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Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended September 30, 1994, for Public Service Enterprise Group Incorporated (Enterprise) and its primary subsidiary, Public Service Electric and Gas Company (PSE&G). Enterprise is a holding company with PSE&G comprising approximately 86% of its assets and 93% of its revenues. The company operates regulated electric and gas utilities in New Jersey, alongside nonutility energy businesses (EDHI) including oil and gas exploration, community energy alternatives, and real estate.

Key Financial Metrics (Nine Months Ended Sept 30, 1994)

Material Changes vs. Prior Period

• Revenue Growth: Consolidated operating revenues increased 4.8% ($204.7 million) compared to the nine months ended September 30, 1993. PSE&G gas revenues rose 19% ($210 million) driven by higher fuel cost recoveries and increased sales volumes due to colder weather. Electric revenues remained relatively flat (+0.1%).
• Earnings Increase: Enterprise net income rose 3.7% ($19.8 million) year-over-year. PSE&G earnings available to Enterprise increased 6% ($31 million), primarily due to increased sales volumes and lower interest expenses from debt refinancing.
• Cost Pressures: Gas supply costs increased 23% ($142 million) due to higher fuel prices and increased sendout. Electric energy costs decreased 8% ($43 million) due to adjustments in deferred energy cost recoveries.
• Nonutility Performance: EDHI (nonutility) net income decreased 23% ($11 million) due to lower gas volumes/prices and higher exploration expenses, partially offset by gains in other segments.

Guidance, Outlook, Risks, and Unusual Items

Management Commentary and Outlook

• Construction Program: PSE&G expects construction expenditures to aggregate approximately $4.2 billion for 1994-1998, including $483 million for nuclear fuel. Management expects to generate the majority of required capital internally.
• Rate Matters: A stipulated settlement for the Electric Levelized Energy Adjustment Clause (LEAC) was approved by the BPU in November 1994, allowing provisional rates to recover $98 million. A Gas Remediation Adjustment Charge (RAC) settlement resulted in a net zero increase for firm customers for the period ending September 1995.
• Competition: Management notes increasing pressure from market deregulation and the transition to competitive energy markets, which may impact customer retention and asset values (stranded assets).

Risks and Contingencies

• Nuclear Operations (Salem): Salem Unit 1 experienced an automatic shutdown on April 7, 1994, due to grass clogging water intakes. The NRC proposed a $500,000 civil penalty, which PSE&G agreed to pay. The unit returned to service in June 1994.
• Environmental Remediation: PSE&G is remediating 38 former manufactured gas plant sites. Costs are estimated at $20 million annually for over 30 years. As of September 30, 1994, a liability of $105.5 million was recorded for estimated costs through March 1996.
• Bergen Station Repowering: Phase I of the Bergen Station renovation is 86% complete with costs estimated at $400 million. Legal challenges regarding the need for a Certificate of Need (CON) are ongoing, though a lower court ruled a CON was not required for Phase I.
• Low-Level Radioactive Waste (LLRW): Due to the closure of disposal sites, PSE&G must temporarily store LLRW on-site. A new storage facility was completed in September 1994 at a cost of $7.1 million.

Investor Verification Checklist

• Nuclear Regulatory Compliance: Verify the status of the NRC's proposed $500,000 fine for the Salem Unit 1 incident and any additional enforcement actions.
• Rate Case Outcomes: Confirm the final BPU approval of the LEAC and LGAC settlements and the timing of cost recoveries.
• Environmental Liabilities: Monitor the progress and cost estimates of the Manufactured Gas Plant Remediation Program and potential insurance recoveries.
• Debt Refinancing: Track the execution of debt refinancing plans, particularly the replacement of short-term debt used for NJGRT prepayments with long-term debt.
• Construction Budgets: Review the 1994-1998 construction program for potential cost escalations or delays, specifically regarding the Bergen Station project.