE&G's and EDHl's long-term debt was $4.7 billion and $1.2 *.

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

Capital (note C) 8.95%-9.72% 1993 88,000 7.40% 1994 50,000 50,000 Note 7. Long-Term Investments 5.65% - 9.55% 1995 112,000 112,000 Long-Term Investments are primarily those of EDHI. A summary 9.00% 1996 20,000 20,000 of Long-Term Investments is as follows:

5.79% - 5.92% 1997 27,000 9.875% - I0.05% 1998 282,500 325,000 (Millions of Dollars) 1993 !992 6.54% - 9.93% 1999-2000 233,000 155,000

. Lease Agreements (see Note I0 - Leasing Activities):

Principal Amount Outstanding (note F) 724,500 750,000 Leveraged Leases $ 738 $ 718 Amounts Due Within One Year (note B) (92,436) (130,431) Direct-Financing Leases 85 93 Net Unamortized Discount (1,746) (1,571) Other Leases 8 12 Total Long-Term Debt of Capital 630,318 617,998 Total 831 823 Funding (note D) Partnerships:

1993 $ 60,000 General Partnerships 152 135 9.43% $

1995 35,000 35,000 Limited Partnerships 433 428 9.54%

9.55% 1996 28,000 28,000 Total 585 563 6.85% - 9.59% 1997 55,000 40,000 83,000 Joint Ventures 35 11 9.95% 1998 83,000 Securities 82 198 7.58% 1999 45,000 Valuation Allowances (18) (17) 4.5625% - 5.0%

175,000 Corporate-owned Life Insurance (PSE&G) 99 72 Bank Loans 1994-95 421,000 Total Long-Term Investments $1,614 $.1,650 Principal Amount Outstanding (note F) 246,000 Amounts Due Within One Year (note B) (60,000)

PSRC's leveraged leases are reported net of principal and interest Total Long-Term Debt of Funding 246,000 361,000 on nonrecourse loans and unearned income, *including deferred tax EGDC Mortgage Notes credits. Income and deferred tax credits are recognized at a level 5.18% - 7.736% 1994 13,638 13,678 rate of return from each lease during the periods in which the net 5.75% 1998 9,050 10,280 I0.625% - 12.75% 2012 6,806 6,913 investment is positive.

Partnership investments are those of PSRC, EGDC and CEA and Principal Amoi:nt Outstanding (note F) 29,494 30,871 Amounts Due' Within One Year (note B) (13,928) (I 0,428) are undertaken with other investors. PSRC is a limited partner in various partnerships and is committed to make investments from Total Long-Term DebtofEGDC 15,566 20,443 time to time, upon the request of the respective general partners.

Total Long-Term Debt of EDHI 891,884 999,441 As of December 31, 1993, $139.5 million remained as PSRC's un-Consolidated Long-Term Debt (note E) $5,256,321 $4,977,579 funded commitment subject to call.

PSRC has invested in marketable securities and limited partner-Notes: ships investing in securities, which are stated at fair value. Realized (A) PSE&G's Mortgage, securing the Bonds, constitutes a direct first mortgage lien on investment gains and losses on the sale of investment securities are substantially all PSE&G property and franchises.

In January 1994, PSE&G called for redemption on March I, 1994 all of its First and determined utilizing the specific cost identification method.

Refunding Mortgage Bonds 4S/a% Series due 1994. In February 1994, PSE&G issued

$50 million principal amount of its First and Refunding Mortgage Bonds Pollution Note 8. Cash and Cash Equivalents Control Series 0 due 2032.

(B) The aggregate principal amounts of mandatory requirements for sinking funds The December 3 I, 1993 and 1992 balances consist primarily of and maturities for each of the five years following December 31, 1993 are as follows: working funds and highly liquid marketable securities (commercial (Thousands of Dollars) paper) with a maturity of three months or less.

Sinking Funds Maturities Year PSE&G Capital PSE&G Capital EGDC Funding Total Note 9. Federal Income Taxes 1994 $1,700 $ 42,500 $ 60,000 $ 49,936 $13,928 $ -$ 168,064 A reconciliation of reported Net Income with pretax income and 1995 200 42,500 310,000 112,000 305 35,000 500,005 of Federal income tax expense with the amount computed by 1996 200 42,500 20,000 320 28,000 91,020 1997 42,500 300,000 27,000 337 55,000 425,037 multiplying pretax income by the statutory Federal income tax 200 1998 200 37,500 100,000 75,000 8,551 83,000 304,251 rates of 35% in 1993 and 34% in 1992 and 1991 is as follows:

$2,500 $207,500 $770,000 $283,936 $23.441 $20 1,000 $1,488,377 (Thousands of Dollars) 1993 1992 1991 For sinking fund purposes, certain First and Refunding Mortgage Bond issues require Net Income $600,933 $504,117 $543,035 annually the retirement of an aggregate $13.3 million principal amount of bonds or Preferred stock dividend requirements 38,114 31,907 29,012 the utilization of bondable property additions at 60% of cost. The portion expected SFAS I09 cumulative effect (5,414) to be met by property additions has been excluded from the table above. Subtotal 633,633 536,024 572,047 (C) Capital is providing up to $750 million debt financing for EDHl's businesses on the basis of a support agreement with Enterprise.

(D) Funding provides debt financing for EDHl's businesses other than EGDC on the basis of unconditional guarantees from EDHI.

(E) At December 31, 1993, the annual interest requirement on long-term debt was

$421.2 million of which $327.5 million was the requirement for Bonds.The embed-ded interest cost on long-term debt on such date was 8.06%.

(F) In accordance with the requirements of SFAS I07, the estimated fair value was *.

38

(Thousands of Dollars) 1993 1992 1991 than the date claimed by PSE&G. On June 19, 1992, Enterprise and Federal income taxes: PSE&G filed a protest with the IRS disagreeing with certain of the Operating income: proposed adjustments (including those related to Hope Creek)

Current provision 152,076 152,225 146,408 Provision for deferred income taxes - contained in the RAR for taxable years 1985 through 1987 and net (A) 186,467 91,104 137,955 continues to contest these issues. Any tax adjustments resulting Investment tax credits - net (23,784) (21,635) (19,507) from the RAR would reduce Enterprise's and PSE&G's respective Total included in operating income 314,759 221,694 264,856 deferred credits for accumulated deferred income taxes. Enterprise Miscellaneous other income:

Current provision (15,419) 4,721 (11,396) expects PSE&G to recover all interest paid with respect to tax adjust-Provision for deferred income taxes (A) 9,815 19,261 10,906 ments attributable to PSE&G from PSE&G's customers through rates.

SFAS 90 deferred income taxes (A) 2,948 2,690 4,967 While PSE&G believes that assessments attributable to it are gener-Total Federal income tax provisions 312,103 248,366 269,333 ally recoverable from its customers in rates, no assurances can be Pretax income $9°45,736 $784,390 $841,380 given as to what regulatory treatment may be afforded by the BRC.

On January I, 1993, Enterprise adopted SFAS I09 without re-Reconciliation between total Federal income tax provisions and tax stating prior years' financial statements which resulted in Enterprise computed at the statutory tax rate on pretax income:

recording a $5.4 million cumulative effect increase in its net income.

Tax computed at the statutory rate $33 1,008 $266,693 $286,069 Under SFAS I09, deferred taxes are provided at the enacted statu-Increase (decrease) attributable to flow tory tax rate for all temporary differences between the financial through of certain tax adjustments:

Depreciation 9,002 15,614 9,229 statement carrying amounts and the tax bases of existing assets and Amortization of plant abandonments and liabilities irrespective of the treatment for ratemaking purposes.

write-downs (2,239) (18,867) (4,497) Since management believes that it is probable that the effects of Amortization of investment tax credrt:s (23, 784) (20,681) (22,004) SFAS I09 on PSE&G. principally the accumulated tax benefits that Other ( 1,884) 5,607 536 previously have been treated as a flow through item to customers, Subtotal ( 18, 905) ( 18,327) ( 16,736) will be recovered from utility customers in the future, an offsetting Total Federal income tax provisions $312, I03 $248,366 $269,333 regulatory asset was established. As of December 31, 1993, PSE&G Effective Federal income tax rate 33.0% 31.7% 32.0% had recorded a deferred tax liability and an offsetting regulatory asset (A) The provision for deferred income taxes represents the tax ef- of $790 million representing the future revenue expected to be re-fects of the following items: covered through rates based upon established regulatory practices (Thousands of Dollars) 1993 1992 1991 which permit recovery of current taxes payable. This amount was Deferred Credits: determined using the 1993 Federal income tax rate of 35%.

Additional tax depreciation and amortization $112,814 $136,073 $123, 122 SFAS 109 Leasing Activities 34,958 56,087 41,741 The following is an analysis of accumulated deferred income taxes:

Property Abandonments (6,632) (34,739) (11,582) Accumulated Deferred Income Taxes 1993 1992 Oil and Gas Property Write-Down (2,45q (6,393) (6,393)

Deferred fuel costs - net 63,330 (40,148) 9,285 (Thousands of Dollars)

Other (2,789) 2,175 (2,345) Assets:

Current (net) $ 12,934 $

Total $199,230 $113,055 $153,828 Non-Current:

Unrecovered Investment Tax Credits 143,125 Since 1987, Enterprise's Federal alternative minimum tax (AMT) lia- Nuclear Decommissioning 25,211 24,305 bility has exceeded its regular Federal income tax liability. This ex- Hope Creek Cost Disallowance 20,231 29,468 cess can be carried forward indefinitely to offset regular income tax Uncollectibles 9,716 Vacation Pay 6,721 6,424 liability in future years. Enterprise expects to utilize these AMT AMT Credit 246,862 212,453 credits in the future as regular tax liability exceeds AMT. As of Real Estate lmpainment 27,173 December 31, 1993, 1992 and 199 I, Enterprise had AMT credits Other 14,880 1,209 of $247 million, $212 million and $185 million, respectively. Total Non-Current $ 493,979 $ 273,859 Since 1986, Enterprise has filed a consolidated Federal income. Total Assets $ 506,913 $ 273,859 tax return on behalf of itself and its subsidiaries. Prior to 1986, Liabilities:

PSE&G filed consolidated tax returns. On March 20, 1992, the Non-Current:

Internal Revenue Service (IRS) issued a Revenue Agents Report Plant Related Items $2,169,861 $1,395,725 (RAR) following completion of examination of PSE&G's consoli- Leasing Activities 520,286 451,733 Property Abandonments 32,206 50,684 dated tax return for 1985 and Enterprise's consolidated tax returns Oil and Gas Property Write-Down 16,790 24,518 for 1986 and 1987, proposing various adjustments for such years Deferred Electric Energy & Gas Costs 20,133 (44,415) which would increase Enterprise's consolidated Federal income tax Unamortized Debt Expense 38,768 17,082 Taxes Recoverable Through Future Rates 270,518 liability by approximately $121 million, exclusive of interest and Other 127,803 89,621 penalties, of which approximately $1 I 8 million is attributable to Total Non-Current $3,196,365 $1,984,948 PSE&G. Interest after taxes on these proposed adjustments is cur-Total Liabilities $3,196,365 $1,984,948 rently estimated to be approximately $82 million as of December 3 I, 1993 and will continue to accrue at the Federal rate for large Summary-Accumulated Deferred Income Taxes corporate underpayments, currently 9% annually.

Net Current Assets $ 12,934 $

The most significant of these proposed adjustments relates to Net Deferred Liabilrt:y $2,702,386 $1.711,089 the IRS contention that PSE&G's Hope Creek nuclear unit is a part-Total $2,689,452 $1.711,089 n~rship with a short 1986 taxable year. In addition, the IRS con-tends that the tax in-service date of that unit is four months later 39

The Revenue Reconciliation Act of 1993, enacted in August 1993, As Lessor increased the Federal corporate income tax rate from 34% to 35% PSRC's net investments in leveraged and direct financing leases are effective January 1, 1993. This resulted in an increase in Federal in- composed of the following elements:

come tax expense for Enterprise of $18.1 million for the year 1993. December 3 I, 1993 December 31, 1992 Note I0. Leasing Activities Direct Direct (Millions Leveraged Financing Leveraged Financing of Dollars) Leases Leases Total Leases Leases Total As Lessee The Consolidated Balance Sheets include assets and related obliga- Lease rents receivable $ 980 $114 $1,094 $1,015 $130 $1,145 tions applicable to capital leases where PSE&G is a lessee. The Estimated resid-total amortization of the leased assets and interest on the lease ual value 595 12 607 599 12 611 obligations equals the net minimum lease payments included in 1,575 126 1,701 1,614 142 1,756 rent expense for capital leases. Unearned and deferred Capital leases of PSE&G relate primarily to its corporate head-income (837) (41) (878) (896) (49) (945) quarters and other capital equipment. Certain of the leases contain Total investments 738 85 823 718 93 811 renewal and purchase options and also contain escalation clauses. Deferred taxes (267) (20) (287) (225) (18) (243)

Enterprise and its other subsidiaries are not lessees in any capi-Net investments $ 471 $ 65 $ 536 $ 493 $ 75 $ 568 talized leases.

Utility plant includes the following amounts for capital leases at PSRC's other leases are with various regional, state and city December 3 1: authorities for transportation equipment and aggregated $8 million (Thousands of Dollars) 1993 1992 and $12 million as of December 3 I, 1993 and 1992, respectively.

Common Plant $56,812 $56,812 Less: Accumulated Amortization 3,708 3,196 Note II. Short-Term Debt Net Assets under Capital Leases $53,104 $53,616 (Commercial Paper and Loans)

Commercial paper represents unsecured bearer promissory notes Future minimum lease payments for noncancelable capital and sold through dealers at a discount with a term of nine months or operating leases at December 31, 1993 were:

less.

Capital Operating (Thousands of Dollars) Leases Leases PSE&G 1994 $ 13,015 $14,353 1995 13,016 14,056 Certain information regarding commercial paper follows:

1996 13,017 12,942 (Thousands of Dollars) 1993 1992 1991 1997 13,017 10,982 1998 13,018 7,820 Principal amount outstanding at end of Later Years 212,521 24,184 year $532,728 $257,536 $165,857 Maximum principal amount Minimum Lease Payments 277,604 $84,337 outstanding at any month-end $532,728 $549,914 $499,171 Less: Amount representing estimated executory costs, Average daily outstanding $310,400 $279,900 $400,000 together with any profrt thereon, included in Weighted average annual interest rate 3.20% 3.76% 5.98%

minimum lease payments 138,876 Weighted average interest rate for commercial paper outstanding at Net minimum lease payments 138,728 year-end 3.34% 3.64% 4.99%

Less: Amount representing interest 85,624 Present value of net minimum lease payments (A) $ 53,104 PSE&G has authorization from the BRC to issue and have outstand-ing not more than $800 million of its short-term obligations at any (A) Reflected in the Consolidated Balance Sheets in Capital Lease Obligations of

$52.530 million and in Long-Term Debt and Capital Lease Obligations due within one time, consisting of commercial paper and other unsecured bor-one year of $574 thousand. rowings from banks and other lenders. This authorization expires The following schedule shows the composition of rent expense December 3 I, 1994. PSE&G expects to be able to renew such au-included in Operating Expenses: thority.

For The Years Ended December 31, PSE&G has a $600 million revolving credit agreement with a group of banks which expires in September 1994. As of December (Thousands of Dollars) 1993 1992 1991 31, 1993, there was no short-term debt outstanding under this Interest on Capital Lease Obligations $ 6,074 $ 6,129 $ 6,205 agreement.

Amortization of Utility Plant under Fuelco has a $150 million commercial paper program to finance a Capital Leases Sil 457 439 42.49% share of Peach Bottom nuclear fuel, supported by a $150 Net minimum lease payments relating to Capital Leases 6,587 6,586 6,644 million revolving credit facility with a group of banks which expires in Other Lease payments 22,095 21,739 26,290 June 1996. PSE&G has guaranteed repayment of Fuelco's respective Total Rent Expense $28,682 $28,325 $32,934 obligations. As of December 31, 1993, 1992 and 1991, Fuelco had commercial paper of $108.7 million, $122.5 million and $I 35.9 mil-lion, respectively, outstanding under such program, which amounts are included in the table above.

40

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

---

~

Amount outstanding at end of year $ 44,908 $134.446 $223, 193 Type and Source of Coverages PSE&G Maximum Total Site Assessments for Maximum amount outstanding at any (Millions of Dollars) Coverages a Single Incident month-end $150,321 $204,558 $326,537 Average daily outstanding $ 91,800 $156,400 $243.700 Public Liability:

Weighted average annual interest rate 3.24% 3.78% 5.92% American Nuclear Insurers $ 200.0 $

Weighted average interest rate for Indemnity (A) 9, 195.9 210.2 commercial paper outstanding at $9,395.9(B) $ 210.2 year-end 3.47% 3.76% 5.04%

Nuclear Worker Liability:

At December 31, 1993 Funding had a $225 million commercial American Nuclear Insurers (C) $ 200.0 $ 8.3 paper program supported by a direct pay commercial bank letter Property Damage:

of credit and revolving credit facility and a $225 million revolving Nuclear Mutual Limited $ 500.0 $ 17.4 credit facility each of which expires in November 1995. American Nuclear Insurers 765.0(D)

Nuclear Electric Insurance Ltd. (NEIL I) 85.0(E)

Enterprise Nuclear Electric Insurance Ltd. (NEIL II) 1.400.0(F) I0.9(G)

At each of December 3 I, 1993, 1992 and 199 I, Enterprise had $2.750.0 $ 28.3

$25 million of lines of credit supported by compensating balances Replacement Power:

under informal arrangements with banks. At each of December 3 I, Nuclear Electric Insurance Ltd. $ 3.S(H) $ I 1.3 1993, 1992 and 1991, Enterprise had no line of credit compen- (A) Retrospective premium program under the Price-Anderson liability provisions of sated for by fees. the Atomic Energy Act of 1954, as amended, (Price-Anderson). Subject to retro-spective assessment wrth respect to loss from an incident at any licensed nuclear reactor in the United States. Assessment adjusted for infiation effective August 20, Note 12. Commitments and Contingent Liabilities 1993.

(B) Limrt of liability for each nuclear incident under Price-Anderson.

Nuclear Performance Standard (C) Industry aggregate limit representing the potential liability from workers claiming The BRC has established a nuclear performance standard exposure to the hazard of nuclear radiation. This policy includes automatic reinstate-ments up to an aggregate of $200 million, thereby providing total coverage of $400 (Standard) for nuclear generating stations owned by New Jersey million. This policy does not increase PSE&G's obligation under Price-Anderson.

electric utilities, including the five nuclear units in which PSE&G has (D) Includes $100 million sublimit for premature decommissioning costs.

an ownership interest: Salem - 42.59%; Hope Creek - 95%; and (E) New policy effective January I, 1994.

(F) Includes up to $250 million for premature decommissioning costs.

Peach Bottom - 42.49%. PSE&G operates Salem and Hope (G) In the event of a second industry loss triggering NEIL coverage, the maximum Creek, while Peach Bottom is operated*by PECO. retrospective premium assessment can increase to $23.4 million.

The penalty/reward under the Standard is a percentage of re- (H) Weekly indemnrty for 52 weeks which commences after the first 21 weeks of an outage. Beyond the first 52 weeks of coverage indemnity of $2.3 million per week placement power costs. (See table below.) The Standard provides for I04 weeks is afforded. Total coverage amounts to $425.9 million over three that the penalties will be calculated to the edge of each capacity years.

factor ra,nge. For example, a 30% penalty applies to replacement Price-Anderson sets the "limit of liability" for claims that could arise power costs incurred in the 55% to 65% range and a 40% penalty from an incident involving any licensed nuclear facility in the nation.

applies to replacement power costs in the 45% to 55% range. The "limit of liability" is based on the number of licens.ed nuclear Capacity Factor Range Reward Penalty reactors and is adjusted at least every five years based on the Equal to or greater than 75% 30% Consumer Price Index. The current "limit of liability" is $9.4 billion.

Equal to or greater than 65% and less than 75% None None All utilities owning a nuclear reactor, including PSE&G, have pro-Equal to or greater than 55% and less than 65% 30%

Equal to or greater than 45% and less than 55% 40% vided for this exposure through a combination of private insurance Equal to or greater than 40% and less than 45% 50% and mandatory participation in a financial protection pool as estab-Below40% BRC Intervenes lished by Price-Anderson. Under Price-Anderson, each party with Under the Standard, the capacity factor is calculated annually using an ownership interest in a nuclear reactor can be assessed its share maximum dependable capability of the five nuclear units in which of $79.3 million per reactor per incident, payable at $10 million per PSE&G owns an interest. This method takes into account actual. reactor per incident per year. If the damages exceed the "limit of operating conditions of the units. liability", the President is to submit to Congress a plan for provid-While the Standard does not specifically have a gross negligence ing additional compensation to the injured parties. Congress could provision, the BRC has indicated that it would consider allegations impose further revenue raising measures on the nuclear industry to of gross negligence brought upon a sufficient factual basis. A finding pay claims. PSE&G's maximum aggregate assessment per incident is of gross negligence could result in penalties other than those pre- $210.2 million (based on PSE&G's ownership interests in Hope scribed under the Standard. During 1993, the five nuclear units in Creek, Peach Bottom and Salem) and its maximum aggregate an-which PSE&G has an ownership interest aggregated a 77% com- nual assessment per incident is $26.5 million.

bined capacity factor. In accordance with the Standard, PSE&G's combined capacity factor exceeded the 75% reward threshold, en-titling PSE&G to a reward of approximately $3.9 million. PSE&G will p~tition the BRC to recover this reward through the LEAC com-mencing on June 30, 1994.

41

PSE&G purchases all property insurance available, including decont- Based on PSE&G's 1994-1998 construction program, construc-amination expense coverage and premature decommissioning cov- tion expenditures are expected to aggregate approximately $4.2 erage, with respect to loss or damage to its nuclear facilities. PECO billion, which includes $483 million for nuclear fuel and $133 mil-

• has advised PSE&G that it maintains similar insurance coverage with lion of AFDC and capitalized interest during the years 1994 respect to Peach Bottom. Under the terms of the various insur- through 1998. The estimate of construction requirements is based ance agreements, PSE&G could be subject to a maximum retro- on expected project completion dates and includes anticipated es-spective assessment for a single incident of up to $28.3 million. calation due to inflation of approximately 4%, annually. Therefore, Certain of the policies also provide that the insurer may suspend construction delays or higher inflation levels could cause significant coverage with respect to all nuclear units on a site without notice if increases in these amounts. PSE&G expects to generate internally a the NRC suspends or revokes the operating license for any unit on majority of the funds necessary to satisfy its construction expendi-a site, issues a shutdown order with respect to such unit or issues tures over the next five years, assuming adequate and timely rate a confirmatory order keeping such unit shut down. relief, as to which no assurances can be given. In addition, PSE&G PSE&G is a member of an industry mutual insurance company, does not presently anticipate any difficulties in obtaining sufficient NEIL, which provides replacement power cost coverage in the sources of fuel for electric generation or adequate gas supplies event of a major accidental outage at a nuclear station. The policies during the years 1994 through 1998.

provide for a weekly indemnity payment of $3.5 million for 52 Bergen Station Repowering weeks, subject to a 21-week waiting period. The policies provide PSE&G is presently engaged in Phase I of a construction project to for weekly indemnity payments of $2.3 million for a I04 week pe-renovate (or "repower") the Bergen Station pursuant to an air pol-riod beyond the first year's indemnity. The premium for this cover-lution control permit issued by New Jersey Department of age is subject to retrospective assessment for adver~e loss Environmental Protection and Energy (NJDEPE) on May 27, 1993.

experience. Under the policies, PSE&G's present maximum share The current effort would maintain the existing electric supply of of any retrospective assessment in any year is $1 1.3 million.

the station (with a small increase from 629 MW to 669 MW), im-Nuclear Fuel prove operational reliability and efficiency and significantly improve As a result of the NEPA, all United States nuclear utilities are re- the environmental effects of operation of the facility. Phase II ofthe sponsible to co-fund with the United States Government a decon- project, if it is undertaken by PSE&G, would increase the capacity tamination and decommissioning fund for DOE nuclear fuel of Bergen by an additional 650 MW.

enrichment facilities. PSE&G is responsible for making annual pay- On July 12, 1993, an association of competitors of PSE&G ap-ments into this fund for 15 years beginning in 1993. pealed the NJDEPE's issuance of the air permit for Phase I of the In September 1993, PSE&G paid its $4 million annual assess- project to the Appellate Division of the New Jersey Superior ment based on its proportionate share of the five nuclear units in Court, alleging that PSE&G is first required to obtain a Certificate which it has an ownership interest. PSE&G deferred such amount of Need under the New Jersey Need Assessment Act (Need and expects to recover it together with its estimated $56 million Assessment Act). The NJDEPE determined that the Need future liability, from customers through its LEAC. (See Note 3 - Assessment Act was inapplicable to this renovation project.

PSE&G Nuclear Decommissioning and Amortization of Nuclear Obtaining a Certificate of Need would be a complex procedure Fuel - Uranium Enrichment Decontamination and Decommis- entailing proceedings of at least a two year duration before the sioning Fund.) NJDEPE, the outcome of which could not be assured. As of December 31, 1993, Phase I of the renovation project was about Construction and Fuel Supplies 20% complete and PSE&G had spent approximately $169 million PSE&G has substantial commitments as part of its ongoing con-on this effort. The final cost is estimated to be approximately struction program which includes capital requirements for nuclear

$400 million.

fuel. PSE&G's construction program is continuously reviewed and Briefs have been filed in the appeal and PSE&G believes that a periodically revised as a result of changes in economic conditions, Certificate of Need is not required for Phase I of the project.

revised load forecasts, changes in the scheduled retirement dates However, if a Certificate of Need were ultimately required by the of existing facilities, changes in business plans, site changes, cost es-courts after exhaustion of all appeals, the permits needed to oper-calations under construction contracts, requirements of regulatory ate the plant could not be issued until after a Certificate of Need authorities and laws, the timing of and amount of electric and gas was obtained. PSE&G intends to continue this renovation project rate changes and.the ability of PSE&G to raise necessary capital.

and to vigorously defend its position through all available means.

Pursuant to an integrated electric resource plan (IRP), PSE&G peri-odically reevaluates its forecasts of future customers, load and peak Environment growth, sources of electric generating capacity and DSM to meet General such projected growth, including the need to construct new elec-Certain Federal and State laws authorize the United States tric generating capacity. The IRP takes into account assumptions Environmental Protection Agency (EPA) and the NJDEPE, among concerning future demands of customers, effectiveness of conser-other agencies, to issue orders and bring enforcement actions to vation and load management activities, the long-term condition of compel responsible parties to take investigative and remedial ac-PSE&G's plants, capacity available from electric utilities and other tions at any site that is determined to present an imminent and suppliers and the amounts of cogeneration and other nonutility ca-substantial danger to the public or the environment because of an pacity projected to be available.

actual or threatened release of one or more hazardous substances.

42

Because of the nature of PSE&G's business, 1nclud1ng the produc- the BRC to reconsider its September 15, 1993 order. On January tion of electricity, the rl1stnbut1on of gas and, formerly, the manu- 21, 1994, the BRC denied the motion.

f<lcture of gas, various by-products and substances are or were In November 1988, PSE&G filed suit against certain of its insur-produced or handled which contain constituents classified as haz- ers to recover the costs associated with addressing and resolving ardous. PSE&G generally provides for the disposal or processing of environmental issues of the Remediation Program. PSE&G has set-such substances through licensed independent contracto1"S. tled its claim with one insurer and there 1s a trial scheduled for However, these statutory provisions impose JOint and several re- September 1994 with the remaining insurers. Pending full recovery spons1bil1ty wrthout regard to fault on all 1*espons1ble parties, 1nclud- of Remediation Program costs through rates or under its insurance 1ng the generators of the hazardous substances. for certain policies, neither of which can be assured, PSE&G will be required investigative and remediation costs at srtes where these substances to finance the unre1mbursed costs of rts Remediation Program.

were disposed of or processed. PSE&G has been notified with re-Note 13. Postretirement Benefits Other Than Pensions spect to a number of such srtes and the remediation of these po-tentially hazardous sites 1s 1*ece1v1ng greater attention from the On January I, 1993. Enterprise and PSE&G adopted SFAS I 06, government agenoes involved. Generally, actions directed at fund- which requires that the expected cost of employees' postretire-ing such site investigations and remediation include all suspected or ment heatth care and insurance benefrts be charged to expense known responsible parties. PSE&G does not expect rts expendi- during the years 1n which employees render service. PSE&G tures for any such site to be material. elected to amortize over 20 years its unfunded obligation of PSE&G Manufactured Gas Plant Remediation Program $609.3 million at January I, 1993. Prior to 1993, Ente1-pnse and In March 1988, NJDEPE notified PSE&G that rt had 1dent1fied PSE&G recognized postretirement health care and insurance costs the need for PSE&G, pursuant to a formal arrangement. to system- in the year that the benefrts wei-e paid. The following table dis-atically investigate and, 1f necessary, resolve environmental con- closes the significant components of the January I, 1993, accumu-cerns extant at PSE&G's former manufactured gas plant sites. To lated postretirement benefit obligation amortization:

date, NJDEPE and PSE&G have 1dent1fied 38 former gas plant sites. Net Postretirement Benefit Obligation PSE&G 1s currently working with NJDEPE under a program to as- (Millions) January I, 1993 sess, 1nvest1gate and, 1f necessary, remed1ate environmental con- Accumulated postret1rement benefit obl1gat1on (PSE&G) $(609.3) cerns at its former gas plant sites (Remed1at1on Prog1-am). The Unrecognized transition obl1gat1on (PSE&G) 578.8 Remediation Program 1s periodically reviewed and revised by Accrued postret1rement obligation $ (30.5)

PSE&G based on regulatory requirements, experience wrth the Remed1at1on Program and available technologies. The cost of the The following table discloses the significant components of the net Remed1at1on Program cannot be reasonably estimated, but experi- periodic postretirement benefit obligation:

ence to date 1nd1cates that costs of at least $20 million per year could be incurred over a penod of more than 30 years and that Net Periodic Postretirement Benefit Obligation the overall cost could be matenal. 1993 Costs incurred through December 31, 1993 for the Service cost $ 11.7 Remediation Program amounted to $44.5 million, net of insurance Interest on accumulated postret1rement obligation 44.4 Amortization of transrt1on obl1gat1ons 30.5 recoveries. In addrt1on, at December 31, 1993, PSE&G's l1abilrty for Defenol of cuJTent expense (58.6) estimated remediation costs, net of insurance recoveries, through Annual net expense $ 28.0 1996 aggregated $1 I I million. In accordance wrth a St1pulat1on ap-proved by the BRC on January 21 , 1992. PSE&G 1s recovering $32 The discount rate used 1n determining the PSE&G net periodic million of its actual remediation costs to reflect costs incurred postretirement benefrt cost was 7.5%.

through September 30, 1992, net of insurance recoveries, over a A one-percentage-point increase 1n the assumed health care six-year penod. In its 1992-93 LGAC. PSE&G refunded $0.3 million cost trend rate for each year would increase the aggregate of the dunng the 1993 LGAC year and will recover $5.3 million 1n each service and interest cost components of net periodic postretire-of its next three LGAC periods ending 1n 1996, net of insurance ment health care cost by approximately $2.4 million, or 6.0%, and recoveries. The regulatory treatment of the remediation costs cov- increase the accumulated postretirement benefrt obligation as of ered by this St1pulat1on was not changed 1n the BRC's September December 31, 1993 by $29.3 million, or 6.0%.

15, 1993 written order, allowing continued collection under the The assumed health care cost trend rates used 1n measuring the terms of the January 21, 1992 St1pulat1on. The dern1on of accumulated postret1rement benefit obl1gat1on in 1993 were: med-Septembe1* 15, 1993 concluded that PSE&G had met its burden of ical costs for pre-age sixty-five retirees - 13.5%, medical costs for proof for establishing the reasonableness and prudence of remedi- post-age retirees - 9.5%, prescription drugs - 18% and dental ation costs incurred 1n operating and decommissioning these facrli- costs - 7.5%, such rates are assumed to gradually decline to 5.5%,

t1es 1n the past. The remediation costs incurred during the period 5.0%. 5.5% and 5.0%. respectively, 1n 20 I 0.

July I, 1992 through September 30, 1992 are subiect to verification In its recent base rate case, PSE&G requested full 1*ecovery of and audit 1n PSE&G's 1992-93 LGAC. The audrt 1s currently ongo- the costs associated with postret1rement benefits other than pen-ing. The order also app1*oved a mechanism for costs incurred since sions (OPEB) on an accrual basis, in accordance with SFAS I 06.

October I, 1992, allowing the recovery of actual costs plus can-y- The BRC's December 31, 1992 base rate order, provided that (I) 1ng charges, net of insurance recoveries, over a seven-year penod PSE&G's pay-as-you-go basis OPEB costs will continue to be in-through PSE&G's LEAC and LGAC. with 60% charged to gas cus- cluded 1n cost of service and will be recoverable 1n base rates on a totners and 40% charged to electric customers. On November I, pay-as-you-go basis; (2) prudently incurred OPEB costs, that are 1993, the Public Advocate of New jersey filed a motion 1*equest1ng 43

accounted for on an accrual basis in accordance with SFAS I06, 1993 1992 will be recoverable in future rates; (3) PSE&G should account for Discount Rate Used to Determine Pension Cost 7'/,% 7Y,%

the differences between its OPEB costs on an accrual basis and the Discount Rate Used to Determine Benefit Obligations 7'1.% 7Y,%

pay-as-you-go basis being recovered in rates as a regulatory asset; Expected Long-Term Return on Assets 8% 8%

Average Compensation Growth to Determine Pension Cost 6% 6%

(4) the issue of cash versus accrual accounting will be revisited and Average Compensation Growth to Determine Benefit Obligations 5.5% 6%

in the event that the Financial Accounting Standards Board (FASB) or the SEC requires the use of accrual accounting for OPEB costs The following table shows the Pension Plan's funded status:

for ratemaking purposes, the regulatory asset will be recoverable, (Thousands of Dollars) December 31, through rates, over an appropriate amortization period. 1993 1992 Accordingly, PSE&G is accounting for the differences between Actuarial present value of benefit obligations:

its SFAS I06 accruals cost and the cash cost currently recovered Accumulated benefit obligations, through rates as a regulatory asset OPEB costs charged to ex- including vested benefits of $1,045,035 and $993,867 $(I, 144,214) $( 1,065,842) pense during 1993 were $28 million and accrued OPEB costs de- Effect of projected future compensation (346,416) (332,843) ferred were $58.6 million, including an increase of $25 million due Projected benefit obligations ( 1,490,630) ( 1,398,685) to the recognition of PSE&G's obligation for life insurance benefits. Plan assets at fair value, primarily listed equity and The amount of the* unfunded liability, at December 3 I, 1993, as debt securities 1,312,619 I, 172,775 shown below, is $657.0 million and funding options are currently Projected benefit obligations in excess of plan assets (178,011) (225,910) being explored. The primary effect of adopting SFAS I06 on Unrecognized net gain (loss) from past experience and effects of changes in assumptions (20,981) 18,326 Enterprise's and PSE&G's financial reporting is on the presentation Prior service cost not yet recognized in net pension cost 113,397 121,998 of their financial positions with minimal effect on their results of Unrecognized net obligations being recognized over operations. 16.7 years 77,486 85,586 Accrued pension expense $ (8,109) $

In accordance with SFAS I06 disclosure requirements, a recon-ciliation of the funded status of the plan as of December 31, 1993, The net pension cost for the years ending December 3 I, 1993, is as follows:

1992 and 199 I, include the following components:

(Millions) December 31, 1993 (Thousands of Dollars) 1993 1992 1991 Accumulated postretirement benefit obligation:

Retirees $(406.4) Service cost-benefits earned during year $ 42,948 $ 36,125 $ 33,652 Fully eligiule active plan participants (35.0) Interest cost on projected benefit Other active plan participants (215.6) obligations 103,118 94,233 89,324 Return on assets (166,916) (62,323) ( 191,996)

Total $(657.0) Net amortization and deferral 90,958 (14,035) 119,020 Plan assets at fair value $ Total $ 70,108 $ 54,000 $ 50,000 Accumulated postretirement benefit obligation in excess of plan assets $(657.0) Supplemental pension costs in 1993, 1992 and 199 I, were

$168,000, $299,000 and $419,000, respectively.

Unrecognized net loss from past experience different from that assumed and from changes in assumptions $ 19.6 See Note I - Organization and Summary of Significant Unrecognized prior service cost Accounting Policies.

Unrecognized transition obligation 578.8 Accrued postretirement obligation $ 58.6 Note 15. Financial Information By Business Segments

• The discount rate used in determining the accumulated post- Information related to the segments of Enterprise's business is retirement benefit obligation as of December 3 I, 1993 was 7.25%. detailed below:

During January 1993 and subsequent to the receipt of the For the Year Ended December 31, 1993 Order, the FAS B's Emerging Issues Task Force (EITF) concluded Non utility (Thousands of Dollars) Electric Gas Activities(A) Total that deferral of such costs is acceptable, provided regulators allow Operating Revenues $ 3,693,083 $1,594,341 $ 440, 120 $ 5,727,544 SFAS I06 costs in rates within approximately five years of the Eliminations (lnterseg-adoption of SFAS I06 for financial reporting purposes, with any ment Revenues) (21,985) (21,985) cost deferrals recovered in approximately twenty years. PSE&G in- Total Operating Revenues 3,693,083 1,594,341 418,135 5,705,559 tends to request the BRC for full SFAS I06 recovery in accordance Depreciation and with the EITF's view of such standard and believes that it is proba- Amortization 439,831 69,375 91,058 600,264 ble that any deferred costs will be recovered from utility customers Operating Income Before Income Taxes 1,117,739 173,916 135.472 1,427,127 within such twenty year time period.

Capital Expenditures 738,362 152,012 94,014 984,388 December 31, 1993 Note 14. Pension Plan Net Utility Plant 9,451,581 1,352,799 10,804,380 The discount rate, expected long-term return on assets and aver- Oil and Gas Property, age compensation growth used in determining the Pension Plan's Plant & Equipment 506,047 506,047 Other Corporate Assets 2,291,596 863,830 1,839.311 4,994,737 funded status as of December 31, 1993 and 1992, and net pension costs for 1993, 1992 and 1991, were as follows: Total Assets $11,743,177 $2,216,629 $2,345,358 $16,305, I 6~

44

For the Year Ended December 31, 1992 For the Year Ended December 3 I, 199 I Nonutjlity Non utility (Jhousands of Dollars) Electric Gas Activities(A) Total (Thousands of Dollars) Electric Gas Activities(A) Total Operating Revenues $ 3,407,819 $1,586, 181 $ 407,404 $ 5,401,404 Operating Revenues $ 3,500,043 $1,307,849 $ 335,073 $ 5, 142,965 Eliminations (lnterseg- Eliminations (lnterseg-ment Revenues) (44,623) (44,623) ment Revenues) (51,307) (51,307)

Total Operating Revenues 3,407,819 1,586, 181 362,781 5,356,781 Total Operating Revenues 3,500,043 1,307,849 283,766 5,091,658 Depreciation and Depreciation and Amortization 435, I04 116,907 90,537 642,548 Amortization 399,574 93,523 92,822 585,919 Operating Income Operating Income Before Income Taxes 861,066 124,893 206,783 I, 192.742 Before Income Taxes 1,007,342 115,259 144,223 1,266,824 Capital Expenditures 668,537 158,224 61,048 887,809 Capital Expenditures 672,852 140,297 249,078 1,062,227 December 31, 1992 December 3 I, 199 I Net Utility Plant 9,224,543 1,246,769 10,471,312 Net Utility Plant 9,006, 125 I, 176,456 I0, 182,581 Oil and Gas Property, Oil and Gas Property, Plant & Equipment 506,814 506,814 Plant & Equipment 563,190 563, 190 Other Corporate Assets 1,295,073 484,449 1,997,061 3,776,583 Other Corporate Assets 1,254,559 570,918 1,881,317 3,706,794 Total Assets $10,519,616 $1,731,218 $2,503,875 $14.754,709 Total Assets $ I0,260,684 $1,747,374 $2,444,507 $14,452,565 (A) The Nonutilrty Activities include amounts applicable to Enterprise, the parent corporation.

Note 16. Property Impairment of Enterprise Group Development Corporation As a result of a management review of each property's current the estimated value of EGDC's properties by $77.6 million and net in-value and the potential for increasing such value through operating come by $50.5 million, after tax, or 2 I cents per share of Enterprise and other improvements, EGDC recorded an impairment related common stock. EGDC's real estate held for sale of $33.B million and to certain of its properties, including properties upon which $6.7 million at December 3 I, I993 and I992 are presented in "Other EDHl's management revised its intent from a long-term invest- Investments - net" and "Current Assets", respectively, in the accom-ment strategy to a hold for sale status, reflecting such properties panying consolidated balance sheets.

on its books at their net realizable value. This impairment reduced Note 17. jointly-Owned Facilities - Utility Plant PSE&G. has ownership interests and is responsible for providing its share of the necessary financing for the following jointly-owned facilities. All amounts reflect the share of jointly-owned projects and the corresponding direct expenses are included in Consolidatej Statements of Income as an operating expense. (See Note I - Organization and Summary of Significant Accounting Policies.)

(Thousands of Dollars) Ownership Plant Accumulated Plant Under Plant - December 3 I, 1993 Interest In Service Depreciation Construction Coal Generating Conemaugh 22.50% $103,938 $35,101 $ 63,428 Keystone 22.84 101,543 30,385 4,742 Nuclear Generating Peach Bottom 42.49 699,445 265,679 26,545 Salem 42.59 1,003,872 343,925 33, 134 Hope Creek 95.00 4,096,287 819,595 20,439 Nuclear Support Facilities Various 153,147 23,414 3,523 Pumped Storage Generating Yards Creek 50.00 20,636 8,353 3,487 Transmission Facilities Various 119,979 32,359 9 Merrill Creek Reservoir 13.91 37,117 8,876 Linden Gas Plant 90.00 15,871 17,630 Note 18. Selected Quarterly Data (Unaudited)

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

Calendar Quarter Ended March 31, June 30, September 30, December 3 I, (Thousands where applicable) 1993 1992 1993 1992 1993 1992 1993 1992 Operating Revenues $1,594,708 $1,512,450 $1,246,337 $1, 190,798 $1,402,037 $1,248,772 $1,462,477 $1,404,761 Operating Income $ 336,505 $ 268,653 $ 248,658 $ 207,355 $ 318,785 $ 259,385 $ 202,899 $ 230,742 Net Income $ 215,418 $ 186,333 $ 119,782 $ 87,358 $ 192,231 $ 138,127 $ 73,502 $ 92,299 Earnings Per Share of Common Stock $ 0.91 $ 0.81 $ 0.49 $ 0.38 $ 0.79 $ 0.59 $ 0.30 $ 0.39 Average Shares of Common Stock Outstanding 236,919 229,567 240,920 231,993 241,889 233, 192 242,848 234,442 45

Consolidated Financial Statistics (A)

,ii; (Thousands of Dollars where applicable) 1993 1992 1991 1990 1989 Selected Income Information Operating Revenues Electric $ 3,693,083 $ 3,407,819 $ 3,500,043 $ 3,332,417 $ 3,279,913 Gas 1,594,341 1,586, 181 1,307,849 1,236,747 1,362,470 Nonutility Activities 418,135 362,781 283,766 230,075 161,896 Total Operating Revenues $ 5,705,559 $ 5,356,781 $ 5,091,658 $ 4,799,239 $ 4,804,279 Net Income $ 600,933 $ 504,117 $ 543,035 $ 403,663 $ 523,435 Earnings per average share of Common Stock $2.50 $ 2.17 $ 2.43 $ 1.90 $ 2.53 Dividends Paid per Share $2.16 $ 2.16 $ 2.13 $ 2.09 $ 2.05 Payout Ratio 86% 100% 88% 110% 81%

Rate of Return on Average Common Equity 11.91% 10.69% 12.24% 9.66% 13.13%

Ratio of Earnings to Fixed Charges Before Income Taxes 2.59 2.30 2.54 2.09 2.60 Book Value per Common Share $21.07 $20.32 . $20.04 $19.44 $19.48 Utility Plant $15,861,483 $15,08 1,907 $14,426,560 $12,836,874 $12,960,093 Accumulated Depreciation and Amortization of Utility Plant $ 5,057,104 $ 4,610,595 $ 4,243,979 $ 3,963,093 $ 3,623,458 Total Assets $16,305, 164 $14,754,709 $14,452,565 $13,693,469 $12,799,398 Consolidated Capitalization Common Stock $ 3,772,662 $ 3,499, 183 $ 3,262, 138 $ 3,043,402 $ 2,857,974 Retained Earnings 1,361,018 1,282,931 1,282,029 1,203,772 1,253,515 Common Equity 5,133,680 4,782, 11.4 4,544, 167 4,247,174 4,111,489 Long-Term Debt 5,256,321 4,977,579 5, 128,373 4,668,024 4,293,578 Capital Lease Obligations 52,530 53,104 53,617 54,073 54,513 Preferred Stock without Mandatory Redemption 429,994 429,994 429,994 429,994 429,994 Preferred Stock with Mandatory Redemption 150,000 75,000 Total Capitalization $11,022,525 $ I 0,3 17,79 I $10, 156, 151 $ 9,399,265 $ 8,889,574 (A) See Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes to Consolidated Financial Statements.

46

Operating Statistics I Public Service Electric and Gas Company (Thousands of Dollars where applicable) 1993 1992 1991 1990 1989 Electric Revenues from Sales of Electricity Residential $1,175,875 $1,037,099 $1,116,699 $1,038,906 $1,015,065 Commercial 1,678,011 1,554,956 1,575,547 1,516,755 1'.464,431 Industrial 710,206 683,750 728,41 I 697,571 715,669 Public Street Lighting 51,019 47,729 46,400 45,418 46,750 Total Revenues from Sales to Customers 3,615,111 3,323,534 3,467,057 3,298,650 3,241,915 Interdepartmental 1,737 1,544 1,599 1,652 1,843 Non-Jurisdictional Sales 48,625 51,313 19,763 48,325 74,247 Total Revenues from Sales of Electricity 3,665,473 3,376,391 3,488,419 3,348,627 3,318,005 Other Electric Revenues 27,610 31,427 31,387 32, 115 36, 155 Total Operating Revenues $3,693,083 $3,407,818 $3,519,806 $3.380,742 $3,354, 160 Sales of Electricity - megawatthours Residential I 0,631,402 9,816,046 I 0,505,547 9,875,569 9,950,773 Commercial 18,096,312 17,454,352 17,596,569 17,054,495 16,946,768 Industrial 9,203,839 9,298,741 9,406, 109 9,457,985 I 0,039,913 Public Street Lighting 329,828 325,545 320,900 314,936 310,073 Total Sales to Customers 38,261,381 36,894,684 37,829, 125 36,702,985 37,247,527 Interdepartmental 18,514 19,012 19,719 19,822 23,175 Non-Jurisdictional Sales 2,245,893 2, 116,049 1,858,590 1,625,016 1,409,208 Total Sales of Electricity 40,525,788 39,029,745 39,707,434 38,347,823 38,679,910 Gas Revenues from Sales of Gas Residential $ 780, 195 $ 809,559 $ 699,696 $ 667,077 $ 772,344 Commercial 460,340 481,960 426,110 406,577 436,349 Industrial 299,762 243,527 138,394 130,273 134,272 Street Lighting 467 468 468 385 358 Total Revenues from Sales to Customers 1,540,764 1,535,514 1,264,668 1,204,312 1,343,323 Interdepartmental 3,078 2,572 2,689 2,157 3,613 Total Revenues from Sales of Gas 1,543,842 1,538,086 1,267,357 1.206,469 1,346,936 Transportation Service Gas Revenues 37,081 34,739 27,036 15,654 11,485 Other Gas Revenues 13,418 13,356 13,456 14,624 4,049 Total Operating Revenues $1,594,341 $1,586, 181 $1,307,849 $1,236,747 $1,362,470 Sales of Gas - kilotherms Residential 1,280,128 1,265,270 I, 140,887 1,097,034 1,253,800 Commercial 943,054 939,021 893,069 837,650 872,684 Industrial 876,421 739,508 399,385 341,467 342,928 Street Lighting 666 668 666 657 656 Total Sales to Customers 3, I 00,269 2,944,467 2,434,007 2,276,808 2,470,068 Interdepartmental 7,509 5,967 6,174 5, 144 8,705 Total Sales of Gas 3, I 07,778 2,950,434 2,440, 181 2,281,952 2,478,773 Transportation Service 557,403 543,097 381,497 182,056 149,586 Total Gas Sold or Transported 3,665,181 3,493,531 2,821,678 2,464,008 2,628,359

• r

... 47

Officers and Directors Shirley A. Jackson Rudolph D. Stys Enterprise Diversified Public Service Enterprise Professor of Physics, Rutgers Uni\/ersity. Senior Vice President - Gas Holdings Incorporated and Physics Consultant, AT&T Bell Group Incorporated William J. Budney, Jr.

Laboratories.

Vice President - Distribution Systems Officers Member of Audit Committee, Finance Officers Committee and Nominating Committee. Frank Cassidy E. James Ferland Irwin Lerner Vice President - Transmission Systems Chairman of the Board and Chief E. James Ferland Chairman of the Board, President Retired Chairman, Board of Directors Executive Officer Francis E. Delany, Jr.

and Chief Executive Officer and Executive Committee, Hoffmann- Vice President and Corporate Rate La Roche, Inc. Paul H. Way Counsel President and Chief Operating Officer Robert C. Murray (manufactures pharmaceuticals, vitamins Vice President and Chief Financial and fine chemicals, and provides home John A. Gartman Paul T. Bradshaw Officer health care and diagnostic products and Vice President - Gas Supply and Vice President and General Counsel services). Planning Patricia A. Rado.

Chairman of Nominating Committee, Madeleine W. Ludlow Vice President and Comptroller Curtis W. Grevenitz Member of Audit Committee and Vice President and Treasurer Organization and Compensation Vice President - Organization R. Edwin Selover Committee. Effectiveness John W. Nabial Vice President and General Counsel Vice President and Comptroller William E. Marfuggi Joseph J. Hagan Francis J. Riepl Retired Chairman, Tri-Maintenance & Vice President - Nuclear Operations Treasurer Directors Contractors, Inc. Stanley LaBruna Robert S. Smith Member of Finance Committee and Vice President - Nuclear Engineering Ernest H. Drew Secretary Nominating Committee.

Pierre R.H. Landrieu T.J. Dermot Dunphy Directors Marilyn M. Pfaltz Vice President - Fossil Production Partner of P and R Associates E. James Ferland (communication specialists). Frederick W. Lark Lawrence R. Codey William E. Marfuggi Member of Audit Committee and Vice President - Marketing President, Chief Operating Officer Organization and Compensation Marilyn M. Pfaltz and director, PSE&G. John H. Maddocks Committee.

Member of Executive Committee and Vice President - Public Affairs Paul H. Way Finance Committee. James C. Pitney Partner in the law firm of Pitney. Steven E. Miltenberger Josh S. Weston Ernest H. Drew Hardin, Kipp & Szuch. Vice President and Chief Nuclear President, Chief Executive Officer and Officer Member of Audit Committee, Finance Presidents of Subsidiary director, Hoechst Celanese Committee and Organization and Corporation (manufactures chemicals, Patricia A. Rado Companies Compensation Committee.

fibers, film, specialties and advanced Vice President and Comptroller materials). Josh S. Weston Arthur S. Nislick Member of Audit Committee. Francis J. Riepl Chairman of the Board and Chief President - Community Energy Vice President and Treasurer Executive Officer, Automatic Data Alternatives Incorporated T.J. Dermot Dunphy Processing, Inc.

President, Chief Executive Officer and Glenn M. Rogers Chairman of Organization and Vice President - Information Systems John F. Schwarz director, Sealed Air Corporation President - Energy Development Compensation Committee, Member of and Corporate Services (manufactures protective packaging Corporation Executive Committee and Finance products and systems). Robert S. Smith Committee.

Chairman of Audit Committee, Member Vice President and Secretary Paul H. Way of Executive Committee and President - Enterprise Group Organization and Compensation Public Service Electric and Gregory M. Thomson Development Corporation Committee. Gas Company Vice President - Hum an Resources Eileen A. Moran Robert R. Ferguson, Jr. Officers President - Public Service Resources Retired Chairman of the Board, Directors Corporation President, Chief Executive Officer and E. James Ferland E. James Ferland director: First Fidelity Bancorporation; Chairman of the Board and Chief Chairman of the Board and Chief First Fidelity Bank, NA; and First Executive Officer Executive Officer Fidelity. Inc.

Chairman of Finance Committee, Lawrence R. Codey Lawrence R. Codey Member of Executive Committee, President and Chief Operating Officer President and Chief Operating Officer Nominating Committee and Organization and Compensation Committee. Harold W. Borden, Jr. Robert R. Ferguson, Jr.

Senior Vice President - External Affairs E. James Ferland Raymond V. Gilmartin Chairman of the Board, President and Thomas M. Crimmins, Jr.

Chief Executive Officer of the Senior Vice President - Customer Shirley A. Jackson Corporation. Operations Irwin Lerner Chairman of Executive Committee.

Robert J. Dougherty, Jr.

Senior Vice President - Electric James C. Pitney Raymond V. Gilmartin Chairman of the Board, President and Robert C. Murray Chief Executive Officer, Becton Senior Vice President - Finance and Dickinson and Company (manufactures Chief Financial Officer medical devices and diagnostic sytems).

Member of Finance Committee and R. Edwin Selover Organization and Compensation Senior Vice President and General Committee. Counsel 48

Corporate and Stock Information Stockholder Information - Toll Free Transfer Agents New Jersey residents: 1-(800)242-0813 All Stocks:

Outside New Jersey: 1-(800)526-8050 First Chicago Trust Company of New York TDD/Hearing Impaired: 1-(800)732-3241 14 Wall Street, Mail Suite 4680, New York, N.Y. I0005 Telephone Hours: I0 AM to 12 PM and I:30 to 3:30 PM Monday-Friday (Eastern Time) Stockholder Services, Public Service Electric and Gas Company Security Analysts and Institutional Investors 80 Park Plaza, P.O. Box I 17 I Director - Investor Relations (20 I)4 30-6564 Newark, N.j. 07101-1171 Dividend Reinvestment Plan Registrars Enterprise has a Dividend Reinvestment and Stock Purchase Plan under All Stocks:

which all _common and PSE&G preferred stockholders may reinvest divi- First Fidelity Bank, NA dends and/or make direct cash investments to obtain Enterprise common 765 Broad Street, Newark. N.J. 0710 I stock Purchases of common stock are made for the Plan directly from Enterprise, at its sole discretion, and/or in the open market. All brokerage First Chicago Trust Company of New York and other fees to acquire shares are absorbed by Enterprise. To participate, 14 Wall Street, Mail Suite 4680, New York, N.Y. I0005 call the toll-free number to obtain a prospectus and an authorization form.

Stock Exchange Listings Stock Trading Symbol: PEG Common:

New York Stock Exchange Annual Meeting Philadelphia Stock Exchange Please note that the Annual Meeting of Stockholders of Public Service Preferred of PSE&G:

Enterprise Group Incorporated will be held at Newark Symphony Hall, New York Stock Exchange I020 Broad Street, Newark, N.j., on Tuesday, April 19, 1994, at 2:00 PM.

A summary of the meeting will be sent to all stockholders of record at a Common Stock - Market Price and Dividends Per Share later date.

Additional Reports Available 1993 1992 Form IO~K High Low Div. High Low Div.

Stockhold~rs or other interested per5ons wishing to obtain a copy of First Quarter 1 29!.-1 Enterprise's or PSE&G's 1993 Annual Report to the Securities and 34 /. 30 $.54 26!.-1 $.54 Exchange Commission, filed on Form I0-K, may obtain one without charge Second Quarter 35 31% .54 28Ya 25Ye .54 by writing to the Director - Investor Relations, Public Service Electric and Third Quarter 36'1a 34 .54 28Ye 26Ys .54 Fourth Quarter 35'/.. 30 .54 31 Ya 27Ys *.54.

Gas Company. P.O. Box 570, T6B, Newark. N.J. 0710 I, telephone (20 I) 430-6503. The copy so provided will be without exhibits. Exhibits may be The number of holders of record of Public Service Enterprise Group purchased for a specified fee.

• Incorporated common shares as of December 31, 1993 was 192,999.

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

~esign:

Broch Graulich Whelan Inc. This Annual Report is printed

~wYork on recycled paper. 49

'r .

Public Service Enterprise Group Incorporated 80 Park Plaza P. 0. Box I 171 Newark, NJ 07101-1171

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