UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
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 Registrant, State of Incorporation, I.R.S. Employer
File Number Address, and Telephone Number Identification No.
----------- ---------------------------------------------- ------------------
001-09120 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED 22-2625848
(A New Jersey Corporation)
80 Park Plaza
P.O. Box 1171
Newark, New Jersey 07101-1171
973-430-7000
http://www.pseg.com
Indicate by check mark whether the registrant (1) has 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
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
As of October 31, 2001, Public Service Enterprise Group Incorporated had
outstanding 207,471,318 shares of its sole class of Common Stock, without par
value.
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PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
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TABLE OF CONTENTS
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 19
Item 3. Qualitative and Quantitative Disclosures About Market Risk 30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 31
Item 5. Other Information 31
Item 6. Exhibits and Reports on Form 8-K 34
Signature 35
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PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(Millions of Dollars, except for Per Share Data)
(Unaudited)
For the Quarter Ended For the Nine Months Ended
September 30, September 30,
---------------------------- ------------------------------
2001 2000 2001 2000
------------ ----------- ------------ --------------
OPERATING REVENUES
Electric Transmission and Distribution $ 498 $ 454 $ 1,310 $$ 1,272
Generation 647 551 1,798 1,622
Gas Distribution 272 280 1,706 1,346
Trading 674 738 1,843 2,040
Other 310 184 734 568
------------ ----------- ------------ --------------
Total Operating Revenues 2,401 2,207 7,391 6,848
------------ ----------- ------------ --------------
OPERATING EXPENSES
Energy Costs 401 278 879 726
Gas Costs 177 205 1,207 922
Trading Costs 636 725 1,719 1,985
Operation and Maintenance 573 471 1,671 1,427
Depreciation and Amortization 150 90 381 266
Taxes Other Than Income Taxes 33 46 119 134
------------ ----------- ------------ --------------
Total Operating Expenses 1,970 1,815 5,976 5,460
------------ ----------- ------------ --------------
OPERATING INCOME 431 392 1,415 1,388
Other Income and Deductions 1 6 18 23
Interest Expense (194) (148) (520) (422)
Preferred Securities Dividend Requirements
and Premium on Redemption (14) (24) (58) (71)
------------ ----------- ------------ --------------
INCOME BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 224 226 855 918
Income Taxes (52) (84) (286) (364)
------------ ----------- ------------ --------------
INCOME BEFORE EXTRAORDINARY ITEM
AND CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 172 142 569 554
Extraordinary Loss on Early Retirement of Debt (net of tax) -- -- (2) --
Cumulative Effect of a Change in Accounting Principle
(net of tax) -- -- 9 --
------------ ----------- ------------ --------------
NET INCOME $ 172 $ 142 $ 576 $ 554
============ =========== ============ ==============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (000's) 208,495 214,623 208,564 215,465
============ =========== ============ ==============
EARNINGS PER SHARE (BASIC AND DILUTED):
INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF
A CHANGE IN ACCOUNTING PRINCIPLE $ 0.82 $ 0.66 $ 2.73 $ 2.57
Extraordinary Loss on Early Retirement of Debt (net of tax) -- -- (0.01) --
Cumulative Effect of a Change in Accounting Principle (net of -- -- 0.04 --
tax)
------------ ----------- ------------ --------------
NET INCOME $ 0.82 $ 0.66 $ 2.76 $ 2.57
============ =========== ============ ==============
DIVIDENDS PAID PER SHARE OF COMMON STOCK $ 0.54 $ 0.54 $ 1.62 $ 1.62
============ =========== ============ ==============
See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED BALANCE SHEETS
ASSETS
(Millions of Dollars)
(Unaudited)
September 30, December 31,
2001 2000
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CURRENT ASSETS
Cash and Cash Equivalents $ 371 $ 102
Restricted Cash 6 --
Accounts Receivable:
Customer Accounts Receivable 823 778
Other Accounts Receivable 310 431
Allowance for Doubtful Accounts (57) (44)
Unbilled Revenues 182 357
Fuel 536 431
Materials and Supplies, net of valuation reserves-- 2001, $5; 2000, $11 168 155
Prepayments 172 31
Energy Trading Contracts 580 799
Other 440 99
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Total Current Assets 3,531 3,139
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PROPERTY, PLANT AND EQUIPMENT
Generation 3,947 2,678
Transmission and Distribution 8,673 8,479
Other 1,763 790
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Total 14,383 11,947
Accumulated Depreciation and Amortization (4,764) (4,266)
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Net Property, Plant and Equipment 9,619 7,681
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NONCURRENT ASSETS
Regulatory Assets 5,375 4,995
Long-Term Investments, net of accumulated amortization and valuation
allowances-- 2001, $26; 2000, $72 4,896 4,545
Nuclear Decommissioning Fund 706 716
Other Special Funds 169 122
Other, net of accumulated amortization-- 2001 and 2000, $19 573 328
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Total Noncurrent Assets 11,719 10,706
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TOTAL ASSETS $ 24,869 $ 21,526
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See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND CAPITALIZATION
(Millions of Dollars)
(Unaudited)
September 30, December 31,
2001 2000
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CURRENT LIABILITIES
Long-Term Debt Due Within One Year $ 1,397 $ 667
Commercial Paper and Loans 802 2,885
Accounts Payable 778 1,001
Energy Trading Contracts 714 730
Other 664 429
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Total Current Liabilities 4,355 5,712
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NONCURRENT LIABILITIES
Deferred Income Taxes and ITC 3,283 3,107
Regulatory Liabilities 355 470
Nuclear Decommissioning 706 716
OPEB Costs 470 448
Cost of Removal 156 157
Other 526 415
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Total Noncurrent Liabilities 5,496 5,313
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COMMITMENTS AND CONTINGENT LIABILITIES -- --
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CAPITALIZATION
LONG-TERM DEBT 10,143 5,297
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SUBSIDIARIES' PREFERRED SECURITIES
Preferred Stock Without Mandatory Redemption 80 95
Preferred Stock With Mandatory Redemption -- 75
Guaranteed Preferred Beneficial Interest in Subordinated 680 1,038
Debentures
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Total Subsidiaries' Preferred Securities 760 1,208
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COMMON STOCKHOLDERS' EQUITY
Common Stock, issued: 231,957,608 shares 3,601 3,604
Treasury Stock, at cost: 2001 23,886,290 shares
and 2000 23,986,290 shares (892) (895)
Retained Earnings 1,728 1,493
Accumulated Other Comprehensive Loss (322) (206)
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Total Common Stockholders' Equity 4,115 3,996
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Total Capitalization 15,018 10,501
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TOTAL LIABILITIES AND CAPITALIZATION $ 24,869 $ 21,526
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See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of Dollars)
(Unaudited)
For the Nine Months Ended
September 30,
----------------------------------------
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 576 $ 554
Adjustments to reconcile net income to net cash flows from operating
activities:
Depreciation and Amortization 381 266
Amortization of Nuclear Fuel 63 47
(Deferral)Recovery of Electric Energy and Gas Costs-- net (145) 24
Provision for Deferred Income Taxes and ITC-- net 18 3
Investment Distributions 122 40
Equity Income from Partnerships (60) (30)
Unrealized Gains on Investments (28) (9)
Leasing Activities 56 --
Net Changes in Certain Current Assets and Liabilities:
Restricted Cash (6) --
Inventory (103) --
Accounts Receivable and Unbilled Revenues 264 193
Prepayments (142) (72)
Accounts Payable (243) (125)
Other Current Assets and Liabilities 233 (22)
Other (142) 60
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Net Cash Provided By Operating Activities 844 929
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CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Property, Plant and Equipment, excluding IDC and AFDC (1,612) (574)
Net Change in Long-Term Investments (634) (536)
Acquisitions, net of Cash Provided (532) --
Other (92) (47)
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Net Cash Used in Investing Activities (2,870) (1,157)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net Change in Short-Term Debt (1,991) 692
Issuance of Long-Term Debt 6,152 590
Deferred Issuance Costs (201) --
Redemption/Purchase of Long-Term Debt (872) (777)
Redemption of Preferred Securities (448) --
Purchase of Treasury Stock -- (72)
Cash Dividends Paid on Common Stock (337) (348)
Other (8) (1)
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Net Cash Provided By Financing Activities 2,295 84
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Net Change in Cash and Cash Equivalents 269 (144)
Cash and Cash Equivalents at Beginning of Period 102 259
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Cash and Cash Equivalents at End of Period $ 371 $ 115
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Income Taxes Paid $ 20 $ 380
Interest Paid $ 553 $ 354
Non-Cash Financing Activities:
Fair Value of Property, Plant and Equipment Acquired $ 628 $ 1
Debt Assumed from Companies Acquired $ 221 $ 9
See Notes to Consolidated Financial Statements.
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PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Basis of Presentation
Organization
Public Service Enterprise Group Incorporated (PSEG) is an exempt public
utility holding company which has four principal direct wholly-owned
subsidiaries: Public Service Electric and Gas Company (PSE&G), PSEG Power LLC
(Power), PSEG Energy Holdings Inc. (Energy Holdings) and PSEG Services
Corporation (Services).
Basis of Presentation
The financial statements included herein have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC). Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. However, in the
opinion of management, the disclosures are adequate to make the information
presented not misleading. These Consolidated Financial Statements (Statements)
and Notes to Consolidated Financial Statements (Notes) update and supplement
matters discussed in PSEG's 2000 Annual Report on Form 10-K and Quarterly
Reports on Form 10-Q for the quarters ended March 31, 2001 and June 30, 2001 and
should be read in conjunction with these Notes.
The unaudited financial information furnished reflects all adjustments
which are, in the opinion of management, necessary to fairly state the results
for the interim periods presented. The year-end consolidated balance sheet was
derived from the audited consolidated financial statements included in PSEG's
2000 Annual Report on Form 10-K. Certain reclassifications of prior period data
have been made to conform with the current presentation.
Note 2. Accounting Matters
Issued in July 2000, Emerging Issues Task Force (EITF) consensus 99-19,
"Reporting Revenue Gross as a Principal versus Net as an Agent" (EITF 99-19)
provided guidance on the issue of whether a company should report revenue based
on the gross amount billed to the customer or the net amount retained. Beginning
in the first quarter of 2001, based on an analysis and interpretation of EITF
99-19, PSEG reported all the revenues and energy costs on a gross basis for the
physical bilateral energy sales and purchases and capacity sales and purchases.
PSEG continues to report revenues and costs related to swaps, futures, option
premiums, firm transmission rights, transmission congestion credits and
purchases and sales of emission allowances on a net basis. The prior period
financial statements have been reclassified accordingly.
On January 1, 2001, PSEG adopted Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended (SFAS 133), and recorded a cumulative effect of a change
in accounting principle and other comprehensive income of $9 million and $(14)
million, respectively. As of September 30, 2001, the fair value of PSEG's
derivative assets and liabilities were $27 million and $122 million,
respectively, resulting in a net $95 million liability, a negative impact to
Other Comprehensive Income (OCI) of $43 million, deferred taxes of $25 million
and a minimal impact on the income statement.
The Financial Accounting Standards Board (FASB) Derivative Implementation
Group (DIG) issued guidance, effective January 1, 2002, regarding the normal
purchases and normal sales exception for option-type contracts and forward
contracts in electricity. In addition, the DIG issued amended guidance effective
April 1, 2002, regarding the normal purchases and normal sales exception to
contracts that combine a forward contract and a purchased option contract. PSEG
is currently evaluating this guidance in light of its potential impacts and
cannot predict the impact on its financial position or results of operations,
however, such impact could be material. PSEG has evaluated additional guidance
issued by the DIG which was effective July 1, 2001 which had no material effect
on PSEG's financial position or results of operations.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" (SFAS
141). SFAS 141 was effective July 1, 2001 and requires that all business
combinations on or after that date be accounted for under the purchase method.
Upon implementation of this standard, there was no impact on its financial
position or results of operations and PSEG does not believe it will have a
substantial effect on its strategy.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets" (SFAS 142). Under SFAS 142, goodwill is considered a nonamortizable
asset and will be subject to an annual review for impairment and an interim
review when required by events or circumstances. SFAS 142 is effective for all
fiscal years beginning after December 15, 2001. PSEG is currently evaluating
this guidance and does not believe it will have a material impact on its
financial position or results of operations.
Also in July 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" (SFAS 143). Under SFAS 143, the fair value of a
liability for an asset retirement obligation should be recorded in the period in
which it is incurred. Upon settlement of the liability, an entity either settles
the obligation for its recorded amount or incurs a gain or loss upon settlement.
SFAS 143 is effective for fiscal years beginning after June 15, 2002. PSEG is
currently evaluating this guidance and cannot predict the impact on its
financial position or results of operations, however, such impact could be
material.
In August 2001, FASB issued SFAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets" (SFAS 144). Under SFAS 144 long-lived assets to
be disposed will be measured at the lower of carrying amount or fair value less
cost to sell, whether reported in continued operations or in discontinued
operations. Discontinued operations will no longer be measured at net realizable
value or include amounts for operating losses that have not yet occurred. SFAS
144 also broadens the reporting of discontinued operations. SFAS 144 is
effective for fiscal years beginning after December 15, 2001. PSEG is currently
evaluating this guidance and does not believe it will have a material impact on
its financial position or results of operations.
Note 3. Regulatory Issues
New Jersey Energy Master Plan Proceedings and Related Orders
In August 1999, following the enactment of the New Jersey Electric Discount
and Energy Competition Act, the New Jersey Board of Public Utilities (BPU)
rendered a Final Order relating to PSE&G's rate unbundling, stranded costs and
restructuring proceedings (Final Order) providing, among other things, for the
transfer to Power of all of PSE&G's electric generation facilities, plant and
equipment for $2.443 billion and all other related property, including
materials, supplies and fuel at the net book value thereof, together with
associated rights and liabilities. PSE&G transferred its electric generating
business to Power in August 2000 in exchange for a $2.786 billion promissory
note, which was repaid by Power on January 31, 2001.
Also in the Final Order, the BPU concluded that PSE&G should recover up to
$2.94 billion (net of tax) of its generation-related stranded costs over the
transition period through securitization of $2.4 billion and an opportunity to
recover up to $540 million (net of tax) of its unsecuritized generation-related
stranded costs on a net present value basis. The $540 million is subject to
recovery through a market transition charge (MTC). PSE&G remits the MTC revenues
to Power as part of the basic generation service (BGS) contract as provided for
by the Final Order.
In September 1999, the BPU issued its order approving PSE&G's petition
relating to the proposed securitization transaction (Finance Order) which
authorized, among other things, the imposition of a non-bypassable transition
bond charge (TBC) on PSE&G's customers; the sale of PSE&G's property right in
such charge to a bankruptcy-remote financing entity; the issuance and sale of
$2.525 billion of transition bonds by such entity as consideration for such
property right, including an estimated $125 million of transaction costs; and
the application by PSE&G of the transition bond proceeds to retire outstanding
debt and/or equity. PSE&G Transition Funding LLC (Transition Funding) issued the
transition bonds on January 31, 2001; and the TBC and an additional 2% rate
reduction became effective on February 7, 2001 in accordance with the Final
Order. An additional 2% rate reduction became effective on August 1, 2001
bringing the total rate reduction to 9% since August 1, 1999. These rate
reductions and the TBC were funded through the MTC rate.
In October and November 1999, appeals were filed by New Jersey Business
User's Coalition, the New Jersey Ratepayer Advocate (RPA), and Co-Steel Raritan
(Co-Steel), an individual PSE&G customer, (the appellants) challenging the
validity of the Finance Order as well as the Final Order. In April 2000, the
Appellate Division of the New Jersey Superior Court unanimously rejected the
arguments made by the appellants and affirmed the Final Order and Finance Order.
In May 2000, the appellants requested the New Jersey Supreme Court to review
certain aspects of the Appellate Division decision. In July 2000, the New Jersey
Supreme Court granted the requests. In December 2000, by a vote of 4 to 1, the
New Jersey Supreme Court issued its order affirming the judgment of the
Appellate Division. The New Jersey Supreme Court's written opinion was issued on
May 18, 2001.
On March 6, 2001, Co-Steel filed a Petition of Writ of Certiorari with the
United States Supreme Court seeking limited review of the New Jersey Supreme
Court decision. In October 2001, the Supreme Court denied Co-Steel's petition.
On January 31, 2001, $2.525 billion of transition bonds (non-recourse asset
backed securities) were issued by Transition Funding, in eight classes with
maturities ranging from 1 year to 15 years. Also on January 31, 2001, PSE&G
received payment from Power on its $2.786 billion promissory note used to
finance the transfer of PSE&G's generation business in August 2000. The proceeds
from these transactions were used to pay for certain debt issuance and related
costs for securitization, retire a portion of PSE&G's outstanding short-term
debt, reduce PSE&G common equity, loan funds to PSEG and make various short-term
investments.
Note 4. Regulatory Assets and Liabilities
At the dates shown, PSEG, through PSE&G, had deferred the following
regulatory assets and liabilities on its Consolidated Balance Sheets:
September 30, December 31,
2001 2000
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(Millions of Dollars)
Regulatory Assets:
Stranded Costs to be Recovered............................... $4,158 $4,093
SFAS 109 Income Taxes........................................ 307 285
OPEB Costs................................................... 217 232
Societal Benefits Charges (SBC).............................. 15 74
Underrecovered Gas Costs..................................... 121 --
Environmental Costs.......................................... 74 74
Unamortized Loss on Reacquired Debt and Debt Expense......... 97 104
Non-Utility Generation Transition Charge (NTC)............... 7 7
Other........................................................ 379 126
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Total Regulatory Assets.................................. $5,375 $4,995
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Regulatory Liabilities:
Excess Depreciation Reserve.................................. $350 $444
Overrecovered Gas Costs...................................... -- 26
Other........................................................ 5 --
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Total Regulatory Liabilities............................. $355 $470
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Note 5. Commitments and Contingent Liabilities
Pending Asset Purchases and Development
Power
In 1999, Power entered into agreements with Conectiv, Conectiv's
subsidiaries Delmarva Power and Light Company (DP&L) and Atlantic City Electric
Company (ACE), and Exelon Generation LLC (Exelon) pursuant to which Power would
acquire all of DP&L's and ACE's interests in Salem Nuclear Generating Station
(Salem) and Hope Creek Generating Station (Hope Creek) and half of DP&L's and
ACE's interest in Peach Bottom Atomic Power Station (Peach Bottom) (a total of
544 MW) for a purchase price of $15.4 million plus the net book value of nuclear
fuel at the respective closing dates. In December 2000, the DP&L portion of the
transaction (246 MW) closed. The ACE portion of the transaction (298 MW) closed
in October 2001, yielding the following final ownership shares:
Power Exelon
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Salem 57.41% 42.59%
Hope Creek 100.00% --
Peach Bottom 50.00% 50.00%
PSEG Power New York Inc., an indirect subsidiary of Power, is in the
process of obtaining permits and approvals to authorize the development of the
Bethlehem Energy Center, a 750 MW combined-cycle power plant that will replace
the 400 MW Albany Steam Station, which was acquired from Niagara Mohawk Power
Corporation (Niagara Mohawk)in May 2000. In September 2001, the New York State
Board on Electric Generation Siting and the Environment determined that the
Certificate of Environmental Compatibility and Public Need (Article X)
application is in compliance with state regulations. This Board expects to reach
a final project certification decision within 12 months. Furthermore, the state
Department of Environmental Conservation has issued draft air and water permits
for the project. Under its Purchase Agreement with Niagara Mohawk, Power will be
obligated to pay Niagara Mohawk up to $9 million if it redevelops the Albany
Station, however, Power expects this payment will be reduced based on conditions
related to the service date and regulatory requirements.
Power is constructing a 500 MW natural gas-fired, combined cycle electric
generation plant at Bergen Generation Station at a cost of approximately $290
million with completion expected in June 2002. Power is also constructing an
1,186 MW combined cycle generation plant at Linden for approximately $590
million expected to be completed in May 2003.
In August 2001, subsidiaries of Power closed with a group of banks on $800
million of non-recourse project financing for projects in Waterford, Ohio and
Lawrenceburg, Indiana. The Waterford project will be completed in two phases and
will increase Power's capacity by 850MW. The first phase and second phase of the
project are expected to achieve commercial operation in June 2002 and May 2003,
respectively. The Lawrenceburg project will increase Power's capacity by 1,150
MW and is expected to achieve commercial operation by May 2003. The total
combined project cost for Waterford and Lawrenceburg is estimated at $1.2
billion. Power's required equity investment in these projects is approximately
$400 million.
In addition, Power also has contracted with a third party to purchase
combustion turbines through 2004. The aggregate amount due under these contracts
is approximately $600 million.
Energy Holdings
In March 2001, Global, through Dhofar Power Company (DPCO), signed a
20-year concession with the government of Oman to privatize the electric system
of Salalah. A consortium led by Global and several major Omani investment groups
owns DPCO. The project will enhance the existing network of generation,
transmission and delivery assets and is expected to add 195 MW of new generating
capacity. The project achieved financial closure in August 2001 and commenced
construction in September 2001. The project is expected to achieve commercial
operation by March 2003. Total project cost is estimated at $277 million.
Global's equity investment, including contingencies, is expected to be
approximately $82 million.
In May 2001, GWF Energy LLC (GWF Energy), a 50/50 joint venture between
Global and Harbinger GWF LLC, entered into a 10-year power purchase agreement
with the California Department of Water Resources to provide 340 MW of electric
capacity to California from three new natural gas-fired peaker plants that GWF
Energy expects to build and operate in California. Total project cost is
estimated at $310 million. The first plant, a 90 MW facility, was completed and
began operation in August 2001. Global's permanent equity investment in these
plants, including contingencies, is not expected to exceed $100 million after
completion of project financing, expected to occur in 2002.
In July 2001, Global won the bid to purchase up to a 100% interest in
Empresa de Electricidad de los Andes S.A. (Electroandes) with a bid of
approximately $227 million. Global's closing for this acquisition is scheduled
for the fourth quarter of 2001 and may be dependent upon resolution of certain
matters regarding applicable tax rates. Electroandes is the sixth largest
electric generator in Peru with a 6% market share. Electroandes' main assets
include four hydroelectric facilities with a combined installed capacity of 183
MW and 460 miles of transmission lines located in the Central Andean region
(northeast of Lima). In addition, Electroandes has the exclusive rights to
develop a 100 MW expansion of an existing station and a 150 MW greenfield
hydroelectric facility. In 2000, Electroandes generated 1,150 gigawatts of
electrical energy, of which 97% was sold through power purchase agreements to
mining companies in the region.
In August 2001, Global purchased a 94% equity stake in SAESA and all of its
subsidiaries from COPEC. The SAESA group of companies consists of four
distribution companies and one transmission company that provide electric
service in the southern part of Chile. Additionally, Global purchased from COPEC
approximately 14% of Frontel not owned by SAESA. SAESA also owns a 50% interest
in the Argentine distribution company Empresa Electrica del Rio Negro S.A.
Collectively, the companies serve more than 615,000 customers. The purchase
approximated $460 million, including a tender offer for 6% of publicly traded
SAESA shares in October 2001.
In August 2001, Global entered into an agreement to sell its interests in
several joint ventures in Argentina to a subsidiary of the AES Corporation (AES)
for $376 million. The transaction will involve the transfer of Global's 30%
interest in three Argentine distribution companies, Empresa Distribuidora de
Energia Norte S.A. (EDEN), Empresa Distribuidora de Energia Sur S.A. (EDES) and
Empresa Distribuidora La Plata S.A. (EDELAP), a 19% share in the 650 MW Central
Termica San Nicolas power plant (CTSN), and a 33% interest in the 830 MW Parana
power plant (Parana) nearing the completion of construction. Payment terms for
the transaction include a 10% down payment with the remainder of the purchase
price payable under a promissory note to be issued by a subsidiary of the AES to
Global and collateralized by AES subsidiary's interest in the assets.
Consummation of the transaction is subject to the parties obtaining certain
lender and regulatory approvals and is expected to occur in early 2002.
As of September 30, 2001, Global's investments in the Texas Independent
Energy (TIE) partnership include $161 million of loans that earn interest at an
annual rate of 12%. Of the $161 million currently outstanding, $83 million is
scheduled to be repaid in full in February 2002 and $78 million will be repaid
over the next 12 years.
Energy Holdings, its subsidiaries and equity method investees are involved
in various legal actions arising in the normal course of business. Energy
Holdings does not expect there will be material adverse effect on its financial
statements as a result of these proceedings, although no assurances can be
given.
Hazardous Waste
The New Jersey Department of Environmental Protection (NJDEP) regulations
concerning site investigation and remediation require an ecological evaluation
of potential injuries to natural resources in connection with a remedial
investigation of contaminated sites. The NJDEP is presently working with
industry to develop procedures for implementing these regulations. These
regulations may substantially increase the costs of environmental investigations
and remediations, where necessary, particularly at sites situated on surface
water bodies. Power, PSE&G and predecessor companies owned and/or operated
certain facilities situated on surface water bodies, certain of which are
currently the subject of remedial activities. While the financial impact of
these regulations on these projects is not currently estimable, PSEG does not
anticipate that the compliance with these regulations will have a material
adverse effect on its financial position, results of operations or net cash
flows.
Manufactured Gas Plant Remediation Program
PSE&G is currently working with the NJDEP under a program (Remediation
Program) to assess, investigate and, if necessary, remediate environmental
conditions at PSE&G's former manufactured gas plant sites. To date, 38 sites
have been identified. The Remediation Program is periodically reviewed and
revised by PSE&G based on regulatory requirements, experience with the
Remediation Program and available remediation technologies. The long-term costs
of the Remediation Program cannot be reasonably estimated, but experience to
date indicates that approximately $20 million per year could be incurred over a
period of about 30 years and that the overall cost could be material. The costs
for this remediation effort are recovered through the SBC.
Net of recoveries, costs incurred through September 30, 2001 for the
Remediation Program amounted to $158.5 million. In addition, at September 30,
2001, PSE&G's estimated liability for remediation costs through 2003 aggregated
$74.0 million. Expenditures beyond 2003 cannot be reasonably estimated.
Passaic River Site
The United States Environmental Protection Agency (EPA) has determined that
a six mile stretch of the Passaic River in 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) and that, to date, at
least thirteen corporations, including PSE&G, may be potentially liable for
performing required remedial actions to address potential environmental
pollution at the Passaic River "facility." PSE&G and certain of its predecessors
operated industrial facilities at properties within the Passaic River
"facility," which include one operating electric generating station and one
former generating station. PSEG cannot predict what action, if any, the EPA or
any third party may take against PSE&G and/or Power with respect to these
matters, or in such event, what costs PSE&G and/or Power may incur to address
any such claims. However, such costs may be material.
New Source Review
In a response to a demand by the EPA and NJDEP under Section 114 of the
Federal Clean Air Act (CAA) requiring information to assess whether projects
completed since 1978 at the Hudson and Mercer generating stations were
implemented in accordance with applicable New Source Review regulations, Power
provided certain data in November 2000. Based upon the information provided to
the EPA, it is likely that the EPA will seek to enforce the requirements of the
New Source Review program at Hudson 2 and Mercer 1 and 2. Power is currently in
discussions with the EPA and NJDEP to resolve the matter. It is uncertain
whether these discussions will be successful; however, costs of compliance could
be material.
The EPA indicated that it is considering enforcement action against Power
under its Prevention of Significant Deterioration (PSD) rules relating to the
construction that is currently in progress for Bergen 2, scheduled for
operations in 2002. The EPA had maintained that PSD requirements are applicable
to Bergen 2, thereby requiring Power to obtain a permit prior to the
commencement of construction. To obtain such a permit, an applicant must
demonstrate that the additional emission source will not cause significant
deterioration of the air shed in the vicinity of the plant. The time required to
obtain such a permit is estimated at 6-12 months. Power vigorously disputes that
PSD requirements are applicable to Bergen 2 and is continuing construction. The
NJDEP has informally indicated it agrees with Power's position, but has also
advised that the ultimate authority to decide PSD applicability rests with the
EPA. Discussions to resolve this matter are underway with the EPA and NJDEP. At
September 30, 2001, Power had expended approximately $210 million in the
construction of Bergen 2.
Guaranteed Obligations
Energy Holdings, PSEG Global Inc. (Global), a wholly-owned subsidiary of
Energy Holdings, and/or PSEG have guaranteed certain obligations of Global's
affiliates, including the successful completion, performance or other
obligations related to certain of the projects, in an aggregate amount of
approximately $238 million as of September 30, 2001. A substantial portion of
such guarantees is eliminated upon successful completion, performance and/or
refinancing of construction debt with non-recourse project debt.
Note 6. Financial Instruments and Risk Management
PSEG's operations give rise to exposure to market risks from changes in
commodity prices, interest rates, foreign currency exchange rates and securities
prices. PSEG's policy is to use derivative financial instruments for the purpose
of managing market risk consistent with its business plans and prudent business
practices.
Energy Trading and Related Contracts
Power routinely enters into exchange traded futures and options
transactions for electricity and natural gas as part of wholesale trading
operations. Generally, exchange-traded futures contracts require the deposit of
cash for margins, the amount of which is subject to change based on market
movement and in accordance with exchange rules. The amount of the margin
requirements at September 30, 2001 and December 31, 2000 was approximately $2
million and $1 million, respectively.
Power's energy trading and related contracts have been marked to market and
gains and losses from such contracts were recorded in earnings, including
unrealized losses of $10.6 million and $4.6 million for the quarter and nine
months ended September 30, 2001, respectively and a unrealized loss of $0.2
million and a unrealized gain of $47.6 million for the quarter and nine months
ended September 30, 2000, respectively. The losses in 2001 are primarily due to
significant drops in gas prices in the third quarter of 2001.
The fair value of the energy trading and related contracts that are
marked-to-market are based on management's best estimates using over-the-counter
quotations, exchange prices, volatility factors and other valuation methodology.
The estimates presented herein are not necessarily indicative of the amounts
that Power could realize in a current market exchange. The fair values as of
September 30, 2001 and December 31, 2000 and the average fair values for the
periods then ended of Power's significant financial instruments related to
energy commodities are summarized in the following table:
September 30, 2001 December 31, 2000
---------------------------------------- ------------------------------------------
Notional Notional Fair Average Notional Notional Fair Average
(mWh) (MMBTU) Value Fair Value (mWh) (MMBTU) Value Fair Value
---------------------------------------- ------------------------------ -----------
(Millions) (Millions)
Futures and Options NYMEX...... -- 5.0 $(3.7) $(2.1) 17.0 167.0 $ 6.0 $(1.0)
Physical forwards.............. 43.0 13.0 $10.6 $14.7 50.0 10.0 $13.0 $14.0
Options-- OTC.................. 11.0 568.0 $(50.2) $32.4 12.0 525.0 $184.0 $68.0
Swaps.......................... 38.0 747.0 $65.0 $(9.3) -- 218.0 $(138.0) $23.0
Emission Allowances............ -- -- $28.3 $24.5 -- -- $ 6.0 $9.0
Derivative Instruments and Hedging Activities
Commodity-Related Instruments
Power and PSE&G also hold and issue commodity and financial instruments
that reduce exposure to price fluctuations from factors such as weather,
environmental policies, changes in demand, changes in supply, state and Federal
regulatory policies and other events. Power's instruments, in conjunction with
owned electric generating capacity contracts, are designed to cover estimated
electric supply commitments and gas requirements for electric generation.
PSE&G's instruments, in conjunction with physical gas supply contracts, are
designed to cover estimated gas customer commitments. Power and PSE&G use
futures, forwards, swaps and options to manage and hedge price risk related to
these market exposures.
As of September 30, 2001, Power had entered into electric physical forward
contracts and gas futures and swaps to hedge its forecasted BGS requirements and
gas purchases requirements for generation, with a maximum term of approximately
one year, which qualified for hedge accounting treatment under SFAS 133. These
commodity and financial instruments are marked-to-market based on management's
best estimates using over-the-counter quotations, exchange prices, volatility
factors and other valuation methodology. For the quarter ended September 30,
2001, the total negative mark-to-market valuation of $34 million was recorded as
a derivative asset offset by OCI and deferred taxes of $20 million and $14
million, respectively. The increase in the derivative asset was primarily due to
the dramatic decrease in natural gas prices.
Also as of September 30, 2001, PSE&G had entered into 349 MMBTU of gas
futures, options and swaps to hedge forecasted requirements. As of September 30,
2001, the fair value of those instruments was $(196) million with a maximum term
of approximately one year. PSE&G utilizes derivatives to hedge its gas
purchasing activities which, when realized, are recoverable through its
Levelized Gas Adjustment Clause (LGAC). Accordingly, the offset to the change in
fair value of these derivatives is specified as a regulatory asset or liability.
Interest Rates
In February 2001, Power entered into various forward-interest rate swaps,
with an aggregate notional amount of $400 million, to hedge the interest rate
risk related to the anticipated issuance of debt. On April 11, 2001, Power
issued $1.8 billion in fixed-rate Senior Notes and closed out the forward
starting interest rate swaps. The aggregate loss, net of tax, of $3.2 million
was classified as Accumulated Other Comprehensive Loss and is being amortized
and charged to interest expense over the life of the debt.
In October 2001, Power entered into two interest rate swaps with an
aggregate notional amount of $177.5 million to hedge its variable interest rate
loan related to the construction of its Waterford, Ohio facility. The swaps
qualify for hedge accounting treatment under SFAS 133 and will be recorded on
the balance sheet at fair value with changes in the effective portion of the
swap to be recorded in OCI.
Transition Funding has entered into an interest rate swap on its sole class
of floating rate transition bonds. The notional amount of the interest rate swap
is approximately $497 million. The interest rate swap is indexed to the
three-month LIBOR rate. The fair value of the interest rate swap was
approximately $(32.0) million as of September 30, 2001 and was recorded as a
derivative liability, with an offsetting amount recorded as a regulatory asset
on the Consolidated Balance Sheets. This amount will vary over time as a result
of changes in market conditions.
PSEG is 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, interest rate swaps and interest
rate lock agreements. As of September 30, 2001, a hypothetical 10% change in
market interest rates would result in a $11 million change in annual interest
costs related to short-term and floating rate debt at PSEG and its subsidiaries.
Equity Securities
PSEG Resources Inc. (Resources), a wholly-owned subsidiary of Energy
Holdings, has investments in equity securities and limited partnerships.
Resources carries its investments in equity securities at their approximate fair
value as of the reporting date. Consequently, the carrying value of these
investments is affected by changes in the fair value of the underlying
securities. Fair value is determined by adjusting the market value of the
securities for liquidity and market volatility factors, where appropriate. The
aggregate fair values of such investments which had available market prices at
September 30, 2001 and December 31, 2000 were $27 million and $115 million,
respectively. The decrease in the recorded amount of investments was primarily
due to the sale of Resources' interest in equity securities which had a fair
value of $66 million on December 31, 2000 and a decline in the valuation of
publicly traded equity securities held within its limited partnerships. The
potential change in fair value resulting from a hypothetical 10% change in
quoted market prices of these investments amounted to $2 million and $9 million
at September 30, 2001 and December 31, 2000, respectively.
In August 2001, Resources received $30 million from the sale of its
interest in an equity security within its leveraged buyout fund which had a book
value of $31 million.
Foreign Currencies
As of September 30, 2001, Global and Resources had assets located or held
in international locations of approximately $3.014 billion and $1.406 billion,
respectively.
Resources' international investments are primarily leveraged leases of
assets located in the Australia, Austria, Belgium, China, Germany, the
Netherlands, the United Kingdom and New Zealand with associated revenues
denominated in U.S. dollars ($US), and therefore, not subject to foreign
currency risk.
Global's international investments are primarily in companies that generate
or distribute electricity in Argentina, Brazil, Chile, China, India, Italy,
Oman, Peru, Poland, Taiwan, Tunisia and Venezuela. Investing in foreign
countries involves certain additional risks. Economic conditions that result in
higher comparative rates of inflation in foreign countries are likely to result
in declining values in such countries' currencies. As currencies fluctuate
against the U.S. dollar ($US), there is a corresponding change in Global's
investment value in terms of the $US. Such change is reflected as an increase or
decrease in the investment value and OCI. As of September 30, 2001, net foreign
currency devaluations have reduced the reported amount of PSEG's total
stockholder's equity by $278 million (after-tax), of which $190 million
(after-tax) of which was caused by the devaluation of the Brazilian Real.
Credit Risk
Recent events in the California energy markets affected Pacific Gas &
Electric Company (PG&E), one of the state's largest utilities, and resulted
starting on February 1, 2001 in PG&E's failure to pay the full amount due for
energy delivered by three of Global's project affiliates: GWF Power Systems,
L.P. (GWF), Hanford L.P. (Hanford) and Thermal Energy Development Partnership,
L.P. (Tracy), in late 2000 and early 2001. On March 27, 2001, the California
Public Utilities Commission (CPUC) approved a substantial increase in electric
retail rates and directed the state's electric utilities, including PG&E, to
make payment to suppliers for current energy deliveries. On April 6, 2001, PG&E
filed for protection under Chapter 11 of the U.S. Bankruptcy Code asserting that
such rate increase was insufficient to meet its obligations under energy
purchase agreements. Amounts due to Global's project affiliates from PG&E at the
time of its bankruptcy filing (pre-petition payables) remain outstanding.
However, PG&E has subsequently paid, on a timely basis, the appropriate amounts
due to Global's project affiliates for power deliveries commencing April 6, 2001
(post-petition payables) in compliance with the CPUC order. On June 13, 2001,
the CPUC issued an order declaring as reasonable and prudent any amendment to a
power purchase agreement with eligible qualifying facilities that conformed the
energy price to a certain fixed-price for a five-year term. In July 2001, GWF,
Hanford and Tracy entered into an agreement with PG&E (Agreement) and amendments
to their power purchase agreements with PG&E that contained the CPUC approved
pricing for a term of five years commencing July 16, 2001. In addition, PG&E
agreed to assume GWF's, Hanford's and Tracy's power purchase agreements and
elevate the outstanding pre-petition payables to administrative priority status.
The Agreement provides that the pre-petition payables and interest thereon will
be paid pursuant to PG&E's plan of reorganization. The Bankruptcy Court
subsequently approved the Agreement, the amendments to the power purchase
agreements and the assumption of the contracts.
As of June 30, 2001, GWF, Hanford and Tracy had combined pre-petition
receivables due from PG&E, for all plants amounting to approximately $62
million. Of this amount, approximately $25 million had been reserved as an
allowance for doubtful accounts resulting in a net receivable balance of
approximately $37 million. Global's pro-rata share of this gross receivable and
net receivable was approximately $30 million and $18 million, respectively.
As of September 30, 2001, GWF, Hanford and Tracy still had combined
pre-petition receivables due from PG&E for all plants amounting to approximately
$62 million. Global's pro-rata share of this receivable was $30 million. During
the third quarter of 2001, GWF, Hanford and Tracy reversed the $25 million
allowance for doubtful acccounts which increased operating income by $14 million
(of which Global's share was $7 million) with the remaining amount recorded as a
reserve for certain unresolved matters. As of September 30, 2001, GWF, Hanford
and Tracy maintained a reserve of $11 million (of which Global's share is $5
million) to reflect the amount of potential counterclaims alleged by PG&E. The
amounts received and the timeliness of payment are subject to legal, regulatory,
and legislative developments and Energy Holdings cannot predict the final
resolution.
Two affiliates of the California utilities referred to above have entered
into physical forward and swap contracts with PSEG Energy Resources and Trade
(ER&T), a subsidiary of Power, for delivery in the Pennsylvania-New Jersey
Maryland (PJM) area. These counterparties have met their obligations to date and
are still investment grade entities. ER&T has entered into a limited number of
additional contracts since May 2001 with one of these counterparties but none
with the other since December 2000. ER&T's exposure to these entities under
these contracts is not material and management does not believe that any reserve
is presently necessary.
Note 7. Income Taxes
PSEG's effective income tax rate is as follows:
Quarter Ended Nine Months Ended
September 30, September 30,
------------------------- ------------------------
2001 2000 2001 2000
----------- ---------- ---------- ----------
Federal tax provision at statutory rate.................... 35.0% 35.0% 35.0% 35.0%
New Jersey Corporate Business Tax, net of Federal benefit.. 5.9% 5.9% 5.9% 5.9%
Plant Related Adjustments.................................. (13.8)% 0.4% (3.6)% --
Other-- net................................................ (3.9)% (4.1)% (3.8)% (1.2)%
----------- ---------- ---------- ----------
Effective Income Tax Rate............................. 23.2% 37.2% 33.5% 39.7%
=========== ========== ========== ==========
The decrease in the effective tax rate for the quarter and nine months
ended September 30, 2001 as compared to the same periods for 2000, is primarily
due to adjustments as a result of closing the 1994-1996 audit, upon filing our
actual tax returns for the year 2000 and Energy Holdings' foreign equity
earnings which are recorded net of tax.
Note 8. Financial Information by Business Segments
Information related to the segments of PSEG's business is detailed below:
--------------------------------------------------------------------------------------------------------------------------
Energy Consolidated
Generation Trading T & D Resources Global Technologies Other (A) Total
---------- ------- ------ --------- ------ ------------- --------- ------------
(Millions of Dollars)
For the Quarter Ended
September 30, 2001:
Total Operating Revenues.... $647 $674 $1,395 $50 $125 $135 $(625) $2,401
Segment Operating Income.... $135 $38 $160 $46 $54 $(2) -- $431
Segment Net Earnings(Loss).. $65 $22 $65 $9 $18 $(3) $(4) $172
========== ======= ====== ========= ====== ============ ========== ============
-------------------------------------------------------------------------------------------------------------------------
For the Quarter Ended
September 30, 2000:
Total Operating Revenues.... $551 $738 $1,144 $40 $48 $96 $(385) $2,208
Segment Operating Income.... $130 $13 $169 $35 $34 $1 $10 $392
Segment Net Earnings........ $43 $8 $67 $7 $16 -- $1 $142
========== ======= ====== ========= ====== ============ ========== ============
-------------------------------------------------------------------------------------------------------------------------
For the Nine Months Ended
September 30, 2001:
Total Operating Revenues.... $1,798 $1,814 $4,658 $134 $251 $348 $(1,641) $7,391
Segment Operating Income.... $486 $124 $557 $122 $153 $(21) $(6) $1,415
Income Before Extraordinary
Item and Cumulative Effect
of a Change in Accounting
Principle.................. $218 $74 $204 $27 $70 $(15) $(9) $569
Extraordinary Loss on Early
Retirement of Debt......... -- -- -- -- $(2) -- -- $(2)
Cumulative Effect of a
Change in Accounting
Principle.................. -- -- -- -- $9 -- -- $9
Segment Net Earnings (Loss). $218 $74 $204 $27 $77 $(15) $(9) $576
========== ======= ====== ========= ====== ============ ========== ============
-------------------------------------------------------------------------------------------------------------------------
For the Nine Months Ended
September 30, 2000:
Total Operating Revenues.... $1,622 $2,040 $3,104 $131 $119 $317 $(385) $6,849
Segment Operating Income.... $458 $55 $682 $120 $82 $(15) $6 $1,388
Segment Net Earnings(Loss).. $216 $33 $266 $36 $21 $(12) $(6) $554
========== ======= ====== ========= ====== ============ ========== ============
-------------------------------------------------------------------------------------------------------------------------
As of September 30, 2001:
Total Assets............. $4,460 $940 $13,182 $3,109 $3,541 $326 $(689) $24,869
========== ======= ====== ========= ====== ============ ========== ============
-------------------------------------------------------------------------------------------------------------------------
As of December 31, 2000:
Total Assets............. $3,439 $1,091 $15,267 $2,564 $2,271 $312 $(3,418) $21,526
========== ======= ====== ========= ====== ============ ========== ============
---------------------------------------------------------------------------------------------------------------------------
(A) PSEG's Other activities include amounts applicable to PSEG (parent
corporation), Energy Holdings (parent corporation), Enterprise Group
Development Corporation, a wholly-owned subsidiary of Energy Holdings, and
intercompany eliminations, primarily relating to intercompany transactions
between Power and PSE&G. The net losses primarily relate to financing and
certain administrative and general costs at the parent corporations.
Geographic information for PSEG is disclosed below. The foreign investments
and operations noted below were made through Energy Holdings.
Revenues (1) Identifiable Assets (2)
-------------------------------------------------------- ---------------------------------------
Quarter Ended Nine Months Ended
September 30, September 30, September 30, December 31,
--------------------------- ------------------------ ------------------ -----------------
2001 2000 2001 2000 2001 2000
----------- ------------ --------- ---------- ------------------ -----------------
(Millions of Dollars)
United States......... $2,278 $2,161 $7,168 $6,709 $20,449 $18,536
Foreign Countries..... 123 47 223 140 4,420 2,990
----------- ------------ --------- ---------- ------------------ -----------------
Total............ $2,401 $2,208 $7,391 $6,849 $24,869 $21,526
=========== ============ ========= ========== ================== =================
Identifiable investments in foreign countries include:
Chile and Peru (3)........................................................ $1,163 $520
Netherlands............................................................... 890 815
Argentina ................................................................ 743 470
Brazil (4)................................................................ 248 295
India (5) ................................................................ 247 51
Tunisia (6) .............................................................. 227 155
Other..................................................................... 902 684
------------------ -----------------
Total.................................................................... $4,420 $2,990
================== =================
(1) Revenues are attributed to countries based on the locations of the
investments. Certain of Global's revenue includes its share of the net
income from joint ventures recorded under the equity method of accounting.
(2) Total identifiable assets are net of foreign currency translation
adjustment of $(310) million (pre-tax) as of September 30, 2001 and $(225)
million (pre-tax) as of December 31, 2000.
(3) Amount is net of foreign currency translation adjustment of $(79) million
(pre-tax) as of September 30, 2001 and $(44) million (pre-tax) as of
December 31, 2000.
(4) Amount is net of foreign currency translation adjustment of $(212) million
(pre-tax) as of September 30, 2001 and $(167) million (pre-tax) as of
December 31, 2000.
(5) Amount is net of foreign currency translation adjustment of $(4) million
(pre-tax) as of September 30, 2001 and $(2) million (pre-tax) as of
December 31, 2000.
(6) Amount is net of foreign currency translation adjustment of $(4) million
(pre-tax) as of September 30, 2001 and $(1) million (pre-tax) as of
December 31, 2000.
Note 9. Comprehensive Income
Comprehensive Income, Net of Tax:
Quarter Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2001 2000 2001 2000
--------- ---------- -------- -----------
(Millions of Dollars)
Net income........................................................ $172 $142 $576 $554
Foreign currency translation (A).................................. (37) (8) (75) 12
Cumulative effect of a change in accounting principle
(net of tax of $14 and minority interest of $12)................ -- -- (15) --
Current Period change in Fair Value of Financial Instruments...... (8) -- (26) --
--------- ---------- -------- -----------
Comprehensive income.............................................. $127 $134 $460 $566
========= ========== ======== ===========
(A) Net of tax of $4 million and $1 million for the quarters ended September
30, 2001 and 2000, respectively, and $8 million and $(1) million for the
nine months ended September 30, 2001 and 2000, respectively.
For further discussion of Other Comprehensive Income, See Note 6. Financial
Instruments and Risk Management.
================================================================================
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
================================================================================
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Following are the significant changes in or additions to information
reported in the Public Service Enterprise Group Incorporated (PSEG) 2000 Annual
Report on Form 10-K and Quarterly Reports on Form 10-Q for the Quarter Ended
March 31, 2001 and June 30, 2001 affecting the consolidated financial condition
and the results of operations of PSEG and its subsidiaries. This discussion
refers to the Consolidated Financial Statements (Statements) and related Notes
to Consolidated Financial Statements (Notes) of PSEG and should be read in
conjunction with such Statements and Notes.
Results of Operations
Earnings (Losses)
-------------------------------------------------------------
Quarter Ended Nine Months Ended
September 30, September 30,
------------------------ -----------------------------
2001 2000 2001 2000
----------- --------- ----------- -------------
(Millions of Dollars)
Power........................................ $87 $ 21 $292 $ 21
PSE&G ....................................... 65 97 204 494
Energy Holdings.............................. 23 21 89 41
PSEG*........................................ (3) 3 (9) (2)
----------- --------- ----------- -------------
Total PSEG.............................. $172 $142 $576 $554
=========== ========= =========== =============
Contribution to Earnings Per Share (Basic and Diluted)
-------------------------------------------------------------
Quarter Ended Nine Months Ended
September 30, September 30,
------------------------ -----------------------------
2001 2000 2001 2000
----------- --------- ----------- -------------
Power........................................ $0.42 $0.10 $1.40 $0.10
PSE&G ....................................... 0.31 0.45 0.98 2.29
Energy Holdings.............................. 0.11 0.10 0.43 0.19
PSEG*........................................ (0.02) 0.01 (0.05) (0.01)
----------- --------- ----------- -------------
Total PSEG.............................. $0.82 $0.66 $2.76 $2.57
=========== ========= =========== =============
* Includes after tax effect of interest on certain financing
transactions and certain general and administrative costs.
Basic and diluted earnings per share of PSEG common stock (Common Stock)
was $0.82 for the quarter ended September 30, 2001, representing a $0.16
increase from the comparable 2000 period. Basic and diluted earnings per share
of Common Stock were $2.76 for the nine months ended September 30, 2001,
representing a $0.19 increase from the comparable 2000 period.
PSE&G's and Power's combined contribution to earnings per share of Common
Stock for the quarter and nine months ended September 30, 2001, increased $0.18
or 33% and decreased $0.01 or 0.01% from the comparable 2000 periods,
respectively. The increase for the quarter was primarily due to an $88 million
pre-tax charge to income related to MTC recovery recorded in the third quarter
of 2000 combined with higher trading margins and high performance from Power's
nuclear generation facilities. The increase for the quarter was partially offset
by the effects of customers returning to PSE&G in 2001 from third party
suppliers (TPS) and by additional rate reductions which became effective in
2001, which also were the primary cause for the decrease for the nine months
ended September 30, 2001 as compared to the same period in 2000.
Energy Holdings' contribution to earnings per share of Common Stock for the
quarter and nine months ended September 30, 2001 increased $0.01 and $0.24 from
the comparable 2000 periods, respectively, primarily due to earnings from
Global's recent acquisitions and interest income recorded on certain notes
receivable and loans, and Resources' higher leveraged lease income, partially
offset by increased interest expense, lower earnings from Global's investment in
Rio Grande Energia (RGE) and lower earnings at Energy Technologies. For the nine
months ended September 30, 2001, Energy Holdings' contribution to earnings per
share was also impacted by the gain on Global's withdrawal from its interest in
the Eagle Point Cogeneration Partnership (Eagle Point), partially offset by a
net decrease in the carrying value of publicly traded securities within certain
leveraged buyout funds at Resources.
As a result of PSEG's stock repurchase program which began in September
1998, earnings per share of Common Stock for the quarter and nine months ended
September 30, 2001 increased $0.02 and $0.08 from the comparable 2000 periods,
respectively. A total of 24.3 million shares were repurchased at a cost of
approximately $905 million under this program as of December 31, 2000, when the
authorization expired. In September 2001, the board re-authorized the purchase
of the balance of 5.7 million shares. As of October 31, 2001, an additional
600,000 shares have been repurchased under this program at a cost of
approximately $23.7 million.
Operating Revenues
Electric Transmission and Distribution
Transmission and Distribution revenues increased $44 million or 10% and $38
million or 3% for the quarter and the nine months ended September 30, 2001 from
the comparable periods in 2000, respectively. These increases were primarily due
to warmer weather conditions in the third quarter of 2001 as compared to the
third quarter of 2000.
Generation
Generation Revenues increased $96 million or 17% and $176 million or 11%
for the quarter and the nine months ended September 30, 2001 from the comparable
periods in 2000, respectively, primarily due to an $88 million pre-tax charge to
income related to MTC recovery recorded in the third quarter of 2000 combined
with the effects of customers returning to PSE&G in 2001 from third party
suppliers (TPS) as wholesale market prices have typically exceeded fixed BGS
rates. As of September 30, 2001, TPS were serving approximately 0.4% of the
customer load traditionally served by PSE&G as compared to the September 30,
2000 level of 7.1%. This resulted in an increase of $33 million in BGS revenue
for the quarter ended September 30, 2001 as compared to the same period in 2000.
However, the increased revenues resulting from this reverse migration were more
than offset by higher energy costs relating to the increased load during the
warmer summer months. Power expects a more favorable impact from the increased
load in the fourth quarter of 2001 when energy costs are typically lower. Also
contributing to the increase for the nine months ended September 30, 2001, was
output from new operating generation plants placed in service subsequent to the
first quarter of 2000. These increases were partially offset by two additional
2% rate reductions PSE&G gave to customers as part of its deregulation plan,
effective on February 7, 2001 and August 1, 2001 totaling $37 million and $65
million for the quarter and nine months ended September 30, 2001, respectively,
as compared to the same periods in 2000. As of September 30, 2001, as required
by the Final Order, PSE&G has had rate reductions totaling 9% since August 1,
1999 and will have an additional 4.9% rate reduction effective August 1, 2002.
These rate reductions are embedded in the MTC rate that PSE&G charges to
customers and are passed through to Power.
Power has contracted with PSE&G to provide the capacity and electricity
necessary for the BGS obligation through July 31, 2002. On June 29, 2001, PSE&G
and the other three BPU regulated New Jersey electric utility companies
submitted a joint filing to the BPU setting forth an auction proposal for the
provision of BGS supply beginning August 1, 2002. Power will participate in the
BGS auction and will seek commitments on approximately 75% of its capacity but
cannot predict the amounts of commitments received.
Gas Distribution
Gas Distribution revenues decreased $8 million or 3% for the quarter ended
September 30, 2001 from the comparable period in 2000 primarily due to a
decrease in revenues from interruptible customers. Interruptible customers rates
vary monthly. These rates are based on oil market prices, and PSE&G does not
retain margins from these customers. This decrease was partially offset by
higher residential commodity revenues due to BPU approved rate increases.
Gas Distribution revenues increased $360 million or 27% for the nine months
ended September 30, 2001 from the comparable periods in 2000 primarily due to
higher gas rates. Customer rates in all classes of business have increased in
2001 to recover a portion of the higher natural gas costs. The commercial and
industrial classes fuel recovery rates vary monthly according to the market
price of gas. The BPU also approved increases in the fuel component of the
residential class rates of 16% in November 2000 and 2% for each month from
December 2000 through July 2001. These increased revenues were offset by higher
gas distribution costs discussed below.
PSE&G has filed petitions with the BPU for authority to revise its gas
property depreciation rates and requesting an increase in gas base rates of $171
million for gas delivery service (Gas Base Rate Case). If approved, the
requested increase would result in an overall gas revenue increase of 7.06% to
reflect current costs. Present gas rates will remain in effect pending approval
by the BPU. PSE&G cannot predict the outcome of these matters.
Trading
Trading revenues decreased by $64 million or 9% and $197 million or 10% for
the quarter and nine months ended September 30, 2001 from the comparable periods
in 2000, respectively, due to lower trading volumes and lower prices as compared
to 2000. However, these decreased revenues were more than offset by decreased
trading costs of $89 million (discussed below in Trading Costs). Trading margins
increased from $13 million to $38 million and from $55 million to $124 million
for the three and nine-month periods ended September 30, 2001, respectively, as
compared to the same periods in 2000 due to favorable trading contracts.
Other
Revenues increased $126 million or 68% and $166 million or 29% for the
quarter and nine months ended September 30, 2001, respectively, from the
comparable periods in 2000.
Revenues for quarter ended September 30, 2001 increased $77 million at
Global primarily due to acquisitions and facilities becoming operational in the
second quarter and third quarter of 2001 combined with interest income earned on
the various notes and loans relating to Eagle Point and several other projects
at Global, and improvements in the operating results of other projects. These
increases were partially offset by lower revenues from Global's withdrawal from
its interest in Eagle Point in January 2001 and a reduction in earnings related
to the adverse effect of exchange rate changes in the Brazilian Real and the
continued economic slowdown in Brazil. Revenues for the quarter ended September
30, 2001 increased $10 million at Resources primarily due to improved revenues
from higher leveraged lease income from continued investment by Resources in
such financing transactions. Revenues for the quarter ended September 30, 2001
increased $39 million at Energy Technologies primarily due to increased sales in
its mechanical contracting business.
Revenues for the nine months ended September 30, 2001 increased $132
million at Global. The increase was primarily due to acquisitions and facilities
becoming operational in the second quarter and third quarter of 2001 combined
with the gain on the withdrawal from the interest in Eagle Point and interest
income earned on the various notes and loans relating to Eagle Point and several
other projects and improvements in operating results of other projects. These
increases were partially offset by lower revenues attributable to Global's
withdrawal from its interest in Eagle Point in January 2001, lower management
fee revenues due to recognition of TIE project closing fees in 2000 and a
reduction in earnings related to the adverse effect of exchange rate changes in
the Real and the continued economic slowdown in Brazil. Revenues for the nine
months ended September 30, 2001 increased $3 million at Resources primarily due
to higher leveraged lease income from continued investment by Resources in such
financing transactions and increased limited partnership income which was
partially offset by lower Net Investment Losses of which resulted from a net
decrease in the carrying value of publicly traded equity securities within
certain leveraged buyout funds in which Resources has invested. Revenues for the
nine months ended September 30, 2001 increased $31 million at Energy
Technologies due to increased sales in its mechanical contracting business.
Operating Expenses
Energy Costs
Energy Costs increased $123 million or 44% and $153 million or 21% for the
quarter and nine months ended September 30, 2001 from the comparable periods in
2000, respectively, primarily due to increased load served under the BGS
contract and higher fuel costs of $47 million for fossil generation from higher
natural gas prices in the early part of the year. Higher gas expense of $25
million due to increased MMBTU usage also contributed to the increase.
Gas Costs
Gas Costs decreased $28 million or 14% for the quarter ended September 30,
2001 from the comparable period in 2000 primarily due to lower natural gas rates
in the third quarter of 2001 as compared to the same period in 2000.
Gas Costs increased $285 million or 31% for the nine months ended September
30, 2001 from the comparable period in 2000 primarily due to higher natural gas
costs. Due to the Levelized Gas Adjustment Clause, gas costs are increased or
decreased to offset a corresponding increase or decrease in fuel revenues with
no impact on income.
Trading Costs
Trading Costs decreased $89 million or 12% and $266 million or 13% for the
quarter and nine months ended September 30, 2001 from the comparable periods in
2000, respectively, primarily due to lower trading volumes and lower prices as
compared to 2000.
Operations and Maintenance
Operations and Maintenance expense increased $102 million or 21% for the
quarter ended September 30, 2001 primarily due to increased acquisitions and
commencement of operations at Global of $57 million and increased volume of $42
million at Energy Technologies. Also contributing to the increase was planned
generation outage work in the third quarter of 2001 for Power.
Operations and Maintenance expense increased by $244 million or 17% for the
nine months ended September 30, 2001 primarily due to increased acquisitions and
commencement of operations at Global of $61 million and increased volume and
operations of $37 million at Energy Technologies. Also contributing to the
increase was planned generation outage work in the third quarter of 2001 and
higher expenses relating to projects going into operation subsequent to the
first quarter of 2000 for Power.
Depreciation and Amortization
Depreciation and Amortization expense increased $60 million or 67% and $115
million or 43% for the quarter and nine months ended September 30, 2001 from the
comparable 2000 periods, respectively. The increases for the quarter and nine
months ended September 30, 2001 were primarily due to $61 million and $126
million, respectively, of amortization of the regulatory asset recorded for
PSE&G's stranded costs, which commenced with the issuance of the transition
bonds. These increases were partially offset by lower depreciation resulting
from various asset retirements.
Interest Expense
Interest Expense increased $46 million or 31% and $98 million or 23% for
the quarter and nine months ended September 30, 2001 from the comparable 2000
periods, respectively, primarily due to increased long-term debt to finance
various projects.
Preferred Securities Dividend Requirements
Preferred Securities Dividend Requirements decreased $10 million or 42% and
$13 million or 18% for the quarter and nine months ended September 30, 2001 due
to the redemption of several series of PSE&G preferred securities in 2001.
Income Taxes
Income taxes decreased $32 million or 38% and $78 million or 21% for the
quarter and nine months ended September 30, 2001 from the comparable 2000
periods, respectively. These decreases were primarily due adjustments as a
result of the closing the audit for the 1994-1996 tax years, and upon filing our
actual tax return for 2000. Additionally, Energy Holdings had a lower effective
tax due to a greater proportion of its earnings coming from foreign operations,
which are accrued at the rate of 10% due to the incremental cost associated with
the repatriation of foreign earnings.
Liquidity and Capital Resources
PSEG
PSEG is a holding company and, as such, has no operations of its own. The
following discussion of PSEG's liquidity and capital resources is on a
consolidated basis, noting the uses and contributions of PSEG's three direct
operating subsidiaries: PSE&G, Power and Energy Holdings.
Dividend payments on Common Stock were $0.54 per share per quarter and
totaled approximately $112 million and $116 million for the quarters ended
September 30, 2001 and 2000, respectively. Dividend payments on Common Stock
totaled approximately $337 million and $348 million for the nine month periods
ended September 30, 2001 and 2000, respectively.
Although PSEG presently believes it will have adequate earnings and cash
flow in the future from its subsidiaries to maintain its Common Stock dividend
at the current level, earnings and cash flows required to support the dividend
will become more volatile as PSEG's business changes from one that is
principally regulated to one that is principally competitive. Future dividends
declared will necessarily be dependent upon PSEG's future earnings, cash flows,
financial requirements, alternate investment opportunities and other factors.
In December 1999, the PSEG Board of Directors authorized the repurchase of
up to 30 million shares of its common stock, of which 24.3 million were
purchased through December 31, 2000, when the authorization expired. In
September 2001, the board re-authorized the purchase of the balance of 5.7
million shares.
PSE&G
On January 31, 2001, $2.525 billion of transition bonds (non-recourse asset
backed securities) were issued by PSE&G Transition Funding LLC, a
bankruptcy-remote, wholly-owned subsidiary of PSE&G. PSE&G also received payment
from Power on its $2.786 billion Promissory Note used to finance the transfer of
PSE&G's generation business to Power in August 2000. The proceeds from these
transactions were used to pay for certain debt issuance and related costs for
securitization, redeem a portion of PSE&G's outstanding short-term debt, reduce
PSE&G common equity by $2.265 billion, loan funds to PSEG of $1.084 billion and
make various short-term investments. These funds are expected to be used for
further debt and/or equity reductions in 2001 including payment of maturing and
certain redeemable securities. Any inability to obtain required additional
external capital or to extend or replace maturing debt and/or existing
agreements at current levels and reasonable interest rates may affect PSE&G's
financial condition, results of operations and net cash flows.
Cash generated from PSE&G's transmission and distribution business is
expected to provide the majority of the funds for PSE&G's business needs. Since
1986, PSE&G has made regular cash payments to PSEG in the form of dividends on
outstanding shares of PSE&G's common stock. PSE&G paid common stock dividends of
$112 million and $450 million to PSEG for the nine months ended September 30,
2001 and 2000, respectively.
Power
In 2000, Power financed the transfer of the generation business from PSE&G
through the issuance of a $2.786 billion promissory note. On January 31, 2001,
through $1.2 billion of equity infusions and $1.62 billion of loans from PSEG,
Power repaid this note to PSE&G. In April 2001, Power issued $1.8 billion of its
Senior Notes in a private placement, the proceeds of which were used primarily
to replace its interim financing from PSEG. It is expected that Power's future
capital needs will be funded with cash generated from operations and may be
supplemented with external financings, equity infusions from PSEG and other
project financing alternatives as dictated by Power's growth strategy. Any
inability to obtain required additional external capital or to extend or replace
maturing debt and/or existing agreements at current levels and reasonable
interest rates may affect Power's financial condition, results of operations and
net cash flows.
Energy Holdings
It is intended that Global and Resources will provide the earnings and cash
flow for Energy Holdings' long-term growth. Resources' investments are designed
to produce immediate cash flow and earnings that enable Global and Energy
Technologies to focus on longer investment horizons. During the next five years,
Energy Holdings will need significant capital to fund its planned growth. In
addition to cash generated from operations, Energy Holdings' growth will be
funded through external financings and equity infusions from PSEG.
Over the next several years, Energy Holdings, certain of its project
affiliates and PSEG Capital Corporation (PSEG Capital) will be required to
refinance maturing debt, incur additional debt and provide equity to fund
investment activity. Any inability to obtain required additional external
capital or to extend or replace maturing debt and/or existing agreements at
current levels and reasonable interest rates may affect Energy Holdings'
financial condition, results of operations and net cash flows.
Capital Requirements
PSE&G
PSE&G has substantial commitments as part of its ongoing construction
programs. These programs are continuously reviewed and periodically revised as a
result of changes in economic conditions, revised load forecasts, business
strategies, site changes, cost escalations under construction contracts,
requirements of regulatory authorities and laws, the timing of and amount of
electric and gas transmission and/or distribution rate changes and the ability
of PSE&G to raise necessary capital.
Construction expenditures are related to improvements in PSE&G's
transmission and distribution system, gas system and common facilities. For the
nine-month periods ended September 30, 2001 and 2000, respectively, PSE&G had
net plant additions of $269 million and $280 million, excluding Allowance for
Funds Used During Construction (AFDC).
Power
Construction expenditures were related to acquisitions by Power and
improvements in Power's existing power plants. Power had net plant additions for
the nine months ended September 30, 2001 and 2000, respectively, of $1.2 billion
and $0.3 million, excluding capitalized interest. The expenditures were for
developing the 1,150 MW Lawrenceburg, Indiana site and the 850 MW Waterford,
Ohio site and adding capacity to its Bergen, Linden, Burlington, and Kearny
stations in New Jersey. Changes in environmental regulations and unexpected
impacts of existing regulations could impact both Power's construction and
growth strategy as well as its capital expenditure amounts. For further
information, including New Source Review and PSD requirements under the Federal
Clean Air Act (CAA), see Note. 5. Commitments and Contingent Liabilities.
For a discussion of Power's pending asset purchases and developments, see
Note 5. Commitments and Contingent Liabilities
Energy Holdings
Energy Holdings plans to continue the growth of Global and Resources.
Energy Holdings will assess the growth prospects and opportunities for Energy
Technologies' business before committing substantial amounts of additional
capital. For the nine months ended September 30, 2001, Energy Holdings'
subsidiaries made net investments totaling approximately $1.311 billion. These
net investments included leveraged lease investments of $442 million by
Resources and net investments of $871 million by Global, primarily related to
the acquisition of Sociedad Austral de Electricidad S.A. (SAESA) and incremental
investments in certain existing generation and distribution projects including
those in operation and currently under construction and loans to TIE. Factors
affecting actual expenditures and investments include availability of capital
and suitable investment opportunities, market volatility and economic trends.
For the nine months ended September 30, 2001, PSEG invested $400 million of
additional equity in Energy Holdings, the proceeds of which were used to fund
additional investments at Global.
For a discussion of Global's pending investments, see Note 5. Commitments
and Contingent Liabilities of Notes.
External Financings
PSEG
At September 30, 2001, PSEG had a committed $150 million revolving credit
facility which will expire in December 2002. At September 30, 2001, there were
no borrowings under this revolving credit facility. In 1999, PSEG entered into
an uncommitted line of credit with a bank with no stated limit. At September 30,
2001, PSEG had $149 million outstanding under this line of credit.
PSEG has an $850 million commercial paper program to provide funds for
general corporate purposes. On September 30, 2001, PSEG had commercial paper of
$425 million outstanding under this program.
To provide back up liquidity for its commercial paper program, PSEG has a
$570 million revolving credit facility expiring in March 2002 and a $280 million
revolving credit facility expiring in March 2005. These agreements are with
groups of banks and provide for borrowings with maturities up to one year. As of
September 30, 2001 there were no borrowings outstanding under these facilities.
PSE&G
Under its Mortgage, PSE&G may issue new First and Refunding Mortgage Bonds
against previous additions and improvements and/or retired Mortgage Bonds
provided that its ratio of earnings to fixed charges calculated in accordance
with its Mortgage is at least 2:1. At September 30, 2001, PSE&G's Mortgage
coverage ratio was 3:1. As of September 30, 2001, the Mortgage would permit up
to $1 billion aggregate principal amount of new Mortgage Bonds to be issued
against previous additions and improvements. In addition to the refinancing of
existing long-term debt authorized by the BPU in the Final Order, PSE&G will
need to obtain BPU authorization to issue any incremental debt financing
necessary for its capital program. The BPU has authorized PSE&G to issue up to
$1 billion of long-term debt on the basis of previously matured, redeemed or
purchased debt through December 31, 2001, of which $590 million has been issued.
As discussed previously, on January 31, 2001, transition bonds
(non-recourse asset backed securities) in the amount of $2.525 billion were
issued by Transition Funding, in eight classes with maturities ranging from 1
year to 15 years.
In March 2001, PSE&G reduced the maximum size of its commercial paper
program from $1.5 billion to $900 million. To provide back up liquidity for this
program, PSE&G maintains $900 million in revolving credit facilities, each of
which expire in June 2002. As of September 30, 2001, there were no borrowings
outstanding under these facilities. In addition, PSE&G has an uncommitted line
of credit with a bank. As of September 30, 2001, PSE&G had no short-term debt
outstanding, and no borrowings against its uncommitted line of credit.
Also in March 2001, PSE&G redeemed all of its $150 million of 9.375% Series
A cumulative monthly income preferred securities, all of its $75 million of
5.97% preferred stock, $15 million of its 6.75% preferred stock and $52 million
of its floating rate notes due December 7, 2002. In June 2001, PSE&G redeemed
the remaining $248 million outstanding of floating rate notes due December 7,
2002.
In June 2001, PSE&G redeemed all of its $208 million of 8.625% Series A
cumulative quarterly income preferred securities.
On November 1, 2001, $100 million of Mortgage Bonds, Series FF matured.
Power
In April 2001, Power, in a private placement, issued $500 million of 6.875%
Senior Notes due 2006, $800 million of 7.75% Senior Notes due 2011 and $500
million of 8.625% Senior Notes due 2031. The net proceeds from the sale of the
Senior Notes were used primarily for the repayment of loans from PSEG, which
were provided to finance Power's purchase of PSE&G's generation business. Power
filed a registration statement with the SEC relating to an exchange offer for,
or the resale of, these Senior Notes on October 5, 2001.
Power obtains any required short term funding through loans from PSEG
through PSEG's credit facilities. As of September 30, 2001, letters of credit
were issued in the amount of approximately $60 million.
Energy Holdings
On September 30, 2001, Energy Holdings had two separate senior revolving
credit facilities with a syndicate of banks; a $495 million five-year revolving
credit and letter of credit facility and a $200 million 364-day revolving credit
facility. The five-year facility also permits up to $250 million of letters of
credit to be issued of which $91 million are outstanding as of September 30,
2001. The 364-day facility and the five-year facility mature in May 2002 and May
2004, respectively. On September 30, 2001, Energy Holdings had an outstanding
balance of $200 million under its existing revolving credit facilities.
In March 2001, $160 million of non-recourse bank debt originally incurred
to fund a portion of the purchase price of Global's interest in Chilquinta
Energia, S.A. was refinanced. The private placement offering by Chilquinta
Energia Finance Co. LLC, a Global affiliate, of senior notes was structured in
two tranches: $60 million due 2008 at an interest rate of 6.47% and $100 million
due 2011 at an interest rate of 6.62%. An extraordinary loss of $2 million
(after-tax) was recorded in connection with the refinancing of the $160 million
non-recourse bank debt.
In July 2001, Energy Holdings received the proceeds from a private
placement of $550 million of 8.50% Senior Notes due 2011. The net proceeds were
used for the repayment of short-term debt outstanding from intercompany loans
and borrowings under Energy Holdings' revolving credit facilities. The remaining
proceeds were used for general corporate purposes. In September 2001, Energy
Holdings filed a registration statement with the SEC relating to an exchange
offer for, or the resale of, these Senior Notes. The exchange offer is expected
to be completed during the fourth quarter of 2001.
In September 2001, Energy Holdings filed a registration statement with the
SEC relating to an exchange offer for, or the resale of, the $400 million of
8.625% Senior Notes due 2008 sold in February 2001. The exchange offer for these
notes is expected to be completed during the fourth quarter of 2001.
In October 2001, Energy Holdings obtained an uncommitted credit line of up
to $100 million from a single financial institution, which can be accessed as
market conditions warrant.
In October 2001, $135 million of 6.74% medium term notes (MTN) matured
under the PSEG Capital MTN program and were refinanced with funds from the
issuance of short-term debt at Energy Holdings.
Also in October 2001, PSEG Chile Holdings, a wholly-owned subsidiary of
Global and a $US functional currency entity closed on $150 million of project
financing related to its investment in SAESA, a Chilean Peso functional currency
entity. The debt is variable and is based on LIBOR. In connection with this
project financing, PSEG Chile Holdings entered into two foreign currency forward
exchange contracts with a total notional amount of $150 million. The two
contracts were entered into to hedge the peso/US dollar exposure on the net
investment. This transaction qualifies for hedge accounting under SFAS 133.
Regulatory Matters
Capital resources and investment requirements may be affected by the
outcome of the proceedings being conducted by the BPU pursuant to its Energy
Master Plan and the New Jersey Electric Discount and Energy Competition Act
(Energy Competition Act) and the requirements of the 1992 Focused Audit
conducted by the BPU, of the impact of PSEG's non-utility businesses, owned by
Energy Holdings, on PSE&G. As a result of the Focused Audit, the BPU approved a
plan which, among other things, provides that:
(1) PSEG will not permit Energy Holdings' investments to exceed 20% of
PSEG's consolidated assets without prior notice to the BPU;
(2) PSEG will (a) limit debt supported by the minimum net worth
maintenance agreement between PSEG and PSEG Capital to $650 million
and (b) make a good-faith effort to eliminate such support over a six
to ten year period from May 1993; and
(3) Energy Holdings will pay PSE&G an affiliation fee of up to $2 million
a year.
In its Final Order requiring PSE&G to transfer its generation assets to
Power, the BPU noted that, due to significant changes in the industry and, in
particular, PSEG's corporate structure as a result of the Final Order,
modifications to or relief from the Focused Audit order might be warranted.
PSE&G must make a filing in the first quarter of 2002 to address the provisions
of the Focused Audit in light of the Final Order. PSEG believes that the BPU
order issued in 1986 with respect to formation of PSEG (Holding Company Order),
the Final Order and Energy Competition Act provide the appropriate regulatory
framework in the restructured electric and gas markets, and that the provisions
of the Focused Audit, if applicable, will not adversely affect its financial
condition, results of operations or net cash flows. Regulatory oversight by the
BPU to assure that there is no harm to utility ratepayers from non-utility
investments is expected to continue under the Holding Company Order. At
September 30, 2001, Energy Holdings' assets were approximately 28% of PSEG's
consolidated assets and PSEG Capital debt amounted to $615 million.
In addition, if PSEG were no longer to be exempt under the Public Utility
Holding Company Act of 1935 (PUHCA), PSEG and its subsidiaries would be subject
to additional regulation by the SEC with respect to financing and investing
activities, including the amount and type of non-utility investments. PSEG
believes that this would not have a material adverse effect on its financial
condition, results of operations and net cash flows.
Accounting Matters
For a discussion of EITF 99-19, SFAS 133 and related DIG issues, SFAS 141,
SFAS 142, SFAS 143 and SFAS 144, see Note 2. Accounting Matters, and Note 6.
Financial Instruments and Risk Management.
Foreign Operations
As of September 30, 2001, Global and Resources had approximately $3.014
billion and $1.406 billion, respectively, of international assets. As of
September 30, 2001, foreign assets represented 18% of PSEG's consolidated assets
and the revenues related to those foreign assets contributed approximately 3% to
consolidated revenues for the nine months ended September 30, 2001. For
discussion of foreign currency risk, see Note 6. Financial Instruments and Risk
Management of Notes.
As of September 30, 2001, approximately $2.207 billion or 9% of PSEG's
assets were invested in Latin America, specifically in Brazil, Argentina, Chile,
Peru and Venezuela. The Argentine economy has been in a state of recession for
approximately three years. Continued deficit spending in the 23 Argentine
provinces coupled with low growth and high unemployment have caused much
speculation in the ability of the country to service and refinance $130 billion
of debt over the next several years. The Argentine situation has contributed to
downward pressure on the Brazilian and Chilean currencies. The Brazilian Real
has devalued approximately 41% since year-end 2000 from 1.9510 to $1US to 2.7631
to $1US as of September 30, 2001 and the Chilean Peso has devalued approximately
25% since year-end 2000 from 573.90 to $1US to 720.82 to $1US as of September
30, 2001. The Argentine currency remains pegged at 1 peso to $1US though there
has been much speculation as to whether or not the peg will hold. Recent actions
by the current Argentine administration provide for a more favorable exchange
rate for exporters, which has continued to fuel the speculation that the
currency peg may not hold. In addition, the Argentine administration cut
spending to balance its budget by year-end 2001 to improve financial stability
in the region.
In Argentina, the electricity law provides for a pass-through of
devaluation to the end user customer. Customers' bills are first computed in the
$US and converted into the peso for billing. This implies that a devaluation
will not impact the level of $US revenues an electric distribution company
receives. Energy Holdings' faces exposure as a result of secondary impacts of a
devaluation on the overall economy, which could follow many different scenarios.
In addition, Energy Holdings' share of $US operating company debt is
approximately $118 million. This is of concern because such debt becomes more
costly to service with a devaluation, and the immediate impact of the
devaluation must be recorded through the income statement as the $US debt is
revalued into the local currency. Additionally, upon devaluation, Global's
operating companies in the region may be exposed to increased collection risk.
The Brazilian distribution company in which Global has a 32% interest,
entered into a $190 million $US denominated loan, of which Global's share is $62
million. The functional currency of the distribution company is the Brazilian
Real. Therefore, its debt is subject to exchange rate risk as the Brazilian Real
fluctuates with the $US. Changes in the exchange rate cause the loan amount, as
reported in the functional currency, to be marked upward or downward, with an
offset to the income statement.
In Chile, the operating performance of Energy Holdings' assets is
offsetting the impact of the weakening currency in relation to the $US.
PSEG cannot predict if and when currencies will fluctuate against the $US
or changes in economic situations in the operating companies in which it
invests. However, the impact of these changes could cause material adverse
effects to Energy Holdings' financial condition, results of operations, or net
cash flows. For further discussion of foreign currency risk, see Note 6.
Financial Instruments and Risk Management of Notes.
Business Environment
PSEG is currently evaluating the economic consequences of the September 11,
2001 terrorist attacks on the United States and subsequent developments,
particularly their impact on accelerating the continued economic slowdown in the
United States and worldwide. The consequences of a prolonged recession may
include continued uncertainty of energy prices and the capital and commodity
markets, the continued weakening of certain Latin American currencies, including
the Brazilian Real and the Chilean Peso, lower energy prices in power markets
and further credit rating downgrades of certain airlines in the United States
and worldwide. As of September 30, 2001, $2.207 billion or 9% of PSEG's assets
were invested in Latin America, specifically in Brazil, Argentina, Chile, Peru
and Venezuela and $196 million or 1% of PSEG's assets were comprised of
leveraged leases of sixteen aircraft leased to six separate lessees. PSEG cannot
predict the impact of any further currency devaluations, continued economic
slowdown, fluctuating energy prices, and potential lessee payment defaults;
however, such impact could have a material adverse effect on its financial
condition, results of operations and net cash flows.
Forward-Looking Statements
Except for the historical information contained herein, 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
"will", "anticipate", "intend", "estimate", "believe", "expect", "plan",
"hypothetical", "potential", variations of such words and similar expressions
are intended to identify forward-looking statements. PSEG and its subsidiaries
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 of factors should not be construed as exhaustive or as any
admission regarding the adequacy of disclosures made by PSEG and its
subsidiaries prior to the effective date of the Private Securities Litigation
Reform Act of 1995.
In addition to any assumptions and other factors referred to specifically
in connection with such forward-looking statements, factors that could cause
actual results to differ materially from those contemplated in any
forward-looking statements include, among others, the following: deregulation
and the unbundling of energy supplies and services and the establishment of a
competitive energy marketplace for products and services; managing rapidly
changing wholesale energy trading operations in conjunction with electricity and
gas production, transmission and distribution systems; managing foreign
investments and electric generation and distribution operations in locations
outside of the traditional utility service territory; political and foreign
currency risks; an increasingly competitive energy marketplace; sales retention
and growth potential in a mature PSE&G service territory; ability to complete
development or acquisition of current and future investments; partner and
counterparty risk; exposure to market price fluctuations and volatility of fuel
and power supply, power output, marketable securities, among others; ability to
obtain adequate and timely rate relief, cost recovery, and other necessary
regulatory approvals; Federal, state and foreign regulatory actions; regulatory
oversight with respect to utility and non-utility affiliate relations and
activities; operating restrictions, increased cost and construction delays
attributable to environmental regulations; nuclear decommissioning and the
availability of storage facilities for spent nuclear fuel; licensing and
regulatory approval necessary for nuclear and other operating stations; the
ability to economically and safely operate nuclear facilities in accordance with
regulatory requirements; environmental concerns; market risk and debt and equity
market concerns associated with these issues; and acts of war or terrorism.
ITEM 3. QUALITATIVE AND QUANTITATIVE
DISCLOSURES ABOUT MARKET RISK
The market risk inherent in PSEG's market risk sensitive instruments and
positions is the potential loss arising from adverse changes in commodity
prices, pollution credits, equity security prices, interest rates and foreign
currency exchange rates as discussed below. PSEG's policy is to use derivatives
to manage risk consistent with its business plans and prudent practices. PSEG
has a Risk Management Committee comprised of executive officers which utilizes
an independent risk oversight function to ensure compliance with corporate
policies and prudent risk management practices.
PSEG is exposed to credit losses in the event of non-performance or
non-payment by counterparties. PSEG also 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's and its
subsidiaries' financial condition, results of operations or net cash flows. For
discussion of interest rates, commodity-related instruments, equity securities,
credit risks and foreign currency risks, see Note 6. Financial Instruments and
Risk Management.
Commodity-Related Instruments
The availability and price of energy commodities are subject to
fluctuations from factors such as weather, environmental policies, changes in
supply and demand and state and Federal regulatory policies. To reduce price
risk caused by market fluctuations, PSEG's subsidiaries enter into derivative
contracts, including forwards, futures, swaps and options with approved
counterparties, to hedge anticipated demand. These contracts, in conjunction
with owned electric generating capacity and physical gas supply contracts, are
designed to cover estimated electric and gas customer commitments.
PSEG uses a value-at-risk model to assess the market risk of its commodity
business. This model includes fixed price sales commitments, owned generation,
native load requirements, physical and financial contracts. Value-at-risk
represents the potential gains or losses for instruments or portfolios due to
changes in market factors, for a specified time period and confidence level.
PSEG estimates value-at-risk across its commodity business using a model with
historical volatilities and correlations.
The measured value-at-risk using a variance/co-variance model with a 95%
confidence level over a one-week time horizon at September 30, 2001 was
approximately $11 million, compared to the December 31, 2000 level of $19
million. PSEG's calculated value-at-risk represents an estimate of the potential
change in the value of its portfolio of physical and financial derivative
instruments. These estimates, however, are not necessarily indicative of actual
results, which may differ due to the fact that actual market rate fluctuations
may differ from forecasted fluctuations and due to the fact that the portfolio
of hedging instruments may change over the holding period.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Certain information reported under Item 3 of Part I of PSEG's 2000 Annual
Report on Form 10-K or Quarterly Report on Form 10-Q for the quarters ended
March 31 and June 30, 2001 is updated below:
Form 10-K, page 3 and June 30, 2001 Form 10-Q, page 29. See Page 31 for
information on proceedings before the BPU in the matter of the PSE&G's filings
with the BPU regarding its auction proposal for BGS supply, Docket No.
EX01050303.
Form 10-K, page 12 and June 30, 2001 Form 10-Q, page 29. See Page 31 for
information on proceedings before the BPU in the matter of the PSE&G's filings
with the BPU to transfer its gas contracts, Docket No. GR00080564.
Form 10-K, page 25. In April 2001, the Appellate Division of the New Jersey
Superior Court unanimously affirmed the lower court's order granting summary
judgement in the shareholder derivative litigation. The plaintiffs have filed
petitions for certification with the New Jersey Supreme Court seeking permission
to appeal this order which PSEG has opposed. Such petitions are still pending.
June 30, 2001 Form 10-Q, page 29. See Page 32 for information on
proceedings before the BPU in the matter of the PSE&G's filings with the BPU for
increased gas base rates and revised gas property depreciation rates, Docket
Nos. GR01050328 and GR01050297.
New Matter. See Page 33 for information on proceedings before the U.S.
Court of Federal Claims regarding DOE overcharges, Docket No. 01-592C.
New Matter. See Page 34 for information on proceedings before the U.S.
Court of Federal Claims regarding the DOE not taking possession of sepnt nuclear
fuel in 1988, Docket No. 01-551C.
ITEM 5. OTHER INFORMATION
Certain information reported under PSEG's 2000 Annual Report on Form 10-K
and Quarterly Report on Form 10-Q for the quarters ended March 31, 2001 and June
30, 2001 is updated below. References are to the related pages on the Form 10-K
and Forms 10-Q as printed and distributed.
Electric Operation and Supply
Form 10-K, page 3. PSE&G has contracted with Power to provide the capacity
and electricity necessary for the BGS obligation through July 31, 2002. On June
29, 2001 PSE&G and the other three BPU regulated New Jersey electric utility
companies submitted a joint filing to the BPU setting forth an auction proposal
for the provision of BGS supply beginning August 1, 2002. In addition, each
company also filed specific contingency plans and accounting information.
Gas Contract Transfer
Form 10-K, page 12. On March 16, 2001, the New Jersey Ratepayer Advocate
(RPA) filed a motion to dismiss this case. The motion is pending before the
Administrative Law Judge. A settlement meeting on a Stipulation of Settlement by
PSE&G and several parties was conducted with the BPU staff on July 24, 2001.
PSE&G submitted a settlement agreement. PSE&G agreed to modify its proposals and
an oral agreement with the BPU staff has been reached. However, the RPA opposes
PSE&G's proposal. The RPA filed its comments on October 31, 2001 and the case
was returned to the BPU for resolution.
FERC RTO Orders
Form 10-K, page 14. The Federal Energy Regulatory Commission (FERC), in a
series of orders issued on July 11, 2000 and July 12, 2000 called for the
creation of four large regional transmission organizations (RTOs) to facilitate
competitive regional markets in the U.S. FERC rejected several smaller RTO
proposals and directed transmission owners and independent system operators
(ISOs) to combine into much larger RTOs, dramatically altering their proposed
geographic size and configuration.
In the Northeast region, FERC conditionally approved the Pennsylvania-New
Jersey Maryland (PJM) RTO proposal (subject to several modifications and
compliance filings) and rejected the New York ISO and ISO-New England RTO
proposals. FERC directed that the three existing ISOs for PJM, New York and New
England, as well as the systems involved in PJM West, form a single Northeast
RTO, based on the "PJM platform" and "best practices" of all three ISO's, FERC
directed that the parties in the region engage in mediation (with FERC
oversight) to prepare a proposal and timetable for the merger of the ISOs into a
single RTO. At the end of the 45-day mediation period, the Administrative Law
Judge assigned to the matter submitted a report to the Commission with an
attached business plan for implementation of the single northeast RTO possibly
as soon as the fourth quarter of 2003. Numerous details must still be
negotiated.
PSEG believes that wholesale and retail customers, as well as lower-cost
generation providers should benefit from having better access to a larger
regional market. While the impact on PSEG is uncertain because specific rules
will not be known for some time, the elimination of seams issues and the
creation of a single wholesale market in the Northeast is generally expected to
have a positive impact on PSEG. The goal of the mediation process is to develop
a business plan and milestones for the creation and implementation of the single
northeast RTO.
Gas Base Rate Filings
June 30, 2001 Form 10-Q, page 19. On May 4, 2001, PSE&G filed a petition
with the BPU for authority to revise its gas property depreciation rates
(Depreciation Case). In this filing, PSE&G requested authority to implement its
proposed depreciation rates simultaneously for book purposes and ratemaking
purposes when the BPU implements new tariffs designed to recover the additional
annual revenues resulting from the gas base rate case discussed below. On May
25, 2001, PSE&G filed a petition with the BPU requesting an increase in gas base
rates of $171 million for gas delivery service (Gas Base Rate Case). If
approved, the requested increase would result in an overall gas revenue increase
of 7.06% to reflect current costs. Present gas rates will remain in effect
pending approval by the BPU. PSE&G believes that the current gas base rates, in
effect since November 1991, do not reasonably reflect capital investments and
other costs required to maintain the gas utility infrastructure. The BPU has
consolidated the Depreciation Case and the Gas Base Rate Case. All hearings in
the case were completed in October 2001.
License Renewals
Form 10-K page 5. Exelon, co-owner and operator of Peach Bottom, has
informed PSEG that on July 3, 2001 an application was submitted to the Nuclear
Regulatory Commission (NRC) to renew the operating licenses for Peach Bottom
Units 2 and 3. If approved, the current licenses would be extended by 20 years,
to 2033 and 2034 for Units 2 and 3 respectively. NRC review of the application
is expected to take approximately two years.
Form 10-K, page 18. The New Jersey Department of Environmental Protection
(NJDEP) issued a final New Jersey Pollutant Discharge Elimination System permit
(Permit) for Salem on June 29, 2001, with an effective date of August 1, 2001,
allowing for the continued operation of Salem with its existing cooling water
system. The time allotted for anyone to request a hearing to contest the permit
has expired, and the NJDEP has advised that it has received no requests for such
a hearing. This Permit renews Salem's variance from applicable thermal water
quality standards under Section 316(a) of the federal Clean Water Act (CWA),
determines that the existing intake structure represents best technology
available under Section 316(b) of the CWA, requires that Nuclear continue to
implement the wetlands restoration and fish ladder programs established under
the 1994 permit and imposes requirements for additional analyses of data and
studies to determine if other intake technologies are available for application
at Salem that are biologically effective. The Permit also requires Nuclear to
install up to two additional fish ladders in New Jersey and fund an escrow
account in the amount of $500,000 for the construction of artificial reefs by
NJDEP. The Permit's expiration date is July 31, 2006.
Nuclear also reached an agreement settlement with the Delaware Department
of Natural Resources and Environmental Control (DNREC) providing that Nuclear
will fund additional habitat restoration and enhancement activities as well as
fisheries monitoring and that PSEG and DNREC will work cooperatively on the
finalization of regulatory approvals required for implementation of the Permit.
As part of this agreement, PSEG was required to deposit approximately $5.8
million into an escrow account to be used for future costs related to this
settlement.
Form 10-K, page 20 The Delaware River Basin Commission (DRBC) unanimously
approved PSEG's request for revisions to its Docket for Salem at the DRBC's
meeting on September 13, 2001. The Docket, as revised, provides for a heat
dissipation area consistent with the hydrothermal modeling studies conducted in
connection with the renewal application for Salem's NJPDES permit, incorporates
by reference the terms and conditions of the 2001 Permit, rescinds the 1995
Revised Docket and establishes a twenty-five year term for the Docket. The newly
revised Docket again includes a re-opener clause that allows the DRBC to
re-consider the terms and conditions of the Docket, based upon changed
circumstances.
Nuclear Fuel
Form 10-K, page 6. Nuclear has several long-term contracts with uranium ore
operators, converters, enrichers and fabricators to meet the currently projected
fuel requirements for Salem and Hope Creek. Nuclear has been advised by Exelon
that it has similar contracts to satisfy the fuel requirements of Peach Bottom.
On October 11, 2001, Nuclear filed a complaint in the U.S. Court of Federal
Claims, along with over 19 other plaintiffs, seeking relief from past
overcharges by DOE for enrichment services. No assurances can be given as to any
claimed damage recovery.
Form 10-K, page 6. Pursuant to NRC rules, spent nuclear fuel generated in
any reactor can be stored in reactor facility storage pools or in independent
spent fuel storage installations located at or away-from-reactor sites for at
least 30 years beyond the licensed life for reactor operation (which may include
the term of a revised or renewed license). The availability of adequate spent
fuel storage capacity is estimated through 2011 for Salem 1, 2015 for Salem 2
and 2007 for Hope Creek. Nuclear presently expects to construct an on-site
storage facility that would satisfy the spent fuel storage needs of both Salem
and Hope Creek, construction of which will require certain regulatory approvals,
the timely receipt of which cannot be assured. Exelon has advised Nuclear that
it has constructed an on-site dry storage facility at Peach Bottom which is now
operational to provide additional storage capacity through the end of the
current licenses for the two Peach Bottom units.
Under the Nuclear Waste Policy Act of 1982 (NWPA), as amended, the Federal
government has entered into contracts with operators of nuclear power plants for
transportation and ultimate disposal of the spent fuel and mandated that the
nuclear plant operators contribute to a Nuclear Waste Fund at a rate of one mil
per kWh of nuclear generation, subject to such escalation as may be required to
assure full cost recovery by the Federal government. Under the NWPA, the United
States Department of Energy (DOE) was required to begin taking possession of all
spent nuclear fuel generated by Power's nuclear units for disposal by no later
than 1998. DOE construction of a permanent disposal facility has not begun and
the DOE has announced that it does not expect a facility to be available earlier
than 2010. Exelon has advised Power that it had signed an agreement with the DOE
applicable to Peach Bottom under which Exelon would be reimbursed for costs
resulting from the DOE's delay in accepting spent nuclear fuel. The agreement
allows Exelon to reduce the charges paid to the Nuclear Waste Fund to reflect
costs reasonably incurred due to the DOE's delay. Past and future expenditures
associated with Peach Bottom's recently completed on-site dry storage facility
would be eligible for this reduction in future DOE fees. On November 22, 2000, a
group of eight utilities filed a petition against DOE in the Eleventh Circuit
U.S. Court of Appeals seeking to set aside the receipt of credits out of the
Nuclear Waste Fund, as stipulated in the Peach Bottom agreement. On September
26, 2001 PSEG Nuclear filed a complaint in the U. S. Court of Federal Claims
seeking relief for damages caused by the DOE not taking possession of spent
nuclear fuel in 1998. No assurances can be given as to any damage recovery or
the ultimate availability of a disposal facility.
Development Projects
New Matter. Power has filed an application with the New York State Public
Service Commission for permission to construct and operate a direct generator
lead (dedicated transmission line) that would deliver up to 500 MW of
electricity to the West Side of Manhattan from the Bergen Generating Station in
Ridgefield, NJ. Applications for necessary New Jersey and federal approvals are
expected to be filed in the near future. Estimated costs are not expected to
exceed $100 million.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) A listing of exhibits being filed with this document is as follows:
Exhibit Number Document
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12 Computation of Ratios of Earnings to Fixed Charges
(B) Reports on Form 8-K
Date of Report Items Reported
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October 24, 2001 Items 5 and 7
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
(Registrant)
By: Patricia A. Rado
--------------------------------------------
Patricia A. Rado
Vice President and Controller
(Principal Accounting Officer)
November 1, 2001