Annual Report (Form 10-K), fiscal year 1993

ITEM 1. BUSINESS.
GENERAL
ENTERPRISE
Public Service Enterprise Group Incorporated (Enterprise), incorporated under the laws of the State of New Jersey with its principal executive offices located at 80 Park Plaza, Newark, New Jersey 07101, is a public utility holding company that neither owns nor operates any physical properties. Enterprise has two direct wholly-owned subsidiaries, Public Service Electric and Gas Company (PSE&G) and Enterprise Diversified Holdings Incorporated (EDHI). Enterprise's principal subsidiary, PSE&G, is an operating public utility providing electric and gas service in certain areas in the State of New Jersey. Enterprise has claimed an exemption from regulation by the Securities and Exchange Commission (SEC) as a registered holding company under the Public Utility Holding Company Act of 1935 (PUHCA), except for Section 9(a)(2) thereof which relates to the acquisition of voting securities of an electric or gas utility company. PSE&G is subject to direct regulation by the New Jersey Board of Regulatory Commissioners (BRC) and the Federal Energy Regulatory Commission (FERC). PSE&G has a nonutility finance subsidiary, PSE&G Fuel Corporation (Fuelco), providing financing not to exceed $150 million aggregate principal amount at any one time of a 42.49% undivided interest in the nuclear fuel acquired for Peach Bottom Atomic Power Station Units 2 and 3 (Peach Bottom) and guaranteed by PSE&G. PSE&G has also organized a nonutility subsidiary Public Service Conservation Resources Corporation (PSCRC) to offer Demand Side Management (DSM) services to utility customers. EDHI is the parent of Enterprise's other nonutility businesses: Energy Development Corporation (EDC), an oil and gas exploration, 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 diversified passive investments; Enterprise Group Development Corporation (EGDC), a diversified nonresidential real estate development and investment business; 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 on the basis of the consolidated financial position of EDHI without direct support from Enterprise. As of December 31, 1993 and December 31, 1992, respectively, PSE&G comprised 86% and 83% of Enterprise's assets. For the years 1993, 1992 and 1991, PSE&G's revenues were 93%, 93% and 94%, respectively, of Enterprise's revenues and PSE&G's earnings available to Enterprise for such years were 96%, 88% and 95%, respectively, of Enterprise's net income. PSE&G will continue as the principal business of Enterprise for the foreseeable future.
Financial information with respect to business segments of PSE&G and Enterprise is set forth in Note 15 -- Financial Information by Business Segments of Notes to Consolidated Financial Statements.
PSE&G
PSE&G, a New Jersey corporation with its principal executive offices at 80 Park Plaza, Newark, New Jersey 07101, is an operating public utility company engaged principally in the generation, transmission, distribution and sale of electric energy service and in the production, transmission, distribution and sale of gas service in New Jersey. PSE&G supplies electric and gas service in areas of New Jersey in which approximately 5,500,000 persons reside, approximately 70% of the State's population. PSE&G is Enterprise's principal operating subsidiary. (See General -- Enterprise.)
PSE&G's electric and gas service area is a corridor of approximately 2,600 square miles running diagonally across New Jersey from Bergen County in the northeast to an area below the City of Camden in the southwest. The greater portion of the area is served with both electricity and gas, but some parts are served with electricity only and other parts with gas only. This heavily populated, commercialized and industrialized territory encompasses most of New Jersey's largest municipalities, including its six largest cities -- Newark, Jersey City, Paterson, Elizabeth, Trenton and Camden -- in addition to approximately 300 suburban and rural
communities. It contains a diversified mix of commerce and industry, including major facilities of many corporations of national prominence.
Under the general laws of New Jersey, PSE&G has the right to use the public highways, streets and alleys in New Jersey for the erection, laying and maintenance of poles, conduits and wires necessary for its electric operations. PSE&G must, however, first obtain the consent in writing of the owners of the soil for the purpose of erecting poles. In incorporated cities and towns, PSE&G must obtain from the municipality a designation of the streets in which the poles are to be placed and the manner of placing them. PSE&G's rights are also subject to regulation by municipal authorities with respect to street openings and the use of streets for erection of poles in incorporated cities and towns.
PSE&G, by virtue of a special charter granted by the State of New Jersey to one of its predecessors, has the right to use the roads, streets, highways and public grounds in New Jersey for pipes and conduits for distributing gas.
PSE&G believes that it has all the franchises (including consents) necessary for its electric and gas operations in the territory it serves. Such franchises are non-exclusive.
For discussion of the significant changes which PSE&G's electric and gas utility businesses have been and are undergoing, see Competition and Regulation.
INDUSTRY ISSUES
Enterprise and PSE&G are affected by many issues that are common to the electric and gas industries, such as: an increasingly competitive energy marketplace; sales retention and growth potential in a mature service territory and need to contain costs (see Regulation and Competition); deregulation and unbundling of energy supplies and services (see Competition); ability to obtain adequate and timely rate relief and other necessary regulatory approvals (see PSE&G -- Rate Matters and Regulation); costs of construction (see Construction and Capital Requirements and Competition); operating restrictions, increased costs and construction delays attributable to environmental regulations (see Environmental Controls); controversies regarding electric and magnetic fields (EMF); nuclear decommissioning and the availability of reprocessing and storage facilities for spent nuclear fuel (see Electric Fuel Supply); and credit market concerns with these issues.
COMPETITION
Overview
The energy utility industry is an industry in transition. Changes in Federal law and regulation are encouraging new entrants to the traditional markets of electric and gas utilities. New technology is creating opportunity for new energy services. Customers are more aware and sophisticated about their choices and dissatisfied with the often limited range of options available from the local utility and are turning elsewhere. Competition has now arrived and, as a consequence, the traditional utility structure -- consisting of a vertically integrated system and functioning as a natural monopoly -- is being dramatically altered.
Current Federal energy laws are designed to decrease oil imports by increasing production of non-conventional sources of domestic energy, making more efficient use of all energy and shifting the use of energy to more abundant domestic sources. Among other things, these laws are designed to (1) increase ceiling prices on newly-discovered natural gas, (2) encourage conservation of energy through certain financial incentives, including incentives by individual utilities to customers to help them to conserve energy, (3) require state regulatory authorities to consider certain standards on rate design and certain other utility practices, (4) require interconnections of power systems and wheeling of power for wholesale transactions and (5) encourage development of alternative energy generation.
Federal and State laws designed to reduce air and water pollution and control hazardous substances have had the effect of increasing the costs of operation and replacement of existing utility plant. (See Environmental Controls.) Retention of existing customers and potential sales growth will depend upon the ability of
PSE&G to contain costs, meet customer expectations and respond to changing economic conditions. Competition from cogenerators and independent power producers (IPP), as permitted by PURPA, continues to impact upon PSE&G. Further, as a result of changes brought about by NEPA, discussed below, electric customers and suppliers, including PSE&G and its customers, have increased opportunities for purchase and sale of electricity from and to sellers and buyers outside of traditional franchised territories.
Electric
In the electric utility industry, competitive pressures began with the enactment of the Public Utility Regulatory Policies Act of 1978 ("PURPA"). This law, together with subsequent changes in federal regulation, has increasingly opened the electric utility industry to competition. PURPA created a class of generating facilities exempt from federal and state public utility regulation -- cogeneration and small power producers known as "qualifying facilities" (QFs) -- and created an instant market for them. The Federal Energy Policy Act of 1992 (NEPA), by facilitating the development of the independent power industry, will lead to even stronger competition.
NEPA provides FERC with increased authority to order 'wheeling' of wholesale, but not retail, electric power on the transmission systems of electric utilities, provided that certain requirements are met. In order to facilitate the transition to increased competition in wholesale power markets made possible by NEPA, FERC has, in a Notice of Inquiry, requested comments on a wide array of policy and legal questions related to wholesale transmission pricing. NEPA also amends PUHCA to permit a new class of wholesale generators who are exempt from PUCHA regulation (EWG). NEPA permits both independent companies and utility affiliates to participate in the development of EWG projects regardless of the location and ownership of other generating resources. The transmission access provisions apply to wholesale, but not retail, 'wheeling' of power, subject to FERC review. See Construction and Capital Requirements, Financing Activities and Electric Operations -- Other Power Purchases and the discussion below of New Jersey Gross Receipts and Franchise Tax (NJGRT). For information concerning the activities of CEA, which is an owner-developer of QFs under PURPA, see EDHI -- CEA.
Another key factor in determining how competition will affect PSE&G's electric business is the extent to which New Jersey public utility regulation may be modified to be reflective of these new competitive realities. To this end, the BRC convened an Advisory Council on Electricity Planning and Procurement (Advisory Council). The Advisory Council issued a report in July 1993 which recommended that the BRC institute a rulemaking proceeding to adopt rules for integrated resource planning. The Advisory Council could not reach agreement on a new process for supply-side procurement but suggested several general principles that the BRC should consider. The Advisory Council acknowledged in its report that, with the adoption of integrated resource planning and a new procurement process, the Electric Facility Need Assessment Act (Need Assessment Act) could be modified. Further, the Advisory Council recommended that the BRC consider the need for legislation to allow alternatives to traditional ratemaking. PSE&G cannot predict what other actions, if any, the BRC may take in response to these recommendations. (See Regulation and Note 2 -- Rate Matters of Notes to Consolidated Financial Statements).
Gas
The natural gas industry and its regulation have also been dramatically altered. This restructuring, which began in 1978, has occurred in a series of steps. In 1985, FERC issued Order 436 which generally required each interstate gas pipeline company to make its pipeline capacity available on an equal basis to all parties who wish to transport natural gas through the pipeline, if the pipeline company elected to provide transportation of natural gas for any party other than through a full certification procedure at FERC. In response to the United States Court of Appeals order overturning Order 436 in 1987, FERC issued subsequent orders adopting the same basic provisions as Order 436.
With the issuance of its Order Nos. 636 and 636-A (636 Orders) the FERC has dramatically accelerated the pace at which the natural gas industry is being transformed from an industry driven by regulation to one driven by competitive market forces. The principal thrust of Orders 636 is to require interstate natural gas
pipelines to reconfigure their services such that services provided to third party shippers are fully comparable to the services that pipelines have historically provided in their role as gas merchants. To this end, Orders 636 required the unbundling of interstate pipeline services (i.e., transportation service and sales service bundled together for one price) in order to develop a more competitive interstate natural gas industry. While unbundling of services provides PSE&G with greater access to lower cost gas supplies, it also results in pipeline transition costs being borne by pipeline ratepayers and their customers. The 636 Orders also prohibit buy/sell transactions; essentially mandate the implementation of straight fixed/variable rate design (which allocates all of the pipeline's fixed costs to the demand portion of the rate); abolish capacity brokering programs; establish a right of first refusal mechanism for long-term, firm transportation contracts; and create a formal capacity release program. Currently, each pipeline has completed the restructuring of its services in order to comply with the 636 Orders. Furthermore, numerous parties have appealed the 636 Orders to the U.S. Court of Appeals for the Eleventh Circuit and for the D.C. Circuit. PSE&G has been granted status as an intervenor in these appeals. However, the appeals have not had the effect of staying the 636 Orders.
PSE&G's gas business will also be affected by the extent to which New Jersey public utility regulation may be modified to be reflective of these new competitive realities. On November 10, 1993, the BRC adopted a proposal for the unbundling of traditional services provided by the local gas distribution companies within the State of New Jersey. The proposal was developed as a guideline with the intention of encouraging and promoting unrestricted access to natural gas and natural gas related services in New Jersey for all customer classes except, at this time, the residential end user. The guidelines are directed at developing a more competitive environment for the natural gas industry within the state. The action by the BRC requires that local distribution companies within New Jersey file modifications to their tariffs for gas service which comply with the guidelines by April 1, 1994.
These regulatory changes, coupled with other economic factors, have made and are expected to make the gas supply business extremely competitive. However, the changes provide PSE&G, as a large pipeline customer, the opportunity to convert its remaining pipeline sales contracts to transportation agreements and purchase the natural gas supplies directly from a producer or other seller. Most of PSE&G's sales contracts have been converted during the past year.
Fluctuation in the price of oil results in the loss of gas sales, at certain times, to customers with dual fuel capability. In addition, other companies supply gas service in certain portions of PSE&G's electric territory and others supply electricity in parts of PSE&G's gas service area. Also, as discussed above, as a result of deregulation, pipeline customers, such as PSE&G, have the opportunity to convert a portion of their pipeline sales contracts to transportation agreements and purchase the natural gas supplies directly from a producer or other seller of natural gas, increasing competition in the gas market by encouraging pipelines to act as non-discriminatory transporters of natural gas. Aggressive competition in the gas supply business is expected to continue.
Customers
As of December 31, 1993, PSE&G provided service to approximately 1,900,000 electric customers and 1,500,000 gas customers. PSE&G is not dependent on a single customer or a few customers for its electric or gas sales. For the year ended December 31, 1993, PSE&G's operating revenues aggregated $5.3 billion, of which 70% was from its electric operations and 30% from its gas operations. These revenues were derived as follows:
In July 1993, PSE&G and its largest industrial customer submitted a proposed electric tariff modification to the BRC, providing for a $9 million or 23% rate discount, with PSE&G's shareholders absorbing $2.4 million or 27% of the discount. The proposed tariff modification was designed to dissuade the customer from buying its electricity supply from a third party nonutility generator. In December 1993, following extensive proceedings, the BRC recognized the need for flexible pricing in a competitive market, approved the requested discount but required PSE&G's shareholders to absorb $3.8 million or 42% of such discount. The decision allows PSE&G a special tariff for certain large customers.
Customers of PSE&G, as well as those of other New Jersey electric and gas utilities, pay NJGRT which, in effect, adds approximately 13% to their bills. The NJGRT is a unit tax based on electric kilowatt hour and gas therm sales. This tax differential coupled with the increasing ability of large volume electric and gas companies to obtain their energy supplies from nonutility sources not subject to NJGRT could result in a significant decrease in PSE&G's revenues and earnings.
PSE&G's business is seasonal in that sales of electricity are higher during the summer months because of air conditioning requirements and sales of gas are greater in the winter months due to the use of gas for space-heating purposes.
CONSTRUCTION AND CAPITAL REQUIREMENTS
PSE&G
PSE&G has substantial commitments as part of its ongoing construction program which includes capital requirements for nuclear fuel. PSE&G's construction program is continuously reviewed and periodically revised as a result of changes in economic conditions, revised load forecasts, changes in the scheduled retirement dates of existing facilities, changes in business plans, site changes, cost escalations under construction contracts, requirements of regulatory authorities and laws, the timing of and amount of electric and gas rate changes and the ability of PSE&G to raise necessary capital. Pursuant to an integrated electric resource plan (IRP), PSE&G periodically reevaluates its forecasts of customer load and peak growth and the sources of electric generating capacity load and DSM to meet such projected growth (see DSM). The IRP takes into account assumptions concerning future customer demand, effectiveness of conservation and load management activities, the long-term condition of and projected additions to PSE&G's plants and capacity available from electric utilities and other non-utility suppliers.
Based on PSE&G's current IRP and PSE&G's construction program, construction expenditures are expected to aggregate approximately $4.2 billion during the years 1994 through 1998, including $483 million for nuclear fuel and $133 million of allowance for funds used during construction (AFDC) and capitalized interest. For additional information, see Management's Discussion and Analysis of Financial Position and Results of Operation (MD&A) -- Liquidity and Capital Resources and Note 12 -- Commitments and Contingent Liabilities -- Construction and Fuel Supplies of Notes to Consolidated Financial Statements.
PSE&G's estimate of its electric construction expenditures, including AFDC, for the years 1994 through 1998, described above, recognizes the current and planned results of PSE&G's IRP which is designed to reduce the rate of growth in its electric system peak demand and improve system load factor without restricting the continued economic development of PSE&G's service area. PSE&G's DSM Plan includes rebates for high efficiency appliances and heating equipment, audits, loans, seal-ups and for larger customers, an overall standard offer for eligible DSM end-users. PSE&G's 1993 IRP includes a demand forecast of the average compound annual rate of growth through the year 2003 of electric system peak demand of 1.1%. (See PSE&G -- Other Power Purchases and DSM.) Aggressive conservation and load management efforts are expected to reduce the system peak by 860 megawatts (MW) by 1998. By the year 2003, 1,323 MW are expected to be saved through these programs.
The second component of PSE&G's consists of expected additions to nonutility generation (NUG) from cogenerators, independent power producers and refuse burning generators. These additions are projected to be 139 MW and are scheduled for service by 1998. NUG projects are expected to grow from approximately 4% of
efficient additions at Bergen Generating Station would allow PSE&G to retire approximately 750 MW of older, less efficient generating units by 2000, if economically and environmentally desirable. (See Note 12 -- Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements.)
In addition, PSE&G's construction program is also focusing on upgrading electric and gas transmission and distribution systems and constructing new transmission and distribution facilities to serve new load. Gross additions to PSE&G's utility plant during the three-year period ended December 31, 1993 amounted to approximately $2.5 billion, including $83 million of AFDC. Retirements of utility plant for the same period totaled $500 million. In 1993, construction expenditures amounted to $890 million, including $27 million of AFDC. Retirements for 1993 aggregated $102 million.
EDHI
Following a 1992 focused audit (see Regulation) of Enterprise's nonutility businesses which concluded that such businesses had not harmed PSE&G, in April 1993, the BRC accepted a Focused Audit Implementation Plan in which Enterprise agreed, among other things, that it will not permit its investments in EDHI, as defined in the agreement, to exceed 20% of its consolidated assets without prior notice to the BRC and that debt supported by a support agreement (see Financing Activities) between Enterprise and Capital will be limited to $750 million, with a good faith effort to eliminate such support over the next six to ten years. (See Regulation and MD&A -- Liquidity and Capital Resources.)
As of December 31, 1993 and 1992, respectively, EDHI's long-term investments and property, plant and equipment were as follows:
Property, Plant and Equipment (net of accumulated depreciation and amortization and valuation allowances):
For further discussion of capital requirements, investments and internal generation of cash from operations, see MD&A -- Liquidity and Capital Resources, and Note 7 -- Long-Term Investments, of Notes to Consolidated Financial Statements. For a discussion of sinking fund payments and maturities through 1998 see Note 6 -- Schedule of Consolidated Long-Term Debt.
FINANCING ACTIVITIES
For a discussion of issuance, book value and market value of Enterprise's Common Stock and external financing activities of Enterprise, PSE&G and EDHI for the year 1993, see MD&A -- Liquidity and Capital Resources. Enterprise's Common Stock is listed on the New York and Philadelphia Stock Exchanges.
In 1988, Enterprise entered into a support agreement with Capital which provides, among other things, that Enterprise (i) maintain its ownership, directly or indirectly, of all outstanding common stock of Capital, (ii) cause Capital to have at all times a positive tangible net worth of at least $100,000 and (iii) make sufficient contributions of liquid assets to Capital in order to permit it to pay its debt obligations.
Capital borrows on behalf of EDC, CEA, PSRC and EGDC and Funding borrows on behalf of EDC, CEA and PSRC. Capital and Funding enter into financial agreements with banks and other lenders in providing funds to the operating subsidiaries. The operating subsidiaries generate cash from operating activities and short-term investments are made on behalf of the operating subsidiaries only if such funds cannot be employed in intercompany loans. Intercompany borrowing rates are established with reference to market rates of interest at Capital's and Funding's respective cost of funds. As of December 31, 1993, EDHI's consolidated long-term debt and short-term commercial paper and loan debt was $892 million and $151 million, respectively.
For further discussion of long-term debt and short-term debt, see Note 11 -- Short-Term Debt (Commercial Paper and Loans) and Note 12 -- Schedule of Long-Term Debt of Notes to Consolidated Financial Statements.
FEDERAL INCOME TAXES
For information regarding Federal income taxes, see Note 1 -- Organization and Summary of Significant Accounting Policies, Note 2 -- Rate Matters and Note 9 -- Federal Income Taxes of Notes to Consolidated Financial Statements.
CREDIT RATINGS
The current ratings of securities of Enterprise's subsidiaries set forth below reflect the respective views of the rating agency furnishing the same, from whom an explanation of the significance of such ratings may be obtained. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by such rating agencies, if, in their respective judgment, circumstances so warrant. Any such downward revision or withdrawal of such ratings, or any of them, may have an adverse effect on the market price of Enterprise's Common Stock and PSE&G's securities and serve to increase the cost of capital of PSE&G and EDHI.
(A) Supported by commercial bank letter of credit (see MD&A and Note 11 -- Short-Term Debt (Commercial Paper and Loans) of Notes to Consolidated Financial Statements.)
PSE&G
RATE MATTERS
For information concerning PSE&G's rate matters, see Note 2 -- PSE&G Rate Matters of Notes to Consolidated Financial Statements.
For information concerning PSE&G Energy and Fuel Adjustment Clauses, see MD&A. For information concerning PSE&G's Under (Over) recovered Electric Energy and Gas Fuel Costs, see Note 5 -- Deferred Items of Notes to Consolidated Financial Statements.
NUCLEAR PERFORMANCE STANDARD
PSE&G is subject to a BRC imposed nuclear performance standard with respect to the five nuclear generating stations in which it has ownership interests: Salem 1 and Salem 2 -- 42.59% each; Hope Creek -- 95% and Peach Bottom 2 and Peach Bottom 3 -- 42.49% each. PSE&G operates Salem and Hope Creek and Peach Bottom is operated by PECO Energy Inc., formerly known as Philadelphia Electric Company, (PECO). The following table sets forth the capacity factor in accordance with the nuclear performance standard of each of PSE&G's nuclear units for the years indicated:
For information concerning such standard, see Note 12 -- Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements.
ELECTRIC OPERATIONS
The following table sets forth certain information as to PSE&G's installed generating capacity as of December 31, 1993:
(a) Units with aggregate capacity of 1,406 MW can also burn gas.
(b) Can also burn gas.
(c) PSE&G share of jointly-owned facilities.
(d) Primarily used for peaking purposes.
(e) Excludes 583 MW of nonutility generation contracted for purchase by PSE&G.
For additional information, see Item 2.



ITEM 2. PROPERTIES.
PSE&G
The statements under this Item as to ownership of properties are made without regard to leases, tax and assessment liens, judgments, easements, rights of way, contracts, reservations, exceptions, conditions, immaterial liens and encumbrances and other outstanding rights affecting such properties, none of which is considered to be significant in the operations of PSE&G, except that PSE&G's First and Refunding Mortgage, (Mortgage), securing the bonds issued thereunder, constitutes a direct first mortgage lien on substantially all of such property.
PSE&G maintains insurance coverage against loss or damage to its principal plants and properties, subject to certain exceptions, to the extent such property is usually insured and insurance is available at a reasonable cost. For a discussion of nuclear insurance, see Note 12 -- Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements.
The electric lines and gas mains of PSE&G are located over or under public highways, streets, alleys or lands, except where they are located over or under property owned by PSE&G or occupied by it under easements or other rights. These easements and rights are deemed by PSE&G to be adequate for the purposes for which they are being used. Generally, where payments are minor in amount, no examinations of underlying titles as to the rights of way for transmission or distribution lines or mains have been made.
ELECTRIC PROPERTIES
As of December 31, 1993, PSE&G's share of installed generating capacity was 10,479 MW, as shown in the following table:
(a) Net generation divided by the product of weighted average generating capacity times total hours.
(b) PSE&G's share of jointly-owned facility.
(c) Excludes energy for pumping and synchronous condensers.
For information regarding construction see Item 1. Business -- Construction and Capital Expenditures.
As of December 31, 1993, PSE&G owned 40 switching stations with an aggregate installed capacity of 31,249,000 kilovolt-amperes, and 224 substations with an aggregate installed capacity of 7,194,000 kilovolt-amperes. In addition, 6 substations having an aggregate installed capacity of 133,000 kilovolt-amperes were operated on leased property. All of these facilities are located in New Jersey. Also at that date, PSE&G owned undivided interests in similar jointly-owned facilities at jointly-owned generating facilities in New Jersey and Pennsylvania as indicated in the table above.
As of December 31, 1993, PSE&G's transmission and distribution system included 148,272 circuit miles, of which 33,937 miles were underground, and 776,484 poles, of which 531,952 poles were jointly-owned. Approximately 99% of this property is located in New Jersey.
In addition, as of December 31, 1993, PSE&G owned 4 electric distribution headquarters and 5 subheadquarters and leased 2 subheadquarters in 4 operating divisions all located in New Jersey. Also, PSE&G leases electric transmission headquarters and owns subheadquarters.
GAS PROPERTIES
As of December 31, 1993, the daily gas capacity of PSE&G's 100%-owned peaking facilities (the maximum daily gas delivery available during the three peak winter months) consisted of liquid petroleum air gas (LPG) and liquefied natural gas (LNG) and aggregated 2,973,000 therms (approximately 297,300 Mcf. on an equivalent basis of 1,000 Btu/cubic foot) as shown in the following table:
As of December 31, 1993, PSE&G owned and operated approximately 15,172 miles of gas mains, owned 12 gas distribution headquarters and one subheadquarter and leased one other subheadquarter all in two operating regions located in New Jersey and owned one meter shop in New Jersey serving all such areas. In addition, PSE&G operated 61 natural gas metering or regulating stations, all located in New Jersey, of which 26 were located on land owned by customers or natural gas pipeline companies supplying PSE&G with natural gas and were operated under lease, easement or other similar arrangement. In some instances, portions of the metering and regulating facilities were owned by pipeline companies.
OFFICE BUILDINGS AND FACILITIES
PSE&G leases substantially all of a 26-story office tower for its corporate headquarters at 80 Park Plaza, Newark, N. J., together with an adjoining three-story building. PSE&G also leases other office space at various locations throughout New Jersey for district offices and offices for various corporate groups and services. PSE&G also owns various other sites for training, testing, parking, records storage, research, repair and maintenance, warehouse facilities and for other purposes related to its business.
EDHI owns no real property. EDHI leases its corporate headquarters at One Riverfront Plaza, Newark, New Jersey 07102. For a brief general description of the properties of the subsidiaries of EDHI, see Item 1. Business -- EDHI.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS.
See the following under Business, at the pages indicated:
(1) Page 3. Proceedings before FERC relating to competition and electric wholesale power markets. (Inquiry Concerning the Pricing Policy for Transmission Services Provided by Utilities Under the Federal Power Act, Docket No. RM93-19(NOI).)
(2) Page 3. Proceedings before FERC relating to restructuring of natural gas industry pursuant to Orders 636. (In Re Pipeline Service Obligations and Revisions to Regulations Governing Self-Implementing Transportation Under Part 284 of the Commission's Regulations, Docket No. RM91-11-000).
(3) Page 8. Proceedings before the BRC relating to PSE&G's LGAC, filed November 3, 1993, in Docket No. GR91071226J.
(4) Page 18. Appeal by an association of competitors of PSE&G of the NJDEPE's air permit for Phase I of the repowering of PSE&G's Bergen station to the Appellate Division of the New Jersey Superior Court.
(5) Page 22. Requests filed in 1974 and later supplemented, to EPA and NJDEPE to establish thermal discharges and intake structures for PSE&G's electric generating stations (Sewaren Generating Station, NJ 0000680; Bergen Generating Station, NJ 0000621; Hudson Generating Station, NJ 0000647; Kearny Generating Station, NJ 0000655; Salem Generating Station, NJ 0005622; Linden Generating Station, NJ 0000663).
(6) Page 24. On November 7, 1988, PSE&G filed a lawsuit in the United States District Court for the District of New Jersey against Associated Electric & Gas Insurance Services, Ltd., Certain Underwriters at Lloyd's London, and Certain London Market Companies (PSE&G v. AEGIS, et al., Civ. Action No. 884811.) The suit seeks insurance coverage from these insurers for claims that have been made against PSE&G by the NJDEPE and certain private parties. The claims concern alleged contamination at former gas manufacturing plant sites in New Jersey that are either currently owned by PSE&G or that were previously owned by PSE&G or one of its predecessors.
(7) Pages 24 through 29. Various administrative actions, claims, litigation and requests for information by federal and/or state agencies, and/or private parties, under CERCLA, RCRA, and state environmental laws to compel PRPs, which may include PSE&G, to provide information with respect to transportation and disposal of hazardous substances and wastes, and/or to undertake or contribute to the costs of investigative and/or cleanup actions at various locations because of actual or threatened releases of one or more potentially hazardous substances and/or wastes. As part of one of the administrative actions by NJDEPE, PSE&G has signed ACO's with NJDEPE in the matter of its former gas plant sites: South Amboy, Morristown, Bordentown, Gloucester, Bayonne (Hobart Avenue), Woodbury, Riverton and Paterson.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Enterprise and PSE&G, inapplicable.
ITEM 10. EXECUTIVE OFFICERS OF THE REGISTRANTS.
Enterprise and PSE&G. Information regarding executive officers required by this Item is set forth in Part III, Item 10 hereof.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Enterprise's Common Stock is listed on the New York Stock Exchange, Inc. and the Philadelphia Stock Exchange, Inc. All of PSE&G's common stock is owned by Enterprise, its corporate parent. As of December 31, 1993, there were 192,999 holders of record of Enterprise Common Stock.
The following table indicates the high and low sale prices for Enterprise's Common Stock, as reported in The Wall Street Journal as Composite Transactions and dividends paid for the periods indicated:
Since 1986, PSE&G has made regular cash payments to Enterprise in the form of dividends on outstanding shares of PSE&G's Common Stock. PSE&G has paid quarterly dividends on its common stock in each year commencing in 1948, the year of the distribution of PSE&G's common stock by Public Service Corporation of New Jersey, the former parent of PSE&G. Beginning in 1992, EDHI has made regular cash payments to Enterprise in the form of dividends on outstanding shares of EDHI's common stock. Enterprise has paid quarterly dividends in each year commencing with the corporate restructuring of PSE&G when Enterprise became the owner of all the outstanding common stock of PSE&G. While the Board of Directors of Enterprise intends to continue the practice of paying dividends quarterly, amounts and dates of such dividends as may be declared will necessarily be dependent upon Enterprise's future earnings, financial requirements and other factors.
The ability of Enterprise to declare and to pay dividends is contingent upon its receipt of dividend payments from its subsidiaries. PSE&G has restrictions on the payments 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. Under these restrictions, dividends on PSE&G's common stock may be paid only out of PSE&G's earned surplus and may not reduce PSE&G's earned surplus to less than $10,000,000. PSE&G dividends on common stock would be limited to 75% of Earnings Available for Public Service Enterprise Group Incorporated if payment thereof would reduce PSE&G's Stock Equity to less than 33 1/3% of PSE&G's Total Capitalization and would be limited to 50% of Earnings Available for Public Service Enterprise Group Incorporated if payment thereof would reduce Stock Equity to less than 25% of PSE&G's Total Capitalization, as each of said terms is defined in PSE&G's said debenture bond indentures. None of these restrictions presently limits the payment of dividends out of current earnings. The amount of Enterprise's and PSE&G's consolidated retained earnings free of these restrictions at December 31, 1993 was $1.351 billion and $1.171 billion, respectively.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA.
ENTERPRISE
The information presented below should be read in conjunction with Enterprise Consolidated Financial Statements and Notes thereto.
(A) Fixed charges include the preferred stock dividend requirements of PSE&G.
PSE&G
The information presented below should be read in conjunction with PSE&G Consolidated Financial Statements and Notes thereto.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
ENTERPRISE
Following are the significant factors affecting the consolidated financial condition and the results of operations of Public Service Enterprise Group Incorporated (Enterprise) and its subsidiaries. This discussion refers to the Consolidated Financial Statements and related Notes of Enterprise and should be read in conjunction with such statements and notes.
OVERVIEW
Enterprise has two direct wholly-owned subsidiaries, Public Service Electric and Gas Company (PSE&G) and Enterprise Diversified Holdings Incorporated (EDHI). Enterprise's principal subsidiary, PSE&G, is an operating public utility providing electric and gas service in certain areas in the State of New Jersey.
PSE&G has a finance subsidiary, PSE&G Fuel Corporation (Fuelco), providing financing, unconditionally guaranteed by PSE&G, of up to $150 million aggregate principal amount at any one time of a 42.49% interest in the nuclear fuel acquired for Peach Bottom Atomic Power Station Units 2 and 3 (Peach Bottom). PSE&G also has a nonutility subsidiary, Public Service Conservation Resources Corporation (PSCRC), which offers demand side management (DSM) services to utility customers.
EDHI is the parent of Enterprise's other nonutility businesses: Energy Development Corporation (EDC), an oil and gas exploration, 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 diversified passive investments; and Enterprise Group Development Corporation (EGDC), a diversified nonresidential real estate development and investment business. EDHI also has two finance subsidiaries: 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, 1993 and December 31, 1992, PSE&G comprised 86% and 83%, respectively, of Enterprise assets. For the years 1993, 1992 and 1991, PSE&G revenues were 93%, 93% and 94%, respectively, of Enterprise revenues and PSE&G earnings available to Enterprise for such years were 96%, 88% and 95%, respectively, 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 BRC, that the PSE&G Board will make an annual certification that the business and financing plans of EDHI will not adversely affect PSE&G, that debt supported by the support agreement between Enterprise and Capital will be limited to $750 million, that a good faith effort will be made to eliminate such support over the next six to ten years and that EDHI will pay PSE&G an affiliation fee of $2 million a year, to be proportionately reduced as the amount of debt under the support agreement is reduced.
The major factors which will affect Enterprise's future results include general and regional economic conditions, PSE&G's customer retention and growth, the ability of PSE&G and EDHI to meet competitive pressures and to contain costs, the adequacy and timeliness of required regulatory approvals, including rate relief to PSE&G, continued access to the capital markets and continued favorable regulatory treatment of consolidated tax benefits. (See Note 2 -- Rate Matters and Note 12 -- Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements.)
PSE&G ENERGY AND FUEL ADJUSTMENT CLAUSES
PSE&G has fuel and energy tariff rate adjustment clauses which are designed to permit adjustments for changes in electric energy and gas supply costs and certain other costs as approved by the BRC, when compared to cost recovery included in base rates. Charges under the clauses are primarily based on energy and gas supply costs which are normally projected over twelve-month periods. The changes in the Levelized Gas Adjustment Clause (LGAC) and the Levelized Energy Adjustment Clause (LEAC) do not directly affect earnings because such costs are adjusted monthly to match amounts recovered through revenues. However, the carrying of underrecovered costs ultimately increases financing costs. PSE&G is also required to pay interest on net overrecovered costs. Under the clauses, if actual costs differ from the costs recovered, the amount of the underrecovery or overrecovery is deferred and is reflected in the average cost used to determine the fuel and energy tariff rate adjustment for the period in which it is recovered or repaid. Actual costs otherwise includable in the LEAC are subject to adjustment by the BRC in accordance with PSE&G's nuclear performance standard. (See Note 2 -- Rate Matters and Note 12 -- Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements.)
ENTERPRISE EARNINGS
Earnings per share of Enterprise Common Stock were $2.50 in 1993, $2.17 in 1992 and $2.43 in 1991. The changes are summarized as follows:
The average shares of Enterprise Common Stock outstanding were 240,663,599 for 1993 and 232,306,492 for 1992.
PSE&G
In 1993, excluding the $33 million net effect of the 1992 settlement of litigation against Philadelphia Electric Company, now known as PECO Energy Company (PECO) in connection with the 1987 shutdown of Peach Bottom by the Nuclear Regulatory Commission (1992 Settlement), PSE&G's earnings available to Enterprise increased by $166 million. The principal contributing factors to the increase in earnings available to Enterprise were PSE&G's higher electric and gas base rates that became effective January 1, 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 weather. 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 decline was principally due to the 1.7% decrease in electric kilowatthour sales resulting from significantly cooler weather during 1992 and higher other operation expenses (comprised primarily of labor and employee benefits costs and miscellaneous nuclear production costs). Also contributing to the decrease in earnings were increased interest charges resulting from timing of refunding operations and higher depreciation and amortization expenses. Partially offsetting the decrease in earnings were lower maintenance expenses at certain of PSE&G's fossil fuel generating stations and at Peach Bottom and lower Federal income taxes resulting from lower pre-tax operating income.
EDHI
The net income of EDHI was $24 million in 1993, a decrease of $36 million from 1992. As a result of a management review of each of EGDC's property's current value and the potential for increasing such value through operating and other improvements, EGDC recorded an impairment related to certain properties, including properties upon which management revised its intent from a long-term investment strategy to a short-term hold for sale status, reflecting such properties on its books at their net realizable value. This impairment reduced EDHI earnings by $51 million, after tax, or 21 cents per share of Enterprise Common Stock. Partially offsetting this decrease was an increase in the earnings of EDC due to the higher price of natural gas. Exclusive of the recorded impairment, EDHI net income would have been $75 million for 1993.
The net income of EDHI was $60 million in 1992, an increase of $33 million from 1991. The increase in EDHI net income was due primarily to an increase in EDC net income of $23 million resulting from higher natural gas prices and volumes and an $8 million increase in CEA net income due to improved performance of certain projects and the sale of its interest in various projects.
DIVIDENDS
The ability of Enterprise to declare and pay dividends is contingent upon its receipt of dividend payments from its subsidiaries. PSE&G has made regular payments to Enterprise in the form of dividends on outstanding shares of its common stock since Enterprise was formed in 1986. In addition, commencing in 1992, EDHI has also made payments to Enterprise in the form of dividends on its outstanding common stock.
Dividends paid to holders of Enterprise Common Stock increased $18 million during 1993 compared to 1992 and increased $27 million during 1992 compared to 1991. The increase in the 1993 dividend payment over 1992 was due to the issuance of additional shares of Enterprise Common Stock. The increase in the 1992 dividend payment over 1991 was due to the issuance of additional shares of Enterprise Common Stock and a one cent per share increase in the quarterly dividend rate for the first three quarters of 1992 compared to the same periods of 1991.
Dividends paid to holders of PSE&G Preferred Stock increased $6 million during 1993 compared to 1992 and $3 million during 1992 compared to 1991. The increase in 1993 dividend payments over 1992 dividend payments was due to the issuance and sale of 750,000 shares of 5.97% Preferred Stock on March 17, 1993 and the issuance and sale of 750,000 shares of 7.44% Preferred Stock on June 23, 1992, while the increase in 1992 dividend payments over 1991 dividend payments was due to the issuance and sale of the 7.44% Preferred Stock.
REVENUES
PSE&G ELECTRIC
Revenues increased $285 million, or 8.4%, in 1993 from 1992; 1992 revenues decreased $92 million, or 2.6%, compared to 1991. The significant components of these changes follow:
Changes in kilowatthour sales by customer category are described below:
1993 -- The increase in electric revenues over 1992 was primarily due to the base rate increase which became effective January 1, 1993, partially offset by the larger LEAC credit also effective January 1, 1993. Abnormally warm weather resulted in a significant increase in weather sensitive sales during 1993. Increased competition from nonutility generators (NUGs) and an unscheduled maintenance shutdown at PSE&G's largest industrial customer negatively impacted industrial sales.
1992 -- The reduction in electric revenues from 1991 was due to a 1.7% reduction in kilowatthour sales resulting from reduced weather-sensitive load. Industrial and commercial sales also declined reflecting the effect of New Jersey's weak economy. Competition from NUGs continued to negatively impact industrial sales.
PSE&G GAS
Revenues increased $8 million, or 0.5%, during 1993 over 1992; 1992 revenues increased $278 million or 21.3% over 1991. The significant components of these changes follow:
Changes in gas sold or transported by customer category are described below:
1993 -- The increase in gas revenues over 1992 was primarily attributable to the base rate increase which became effective January 1, 1993 and the higher recovery of fuel related costs. Sales to cogenerators was the largest contributor to the increase in industrial sales as cogeneration average customer usage for electric generation continues to increase. Transportation service sales reflect the movement of some interruptible customers to transportation service.
1992 -- Revenues for 1992 increased over 1991 due principally to the recovery of fuel costs resulting from higher levels of weather-sensitive therm sales and an increase in the LGAC authorized by the BRC, effective January 1, 1992. The increase in residential and firm commercial sales, which represent the majority of PSE&G gas revenues, was principally attributable to the colder weather. Higher industrial and transportation service sales over 1991 were due to cogeneration customer growth.
EDHI
EDHI revenues increased $33 million, or 8% during 1993 over 1992; 1992 revenues increased $72 million, or 22% in 1992 over 1991. The significant components contributing to such results were as follows:
1993 -- EDC was the largest contributor to the EDHI revenue increase due to the higher price of natural gas, partially offset by lower sales to PSE&G. CEA revenues increased as a result of greater income from partnership operating projects. PSRC revenues decreased due to unrealized losses on investments and lower income from leases.
1992 -- The increase in 1992 revenues over 1991 was due to higher revenues of each of EDHI's operating subsidiaries. EDC's higher revenues were principally attributable to increased sales and higher gas prices in 1992. CEA's increased revenues were derived from higher partnership income and gains on the sales of certain partnership interests in 1992. PSRC's greater revenues were attributable 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.
PSE&G ELECTRIC ENERGY COSTS
Electric energy costs decreased $59 million or 7.7% in 1993 compared to 1992 and $5 million or .6% in 1992 compared to 1991. The significant components of these changes follow:
(A) Reflects the change in the deferred over(under)recovered energy costs, which in the years 1993, 1992 and 1991 amounted to $(93) million, $13 million and $5 million, respectively. (See PSE&G Energy and Fuel Adjustment Clauses and Note 2 -- Rate Matters of Notes to Consolidated Financial Statements.)
1993 -- The decrease in total costs was the result of an adjustment in the recovery of energy costs resulting from the base rate case decision effective January 1, 1993, partially offset by a 17% increase in nuclear kilowatthour generation and an 11% increase in purchased power costs.
1992 -- The decrease in total costs resulted from lower kilowatthour generation due primarily to a reduction in weather-sensitive load. Higher prices paid for fuel and power purchases resulted principally from the need to purchase power due to outages at various times of the Salem Nuclear Generating Station, Units 1 and 2 (Salem 1 and 2), in which PSE&G owns 42.59% of undivided interest. Kilowatthour generation from the Salem units declined 31% in 1992 compared to 1991. (See Note 12 -- Commitments and Contingent Liabilities -- Nuclear Performance Standard of Notes to Consolidated Financial Statements.)
GAS SUPPLY COSTS
Gas supply costs increased $39 million or 4.6% in 1993 compared to 1992 and $223 million or 35.0% in 1992 compared to 1991. The significant components of these changes follow:
(A) Reflects the change in the deferred over(under)recovered gas supply costs, which in the years 1993, 1992 and 1991 amounted to $(100) million, $52 million and $(32) million, respectively. (See PSE&G Energy and Fuel Adjustment Clauses and Note 2 -- Rate Matters of Notes to Consolidated Financial Statements.)
1993 -- The increase in total costs was principally due to greater sales to NUGs and other customers, higher gas costs and higher therm sendout resulting from the colder 1993 winter season compared to the 1992 winter season. The increase in costs was reduced by deferred underrecovered 1993 gas costs resulting from the BRC approved adjustment in PSE&G's LGAC, effective January 1, 1993 of $71 million on an annualized basis through December 31, 1993. The adjustment reflects lower gas costs and the inclusion of $15.1 million of conservation program costs in LGAC. In addition, gas customers received $45 million of credits during the first quarter of 1993.
1992 -- The increase in total costs was principally due to greater therm sendout resulting from the colder 1992 weather compared to 1991 and increased sales to NUGs.
LIQUIDITY AND CAPITAL RESOURCES
Enterprise's liquidity is affected by maturing debt (see Note 6 -- Schedule of Consolidated Long-Term Debt of Notes to Consolidated Financial Statements), investment and acquisition activities and the capital requirements of PSE&G's construction program. Capital resources available to meet such requirements depend upon the factors noted above under Overview.
PSE&G
For 1993, PSE&G had utility plant additions, including AFDC, of $890 million, an increase of $63 million versus 1992 additions of $827 million. Additions in 1992 increased $14 million from 1991 additions of $813 million. AFDC for 1993, 1992 and 1991 amounted to $27 million, $26 million and $30 million, respectively. Construction expenditures were related to improvements in PSE&G's existing power plants, transmission and distribution system, gas system and common facilities. Construction expenditures from 1994 through 1998 are expected to aggregate $4.2 billion. (See Construction, Investments and Other Capital Requirements Forecast below.)
PSE&G expects that it will be able to generate internally a majority 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 1, 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 estimated 1993 NJGRT). In April 1994, PSE&G will be required to pay approximately $850 million (the remainder of its 1993 NJGRT plus its 1994 estimated NJGRT). Pending collection from customers, PSE&G is required to finance such NJGRT payments.
EDHI
During the next five years, a majority of EDHI's capital requirements are expected to be provided from operational cash flows. EDHI intends to focus its efforts on CEA and EDC, its energy-related core businesses. CEA is expected to be the primary vehicle for its business growth and EDC is projected to attain and maintain a reserve base at approximately 900 billion cubic feet equivalent, approximately 11% above the year-end 1993 level. PSRC will limit new investments, while EGDC will exit the real estate business in a prudent manner. This strategy places greater emphasis on its investment in the independent energy market. Over the next several years, EDHI and its subsidiaries will also be required to refinance a portion of their maturing debt in order to meet their capital requirements. Any inability to extend or replace maturing debt at current levels and interest rates may affect future earnings and result in an increase in EDHI's cost of capital.
PSRC is a limited partner in various partnerships and is committed to make investments from time to time, upon the request of the respective general partners. On December 31, 1993, $139.5 million remained as PSRC's unfunded commitment subject to call.
EDHI and each of its subsidiaries are subject to restrictive business and financial covenants contained in existing debt agreements and are required to not exceed various debt to equity ratios which vary from 3:1 to 1.75:1. EDHI is also required to maintain a twelve months earnings before interest and taxes to interest (EBIT) coverage ratio of at least 1.35:1. As of December 31, 1993 and 1992, EDHI had consolidated debt to equity ratios of 1.34:1 and 1.84:1 and, for the years ended December 31, 1993 and 1992, EBIT coverage ratios, which exclude the effect of EGDC, of 2.13:1 and 1.88:1, respectively. Compliance with applicable financial covenants will depend upon future levels of earnings, among other things, as to which no assurance can be given. (See Construction, Investments and Other Capital Requirements Forecast and Note 6 -- Schedule of Consolidated Long-Term Debt of Notes to Consolidated Financial Statements.)
CONSTRUCTION, INVESTMENTS AND OTHER CAPITAL REQUIREMENTS FORECAST
The estimated construction requirements of PSE&G, including AFDC, investments and other capital requirements of PSE&G and EDHI for 1994 through 1998 are based on expected project completion dates and include anticipated escalation due to inflation of approximately 4% for utility projects and are as follows:
While the above forecast includes capital costs to comply with revised Clean Air Act (CAA) requirements through 1998, it does not include additional requirements being developed under the CAA by Federal and State agencies. Such additional costs cannot be reasonably estimated at this time. PSE&G believes that such CAA costs would be recoverable from electric customers. Not included in PSE&G's estimated construction expenses is the capital cost of compliance with the New Jersey Department of Environmental Protection and Energy (NJDEPE) draft permit issued October 3, 1990 pursuant to the Federal Water Pollution Control Act with respect to Salem 1 and 2 which, if adopted as proposed, would require the immediate shutdown of both units pending retrofit with cooling towers. On June 24, 1993, NJDEPE issued a revised draft permit that would permit Salem to continue to operate with once-through cooling and would require PSE&G to make certain plant modifications and to take certain other actions to enhance the ecology of the affected water body. The public comment period with respect to the revised draft permit expired on January 15, 1994. While a final permit is expected to be issued sometime in the second quarter of 1994, no assurances can be given as to the timing of any final agency determination. The capital cost of complying with the revised permit is estimated at approximately $75 million, PSE&G's share of which is included in the above forecast. Nevertheless, if cooling towers are ultimately required, PSE&G estimates that it would take at least four years, and between $720 million and $2.0 billion in capital, operation and maintenance costs and replacement power costs to retrofit Salem with cooling towers. PSE&G's share of any
such costs would be 42.59%. In addition, the estimate does not include costs associated with the proposed Phase II of the repowering of PSE&G's Bergen Generating Station.
INTERNAL GENERATION OF CASH FROM OPERATIONS
Although net income increased $97 million for 1993 (See Enterprise Earnings and Revenues), net cash provided by operating activities decreased by $332 million from 1992 to $1.008 billion. This decrease was primarily due to an underrecovery of electric energy and gas costs through PSE&G's LEAC and LGAC, increased NJGRT payments and a decrease in amortization of property abandonments and write-downs. Partially offsetting these cash outflows 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 1991 to $1.340 billion. This increase was primarily due to greater recovery of electric 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.
EXTERNAL FINANCINGS
CASH FLOWS FROM FINANCING ACTIVITIES
(A) During 1993, Enterprise issued and sold 4,400,000 shares of Common Stock through a public offering through underwriters and 3,892,505 shares of Common Stock through its Dividend Reinvestment and Stock Purchase Plan (DRIP) and various employee benefit plans. The net proceeds from such sales, aggregating approximately $273 million, were used by Enterprise to make equity investments of $179 million in PSE&G and $94 million in EDHI. PSE&G utilized such funds for general corporate purposes, including payment of a portion of its construction expenditures. EDHI used the funds for general corporate purposes, including the payment of outstanding debt obligations. Book value per share was $21.07 at December 31, 1993 compared to $20.32 at December 31, 1992. (See Note 4 -- Schedule of Consolidated Capital Stock of Notes to Consolidated Financial Statements.)
(B) See DIVIDENDS.
(C) Under the terms of PSE&G's First and Refunding Mortgage (Mortgage) and its Restated Certificate of Incorporation, as amended, at December 31, 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 $4.101 billion of Preferred Stock at a rate of 7.0%.
In addition, as a prerequisite to the issuance of additional Bonds, PSE&G's Mortgage requires a 2:1 ratio of earnings to fixed charges as computed thereunder. For the twelve months ended December 31, 1993 such ratio was 3.30:1.
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 commercial 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 service and secure an equal principal amount of tax-exempt revenue bonds issued by the Pollution Control Financing Authority of Salem County, New Jersey to finance pollution control facilities at the Hope Creek Generating Station.
Under authority granted by the BRC, expiring December 31, 1994, PSE&G is authorized to issue an additional $495 million principal amount of Bonds after giving effect to the 1994 issuance of Bonds.
For more detail see Note 6 -- Schedule of Consolidated Long-Term Debt of Notes to Consolidated Financial Statements.
(F) In March 1993, PSE&G sold 750,000 shares of Preferred Stock ($100 Par). The net proceeds of $75 million were used by PSE&G for general corporate purposes.
In February 1994, PSE&G sold 600,000 shares of Preferred Stock -- $25 Par and 600,000 shares of Preferred Stock ($100 Par). The net proceeds of $15 million from the sale of the Preferred Stock -- $25 Par were used by PSE&G to redeem all of the 150,000 outstanding shares of PSE&G's 8.08% Preferred Stock ($100 Par). The net proceeds of $60 million from the sale of the Preferred Stock ($100 Par) were added to the general funds of PSE&G and used to pay a portion of its then outstanding short-term debt obligations, which were principally incurred to fund a portion of its construction expenditures.
Under authority granted by the BRC, expiring December 31, 1995, PSE&G is authorized to issue an additional $330 million of Preferred Stock after giving effect to the 1994 issuances of Preferred Stock. (See Note 4 -- Schedule of Consolidated Capital Stock of Notes to Consolidated Financial Statements.)
(G) Funding has a commercial paper program, supported by a commercial bank letter of credit and revolving credit facility, through November 18, 1995 in the amount of $225 million. As of December 31, 1993, Funding had $45 million outstanding under its commercial paper program.
Funding has a $225 million revolving credit facility which terminates on November 18, 1995. As of December 31, 1993, Funding had no debt outstanding under this facility.
In February 1993, Funding repaid $60 million of its 9.43% Series A Notes. In March 1993, Funding privately placed an aggregate of $60 million principal amount of its Senior Notes.
In May 1993, Capital amended its Medium-Term Notes (MTNs) program to provide for an aggregate principal amount of up to $750 million of MTNs, provided that its total debt outstanding at any time, including MTNs, shall not exceed such amount. During 1993, $88 million principal amount of Capital's MTNs were repaid, $42.5 million sinking fund payments on Capital's long-term debt obligations were made and $105 million principal amount of MTNs were issued. At December 31, 1993, Capital had $517 million of MTNs outstanding and total debt outstanding of $724.5 million.
For additional detail see Note 6 -- Long-Term Debt of Notes to Consolidated Financial Statements.
PSE&G
Following are the significant factors affecting the consolidated financial condition and the results of operations of PSE&G and its subsidiaries. This discussion refers to the Consolidated Financial Statements and related Notes of PSE&G and should be read in conjunction with such statements and notes.
Except as modified below, the information required by this item is incorporated herein by reference to the following portions of Enterprise's Management's Discussion and Analysis of Financial Condition and Results of Operations, insofar as they relate to PSE&G and its subsidiaries: Overview; PSE&G Energy and Fuel Adjustment Clauses; Enterprise Earnings; Dividends; Revenues -- PSE&G Electric, PSE&G Gas; PSE&G Electric Energy Costs; Liquidity and Capital Resources, PSE&G; Construction, Investments and Other Capital Requirements Forecast; and External Financings.
GAS SUPPLY COSTS
Gas supply costs increased $17 million or 1.8% in 1993 compared to 1992 and $216 million or 31.4% in 1992 compared to 1991. The significant components of these changes follow:
(A) Reflects the change in the deferred over(under)recovered gas supply costs, which in the years 1993, 1992 and 1991 amounted to $(100) million, $52 million and $(32) million, respectively. (See PSE&G Energy and Fuel Adjustment Clauses and Note 2 -- Rate Matters of Notes to Consolidated Financial Statements.)
1993 -- The increase in total costs was principally due to greater sales to cogenerators and other customers, higher gas costs and higher therm sendout resulting from the colder 1993 winter season compared to the 1992 winter season. The increase in costs was reduced by deferred underrecovered 1993 gas costs resulting from the BRC approved adjustment in PSE&G's LGAC, effective January 1, 1993, of $71 million on an annualized basis through December 31, 1993. The adjustment reflects lower gas costs and the inclusion of $15.1 million of conservation program costs in LGAC. In addition, gas customers received $45 million of credits during the first quarter of 1993.
1992 -- The increase in total costs was principally due to greater therm sendout resulting from the colder 1992 weather compared to 1991 and increased sales to cogenerators.
LIQUIDITY AND CAPITAL RESOURCES
INTERNAL GENERATION OF CASH FROM OPERATIONS
Although net income increased $139 million for 1993 (See Enterprise Earnings -- PSE&G and Revenues -- PSE&G Electric and PSE&G Gas), PSE&G's net cash provided by operating activities decreased by $376 million from 1992 to $811 million. This decrease was primarily due to an underrecovery of electric energy and gas costs through PSE&G's LEAC and LGAC, increased NJGRT payments, and a decrease in amortization of property abandonments and write-down. Partially offsetting these cash outflows were increases in deferred income taxes and decreases in fuel and materials and supplies inventories.
Although net income decreased $70 million for 1992 (See Enterprise Earnings -- PSE&G and Revenues -- PSE&G Electric and PSE&G Gas), PSE&G's net cash provided by operating activities increased by $128 million from 1991 to $1.187 billion. This increase was primarily due to greater recovery of electric energy and gas costs through PSE&G's LEAC and LGAC and increases in accounts payable. Partially offsetting these cash inflows were the decrease in net income, increases in fuel and materials and supplies inventories and decreases in deferred income taxes.
ITEM 8.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENT RESPONSIBILITY
Management of Enterprise is responsible for the preparation, integrity and objectivity of the consolidated financial statements and related notes of Enterprise. The consolidated financial statements and related notes are prepared in accordance with generally accepted accounting principles. The financial statements reflect estimates based upon the judgment of management where appropriate. Management believes that the consolidated financial statements and related notes present fairly Enterprise's financial position and results of operations. Information in other parts of this Annual Report is also the responsibility of management and is consistent with these consolidated financial statements and related notes.
The firm of Deloitte & Touche, independent auditors, is engaged to audit Enterprise's consolidated financial statements and related notes and issue a report thereon. Deloitte & Touche's audit is conducted in accordance with generally accepted auditing standards. Management has made available to Deloitte & Touche all the corporation's financial records and related data, as well as the minutes of directors' meetings. Furthermore, management believes that all representations made to Deloitte & Touche during its audit were valid and appropriate.
Management has established and maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded, and that transactions are executed in accordance with management's authorization and recorded properly for the prevention and detection of fraudulent financial reporting, so as to maintain the integrity and reliability of the financial statements. The system is designed to permit preparation of consolidated financial statements and related notes in accordance with generally accepted accounting principles. The concept of reasonable assurance recognizes that the costs of a system of internal accounting controls should not exceed the related benefits. Management believes the effectiveness of this system is enhanced by an ongoing program of continuous and selective training of employees. In addition, management has communicated to all employees its policies on business conduct, safeguarding assets and internal controls.
The Internal Auditing Department of PSE&G conducts audits and appraisals of accounting and other operations of Enterprise and its subsidiaries and evaluates the effectiveness of cost and other controls and recommends to management, where appropriate, improvements thereto. Management has considered the internal auditors' and Deloitte & Touche's recommendations concerning the corporation's system of internal accounting controls and has taken actions that, in its opinion, are cost-effective in the circumstances to respond appropriately to these recommendations. Management believes that, as of December 31, 1993, the corporation's system of internal accounting controls is adequate to accomplish the objectives discussed herein.
The Board of Directors of Enterprise carries out its responsibility of financial overview through its Audit Committee, which presently consists of six directors who are neither employees of Enterprise nor its affiliates. The Audit Committee meets periodically with management as well as with representatives of the internal auditors and Deloitte & Touche. The Audit Committee reviews the work of each to ensure that their respective responsibilities are being carried out and discusses related matters. Both the internal auditors and Deloitte & Touche periodically meet alone with the Audit Committee and have free access to the Audit Committee, and its individual members, at any time.
FINANCIAL STATEMENT RESPONSIBILITY
Management of PSE&G is responsible for the preparation, integrity and objectivity of the consolidated financial statements and related notes of PSE&G. The consolidated financial statements and related notes are prepared in accordance with generally accepted accounting principles. The financial statements reflect estimates based upon the judgment of management where appropriate. Management believes that the consolidated financial statements and related notes present fairly PSE&G's financial position and results of operations. Information in other parts of this Annual Report is also the responsibility of management and is consistent with these consolidated financial statements and related notes.
The firm of Deloitte & Touche, independent auditors, is engaged to audit PSE&G's consolidated financial statements and related notes and issue a report thereon. Deloitte & Touche's audit is conducted in accordance with generally accepted auditing standards. Management has made available to Deloitte & Touche all the corporation's financial records and related data, as well as the minutes of directors' meetings. Furthermore, management believes that all representations made to Deloitte & Touche during its audit were valid and appropriate.
Management has established and maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded, and that transactions are executed in accordance with management's authorization and recorded properly for the prevention and detection of fraudulent financial reporting, so as to maintain the integrity and reliability of the financial statements. The system is designed to permit preparation of consolidated financial statements and related notes in accordance with generally accepted accounting principles. The concept of reasonable assurance recognizes that the costs of a system of internal accounting controls should not exceed the related benefits. Management believes the effectiveness of this system is enhanced by an ongoing program of continuous and selective training of employees. In addition, management has communicated to all employees its policies on business conduct, safeguarding assets and internal controls.
The Internal Auditing Department conducts audits and appraisals of accounting and other operations and evaluates the effectiveness of cost and other controls and recommends to management, where appropriate, improvements thereto. Management has considered the internal auditors' and Deloitte & Touche's recommendations concerning the corporation's system of internal accounting controls and has taken actions that are cost-effective in the circumstances to respond appropriately to these recommendations. Management believes that, as of December 31, 1993, the corporation's system of internal accounting controls is adequate to accomplish the objectives discussed herein.
The Board of Directors carries out its responsibility of financial overview through the Audit Committee of Enterprise, which presently consists of six directors who are neither employees of Enterprise nor its affiliates. The Enterprise Audit Committee meets periodically with management as well as with representatives of the internal auditors and Deloitte & Touche. The Audit Committee reviews the work of each to ensure that their respective responsibilities are being carried out and discusses related matters. Both the internal auditors and Deloitte & Touche periodically meet alone with the Audit Committee and have free access to the Audit Committee, and its individual members, at any time.
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Public Service Enterprise Group Incorporated:
We have audited the accompanying consolidated balance sheets of Public Service Enterprise Group Incorporated and its subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income, retained earnings, and cash flows for each of the three years in the period ended December 31, 1993. Our audits also included the consolidated financial statement schedules listed in the Index in Item 14(a)(1). These consolidated financial statements and the consolidated financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and consolidated financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Public Service Enterprise Group Incorporated and its subsidiaries at December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. Also, in our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.
We have also previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheets as of December 31, 1991, 1990, and 1989, and the related consolidated statements of income, retained earnings, and cash flows for the years ended December 31, 1990 and 1989 (none of which are presented herein) and we expressed unqualified opinions on those consolidated financial statements. In our opinion, the information set forth in the Selected Financial Data for each of the five years in the period ended December 31, 1993 for the Company, presented in Item 6, is fairly stated in all material respects, in relation to the consolidated financial statements from which it has been derived.
As discussed in Note 1 to the Consolidated Financial Statements, in 1993 the Company changed its method of accounting for income taxes to conform with Statement of Financial Accounting Standards No. 109 and changed its method of accounting for the costs of postretirement benefits other than pensions to conform with Statement of Financial Accounting Standards No. 106.
DELOITTE & TOUCHE
February 18, 1994 Parsippany, New Jersey
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Public Service Electric and Gas Company:
We have audited the accompanying consolidated balance sheets of Public Service Electric & Gas Company and its subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income, retained earnings, and cash flows for each of the three years in the period ended December 31, 1993. Our audits also included the consolidated financial statement schedules listed in the Index in Item 14(a)(2). These consolidated financial statements and the consolidated financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and consolidated financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Public Service Electric & Gas Company and its subsidiaries at December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. Also, in our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.
We have also previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheets as of December 31, 1991, 1990, and 1989, and the related consolidated statements of income, retained earnings, and cash flows for the years ended December 31, 1990 and 1989 (none of which are presented herein) and we expressed unqualified opinions on those consolidated financial statements. In our opinion, the information set forth in the Selected Financial Data for each of the five years in the period ended December 31, 1993 for the Company, presented in Item 6, is fairly stated in all material respects, in relation to the consolidated financial statements from which it has been derived.
As discussed in Note 1 to the Consolidated Financial Statements, in 1993 the Company changed its method of accounting for income taxes to conform with Statement of Financial Accounting Standards No. 109 and changed its method of accounting for the costs of postretirement benefits other than pensions to conform with Statement of Financial Accounting Standards No. 106.
DELOITTE & TOUCHE
February 18, 1994 Parsippany, New Jersey
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
See Notes to Consolidated Financial Statements
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED BALANCE SHEETS
ASSETS
See Notes to Consolidated Financial Statements
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
See Notes to Consolidated Financial Statements
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(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.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(A) The Company 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 the Company's restricted retained earnings at December 31, 1993 was $10 million.
See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Enterprise has two direct wholly-owned subsidiaries, Public Service Electric and Gas Company (PSE&G) and Enterprise Diversified Holdings Incorporated (EDHI). Enterprise's principal subsidiary, PSE&G, is an operating public utility providing electric and gas service in certain areas in the State of New Jersey.
PSE&G has a finance subsidiary, PSE&G Fuel Corporation (Fuelco), providing financing, unconditionally guaranteed by PSE&G, of up to $150 million aggregate principal amount at any one time of a 42.49% interest in the nuclear fuel acquired for Peach Bottom Atomic Power Station Units 2 and 3 (Peach Bottom). PSE&G also has a nonutility subsidiary, Public Service Conservation Resources Corporation (PSCRC) which offers demand side management (DSM) services to utility customers.
EDHI is the parent of Enterprise's other nonutility businesses: Energy Development Corporation (EDC), an oil and gas exploration, 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 diversified passive investments; and Enterprise Group Development Corporation (EGDC), a diversified nonresidential real estate development and investment business. EDHI also has two finance subsidiaries: PSEG Capital Corporation (Capital), and Enterprise Capital Funding Corporation (Funding).
Enterprise has claimed an exemption from regulation by the Securities and Exchange Commission (SEC) as a registered holding company under the Public Utility Holding Company Act of 1935, except for Section 9(a)(2) which relates to the acquisition of voting securities of an electric or gas utility company. Also, Enterprise is not subject to direct regulation by the New Jersey Board of Regulatory Commissioners (BRC) or the Federal Energy Regulatory Commission (FERC).
CONSOLIDATION POLICY
The consolidated financial statements include the accounts of Enterprise and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications of prior years' data have been made to conform with the current presentation.
REGULATION -- PSE&G
The accounting and rates of PSE&G are subject, in certain respects, to the requirements of the BRC and FERC. As a result, PSE&G maintains its accounts in accordance with their prescribed Uniform Systems of Accounts, which are the same. The applications of generally accepted accounting principles by PSE&G differ in certain respects from applications by non-regulated businesses.
UTILITY PLANT AND RELATED DEPRECIATION -- PSE&G
Additions to utility plant and replacements of units of property are capitalized at original cost. The cost of maintenance, repairs and replacements of minor items of property is charged to appropriate expense accounts. At the time units of depreciable properties are retired or otherwise disposed of, the original cost less net salvage value is charged to accumulated depreciation.
For financial reporting purposes, depreciation is computed under the straight-line method. Depreciation is based on estimated average remaining lives of the several classes of depreciable property. These estimates are reviewed on a periodic basis and necessary adjustments are made as approved by the BRC. Depreciation provisions stated in percentages of original cost of depreciable property were 3.46% in 1993 and 3.48% in 1992 and 1991.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECONTAMINATION AND DECOMMISSIONING -- PSE&G
In September 1993, FERC issued Order No. 557 on the accounting and ratemaking treatment of special assessments levied under the National Energy Policy Act (NEPA). Order No. 557 provides that special assessments are a necessary and reasonable current cost of fuel and shall be fully recoverable in rates in the same manner as other fuel costs. While PSE&G expects to recover such special assessments through its Levelized Energy Adjustment Clause (LEAC) no assurances can be given that the BRC will authorize such recovery from customers. PSE&G cannot predict what actions the BRC will take concerning any recovery associated with this matter.
AMORTIZATION OF NUCLEAR FUEL -- PSE&G
Nuclear energy burnup costs are charged to fuel expense on a units-of-production basis over the estimated life of the fuel. Rates for the recovery of fuel used at all nuclear units include a provision of one mill per kilowatthour (Kwh) of nuclear generation for spent fuel disposal costs. (See Note 3 -- PSE&G Nuclear Decommissioning and Amortization of Nuclear Fuel.)
REVENUES AND FUEL COSTS -- PSE&G
Revenues are recorded based on services rendered to customers during each accounting period. PSE&G records unbilled revenues representing the estimated amount customers will be billed for services rendered from the time meters were last read to the end of the respective accounting period.
Rates include projected fuel costs for electric generation, purchased and interchanged power, gas purchased and materials used for gas production.
Any under or overrecoveries, together with interest (in the case of overrecoveries), are deferred and included in operations in the period in which they are reflected in rates.
LONG-TERM INVESTMENTS
PSRC has invested in marketable securities and limited partnerships investing in securities, which are stated at fair value, and various leases and other limited partnerships. EGDC is a participant in the nonresidential real estate markets. CEA is an investor in and developer of cogeneration and power production facilities. (See Note 7 -- Long-Term Investments.)
OIL AND GAS ACCOUNTING -- EDC
EDC uses the successful efforts method of accounting under which proved leasehold costs are capitalized and amortized over the proved developed and undeveloped reserves on a units-of-production basis. Drilling and equipping costs, except exploratory dry holes, are capitalized and depreciated over the proved developed reserves on a units-of-production basis. Estimated future abandonment costs of offshore proved properties are depreciated on a units-of-production basis over the proved developed reserves. Unproved leasehold costs are capitalized and not amortized, pending an evaluation of their exploration potential. Unproved leasehold and producing properties costs are assessed periodically to determine if an impairment of the cost of significant individual properties has occurred. The cost of an impairment is charged to expense in the period in which it occurs. Costs incurred for exploratory dry holes, exploratory geological and geophysical work and delay rentals are charged to expense as incurred.
INCOME TAXES
Enterprise and its subsidiaries file a consolidated Federal income tax return and income taxes are allocated to Enterprise's subsidiaries based on taxable income or loss of each.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Investment tax credits are deferred and amortized over the useful lives of the related property including nuclear fuel.
Deferred income taxes are provided for differences between book and taxable income. For periods prior to January 1, 1993, PSE&G provided deferred income taxes to the extent permitted for ratemaking purposes. Effective January 1, 1993, Enterprise and its subsidiaries adopted Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS 109). Under SFAS 109, deferred income taxes are provided for all temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities irrespective of the treatment for ratemaking purposes. (See Note 9 -- Federal Income Taxes.)
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFDC) AND CAPITALIZED INTEREST
PSE&G -- AFDC represents the cost of debt and equity funds used to finance the construction of new utility facilities. The amount of AFDC capitalized is also reported in the Consolidated Statements of Income as a reduction of interest charges for the borrowed funds component and as other income for the equity funds component. The rates used for calculating AFDC in 1993, 1992 and 1991 were 6.96%, 7.80% and 7.50%, respectively. These rates are within the limits set by the FERC.
EDHI -- The operating subsidiaries of EDHI capitalize interest costs allocable to construction expenditures at the average cost of borrowed funds.
PENSION PLAN AND OTHER POSTRETIREMENT BENEFITS
The employees of PSE&G and participating affiliates, after completing one year of service, are covered by a noncontributory trusteed pension plan (Pension Plan). The policy is to fund pension costs accrued. PSE&G also provides certain health care and life insurance benefits to active and retired employees. The portion of such costs pertaining to retirees amounted to $28 million, $24 million and $24 million in 1993, 1992 and 1991, respectively. The current cost of these benefits is charged to expense when paid and is currently being recovered from ratepayers.
On January 1, 1993, Enterprise and PSE&G adopted Statement of Financial Accounting Standards No. 106, "Employers Accounting for Postretirement Benefits Other Than Pensions" (SFAS 106), which requires that the expected cost of employees' postretirement health care benefits be charged to expense during the years in which employees render service. PSE&G elected to amortize over 20 years its unfunded obligation at January 1, 1993. The effect of EDHI's adoption of SFAS 106 was not material. Prior to 1993, Enterprise and PSE&G recognized postretirement health care costs in the year in which the benefits were paid. (See Note 13 -- Postretirement Benefits Other Than Pensions and Note 14 -- Pension Plan.)
NOTE 2. RATE MATTERS
BASE RATES
On December 31, 1992, the BRC approved a settlement of PSE&G's base rate case that effectively provides additional annual base revenues of $295 million. At such time, the BRC also approved annual reductions of $66 million and $71 million, respectively, in PSE&G's LEAC and Levelized Gas Adjustment Clause (LGAC). The BRC also approved stipulations resolving all electric and gas cost of service/rate design issues. The new base rates became effective January 1, 1993. The settlement agreement allows PSE&G a 12% return on common equity and a 10.08% return on rate base.
In July 1993, PSE&G and its largest industrial customer submitted a proposed electric tariff modification to the BRC, providing for a $9 million or 23% rate discount, with PSE&G's shareholders absorbing $2.4 million or 27% of the discount. The proposed tariff modification was designed to dissuade the customer from buying its electricity supply from a third party nonutility generator. In December 1993, following extensive proceedings, the BRC recognized the need for flexible pricing in a competitive market, approved the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
requested discount but required PSE&G's shareholders to absorb $3.8 million or 42% of such discount. The decision allows PSE&G a special tariff for certain large customers.
LEVELIZED GAS ADJUSTMENT CLAUSE
On December 8, 1993, the BRC approved an interim LGAC settlement which provides for an increase of $75.3 million for the approximate ten-month period ending September 1994. The LGAC increase principally reflects recent increases in the cost of natural gas.
PSE&G GAS PLANT REMEDIATION PROGRAM
On September 15, 1993, the BRC issued a written order allowing the continued collection of costs incurred by PSE&G to identify and clean up its former gas plant sites (Remediation Costs). The decision concluded that PSE&G had met its burden of proof for establishing the reasonableness and prudence of Remediation Costs incurred in operating and decommissioning these facilities in the past. The Remediation Costs incurred during the period July 1, 1992 through September 30, 1992 are subject to verification and audit in PSE&G's 1992-1993 LGAC. The audit is currently ongoing. The order also approved a mechanism for costs incurred since October 1, 1992. This mechanism allows the recovery of actual costs plus carrying charges, net of insurance recoveries, over a seven-year period through a rider to PSE&G's LEAC and LGAC. Sixty percent of such costs will be charged to gas customers and forty percent charged to electric customers. On November 1, 1993, the Public Advocate of New Jersey filed a motion requesting the BRC to reconsider its September 15, 1993 order. On January 21, 1994, the BRC denied the motion. (See Note 12 -- Commitments and Contingent Liabilities.)
CONSOLIDATED TAX BENEFITS
The BRC does not directly regulate Enterprise's nonutility activities. However, in a case affecting another utility in which neither Enterprise nor PSE&G were parties, the BRC considered the extent to which tax savings generated by nonutility affiliates included in the consolidated tax return of that utility's holding company should be considered in setting that utility's rates. On September 30, 1992, the BRC approved an order in such case treating certain consolidated tax savings generated after June 30, 1990 by that utility's nonutility affiliates as a reduction of its rate base. On December 31, 1992 the BRC issued an order approving a stipulation in PSE&G's 1992 base rate proceeding which resolved the case without separate quantification of the consolidated tax issue. The stipulation does not provide final resolution of the consolidated tax issue for any subsequent base rate filing. While Enterprise continues to account for these entities on a stand-alone basis, resulting in a realization of the tax benefits by the entity generating the benefit, an ultimate unfavorable resolution of the consolidated tax issue could reduce PSE&G's future revenue and net income and the future net income of Enterprise. In addition, an unfavorable resolution may adversely impact Enterprise's nonutility investment strategy. Enterprise believes that PSE&G's taxes should be treated on a stand-alone basis for ratemaking purposes, based on the separate nature of the utility and nonutility businesses. However, neither Enterprise nor PSE&G is able to predict what action, if any, the BRC may take concerning consolidation of tax benefits in future rate proceedings. (See Note 9 -- Federal Income Taxes.)
NOTE 3. PSE&G NUCLEAR DECOMMISSIONING AND AMORTIZATION OF NUCLEAR FUEL
PSE&G's 1992 base rate decision by the BRC utilized studies based on the prompt removal/dismantlement method of decommissioning for all of PSE&G's nuclear generating stations. This method consists of removing all fuel, source material and all other radioactive materials with activity levels above accepted release limits from the nuclear sites. PSE&G has an ownership interest in five nuclear units: Salem 1 and Salem 2 -- 42.59% each, Hope Creek -- 95% and Peach Bottom 2 and 3 -- 42.49% each. In accordance with rate orders received from the BRC, PSE&G has established an external master nuclear decommissioning trust for all of its nuclear units. The Internal Revenue Service (IRS) has ruled that payments to the trust are tax deductible. PSE&G's total estimated cost of decommissioning its share of these
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
nuclear units is estimated at $681 million in year-end 1990 dollars, (the year that the site specific estimate was prepared), excluding contingencies. The 1992 base rate decision provided that $15.6 million of such costs are to be collected through base rates and an additional annual amount of $7.0 million in 1993 and $14.0 million in 1994 and thereafter are to be recovered through PSE&G's LEAC. At December 31, 1993 and 1992, the accumulated provision for depreciation and amortization included reserves for nuclear decommissioning for PSE&G's units of $211 million and $179 million, respectively. As of December 31, 1993 and 1992, PSE&G has contributed $155 million and $109 million, respectively, into external qualified and nonqualified nuclear decommissioning trust funds.
URANIUM ENRICHMENT DECONTAMINATION AND DECOMMISSIONING FUND
In accordance with the NEPA, domestic utilities that own nuclear generating stations are required to pay a cumulative total of $150 million each year into a decontamination and decommissioning fund, based on their past purchases of enriched nuclear fuel from the United States Department of Energy (DOE) Uranium Enrichment Enterprise (now a federal government corporation known as the United States Enrichment Corporation (USEC)). These amounts are being collected over a period of 15 years or until $2.25 billion has been collected. Under this legislation, the nuclear facilities operated by PSE&G, Salem and Hope Creek, aggregate 2.82% of the total amount of enrichment services sold to the domestic commercial nuclear industry and the nuclear facilities operated by PECO Energy Company, formerly known as Philadelphia Electric Company (PECO), Peach Bottom and other nuclear facilities not co-owned by PSE&G, aggregate 3.89%. In 1993, PSE&G paid approximately $4 million and deferred the balance of $56 million. PSE&G has included these costs in its LEAC. PSE&G cannot predict the outcome, amount or timing of any recovery associated with this matter.
SPENT NUCLEAR FUEL DISPOSAL COSTS
In accordance with the Nuclear Waste Policy Act, PSE&G has entered into contracts with the USEC for the disposal of spent nuclear fuel. Payments made to the USEC for disposal costs are based on nuclear generation and are included in Fuel for Electric Generation and Net Interchanged Power in the Statements of Income. These costs are recovered through the LEAC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. SCHEDULE OF CONSOLIDATED CAPITAL STOCK
NOTES TO SCHEDULE OF CONSOLIDATED CAPITAL STOCK
(A) Total authorized and unissued shares include 7,571,442 shares of Enterprise Common Stock reserved for issuance through Enterprise's Dividend Reinvestment and Stock Purchase Plan (DRIP) and various employee benefit plans. In 1993, 8,292,505 shares of Enterprise Common Stock were issued and sold for $273,479,342, including a public offering of 4,400,000 shares issued and sold for $142,670,000; in 1992, 8,694,899 shares were issued and sold for $237,045,247, including a public offering of 5,000,000 shares issued and sold for $132,025,000; in 1991, 8,228,647 shares were issued and sold for $218,735,528, including a public offering of 5,000,000 shares issued and sold for $129,950,000.
(B) Enterprise has authorized a class of 50,000,000 shares of Preferred Stock without par value, none of which is outstanding.
(C) As of December 31, 1993, there were 1,700,060 shares of $100 par value and 10,000,000 shares of $25 par value Cumulative Preferred Stock which were authorized and unissued, and which upon issuance may or may not provide for mandatory sinking fund redemption. If dividends upon any shares of Preferred Stock are in arrears in an amount equal to the annual dividend thereon, voting rights for the election of a majority of PSE&G's Board of Directors become operative and continue until all
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accumulated and unpaid dividends thereon have been paid, whereupon all such voting rights cease, subject to being again revived from time to time.
In January 1994, PSE&G called for redemption on March 1, 1994 all of the outstanding shares of two series of securities: 300,000 shares of its 8.16% Cumulative Preferred Stock ($100 Par) and 150,000 shares of its 8.08% Cumulative Preferred Stock ($100 Par).
In February 1994, PSE&G issued and sold 600,000 shares of 6.92% Cumulative Preferred Stock ($100 Par) which may not be redeemed before February 1, 2004 and 600,000 shares of 6.75% Cumulative Preferred Stock -- $25 Par which may not be redeemed before February 1, 1999. The net proceeds from the sale of the 6.75% Cumulative Preferred Stock -- $25 Par will be used by PSE&G to redeem the outstanding shares of the 8.08% Cumulative Preferred Stock ($100 Par).
(D) At December 31, 1993, the annual dividend requirement and embedded dividend for Preferred Stock without mandatory redemption were $29,012,000 and 6.75%, respectively and for Preferred Stock with mandatory redemption were $10,057,500 and 6.71%, respectively.
(E) In March 1993, PSE&G sold 750,000 shares of 5.97% Cumulative Preferred Stock ($100 Par). PSE&G will be required to redeem through the operation of a sinking fund 37,500 shares, plus accumulated dividends, on March 1 of each year commencing March 1, 2003 and shall redeem the remaining shares on March 1, 2008, plus accumulated dividends.
(F) In accordance with the requirements of Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments" (SFAS 107), the estimated fair value was determined using the ready market price for the Preferred Stock at the end of 1993. As of December 31, 1993, the estimated fair value of the Preferred Stock was $158 million. As of December 31, 1992, the estimated fair value of the Preferred Stock was $78 million.
NOTE 5. DEFERRED ITEMS
PROPERTY ABANDONMENTS
The BRC has authorized PSE&G to recover after-tax property abandonment costs from its customers. The following table reflects the application of Statement of Financial Accounting Standards No. 90, "Regulated Enterprises -- Accounting for Abandonments and Disallowances of Plant Costs" (SFAS 90), as amended, on property abandonments for which no return is earned. The net-of-tax discount rate used was between 4.443% and 7.801%.
As part of its base rate decision of December 31, 1992, the BRC required the elimination of the amortization of the abandonment cost for Hope Creek Unit 2 as of December 31, 1992. The net remaining balance was transferred to the LEAC. (See Note 2 -- Rate Matters.) The following table reflects the property abandonments and related tax effects on which no return is earned.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
UNDER (OVER) RECOVERED ELECTRIC ENERGY AND GAS COSTS -- NET
Recoveries of electric energy and gas costs are determined by the BRC under the LEAC and LGAC. PSE&G's deferred fuel balances as of December 31, 1993 and December 31, 1992, reflect an underrecovery of $62.0 million and an overrecovery of $122.7 million, respectively.
UNRECOVERED PLANT AND REGULATORY STUDY COSTS
Amounts shown in the consolidated balance sheets consist of costs associated with developing, consolidating and documenting the specific design basis of PSE&G's jointly-owned nuclear generating stations, as well as PSE&G's share of costs associated with the cancellation of the Hydrogen Water Chemistry System Project at Peach Bottom. PSE&G has received both BRC and FERC approval to defer and amortize, over the remaining life of the Salem and Hope Creek nuclear units, costs associated with configuration baseline documentation projects. PSE&G has received FERC approval to defer and amortize over the remaining life of the applicable Peach Bottom units, costs associated with the configuration baseline documentation and the cancelled Hydrogen Water Chemistry System Projects. While PSE&G expects the BRC to authorize recovery of such costs from electric customers, no assurances can be given.
OIL AND GAS PROPERTY WRITE-DOWN
On December 31, 1992, the BRC approved the recovery of the EDC write-down through PSE&G's LGAC over a ten year period beginning January 1, 1993. At December 31, 1993, the remaining balance to be amortized was $46 million.
UNAMORTIZED DEBT EXPENSE
Gains and losses and the cost of redeeming long-term debt for PSE&G are deferred and amortized over the life of the applicable debt.
NOTE 6. SCHEDULE OF CONSOLIDATED LONG-TERM DEBT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTES:
(A) PSE&G's Mortgage, securing the Bonds, constitutes a direct first mortgage lien on substantially all PSE&G property and franchises.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In January 1994, PSE&G called for redemption on March 1, 1994 all of its First and Refunding Mortgage Bonds 4 5/8% Series due 1994. In February 1994, PSE&G issued $50 million principal amount of its First and Refunding Mortgage Bonds Pollution Control Series O due 2032.
(B) The aggregate principal amounts of mandatory requirements for sinking funds and maturities for each of the five years following December 31, 1993 are as follows:
For sinking fund purposes, certain First and Refunding Mortgage Bond issues require annually the retirement of an aggregate $13.3 million principal amount of bonds or the utilization of bondable property additions at 60% of cost. The portion expected to be met by property additions has been excluded from the table above.
(C) Capital is providing up to $750 million debt financing for EDHI's businesses on the basis of a support agreement with Enterprise.
(D) Funding provides debt financing for EDHI'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 embedded interest cost on long-term debt on such date was 8.06%.
(F) In accordance with the requirements of SFAS 107, the estimated fair value was determined using market quotations or values of debt with similar terms, credit ratings and remaining maturities at the end of 1992. As of December 31, 1993, the estimated fair value of PSE&G's and EDHI's long-term debt was $4.7 billion and $1.2 billion, respectively. As of December 31, 1992, the estimated fair value of PSE&G's and EDHI's long-term debt was $4.4 billion and $1.3 billion, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7. LONG-TERM INVESTMENTS
Long-Term Investments are primarily those of EDHI. A summary of Long-Term Investments is as follows:
PSRC's leveraged leases are reported net of principal and interest on nonrecourse loans and unearned income, including deferred tax credits. Income and deferred tax credits are recognized at a level rate of return from each lease during the periods in which the net investment is positive.
Partnership investments are those of PSRC, EGDC and CEA and are undertaken with other investors. PSRC is a limited partner in various partnerships and is committed to make investments from time to time, upon the request of the respective general partners. As of December 31, 1993, $139.5 million remained as PSRC's unfunded commitment subject to call.
PSRC has invested in marketable securities and limited partnerships investing in securities, which are stated at fair value. Realized investment gains and losses on the sale of investment securities are determined utilizing the specific cost identification method.
NOTE 8. CASH AND CASH EQUIVALENTS
The December 31, 1993 and 1992 balances consist primarily of working funds and highly liquid marketable securities (commercial paper) with a maturity of three months or less.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9. FEDERAL INCOME TAXES
A reconciliation of reported Net Income with pretax income and of Federal income tax expense with the amount computed by multiplying pretax income by the statutory Federal income tax rates of 35% in 1993 and 34% in 1992 and 1991 is as follows:
Reconciliation between total Federal income tax provisions and tax computed at the statutory tax rate on pretax income:
(A) The provision for deferred income taxes represents the tax effects of the following items:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Since 1987, Enterprise's Federal alternative minimum tax (AMT) liability has exceeded its regular Federal income tax liability. This excess can be carried forward indefinitely to offset regular income tax liability in future years. Enterprise expects to utilize these AMT credits in the future as regular tax liability exceeds AMT. As of December 31, 1993, 1992 and 1991, Enterprise had AMT credits of $247 million, $212 million and $185 million, respectively.
Since 1986, Enterprise has filed a consolidated Federal income tax return on behalf of itself and its subsidiaries. Prior to 1986, PSE&G filed consolidated tax returns. On March 20, 1992, the Internal Revenue Service (IRS) issued a Revenue Agents Report (RAR) following completion of examination of PSE&G's consolidated tax return for 1985 and Enterprise's consolidated tax returns for 1986 and 1987, proposing various adjustments for such years which would increase Enterprise's consolidated Federal income tax liability by approximately $121 million, exclusive of interest and penalties, of which approximately $118 million is attributable to PSE&G. Interest after taxes on these proposed adjustments is currently estimated to be approximately $82 million as of December 31, 1993 and will continue to accrue at the Federal rate for large corporate underpayments, currently 9% annually.
The most significant of these proposed adjustments relates to the IRS contention that PSE&G's Hope Creek nuclear unit is a partnership with a short 1986 taxable year. In addition, the IRS contends that the tax in-service date of that unit is four months later than the date claimed by PSE&G. On June 19, 1992, Enterprise and PSE&G filed a protest with the IRS disagreeing with certain of the proposed adjustments (including those related to Hope Creek) contained in the RAR for taxable years 1985 through 1987 and continues to contest these issues. Any tax adjustments resulting from the RAR would reduce Enterprise's and PSE&G's respective deferred credits for accumulated deferred income taxes. Enterprise expects PSE&G to recover all interest paid with respect to tax adjustments attributable to PSE&G from PSE&G's customers through rates. While PSE&G believes that assessments attributable to it are generally recoverable from its customers in rates, no assurances can be given as to what regulatory treatment may be afforded by the BRC.
On January 1, 1993, Enterprise adopted SFAS 109 without restating prior years' financial statements which resulted in Enterprise recording a $5.4 million cumulative effect increase in its net income. Under SFAS 109, deferred taxes are provided at the enacted statutory tax rate for all temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities irrespective of the treatment for ratemaking purposes. Since management believes that it is probable that the effects of SFAS 109 on PSE&G, principally the accumulated tax benefits that previously have been treated as a flow-through item to customers, will be recovered from utility customers in the future, an offsetting regulatory asset was established. As of December 31, 1993, PSE&G had recorded a deferred tax liability and an offsetting regulatory asset of $790 million representing the future revenue expected to be recovered through rates based upon established regulatory practices which permit recovery of current taxes payable. This amount was determined using the 1993 Federal income tax rate of 35%.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SFAS 109
The following is an analysis of accumulated deferred income taxes:
The Revenue Reconciliation Act of 1993, enacted in August 1993, increased the Federal corporate income tax rate from 34% to 35% effective January 1, 1993. This resulted in an increase in Federal income tax expense for Enterprise of $18.1 million for the year 1993.
NOTE 10. LEASING ACTIVITIES
As Lessee
The Consolidated Balance Sheets include assets and related obligations applicable to capital leases where PSE&G is a lessee. The total amortization of the leased assets and interest on the lease obligations equals the net minimum lease payments included in rent expense for capital leases.
Capital leases of PSE&G relate primarily to its corporate headquarters and other capital equipment. Certain of the leases contain renewal and purchase options and also contain escalation clauses.
Enterprise and its other subsidiaries are not lessees in any capitalized leases.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Utility plant includes the following amounts for capital leases at December 31:
Future minimum lease payments for noncancelable capital and operating leases at December 31, 1993 were:
(A) Reflected in the Consolidated Balance Sheets in Capital Lease Obligations of $52.530 million and in Long-Term Debt and Capital Lease Obligations due within one year of $574 thousand.
The following schedule shows the composition of rent expense included in Operating Expenses:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AS LESSOR
PSRC's net investments in leveraged and direct financing leases are composed of the following elements:
PSRC's other leases are with various regional, state and city authorities for transportation equipment and aggregated $8 million and $12 million as of December 31, 1993 and 1992, respectively.
NOTE 11. SHORT-TERM DEBT (COMMERCIAL PAPER AND LOANS)
Commercial paper represents unsecured bearer promissory notes sold through dealers at a discount with a term of nine months or less.
PSE&G Certain information regarding commercial paper follows:
PSE&G has authorization from the BRC to issue and have outstanding not more than $800 million of its short-term obligations at any one time, consisting of commercial paper and other unsecured borrowings from banks and other lenders. This authorization expires December 31, 1994. PSE&G expects to be able to renew such authority.
PSE&G has a $600 million revolving credit agreement with a group of banks which expires in September 1994. As of December 31, 1993, there was no short-term debt outstanding under this agreement.
Fuelco has a $150 million commercial paper program to finance a 42.49% share of Peach Bottom nuclear fuel, supported by a $150 million revolving credit facility with a group of banks which expires in June 1996. PSE&G has guaranteed repayment of Fuelco's respective obligations. As of December 31, 1993, 1992 and 1991, Fuelco had commercial paper of $108.7 million, $122.5 million and $135.9 million, respectively, outstanding under such program, which amounts are included in the table above.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EDHI Certain information regarding commercial paper follows:
At December 31, 1993, Funding had a $225 million commercial paper program supported by a direct pay commercial bank letter of credit and revolving credit facility and a $225 million revolving credit facility each of which expires in November 1995.
ENTERPRISE
At each of December 31, 1993, 1992 and 1991, Enterprise had $25 million of lines of credit supported by compensating balances under informal arrangements with banks. At each of December 31, 1993, 1992 and 1991, Enterprise had no line of credit compensated for by fees.
NOTE 12. COMMITMENTS AND CONTINGENT LIABILITIES
NUCLEAR PERFORMANCE STANDARD
The BRC has established a nuclear performance standard (Standard) for nuclear generating stations owned by New Jersey electric utilities, including the five nuclear units in which PSE&G has an ownership interest: Salem -- 42.59%; Hope Creek -- 95%; and Peach Bottom -- 42.49%. PSE&G operates Salem and Hope Creek, while Peach Bottom is operated by PECO.
The penalty/reward under the Standard is a percentage of replacement power costs. (See table below.) The Standard provides that the penalties will be calculated to the edge of each capacity factor range. For example, a 30% penalty applies to replacement power costs incurred in the 55% to 65% range and a 40% penalty applies to replacement power costs in the 45% to 55% range.
Under the Standard, the capacity factor is calculated annually using maximum dependable capability of the five nuclear units in which PSE&G owns an interest. This method takes into account actual operating conditions of the units.
While the Standard does not specifically have a gross negligence provision, the BRC has indicated that it would consider allegations of gross negligence brought upon a sufficient factual basis. A finding of gross negligence could result in penalties other than those prescribed under the Standard. During 1993, the five nuclear units in which PSE&G has an ownership interest aggregated a 77% combined capacity factor. In accordance with the Standard, PSE&G's combined capacity factor exceeded the 75% reward threshold, entitling PSE&G to a reward of approximately $3.9 million. PSE&G will petition the BRC to recover this reward through the LEAC commencing on June 30, 1994.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NUCLEAR INSURANCE COVERAGES AND ASSESSMENTS
PSE&G's insurance coverages and maximum retrospective assessments for its nuclear operations are as follows:
(A) Retrospective premium program under the Price-Anderson liability provisions of the Atomic Energy Act of 1954, as amended, (Price-Anderson). Subject to retrospective assessment with respect to loss from an incident at any licensed nuclear reactor in the United States. Assessment adjusted for inflation effective August 20, 1993.
(B) Limit of liability for each nuclear incident under Price-Anderson.
(C) Industry aggregate limit representing the potential liability from workers claiming exposure to the hazard of nuclear radiation. This policy includes automatic reinstatements up to an aggregate of $200 million, thereby providing total coverage of $400 million. This policy does not increase PSE&G's obligation under Price-Anderson.
(D) Includes $100 million sublimit for premature decommissioning costs.
(E) New policy effective January 1, 1994.
(F) Includes up to $250 million for premature decommissioning costs.
(G) In the event of a second industry loss triggering NEIL coverage, the maximum retrospective premium assessment can increase to $23.4 million.
(H) Weekly indemnity for 52 weeks which commences after the first 21 weeks of an outage. Beyond the first 52 weeks of coverage indemnity of $2.3 million per week for 104 weeks is afforded. Total coverage amounts to $425.9 million over three years.
Price-Anderson sets the "limit of liability" for claims that could arise from an incident involving any licensed nuclear facility in the nation. The "limit of liability" is based on the number of licensed nuclear reactors and is adjusted at least every five years based on the Consumer Price Index. The current "limit of liability" is $9.4 billion. All utilities owning a nuclear reactor, including PSE&G, have provided for this exposure through a combination of private insurance and mandatory participation in a financial protection pool as established by Price-Anderson. Under Price-Anderson, each party with an ownership interest in a nuclear reactor can be assessed its share of $79.3 million per reactor per incident, payable at $10 million per reactor
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
per incident per year. If the damages exceed the "limit of liability", the President is to submit to Congress a plan for providing additional compensation to the injured parties. Congress could impose further revenue raising measures on the nuclear industry to pay claims. PSE&G's maximum aggregate assessment per incident is $210.2 million (based on PSE&G's ownership interests in Hope Creek, Peach Bottom and Salem) and its maximum aggregate annual assessment per incident is $26.5 million.
PSE&G purchases all property insurance available, including decontamination expense coverage and premature decommissioning coverage, with respect to loss or damage to its nuclear facilities. PECO has advised PSE&G that it maintains similar insurance coverage with respect to Peach Bottom. Under the terms of the various insurance agreements, PSE&G could be subject to a maximum retrospective assessment for a single incident of up to $28.3 million. Certain of the policies also provide that the insurer may suspend coverage with respect to all nuclear units on a site without notice if the NRC suspends or revokes the operating license for any unit on a site, issues a shutdown order with respect to such unit or issues a confirmatory order keeping such unit shut down.
PSE&G is a member of an industry mutual insurance company, NEIL, which provides replacement power cost coverage in the event of a major accidental outage at a nuclear station. The policies provide for a weekly indemnity payment of $3.5 million for 52 weeks, subject to a 21-week waiting period. The policies provide for weekly indemnity payments of $2.3 million for a 104 week period beyond the first year's indemnity. The premium for this coverage is subject to retrospective assessment for adverse loss experience. Under the policies, PSE&G's present maximum share of any retrospective assessment in any year is $11.3 million.
NUCLEAR FUEL
As a result of the NEPA, all United States nuclear utilities are responsible to co-fund with the United States Government a decontamination and decommissioning fund for DOE nuclear fuel enrichment facilities. PSE&G is responsible for making annual payments into this fund for 15 years beginning in 1993.
In September 1993, PSE&G paid its $4 million annual assessment based on its proportionate share of the five nuclear units in which it has an ownership interest. PSE&G deferred such amount and expects to recover it, together with its estimated $56 million future liability, from customers through its LEAC. (See Note 3 -- PSE&G Nuclear Decommissioning and Amortization of Nuclear Fuel -- Uranium Enrichment Decontamination and Decommissioning Fund.)
CONSTRUCTION AND FUEL SUPPLIES
PSE&G has substantial commitments as part of its ongoing construction program which includes capital requirements for nuclear fuel. PSE&G's construction program is continuously reviewed and periodically revised as a result of changes in economic conditions, revised load forecasts, changes in the scheduled retirement dates of existing facilities, changes in business plans, site changes, cost escalations under construction contracts, requirements of regulatory authorities and laws, the timing of and amount of electric and gas rate changes and the ability of PSE&G to raise necessary capital. Pursuant to an integrated electric resource plan (IRP), PSE&G periodically reevaluates its forecasts of future customers, load and peak growth, sources of electric generating capacity and DSM to meet such projected growth, including the need to construct new electric generating capacity. The IRP takes into account assumptions concerning future demands of customers, effectiveness of conservation and load management activities, the long-term condition of PSE&G's plants, capacity available from electric utilities and other suppliers and the amounts of cogeneration and other nonutility capacity projected to be available.
Based on PSE&G's 1994-1998 construction program, construction expenditures are expected to aggregate approximately $4.2 billion, which includes $483 million for nuclear fuel and $133 million of AFDC and capitalized interest during the years 1994 through 1998. The estimate of construction requirements is based on expected project completion dates and includes anticipated escalation due to inflation of approximately 4%, annually. Therefore, construction delays or higher inflation levels could cause significant increases in these
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amounts. PSE&G expects to generate internally a majority of the funds necessary to satisfy its construction expenditures over the next five years, assuming adequate and timely rate relief, as to which no assurances can be given. In addition, PSE&G does not presently anticipate any difficulties in obtaining sufficient sources of fuel for electric generation or adequate gas supplies during the years 1994 through 1998.
BERGEN STATION REPOWERING
PSE&G is presently engaged in Phase I of a construction project to renovate (or "repower") the Bergen Station pursuant to an air pollution control permit issued by New Jersey Department of Environmental Protection and Energy (NJDEPE) on May 27, 1993. The current effort would maintain the existing electric supply of the station (with a small increase from 629 MW to 669 MW), improve operational reliability and efficiency and significantly improve the environmental effects of operation of the facility. Phase II of the project, if it is undertaken by PSE&G, would increase the capacity of Bergen by an additional 650 MW.
On July 12, 1993, an association of competitors of PSE&G appealed the NJDEPE's issuance of the air permit for Phase I of the project to the Appellate Division of the New Jersey Superior Court, alleging that PSE&G is first required to obtain a Certificate of Need under the New Jersey Need Assessment Act (Need Assessment Act). The NJDEPE determined that the Need Assessment Act was inapplicable to this renovation project. Obtaining a Certificate of Need would be a complex procedure entailing proceedings of at least a two year duration before the NJDEPE, the outcome of which could not be assured. As of December 31, 1993, Phase I of the renovation project was about 20% complete and PSE&G had spent approximately $169 million on this effort. The final cost is estimated to be approximately $400 million.
Briefs have been filed in the appeal and PSE&G believes that a Certificate of Need is not required for Phase I of the project. However, if a Certificate of Need were ultimately required by the courts after exhaustion of all appeals, the permits needed to operate the plant could not be issued until after a Certificate of Need was obtained. PSE&G intends to continue this renovation project and to vigorously defend its position through all available means.
ENVIRONMENT
GENERAL
Certain Federal and State laws authorize the United States Environmental Protection Agency (EPA) and the NJDEPE, among other agencies, to issue orders and bring enforcement actions to compel responsible parties to take investigative and remedial actions at any site that is determined to present an imminent and substantial danger to the public or the environment because of an actual or threatened release of one or more hazardous substances. Because of the nature of PSE&G's business, including the production of electricity, the distribution of gas and, formerly, the manufacture of gas, various by-products and substances are or were produced or handled which contain constituents classified as hazardous. PSE&G generally provides for the disposal or processing of such substances through licensed independent contractors. However, these statutory provisions impose joint and several responsibility without regard to fault on all responsible parties, including the generators of the hazardous substances, for certain investigative and remediation costs at sites where these substances were disposed of or processed. PSE&G has been notified with respect to a number of such sites and the remediation of these potentially hazardous sites is receiving greater attention from the government agencies involved. Generally, actions directed at funding such site investigations and remediation include all suspected or known responsible parties. PSE&G does not expect its expenditures for any such site to be material.
PSE&G MANUFACTURED GAS PLANT REMEDIATION PROGRAM
In March 1988, NJDEPE notified PSE&G that it had identified the need for PSE&G, pursuant to a formal arrangement, to systematically investigate and, if necessary, resolve environmental concerns extant at PSE&G's former manufactured gas plant sites. To date, NJDEPE and PSE&G have identified 38 former gas
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
plant sites. PSE&G is currently working with NJDEPE under a program to assess, investigate and, if necessary, remediate environmental concerns at its former gas plant sites (Remediation Program). The Remediation Program is periodically reviewed and revised by PSE&G based on regulatory requirements, experience with the Remediation Program and available technologies. The cost of the Remediation Program cannot be reasonably estimated, but experience to date indicates that costs of at least $20 million per year could be incurred over a period of more than 30 years and that the overall cost could be material.
Costs incurred through December 31, 1993 for the Remediation Program amounted to $44.5 million, net of insurance recoveries. In addition, at December 31, 1993, PSE&G's liability for estimated remediation costs, net of insurance recoveries, through 1996 aggregated $111 million. In accordance with a Stipulation approved by the BRC on January 21, 1992, PSE&G is recovering $32 million of its actual remediation costs to reflect costs incurred through September 30, 1992, net of insurance recoveries, over a six-year period. In its 1992-93 LGAC, PSE&G refunded $0.3 million during the 1993 LGAC year and will recover $5.3 million in each of its next three LGAC periods ending in 1996, net of insurance recoveries. The regulatory treatment of the remediation costs covered by this Stipulation was not changed in the BRC's September 15, 1993 written order, allowing continued collection under the terms of the January 21, 1992 Stipulation. The decision of September 15, 1993 concluded that PSE&G had met its burden of proof for establishing the reasonableness and prudence of remediation costs incurred in operating and decommissioning these facilities in the past. The remediation costs incurred during the period July 1, 1992 through September 30, 1992 are subject to verification and audit in PSE&G's 1992-93 LGAC. The audit is currently ongoing. The order also approved a mechanism for costs incurred since October 1, 1992, allowing the recovery of actual costs plus carrying charges, net of insurance recoveries, over a seven-year period through PSE&G's LEAC and LGAC, with 60% charged to gas customers and 40% charged to electric customers. On November 1, 1993, the Public Advocate of New Jersey filed a motion requesting the BRC to reconsider its September 15, 1993 order. On January 21,1994, the BRC denied the motion.
In November 1988, PSE&G filed suit against certain of its insurers to recover the costs associated with addressing and resolving environmental issues of the Remediation Program. PSE&G has settled its claim with one insurer and there is a trial scheduled for September 1994 with the remaining insurers. Pending full recovery of Remediation Program costs through rates or under its insurance policies, neither of which can be assured, PSE&G will be required to finance the unreimbursed costs of its Remediation Program.
NOTE 13. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
On January 1, 1993, Enterprise and PSE&G adopted SFAS 106, which requires that the expected cost of employees' postretirement health care and insurance benefits be charged to expense during the years in which employees render service. PSE&G elected to amortize over 20 years its unfunded obligation of $609.3 million at January 1, 1993. Prior to 1993, Enterprise and PSE&G recognized postretirement health care and insurance costs in the year that the benefits were paid. The following table discloses the significant components of the January 1, 1993, accumulated postretirement benefit obligation amortization:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table discloses the significant components of the net periodic postretirement benefit obligation:
The discount rate used in determining the PSE&G net periodic postretirement benefit cost was 7.5%.
A one-percentage-point increase in the assumed health care cost trend rate for each year would increase the aggregate of the service and interest cost components of net periodic postretirement health care cost by approximately $2.4 million, or 6.0%, and increase the accumulated postretirement benefit obligation as of December 31, 1993 by $29.3 million, or 6.0%.
The assumed health care cost trend rates used in measuring the accumulated postretirement benefit obligation in 1993 were: medical costs for pre-age sixty-five retirees -- 13.5%, medical costs for post-age retirees -- 9.5%, prescription drugs -- 18% and dental costs -- 7.5%, such rates are assumed to gradually decline to 5.5%, 5.0%, 5.5% and 5.0%, respectively, in 2010.
In its recent base rate case, PSE&G requested full recovery of the costs associated with postretirement benefits other than pensions (OPEB) on an accrual basis, in accordance with SFAS 106. The BRC's December 31, 1992 base rate order, provided that (1) PSE&G's pay-as-you-go basis OPEB costs will continue to be included in cost of service and will be recoverable in base rates on a pay-as-you-go basis; (2) prudently incurred OPEB costs, that are accounted for on an accrual basis in accordance with SFAS 106, will be recoverable in future rates; (3) PSE&G should account for the differences between its OPEB costs on an accrual basis and the pay-as-you-go basis being recovered in rates as a regulatory asset; (4) the issue of cash versus accrual accounting will be revisited and in the event that the Financial Accounting Standards Board (FASB) or the SEC requires the use of accrual accounting for OPEB costs for ratemaking purposes, the regulatory asset will be recoverable, through rates, over an appropriate amortization period.
Accordingly, PSE&G is accounting for the differences between its SFAS 106 accruals cost and the cash cost currently recovered through rates as a regulatory asset. OPEB costs charged to expense during 1993 were $28 million and accrued OPEB costs deferred were $58.6 million, including an increase of $25 million due to the recognition of PSE&G's obligation for life insurance benefits. The amount of the unfunded liability, at December 31, 1993, as shown below, is $657.0 million and funding options are currently being explored. The primary effect of adopting SFAS 106 on Enterprise's and PSE&G's financial reporting is on the presentation of their financial positions with minimal effect on their results of operations.
In accordance with SFAS 106 disclosure requirements, a reconciliation of the funded status of the plan as of December 31, 1993, is as follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The discount rate used in determining the accumulated postretirement benefit obligation as of December 31, 1993 was 7.25%.
During January 1993 and subsequent to the receipt of the Order, the FASB's Emerging Issues Task Force (EITF) concluded that deferral of such costs is acceptable, provided regulators allow SFAS 106 costs in rates within approximately five years of the adoption of SFAS 106 for financial reporting purposes, with any cost deferrals recovered in approximately twenty years. PSE&G intends to request the BRC for full SFAS 106 recovery in accordance with the EITF's view of such standard and believes that it is probable that any deferred costs will be recovered from utility customers within such twenty year time period.
NOTE 14. PENSION PLAN
The discount rate, expected long-term return on assets and average compensation growth used in determining the Pension Plan's funded status as of December 31, 1993 and 1992, and net pension costs for 1993, 1992 and 1991, were as follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table shows the Pension Plan's funded status:
The net pension cost for the years ending December 31, 1993, 1992 and 1991, include the following components:
Supplemental pension costs in 1993, 1992 and 1991, were $168,000, $299,000 and $419,000, respectively.
See Note 1 -- Organization and Summary of Significant Accounting Policies.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15. FINANCIAL INFORMATION BY BUSINESS SEGMENTS
Information related to the segments of Enterprise's business is detailed below:
(A) The Nonutility Activities include amounts applicable to Enterprise, the parent corporation.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16. PROPERTY IMPAIRMENT OF ENTERPRISE GROUP DEVELOPMENT CORPORATION
As a result of a management review of each property's current value and the potential for increasing such value through operating and other improvements, EGDC recorded an impairment related to certain of its properties, including properties upon which EDHI's management revised its intent from a long-term investment strategy to a hold for sale status, reflecting such properties on its books at their net realizable value. This impairment reduced the estimated value of EGDC's properties by $77.6 million and net income by $50.5 million, after tax, or 21 cents per share of Enterprise common stock. EGDC's real estate held for sale of $33.8 million and $6.7 million at December 31, 1993 and 1992 are presented in "Other Investments -- net" and "Current Assets", respectively, in the accompanying consolidated balance sheets.
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 Consolidated Statements of Income as an operating expense. (See Note 1 -- Organization and Summary of Significant Accounting Policies.)
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.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PSE&G
Except as modified below the Notes to Consolidated Financial Statements of Enterprise are incorporated herein by reference insofar as they relate to PSE&G and its subsidiaries: Note 1. Organization and Summary of Significant Accounting Policies, Note 2. Rate Matters, Note 3. PSE&G Nuclear Decommissioning and Amortization of Nuclear Fuel, Note 4. Schedule of Consolidated Capital Stock, Note 5. Deferred Items, Note 6. Schedule of Consolidated Long-Term Debt, Note 7. Long-Term Investments, Note 8. Cash and Cash Equivalents, Note 10. Leasing Activities -- As Lessee, Note 11. Short-Term Debt (Commercial Paper and Loans), Note 12. Commitments and Contingent Liabilities, Note 13. Postretirement Benefits Other Than Pensions, Note 14. Pension Plan and Other Postemployment Benefits, Note 15. Financial Information by Business Segments and Note 17. Jointly-Owned Facilities -- Utility Plant.
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
PSE&G is an operating public utility, providing electric and gas service in certain areas of New Jersey. PSE&G is the principal subsidiary of Enterprise, which owns all of PSE&G's common stock (without nominal or par value). Of the 150,000,000 authorized shares of such common stock at December 31, 1993, 1992 and 1991, there were 132,450,344 shares outstanding, with an aggregate value of $2,563,003,000. Enterprise has claimed an exemption from regulation by the Securities and Exchange Commission as a registered holding company under the Public Utility Holding Company Act of 1935, except for Section 9(a)(2) which relates to the acquisition of voting securities of an electric or gas utility company. PSE&G has a nonutility finance subsidiary, Fuelco, providing financing, unconditionally guaranteed by PSE&G, not to exceed $150 million aggregate principal amount at any one time of a 42.49% undivided interest in the nuclear fuel acquired for Peach Bottom. PSE&G also has organized a nonutility subsidiary, PSCRC, which offers DSM services to utility customers.
CONSOLIDATION POLICY
The consolidated financial statements include the accounts of PSE&G and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications of prior years' data have been made to conform with the current presentation.
NOTE 6. SCHEDULE OF CONSOLIDATED LONG-TERM DEBT
At December 31, 1993, the annual interest requirement on long-term debt was $331.5 million, of which $327.5 million was the requirement for Bonds. The embedded interest cost on long-term debt was 7.85%.
NOTE 8. CASH AND CASH EQUIVALENTS
The December 31, 1993 and 1992 balances consist primarily of working funds.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9. FEDERAL INCOME TAXES
A reconciliation of reported Net Income with pretax income and of Federal income tax expense with the amount computed by multiplying pretax income by the statutory Federal income tax rates of 35% in 1993 and 34% in 1992 and 1991 is as follows:
Reconciliation between total Federal income tax provisions and tax computed at the statutory tax rate on pretax income:
(A) The provision for deferred income taxes represents the tax effects of the following items:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SFAS 109
The following is an analysis of accumulated deferred income taxes:
The Revenue Reconciliation Act of 1993, enacted in August 1993, increased the Federal corporate income tax rate from 34% to 35% effective January 1, 1993. This resulted in an increase in Federal income tax expense for PSE&G of $9.2 million for the year ended December 31, 1993.
The balance of Federal income tax payable by PSE&G to Enterprise was zero and $7 million, as of December 31, 1993 and December 31, 1992, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18. SELECTED QUARTERLY DATA (UNAUDITED)
The information shown below, in the opinion of PSE&G, 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.
NOTE 19. ACCOUNTS PAYABLE TO ASSOCIATED COMPANIES -- NET
The balances at December 31, consisted of the following:
(A) Liability for gas purchased.
PART III
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Enterprise and PSE&G, none.
ITEM 10.



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS.
DIRECTORS OF THE REGISTRANTS
ENTERPRISE
The information required by Item 10 of Form 10-K with respect to present directors who are nominees for election as directors at Enterprise's Annual Meeting of Stockholders to be held on April 19, 1994, and directors whose terms will continue beyond the meeting, is set forth under the heading "Election of Directors" in Enterprise's definitive Proxy Statement for such Annual Meeting of Stockholders, which definitive Proxy Statement is expected to be filed with the Securities and Exchange Commission on or about March 1, 1994 and which information set forth under said heading is incorporated herein by this reference thereto.
The information with respect to present directors who have reached the mandatory retirement age for directors and thus will not be standing for election follows. There is shown as to each information as to the period of service as a director of Enterprise (and PSE&G prior to the formation of Enterprise), age as of April 19, 1994, present committee memberships, business experience during the last five years and other present directorships.
ROBERT R. FERGUSON, JR. has been a director since 1981. Age 70. Director of Enterprise and PSE&G. Was Chairman of the Board, President and Chief Executive Officer of First Fidelity Bancorporation, Newark, New Jersey, from December 1988 until his retirement in February 1990; Chairman of the Board of First Fidelity, Inc., from March 1988 until February 1990, and Chairman of the Board of First Fidelity Bank, N.A., New Jersey from 1984 until February 1990. Was Chairman of the Board of First Fidelity Bancorporation from March 1988 to December 1988, and President and Chief Executive Officer, First Fidelity Bancorporation, from 1985 to March 1988.
WILLIAM E. MARFUGGI has been a director since 1980. Age 70. Director of Enterprise and its subsidiary, EDHI. Was Chairman of Tri-Maintenance & Contractors, Inc. (provides property management and facility maintenance services) from August 1989 until 1993. Was Chairman of the Board of Victory Optical Manufacturing Company and Plaza Sunglasses Inc., both of Newark, New Jersey, from 1973 until 1989.
PSE&G
Pursuant to the Focused Audit Implementation Plan (see Item 1. Business -- Regulation), effective July 20, 1993, Harold W. Borden, Jr., Thomas M. Crimmins, Jr., Robert J. Dougherty, Jr., Robert C. Murray, R. Edwin Selover and Rudolph D. Stys, each of whom is an officer of PSE&G, resigned as directors of PSE&G and the persons shown below, except for Lawrence R. Codey and E. James Ferland, each of whom remained as a director, were elected as directors of PSE&G to serve until the next Annual Meeting of Stockholders of PSE&G, to be held April 19, 1994, and until each of their successors are duly elected and qualified. There is shown as to each present director information as to the period of service as a director of PSE&G, age as of April 19, 1994, present committee memberships, business experience during the last five years and other present directorships.
LAWRENCE R. CODEY has been a director since 1988. Age 49. Member of Executive Committee. Has been President and Chief Operating Officer of PSE&G since September 1991. Was Senior Vice President-Electric of PSE&G from January 1989 to September 1991. Director of Enterprise. Director of Sealed Air Corporation, The Trust Company of New Jersey, United Water Resources Inc., Hackensack Water Company, Rivervale Realty Company Inc. and Blue Cross & Blue Shield of New Jersey.
ROBERT R. FERGUSON, JR. has been a director since July 20, 1993. Was previously a director from 1981 to February 1988. For additional information, see Enterprise, above.
E. JAMES FERLAND has been a director since 1986, and Chairman of the Board, President and Chief Executive Officer of Enterprise since July 1986, Chairman of the Board and Chief Executive Officer of PSE&G since September 1991, and Chairman of the Board and Chief Executive Officer of EDHI since June 1989. Age 52. Chairman of Executive Committee. President of PSE&G from July 1986 to September 1991. Director of Enterprise and of EDHI and its subsidiaries, CEA, EDC, PSRC, EGDC, Capital and Funding. Director of First Fidelity Bancorporation, First Fidelity Bank, N.A., Foster Wheeler Corporation and The Hartford Steam Boiler Inspection and Insurance Company.
RAYMOND V. GILMARTIN has been a director since July 20, 1993. Age 53. Director of Enterprise. Has been Chairman of the Board, President and Chief Executive Officer of Becton Dickinson and Company, Franklin Lakes, New Jersey (manufactures medical devices and diagnostic systems) since November 1992. Was President and Chief Executive Officer of Becton Dickinson and Company from February 1989 to November 1992 and President from September 1987 to February 1989. Director of Becton Dickinson and Company and Capital Holding Corp.
SHIRLEY A. JACKSON has been a director since July 20, 1993. Was previously a director from 1987 to February 1988. Age 47. Director of Enterprise. Has been Professor of Physics, Rutgers University, since 1991 and has been a theoretical physics consultant since 1991 and was a theoretical physicist from 1976 to 1991 at AT&T Bell Laboratories (performs research and development in areas related to telecommunications for American Telephone and Telegraph Company). Director of Core States Financial Corporation, Core States/New Jersey National Bank, New Jersey Resources Corporation and Sealed Air Corporation. Trustee of Massachusetts Institute of Technology.
IRWIN LERNER has been a director since July 20, 1993. Was previously a director from 1981 to February 1988. Age 63. Director of Enterprise. Was Chairman, Board of Directors and Executive Committee from January 1993 to September 1993 and President and Chief Executive Officer from 1980 to December 1992 of Hoffmann-La Roche Inc., Nutley, New Jersey (manufactures pharmaceuticals, vitamins, fine chemicals and provides home health care and diagnostic products and services). Director of Humana Inc. and Affymax, N.V.
JAMES C. PITNEY has been a director since July 20, 1993. Was previously a director from 1979 to February 1988. Age 67. Member of Executive Committee. Director of Enterprise. Has been a partner in the law firm of Pitney, Hardin, Kipp & Szuch, Morristown, New Jersey, since 1958, Director of Seligman Capital Fund, Inc., Seligman Cash Management Fund, Inc., Seligman Common Stock Fund, Inc., Seligman Communications and Information Fund, Inc., Seligman Frontier Fund, Inc., Seligman Growth Fund, Inc., Seligman High Income Fund Series, Inc., Seligman Income Fund, Inc., Seligman Mutual Benefit Portfolios, Inc., Seligman New Jersey Tax-Exempt Fund, Inc., Seligman Pennsylvania Tax-Exempt Fund Series, Seligman Tax-Exempt Fund Series, Inc., Seligman Tax-Exempt Series Trust, Inc., Seligman Quality Fund, Inc., Seligman Select Municipal Fund, Inc. and Tri-Continental Corporation.
EXECUTIVE OFFICERS OF THE REGISTRANTS
The following table sets forth certain information concerning the executive officers of Enterprise and PSE&G, respectively.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
ENTERPRISE
The information required by Item 11 of Form 10-K is set forth under the heading "Executive Compensation" in Enterprise's definitive Proxy Statement for the Annual Meeting of Stockholders to be held April 19, 1994, which definitive Proxy Statement is expected to be filed with the Securities and Exchange Commission on or about March 1, 1994 and such information set forth under such heading is incorporated herein by this reference thereto.
PSE&G
Information regarding the compensation of the Chief Executive Officer and the four most highly compensated executive officers of PSE&G as of December 31, 1993 is set forth below. Amounts shown were paid or awarded for all services rendered to Enterprise and its subsidiaries and affiliates including PSE&G.
SUMMARY COMPENSATION TABLE
- --------------- (1) Due to pay schedules, 1992 amounts reflect one additional pay period per individual compared to 1993 and 1991.
(2) Amount awarded in given year was earned under Management Incentive Compensation Plan (MICP) and determined in following year with respect to the given year based on individual performance and financial and operating performance of Enterprise and PSE&G, including comparison to other companies. Award is accounted for as market-priced phantom stock with dividend reinvestment at 95% of market price, with payment made over three years beginning in second year following grant.
(3) Granted under Long-Term Incentive Plan in tandem with equal number of performance units and dividend equivalents which may provide cash payments, dependent upon future financial performance of Enterprise in comparison to other companies and dividend payments by Enterprise, to assist officers in exercising options granted.
(4) Employer contribution to Thrift and Tax-Deferred Savings Plan and value of 5% discount on phantom stock dividend reinvestment under MICP:
(5) The 1993 MICP award amount has not yet been determined. The target award is 40% of salary for Mr. Ferland, 30% for Mr. Codey, 25% for Messrs. Murray and Dougherty and 20% for Mr. Selover. The target award is adjusted to reflect Enterprise's comparative return on common equity, PSE&G's comparative electric and gas costs and individual performance.
(6) Amount paid pursuant to Mr. Murray's employment agreement. (See below).
(7) Mr. Murray commenced employment January 6, 1992.
OPTION GRANTS IN LAST FISCAL YEAR (1993)
- --------------- (1) Granted under Long-Term Incentive Plan in tandem with equal number of performance units and dividend equivalents which may provide cash payments, dependent on future financial performance of Enterprise in comparison to other companies and dividend payments by Enterprise, to assist individuals in exercising options, with exercisability commencing January 1, 1996.
(2) All options reported have a ten-year term, as noted. Amounts shown represent hypothetical future values at such term based upon hypothetical price appreciation of Enterprise Common Stock and may not necessarily be realized. Actual values which may be realized, if any, upon any exercise of such options, will be based on the market price of Enterprise Common Stock at the time of any such exercise and thus are dependent upon future performance of Enterprise Common Stock.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR (1993) AND FISCAL YEAR-END OPTION VALUES (12/31/93)
- ---------------
(1) Does not reflect any options granted and/or exercised after year-end (12/31/93). The net effect of any such grants and exercises is reflected in the table appearing under Security Ownership of Directors and Management. (2) Represents difference between exercise price and market price of Enterprise Common Stock on date of exercise. (3) Represents difference between market price of Enterprise Common Stock and the respective exercise prices of the options at fiscal year-end (12/31/93). Such amounts may not necessarily be realized. Actual values which may be realized, if any, upon any exercise of such options will be based on the market price of Enterprise Common Stock at the time of any such exercise and thus are dependent upon future performance of Enterprise Common Stock.
EMPLOYMENT CONTRACTS AND ARRANGEMENTS
Employment agreements were entered into with Messrs. Ferland and Murray at the time of their employment. For Mr. Ferland, the remaining applicable provisions of these agreements provide for additional
credited service for pension purposes in the amount of 22 years. The principal remaining applicable terms of the agreement with Mr. Murray provide for payment of severance in the amount of one year's salary, if discharged without cause during his first five years of employment, for lump sum cash payments of $75,000 in 1993, $50,000 in 1994 and $25,000 in 1995 to align Mr. Murray with MICP payments for other executive officers, and additional years of credited service for pension purposes for allied work experience of five years after completion of five years of employment, and up to fifteen years after completion of ten years of service.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
PSE&G does not have a compensation committee. Decisions regarding compensation of PSE&G's executive officers are made by the Organization and Compensation Committee of Enterprise. Hence, during 1993 the PSE&G Board of Directors did not have, and no officer, employee or former officer of PSE&G participated in any deliberations of such Board, concerning executive officer compensation. In December 1993, Mr. Codey was elected as a director of Sealed Air Corporation, the President and Chief Executive Officer of which, T.J. Dermot Dunphy, served as a director and member of the Organization and Compensation Committee of Enterprise during 1993.
COMPENSATION OF DIRECTORS AND CERTAIN BUSINESS RELATIONSHIPS
A director who is not an officer of Enterprise or its subsidiaries and affiliates, including PSE&G, is paid an annual retainer of $20,000 and a fee of $1,000 for attendance at any Board or committee meeting, inspection trip, conference or other similar activity relating to Enterprise, PSE&G or EDHI.
Enterprise has a Retirement Plan for outside directors. Each of the outside directors of PSE&G is also an outside director of Enterprise. Under this Plan, directors with five years of service who have not been employees of Enterprise or its subsidiaries, who leave service after age 65, or for disability, receive an annual retirement benefit payable for life equal to the annual Board retainer in effect at the time the director's service terminates. The benefit payment is prorated for directors with less than 10 years of service on the Board.
Dr. Shirley A. Jackson, a director of Enterprise and PSE&G, is the liaison member for the Board of Directors on and Chair of PSE&G's Nuclear Oversight Committee (NOC). The NOC met five times during 1993, with each meeting lasting two days. In accordance with the compensation policy for all NOC members, Dr. Jackson receives an annual retainer of $28,000 and $1,000 per day for each NOC meeting attended.
COMPENSATION PURSUANT TO PENSION PLANS
PENSION PLAN TABLE
The above table illustrates annual retirement benefits expressed in terms of single life annuities based on the average final compensation and service shown and retirement at age 65. A person's annual retirement benefit is based upon a percentage that is equal to years of credited service plus 30, but not more than 75%, times average final compensation at the earlier of retirement, attainment of age 65 or death. These amounts are reduced by Social Security benefits and certain retirement benefits from other employers. Pensions in the form of joint and survivor annuities are also available.
Average final compensation, for purposes of retirement benefits of executive officers, is generally equivalent to the average of the aggregate of the salary and bonus amounts reported in the Summary
Compensation Table above under 'Annual Compensation' for the five years preceeding retirement, not to exceed 120% of the average annual salary for such five year period. Messrs. Ferland, Codey, Murray, Dougherty and Selover will have accrued approximately 48, 41, 39, 48 and 43 years of credited service, respectively, as of age 65.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
ENTERPRISE
The information required by Item 12 of Form 10-K with respect to directors and executive officers is set forth under the heading 'Security Ownership of Directors and Management' in Enterprise's definitive Proxy Statement for the Annual Meeting of Stockholders to be held April 19, 1994, which definitive Proxy Statement is expected to be filed with the Securities and Exchange Commission on or about March 7, 1994 and such information set forth under such heading is incorporated herein by this reference thereto.
PSE&G
All of PSE&G's 132,450,344 outstanding shares of Common Stock are owned beneficially and of record by PSE&G's parent, Enterprise, 80 Park Plaza, P.O. Box 1171, Newark, New Jersey.
The following table sets forth beneficial ownership of Enterprise Common Stock by the directors and executive officers named below as of February 23, 1994. None of these amounts exceed 1% of the Enterprise Common Stock outstanding at such date. No director or executive officer owns any PSE&G Preferred Stock of any class.
- ---------------
(1) Disclaims beneficial ownership of 472 shares. Has options to purchase 8,700 additional shares.
(2) Includes the equivalent of 588 shares held under Thrift and Tax-Deferred Savings Plan. Has options to purchase 6,500 additional shares.
(3) Includes the equivalent of 8,087 shares held under Thrift and Tax-Deferred Savings Plan. Has options to purchase 16,800 additional shares.
(4) Includes the equivalent of 377 shares held under Thrift and Tax-Deferred Savings Plan. Has options to purchase 5,400 additional shares.
(5) Disclaims beneficial ownership of 273 shares. Has options to purchase 6,200 additional shares.
(6) Includes 745 shares owned by relatives as to which beneficial ownership is disclaimed. Also includes the equivalent of 9,711 shares held under Thrift and Tax-Deferred Savings Plan. All directors and executive officers as a group have options to purchase 55,600 additional shares.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
ENTERPRISE
The information required by Item 13 of Form 10-K is set forth under the heading "Executive Compensation" in Enterprise's definitive Proxy Statement for the Annual Meeting of Stockholders to be held April 19, 1994, which definitive Proxy Statement is expected to be filed with the Securities and Exchange Commission on or about March 1, 1994. Such information set forth under such heading is incorporated herein by this reference thereto.
PSE&G
None.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements:
(1) Enterprise Consolidated Statements of Income for the years ended December 31, 1993, 1992, and 1991, on page 55.
Enterprise Consolidated Balance Sheets for the years ended December 31, 1993 and 1992, on pages 56 and 57.
Enterprise Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1992 and 1991 on page 58.
Enterprise Statements of Retained Earnings for the years ended December 31, 1993, 1992 and 1991 on page 59.
Enterprise Notes to Consolidated Financial Statements on pages 65 through 90.
(2) PSE&G Consolidated Statements of Income for the years ended December 31, 1993, 1992 and 1991, on page 60.
PSE&G Consolidated Balance Sheets for the years ended December 31, 1993 and 1992, on pages 61 and 62.
PSE&G Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1992 and 1991 on page 63.
PSE&G Statements of Retained Earnings for the years ended December 31, 1993, 1992 and 1991 on page 64.
PSE&G Notes to Consolidated Financial Statements on pages 91 through 94.
(b) The following documents are filed as a part of this report:
(1) Enterprise Financial Statement Schedules:
Schedule V -- Property, Plant and Equipment for each of the three years in the period ended December 31, 1993 (pages 105 through 107).
Schedule VI -- Accumulated Depreciation, Depletion, and Amortization of Property, Plant and Equipment for each of the three years in the period ended December 31, 1993 (pages 108 through 110).
Schedule VIII -- Valuation and Qualifying Accounts for each of the three years in the period ended December 31, 1993 (page 111).
Schedules other than those listed above are omitted for the reason that they are not required or are not applicable, or the required information is shown in the consolidated financial statements or notes thereto.
(2) PSE&G Financial Statement Schedules:
Schedule V -- Property, Plant and Equipment for each of the three years in the period ended December 31, 1993 (pages 112 through 114).
Schedule VI -- Accumulated Depreciation, Depletion, and Amortization of Property, Plant and Equipment for each of the three years in the period ended December 31, 1993 (pages 115 through 117).
Schedule VIII -- Valuation and Qualifying Accounts for each of the three years in the period ended December 31, 1993 (page 118).
Schedules other than those listed above are omitted for the reason that they are not required or are not applicable, or the required information is shown in the consolidated financial statements or notes thereto.
(c) The following exhibits are filed herewith:
(1) Enterprise:
(See Exhibit Index on pages 121 through 127).
(2) PSE&G:
(See Exhibit Index on pages 128 through 133).
(d) The following reports on Form 8-K were filed by the registrant(s) named below during the last quarter of 1993 and the 1994 period covered by this report under Item 5:
- ---------------
* Indicates employment agreement.
SCHEDULE V
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1993
NOTES:
(A) Interaccount and interdepartment transfers.
(B) Includes amortization of discount on the Hope Creek indirect disallowance of $2,113,299.
(C) Additions to Construction Work in Progress (CWIP) is net of transfers of completed construction of $249,363,488.
(D) Includes $77.6 million EGDC property impairment and reclassifications of $33.8 million to assets held for sale.
Descriptions of Utility Plant and Related Depreciation and Amortization -- PSE&G and Oil and Gas Accounting -- EDC are set forth in Note 1 -- Organization and Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements.
SCHEDULE V
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1992
NOTES: (A) Interaccount and interdepartment transfers.
(B) Includes amortization of discount on the Hope Creek indirect disallowance of $1,676,456, and an increase in the Hope Creek indirect disallowance of 6,191,172 resulting from the rate case settlement.
(C) Additions to Construction Work in Progress (CWIP) is net of transfers of completed construction of $358,917,902.
(D) Consolidation of partnership interests.
Descriptions of Utility Plant and Related Depreciation and Amortization -- PSE&G and Oil and Gas Accounting -- EDC are set forth in Note 1 -- Organization and Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements.
SCHEDULE V
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1991
NOTES:
(A) Interaccount and interdepartment transfers.
(B) Includes amortization of discount on the Hope Creek indirect disallowance of $1,686,000.
(C) Additions to Construction Work in Progress (CWIP) is net of transfers of completed construction of $477,201,000.
(D) Consolidation of partnership interests.
Descriptions of Utility Plant and Related Depreciation and Amortization -- PSE&G and Oil and Gas Accounting -- EDC are set forth in Note 1 -- Organization and Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements.
SCHEDULE VI
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
SCHEDULE VI -- ACCUMULATED DEPRECIATION, DEPLETION, AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1993
NOTES:
(A) Interaccount and interdepartment transfers.
(B) Reclassification of accumulated depreciation for real estate held for sale to other investments -- net.
SCHEDULE VI
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
SCHEDULE VI -- ACCUMULATED DEPRECIATION, DEPLETION, AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1992
NOTES:
(A) Interaccount and interdepartment transfers.
SCHEDULE VI
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
SCHEDULE VI -- ACCUMULATED DEPRECIATION, DEPLETION, AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1991
NOTES:
(A) Interaccount and interdepartment transfers.
SCHEDULE VIII
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1993 -- DECEMBER 31, 1991
NOTES:
(A) Accounts Receivable/Investments written off.
(B) Amortization of discount to income.
SCHEDULE V
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
SCHEDULE V -- PROPERTY, PLANT, AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1993
NOTES:
(A) Interaccount and interdepartment transfers.
(B) Includes amortization of discount on the Hope Creek indirect disallowance of $2,113,299.
(C) Additions to Construction Work in Progress (CWIP) is net of transfers of completed construction of $249,363,488.
Description of Utility Plant and Related Depreciation and Amortization is set forth in Note 1 -- Organization and Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements.
SCHEDULE V
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
SCHEDULE V -- PROPERTY, PLANT, AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1992
NOTES:
(A) Interaccount and interdepartment transfers.
(B) Includes amortization of discount on the Hope Creek indirect disallowance of $1,676,456, and an increase in the Hope Creek indirect disallowance of $6,191,172 resulting from the recent rate case settlement.
(C) Additions to Construction Work in Progress (CWIP) is net of transfers of completed construction of $358,917,902.
Description of Utility Plant and Related Depreciation and Amortization is set forth in Note 1 -- Organization and Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements.
SCHEDULE V
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
SCHEDULE V -- PROPERTY, PLANT, AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1991
NOTES:
(A) Interaccount and interdepartment transfers.
(B) Includes amortization of discount on the Hope Creek indirect disallowance of $1,686,000.
(C) Additions to Construction Work in Progress (CWIP) is net of transfers of completed construction of $447,201,000.
Description of Utility Plant and Related Depreciation and Amortization is set forth in Note 1 -- Organization and Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements.
SCHEDULE VI
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
SCHEDULE VI -- ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1993
NOTE:
(A) Interaccount and interdepartment transfers.
SCHEDULE VI
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
SCHEDULE VI -- ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1992
NOTE:
(A) Interaccount and interdepartment transfers.
SCHEDULE VI PUBLIC SERVICE ELECTRIC AND GAS COMPANY
SCHEDULE VI -- ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1991
NOTE:
(A) Interaccount and interdepartment transfers.
SCHEDULE VIII
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1993 -- DECEMBER 31, 1991
Notes:
(A) Accounts Receivable written off.
(B) Amortization of discount to income.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
By E. JAMES FERLAND ------------------------------- E. James Ferland Chairman of the Board, President and Chief Executive Officer Date: February 25, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
By E. JAMES FERLAND -------------------------------- E. James Ferland Chairman of the Board and Chief Executive Officer
Date: February 25, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
EXHIBIT INDEX
Certain Exhibits previously filed with the Commission and the appropriate securities exchanges are indicated as set forth below. Such Exhibits are not being refiled, but are included because inclusion is desirable for convenient reference.
(a) Filed by PSE&G with Form 8-A under the Securities Exchange Act of 1934, on the respective dates indicated, File No. 1-973.
(b) Filed by PSE&G with Form 8-K under the Securities Exchange Act of 1934, on the respective dates indicated, File No. 1-973.
(c) Filed by PSE&G with Form 10-K under the Securities Exchange Act of 1934, on the respective dates indicated, File No. 1-973.
(d) Filed by PSE&G with Form 10-Q under the Securities Exchange Act of 1934, on the respective dates indicated, File No. 1-973.
(e) Filed by Enterprise with Form 10-K under the Securities Exchange Act of 1934, on the respective dates indicated, File No. 1-9120.
(f) Filed with registration statement of PSE&G under the Securities Exchange Act of 1934, File No. 1-973, effective July 1, 1935, relating to the registration of various issues of securities.
(g) Filed with registration statement of PSE&G under the Securities Act of 1933, No. 2-4995, effective May 20, 1942, relating to the issuance of $15,000,000 First and Refunding Mortgage Bonds, 3% Series due 1972.
(h) Filed with registration statement of PSE&G under the Securities Act of 1933, No. 2-7568, effective July 1, 1948, relating to the proposed issuance of 200,000 shares of Cumulative Preferred Stock.
(i) Filed with registration statement of PSE&G under the Securities Act of 1933, No. 2-8381, effective April 18, 1950, relating to the issuance of $26,000,000 First and Refunding Mortgage Bonds, 2 3/4% Series due 1980.
(j) Filed with registration statement of PSE&G under the Securities Act of 1933, No. 2-12906, effective December 4, 1956, relating to the issuance of 1,000,000 shares of Common Stock.
(k) Filed with registration statement of PSE&G under the Securities Act of 1933, No. 2-59675, effective September 1, 1977, relating to the issuance of $60,000,000 First and Refunding Mortgage Bonds, 8 1/8% Series I due 2007.
(l) Filed with registration statement of PSE&G under the Securities Act of 1933, No. 2-60925, effective March 30, 1978, relating to the issuance of 750,000 shares of Common Stock through an Employee Stock Purchase Plan.
(m) Filed with registration statement of PSE&G under the Securities Act of 1933, No. 2-65521, effective October 10, 1979, relating to the issuance of 3,000,000 shares of Common Stock.
(n) Filed with registration statement of PSE&G under the Securities Act of 1933, No. 2-74018, filed on June 16, 1982, relating to the Thrift Plan of PSE&G.
(o) Filed with registration statement of Public Service Enterprise Group Incorporated under the Securities Act of 1933, No. 33-2935 filed January 28, 1986, relating to PSE&G's plan to form a holding company as part of a corporate restructuring.
(p) Filed with registration statement of PSE&G under the Securities Act of 1933, No. 33-13209 filed April 9, 1987, relating to the registration of $575,000,000 First and Refunding Mortgage Bonds pursuant to Rule 415.
ENTERPRISE
PSE&G