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Public Service Enterprise Group 10-Q 2007
3B2 EDGAR HTML from 48311 1..83 ++



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q

(Mark One)

S QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007
OR

£
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM   TO  

 

 

 

 

 

Commission
File Number

 

Registrants, State of Incorporation,
Address, and Telephone Number

 

I.R.S. Employer
Identification No.

001-09120

 

PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
(A New Jersey Corporation)
80 Park Plaza, P.O. Box 1171
Newark, New Jersey 07101-1171
973 430-7000
http://www.pseg.com

 

22-2625848

001-00973

 

PUBLIC SERVICE ELECTRIC AND GAS COMPANY
(A New Jersey Corporation)
80 Park Plaza, P.O. Box 570
Newark, New Jersey 07101-0570
973 430-7000
http://www.pseg.com

 

22-1212800

000-49614

 

PSEG POWER LLC
(A Delaware Limited Liability Company)
80 Park Plaza—T25
Newark, New Jersey 07102-4194
973 430-7000
http://www.pseg.com

 

22-3663480

000-32503

 

PSEG ENERGY HOLDINGS L.L.C.
(A New Jersey Limited Liability Company)
80 Park Plaza—T20
Newark, New Jersey 07102-4194
973 430-7000
http://www.pseg.com

 

42-1544079


Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes S No £

Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

 

 

 

 

 

Public Service Enterprise Group Incorporated

 

Large accelerated filer S

 

Accelerated filer £

 

Non-accelerated filer £

Public Service Electric and Gas Company

 

Large accelerated filer £

 

Accelerated filer £

 

Non-accelerated filer S

PSEG Power LLC

 

Large accelerated filer £

 

Accelerated filer £

 

Non-accelerated filer S

PSEG Energy Holdings L.L.C.

 

Large accelerated filer £

 

Accelerated filer £

 

Non-accelerated filer S

Indicate by check mark whether any of the registrants is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No S

As of April 30, 2007, Public Service Enterprise Group Incorporated had outstanding 253,516,650 shares of its sole class of Common Stock, without par value.

As of April 30, 2007, Public Service Electric and Gas Company had issued and outstanding 132,450,344 shares of Common Stock, without nominal or par value, all of which were privately held, beneficially and of record by Public Service Enterprise Group Incorporated.

PSEG Power LLC and PSEG Energy Holdings L.L.C. are wholly owned subsidiaries of Public Service Enterprise Group Incorporated and meet the conditions set forth in General Instruction H(1) (a) and (b) of Form 10-Q and are filing their respective Quarterly Reports on Form 10-Q with the reduced disclosure format authorized by General Instruction H.




TABLE OF CONTENTS

 

 

 

 

 

   

 

 

Page

 

 

 

   

FORWARD-LOOKING STATEMENTS

 

 

 

ii

 

PART I. FINANCIAL INFORMATION

   

Item 1.

 

Financial Statements

   

 

 

Public Service Enterprise Group Incorporated

 

 

 

1

 

 

Public Service Electric and Gas Company

 

 

 

5

 

 

 

PSEG Power LLC

 

 

 

9

 

 

PSEG Energy Holdings L.L.C.

 

 

 

12

 

 

 

Notes to Condensed Consolidated Financial Statements

   

 

Note 1. Organization and Basis of Presentation

 

 

 

16

 

 

 

Note 2. Recent Accounting Standards

 

 

 

17

 

 

Note 3. Discontinued Operations, Dispositions and Impairments

 

 

 

19

 

 

 

Note 4. Earnings Per Share

 

 

 

21

 

 

Note 5. Commitments and Contingent Liabilities

 

 

 

21

 

 

 

Note 6. Financial Risk Management Activities

 

 

 

31

 

 

Note 7. Comprehensive Income, Net of Tax

 

 

 

34

 

 

 

Note 8. Changes in Capitalization

 

 

 

34

 

 

Note 9. Other Income and Deductions

 

 

 

35

 

 

 

Note 10. Pension and Other Postretirement Benefits (OPEB)

 

 

 

36

 

 

Note 11. Income Taxes

 

 

 

37

 

 

 

Note 12. Financial Information by Business Segments

 

 

 

39

 

 

Note 13. Related-Party Transactions

 

 

 

40

 

 

 

Note 14. Guarantees of Debt

 

 

 

42

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

44

 

 

 

Overview of 2007 and Future Outlook

 

 

 

44

 

 

Results of Operations

 

 

 

48

 

 

 

Liquidity and Capital Resources

 

 

 

54

 

 

Capital Requirements

 

 

 

60

 

 

 

Accounting Matters

 

 

 

60

 

Item 3.

 

Qualitative and Quantitative Disclosures About Market Risk

 

 

 

61

 

Item 4.

 

Controls and Procedures

 

 

 

65

 

PART II. OTHER INFORMATION

   

Item 1.

 

Legal Proceedings

 

 

 

66

 

Item 4.

 

Submission of Matters to a Vote of Security Holders

 

 

 

68

 

Item 5.

 

Other Information

 

 

 

69

 

Item 6.

 

Exhibits

 

 

 

75

 

 

 

Signatures

 

 

 

76

 

i


FORWARD-LOOKING STATEMENTS

Certain of the matters discussed in this report constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those anticipated. Such statements are based on management’s beliefs as well as assumptions made by and information currently available to management. When used herein, the words “anticipate,” “intend,” “estimate,” “believe,” “expect,” “plan,” “hypothetical,” “potential,” “forecast,” “project,” variations of such words and similar expressions are intended to identify forward-looking statements. Public Service Enterprise Group Incorporated (PSEG), Public Service Electric and Gas Company (PSE&G), PSEG Power LLC (Power) and PSEG Energy Holdings L.L.C. (Energy Holdings) undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The following review should not be construed as a complete list of factors that could affect forward-looking statements. In addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements discussed above, factors that could cause actual results to differ materially from those contemplated in any forward-looking statements include, among others, the following:

 

 

 

 

regulatory issues that significantly impact operations;

 

 

 

 

ability to attain satisfactory regulatory results;

 

 

 

 

operating performance or cash flow from investments falling below projected levels;

 

 

 

 

credit, commodity, interest rate, counterparty and other financial market risks;

 

 

 

 

liquidity and the ability to access capital and maintain adequate credit ratings;

 

 

 

 

adverse or unanticipated weather conditions that significantly impact costs and/or operations, including generation;

 

 

 

 

ability to attract and retain management and other key employees;

 

 

 

 

changes in the electric industry, including changes to regional transmission organizations and

power pools;

 

 

 

 

changes in energy policies and regulation;

 

 

 

 

changes in demand;

 

 

 

 

changes in the number of market participants and the risk profiles of such participants;

 

 

 

 

availability of power transmission facilities that impact the ability to deliver output to customers;

 

 

 

 

growth in costs and expenses;

 

 

 

 

environmental regulations that significantly impact operations;

 

 

 

 

changes in rates of return on overall debt and equity markets that could adversely impact the value of pension and other postretirement benefits assets and liabilities and the Nuclear Decommissioning Trust Funds;

 

 

 

 

changes in political conditions;

 

 

 

 

changes in technology that make generation, transmission and/or distribution assets less competitive;

 

 

 

 

continued availability of insurance coverage at commercially reasonable rates;

 

 

 

 

involvement in lawsuits, including liability claims and commercial disputes;

 

 

 

 

acquisitions, divestitures, mergers, restructurings or strategic initiatives that change PSEG’s, PSE&G’s, Power’s and Energy Holdings’ strategy or structure;

 

 

 

 

business combinations among competitors and major customers;

 

 

 

 

general economic conditions, including inflation or deflation;

 

 

 

 

changes in tax laws and regulations;

 

 

 

 

changes to accounting standards or accounting principles generally accepted in the U.S., which may require adjustments to financial statements;

 

 

 

 

ability to recover investments or service debt as a result of any of the risks or uncertainties mentioned herein;

 

 

 

 

acts of war or terrorism;

ii


PSEG, PSE&G and Energy Holdings

 

 

 

 

adverse changes in rate regulation and/or ability to obtain adequate and timely rate relief;

PSEG, Power and Energy Holdings

 

 

 

 

inability to effectively manage portfolios of electric generation assets, gas supply contracts and electric and gas supply obligations;

 

 

 

 

inability to meet generation operating performance expectations;

 

 

 

 

energy transmission constraints or lack thereof;

 

 

 

 

adverse changes in the market for energy, capacity, natural gas, coal, nuclear fuel, emissions credits, congestion credits and other commodity prices, especially during significant price movements for natural gas and power;

 

 

 

 

adverse market developments or changes in market rules, including delays or impediments to implementation of reasonable capacity markets;

 

 

 

 

surplus of energy capacity and excess supply;

 

 

 

 

substantial competition in the domestic and worldwide energy markets;

 

 

 

 

margin posting requirements, especially during significant price movements for natural gas and power;

 

 

 

 

availability of fuel and timely transportation at reasonable prices;

 

 

 

 

effects on competitive position of actions involving competitors or major customers;

 

 

 

 

changes in product or sourcing mix;

 

 

 

 

delays, cost escalations or unsuccessful construction and development;

PSEG and Power

 

 

 

 

changes in regulation and safety and security measures at nuclear facilities;

 

 

 

 

ability to maintain nuclear operating performance at projected levels;

PSEG and Energy Holdings

 

 

 

 

changes in foreign currency exchange rates;

 

 

 

 

deterioration in the credit of lessees and their ability to adequately service lease rentals;

 

 

 

 

ability to realize tax benefits and favorably resolve tax audit claims;

 

 

 

 

changes in political regimes in foreign countries; and

 

 

 

 

international developments negatively impacting business.

Consequently, all of the forward-looking statements made in this report are qualified by these cautionary statements and PSEG, PSE&G, Power and Energy Holdings cannot assure you that the results or developments anticipated by management will be realized, or even if realized, will have the expected consequences to, or effects on, PSEG, PSE&G, Power and Energy Holdings or their respective business prospects, financial condition or results of operations. Undue reliance should not be placed on these forward-looking statements in making any investment decision. Each of PSEG, PSE&G, Power and Energy Holdings expressly disclaims any obligation or undertaking to release publicly any updates or revisions to these forward-looking statements to reflect events or circumstances that occur or arise or are anticipated to occur or arise after the date hereof. In making any investment decision regarding PSEG’s, PSE&G’s, Power’s and Energy Holdings’ securities, PSEG, PSE&G, Power and Energy Holdings are not making, and you should not infer, any representation about the likely existence of any particular future set of facts or circumstances. The forward-looking statements contained in this report are intended to qualify for the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

iii


PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

 

 

 

 

For the Quarters Ended March 31,

 

2007

 

2006

 

 

(Millions)
(Unaudited)

OPERATING REVENUES

 

 

$

 

3,614

   

 

$

 

3,461

 

OPERATING EXPENSES

 

 

 

 

Energy Costs

 

 

 

2,041

   

 

 

2,146

 

Operation and Maintenance

 

 

 

610

   

 

 

578

 

Depreciation and Amortization

 

 

 

196

   

 

 

201

 

Taxes Other Than Income Taxes

 

 

 

43

   

 

 

41

 

 

 

 

 

 

Total Operating Expenses

 

 

 

2,890

   

 

 

2,966

 

 

 

 

 

 

Income from Equity Method Investments

 

 

 

26

   

 

 

33

 

 

 

 

 

 

OPERATING INCOME

 

 

 

750

   

 

 

528

 

Other Income

 

 

 

72

   

 

 

50

 

Other Deductions

 

 

 

(37

)

 

 

 

 

(27

)

 

Interest Expense

 

 

 

(187

)

 

 

 

 

(193

)

 

Preferred Stock Dividends

 

 

 

(1

)

 

 

 

 

(1

)

 

 

 

 

 

 

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

 

 

 

597

   

 

 

357

 

Income Tax Expense

 

 

 

(262

)

 

 

 

 

(149

)

 

 

 

 

 

 

INCOME FROM CONTINUING OPERATIONS

 

 

 

335

   

 

 

208

 

Loss from Discontinued Operations, net of tax benefit of $4 and $5 in 2007 and 2006, respectively

 

 

 

(6

)

 

 

 

 

(5

)

 

 

 

 

 

 

NET INCOME

 

 

$

 

329

   

 

$

 

203

 

 

 

 

 

 

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (THOUSANDS):

 

 

 

 

BASIC

 

 

 

252,892

   

 

 

251,187

 

 

 

 

 

 

DILUTED

 

 

 

253,356

   

 

 

252,065

 

 

 

 

 

 

EARNINGS PER SHARE:

 

 

 

 

BASIC

 

 

 

 

INCOME FROM CONTINUING OPERATIONS

 

 

$

 

1.32

   

 

$

 

0.83

 

NET INCOME

 

 

$

 

1.30

   

 

$

 

0.81

 

 

 

 

 

 

DILUTED

 

 

 

 

INCOME FROM CONTINUING OPERATIONS

 

 

$

 

1.32

   

 

$

 

0.83

 

NET INCOME

 

 

$

 

1.30

   

 

$

 

0.81

 

 

 

 

 

 

DIVIDENDS PAID PER SHARE OF COMMON STOCK

 

 

$

 

0.585

   

 

$

 

0.57

 

 

 

 

 

 

See Notes to Condensed Consolidated Financial Statements.

1


PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

March 31,
2007

 

December 31,
2006

 

 

(Millions)
(Unaudited)

ASSETS

 

 

 

 

CURRENT ASSETS

 

 

 

 

Cash and Cash Equivalents

 

 

$

 

483

   

 

$

 

141

 

Accounts Receivable, net of allowances of $60 and $52 in 2007 and 2006, respectively

 

 

 

1,806

   

 

 

1,368

 

Unbilled Revenues

 

 

 

260

   

 

 

328

 

Fuel

 

 

 

355

   

 

 

847

 

Materials and Supplies

 

 

 

297

   

 

 

290

 

Prepayments

 

 

 

54

   

 

 

72

 

Restricted Funds

 

 

 

46

   

 

 

79

 

Derivative Contracts

 

 

 

53

   

 

 

127

 

Assets of Discontinued Operations

 

 

 

325

   

 

 

325

 

Assets Held for Sale

 

 

 

42

   

 

 

40

 

Other

 

 

 

48

   

 

 

45

 

 

 

 

 

 

Total Current Assets

 

 

 

3,769

   

 

 

3,662

 

 

 

 

 

 

PROPERTY, PLANT AND EQUIPMENT

 

 

 

19,107

   

 

 

18,851

 

Less: Accumulated Depreciation and Amortization

 

 

 

(5,974

)

 

 

 

 

(5,849

)

 

 

 

 

 

 

Net Property, Plant and Equipment

 

 

 

13,133

   

 

 

13,002

 

 

 

 

 

 

NONCURRENT ASSETS

 

 

 

 

Regulatory Assets

 

 

 

5,288

   

 

 

5,694

 

Long-Term Investments

 

 

 

3,774

   

 

 

3,868

 

Nuclear Decommissioning Trust (NDT) Funds

 

 

 

1,324

   

 

 

1,256

 

Other Special Funds

 

 

 

154

   

 

 

147

 

Goodwill

 

 

 

534

   

 

 

539

 

Intangibles

 

 

 

49

   

 

 

46

 

Derivative Contracts

 

 

 

37

   

 

 

55

 

Other

 

 

 

300

   

 

 

301

 

 

 

 

 

 

Total Noncurrent Assets

 

 

 

11,460

   

 

 

11,906

 

 

 

 

 

 

TOTAL ASSETS

 

 

$

 

28,362

   

 

$

 

28,570

 

 

 

 

 

 

See Notes to Condensed Consolidated Financial Statements.

2


PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

March 31,
2007

 

December 31,
2006

 

 

 

 

(Millions)
(Unaudited)

 

 

LIABILITIES AND CAPITALIZATION

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Long-Term Debt Due Within One Year

 

 

$

 

739

   

 

$

 

849

   

 

Commercial Paper and Loans

 

 

 

277

   

 

 

381

   

 

Accounts Payable

 

 

 

1,013

   

 

 

964

   

 

Derivative Contracts

 

 

 

414

   

 

 

335

   

 

Accrued Interest

 

 

 

185

   

 

 

124

   

 

Accrued Taxes

 

 

 

225

   

 

 

152

   

 

Clean Energy Program

 

 

 

123

   

 

 

120

   

 

Other

 

 

 

508

   

 

 

481

   

 

 

 

 

 

 

 

 

Total Current Liabilities

 

 

 

3,484

   

 

 

3,406

   

 

 

 

 

 

 

 

 

NONCURRENT LIABILITIES

 

 

 

 

 

 

Deferred Income Taxes and Investment Tax Credits (ITC)

 

 

 

4,079

   

 

 

4,462

   

 

Regulatory Liabilities

 

 

 

448

   

 

 

646

   

 

Asset Retirement Obligations

 

 

 

517

   

 

 

509

   

 

Other Postretirement Benefit (OPEB) Costs

 

 

 

1,091

   

 

 

1,089

   

 

Accrued Pension Costs

 

 

 

330

   

 

 

327

   

 

Clean Energy Program

 

 

 

105

   

 

 

133

   

 

Environmental Costs

 

 

 

416

   

 

 

421

   

 

Derivative Contracts

 

 

 

200

   

 

 

204

   

 

Long-Term Accrued Taxes

 

 

 

496

   

 

 

   

 

Other

 

 

 

173

   

 

 

176

   

 

 

 

 

 

 

 

 

Total Noncurrent Liabilities

 

 

 

7,855

   

 

 

7,967

   

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENT LIABILITIES (See Note 5)

 

 

 

 

 

 

CAPITALIZATION

 

 

 

 

 

 

LONG-TERM DEBT

 

 

 

 

 

 

Long-Term Debt

 

 

 

7,638

   

 

 

7,636

   

 

Securitization Debt

 

 

 

1,668

   

 

 

1,708

   

 

Project Level, Non-Recourse Debt

 

 

 

822

   

 

 

840

   

 

Debt Supporting Trust Preferred Securities

 

 

 

186

   

 

 

186

   

 

 

 

 

 

 

 

 

Total Long-Term Debt

 

 

 

10,314

   

 

 

10,370

   

 

 

 

 

 

 

 

 

SUBSIDIARIES’ PREFERRED SECURITIES

 

 

 

 

 

 

Preferred Stock Without Mandatory Redemption, $100 par value, 7,500,000 authorized; issued and outstanding, 2007 and 2006—795,234 shares

 

 

 

80

   

 

 

80

   

 

 

 

 

 

 

 

 

COMMON STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Common Stock, no par, authorized 500,000,000 shares; issued; 2007—266,576,508 shares; 2006—266,372,440 shares

 

 

 

4,683

   

 

 

4,661

   

 

Treasury Stock, at cost; 2007—13,189,987 shares; 2006—13,727,032 shares

 

 

 

(499

)

 

 

 

 

(516

)

 

 

 

Retained Earnings

 

 

 

2,717

   

 

 

2,710

   

 

Accumulated Other Comprehensive Loss

 

 

 

(272

)

 

 

 

 

(108

)

 

 

 

 

 

 

 

 

 

 

Total Common Stockholders’ Equity

 

 

 

6,629

   

 

 

6,747

   

 

 

 

 

 

 

 

 

Total Capitalization

 

 

 

17,023

   

 

 

17,197

   

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND CAPITALIZATION

 

 

$

 

28,362

   

 

$

 

28,570

   

 

 

 

 

 

 

 

 

See Notes to Condensed Consolidated Financial Statements.

3


PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

For The Three Months Ended
Ended March 31,

 

2007

 

2006

 

 

(Millions)
(Unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

Net Income

 

 

$

 

329

   

 

$

 

203

 

Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities:

 

 

 

 

Depreciation and Amortization

 

 

 

196

   

 

 

205

 

Amortization of Nuclear Fuel

 

 

 

25

   

 

 

25

 

Provision for Deferred Income Taxes (Other than Leases) and ITC

 

 

 

(13

)

 

 

 

 

3

 

Non-Cash Employee Benefit Plan Costs

 

 

 

46

   

 

 

59

 

Leveraged Lease Income, Adjusted for Rents Received and Deferred Taxes

 

 

 

(15

)

 

 

 

 

(22

)

 

Gain on Sale of Investments

 

 

 

(16

)

 

 

 

 

 

Undistributed Losses (Earnings) from Affiliates

 

 

 

31

   

 

 

(29

)

 

Foreign Currency Transaction Loss (Gain)

 

 

 

1

   

 

 

(1

)

 

Unrealized Losses on Energy Contracts and Other Derivatives

 

 

 

34

   

 

 

21

 

(Under) Over Recovery of Electric Energy Costs (BGS and NTC) and Gas Costs

 

 

 

(47

)

 

 

 

 

49

 

Under Recovery of Societal Benefits Charge (SBC)

 

 

 

(1

)

 

 

 

 

(19

)

 

Net Realized Gains and Income from NDT Funds

 

 

 

(19

)

 

 

 

 

(18

)

 

Net Change in Certain Current Assets and Liabilities

 

 

 

450

   

 

 

524

 

Employee Benefit Plan Funding and Related Payments

 

 

 

(21

)

 

 

 

 

(35

)

 

Investment Income and Dividend Distributions from Partnerships

 

 

 

11

   

 

 

1

 

Other

 

 

 

(35

)

 

 

 

 

(56

)

 

 

 

 

 

 

Net Cash Provided By Operating Activities

 

 

 

956

   

 

 

910

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

Additions to Property, Plant and Equipment

 

 

 

(275

)

 

 

 

 

(240

)

 

Proceeds from the Sale of Investments and Return of Capital from Partnerships

 

 

 

7

   

 

 

2

 

Proceeds from NDT Funds Sales

 

 

 

501

   

 

 

300

 

Investment in NDT Funds

 

 

 

(511

)

 

 

 

 

(305

)

 

Restricted Funds

 

 

 

34

   

 

 

(17

)

 

NDT Funds Interest and Dividends

 

 

 

12

   

 

 

10

 

Other

 

 

 

(1

)

 

 

 

 

17

 

 

 

 

 

 

Net Cash Used In Investing Activities

 

 

 

(233

)

 

 

 

 

(233

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

Net Change in Commercial Paper and Loans

 

 

 

(104

)

 

 

 

 

54

 

Issuance of Common Stock

 

 

 

33

   

 

 

17

 

Redemptions of Long-Term Debt

 

 

 

(113

)

 

 

 

 

(457

)

 

Repayment of Non-Recourse Debt

 

 

 

(16

)

 

 

 

 

(12

)

 

Redemption of Securitization Debt

 

 

 

(38

)

 

 

 

 

(36

)

 

Redemption of Debt Underlying Trust Securities

 

 

 

   

 

 

(154

)

 

Cash Dividends Paid on Common Stock

 

 

 

(148

)

 

 

 

 

(143

)

 

Other

 

 

 

5

   

 

 

(15

)

 

 

 

 

 

 

Net Cash Used In Financing Activities

 

 

 

(381

)

 

 

 

 

(746

)

 

 

 

 

 

 

Effect of Exchange Rate Change

 

 

 

   

 

 

(1

)

 

 

 

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

 

 

 

342

   

 

 

(70

)

 

Cash and Cash Equivalents at Beginning of Period

 

 

 

141

   

 

 

288

 

 

 

 

 

 

Cash and Cash Equivalents at End of Period

 

 

$

 

483

   

 

$

 

218

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

Income Taxes Paid

 

 

$

 

85

   

 

$

 

25

 

Interest Paid, Net of Amounts Capitalized

 

 

$

 

126

   

 

$

 

134

 

See Notes to Condensed Consolidated Financial Statements.

4


PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

 

 

 

 

For The Quarters
Ended
March 31,

 

2007

 

2006

 

 

(Millions)
(Unaudited)

OPERATING REVENUES

 

 

$

 

2,486

   

 

$

 

2,293

 

OPERATING EXPENSES

 

 

 

 

Energy Costs

 

 

 

1,665

   

 

 

1,574

 

Operation and Maintenance

 

 

 

325

   

 

 

301

 

Depreciation and Amortization

 

 

 

145

   

 

 

152

 

Taxes Other Than Income Taxes

 

 

 

43

   

 

 

41

 

 

 

 

 

 

Total Operating Expenses

 

 

 

2,178

   

 

 

2,068

 

 

 

 

 

 

OPERATING INCOME

 

 

 

308

   

 

 

225

 

Other Income

 

 

 

5

   

 

 

4

 

Other Deductions

 

 

 

(1

)

 

 

 

 

(1

)

 

Interest Expense

 

 

 

(81

)

 

 

 

 

(85

)

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

 

 

231

   

 

 

143

 

Income Tax Expense

 

 

 

(99

)

 

 

 

 

(65

)

 

 

 

 

 

 

NET INCOME

 

 

 

132

   

 

 

78

 

Preferred Stock Dividends

 

 

 

(1

)

 

 

 

 

(1

)

 

 

 

 

 

 

EARNINGS AVAILABLE TO PUBLIC SERVICE ENTERPRISE
GROUP INCORPORATED

 

 

$

 

131

   

 

$

 

77

 

 

 

 

 

 

See disclosures regarding Public Service Electric and Gas Company
included in the Notes to Condensed Consolidated Financial Statements.

5


PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

March 31,
2007

 

December 31,
2006

 

 

(Millions)
(Unaudited)

ASSETS

 

 

 

 

CURRENT ASSETS

 

 

 

 

Cash and Cash Equivalents

 

 

$

 

45

   

 

$

 

28

 

Accounts Receivable, net of allowances of $55 in 2007 and $46 in 2006

 

 

 

1,142

   

 

 

805

 

Unbilled Revenues

 

 

 

260

   

 

 

328

 

Materials and Supplies

 

 

 

57

   

 

 

50

 

Prepayments

 

 

 

16

   

 

 

14

 

Restricted Funds

 

 

 

13

   

 

 

12

 

Other

 

 

 

44

   

 

 

38

 

 

 

 

 

 

Total Current Assets

 

 

 

1,577

   

 

 

1,275

 

 

 

 

 

 

PROPERTY, PLANT AND EQUIPMENT

 

 

 

11,193

   

 

 

11,061

 

Less: Accumulated Depreciation and Amortization

 

 

 

(3,853

)

 

 

 

 

(3,794

)

 

 

 

 

 

 

Net Property, Plant and Equipment

 

 

 

7,340

   

 

 

7,267

 

 

 

 

 

 

NONCURRENT ASSETS

 

 

 

 

Regulatory Assets

 

 

 

5,288

   

 

 

5,694

 

Long-Term Investments

 

 

 

150

   

 

 

149

 

Other Special Funds

 

 

 

54

   

 

 

53

 

Other

 

 

 

115

   

 

 

115

 

 

 

 

 

 

Total Noncurrent Assets

 

 

 

5,607

   

 

 

6,011

 

 

 

 

 

 

TOTAL ASSETS

 

 

$

 

14,524

   

 

$

 

14,553

 

 

 

 

 

 

See disclosures regarding Public Service Electric and Gas Company
included in the Notes to Condensed Consolidated Financial Statements.

6


PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

March 31,
2007

 

December 31,
2006

 

 

(Millions)
(Unaudited)

LIABILITIES AND CAPITALIZATION

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

Long-Term Debt Due Within One Year

 

 

$

 

173

   

 

$

 

284

 

Commercial Paper and Loans

 

 

 

269

   

 

 

31

 

Accounts Payable

 

 

 

261

   

 

 

254

 

Accounts Payable—Affiliated Companies, net

 

 

 

503

   

 

 

645

 

Accrued Interest

 

 

 

43

   

 

 

55

 

Clean Energy Program

 

 

 

123

   

 

 

120

 

Derivative Contracts

 

 

 

15

   

 

 

2

 

Other

 

 

 

398

   

 

 

322

 

 

 

 

 

 

Total Current Liabilities

 

 

 

1,785

   

 

 

1,713

 

 

 

 

 

 

NONCURRENT LIABILITIES

 

 

 

 

Deferred Income Taxes and ITC

 

 

 

2,494

   

 

 

2,517

 

Other Postretirement Benefit (OPEB) Costs

 

 

 

897

   

 

 

898

 

Accrued Pension Costs

 

 

 

133

   

 

 

133

 

Regulatory Liabilities

 

 

 

448

   

 

 

646

 

Clean Energy Program

 

 

 

105

   

 

 

133

 

Environmental Costs

 

 

 

363

   

 

 

367

 

Asset Retirement Obligations

 

 

 

223

   

 

 

221

 

Derivative Contracts

 

 

 

27

   

 

 

18

 

Long-Term Accrued Taxes Due to Affiliate

 

 

 

51

   

 

 

 

Other

 

 

 

6

   

 

 

6

 

 

 

 

 

 

Total Noncurrent Liabilities

 

 

 

4,747

   

 

 

4,939

 

 

 

 

 

 

COMMITMENTS AND CONTINGENT LIABILITIES (See Note 5)

 

 

 

 

CAPITALIZATION

 

 

 

 

LONG-TERM DEBT

 

 

 

 

Long-Term Debt

 

 

 

3,003

   

 

 

3,003

 

Securitization Debt

 

 

 

1,668

   

 

 

1,708

 

 

 

 

 

 

Total Long-Term Debt

 

 

 

4,671

   

 

 

4,711

 

 

 

 

 

 

PREFERRED SECURITIES

 

 

 

 

Preferred Stock Without Mandatory Redemption, $100 par value, 7,500,000 authorized; issued and outstanding, 2007 and 2006—795,234 shares

 

 

 

80

   

 

 

80

 

 

 

 

 

 

COMMON STOCKHOLDER’S EQUITY

 

 

 

 

Common Stock; 150,000,000 shares authorized, 132,450,344 shares issued and outstanding

 

 

 

892

   

 

 

892

 

Contributed Capital

 

 

 

170

   

 

 

170

 

Basis Adjustment

 

 

 

986

   

 

 

986

 

Retained Earnings

 

 

 

1,192

   

 

 

1,061

 

Accumulated Other Comprehensive Income

 

 

 

1

   

 

 

1

 

 

 

 

 

 

Total Common Stockholder’s Equity

 

 

 

3,241

   

 

 

3,110

 

 

 

 

 

 

Total Capitalization

 

 

 

7,992

   

 

 

7,901

 

 

 

 

 

 

TOTAL LIABILITIES AND CAPITALIZATION

 

 

$

 

14,524

   

 

$

 

14,553

 

 

 

 

 

 

See disclosures regarding Public Service Electric and Gas Company
included in the Notes to Condensed Consolidated Financial Statements.

7


PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

For the Quarters Ended
March 31,

 

2007

 

2006

 

 

(Millions)
(Unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

Net Income

 

 

$

 

132

   

 

$

 

78

 

Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities:

 

 

 

 

Depreciation and Amortization

 

 

 

145

   

 

 

152

 

Provision for Deferred Income Taxes and ITC

 

 

 

(24

)

 

 

 

 

(25

)

 

Non-Cash Employee Benefit Plan Costs

 

 

 

35

   

 

 

42

 

Non-Cash Interest Expense

 

 

 

1

   

 

 

 

Employee Benefit Plan Funding and Related Payments

 

 

 

(16

)

 

 

 

 

(13

)

 

Over Recovery of Electric Energy Costs (BGS and NTC)

 

 

 

4

   

 

 

19

 

(Under)/Over Recovery of Gas Costs

 

 

 

(51

)

 

 

 

 

30

 

Under Recovery of SBC

 

 

 

(1

)

 

 

 

 

(19

)

 

Other Non-Cash Charges

 

 

 

(1

)

 

 

 

 

(1

)

 

Net Changes in Certain Current Assets and Liabilities:

 

 

 

 

Accounts Receivable and Unbilled Revenues

 

 

 

(269

)

 

 

 

 

82

 

Materials and Supplies

 

 

 

(7

)

 

 

 

 

 

Prepayments

 

 

 

(4

)

 

 

 

 

35

 

Accrued Taxes

 

 

 

41

   

 

 

22

 

Accrued Interest

 

 

 

(11

)

 

 

 

 

(16

)

 

Accounts Payable

 

 

 

7

   

 

 

(34

)

 

Accounts Receivable/Payable-Affiliated Companies, net

 

 

 

59

   

 

 

(52

)

 

Other Current Assets and Liabilities

 

 

 

27

   

 

 

(21

)

 

Other

 

 

 

(6

)

 

 

 

 

(12

)

 

 

 

 

 

 

Net Cash Provided By Operating Activities

 

 

 

61

   

 

 

267

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

Additions to Property, Plant and Equipment

 

 

 

(130

)

 

 

 

 

(108

)

 

 

 

 

 

 

Net Cash Used In Investing Activities

 

 

 

(130

)

 

 

 

 

(108

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

Net Change in Short-Term Debt

 

 

 

238

   

 

 

 

Redemption of Securitization Debt

 

 

 

(38

)

 

 

 

 

(36

)

 

Redemption of Long-Term Debt

 

 

 

(113

)

 

 

 

 

(148

)

 

Preferred Stock Dividends

 

 

 

(1

)

 

 

 

 

(1

)

 

 

 

 

 

 

Net Cash Provided by (Used In) Financing Activities

 

 

 

86

   

 

 

(185

)

 

 

 

 

 

 

Net Increase (Decrease) In Cash and Cash Equivalents

 

 

 

17

   

 

 

(26

)

 

Cash and Cash Equivalents at Beginning of Period

 

 

 

28

   

 

 

159

 

 

 

 

 

 

Cash and Cash Equivalents at End of Period

 

 

$

 

45

   

 

$

 

133

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

Income Taxes Paid

 

 

$

 

49

   

 

$

 

(4

)

 

Interest Paid, Net of Amounts Capitalized

 

 

$

 

102

   

 

$

 

92

 

See disclosures regarding Public Service Electric and Gas Company
included in the Notes to Condensed Consolidated Financial Statements.

8


PSEG POWER LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

 

 

 

 

For the Quarters Ended
March 31,

 

2007

 

2006

 

 

(Millions)
(Unaudited)

OPERATING REVENUES

 

 

$

 

2,149

   

 

$

 

1,967

 

OPERATING EXPENSES

 

 

 

 

Energy Costs

 

 

 

1,488

   

 

 

1,487

 

Operation and Maintenance

 

 

 

238

   

 

 

232

 

Depreciation and Amortization

 

 

 

34

   

 

 

31

 

 

 

 

 

 

Total Operating Expenses

 

 

 

1,760

   

 

 

1,750

 

 

 

 

 

 

OPERATING INCOME

 

 

 

389

   

 

 

217

 

Other Income

 

 

 

51

   

 

 

41

 

Other Deductions

 

 

 

(29

)

 

 

 

 

(19

)

 

Interest Expense

 

 

 

(37

)

 

 

 

 

(32

)

 

 

 

 

 

 

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

 

 

 

374

   

 

 

207

 

Income Tax Expense

 

 

 

(155

)

 

 

 

 

(86

)

 

 

 

 

 

 

INCOME FROM CONTINUING OPERATIONS

 

 

 

219

   

 

 

121

 

Loss from Discontinued Operations, net of tax benefit of $4 and $6 in 2007 and 2006, respectively

 

 

 

(6

)

 

 

 

 

(9

)

 

 

 

 

 

 

EARNINGS AVAILABLE TO PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

 

 

$

 

213

   

 

$

 

112

 

 

 

 

 

 

See disclosures regarding PSEG Power LLC included in the
Notes to Condensed Consolidated Financial Statements.

9


PSEG POWER LLC
CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

March 31,
2007

 

December 31,
2006

 

 

(Millions)
(Unaudited)

ASSETS

 

 

 

 

CURRENT ASSETS

 

 

 

 

Cash and Cash Equivalents

 

 

$

 

7

   

 

$

 

13

 

Accounts Receivable

 

 

 

535

   

 

 

430

 

Accounts Receivable - Affiliated Companies, net

 

 

 

251

   

 

 

495

 

Short-Term Loan to Affiliate

 

 

 

525

   

 

 

 

Fuel

 

 

 

354

   

 

 

846

 

Materials and Supplies

 

 

 

204

   

 

 

202

 

Energy Trading Contracts

 

 

 

50

   

 

 

55

 

Derivative Contracts

 

 

 

1

   

 

 

56

 

Assets of Discontinued Operations

 

 

 

325

   

 

 

325

 

Assets Held for Sale

 

 

 

40

   

 

 

40

 

Other

 

 

 

23

   

 

 

26

 

 

 

 

 

 

Total Current Assets

 

 

 

2,315

   

 

 

2,488

 

 

 

 

 

 

PROPERTY, PLANT AND EQUIPMENT

 

 

 

5,969

   

 

 

5,868

 

Less: Accumulated Depreciation and Amortization

 

 

 

(1,696

)

 

 

 

 

(1,638

)

 

 

 

 

 

 

Net Property, Plant and Equipment

 

 

 

4,273

   

 

 

4,230

 

 

 

 

 

 

NONCURRENT ASSETS

 

 

 

 

Deferred Income Taxes and Investment Tax Credits (ITC)

 

 

 

39

   

 

 

 

Nuclear Decommissioning Trust (NDT) Funds

 

 

 

1,324

   

 

 

1,256

 

Goodwill

 

 

 

16

   

 

 

16

 

Other Intangibles

 

 

 

38

   

 

 

35

 

Other Special Funds

 

 

 

43

   

 

 

42

 

Energy Trading Contracts

 

 

 

10

   

 

 

10

 

Derivative Contracts

 

 

 

19

   

 

 

19

 

Other

 

 

 

51

   

 

 

50

 

 

 

 

 

 

Total Noncurrent Assets

 

 

 

1,540

   

 

 

1,428

 

 

 

 

 

 

TOTAL ASSETS

 

 

$

 

8,128

   

 

$

 

8,146

 

 

 

 

 

 

LIABILITIES AND MEMBER’S EQUITY

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

Accounts Payable

 

 

$

 

623

   

 

$

 

589

 

Short-Term Loan from Affiliate

 

 

 

   

 

 

54

 

Energy Trading Contracts

 

 

 

66

   

 

 

222

 

Derivative Contracts

 

 

 

311

   

 

 

90

 

Accrued Interest

 

 

 

80

   

 

 

34

 

Other

 

 

 

96

   

 

 

95

 

 

 

 

 

 

Total Current Liabilities

 

 

 

1,176

   

 

 

1,084

 

 

 

 

 

 

NONCURRENT LIABILITIES

 

 

 

 

Deferred Income Taxes and Investment Tax Credits (ITC)

 

 

 

   

 

 

48

 

Asset Retirement Obligations

 

 

 

292

   

 

 

287

 

Other Postretirement Benefit (OPEB) Costs

 

 

 

139

   

 

 

138

 

Energy Trading Contracts

 

 

 

5

   

 

 

19

 

Derivative Contracts

 

 

 

157

   

 

 

151

 

Accrued Pension Costs

 

 

 

107

   

 

 

106

 

Environmental Costs

 

 

 

53

   

 

 

54

 

Long-Term Accrued Taxes due to Affiliate

 

 

 

22

   

 

 

 

Other

 

 

 

16

   

 

 

18

 

 

 

 

 

 

Total Noncurrent Liabilities

 

 

 

791

   

 

 

821

 

 

 

 

 

 

COMMITMENTS AND CONTINGENT LIABILITIES (See Note 5)

 

 

 

 

LONG-TERM DEBT

 

 

 

 

Total Long-Term Debt

 

 

 

2,818

   

 

 

2,818

 

 

 

 

 

 

MEMBER’S EQUITY

 

 

 

 

Contributed Capital

 

 

 

2,000

   

 

 

2,000

 

Basis Adjustment

 

 

 

(986

)

 

 

 

 

(986

)

 

Retained Earnings

 

 

 

2,661

   

 

 

2,586

 

Accumulated Other Comprehensive Loss

 

 

 

(332

)

 

 

 

 

(177

)

 

 

 

 

 

 

Total Member’s Equity

 

 

 

3,343

   

 

 

3,423

 

 

 

 

 

 

TOTAL LIABILITIES AND MEMBER’S EQUITY

 

 

$

 

8,128

   

 

$

 

8,146

 

 

 

 

 

 

See disclosures regarding PSEG Power LLC included in the
Notes to Condensed Consolidated Financial Statements.

10


PSEG POWER LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

For The Three Months Ended
March 31,

 

2007

 

2006

 

 

(Millions)
(Unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

Net Income

 

 

$

 

213

   

 

$

 

112

 

Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities:

 

 

 

 

Depreciation and Amortization

 

 

 

34

   

 

 

35

 

Amortization of Nuclear Fuel

 

 

 

25

   

 

 

25

 

Interest Accretion on Asset Retirement Obligations

 

 

 

6

   

 

 

8

 

Provision for Deferred Income Taxes and ITC

 

 

 

26

   

 

 

24

 

Unrealized Losses on Energy Contracts and Other Derivatives

 

 

 

4

   

 

 

21

 

Non-Cash Employee Benefit Plan Costs

 

 

 

7

   

 

 

11

 

Net Realized Gains and Income from NDT Funds

 

 

 

(19

)

 

 

 

 

(18

)

 

Net Change in Certain Current Assets and Liabilities:

 

 

 

 

Fuel, Materials and Supplies

 

 

 

490

   

 

 

413

 

Accounts Receivable

 

 

 

(105

)

 

 

 

 

187

 

Accrued Interest

 

 

 

46

   

 

 

55

 

Accounts Payable

 

 

 

57

   

 

 

(292

)

 

Accounts Receivable/Payable-Affiliated Companies, net

 

 

 

72

   

 

 

145

 

Other Current Assets and Liabilities

 

 

 

4

   

 

 

18

 

Employee Benefit Plan Funding and Related Payments

 

 

 

(1

)

 

 

 

 

(16

)

 

Other

 

 

 

(35

)

 

 

 

 

(46

)

 

 

 

 

 

 

Net Cash Provided By Operating Activities

 

 

 

824

   

 

 

682

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

Additions to Property, Plant and Equipment

 

 

 

(126

)

 

 

 

 

(118

)

 

Proceeds from NDT Funds Sales

 

 

 

501

   

 

 

300

 

NDT Funds Interest and Dividends

 

 

 

12

   

 

 

10

 

Investment in NDT Funds

 

 

 

(511

)

 

 

 

 

(305

)

 

Short-Term Loan - Affiliated Company, net

 

 

 

(525

)

 

 

 

 

(380

)

 

Other

 

 

 

(2

)

 

 

 

 

10

 

 

 

 

 

 

Net Cash Used In Investing Activities

 

 

 

(651

)

 

 

 

 

(483

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

Cash Dividend Paid

 

 

 

(125

)

 

 

 

 

 

Short-Term Loan—Affiliated Company, net

 

 

 

(54

)

 

 

 

 

(202

)

 

 

 

 

 

 

Net Cash Used In Financing Activities

 

 

 

(179

)

 

 

 

 

(202

)

 

 

 

 

 

 

Net Decrease in Cash and Cash Equivalents

 

 

 

(6

)

 

 

 

 

(3

)

 

Cash and Cash Equivalents at Beginning of Period

 

 

 

13

   

 

 

8

 

 

 

 

 

 

Cash and Cash Equivalents at End of Period

 

 

$

 

7

   

 

$

 

5

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

Income Taxes Paid

 

 

$

 

24

   

 

$

 

18

 

Interest Paid, Net of Amounts Capitalized

 

 

$

 

3

   

 

$

 

2

 

See disclosures regarding PSEG Power LLC included in the
Notes to Condensed Consolidated Financial Statements.

11


PSEG ENERGY HOLDINGS L.L.C.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Millions)

 

 

 

 

 

 

 

For The Quarters Ended
March 31,

 

2007

 

2006

 

 

(Unaudited)

OPERATING REVENUES

 

 

 

 

Electric Generation and Distribution Revenues

 

 

$

 

201

   

 

$

 

263

 

Income from Leveraged and Operating Leases

 

 

 

33

   

 

 

39

 

Other

 

 

 

20

   

 

 

10

 

 

 

 

 

 

Total Operating Revenues

 

 

 

254

   

 

 

312

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

Energy Costs

 

 

 

161

   

 

 

194

 

Operation and Maintenance

 

 

 

53

   

 

 

49

 

Depreciation and Amortization

 

 

 

14

   

 

 

12

 

 

 

 

 

 

Total Operating Expenses

 

 

 

228

   

 

 

255

 

 

 

 

 

 

Income from Equity Method Investments

 

 

 

26

   

 

 

33

 

 

 

 

 

 

OPERATING INCOME

 

 

 

52

   

 

 

90

 

Other Income

 

 

 

16

   

 

 

7

 

Other Deductions

 

 

 

(2

)

 

 

 

 

(7

)

 

Interest Expense

 

 

 

(43

)

 

 

 

 

(50

)

 

 

 

 

 

 

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

 

 

 

23

   

 

 

40

 

Income Tax Expense

 

 

 

(20

)

 

 

 

 

(12

)

 

 

 

 

 

 

INCOME FROM CONTINUING OPERATIONS

 

 

 

3

   

 

 

28

 

Income from Discontinued Operations, net of tax expense of $1 in 2006

 

 

 

   

 

 

4

 

 

 

 

 

 

EARNINGS AVAILABLE TO PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

 

 

$

 

3

   

 

$

 

32

 

 

 

 

 

 

See disclosures regarding PSEG Energy Holdings L.L.C. included in the
Notes to Condensed Consolidated Financial Statements.

12


PSEG ENERGY HOLDINGS L.L.C.
CONDENSED CONSOLIDATED BALANCE SHEETS

(Millions)

 

 

 

 

 

 

 

March 31,
2007

 

December 31,
2006

 

 

(Unaudited)

ASSETS

 

 

 

 

CURRENT ASSETS

 

 

 

 

Cash and Cash Equivalents

 

 

$

 

65

   

 

$

 

98

 

Accounts Receivable:

 

 

 

 

Trade-net of allowances of $5 and $6 in 2007 and 2006, respectively

 

 

 

111

   

 

 

103

 

Other Accounts Receivable

 

 

 

18

   

 

 

29

 

Affiliated Companies

 

 

 

33

   

 

 

 

Notes Receivable:

 

 

 

 

Affiliated Companies

 

 

 

25

   

 

 

28

 

Inventory

 

 

 

35

   

 

 

41

 

Restricted Funds

 

 

 

33

   

 

 

67

 

Assets Held for Sale

 

 

 

2

   

 

 

 

Derivative Contracts

 

 

 

2

   

 

 

14

 

Other

 

 

 

7

   

 

 

8

 

 

 

 

 

 

Total Current Assets

 

 

 

331

   

 

 

388

 

 

 

 

 

 

PROPERTY, PLANT AND EQUIPMENT

 

 

 

1,726

   

 

 

1,706

 

Less: Accumulated Depreciation and Amortization

 

 

 

(310

)

 

 

 

 

(307

)

 

 

 

 

 

 

Net Property, Plant and Equipment

 

 

 

1,416

   

 

 

1,399

 

 

 

 

 

 

NONCURRENT ASSETS

 

 

 

 

Leveraged Leases, net

 

 

 

2,746

   

 

 

2,810

 

Corporate Joint Ventures and Partnership Interests

 

 

 

836

   

 

 

868

 

Goodwill

 

 

 

518

   

 

 

523

 

Intangibles

 

 

 

11

   

 

 

11

 

Derivative Contracts

 

 

 

8

   

 

 

26

 

Other

 

 

 

139

   

 

 

139

 

 

 

 

 

 

Total Noncurrent Assets

 

 

 

4,258

   

 

 

4,377

 

 

 

 

 

 

TOTAL ASSETS

 

 

$

 

6,005

   

 

$

 

6,164

 

 

 

 

 

 

See disclosures regarding PSEG Energy Holdings L.L.C. included in the
Notes to Condensed Consolidated Financial Statements.

13


PSEG ENERGY HOLDINGS L.L.C.
CONDENSED CONSOLIDATED BALANCE SHEETS

(Millions)

 

 

 

 

 

 

 

March 31,
2007

 

December 31,
2006

 

 

(Unaudited)

LIABILITIES AND MEMBER’S EQUITY

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

Long-Term Debt Due Within One Year

 

 

$

 

43

   

 

$

 

42

 

Short-Term Borrowings

 

 

 

8

   

 

 

 

Accounts Payable:

 

 

 

 

Trade

 

 

 

67

   

 

 

54

 

Affiliated Companies

 

 

 

2

   

 

 

12

 

Derivative Contracts

 

 

 

17

   

 

 

16

 

Accrued Interest

 

 

 

44

   

 

 

27

 

Other

 

 

 

63

   

 

 

72

 

 

 

 

 

 

Total Current Liabilities

 

 

 

244

   

 

 

223

 

 

 

 

 

 

NONCURRENT LIABILITIES

 

 

 

 

Deferred Income Taxes and Investment and Energy Tax Credits

 

 

 

1,653

   

 

 

1,925

 

Derivative Contracts

 

 

 

8

   

 

 

11

 

Long-Term Accrued Taxes due to Affiliate

 

 

 

424

   

 

 

 

Other

 

 

 

103

   

 

 

102

 

 

 

 

 

 

Total Noncurrent Liabilities

 

 

 

2,188

   

 

 

2,038

 

 

 

 

 

 

COMMITMENTS AND CONTINGENT LIABILITIES (See Note 5)

 

 

 

 

MINORITY INTERESTS

 

 

 

26

   

 

 

26

 

 

 

 

 

 

LONG-TERM DEBT

 

 

 

 

Project Level, Non-Recourse Debt

 

 

 

822

   

 

 

840

 

Senior Notes

 

 

 

1,149

   

 

 

1,149

 

 

 

 

 

 

Total Long-Term Debt

 

 

 

1,971

   

 

 

1,989

 

 

 

 

 

 

MEMBER’S EQUITY

 

 

 

 

Ordinary Unit

 

 

 

1,048

   

 

 

1,193

 

Retained Earnings

 

 

 

434

   

 

 

592

 

Accumulated Other Comprehensive Income

 

 

 

94

   

 

 

103

 

 

 

 

 

 

Total Member’s Equity

 

 

 

1,576

   

 

 

1,888

 

 

 

 

 

 

TOTAL LIABILITIES AND MEMBER’S EQUITY

 

 

$

 

6,005

   

 

$

 

6,164

 

 

 

 

 

 

See disclosures regarding PSEG Energy Holdings L.L.C. included in the
Notes to Condensed Consolidated Financial Statements.

14


PSEG ENERGY HOLDINGS L.L.C.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Millions)

 

 

 

 

 

 

 

 

 

2007

 

2006

 

 

 

 

For The Quarters Ended
March 31,

 

 

 

 

(Unaudited)

 

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net Income

 

 

$

 

3

   

 

$

 

32

   

 

Adjustments to Reconcile Net Income to Net Cash Flows from

 

 

 

 

 

 

Operating Activities:

 

 

 

 

 

 

Depreciation and Amortization

 

 

 

14

   

 

 

13

   

 

Demand Side Management Amortization

 

 

 

   

 

 

1

   

 

Deferred Income Taxes (Other than Leases)

 

 

 

(14

)

 

 

 

 

4

   

 

Leveraged Lease Income, Adjusted for Rents Received and

 

 

 

 

 

 

Deferred Income Taxes

 

 

 

(15

)

 

 

 

 

(22

)

 

 

 

Undistributed Losses (Earnings) from Affiliates

 

 

 

31

   

 

 

(29

)

 

 

 

Gain on Sale of Investments

 

 

 

(16

)

 

 

 

 

(2

)

 

 

 

Unrealized Gain on Investments

 

 

 

   

 

 

(1

)

 

 

 

Foreign Currency Transaction Loss (Gain)

 

 

 

1

   

 

 

(1

)

 

 

 

Change in Fair Value of Derivative Financial Instruments

 

 

 

30

   

 

 

1

   

 

Net Changes in Certain Current Assets and Liabilities:

 

 

 

 

 

 

Accounts Receivable

 

 

 

13

   

 

 

25

   

 

Inventory

 

 

 

5

   

 

 

3

   

 

Accounts Payable

 

 

 

21

   

 

 

(29

)

 

 

 

Other Current Assets and Liabilities

 

 

 

7

   

 

 

4

   

 

Investment Income and Dividend Distributions from Partnerships

 

 

 

11

   

 

 

1

   

 

Other

 

 

 

   

 

 

1

   

 

 

 

 

 

 

 

 

Net Cash Provided By Operating Activities

 

 

 

91

   

 

 

1

   

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Additions to Property, Plant and Equipment

 

 

 

(16

)

 

 

 

 

(14

)

 

 

 

Proceeds from Sale of Property

 

 

 

   

 

 

1

   

 

Proceeds from the Sale of Investments

 

 

 

7

   

 

 

2

   

 

Short-Term Loan Receivable - Affiliated Company, net

 

 

 

3

   

 

 

351

   

 

Restricted Funds

 

 

 

34

   

 

 

(17

)

 

 

 

Other

 

 

 

1

   

 

 

1

   

 

 

 

 

 

 

 

 

Net Cash Provided By Investing Activities

 

 

 

29

   

 

 

324

   

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Net Change in Short-Term Borrowings

 

 

 

8

   

 

 

   

 

Repayment of Non-Recourse Long-Term Debt

 

 

 

(16

)

 

 

 

 

(12

)

 

 

 

Repayment of Senior Notes

 

 

 

   

 

 

(309

)

 

 

 

Return of Contributed Capital

 

 

 

(145

)

 

 

 

 

   

 

Other

 

 

 

   

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

Net Cash Used In Financing Activities

 

 

 

(153

)

 

 

 

 

(322

)

 

 

 

 

 

 

 

 

 

 

Effect of Exchange Rate Change

 

 

 

   

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

Net (Decrease) Increase In Cash and Cash Equivalents

 

 

 

(33

)

 

 

 

 

2

   

 

Cash and Cash Equivalents at Beginning of Period

 

 

 

98

   

 

 

68

   

 

 

 

 

 

 

 

 

Cash and Cash Equivalents at End of Period

 

 

$

 

65

   

 

$

 

70

   

 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

Income Taxes Paid

 

 

$

 

1

   

 

$

 

2

   

 

Interest Paid, Net of Amounts Capitalized

 

 

$

 

23

   

 

$

 

26

   

 

See disclosures regarding PSEG Energy Holdings L.L.C. included in the
Notes to Condensed Consolidated Financial Statements.

15


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

This combined Form 10-Q is separately filed by Public Service Enterprise Group Incorporated (PSEG), Public Service Electric and Gas Company (PSE&G), PSEG Power LLC (Power) and PSEG Energy Holdings L.L.C. (Energy Holdings). Information contained herein relating to any individual company is filed by such company on its own behalf. PSE&G, Power and Energy Holdings each make representations only as to itself and make no representations as to any other company.

Note 1. Organization and Basis of Presentation

Organization

PSEG

PSEG has four principal direct wholly owned subsidiaries: PSE&G, Power, Energy Holdings and PSEG Services Corporation (Services).

PSE&G

PSE&G is an operating public utility engaged principally in the transmission of electric energy and distribution of electric energy and natural gas in certain areas of New Jersey. PSE&G is subject to regulation by the New Jersey Board of Public Utilities (BPU) and the Federal Energy Regulatory Commission (FERC).

PSE&G also owns PSE&G Transition Funding LLC (Transition Funding) and PSE&G Transition Funding II LLC (Transition Funding II), bankruptcy-remote entities that purchased certain transition property from PSE&G and issued transition bonds secured by such property. The transition property consists principally of the rights to receive electricity consumption-based per kilowatt-hour (kWh) charges from PSE&G electric distribution customers, which represent irrevocable rights to receive amounts sufficient to recover certain of PSE&G’s transition costs related to deregulation, as approved by the BPU.

Power

Power is a multi-regional, wholesale energy supply company that integrates its generating asset operations and gas supply commitments with its wholesale energy, fuel supply, energy trading and marketing and risk management function through three principal direct wholly owned subsidiaries: PSEG Nuclear LLC (Nuclear), PSEG Fossil LLC (Fossil) and PSEG Energy Resources & Trade LLC (ER&T). Nuclear and Fossil own and operate generation and generation-related facilities. ER&T is responsible for the day-to-day management of Power’s portfolio. Fossil, Nuclear and ER&T are subject to regulation by FERC, and certain Fossil subsidiaries are also subject to state regulation, and Nuclear is also subject to regulation by the Nuclear Regulatory Commission (NRC).

Energy Holdings

Energy Holdings has two principal direct wholly owned subsidiaries: PSEG Global L.L.C. (Global), which owns and operates international and domestic projects engaged in the generation and distribution of energy and PSEG Resources L.L.C. (Resources), which has invested primarily in energy-related leveraged leases. Energy Holdings also owns Enterprise Group Development Corporation (EGDC), a commercial real estate property management business.

Services

Services provides management and administrative and general services to PSEG and its subsidiaries. These include accounting, treasury, risk management, planning, information technology, tax, law, corporate secretarial, human resources, investor relations, corporate communications and certain other services. Services charges PSEG and its subsidiaries for the cost of work performed and services provided pursuant to the terms and conditions of intercompany service agreements.

Basis of Presentation

PSEG, PSE&G, Power and Energy Holdings

The respective financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for Quarterly Reports on Form 10-Q. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been condensed or omitted

16


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

pursuant to such rules and regulations. These Condensed Consolidated Financial Statements and Notes to Condensed Consolidated Financial Statements (Notes) should be read in conjunction with, and update and supplement matters discussed in PSEG’s, PSE&G’s, Power’s and Energy Holdings’ respective Annual Reports on Form 10-K for the year ended December 31, 2006.

The unaudited condensed consolidated financial information furnished herein reflects all adjustments which are, in the opinion of management, necessary to fairly state the results for the interim periods presented. All such adjustments are of a normal recurring nature. The year-end Condensed Consolidated Balance Sheets were derived from the audited Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2006.

Reclassifications

PSEG, PSE&G, Power and Energy Holdings

Certain reclassifications have been made to the prior quarter financial statements to conform to the current quarter presentation. The reclassifications relate primarily to PSE&G’s determination, during the fourth quarter of 2006, that the revenues and expenses related to one of its contracts that had been recorded on a gross basis would more appropriately be recorded on a net basis in Operating Revenues based upon the provisions of EITF 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent”. Therefore, prior amounts have been reclassified, resulting in a reduction of $57 million in both Operating Revenues and Energy Costs for the quarter ended March 31, 2006 for PSEG and PSE&G, with no impact on Operating Income.

Note 2. Recent Accounting Standards

The following accounting standards were issued by the Financial Accounting Standards Board (FASB), but have not yet been adopted by PSEG, PSE&G, Power and Energy Holdings.

Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements” (SFAS 157)

PSEG, PSE&G, Power and Energy Holdings

In September 2006, the FASB issued SFAS 157, which provides a single definition of fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Prior to SFAS 157, guidance for applying fair value was incorporated into several accounting pronouncements. SFAS 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and sets out a fair value hierarchy that distinguishes between assumptions based on market data obtained from independent sources (observable inputs) and those based on an entity’s own assumptions (unobservable inputs). Under SFAS 157, fair value measurements are disclosed by level within that hierarchy, with the highest priority being quoted prices in active markets. While this statement does not require any new fair value measurements, the application of this statement will change current practice for some fair value measurements.

This statement also nullifies the guidance in footnote 3 of Emerging Issues Task Force (EITF) Issue No. 02-3, “Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities” (EITF 02-3). The guidance in footnote 3 applies to derivative instruments measured at fair value at initial recognition, and it precludes immediate recognition in earnings of an unrealized gain or loss, measured as the difference between the transaction price and the fair value of the instrument at initial recognition, if the fair value of the instrument is determined using significant unobservable inputs. Under EITF 02-3, an entity cannot recognize an unrealized gain or loss at inception of a derivative instrument unless the fair value of that instrument is obtained from a quoted market price in an active market or is otherwise evidenced by comparison to other observable current market transactions or based on a valuation technique incorporating observable market data. SFAS 157 requires that the principles of fair value measurement apply for derivatives and other financial instruments at initial recognition and in all subsequent periods.

SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007; however, earlier application is encouraged. PSEG, PSE&G, Power and Energy Holdings are currently

17


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

assessing the potential impact of SFAS 157 on their respective consolidated financial positions and results of operations.

SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS 159)

PSEG, PSE&G, Power and Energy Holdings

In February 2007, the FASB issued SFAS 159, which permits entities to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. An entity will report unrealized gains and losses on items where the fair value option has been elected in earnings at each subsequent reporting date. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The decision about whether to elect the fair value option is applied instrument by instrument, with a few exceptions; the decision is irrevocable; and the decision is required to be applied to entire instruments and not to portions of instruments.

The statement requires disclosures that facilitate comparisons (a) between entities that choose different measurement attributes for similar assets and liabilities and (b) between assets and liabilities in the financial statements of an entity that selects different measurement attributes for similar assets and liabilities.

SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. Upon implementation, an entity shall report the effect of the first remeasurement to fair value as a cumulative effect adjustment to the opening balance of Retained Earnings. PSEG, PSE&G, Power and Energy Holdings are currently assessing the potential impact of SFAS 159 on their respective consolidated financial positions and results of operations.

The following new accounting standards were adopted by PSEG, PSE&G, Power and Energy Holdings during 2007.

FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement 109” (FIN 48)

PSEG, PSE&G, Power and Energy Holdings

In July 2006, the FASB issued FIN 48, which prescribes a model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. Under FIN 48, the financial statements reflect expected future tax consequences of such positions presuming the tax authorities’ full knowledge of the position and all relevant facts. FIN 48 permits recognition of the benefit of tax positions only when it is “more likely-than-not” that the position is sustainable based on the merits of the position. It further limits the amount of tax benefit to be recognized to the largest amount of benefit that is greater than 50% likely of being realized. FIN 48 also requires explicit disclosures about uncertainties in income tax positions, including a detailed roll-forward of unrecognized tax benefits taken that do not qualify for financial statement recognition.

FIN 48 was effective January 1, 2007. In general, companies record the change in net assets that resulted from the application of FIN 48 as an adjustment to Retained Earnings. However, for PSE&G, because any charges to income arising from the adoption of FIN 48 would be recoverable in future rates, the offset to any incremental PSE&G liability is recorded as a Regulatory Asset rather than Retained Earnings. The following table presents the impact at January 1, 2007 on the Condensed Consolidated Balance Sheets for PSEG and its subsidiaries as a result of implementing FIN 48:

 

 

 

 

 

 

 

 

 

 

 

PSE&G

 

Power

 

Energy
Holdings

 

PSEG
Consolidated

Balance Sheet

 

(Millions)

Increase to Long Term Accrued Taxes

 

 

$

 

20

   

 

$

 

21

   

 

$

 

355

   

 

$

 

396

 

Decrease to Accumulated Deferred Income Tax Liability

 

 

$

 

9

   

 

$

 

7

   

 

$

 

246

   

 

$

 

262

 

Increase to Regulatory Assets

 

 

$

 

11

   

 

$

 

   

 

$

 

   

 

$

 

11

 

Decrease to Retained Earnings

 

 

$

 

   

 

$

 

14

   

 

$

 

109

   

 

$

 

123

 

18


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The impact to earnings resulting from the adoption of FIN 48 for the quarter ended March 31, 2007 was an after-tax decrease of $6 million for PSEG, including $1 million for Power and $5 million for Energy Holdings. There was no impact on earnings for PSE&G. For additional information relating to the impacts of FIN 48, see Note 11. Income Taxes.

FASB Staff Position (FSP) No. FAS 13-2, “Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction” (FSP 13-2)

PSEG and Energy Holdings

In July 2006, the FASB issued FSP 13-2, which addressed how a change or projected change in the timing of cash flows relating to income taxes generated by a leveraged lease transaction affects the accounting by a lessor for that lease. The FSP amends SFAS 13, “Accounting for Leases,” stating that a change in the timing of the above referenced cash flows must be reviewed at least annually or more frequently, if events or circumstances indicate a change in timing is probable. If a change in timing has occurred, or is projected to occur, the rate of return and the allocation of income to positive investment years must be recalculated from the inception of the lease.

The guidance in this FSP was adopted January 1, 2007. The cumulative effect of applying the provisions of this FSP is reported as an adjustment to the beginning balance of Retained Earnings as of the date of adoption. As a result of implementing FSP 13-2, upon adoption PSEG and Energy Holdings each recognized a reduction in Investment in Leveraged Leases of $73 million, a reduction in Deferred Income Taxes of $22 million and a reduction in Retained Earnings of $51 million.

The impact to earnings resulting from the adoption of FSP 13-2 for the quarter ended March 31, 2007 was an after-tax decrease of $3 million for PSEG and Energy Holdings.

Note 3. Discontinued Operations, Dispositions and Impairments

Discontinued Operations

Power

Lawrenceburg Energy Center (Lawrenceburg)

On December 29, 2006, Power entered into an agreement to sell its natural gas-fired Lawrenceburg facility located in Lawrenceburg, Indiana to AEP Generating Company, a subsidiary of American Electric Power Company, Inc. (AEP).

The sale price for the facility and inventory is $325 million. The proceeds, together with anticipated reduction in tax liability, are expected to be approximately $425 million and will be used to retire debt. The transaction will result in an after-tax charge to PSEG’s and Power’s earnings of approximately $208 million, or about $0.82 cents per share of PSEG common stock, which was reflected as a charge in Discontinued Operations in the fourth quarter of 2006.

Power has received the required regulatory approvals for the sale and anticipates that the transaction will close in the second quarter of 2007.

Lawrenceburg’s operating results for the quarters ended March 31, 2007 and 2006, which were reclassified to Discontinued Operations, are summarized below:

 

 

 

 

 

 

 

Quarters Ended
March 31,

 

2007

 

2006

 

 

(Millions)

Operating Revenues

 

 

$

 

   

 

$

 

 

Loss Before Income Taxes

 

 

$

 

(10

)

 

 

 

$

 

(15

)

 

Net Loss

 

 

$

 

(6

)

 

 

 

$

 

(9

)

 

19


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The carrying amounts of the assets of Lawrenceburg as of March 31, 2007 and December 31, 2006 are summarized in the following table:

 

 

 

 

 

 

 

As of
March 31, 2007

 

As of
December 31, 2006

 

 

(Millions)

Current Assets

 

 

$

 

10

   

 

$

 

10

 

Noncurrent Assets

 

 

 

315

   

 

 

315

 

 

 

 

 

 

Total Assets of Discontinued Operations

 

 

$

 

325

   

 

$

 

325

 

 

 

 

 

 

Energy Holdings

Elektrocieplownia Chorzow Elcho Sp. Z o.o. (Elcho) and Elektrownia Skawina SA (Skawina)

On May 29, 2006, Global completed the sale of its interest in two coal-fired plants in Poland, Elcho and Skawina. Proceeds, net of transaction costs, were $476 million, resulting in a gain of $227 million net of tax expense of $142 million. The 2006 operating results for Global’s assets in Poland have been reclassified to Discontinued Operations.

Elcho’s and Skawina’s operating results for the quarter ended March 31, 2006 are summarized below:

 

 

 

 

 

 

 

Quarter Ended
March 31, 2006

 

Elcho

 

Skawina

 

 

(Millions)

Operating Revenues

 

 

$

 

30

   

 

$

 

33

 

Income Before Income Taxes

 

 

$

 

3

   

 

$

 

2

 

Net Income

 

 

$

 

3

   

 

$

 

1

 

Dispositions

Power

In December 2006, Power recorded a pre-tax impairment loss of $44 million to write down four turbines to their estimated realizable value and reclassified them to Assets Held for Sale on Power’s Condensed Consolidated Balance Sheet. In April 2007, Power sold the four turbines to a third party and received proceeds of approximately $40 million, which approximates the recorded book value.

Energy Holdings

Global

Thermal Energy Development Partnership, L.P. (Tracy Biomass)

On December 22, 2006, Global entered into an agreement to sell its 34.5% interest in Tracy Biomass for approximately $7 million. The sale closed on January 26, 2007 and resulted in a 2007 pre-tax gain of approximately $7 million ($6 million after-tax).

Impairment

Energy Holdings

Venezuela

PSEG has indirect ownership interests in two generating facilities in Maracay and Cagua, Venezuela that have a total capacity of 120 MW. The projects are owned and operated by Turboven, an entity which is jointly-owned by Global (50%) and Corporacion Industrial de Energia (CIE). Global also has a 9% indirect interest in TGM through a partnership with CIE. As of March 31, 2007, the book value of these investments was approximately $35 million.

During Global’s year-end review of its equity method investments, management concluded that due to the current political situation in Venezuela, it is probable that Global would not be able to recover its

20


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

capitalized costs associated with its investments in Venezuela. Therefore, Global recorded a pre-tax impairment loss of approximately $7 million to write down these investments in the fourth quarter of 2006.

In January 2007, the Venezuelan government announced its intention to nationalize certain sectors of Venezuelan industry and commerce, including certain foreign-owned energy and communications companies. In a subsequent press release, Turboven was named as one of the companies that Venezuela intended to nationalize. Since these announcements, Venezuela has proceeded to nationalize certain companies; however, Global has not received any further official communication from the government of Venezuela regarding Turboven.

Note 4. Earnings Per Share (EPS)

PSEG

Diluted EPS is calculated by dividing Net Income by the weighted average number of shares of common stock outstanding, including shares issuable upon exercise of stock options outstanding under PSEG’s stock option plans and upon payment of performance units. The following table shows the effect of these stock options and performance units on the weighted average number of shares outstanding used in calculating diluted EPS:

 

 

 

 

 

 

 

 

 

 

 

Quarters Ended March 31,

 

2007

 

2006

 

Basic

 

Diluted

 

Basic

 

Diluted

EPS Numerator:

 

 

 

 

 

 

 

 

Earnings (Millions)

 

 

 

 

 

 

 

 

Continuing Operations

 

 

$

 

335

   

 

$

 

335

   

 

$

 

208

   

 

$

 

208

 

Discontinued Operations

 

 

 

(6

)

 

 

 

 

(6

)

 

 

 

 

(5

)

 

 

 

 

(5

)

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

$

 

329

   

 

$

 

329

   

 

$

 

203

   

 

$

 

203

 

 

 

 

 

 

 

 

 

 

EPS Denominator (Thousands):

 

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding

 

 

 

252,892

   

 

 

252,892

   

 

 

251,187

   

 

 

251,187

 

Effect of Stock Options

 

 

 

   

 

 

390

   

 

 

   

 

 

787

 

Effect of Stock Performance Units

 

 

 

   

 

 

74

   

 

 

   

 

 

91

 

 

 

 

 

 

 

 

 

 

Total Shares

 

 

 

252,892

   

 

 

253,356

   

 

 

251,187

   

 

 

252,065

 

 

 

 

 

 

 

 

 

 

EPS:

 

 

 

 

 

 

 

 

Continuing Operations

 

 

$

 

1.32

   

 

$

 

1.32

   

 

$

 

0.83

   

 

$

 

0.83

 

Discontinued Operations

 

 

 

(0.02

)

 

 

 

 

(0.02

)

 

 

 

 

(0.02

)

 

 

 

 

(0.02

)

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

$

 

1.30

   

 

$

 

1.30

   

 

$

 

0.81

   

 

$

 

0.81

 

 

 

 

 

 

 

 

 

 

Dividend payments on common stock for the quarter ended March 31, 2007 were $0.585 per share and totaled approximately $148 million. Dividend payments on common stock for the quarter ended March 31, 2006 were $0.57 per share and totaled approximately $143 million.

Note 5. Commitments and Contingent Liabilities

Guaranteed Obligations

Power

Power contracts for electricity, natural gas, oil, coal, pipeline capacity, transportation and emission allowances and engages in risk management activities through ER&T. These activities primarily involve the purchase and sale of energy and related products under transportation, physical, financial and forward contracts at fixed and variable prices. These transactions are executed with both numerous counterparties and brokers. Counterparties and brokers may require guarantees, cash or cash related instruments to be deposited on these transactions as described below.

21


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Power has unconditionally guaranteed payments by its subsidiaries, ER&T and PSEG Power New York Inc. (Power New York) in commodity-related transactions to support current exposure, interest and other costs on sums due and payable in the ordinary course of business. These payment guarantees are provided to counterparties in order to obtain credit. Under these agreements, guarantees cover lines of credit between entities and are often reciprocal in nature. The exposure between counterparties can move in either direction. The face value of the guarantees outstanding as of March 31, 2007 and December 31, 2006 was approximately $1.6 billion.

In order for Power to incur a liability for the face value of the outstanding guarantees, ER&T and Power New York would have to fully utilize the credit granted to them by every counterparty to whom Power has provided a guarantee and all of ER&T’s and Power New York’s contracts would have to be “out-of-the-money” (if the contracts are terminated, Power would owe money to the counterparties). The probability of all contracts at ER&T and Power New York being simultaneously “out-of-the-money” is highly unlikely due to offsetting positions within the portfolio. For this reason, the current exposure at any point in time is a more meaningful representation of the potential liability to Power under these guarantees. The current exposure consists of the net of accounts receivable and accounts payable and the forward value on open positions, less any margins posted. The current exposure from such liabilities was $532 million and $518 million as of March 31, 2007 and December 31, 2006, respectively.

Power is subject to counterparty collateral calls related to commodity contracts that are bilateral and are subject to certain creditworthiness standards as guarantor under performance guarantees for ER&T’s agreements. Changes in commodity prices, including fuel, emissions allowances and electricity, can have a material impact on margin requirements under such contracts.. As of March 31, 2007, Power had posted margin of approximately $66 million, primarily in the form of letters of credit, and received margin of approximately $57 million to satisfy collateral obligations and support various contractual and environmental obligations. As of December 31, 2006, Power had posted margin of approximately $40 million, primarily in the form of letters of credit, and received margin of approximately $86 million, including approximately $82 million in the form of letters of credit.

Power also routinely enters into exchange-traded futures and options transactions for electricity and natural gas as part of its operations. Generally, such future contracts require a deposit of cash margin, the amount of which is subject to change based on market movement and in accordance with exchange rules. As of March 31, 2007 and December 31, 2006, Power had deposited margin of approximately $164 million and $89 million, respectively. Exchange-traded transactions that are margined and monitored separately from physical trading activity may not be subject to change in the event of a downgrade to Power’s rating.

In the event of a deterioration of Power’s credit rating to below investment grade, which would represent a two level downgrade from its current ratings, many of these agreements allow the counterparty to demand that ER&T provide further performance assurance. As of March 31, 2007, if Power were to lose its investment grade rating and, assuming all counterparties to which ER&T is “out-of- the-money” were contractually entitled to demand, and demanded, performance assurance, ER&T could be required to post additional collateral in an amount equal to approximately $664 million. Power believes that it has sufficient liquidity to post such collateral, if necessary.

Energy Holdings

Energy Holdings and/or Global have guaranteed certain obligations of their subsidiaries or affiliates, including the successful completion, performance or other obligations related to certain projects.

In 2006, Global sold its investments in Poland. As of March 31, 2007 and December 31, 2006, Global was still obligated for the $6 million equity commitment guarantee at Skawina. The guarantee expires in August 2007. If payments are required, such payments are indemnified by the purchaser in accordance with the purchase agreement.

Global also has a contingent guarantee expiring in April 2011 related to debt service obligations associated with Chilquinta Energia S.A., an energy distribution company in Chile in which Global owns 50%. As of March 31, 2007 and December 31, 2006, the contingent guarantee was approximately $25 million.

22


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

In September 2003, Energy Holdings completed the sale of PSEG Energy Technologies Inc. (Energy Technologies) and nearly all of its assets. However, Energy Holdings retained certain outstanding construction and warranty obligations related to ongoing construction projects previously performed by Energy Technologies. These construction obligations have performance bonds issued by insurance companies for which exposure is adequately supported by the outstanding letters of credit shown in the table above for PSEG Energy Technologies Asset Management Company LLC. As of March 31, 2007 and December 31, 2006, there were $14 million of such bonds outstanding, which are related to uncompleted construction projects. As of March 31, 2007 and December 31, 2006, there was an additional $2 million of performance guarantees related to Energy Technologies.

As of March 31, 2007 and December 31, 2006, Energy Holdings and/or Global have various other guarantees amounting to $28 million and $30 million, respectively.

Environmental Matters

PSEG, PSE&G and Power

Hazardous Substances

The New Jersey Department of Environmental Protection (NJDEP) has regulations in effect concerning site investigation and remediation that require an ecological evaluation of potential damages to natural resources in connection with an environmental investigation of contaminated sites. These regulations may substantially increase the costs of environmental investigations and necessary remediation, particularly at sites situated on surface water bodies. PSE&G, Power and their respective predecessor companies own or owned and/or operate or operated certain facilities situated on surface water bodies, certain of which are currently the subject of remedial activities.

The U.S. Environmental Protection Agency (EPA) has determined that a six-mile stretch of the Passaic River in the area of Newark, New Jersey is a “facility” within the meaning of that term under the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA). PSE&G and certain of its predecessors conducted industrial operations at properties adjacent to the Passaic River facility. The operations included one operating electric generating station (Essex Site), one former generating station and four former manufactured gas plants (MGPs). PSE&G’s costs to clean up former MGPs are recoverable from utility customers through the Societal Benefits Clause (SBC). PSE&G has sold the site of the former generating station and obtained releases and indemnities for liabilities arising out of the site in connection with the sale. The Essex Site was transferred to Power in August 2000. Power assumed any environmental liabilities of PSE&G associated with the electric generating stations that PSE&G transferred to it, including the Essex Site.

In 2003, the EPA notified 41 potentially responsible parties (PRPs), including PSE&G and Power, that it was expanding its assessment of the Passaic River Study Area to the entire 17-mile tidal reach of the lower Passaic River. The EPA further indicated, with respect to PSE&G, that it believed that hazardous substances had been released from the Essex Site and a former MGP located in Harrison, New Jersey (Harrison Site), which also includes facilities for PSE&G’s ongoing gas operations. The EPA estimated that its study would require five to eight years to complete and would cost approximately $20 million, of which it would seek to recover $10 million from the PRPs, including PSE&G and Power. Power has provided notice to insurers concerning this potential claim.

Also, in 2003, PSEG, PSE&G and 56 other PRPs received a Directive and Notice to Insurers from the NJDEP that directed the PRPs to arrange for a natural resource damage assessment and interim compensatory restoration of natural resource injuries along the lower Passaic River and its tributaries pursuant to the New Jersey Spill Compensation and Control Act. The NJDEP alleged in the Directive that it had determined that hazardous substances had been discharged from the Essex Site and the Harrison Site. The NJDEP announced that it had estimated the cost of interim natural resource injury restoration activities along the lower Passaic River to approximate $950 million.

PSE&G and Power have indicated to both the EPA and NJDEP that they are willing to work with the agencies in an effort to resolve their respective claims and, along with approximately 65 other PRPs, have

23


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

entered into an agreement with the EPA or have indicated their intention to enter an agreement that provides for sharing the costs of the $20 million study between the government organizations and the PRPs. In 2006, the EPA notified the PRPs that the cost of the study will greatly exceed the $20 million initially estimated and offered to the PRPs the opportunity to conduct the study themselves rather than reimburse the government for the additional costs it incurs. The PRP group has engaged in discussions with the EPA regarding the offer and approximately 70 PRPs, including PSE&G and Power, have agreed to assume responsibility for the study pursuant to an Administrative Order on Consent and to divide the associated costs among themselves according to a mutually agreed-upon formula. PSEG, PSE&G and Power cannot predict what further actions, if any, or the costs or the timing thereof, that may be required with respect to the Passaic River or natural resource damages. However, such costs could be material.

PSE&G

MGP Remediation Program

PSE&G is currently working with the NJDEP under a program to assess, investigate and remediate environmental conditions at PSE&G’s former MGP sites (Remediation Program). To date, 38 sites have been identified as sites requiring some level of remedial action. In addition, the NJDEP has announced initiatives to accelerate the investigation and subsequent remediation of the riverbeds underlying surface water bodies that have been impacted by hazardous substances from adjoining sites. Specifically, in 2005 the NJDEP initiated a program on the Delaware River aimed at identifying the 10 most significant sites for cleanup. One of the sites identified is a former MGP facility located in Camden. The Remediation Program is periodically reviewed, and the estimated costs are revised by PSE&G based on regulatory requirements, experience with the program and available remediation technologies. Since the inception of the Remediation Program in 1988 through March 31, 2007, PSE&G had expenditures of approximately $390 million.

During the fourth quarter of 2006, PSE&G refined the detailed site estimates. The cost of remediating all sites to completion, as well as the anticipated costs to address MGP-related material discovered in two rivers adjacent to former MGP sites, could range between $798 million and $838 million, including amounts spent to date. No amount within the range was considered to be most likely. Therefore, $408 million was accrued at March 31, 2007, which represents the difference between the low end of the total program cost estimate of $798 million and the total incurred costs through March 31, 2007 of $390 million. Of this amount, approximately $45 million was recorded in Other Current Liabilities and $363 million was reflected in Other Noncurrent Liabilities. The costs associated with the MGP Remediation Program have historically been recovered through the SBC charges to PSE&G ratepayers. As such, a $408 million Regulatory Asset was recorded.

Costs for the MGP Remediation Program were approximately $42 million for 2006. PSE&G anticipates spending $47 million in 2007, $50 million in 2008, and an average of approximately $40 million per year each year thereafter through 2016.

Power

Prevention of Significant Deterioration (PSD)/New Source Review (NSR)

The PSD/NSR regulations, promulgated under the Clean Air Act (CAA), require major sources of certain air pollutants to obtain permits, install pollution control technology and obtain offsets, in some circumstances, when those sources undergo a “major modification,” as defined in the regulations. The Federal government may order companies not in compliance with the PSD/NSR regulations to install the best available control technology at the affected plants and to pay monetary penalties of up to approximately $27,500 for each day of continued violation.

The EPA and the NJDEP issued a demand in March 2000 under the CAA requiring information to assess whether projects completed since 1978 at the Hudson and Mercer coal-burning units were implemented in accordance with applicable PSD/NSR regulations. Power completed its response to requests for information and, in January 2002, reached an agreement with the NJDEP and the EPA to resolve allegations of noncompliance with PSD/NSR regulations. Under that agreement, over the course of 10 years,

24


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Power agreed to install advanced air pollution controls to reduce emissions of Sulfur Dioxide (SO2), Nitrogen Oxide (NOx), particulate matter and mercury from the coal-burning units at the Mercer and Hudson generating stations to ensure compliance with PSD/NSR. Power also agreed to spend at least $6 million on supplemental environmental projects and pay a $1 million civil penalty. The agreement resolving the NSR allegations concerning the Hudson and Mercer coal-fired units also resolved a dispute over Bergen 2 regarding the applicability of PSD requirements and allowed construction of the unit to be completed and operations to commence.

Power subsequently notified the EPA and the NJDEP that it was evaluating the continued operation of the Hudson coal unit in light of changes in the energy and capacity markets, increases in the cost of pollution control equipment and other necessary modifications to the unit. On November 30, 2006, Power reached an agreement with the EPA and NJDEP on an amendment to its 2002 agreement intended to achieve the emissions reductions targets of this agreement while providing more time to assess the feasibility of installing additional advanced emissions controls at Hudson.

The amended agreement with the EPA and the NJDEP, which is pending final approval, would allow Power to continue operating Hudson and extend for four years the deadline for installing environmental controls beyond the previous December 31, 2006 deadline. Power will be required to undertake a number of technology projects (SCRs, scrubbers, baghouses, carbon injection), plant modifications and operating procedure changes at Hudson and Mercer designed to meet targeted reductions in emissions of NOx, SO2, particulate matter and mercury. In addition, Power has agreed to notify the EPA and NJDEP by the end of 2007 whether it will install the additional emissions controls at Hudson by the end of 2010, or plan for the orderly shut down of the unit.

Under the program to date, Power has installed SCRs at Mercer at a cost of approximately $114 million. The cost of implementing the balance of the amended agreement at Mercer and Hudson is estimated at approximately $500 million for Mercer and at $600 million to $750 million for Hudson and will be incurred in the 2007-2010 timeframe. As part of the agreement, Fossil has agreed to purchase and retire emissions allowances, contribute approximately $3 million for programs to reduce particulate emissions from diesel engines in New Jersey and pay a $6 million civil penalty. In addition, in March 2007, Fossil entered into an engineering, procurement and construction contract with a third party contractor to complete all back-end technology requirements for the Mercer station, as referenced above.

As a result of the agreement, Power increased its environmental reserves by approximately $15 million to account for civil penalties associated with the amendment to the agreement and other costs. PSEG and Power recorded the charge in Other Deductions on their respective Condensed Consolidated Statements of Operations in the fourth quarter of 2006.

Mercury Regulation

New Jersey and Connecticut have adopted standards for the reduction of emissions of mercury from coal-fired electric generating units. In February 2007, Pennsylvania also issued new requirements for the reduction of mercury emissions from coal-fired power plants. Connecticut requires coal-fired power plants in Connecticut to achieve either an emissions limit or a 90% mercury removal efficiency through technology installed to control mercury emissions effective in July 2008. The regulations in New Jersey require coal-fired electric generating units in New Jersey to meet certain emissions limits or reduce emissions by 90% by December 15, 2007.

Under the New Jersey regulations, companies that are parties to multi-pollutant reduction agreements are permitted to postpone such reductions on half of their coal-fired electric generating capacity until December 15, 2012. With respect to Power’s New Jersey facilities, the other half of the reductions that are required to be achieved by December 15, 2007 will be achieved through the installation of carbon injection technology and baghouses as part of Power’s multi-pollutant reduction agreement with the NJDEP, which resulted from the amended 2002 agreement that resolved issues arising out of the PSD and the NSR air pollution control programs at the Hudson, Mercer and Bergen facilities, discussed above. The estimated costs of technology believed to be capable of meeting these emissions limits at Power’s coal-fired unit in Connecticut and at its Mercer Station are included in Power’s capital expenditures forecast. Total estimated

25


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

costs for each project are between $150 million and $200 million. The Mercer expenditures are included in the PSD/NSR discussion above.

Connecticut has released proposed revisions to mercury regulations that encompass “Permit Requirements for Mercury Emissions from Coal-Fired Electric Generating Units”. On March 13, 2007, the Connecticut Department of Environmental Protection (CTDEP) released its hearing report on the “Permit Requirements from Mercury Emissions from Coal-Fired Electric Generating Units”. On February 17, 2007, Pennsylvania finalized its “State-specific” requirements to reduce mercury emissions from coal-fired electric generating units. As written, the regulations would not materially affect the costs already identified in Power’s capital expenditures forecast.

New Jersey Industrial Site Recovery Act (ISRA)

Potential environmental liabilities related to subsurface contamination at certain generating stations have been identified. In the second quarter of 1999, in anticipation of the transfer of PSE&G’s generation-related assets to Power, a study was conducted pursuant to ISRA, which applies to the sale of certain assets. Power had a $51 million liability as of March 31, 2007 and December 31, 2006, related to these obligations, which is included in Other Noncurrent Liabilities on Power’s Condensed Consolidated Balance Sheets and Environmental Costs on PSEG’s Condensed Consolidated Balance Sheets.

Permit Renewals

In June 2001, the NJDEP issued a renewed New Jersey Pollutant Discharge Elimination System (NJPDES) permit for Salem, expiring in July 2006, allowing for the continued operation of Salem with its existing cooling water intake system. A renewal application prepared in accordance with Federal Water Pollution Control Act (FWPCA) Section 316(b) and the Phase II 316(b) rule was filed in February 2006 with the NJDEP, which allows the station to continue operating under its existing NJPDES permit until a new permit is issued. Power’s application to renew Salem’s NJPDES permit demonstrates that the station satisfies FWPCA Section 316(b) and meets the Phase II 316(b) rule’s performance standards for reduction of impingement and entrainment through the station’s existing cooling water intake technology and operations plus implemented restoration measures. The application further demonstrates that even without the benefits of restoration, the station meets the Phase II 316(b) rule’s site-specific determination standards, both on a comparison of the costs and benefits of new intake technology as well as a comparison of the costs to implement the technology at the facility to the cost estimates prepared by the EPA. The U.S. Court of Appeals for the Second Circuit issued a decision after Power filed its application that rejected the use of restoration and the site-specific cost-benefit test under the Phase II 316(b) rule. The Second Circuit Court and the United States Supreme Court have granted requests by the EPA and the industry petitioners for additional time to appeal the Second Circuit Court’s decision. If NJDEP were to require the installation of structures at the Salem facility to reduce cooling water intake flow commensurate with closed cycle cooling as a result of the unfavorable decision in the Phase II litigation, the costs would be material. Power’s application to renew the permit estimated that the costs associated with cooling towers for Salem are approximately $1 billion, of which Power’s share would be approximately $575 million. If NJDEP and the CTDEP were to require installation of closed-cycle cooling or its equivalent at Power’s five once-through cooled facilities, compliance with that requirement could have a significant impact on the facilities. These costs are not included in Power’s currently forecasted capital expenditures.

Energy Holdings

Bioenergie S.p.A. (Bioenergie)

In May 2006, Global became the majority shareholder of Prisma 2000 S.p.A. In March 2007, the shareholders of Prisma 2000 S.p.A. agreed to change the company name to Bioenergie. Bioenergie holds 100% of the stock of San Marco Bioenergie S.p.A (San Marco), owner of a 20 MW biomass generation facility in Italy. Global also assumed operational responsibility for the facility in May 2006, which was previously operated by Carlo Gavazzi Green Power pursuant to a Services Agreement with a Global subsidiary. Global’s total investment in Bioenergie is approximately $80 million.

26


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

In August 2006, Global became aware that the Italian government was conducting a criminal investigation regarding allegations of violations of the facility’s air permit. The scope of the investigation was subsequently expanded to include alleged violations of the facility’s waste recycling and waste storage permits. The alleged violations include exceedances of permit limits for regulated pollutants, manipulation of the facility’s continuous emission monitoring system, false reporting and the use of fuels not authorized by the permit.

The Italian government has named five individuals as targets of the criminal investigation, including three former San Marco employees (including the former Managing Director and former plant and operations managers) and two former members of the facility’s Board of Directors. While San Marco has not been named as a target, there is a potential risk that it could be so named. In December 2006 and January 2007, the facility was served with orders that prohibit it from conducting operations (Sequestration Orders) to prevent recurring violations and the destruction of evidence. Counsel for San Marco has advised the Prosecuting Attorney that it will fully cooperate with the ongoing investigation and will implement the corrective actions required to prevent recurrence of the violations.

On April 26, 2007, the Prosecutor issued an order lifting the Sequestration Orders and returning control of the plant to San Marco. It is anticipated that the facility will resume commercial operations in the summer of 2007.

Electroandes S.A. (Electroandes)

In July 2005, Electroandes received a notice from Superintendencia Nacional de Administracion Tributaria (SUNAT), the governing tax authority in Peru, claiming past due taxes for 2002 totaling approximately $2 million related to certain interest deductions. Electroandes has taken similar interest deductions subsequent to 2002. The total cumulative estimated potential amount for past due taxes, including associated interest and penalties, is approximately $9 million through March 31, 2007. Electroandes believes it has valid legal defenses to these claims, and has filed an appeal with SUNAT with respect to which it has not yet received a response; however, no assurances can be given regarding the outcome of this matter. In March 2007, Global announced that it is exploring a potential sale of Electroandes.

Luz del Sur S.A.A. (LDS)

In January 2007, SUNAT filed two tax assessments against LDS totaling approximately $18 million, of which Global’s share would be approximately $7 million based on its 38% interest in LDS. The assessments relate to deductions LDS claimed beginning in 2000 for certain operating fees it paid to International Technical Operators under a technical services agreement, for certain bad debt deductions and certain other matters. The above assessments include interest and penalties claimed by SUNAT. LDS believes that most of such deductions were appropriate and filed an appeal in February 2007. LDS has obtained a legal opinion that it should be successful in contesting these material items/disallowances, however, no assurances can be given.

New Generation and Development

Power

Power has contracts with outside parties to purchase upgraded turbines for Salem Unit 2 and to purchase upgraded turbines and complete a power uprate for Hope Creek to modestly increase its generating capacity. Phase II of the Salem Unit 2 turbine upgrade is currently scheduled for 2008 concurrent with steam generator replacement and is anticipated to increase capacity by 26 MW. Phase II of the Hope Creek turbine replacement is expected to be completed in 2007 along with the thermal power uprate and is expected to add approximately 125 MW of capacity. Power’s expenditures to date approximate $184 million (including Interest Capitalized During Construction (IDC) of $20 million) with an aggregate estimated share of total costs for these projects of $207 million (including IDC of $23 million). Timing, costs and results of these projects are dependent on timely completion of work, timely approval from the NRC and various other factors.

Completion of the projects discussed above within the estimated time frames and cost estimates cannot be assured. Construction delays, cost increases and various other factors could result in changes in the operational dates or ultimate costs to complete.

27


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Basic Generation Service (BGS) and Basic Gas Supply Service (BGSS)

PSE&G and Power

PSE&G is required to obtain all electric supply requirements through the annual New Jersey BGS auctions for customers who do not purchase electric supply from third-party suppliers. PSE&G enters into the Supplier Master Agreement (SMA) with the winners of these BGS auctions within three business days following the BPU’s approval. PSE&G has entered into contracts with Power, as well as with other winning BGS suppliers, to purchase BGS for PSE&G’s anticipated load requirements. The winners of the auction are responsible for fulfilling all the requirements of a PJM Interconnection, L.L.C. (PJM) Load Serving Entity (LSE) including capacity, energy, ancillary services, transmission and any other services required by PJM. BGS suppliers assume any migration risk and must satisfy New Jersey’s renewable portfolio standards.

Through the BGS auctions, PSE&G has contracted for its anticipated BGS-Fixed Price load, as follows:

 

 

 

 

 

 

 

 

 

Term

 

Term Ending

 

May 2007(a)

 

May 2008(b)

 

May 2009(c)

 

May 2010(d)

 

34 months

 

36 months

 

36 months

 

36 months

Load (MW)

 

 

 

2,840

   

 

 

2,840

   

 

 

2,882

   

 

 

2,758

 

$ per kWh

 

 

$

 

0.05515

   

 

$

 

0.06541

   

 

$

 

0.10251

   

 

$

 

0.09888

 


 

 

(a)

 

 

 

Prices set in the February 2004 BGS auction.

 

(b)

 

 

 

Prices set in the February 2005 BGS auction.

 

(c)

 

 

 

Prices set in the February 2006 BGS auction.

 

(d)

 

 

 

Prices set in the February 2007 BGS auction, which becomes effective on June 1, 2007 when the agreements for the 34-month (May 2007) BGS-FP supply agreements expire.


Power seeks to mitigate volatility in its results by contracting in advance for its anticipated electric output as well as its anticipated fuel needs.

As part of its objective, Power has entered into contracts to directly supply PSE&G and other New Jersey Electric Distribution Companies (EDCs) with a portion of their respective BGS requirements through the New Jersey BGS auction process, described above. In addition to the BGS-related contracts, Power enters into firm supply contracts with EDCs, as well as other firm sales and commitments.

PSE&G has a full requirements contract with Power to meet the gas supply requirements of PSE&G’s gas customers. The contract extends through March 31, 2012, and year-to-year thereafter. Power has entered into hedges for a portion of these anticipated BGSS obligations, as permitted by the BPU. The BPU permits recovery of the cost of gas hedging up to 115 billion cubic feet or approximately 80% of PSE&G’s residential gas supply annually through the BGSS tariff. For additional information, see Note 13. Related-Party Transactions.

Minimum Fuel Purchase Requirements

Power

Coal and Oil

Power purchases coal and oil for certain of its fossil generation stations through various long-term commitments. The coal purchase commitments through 2009 amount to approximately 70% of its average anticipated coal needs, including transportation. These commitments total approximately $659 million.

Nuclear Fuel

Power has several long-term purchase contracts for the supply of nuclear fuel for the Salem and Hope Creek Nuclear Generating Stations. Power has inventory and commitments to purchase sufficient quantities of uranium (concentrates and uranium hexafluoride) to meet 100% of its total estimated requirements

28


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

through 2011. Additionally, Power has commitments covering approximately 55% of its estimated requirements for 2012 and 15% from 2013 through 2016. These commitments, based on current market prices, total approximately $577 million ($428 million Power’s estimated share). Power’s policy is to maintain certain levels of concentrates and uranium hexafluoride in inventory and to make periodic purchases to support such levels. As such, the commitments referred to above include estimated quantities to be purchased that are in excess of contractual minimum quantities.

Power also has commitments that provide 100% of its uranium enrichment requirements through 2010 that total approximately $200 million ($147 million Power’s estimated share).

Power has commitments for the fabrication of fuel assemblies for reloads required through 2011 for Salem and through 2012 for Hope Creek that total approximately $123 million ($93 million Power’s estimated share).

Natural Gas

In addition to its fuel requirements, Power has entered into various multi-year contracts for firm transportation and storage capacity for natural gas, primarily to meet its gas supply obligations to PSE&G. As of March 31, 2007, the total minimum requirements under these contracts were approximately $1.1 billion through 2016.

These purchase obligations are consistent with Power’s strategy to enter into contracts for its fuel supply in comparable volumes to its sales contracts.

Energy Holdings

The Texas generation facilities have entered into gas supply agreements for their anticipated fuel requirements to satisfy obligations under their forward energy sales contracts. The plants had fuel purchase commitments totaling $106 million to support all of their contracted energy sales.

Operating Services Contract (OSC)

Power

On January 17, 2005, Nuclear entered into an OSC with Exelon Generation LLC (Exelon) relating to the operation of the Hope Creek and Salem nuclear generating stations. The OSC requires Exelon to provide key personnel to oversee daily plant operations at the Hope Creek and Salem nuclear generating stations and to implement a management model that Exelon has used to manage its own nuclear facilities. Nuclear continues as the license holder with exclusive legal authority to operate and maintain the plants, retains responsibility for management oversight and has full authority with respect to the marketing of its share of the output from the facilities. Exelon is entitled to receive reimbursement of its costs in discharging its obligations, an annual operating services fee of $3 million and incentive fees up to $12 million annually based on attainment of goals relating to safety, capacity factor and operation and maintenance expenses. On October 27, 2006, Nuclear informed Exelon that it was electing to continue the OSC for up to two years beyond the initial January 2007 period.

In December 2006, Power announced its plans to resume direct management of the Salem and Hope Creek nuclear generating stations before the expiration of the OSC. As part of this plan, on January 1, 2007, the senior management team at Salem and Hope Creek, which consisted of three senior executives from Exelon, became employees of Power. Power has continued to recruit additional employees to build its organizational structure. Power is analyzing its various options and expects to implement a plan during the second quarter to fully resume functions that Exelon currently performs, which would put Power in a position to terminate the OSC by the end of 2007.

29


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Maintenance Agreement

Power

Power entered into a long-term contractual services agreement with a vendor in September 2003 to provide the outage and service needs for certain of Power’s generating units at market rates. The contract covers approximately 25 years and could result in annual payments ranging from approximately $10 million to $50 million for services, parts and materials rendered.

Investment Tax Credits (ITC)

PSEG and PSE&G

As of June 1999, the Internal Revenue Service (IRS) had issued several private letter rulings (PLRs) that concluded that the refunding of excess deferred tax and ITC balances to utility customers was permitted only over the related assets’ regulatory lives, which for PSE&G, were terminated upon New Jersey’s electric industry deregulation. Based on this fact, PSEG and PSE&G reversed the deferred tax and ITC liability relating to PSE&G’s generation assets that were transferred to Power, and recorded a $235 million reduction of the extraordinary charge in 1999 due to the restructuring of the utility industry in New Jersey. PSE&G was directed by the BPU to seek a PLR from the IRS to determine if the ITC included in the impairment write-down of generation assets could be credited to customers without violating the tax normalization rules of the Internal Revenue Code. PSE&G filed a PLR request with the IRS in 2002.

On May 11, 2006, the IRS issued a PLR to PSE&G. The PLR concluded that none of the generation ITC could be passed to utility customers without violating the normalization rules. While the holding in the PLR is a favorable development for PSE&G, an outstanding Treasury regulation project could overturn the holding in the PLR if the Treasury were to alter a position set out in certain December 21, 2005 proposed regulations. The issue cannot be fully resolved until the final Treasury regulations are issued.

On May 16, 2006, the BPU voted in favor of a special investigation and hearing before the BPU concerning PSE&G’s actions leading up to receiving the PLR, specifically its failure to abide by a BPU order to withdraw the request. An order detailing such special investigation has not yet been issued and no investigation has begun.

On October 13, 2006, the Appellate Division of the Superior Court of New Jersey granted PSE&G’s motion to dismiss PSE&G’s appeal of the BPU’s order to withdraw the PLR since PSE&G has already received the PLR. The court also determined that if the BPU seeks to take future action against PSE&G based on the alleged violation of its order, PSE&G can restart the appeal.

BPU Deferral Audit

PSEG and PSE&G

The BPU Energy and Audit Division conducts audits of deferred balances, which are under various adjustment clauses. A draft Deferral Audit—Phase II report relating to the 12-month period ended July 31, 2003 was released by the consultant to the BPU in April 2005. The draft report addresses the SBC, Market Transition Charge (MTC) and Non-Utility Generation (NUG) deferred balances. The BPU released the report on May 13, 2005.

While the consultant to the BPU found that the Phase II deferral balances complied in all material respects with the BPU Orders regarding such deferrals, the consultant noted that the BPU Staff had raised certain questions with respect to the reconciliation method PSE&G employed in calculating the overrecovery of its MTC and other charges during the Phase I and Phase II four-year transition period. The amount in dispute is approximately $130 million.

On January 31, 2007, PSE&G requested that the matter be transmitted to the Office of Administrative Law for the development of an evidentiary record and an initial decision. The BPU granted the request on February 7, 2007.

30


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

While PSE&G believes the MTC methodology it used was fully litigated and resolved, without exception, by the BPU and other intervening parties in its previous electric base rate case, deferral audit and deferral proceeding that were approved by the BPU in its order on April 22, 2004, and that such order is non-appealable, PSE&G cannot predict the impact of the outcome of this proceeding.

New Jersey Clean Energy Program

PSE&G

The BPU has approved a funding requirement for each New Jersey utility applicable to its Renewable Energy and Energy Efficiency programs for the years 2005 to 2008. The sum of PSE&G’s electric and gas funding requirement was $37 million and $30 million for the three months ended March 31, 2007 and 2006, respectively. The remaining liability has been recorded at a discounted present value with an offsetting Regulatory Asset, since the costs associated with this program are expected to be recovered from PSE&G ratepayers through the SBC. The liability for the funding requirement as of March 31, 2007 and December 31, 2006 was $228 million and $253 million, respectively.

Leveraged Lease Investments

PSEG and Energy Holdings

On November 16, 2006, the IRS issued a report with respect to its audit of PSEG’s corporate tax returns for tax years 1997 through 2000, which disallowed all deductions associated with certain of Resources’ lease transactions that are similar to a type that the IRS publicly announced its intention to challenge. In addition, the IRS imposed a 20% penalty for substantial understatement of tax liability. In February 2007, PSEG filed a protest to the Office of Appeals of the IRS. As of March 31, 2007 and December 31, 2006, Resources’ total gross investment in such transactions was approximately $1.4 billion and $1.5 billion, respectively.

If all deductions associated with these lease transactions, entered into by PSEG between 1997 and 2002, are successfully challenged by the IRS, it could have a material adverse impact on PSEG’s and Energy Holdings’ financial position, results of operations and net cash flows and could impact future returns on these transactions. PSEG believes that its tax position related to these transactions is proper based on applicable statutes, regulations and case law and will aggressively contest the IRS’s disallowance. PSEG believes that it is more likely than not that it will prevail with respect to the IRS’s challenge, although no assurances can be given.

If the IRS’s disallowance of tax benefits associated with all of these lease transactions was sustained, approximately $796 million of PSEG’s deferred tax liabilities that have been recorded under leveraged lease accounting through March 31, 2007 would become currently payable. In addition, current interest would be charged of approximately $132 million after-tax, and penalties of $159 million may become payable. Energy Holdings’ management has assessed the probability of various outcomes to this matter and recorded reserves in accordance with FIN 48.

For additional information and guidance for leveraged leases, see Note 2. Recent Accounting Standards.

Note 6. Financial Risk Management Activities

PSEG, PSE&G, Power and Energy Holdings

The operations of PSEG, PSE&G, Power and Energy Holdings are exposed to market risks from changes in commodity prices, foreign currency exchange rates, interest rates and equity prices that could affect their results of operations and financial conditions. PSEG, PSE&G, Power and Energy Holdings manage exposure to these market risks through their regular operating and financing activities and, when deemed appropriate, hedge these risks through the use of derivative financial instruments. PSEG, PSE&G, Power and Energy Holdings use the term ‘hedge’ to mean a strategy designed to manage risks of volatility in prices or rate movements on certain assets, liabilities or anticipated transactions and by creating a relationship in which gains or losses on derivative instruments are expected to counterbalance the gains or losses on the assets, liabilities or anticipated transactions exposed to such market risks. Each of PSEG,

31


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

PSE&G, Power and Energy Holdings uses derivative instruments as risk management tools consistent with its respective business plan and prudent business practices.

Derivative Instruments and Hedging Activities

Commodity Contracts

Power

Power actively transacts in energy and energy-related products, including electricity, natural gas, electric capacity, firm transmission rights (FTRs), coal, oil and emission allowances in the spot, forward and futures markets, primarily in the Northeastern and Mid Atlantic United States.

Power maintains a strategy of entering into positions to optimize the value of its portfolio and reduce earnings volatility of generation assets, gas supply contracts and its electric and gas supply obligations. Power engages in physical and financial transactions in the electricity wholesale markets and executes an overall risk management strategy seeking to mitigate the effects of adverse movements in the fuel and electricity markets. These contracts also involve financial transactions including swaps, options, futures and FTRs. During the quarter ended March 31, 2007, higher market prices for electricity have resulted in additional unrealized losses on many of these contracts leading to an increase in Accumulated Other Comprehensive Loss (OCL). Power marks its derivative energy-related contracts to market in accordance with SFAS 133, with changes in fair value charged to the Condensed Consolidated Statements of Operations. Wherever possible, fair values for these contracts are obtained from quoted market sources. For contracts where no quoted market exists, modeling techniques are employed using assumptions reflective of current market rates, yield curves and forward prices, as applicable, to interpolate certain prices. The effect of using such modeling techniques is not material to Power’s financial results.

Cash Flow Hedges

Power uses forward sale and purchase contracts, swaps and FTR contracts to hedge forecasted energy sales from its generation stations and to hedge related load obligations. Power also enters into swaps and futures transactions to hedge the price of fuel to meet its fuel purchase requirements. These derivative transactions are designated and effective as cash flow hedges under SFAS 133. As of March 31, 2007, the fair value of these hedges was $(449) million and resulted in $(267) million after-tax recorded in OCL. As of December 31, 2006, the fair value of these hedges was $(166) million. These hedges, along with realized losses on hedges of $(19) million retained in OCL, resulted in a $(108) million after-tax balance in OCL. The increase of $159 million in OCL during the quarter ended March 31, 2007 was caused mainly by higher electricity market prices. During the 12 months ending March 31, 2008, $186 million after-tax of net unrealized losses on these commodity derivatives is expected to be reclassified to earnings. Approximately $85 million of after-tax unrealized losses on these commodity derivatives in OCL is expected to be reclassified to earnings for the 12 months ending March 31, 2009. Ineffectiveness associated with these hedges, as defined in SFAS 133, was $(2) million at March 31, 2007. The expiration date of the longest dated cash flow hedge is in 2010.

Other Derivatives

Power also enters into certain other contracts that are derivatives, but do not qualify for hedge accounting under SFAS 133. Most of these contracts are used for fuel purchases for generation requirements and for electricity purchases for contractual sales obligations. Therefore, the changes in fair market value of these derivative contracts are recorded in Energy Costs or Operating Revenues, as appropriate, on the Condensed Consolidated Statements of Operations. The net fair value of these instruments as of March 31, 2007 was less than $(1) million. The net fair value of these instruments as of December 31, 2006 was $1 million.

Energy Holdings

Other Derivatives

The Texas generation facilities enter into electricity forward and capacity sale contracts to sell their 2,000 MW capacity for portions of the current calendar year, with the balance sold into the daily spot market. The

32


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Texas generation facilities also enter into gas purchase contracts to specifically match the generation requirements to support the electricity forward sales contracts. Although these contracts fix the amount of revenue, fuel costs and cash flows, and thereby provide financial stability to the Texas generation facilities, these contracts are, based on their terms, derivatives that do not meet the specific accounting criteria in SFAS 133 to qualify for the normal purchases and normal sales exception, or to be designated as a hedge for accounting purposes. As a result, these contracts must be recorded at fair value. The net fair value of the open positions was approximately $9 million and $38 million as of March 31, 2007 and December 31, 2006, respectively.

Interest Rates

PSEG, PSE&G, Power and Energy Holdings

PSEG, PSE&G, Power and Energy Holdings are subject to the risk of fluctuating interest rates in the normal course of business. PSEG’s policy is to manage interest rate risk through the use of fixed and floating rate debt and interest rate derivatives.

Fair Value Hedges

PSEG and Power

In March 2004, Power issued $250 million of 3.75% Senior Notes due April 2009. PSEG used an interest rate swap to convert Power’s fixed-rate debt into variable-rate debt. The interest rate swap is designated and effective as a fair value hedge. The fair value changes of the interest rate swap are fully offset by the fair value changes in the underlying debt. As of March 31, 2007 and December 31, 2006, the fair value of the hedge was $(7) million and $(9) million, respectively.

Cash Flow Hedges

PSEG, PSE&G and Energy Holdings

PSEG, PSE&G and Energy Holdings use interest rate swaps and other interest rate derivatives to manage their exposures to the variability of cash flows, primarily related to variable-rate debt instruments. The interest rate derivatives used are designated and effective as cash flow hedges. Except for PSE&G’s cash flow hedges, the fair value changes of these derivatives are initially recorded in Accumulated Other Comprehensive Income/Loss. As of March 31, 2007, the fair value of these cash flow hedges was $(5) million, consisting of $(4) million and $(1) million at PSE&G and Energy Holdings, respectively. As of December 31, 2006, the fair value of these cash flow hedges was $(4) million, primarily at PSE&G. The $(4) million at PSE&G as of both March 31, 2007 and December 31, 2006 is not included in Accumulated Other Comprehensive Income/Loss, as it is deferred as a Regulatory Asset and is expected to be recovered from PSE&G’s customers. During the next 12 months, approximately $1 million of unrealized losses (net of taxes) on interest rate derivatives in OCL is expected to be reclassified at PSEG. As of March 31, 2007, there was no hedge ineffectiveness associated with these hedges.

Foreign Currencies

Energy Holdings

Global is exposed to foreign currency risk and other foreign operations risk that arise from investments in foreign subsidiaries and affiliates. A key component of its risks is that some of its foreign subsidiaries and affiliates have functional currencies other than the consolidated reporting currency, the U.S. Dollar. Additionally, Global and certain of its foreign subsidiaries and affiliates have entered into monetary obligations and maintain receipts/receivables in U.S. Dollars or currencies other than their own functional currencies. Global, a U.S. Dollar functional currency entity, is primarily exposed to changes in the Peruvian Nuevo Sol and the Chilean Peso and to a lesser extent, the Euro. Changes in valuation of these currencies can impact the value of Global’s investments, results of operations, financial condition and cash flows. Global has attempted to limit potential foreign exchange exposure by entering into revenue contracts that adjust for changes in foreign exchange rates. Global may also use foreign currency forward, swap and option agreements to manage risk related to certain foreign currency fluctuations.

33


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Although the Chilean Peso and the Peruvian Nuevo Sol had originally depreciated relative to the U.S. Dollar after Global’s initial investments, the currencies have appreciated significantly over the past few years. The net cumulative foreign currency revaluations have increased the total amount of Energy Holdings’ Member’s Equity by $124 million as of March 31, 2007.

Hedges of Net Investments in Foreign Operations

Energy Holdings

In March 2004 and April 2004, Energy Holdings entered into four cross-currency interest rate swap agreements. The swaps are designed to hedge the net investment in a foreign subsidiary associated with the exposure in the U.S. Dollar to Chilean Peso exchange rate. The fair value of the cross-currency swaps was $(22) million and $(25) million as of March 31, 2007 and December 31, 2006, respectively. The change in fair value of the majority of the swaps is recorded in Cumulative Translation Adjustment within OCL. As a result, Energy Holdings’ Member’s Equity was reduced by $22 million as of March 31, 2007.

Note 7. Comprehensive Income, Net of Tax

 

 

 

 

 

 

 

 

 

 

 

 

 

PSE&G

 

Power(A)

 

Energy
Holdings(B)

 

Other

 

Consolidated
Total

 

 

(Millions)

For the Quarter Ended March 31, 2007:

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

 

$

 

132

   

 

$

 

213

   

 

$

 

3

   

 

$

 

(19

)

 

 

 

$

 

329

 

Other Comprehensive Loss

 

 

 

   

 

 

(155

)

 

 

 

 

(9

)

 

 

 

 

   

 

 

(164

)

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive Income (Loss)

 

 

$

 

132

   

 

$

 

58

   

 

$

 

(6

)

 

 

 

$

 

(19

)

 

 

 

$

 

165

 

 

 

 

 

 

 

 

 

 

 

 

For the Quarter Ended March 31, 2006:

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

 

$

 

78

   

 

$

 

112

   

 

$

 

32

   

 

$

 

(19

)

 

 

 

$

 

203

 

Other Comprehensive Income

 

 

 

   

 

 

133

   

 

 

2

   

 

 

1

   

 

 

136

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive Income (Loss)

 

 

$

 

78

   

 

$

 

245

   

 

$