UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
F ORM 10-Q
(Mark One)
S
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007
OR
£
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
TO
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Commission
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Registrants, State of Incorporation,
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I.R.S. Employer
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001-09120 |
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
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22-2625848 |
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001-00973 |
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
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22-1212800 |
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000-49614 |
PSEG POWER LLC
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22-3663480 |
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000-32503 |
PSEG ENERGY HOLDINGS L.L.C.
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42-1544079 |
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes S No £
Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
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Public Service Enterprise Group Incorporated |
Large accelerated filer S |
Accelerated filer £ |
Non-accelerated filer £ |
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Public Service Electric and Gas Company |
Large accelerated filer £ |
Accelerated filer £ |
Non-accelerated filer S |
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PSEG Power LLC |
Large accelerated filer £ |
Accelerated filer £ |
Non-accelerated filer S |
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PSEG Energy Holdings L.L.C. |
Large accelerated filer £ |
Accelerated filer £ |
Non-accelerated filer S |
Indicate by check mark whether any of the registrants is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No S
As of April 30, 2007, Public Service Enterprise Group Incorporated had outstanding 253,516,650 shares of its sole class of Common Stock, without par value.
As of April 30, 2007, Public Service Electric and Gas Company had issued and outstanding 132,450,344 shares of Common Stock, without nominal or par value, all of which were privately held, beneficially and of record by Public Service Enterprise Group Incorporated.
PSEG Power LLC and PSEG Energy Holdings L.L.C. are wholly owned subsidiaries of Public Service Enterprise Group Incorporated and meet the conditions set forth in General Instruction H(1) (a) and (b) of Form 10-Q and are filing their respective Quarterly Reports on Form 10-Q with the reduced disclosure format authorized by General Instruction H.
TABLE OF CONTENTS
Page
ii
Financial Statements
1
5
9
12
16
17
Note 3. Discontinued Operations, Dispositions and Impairments
19
21
21
31
34
34
35
36
37
39
40
42
Management’s Discussion and Analysis of Financial Condition and Results of Operations
44
44
48
54
60
60
Qualitative and Quantitative Disclosures About Market Risk
61
Controls and Procedures
65
Legal Proceedings
66
Submission of Matters to a Vote of Security Holders
68
Other Information
69
Exhibits
75
76
i
Certain of the matters discussed in this report constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are
subject to risks and uncertainties, which could cause actual results to differ materially from those anticipated. Such statements are based on management’s beliefs as well as assumptions made by and
information currently available to management. When used herein, the words “anticipate,” “intend,” “estimate,” “believe,” “expect,” “plan,” “hypothetical,” “potential,” “forecast,” “project,” variations of
such words and similar expressions are intended to identify forward-looking statements. Public Service Enterprise Group Incorporated (PSEG), Public Service Electric and Gas Company (PSE&G), PSEG
Power LLC (Power) and PSEG Energy Holdings L.L.C. (Energy Holdings) undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information,
future events or otherwise. The following review should not be construed as a complete list of factors that could affect forward-looking statements. In addition to any assumptions and other factors referred
to specifically in connection with such forward-looking statements discussed above, factors that could cause actual results to differ materially from those contemplated in any forward-looking statements
include, among others, the following:
•
regulatory issues that significantly impact operations;
•
ability to attain satisfactory regulatory results;
•
operating performance or cash flow from investments falling below projected levels;
•
credit, commodity, interest rate, counterparty and other financial market risks;
•
liquidity and the ability to access capital and maintain adequate credit ratings;
•
adverse or unanticipated weather conditions that significantly impact costs and/or operations, including generation;
•
ability to attract and retain management and other key employees;
•
changes in the electric industry, including changes to regional transmission organizations and
power pools;
•
changes in energy policies and regulation;
•
changes in demand;
•
changes in the number of market participants and the risk profiles of such participants;
•
availability of power transmission facilities that impact the ability to deliver output to customers;
•
growth in costs and expenses;
•
environmental regulations that significantly impact operations;
•
changes in rates of return on overall debt and equity markets that could adversely impact the value of pension and other postretirement benefits assets and liabilities and the Nuclear
Decommissioning Trust Funds;
•
changes in political conditions;
•
changes in technology that make generation, transmission and/or distribution assets less competitive;
•
continued availability of insurance coverage at commercially reasonable rates;
•
involvement in lawsuits, including liability claims and commercial disputes;
•
acquisitions, divestitures, mergers, restructurings or strategic initiatives that change PSEG’s, PSE&G’s, Power’s and Energy Holdings’ strategy or structure;
•
business combinations among competitors and major customers;
•
general economic conditions, including inflation or deflation;
•
changes in tax laws and regulations;
•
changes to accounting standards or accounting principles generally accepted in the U.S., which may require adjustments to financial statements;
•
ability to recover investments or service debt as a result of any of the risks or uncertainties mentioned herein;
•
acts of war or terrorism;
ii
PSEG, PSE&G and Energy Holdings
•
adverse changes in rate regulation and/or ability to obtain adequate and timely rate relief;
PSEG, Power and Energy Holdings
inability to effectively manage portfolios of electric generation assets, gas supply contracts and electric and gas supply obligations;
•
inability to meet generation operating performance expectations;
•
energy transmission constraints or lack thereof;
•
adverse changes in the market for energy, capacity, natural gas, coal, nuclear fuel, emissions credits, congestion credits and other commodity prices, especially during significant price movements for
natural gas and power;
•
adverse market developments or changes in market rules, including delays or impediments to implementation of reasonable capacity markets;
•
surplus of energy capacity and excess supply;
•
substantial competition in the domestic and worldwide energy markets;
•
margin posting requirements, especially during significant price movements for natural gas and power;
•
availability of fuel and timely transportation at reasonable prices;
•
effects on competitive position of actions involving competitors or major customers;
•
changes in product or sourcing mix;
•
delays, cost escalations or unsuccessful construction and development;
PSEG and Power
•
changes in regulation and safety and security measures at nuclear facilities;
•
ability to maintain nuclear operating performance at projected levels;
PSEG and Energy Holdings
•
changes in foreign currency exchange rates;
•
deterioration in the credit of lessees and their ability to adequately service lease rentals;
•
ability to realize tax benefits and favorably resolve tax audit claims;
•
changes in political regimes in foreign countries; and
•
international developments negatively impacting business.
Consequently, all of the forward-looking statements made in this report are qualified by these cautionary statements and PSEG, PSE&G, Power and Energy Holdings cannot assure you that the results or
developments anticipated by management will be realized, or even if realized, will have the expected consequences to, or effects on, PSEG, PSE&G, Power and Energy Holdings or their respective business
prospects, financial condition or results of operations. Undue reliance should not be placed on these forward-looking statements in making any investment decision. Each of PSEG, PSE&G, Power and
Energy Holdings expressly disclaims any obligation or undertaking to release publicly any updates or revisions to these forward-looking statements to reflect events or circumstances that occur or arise or
are anticipated to occur or arise after the date hereof. In making any investment decision regarding PSEG’s, PSE&G’s, Power’s and Energy Holdings’ securities, PSEG, PSE&G, Power and Energy Holdings
are not making, and you should not infer, any representation about the likely existence of any particular future set of facts or circumstances. The forward-looking statements contained in this report are
intended to qualify for the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
iii
•
PART I. FINANCIAL INFORMATION
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
For the Quarters Ended
March 31,
2007
2006
(Millions)
OPERATING REVENUES
$
3,614
$
3,461
OPERATING EXPENSES
Energy Costs
2,041
2,146
Operation and Maintenance
610
578
Depreciation and Amortization
196
201
Taxes Other Than Income Taxes
43
41
Total Operating Expenses
2,890
2,966
Income from Equity Method Investments
26
33
OPERATING INCOME
750
528
Other Income
72
50
Other Deductions
(37
)
(27
)
Interest Expense
(187
)
(193
)
Preferred Stock Dividends
(1
)
(1
)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
597
357
Income Tax Expense
(262
)
(149
)
INCOME FROM CONTINUING OPERATIONS
335
208
Loss from Discontinued Operations, net of tax benefit of $4 and $5 in 2007 and 2006, respectively
(6
)
(5
)
NET INCOME
$
329
$
203
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (THOUSANDS):
BASIC
252,892
251,187
DILUTED
253,356
252,065
EARNINGS PER SHARE:
BASIC
INCOME FROM CONTINUING OPERATIONS
$
1.32
$
0.83
NET INCOME
$
1.30
$
0.81
DILUTED
INCOME FROM CONTINUING OPERATIONS
$
1.32
$
0.83
NET INCOME
$
1.30
$
0.81
DIVIDENDS PAID PER SHARE OF COMMON STOCK
$
0.585
$
0.57
See Notes to Condensed Consolidated Financial Statements.
1
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
March 31,
December 31,
(Millions)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents
$
483
$
141
Accounts Receivable, net of allowances of $60 and $52 in 2007 and 2006, respectively
1,806
1,368
Unbilled Revenues
260
328
Fuel
355
847
Materials and Supplies
297
290
Prepayments
54
72
Restricted Funds
46
79
Derivative Contracts
53
127
Assets of Discontinued Operations
325
325
Assets Held for Sale
42
40
Other
48
45
Total Current Assets
3,769
3,662
PROPERTY, PLANT AND EQUIPMENT
19,107
18,851
Less: Accumulated Depreciation and Amortization
(5,974
)
(5,849
)
Net Property, Plant and Equipment
13,133
13,002
NONCURRENT ASSETS
Regulatory Assets
5,288
5,694
Long-Term Investments
3,774
3,868
Nuclear Decommissioning Trust (NDT) Funds
1,324
1,256
Other Special Funds
154
147
Goodwill
534
539
Intangibles
49
46
Derivative Contracts
37
55
Other
300
301
Total Noncurrent Assets
11,460
11,906
TOTAL ASSETS
$
28,362
$
28,570
See Notes to Condensed Consolidated Financial Statements.
2
CONDENSED CONSOLIDATED BALANCE SHEETS
2007
2006
(Unaudited)
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
See Notes to Condensed Consolidated Financial Statements.
3
CONDENSED CONSOLIDATED BALANCE SHEETS
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
For The Three
Months Ended
2007
2006
(Millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income
$
329
$
203
Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities:
Depreciation and Amortization
196
205
Amortization of Nuclear Fuel
25
25
Provision for Deferred Income Taxes (Other than Leases) and ITC
(13
)
3
Non-Cash Employee Benefit Plan Costs
46
59
Leveraged Lease Income, Adjusted for Rents Received and Deferred Taxes
(15
)
(22
)
Gain on Sale of Investments
(16
)
—
Undistributed Losses (Earnings) from Affiliates
31
(29
)
Foreign Currency Transaction Loss (Gain)
1
(1
)
Unrealized Losses on Energy Contracts and Other Derivatives
34
21
(Under) Over Recovery of Electric Energy Costs (BGS and NTC) and Gas Costs
(47
)
49
Under Recovery of Societal Benefits Charge (SBC)
(1
)
(19
)
Net Realized Gains and Income from NDT Funds
(19
)
(18
)
Net Change in Certain Current Assets and Liabilities
450
524
Employee Benefit Plan Funding and Related Payments
(21
)
(35
)
Investment Income and Dividend Distributions from Partnerships
11
1
Other
(35
)
(56
)
Net Cash Provided By Operating Activities
956
910
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Property, Plant and Equipment
(275
)
(240
)
Proceeds from the Sale of Investments and Return of Capital from Partnerships
7
2
Proceeds from NDT Funds Sales
501
300
Investment in NDT Funds
(511
)
(305
)
Restricted Funds
34
(17
)
NDT Funds Interest and Dividends
12
10
Other
(1
)
17
Net Cash Used In Investing Activities
(233
)
(233
)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Change in Commercial Paper and Loans
(104
)
54
Issuance of Common Stock
33
17
Redemptions of Long-Term Debt
(113
)
(457
)
Repayment of Non-Recourse Debt
(16
)
(12
)
Redemption of Securitization Debt
(38
)
(36
)
Redemption of Debt Underlying Trust Securities
—
(154
)
Cash Dividends Paid on Common Stock
(148
)
(143
)
Other
5
(15
)
Net Cash Used In Financing Activities
(381
)
(746
)
Effect of Exchange Rate Change
—
(1
)
Net Increase (Decrease) in Cash and Cash Equivalents
342
(70
)
Cash and Cash Equivalents at Beginning of Period
141
288
Cash and Cash Equivalents at End of Period
$
483
$
218
Supplemental Disclosure of Cash Flow Information:
Income Taxes Paid
$
85
$
25
Interest Paid, Net of Amounts Capitalized
$
126
$
134
See Notes to Condensed Consolidated Financial Statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Ended March 31,
(Unaudited)
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
For The Quarters
2007
2006
(Millions)
OPERATING REVENUES
$
2,486
$
2,293
OPERATING EXPENSES
Energy Costs
1,665
1,574
Operation and Maintenance
325
301
Depreciation and Amortization
145
152
Taxes Other Than Income Taxes
43
41
Total Operating Expenses
2,178
2,068
OPERATING INCOME
308
225
Other Income
5
4
Other Deductions
(1
)
(1
)
Interest Expense
(81
)
(85
)
INCOME BEFORE INCOME TAXES
231
143
Income Tax Expense
(99
)
(65
)
NET INCOME
132
78
Preferred Stock Dividends
(1
)
(1
)
EARNINGS AVAILABLE TO PUBLIC SERVICE ENTERPRISE
$
131
$
77
See disclosures regarding Public Service Electric and Gas Company
5
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Ended
March 31,
(Unaudited)
GROUP INCORPORATED
included in the Notes to Condensed Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
March 31,
December 31,
(Millions)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents
$
45
$
28
Accounts Receivable, net of allowances of $55 in 2007 and $46 in 2006
1,142
805
Unbilled Revenues
260
328
Materials and Supplies
57
50
Prepayments
16
14
Restricted Funds
13
12
Other
44
38
Total Current Assets
1,577
1,275
PROPERTY, PLANT AND EQUIPMENT
11,193
11,061
Less: Accumulated Depreciation and Amortization
(3,853
)
(3,794
)
Net Property, Plant and Equipment
7,340
7,267
NONCURRENT ASSETS
Regulatory Assets
5,288
5,694
Long-Term Investments
150
149
Other Special Funds
54
53
Other
115
115
Total Noncurrent Assets
5,607
6,011
TOTAL ASSETS
$
14,524
$
14,553
See disclosures regarding Public Service Electric and Gas Company
6
CONDENSED CONSOLIDATED BALANCE SHEETS
2007
2006
(Unaudited)
included in the Notes to Condensed Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
See disclosures regarding Public Service Electric and Gas Company
7
CONDENSED CONSOLIDATED BALANCE SHEETS
included in the Notes to Condensed Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
For the Quarters
Ended
2007
2006
(Millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income
$
132
$
78
Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities:
Depreciation and Amortization
145
152
Provision for Deferred Income Taxes and ITC
(24
)
(25
)
Non-Cash Employee Benefit Plan Costs
35
42
Non-Cash Interest Expense
1
—
Employee Benefit Plan Funding and Related Payments
(16
)
(13
)
Over Recovery of Electric Energy Costs (BGS and NTC)
4
19
(Under)/Over Recovery of Gas Costs
(51
)
30
Under Recovery of SBC
(1
)
(19
)
Other Non-Cash Charges
(1
)
(1
)
Net Changes in Certain Current Assets and Liabilities:
Accounts Receivable and Unbilled Revenues
(269
)
82
Materials and Supplies
(7
)
—
Prepayments
(4
)
35
Accrued Taxes
41
22
Accrued Interest
(11
)
(16
)
Accounts Payable
7
(34
)
Accounts Receivable/Payable-Affiliated Companies, net
59
(52
)
Other Current Assets and Liabilities
27
(21
)
Other
(6
)
(12
)
Net Cash Provided By Operating Activities
61
267
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Property, Plant and Equipment
(130
)
(108
)
Net Cash Used In Investing Activities
(130
)
(108
)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Change in Short-Term Debt
238
—
Redemption of Securitization Debt
(38
)
(36
)
Redemption of Long-Term Debt
(113
)
(148
)
Preferred Stock Dividends
(1
)
(1
)
Net Cash Provided by (Used In) Financing Activities
86
(185
)
Net Increase (Decrease) In Cash and Cash Equivalents
17
(26
)
Cash and Cash Equivalents at Beginning of Period
28
159
Cash and Cash Equivalents at End of Period
$
45
$
133
Supplemental Disclosure of Cash Flow Information:
Income Taxes Paid
$
49
$
(4
)
Interest Paid, Net of Amounts Capitalized
$
102
$
92
See disclosures regarding Public Service Electric and Gas Company
8
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
March 31,
(Unaudited)
included in the Notes to Condensed Consolidated Financial Statements.
PSEG POWER LLC
For the Quarters
Ended
2007
2006
(Millions)
OPERATING REVENUES
$
2,149
$
1,967
OPERATING EXPENSES
Energy Costs
1,488
1,487
Operation and Maintenance
238
232
Depreciation and Amortization
34
31
Total Operating Expenses
1,760
1,750
OPERATING INCOME
389
217
Other Income
51
41
Other Deductions
(29
)
(19
)
Interest Expense
(37
)
(32
)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
374
207
Income Tax Expense
(155
)
(86
)
INCOME FROM CONTINUING OPERATIONS
219
121
Loss from Discontinued Operations, net of tax benefit of $4 and $6 in 2007 and 2006, respectively
(6
)
(9
)
EARNINGS AVAILABLE TO PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
$
213
$
112
See disclosures regarding PSEG Power LLC included in the
9
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
March 31,
(Unaudited)
Notes to Condensed Consolidated Financial Statements.
PSEG POWER LLC
See disclosures regarding PSEG Power LLC included in the
10
CONDENSED CONSOLIDATED BALANCE SHEETS
Notes to Condensed Consolidated Financial Statements.
PSEG POWER LLC
For The Three
Months Ended
2007
2006
(Millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income
$
213
$
112
Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities:
Depreciation and Amortization
34
35
Amortization of Nuclear Fuel
25
25
Interest Accretion on Asset Retirement Obligations
6
8
Provision for Deferred Income Taxes and ITC
26
24
Unrealized Losses on Energy Contracts and Other Derivatives
4
21
Non-Cash Employee Benefit Plan Costs
7
11
Net Realized Gains and Income from NDT Funds
(19
)
(18
)
Net Change in Certain Current Assets and Liabilities:
Fuel, Materials and Supplies
490
413
Accounts Receivable
(105
)
187
Accrued Interest
46
55
Accounts Payable
57
(292
)
Accounts Receivable/Payable-Affiliated Companies, net
72
145
Other Current Assets and Liabilities
4
18
Employee Benefit Plan Funding and Related Payments
(1
)
(16
)
Other
(35
)
(46
)
Net Cash Provided By Operating Activities
824
682
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Property, Plant and Equipment
(126
)
(118
)
Proceeds from NDT Funds Sales
501
300
NDT Funds Interest and Dividends
12
10
Investment in NDT Funds
(511
)
(305
)
Short-Term Loan - Affiliated Company, net
(525
)
(380
)
Other
(2
)
10
Net Cash Used In Investing Activities
(651
)
(483
)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash Dividend Paid
(125
)
—
Short-Term Loan—Affiliated Company, net
(54
)
(202
)
Net Cash Used In Financing Activities
(179
)
(202
)
Net Decrease in Cash and Cash Equivalents
(6
)
(3
)
Cash and Cash Equivalents at Beginning of Period
13
8
Cash and Cash Equivalents at End of Period
$
7
$
5
Supplemental Disclosure of Cash Flow Information:
Income Taxes Paid
$
24
$
18
Interest Paid, Net of Amounts Capitalized
$
3
$
2
See disclosures regarding PSEG Power LLC included in the
11
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
March 31,
(Unaudited)
Notes to Condensed Consolidated Financial Statements.
PSEG ENERGY HOLDINGS L.L.C.
For The
Quarters
Ended
2007
2006
(Unaudited)
OPERATING REVENUES
Electric Generation and Distribution Revenues
$
201
$
263
Income from Leveraged and Operating Leases
33
39
Other
20
10
Total Operating Revenues
254
312
OPERATING EXPENSES
Energy Costs
161
194
Operation and Maintenance
53
49
Depreciation and Amortization
14
12
Total Operating Expenses
228
255
Income from Equity Method Investments
26
33
OPERATING INCOME
52
90
Other Income
16
7
Other Deductions
(2
)
(7
)
Interest Expense
(43
)
(50
)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
23
40
Income Tax Expense
(20
)
(12
)
INCOME FROM CONTINUING OPERATIONS
3
28
Income from Discontinued Operations, net of tax expense of $1 in 2006
—
4
EARNINGS AVAILABLE TO PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
$
3
$
32
See disclosures regarding PSEG Energy Holdings L.L.C. included in the
12
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Millions)
March 31,
Notes to Condensed Consolidated Financial Statements.
PSEG ENERGY HOLDINGS L.L.C.
March 31,
December 31,
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents
$
65
$
98
Accounts Receivable:
Trade-net of allowances of $5 and $6 in 2007 and 2006, respectively
111
103
Other Accounts Receivable
18
29
Affiliated Companies
33
—
Notes Receivable:
Affiliated Companies
25
28
Inventory
35
41
Restricted Funds
33
67
Assets Held for Sale
2
—
Derivative Contracts
2
14
Other
7
8
Total Current Assets
331
388
PROPERTY, PLANT AND EQUIPMENT
1,726
1,706
Less: Accumulated Depreciation and Amortization
(310
)
(307
)
Net Property, Plant and Equipment
1,416
1,399
NONCURRENT ASSETS
Leveraged Leases, net
2,746
2,810
Corporate Joint Ventures and Partnership Interests
836
868
Goodwill
518
523
Intangibles
11
11
Derivative Contracts
8
26
Other
139
139
Total Noncurrent Assets
4,258
4,377
TOTAL ASSETS
$
6,005
$
6,164
See disclosures regarding PSEG Energy Holdings L.L.C. included in the
13
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions)
2007
2006
Notes to Condensed Consolidated Financial Statements.
PSEG ENERGY HOLDINGS L.L.C.
March 31,
December 31,
(Unaudited)
LIABILITIES AND MEMBER’S EQUITY
CURRENT LIABILITIES
Long-Term Debt Due Within One Year
$
43
$
42
Short-Term Borrowings
8
—
Accounts Payable:
Trade
67
54
Affiliated Companies
2
12
Derivative Contracts
17
16
Accrued Interest
44
27
Other
63
72
Total Current Liabilities
244
223
NONCURRENT LIABILITIES
Deferred Income Taxes and Investment and Energy Tax Credits
1,653
1,925
Derivative Contracts
8
11
Long-Term Accrued Taxes due to Affiliate
424
—
Other
103
102
Total Noncurrent Liabilities
2,188
2,038
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 5)
MINORITY INTERESTS
26
26
LONG-TERM DEBT
Project Level, Non-Recourse Debt
822
840
Senior Notes
1,149
1,149
Total Long-Term Debt
1,971
1,989
MEMBER’S EQUITY
Ordinary Unit
1,048
1,193
Retained Earnings
434
592
Accumulated Other Comprehensive Income
94
103
Total Member’s Equity
1,576
1,888
TOTAL LIABILITIES AND MEMBER’S EQUITY
$
6,005
$
6,164
See disclosures regarding PSEG Energy Holdings L.L.C. included in the
14
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions)
2007
2006
Notes to Condensed Consolidated Financial Statements.
PSEG ENERGY HOLDINGS L.L.C.
See disclosures regarding PSEG Energy Holdings L.L.C. included in the
15
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions)
Notes to Condensed Consolidated Financial Statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
This combined Form 10-Q is separately filed by Public Service Enterprise Group Incorporated (PSEG), Public Service Electric and Gas Company (PSE&G), PSEG Power LLC (Power) and PSEG
Energy Holdings L.L.C. (Energy Holdings). Information contained herein relating to any individual company is filed by such company on its own behalf. PSE&G, Power and Energy Holdings each make
representations only as to itself and make no representations as to any other company.
Note 1. Organization and Basis of Presentation
Organization
PSEG
PSEG has four principal direct wholly owned subsidiaries: PSE&G, Power, Energy Holdings and PSEG Services Corporation (Services).
PSE&G
PSE&G is an operating public utility engaged principally in the transmission of electric energy and distribution of electric energy and natural gas in certain areas of New Jersey. PSE&G is subject to
regulation by the New Jersey Board of Public Utilities (BPU) and the Federal Energy Regulatory Commission (FERC).
PSE&G also owns PSE&G Transition Funding LLC (Transition Funding) and PSE&G Transition Funding II LLC (Transition Funding II), bankruptcy-remote entities that purchased certain transition
property from PSE&G and issued transition bonds secured by such property. The transition property consists principally of the rights to receive electricity consumption-based per kilowatt-hour (kWh) charges
from PSE&G electric distribution customers, which represent irrevocable rights to receive amounts sufficient to recover certain of PSE&G’s transition costs related to deregulation, as approved by the BPU.
Power
Power is a multi-regional, wholesale energy supply company that integrates its generating asset operations and gas supply commitments with its wholesale energy, fuel supply, energy trading and
marketing and risk management function through three principal direct wholly owned subsidiaries: PSEG Nuclear LLC (Nuclear), PSEG Fossil LLC (Fossil) and PSEG Energy Resources & Trade LLC
(ER&T). Nuclear and Fossil own and operate generation and generation-related facilities. ER&T is responsible for the day-to-day management of Power’s portfolio. Fossil, Nuclear and ER&T are subject to
regulation by FERC, and certain Fossil subsidiaries are also subject to state regulation, and Nuclear is also subject to regulation by the Nuclear Regulatory Commission (NRC).
Energy Holdings
Energy Holdings has two principal direct wholly owned subsidiaries: PSEG Global L.L.C. (Global), which owns and operates international and domestic projects engaged in the generation and
distribution of energy and PSEG Resources L.L.C. (Resources), which has invested primarily in energy-related leveraged leases. Energy Holdings also owns Enterprise Group Development Corporation
(EGDC), a commercial real estate property management business.
Services
Services provides management and administrative and general services to PSEG and its subsidiaries. These include accounting, treasury, risk management, planning, information technology, tax, law,
corporate secretarial, human resources, investor relations, corporate communications and certain other services. Services charges PSEG and its subsidiaries for the cost of work performed and services
provided pursuant to the terms and conditions of intercompany service agreements.
Basis of Presentation
PSEG, PSE&G, Power and Energy Holdings
The respective financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for Quarterly Reports on Form 10-Q.
Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been condensed
or omitted
16
(UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
pursuant to such rules and regulations. These Condensed Consolidated Financial Statements and Notes to Condensed Consolidated Financial Statements (Notes) should be read in conjunction with, and
update and supplement matters discussed in PSEG’s, PSE&G’s, Power’s and Energy Holdings’ respective Annual Reports on Form 10-K for the year ended December 31, 2006.
The unaudited condensed consolidated financial information furnished herein reflects all adjustments which are, in the opinion of management, necessary to fairly state the results for the interim
periods presented. All such adjustments are of a normal recurring nature. The year-end Condensed Consolidated Balance Sheets were derived from the audited Consolidated Financial Statements included
in the Annual Report on Form 10-K for the year ended December 31, 2006.
Reclassifications
PSEG, PSE&G, Power and Energy Holdings
Certain reclassifications have been made to the prior quarter financial statements to conform to the current quarter presentation. The reclassifications relate primarily to PSE&G’s determination, during
the fourth quarter of 2006, that the revenues and expenses related to one of its contracts that had been recorded on a gross basis would more appropriately be recorded on a net basis in Operating Revenues
based upon the provisions of EITF 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent”. Therefore, prior amounts have been reclassified, resulting in a reduction of $57 million in both
Operating Revenues and Energy Costs for the quarter ended March 31, 2006 for PSEG and PSE&G, with no impact on Operating Income.
Note 2. Recent Accounting Standards
The following accounting standards were issued by the Financial Accounting Standards Board (FASB), but have not yet been adopted by PSEG, PSE&G, Power and Energy Holdings.
Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements” (SFAS 157)
PSEG, PSE&G, Power and Energy Holdings
In September 2006, the FASB issued SFAS 157, which provides a single definition of fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.
Prior to SFAS 157, guidance for applying fair value was incorporated into several accounting pronouncements. SFAS 157 emphasizes that fair value is a market-based measurement, not an entity-specific
measurement, and sets out a fair value hierarchy that distinguishes between assumptions based on market data obtained from independent sources (observable inputs) and those based on an entity’s own
assumptions (unobservable inputs). Under SFAS 157, fair value measurements are disclosed by level within that hierarchy, with the highest priority being quoted prices in active markets. While this
statement does not require any new fair value measurements, the application of this statement will change current practice for some fair value measurements.
This statement also nullifies the guidance in footnote 3 of Emerging Issues Task Force (EITF) Issue No. 02-3, “Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and
Contracts Involved in Energy Trading and Risk Management Activities” (EITF 02-3). The guidance in footnote 3 applies to derivative instruments measured at fair value at initial recognition, and it
precludes immediate recognition in earnings of an unrealized gain or loss, measured as the difference between the transaction price and the fair value of the instrument at initial recognition, if the fair value
of the instrument is determined using significant unobservable inputs. Under EITF 02-3, an entity cannot recognize an unrealized gain or loss at inception of a derivative instrument unless the fair value of
that instrument is obtained from a quoted market price in an active market or is otherwise evidenced by comparison to other observable current market transactions or based on a valuation technique
incorporating observable market data. SFAS 157 requires that the principles of fair value measurement apply for derivatives and other financial instruments at initial recognition and in all subsequent
periods.
SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007; however, earlier application is encouraged. PSEG, PSE&G, Power and Energy Holdings are
currently
17
(UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
assessing the potential impact of SFAS 157 on their respective consolidated financial positions and results of operations.
SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS 159)
PSEG, PSE&G, Power and Energy Holdings
In February 2007, the FASB issued SFAS 159, which permits entities to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair
value. An entity will report unrealized gains and losses on items where the fair value option has been elected in earnings at each subsequent reporting date. The objective is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.
The decision about whether to elect the fair value option is applied instrument by instrument, with a few exceptions; the decision is irrevocable; and the decision is required to be applied to entire
instruments and not to portions of instruments.
The statement requires disclosures that facilitate comparisons (a) between entities that choose different measurement attributes for similar assets and liabilities and (b) between assets and liabilities in
the financial statements of an entity that selects different measurement attributes for similar assets and liabilities.
SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. Upon implementation, an entity shall report the effect of the first remeasurement to fair value as
a cumulative effect adjustment to the opening balance of Retained Earnings. PSEG, PSE&G, Power and Energy Holdings are currently assessing the potential impact of SFAS 159 on their respective
consolidated financial positions and results of operations.
The following new accounting standards were adopted by PSEG, PSE&G, Power and Energy Holdings during 2007.
FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement 109” (FIN 48)
PSEG, PSE&G, Power and Energy Holdings
In July 2006, the FASB issued FIN 48, which prescribes a model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company
has taken or expects to take on a tax return. Under FIN 48, the financial statements reflect expected future tax consequences of such positions presuming the tax authorities’ full knowledge of the position
and all relevant facts. FIN 48 permits recognition of the benefit of tax positions only when it is “more likely-than-not” that the position is sustainable based on the merits of the position. It further limits the
amount of tax benefit to be recognized to the largest amount of benefit that is greater than 50% likely of being realized. FIN 48 also requires explicit disclosures about uncertainties in income tax positions,
including a detailed roll-forward of unrecognized tax benefits taken that do not qualify for financial statement recognition.
FIN 48 was effective January 1, 2007. In general, companies record the change in net assets that resulted from the application of FIN 48 as an adjustment to Retained Earnings. However, for PSE&G,
because any charges to income arising from the adoption of FIN 48 would be recoverable in future rates, the offset to any incremental PSE&G liability is recorded as a Regulatory Asset rather than Retained
Earnings. The following table presents the impact at January 1, 2007 on the Condensed Consolidated Balance Sheets for PSEG and its subsidiaries as a result of implementing FIN 48:
PSE&G
Power
Energy
PSEG
Balance Sheet
(Millions)
Increase to Long Term Accrued Taxes
$
20
$
21
$
355
$
396
Decrease to Accumulated Deferred Income Tax Liability
$
9
$
7
$
246
$
262
Increase to Regulatory Assets
$
11
$
—
$
—
$
11
Decrease to Retained Earnings
$
—
$
14
$
109
$
123
18
(UNAUDITED)
Holdings
Consolidated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The impact to earnings resulting from the adoption of FIN 48 for the quarter ended March 31, 2007 was an after-tax decrease of $6 million for PSEG, including $1 million for Power and $5 million for
Energy Holdings. There was no impact on earnings for PSE&G. For additional information relating to the impacts of FIN 48, see Note 11. Income Taxes.
FASB Staff Position (FSP) No. FAS 13-2, “Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction” (FSP 13-2)
PSEG and Energy Holdings
In July 2006, the FASB issued FSP 13-2, which addressed how a change or projected change in the timing of cash flows relating to income taxes generated by a leveraged lease transaction affects the
accounting by a lessor for that lease. The FSP amends SFAS 13, “Accounting for Leases,” stating that a change in the timing of the above referenced cash flows must be reviewed at least annually or more
frequently, if events or circumstances indicate a change in timing is probable. If a change in timing has occurred, or is projected to occur, the rate of return and the allocation of income to positive
investment years must be recalculated from the inception of the lease.
The guidance in this FSP was adopted January 1, 2007. The cumulative effect of applying the provisions of this FSP is reported as an adjustment to the beginning balance of Retained Earnings as of the
date of adoption. As a result of implementing FSP 13-2, upon adoption PSEG and Energy Holdings each recognized a reduction in Investment in Leveraged Leases of $73 million, a reduction in Deferred
Income Taxes of $22 million and a reduction in Retained Earnings of $51 million.
The impact to earnings resulting from the adoption of FSP 13-2 for the quarter ended March 31, 2007 was an after-tax decrease of $3 million for PSEG and Energy Holdings.
Note 3. Discontinued Operations, Dispositions and Impairments
Discontinued Operations
Power
Lawrenceburg Energy Center (Lawrenceburg)
On December 29, 2006, Power entered into an agreement to sell its natural gas-fired Lawrenceburg facility located in Lawrenceburg, Indiana to AEP Generating Company, a subsidiary of American
Electric Power Company, Inc. (AEP).
The sale price for the facility and inventory is $325 million. The proceeds, together with anticipated reduction in tax liability, are expected to be approximately $425 million and will be used to retire
debt. The transaction will result in an after-tax charge to PSEG’s and Power’s earnings of approximately $208 million, or about $0.82 cents per share of PSEG common stock, which was reflected as a charge
in Discontinued Operations in the fourth quarter of 2006.
Power has received the required regulatory approvals for the sale and anticipates that the transaction will close in the second quarter of 2007.
Lawrenceburg’s operating results for the quarters ended March 31, 2007 and 2006, which were reclassified to Discontinued Operations, are summarized below:
Quarters Ended
2007
2006
(Millions)
Operating Revenues
$
—
$
—
Loss Before Income Taxes
$
(10
)
$
(15
)
Net Loss
$
(6
)
$
(9
)
19
(UNAUDITED)
March 31,
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The carrying amounts of the assets of Lawrenceburg as of March 31, 2007 and December 31, 2006 are summarized in the following table:
As of
As of
(Millions)
Current Assets
$
10
$
10
Noncurrent Assets
315
315
Total Assets of Discontinued Operations
$
325
$
325
Energy Holdings
Elektrocieplownia Chorzow Elcho Sp. Z o.o. (Elcho) and Elektrownia Skawina SA (Skawina)
On May 29, 2006, Global completed the sale of its interest in two coal-fired plants in Poland, Elcho and Skawina. Proceeds, net of transaction costs, were $476 million, resulting in a gain of $227 million
net of tax expense of $142 million. The 2006 operating results for Global’s assets in Poland have been reclassified to Discontinued Operations.
Elcho’s and Skawina’s operating results for the quarter ended March 31, 2006 are summarized below:
Quarter Ended
Elcho
Skawina
(Millions)
Operating Revenues
$
30
$
33
Income Before Income Taxes
$
3
$
2
Net Income
$
3
$
1
Dispositions
Power
In December 2006, Power recorded a pre-tax impairment loss of $44 million to write down four turbines to their estimated realizable value and reclassified them to Assets Held for Sale on Power’s
Condensed Consolidated Balance Sheet. In April 2007, Power sold the four turbines to a third party and received proceeds of approximately $40 million, which approximates the recorded book value.
Energy Holdings
Global
Thermal Energy Development Partnership, L.P. (Tracy Biomass)
On December 22, 2006, Global entered into an agreement to sell its 34.5% interest in Tracy Biomass for approximately $7 million. The sale closed on January 26, 2007 and resulted in a 2007 pre-tax
gain of approximately $7 million ($6 million after-tax).
Impairment
Energy Holdings
Venezuela
PSEG has indirect ownership interests in two generating facilities in Maracay and Cagua, Venezuela that have a total capacity of 120 MW. The projects are owned and operated by Turboven, an entity
which is jointly-owned by Global (50%) and Corporacion Industrial de Energia (CIE). Global also has a 9% indirect interest in TGM through a partnership with CIE. As of March 31, 2007, the book value
of these investments was approximately $35 million.
During Global’s year-end review of its equity method investments, management concluded that due to the current political situation in Venezuela, it is probable that Global would not be able to
recover its
20
(UNAUDITED)
March 31, 2007
December 31, 2006
March 31, 2006
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
capitalized costs associated with its investments in Venezuela. Therefore, Global recorded a pre-tax impairment loss of approximately $7 million to write down these investments in the fourth quarter of
2006.
In January 2007, the Venezuelan government announced its intention to nationalize certain sectors of Venezuelan industry and commerce, including certain foreign-owned energy and communications
companies. In a subsequent press release, Turboven was named as one of the companies that Venezuela intended to nationalize. Since these announcements, Venezuela has proceeded to nationalize certain
companies; however, Global has not received any further official communication from the government of Venezuela regarding Turboven.
Note 4. Earnings Per Share (EPS)
PSEG
Diluted EPS is calculated by dividing Net Income by the weighted average number of shares of common stock outstanding, including shares issuable upon exercise of stock options outstanding under
PSEG’s stock option plans and upon payment of performance units. The following table shows the effect of these stock options and performance units on the weighted average number of shares outstanding
used in calculating diluted EPS:
Quarters Ended March 31,
2007
2006
Basic
Diluted
Basic
Diluted
EPS Numerator:
Earnings (Millions)
Continuing Operations
$
335
$
335
$
208
$
208
Discontinued Operations
(6
)
(6
)
(5
)
(5
)
Net Income
$
329
$
329
$
203
$
203
EPS Denominator (Thousands):
Weighted Average Common Shares Outstanding
252,892
252,892
251,187
251,187
Effect of Stock Options
—
390
—
787
Effect of Stock Performance Units
—
74
—
91
Total Shares
252,892
253,356
251,187
252,065
EPS:
Continuing Operations
$
1.32
$
1.32
$
0.83
$
0.83
Discontinued Operations
(0.02
)
(0.02
)
(0.02
)
(0.02
)
Net Income
$
1.30
$
1.30
$
0.81
$
0.81
Dividend payments on common stock for the quarter ended March 31, 2007 were $0.585 per share and totaled approximately $148 million. Dividend payments on common stock for the quarter ended
March 31, 2006 were $0.57 per share and totaled approximately $143 million.
Note 5. Commitments and Contingent Liabilities
Guaranteed Obligations
Power
Power contracts for electricity, natural gas, oil, coal, pipeline capacity, transportation and emission allowances and engages in risk management activities through ER&T. These activities primarily involve
the purchase and sale of energy and related products under transportation, physical, financial and forward contracts at fixed and variable prices. These transactions are executed with both numerous
counterparties and brokers. Counterparties and brokers may require guarantees, cash or cash related instruments to be deposited on these transactions as described below.
21
(UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Power has unconditionally guaranteed payments by its subsidiaries, ER&T and PSEG Power New York Inc. (Power New York) in commodity-related transactions to support current exposure, interest
and other costs on sums due and payable in the ordinary course of business. These payment guarantees are provided to counterparties in order to obtain credit. Under these agreements, guarantees cover
lines of credit between entities and are often reciprocal in nature. The exposure between counterparties can move in either direction. The face value of the guarantees outstanding as of March 31, 2007 and
December 31, 2006 was approximately $1.6 billion.
In order for Power to incur a liability for the face value of the outstanding guarantees, ER&T and Power New York would have to fully utilize the credit granted to them by every counterparty to whom
Power has provided a guarantee and all of ER&T’s and Power New York’s contracts would have to be “out-of-the-money” (if the contracts are terminated, Power would owe money to the counterparties).
The probability of all contracts at ER&T and Power New York being simultaneously “out-of-the-money” is highly unlikely due to offsetting positions within the portfolio. For this reason, the current exposure
at any point in time is a more meaningful representation of the potential liability to Power under these guarantees. The current exposure consists of the net of accounts receivable and accounts payable and
the forward value on open positions, less any margins posted. The current exposure from such liabilities was $532 million and $518 million as of March 31, 2007 and December 31, 2006, respectively.
Power is subject to counterparty collateral calls related to commodity contracts that are bilateral and are subject to certain creditworthiness standards as guarantor under performance guarantees for
ER&T’s agreements. Changes in commodity prices, including fuel, emissions allowances and electricity, can have a material impact on margin requirements under such contracts.. As of March 31, 2007, Power
had posted margin of approximately $66 million, primarily in the form of letters of credit, and received margin of approximately $57 million to satisfy collateral obligations and support various contractual
and environmental obligations. As of December 31, 2006, Power had posted margin of approximately $40 million, primarily in the form of letters of credit, and received margin of approximately $86 million,
including approximately $82 million in the form of letters of credit.
Power also routinely enters into exchange-traded futures and options transactions for electricity and natural gas as part of its operations. Generally, such future contracts require a deposit of cash
margin, the amount of which is subject to change based on market movement and in accordance with exchange rules. As of March 31, 2007 and December 31, 2006, Power had deposited margin of
approximately $164 million and $89 million, respectively. Exchange-traded transactions that are margined and monitored separately from physical trading activity may not be subject to change in the event
of a downgrade to Power’s rating.
In the event of a deterioration of Power’s credit rating to below investment grade, which would represent a two level downgrade from its current ratings, many of these agreements allow the
counterparty to demand that ER&T provide further performance assurance. As of March 31, 2007, if Power were to lose its investment grade rating and, assuming all counterparties to which ER&T is “out-of-
the-money” were contractually entitled to demand, and demanded, performance assurance, ER&T could be required to post additional collateral in an amount equal to approximately $664 million. Power
believes that it has sufficient liquidity to post such collateral, if necessary.
Energy Holdings
Energy Holdings and/or Global have guaranteed certain obligations of their subsidiaries or affiliates, including the successful completion, performance or other obligations related to certain projects.
In 2006, Global sold its investments in Poland. As of March 31, 2007 and December 31, 2006, Global was still obligated for the $6 million equity commitment guarantee at Skawina. The guarantee
expires in August 2007. If payments are required, such payments are indemnified by the purchaser in accordance with the purchase agreement.
Global also has a contingent guarantee expiring in April 2011 related to debt service obligations associated with Chilquinta Energia S.A., an energy distribution company in Chile in which Global owns
50%. As of March 31, 2007 and December 31, 2006, the contingent guarantee was approximately $25 million.
22
(UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In September 2003, Energy Holdings completed the sale of PSEG Energy Technologies Inc. (Energy Technologies) and nearly all of its assets. However, Energy Holdings retained certain outstanding
construction and warranty obligations related to ongoing construction projects previously performed by Energy Technologies. These construction obligations have performance bonds issued by insurance
companies for which exposure is adequately supported by the outstanding letters of credit shown in the table above for PSEG Energy Technologies Asset Management Company LLC. As of March 31, 2007
and December 31, 2006, there were $14 million of such bonds outstanding, which are related to uncompleted construction projects. As of March 31, 2007 and December 31, 2006, there was an additional $2
million of performance guarantees related to Energy Technologies.
As of March 31, 2007 and December 31, 2006, Energy Holdings and/or Global have various other guarantees amounting to $28 million and $30 million, respectively.
Environmental Matters
PSEG, PSE&G and Power
Hazardous Substances
The New Jersey Department of Environmental Protection (NJDEP) has regulations in effect concerning site investigation and remediation that require an ecological evaluation of potential damages to
natural resources in connection with an environmental investigation of contaminated sites. These regulations may substantially increase the costs of environmental investigations and necessary remediation,
particularly at sites situated on surface water bodies. PSE&G, Power and their respective predecessor companies own or owned and/or operate or operated certain facilities situated on surface water bodies,
certain of which are currently the subject of remedial activities.
The U.S. Environmental Protection Agency (EPA) has determined that a six-mile stretch of the Passaic River in the area of Newark, New Jersey is a “facility” within the meaning of that term under
the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA). PSE&G and certain of its predecessors conducted industrial operations at properties adjacent to
the Passaic River facility. The operations included one operating electric generating station (Essex Site), one former generating station and four former manufactured gas plants (MGPs). PSE&G’s costs to
clean up former MGPs are recoverable from utility customers through the Societal Benefits Clause (SBC). PSE&G has sold the site of the former generating station and obtained releases and indemnities for
liabilities arising out of the site in connection with the sale. The Essex Site was transferred to Power in August 2000. Power assumed any environmental liabilities of PSE&G associated with the electric
generating stations that PSE&G transferred to it, including the Essex Site.
In 2003, the EPA notified 41 potentially responsible parties (PRPs), including PSE&G and Power, that it was expanding its assessment of the Passaic River Study Area to the entire 17-mile tidal reach of
the lower Passaic River. The EPA further indicated, with respect to PSE&G, that it believed that hazardous substances had been released from the Essex Site and a former MGP located in Harrison, New
Jersey (Harrison Site), which also includes facilities for PSE&G’s ongoing gas operations. The EPA estimated that its study would require five to eight years to complete and would cost approximately $20
million, of which it would seek to recover $10 million from the PRPs, including PSE&G and Power. Power has provided notice to insurers concerning this potential claim.
Also, in 2003, PSEG, PSE&G and 56 other PRPs received a Directive and Notice to Insurers from the NJDEP that directed the PRPs to arrange for a natural resource damage assessment and interim
compensatory restoration of natural resource injuries along the lower Passaic River and its tributaries pursuant to the New Jersey Spill Compensation and Control Act. The NJDEP alleged in the Directive
that it had determined that hazardous substances had been discharged from the Essex Site and the Harrison Site. The NJDEP announced that it had estimated the cost of interim natural resource injury
restoration activities along the lower Passaic River to approximate $950 million.
PSE&G and Power have indicated to both the EPA and NJDEP that they are willing to work with the agencies in an effort to resolve their respective claims and, along with approximately 65 other
PRPs, have
23
(UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
entered into an agreement with the EPA or have indicated their intention to enter an agreement that provides for sharing the costs of the $20 million study between the government organizations and the
PRPs. In 2006, the EPA notified the PRPs that the cost of the study will greatly exceed the $20 million initially estimated and offered to the PRPs the opportunity to conduct the study themselves rather
than reimburse the government for the additional costs it incurs. The PRP group has engaged in discussions with the EPA regarding the offer and approximately 70 PRPs, including PSE&G and Power, have
agreed to assume responsibility for the study pursuant to an Administrative Order on Consent and to divide the associated costs among themselves according to a mutually agreed-upon formula. PSEG,
PSE&G and Power cannot predict what further actions, if any, or the costs or the timing thereof, that may be required with respect to the Passaic River or natural resource damages. However, such costs
could be material.
PSE&G
MGP Remediation Program
PSE&G is currently working with the NJDEP under a program to assess, investigate and remediate environmental conditions at PSE&G’s former MGP sites (Remediation Program). To date, 38 sites have
been identified as sites requiring some level of remedial action. In addition, the NJDEP has announced initiatives to accelerate the investigation and subsequent remediation of the riverbeds underlying
surface water bodies that have been impacted by hazardous substances from adjoining sites. Specifically, in 2005 the NJDEP initiated a program on the Delaware River aimed at identifying the 10 most
significant sites for cleanup. One of the sites identified is a former MGP facility located in Camden. The Remediation Program is periodically reviewed, and the estimated costs are revised by PSE&G based
on regulatory requirements, experience with the program and available remediation technologies. Since the inception of the Remediation Program in 1988 through March 31, 2007, PSE&G had expenditures
of approximately $390 million.
During the fourth quarter of 2006, PSE&G refined the detailed site estimates. The cost of remediating all sites to completion, as well as the anticipated costs to address MGP-related material discovered
in two rivers adjacent to former MGP sites, could range between $798 million and $838 million, including amounts spent to date. No amount within the range was considered to be most likely. Therefore,
$408 million was accrued at March 31, 2007, which represents the difference between the low end of the total program cost estimate of $798 million and the total incurred costs through March 31, 2007 of
$390 million. Of this amount, approximately $45 million was recorded in Other Current Liabilities and $363 million was reflected in Other Noncurrent Liabilities. The costs associated with the MGP
Remediation Program have historically been recovered through the SBC charges to PSE&G ratepayers. As such, a $408 million Regulatory Asset was recorded.
Costs for the MGP Remediation Program were approximately $42 million for 2006. PSE&G anticipates spending $47 million in 2007, $50 million in 2008, and an average of approximately $40 million per
year each year thereafter through 2016.
Power
Prevention of Significant Deterioration (PSD)/New Source Review (NSR)
The PSD/NSR regulations, promulgated under the Clean Air Act (CAA), require major sources of certain air pollutants to obtain permits, install pollution control technology and obtain offsets, in
some circumstances, when those sources undergo a “major modification,” as defined in the regulations. The Federal government may order companies not in compliance with the PSD/NSR regulations to
install the best available control technology at the affected plants and to pay monetary penalties of up to approximately $27,500 for each day of continued violation.
The EPA and the NJDEP issued a demand in March 2000 under the CAA requiring information to assess whether projects completed since 1978 at the Hudson and Mercer coal-burning units were
implemented in accordance with applicable PSD/NSR regulations. Power completed its response to requests for information and, in January 2002, reached an agreement with the NJDEP and the EPA to
resolve allegations of noncompliance with PSD/NSR regulations. Under that agreement, over the course of 10 years,
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Power agreed to install advanced air pollution controls to reduce emissions of Sulfur Dioxide (SO
2
), Nitrogen Oxide (NO
x
), particulate matter and mercury from the coal-burning units at the Mercer and
Hudson generating stations to ensure compliance with PSD/NSR. Power also agreed to spend at least $6 million on supplemental environmental projects and pay a $1 million civil penalty. The agreement
resolving the NSR allegations concerning the Hudson and Mercer coal-fired units also resolved a dispute over Bergen 2 regarding the applicability of PSD requirements and allowed construction of the unit
to be completed and operations to commence.
Power subsequently notified the EPA and the NJDEP that it was evaluating the continued operation of the Hudson coal unit in light of changes in the energy and capacity markets, increases in the cost
of pollution control equipment and other necessary modifications to the unit. On November 30, 2006, Power reached an agreement with the EPA and NJDEP on an amendment to its 2002 agreement
intended to achieve the emissions reductions targets of this agreement while providing more time to assess the feasibility of installing additional advanced emissions controls at Hudson.
The amended agreement with the EPA and the NJDEP, which is pending final approval, would allow Power to continue operating Hudson and extend for four years the deadline for installing
environmental controls beyond the previous December 31, 2006 deadline. Power will be required to undertake a number of technology projects (SCRs, scrubbers, baghouses, carbon injection), plant
modifications and operating procedure changes at Hudson and Mercer designed to meet targeted reductions in emissions of NO
x
, SO
2
, particulate matter and mercury. In addition, Power has agreed to
notify the EPA and NJDEP by the end of 2007 whether it will install the additional emissions controls at Hudson by the end of 2010, or plan for the orderly shut down of the unit.
Under the program to date, Power has installed SCRs at Mercer at a cost of approximately $114 million. The cost of implementing the balance of the amended agreement at Mercer and Hudson is
estimated at approximately $500 million for Mercer and at $600 million to $750 million for Hudson and will be incurred in the 2007-2010 timeframe. As part of the agreement, Fossil has agreed to purchase
and retire emissions allowances, contribute approximately $3 million for programs to reduce particulate emissions from diesel engines in New Jersey and pay a $6 million civil penalty. In addition, in March
2007, Fossil entered into an engineering, procurement and construction contract with a third party contractor to complete all back-end technology requirements for the Mercer station, as referenced above.
As a result of the agreement, Power increased its environmental reserves by approximately $15 million to account for civil penalties associated with the amendment to the agreement and other costs.
PSEG and Power recorded the charge in Other Deductions on their respective Condensed Consolidated Statements of Operations in the fourth quarter of 2006.
Mercury Regulation
New Jersey and Connecticut have adopted standards for the reduction of emissions of mercury from coal-fired electric generating units. In February 2007, Pennsylvania also issued new requirements for
the reduction of mercury emissions from coal-fired power plants. Connecticut requires coal-fired power plants in Connecticut to achieve either an emissions limit or a 90% mercury removal efficiency
through technology installed to control mercury emissions effective in July 2008. The regulations in New Jersey require coal-fired electric generating units in New Jersey to meet certain emissions limits or
reduce emissions by 90% by December 15, 2007.
Under the New Jersey regulations, companies that are parties to multi-pollutant reduction agreements are permitted to postpone such reductions on half of their coal-fired electric generating capacity
until December 15, 2012. With respect to Power’s New Jersey facilities, the other half of the reductions that are required to be achieved by December 15, 2007 will be achieved through the installation of
carbon injection technology and baghouses as part of Power’s multi-pollutant reduction agreement with the NJDEP, which resulted from the amended 2002 agreement that resolved issues arising out of the
PSD and the NSR air pollution control programs at the Hudson, Mercer and Bergen facilities, discussed above. The estimated costs of technology believed to be capable of meeting these emissions limits at
Power’s coal-fired unit in Connecticut and at its Mercer Station are included in Power’s capital expenditures forecast. Total estimated
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(UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
costs for each project are between $150 million and $200 million. The Mercer expenditures are included in the PSD/NSR discussion above.
Connecticut has released proposed revisions to mercury regulations that encompass “Permit Requirements for Mercury Emissions from Coal-Fired Electric Generating Units”. On March 13, 2007, the
Connecticut Department of Environmental Protection (CTDEP) released its hearing report on the “Permit Requirements from Mercury Emissions from Coal-Fired Electric Generating Units”. On February
17, 2007, Pennsylvania finalized its “State-specific” requirements to reduce mercury emissions from coal-fired electric generating units. As written, the regulations would not materially affect the costs
already identified in Power’s capital expenditures forecast.
New Jersey Industrial Site Recovery Act (ISRA)
Potential environmental liabilities related to subsurface contamination at certain generating stations have been identified. In the second quarter of 1999, in anticipation of the transfer of PSE&G’s
generation-related assets to Power, a study was conducted pursuant to ISRA, which applies to the sale of certain assets. Power had a $51 million liability as of March 31, 2007 and December 31, 2006, related
to these obligations, which is included in Other Noncurrent Liabilities on Power’s Condensed Consolidated Balance Sheets and Environmental Costs on PSEG’s Condensed Consolidated Balance Sheets.
Permit Renewals
In June 2001, the NJDEP issued a renewed New Jersey Pollutant Discharge Elimination System (NJPDES) permit for Salem, expiring in July 2006, allowing for the continued operation of Salem with
its existing cooling water intake system. A renewal application prepared in accordance with Federal Water Pollution Control Act (FWPCA) Section 316(b) and the Phase II 316(b) rule was filed in February
2006 with the NJDEP, which allows the station to continue operating under its existing NJPDES permit until a new permit is issued. Power’s application to renew Salem’s NJPDES permit demonstrates that
the station satisfies FWPCA Section 316(b) and meets the Phase II 316(b) rule’s performance standards for reduction of impingement and entrainment through the station’s existing cooling water intake
technology and operations plus implemented restoration measures. The application further demonstrates that even without the benefits of restoration, the station meets the Phase II 316(b) rule’s site-specific
determination standards, both on a comparison of the costs and benefits of new intake technology as well as a comparison of the costs to implement the technology at the facility to the cost estimates
prepared by the EPA. The U.S. Court of Appeals for the Second Circuit issued a decision after Power filed its application that rejected the use of restoration and the site-specific cost-benefit test under the
Phase II 316(b) rule. The Second Circuit Court and the United States Supreme Court have granted requests by the EPA and the industry petitioners for additional time to appeal the Second Circuit Court’s
decision. If NJDEP were to require the installation of structures at the Salem facility to reduce cooling water intake flow commensurate with closed cycle cooling as a result of the unfavorable decision in
the Phase II litigation, the costs would be material. Power’s application to renew the permit estimated that the costs associated with cooling towers for Salem are approximately $1 billion, of which Power’s
share would be approximately $575 million. If NJDEP and the CTDEP were to require installation of closed-cycle cooling or its equivalent at Power’s five once-through cooled facilities, compliance with
that requirement could have a significant impact on the facilities. These costs are not included in Power’s currently forecasted capital expenditures.
Energy Holdings
Bioenergie S.p.A. (Bioenergie)
In May 2006, Global became the majority shareholder of Prisma 2000 S.p.A. In March 2007, the shareholders of Prisma 2000 S.p.A. agreed to change the company name to Bioenergie. Bioenergie holds
100% of the stock of San Marco Bioenergie S.p.A (San Marco), owner of a 20 MW biomass generation facility in Italy. Global also assumed operational responsibility for the facility in May 2006, which was
previously operated by Carlo Gavazzi Green Power pursuant to a Services Agreement with a Global subsidiary. Global’s total investment in Bioenergie is approximately $80 million.
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(UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In August 2006, Global became aware that the Italian government was conducting a criminal investigation regarding allegations of violations of the facility’s air permit. The scope of the investigation
was subsequently expanded to include alleged violations of the facility’s waste recycling and waste storage permits. The alleged violations include exceedances of permit limits for regulated pollutants,
manipulation of the facility’s continuous emission monitoring system, false reporting and the use of fuels not authorized by the permit.
The Italian government has named five individuals as targets of the criminal investigation, including three former San Marco employees (including the former Managing Director and former plant and
operations managers) and two former members of the facility’s Board of Directors. While San Marco has not been named as a target, there is a potential risk that it could be so named. In December 2006
and January 2007, the facility was served with orders that prohibit it from conducting operations (Sequestration Orders) to prevent recurring violations and the destruction of evidence. Counsel for San
Marco has advised the Prosecuting Attorney that it will fully cooperate with the ongoing investigation and will implement the corrective actions required to prevent recurrence of the violations.
On April 26, 2007, the Prosecutor issued an order lifting the Sequestration Orders and returning control of the plant to San Marco. It is anticipated that the facility will resume commercial operations in
the summer of 2007.
Electroandes S.A. (Electroandes)
In July 2005, Electroandes received a notice from Superintendencia Nacional de Administracion Tributaria (SUNAT), the governing tax authority in Peru, claiming past due taxes for 2002 totaling
approximately $2 million related to certain interest deductions. Electroandes has taken similar interest deductions subsequent to 2002. The total cumulative estimated potential amount for past due taxes,
including associated interest and penalties, is approximately $9 million through March 31, 2007. Electroandes believes it has valid legal defenses to these claims, and has filed an appeal with SUNAT with
respect to which it has not yet received a response; however, no assurances can be given regarding the outcome of this matter. In March 2007, Global announced that it is exploring a potential sale of
Electroandes.
Luz del Sur S.A.A. (LDS)
In January 2007, SUNAT filed two tax assessments against LDS totaling approximately $18 million, of which Global’s share would be approximately $7 million based on its 38% interest in LDS. The
assessments relate to deductions LDS claimed beginning in 2000 for certain operating fees it paid to International Technical Operators under a technical services agreement, for certain bad debt deductions
and certain other matters. The above assessments include interest and penalties claimed by SUNAT. LDS believes that most of such deductions were appropriate and filed an appeal in February 2007. LDS
has obtained a legal opinion that it should be successful in contesting these material items/disallowances, however, no assurances can be given.
New Generation and Development
Power
Power has contracts with outside parties to purchase upgraded turbines for Salem Unit 2 and to purchase upgraded turbines and complete a power uprate for Hope Creek to modestly increase its
generating capacity. Phase II of the Salem Unit 2 turbine upgrade is currently scheduled for 2008 concurrent with steam generator replacement and is anticipated to increase capacity by 26 MW. Phase II of
the Hope Creek turbine replacement is expected to be completed in 2007 along with the thermal power uprate and is expected to add approximately 125 MW of capacity. Power’s expenditures to date
approximate $184 million (including Interest Capitalized During Construction (IDC) of $20 million) with an aggregate estimated share of total costs for these projects of $207 million (including IDC of $23
million). Timing, costs and results of these projects are dependent on timely completion of work, timely approval from the NRC and various other factors.
Completion of the projects discussed above within the estimated time frames and cost estimates cannot be assured. Construction delays, cost increases and various other factors could result in changes
in the operational dates or ultimate costs to complete.
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(UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basic Generation Service (BGS) and Basic Gas Supply Service (BGSS)
PSE&G and Power
PSE&G is required to obtain all electric supply requirements through the annual New Jersey BGS auctions for customers who do not purchase electric supply from third-party suppliers. PSE&G enters into
the Supplier Master Agreement (SMA) with the winners of these BGS auctions within three business days following the BPU’s approval. PSE&G has entered into contracts with Power, as well as with other
winning BGS suppliers, to purchase BGS for PSE&G’s anticipated load requirements. The winners of the auction are responsible for fulfilling all the requirements of a PJM Interconnection, L.L.C. (PJM)
Load Serving Entity (LSE) including capacity, energy, ancillary services, transmission and any other services required by PJM. BGS suppliers assume any migration risk and must satisfy New Jersey’s
renewable portfolio standards.
Through the BGS auctions, PSE&G has contracted for its anticipated BGS-Fixed Price load, as follows:
Term
Term Ending
May
2007(a)
May
2008(b)
May
2009(c)
May
2010(d)
34 months
36 months
36 months
36 months
Load (MW)
2,840
2,840
2,882
2,758
$ per kWh
$
0.05515
$
0.06541
$
0.10251
$
0.09888
(a)
Prices set in the February 2004 BGS auction.
(b)
Prices set in the February 2005 BGS auction.
(c)
Prices set in the February 2006 BGS auction.
(d)
Prices set in the February 2007 BGS auction, which becomes effective on June 1, 2007 when the agreements for the 34-month (May 2007) BGS-FP supply agreements expire.
Power seeks to mitigate volatility in its results by contracting in advance for its anticipated electric output as well as its anticipated fuel needs.
As part of its objective, Power has entered into contracts to directly supply PSE&G and other New Jersey Electric Distribution Companies (EDCs) with a portion of their respective BGS requirements
through the New Jersey BGS auction process, described above. In addition to the BGS-related contracts, Power enters into firm supply contracts with EDCs, as well as other firm sales and commitments.
PSE&G has a full requirements contract with Power to meet the gas supply requirements of PSE&G’s gas customers. The contract extends through March 31, 2012, and year-to-year thereafter. Power has
entered into hedges for a portion of these anticipated BGSS obligations, as permitted by the BPU. The BPU permits recovery of the cost of gas hedging up to 115 billion cubic feet or approximately 80% of
PSE&G’s residential gas supply annually through the BGSS tariff. For additional information, see Note 13. Related-Party Transactions.
Minimum Fuel Purchase Requirements
Power
Coal and Oil
Power purchases coal and oil for certain of its fossil generation stations through various long-term commitments. The coal purchase commitments through 2009 amount to approximately 70% of its
average anticipated coal needs, including transportation. These commitments total approximately $659 million.
Nuclear Fuel
Power has several long-term purchase contracts for the supply of nuclear fuel for the Salem and Hope Creek Nuclear Generating Stations. Power has inventory and commitments to purchase sufficient
quantities of uranium (concentrates and uranium hexafluoride) to meet 100% of its total estimated requirements
28
(UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
through 2011. Additionally, Power has commitments covering approximately 55% of its estimated requirements for 2012 and 15% from 2013 through 2016. These commitments, based on current market
prices, total approximately $577 million ($428 million Power’s estimated share). Power’s policy is to maintain certain levels of concentrates and uranium hexafluoride in inventory and to make periodic
purchases to support such levels. As such, the commitments referred to above include estimated quantities to be purchased that are in excess of contractual minimum quantities.
Power also has commitments that provide 100% of its uranium enrichment requirements through 2010 that total approximately $200 million ($147 million Power’s estimated share).
Power has commitments for the fabrication of fuel assemblies for reloads required through 2011 for Salem and through 2012 for Hope Creek that total approximately $123 million ($93 million Power’s
estimated share).
Natural Gas
In addition to its fuel requirements, Power has entered into various multi-year contracts for firm transportation and storage capacity for natural gas, primarily to meet its gas supply obligations to PSE&G.
As of March 31, 2007, the total minimum requirements under these contracts were approximately $1.1 billion through 2016.
These purchase obligations are consistent with Power’s strategy to enter into contracts for its fuel supply in comparable volumes to its sales contracts.
Energy Holdings
The Texas generation facilities have entered into gas supply agreements for their anticipated fuel requirements to satisfy obligations under their forward energy sales contracts. The plants had fuel
purchase commitments totaling $106 million to support all of their contracted energy sales.
Operating Services Contract (OSC)
Power
On January 17, 2005, Nuclear entered into an OSC with Exelon Generation LLC (Exelon) relating to the operation of the Hope Creek and Salem nuclear generating stations. The OSC requires Exelon
to provide key personnel to oversee daily plant operations at the Hope Creek and Salem nuclear generating stations and to implement a management model that Exelon has used to manage its own nuclear
facilities. Nuclear continues as the license holder with exclusive legal authority to operate and maintain the plants, retains responsibility for management oversight and has full authority with respect to the
marketing of its share of the output from the facilities. Exelon is entitled to receive reimbursement of its costs in discharging its obligations, an annual operating services fee of $3 million and incentive fees
up to $12 million annually based on attainment of goals relating to safety, capacity factor and operation and maintenance expenses. On October 27, 2006, Nuclear informed Exelon that it was electing to
continue the OSC for up to two years beyond the initial January 2007 period.
In December 2006, Power announced its plans to resume direct management of the Salem and Hope Creek nuclear generating stations before the expiration of the OSC. As part of this plan, on January
1, 2007, the senior management team at Salem and Hope Creek, which consisted of three senior executives from Exelon, became employees of Power. Power has continued to recruit additional employees
to build its organizational structure. Power is analyzing its various options and expects to implement a plan during the second quarter to fully resume functions that Exelon currently performs, which would
put Power in a position to terminate the OSC by the end of 2007.
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(UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Maintenance Agreement
Power
Power entered into a long-term contractual services agreement with a vendor in September 2003 to provide the outage and service needs for certain of Power’s generating units at market rates. The
contract covers approximately 25 years and could result in annual payments ranging from approximately $10 million to $50 million for services, parts and materials rendered.
Investment Tax Credits (ITC)
PSEG and PSE&G
As of June 1999, the Internal Revenue Service (IRS) had issued several private letter rulings (PLRs) that concluded that the refunding of excess deferred tax and ITC balances to utility customers was
permitted only over the related assets’ regulatory lives, which for PSE&G, were terminated upon New Jersey’s electric industry deregulation. Based on this fact, PSEG and PSE&G reversed the deferred tax
and ITC liability relating to PSE&G’s generation assets that were transferred to Power, and recorded a $235 million reduction of the extraordinary charge in 1999 due to the restructuring of the utility
industry in New Jersey. PSE&G was directed by the BPU to seek a PLR from the IRS to determine if the ITC included in the impairment write-down of generation assets could be credited to customers
without violating the tax normalization rules of the Internal Revenue Code. PSE&G filed a PLR request with the IRS in 2002.
On May 11, 2006, the IRS issued a PLR to PSE&G. The PLR concluded that none of the generation ITC could be passed to utility customers without violating the normalization rules. While the holding
in the PLR is a favorable development for PSE&G, an outstanding Treasury regulation project could overturn the holding in the PLR if the Treasury were to alter a position set out in certain December 21,
2005 proposed regulations. The issue cannot be fully resolved until the final Treasury regulations are issued.
On May 16, 2006, the BPU voted in favor of a special investigation and hearing before the BPU concerning PSE&G’s actions leading up to receiving the PLR, specifically its failure to abide by a BPU
order to withdraw the request. An order detailing such special investigation has not yet been issued and no investigation has begun.
On October 13, 2006, the Appellate Division of the Superior Court of New Jersey granted PSE&G’s motion to dismiss PSE&G’s appeal of the BPU’s order to withdraw the PLR since PSE&G has already
received the PLR. The court also determined that if the BPU seeks to take future action against PSE&G based on the alleged violation of its order, PSE&G can restart the appeal.
BPU Deferral Audit
PSEG and PSE&G
The BPU Energy and Audit Division conducts audits of deferred balances, which are under various adjustment clauses. A draft Deferral Audit—Phase II report relating to the 12-month period ended
July 31, 2003 was released by the consultant to the BPU in April 2005. The draft report addresses the SBC, Market Transition Charge (MTC) and Non-Utility Generation (NUG) deferred balances. The
BPU released the report on May 13, 2005.
While the consultant to the BPU found that the Phase II deferral balances complied in all material respects with the BPU Orders regarding such deferrals, the consultant noted that the BPU Staff had
raised certain questions with respect to the reconciliation method PSE&G employed in calculating the overrecovery of its MTC and other charges during the Phase I and Phase II four-year transition period.
The amount in dispute is approximately $130 million.
On January 31, 2007, PSE&G requested that the matter be transmitted to the Office of Administrative Law for the development of an evidentiary record and an initial decision. The BPU granted the
request on February 7, 2007.
30
(UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
While PSE&G believes the MTC methodology it used was fully litigated and resolved, without exception, by the BPU and other intervening parties in its previous electric base rate case, deferral audit
and deferral proceeding that were approved by the BPU in its order on April 22, 2004, and that such order is non-appealable, PSE&G cannot predict the impact of the outcome of this proceeding.
New Jersey Clean Energy Program
PSE&G
The BPU has approved a funding requirement for each New Jersey utility applicable to its Renewable Energy and Energy Efficiency programs for the years 2005 to 2008. The sum of PSE&G’s electric
and gas funding requirement was $37 million and $30 million for the three months ended March 31, 2007 and 2006, respectively. The remaining liability has been recorded at a discounted present value with
an offsetting Regulatory Asset, since the costs associated with this program are expected to be recovered from PSE&G ratepayers through the SBC. The liability for the funding requirement as of March 31,
2007 and December 31, 2006 was $228 million and $253 million, respectively.
Leveraged Lease Investments
PSEG and Energy Holdings
On November 16, 2006, the IRS issued a report with respect to its audit of PSEG’s corporate tax returns for tax years 1997 through 2000, which disallowed all deductions associated with certain of
Resources’ lease transactions that are similar to a type that the IRS publicly announced its intention to challenge. In addition, the IRS imposed a 20% penalty for substantial understatement of tax liability.
In February 2007, PSEG filed a protest to the Office of Appeals of the IRS. As of March 31, 2007 and December 31, 2006, Resources’ total gross investment in such transactions was approximately $1.4
billion and $1.5 billion, respectively.
If all deductions associated with these lease transactions, entered into by PSEG between 1997 and 2002, are successfully challenged by the IRS, it could have a material adverse impact on PSEG’s and
Energy Holdings’ financial position, results of operations and net cash flows and could impact future returns on these transactions. PSEG believes that its tax position related to these transactions is proper
based on applicable statutes, regulations and case law and will aggressively contest the IRS’s disallowance. PSEG believes that it is more likely than not that it will prevail with respect to the IRS’s challenge,
although no assurances can be given.
If the IRS’s disallowance of tax benefits associated with all of these lease transactions was sustained, approximately $796 million of PSEG’s deferred tax liabilities that have been recorded under
leveraged lease accounting through March 31, 2007 would become currently payable. In addition, current interest would be charged of approximately $132 million after-tax, and penalties of $159 million
may become payable. Energy Holdings’ management has assessed the probability of various outcomes to this matter and recorded reserves in accordance with FIN 48.
For additional information and guidance for leveraged leases, see Note 2. Recent Accounting Standards.
Note 6. Financial Risk Management Activities
PSEG, PSE&G, Power and Energy Holdings
The operations of PSEG, PSE&G, Power and Energy Holdings are exposed to market risks from changes in commodity prices, foreign currency exchange rates, interest rates and equity prices that could
affect their results of operations and financial conditions. PSEG, PSE&G, Power and Energy Holdings manage exposure to these market risks through their regular operating and financing activities and,
when deemed appropriate, hedge these risks through the use of derivative financial instruments. PSEG, PSE&G, Power and Energy Holdings use the term ‘hedge’ to mean a strategy designed to manage risks
of volatility in prices or rate movements on certain assets, liabilities or anticipated transactions and by creating a relationship in which gains or losses on derivative instruments are expected to
counterbalance the gains or losses on the assets, liabilities or anticipated transactions exposed to such market risks. Each of PSEG,
31
(UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PSE&G, Power and Energy Holdings uses derivative instruments as risk management tools consistent with its respective business plan and prudent business practices.
Derivative Instruments and Hedging Activities
Commodity Contracts
Power
Power actively transacts in energy and energy-related products, including electricity, natural gas, electric capacity, firm transmission rights (FTRs), coal, oil and emission allowances in the spot, forward
and futures markets, primarily in the Northeastern and Mid Atlantic United States.
Power maintains a strategy of entering into positions to optimize the value of its portfolio and reduce earnings volatility of generation assets, gas supply contracts and its electric and gas supply
obligations. Power engages in physical and financial transactions in the electricity wholesale markets and executes an overall risk management strategy seeking to mitigate the effects of adverse movements
in the fuel and electricity markets. These contracts also involve financial transactions including swaps, options, futures and FTRs. During the quarter ended March 31, 2007, higher market prices for
electricity have resulted in additional unrealized losses on many of these contracts leading to an increase in Accumulated Other Comprehensive Loss (OCL). Power marks its derivative energy-related
contracts to market in accordance with SFAS 133, with changes in fair value charged to the Condensed Consolidated Statements of Operations. Wherever possible, fair values for these contracts are
obtained from quoted market sources. For contracts where no quoted market exists, modeling techniques are employed using assumptions reflective of current market rates, yield curves and forward prices,
as applicable, to interpolate certain prices. The effect of using such modeling techniques is not material to Power’s financial results.
Cash Flow Hedges
Power uses forward sale and purchase contracts, swaps and FTR contracts to hedge forecasted energy sales from its generation stations and to hedge related load obligations. Power also enters into
swaps and futures transactions to hedge the price of fuel to meet its fuel purchase requirements. These derivative transactions are designated and effective as cash flow hedges under SFAS 133. As of March
31, 2007, the fair value of these hedges was $(449) million and resulted in $(267) million after-tax recorded in OCL. As of December 31, 2006, the fair value of these hedges was $(166) million. These hedges,
along with realized losses on hedges of $(19) million retained in OCL, resulted in a $(108) million after-tax balance in OCL. The increase of $159 million in OCL during the quarter ended March 31, 2007
was caused mainly by higher electricity market prices. During the 12 months ending March 31, 2008, $186 million after-tax of net unrealized losses on these commodity derivatives is expected to be
reclassified to earnings. Approximately $85 million of after-tax unrealized losses on these commodity derivatives in OCL is expected to be reclassified to earnings for the 12 months ending March 31, 2009.
Ineffectiveness associated with these hedges, as defined in SFAS 133, was $(2) million at March 31, 2007. The expiration date of the longest dated cash flow hedge is in 2010.
Other Derivatives
Power also enters into certain other contracts that are derivatives, but do not qualify for hedge accounting under SFAS 133. Most of these contracts are used for fuel purchases for generation
requirements and for electricity purchases for contractual sales obligations. Therefore, the changes in fair market value of these derivative contracts are recorded in Energy Costs or Operating Revenues, as
appropriate, on the Condensed Consolidated Statements of Operations. The net fair value of these instruments as of March 31, 2007 was less than $(1) million. The net fair value of these instruments as of
December 31, 2006 was $1 million.
Energy Holdings
Other Derivatives
The Texas generation facilities enter into electricity forward and capacity sale contracts to sell their 2,000 MW capacity for portions of the current calendar year, with the balance sold into the daily spot
market. The
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(UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Texas generation facilities also enter into gas purchase contracts to specifically match the generation requirements to support the electricity forward sales contracts. Although these contracts fix the amount
of revenue, fuel costs and cash flows, and thereby provide financial stability to the Texas generation facilities, these contracts are, based on their terms, derivatives that do not meet the specific accounting
criteria in SFAS 133 to qualify for the normal purchases and normal sales exception, or to be designated as a hedge for accounting purposes. As a result, these contracts must be recorded at fair value. The
net fair value of the open positions was approximately $9 million and $38 million as of March 31, 2007 and December 31, 2006, respectively.
Interest Rates
PSEG, PSE&G, Power and Energy Holdings
PSEG, PSE&G, Power and Energy Holdings are subject to the risk of fluctuating interest rates in the normal course of business. PSEG’s policy is to manage interest rate risk through the use of fixed and
floating rate debt and interest rate derivatives.
Fair Value Hedges
PSEG and Power
In March 2004, Power issued $250 million of 3.75% Senior Notes due April 2009. PSEG used an interest rate swap to convert Power’s fixed-rate debt into variable-rate debt. The interest rate swap is
designated and effective as a fair value hedge. The fair value changes of the interest rate swap are fully offset by the fair value changes in the underlying debt. As of March 31, 2007 and December 31, 2006,
the fair value of the hedge was $(7) million and $(9) million, respectively.
Cash Flow Hedges
PSEG, PSE&G and Energy Holdings
PSEG, PSE&G and Energy Holdings use interest rate swaps and other interest rate derivatives to manage their exposures to the variability of cash flows, primarily related to variable-rate debt
instruments. The interest rate derivatives used are designated and effective as cash flow hedges. Except for PSE&G’s cash flow hedges, the fair value changes of these derivatives are initially recorded in
Accumulated Other Comprehensive Income/Loss. As of March 31, 2007, the fair value of these cash flow hedges was $(5) million, consisting of $(4) million and $(1) million at PSE&G and Energy Holdings,
respectively. As of December 31, 2006, the fair value of these cash flow hedges was $(4) million, primarily at PSE&G. The $(4) million at PSE&G as of both March 31, 2007 and December 31, 2006 is not
included in Accumulated Other Comprehensive Income/Loss, as it is deferred as a Regulatory Asset and is expected to be recovered from PSE&G’s customers. During the next 12 months, approximately $1
million of unrealized losses (net of taxes) on interest rate derivatives in OCL is expected to be reclassified at PSEG. As of March 31, 2007, there was no hedge ineffectiveness associated with these hedges.
Foreign Currencies
Energy Holdings
Global is exposed to foreign currency risk and other foreign operations risk that arise from investments in foreign subsidiaries and affiliates. A key component of its risks is that some of its foreign
subsidiaries and affiliates have functional currencies other than the consolidated reporting currency, the U.S. Dollar. Additionally, Global and certain of its foreign subsidiaries and affiliates have entered
into monetary obligations and maintain receipts/receivables in U.S. Dollars or currencies other than their own functional currencies. Global, a U.S. Dollar functional currency entity, is primarily exposed to
changes in the Peruvian Nuevo Sol and the Chilean Peso and to a lesser extent, the Euro. Changes in valuation of these currencies can impact the value of Global’s investments, results of operations,
financial condition and cash flows. Global has attempted to limit potential foreign exchange exposure by entering into revenue contracts that adjust for changes in foreign exchange rates. Global may also
use foreign currency forward, swap and option agreements to manage risk related to certain foreign currency fluctuations.
33
(UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Although the Chilean Peso and the Peruvian Nuevo Sol had originally depreciated relative to the U.S. Dollar after Global’s initial investments, the currencies have appreciated significantly over the
past few years. The net cumulative foreign currency revaluations have increased the total amount of Energy Holdings’ Member’s Equity by $124 million as of March 31, 2007.
Hedges of Net Investments in Foreign Operations
Energy Holdings
In March 2004 and April 2004, Energy Holdings entered into four cross-currency interest rate swap agreements. The swaps are designed to hedge the net investment in a foreign subsidiary associated
with the exposure in the U.S. Dollar to Chilean Peso exchange rate. The fair value of the cross-currency swaps was $(22) million and $(25) million as of March 31, 2007 and December 31, 2006, respectively.
The change in fair value of the majority of the swaps is recorded in Cumulative Translation Adjustment within OCL. As a result, Energy Holdings’ Member’s Equity was reduced by $22 million as of March
31, 2007.
Note 7. Comprehensive Income, Net of Tax
PSE&G
Power(A)
Energy
Other
Consolidated
(Millions)
For the Quarter Ended March 31, 2007:
Net Income (Loss)
$
132
$
213
$
3
$
(19
)
$
329
Other Comprehensive Loss
—
(155
)
(9
)
—
(164
)
Comprehensive Income (Loss)
$
132
$
58
$
(6
)
$
(19
)
$
165
For the Quarter Ended March 31, 2006:
Net Income (Loss)
$
78
$
112
$
32
$
(19
)
$
203
Other Comprehensive Income
—
133
2
1
136
Comprehensive Income (Loss)
$
78
$
245
$
34
$
(18
)
$
339
(A)
Changes at Power primarily relate to changes in SFAS 133 unrealized gains and losses on derivative contracts that qualify for hedge accounting in 2007 and 2006, combined with unrealized gains in the
NDT Fund in 2006.
(B)
Changes at Energy Holdings primarily relate to foreign currency translation adjustments in 2007 and 2006 and unrealized gains on derivative contracts in 2006.
(C)
Other primarily consists of activity at PSEG (as parent company), Services and intercompany eliminations.
Note 8. Changes in Capitalization
PSEG
On April 13, 2007, PSEG called for redemption on May 15, 2007, the outstanding $375 million of its Floating Rate Notes Due 2008 at 100% of the principal amount.
For the quarter ended March 31, 2007, PSEG issued 393,355 shares of its common stock in connection with settling stock options for approximately $29 million.
For the quarter ended March 31, 2007, PSEG issued approximately 204,068 shares of its common stock under its Dividend Reinvestment Program and its Employee Stock Purchase Program for
approximately $17 million.
PSE&G
On January 2, 2007, PSE&G repaid at maturity $113 million of its 6.25% Series WW First and Refunding Mortgage Bonds.
For the quarter ended March 31, 2007, Transition Funding repaid approximately $38 million of its transition bonds.
34
(UNAUDITED)
Holdings(B)
Total
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Power
In March 2007, Power paid a cash dividend to PSEG of $125 million.
Energy Holdings
In March 2007, Energy Holdings made a cash distribution to PSEG of $145 million in the form of a return of capital.
During the first three months of 2007, Energy Holdings’ subsidiaries repaid approximately $16 million of non-recourse debt, including $14 million by Global, primarily related to the Texas generation
facilities, $1 million by Resources and $1 million by EGDC.
Note 9. Other Income and Deductions
PSE&G
Power
Energy
Other(A)
Consolidated
(Millions)
Other Income:
For the Quarter Ended March 31, 2007:
Interest and Dividend Income
$
3
$
5
$
3
$
—
$
11
NDT Fund Realized Gains
—
34
—
—
34
NDT Interest and Dividend Income
—
12
—
—
12
Change in Derivative Fair Value
—
—
1
—
1
Arbitration Award (Konya-Ilgin)
—
—
9
—
9
Other
2
—
3
—
5
Total Other Income
$
5
$
51
$
16
$
—
$
72
For the Quarter Ended March 31, 2006:
Interest and Dividend Income
$
3
$
4
$
2
$
(2
)
$
7
NDT Fund Realized Gains
—
27
—
—
27
NDT Interest and Dividend Income
—
10
—
—
10
Foreign Currency Gains
—
—
3
—
3
Change in Derivative Fair Value
—
—
1
—
1
Other
1
—
1
—
2
Total Other Income
$
4
$
41
$
7
$
(2
)
$
50
PSE&G
Power
Energy
Other(A)
Consolidated
(Millions)
Other Deductions:
For the Quarter Ended March 31, 2007:
Donations
$
1
$
—
$
—
$
5
$
6
NDT Fund Realized Losses and Expenses
—
17
—
—
17
Foreign Currency Losses
—
—
1
—
1
Loss on Disposition of Assets
—
1
—
—
1
Other-Than-Temporary Impairment of Investments
—
10
—
—
10
Other
—
1
1
—
2
Total Other Deductions
$
1
$
29
$
2
$
5
$
37
For the Quarter Ended March 31, 2006:
Donations
$
1
$
—
$
—
$
—
$
1
NDT Fund Realized Losses and Expenses
—
19
—
—
19
Foreign Currency Losses
—
—
2
—
2
Change in Derivative Fair Value
—
—
2
—
2
Other
—
—
3
—
3
Total Other Deductions
$
1
$
19
$
7
$
—
$
27
(A)
Other consists of reclassifications for minority interests in PSEG’s consolidated results of operations and intercompany eliminations at PSEG (as parent company).
35
(UNAUDITED)
Holdings
Total
Holdings
Total
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 10. Pension and Other Postretirement Benefits (OPEB)
PSEG
PSEG sponsors several qualified and nonqualified pension plans and OPEB plans covering PSEG’s and its participating affiliates’ current and former employees who meet certain eligibility criteria. The
following table provides the components of net periodic benefit costs relating to all qualified and nonqualified pension and OPEB plans on an aggregate basis. OPEB costs are presented net of the federal
subsidy expected for prescription drugs under the Medicare Prescription Drug Improvement and Modernization Act of 2003.
Pension Benefits
OPEB
Quarters Ended
Quarters Ended
2007
2006
2007
2006
(Millions)
Components of Net Periodic Benefit Costs:
Service Cost
$
21
$
21
$
4
$
5
Interest Cost
54
53
18
17
Expected Return on Plan Assets
(72
)
(67
)
(4
)
(3
)
Amortization of Net
Transition Obligation
—
—
7
7
Prior Service Cost
3
3
3
3
Loss
5
13
2
2
Net Periodic Benefit Cost
11
23
30
31
Effect of Regulatory Asset
—
—
5
5
Total Benefit Costs
$
11
$
23
$
35
$
36
PSE&G, Power, Energy Holdings and Services
Pension costs and OPEB costs for PSE&G, Power, Energy Holdings and Services are detailed as follows:
Pension Benefits
OPEB
Quarters Ended
Quarters Ended
2007
2006
2007
2006
(Millions)
PSE&G
$
5
$
12
$
30
$
30
Power
3
7
4
4
Energy Holdings
—
—
—
—
Services
3
4
1
2
Total PSEG Consolidated Benefit Costs
$
11
$
23
$
35
$
36
36
March 31,
March 31,
March 31,
March 31,
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
An analysis of the tax provision expense is as follows:
PSE&G
Power
Energy
Other (A)
Consolidated
(Millions)
For the Quarter Ended March 31, 2007:
Income (Loss) Before Income Taxes
$
231
$
374
$
23
$
(31
)
$
597
Tax Computed at the Statutory Rate
$
81
$
131
$
8
$
(11
)
$
209
Increase (Decrease) Attributable to Flow Through of Certain Tax Adjustments:
State Income Taxes after Federal Benefit
16
23
(1
)
(1
)
37
Rate Differential of Foreign Operations
—
—
9
—
9
Reserve for Tax Contingencies
—
1
5
—
6
Other
2
—
(1
)
—
1
Total Income Tax Expense (Benefit)
$
99
$
155
$
20
$
(12
)
$
262
Effective Income Tax Rate
42.9
%
41.4
%
87.0
%(B)
38.7
%
43.9
%
For the Quarter Ended March 31, 2006:
Income (Loss) Before Income Taxes
$
143
$
207
$
40
$
(33
)
$
357
Tax Computed at the Statutory Rate
$
50
$
73
$
14
$
(12
)
$
125
Increase (Decrease) Attributable to Flow Through of Certain Tax Adjustments:
State Income Taxes after Federal Benefit
11
11
(2
)
(2
)
18
Plant Related Items
3
—
—
—
3
Other
1
2
—
—
3
Total Income Tax Expense (Benefit)
$
65
$
86
$
12
$
(14
)
$
149
Effective Income Tax Rate
45.5
%
41.5
%
30.0
%
42.4
%
41.7
%
(A)
PSEG’s other activities include amounts applicable to PSEG (as parent corporation) that primarily relate to financing and certain administrative and general costs.
(B)
Reflects interim period distortion due to asset sales and other one-time adjustments.
37
Holdings
Total
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
PSEG, PSE&G, Power and Energy Holdings adopted FIN 48 effective January 1, 2007, which prescribes a model for how a company should recognize, measure, present and disclose in its financial
statements uncertain tax positions that it has taken or expects to take on a tax return. For additional information, see Note 2. Recent Accounting Standards. Upon adoption, PSEG, PSE&G, Power and
Energy Holdings recorded the following amounts related to their respective uncertain tax positions:
PSE&G
Power
Energy
Other(B)
Consolidated
Unrecognized Tax Benefits(A)
$
49
$
21
$
408
$
1
$
479
Accumulated Deferred Income Taxes associated with Unrecognized Tax Benefits
(9
)
(7
)
(246
)
—
(262
)
Regulatory Asset-Unrecognized Tax Benefits
(11
)
—
—
—
(11
)
Unrecognized Tax Benefits that, if recognized, would impact the effective tax rate(A)
$
29
$
14
$
162
$
1
$
206
Interest and Penalties Accrued
$
5
$
3
$
81
$
—
$
89
(A)
Includes interest and penalties
(B)
PSEG’s other activities include amounts applicable to PSEG (as parent corporation) that primarily relate to financing and certain administrative and general costs.
There were no material changes to the amounts above during the quarter ended March 31, 2007 and no significant increases or decreases in unrecognized tax benefits are reasonably possible to occur
within the next 12 months. PSEG, PSE&G, Power and Energy Holdings include all accrued interest and penalties, required to be recorded under FIN 48, as income tax expense.
Income tax years for PSEG, PSE&G, Power and Energy Holdings that remain subject to examination by material jurisdictions, where an examination has not already concluded, are as follows:
PSE&G
Power
Energy
Consolidated
United States
Federal
2001-2006
2001-2006
2001-2006
2001-2006
New Jersey
2001-2006
N/A
1997-2006
1997-2006
Pennsylvania
2003-2006
N/A
2003-2006
2003-2006
Connecticut
N/A
N/A
N/A
2003-2006
Texas
N/A
N/A
2006
2006
California
N/A
N/A
2002-2006
2002-2006
Indiana
N/A
N/A
N/A
2003-2006
Ohio
N/A
N/A
N/A
2003-2005
Foreign
Chile
N/A
N/A
2004-2006
2004-2006
Peru
N/A
N/A
2002-2006
2002-2006
38
Holdings
Total
Holdings
Total
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 12. Financial Information by Business Segments
Information related to the segments of PSEG and its subsidiaries is detailed below:
PSE&G
Power
Energy Holdings
Other(B)
Consolidated
Resources
Global
Other(A)
(Millions)
For the Quarter Ended March 31, 2007:
Total Operating Revenues
$
2,486
$
2,149
$
44
$
208
$
2
$
(1,275
)
$
3,614
Income (Loss) From Continuing Operations
132
219
17
(13
)
(1
)
(19
)
335
Loss from Discontinued Operations, net of tax
—
(6
)
—
—
—
—
(6
)
Net Income (Loss)
132
213
17
(13
)
(1
)
(19
)
329
Preferred Securities Dividends
(1
)
—
—
—
—
1
—
Segment Earnings (Loss)
131
213
17
(13
)
(1
)
(18
)
329
Gross Additions to Long-Lived Assets
130
126
—
16
—
3
275
As of March 31, 2007:
Total Assets
$
14,524
$
8,128
$
2,904
$
3,004
$
97
$
(295
)
$
28,362
Investments in Equity Method Subsidiaries
$
—
$
16
$
8
$
786
$
—
$
—
$
810
For the Quarter Ended March 31, 2006:
Total Operating Revenues
$
2,293
$
1,967
$
47
$
263
$
2
$
(1,111
)
$
3,461
Income (Loss) From Continuing Operations
78
121
20
9
(1
)
(19
)
208
Income (Loss) from Discontinued Operations, net of tax
—
(9
)
—
4
—
—
(5
)
Net Income (Loss)
78
112
20
13
(1
)
(19
)
203
Preferred Securities Dividends
(1
)
—
—
—
—
1
—
Segment Earnings (Loss)
77
112
20
13
(1
)
(18
)
203
Gross Additions to Long-Lived Assets
108
118
—
13
1
—
240
As of December 31, 2006:
Total Assets
$
14,553
$
8,146
$
2,969
$
3,095
$
100
$
(293
)
$
28,570
Investments in Equity Method Subsidiaries
$
—
$
16
$
5
$
817
$
—
$
—
$
838
(A)
Energy Holdings’ other activities include amounts applicable to Energy Holdings (as parent company) and EGDC. The net losses primarily relate to financing and certain administrative and general
costs of Energy Holdings.
(B)
PSEG’s other activities include amounts applicable to PSEG (as parent corporation), and intercompany eliminations, primarily relating to intercompany transactions between Power and PSE&G. No
gains or losses are recorded on any intercompany transactions; rather, all intercompany transactions are at cost or, in the case of the BGS and BGSS contracts between Power and PSE&G, at rates
prescribed by the BPU. For a further discussion of the intercompany transactions between Power and PSE&G, see Note 13. Related-Party Transactions. The net losses primarily relate to financing and
certain administrative and general costs at PSEG, as parent corporation.
39
Total
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 13. Related-Party Transactions
The majority of the following discussion relates to intercompany transactions. These transactions were recognized on each company’s stand-alone financial statements and were eliminated during the
consolidation process in accordance with GAAP when preparing PSEG’s Condensed Consolidated Financial Statements.
BGS and BGSS Contracts
PSE&G and Power
PSE&G has entered into a requirements contract with Power under which Power provides the gas supply services needed to meet PSE&G’s BGSS and other contractual requirements through March 2012
and year-to-year thereafter. Power has also entered into contracts to supply energy, capacity and ancillary services to PSE&G through the BGS auction process.
The amounts which Power charged to PSE&G for BGS and BGSS are presented below:
Power’s Billings for
2007
2006
(Millions)
BGS
$
218
$
101
BGSS
$
1,049
$
1,003
As of March 31, 2007 and December 31, 2006, Power had net receivables from PSE&G of approximately $379 million and $370 million, respectively, primarily related to the BGS and BGSS contracts. In
addition, as of March 31, 2007 and December 31, 2006, PSE&G had a payable to Power of approximately $5 million and $174 million, respectively, related to gas supply hedges Power entered into for BGSS.
Services
PSE&G, Power and Energy Holdings
Services provides and bills administrative services to PSE&G, Power and Energy Holdings. In addition, PSE&G, Power and Energy Holdings have other payables to Services, including amounts related to
certain common costs, such as pension and OPEB costs, which Services pays on behalf of each of the operating companies. The billings for administrative services and payables are presented below:
Services’ Billings for the
Payable to Services as of
March 31,
December 31,
2007
2006
(Millions)
PSE&G
$
49
$
55
$
32
$
41
Power
$
33
$
37
$
18
$
21
Energy Holdings
$
5
$
5
$
2
$
2
PSE&G, Power and Energy Holdings believe that the costs of services provided by Services approximate market value for such services.
40
the Quarters Ended
March 31,
Quarters Ended
March 31,
2007
2006
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Tax Sharing Agreements
PSEG, PSE&G, Power and Energy Holdings
PSE&G, Power and Energy Holdings had (payables to) receivables from PSEG related to taxes as follows:
(Payable to) Receivable
March 31,
December 31,
(Millions)
PSE&G
$
(89
)
$
(63
)
Power
$
(122
)
$
(28
)
Energy Holdings
$
30
$
(10
)
As a result of the adoption of FIN 48, PSE&G, Power and Energy Holdings each recorded payables to PSEG related to uncertain tax positions. See Note 2. Recent Accounting Standards. Such amounts
as of March 31, 2007 were as follows:
Payable to PSEG
(Millions)
PSE&G
$
51
Power
$
22
Energy Holdings
$
424
Affiliate Loans and Advances
PSEG and Power
As of March 31, 2007, Power had a demand note receivable of $525 million due from PSEG. As of December 31, 2006, Power had a demand note payable to PSEG of approximately $54 million for
short-term funding needs.
PSEG and Energy Holdings
As of March 31, 2007 and December 31, 2006, Energy Holdings had a demand note receivable due from PSEG of $25 million and $28 million, respectively. These notes reflect the investment of Energy
Holdings’ excess cash with PSEG.
PSE&G and Services
As of each of March 31, 2007 and December 31, 2006, PSE&G had advanced working capital to Services of approximately $33 million. This amount is included in Other Noncurrent Assets on PSE&G’s
Condensed Consolidated Balance Sheets.
Power and Services
As of each of March 31, 2007 and December 31, 2006, Power had advanced working capital to Services of approximately $17 million. This amount is included in Other Noncurrent Assets on Power’s
Condensed Consolidated Balance Sheets.
41
from PSEG as of
2007
2006
as of
March 31,
2007
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Other
PSEG and PSE&G
As of March 31, 2007 and December 31, 2006, PSE&G had net receivables from PSEG of approximately $2 million and $3 million, respectively, related to amounts that PSEG had collected on PSE&G’s
behalf.
PSEG and Power
As of March 31, 2007 and December 31, 2006, Power had net receivables from PSEG of approximately $6 million and $1 million, respectively, related to amounts that PSEG had collected on Power’s
behalf.
PSEG and Energy Holdings
As of March 31, 2007, Energy Holdings had net receivables from PSEG of approximately $2 million, primarily for interest due on the demand note receivable from PSEG.
Energy Holdings and PSE&G
As of each of March 31, 2007 and December 31, 2006, Energy Holdings had a receivable of approximately $1 million related to efficiency incentive initiatives performed for PSE&G’s customers. Energy
Holdings recorded revenues for such services of approximately $1 million and $4 million for the quarters ended March 31, 2007 and 2006, respectively.
Power
Each series of Power’s Senior Notes and Pollution Control Notes is fully and unconditionally and jointly and severally guaranteed by Fossil, Nuclear and ER&T. The following table presents condensed
financial information for the guarantor subsidiaries, as well as Power’s non-guarantor subsidiaries.
Power
Guarantor
Other
Consolidating
Consolidated
(Millions)
For the Quarter Ended March 31, 2007:
Operating Revenues
$
—
$
2,401
$
27
$
(279
)
$
2,149
Operating Expenses
—
2,014
24
(278
)
1,760
Operating Income
—
387
3
(1
)
389
Equity Earnings (Losses) of Subsidiaries
217
(12
)
—
(205
)
—
Other Income
49
66
—
(64
)
51
Other Deductions
—
(29
)
—
—
(29
)
Interest Expense
(54
)
(35
)
(11
)
63
(37
)
Income Taxes
1
(160
)
3
1
(155
)
Loss from Discontinued Operations, net of tax
—
—
(6
)
—
(6
)
Net Income (Loss)
$
213
$
217
$
(11
)
$
(206
)
$
213
For the Quarter Ended March 31, 2007:
Net Cash Provided By (Used In) Operating Activities
$
61
$
801
$
(17
)
$
(21
)
$
824
Net Cash Provided By (Used In) Investing Activities
$
64
$
114
$
(14
)
$
(815
)
$
(651
)
Net Cash (Used In) Provided By Financing Activities
$
(125
)
$
(921
)
$
31
$
836
$
(179
)
42
Subsidiaries
Subsidiaries
Adjustments
Total
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Power
Guarantor
Other
Consolidating
Consolidated
(Millions)
For the Quarter Ended March 31, 2006:
Operating Revenues
$
—
$
2,194
$
33
$
(260
)
$
1,967
Operating Expenses
—
1,977
33
(260
)
1,750
Operating Income
—
217
—
—
217
Equity Earnings (Losses) of Subsidiaries
113
(11
)
—
(102
)
—
Other Income
40
45
—
(44
)
41
Other Deductions
—
(19
)
—
—
(19
)
Interest Expense
(43
)
(14
)
(19
)
44
(32
)
Income Taxes
2
(95
)
7
—
(86
)
Loss from Discontinued Operations, net of tax
—
—
(9
)
—
(9
)
Net Income (Loss)
$
112
$
123
$
(21
)
$
(102
)
$
112
For the Quarter Ended March 31, 2006:
Net Cash Provided By (Used In) Operating Activities
$
810
$
(605
)
$
(3
)
$
480
$
682
Net Cash (Used In) Provided By Investing Activities
$
(810
)
$
588
$
3
$
(264
)
$
(483
)
Net Cash Provided By (Used In) Financing Activities
$
—
$
13
$
—
$
(215
)
$
(202
)
As of March 31, 2007:
Current Assets
$
2,830
$
2,817
$
545
$
(3,877
)
$
2,315
Property, Plant and Equipment, net
150
3,261
862
—
4,273
Investment in Subsidiaries
3,396
189
—
(3,585
)
—
Noncurrent Assets
180
1,581
73
(294
)
1,540
Total Assets
$
6,556
$
7,848
$
1,480
$
(7,756
)
$
8,128
Current Liabilities
$
118
$
3,656
$
1,280
$
(3,878
)
$
1,176
Noncurrent Liabilities
277
796
11
(293
)
791
Long-Term Debt
2,818
—
—
—
2,818
Member’s Equity
3,343
3,396
189
(3,585
)
3,343
Total Liabilities and Member’s Equity
$
6,556
$
7,848
$
1,480
$
(7,756
)
$
8,128
As of December 31, 2006:
Current Assets
$
1,982
$
3,416
$
531
$
(3,441
)
$
2,488
Property, Plant and Equipment, net
150
3,226
854
—
4,230
Investment in Subsidiaries
4,287
201
—
(4,488
)
—
Noncurrent Assets
173
1,398
79
(222
)
1,428
Total Assets
$
6,592
$
8,241
$
1,464
$
(8,151
)
$
8,146
Current Liabilities
$
97
$
3,179
$
1,251
$
(3,443
)
$
1,084
Noncurrent Liabilities
253
776
12
(220
)
821
Long-Term Debt
2,818
—
—
—
2,818
Member’s Equity
3,424
4,286
201
(4,488
)
3,423
Total Liabilities and Member’s Equity
$
6,592
$
8,241
$
1,464
$
(8,151
)
$
8,146
43
Subsidiaries
Subsidiaries
Adjustments
Total
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)
Following are the significant changes in or additions to information reported in the 2006 Annual Report on Form 10-K affecting the consolidated financial condition and the results of operations. This
discussion refers to the Condensed Consolidated Financial Statements (Statements) and the related Notes to Condensed Consolidated Financial Statements (Notes) and should be read in conjunction with
such Statements and Notes.
This combined MD&A is separately filed by Public Service Enterprise Group Incorporated (PSEG), Public Service Electric and Gas Company (PSE&G), PSEG Power LLC (Power) and PSEG Energy
Holdings L.L.C. (Energy Holdings). Information contained herein relating to any individual company is filed by such company on its own behalf. PSE&G, Power and Energy Holdings each make
representations only as to itself and make no other representations whatsoever as to any other company.
OVERVIEW OF 2007 AND FUTURE OUTLOOK
PSEG, PSE&G, Power and Energy Holdings
PSEG’s business consists of four reportable segments, which are PSE&G, Power and the two direct subsidiaries of Energy Holdings: PSEG Global L.L.C. (Global) and PSEG Resources L.L.C.
(Resources). The following discussion relates to the markets in which PSEG’s subsidiaries compete, the corporate strategy for the conduct of PSEG’s businesses within these markets, significant events that
have occurred during the first quarter of 2007 and future outlook for PSE&G, Power and Energy Holdings, as well as the key factors that will drive the future performance of these businesses.
PSE&G
PSE&G operates as an electric and gas public utility in New Jersey under cost-based regulation by the New Jersey Board of Public Utilities (BPU) for its distribution operations and by the Federal
Energy Regulatory Commission (FERC) for its electric transmission and wholesale sales operations.
Consequently, the earnings of PSE&G are largely determined by the regulation of its rates by those agencies. On November 9, 2006, PSE&G reached settlement agreements in the Gas Base Rate Case and
Electric Distribution Financial Review, which were approved by the BPU. The settlement in the Gas Base Rate Case provides for an annual increase in gas revenues of $40 million, an adjustment to lower
book depreciation expense for PSE&G by approximately $26 million annually and the amortization of accumulated cost of removal that will further reduce depreciation and amortization expense by $13
million annually for five years. The electric settlement authorizes a reduction in the former excess depreciation rate credit to $22 million, resulting in additional revenue to PSE&G of approximately $47
million annually based on current sales volumes.
Overview and Future Outlook
In February 2007, the BPU approved the results of New Jersey’s annual Basic Generation Service (BGS)-Fixed Price (FP) and BGS-Commercial and Industrial Energy Price (CIEP) auctions and PSE&G
successfully secured contracts to provide the electricity requirements for the majority of its customers’ needs.
PSE&G believes that the decisions in November 2006 for both gas and electric base rates position it to earn reasonable returns on investment in the future. The full year impact of these decisions
combined with an anticipated return to more normal weather conditions is expected to improve PSE&G’s margins for 2007 and beyond.
The risks to PSE&G’s business generally relate to the treatment of the various rate and other issues by the state and federal regulatory agencies, specifically the BPU and FERC. PSE&G’s success will
depend, in part, on its ability to attain a reasonable rate of return, continue cost containment initiatives, maintain system reliability and safety levels and continued recovery, with an adequate return, of the
regulatory assets it has deferred and the investments it plans to make in its electric and gas transmission and distribution system. FERC’s recent ruling regarding PJM transmission rate design is also
expected to have a positive impact as PSE&G’s current transmission rate structure will remain in place. Since PSE&G earns no margin on the
44
commodity portion of its electric and gas sales through tariff agreements, there is no anticipated commodity price volatility for PSE&G.
Power
Power is an electric generation and wholesale energy marketing and trading company that is focused on a generation market in the Northeast and Mid Atlantic U.S. Power’s principal operating
subsidiaries, PSEG Fossil LLC (Fossil), PSEG Nuclear LLC (Nuclear) and PSEG Energy Resources & Trade LLC (ER&T) are regulated by FERC. Through its subsidiaries, Power seeks to produce low-cost
energy through efficient operations of its nuclear, coal and gas-fired generation facilities, balance its generation production, fuel requirements and supply obligations through energy portfolio management
and pursue disciplined growth. Changes in the operation of Power’s generating facilities, fuel and capacity prices, expected contract prices, capacity factors or other assumptions could materially affect its
ability to meet earnings targets and/or liquidity requirements. In addition to the electric generation business described above, Power’s revenues include gas supply sales under the Basic Gas Supply Service
(BGSS) contract with PSE&G.
As a merchant generator, Power’s profit is derived from selling under contract or on the spot market a range of diverse products such as energy, capacity, emissions credits, congestion credits and a
series of energy-related products that the system operator uses to optimize the operation of the energy grid, known as ancillary services. Accordingly, the prices of commodities, such as electricity, gas, coal
and emissions, as well as the availability of Power’s diverse fleet of generation units to produce these products, can have a material effect on Power’s profitability. In recent years, the prices at which
transactions are entered into for future delivery of these products, as evidenced through the market for forward contracts at points such as PJM Interconnection, L.L.C. (PJM) West, have escalated
considerably over historical prices. Broad market price increases such as these are expected to have a positive effect on Power’s results. Historically, Power’s nuclear and coal-fired facilities have produced
over 50% and 25% of Power’s production, respectively. With the vast majority of its power sourced from these lower-cost units, the rise in electric prices is anticipated to yield higher near-term margins for
Power. Over a longer-term horizon, if these higher prices are sustained at levels reflective of what the current forward markets indicate, it would yield an attractive environment for Power to contract the
sale of its anticipated output, allowing for potentially sustained higher profitability than recognized in prior years. These prices also increase the cost of replacement power, thereby placing incremental risk
on the operations of the generating units to produce these products.
Power seeks to mitigate volatility in its results by contracting in advance for a significant portion of its anticipated electric output and fuel needs. Power believes this contracting strategy increases
stability of earnings and cash flow. By keeping some portion of its output uncontracted, Power is able to retain some exposure to market changes as well as provide some protection in the event of
unexpected generation outages.
Power seeks to sell a portion of its anticipated low-cost nuclear and coal-fired generation over a multi-year forward horizon, normally over a period of approximately two to three years. By contrast,
Power takes a more opportunistic approach in hedging its anticipated natural gas-fired generation. The generation from these units is less predictable, as these units are generally dispatched only when
aggregate market demand has exceeded the supply provided by lower-cost units. The natural gas-fired units generally provide a lower contribution to the margin of Power than either the nuclear or coal
units. Power will generally purchase natural gas as gas-fired generation is required to supply forward sale commitments.
In a changing market environment, this hedging strategy may cause Power’s realized prices to be materially different than current market prices. At the present time, some of Power’s existing
contractual obligations, entered into during lower-priced periods, are anticipated to result in lower margins than would have been the case if no or little hedging activity had been conducted. Alternatively,
in a falling price environment, this hedging strategy will tend to create margins in excess of those implied by the then current market.
Overview and Future Outlook
During the first quarter of 2007, Power continued to benefit from strong energy markets and sustained improvement in the performance of its generating facilities. The resulting improvement in margins
allowed Power to make a dividend payment to PSEG of $125 million in March 2007. Going forward, Power expects
45
margin improvements to continue in 2007 as higher prices for its nuclear and coal-fired generation output are realized due to the rolling nature of its forward hedge positions and the expiration of older
power contracts.
In PJM, the Reliability Pricing Model (RPM) will provide generators with capacity payments for the reliability provided by their respective facilities. The Forward Capacity Market (FCM) settlement in
NEPOOL provides for similar reliability-based capacity payments. FERC has approved the market changes in each of these markets, with the anticipated start date for RPM set for June 1, 2007 and FCM
transition period having begun on December 1, 2006. Power believes that this redesign in capacity markets will lead to changes in the value of the majority of its generating capacity and could result in
incremental margin of $125 million to $175 million in 2007, with higher increases in future years as the full year impact is realized and existing capacity contracts expire.
On April 13, 2007, PJM announced the results of its first base residual auction for the 2007-2008 delivery year. The price for the Eastern Mid Atlantic Area Council (MAAC) zone, received by
generation assets located within this zone, including those of Power, cleared at $197.67/MW-day ($72/kW-yr). The auction clearing price, received by generation assets, including those of Power, located in
PJM but not within Eastern or Southwest MAAC zones was $40.80/MW-day ($15/kW-yr). The capacity price that will be charged to load serving entities for obligations in the Eastern MAAC zone is
$177.51/MW-day ($65/kW-yr). These prices will be in effect for the June 2007 to May 2008 PJM planning year. On a prospective basis, many factors will affect the pricing for capacity in PJM, including but
not limited to, changes in demand, changes in available generating capacity (including retirements, additions, derates, forced outage rates, etc.), transmission capability between zones and market design
criteria used in creating the administratively determined demand curve mechanism. Management cannot predict what pricing will result from future auctions.
Power completed the sale of four turbines to a third party in April 2007 and received proceeds of $40 million, which approximates the recorded book value. Power also expects to close on the sale of
the Lawrenceburg facility in the second quarter of 2007, the proceeds of which are expected to support future dividends to PSEG and contribute to reducing PSEG’s debt. PSEG has called for redemption
on May 15, 2007, the outstanding $375 million of its Senior Floating Rate Notes Due 2008.
A key factor in Power’s ability to achieve its objectives is its ability to operate its nuclear and fossil stations at sufficient capacity factors to limit the need to purchase higher-priced electricity to satisfy
its obligations. Power’s ability to achieve its objectives will also depend on the implementation of reasonable capacity markets. Power must also be able to effectively manage its construction projects and
continue to economically operate its generation facilities under increasingly stringent environmental requirements. In addition, with an increase in competition and market complexity and constantly
changing forward prices, there is no assurance that Power will be able to contract its output at attractive prices. While these increases may have a potentially significant beneficial impact on margins, they
could also raise any replacement power costs that Power may incur in the event of unanticipated outages, and could also further increase liquidity requirements as a result of contract obligations. Power
could also be impacted by a number of market and regulatory events, including but not limited to, the lack of consistent rules in markets outside of PJM, rate-regulated utility ownership of generation and
other regulatory actions favoring non-competitive markets, and regulatory policies favoring the construction of west-to-east rate based transmission that may result in increased imports of western
generation into New Jersey. For additional information on liquidity requirements, see Liquidity and Capital Resources.
Energy Holdings
Energy Holdings’ operations are principally conducted through its subsidiaries—Global, which has invested in international rate-regulated distribution companies and domestic and international
generation companies, and Resources, which primarily invests in energy-related leveraged leases.
Global
Global owns investments in power producers and distributors that own and operate electric generation and distribution facilities in select domestic and international markets.
Global’s earnings are primarily derived from its investments in the United States, Chile and Peru. Approximately 69% of Global’s investments are in Chile and Peru, with another 23% in the United
States. Other modest-sized investments in Italy, India and Venezuela comprise the remaining 8% of Global’s portfolio. As such, Global’s success will depend on continued strong energy markets in Texas
and the
46
economic and efficient operation of its electric distribution companies in Chile and Peru, including its ability to achieve reasonable rates and meet expected growth in demand. The success of Global’s
foreign investments will also depend on stable political, regulatory and economic policies, including foreign currency exchange rates and interest rates, particularly for Chile and Peru.
Energy Holdings continues to review Global’s portfolio, with a focus on optimizing operations at its distribution companies to improve earnings and increase value and will consider opportunistic
monetizations, as appropriate, based on valuations and potential alternate uses of capital. In March 2007, Global announced that it is exploring a potential sale of Electroandes S.A. (Electroandes), its
hydro-electric generation and transmission company in Peru, and would evaluate offers to decide if proceeds from a sale might be better used for other opportunities.
Resources
Resources primarily has invested in energy-related leveraged leases. Resources is focused on maintaining its current investment portfolio and does not expect to make any new investments.
Overview and Future Outlook
Energy Holdings expects decreased margins at Global in 2007 primarily relating to the anticipated absence of mark-to-market (MTM) gains at the Texas generation facilities and anticipated
maintenance outages at the Texas generation facilities. Also contributing to the expected decrease at Energy Holdings are higher taxes, the impact of adopting Financial Accounting Standards Board
(FASB) Interpretation No. (FIN) 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement 109” (FIN 48) and related standards and lower earnings due to asset sales.
During the first quarter of 2007, Energy Holdings made a cash distribution to PSEG of $145 million in the form of a return of capital.
Energy Holdings faces risks related to the tax treatment of uncertain tax positions which will be impacted by new accounting guidance under FIN 48 and FASB Staff Position No. FAS 13-2,
“Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction” (FAS 13-2), both of which were effective as of January
1, 2007. Based on its evaluation of this new guidance, Energy Holdings recorded a reduction to opening 2007 Retained Earnings of approximately $160 million. In addition, this new guidance will have an
impact on Energy Holdings’ future earnings, including an anticipated earnings after-tax reduction of $32 million in 2007, which represents the majority of the anticipated impact on PSEG. In addition,
Energy Holdings faces risks related to the resolution of tax audit claims associated with Resources’ leveraged lease transactions. See Note 2. Recent Accounting Standards and Note 5. Commitments and
Contingent Liabilities of the Notes for further discussion.
47
The results for PSEG, PSE&G, Power and Energy Holdings for the quarters ended March 31, 2007 and 2006 are presented below:
Earnings (Losses)
2007
2006
PSE&G
$
132
$
78
Power
219
121
Energy Holdings:
Global
(13
)
9
Resources
17
20
Other (A)
(1
)
(1
)
Total Energy Holdings
3
28
Other (B)
(19
)
(19
)
PSEG Income from Continuing Operations
335
208
Loss from Discontinued Operations (C)
(6
)
(5
)
PSEG Net Income
$
329
$
203
(A)
Other activities include non-segment amounts of Energy Holdings and its subsidiaries and intercompany eliminations. Specific amounts include interest on certain financing transactions and certain
other administrative and general expenses at Energy Holdings.
(B)
Other activities include non-segment amounts of PSEG (as parent company) and intercompany eliminations. Specific amounts include preferred securities dividends for PSE&G in 2007 and 2006, merger
expenses in 2006, interest on certain financing transactions and certain other administrative and general expenses at PSEG (as parent company) in 2007 and 2006.
(C)
Includes Discontinued Operations of Lawrenceburg in 2007 and 2006 and Skawina and Elcho in 2006. See Note 3. Discontinued Operations, Dispositions and Impairments of the Notes.
As shown in the table above, PSEG had Income from Continuing Operations of $335 million, or $1.32 per share for the quarter ended March 31, 2007, as compared to $208 million, or $0.83 per share
for the same quarter in 2006. PSEG’s Net Income for the quarter ended March 31, 2007 was $329 million, or $1.30 per share, as compared to Net Income of $203 million, or $0.81 per share for the first
quarter of 2006. The quarter over quarter changes in PSEG’s Income from Continuing Operations and Net Income primarily relate to changes in Net Income for PSE&G, Power and Energy Holdings,
discussed below.
48
Quarters Ended
March 31,
PSEG
For the Quarters
Increase
%
2007
2006
(Millions)
Operating Revenues
$
3,614
$
3,461
$
153
4
Energy Costs
$
2,041
$
2,146
$
(105
)
(5
)
Operation and Maintenance
$
610
$
578
$
32
6
Depreciation and Amortization
$
196
$
201
$
(5
)
(2
)
Income from Equity Method Investments
$
26
$
33
$
(7
)
(21
)
Other Income and Deductions
$
35
$
23
$
12
52
Interest Expense
$
(187
)
$
(193
)
$
(6
)
(3
)
Income Tax Expense
$
(262
)
$
(149
)
$
113
76
Loss from Discontinued Operations, net of tax
$
(6
)
$
(5
)
$
1
20
PSEG’s results of operations are primarily comprised of the results of operations of its operating subsidiaries, PSE&G, Power and Energy Holdings, excluding changes related to intercompany
transactions, which are eliminated in consolidation, and certain financing costs at the parent company. For additional information on intercompany transactions, see Note 13. Related-Party Transactions of
the Notes. For a discussion of the causes for the variances at PSEG in the table above, see the discussions for PSE&G, Power and Energy Holdings that follow.
PSE&G
For the quarter ended March 31, 2007, PSE&G had Net Income of $132 million, an increase of $54 million as compared to the quarter ended March 31, 2006. This increase was primarily due to increased
volumes due to weather and price increases resulting from the electric and gas base rate cases settled in November 2006. For the quarter as compared to the same period in 2006, gas delivery volumes
increased 9% and electric delivery volumes increased 2%. The weather was the primary cause of the increase as degree days increased 14%.
The quarter-over-quarter detail for the variances is discussed below:
For the Quarters
Increase
%
2007
2006
(Millions)
Operating Revenues
$
2,486
$
2,293
$
193
8
Energy Costs
$
1,665
$
1,574
$
91
6
Operation and Maintenance
$
325
$
301
$
24
8
Depreciation and Amortization
$
145
$
152
$
(7
)
(5
)
Other Income and Other Deductions
$
4
$
3
$
1
33
Interest Expense
$
(81
)
$
(85
)
$
(4
)
(5
)
Income Tax Expense
$
(99
)
$
(65
)
$
34
52
Operating Revenues
PSE&G has three sources of revenue: commodity revenues from the sales of energy to customers and in the PJM spot market; delivery revenues from the transmission and distribution of energy through
its system; and other operating revenues from the provision of various services.
PSE&G makes no margin on gas commodity sales as the costs are passed through to customers. The difference between the gas costs paid under the requirements contract for residential customers and
the revenues received from residential customers is deferred and collected from or returned to customers in future periods. Gas commodity prices fluctuate monthly for commercial and industrial customers
and annually through the BGSS tariff for residential customers. In addition, for residential gas customers, PSE&G has the ability to adjust rates upward two additional times and downward at any time, if
warranted, between annual BGSS proceedings.
PSE&G makes no margin on electric commodity sales as the costs are passed through to customers. PSE&G secures its electric commodity through the annual BGS auction. Electric commodity supply
prices are set based on the results of these auctions for residential and smaller industrial and commercial customers,
49
Ended March 31,
(Decrease)
Ended March 31,
(Decrease)
and are translated into seasonally-adjusted fixed rates. Electric supply for larger industrial and commercial customers is provided at a rate principally based on the hourly PJM real-time energy price.
Customers may obtain their electric supply through either the BGS default electric supply service or through competitive third-party electric suppliers, and the majority of the customers subject to hourly
pricing are currently receiving electric supply from third-party suppliers. Any differences between amounts paid by PSE&G to BGS suppliers for electric commodity, and the amounts of electric commodity
revenue collected from customers is deferred and collected or returned to customers in subsequent months.
The $193 million increase for the quarter ended March 31, 2007, as compared to the same period in 2006, was due to increases of $99 million in delivery revenues and $91 million in commodity
revenues, described below and $3 million in other operating revenues, primarily related to appliance service contracts.
Commodity
The $91 million increase in commodity revenues for the quarter ended March 31, 2007, as compared to 2006, was due to an increase in electric commodity revenues of $120 million offset by a decrease
of $29 million in gas commodity revenues. The increase in electric revenues was primarily due to $129 million in higher BGS and NGC revenues (higher auction prices of $117 million and increased sales of
$12 million) offset by $9 million in lower Non-Utility Generation (NUG) revenues, primarily due to lower volumes. The $29 million decrease in gas revenues was primarily due to $114 million in lower
BGSS prices offset by $85 million in higher volumes due to weather.
Delivery
The $99 million increase in delivery revenues for the quarter ended March 31, 2007, as compared to 2006, was due to a $69 million increase in gas and a $30 million increase in electric revenues. The gas
increase was due to $27 million in higher volumes primarily due to weather, $19 million due to rate relief effective November 9, 2006 and $18 million due to the Societal Benefits Clause (SBC) rate increases
November 1, 2006 and March 9, 2007. The electric increase was due primarily to $11 million from a rate increase effective November 9, 2006 and $3 million for increased SBC rates, $16 million in higher
volumes and demands primarily due to weather. PSE&G retains no margins from SBC collections as the revenues are offset in operating expenses below.
Operating Expenses
Energy Costs
The $91 million increase for the quarter ended March 31, 2007, as compared to the same period in 2006, was comprised of increases of $121 million in electric costs offset by a decrease of $30 million in
gas costs. The increase in electric costs was primarily caused by a $123 million or 30% increase in prices. The gas decrease is due to $113 million or 3% lower prices offset by $82 million in higher volumes
due to weather.
Operation and Maintenance
The $24 million increase for the quarter ended March 31, 2007, as compared to the same period in 2006, was due primarily to increased SBC expenses, resulting from rate increases in November 2006
and March 2007.
Depreciation and Amortization
The $7 million decrease for the quarter ended March 31, 2007, as compared to the same period in 2006, was due primarily to decreases of $9 million due to revised plant depreciation rates and $3
million due to lower cost of removal rates resulting from the November 2006 rate case. This was offset by increases of $3 million due to amortization of regulatory assets and $2 million due to additional
plant in service.
Interest Expense
The $4 million decrease for the quarter ended March 31, 2007, as compared to the same period in 2006, due primarily to lower amounts of long-term and securitization debt outstanding.
50
Income Taxes
The $34 million increase for the quarter ended March 31, 2007, as compared to the same period in 2006, was primarily due to increased taxes of $35 million on higher pre-tax income offset by $1 million
in various tax adjustments.
Power
For the quarter ended March 31, 2007, Power had Net Income of $213 million, an increase of $101 million as compared to the same period in the prior year. The primary reasons for the increase were
higher prices realized as a result of recontracting combined with higher sales volumes and lower generation costs. Improved margins and higher sales volumes under the BGSS contract due to a colder
winter heating season and fuel pricing in 2007 also contributed to the increase.
The quarter-over-quarter detail for the variances is discussed below:
For the Quarters
Increase
%
2007
2006
(Millions)
Operating Revenues
$
2,149
$
1,967
$
182
9
Energy Costs
$
1,488
$
1,487
$
1
—
Operation and Maintenance
$
238
$
232
$
6
3
Depreciation and Amortization
$
34
$
31
$
3
10
Other Income and Deductions
$
22
$
22
$
—
—
Interest Expense
$
(37
)
$
(32
)
$
5
16
Income Tax Expense
$
(155
)
$
(86
)
$
69
80
Loss from Discontinued Operations, net of tax
$
(6
)
$
(9
)
$
(3
)
(33
)
Operating Revenues
The $182 million increase for the quarter ended March 31, 2007, as compared to the same period in 2006, was due to increases of $94 million in generation revenues and $102 million in gas supply
revenues partially offset by a decrease of $14 million in trading revenues.
Generation
Generation revenues increased $94 million for the quarter ended March 31, 2007, as compared to the same period in 2006, primarily due to higher revenues of approximately $71 million from higher
prices on BGS fixed-price contracts, partially offset by reduced load being served under the BGS contracts and $24 million from increased sales volumes at the Bethlehem Energy Center.
Gas Supply
Gas supply revenues increased $102 million for the quarter ended March 31, 2007, as compared to the same period in 2006, principally due to higher sales volumes under the BGSS contract largely due
to colder average temperatures in the 2007 winter heating season.
Trading Revenues
Trading revenues decreased $14 million for the quarter ended March 31, 2007, as compared to the same period in 2006, due primarily to the absence in 2007 of $15 million of realized gains in 2006 from
sales of excess emissions credits.
Operating Expenses
Energy Costs
Energy Costs represent the cost of generation, which includes fuel purchases for generation as well as purchased energy in the market, and gas purchases to meet Power’s obligation under its BGSS
contract with PSE&G.
51
Ended March 31,
(Decrease)
Energy Costs increased approximately $1 million for the quarter ended March 31, 2007, as compared to the same period in 2006, primarily due to an increase in gas costs of $37 million, reflecting a
higher volume of gas purchased at lower prices to satisfy Power’s BGSS obligations partially offset by a decrease in sales prices charged to other gas distributors for gas and pipeline capacity. Generation
costs decreased $36 million, reflecting lower pool prices and lower load obligations somewhat offset by higher prices and volumes of fossil fuel.
Operation and Maintenance
Operation and Maintenance expense increased $6 million for the quarter ended March 31, 2007, as compared to the same period in 2006, primarily due to maintenance costs related to projects at
certain fossil stations, mainly Hudson and Mercer.
Depreciation and Amortization
The $3 million increase for the quarter ended March 31, 2007, as compared to the same period in 2006, was primarily due to the Linden facility being placed into service in May 2006.
Other Income
and Deductions
Other Income and Deductions remained flat for the quarter ended March 31, 2007, as compared to the same period in 2006, as an increase in other income primarily attributable to a $9 million increase
in realized gains, interest and dividend income related to the Nuclear Decommissioning Trust (NDT) Funds was offset principally by a $10 million other-than-temporary impairment of certain NDT Funds
securities.
Interest Expense
Interest Expense increased $5 million for the quarter ended March 31, 2007, as compared to the same period in 2006, due primarily to lower capitalized interest costs of $15 million in 2007 related to
commencement of operations of the Linden facility in May 2006 partially offset by a reduction in interest expense of $9 million due to the maturity on April 15, 2006 of $500 million of 6.875% Senior Notes.
Income Taxes
Income Taxes increased $69 million for the quarter ended March 31, 2007, as compared to the same period in 2006, primarily due to higher pre-tax income.
Loss from Discontinued Operations, net of tax
On December 29, 2006, Power entered into an agreement to sell its Lawrenceburg generation facility for approximately $325 million and recognized an estimated loss on disposal of $208 million, net of
tax, in December 2006, for the initial write-down of its carrying amount of Lawrenceburg to its fair value less cost to sell. The transaction is anticipated to close in the second quarter of 2007. Losses from
Discontinued Operations were $6 million and $9 million the quarters ended March 31, 2007 and 2006, respectively.
Energy Holdings
For the quarter ended March 31, 2007, Energy Holdings had Net Income of $3 million, a decrease of $29 million as compared to the same period in 2006. The decrease was primarily due to lower
income from the Texas generation facilities due to the recognition of MTM losses of $29 million in 2007 as compared to $6 million in 2006 and a scheduled maintenance outage at the Guadalupe plant, the
adoption of certain accounting pronouncements in 2007 and the absence of equity earnings from Rio Grande Energia (RGE), which was sold in June 2006. Also contributing to the variance was a loss at
Prisma 2000 S.p.A. in 2007 because it was prohibited from conducting operations at the San Marco Facility as a result of legal proceedings regarding alleged violations of the facility’s air permit. In March
2007, the shareholders of Prisma 2000 S.p.A. agreed to change the company name to Bioenergie S.p.A. (Bioenergie). Global anticipates that the facility will resume commercial operations in the summer of
2007. These reductions were partially offset by improved operations at Sociedad Austral de Electricidad S.A. (SAESA), a gain on the sale of the Tracy project and an arbitration award received relating to
the Konya-Ilgin dispute. See Note 5.
52
Commitments and Contingent Liabilities of the Notes for additional information regarding Bioenergie. See Part II. Other Information, Item 1. Legal Proceedings for additional information regarding the
Konya-Ilgin dispute.
The quarter-over-quarter detail for the variances is discussed below including the consolidation of Bioenergie in May 2006 and the related effects of the shutdown:
The classification of the results of Global’s investments on Energy Holdings’ Condensed Consolidated Financial Statements is dependent upon Global’s ownership percentage in the underlying
investment which determines whether the investment is consolidated into Energy Holdings’ Condensed Consolidated Financial Statements or if it is accounted for under the equity method of accounting.
Global’s investments in Texas generation facilities, SAESA and Electroandes and Bioenergie are consolidated. As a result, the revenues, expenses, assets and liabilities of those investments are reflected on
Energy Holdings’ Condensed Consolidated Financial Statements. Global’s investments in Chilquinta Energia S.A. (Chilquinta), Luz del Sur S.A.A. (LDS), GWF Power Systems, L.P., GWF Energy LLC,
Kalaeloa Partners, L.P. (Kalaeloa) and several other smaller investments are accounted for under the equity method or cost method of accounting, as appropriate. Therefore, Energy Holdings only records
its share of the net income from these projects as Income from Equity Method Investments on its Condensed Consolidated Statements of Operations.
Operating Revenues
The $58 million decrease for the quarter ended March 31, 2007, as compared to the same period in 2006, was due to lower revenues at Global of $55 million, which was primarily the net result of
decreased revenues consisting of a $76 million decrease at the Texas generation facilities mainly due to a reduction in average price per MWh and unrealized MTM losses on contracts in 2007 as opposed to
unrealized MTM gains in 2006; and a $3 million decrease at Electroandes due to scheduled maintenance closing of one of its four hydro-electric generating plants. These decreases were partially offset by a
$21 million increase at SAESA due to increased tariff rates and energy sales volume and a $7 million increase due to a gain on sale of Global’s 34.5% interest in Tracy Biomass in January 2007.
In addition, there were lower leveraged lease revenues at Resources of $3 million primarily due to the adoption of FIN 48 and FAS 13-2 and decreased Demand Side Management revenue due to
contract expirations, partially offset by a gain on settlement of its investment in a collateralized bond fund.
Operating Expenses
Energy Costs
The $33 million decrease for the quarter ended March 31, 2007, as compared to the same period in 2006, was primarily due to a $49 million decrease at the Texas generation facilities primarily due to
MTM unrealized gains on gas contracts in 2007 as opposed to unrealized MTM losses in 2006, offset by a $16 million increase at SAESA due to higher energy purchase price and volume.
Operation and Maintenance
The $4 million increase for the quarter ended March 31, 2007, as compared to the same period in 2006, was primarily due to a $7 million increase at the Texas generation facilities due to a scheduled
maintenance
53
outage at the Guadalupe plant and a $2 million increase due to the consolidation of Bioenergie in May 2006, partially offset by a $4 million decrease due to lower corporate assessments.
Depreciation and Amortization
The $2 million increase for the quarter ended March 31, 2007, as compared to the same period in 2006, was primarily due to the consolidation of Bioenergie in May 2006.
Income from Equity Method Investments
The $7 million decrease for the quarter ended March 31, 2007, as compared to the same period in 2006, was primarily due to the sale of RGE in June 2006.
Other Income and Deductions
The $14 million increase for the quarter ended March 31, 2007, as compared to the same period in 2006, was primarily due to a $9 million pre-tax gain in 2007 from the award against the Turkish
Government related to an arbitration proceeding regarding the construction of a power plant in the Konya-Ilgin region of Turkey and a $2 million dividend received from Global’s investment in PPN Power
Generating Company Limited in India.
Interest Expense
The $7 million decrease for the quarter ended March 31, 2007, as compared to the same period in 2006, was primarily due to a decrease in debt outstanding.
Income Taxes
The $8 million increase for the quarter ended March 31, 2007, as compared to the same period in 2006, was primarily due to assets sales and the Konya-Ilgin settlement, higher effective tax rate due to
timing and the adoption of FIN 48.
Income from Discontinued Operations, net of tax
In May 2006, Energy Holdings completed the sale of its interest in two coal-fired plants in Poland, Elcho and Skawina. Income from Discontinued Operations related to Elcho and Skawina for the
quarter ended March 31, 2006 was $4 million net of tax. See Note 3. Discontinued Operations, Dispositions and Impairments of the Notes for additional information.
LIQUIDITY AND CAPITAL RESOURCES
The following discussion of liquidity and capital resources is on a consolidated basis for PSEG, noting the uses and contributions of PSEG’s three direct operating subsidiaries, PSE&G, Power and Energy
Holdings.
Operating Cash Flows
PSEG
For the quarter ended March 31, 2007, PSEG’s operating cash flow increased by approximately $46 million from $910 million to $956 million, as compared to the same period in 2006, due to changes
from its subsidiaries as discussed below. Excess cash is currently being used to reduce debt and beginning in mid-2008, it is expected that excess cash will be available for new investments and/or
repurchasing shares.
PSE&G
PSE&G’s operating cash flow decreased approximately $206 million from $267 million to $61 million for the quarter ended March 31, 2007, as compared to the same period in 2006, primarily due to the
change in customer receivables. Billed revenues grew $193 million while collections declined $158 million, largely due
54
to warmer than normal weather conditions in late 2006 and January 2007. Offsetting the increase in customer receivables was a $200 million increase in accounts payable and current liabilities.
Power
Power’s operating cash flow increased approximately $142 million from $682 million to $824 million for the quarter ended March 31, 2007, as compared to the same period in 2006, primarily due to
higher net income of $101 million, and working capital changes driven by an increase of $349 million in accounts payable due mainly to energy and fuel purchases and a decrease of $77 million in inventories
due to higher gas sendouts partially offset by an increase in customer receivables of $365 million largely attributable to increased revenues.
Energy Holdings
Energy Holdings’ operating cash flow increased approximately $90 million from $1 million to $91 million for the quarter ended March 31, 2007, as compared to the same period in 2006. The increase
was mainly attributable to higher distributions from equity method investments in Global’s GWF and Hanford projects and Resources’ limited partnerships.
Common Stock Dividends
Dividend payments on common stock for the quarters ended March 31, 2007 and 2006 were $0.585 and $0.57 per share, respectively, and totaled approximately $148 million and $143 million,
respectively. Future dividends declared will be dependent upon PSEG’s future earnings, cash flows, financial requirements, alternative investment opportunities and other factors. Improved earnings would
cause PSEG’s dividend payout ratio to decline, providing PSEG the flexibility to raise its dividend at a rate higher than its prior dividend increases. On April 17, 2007, PSEG’s Board of Directors approved
a common stock dividend of $0.585 per share for the second quarter of 2007, reflecting an indicated annual dividend rate of $2.34 per share.
Short-Term Liquidity
PSEG, PSE&G, Power and Energy Holdings
As of March 31, 2007, PSEG and its subsidiaries had a total of approximately $3.7 billion of committed credit facilities with approximately $3.3 billion of available liquidity under these facilities. In
addition, PSEG and PSE&G have access to certain uncommitted credit facilities. Each of the facilities is restricted to availability and use to the specific companies as listed below. As of March 31, 2007, PSEG
had no loans outstanding under its uncommitted facility and PSE&G had $48 million of loans outstanding under its uncommitted facility.
55
Company
Expiration
Total
Primary
Usage
Available
(Millions)
PSEG:
5-year Credit Facility
Dec 2011
$
1,000
CP Support/Funding/
$
1
(C)
$
999
Uncommitted Bilateral
Agreement
N/A
N/A
Funding
$
—
$
N/A
PSE&G:
5-year Credit Facility
June 2011
$
600
CP Support/Funding/
$
222
$
378
Uncommitted Bilateral Agreement
N/A
N/A
Funding
$
48
$
N/A
PSEG and Power:
Bilateral Credit Facility(A)
June 2007
$
200
Funding/Letters of
$
10
(C)
$
190
Power:
5-year Credit Facility
Dec 2011
$
1,600
Funding/Letters of
$
20
(C)
$
1,580
Bilateral Credit Facility
March 2010
$
100
Funding/Letters of
Credit
$
26
(C)
$
74
Energy Holdings:
5-year Credit Facility(B)
June 2010
$
150
Funding/Letters of
$
27
(D)
$
123
Date
Facility
Purpose
as of
March 31,
2007
Liquidity
as of
March 31,
2007
Letters of Credit
Letters of Credit
Credit
Credit
Credit
|
|
||||||||||||||||||||
|
(A) |
|
PSEG/Power joint and several co-borrower facility. |
||||||||||||||||||
|
|
||||||||||||||||||||
|
(B) |
|
Energy Holdings/Global/Resources joint and several co-borrower facility. |
||||||||||||||||||
|
|
||||||||||||||||||||
|
(C) |
|
These amounts relate to letters of credit outstanding. |
||||||||||||||||||
|
|
||||||||||||||||||||
|
(D) |
|
Includes $19 million relating to letters of credit outstanding.
|
||||||||||||||||||
PSEG and PSE&G
PSEG and PSE&G believe sufficient liquidity exists to fund their short-term cash needs.
Power
As of March 31, 2007, Power had loaned $525 million to PSEG in the form of an intercompany loan.
During the quarter ending March 31, 2007, Power’s required margin postings for sales contracts entered into in the normal course of business increased slightly. The required margin postings will fluctuate based on volatility in commodity prices. Should commodity prices rise, additional margin calls may be necessary relative to existing power sales contracts. As Power’s contract obligations are fulfilled, liquidity requirements are reduced.
In addition, ER&T maintains agreements that require Power, as its guarantor under performance guarantees, to satisfy certain creditworthiness standards. In the event of a deterioration of Power’s credit rating to below investment grade, which represents at least a two level downgrade from its current ratings, many of these agreements allow the counterparty to demand that ER&T provide performance assurance, generally in the form of a letter of credit or cash. Providing this support would increase Power’s costs of doing business and could restrict the ability of ER&T to manage and optimize Power’s asset portfolio. Power believes it has sufficient liquidity to meet any required posting of collateral resulting from a credit rating downgrade. See Note 5. Commitments and Contingent Liabilities of the Notes for further information.
56
Energy Holdings
Energy Holdings and its subsidiaries had $65 million in cash, including $6 million invested offshore as of March 31, 2007. In addition, as of March 31, 2007, Energy Holdings had an outstanding demand
loan receivable from PSEG of $25 million. See External Financings—Energy Holdings below for Energy Holdings’ additional use of its excess cash.
External Financings
PSEG
On April 13, 2007, PSEG called for redemption on May 15, 2007 the outstanding $375 million of its Floating Rate Notes Due 2008 at 100% of the principal amount.
For the quarter ended March 31, 2007, PSEG issued 393,355 shares of its common stock in connection with settling stock options for approximately $16 million.
For the quarter ended March 31, 2007, PSEG issued 204,068 shares of its common stock under its Dividend Reinvestment Program and its Employee Stock Purchase Program for approximately $17
million.
PSE&G
On January 2, 2007, PSE&G repaid at maturity $113 million of its 6.25% Series WW First and Refunding Mortgage Bonds.
For the quarter ended March 31, 2007, PSE&G Transition Funding LLC (Transition Funding) repaid approximately $38 million of its transition bonds.
Power
In March 2007, Power paid a cash dividend to PSEG of $125 million.
Energy Holdings
In March 2007, Energy Holdings made a cash distribution to PSEG of $145 million in the form of a return of capital.
During the first quarter of 2007, Energy Holdings’ subsidiaries repaid approximately $16 million of non-recourse debt, including $14 million by Global, primarily related to the Texas generation
facilities, $1 million by Resources and $1 million by EGDC.
Debt Covenants
PSEG, PSE&G, Power and Energy Holdings
PSEG’s, PSE&G’s, Power’s and Energy Holdings’ respective credit agreements may contain maximum debt to equity ratios, minimum cash flow tests and other restrictive covenants and conditions to
borrowing. Compliance with applicable financial covenants will depend upon the respective future financial position, level of earnings and cash flows of PSEG, PSE&G, Power and Energy Holdings, as to
which no assurances can be given. The ratios presented below are for the benefit of the investors of the related securities to which the covenants apply. They are not intended as financial performance or
liquidity measures. The debt underlying the preferred securities of PSEG, which is presented in Long-Term Debt in accordance with FIN 46 “Consolidation of Variable Interest Entities,” is not included as
debt when calculating these ratios, as provided for in the various credit agreements.
Energy Holdings’ credit agreement also contains customary provisions under which the lender could refuse to advance loans in the event of a material adverse change in the borrower’s business or
financial condition.
57
PSEG
Financial covenants contained in PSEG’s credit facilities include a ratio of debt (excluding non-recourse project financings, securitization debt and debt underlying preferred securities and including
commercial paper and loans, certain letters of credit not related to collateral postings for commodity/energy contracts and similar instruments) to total capitalization (including preferred securities
outstanding and excluding any impacts for Accumulated Other Comprehensive Income adjustments related to marking energy contracts to market and equity reductions from the funded status of pensions
or benefit plans associated with SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”) covenant. This covenant requires that such ratio not be more than
70.0%. As of March 31, 2007, PSEG’s ratio of debt to capitalization (as defined above) was 50.7%.
PSE&G
Financial covenants contained in PSE&G’s credit facilities include a ratio of long-term debt (excluding securitization debt, long-term debt maturing within one year and short-term debt) to total
capitalization covenant. This covenant requires that such ratio will not be more than 65.0%. As of March 31, 2007, PSE&G’s ratio of long-term debt to total capitalization (as defined above) was 47.5%.
In addition, under its First and Refunding Mortgage (Mortgage), PSE&G may issue new First and Refunding Mortgage Bonds against previous additions and improvements, provided that its ratio of
earnings to fixed charges calculated in accordance with its Mortgage is at least 2 to 1, and/or against retired Mortgage Bonds. As of March 31, 2007, PSE&G’s Mortgage coverage ratio was 4.8 to 1 and the
Mortgage would permit up to approximately $2.1 billion aggregate principal amount of new Mortgage Bonds to be issued against previous additions and improvements.
Power
Financial covenants contained in Power’s credit facility include a ratio of debt to total capitalization covenant. The Power ratio is the same debt to total capitalization calculation as set forth above for
PSEG except common equity is adjusted for the $986 million Basis Adjustment (see Condensed Consolidated Balance Sheets). This covenant requires that such ratio will not exceed 65.0%. As of March 31,
2007, Power’s ratio of debt to total capitalization (as defined above) was 37.5%.
Energy Holdings
Energy Holdings’ bank revolving credit agreement has a covenant requiring the ratio of Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) to fixed charges to be greater than
or equal to 1.75. As of March 31, 2007, Energy Holdings’ coverage of this covenant was 3.63. Additionally, the bank revolving credit agreement has a covenant requiring that Energy Holdings maintain a
ratio of net debt (recourse debt offset by funds loaned to PSEG) to EBITDA of less than 5.25. As of March 31, 2007, Energy Holdings’ ratio under this covenant was 2.63. Energy Holdings is a co-borrower
under this facility with Global and Resources, which are joint and several obligors. The terms of the agreement include a pledge of Energy Holdings’ membership interest in Global, restrictions on the use of
proceeds related to material sales of assets and the satisfaction of certain financial covenants. Net cash proceeds from asset sales in excess of 5% of total assets of Energy Holdings during any 12-month
period must be used to repay any outstanding amounts under the credit agreement. Net cash proceeds from asset sales during any 12-month period in excess of 10% of total assets must be retained by
Energy Holdings or used to repay the debt of Energy Holdings, Global or Resources.
Energy Holdings’ indenture with respect to its senior notes does not permit liens securing indebtedness in excess of 10% of consolidated net tangible assets as calculated under the terms of the
indenture. The terms of Energy Holdings’ Senior Notes allow the holders to demand repayment if a transaction or series of related transactions causes the assets of Resources to be reduced by 20% or more
and as a direct result there is a downgrade of ratings.
58
Credit Ratings
PSEG, PSE&G, Power and Energy Holdings
The credit ratings of PSEG and its subsidiaries are shown in the table below.
If the rating agencies lower or withdraw the credit ratings, such revisions may adversely affect the market price of PSEG’s, PSE&G’s, Power’s and Energy Holdings’ securities and serve to materially
increase those companies’ cost of capital and limit their access to capital. Outlooks assigned to ratings are as follows: stable, negative (Neg) or positive (Pos). There is no assurance that the ratings will
continue for any given period of time or that they will not be revised by the rating agencies, if, in their respective judgments, circumstances so warrant. Each rating given by an agency should be evaluated
independently of the other agencies’ ratings. The ratings should not be construed as an indication to buy, hold or sell any security.
Moody’s (A)
S&P (B)
Fitch (C)
PSEG:
Outlook
Neg
Neg
Pos
Preferred Securities
Baa3
BB+
BBB–
Commercial Paper
P2
A3
F2
Senior Unsecured Debt
Baa2
BBB–
BBB
PSE&G:
Outlook
Neg
Neg
Stable
Mortgage Bonds
A3
A–
A
Preferred Securities
Baa3
BB+
BBB+
Commercial Paper
P2
A3
F2
Power:
Outlook
Stable
Neg
Pos
Senior Notes
Baa1
BBB
BBB
Energy Holdings:
Outlook
Neg
Neg
Neg
Senior Notes
Ba3
BB–
BB
(A)
Moody’s ratings range from Aaa (highest) to C (lowest) for long-term securities and P1 (highest) to NP (lowest) for short-term securities.
(B)
S&P ratings range from AAA (highest) to D (lowest) for long-term securities and A1 (highest) to D (lowest) for short-term securities.
(C)
Fitch ratings range from AAA (highest) to D (lowest) for long-term securities and F1 (highest) to D (lowest) for short-term securities.
Other Comprehensive Income
PSEG, Power and Energy Holdings
For the quarter ended March 31, 2007, PSEG, Power and Energy Holdings had Other Comprehensive Losses of $164 million, $155 million and $9 million, respectively, due primarily to an increase in
the net unrealized losses on derivatives accounted for as hedges in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133) at Power and foreign
currency translation adjustments at Energy Holdings.
During the quarter ended March 31, 2007, Power’s Accumulated Other Comprehensive Loss increased from $177 million to $332 million. The primary cause related to energy and related contracts that
qualify for hedge accounting that were entered into by Power in the normal course of business. During the quarter ended March 31, 2007, higher market prices for electricity resulted in additional unrealized
losses on many of those contracts.
As of March 31, 2007, Energy Holdings had Accumulated Other Comprehensive Income of $94 million. The primary reason for the decrease, as compared to the Accumulated Other Comprehensive
Income of $103 million as of December 31, 2006, was currency fluctuations at SAESA and Chilquinta Energia S.A.
59
PSEG, PSE&G, Power and Energy Holdings
It is expected that the majority of funding for capital requirements of PSE&G, Power and Energy Holdings will come from their respective internally generated funds. The balance will be provided by the
issuance of debt at the respective subsidiary or project level and, for PSE&G and Power, equity contributions from PSEG. PSEG does not expect to contribute any additional equity to Energy Holdings.
Projected construction and investment expenditures for PSEG, PSE&G, Power and Energy Holdings are materially consistent with amounts disclosed in the Annual Reports on Form 10-K of PSEG, PSE&G,
Power and Energy Holdings for the year ended December 31, 2006.
PSE&G
During the quarter ended March 31, 2007, PSE&G made approximately $130 million of capital expenditures, primarily for reliability of transmission and distribution systems. The $130 million does not
include expenditures for cost of removal, net of salvage, of approximately $8 million, which are included in operating cash flows.
Power
During the quarter ended March 31, 2007, Power made approximately $123 million of capital expenditures (excluding $3 million for nuclear fuel), primarily related to various projects at Fossil and
Nuclear.
Energy Holdings
During the quarter ended March 31, 2007, Energy Holdings made approximately $16 million of capital expenditures, primarily related to upgrades and expansions of SAESA’s transmission and
distribution systems and expenditures at Electroandes.
PSEG, PSE&G, Power and Energy Holdings
For information related to recent accounting matters, see Note 2. Recent Accounting Standards of the Notes.
60
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
PSEG, PSE&G, Power and Energy Holdings
The market risk inherent in PSEG’s, PSE&G’s, Power’s and Energy Holdings’ market-risk sensitive instruments and positions is the potential loss arising from adverse changes in foreign currency
exchange rates, commodity prices, equity security prices and interest rates as discussed in the Notes. It is the policy of each entity to use derivatives to manage risk consistent with its respective business
plans and prudent practices. PSEG, PSE&G, Power and Energy Holdings have a Risk Management Committee (RMC) comprised of executive officers who utilize an independent risk oversight function to
ensure compliance with corporate policies and prudent risk management practices.
Additionally, PSEG, PSE&G, Power and Energy Holdings are exposed to counterparty credit losses in the event of non-performance or non-payment. PSEG has a credit management process, which is
used to assess, monitor and mitigate counterparty exposure for PSEG and its subsidiaries. In the event of non-performance or non-payment by a major counterparty, there may be a material adverse impact
on PSEG and its subsidiaries’ financial condition, results of operations or net cash flows.
Except as discussed below, there were no material changes from the disclosures in the Annual Reports on Form 10-K of PSEG, PSE&G, Power and Energy Holdings for the year ended December 31,
2006.
Commodity Contracts
The availability and price of energy commodities are subject to fluctuations from factors such as weather, environmental policies, changes in supply and demand, state and federal regulatory policies,
market rules and other events. As part of its overall risk management strategy to reduce price risk due to market fluctuations, Power enters into supply contracts and derivative contracts, including forwards,
futures, swaps and options with approved counterparties. These contracts, in conjunction with demand obligations, help reduce risk and optimize the value of owned electric generation capacity.
Normal Operations, Hedging and Trading Activities
Power enters into physical contracts, as well as financial contracts, including forwards, futures, swaps and options designed to reduce risk associated with volatile commodity prices. Commodity price
risk is associated with market price movements resulting from market generation demand, changes in fuel costs and various other factors.
Under SFAS 133 “Accounting for Derivative Instruments and Hedging Activities.”, as amended (SFAS 133), changes in the fair value of qualifying cash flow hedge transactions are recorded in
Accumulated Other Comprehensive Income/Loss, and gains and losses are recognized in earnings when the underlying transaction occurs. Changes in the fair value of derivative contracts that do not meet
hedge criteria under SFAS 133 and the ineffective portion of hedge contracts are recognized in earnings currently. Additionally, changes in the fair value attributable to fair value hedges are similarly
recognized in earnings.
Many non-trading contracts qualify for the normal purchases and normal sales exemption under SFAS 133 and are accounted for upon settlement.
In addition, Power has non-asset based trading activities. These contracts also involve financial transactions including swaps, options and futures. These activities are marked to market in accordance
with SFAS 133 with gains and losses recognized in earnings.
Value-at-Risk (VaR) Models
Power
Power uses VaR models to assess the market risk of its commodity businesses. The portfolio VaR model for Power includes its owned generation and physical contracts, as well as fixed price sales
requirements, load requirements and financial derivative instruments. VaR represents the potential gains or losses, under normal market conditions, for instruments or portfolios due to changes in market
factors, for a specified time period and confidence level. Power estimates VaR across its commodity businesses.
61
Power manages its exposure at the portfolio level. Its portfolio consists of owned generation, load-serving contracts (both gas and electric), fuel supply contracts and energy derivatives designed to
manage the risk around generation and load. While Power manages its risk at the portfolio level, it also monitors separately the risk of its trading activities and its hedges. Non-trading mark-to-market
(MTM) VaR consists of MTM derivatives that are economic hedges, some of which qualify for hedge accounting. The MTM derivatives that are not hedges are included in the trading VaR.
The VaR models used by Power are variance/covariance models adjusted for the delta of positions with a 95% one-tailed confidence level and a one-day holding period for the MTM trading and non-
trading activities and a 95% one-tailed confidence level with a one-week holding period for the portfolio VaR. The models assume no new positions throughout the holding periods, whereas Power actively
manages its portfolio.
Reduced trading activities by Power during 2006 and 2007 have resulted in less trading risk. As of March 31, 2007, trading VaR was less than $1 million. As of December 31, 2006, trading VaR was
immaterial.
For the Quarter Ended March 31, 2007
Trading
Non-Trading
(Millions)
95% Confidence Level, One-Day Holding Period, One-Tailed:
Period End
$
—
$
28
Average for the Period
$
—
$
37
High
$
1
$
64
Low
$
—
$
26
99% Confidence Level, One-Day Holding Period, Two-Tailed:
Period End
$
—
$
44
Average for the Period
$
—
$
58
High
$
1
$
100
Low
$
—
$
41
Other Supplemental Information Regarding Market Risk
Power
The following presentation of the activities of Power is included to address the recommended disclosures by the energy industry’s Committee of Chief Risk Officers. For additional information, see
Note 6. Financial Risk Management Activities of the Notes.
The following table describes the drivers of Power’s energy trading and marketing activities and Operating Revenues included in its Condensed Consolidated Statement of Operations for the quarter
ended March 31, 2007. Normal operations and hedging activities represent the marketing of electricity available from Power’s owned or contracted generation sold into the wholesale market. As the
information in this table highlights, MTM activities represent a small portion of the total Operating Revenues for Power. Activities accounted for under the accrual method, including normal purchases and
sales, account for the majority of the revenue. The MTM activities reported here are those relating to changes in fair value due to external movement in prices.
62
VaR
MTM VaR
Operating Revenues
Normal
Trading
Total
(Millions)
MTM Activities:
Unrealized MTM Gains (Losses)
Changes in Fair Value of Open Position
$
5
$
(2
)
$
3
Realization at Settlement of Contracts
(9
)
1
(8
)
Total Change in Unrealized Fair Value
(4
)
(1
)
(5
)
Realized Net Settlement of Transactions Subject to MTM
9
(1
)
8
Net MTM Gains
5
(2
)
3
Accrual Activities:
Accrual Activities—Revenue, Including Hedge Reclassifications
2,146
—
2,146
Total Operating Revenues
$
2,151
$
(2
)
$
2,149
(A)
Includes derivative contracts that Power enters into to hedge anticipated exposures related to its owned and contracted generation supply, all asset backed transactions (ABT) and hedging activities, but
excludes owned and contracted generation assets.
The following table indicates Power’s energy trading assets and liabilities, as well as Power’s hedging activity related to ABTs and derivative instruments that qualify for hedge accounting under SFAS
133. This table presents amounts segregated by portfolio which are then netted for those counterparties with whom Power has the right to offset and therefore, are not necessarily indicative of amounts
presented on the Condensed Consolidated Balance Sheets since balances with many counterparties are subject to offset and are shown net on the Condensed Consolidated Balance Sheets regardless of the
portfolio in which they are included.
Energy Contract Net Assets/Liabilities
Normal
Trading
Total
(Millions)
MTM Energy Assets
Current Assets
$
19
$
24
$
43
Noncurrent Assets
20
4
24
Total MTM Energy Assets
39
28
67
MTM Energy Liabilities
Current Liabilities
$
(335
)
$
(34
)
$
(369
)
Noncurrent Liabilities
(156
)
(2
)
(158
)
Total MTM Energy Liabilities
(491
)
(36
)
(527
)
Total MTM Energy Contract Net Liabilities
$
(452
)
$
(8
)
$
(460
)
63
For the Quarter Ended March 31, 2007
Operations and
Hedging(A)
As of March 31, 2007
Operations and
Hedging
The following table presents the maturity of net fair value of MTM energy trading contracts.
Maturity of Net Fair Value of MTM Energy Trading Contracts
Maturities within
2007
2008
2009-
Total
(Millions)
Trading
$
(10
)
$
2
$
—
$
(8
)
Normal Operations and Hedging
(200
)
(252
)
—
(452
)
Total Net Unrealized Losses on MTM Contracts
$
(210
)
$
(250
)
$
—
$
(460
)
Wherever possible, fair values for these contracts were obtained from quoted market sources. For contracts where no quoted market exists, modeling techniques were employed using assumptions
reflective of current market rates, yield curves and forward prices as applicable to interpolate certain prices. The effect of using such modeling techniques is not material to Power’s financial results.
PSEG, Power and Energy Holdings
The following table identifies losses on cash flow hedges that are currently in Accumulated Other Comprehensive Loss (OCL), a separate component of equity. Power uses forward sale and purchase
contracts, swaps and firm transmission rights (FTRs) contracts to hedge forecasted energy sales from its generation stations and its contracted supply obligations. Power also enters into swaps, options and
futures transactions to hedge the price of fuel to meet its fuel purchase requirements for generation. PSEG, Power and Energy Holdings are subject to the risk of fluctuating interest rates in the normal
course of business. PSEG’s policy is to manage interest rate risk through the use of fixed rate debt, floating rate debt and interest rate derivatives. The table also provides an estimate of the losses that are
expected to be reclassified out of OCL and into earnings over the next 12 months.
Cash Flow Hedges Included in Accumulated Other Comprehensive Loss
Accumulated
Portion Expected
(Millions)
Commodities
$
(267
)
$
(186
)
Interest Rates
(2
)
—
Net Cash Flow Hedge Loss Included in Accumulated Other Comprehensive Loss
$
(269
)
$
(186
)
Power
Credit Risk
The following table provides information on Power’s credit exposure, net of collateral, as of March 31, 2007. Credit exposure is defined as any positive results of netting accounts receivable/accounts
payable and the forward value on open positions. It further delineates that exposure by the credit rating of the counterparties and provides guidance on the concentration of credit risk to individual
counterparties and an indication of the maturity of a company’s credit risk by credit rating of the counterparties.
64
As of March 31, 2007
2011
As of March 31, 2007
Other
Comprehensive
Loss
to be Reclassified
in next 12 months
Schedule of Credit Risk Exposure on Energy Contracts Net Assets
Rating
Current
Securities
Net
Number of
Net Exposure of
(Millions)
(Millions)
Investment Grade—External Rating
$
393
$
53
$
393
1
(A)
$
311
Non-Investment Grade—External Rating
—
—
—
—
—
Investment Grade—No External Rating
—
—
—
—
—
Non-Investment Grade—No External Rating
6
—
6
—
—
Total
$
399
$
53
$
399
1
$
311
(A)
Counterparty is PSE&G.
The net exposure listed above, in some cases, will not be the difference between the current exposure and the collateral held. A counterparty may have posted more collateral than the outstanding
exposure, in which case there would not be exposure. As of March 31, 2007, Power had 121 active counterparties.
As of March 31, 2007
Exposure
Held
as Collateral
Exposure
Counterparties
>10%
Counterparties
>10%
ITEM 4. CONTROLS AND PROCEDURES
PSEG, PSE&G, Power and Energy Holdings
Disclosure Controls and Procedures
PSEG, PSE&G, Power and Energy Holdings have established and maintain disclosure controls and procedures which are designed to provide reasonable assurance that information required to be disclosed is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that material information relating to each company, including their respective consolidated subsidiaries, is accumulated and communicated to the respective company’s management, including the Chief Executive Officer and Chief Financial Officer of each company by others within those entities to allow timely decisions regarding required disclosure. PSEG, PSE&G, Power and Energy Holdings have established a disclosure committee which is made up of several key management employees and which reports directly to the Chief Financial Officer and Chief Executive Officer of each respective company. The committee monitors and evaluates the effectiveness of these disclosure controls and procedures. The Chief Financial Officer and Chief Executive Officer of each company have evaluated the effectiveness of the disclosure controls and procedures as of March 31, 2007 and, based on this evaluation, have concluded that the disclosure controls and procedures were effective in providing reasonable assurance during the period covered in these quarterly reports.
Internal Controls
PSEG, PSE&G, Power and Energy Holdings continually review their respective disclosure controls and procedures and make changes, as necessary, to ensure the quality of their financial reporting. There have been no changes in internal control over financial reporting that occurred during the first quarter of 2007 that have materially affected, or are reasonably likely to materially affect, each registrant’s internal control over financial reporting.
65
Certain information reported under Item 3 of Part I of the 2006 Annual Report on Form 10-K is updated below.
PSE&G
Electric Discount and Energy Competition Act (Competition Act)
On April 23, 2007, PSE&G and Transition Funding were served with a copy of a purported class action complaint (Complaint) challenging the constitutional validity of certain provisions of New Jersey’s
Competition Act, seeking injunctive relief against continued collection from PSE&G’s electric customers of the transition bond charge (TBC) of PSE&G Transition Funding, as well as recovery of TBC
amounts previously collected. Notice of the filing of the Complaint was also provided to New Jersey’s Attorney General. Under New Jersey law, the Competition Act, enacted in 1999, is
presumed constitutional. Preliminary review indicates the claim is without merit. PSE&G and Transition Funding will vigorously defend the matter.
Con Edison
2006 Form 10-K, Page 46.
In November 2001, Consolidated Edison Company of New York, Inc. (Con Edison) filed a complaint against PSE&G, PJM and NYISO with FERC asserting a failure to
comply with agreements between PSE&G and Con Edison covering 1,000 MW of transmission. PSE&G denied the allegations set forth in the complaint. An Initial Decision issued by an ALJ in April 2002
upheld PSE&G’s claim in part but also accepted Con Edison’s contentions in part. In December 2002, FERC issued an order modifying the Initial Decision and remanding a number of issues to the ALJ for
additional hearings, including issues related to the development of protocols to implement the findings of the order and regarding Phase II of the complaint. The ALJ issued an Initial Decision on the Phase
II issues in June 2003 and in August 2004, FERC issued its decision on Phase II issues. While those decisions were largely favorable to PSE&G, PSE&G sought rehearing as to certain issues, as did Con Edison.
On April 19, 2007, the FERC rejected the rehearing requests of both Con Edison and PSE&G, while granting PSE&G’s requested clarification that 400 MW of the 1000 MW at issue will have higher priority
over other non-firm transactions only if Con Ed agrees to pay congestion costs. Con Edison may appeal the FERC’s rulings on both Phase I and Phase II issues to the Court of Appeals; thus, it is difficult to
predict the final outcome of this proceeding at this time.
The August 2004 order required that PJM, NYISO, Con Edison and PSE&G meet for the purpose of developing operational protocols to implement FERC’s directives. On February 18, 2005, NYISO,
PJM and PSE&G submitted a joint compliance filing pursuant to FERC’s August 2004 decision. FERC approved the joint proposals on May 18, 2005 and they took effect on July 1, 2005. In subsequent filings
to FERC regarding the efficacy of these protocols, Con Edison continued to claim that the obligations under the agreements as interpreted by the FERC’s orders were not being met. In December 30, 2005
and January 19, 2007 filings with FERC, Con Edison claimed to have incurred $111 million in damages, and requested FERC to require refunds of this amount. On April 19, 2007, however, the FERC
issued an order rejecting Con Edison’s claim for a refund. FERC also rejected Con Edison’s request for interim remedies and directed that no further informational filings regarding the protocols would be
required. The April 19, 2007 order remains subject to rehearing. Since Con Edison may seek rehearing of this order, the final outcome of this proceeding cannot be predicted.
Energy Holdings
Turkey
2006 Form 10-K, Page 47.
From 1995 through 2001, Global and its partners expended approximately $12 million towards the construction of a power plant in the Konya-Ilgin region of Turkey. In
2001, Turkey passed legislation that deprived Global of rights and fair and equitable treatment and expropriated Global’s Concession Contract for the power plant project, despite the Turkish Government’s
obligation to compensate Global for its costs under the existing contract and Turkish law. In 2002, Global initiated arbitration before
66
the International Centre for Settlement of International Disputes (ICSID) seeking return of costs, lost profits, interest and attorney fees. ICSID rendered its decision in January 2007 requiring the Turkish
Government to pay Global and its partners a total of approximately $19 million for sunk costs, interest and arbitration fees. After paying deferred legal fees, Global received a net payment of approximately
$9 million pre-tax ($5 million after-tax) in March 2007, for its share of the arbitration award.
PSEG, PSE&G, Power and Energy Holdings
See information on the following proceedings at the pages indicated for PSEG and each of PSE&G, Power and Energy Holdings as noted:
Page 23. (PSE&G) Investigation Directive of NJDEP dated September 19, 2003 and additional investigation Notice dated September 15, 2003 by the EPA regarding the Passaic River site. Docket
No. EX93060255.
(2)
Page 24. (PSE&G) PSE&G’s MGP Remediation Program instituted by NJDEP’s Coal Gasification Facility Sites letter dated March 25, 1988.
(3)
Page 26. (Power) Power’s Petition for Review filed in the United States Court of Appeals for the District of Columbia Circuit on July 30, 2004 challenging the final rule of the United States
Environmental Protection Agency entitled “National Pollutant Discharge Elimination System—Final Regulations to Establish Requirements for Cooling Water Intake Structures at Phase II
Existing Facilities,” now transferred to and venued in the United States Court of Appeals for the Second Circuit with Docket No. 04-6696-ag.
(4)
Page 26. (Energy Holdings) Italian government investigation regarding allegations of violations of Bioenergie S.p.A’s air permit for the San Marco facility.
(5)
Page 30. (PSE&G) Deferral Proceeding filed with the BPU on August 28, 2002, Docket No. EX02060363, and Deferral Audit beginning on October 2, 2002 at the BPU, Docket No. EA02060366.
(6)
Page 70. (PSEG, PSE&G and Power) FERC ruling dated April 19, 2007 regarding Schedule 12 cost allocation. Docket No. ER06-1271-003
(7)
Page 70. (PSEG, PSE&G and Power) FERC proceeding relating to PJM Long-Term Transmission Rate Design, Docket No. EL05-121-000.
(8)
Page 73. (PSEG, PSE&G and Power) JCP&L v. ACE, et al. complaint filed with FERC on December 30, 2004, Docket No. EL05-50-000, seeking to terminate its construction obligations under the
LDV Agreement.
(9)
Page 73. (PSE&G) PSE&G’s BGSS Commodity filing with the BPU on May 28, 2004, Docket No. GR04050390.
(10)
Page 74. (PSE&G) Remediation Adjustment Clause filing with the BPU on February 13, 2007, Docket No. ER07020104.
67
(1)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PSEG
PSEG’s Annual Meeting of Stockholders was held on April 17, 2007. Proxies for the meeting were solicited pursuant to Regulation 14A under the Securities Act of 1934. There was no solicitation of
proxies in opposition to management’s nominees as listed in the proxy statement and all of management’s nominees were elected to the Board of Directors. Management’s other proposals were also
approved by the stockholders. Details of the voting are provided below:
Votes For
Votes Withheld
Proposal 1:
Election of Directors
Class I–Term expiring in 2009
Ernest H. Drew
212,423,786
7,644,660
Class II–Terms expiring in 2010
William V. Hickey
216,162,290
3,906,156
Ralph Izzo
215,776,495
4,291,951
Richard J. Swift
215,600,264
4,468,182
Votes For
Votes
Abstentions
Proposal 2:
Amendment to the Certificate of Incorporation to increase authorized Common Stock from 500 million shares to 1 billion shares
186,335,586
31,202,536
2,530,302
Proposal 3:
Approval of the 2007 Equity Compensation Plan for Outside Directors
156,447,238
23,618,163
3,516,215
Proposal 4:
Amendment to the Certificate of Incorporation to eliminate classification of the Board of Directors
202,881,678
13,600,629
3,586,133
Proposal 5:
Amendment to the Certificate of Incorporation to eliminate cumulative voting
143,763,143
36,249,473
3,569,098
Proposal 6:
Amendment to the Certificate of Incorporation to eliminate preemptive rights
162,440,150
17,772,626
3,368,942
Proposal 7:
Ratification of Appointment of Deloitte & Touche LLP as Independent Auditor
215,721,598
2,256,311
2,088,724
68
Against
Certain information reported under the 2006 Annual Report on Form 10-K is updated below. Additionally, certain information is provided for new matters that have arisen subsequent to the filing of
the 2006 Annual Report on Form 10-K. References are to the related pages on the Form 10-K as printed and distributed.
Federal Regulation
Compliance
PSEG, PSE&G, Power and Energy Holdings
Reliability Standards
2006 Form 10-K, Page 14.
The Energy Policy Act (EP Act) required FERC to empower a single, national Electric Reliability Organization (ERO) to develop and enforce national and regional
reliability standards for the U.S. bulk power system. FERC has designated the North American Electric Reliability Corporation (NERC) as this ERO. NERC has filed with FERC delegation agreements
that would in turn delegate, to a significant degree, the enforcement of such reliability standards to eight regional reliability councils approved by NERC, such as Reliability First. Thus, the relationship
between NERC and the regional reliability councils (responsible for reliability standards compliance within a particular geographic region) is a contractual one. PSE&G’s transmission assets, and most of
Power’s generation assets, are located within the geographic scope of Reliability First, and PSEG’s remaining domestic assets, including the New York, Connecticut, Texas and California generating assets,
are within the scope of other regional reliability councils such as Northeast Power Coordinating Council, Electric Reliability Council of Texas, Inc., and Western Electricity Coordinating Council.
After being designated as an ERO, NERC asked FERC to approve a set of proposed mandatory Reliability Standards, many of which mirrored existing, voluntary standards. On March 15, 2007, FERC
issued a Final Rule, which approved 83 of the 107 filed standards; the other 24 standards remain pending. Compliance with these 83 standards (Standards), enforcement of which will largely be delegated to
the regional reliability councils such as Reliability First, is mandatory and sanctions may attach for non-compliance. Pursuant to the EP Act, FERC has the ability to impose penalties of up to $1 million a
day for violations of these Standards. Compliance with these Standards will be required by the commencement of the 2007 summer peak season. These Standards are applicable to transmission owners and
generation owners, and thus PSEG, PSE&G, Power and Energy Holdings (or their subsidiaries) will be obligated to comply with the Standards. PSEG, PSE&G, Power and Energy Holdings are currently
evaluating all of the requirements imposed by the Standards and are preparing to ensure that they will be in compliance by the FERC-required date. It should be noted in this regard that PSE&G’s local
control center (LCC) was the first control center voluntarily audited by NERC in January 2006 with respect to LCC readiness. NERC concluded in this audit that PSE&G has adequate facilities, processes,
plans, procedures, tools, and trained personnel to effectively operate as an LCC within PJM and found no significant operational problems.
FERC Standards of Conduct
2006 Form 10-K, Page 15.
On January 18, 2007, FERC issued a Notice of Proposed Rulemaking (NOPR), which proposes to make certain changes to its Standards of Conduct applicable to both
electric and natural gas transmission providers. The NOPR was issued in response to a decision by the United States Court of Appeals of the District of Columbia, which vacated FERC’s existing Standards
of Conduct as they applied to natural gas pipelines. The NOPR, however, proposes changes to the Standards of Conduct for both natural gas and electric providers. Some of the proposed changes include
modifying the definition of Energy Affiliate and thereby changing the scope of applicability of the Standards of Conduct, changing the regulations with respect to the permissible tasks of “shared”
employees (employees that may be shared by both the Transmission Provider and the Energy Affiliates) and modifying the information disclosure regulations. PSE&G is currently subject to FERC’s
Standards of Conduct as a Transmission Provider and subsidiaries of Power and Energy Holdings are subject to the Standards of Conduct as Energy Affiliates. PSEG, PSE&G, Power and Energy Holdings
may be impacted by FERC’s proposed changes and therefore filed comments to the NOPR with FERC on March 30, 2007. FERC is expected to issue a Final Rule in this proceeding within the next several
months. The outcome of this proceeding cannot be predicted at this time.
69
Transmission Rates and Cost Allocation
PSEG, PSE&G and
Power
PJM Schedule 12 Cost Allocation for Regional Transmission Expansion Planning (RTEP) Projects
2006 Form 10-K, Page 15.
On January 5, 2006, PJM proposed cost allocation recommendations for new transmission projects pursuant to Schedule 6 of its FERC-approved Operating Agreement and
Schedule 12 of its Open Access Transmission Tariff (Tariff). PJM identified the “Responsible Customers” that would be required to pay for certain transmission upgrades approved through PJM’s Regional
Transmission Expansion Planning (RTEP) process and the percentage of the project cost that would be allocated to such Responsible Customers. This was the first filing by PJM pursuant to these new cost
allocation mechanisms and it included (i) large cost allocations to eastern load as a result of proposed construction in the western and southern portions of PJM and (ii) allocations to merchant transmission
projects such as Neptune Regional Transmission System, LLC (“Neptune”). On May 26, 2006, FERC issued an order that accepted and suspended PJM’s cost allocation filing, made the filing effective
subject to refund as of May 30, 2006 and established a hearing and settlement judicial procedure.
In addition, on May 4, 2006, PJM made a second RTEP cost allocation filing at FERC, addressing cost allocations to Responsible Customers associated with additional RTEP projects. PSE&G protested
the filing, objecting to, among other things, PJM’s netting of cost impacts within a PJM zone to allocate RTEP costs and PJM’s failure to consider the impact of certain adjustments in determining zonal cost
allocation.
On July 19, 2006, FERC consolidated PJM’s January 5, 2006 and May 4, 2006 filings that propose to allocate the costs of new transmission projects that PJM has directed to be built through its RTEP
process. On July 21, 2006, PJM submitted to FERC a further proposal to allocate the costs of an additional group of new transmission projects that PJM has directed be built through its RTEP. The July 21,
2006 filing includes allocations for the $850 million, 200-mile 500 kV Loudon transmission line which runs from Allegheny Power’s service territory, through West Virginia to Northern Virginia, as well as
many other transmission projects in the PJM region. This proceeding was consolidated with the other two PJM cost allocation filings and was then the subject of settlement proceedings before an ALJ.
Settlement discussions terminated in November 2006 and, on November 7, 2006, the proceedings were set for hearing, and were then held in abeyance by FERC pending its issuance of a decision on long-
term transmission rate design.
On April 19, 2007, the FERC issued a decision with respect to cost allocation, finding PJM’s current Schedule 12 to be inadequate and directing PJM to re-file a more detailed methodology. FERC also
directed resumption of the hearing regarding the proper cost allocation for RTEP projects and established a separate proceeding to address the allocation of costs for “economic” projects (those not being
built to remedy a reliability criteria violation). The FERC also expanded the scope of the hearing to fully examine PJM’s methodology for allocating costs for reliability projects and to address issues that
PSE&G considers significant, such as “electrically cohesive” areas (i.e. areas of congestion). The expansion of the scope of the hearing will now provide PSE&G an opportunity to present its most significant
arguments on cost allocation.
In addition, as a result of the April 19 FERC order on long-term rate design discussed below, cost allocation issues have been minimized to a large extent since Schedule 12 will now only apply to cost
allocations for facilities below the 500 kV voltage threshold. Thus, the 500 kV Loudon line project discussed above, a significant portion of the costs of which were to be borne by PSE&G’s customers, will no
longer be subject to Schedule 12 cost allocation and the costs of the project will now be socialized, resulting in a much smaller cost allocation to PSE&G customers. Because the cost allocation hearing,
however, has not yet commenced, and because the FERC’s order on long-term rate design is subject to rehearing, PSE&G is not able to predict a final outcome regarding RTEP project cost allocations at this
time.
PJM Long-Term Transmission Rate Design
2006 Form 10-K, Page 16.
On May 31, 2005, FERC issued an order addressing the recovery of costs for transmission upgrades designated through PJM’s RTEP process. Among other matters, FERC’s
order responded to a proposal to continue PJM’s current modified zonal rate design for existing transmission facilities, under which transmission customers pay rates for existing transmission within the
particular transmission zone in which they take service. FERC concluded that the existing rate design may not be just and reasonable and it established a hearing to examine the justness and reasonableness
of continuing PJM’s modified zonal rate design. Certain entities filed proposals with FERC on September 30, 2005 for alternative rate designs for the PJM region. PSE&G, as part of a coalition of potentially
affected PJM transmission
70
owners, filed answering testimony on November 22, 2005 that supported continuation of the zonal rate design in PJM.
A hearing was held in April 2006 and on July 13, 2006, a FERC ALJ issued a decision concluding that the existing PJM modified zonal rate design for existing facilities had been shown to be unjust and
unreasonable, and should be replaced with a postage stamp rate design (single “postage stamp” rate paid by all transmission customers in PJM) for such facilities to be effective April 1, 2006. To mitigate
rate impacts, the ALJ determined that the rate design should be phased in, so that no customer receives greater than a 10% annual rate increase. The ALJ also determined that the existing process for
allocating costs of new transmission projects pursuant to Schedule 6 of PJM’s Operating Agreement and Schedule 12 of the PJM Tariff was just and reasonable. Briefs on exceptions to the ALJ’s initial
decision and reply briefs were filed in this proceeding challenging the decision to find the existing rate design unjust and unreasonable, the appropriateness of imposing a postage stamp rate design, the
decision as to the appropriateness of applying the current Schedule 6 and Schedule 12 process for allocating costs of new transmission projects and the phase-in of the new rate design.
On April 19, 2007, FERC issued an order reversing the ALJ’s decision and finding that there was no basis upon which to conclude that the zonal rate design was unjust and unreasonable. The April 19
order also held that (1) for new facilities at the voltage level of 500 kV or higher, 100% of the costs of these new transmission facilities will be socialized to all PJM customers; (2) for new facilities at a
voltage level below 500 kV, costs will be allocated on a “cost causation” basis through the PJM Schedule 12 (“beneficiary pays”) methodology, the details of which will be examined in a hearing as discussed
under Schedule 12 cost allocation above; and (3) for existing facilities, costs will continue to be allocated using PJM’s current zonal rate design.
This rate design order is a positive outcome for PSE&G, which had argued for continuation of the zonal rate design, as PSE&G’s current rate structure will remain in place. The order also minimizes cost
allocation to PSE&G’s customers through socialization of the costs of new 500 kV facilities in PJM. The April 19, 2007 order is subject to rehearing; thus, it is difficult to predict a final outcome of this
proceeding at this time.
Market Power
2006 Form 10-K, Page 17.
Under FERC regulations, public utilities may sell power at cost-based rates or apply to FERC for authority to sell at market-based rates (MBR). FERC requires that holders
of MBR tariffs file an update, on a triennial basis, demonstrating that they continue to lack market power. On November 30, 2006, PSE&G and ER&T filed their respective triennial updated market power
reports with FERC, which were accepted by FERC on February 28, 2007. PSE&G’s and ER&T’s next market power report is due March 1, 2010.
FERC Order 888/890
On May 18, 2006, FERC issued a NOPR seeking comments from the industry on whether reforms are needed to the protections that FERC established in its previously-issued Order 888 to prevent
undue discrimination and preference in the provision of transmission service. These reforms would be reflected in revisions to FERC’s pro forma Open Access Transmission Tariff, which has been
incorporated into the tariffs of Transmission Providers and governs the terms and conditions under which transmission owners must provide transmission service to all eligible customers. On February 16,
2007, FERC issued Final Rule 890 in this proceeding. The Final Rule covers many transmission-related topics and emphasizes the issues of transmission planning and cost allocation associated with the
construction of transmission projects. On March 19, 2007, PSE&G filed a Request for Rehearing and Clarification of the Final Rule, arguing that FERC, among other things, erred in appearing to mandate
Transmission Provider planning for economic transmission projects and in establishing cost allocation principles for these projects. The final outcome of this proceeding and the resulting impact on PSEG,
PSE&G and Power cannot be determined at this time.
PJM Strategic Initiative
2006 Form 10-K, Page 20.
In the fourth quarter of 2006, PJM launched a “strategic initiative” to more specifically define its role in the evolving wholesale energy markets. As part of this initiative,
PJM sought comments from its members, including PSE&G, on a number of items, including whether PJM should consider splitting its wholesale market operations from its transmission grid operations and
whether PJM should consider changes to its current corporate governance structure. On April 2, 2007, PJM issued a Strategic Report, which has not yet been approved by the PJM Board of Managers,
addressing PJM’s vision
71
for the future on the topics of network services operations, markets administration, market monitoring and governance. In the report, PJM has pulled back from its idea of splitting market and grid
operations but continues to consider whether there is a need to modify aspects of its current market and governance structure, such as by offering new forward products, implementing a smart grid, changing
the structure of its market monitoring program, improving generation dispatch, resolving seams issues with the New York Independent System Operator, and implementing certain governance changes.
PSEG filed comments to the Strategic Report on April 24, 2007 and will actively participate in discussions concerning the scope, impact and implementation of the PJM Strategic Initiative. The final
outcome of this proceeding and the resulting impact on PSEG, PSE&G and Power cannot be determined at this time.
Power
PJM Reliability Pricing Model (RPM)
2006 Form 10-K, Page 18.
On August 31, 2005, PJM filed its RPM with FERC. The RPM constitutes a locational installed capacity market design for the PJM region, including a forward auction for
installed capacity priced according to a downward-sloping demand curve and a transitional implementation of the market design. FERC issued an order on April 20, 2006 that accepted most of the core
concepts of the RPM filing with an implementation date of June 1, 2007. The April 20, 2006 order set certain details of the filing for paper hearing and technical conference procedures including the slope of
the demand curve and the mechanism for identification of the locational capacity zones. Such hearing and technical conference procedures have now been completed. Also, commencing in June 2006,
settlement discussions mediated by a FERC ALJ commenced at the request of certain intervenors. A final settlement was filed with FERC on September 29, 2006 with a requested approval date of no later
than December 22, 2006. PSE&G and Power filed comments to the settlement supporting the basic structural elements of the RPM proposal but nonetheless requesting certain modifications which, in their
view, would better promote the adequacy of generation reserves on a cost-effective basis. On December 22, 2006, FERC issued an order approving the September 29 settlement, with certain conditions.
FERC’s approval of this settlement is expected to have a favorable impact on generation facilities located in constrained locational zones. The final revenue impact on Power of the settlement approved in
the December 22, 2006 FERC order could result in incremental margin of $125 million to $175 million in 2007, with higher increases in future years as the full year impact is realized and existing capacity
contracts expire. The April 20, 2006 order remains subject to rehearing requests filed by several parties. Moreover, on January 22, 2007, PSEG as well as other parties to the proceeding filed for rehearing of
the December 22, 2006 order. Given the pending rehearing requests and the likelihood of eventual judicial appeals, PSEG, PSE&G and Power are unable to predict the outcome of this proceeding.
On April 13, 2007, PJM announced the results of its first base residual auction for the 2007-2008 delivery year. For additional information, see Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Power—Overview and Future Outlook.
Transmission Infrastructure
PSEG, PSE&G and
Power
DOE Congestion Study
2006 Form 10-K, Page 19.
On August 8, 2006, the DOE issued a National Electric Transmission Congestion Study (Congestion Study), as directed by Congress in the EP Act. This Congestion Study
identified two areas in the U.S. as “critical congestion areas;” one of the areas is the region between New York and Washington, D.C. Under the EP Act, the DOE has the ability to designate transmission
corridors in these “critical congestion areas,” to which FERC back-stop transmission siting authority will attach. Thus, corridor designation may facilitate the construction of transmission projects to address
congestion in these corridors.
On April 26, 2007, the DOE issued a report which proposed the Mid-Atlantic Area National Corridor as a draft corridor designation covering most of PJM and bounded by Ohio in the west and the
Atlantic shoreline in the east. Specifically, it appears that the proposed corridor will encompass all of New Jersey, as well as portions of West Virginia, Pennsylvania, Maryland, Virginia, the District of
Columbia, Delaware, Ohio and New York. This corridor has been proposed in draft form only, and parties will have an opportunity to comment on the designation. Thus, the precise scope and route of the
corridor may change.
72
Public meetings will also be held in May to discuss DOE’s proposal. PSE&G and Power are currently analyzing the potential impacts of the proposed corridor designation upon their respective operations.
LDV Complaint Proceeding
2006 Form 10-K, Page 19.
On December 30, 2004, Jersey Central Power & Light Company (JCP&L) filed a complaint at FERC against the other four signatories, including PSE&G, to the Lower Delaware
Valley (LDV) Transmission System Agreement, which expires in 2027 and governs the construction of, and investment in, certain 500 kV transmission facilities in New Jersey. In the complaint proceeding,
JCP&L sought to terminate its payment obligations to PSE&G and the other contract signatories—specifically, JCP&L pays PSE&G approximately $2.7 million annually under the LDV Agreement and its related
agreements. In the proceeding, JCP&L also sought to receive credit from PSE&G and the other LDV Agreement parties for transmission facilities previously constructed by JCP&L in New Jersey. A hearing was
conducted in this proceeding in November 2006, and on March 8, 2007, a FERC Administrative Law Judge (ALJ) issued a decision which ruled against JCP&L on all issues presented in the case. Thus,
pursuant to the ALJ decision, JCP&L’s payment obligations have not been terminated or reduced, and JCP&L has received no credit for certain transmission facilities it constructed. JCP&L has appealed the
ALJ’s decision to FERC and thus the final outcome of this proceeding cannot be predicted at this time.
State Regulation
PSEG, PSE&G, Power and Energy Holdings
New Jersey Energy Master Plan
2006 Form 10-K, Page 22.
The Governor of New Jersey has recently directed the BPU, in partnership with other New Jersey agencies, to develop an Energy Master Plan (EMP). State law in New
Jersey requires that an EMP be developed every three years, the purpose of which is to ensure safe, secure and reasonably-priced energy supply, foster economic growth and development and protect the
environment. In the Governor’s directive regarding the EMP, the Governor established three specific goals: (1) reduce the State’s projected energy use by 20% by the year 2020; (2) supply 20% of the
State’s electricity needs with certain renewable energy sources by 2020; and (3) emphasize energy efficiency, conservation and renewable energy resources to meet future increases in New Jersey electric
demand without increasing New Jersey’s reliance on non-renewable resources. In November 2006, PSE&G submitted a number of strategies designed to improve efficiencies in customer use and increase the
level of renewable generation. During January and February 2007, PSE&G has been actively involved in the broad-based constituent working groups created to develop specific strategies to achieve the goals
and objectives. Public meetings on the EMP will continue through the third quarter of 2007, and a final plan is expected to be completed by October 2007. The outcome of this proceeding and its impact on
PSEG, PSE&G and Power cannot be predicted at this time.
On April 19, 2007, PSE&G filed a plan with the BPU designed to spur investment in solar power in New Jersey and meet energy goals under the EMP. Under the plan, PSE&G would invest approximately
$100 million over the next two years to help finance the installation of solar systems throughout its service area. If approved by the BPU, the initiative could begin by the end of 2007 and support 30 MW of
solar power in the following two years, fulfilling approximately 50% of the BPU’s Renewal Portfolio Standard (RPS) requirements in PSE&G’s service area for 2009 and 2010.
PSE&G
BGSS Filings
2006 Form 10-K, Page 23.
The parties to the 2005/2006 BGSS proceeding entered into a Stipulation in which the parties agreed that the BGSS Commodity Charge increases of September 1, 2005 and
December 15, 2005 that were previously approved by the BPU on a provisional basis should become final. The BPU approved the Stipulation. In addition, all the remaining gas contract issues were also
resolved and an amended Gas Requirements Contract was attached to the Stipulation and also approved by the BPU. The primary changes were the term was extended by five years and the default
provision was changed from three days to one day. The written Order has been received and the Amendment to the Gas Contract has been executed.
PSE&G made its 2006/2007 BGSS filing on May 26, 2006. A Stipulation of the parties was approved by the BPU and resulted in a decrease in annual BGSS revenues of approximately $120 million, which
is
73
approximately a 6% reduction in a typical residential gas customer’s bill. The new BGSS rate became effective on November 9, 2006. The Stipulation did not include any change in the Balancing Charge.
The parties entered into a second Stipulation, which addresses the Balancing Charge only. The BPU Staff recommended a lower Balancing Charge than proposed by the Company and received
agreement from Rate Counsel. The parties executed the Stipulation for the lower rate and BPU approval was received on January 17, 2007.
A third Stipulation of the parties, which makes both the BGSS Charge and the Balancing Charge final, is in the process of being completed. This Stipulation also contains an increase in the Gas
Reservation Charge which is applicable to gas volumes used for electric generation. It is expected that the BPU will approve this Stipulation.
Remediation Adjustment Clause (RAC) Filing
2006 Form 10-K, Page 23.
PSE&G is engaged in a program to address potential environmental concerns regarding its former Manufactured Gas Plant (MGP) properties in cooperation with and under
the supervision of NJDEP. The costs of the program are recovered through the Remediation Adjustment Clause (RAC). The RAC addresses costs in annual periods ending July 31st of each year. The
expenditures in each RAC period are recovered over seven years. The costs of the program, including interest, are deferred and amortized as collected in revenues.
In February 2007, PSE&G submitted its RAC-13 and RAC-14 filings with the BPU. In these filings, PSE&G seeks an order finding that the $71 million of RAC program costs incurred during the two-year
period, August 1, 2004 through July 31, 2006, are reasonable and are available for recovery. If the costs are approved as filed, the annual requirement for the RAC program will decline from $36 million to
$18 million effective July 1, 2007. The decline is primarily the result of an overcollection over the past two years. Amortization of the program costs is equal to revenues with no impact on Net Income.
On April 18, 2007, the BPU transferred the case to the Office of Administrative Law (OAL) for its initial decision. A procedural schedule has been established to start the discovery process.
Societal Benefits Clause (SBC) Filing
2006 Form 10-K, Page 24.
On August 12, 2005, PSE&G filed a motion with the BPU seeking approval of changes in its electric and gas SBC rates and its electric non-utility generation transition charge
(NTC) rates. For electric customers, the rates proposed were designed to recover approximately $106 million in SBC revenues offset by lower NTC rates of $93 million beginning January 1, 2006. For gas,
the rates proposed were designed to recover approximately $10 million in SBC revenues. In 2006, PSE&G filed updates to its filing, modifying its requested changes to electric SBC/NTC rates and gas SBC
rates. Public hearings were held and settlement discussions resulted in the Administrative Law Judge (ALJ) signing the Initial Decision—Settlement on January 31, 2007. The BPU approved the settlement
March 6, 2007 and new rates became effective March 9, 2007, resulting in an annual increase of approximately $16 million in electric SBC/NTC revenues and $12 million in gas SBC revenues.
Gas Purchasing Strategies Audit
2006 Form 10-K, Page 24.
In January 2007, the BPU has issued an RFP to solicit bid proposals to engage a contractor to perform an analysis of the gas purchasing practices and hedging strategies of
the four New Jersey gas distribution companies (GDCs), including PSE&G. The primary focus will be to examine and compare the financial and physical hedging policies and practices of each GDC and to
provide recommendations for improvements to these policies and practices. The BPU selected a consulting firm for this project and work is expected to begin in summer 2007. PSE&G cannot predict the
outcome of this process.
74
A listing of exhibits being filed with this document is as follows:
a.
PSEG:
Exhibit 3.1(a):
Certificate of Incorporation of Public Service Enterprise Group Incorporated
Exhibit 3.1(b):
Certificate of Amendment of Certificate of Incorporation of Public Service Enterprise Group Incorporated, effective April 23, 1987.
Exhibit 3.1(c):
Certificate of Amendment of Certificate of Incorporation of Public Service Enterprise Group Incorporated, effective April 20, 2007.
Exhibit 3.2:
By-Laws of Public Service Enterprise Group Incorporated as in effect April 20, 2007
Exhibit 10:
2007 Equity Compensation Plan for Outside Directors
Exhibit 12:
Computation of Ratios of Earnings to Fixed Charges
Exhibit 31:
Certification by Ralph Izzo Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934
Exhibit 31.1:
Certification by Thomas M. O’Flynn Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934
Exhibit 32:
Certification by Ralph Izzo Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
Exhibit 32.1:
Certification by Thomas M. O’Flynn Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
b.
PSE&G:
Exhibit 3.3:
By-Laws of Public Service Electric and Gas Company as in effect April 17, 2007
Exhibit 10:
2007 Equity Compensation Plan for Outside Directors
Exhibit 12.1:
Computation of Ratios of Earnings to Fixed Charges
Exhibit 12.2:
Computation of Ratios of Earnings to Fixed Charges Plus Preferred Securities Dividend Requirements
Exhibit 31.2:
Certification by Ralph Izzo Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934
Exhibit 31.3:
Certification by Thomas M. O’Flynn Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934
Exhibit 32.2:
Certification by Ralph Izzo Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
Exhibit 32.3:
Certification by Thomas M. O’Flynn Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
c.
Power:
Exhibit 12.3:
Computation of Ratios of Earnings to Fixed Charges
Exhibit 31.4:
Certification by Ralph Izzo Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934
Exhibit 31.5:
Certification by Thomas M. O’Flynn Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934
Exhibit 32.4:
Certification by Ralph Izzo Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
Exhibit 32.5:
Certification by Thomas M. O’Flynn Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
d.
Energy Holdings:
Exhibit 12.4:
Computation of Ratios of Earnings to Fixed Charges
Exhibit 31.6:
Certification by Ralph Izzo Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934
Exhibit 31.7:
Certification by Thomas M. O’Flynn Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934
Exhibit 32.6:
Certification by Ralph Izzo Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
Exhibit 32.7:
Certification by Thomas M. O’Flynn Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
75
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. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
By:
/s/ D
EREK
M. D
I
R
ISIO
Derek M. DiRisio
Date: May 4, 2007
76
(Registrant)
Vice President and Controller
(Principal Accounting Officer)
SIGNATURE
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. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
/s/ D
EREK
M. D
I
R
ISIO
Derek M. DiRisio
Date: May 4, 2007
77
(Registrant)
By:
Vice President and Controller
(Principal Accounting Officer)
SIGNATURE
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. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.
PSEG POWER LLC
/s/ D
EREK
M. D
I
R
ISIO
Derek M. DiRisio
Date: May 4, 2007
78
(Registrant)
By:
Vice President and Controller
(Principal Accounting Officer)
SIGNATURE
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. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.
PSEG ENERGY HOLDINGS L.L.C.
Derek M. DiRisio
Date: May 4, 2007
79
(Registrant)
By:
/s/ D
EREK
M. D
I
R
ISIO
Vice President and Controller
(Principal Accounting Officer)
EXHIBIT 3.1(a)
FILED
JUL 25 1985
JANE BURGIO
SECRETARY OF STATE
CERTIFICATE OF INCORPORATION
OF
PUBLIC SERVICE ENTERPRISE GROUP
INCORPORATED
CERTIFICATE OF INCORPORATION
OF
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
The undersigned, a corporation of the State of New Jersey, for the purpose of forming a corporation pursuant to the provisions of the New Jersey Business Corporation Act, does hereby certify as follows:
1. NAME:
The name of the corporation is PUBLIC SERVICE ENTERPRISE GROUP
INCORPORATED.
2. PURPOSE:
The purpose for which the corporation is organized is to engage in any activity within the purposes for which corporations may be organized under the New Jersey Business Corporation Act, as from time to time amended or supplemented.
3. STOCK:
The aggregate number of shares which the corporation shall have authority to issue is 150,000,000 shares of Common Stock, without par value.
4. PRE-EMPTIVE RIGHTS:
No holder of shares of stock of any class of the corporation shall be entitled as of right to subscribe for, purchase, or receive any part of any new or additional issue of any class of stock of the corporation or any bonds, debentures, or other securities convertible into any such stock; provided, however, that the corporation shall not issue for cash any shares of Common Stock or securities convertible into Common Stock, in any manner other than by a public offering by competitive bidding or by an offering to or through underwriters or investment bankers who shall have agreed to make a public offering thereof promptly or by a plan for the benefit of employees of the corporation or any subsidiary thereof, without first offering the same to the holders of Common Stock then outstanding.
5. RESTRICTION ON DIVIDENDS:
No dividends shall be paid on any shares of any class of stock of the corporation except out of its earned surplus.
6. CUMULATIVE VOTING:
At all elections of directors each holder of Common Stock shall be entitled to as many votes as shall equal the number of his shares of Common Stock multiplied by the number of directors to be elected, and the stockholder may cast all of such votes for a single director or may distribute them among the number to be voted for, or any two or more of them as he may see fit.
7. CERTAIN VOTING REQUIREMENTS:
Except as otherwise required by law or this Certificate of Incorporation, action by the stockholders to adopt a proposed amendment to this Certificate of Incorporation or to approve a proposed plan of merger or consolidation involving the corporation or to approve a proposed sale, lease, exchange or other disposition of all, or substantially all, the assets of the corporation, if not in the usual and regular course of its business as conducted by it, or to dissolve, may be taken by the affirmative vote of a majority of the votes cast by the holders of stock of the corporation entitled to vote thereon and, in addition, if any class or series of stock is entitled to vote thereon as a class, by the affirmative vote of a majority of the votes cast in each class vote.
8. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES:
The corporation shall idemnify to the full extent from time to time permitted by law any person made, or threatened to be made, a party to any pending, threatened or completed civil, criminal, administrative or arbitrative action, suit or proceeding and any appeal therein (and any inquiry or investigation which could lead to such action, suit or proceeding) by reason of the fact that he is or was a director, officer or employee of the corporation or serves or served any other enterprise as a director, officer or employee at the request of the corporation. Such right of indemnification shall inure to the benefit of the legal representative of any such person.
9. CHANGES IN NUMBER OF DIRECTORS; FILLING NEWLY CREATED DIRECTORSHIP:
The number of directors at any time may be increased or (in the event of an existing vacancy) diminished by vote of the Board of Directors, and in case of any such increase the Board of Directors shall have power to elect each such additional director to hold office until the next succeeding annual meeting of stockholders and until his successor shall have been elected and qualified.
10. REMOVAL AND SUSPENSION OF DIRECTORS:
The Board of Directors, by the affirmative vote of a majority of the directors in office, may remove a director or directors for cause where, in the judgment of such majority, the continuation of the director or directors in office would be harmful to the corporation and may suspend the director or directors for a reasonable period pending final determination that cause exists for such removal.
11. QUORUM OF STOCKHOLDERS:
At any meeting of the stockholders of the corporation, the holders of stock entitled to cast a majority of the votes at the meeting, present in person or represented by proxy, shall constitute a quorum of the stockholders for all purposes unless the representation of a larger number shall be required by law, and in that case the representation of the number so required shall constitute a quorum.
If the holders of the amount of stock necessary to constitute a quorum shall fail to attend in person or by proxy at the time and place fixed for any meeting of stockholders, the meeting may be adjourned from time to time by the vote of a majority of the votes cast by the holders of stock present in person or represented by proxy at such meeting, without notice other than by announcement at the meeting, and at any such adjourned meeting held more than one week after such time the holders of stock entitled to cast 40% of the votes at such meeting, present in person or represented by proxy, shall constitute a quorum of the stockholders for all purposes unless the representation of a larger number shall be required by law, and in that case the representation of the number so required shall constitute a quorum. At any such adjourned meeting, whenever held, at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally called.
12. REGISTERED OFFICE AND AGENT:
The address of the corporation's initial registered office is 80 Park Plaza, Newark, New Jersey 07101, and the name of the corporation's initial registered agent at such address is Robert S. Smith.
13. DIRECTORS:
The number of directors constituting the first Board of Directors of the corporation is four, and the names and addresses of the persons who are to serve as such directors are as follows:
Everett L. Morris 80 Park Plaza, Newark,
New Jersey 07101
Frederick W. Schneider 80 Park Plaza, Newark,
New Jersey 07101
R. Edwin Selover 80 Park Plaza, Newark,
New Jersey 07101
Harold W. Sonn 80 Park Plaza, Newark,
New Jersey 07101
|
14. INCORPORATOR:
The name and address of the incorporator is Public Service Electric and Gas Company, 80 Park Plaza, Newark, New Jersey 07101.
IN WITNESS WHEREOF, the undersigned, the incorporator of the above-named corporation, has caused this Certificate of Incorporation to be executed this 25th day of July, 1985.
PUBLIC SERVICE ELECTRIC
AND GAS COMPANY
By /s/ HAROLD W. SONN
----------------------
(Harold W. Sonn)
CHAIRMAN OF THE BOARD,
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
|
EXHIBIT 3.1(b)
CERTIFICATE OF AMENDMENT
FILED
APRIL 23, 1987
JANE BURGIO
SECRETARY OF STATE
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PUBLIC SERVICE
ENTERPRISE GROUP INCORPORATED
INCREASING AUTHORIZED COMMON STOCK FROM 150,000,000 SHARES TO 500,000,000 SHARES, AUTHORIZING A NEW CLASS OF 50,000,000 SHARES OF PREFERRED STOCK, REQUIRING 80% SHAREHOLDER APPROVAL OF CERTAIN MERGERS AND OTHER BUSINESS COMBINATIONS UNDER CERTAIN CONDITIONS, CLASSIFYING THE BOARD OF DIRECTORS INTO THREE CLASSES OF DIRECTORS, REQUIRING 80% SHAREHOLDER APPROVAL FOR CERTAIN BY-LAW AMENDMENTS AND LIMITING PERSONAL LIABILITY OF DIRECTORS AND OFFICERS.
EFFECTIVE APRIL 23, 1987
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
Public Service Enterprise Group Incorporated, a New Jersey corporation, does hereby certify, pursuant to subsection 14A:9-4(3) of the New Jersey Business Corporation Act, as amended, that:
1. The name of this corporation is "Public Service Enterprise Group Incorporated".
2. The date of adoption of the amendments set forth in this Certificate of Amendment by the stockholders was April 21, 1987.
3. The number of shares entitled to vote on the amendments set forth in this Certificate of Amendment was 134,981,136 shares of Common Stock.
4. (a) Article 3 of the Certificate of Incorporation dated July 25, 1985 of this corporation has been amended, by vote of the stockholders of this corporation, so as to increase the authorized Common Stock from 150,000,000 shares to 500,000,000 shares.
(b) The number of votes cast by the holders of Common Stock for and against said amendment were as follows:
For Against 94,590,268 10,575,620
5. (a) Article 3 of the Certificate of Incorporation dated July 25, 1985 of this corporation has been further amended, by vote of the stockholders of this corporation, to authorize a new class of 50,000,000 shares of Preferred Stock.
(b) The number of votes cast by the holders of Common Stock for and against said amendment were as follows:
For Against 78,616,663 18,109,174
6. (a) Article 8 of the Certificate of Incorporation dated July 25, 1985 of this corporation has been amended, by vote of the stockholders of this corporation, so as to add a provision to limit the personal liability of directors and officers.
(b) The number of votes cast by the holders of Common Stock for and against said amendment were as follows:
For Against 94,974,819 8,797,560
7. (a) The Certificate of Incorporation dated July 25, 1985 of this corporation has been amended by adding new Articles 9, 10 and 11 to (i) require 80% shareholder approval of certain mergers and other business combinations unless certain fair price voting and procedural requirements are met or the transaction is approved by a majority of disinterested directors, (ii) classify the Board of Directors, (iii) require 80% shareholder approval for certain by-law amendments, and (iv) make related changes; and as a result of said amendments, existing Articles 9 and 10 of the Certificate of Incorporation dated July 25, 1985 of this corporation have been deleted and existing Articles 11 through 14 of said Certificate of Incorporation have been renumbered as Articles 12 through 15.
(b) The number of votes cast by the holders of Common Stock for and against said amendments were as follows:
For Against 75,011,767 22,322,471
8. The amendments of the Certificate of Incorporation dated July 25, 1985 of this corporation, which were adopted by the stockholders of this corporation on April 21, 1987 as aforesaid, are as follows:
(a) Article 3 was amended to read as follows:
"3. STOCK:
SECTION 1. Capital Stock. The corporation shall have the authority to issue 500,000,000 shares of Common Stock, without par value, and 50,000,000 shares of Preferred Stock, without par value.
SECTION 2. Preferred Stock. The Board of Directors shall have authority to issue the shares of Preferred Stock from time to time on such terms as it may determine, and to divide the Preferred Stock into one or more classes or series and in connection with the creation of any such class or series to fix, by resolution or resolutions providing for the issue thereof, the designation, the number of shares, and the relative rights, preferences and limitations thereof, to the full extent now or hereafter permitted by law."
(b) Article 8 was amended to read as follows:
"8. INDEMNIFICATION: LIMITATION OF LIABILITY:
SECTION 1. Indemnification. The corporation shall indemnify to the full extent from time to time permitted by law any person made, or threatened to be made, a party to any pending, threatened or completed civil, criminal, administrative or arbitrative action, suit or proceeding and any appeal therein (and any inquiry or investigation which could lead to such action, suit or proceeding) by reason of the fact that he is or was a director, officer or employee of the corporation or serves or served any other enterprise as a director, officer or employee at the request of the corporation. Such right of indemnification shall inure to the benefit of the legal representative of any such person.
SECTION 2. Limitation of Liability. To the full extent from time to time permitted by law, directors and officers of the corporation shall not be personally liable to the corporation or its shareholders for damages for breach of any duty owed to the corporation or its shareholders. No amendment or repeal of this provision shall adversely affect any right or protection of a director or officer of the corporation existing at the time of such amendment or repeal."
(c) New Articles 9, 10 and 11 were added, existing Articles 9 and 10 were deleted, and existing Articles 11 through 14 were renumbered as Articles 12 through 15. New Articles 9, 10 and 11 read as follows:
"9. CERTAIN BUSINESS COMBINATIONS:
SECTION 1. Vote Required for Certain Business Combinations. In addition to any affirmative vote required by law and except as otherwise expressly provided in Section 2 of this Article 9:
(a) any merger or consolidation of the corporation or any Subsidiary (hereinafter defined) with (i) any Interested Shareholder (hereinafter defined) or (ii) any other corporation (whether or not itself an Interested Shareholder) which is, or after such merger or consolidation would be, an Affiliate (hereinafter defined) of an Interested Shareholder; or
(b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Shareholder or any Affiliate of any Interested Shareholder of any assets of the corporation or any Subsidiary having an aggregate Fair Market Value (hereinafter defined) of $25,000,000 or more; or
(c) the issuance or transfer by the corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the corporation or any Subsidiary to any Interested Shareholder or Affiliate of any Interested Shareholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value of $25,000,000 or more; or
(d) the adoption of any plan or proposal for the liquidation or dissolution of the corporation proposed by or on behalf of any Interested Shareholder or any Affiliate of any Interested Shareholder; or
(e) any reclassification of securities (including any reverse stock split), recapitalization of the corporation, any merger or consolidation of the corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Shareholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the corporation or any Subsidiary which is directly or indirectly owned by any Interested Shareholder or any Affiliate of any Interested Shareholder;
shall require prior approval by the affirmative vote of 80% of the votes which the holders of the then outstanding shares of capital stock of the corporation are entitled to vote in the election of directors (the "Voting Stock"), voting together as a single class (each share of the Voting Stock having a number of votes duly fixed by the Board of Directors pursuant to Article 3 of the Certificate of Incorporation or provided by the By-Laws). Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. The term "Business Combination" as used in this Article 9 shall mean any transaction which is referred to in any one or more of paragraphs (a) through (e) of this Section 1.
SECTION 2. Exceptions to 80% Vote. The provisions of Section 1 of this Article 9 shall not be applicable to any particular Business Combination (and such Business Combination shall require only such affirmative vote which may be required by law or otherwise) if all of the conditions specified in either of the following paragraphs (a) or (b) are met:
(a) The Business Combination shall have been approved by majority vote of the Disinterested Directors (hereinafter defined).
(b) All of the following conditions shall have been met:
(i) The aggregate amount of the cash and the Fair Market Value, as of the date of the consummation of the Business Combination, of consideration other than cash to be received per share by holders of Common Stock in such Business Combination shall be at least equal to the higher of:
(1) if applicable, the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Shareholder for any shares of Common Stock acquired by it (x) within the two-year period immediately prior to the first public announcement of the proposal of the Business Combination (the "Announcement Date") or (y) in the transaction in which it became an Interested Shareholder, whichever is higher; or
(2) the Fair Market Value per share of Common Stock on the Announcement Date or on the date (the "Determination Date") on which the Interested Shareholder became an Interested Shareholder, whichever is higher.
(ii) The aggregate amount of the cash and the Fair Market Value, as of the date of the consummation of the Business Combination, of consideration other than cash to be received per share by holders of shares of any class or series of outstanding Voting Stock other than Common Stock shall be at least equal to the highest of the following (it being intended that the requirements of this paragraph (b)(ii) shall be
met with respect to every such class or series whether or not the Interested Shareholder has previously acquired any shares thereof):
(1) if applicable, the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Shareholder for any shares of such class or series acquired by it (x) within the two-year period immediately prior to the Announcement Date or (y) in the transaction in which it became an Interested Shareholder, whichever is higher; or
(2) if applicable, the highest preferential amount per share to which the holders of shares of such class or series are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the corporation; or
(3) the Fair Market Value per share of such class or series on the Announcement Date or on the Determination Date, whichever is higher.
(iii) The consideration to be received by holders of a particular class or series of outstanding Voting Stock (including Common Stock) shall be in cash or in the same form as the Interested Shareholder has previously paid for shares of such class or series of Voting Stock. If the Interested Shareholder has paid for shares of any class or series of Voting Stock with varying forms of considerations, the form of consideration for such class or series shall be either cash or the form used to acquire the largest number of shares of such class or series previously acquired by it. The price determined in accordance with paragraphs (b)(i) and (b)(ii) of this Section 2 shall be subject to appropriate adjustment in the event of any stock dividend, stock split, combination of shares or similar event.
(iv) After such Interested Shareholder has become an Interested Shareholder and prior to the consummation of such Business Combination: (1) except as approved by a majority of the Disinterested Directors, there shall have been no failure to declare and pay at the regular date therefor any dividends (whether or not cumulative) on any outstanding series of Preferred Stock: (2) there shall have been (x) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivisions of the Common Stock), except as approved by a majority of the Disinterested Directors, and (y) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of Common Stock, unless the failure to so increase such annual rate is approved by a majority of the Disinterested Directors; and (3) such Interested Shareholder shall have not become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which results in such Interested Shareholder becoming an Interested Shareholder.
(v) After such Interested Shareholder has become an Interested Shareholder, such Interested Shareholder shall not have received the benefit, directly or indirectly (except proportionately as a shareholder), of any loans, advances, guarantees, pledges or other financial assistance, or any tax credits or other tax advantages, provided by the corporation, whether in anticipation of or in connection with such Business Combination or otherwise.
(vi) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such act, rules or regulations) shall be mailed to shareholders of the corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such act, rules and regulations or subsequent provisions).
SECTION 3. Certain Definitions. For the purposes of this Article 9:
(a) "Person" shall mean any individual, firm, corporation or other entity.
(b) "Interested Shareholder" shall mean any person (other than the corporation or any Subsidiary) who or which:
(i) is the beneficial owner, directly or indirectly, of shares having 10% or more of the votes of the then outstanding Voting Stock; or
(ii) is an Affiliate of the corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of shares having 10% or more of the votes of the then outstanding Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Shareholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933.
(c) A person shall be a "beneficial owner" of any Voting Stock:
(i) which such person, or any of its Affiliates or Associates (as hereinafter defined), beneficially owns, directly or indirectly; or
(ii) which such person, or any of its Affiliates or Associates, has (1) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options or otherwise, or (2) the right to vote pursuant to any agreement, arrangement or understanding; or
(iii) which is beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock.
For the purposes of determining whether a person is an Interested
Shareholder, the number of shares of Voting Stock deemed to be outstanding
shall include shares deemed owned through application of this paragraph
(c) of Section 3 but shall not include any other shares of Voting Stock
which may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or options
or otherwise.
(d) "Affiliate" or "Associate" shall have the respective meanings given for such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on January 1, 1987.
(e) "Subsidiary" shall mean any corporation of which a majority of the voting shares is owned, directly or indirectly, by the corporation.
(f) "Disinterested Director" shall mean any member of the Board of Directors of the corporation who is not an Affiliate, Associate or representative of the Interested Shareholder and was a member of the Board of Directors prior to the time that the Interested Shareholder became an Interested Shareholder, and any successor of a Disinterested Director who is not an Affiliate, Associate or representative of the Interested Shareholder and was recommended or elected to succeed a Disinterested Director by a majority of Disinterested Directors then on the Board of Directors.
(g) "Fair Market Value" shall mean:
(i) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question on the Composite Tape for New York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape on the New York Stock Exchange, or, if such stock is not listed on such exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day
period preceding the date in question on the National Asssociation of Securities Dealers, Inc. Automated Quotations System or any system then in use, or if no such quotations are available, the fair market value on the date in question as determined by a majority of the Disinterested Directors in good faith; or
(ii) in the case of property other than stock, the fair market value of such property on the date in question as determined by a majority of the Disinterested Directors in good faith.
(h) In the event of any Business Combination in which the corporation survives, the phrase "consideration other than cash to be received" as used in paragraphs (b)(i) and (ii) of Section 2 of this Article 9 shall include the shares of Common Stock and/or the shares of any other class of outstanding Voting Stock retained by the holders of such shares.
SECTION 4. Powers of the Board of Directors. The Board of Directors shall have the power and duty, by majority vote of the Disinterested Directors, to determine for the purposes of this Article 9, on the basis of information known to them after reasonable inquiry, (a) whether a person is an Interested Shareholder, (b) the number of shares of Voting Stock beneficially owned by any person, (c) whether a person is an Affiliate or Associate of another and (d) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the corporation or any Subsidiary in any Business Combination has, an aggregate Fair Market Value of $25,000,000 or more. A majority of the Disinterested Directors shall also have the power to interpret all of the other terms and provisions of this Article 9 and to make any other factual determinations in regard to the applicability of this Article 9. Any interpretations or determination made in good faith by majority vote of the Disinterested Directors with regard to application of this Article 9 on the basis of such information as was then available for such purpose shall be conclusive and binding on the corporation and on all of its shareholders, including any Interested Shareholder.
SECTION 5. No Effect on Fiduciary Obligations of Interested Shareholders. Nothing contained in this Article 9 shall be construed to relieve any Interested Shareholder from any fiduciary obligations imposed by law.
SECTION 6. Severability. In the event any provision (or part thereof) of this Article 9 should be determined to be invalid, prohibited or unenforceable for any reason, the remaining provisions, and parts thereof, shall remain in full force and effect and enforceable against the corporation and its shareholders, including any Interested Shareholder, to the fullest extent permitted by law.
SECTION 7. Amendment. Notwithstanding any other provisions of this Certificate of Incorporation, the By-Laws of the corporation or applicable law the affirmative vote of 80% of the votes of the then outstanding Voting Stock voting together as a single class, shall be required (a) to amend, modify or repeal this Article 9, (b) adopt any provision to this Certificate of Incorporation of By-Laws which is inconsistent with this Article 9, or (c) prior to the fixing by the
Board of Directors of any right or preference of any series of Preferred Stock which is inconsistent with the provisions of this Article 9."
"10. BOARD OF DIRECTORS:
SECTION 1. Number, election and terms. Except as otherwise fixed by or pursuant to the provisions of Article 3 hereof relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect additional directors under specified circumstances, the number of the directors of the corporation shall be fixed from time to time by or pursuant to the By-Laws of the corporation. The directors, other than those who may be elected by the holders of any class of series of stock having a preference over the Common Stock as to dividends or upon liquidation, shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible, as shall be provided in the manner specified in the By-Laws of the corporation, one class to be originally elected for a term expiring at the annual meeting of stockholders to be held in 1988, another class to be originally elected for a term expiring at the annual meeting of stockholders to be held in 1989, and another class to be originally elected for a term expiring at the annual meeting of stockholders to be held in 1990, with the directors in each class to hold office until their respective successors are elected and qualified. At each annual meeting of the stockholders of the corporation, the successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election and until their respective successors are elected and qualified.
SECTION 2. Stockholder nomination of director candidates. Advance notice of shareholder nominations for the election of directors shall be given in the manner provided in the By-Laws of the corporation.
SECTION 3. Newly created directorships and vacancies. Except as otherwise provided for or fixed by or pursuant to the provisions of Article 3 hereof relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors under specified circumstances, newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office until the next succeeding annual meeting of shareholders and until such director's successor, who shall be elected for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred, shall have been elected and qualified. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
SECTION 4. Removal and Suspension, Subject to the rights of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors under specified circumstances, any director may be removed from office without cause only by the affirmative vote of the holders of 80% of the combined voting power of the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class. The Board of Directors, by the affirmative vote of a majority of the directors in office, may remove a director or directors for cause where, in the judgment of such majority, the continuation of the director or directors in office would be harmful to the corporation and may suspend the director or directors for a reasonable period pending final determination that cause exists for such removal.
SECTION 5. Amendment, repeal, etc. Notwithstanding anything in this Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least 80% of the voting power of all shares of the corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to alter, amend, adopt any provision inconsistent with or repeal this Article 10."
"11. BY-LAW AMENDMENTS:
The Board of Directors shall have power to make, alter, amend and repeal the By-Laws of the corporation (except so far as the By-Laws of the corporation adopted by the shareholders shall otherwise provide). Any By-Laws made by the Directors under the powers conferred hereby may be altered, amended or repealed by the directors or by the shareholders. Notwithstanding the foregoing and anything contained in this Certificate of Incorporation to the contrary, Article I, Section 1; Article IX, Section 9; and Article XVI of the By-Laws shall not be altered, amended or repealed and no provision inconsistent therewith shall be adopted without the affirmative vote of the holders of at least 80% of the voting power of all the shares of the corporation entitled to vote generally in the election of directors, voting together as a single class. Notwithstanding anything contained in this Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least 80% of the voting power of all the shares of the corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to alter, amend, or adopt any provision inconsistent with or repeal this Article 11."
IN WITNESS WHEREOF, said Public Service Enterprise Group Incorporated has made this Certificate this 23rd day of April, 1987.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
By E. JAMES FERLAND
E. James Ferland
Chairman of the Board, President
and Chief Executive Officer
Attest:
D.S. POCIUS
Assistant Secretary
(Corporate Seal)
EXHIBIT 3.1(c)
APR 20 2007
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
Public Service Enterprise Group Incorporated, a New Jersey corporation, does hereby certify, pursuant to subsection 14A:9-4(3) of the New Jersey Business Corporation Act, as amended, that:
1. The name of this corporation is "Public Service Enterprise Group Incorporated".
2. The date of adoption of the amendments set forth in this Certificate of Amendment by the stockholders was April 17, 2007.
3. The number of shares outstanding and entitled to vote on the amendments set forth in this Certificate of Amendment was 252,823,547 shares of Common Stock.
4.(a) Article 3 of the Certificate of Incorporation dated July 25, 1985, as amended by the Certificate of Amendment dated April 23, 1987 (which Certificate of Incorporation as so amended is hereinafter referred to as the "Charter"), of this corporation has been amended, by vote of the stockholders of this corporation, so as to increase the authorized Common Stock from 500,000,000 shares to 1,000,000,000 shares.
(b) the number of votes cast by the holders of Common Stock for and against said amendment were as follows:
For Against 186,335,586 31,202,536
5.(a) Article 4 of the Charter of this corporation has been amended, by vote of the stockholders of this corporation, to eliminate pre-emptive rights.
(b) The number of votes cast by the holders of Common Stock for and against said amendment were as follows:
For Against 162,440,150 17,772,626
6.(a) Article 6 of the Charter of this corporation has been amended, by vote of the stockholders of this corporation, so as to eliminate cumulative voting of Common Stock.
(b) The number of votes cast by the holders of Common Stock for and against said amendment were as follows:
For Against 143,763,143 36,249,473
7.(a) Article 10, of the Charter of this corporation has been amended, by vote of the stockholders of this corporation, to eliminate classification of the Board of Directors.
(b) The number of votes cast by the holders of Common Stock far and against said amendment were as follows:
For Against 202,881,678 13,600,629
8. The amendments of the Charter of this corporation, which were adopted by the stockholders of this corporation on April 17,2007 as aforesaid, are as follows:
(a) Article 3 was amended to read as follows:
"3. STOCK:
SECTION 1. Capital Stock. The corporation shall have the authority to issue 1,000,000,000 shares of Common Stock, without par value, and 50,000,000 shares of Preferred Stock, without par value,"
(b) Article 4. PRE-EMPTIVE RIGHTS was deleted and existing Articles 5 through 14 were renumbered as Articles 4 through 13.
(c) Article 5. (formerly Article 6) CUMULATIVE VOTING was deleted and existing Articles 6 through 13 were renumbered as Articles 5 through 12.
(d) Article 8. (formerly Article 10 and 9, respectively) BOARD OF DIRECTORS, Sections 1 and 3, were amended to read as follows:
"SECTION 1. Number, election and terms. Except as otherwise fixed by or pursuant to the provisions of Article 3 hereof relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect additional directors under specified circumstances, the number of the directors of the corporation shall be fixed from time to time by or pursuant to the By-Laws of the corporation. Directors shall hold office for a term expiring at the next annual meeting of stockholders or until their
respective successors are elected and qualified; provided, however, that directors elected to terms expiring at the annual meetings of stockholders to be held in 2009 and 2010, respectively, shall continue to hold office until the expiration of such terms or until their respective successors are elected and qualified."
"SECTION 3. Newly created directorships and vacancies. Except as otherwise provided for or fixed by or pursuant to the provisions of Article 3 hereof relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors under specified circumstances, newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualifications, removal or other cause shall be filled by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office until the next succeeding annual meeting of shareholders and until such director's successor shall have been elected and qualified. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director."
IN WITNESS WHEREOF, said Public Service Enterprise Group Incorporated has made this Certificate of Amendment this 20th day of April, 2007.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
By: /s/ Ralph Izzo
--------------------------------------------
Ralph Izzo
Chairman of the Board and President
[SEAL]
Attest:
/s/ Edward J. Biggins, Jr.
------------------------------------------------
Edward J. Biggins, Jr.
Secretary
|
(Corporate Seal)
EXHIBIT 3.2
BY-LAWS
OF
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
As in effect
April 20, 2007
BY-LAWS
OF
PUBLIC SERVICE ENTERPRISE GROUP
INCORPORATED
ARTICLE I.
DIRECTORS.
SECTION 1. (a) NUMBER, ELECTION AND TERMS. Except as otherwise fixed by or pursuant to the provisions of Article 3 of the Certificate of Incorporation relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect additional directors under specified circumstances, the number of the directors of the corporation shall be fixed from time to time by the Board of Directors but shall not be less than 3 nor more than 16. The directors, other than those who may be elected by the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, shall hold office for a term expiring at the next annual meeting of the stockholders of the corporation or until their respective successors are elected and qualified; provided, however, that directors elected to terms expiring at the annual meetings of stockholders to be held in 2009 and 2010, respectively, shall continue to hold office until their respective successors are elected and qualified. As used in these By-Laws, the term "entire Board" means the total number of directors which the corporation would have if there were no vacancies.
(b) STOCKHOLDER NOMINATION OF DIRECTOR CANDIDATES. Advance notice of stockholder nominations for election of directors shall be given in the manner provided in Article IX, Section 9 of these By-Laws.
(c) NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Except as otherwise provided for or fixed by or pursuant to the provisions of Article 3 of the Certificate of Incorporation relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors under specified circumstances, newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office until the next succeeding annual meeting stockholders and until such director's successor shall have been elected and qualified. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
(d) REMOVAL AND SUSPENSION. Subject to the rights of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors under specified circumstances, any director may be removed from office without cause only by the affirmative vote of the holders of 80% of the combined voting power of the then outstanding shares
of stock entitled to vote generally in the election of directors, voting together as a single class. The Board of Directors, by the affirmative vote of a majority of the directors in office, may remove a director or directors for cause where, in the judgment of such majority, the continuation of the director or directors in office would be harmful to the corporation and may suspend the director or directors for a reasonable period pending final determination that cause exists for such removal.
SECTION 2. The Board of Directors, by the affirmative vote of a majority of directors in office and irrespective of any personal interest of any of them, may establish reasonable compensation of directors for services to the corporation as directors, officers, or otherwise.
ARTICLE II
OFFICERS.
SECTION 1. The elective officers of the corporation shall include a President, one or more Vice Presidents, a Secretary, one or more Assistant Secretaries, a Treasurer, and one or more Assistant Treasurers, and may also include a Chairman of the Board, one or more Senior Executive Vice Presidents, one or more Executive Vice Presidents, and one or more Senior Vice Presidents. The Chairman of the Board and the President shall be members of the Board of Directors. All elective officers of the corporation shall be elected by the Board of Directors at the first meeting thereof after the annual election of directors. The Board of Directors shall also have power, at any time, to elect additional Senior Executive Vice Presidents, Executive Vice Presidents, Senior Vice Presidents, Vice Presidents, Assistant Secretaries, and Assistant Treasurers. The Board of Directors may appoint such other officers as it shall from time to time deem necessary, who shall have such powers and perform such duties as may be assigned to them by the Board of Directors, the Executive Committee, or the person exercising the authority of the chief executive officer of the corporation. Any two or more offices may be held by the same person.
The Board of Directors shall have the power to fill any vacancy in any existing office or to fill any newly created office, at any time.
The Chairman of the Board, the President, each Senior Executive Vice President, each Executive Vice President, each Senior Vice president, and each Vice President, severally, shall have the power to sign deeds, contracts, and other instruments. Each elective officer shall have such powers and perform such duties as may be assigned to him by the Board of Directors, the Executive Committee, or the chief executive officer, in addition to any powers and duties that are assigned to him specifically by these By-Laws.
The term of office of each officer shall be from the time of his election or appointment and qualification until the first meeting of the Board of Directors after the last annual election of Directors, or such other term of office as shall be provided in the resolution of election or appointment, and until the election or appointment and qualification of his successor, subject to earlier termination by removal or resignation
ARTICLE III.
CHAIRMAN OF THE BOARD; PRESIDENT;
SENIOR EXECUTIVE VICE PRESIDENTS;
EXECUTIVE VICE PRESIDENTS; SENIOR VICE PRESIDENTS.
SECTION 1. If there be a Chairman of the Board, he shall preside at all meetings of the stockholders and of the Board of Directors, and shall have such other powers and perform such other duties as may be assigned to him by the Board of Directors or the Executive Committee.
SECTION 2. If there be a Chairman of the Board, the Board of Directors shall designate either the Chairman of the Board or the President as the chief executive officer of the corporation with plenary powers of supervision and direction of the business and affairs of the corporation, unless such offices are occupied by the same person. If there be no Chairman of the Board, the President shall be the chief executive officer.
SECTION 3. If there be a Chairman of the Board and if he be designated as the chief executive officer of the corporation, the President shall have charge of the coordination and supervision of all matters of operation of the corporation. In the absence of the Chairman of the Board, the President shall have the powers and perform the duties of the Chairman of the Board.
SECTION 4. The Senior Executive Vice Presidents, severally, in the order designated by the Chief Executive Officer, shall, in the absence of the President, have the powers and perform the duties of the President, and if there be a Chairman of the Board, they shall, in the absence of the Chairman of the Board and the President, have the powers and perform the duties of the Chairman of the Board.
SECTION 5. The Executive Vice Presidents, severally, in the order designated by the chief executive officer, shall, in the absence of the President and the Senior Executive Vice Presidents, have the powers and perform the duties of the President, and if there be a Chairman of the Board, they shall, in the absence of the Chairman of the Board and the President, have the powers and perform the duties of the Chairman of the Board.
SECTION 6. The Senior Vice Presidents, severally, in the order designated by the chief executive officer, shall, in the absence of the President, the Senior Executive Vice Presidents and the Executive Vice Presidents, have the powers and perform the duties of the President, and if there be a Chairman of the Board, they shall, in the absence of the Chairman of the Board, the President, the Senior Executive Vice Presidents and the Executive Vice Presidents, have the powers and perform the duties of the Chairman of the Board.
ARTICLE IV.
VICE PRESIDENTS.
SECTION 1. The Vice Presidents, severally, in the order designated by the chief executive officer, shall, in the absence of the President, the Senior Executive Vice Presidents, the Executive Vice Presidents and the Senior Vice Presidents, have the powers and perform the duties of the President, and if there be a Chairman of the Board, they shall, in the absence of the Chairman of the Board, the President, the Senior Executive Vice Presidents, the Executive Vice Presidents and the Senior Vice Presidents, have the powers and perform the duties of the Chairman of the Board.
ARTICLE V
SECRETARY.
SECTION 1. The Secretary shall keep minutes of all meetings of the stockholders of the Board of Directors and of the Executive Committee, and shall give all notices of meetings of the stockholders, of the Board of Directors, and of the Executive Committee. He shall have custody of all deeds, contracts, and other instruments, documents, and records, except as otherwise provided in these By-Laws, or by the Board of Directors, and shall attend to such correspondence of the corporation as the Board of Directors or the chief executive officer shall direct. He shall be the custodian of the seal of the corporation and shall affix it to any instrument requiring the same, except as otherwise provided herein or by the Board of Directors.
ARTICLE VI.
ASSISTANT SECRETARIES.
SECTION 1. Each Assistant Secretary shall have such powers and shall perform such duties as may be assigned to him by the Secretary. In the absence of the Secretary, the Assistant Secretaries, in the order designated by the Secretary, shall have the powers and perform the duties of the Secretary.
ARTICLE VII.
TREASURER.
SECTION 1. The Treasurer shall have charge of all receipts and disbursements of the corporation and shall be the custodian of the corporation's funds. He shall have full authority to receive and give receipts for all moneys due and payable to the corporation from any source whatever, and to endorse or cause to be endorsed checks, drafts, warrants, and other instruments for the payment of money in its name and on its behalf, and full discharge for the same to give. The funds of the corporation shall be deposited in its name in such depositaries as may be designated from time to time by the Board of Directors, or by the Treasurer if the Board of Directors shall authorize him to do so. All checks, drafts, and other instruments for the payment of money, and all notes and other evidences of indebtedness, issued in the name of the corporation, shall be signed by such officer or officers, employee or employees, agent or agents, of the corporation, and in such manner, including the use of facsimile signatures, as shall be determined from time to time by the Board of Directors, or by the Treasurer if the Board of Directors shall authorize him to make such determination. A report of the financial condition of the corporation shall be made by the Treasurer whenever requested by the chief executive officer. If required by the Board of Directors, he shall give bond for the faithful performance of his duties, in such sum and with such surety or sureties as the Board of Directors may determine.
ARTICLE VIII.
ASSISTANT TREASURERS.
SECTION 1. Each Assistant Treasurer shall have such powers and shall perform such duties as may be assigned to him by the Treasurer. In the absence of the Treasurer, the Assistant Treasurers, in the order designated by the Treasurer, shall have the powers and perform the duties of the Treasurer.
ARTICLE IX.
MEETINGS.
SECTION 1. The meetings of the Stockholders shall, unless otherwise provided by law, be held at such place, within or without the State of New Jersey, as may be fixed by the Board of Directors and stated in the notice of the meeting.
Each annual meeting of the stockholders for the election of the class of directors for the ensuing year, and for the transaction of such other business as may be brought before the meeting, shall be held at such time, not more than 13 months after the last annual meeting, as may be fixed by the Board of Directors.
SECTION 2. Except as herein or in the Certificate of Incorporation expressly provided to the contrary or as otherwise required by law or except as otherwise fixed by or pursuant to the provisions of Article 3 of the Certificate of Incorporation relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect additional directors under specified circumstances, all voting rights in the corporation shall be vested exclusively in the holders of Common Stock.
Except as herein or in the Certificate of Incorporation expressly provided to the contrary or as otherwise required by law or except as otherwise fixed by or pursuant to the provisions of Article 3 of the Certificate of Incorporation relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect additional directors under specified circumstances, at all meetings of stockholders the holders of Common Stock shall be entitled to cast one vote for each share of Common Stock held.
SECTION 3. Every stockholder entitled to vote at a meeting of stockholders or to express consent or dissent without a meeting may authorize another person or persons to act for him by proxy. No proxy shall be valid after 11 months from the date of its execution, unless a longer time is expressly provided therein, but in no event shall a proxy be valid after three years from the date of execution. A proxy shall not be revoked by the death or incapacity of the stockholder but shall continue in force until revoked by the personal representative or guardian of the stockholder. The presence at any meeting of any stockholder who has given a proxy shall not revoke such proxy unless the stockholder shall file written notice of such revocation with the secretary of the meeting prior to the voting of such proxy.
A person named in a proxy as the attorney or agent of a stockholder may, if the proxy so provides, substitute another person to act in his place, including any other person named as an attorney or agent in the same proxy. The substitution shall not be effective until an instrument effecting it is filed with the Secretary.
SECTION 4. All elections for directors shall be by ballot, and the polls at every such election shall remain open so long as may be reasonably necessary to permit all stockholders entitled to vote at such meeting, present in person or by proxy, to cast their votes.
SECTION 5. Special meetings of the stockholders may be called at any time by the Board of Directors or by the chief executive officer or upon the written request of the holders of the capital stock entitled to cast a majority of votes thereat.
Except as otherwise provided by law, and unless waived, written notice of the time, place and purposes of every meeting of stockholders shall be given not less than 10 nor more than 60 days before the date of the meeting, to each stockholder of record entitled to vote at the meeting, either
personally or by mailing a notice to him at his last post office address appearing on the books of the corporation.
SECTION 6. At any meeting of the stockholders the holders of stock entitled to cast a majority of the votes at the meeting, present in person or represented by proxy, shall constitute a quorum of the stockholders for all purposes unless the representation of a larger number shall be required by law, and in that case the representation of the number so required shall constitute a quorum.
If the holders of the amount of stock necessary to constitute a quorum shall fail to attend in person or by proxy at the time and place and fixed for any meeting of stockholders, the meeting may be adjourned from time to time by the vote of a majority of the votes cast by the holders of stock present in person or represented by proxy at such meeting, without notice other than by announcement at the meeting, and at any such adjourned meeting held more than one week after such time the holders of stock entitled to cast 40% of the votes at such meeting, present in person or represented by proxy, shall constitute a quorum of the stockholders for all purposes unless the representation of a larger number shall be required by law, and in that case the representation of the number so required shall constitute a quorum. At any such adjourned meeting, whenever held, at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally called.
SECTION 7. Regular meetings of the Board of Directors shall be held monthly unless otherwise determined by resolution of the Board.
Special meetings of the Board of Directors may be called at any time by the Chairman of the Board, or by the President if he be the chief executive officer. The Secretary shall also call such meetings on the written request of a majority of the directors.
No notice shall be required for regular meetings of the Board of Directors. The meeting for organization may be held on the day of and after the annual meeting of stockholders. At least two days' notice of a special meeting of the Board of Directors shall be given, but this notice may be waived in writing or by telegraph, either before or after the meeting. A meeting may be held without notice at any time when all the directors are present.
At all meetings of the Board of Directors a majority of the directors in office, or one-third of the entire Board, whichever is greater, shall constitute a quorum for the transaction of business. A less number than a quorum, however, may meet and adjourn to any day.
SECTION 8. The Board of Directors may, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting or any adjournment thereof. If inspectors are not so appointed by the Board of Directors or shall fail to qualify, the person presiding at a meeting of stockholders may, and on the request of any stockholder entitled to vote thereat, shall make such appointment. In case any person appointed as inspector fails to appear or act, the vacancy may be
filled by appointment made by the Board of Directors in advance of the meeting of stockholders or at the meeting by the person presiding at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. No person shall be elected a director at a meeting at which he has served as an inspector.
SECTION 9. Subject to the rights of holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, nominations for the election of directors may be made by the Board of Directors or a committee appointed by the Board of Directors or by any stockholder entitled to vote in the election of directors generally. However any stockholder entitled to vote in the election of directors generally may nominate one or more persons for election as directors at a meeting only if written notice of such stockholder's intent to make such nomination or nominations has been given, either by personal delivery or by United States mail, postage prepaid, to the Secretary not later than (i) with respect to an election to be held at an annual meeting of stockholders, 90 days in advance of such meeting, and (ii) with respect to an election to be held at a special meeting of stockholders for the election of directors, the close of business on the seventh day following the date on which notice of such meeting is first given to stockholders. Each such notice shall set forth: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (d) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission, had the nominee been nominated, or intended to be nominated, by the Board of Directors; and (e) the consent of each nominee to serve as a director of the corporation if so elected. The Chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. Nothing in this Section 9 shall be construed to require any such stockholder nomination to be included in any Proxy Statement issued on behalf of the Board of Directors or to require the Board to endorse any such nomination.
ARTICLE X.
RECORD DATE FOR DETERMINATION OF
RIGHTS OF STOCKHOLDERS.
SECTION 1. For the purpose of determining the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to or dissent from any proposal without a meeting, or for the purpose of determining stockholders entitled to receive payment of any dividend or allotment of any right, or for the purpose of any other action, the Board of Directors may fix, in advance, a date as the record date for any such determination of
stockholders. Such date shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. When a determination of stockholders entitled to notice of or to vote at any meeting of stockholders has been so made, such determination shall apply to any adjournment thereof, unless the Board of Directors fixes a new record date for the adjourned meeting.
ARTICLE XI.
COMMITTEES.
SECTION 1. The Board of Directors, by resolution adopted by a majority of the entire Board, may appoint from among its members an Executive Committee and one or more other committees. Except as otherwise provided by law, the Executive Committee shall have and may exercise all the authority of the Board of Directors when the Board is not in session, and each such other committee of the Board shall have and may exercise the authority of the Board to the extent provided in the resolution of appointment.
The Board of Directors, by resolution adopted by a majority of the entire Board, may (a) fill any vacancy in any committee of the Board, (b) appoint one or more directors to serve as alternate members of any such committee, to act in the absence or disability of members of any such committee with all the powers of such absent or disabled members (c) abolish any such committee at its pleasure and (d) remove any director from membership on such committee at any time, with or without cause.
Actions taken at a meeting of any committee of the Board of Directors shall be reported to the Board at its next meeting following such committee meeting; except that, when the meeting of the Board is held within two days after the committee meeting, such report shall, if not made at the first meeting, be made to the Board at its second meeting following such committee meeting.
SECTION 2. The Board of Directors may appoint and prescribe the powers and duties of other committees, the members of which may but need not be directors and shall serve at the pleasure of the Board.
SECTION 3. One-third of the entire committee, or two members, whichever is greater, shall constitute a quorum for the transaction of business.
SECTION 4. Each committee shall fix its own rules of procedure, shall meet where and as provided by such rules of procedure or by resolution of the Board of Directors, shall keep full records of its proceedings, and shall report from time to time to the Board as called upon by the Board.
ARTICLE XII.
VOTING UPON STOCKS OWNED BY THE CORPORATION.
SECTION 1. Unless otherwise ordered by the Board of Directors, the Chairman of the Board, the President, the Senior Executive Vice Presidents, the Executive Vice Presidents, the Senior Vice Presidents and the Vice Presidents, severally, shall each have full power and authority on behalf of the corporation to attend, act, and vote at any meeting of the stockholders of any corporation in which this corporation may hold stock, and to appoint one or more other persons as proxy or proxies to attend, act, and vote at any such meeting and such officer or such proxy or proxies shall possess and may exercise on behalf of this corporation any and all rights and powers incident to its ownership of such stock. The Board of Directors or the Executive Committee from time to time by resolution may confer like powers upon any other person or persons.
ARTICLE XIII.
STOCK.
SECTION 1. The shares of stock in this corporation may be represented by certificates or may be uncertificated shares. To the extent that certificates shall be issued for shares of stock in this corporation, such certificates shall be signed by the Chairman of the Board, the President, or a Vice President, and either the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary. If the certificate is countersigned by a transfer agent or registrar, who is not an officer or employee of the corporation, any and all other signatures may be facsimiles.
SECTION 2. The shares of stock issued by this corporation shall be transferable only on the books of the corporation by the holder or owner thereof in person or by power of attorney, and if such shares are represented by a certificate, on surrender of the certificate therefor.
SECTION 3. The Treasurer shall make and certify a complete list of the stockholders entitled to vote at a meeting of stockholders or any adjournment thereof. Such list shall be arranged alphabetically within each class and series, with the addresses of, and the number of shares held by, each stockholder, shall be produced at the time and place of the meeting, and shall be subject to the inspection of any stockholder during the whole time of the meeting.
ARTICLE XIV.
FISCAL YEAR.
SECTION 1. The fiscal year of the corporation shall begin on January first of each year.
ARTICLE XV.
SEAL.
SECTION 1. The seal of the corporation shall be circular in form, and shall have inscribed thereon the following words and figures: "PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED Incorporated 1985".
ARTICLE XVI.
AMENDMENTS.
SECTION 1. Subject to the provisions of the Certificate of Incorporation, these By-Laws may be altered, amended or repealed at any regular meeting of the stockholders (or at any special meeting thereof duly called for that purpose) by a majority vote of the shares represented and entitled to vote at such meeting. Subject to the laws of the State of New Jersey, the Certificate of Incorporation and these By-Laws, the Board of Directors may by majority vote of those present at any meeting at which a quorum is present amend these By-Laws or enact such other By-Laws as in their judgment may be advisable for the regulation of the conduct of the affairs of the corporation.
ARTICLE XVII.
ADVANCEMENT OF EXPENSES.
SECTION 1. Expenses incurred by any person made, or threatened to be made, a party to any pending, threatened or completed civil, criminal, administrative or arbitrative action, suit or proceeding and any appeal therein (and any inquiry or investigation which could lead to such action, suit or proceeding) by reason of the fact that he is or was a director, officer or employee of the corporation or serves or served any other enterprise as a director, officer or employee at the request of the corporation, shall be paid by the corporation in advance of the final disposition of the action, suit or proceeding promptly upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the corporation.
EXHIBIT 3.3
BY-LAWS
OF
PUBLIC SERVICE ELECTRIC
AND GAS COMPANY
AS IN EFFECT
APRIL 17, 2007
BY-LAWS
OF
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
ARTICLE I.
DIRECTORS
SECTION 1. The Board of Directors shall consist of such number of directors, not less than 3 nor more than 16, as shall be fixed from time to time by the Board of Directors. The directors shall be elected annually at the annual meeting of the stockholders by those stockholders entitled to vote at the election of directors. If the holders of Preferred Stock and the holders of Preferred Stock-$25 Par are entitled to vote at elections of directors, such stockholders, voting as a single class separately from the holders of Common Stock, shall be entitled to elect the smallest number of directors which will be more than one half of the total number of directors, and the holders of Common Stock, voting separately as a single class, shall be entitled to elect all other directors. As used in these By-Laws, the term "entire Board" means the total number of directors which the corporation would have if there were no vacancies.
Directors shall hold office for one year and until their successors are duly elected and qualified, but if, in accordance with the provisions of the third paragraph of Section 6 of Article IX of these By-Laws, a special meeting of stockholders is convened at which a quorum of the holders of Preferred Stock and the holders of Preferred Stock-$25 Par is present, the terms of office of all directors shall terminate, and at such meeting, the holders of Preferred Stock and the holders of Preferred Stock-$25 Par, voting as a single class separately form the holders of Common Stock, shall be entitled to elect the smallest number of directors which will be more than one-half the total number of directors, and the holders of Common Stock, voting separately as a single class shall be entitled to elect all other directors.
If the office of any director becomes vacant, the remaining directors, by a majority vote, may elect a successor, who shall hold office for the unexpired term, and until his successor is duly elected and qualified except that if the holders of Preferred Stock and the holders of Preferred Stock-$25 Par are entitled to voting rights to elect directors, any vacancy in the Board of Directors caused by the death or resignation of any director elected by the holders of Preferred Stock and the holder of Preferred Stock-$25 Par shall be entitled to fill upon any increase in the number of directors shall, until the next meeting of the stockholders for the election directors, in each case be filled by majority vote of the remaining or other directors elected by the holders of Preferred Stock and the holders of Preferred Stock-$25 Par.
Upon the termination of such voting rights of the holders of Preferred Stock and the holders of Preferred Stock-$25 Par, the terms of office of all persons who shall have been elected directors by vote of such holders, or by vote of the directors elected by such holders, shall forthwith terminate, and the vacancies thereby created may be filled by majority vote of the remaining directors, though less than a quorum.
SECTION 2. The Board of Directors, by the affirmative vote of a majority of directors in office and irrespective of any personal interest of any of them, may establish reasonable compensation of directors for services to the corporation as directors, officers, or otherwise.
ARTICLE II.
OFFICERS.
SECTION 1. The elective officers of the corporation shall include a President, one or more Vice Presidents, a Secretary, one or more Assistant Secretaries, a Treasurer, and one or more Assistant Treasurers, and may also include a Chairman of the Board, one or more Senior Executive Vice Presidents, one or more Executive Vice Presidents, one or more Senior Vice Presidents and a Chief Nuclear Officer. All elective officers of the corporation shall be elected by the Board of Directors at the first meeting thereof after the annual election of directors. The Board of Directors shall also have power, at any time, to elect additional Senior Executive Vice Presidents, Executive Vice Presidents, Senior Vice Presidents, Vice Presidents, Assistant Secretaries and Assistant Treasurers. The Board of Directors may appoint such other officers as it shall from time to time deem necessary, who shall have such powers and perform such duties as may be assigned to them by the Board of Directors, the Executive Committee, or the person exercising the authority of chief executive officer of the corporation. Any two or more offices may be held by the same person.
The Board of Directors shall have power to fill any vacancy in any existing office or to fill any newly created office, at any time.
The Chairman of the Board, the President, each Senior Executive Vice President, each Executive Vice President, each Senior Vice President, each Vice President and the Chief Nuclear Officer, severally, shall have power to sign deeds, contracts, and other instruments. Each elective officer shall have such powers and perform such duties as may be assigned to him by the Board of Directors, the Executive Committee, or the chief executive officer, in addition to any powers and duties that are assigned to him specifically by these By-Laws.
The term of office of each officer shall be from the time of his election or appointment and qualification until the first meeting of the Board of Directors after the last annual election of Directors, or such other term of office as shall be provided in the resolution of election or appointment, and until the election or appointment and qualification of his successor, subject to earlier termination by removal or resignation.
ARTICLE III.
CHAIRMAN OF THE BOARD; PRESIDENT;
SENIOR EXECUTIVE VICE PRESIDENTS;
EXECUTIVE VICE PRESIDENTS; SENIOR VICE PRESIDENTS;
CHIEF NUCLEAR OFFICER
SECTION 1. If there be a Chairman of the Board, he shall preside at all meetings of the stockholders and of the Board of Directors, and shall have such other powers and perform such other duties as may be assigned to him by the Board of Directors or the Executive Committee.
SECTION 2. If there be a Chairman of the Board, the Board of Directors shall designate either the Chairman of the Board or the President as the chief executive officer of the corporation with plenary powers of supervision and direction of the business and affairs of the corporation, unless such offices are occupied by the same person. If there be no Chairman of the Board, the President shall be the chief executive officer.
SECTION 3. If there be a Chairman of the Board and if he be designated as the chief executive officer of the corporation, the President shall have charge of the coordination and supervision of all matters of operation of the corporation. In the absence of the Chairman of the Board, the President shall have the powers and perform the duties of the Chairman of the Board.
SECTION 4. The Senior Executive Vice Presidents, severally, in the order designated by the chief executive officer, shall, in the absence of the president, have the powers and perform the duties of the President, and if there be a Chairman of the Board, they shall, in the absence of the Chairman of the Board and the President, have the powers and perform the duties of the Chairman of the Board.
SECTION 5. The Executive Vice Presidents, severally, in the order designated by the chief executive officer, shall, in the absence of the President and the Senior Executive Vice Presidents, have the powers and perform the duties of the President, and if there be a Chairman of the Board, they shall, in the absence of the Chairman of the Board and the President, have the powers and perform the duties of the Chairman of the Board.
SECTION 6. The Senior Vice Presidents, severally, in the order designated by the chief executive officer, shall, in the absence of the President, the Senior Executive Vice Presidents and the Executive Vice Presidents, have the powers and perform the duties of the President, and if there be a Chairman of the Board, they shall, in the absence of the Chairman of the Board, the President, the Senior Executive Vice Presidents and the Executive Vice Presidents, have the powers and perform the duties of the Chairman of the Board.
SECTION 7. The Chief Nuclear Officer shall, in the absence of the President, the Senior Executive Vice Presidents, the Executive Vice Presidents and the Senior Vice Presidents have the powers and perform the duties of the President, and if there be a Chairman of the Board, the Chief Nuclear Officer shall, in the absence of the Chairman of the Board, the President the Senior Executive Vice Presidents, the Executive Vice Presidents and the Senior Vice Presidents have the powers and perform the duties of the Chairman of the Board.
ARTICLE IV.
VICE PRESIDENTS.
SECTION 1. The Vice Presidents, severally, in the order designated by the chief executive officer, shall, in the absence of the President, the Senior Executive Vice Presidents, the Executive Vice Presidents, and the Senior Vice Presidents, have the powers and perform the duties of the President, and if there be a Chairman of the Board, they shall, in the absence of the Chairman of the Board, the President, the Senior Executive Vice President, the Executive Vice Presidents and the Senior Vice presidents, have the powers and perform the duties of the Chairman of the Board.
ARTICLE V.
SECRETARY.
SECTION 1. The Secretary shall keep minutes of all meetings of the stockholders of the Board of Directors and of the Executive Committee, and shall give notices of meetings of the stockholders, of the Board of Directors, and of the Executive Committee. He shall have custody of all deeds, contracts, and other instruments, documents and records, except as otherwise provided in these By-Laws, or by the Board of Directors, and shall attend to such correspondence of the corporation as the Board of Directors or the chief executive officer shall direct. He shall be the custodian of the seal of the corporation and shall affix it to any instrument requiring the same, except as otherwise provided herein or by the Board of Directors.
ARTICLE VI.
ASSISTANT SECRETARIES.
SECTION 1. Each Assistant Secretary shall have such powers and perform such duties as may be assigned to him by the Secretary. In the absence of the Secretary, the Assistant Secretaries, in the order designated by the Secretary, shall have the powers and perform the duties of the Secretary.
ARTICLE VII.
TREASURER.
SECTION 1. The Treasurer shall have charge of all receipts and disbursements of the corporation and shall be the custodian of the corporation's funds. He shall have full authority to receive and give receipts for all moneys due and payable to the corporation from any source whatever, and to endorse or cause to be endorsed checks, drafts, warrants, and other instruments for the payment of money in its name and on its behalf, and full discharge for the same to give. The funds of the corporation shall be deposited in its name in such depositories as may be designated from time to time by the Board of Directors, or by the Treasurer if the Board of Directors shall authorize him to do so. All checks, drafts and other instruments for the payment of money, and all notes and other evidences of indebtedness, issued in the name of the corporation, shall be signed by such officer or officers, employee or employees, agent or agents, of the corporation, and in such manner, including the use of facsimile signatures, as shall be determined from time to time by the Board of Directors, or by the Treasurer if the Board of Directors shall authorize him to make such determination. A report of the financial condition of the corporation shall be made by the Treasurer whenever requested by the chief executive officer. If required by the Board of Directors he shall give bond for the faithful performance of his duties, in such sum and with such surety or sureties as the Board of Directors may determine.
ARTICLE VIII.
ASSISTANT TREASURERS.
SECTION 1. Each Assistant Treasurer shall have such powers and perform such duties as may be assigned to him by the Treasurer. In the absence of the Treasurer, the Assistant Treasurers, in the order designated by the Treasurer, shall have the powers and perform the duties of the Treasurer.
ARTICLE IX.
MEETINGS.
SECTION 1. The meetings of the stockholders shall, unless otherwise provided by law, be held at such place, within or without the State of New Jersey, as may be fixed by the Board of Directors and stated in the notice of the meeting.
Each annual meeting of the stockholders for the election of directors for the ensuing year, and for the transaction of such other business as may be brought before the meeting, shall be held at such time, not more than 13 months after the last annual meeting, as may be fixed by the Board of Directors.
SECTION 2. Except as herein or in the Restated Certificate of Incorporation expressly provided to the contrary or as otherwise required by law, all voting rights in the corporation shall be vested exclusively in the holders of Common Stock, and the holders of Preferred Stock and the holders of Preferred Stock-$25 Par shall have no right to vote or to participate in any meeting of the stockholders of the corporation or to receive any notice of any such meeting.
Except as herein or in the Restated Certificate of Incorporation expressly provided to the contrary or as otherwise required by law, at all meetings of stockholders the holders of Common Stock shall be entitled to cast one vote for each share of Common Stock held.
At any meeting of the stockholders of the corporation at which the holders of Preferred Stock and the holders of Preferred Stock-$25 Par shall be entitled to vote as a single class, the holders of Preferred stock shall be entitled to cast one vote for each share of Preferred Stock held and the holders of Preferred Stock-$25 Par shall be entitled to cast 1/4 vote for each Preferred Stock-$25 Par held.
At all elections of directors each holder of Common Stock shall be entitled to as many votes as shall equal the number of his shares of Common Stock multiplied by the number of directors to be elected, and, in each case, the stockholder may cast all such votes for a single director or may distribute them among the number to be voted for, or any two or more of them as he may see fit; provided that whenever the holders of Preferred Stock and the holders of Preferred Stock-$25 Par, voting separately as a single class, are entitled to elect directors, (i) each holder of Preferred Stock shall be entitled to as many votes as shall equal the numbers of his shares of stock, and each holder of Preferred Stock-$25 Par shall be entitled to as many votes as shall equal one-fourth the number of his shares of stock, in each case multiplied by the number of directors to be elected by the holders of Preferred Stock
and the holders of Preferred Stock-$25 Par, and (ii) each holder of Common Stock shall be entitled to as many votes as shall equal the number of his shares of stock, multiplied by the number of directors to be elected by the holders of Common Stock.
SECTION 3. So long as any Preferred Stock or Preferred Stock-$25 Par shall be outstanding, if dividends upon any shares of Preferred Stock-$25 Par shall be in arrears to an amount equal to the annual dividend thereon, the holders of Preferred Stock and the holders of Preferred Stock-$25 Par shall become entitled, to the extent, herein provided, to vote at all elections of directors for the corporation and to receive notice of stockholders' meetings to be held for such purpose. Such voting rights of the holders of Preferred Stock and the holders of Preferred Stock-$25 Par to elect directors shall continue until all the accumulated and unpaid dividends on Preferred Stock and Preferred Stock-$25 Par shall have been paid, whereupon all such voting rights shall cease, subject to being again revived from time to time upon the recurrence of the conditions described above as giving rise thereto.
SECTION 4. Every stockholder entitled to vote at a meeting of stockholders or to express consent or dissent without a meeting may authorize another person or persons to act for him by proxy. No proxy shall be valid after 11 months from the date of its execution, unless a longer time is expressly provided therein, but in no event shall a proxy be valid after three years from the date of execution. A proxy shall not be revoked by the death or incapacity of a stockholder but shall continue in force until revoked by the personal representative or guardian of the stockholder. The presence at any meeting of any stockholder who has given a proxy shall not revoke such proxy unless the stockholder shall file written notice of such revocation with the secretary of the meeting prior to the voting of such proxy.
A person named in a proxy as the attorney or agent of a stockholder may, if the proxy so provides, substitute another person to act in his place, including any other person named as an attorney or agent in the same proxy. The substitution shall not be effective until an instrument effecting it is filed with the Secretary.
SECTION 5. All elections for directors shall be by ballot, and the polls at every such election shall remain open so long as may be reasonably necessary to permit all stockholders entitled to vote at such meeting, present in person or by proxy, to cast their votes.
SECTION 6. Special meetings of the stockholders may be called at any time by the Board of Directors or by the chief executive officer or upon the written request of the holders of the capital stock entitled to cast a majority of votes thereat.
Except as otherwise provided by law, and unless waived, written notice of the time, place and purposes of every meeting of
stockholders shall be given not less than 10 nor more than 60 days before the date of the meeting, to each stockholder of record entitled to vote at the meeting, either personally or by mailing a notice to him at his last post office address appearing on the books of the corporation.
At any time after the accrual to the holders of Preferred Stock and the holders of Preferred Stock-$25 Par of voting rights to elect directors, a special meeting of the stockholders for the purpose of electing directors shall be held upon not less than 30 days' notice upon call of the Secretary at the written request of any holder of shares of Preferred Stock or Preferred Stock-$25 Par at the time outstanding, or, if the Secretary should fail or neglect to call such meeting within 30 days after receipt of such request, then upon call by any such holder.
SECTION 7. At any meeting of the stockholders the holders of stock entitled to cast a majority of the votes at the meeting, present in person or by proxy, shall constitute a quorum of the stockholders for all purposes unless the representation of a larger number shall be required by law, and in that case the representation of the number so required shall constitute a quorum.
If the holders of the amount of stock necessary to constitute a quorum shall fail to attend in person or by proxy at the time and place fixed for any meeting of the stockholders, the meeting may be adjourned from time to time by the vote of the majority of the votes cast by the holders of stock present in person or represented by proxy at such meeting, without notice other than by announcement at the meeting, and at any such adjourned meeting held more than one week after such time the holders of stock entitled to cast 40% of the votes at such meeting, present in person or represented by proxy, shall constitute a quorum of the stockholders for all purposes unless the representation of a larger number shall be required by law, and in that case the representation of the number so required shall constitute a quorum. At any such adjourned meeting, whenever held, at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting originally called.
In any case where the holders of Preferred Stock and the holders of Preferred Stock-$25 Par are entitled to vote separately as a single class, or the holders of Common Stock are entitled to vote separately as a single class; meetings of each such class may be held and adjourned (by the vote of a majority of the votes cast by the holders of stock of such class present in person or represented by proxy at such meeting) without notice other than by announcement at the meeting, separately or together, and a quorum of each such class at any meeting or adjourned meeting thereof shall be the same percentage of the votes entitled to be cast by the stockholders of such class as is hereinabove required for a quorum of stockholders of the corporation entitled to vote at a meeting or adjourned meeting as the case may be.
SECTION 8. Regular meetings of the Board of Directors shall be held monthly unless otherwise determined by resolution of the Board.
Special meetings of the Board of Directors may be called at any time by the Chairman of the Board, or by the President if he be the chief executive officer. The Secretary shall also call such meetings on the written request on a majority of the directors.
No notice shall be required for regular meetings of the Board of Directors. The meeting for organization may be held on the day and after the annual meeting of stockholders. At least two days' notice of a special meeting of the Board of Directors shall be given, but this notice may be waived in writing or by telegraph, either before or after the meeting. A meeting may be held without notice at any time when all the directors are present.
At all meetings of the Board of Directors a majority of the directors in office, or one-third of the entire Board, whichever is greater, shall constitute a quorum for the transaction of business. A less number than a quorum, however, may meet and adjourn to any day.
SECTION 9. The Board of Directors may, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting or any adjournment thereof. If inspectors are not so appointed by the Board of Directors or shall fail to qualify, the person presiding at a meeting of stockholders may, and on the request of any stockholder entitled to vote thereat, shall make such appointment. In case any person appointed as inspector fails to appear or act, the vacancy may be filled by appointment made by the Board of Directors in advance of the meeting of stockholders or at the meeting by the person presiding at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. No person shall be elected a director at a meeting at which he has served as an inspector.
ARTICLE X.
RECORD DATE FOR DETERMINATION OF
RIGHT OF STOCKHOLDERS.
SECTION 1. For the purpose of determining the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to or dissent from any proposal without a meeting, or for the purpose of determining stockholders entitled to receive payment of any dividend or allotment of any right, or for the purpose of any other action, the Board of Directors may fix, in advance, a date as the record date for any such determination of stockholders. Such date shall not be
more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. When a determination of stockholders entitled to notice of or to vote at any meeting of stockholders has been so made, such determination shall apply to any adjournment thereof, unless the Board of Directors fixes a new record date for the adjourned meeting.
ARTICLE XI.
COMMITTEES.
SECTION 1. The Board of Directors, by resolution adopted by a majority of the entire Board, may appoint from among its members an Executive Committee and one or more other committees. Except as otherwise provided by law, the Executive Committee shall have and may exercise all the authority of the Board of Directors when the Board is not in session, and each such other committee of the Board shall have and may exercise the authority of the Board to the extent provided in the resolution of appointment.
The Board of Directors, by resolution adopted by a majority of the entire Board, may (a) fill any vacancy in any committee of the Board, (b) appoint one or more directors to serve as alternate members of any such committee, to act in the absence or disability of members of any such committee with all the powers of such absent or disabled members, (c) abolish any such committee at its pleasure, and (d) remove any director from membership on such committee at any time, with or without cause.
Actions taken at a meeting of any committee of the Board of Directors shall be reported to the Board at its next meeting following such committee meeting; except that, when the meeting of the Board is held within two days after the committee meeting, such report shall, if not made at the first meeting, be made to the Board at its second meeting following such committee meeting.
SECTION 2. The Board of Directors may appoint and prescribe the powers duties of other committees, the members of which may be but need not be directors and shall serve at the pleasure of the Board.
SECTION 3. One-third of the entire committee, or two members, whichever is greater, shall constitute a quorum for the transaction of business.
SECTION 4. Each committee shall fix its own rules of procedure, shall meet where and as provided by such rules of procedure or by resolution of the Board of Directors, shall keep full records of its proceedings and shall report from time to time to the Board, as called upon by the Board.
ARTICLE XII.
VOTING UPON STOCK OWNED BY THE CORPORATION.
SECTION 1. Unless otherwise ordered by the Board of Directors, the Chairman of the Board, the President, the Senior Executive Vice Presidents, the Executive Vice Presidents, the Senior Vice Presidents, and the Vice Presidents, severally, shall each have full power and authority on behalf of the corporation to attend, act, and vote at any meeting of the stockholders of any corporation in which this corporation may hold stock, and to appoint one or more other persons as proxy or proxies to attend, act, and vote at any such meeting, and such office or such proxy or proxies shall possess and may exercise on behalf of this corporation any and all rights and powers incident to its ownership of such stock. The Board of Directors or the Executive Committee from time to time by resolution may confer like powers upon any other person or persons.
ARTICLE XIII.
STOCK.
SECTION 1. The shares of stock in this corporation may be represented by certificates or may be uncertificated shares. To the extent that certificates shall be issued for shares of stock in this corporation, such certificates shall be signed by the Chairman of the Board, the President, or a Vice President, and either the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary. If the certificate is countersigned by a transfer agent or registrar, who is not an officer or employee of the corporation, any and all other signatures may be facsimiles.
SECTION 2. The shares issued by this corporation shall be transferable only on the books of the corporation by the holder or owner thereof in person or by power of attorney, and if such shares are represented by a certificate, on surrender of the certificate therefor.
SECTION 3. The Treasurer shall make and certify a complete list of the stockholders entitled to vote at a meeting of stockholders or any adjournment thereof. Such list shall be arranged alphabetically within each class and series, with the address of, and the number of shares held by, each stockholder, shall be produced at the time and the place of the meeting, and shall be subject to the inspection of any stockholder during the whole time of the meeting.
ARTICLE XIV.
FISCAL YEAR.
SECTION 1. The fiscal year of the corporation shall begin on January 1 of each year.
ARTICLE XV.
SEAL.
SECTION 1. The seal of the corporation shall be circular in form, and shall have inscribed thereon the following words and figures "PUBLIC SERVICE ELECTRIC AND GAS COMPANY INCORPORATED 1924".
ARTICLE XVI.
AMENDMENTS.
SECTION 1. Except as otherwise provided by law, the Board of Directors shall have the power to make, alter, or repeal any by-laws. By-Laws made by the Board may be altered or repealed and new by-laws made, by the stockholders.
ARTICLE XVII.
ADVANCEMENT OF EXPENSES.
SECTION 1. Expenses incurred by any person made, or threatened to be made, a party to any pending, threatened or completed civil, criminal, administrative or arbitrative action, suit or proceeding and any appeal therein (and any inquiry or investigation which could lead to such action, suit or proceeding) by reason of the fact that he is or was a director, officer or employee of the corporation or serves or served any other enterprise as a director, officer or employee at the request of the corporation, shall be paid by the corporation in advance of the final disposition of the action, suit or proceeding promptly upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the corporation.
EXHIBIT 10
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
2007 EQUITY COMPENSATION PLAN FOR OUTSIDE DIRECTORS
I. PURPOSE
The purpose of this Public Service Enterprise Group Incorporated 2007 Equity Compensation Plan for Outside Directors is to advance the interests of the Company and its stockholders by assisting the Company in attracting and retaining individuals of superior talent, ability and achievement to serve on its Board of Directors.
It is intended that the Plan will be interpreted and administered to prevent taxation under Section 409A of the Code. Any provision of or amendment to this Plan that would cause any amount to be taxable under Section 409A with respect to any individual is void and without effect. Any election by any participant, and any administrative action by the Committee that would cause any amount to be taxable under Section 409A with respect to any individual is void and without effect under the Plan. In the event that a Participant fails to make a Section 409A-compliant payment election, the Plan's default payment provisions, as set forth in Subsection V.G and Article VIII, shall apply. It is further intended that the Plan will be amended in accordance with present and future guidance issued by the Treasury Department under Section 885 of the American Jobs Creation Act of 2004.
II. DEFINITIONS
The following words and phrases shall have the meanings set forth below unless a different meaning is required by the context:
a) ANNUAL MEETING: The Annual Meeting of Stockholders of the Company.
b) BOARD: The Board of Directors of the Company.
c) CODE: The Internal Revenue Code of 1986, as amended.
d) COMMITTEE: Those persons who are members of the Board but who are not Outside Directors.
e) COMMON STOCK: The Common Stock without nominal or par value of the Company.
f) COMPANY: Public Service Enterprise Group Incorporated, a corporation organized and existing under the laws of the State of New Jersey, or its successor or successors.
g) DISABILITY: Any physical or mental condition of a permanent nature which, in sole reasonable judgment of the Committee, renders an Outside Director incapable of performing the duties of a member of the Board.
h) EFFECTIVE DATE: Upon approval by stockholders at the 2007 Annual Meeting of Stockholders.
i) EXCHANGE ACT: The Securities and Exchange Act of 1934, as amended, or as it may be amended from time to time.
j) NYSE: The New York Stock Exchange, Inc.
k) OUTSIDE DIRECTOR: A member of the Board on or after the Effective Date who never has been employed by the Company or any of its affiliates.
l) PARTICIPANT: An Outside Director who receives a Stock Unit Award under this Plan.
m) PLAN: This Public Service Enterprise Group Incorporated 2007 Equity Compensation Plan for Outside Directors, as it may be amended from time to time.
n) SECURITIES ACT: The Securities Act of 1933, as amended, or as it may be amended from time to time.
o) SERVICE: A Director's service as a member of the Board.
p) STOCK UNIT AWARD: An award, representing the right to receive shares of Common Stock upon termination of service as an Outside Director, subject to the provisions of Article IV hereof
q) YEAR OF SERVICE: The annual period commencing on May 1st of each year and ending at the earlier of the succeeding April 30th or the next Annual Meeting of Stockholders. For any person first elected a member of the Board after May 1st of any year, his/her first Year of Service shall commence upon his/her election as a Director and shall end at the earlier of the succeeding April 30th or the next Annual Meeting of Stockholders..
III. SHARES SUBJECT TO THE PLAN
200,000 shares of Common Stock are reserved to satisfy awards of Stock Units pursuant to the terms of this Plan. Such shares may be acquired directly from the Company or, at the discretion of the Company, purchased on the open market by the Company or its agent.
IV. STOCK UNIT AWARDS
A. Upon the commencement of each Year of Service as a member of the Board, each Outside Director shall be granted an award of Stock Units in an amount as shall be established from time to time by the Board of Directors. The date of grant shall be the first business day of May. With respect to an Outside Director first elected
as a director after May 1 of any year, the date of such Outside Director's initial award grant under this Plan shall be the first business day of the month next following the Outside Director's initial election as a member of the Board.
B. The number of Stock Units to be awarded on any particular date of grant shall be equal to the amount of the award grant (expressed in dollars) divided by the closing price of the Common Stock on the NYSE on the date of grant as provided in Section IV.A, rounded up to the next whole share.
C. If a Participant fails to complete the Year of Service with respect to which a Stock Unit Award has been granted, other than on account of Disability or death, such Stock Unit Award and any earnings thereon shall be prorated to reflect the portion of the Year of Service actually served by the Participant.
D. No stock certificates shall be issued in connection with any Stock Unit Award and the Stock Unit Awards shall be evidenced by bookkeeping account in the name of the Participant maintained by the Company. The Company shall not be required to segregate any amounts credited to these Stock Unit Award accounts, which shall be established merely as an accounting convenience. Amounts credited to the Stock Unit Award accounts shall at all times remain solely the property of the Company subject to the claims of its general creditors and available for the Company's use for whatever purpose desired. Stock Unit Award accounts shall be credited with dividend equivalents at a rate equal to such dividends as may be declared by the Company on the Common Stock. Such dividends equivalents shall invested as additional Stock Units as of the last business day of each quarter at a share price equal to closing price of the Common Stock on the NYSE on the date the transaction is credited.
E. Until distribution of shares of Common Stock from the Plan, neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate, alienate or convey the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are expressly declared to be, unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure, attachment, garnishment or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency.
PROVIDED, HOWEVER, THAT, in the event that a domestic relations order of any State is received by the Plan and thereafter determined to be a Qualified Domestic Relations Order (QDRO) within the meaning of Code section 414(p), the portion of the Account of the Participant to which such QDRO is directed shall be apportioned as specified in such QDRO, valued as of the business day preceding the date specified in such QDRO. Upon notice to the Committee that a QDRO is being sought with respect to a Participant's Account, no distribution shall be
made to a Participant until such time as the status of the QDRO is determined. The alternate payee of the Participant's Account shall thereafter participate in the Plan in accordance with its terms, except such person shall not have the rights or benefits provided in Subsection IV.A If a QDRO is issued and the amount awarded the alternate payee exceeds the value of the Participant's Account, the amount apportioned shall be limited to the amount then in the account. If a QDRO so provides, benefits may be paid to an alternate payee before they would otherwise be distributable under the Plan, and no such distribution to an alternate payee shall be treated as a distribution to the Participant for purposes of Article V.
F. No Participant shall have any of the rights of a stockholder (including the right to vote and to receive dividends and other distributions) with respect to Stock Units unless and until shares of Common Stock are actually issued in his/her name.
G. In the event of any stock dividend, stock split, combination or exchange of shares, merger, consolidation, spin-off or other distribution (other than normal cash dividends) of Company assets to shareholders, or any other change affecting the Common Stock, such adjustments, if any, as are appropriate to reflect such change shall be made with respect to outstanding Stock Unit Awards.
H. Upon a Change in Control of the Company all outstanding Stock Unit
Awards shall be considered as having met the requirements of Section
IV.C. For the purposes of this Plan, "Change in Control" shall mean
the occurrence of any of the following events:
a) any "person" (within the meaning of Section 13(d) of the Exchange Act is or becomes the beneficial owner within the meaning of Rule 13d-3 under the Exchange Act (a "Beneficial Owner"), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its affiliates) representing 25% or more of the combined voting power of the Company's then outstanding securities, excluding any person who becomes such a Beneficial Owner in connection with a transaction described in clause (1) of paragraph (c) below; or
b) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on December 15, 1998, constitute the Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation. relating to the election of directors of the Company) whose appointment or election by the Board of Directors or nomination for election by the Company's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on April 17, 2007 or whose appointment, election or nomination for election was previously so approved or recommended: or
c) there is consummated a merger or consolidation of the Company or any direct or indirect wholly owned subsidiary of the Company with any other corporation other than (1) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, at least 75% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (2) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities; or
d) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 75% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale.
Notwithstanding the foregoing subparagraphs (a), (b), (c) and (d), a "Change in Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the Common Stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions.
V. DISTRIBUTIONS
A. Upon the termination of a Participant's service as an Outside Director, the Company shall issue to the Participant certificates for shares of Common Stock equal to the number of whole Stock Units in his/her account without any legend or restriction of any kind in accordance with such Participant's distribution elections hereunder. Any remaining fractional Stock Units shall be paid in cash based upon the closing price of the Common Stock on the NYSE on the day prior to the date of distribution.
B. By written notice to the Plan filed with the Company's Secretary, a Participant may elect to have distribution of his/her Stock Unit Award account commence: (1) on the 30th day following the date of termination of the Participant's Service, (2) on the 15th day of January next following the date of termination of the Participant's Service or (3) on the 15th day of January of any calendar year following termination of the Participant's Service, but not later than the January following the Participant's 72nd birthday, unless the Participant is still a Director at such time, in which case distribution shall commence on the 30th day following the date the Participant ceases to be a Director. Any such election, or any change in such election (by such subsequent written notice to the Secretary of the Company), shall apply only to future awards. In the event no election is made as to the commencement of distribution, such distribution shall commence on the 30th day following the date the Participant ceases to be a Director of the Company.
C. By written notice to the Plan filed with the Company's Secretary, a Participant may elect to receive the distribution of his/her Stock Unit Award account in the form of (1) one lump-sum payment, or (2) annual distributions over a period selected by the Participant of up to ten years. In the event a lump-sum payment is made under the Plan, the amount then standing to the Participant's credit in his/ her Stock Unit Award account shall be paid to the Participant on the date determined under Section V.B. In the case of a distribution over a period of years, the Company shall pay to the Participant, commencing on the date determined under Section V.B, annual installments from the amount then standing to his or her credit in his or her Stock Unit Award account, including earnings credits on the unpaid balance to the date of distribution. The amount of each installment shall be determined by dividing the then unpaid balance, plus earnings credits, in the Participant's Stock Unit Award account by the number of installments remaining to be paid. If a Participant does not make an election as to the manner of distribution of his or her Stock Unit Award account, such distribution shall be made in the form of a lump sum.
D. In the event of a Participant's death, the balance of the Participant's Stock Unit Award account shall be distributed to the Participant's Beneficiary(ies) in a lump-sum payment within 30 days following the Participant's death A Participant may change Beneficiary designations by filing a subsequent notice with the Secretary of the Company. If a Participant does not make a Beneficiary designation, or if the Beneficiary has predeceased the Participant, such distribution shall be made as a lump-sum to his/her estate.
E. Participants may, (i) by notice filed with the Company prior to December 31st of any year, make changes of distribution elections on a prospective basis; and (ii) by notice filed with the Company, make changes of distribution elections with respect to prior deferred compensation as long as (A) any such new distribution election is made at least one year prior to the date that the commencement of the distribution would otherwise have occurred and (B) the revised commencement
date is at least five years later than the date that the commencement of the distribution would otherwise have occurred; provided that such an election may not defer payment beyond the later of the January following the Participant's 72nd birthday or the Participant's termination of service as a director. For the purposes of this subsection V.E, if a Participant has elected a distribution in installments, each installment shall be deemed a separate election.
F. Notwithstanding any other provision of the Plan, if the Board, by vote of the Outside Directors, other than the Participant making the claim, shall determine in its sole discretion that the time of payment of a Participant's Stock Unit Award account should be advanced because of protracted illness or other undue hardship, then the Board may advance the time or times of payment (whether before or after the date of Participant's termination of service as a Director) of an amount or amounts needed to meet the emergency in accordance with the requirements of Code Section 409A and the regulations promulgated thereunder.
G. DISTRIBUTION IN CASE OF CERTAIN TAX EVENTS - If, with respect to any Participant, the Plan fails to meet the requirements of the Code with respect to the deferral of tax liability, the Company may accelerate distribution from a Participant's Account amounts sufficient to meet such Participant's resulting Federal, State, Local and/or Foreign tax liability (including any interest and penalties).
VI. FURTHER CONDITIONS
A. Unless the shares of Common Stock to be distributed pursuant to the Plan have been registered with the Securities and Exchange Commission under the Securities Act prior to issuance, the Participant receiving such shares must represent in writing to the Company that such shares of Common Stock are being acquired for investment purposes only and not with a view towards the further resale or distribution thereof and must supply to the Company such other documentation as may be required by the Company, unless in the opinion of counsel to the Company such representation, agreement or documentation is not necessary to comply with the Securities Act.
B. The Company shall not be obligated to deliver any shares of Common Stock until they have been listed on each securities exchange on which the shares of Common Stock may then be listed or until there has been qualification under or compliance with such state or federal laws, rules or regulations as the Company may deem applicable. The Company shall use reasonable efforts to obtain such listing, qualification and compliance.
C. The Committee may make such provisions and take such steps as it may deem necessary or appropriate for the withholding of any taxes that the Company is required by any law or regulation of any governmental authority, whether federal, state or local, domestic or foreign, to withhold in connection with the award of
Stock Units or the distribution of any Common Stock, including, but not limited to (i) the withholding of delivery of certificates for shares of Common Stock until the Participant reimburses the Company for the amount the Company is required to withhold with respect to such taxes, (ii) the canceling of any number of shares of Common Stock issuable in an amount sufficient to reimburse the Company for the amount it is required to so withhold or (iii) withholding the amount due from any such Participant's other compensation.
VII. ADMINISTRATION
The Plan shall be administered by the Committee, which shall establish rules and regulations regarding the administration and operation of the Plan.
VIII. TERMINATION, MODIFICATION AND AMENDMENT
Although the Company anticipates that it will continue the Plan for an indefinite period of time, there is no guarantee that the Company will continue the Plan or will not terminate the Plan at any time in the future. Accordingly, the Company, by the Board of Directors, reserves the right to discontinue its sponsorship of the Plan or to terminate the Plan (or both), at any time, by the action of the Board of Directors. In general, upon the termination of the Plan, the affected Participants shall receive payment of their benefits in accordance with the terms of Article V. However, the Company may, in its discretion, terminate the entire Plan and pay each Participant a single lump-sum distribution of his or her entire Account Balance, in the event that the Company satisfies any of the following:
(a) such distributions are made between 12 and 24 months following the termination of the Plan, and the Company does not adopt a new plan which would be aggregated with this Plan under IRS guidance under Code Section 409A at any time within the five years following the Plan termination.
(b) the Plan is terminated within the 30 days preceding or the 12 months following a Change in Control, all payments are made within 12 months of the date of termination, and all substantially similar arrangements sponsored by the Company are terminated as well.
(c) the Plan is terminated within 12 months of a corporate dissolution, as defined in IRS guidance under Code Section 409A, and lump sum payments are made in the latest of (i) the year of the termination, (ii) the year in which amounts are no longer subject to a substantial risk of forfeiture; or (iii) the first year in which payment is administratively practicable.
The termination of the Plan shall not adversely affect any Participant or Beneficiary who has become entitled to the payment of any benefits under the Plan as of the date of termination.
IX. NOT A CONTRACT FOR CONTINUED SERVICE
Nothing contained in the Plan or in any restricted stock agreement executed pursuant hereto shall be deemed to confer upon any Outside Director to whom Stock Unit Awards are or may be awarded hereunder any right to remain a member of the Board or in any way limit the
right of the Board or the Stockholders to terminate or fail to renominate or reelect any such Outside Director as a member of the Board.
X. MISCELLANEOUS
A. The costs and expenses of administering the Plan shall be borne by the Company and shall not be charged against any award or to any Outside Director receiving an award.
B. This Plan and actions taken in connection herewith shall be governed and construed in accordance with the laws of the State of New Jersey.
C. The captions and section numbers appearing in this Plan are inserted only as a matter of convenience. They do not define, limit or describe the scope or intent of the provisions of this Plan. In this Plan, words in the singular number include the plural and in the plural include the singular; and words of the masculine gender include the feminine and the neuter, and when the sense so indicates, words of the neuter gender may refer to any gender.
D. Whenever the time for payment or performance hereunder shall fall on a weekend or public holiday, such payment or performance shall be deemed to be timely if made on the next succeeding business day.
EXHIBIT 12
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
FOR THE THREE
MONTHS ENDED FOR THE YEARS ENDED
MARCH 31, DECEMBER 31,
------------------------------------------------------------------------
2007 2006 2006 2005 2004 2003 2002
------------------------------------------------------------------------
(MILLIONS, EXCEPT RATIOS)
Earnings as Defined in Regulation S-K (A):
Pre-tax Income from Continuing Operations $ 335 $ 208 $ 1,206 $ 1,446 $ 1,279 $ 1,324 $ 659
(Income) Loss from Equity Investees, net of
Distributions (6) (5) (37) (28) 78 60 (2)
Fixed Charges 213 220 870 899 904 963 946
Capitalized Interest (B) (6) (22) (33) (92) (109) (116) (104)
Preferred Securities Dividend Requirements of
Subsidiaries (2) (2) (6) (6) (6) (6) (6)
------------------------------------------------------------------------
Total Earnings $ 534 $ 399 $ 2,000 $ 2,219 $ 2,146 $ 2,225 $ 1,493
========================================================================
Fixed Charges as Defined in Regulation S-K (C)
Interest Expense $ 208 $ 215 $ 853 $ 883 $ 889 $ 949 $ 926
Interest Factor in Rentals 3 3 11 10 9 8 14
Preferred Securities Dividend Requirements of
Subsidiaries 2 2 6 6 6 6 6
------------------------------------------------------------------------
Total Fixed Charges $ 213 $ 220 $ 870 $ 899 $ 904 $ 963 $ 946
========================================================================
Ratio of Earnings to Fixed Charges 2.51 1.81 2.30 2.47 2.37 2.31 1.58
========================================================================
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(A) The term "earnings" shall be defined as pre-tax Income from Continuing Operations before income or loss from equity investees plus distributed income from equity investees. Add to pre-tax income the amount of fixed charges adjusted to exclude (a) the amount of any interest capitalized during the period and (b) the actual amount of any preferred securities dividend requirements of majority-owned subsidiaries stated on a pre-tax level.
(B) Fixed Charges represent (a) interest, whether expensed or capitalized, (b)
amortization of debt discount, premium and expense, (c) an estimate of
interest implicit in rentals and (d) preferred securities dividend
requirements of majority-owned subsidiaries stated on a pre-tax level.
(C) Capitalized Interest excludes AFUDC for PSE&G.
EXHIBIT 12.1
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
FOR THE THREE MONTHS FOR THE YEARS ENDED
ENDED MARCH 31, DECEMBER 31,
--------------------------------------------------------------------------------
2007 2006 2006 2005 2004 2003 2002
--------------------------------------------------------------------------------
(MILLIONS, EXCEPT RATIOS)
Earnings as Defined in Regulation S-K (A):
Pre-tax Income from Continuing Operations $ 231 $ 143 $ 448 $ 583 $ 592 $ 376 $ 320
Fixed Charges 81 85 346 342 362 390 408
--------------------------------------------------------------------------------
Earnings $ 312 $ 228 $ 794 $ 925 $ 954 $ 766 $ 728
================================================================================
Fixed Charges as Defined in Regulation S-K (B)
Interest Expense $ 81 $ 85 $ 346 $ 342 $ 362 $ 390 $ 406
Interest Factor in Rentals - - - - - - 2
--------------------------------------------------------------------------------
Total Fixed Charges $ 81 $ 85 $ 346 $ 342 $ 362 $ 390 $ 408
================================================================================
Ratio of Earnings to Fixed Charges 3.85 2.68 2.29 2.70 2.64 1.96 1.78
================================================================================
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(A) The term "earnings" shall be defined as pretax income from continuing operations. Add to pretax income the amount of fixed charges adjusted to exclude the amount of any interest capitalized during the period.
(B) Fixed Charges represent (a) interest, whether expensed or capitalized, (b)
amortization of debt discount, premium and expense and (c) an estimate of
interest implicit in rentals.
EXHIBIT 12.2
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
PLUS PREFERRED SECURITIES DIVIDEND REQUIREMENTS
FOR THE THREE MONTHS FOR THE YEARS ENDED
ENDED MARCH 31, DECEMBER 31,
---------------------------------------------------------------------------------
2007 2006 2006 2005 2004 2003 2002
---------------------------------------------------------------------------------
(MILLIONS, EXCEPT RATIOS)
Earnings as Defined in Regulation S-K (A):
Pre-tax Income from Continuing Operations $ 231 $ 143 $ 448 $ 583 $ 592 $ 376 $ 320
Fixed Charges 83 87 353 349 369 397 415
Preferred Securities Pre Tax (2) (2) (7) (7) (7) (7) (7)
---------------------------------------------------------------------------------
Earnings $ 312 $ 228 $ 794 $ 925 $ 954 $ 766 $ 728
=================================================================================
Fixed Charges as Defined in Regulation S-K (B)
Interest Expense $ 81 $ 85 $ 346 $ 342 $ 362 $ 390 $ 406
Interest Factor in Rentals - - - - - - 2
Preferred Securities Dividends 1 1 4 4 4 4 4
Adjustment to state Preferred Securities
Dividends on a pre-income tax basis 1 1 3 3 3 3 3
---------------------------------------------------------------------------------
Total Fixed Charges $ 83 $ 87 $ 353 $ 349 $ 369 $ 397 $ 415
=================================================================================
Ratio of Earnings to Fixed Charges 3.76 2.62 2.25 2.65 2.59 1.93 1.76
=================================================================================
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(A) The term "earnings" shall be defined as pretax income from continuing operations. Add to pretax income the amount of fixed charges adjusted to exclude (a) the amount of any interest capitalized during the period (b) the actual amount of any preferred securities dividend requirements of majority owned subsidiaries (c) preferred stock dividends which were included in such fixed charges amount but not deducted in the determination of pre-tax income.
(B) Fixed Charges represent (a) interest, whether expensed or capitalized, (b)
amortization of debt discount and premium expense (c) an estimate of
interest implicit in rentals and (d) preferred securities dividend
requirements of majority owned subsidiaries and preferred stock dividends,
increased to reflect the pre-tax earnings requirement for PSE&G.
EXHIBIT 12.3
PSEG POWER LLC
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
FOR THE THREE
MONTHS ENDED FOR THE YEARS ENDED
---------------------------------------------------------------------------------
MARCH 31, DECEMBER 31,
---------------------------------------------------------------------------------
2007 2006 2006 2005 2004 2003 2002
---------------------------------------------------------------------------------
(MILLIONS, EXCEPT RATIOS)
Earnings as Defined in Regulation S-K (A):
Pre-tax Income from Continuing Operations $ 373 $ 207 $ 878 $ 752 $ 594 $ 815 $ 781
Fixed Charges 44 53 190 197 198 219 219
Capitalized Interest (4) (20) (30) (89) (107) (106) (93)
Preferred Stock Dividend Requirements -- -- -- -- -- -- --
---------------------------------------------------------------------------------
Total Earnings $ 413 $ 240 $ 1,038 $ 860 $ 685 $ 928 $ 907
=================================================================================
Fixed Charges as Defined in Regulation S-K (B)
Interest Expense $ 44 $ 53 $ 189 $ 195 $ 197 $ 217 $ 217
Interest Factor in Rentals -- -- 1 2 1 2 2
---------------------------------------------------------------------------------
Total Fixed Charges $ 44 $ 53 $ 190 $ 197 $ 198 $ 219 $ 219
=================================================================================
Ratio of Earnings to Fixed Charges 9.39 4.53 5.46 4.37 3.46 4.24 4.14
=================================================================================
|
(A) The term "earnings" shall be defined as pre-tax Income from Continuing Operations. Add to pre-tax income the amount of fixed charges adjusted to exclude the amount of any interest capitalized during the period.
(B) Fixed Charges represent (a) interest, whether expensed or capitalized, (b)
amortization of debt discount, premium and expense and (c) an estimate of
interest implicit in rentals.
EXHIBIT 12.4
PSEG ENERGY HOLDINGS L.L.C.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
FOR THE THREE
MONTHS ENDED FOR THE YEARS ENDED
MARCH 31, DECEMBER 31,
---------------------------------------------------------------------------------
2007 2006 2006 2005 2004 2003 2002
---------------------------------------------------------------------------------
Earnings as Defined in Regulation S-K (A):
Pre-tax (Loss) Income from Continuing
Operations $ 23 $ 40 $ 12 $ 269 $ 199 $ 249 $ (369)
Loss/(Income) from Equity Investees, Net of
Distributions 43 (23) (37) (28) 78 60 (2)
Fixed Charges 43 51 206 214 224 215 219
Capitalized Interest - - (1) (1) (3) (10) (12)
---------------------------------------------------------------------------------
Total Earnings $ 109 $ 68 $ 180 $ 454 $ 498 $ 514 $ (164)
=================================================================================
Fixed Charges as Defined in Regulation S-K (B)
Interest Expense $ 43 $ 50 $ 204 $ 213 $ 223 $ 214 $ 218
Interest Factor in Rentals - 1 2 1 1 1 1
---------------------------------------------------------------------------------
Total Fixed Charges $ 43 $ 51 $ 206 $ 214 $ 224 $ 215 $ 219
=================================================================================
Ratio of Earnings to Fixed Charges (C) 2.53 1.33 0.87 2.12 2.22 2.39 (0.75)
=================================================================================
|
(A) The term "earnings" is defined as pre-tax income from continuing operations before income or loss from equity investees plus distributed income from equity investees. Add to pre-tax income the amount of fixed charges adjusted to exclude the amount of any interest capitalized during the period.
(B) Fixed Charges represent (a) interest, whether expensed or capitalized, (b)
amortization of debt discount, premium and expense (c) an estimate of
interest implicit in rentals.
(C) The ratio of earnings to fixed charges for the year ended December 31, 2002, were (0.75), as noted above, which represents a deficiency of $383 million.
EXHIBIT 31
CERTIFICATION PURSUANT TO RULES 13a-14 AND 15d-14
OF THE 1934 SECURITIES EXCHANGE ACT
I, Ralph Izzo, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Public Service Enterprise Group Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 4, 2007 /s/ Ralph Izzo
-------------------------------------------------
RALPH IZZO
Public Service Enterprise Group Incorporated
Chief Executive Officer
|
EXHIBIT 31.1
CERTIFICATION PURSUANT TO RULES 13a-14 AND 15d-14
OF THE 1934 SECURITIES EXCHANGE ACT
I, Thomas M. O'Flynn, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Public Service Enterprise Group Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 4, 2007 /s/ Thomas M. O'Flynn
--------------------------------------------------
THOMAS M. O'FLYNN
Public Service Enterprise Group Incorporated
Chief Financial Officer
|
EXHIBIT 31.2
CERTIFICATION PURSUANT TO RULES 13a-14 AND 15d-14
OF THE 1934 SECURITIES EXCHANGE ACT
I, Ralph Izzo, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Public Service Electric and Gas Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 4, 2007 /s/ Ralph Izzo
--------------------------------------------
RALPH IZZO
Public Service Electric and Gas Company
Chief Executive Officer
|
EXHIBIT 31.3
CERTIFICATION PURSUANT TO RULES 13a-14 AND 15d-14
OF THE 1934 SECURITIES EXCHANGE ACT
I, Thomas M. O'Flynn, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Public Service Electric and Gas Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 4, 2007 /s/ Thomas M. O'Flynn
---------------------------------------------------
THOMAS M. O'FLYNN
Public Service Electric and Gas Company
Chief Financial Officer
|
EXHIBIT 31.4
CERTIFICATION PURSUANT TO RULES 13a-14 AND 15d-14
OF THE 1934 SECURITIES EXCHANGE ACT
I, Ralph Izzo, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of PSEG Power LLC;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 4, 2007 /s/ Ralph Izzo
-------------------------------------
RALPH IZZO
PSEG Power LLC
Chief Executive Officer
|
EXHIBIT 31.5
CERTIFICATION PURSUANT TO RULES 13a-14 AND 15d-14
OF THE 1934 SECURITIES EXCHANGE ACT
I, Thomas M. O'Flynn, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of PSEG Power LLC;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 4, 2007 /s/ Thomas M. O'Flynn
------------------------------------------------
THOMAS M. O'FLYNN
PSEG Power LLC
Chief Financial Officer
|
EXHIBIT 31.6
CERTIFICATION PURSUANT TO RULES 13a-14 AND 15d-14
OF THE 1934 SECURITIES EXCHANGE ACT
I, Ralph Izzo, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of PSEG Energy Holdings L.L.C.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 4, 2007 /s/ Ralph Izzo
------------------------------------------
RALPH IZZO
PSEG Energy Holdings L.L.C.
Chief Executive Officer
|
EXHIBIT 31.7
CERTIFICATION PURSUANT TO RULES 13a-14 AND 15d-14
OF THE 1934 SECURITIES EXCHANGE ACT
I, Thomas M. O'Flynn, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of PSEG Energy Holdings L.L.C.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 4, 2007 /s/ Thomas M. O'Flynn
------------------------------------------------
THOMAS M. O'FLYNN
PSEG Energy Holdings L.L.C.
Chief Financial Officer
|
EXHIBIT 32
CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 18
OF THE UNITED STATES CODE
I, Ralph Izzo, Chief Executive Officer of Public Service Enterprise Group
Incorporated, to the best of my knowledge, certify that (i) the Quarterly Report
of Public Service Enterprise Group Incorporated on Form 10-Q for the period
ended March 31, 2007 (the "Report") fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of Public Service Enterprise
Group Incorporated.
/s/ Ralph Izzo ------------------------------------------------- RALPH IZZO Public Service Enterprise Group Incorporated Chief Executive Officer May 4, 2007 |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 18
OF THE UNITED STATES CODE
I, Thomas M. O'Flynn, Chief Financial Officer of Public Service Enterprise Group Incorporated, to the best of my knowledge, certify that (i) the Quarterly Report of Public Service Enterprise Group Incorporated on Form 10-Q for the period ended March 31, 2007 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Public Service Enterprise Group Incorporated.
/s/ Thomas M. O'Flynn -------------------------------------------------- THOMAS M. O'FLYNN Public Service Enterprise Group Incorporated Chief Financial Officer May 4, 2007 |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 18
OF THE UNITED STATES CODE
I, Ralph Izzo, Chief Executive Officer of Public Service Electric and Gas Company, to the best of my knowledge, certify that (i) the Quarterly Report of Public Service Electric and Gas Company on Form 10-Q for the period ended March 31, 2007 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Public Service Electric and Gas Company.
/s/ Ralph Izzo -------------------------------------------- RALPH IZZO Public Service Electric and Gas Company Chief Executive Officer May 4, 2007 |
EXHIBIT 32.3
CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 18
OF THE UNITED STATES CODE
I, Thomas M. O'Flynn, Chief Financial Officer of Public Service Electric
and Gas Company, to the best of my knowledge, certify that (i) the Quarterly
Report of Public Service Electric and Gas Company on Form 10-Q for the period
ended March 31, 2007 (the "Report") fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of Public Service Electric and
Gas Company.
/s/ Thomas M. O'Flynn --------------------------------------------- THOMAS M. O'FLYNN Public Service Electric and Gas Company Chief Financial Officer May 4, 2007 |
EXHIBIT 32.4
CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 18
OF THE UNITED STATES CODE
I, Ralph Izzo, Chief Executive Officer of PSEG Power LLC, to the best of my knowledge, certify that (i) the Quarterly Report of PSEG Power LLC on Form 10-Q for the period ended March 31, 2007 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of PSEG Power LLC.
/s/ Ralph Izzo ---------------------------------------- RALPH IZZO PSEG Power LLC Chief Executive Officer May 4, 2007 |
EXHIBIT 32.5
CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 18
OF THE UNITED STATES CODE
I, Thomas M. O'Flynn, Chief Financial Officer of PSEG Power LLC, to the best of my knowledge, certify that (i) the Quarterly Report of PSEG Power LLC on Form 10-Q for the period ended March 31, 2007 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of PSEG Power LLC.
/s/ Thomas M. O'Flynn ------------------------------------------------ THOMAS M. O'FLYNN PSEG Power LLC Chief Financial Officer May 4, 2007 |
EXHIBIT 32.6
CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 18
OF THE UNITED STATES CODE
I, Ralph Izzo, Chief Executive Officer of PSEG Energy Holdings L.L.C., to the best of my knowledge, certify that (i) the Quarterly Report of PSEG Energy Holdings L.L.C. on Form 10-Q for the period ended March 31, 2007 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the PSEG Energy Holdings L.L.C.
/s/ Ralph Izzo ---------------------------------------- RALPH IZZO PSEG Energy Holdings L.L.C. Chief Executive Officer May 4, 2007 |
EXHIBIT 32.7
CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 18
OF THE UNITED STATES CODE
I, Thomas M. O'Flynn, Chief Financial Officer of PSEG Energy Holdings L.L.C., to the best of my knowledge, certify that (i) the Quarterly Report of PSEG Energy Holdings L.L.C. on Form 10-Q for the period ended March 31, 2007 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the PSEG Energy Holdings L.L.C.
/s/ Thomas M. O'Flynn ------------------------------------------------ THOMAS M. O'FLYNN PSEG Energy Holdings L.L.C. Chief Financial Officer May 4, 2007 |