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Public Service Enterprise Group 10-Q 2008
3B2 EDGAR HTML -- c55441_preflight.htm



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 SEPTEMBER 30, 2008

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

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

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


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, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

 

 

 

Public Service Enterprise Group Incorporated

 

Large accelerated filer S

 

Accelerated filer £

 

Non-accelerated filer £

 

Smaller reporting company £

PSEG Power LLC

 

Large accelerated filer £

 

Accelerated filer £

 

Non-accelerated filer S

 

Smaller reporting company £

Public Service Electric and Gas Company

 

Large accelerated filer £

 

Accelerated filer £

 

Non-accelerated filer S

 

Smaller reporting company £

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 October 15, 2008, Public Service Enterprise Group Incorporated had outstanding 506,095,103 shares of its sole class of Common Stock, without par value.

PSEG Power LLC is a wholly owned subsidiary of Public Service Enterprise Group Incorporated and meets the conditions set forth in General Instruction H(1) (a) and (b) of Form 10-Q and is filing its Quarterly Report on Form 10-Q with the reduced disclosure format authorized by General Instruction H.

As of October 15, 2008, 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.




TABLE OF CONTENTS

 

 

 

 

 

 

 

 

 

Page

 

 

 

   

FORWARD-LOOKING STATEMENTS

 

 

 

ii

 

PART I. FINANCIAL INFORMATION

   

Item 1.

 

Financial Statements

   

 

 

Public Service Enterprise Group Incorporated

 

 

 

1

 

 

PSEG Power LLC

 

 

 

5

 

 

 

Public Service Electric and Gas Company

 

 

 

8

 

 

Notes to Condensed Consolidated Financial Statements

   

 

 

Note 1. Organization and Basis of Presentation

 

 

 

12

 

 

Note 2. Recent Accounting Standards

 

 

 

13

 

 

 

Note 3. Discontinued Operations, Dispositions and Impairments

 

 

 

16

 

 

Note 4. Earnings Per Share

 

 

 

18

 

 

 

Note 5. Commitments and Contingent Liabilities

 

 

 

19

 

 

Note 6. Financial Risk Management Activities

 

 

 

30

 

 

 

Note 7. Comprehensive Income (Loss), Net of Tax

 

 

 

33

 

 

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. Fair Value Measurements

 

 

 

40

 

 

Note 14. Related-Party Transactions

 

 

 

43

 

 

 

Note 15. Guarantees of Debt

 

 

 

46

 

Item 2.

 

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

 

 

 

49

 

 

 

Overview of 2008

 

 

 

50

 

 

Future Outlook

 

 

 

53

 

 

 

Results of Operations

 

 

 

57

 

 

Liquidity and Capital Resources

 

 

 

65

 

 

 

Capital Requirements

 

 

 

70

 

 

Accounting Matters

 

 

 

70

 

Item 3.

 

Qualitative and Quantitative Disclosures About Market Risk

 

 

 

71

 

Item 4.

 

Controls and Procedures

 

 

 

77

 

PART II. OTHER INFORMATION

   

Item 1.

 

Legal Proceedings

 

 

 

78

 

Item 1A.

 

Risk Factors

 

 

 

78

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

 

79

 

Item 5.

 

Other Information

 

 

 

79

 

Item 6.

 

Exhibits

 

 

 

87

 

 

 

Signatures

 

 

 

88

 

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. Factors that may cause actual results to differ are often presented with the forward-looking statements themselves. Other factors that could cause actual results to differ materially from those contemplated in any forward-looking statements made by us herein are discussed in Item 1. Financial Statements—Note 5. Commitments and Contingent Liabilities, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in other filings we make with the United States Securities and Exchange Commission (SEC). These factors include, but are not limited to:

 

 

 

 

Adverse changes in energy industry policies and regulation, including market rules, that may adversely affect our operating results.

 

 

 

 

Any inability of our energy transmission and distribution businesses to obtain adequate and timely rate relief and/or regulatory approvals from federal and/or state regulators.

 

 

 

 

Changes in federal and/or state environmental regulations that could increase our costs or limit operations of our generating units.

 

 

 

 

Changes in nuclear regulation and/or developments in the nuclear power industry generally that could limit operations of our nuclear generating units.

 

 

 

 

Actions or activities at one of our nuclear units that might adversely affect our ability to continue to operate that unit or other units at the same site.

 

 

 

 

Any inability to balance our energy obligations, available supply and trading risks.

 

 

 

 

Any deterioration in our credit quality.

 

 

 

 

Availability of the capital and credit markets at reasonable pricing terms and the ability to meet cash needs.

 

 

 

 

Any inability to realize anticipated tax benefits or retain tax credits.

 

 

 

 

Increases in the cost of, or interruption in the supply of, fuel and other commodities necessary to the operation of our generating units.

 

 

 

 

Delays or cost escalations in our construction and development activities.

 

 

 

 

Adverse capital market performance of our decommissioning and defined benefit plan trust funds.

 

 

 

 

Changes in technology and/or increased customer conservation.

All of the forward-looking statements made in this report are qualified by these cautionary statements and we 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, us or our business prospects, financial condition or results of operations. Readers are cautioned not to place undue reliance on these forward-looking statements in making any investment decision. Forward-looking statements made in this report only apply as of the date of this report. Except as may be required by the federal securities laws, we expressly disclaim 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. 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.

ii


PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

For The Quarters Ended
September 30,

 

For The Nine Months Ended
September 30,

 

2008

 

2007

 

2008

 

2007

 

 

(Millions)
(Unaudited)

OPERATING REVENUES

 

 

$

 

3,718

   

 

$

 

3,347

   

 

$

 

10,060

   

 

$

 

9,561

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

Energy Costs

 

 

 

1,899

   

 

 

1,588

   

 

 

5,552

   

 

 

4,885

 

Operation and Maintenance

 

 

 

610

   

 

 

559

   

 

 

1,857

   

 

 

1,727

 

Write-down of Assets

 

 

 

   

 

 

12

   

 

 

   

 

 

12

 

Depreciation and Amortization

 

 

 

214

   

 

 

209

   

 

 

597

   

 

 

587

 

Taxes Other Than Income Taxes

 

 

 

31

   

 

 

31

   

 

 

101

   

 

 

104

 

 

 

 

 

 

 

 

 

 

Total Operating Expenses

 

 

 

2,754

   

 

 

2,399

   

 

 

8,107

   

 

 

7,315

 

 

 

 

 

 

 

 

 

 

Income from Equity Method Investments

 

 

 

8

   

 

 

30

   

 

 

27

   

 

 

87

 

 

 

 

 

 

 

 

 

 

OPERATING INCOME

 

 

 

972

   

 

 

978

   

 

 

1,980

   

 

 

2,333

 

Other Income

 

 

 

95

   

 

 

61

   

 

 

285

   

 

 

187

 

Other Deductions

 

 

 

(107

)

 

 

 

 

(49

)

 

 

 

 

(288

)

 

 

 

 

(120

)

 

Interest Expense

 

 

 

(149

)

 

 

 

 

(184

)

 

 

 

 

(448

)

 

 

 

 

(549

)

 

Preferred Stock Dividends

 

 

 

(1

)

 

 

 

 

(1

)

 

 

 

 

(3

)

 

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

 

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

 

 

 

810

   

 

 

805

   

 

 

1,526

   

 

 

1,848

 

Income Tax Expense

 

 

 

(334

)

 

 

 

 

(315

)

 

 

 

 

(780

)

 

 

 

 

(742

)

 

 

 

 

 

 

 

 

 

 

INCOME FROM CONTINUING OPERATIONS

 

 

 

476

   

 

 

490

   

 

 

746

   

 

 

1,106

 

Income from Discontinued Operations, including Gain on Disposal, net of tax expense of $160, $5, $174 and $27 for the quarters and nine months ended 2008 and 2007, respectively

 

 

 

180

   

 

 

16

   

 

 

208

   

 

 

4

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

 

$

 

656

   

 

$

 

506

   

 

$

 

954

   

 

$

 

1,110

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (THOUSANDS):

 

 

 

 

 

 

 

 

BASIC

 

 

 

507,724

   

 

 

508,543

   

 

 

508,233

   

 

 

507,206

 

 

 

 

 

 

 

 

 

 

DILUTED

 

 

 

508,326

   

 

 

509,090

   

 

 

508,890

   

 

 

507,966

 

 

 

 

 

 

 

 

 

 

EARNINGS PER SHARE:

 

 

 

 

 

 

 

 

BASIC

 

 

 

 

 

 

 

 

INCOME FROM CONTINUING OPERATIONS

 

 

$

 

0.94

   

 

$

 

0.96

   

 

$

 

1.47

   

 

$

 

2.18

 

NET INCOME

 

 

$

 

1.29

   

 

$

 

0.99

   

 

$

 

1.88

   

 

$

 

2.19

 

 

 

 

 

 

 

 

 

 

DILUTED

 

 

 

 

 

 

 

 

INCOME FROM CONTINUING OPERATIONS

 

 

$

 

0.94

   

 

$

 

0.96

   

 

$

 

1.47

   

 

$

 

2.18

 

NET INCOME

 

 

$

 

1.29

   

 

$

 

0.99

   

 

$

 

1.88

   

 

$

 

2.19

 

 

 

 

 

 

 

 

 

 

DIVIDENDS PAID PER SHARE OF COMMON STOCK

 

 

$

 

0.3225

   

 

$

 

0.2925

   

 

$

 

0.9675

   

 

$

 

0.8775

 

 

 

 

 

 

 

 

 

 

See Notes to Condensed Consolidated Financial Statements.

1


PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

September 30,
2008

 

December 31,
2007

 

 

(Millions)
(Unaudited)

ASSETS

 

 

 

 

CURRENT ASSETS

 

 

 

 

Cash and Cash Equivalents

 

 

$

 

229

   

 

$

 

380

 

Accounts Receivable, net of allowances of $52 and $46 in 2008 and 2007, respectively

 

 

 

1,370

   

 

 

1,537

 

Unbilled Revenues

 

 

 

263

   

 

 

353

 

Fuel

 

 

 

1,077

   

 

 

791

 

Materials and Supplies

 

 

 

306

   

 

 

293

 

Prepayments

 

 

 

286

   

 

 

88

 

Restricted Funds

 

 

 

144

   

 

 

114

 

Derivative Contracts

 

 

 

143

   

 

 

65

 

Assets of Discontinued Operations

 

 

 

122

   

 

 

1,323

 

Deferred Income Taxes

 

 

 

71

   

 

 

 

Other

 

 

 

55

   

 

 

30

 

 

 

 

 

 

Total Current Assets

 

 

 

4,066

   

 

 

4,974

 

 

 

 

 

 

PROPERTY, PLANT AND EQUIPMENT

 

 

 

20,310

   

 

 

19,190

 

Less: Accumulated Depreciation and Amortization

 

 

 

(6,304

)

 

 

 

 

(5,994

)

 

 

 

 

 

 

Net Property, Plant and Equipment

 

 

 

14,006

   

 

 

13,196

 

 

 

 

 

 

NONCURRENT ASSETS

 

 

 

 

Regulatory Assets

 

 

 

5,654

   

 

 

5,165

 

Long-Term Investments

 

 

 

2,742

   

 

 

3,221

 

Nuclear Decommissioning Trust (NDT) Funds

 

 

 

1,100

   

 

 

1,276

 

Other Special Funds

 

 

 

144

   

 

 

164

 

Goodwill and Other Intangibles

 

 

 

59

   

 

 

51

 

Derivative Contracts

 

 

 

98

   

 

 

52

 

Other

 

 

 

185

   

 

 

200

 

 

 

 

 

 

Total Noncurrent Assets

 

 

 

9,982

   

 

 

10,129

 

 

 

 

 

 

TOTAL ASSETS

 

 

$

 

28,054

   

 

$

 

28,299

 

 

 

 

 

 

See Notes to Condensed Consolidated Financial Statements.

2


PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

September 30,
2008

 

December 31,
2007

 

 

(Millions)
(Unaudited)

LIABILITIES AND CAPITALIZATION

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

Long-Term Debt Due Within One Year

 

 

$

 

1,039

   

 

$

 

1,123

 

Commercial Paper and Loans

 

 

 

181

   

 

 

65

 

Accounts Payable

 

 

 

1,043

   

 

 

1,080

 

Derivative Contracts

 

 

 

307

   

 

 

324

 

Accrued Interest

 

 

 

160

   

 

 

113

 

Accrued Taxes

 

 

 

73

   

 

 

204

 

Deferred Income Taxes

 

 

 

   

 

 

106

 

Clean Energy Program

 

 

 

140

   

 

 

135

 

Obligation to Return Cash Collateral

 

 

 

181

   

 

 

79

 

Liabilities of Discontinued Operations

 

 

 

68

   

 

 

596

 

Other

 

 

 

435

   

 

 

450

 

 

 

 

 

 

Total Current Liabilities

 

 

 

3,627

   

 

 

4,275

 

 

 

 

 

 

NONCURRENT LIABILITIES

 

 

 

 

Deferred Income Taxes and Investment Tax Credits (ITC)

 

 

 

3,811

   

 

 

4,449

 

Regulatory Liabilities

 

 

 

380

   

 

 

419

 

Asset Retirement Obligations

 

 

 

568

   

 

 

542

 

Other Postretirement Benefit (OPEB) Costs

 

 

 

1,017

   

 

 

1,003

 

Accrued Pension Costs

 

 

 

145

   

 

 

203

 

Clean Energy Program

 

 

 

563

   

 

 

14

 

Environmental Costs

 

 

 

668

   

 

 

649

 

Derivative Contracts

 

 

 

173

   

 

 

198

 

Long-Term Accrued Taxes

 

 

 

1,200

   

 

 

423

 

Other

 

 

 

131

   

 

 

87

 

 

 

 

 

 

Total Noncurrent Liabilities

 

 

 

8,656

   

 

 

7,987

 

 

 

 

 

 

COMMITMENTS AND CONTINGENT LIABILITIES (See Note 5)

 

 

 

 

CAPITALIZATION

 

 

 

 

LONG-TERM DEBT

 

 

 

 

Long-Term Debt

 

 

 

6,315

   

 

 

6,782

 

Securitization Debt

 

 

 

1,396

   

 

 

1,530

 

Project Level, Non-Recourse Debt

 

 

 

301

   

 

 

346

 

 

 

 

 

 

Total Long-Term Debt

 

 

 

8,012

   

 

 

8,658

 

 

 

 

 

 

SUBSIDIARY’S PREFERRED SECURITIES

 

 

 

 

Preferred Stock Without Mandatory Redemption, $100 par value, 7,500,000 authorized; issued and outstanding, 2008 and 2007—795,234 shares

 

 

 

80

   

 

 

80

 

 

 

 

 

 

COMMON STOCKHOLDERS’ EQUITY

 

 

 

 

Common Stock, no par, authorized 1,000,000,000 shares; issued, 2008 and 2007—533,556,660 shares

 

 

 

4,753

   

 

 

4,732

 

Treasury Stock, at cost, 2008—27,461,557 shares; 2007—25,033,656 shares

 

 

 

(579

)

 

 

 

 

(478

)

 

Retained Earnings

 

 

 

3,701

   

 

 

3,261

 

Accumulated Other Comprehensive Loss

 

 

 

(196

)

 

 

 

 

(216

)

 

 

 

 

 

 

Total Common Stockholders’ Equity

 

 

 

7,679

   

 

 

7,299

 

 

 

 

 

 

Total Capitalization

 

 

 

15,771

   

 

 

16,037

 

 

 

 

 

 

TOTAL LIABILITIES AND CAPITALIZATION

 

 

$

 

28,054

   

 

$

 

28,299

 

 

 

 

 

 

See Notes to Condensed Consolidated Financial Statements.

3


PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

For The Nine Months
Ended
September 30,

 

2008

 

2007

 

 

(Millions)
(Unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

Net Income

 

 

$

 

954

   

 

$

 

1,110

 

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

 

 

 

 

(Gain) Loss on Disposal of Discontinued Operations, net of tax

 

 

 

(187

)

 

 

 

 

 

Depreciation and Amortization

 

 

 

599

   

 

 

606

 

Amortization of Nuclear Fuel

 

 

 

75

   

 

 

73

 

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

 

 

 

(71

)

 

 

 

 

45

 

Non-Cash Employee Benefit Plan Costs

 

 

 

126

   

 

 

138

 

Lease Transaction Reserves, Net of Taxes

 

 

 

490

   

 

 

 

Leveraged Lease Income, Adjusted for Rents Received and Deferred Taxes

 

 

 

20

   

 

 

46

 

Undistributed Earnings from Affiliates

 

 

 

(32

)

 

 

 

 

(5

)

 

Realized and Unrealized (Gains) Losses on Energy Contracts and Other Derivatives

 

 

 

(77

)

 

 

 

 

16

 

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

 

 

 

(21

)

 

 

 

 

(38

)

 

Under Recovery of Societal Benefits Charge (SBC)

 

 

 

(42

)

 

 

 

 

(29

)

 

Cost of Removal

 

 

 

(33

)

 

 

 

 

(28

)

 

Net Realized (Gains) Losses and (Income) Expense from NDT Funds

 

 

 

22

   

 

 

(37

)

 

Net Change in Certain Current Assets and Liabilities

 

 

 

(117

)

 

 

 

 

(326

)

 

Employee Benefit Plan Funding and Related Payments

 

 

 

(122

)

 

 

 

 

(76

)

 

Other

 

 

 

8

   

 

 

44

 

 

 

 

 

 

Net Cash Provided By Operating Activities

 

 

 

1,592

   

 

 

1,539

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

Additions to Property, Plant and Equipment

 

 

 

(1,237

)

 

 

 

 

(973

)

 

Proceeds from Sale of Discontinued Operations

 

 

 

772

   

 

 

325

 

Proceeds from Sale of Property, Plant and Equipment

 

 

 

3

   

 

 

55

 

Proceeds from the Sale of Capital Leases and Investments

 

 

 

37

   

 

 

17

 

Proceeds from NDT Funds Sales

 

 

 

1,839

   

 

 

1,275

 

Investment in NDT Funds

 

 

 

(1,864

)

 

 

 

 

(1,295

)

 

Restricted Funds

 

 

 

(32

)

 

 

 

 

(4

)

 

NDT Funds Interest and Dividends

 

 

 

37

   

 

 

35

 

Other

 

 

 

(14

)

 

 

 

 

(24

)

 

 

 

 

 

 

Net Cash Used In Investing Activities

 

 

 

(459

)

 

 

 

 

(589

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

Net Change in Commercial Paper and Loans

 

 

 

116

   

 

 

(177

)

 

Issuance of Long-Term Debt

 

 

 

700

   

 

 

350

 

Issuance of Non-Recourse Debt

 

 

 

   

 

 

163

 

Issuance of Common Stock

 

 

 

   

 

 

82

 

Purchase of Common Treasury Stock

 

 

 

(92

)

 

 

 

 

 

Redemptions of Long-Term Debt

 

 

 

(1,263

)

 

 

 

 

(488

)

 

Repayment of Non-Recourse Debt

 

 

 

(38

)

 

 

 

 

(35

)

 

Redemption of Securitization Debt

 

 

 

(127

)

 

 

 

 

(121

)

 

Premium Paid on Early Extinguishment of Debt

 

 

 

(80

)

 

 

 

 

 

Cash Dividends Paid on Common Stock

 

 

 

(492

)

 

 

 

 

(445

)

 

Other

 

 

 

(8

)

 

 

 

 

2

 

 

 

 

 

 

Net Cash Used In Financing Activities

 

 

 

(1,284

)

 

 

 

 

(669

)

 

 

 

 

 

 

Effect of Exchange Rate Change

 

 

 

   

 

 

2

 

 

 

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

 

 

 

(151

)

 

 

 

 

283

 

Cash and Cash Equivalents at Beginning of Period

 

 

 

380

   

 

 

100

 

 

 

 

 

 

Cash and Cash Equivalents at End of Period

 

 

$

 

229

   

 

$

 

383

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

Income Taxes Paid

 

 

$

 

865

   

 

$

 

460

 

Interest Paid, Net of Amounts Capitalized

 

 

$

 

375

   

 

$

 

478

 

See Notes to Condensed Consolidated Financial Statements.

4


PSEG POWER LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

For The Quarters Ended
September 30,

 

For The Nine Months Ended
September 30,

 

2008

 

2007

 

2008

 

2007

 

 

(Millions)
(Unaudited)

OPERATING REVENUES

 

 

$

 

1,833

   

 

$

 

1,580

   

 

$

 

5,831

   

 

$

 

5,034

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

Energy Costs

 

 

 

904

   

 

 

712

   

 

 

3,360

   

 

 

2,894

 

Operation and Maintenance

 

 

 

282

   

 

 

232

   

 

 

796

   

 

 

711

 

Depreciation and Amortization

 

 

 

42

   

 

 

36

   

 

 

121

   

 

 

104

 

 

 

 

 

 

 

 

 

 

Total Operating Expenses

 

 

 

1,228

   

 

 

980

   

 

 

4,277

   

 

 

3,709

 

 

 

 

 

 

 

 

 

 

OPERATING INCOME

 

 

 

605

   

 

 

600

   

 

 

1,554

   

 

 

1,325

 

Other Income

 

 

 

88

   

 

 

56

   

 

 

267

   

 

 

162

 

Other Deductions

 

 

 

(104

)

 

 

 

 

(42

)

 

 

 

 

(282

)

 

 

 

 

(105

)

 

Interest Expense

 

 

 

(42

)

 

 

 

 

(43

)

 

 

 

 

(125

)

 

 

 

 

(119

)

 

 

 

 

 

 

 

 

 

 

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

 

 

 

547

   

 

 

571

   

 

 

1,414

   

 

 

1,263

 

Income Tax Expense

 

 

 

(219

)

 

 

 

 

(233

)

 

 

 

 

(571

)

 

 

 

 

(519

)

 

 

 

 

 

 

 

 

 

 

INCOME FROM CONTINUING OPERATIONS

 

 

 

328

   

 

 

338

   

 

 

843

   

 

 

744

 

Income (Loss) from Discontinued Operations, net of tax (expense) benefit of $(1) and $5 for the quarter and nine months ended 2007

 

 

 

   

 

 

1

   

 

 

   

 

 

(8

)

 

 

 

 

 

 

 

 

 

 

EARNINGS AVAILABLE TO PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

 

 

$

 

328

   

 

$

 

339

   

 

$

 

843

   

 

$

 

736

 

 

 

 

 

 

 

 

 

 

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

5


PSEG POWER LLC
CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

September 30,
2008

 

December 31,
2007

 

 

(Millions)
(Unaudited)

ASSETS

 

 

 

 

CURRENT ASSETS

 

 

 

 

Cash and Cash Equivalents

 

 

$

 

22

   

 

$

 

11

 

Accounts Receivable

 

 

 

448

   

 

 

533

 

Accounts Receivable—Affiliated Companies, net

 

 

 

328

   

 

 

441

 

Fuel

 

 

 

1,077

   

 

 

791

 

Materials and Supplies

 

 

 

221

   

 

 

220

 

Derivative Contracts

 

 

 

124

   

 

 

46

 

Restricted Funds

 

 

 

28

   

 

 

50

 

Prepayments

 

 

 

36

   

 

 

26

 

Other

 

 

 

47

   

 

 

31

 

 

 

 

 

 

Total Current Assets

 

 

 

2,331

   

 

 

2,149

 

 

 

 

 

 

PROPERTY, PLANT AND EQUIPMENT

 

 

 

7,170

   

 

 

6,565

 

Less: Accumulated Depreciation and Amortization

 

 

 

(1,948

)

 

 

 

 

(1,814

)

 

 

 

 

 

 

Net Property, Plant and Equipment

 

 

 

5,222

   

 

 

4,751

 

 

 

 

 

 

NONCURRENT ASSETS

 

 

 

 

Nuclear Decommissioning Trust (NDT) Funds

 

 

 

1,100

   

 

 

1,276

 

Goodwill

 

 

 

16

   

 

 

16

 

Other Intangibles

 

 

 

34

   

 

 

35

 

Other Special Funds

 

 

 

28

   

 

 

45

 

Derivative Contracts

 

 

 

65

   

 

 

7

 

Other

 

 

 

67

   

 

 

57

 

 

 

 

 

 

Total Noncurrent Assets

 

 

 

1,310

   

 

 

1,436

 

 

 

 

 

 

TOTAL ASSETS

 

 

$

 

8,863

   

 

$

 

8,336

 

 

 

 

 

 

LIABILITIES AND MEMBER’S EQUITY

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

Long-Term Debt Due Within One Year

 

 

$

 

250

   

 

$

 

 

Accounts Payable

 

 

 

564

   

 

 

648

 

Short-Term Loan from Affiliate

 

 

 

168

   

 

 

238

 

Derivative Contracts

 

 

 

288

   

 

 

300

 

Accrued Interest

 

 

 

81

   

 

 

34

 

Other

 

 

 

165

   

 

 

118

 

 

 

 

 

 

Total Current Liabilities

 

 

 

1,516

   

 

 

1,338

 

 

 

 

 

 

NONCURRENT LIABILITIES

 

 

 

 

Deferred Income Taxes and Investment Tax Credits (ITC)

 

 

 

300

   

 

 

176

 

Asset Retirement Obligations

 

 

 

328

   

 

 

309

 

Other Postretirement Benefit (OPEB) Costs

 

 

 

138

   

 

 

129

 

Derivative Contracts

 

 

 

120

   

 

 

158

 

Accrued Pension Costs

 

 

 

54

   

 

 

70

 

Environmental Costs

 

 

 

55

   

 

 

55

 

Long-Term Accrued Taxes

 

 

 

15

   

 

 

26

 

Other

 

 

 

40

   

 

 

12

 

 

 

 

 

 

Total Noncurrent Liabilities

 

 

 

1,050

   

 

 

935

 

 

 

 

 

 

COMMITMENTS AND CONTINGENT LIABILITIES (See Note 5)

 

 

 

 

LONG-TERM DEBT

 

 

 

 

Total Long-Term Debt

 

 

 

2,653

   

 

 

2,902

 

 

 

 

 

 

MEMBER’S EQUITY

 

 

 

 

Contributed Capital

 

 

 

2,000

   

 

 

2,000

 

Basis Adjustment

 

 

 

(986

)

 

 

 

 

(986

)

 

Retained Earnings

 

 

 

2,806

   

 

 

2,438

 

Accumulated Other Comprehensive Loss

 

 

 

(176

)

 

 

 

 

(291

)

 

 

 

 

 

 

Total Member’s Equity

 

 

 

3,644

   

 

 

3,161

 

 

 

 

 

 

TOTAL LIABILITIES AND MEMBER’S EQUITY

 

 

$

 

8,863

   

 

$

 

8,336

 

 

 

 

 

 

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

6


PSEG POWER LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

For The Nine Months
Ended
September 30,

 

2008

 

2007

 

 

(Millions)
(Unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

Net Income

 

 

$

 

843

   

 

$

 

736

 

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

 

 

 

 

Depreciation and Amortization

 

 

 

121

   

 

 

104

 

Amortization of Nuclear Fuel

 

 

 

75

   

 

 

73

 

Interest Accretion on Asset Retirement Obligations

 

 

 

19

   

 

 

17

 

Provision for Deferred Income Taxes and ITC

 

 

 

69

   

 

 

191

 

Net Realized and Unrealized (Gains) Losses on Energy Contracts and Other Derivatives

 

 

 

(45

)

 

 

 

 

28

 

Non-Cash Employee Benefit Plan Costs

 

 

 

18

   

 

 

21

 

Net Realized (Gains) Losses and (Income) Expense from NDT Funds

 

 

 

22

   

 

 

(37

)

 

Net Change in Working Capital:

 

 

 

 

Fuel, Materials and Supplies

 

 

 

(287

)

 

 

 

 

(49

)

 

Margin Deposit Asset

 

 

 

146

   

 

 

(31

)

 

Margin Deposit Liability

 

 

 

18

   

 

 

(2

)

 

Accounts Receivable

 

 

 

45

   

 

 

(38

)

 

Accounts Payable

 

 

 

(118

)

 

 

 

 

(179

)

 

Accounts Receivable/Payable-Affiliated Companies, net

 

 

 

209

   

 

 

191

 

Accrued Interest Payable

 

 

 

47

   

 

 

46

 

Other Current Assets and Liabilities

 

 

 

5

   

 

 

(5

)

 

Employee Benefit Plan Funding and Related Payments

 

 

 

(20

)

 

 

 

 

(13

)

 

Other

 

 

 

42

   

 

 

(5

)

 

 

 

 

 

 

Net Cash Provided By Operating Activities

 

 

 

1,209

   

 

 

1,048

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

Additions to Property, Plant and Equipment

 

 

 

(677

)

 

 

 

 

(501

)

 

Short-Term Loan—Affiliated Company, net

 

 

 

   

 

 

(37

)

 

Proceeds from Sale of Discontinued Operations

 

 

 

   

 

 

325

 

Sales of Property, Plant and Equipment

 

 

 

2

   

 

 

40

 

Proceeds from NDT Funds Sales

 

 

 

1,839

   

 

 

1,275

 

NDT Funds Interest and Dividends

 

 

 

37

   

 

 

35

 

Investment in NDT Funds

 

 

 

(1,864

)

 

 

 

 

(1,295

)

 

Restricted Funds

 

 

 

22

   

 

 

 

Other

 

 

 

(12

)

 

 

 

 

(15

)

 

 

 

 

 

 

Net Cash Used In Investing Activities

 

 

 

(653

)

 

 

 

 

(173

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

Cash Dividend Paid

 

 

 

(475

)

 

 

 

 

(825

)

 

Short-Term Loan—Affiliated Company, net

 

 

 

(70

)

 

 

 

 

(54

)

 

 

 

 

 

 

Net Cash Used In Financing Activities

 

 

 

(545

)

 

 

 

 

(879

)

 

 

 

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

 

 

 

11

   

 

 

(4

)

 

Cash and Cash Equivalents at Beginning of Period

 

 

 

11

   

 

 

13

 

 

 

 

 

 

Cash and Cash Equivalents at End of Period

 

 

$

 

22

   

 

$

 

9

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

Income Taxes Paid

 

 

$

 

458

   

 

$

 

266

 

Interest Paid, Net of Amounts Capitalized

 

 

$

 

84

   

 

$

 

89

 

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

7


[THIS PAGE INTENTIONALLY LEFT BLANK]


PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

For The Quarters
Ended
September 30,

 

For The Nine Months Ended
September 30,

 

2008

 

2007

 

2008

 

2007

 

 

(Millions)

 

 

(Unaudited)

OPERATING REVENUES

 

 

$

 

2,274

   

 

$

 

2,106

   

 

$

 

6,750

   

 

$

 

6,340

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

Energy Costs

 

 

 

1,521

   

 

 

1,341

   

 

 

4,527

   

 

 

4,083

 

Operation and Maintenance

 

 

 

313

   

 

 

308

   

 

 

993

   

 

 

947

 

Depreciation and Amortization

 

 

 

161

   

 

 

161

   

 

 

443

   

 

 

449

 

Taxes Other Than Income Taxes

 

 

 

31

   

 

 

31

   

 

 

101

   

 

 

104

 

 

 

 

 

 

 

 

 

 

Total Operating Expenses

 

 

 

2,026

   

 

 

1,841

   

 

 

6,064

   

 

 

5,583

 

 

 

 

 

 

 

 

 

 

OPERATING INCOME

 

 

 

248

   

 

 

265

   

 

 

686

   

 

 

757

 

Other Income

 

 

 

2

   

 

 

2

   

 

 

9

   

 

 

12

 

Other Deductions

 

 

 

(2

)

 

 

 

 

(1

)

 

 

 

 

(3

)

 

 

 

 

(3

)

 

Interest Expense

 

 

 

(82

)

 

 

 

 

(85

)

 

 

 

 

(244

)

 

 

 

 

(250

)

 

 

 

 

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

 

 

166

   

 

 

181

   

 

 

448

   

 

 

516

 

Income Tax Expense

 

 

 

(68

)

 

 

 

 

(74

)

 

 

 

 

(161

)

 

 

 

 

(214

)

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

 

 

98

   

 

 

107

   

 

 

287

   

 

 

302

 

Preferred Stock Dividends

 

 

 

(1

)

 

 

 

 

(1

)

 

 

 

 

(3

)

 

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

 

EARNINGS AVAILABLE TO PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

 

 

$

 

97

   

 

$

 

106

   

 

$

 

284

   

 

$

 

299

 

 

 

 

 

 

 

 

 

 

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

8


PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

September 30,
2008

 

December 31,
2007

 

 

(Millions)
(Unaudited)

ASSETS

 

 

 

 

CURRENT ASSETS

 

 

 

 

Cash and Cash Equivalents

 

 

$

 

42

   

 

$

 

32

 

Accounts Receivable, net of allowances of $51 in 2008 and $45 in 2007

 

 

 

886

   

 

 

995

 

Unbilled Revenues

 

 

 

263

   

 

 

353

 

Materials and Supplies

 

 

 

65

   

 

 

53

 

Prepayments

 

 

 

214

   

 

 

57

 

Restricted Funds

 

 

 

6

   

 

 

7

 

Derivative Contracts

 

 

 

   

 

 

1

 

Deferred Income Taxes

 

 

 

43

   

 

 

44

 

 

 

 

 

 

Total Current Assets

 

 

 

1,519

   

 

 

1,542

 

 

 

 

 

 

PROPERTY, PLANT AND EQUIPMENT

 

 

 

12,033

   

 

 

11,531

 

Less: Accumulated Depreciation and Amortization

 

 

 

(4,065

)

 

 

 

 

(3,920

)

 

 

 

 

 

 

Net Property, Plant and Equipment

 

 

 

7,968

   

 

 

7,611

 

 

 

 

 

 

NONCURRENT ASSETS

 

 

 

 

Regulatory Assets

 

 

 

5,654

   

 

 

5,165

 

Long-Term Investments

 

 

 

156

   

 

 

153

 

Other Special Funds

 

 

 

47

   

 

 

57

 

Other

 

 

 

105

   

 

 

109

 

 

 

 

 

 

Total Noncurrent Assets

 

 

 

5,962

   

 

 

5,484

 

 

 

 

 

 

TOTAL ASSETS

 

 

$

 

15,449

   

 

$

 

14,637

 

 

 

 

 

 

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

9


PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

September 30,
2008

 

December 31,
2007

 

 

(Millions)
(Unaudited)

LIABILITIES AND CAPITALIZATION

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

Long-Term Debt Due Within One Year

 

 

$

 

495

   

 

$

 

429

 

Commercial Paper and Loans

 

 

 

181

   

 

 

65

 

Accounts Payable

 

 

 

365

   

 

 

325

 

Accounts Payable—Affiliated Companies, net

 

 

 

336

   

 

 

559

 

Accrued Interest

 

 

 

59

   

 

 

56

 

Accrued Taxes

 

 

 

3

   

 

 

29

 

Clean Energy Program

 

 

 

140

   

 

 

135

 

Derivative Contracts

 

 

 

21

   

 

 

20

 

Obligation to Return Cash Collateral

 

 

 

181

   

 

 

79

 

Other

 

 

 

204

   

 

 

239

 

 

 

 

 

 

Total Current Liabilities

 

 

 

1,985

   

 

 

1,936

 

 

 

 

 

 

NONCURRENT LIABILITIES

 

 

 

 

Deferred Income Taxes and ITC

 

 

 

2,530

   

 

 

2,440

 

Other Postretirement Benefit (OPEB) Costs

 

 

 

821

   

 

 

821

 

Accrued Pension Costs

 

 

 

20

   

 

 

63

 

Regulatory Liabilities

 

 

 

380

   

 

 

419

 

Clean Energy Program

 

 

 

563

   

 

 

14

 

Environmental Costs

 

 

 

613

   

 

 

594

 

Asset Retirement Obligations

 

 

 

239

   

 

 

231

 

Derivative Contracts

 

 

 

57

   

 

 

36

 

Long-Term Accrued Taxes

 

 

 

75

   

 

 

75

 

Other

 

 

 

31

   

 

 

9

 

 

 

 

 

 

Total Noncurrent Liabilities

 

 

 

5,329

   

 

 

4,702

 

 

 

 

 

 

COMMITMENTS AND CONTINGENT LIABILITIES (See Note 5)

 

 

 

 

CAPITALIZATION

 

 

 

 

LONG-TERM DEBT

 

 

 

 

Long-Term Debt

 

 

 

3,088

   

 

 

3,102

 

Securitization Debt

 

 

 

1,396

   

 

 

1,530

 

 

 

 

 

 

Total Long-Term Debt

 

 

 

4,484

   

 

 

4,632

 

 

 

 

 

 

PREFERRED SECURITIES

 

 

 

 

Preferred Stock Without Mandatory Redemption, $100 par value, 7,500,000 authorized; issued and outstanding, 2008 and 2007—795,234 shares

 

 

 

80

   

 

 

80

 

 

 

 

 

 

COMMON STOCKHOLDER’S EQUITY

 

 

 

 

Common Stock; 150,000,000 shares authorized; issued and outstanding, 2008 and 2007—132,450,344 shares

 

 

 

892

   

 

 

892

 

Contributed Capital

 

 

 

170

   

 

 

170

 

Basis Adjustment

 

 

 

986

   

 

 

986

 

Retained Earnings

 

 

 

1,521

   

 

 

1,237

 

Accumulated Other Comprehensive Income

 

 

 

2

   

 

 

2

 

 

 

 

 

 

Total Common Stockholder’s Equity

 

 

 

3,571

   

 

 

3,287

 

 

 

 

 

 

Total Capitalization

 

 

 

8,135

   

 

 

7,999

 

 

 

 

 

 

TOTAL LIABILITIES AND CAPITALIZATION

 

 

$

 

15,449

   

 

$

 

14,637

 

 

 

 

 

 

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

10


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

 

 

 

 

 

 

 

For The Nine Months Ended
September 30,

 

2008

 

2007

 

 

(Millions)
(Unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

Net Income

 

 

$

 

287

   

 

$

 

302

 

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

 

 

 

 

Depreciation and Amortization

 

 

 

443

   

 

 

449

 

Provision for Deferred Income Taxes and ITC

 

 

 

33

   

 

 

(114

)

 

Non-Cash Employee Benefit Plan Costs

 

 

 

97

   

 

 

104

 

Non-Cash Interest Expense

 

 

 

11

   

 

 

9

 

Cost of Removal

 

 

 

(33

)

 

 

 

 

(28

)

 

Employee Benefit Plan Funding and Related Payments

 

 

 

(92

)

 

 

 

 

(53

)

 

Over Recovery of Electric Energy Costs (BGS and NTC)

 

 

 

32

   

 

 

1

 

Under Recovery of Gas Costs

 

 

 

(53

)

 

 

 

 

(39

)

 

Under Recovery of SBC

 

 

 

(42

)

 

 

 

 

(29

)

 

Other Non-Cash Charges

 

 

 

(3

)

 

 

 

 

(2

)

 

Net Changes in Certain Current Assets and Liabilities:

 

 

 

 

Accounts Receivable and Unbilled Revenues

 

 

 

198

   

 

 

9

 

Materials and Supplies

 

 

 

(12

)

 

 

 

 

(8

)

 

Prepayments

 

 

 

(157

)

 

 

 

 

(184

)

 

Accrued Taxes

 

 

 

(26

)

 

 

 

 

(1

)

 

Accrued Interest

 

 

 

3

   

 

 

(3

)

 

Accounts Payable

 

 

 

40

   

 

 

72

 

Accounts Receivable/Payable-Affiliated Companies, net

 

 

 

(264

)

 

 

 

 

(201

)

 

Obligation to Return Cash Collateral

 

 

 

102

   

 

 

12

 

Other Current Assets and Liabilities

 

 

 

(19

)

 

 

 

 

(47

)

 

Other

 

 

 

   

 

 

(5

)

 

 

 

 

 

 

Net Cash Provided By Operating Activities

 

 

 

545

   

 

 

244

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

Additions to Property, Plant and Equipment

 

 

 

(534

)

 

 

 

 

(421

)

 

Proceeds from the Sale of Property, Plant and Equipment

 

 

 

1

   

 

 

3

 

Restricted Funds

 

 

 

(1

)

 

 

 

 

(1

)

 

 

 

 

 

 

Net Cash Used In Investing Activities

 

 

 

(534

)

 

 

 

 

(419

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

Net Change in Short-Term Debt

 

 

 

116

   

 

 

173

 

Issuance of Long-Term Debt

 

 

 

700

   

 

 

350

 

Redemption of Long-Term Debt

 

 

 

(651

)

 

 

 

 

(113

)

 

Redemption of Securitization Debt

 

 

 

(127

)

 

 

 

 

(121

)

 

Deferred Issuance Costs

 

 

 

(4

)

 

 

 

 

(3

)

 

Premium Paid on Early Retirement of Debt

 

 

 

(32

)

 

 

 

 

 

Cash Dividends Paid on Common Stock

 

 

 

   

 

 

(100

)

 

Preferred Stock Dividends

 

 

 

(3

)

 

 

 

 

(3

)

 

 

 

 

 

 

Net Cash (Used In) Provided By Financing Activities

 

 

 

(1

)

 

 

 

 

183

 

 

 

 

 

 

Net Increase In Cash and Cash Equivalents

 

 

 

10

   

 

 

8

 

Cash and Cash Equivalents at Beginning of Period

 

 

 

32

   

 

 

28

 

 

 

 

 

 

Cash and Cash Equivalents at End of Period

 

 

$

 

42

   

 

$

 

36

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

Income Taxes Paid

 

 

$

 

109

   

 

$

 

301

 

Interest Paid, Net of Amounts Capitalized

 

 

$

 

235

   

 

$

 

241

 

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

11


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

This combined Form 10-Q is separately filed by Public Service Enterprise Group Incorporated (PSEG), PSEG Power LLC (Power) and Public Service Electric and Gas Company (PSE&G). Information contained herein relating to any individual company is filed by such company on its own behalf. Power and PSE&G 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: Power, PSE&G, PSEG Energy Holdings L.L.C. (Energy Holdings) and PSEG Services Corporation (Services).

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 Fossil LLC (Fossil), PSEG Nuclear LLC (Nuclear), and PSEG Energy Resources & Trade LLC (ER&T). Fossil and Nuclear own and operate generation and generation-related facilities. ER&T is responsible for day-to-day management of Power’s portfolio. Fossil, Nuclear and ER&T are subject to regulation by the Federal Energy Regulatory Commission (FERC) and Nuclear is also subject to regulation by the Nuclear Regulatory Commission (NRC).

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 FERC.

PSE&G Transition Funding LLC (Transition Funding) and PSE&G Transition Funding II LLC (Transition Funding II), are wholly owned, bankruptcy-remote subsidiaries of PSE&G that purchased certain transition properties from PSE&G and issued transition bonds secured by such properties. The transition properties consist principally of the statutory 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.

Energy Holdings

Energy Holdings has two principal direct wholly owned subsidiaries: PSEG Global L.L.C. (Global), which primarily develops, owns and operates domestic projects engaged in generation 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.

Global has reduced its international risk by monetizing the majority of its international investments. In July 2008, Global closed on the sale of its largest remaining international investment in the SAESA Group, and its sale of Bioenergie S.p.A. (Bioenergie), its investment in Italy, is pending. For additional information, see Note 3. Discontinued Operations, Dispositions and Impairments. Global’s remaining international investments in Venezuela and India had a total net book value of $52 million as of September 30, 2008.

Services

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

12


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Basis of Presentation

PSEG, Power and PSE&G

The respective financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) applicable to 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 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, Power’s and PSE&G’s respective Annual Reports on Form 10-K for the year ended December 31, 2007 and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2008 and June 30, 2008.

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, 2007.

Reclassifications

PSEG and Power

Certain reclassifications have been made to the prior period financial statements to conform to the 2008 presentation. In accordance with a new policy established in the first quarter of 2008 resulting from the adoption of a new accounting standard, Power has adjusted its Condensed Consolidated Balance Sheet as of December 31, 2007 to net the fair value of cash collateral receivables and payables with the corresponding net derivative balances. See Note 2. Recent Accounting Standards for additional information. In addition, operating results for the SAESA Group and Bioenergie were reclassified to Income (Loss) from Discontinued Operations on the Condensed Consolidated Statements of Operations of PSEG for the quarter and nine months ended September 30, 2007. See Note 3. Discontinued Operations, Dispositions and Impairments.

Note 2. Recent Accounting Standards

The accounting standards discussed below were issued by the Financial Accounting Standards Board (FASB), but have not yet been adopted by PSEG, Power or PSE&G.

PSEG, Power and PSE&G will adopt the following new standards effective January 1, 2009 and do not anticipate a material impact to their respective financial statements upon adoption.

 

 

 

 

Statement of Financial Accounting Standards (SFAS) No. 141 (revised 2007), “Business Combinations” (SFAS 141(R))

In December 2007, the FASB issued SFAS 141(R) which will change financial accounting and reporting of business combination transactions. It is based on the principle that all assets acquired and liabilities assumed in a business combination should be measured at their acquisition date fair values, with limited exceptions. This standard applies to all transactions and events in which an entity obtains control of one or more businesses of an acquiree. The standard also expands the definition of a business. A transaction formerly recorded as an asset acquisition may qualify as a business combination under SFAS 141(R). It also requires that acquisition-related costs and certain restructuring costs be recognized separately from the business combination.

Any business combinations for which the acquisition date is on or after January 1, 2009 will be accounted for under this new guidance.

13


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 

 

 

 

SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of Accounting Research Bulletin (ARB) No. 51” (SFAS 160)

In December 2007, the FASB issued SFAS 160 which significantly changes the financial reporting relationship between a parent and non-controlling interests (i.e. minority interests). SFAS 160 requires all entities to report minority interests in subsidiaries as a separate component of equity in the consolidated financial statements. Accordingly, the amount of net income attributable to the noncontrolling interest is required to be included in consolidated net income on the face of the income statement. Further, SFAS 160 requires that transactions between a parent and noncontrolling interests should be treated as equity. However, if a subsidiary is deconsolidated, a parent is required to recognize a gain or loss.

SFAS 160 will be applied prospectively, except for presentation and disclosure requirements which are required to be applied retrospectively.

 

 

 

 

SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133” (SFAS 161)

In March 2008, the FASB issued SFAS 161 which expands derivative disclosures by requiring an entity to disclose: i) an understanding of how and why an entity uses derivatives, ii) an understanding of how derivatives and related hedged items are accounted for and iii) transparency into the overall impact of derivatives on an entity’s financial statements.

 

 

 

 

FASB Staff Position (FSP) FAS 142-3, “Determination of the Useful Life of Intangible Assets” (FSP FAS 142-3)

In April 2008, the FASB issued FSP FAS 142-3 to amend the factors an entity should consider in determining the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets.” The FSP would allow an entity to consider its own experience regarding renewals and extensions, as long as an entity’s own experience is consistent with the intended use of similar assets. If an entity lacks such experience, it would look to market participant information that is consistent with the highest and best use of the asset and make adjustments for other entity-specific factors.

 

 

 

 

Emerging Issues Task Force (EITF) Issue No. 08-5, “Issuer’s Accounting for Liabilities Measured at Fair Value with a Third-Party Guarantee” (EITF 08-5)

In September 2008, the FASB ratified the EITF 08-5 consensus on fair valuing of liabilities that are recognized or disclosed at fair value and have third party guarantees or other third party credit enhancements. Under EITF 08-5, an issuer of a liability with third party guarantees or other third party credit enhancements would not include the effect of the third party guarantees (or credit enhancements) in the fair value measurement of the liability.

PSEG, Power and PSE&G will adopt the following new standard when effective. They do not anticipate a material impact to their respective financial statements upon adoption.

 

 

 

 

FSP FAS 133-1 and FASB Interpretation (FIN) 45-4, “Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161” (FSP FAS 133-1 and FIN 45-4)

In September 2008, the FASB issued FSP FAS 133-1 and FIN 45-4 to require enhanced disclosures for credit derivatives within the scope of SFAS 133 and all financial guarantees subject to FIN 45.

The FSP amends FAS 133 to require sellers of credit derivatives, including credit derivatives embedded in hybrid instruments, to disclose information that would enable users of the financial information to assess the potential effect of the instruments on the reporting company’s financial position. It also amends FIN 45 to require guarantors to disclose the current status of the payment / performance risk.

FSP FAS 133-1 and FIN 45-4 are effective for reporting periods ending after November 15, 2008. Earlier adoption is encouraged. PSEG, Power and PSE&G will include additional disclosures, as suggested by this FSP, in their annual financial statements for 2008 and subsequent interim and annual periods and do not anticipate a material impact to their respective financial statements upon adoption.

14


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

FSP FAS 133-1 and FIN 45-4 also clarify the effective date for SFAS 161, stating that the disclosure requirements of SFAS 161 will be effective for quarterly periods beginning after November 15, 2008 and fiscal years that include those periods.

The following new accounting standards were adopted by PSEG, Power and PSE&G during 2008.

 

 

 

 

SFAS No. 157, “Fair Value Measurements” (SFAS 157)

PSEG, Power and PSE&G

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.

PSEG, Power and PSE&G adopted SFAS 157 (except for certain non-financial assets and non-financial liabilities as described in FSP FAS 157-2) effective January 1, 2008. In accordance with the provisions of SFAS 157, PSEG recorded a cumulative effect adjustment of $22 million (after-tax) to January 1, 2008 Retained Earnings associated with the implementation of SFAS 157. In February 2008, the FASB issued FSP FAS 157-2 to partially defer the effective date of SFAS 157 for certain nonfinancial assets and nonfinancial liabilities. In February 2008, the FASB issued FSP FAS 157-1 to exclude leasing transactions from SFAS 157’s scope. In October 2008, the FASB also issued FSP FAS 157-3 to address entities’ concerns about lack of observable markets or observable inputs in determining the fair value of a financial asset when the market for that asset is not active.

For additional information, see Note 13. Fair Value Measurements.

 

 

 

 

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

In February 2007, the FASB issued SFAS 159, which permits entities to measure many financial instruments and certain other items at fair value that would not otherwise be required to be measured at fair value. An entity would report unrealized gains and losses in earnings at each subsequent reporting date on items for which the fair value option has been elected. 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 whether to elect the fair value option is applied instrument by instrument, with a few exceptions. The decision is irrevocable and it is required to be applied only 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 was 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, Power and PSE&G adopted SFAS 159 effective January 1, 2008; however, to date, PSEG, Power and PSE&G have not elected to measure any of their respective assets or liabilities at fair value under this standard.

 

 

 

 

FSP FIN 39-1, “Amendment of FASB Interpretation No. 39” (FSP FIN 39-1)

PSEG and Power

In April 2007, the FASB issued FSP FIN 39-1, which amends FIN 39, “Offsetting of Amounts Related to Certain Contracts” to permit an entity to offset cash collateral paid or received against fair value amounts recognized for derivative instruments held with the same counterparty under the same master netting arrangement.

15


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

PSEG and Power adopted the FSP effective January 1, 2008. In accordance with the provisions of FSP FIN 39-1, PSEG and Power established a policy of netting fair value cash collateral receivables and payables with the corresponding net derivative balances. The adoption of FSP FIN 39-1 resulted in PSEG and Power including cash collateral received of $16 million in their net derivative positions as of September 30, 2008. Amounts in prior period statements have been retroactively adjusted, as required under the FSP.

Note 3. Discontinued Operations, Dispositions and Impairments

Discontinued Operations

Power

Lawrenceburg Energy Center (Lawrenceburg)

In May 2007, Power completed the sale of Lawrenceburg, a 1,096-megawatt (MW), gas-fired combined cycle electric generating plant located in Lawrenceburg, Indiana, to AEP Generating Company, a subsidiary of American Electric Power Company, Inc. for a sale price of $325 million.

Lawrenceburg’s operating results for the quarter and nine months ended September 30, 2007, which are included in Discontinued Operations, are summarized below:

 

 

 

 

 

 

 

Quarter
Ended
September 30,
2007

 

Nine Months
Ended
September 30,
2007

 

 

(Millions)

Operating Revenues

 

 

$

 

   

 

$

 

 

Income (Loss) Before Income Taxes

 

 

$

 

2

   

 

$

 

(13

)

 

Net Income (Loss)

 

 

$

 

1

   

 

$

 

(8

)

 

Energy Holdings

Bioenergie

In August 2008, Global entered into an agreement to sell its 85% ownership interest in Bioenergie, which owns three biomass generation plants in Italy through its ownership of 100% of San Marco Bioenergie S.p.A. and 50% of Biomasse for $42 million. A $4 million down payment was made by the purchaser in conjunction with the execution of the agreement. The sale is pending.

Bioenergie’s operating results for the quarters and nine months ended September 30, 2008 and 2007, which are included in Discontinued Operations, are summarized below:

 

 

 

 

 

 

 

 

 

 

 

Quarters
Ended
September 30,

 

Nine Months
Ended
September 30,

 

2008

 

2007

 

2008

 

2007

 

 

(Millions)

Operating Revenues

 

 

$

 

13

   

 

$

 

10

   

 

$

 

35

   

 

$

 

10

 

Income (Loss) Before Income Taxes

 

 

$

 

(29

)

 

 

 

$

 

1

   

 

$

 

(28

)

 

 

 

$

 

(10

)

 

Net Income (Loss)

 

 

$

 

(8

)

 

 

 

$

 

1

   

 

$

 

(9

)

 

 

 

$

 

(13

)

 

Bioenergie’s operating results for the quarter and nine months ended September 30, 2008 include a pre-tax impairment charge of $33 million and related tax benefits of $13 million.

16


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The carrying amounts of Bioenergie’s assets as of September 30, 2008 and December 31, 2007 are summarized in the following table:

 

 

 

 

 

 

 

As of
September 30,
2008

 

As of
December 31,
2007

 

 

(Millions)

Current Assets

 

 

$

 

25

   

 

$

 

23

 

Noncurrent Assets

 

 

 

97

   

 

 

138

 

 

 

 

 

 

Total Assets of Discontinued Operations

 

 

$

 

122

   

 

$

 

161

 

 

 

 

 

 

Current Liabilities

 

 

$

 

21

   

 

$

 

21

 

Noncurrent Liabilities

 

 

 

47

   

 

 

55

 

 

 

 

 

 

Total Liabilities of Discontinued Operations

 

 

$

 

68

   

 

$

 

76

 

 

 

 

 

 

SAESA Group

In June 2008, Global signed an agreement to sell its investment in the SAESA Group, which consists of four distribution companies, one transmission company and a generation facility located in Chile. The sale was completed in July 2008 for a total purchase price of $1.3 billion, including the assumption of $413 million of the consolidated debt of the group. The sale resulted in an after-tax gain of $187 million, which is reported as Gain on Disposal of Discontinued Operations. Net cash proceeds, after Chilean and U.S. taxes of $269 million, were $612 million. A tax charge of $82 million was recognized in the fourth quarter of 2007 relating to the discontinuation of applying Accounting Principle Board No. 23, “Accounting for Income Taxes—Special Areas.”

SAESA Group’s operating results for the quarters and nine months ended September 30, 2008 and 2007, which are included in Discontinued Operations, are summarized below:

 

 

 

 

 

 

 

 

 

 

 

Quarters
Ended
September 30,

 

Nine Months
Ended
September 30,

 

2008

 

2007

 

2008

 

2007

 

 

(Millions)

Operating Revenues

 

 

$

 

38

   

 

$

 

119

   

 

$

 

379

   

 

$

 

317

 

Income (Loss) Before Income Taxes

 

 

$

 

(5

)

 

 

 

$

 

11

   

 

$

 

36

   

 

$

 

40

 

Net Income

 

 

$

 

1

   

 

$

 

10

   

 

$

 

30

   

 

$

 

35

 

The carrying amounts of SAESA Group’s assets as of December 31, 2007 are summarized in the following table:

 

 

 

 

 

As of
December 31,
2007

 

 

(Millions)

Current Assets

 

 

$

 

191

 

Noncurrent Assets

 

 

 

971

 

 

 

 

Total Assets of Discontinued Operations

 

 

$

 

1,162

 

 

 

 

Current Liabilities

 

 

$

 

130

 

Noncurrent Liabilities

 

 

 

390

 

 

 

 

Total Liabilities of Discontinued Operations

 

 

$

 

520

 

 

 

 

Electroandes S.A. (Electroandes)

On October 17, 2007, Global sold its investment in Electroandes, a hydro-electric generation and transmission company in Peru that owns and operates four hydro-generation plants with total capacity of 180 MW and 437 miles of electric transmission lines, for a total purchase price of $390 million, including the assumption of approximately $108 million of debt.

17


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Electroandes’ operating results for the quarter and nine months ended September 30, 2007, which are included in Discontinued Operations, are summarized below:

 

 

 

 

 

 

 

Quarter
Ended
September 30,
2007

 

Nine Months
Ended
September 30,
2007

 

 

(Millions)

Operating Revenues

 

 

$

 

14

   

 

$

 

38

 

Income Before Income Taxes

 

 

$

 

7

   

 

$

 

14

 

Net Income (Loss)

 

 

$

 

4

   

 

$

 

(10

)

 

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 approximated the recorded book value.

Energy Holdings

Chilquinta Energia S.A. (Chilquinta) and Luz del Sur S.A.A. (LDS)

In December 2007, Global closed on the sales of its ownership interest in the Chilean electric distributor, Chilquinta and its affiliates, and in the Peruvian electric distributor, LDS and its affiliates, for $685 million. Net cash proceeds after taxes were approximately $480 million, which resulted in an after-tax loss of $23 million.

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

In January 2007, Global sold its interest in Tracy Biomass for approximately $7 million, resulting in a 2007 pre-tax gain of approximately $7 million ($6 million after-tax).

Impairments

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 Company Inc. (Turboven), an entity which is jointly-owned by Global (50%) and Corporacion Industrial de Energia (CIE). Global also has a 9% indirect interest in Turbogeneradores de Maracay through a partnership with CIE.

During 2007, the Venezuelan government announced its intention to nationalize certain sectors of Venezuelan industry and commerce, including Turboven. Global entered into valuation discussions with the government of Venezuela as part of the nationalization efforts and, based upon a review of the circumstances in September 2007, recorded an impairment charge of $11 million ($7 million, after-tax), reflecting Global’s estimated market valuation of the project.

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 or vesting of restricted stock awards granted under PSEG’s stock compensation plans and upon payment of performance units or restricted stock units. The following table shows the effect of these stock options, restricted stock awards,

18


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

performance units and restricted stock units on the weighted average number of shares outstanding used in calculating diluted EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarters Ended September 30,

 

Nine Months Ended September 30,

 

2008

 

2007

 

2008

 

2007

 

Basic

 

Diluted

 

Basic

 

Diluted

 

Basic

 

Diluted

 

Basic

 

Diluted

EPS Numerator:
Earnings (Millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

 

$

 

476

   

 

$

 

476

   

 

$

 

490

   

 

$

 

490

   

 

$

 

746

   

 

$

 

746

   

 

$

 

1,106

   

 

$

 

1,106

 

Discontinued Operations

 

 

 

180

   

 

 

180

   

 

 

16

   

 

 

16

   

 

 

208

   

 

 

208

   

 

 

4

   

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

$

 

656

   

 

$

 

656

   

 

$

 

506

   

 

$

 

506

   

 

$

 

954

   

 

$

 

954

   

 

$

 

1,110

   

 

$

 

1,110

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EPS Denominator:
(Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Common
Shares Outstanding

 

 

 

507,724

   

 

 

507,724

   

 

 

508,543

   

 

 

508,543

   

 

 

508,233

   

 

 

508,233

   

 

 

507,206

   

 

 

507,206

 

Effect of Stock Options

 

 

 

   

 

 

369

   

 

 

   

 

 

547

   

 

 

   

 

 

435

   

 

 

   

 

 

711

 

Effect of Stock Performance
Units

 

 

 

   

 

 

176

   

 

 

   

 

 

   

 

 

   

 

 

153

   

 

 

   

 

 

49

 

Effect of Restricted Stock

 

 

 

   

 

 

57

   

 

 

   

 

 

   

 

 

   

 

 

69

   

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Shares

 

 

 

507,724

   

 

 

508,326

   

 

 

508,543

   

 

 

509,090

   

 

 

508,233

   

 

 

508,890

   

 

 

507,206

   

 

 

507,966

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

 

$

 

0.94

   

 

$

 

0.94

   

 

$

 

0.96

   

 

$

 

0.96

   

 

$

 

1.47

   

 

$

 

1.47

   

 

$

 

2.18

   

 

$

 

2.18

 

Discontinued Operations

 

 

 

0.35

   

 

 

0.35

   

 

 

0.03

   

 

 

0.03

   

 

 

0.41

   

 

 

0.41

   

 

 

0.01

   

 

 

0.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

$

 

1.29

   

 

$

 

1.29

   

 

$

 

0.99

   

 

$

 

0.99

   

 

$

 

1.88

   

 

$

 

1.88

   

 

$

 

2.19

   

 

$

 

2.19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividend payments on common stock for the quarters ended September 30, 2008 and 2007 were $0.3225 and $0.2925 per share, respectively, and totaled $164 million and $149 million, respectively. Dividend payments on common stock for the nine months ended September 30, 2008 and 2007 were $0.9675 and $0.8775 per share, respectively, and totaled $492 million and $445 million, respectively.

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 numerous counterparties and brokers. Counterparties and brokers may require guarantees, cash or cash-related instruments to be deposited on these transactions as described below.

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 September 30, 2008 and December 31, 2007 was $1.8 billion and $1.5 billion, respectively.

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 if ER&T and/or

19


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Power New York were to default. This 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 $412 million and $521 million as of September 30, 2008 and December 31, 2007, respectively.

Power is subject to counterparty collateral calls related to commodity contracts and is 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, which are posted and received primarily in the form of letters of credit. Power also routinely enters into futures and options transactions for electricity and natural gas as part of its operations. Generally, such futures contracts require a deposit of cash margin with brokers, the amount of which is subject to change based on market movement and in accordance with exchange rules. These margins decreased significantly in the third quarter of 2008 due to decreasing commodity prices. As of September 30, 2008 and December 31, 2007, Power had the following margin posted and received no additional demands to satisfy collateral obligations:

 

 

 

 

 

 

 

As of
September 30,
2008

 

As of
December 31,
2007

 

 

(Millions)

Letters of Credit Margin Posted

 

 

$

 

258

   

 

$

 

186

 

Letters of Credit Margin Received

 

 

$

 

109

   

 

$

 

42

 

Net Cash Margin Deposited

 

 

$

 

2

   

 

$

 

166

 

Power has established a policy of netting fair value cash collateral receivables and payables with the corresponding net energy contract balances. As a result, Power has included net cash collateral received of $16 million and net cash collateral paid of $86 million in its corresponding net energy contract positions as of September 30, 2008 and December 31, 2007, respectively. The remaining balance of net cash margin deposited shown above is primarily included in Accounts Receivable on Power’s Condensed Consolidated Balance Sheets.

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 September 30, 2008, if Power were to lose its investment grade rating, ER&T could be required to post additional collateral of approximately $825 million. Power has sufficient liquidity to post such collateral. As of September 30, 2008, there was $2.8 billion of available liquidity under PSEG and Power’s credit facilities that could be used to post collateral.

In addition to amounts discussed above, Power had posted $52 million in letters of credit as of September 30, 2008 and $39 million in letters of credit as of December 31, 2007 to support various other contractual and environmental obligations.

Environmental Matters

PSEG, Power and PSE&G

Passaic River

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.

20


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

In 2003, the EPA notified 41 potentially responsible parties (PRPs), including Power and PSE&G, 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 $20 million, of which it would seek to recover $10 million from the PRPs, including Power and PSE&G.

In 2006, the EPA notified the PRPs that the cost of its study will greatly exceed the $20 million initially estimated and after discussion, 73 PRPs, including Power and PSE&G, 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. The PRP group is presently executing the study. The percentage allocable to Power and PSE&G varies depending on the number of PRPs who have agreed to divide the costs but it currently approximates 6%, approximately 80% of which is attributable to PSE&G’s former MGPs and approximately 20% to Power’s generating station. Power has provided notice to insurers concerning this potential claim.

In June 2007, the EPA announced a draft Focused Feasibility Study (FFS) that proposes six options with estimated costs ranging from $900 million to $2.3 billion to address contamination cleanup in the lower eight miles of the Passaic River in addition to a “No Action” alternative. The work contemplated by the FFS is not subject to the Administrative Order on Consent or the cost sharing agreement. The EPA is reviewing comments received on the draft FFS.

In 2005, the NJDEP filed suit against a PRP and related companies in New Jersey Superior Court seeking damages and reimbursement for costs expended by the State of New Jersey related to the PRP’s former dioxin operations and its effects on the Passaic River. In September 2008, the Court issued a case management order permitting the defendants to file third party complaints for contribution. The PRP and the other defendants have stated that they intend to join over 200 additional parties, including PSEG, Power and PSE&G.

CERCLA and the New Jersey Spill Compensation and Control Act (Spill Act) authorize federal and state trustees for natural resources to assess damages against persons who have discharged a hazardous substance, causing an injury to natural resources. Pursuant to the Spill Act, the New Jersey Department of Environmental Protection (NJDEP) requires persons conducting remediation to characterize injuries to natural resources and to address those injuries through restoration or damages. The 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. 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 Spill 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. In August 2007, the National Oceanic and Atmospheric Administration of the United States Department of Commerce sent a letter to PSE&G and other companies identified as PRPs notifying them that it intended to perform an assessment of injuries to natural resources and inviting the PRPs to participate. The PRPs have not agreed to participate in either of these natural resource damage initiatives.

In June 2008, an agreement was announced between the EPA and two PRPs for removal of a portion of the contaminated sediment in the Passaic River. The work will cost an estimated $80 million. The two PRPs have reserved their rights to seek contribution for the removal costs from the other PRPs, including PSEG.

Newark Bay Study Area

The EPA established the Newark Bay Study Area, which it defined as Newark Bay and portions of the Hackensack River, the Arthur Kill and the Kill Van Kull. In August 2006, the EPA sent PSEG and 11 other entities notices that it considered each of the entities to be a PRP with respect to contamination in the Newark Bay Study Area. The notice letter requested that the PRPs participate and fund the EPA-approved

21


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

study in the Newark Bay Study Area and encouraged the PRPs to contact Occidental Chemical Corporation (OCC) to discuss participating in the Remedial Investigation/Feasibility Study (RI/FS) that OCC is conducting in the Newark Bay Study Area. The EPA considers the Newark Bay Study Area, along with the Passaic River Study Area, to be part of the Diamond Alkali Superfund Site. The notice states the EPA’s belief that hazardous substances were released from sites owned by PSEG and located on the Hackensack River. Currently five of the entities, including PSEG, are participating and partially funding the RI/FS study. The sites included two operating electric generating stations (Hudson and Kearny sites) and one former MGP. PSE&G’s costs to clean up former MGPs are recoverable from utility customers through the SBC. The Hudson and Kearny sites were 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 Hudson and Kearny sites. Power has provided notice to insurers concerning this potential claim.

Other

In June 2007, the State of New Jersey filed multiple lawsuits in New Jersey Superior Court against parties, including PSE&G, who were alleged to be responsible for injuries to natural resources in New Jersey. Included in these lawsuits was a claim against PSE&G and others arising out of PSE&G’s former Camden Coke facility, and a claim against PSE&G and others arising out of the cleanup of the Global Landfill Superfund site in Old Bridge, New Jersey. PSE&G has responded to the complaint in the natural resource damages case arising out of the former Camden Coke site and is in the process of remediating that site under its MGP program, discussed below. In March 2008, Power executed an Amended Consent Decree, which obligates the settling parties (including PSE&G) to implement remediation of the Global Landfill site and resolves the natural resource damages claim. The Amended Consent Decree was entered by the court in September 2008.

PSEG, Power and PSE&G cannot predict what further actions, if any, or the costs or the timing thereof, that may be required with respect to the Passaic River, Newark Bay Study Area or other natural resource damages claims; however, such costs could be material.

PSE&G

MGP Remediation Program

PSE&G is 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. 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 PSE&G’s former Camden Coke 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.

As of December 31, 2007, PSE&G’s estimate to remediate all MGP sites to completion, as well as the anticipated costs to address MGP-related material discovered in three rivers adjacent to two former MGP sites, resulted in a range between $639 million and $812 million through 2021. In the third quarter of 2008, PSE&G updated the estimated cost to remediate all MGP sites to completion and determined it could range between $644 million and $841 million from September 30, 2008 through 2021. Since no amount within the range was considered to be most likely, PSE&G recorded a liability of $644 million as of September 30, 2008. Of this amount, $31 million was recorded in Other Current Liabilities and $613 million was reflected in Environmental Costs in Noncurrent Liabilities. The costs associated with the MGP Remediation Program have historically been recovered through the SBC charges to PSE&G ratepayers. As such, PSE&G has recorded a $644 million Regulatory Asset.

Power

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

The PSD/NSR regulations, promulgated under the Clean Air Act, require major sources of certain air pollutants to obtain permits, install pollution-control technology and obtain offsets, in some circumstances,

22


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

when those sources undergo a “major modification,” as defined in the regulations. The federal government may order companies that are 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 $27,500 for each day of continued violation.

In November 2006, Power reached an agreement with the EPA and the NJDEP to achieve emissions reductions targets consistent with an earlier consent decree that resolved allegations of non-compliance with PSD/NSR programs at Power’s Mercer, Hudson and Bergen generating stations. Under this agreement and the consent decree, Power is required to undertake a number of technology projects, plant modifications and operating procedure changes at Hudson and Mercer designed to meet targeted reductions in emissions of sulfur dioxide (SO2), nitrogen oxide (NOx), particulate matter and mercury.

Pursuant to this program, Power has installed selective catalytic reduction equipment at Mercer at a cost of $122 million. The cost of implementing the balance of the agreement is estimated at $475 million to $525 million for Mercer, to be completed by May 2010, and $700 million to $750 million for Hudson, to be completed by the end of 2010. Fossil also purchased and retired emissions allowances by July 31, 2007, paid a $6 million civil penalty and has agreed to contribute $3 million for programs to reduce particulate emissions from diesel engines in New Jersey. Two particulate emissions reduction projects are in development to meet the agreement criteria. In May 2007, Mercer Units 1 and 2 commenced construction of the emission control projects. In February 2008, Hudson Unit 2 commenced construction of the emission control projects.

Mercury Regulation

In March 2005, the EPA established a New Source Performance Standard limit for nickel emissions from oil-fired electric generating units and a cap-and-trade program for mercury emissions from coal-fired electric generating units. In February 2008, the United States Court of Appeals for the District of Columbia Circuit issued a decision rejecting the EPA’s mercury emissions program and requiring the EPA to develop standards for mercury and nickel emissions that do not rely on a cap-and-trade program. In October 2008, EPA filed a petition with the U.S. Supreme Court to review the lower court’s decision. Opposition briefs and reply briefs are permitted to be filed prior to the Supreme Court deciding whether it will review the case. The full impact, if any, of this development is uncertain. Compliance with the new mercury standards is not expected to have a material impact on Power’s operations in New Jersey and Connecticut given the stringent mercury-control requirements applicable in those states, as described below.

Some uncertainty exists regarding the feasibility of achieving the reductions in mercury emissions required by the New Jersey regulations, discussed below. The estimated costs of technology believed to be capable of meeting these emissions limits at Power’s coal-fired units in Connecticut, New Jersey and Pennsylvania have been incurred or are included in Power’s capital expenditure forecast. Total estimated costs for each project are between $150 million and $200 million. The costs for Mercer and Hudson are included in the cost estimates referred to in the PSD/NSR discussion above.

New Jersey

The regulations in New Jersey required coal-fired electric generating units to meet certain emissions limits or reduce emissions by approximately 90% by December 15, 2007, unless a one-year extension was granted by NJDEP. 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.

Power’s New Jersey facilities expected to achieve the remaining December 15, 2007 requirements through the installation of carbon injection technology at both Mercer Units. This was completed in January 2007; however, because there is some uncertainty as to whether the system can consistently achieve the required reductions, Power applied for and received from NJDEP approval of a one-year extension through a facility-specific control plan that includes the installation of baghouses at the Mercer Units in 2008. Installation is scheduled to be completed by the end of 2008.

With respect to the reductions required by December 15, 2012, Power anticipates compliance will be achieved through the installation of a baghouse at its Hudson Plant by the end of 2010.

23


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The mercury-control technologies are also part of Power’s multi-pollutant reduction agreement, which resulted from earlier agreements that resolved issues arising out of the PSD/NSR air pollution control programs discussed above.

Connecticut

Mercury emissions control standards effective in July 2008 in Connecticut require coal-fired power plants to achieve either an emissions limit or 90% mercury removal efficiency through technology installed to control mercury emissions. Power has demonstrated compliance at its Bridgeport Harbor Station resulting from the installation of a baghouse which was placed in operation in January 2008. The total costs for the installation were approximately $157 million.

Pennsylvania

In February 2007, Pennsylvania finalized its “state-specific” requirements to reduce mercury emissions from coal-fired electric generating units. The Keystone and Conemaugh generating stations will be positioned by 2010 to meet Phase I of the Pennsylvania mercury rule by benefiting from reductions realized from the installation of controls for compliance with SO2 and NOx reductions. Phase II of the mercury rule will be addressed after a full evaluation of Phase I reductions.

Emission Fees

Section 185 of the Clean Air Act requires states (or in the absence of state action, the EPA) in severe and extreme non-attainment areas to adopt a penalty fee for major stationary sources if the area fails to attain the one-hour ozone National Ambient Air Quality Standard (NAAQS) set by the EPA. In June 2007, the U.S. Court of Appeals for the District of Columbia Circuit ruled against the EPA, which had sought to vacate imposition of fees for NOx emissions as part of the one-hour standard for ozone attainment implementation. Power operates electric generation stations, major stationary sources, in the New Jersey-Connecticut severe non-attainment area that failed to meet the required NAAQS. Neither the EPA nor the states in the non-attainment areas in which Power operates have initiated the process for imposing fees in compliance with the court ruling; however, preliminary analysis suggests that penalty fees will be approximately $6 million annually. This analysis could change if the EPA or the states issue additional guidance addressing the imposition of fees, or if Power is able to reduce its emissions of NOx in the future below the statutory threshold through the installation of control technologies at one or more of Power’s generation stations.

NOx Reduction

In August 2008, the NJDEP proposed revisions to NOx emission control regulations that would impose new NOx emission reduction requirements and limits for New Jersey fossil fuel fired electric generation units. Although this rule is proposed but not final, as written it could have significant impact on the generation fleet, including the necessity to retire a significant portion of the peaking units by 2015 or 2016. If adopted as proposed, the rule could necessitate the retirement of up to 102 combustion turbines (approximately 2,000 MW) and five older New Jersey steam electric generating units (approximately 800 MW).

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 applied to the sale of certain assets. Power had a $50 million liability as of each of September 30, 2008 and December 31, 2007 related to these obligations, which is included in Environmental Costs on Power’s and 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. In January 2006, a renewal application prepared in accordance with the Federal Water Pollution Control Act’s (FWPCA) Section 316(b) and the Phase II 316(b) rules was filed with

24


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

the NJDEP. This allows Salem to continue operating under its existing NJPDES permit until a new permit is issued.

In January 2007, the U.S. Court of Appeals for the Second Circuit issued a decision in litigation of the Phase II 316(b) regulations brought by several environmental groups, the Attorneys General of six Northeastern states, including New Jersey, the Utility Water Act Group and several of its members, including Power. In its ruling, the Court:

 

 

 

 

remanded major portions of the regulations and determined that Section 316(b) of the FWPCA does not support the use of restoration and the site-specific cost-benefit test.

 

 

 

 

instructed the EPA to reconsider the definition of “best technology available” without comparing the costs of the best performing technology to its benefits.

Prior to this decision, Power had used restoration and/or a site-specific cost-benefit test in applications it had filed to renew the permits at its once-through cooled plants, including Salem, Hudson and Mercer.

In May 2007, Power and other industry petitioners filed with the Second Circuit Court a request for a rehearing, which was denied. The parties, including Power, requested U.S. Supreme Court review of the matter. In April 2008, the U.S. Supreme Court granted the request of industry petitioners, including Power, to review the question of whether Section 316(b) of the FWPCA allows EPA to compare costs with benefits in determining the “best technology available” for minimizing adverse environmental impact at cooling water intake structures. An Oral argument is currently scheduled for December 2, 2008. It is anticipated that the U.S. Supreme Court will render a decision before the end of the 2008-2009 term.

Although the rule applies to all of Power’s electric generating units that use surface waters for once-through cooling purposes, the impact of the rule and the decision of the Second Circuit Court cannot be determined for all of Power’s facilities. Depending on the final decision of the U.S. Supreme Court, and subsequent actions by the EPA to promulgate a revised rule, the Second Circuit’s decision could have a material impact on Power’s ability to renew permits at its larger once-through cooled plants in New Jersey and Connecticut, including Salem, Hudson, Mercer, Bridgeport and, possibly, Sewaren and New Haven, without making significant upgrades to their existing intake structures and cooling systems.

If the NJDEP and the Connecticut Department of Environmental Protection were to require installation of closed-cycle cooling or its equivalent at these once-through cooled facilities, the related costs and impacts would be material to Power and would require economic review to determine whether to continue operations at these facilities.

For example, Power’s application to renew its Salem permit, filed in February 2006 with the NJDEP, estimated the costs associated with adding cooling towers for Salem to be approximately $1 billion, of which Power’s share would be approximately $575 million. Potential costs associated with any closed-cycle cooling requirements are not included in Power’s forecasted capital expenditures.

New Generation and Development

Power

Nuclear

Power increased its generating capacity at Hope Creek and Salem Unit 2 in 2008. Phase I of the Hope Creek turbine replacement project increased the nominal capacity of the unit by 10 MW in 2005. Phase II added approximately 150 MW of nominal capacity in the second quarter of 2008. Phase I of the Salem Unit 2 turbine upgrade increased Power’s share of the nominal capacity by 14 MW in 2003. Phase II was completed and put in operation in the second quarter of 2008, concurrent with steam generator replacement and increased Power’s share of the nominal capacity by approximately 23 MW. Power’s total expenditures for these projects were $215 million (including Interest Capitalized During Construction of $24 million).

25


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Power has approved the expenditure of $192 million for steam path retrofit and related upgrades at Peach Bottom Units 2 and 3. Completion of these upgrades is expected to result in an increase of 32 MW nominal (14 MW at Unit 3 in 2011 and 18 MW at Unit 2 in 2012). Expenditures for this project will begin in the fourth quarter of 2008 and continue through 2013.

Connecticut

Power has been selected by the Connecticut Department of Public Utility Control in a regulatory process to build 130 MW of gas-fired peaking capacity. Final approval has been received and construction is expected to commence June 2011. The project is expected to be in-service by June 2012. Power estimates the cost of these generating units to be $130 million to $140 million. Total capitalized expenditures to date are approximately $11 million which are included in Other Noncurrent Assets on Power’s and PSEG’s Condensed Consolidated Balance Sheets.

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

Power and PSE&G

PSE&G obtains its electric supply requirements for customers who do not purchase electric supply from third-party suppliers through the annual New Jersey BGS auctions. Pursuant to applicable BPU rules, 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 of the auction results. PSE&G has entered into contracts with Power, as well as with other winning BGS suppliers, to purchase BGS for PSE&G’s 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 including capacity, energy, ancillary services, transmission and any other services required by PJM. BGS suppliers assume all customer migration risk and must satisfy New Jersey’s renewable portfolio standards.

Power seeks to mitigate volatility in its results by contracting in advance for the sale of most of 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 also enters into firm supply contracts with EDCs, as well as other firm sales and commitments.

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

 

 

 

 

 

 

 

 

 

 

 

Auction Year

 

2005

 

2006

 

2007

 

2008

36 Month Terms Ending

 

 

 

May 2008

   

 

 

May 2009

   

 

 

May 2010

   

 

 

May 2011

(a)

 

Load (MW)

 

 

 

2,840

   

 

 

2,882

   

 

 

2,758

   

 

 

2,840

 

$per kWh

 

 

$

 

0.06541

   

 

$

 

0.10251

   

 

$

 

0.09888

   

 

$

 

0.1115

 


 

 

(a)

 

 

 

Prices set in the February 2008 BGS Auction became effective on June 1, 2008 when the 2005 Auction Year agreements expired.

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 PSE&G to recover the cost of gas hedging up to 115 billion cubic feet or approximately 80% of its residential gas supply annual requirements through the BGSS tariff. For additional information, see Note 14. Related-Party Transactions.

The BPU has conducted an audit of the gas procurement practices of all four New Jersey gas utilities, including PSE&G. A final report on the audit is forthcoming. The outcome of this proceeding cannot be predicted.

26


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Minimum Fuel Purchase Requirements

Power

Power has fuel purchase commitments for coal and oil for certain of its fossil generation stations through various long-term commitments, for supply of nuclear fuel for the Salem and Hope Creek nuclear generating stations and for firm transportation and storage capacity for natural gas.

Power’s various multi-year contracts for firm transportation and storage capacity for natural gas are primarily to meet its gas supply obligations to PSE&G. These purchase obligations are consistent with Power’s strategy to enter into contracts for its fuel supply in comparable volumes to its sales contracts.

Power’s strategy is to maintain certain levels of uranium concentrates and uranium hexafluoride in inventory and to make periodic purchases to support such levels. As such, the commitments referred to below include estimated quantities to be purchased that are in excess of contractual minimum quantities.

Power’s nuclear fuel commitments cover approximately 100% of its estimated uranium, enrichment and fabrication requirements through 2011 and a portion for 2012 at Salem, Hope Creek and Peach Bottom.

As of September 30, 2008, the total minimum purchase requirements included in these commitments are as follows:

 

 

 

 

 

Fuel Type

 

Commitments
through 2012

 

Power’s share

Nuclear Fuel

 

 

 

 

Uranium

 

 

$

 

594

   

 

$

 

372

 

Enrichment

 

 

$

 

397

   

 

$

 

245

 

Fabrication

 

 

$

 

199

   

 

$

 

126

 

Natural Gas

 

 

$

 

829

   

 

$

 

829

 

Coal/Oil

 

 

$

 

1,001

   

 

$

 

1,001

 

Energy Holdings

The generation facilities of PSEG Texas, LP (PSEG Texas), a wholly owned subsidiary of Global, have entered into gas supply agreements for its anticipated fuel requirements to satisfy obligations under their forward energy sales contracts. As of September 30, 2008, PSEG Texas’ fuel purchase commitments were $45 million which support its contracted energy sales.

Regulatory Proceedings

PSEG and PSE&G

Electric Discount and Energy Competition Act (Competition Act)

In April 2007, PSE&G and Transition Funding were served with a copy of a purported class action complaint (Complaint) in New Jersey Superior Court challenging the constitutional validity of certain stranded cost recovery provisions of the Competition Act, seeking injunctive relief against continued collection from PSE&G’s electric customers of the Transition Bond Charge (TBC) of Transition Funding, as well as recovery of TBC amounts previously collected. Notice of the filing of the Complaint was also provided to New Jersey’s Attorney General. Under New Jersey law, the Competition Act, enacted in 1999, is presumed constitutional.

In July 2007, the same plaintiff filed an amended Complaint to also seek injunctive relief from continued collection of related taxes as well as recovery of such taxes previously collected. In July 2007, PSE&G filed a motion to dismiss the amended Complaint, or, in the alternative, for summary judgment. In October 2007, PSE&G’s and Transition Funding’s motion to dismiss the Amended Complaint was granted. In November 2007, the plaintiff filed a notice of appeal with the Appellate Division of the New Jersey Superior Court. Briefing of the appeal has been completed.

27


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

In July 2007, the same plaintiff also filed a petition with the BPU requesting review and adjustment to PSE&G’s recovery of the same stranded cost charges. In September 2007, PSE&G filed a motion with the BPU to dismiss the petition. PSE&G’s motion to dismiss the BPU petition is pending.

Investment Tax Credits (ITC)

The Internal Revenue Service (IRS) has 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, was terminated upon New Jersey’s electric industry deregulation in 1999. Based on this fact, in 1999, PSE&G reversed the deferred tax and ITC liability relating to the generation assets that were transferred to Power, and recorded a $235 million reduction of the extraordinary charge due to such restructuring of the industry in New Jersey. In May 2006, the IRS issued a PLR to PSE&G, which concluded that none of the generation ITC could be passed to utility customers without violating the IRS’ normalization rules. In March 2008, the U.S. Treasury Department issued final regulations that confirmed that none of the generation-related ITC could be passed to utility customers without violating the normalization rules. PSE&G has advised the BPU of these regulations and awaits the BPU’s determination on this matter. While the issuance of the regulations is a favorable development for PSE&G, no assurance can be given as to final outcome of this issue.

BPU Deferral Audit

The BPU Energy and Audit Division conducts audits of deferred balances 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 deferred balances. The BPU released the report in May 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 had 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 $114 million, which if required to be refunded to customers with interest through September 2008, would be $129 million.

At PSE&G’s request, the matter was transmitted to the Office of Administrative Law for the development of an evidentiary record and an initial decision. The BPU granted the request in February 2007. In May 2007, PSE&G filed a motion for Summary Judgment requesting dismissal of the matter. In September 2007, the Administrative Law Judge issued an initial decision denying PSE&G’s motion to dismiss the matter and ordering the filing of testimony and evidentiary hearings. Hearings were held in July 2008 and briefs were filed in September 2008. The BPU Staff and New Jersey Division of Rate Counsel have both asserted in briefs that the disputed amount should be refunded to customers.

While PSE&G believes the MTC methodology it used was fully litigated and resolved by the prior BPU Orders in its previous electric base rate case, deferral audit and deferral proceedings, PSE&G cannot predict the outcome of this proceeding.

New Jersey Clean Energy Program

In the third quarter of 2008, the BPU approved funding requirements for each New Jersey utility applicable to its Renewable Energy and Energy Efficiency programs for the years 2009 to 2012. The aggregate funding amount is $1.2 billion for all years. PSE&G’s share of the $1.2 billion program is $705 million, bringing the total liability through 2012 to $748 million. PSE&G has recorded a discounted liability of $703 million as of September 30, 2008. Of this amount, $140 million was recorded as a current liability and $563 million as a noncurrent liability. The liability has been recorded with an offsetting Regulatory Asset, since the costs associated with this program are expected to be recovered from PSE&G ratepayers through the SBC.

28


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Energy Holdings

Leveraged Lease Investments

In November 2006, the IRS issued its Revenue Agent’s Report with respect to its audit of PSEG’s federal corporate income tax returns for tax years 1997 through 2000, which disallowed all deductions associated with certain lease transactions that are similar to a type that the IRS publicly announced its intention to challenge. In addition, the IRS Report proposed a 20% penalty for substantial understatement of tax liability. In February 2007, PSEG filed a protest of these findings with the Office of Appeals of the IRS.

In April 2008, the IRS issued its Revenue Agent’s Report for tax years 2001 through 2003, which disallowed all deductions associated with lease transactions similar to those disallowed in its 1997 through 2000 Report. As in its prior report, the IRS proposed a 20% penalty. PSEG also filed a protest to this report with the Office of Appeals of the IRS.

As of September 30, 2008 and December 31, 2007, Resources’ total gross investment in such transactions was $1 billion and $1.5 billion, respectively.

PSEG has been in discussions with the Office of Appeals of the IRS concerning the deductions that have been disallowed. PSEG believes that its tax position related to these transactions was proper based on applicable statutes, regulations and case law in effect at the time that the deductions were taken.

There are several tax cases involving other taxpayers with similar leveraged lease investments that are pending. To date, three cases have been decided at the trial court level, two of which were decided in favor of the government. An appeal of one of these decisions was recently affirmed. The third case involves a jury verdict that is currently being challenged by both parties on inconsistency grounds.

In August 2008, the IRS publicly announced that it was issuing letters to a number of taxpayers with these types of lease transactions containing a generic settlement offer. PSEG did not accept the IRS’ settlement offer and will likely proceed to litigation.

Earnings Impact

As a result of the recent court decisions regarding these types of leveraged lease transactions, PSEG evaluated its unrecognized tax benefits under FIN 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement 109” (FIN 48), and recorded an after-tax increase to the interest reserve of $135 million in the second quarter of 2008. This charge is recorded in Income Tax Expense in PSEG’s Condensed Consolidated Statements of Operations. The after-tax increase to the interest reserve charged to income in the third quarter was $10 million.

Assuming all rental payments are made pursuant to the original lease agreement, and there are no changes in tax legislation and rates, the total cash and income included in a leveraged lease transaction will not change over the lease term. However, the timing of the cash flow can change due to changes in the timing of tax deductions. Changes in the timing of cash flows affect the overall return, or yield, that is recorded as income at a constant rate throughout the lease term. If there is a change in cash flow timing, pursuant to FSP 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,” the lease must be recalculated from inception assuming the new lease yield. Differences between the current gross lease investment and the gross lease investment per the recalculated lease must be recognized immediately in income.

In the second quarter of 2008, PSEG recalculated its lease transactions, incorporating potential cash payments (discussed below) consistent with the FIN 48 reserve position, and recorded an after-tax charge of $355 million. This charge is reflected as a reduction in Operating Revenues of $485 million with a partially offsetting reduction in Income Tax Expense of $130 million in PSEG’s Condensed Consolidated Statement of Operations. The $355 million will be recognized as income over the remaining term of the affected leases. In the third quarter, the additional reduction of operating revenues was $10 million with a partially offsetting reduction in income tax expense of $2 million, resulting in a net after-tax income reduction of $8 million.

This represents PSEG’s view of most of the financial statement exposure related to these lease transactions, although a total loss, consistent with the broad settlement offer recently proposed by the IRS, would result in an additional earnings charge of $110 million to $130 million.

29


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Cash Impact

As of September 30, 2008, an aggregate $1.2 billion would become currently payable if PSEG conceded 100% of deductions taken through that date. In December 2007, PSEG deposited $100 million with the IRS to defray potential interest costs associated with this disputed tax liability. In September 2008, PSEG deposited an additional $80 million bringing to $180 million the total cash deposited with the IRS. In the event PSEG is successful in defense of its position, the deposit is fully refundable with interest. These deposits reduce the $1.2 billion cash exposure noted above to approximately $1 billion. As of September 30, 2008, penalties of $151 million would also become payable if the IRS was successful in its deficiency claims against PSEG, and asserted and successfully litigated a case against PSEG regarding penalties. PSEG has not established a reserve for penalties because it believes it has strong defenses to the assertion of penalties under applicable law. Interest and penalty exposure grow at the rate of $15 million per quarter. Should PSEG lose its case in litigation, and the IRS is successful in a litigated case consistent with the positions it has taken in the generic settlement offer recently proposed, an additional $130 million to $150 million of tax would be due for tax positions through September 30, 2008.

Based on the status of discussions with the IRS, and considering developments in other cases, PSEG currently anticipates that it will pay between $230 million and $360 million in tax, interest and penalties for the tax years 1997-2000 during the first half of 2009 and subsequently commence litigation to recover these amounts. Further it is possible that an additional payment of between $270 million and $550 million could be required in late 2009 for tax years 2001-2003 followed by further litigation to recover those taxes. Theses amounts are in addition to tax deposits made to date for the years referenced above.

The actions described above concerning the leveraged lease investments are not expected to violate any covenant or result in a default under either Energy Holdings’ credit facility or Senior Notes indenture.

Note 6. Financial Risk Management

The operations of PSEG, Power and PSE&G 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, Power and PSE&G 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, Power and PSE&G 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, Power and PSE&G uses derivative instruments as risk management tools consistent with its respective business plan and prudent business practices.

Derivative Instruments and Hedging Activities

Energy Contracts

Power

Power actively trades 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 PJM, New York and New Jersey and natural gas in the producing region.

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 and futures. For contracts not qualifying for hedge accounting, Power marks its derivative energy contracts to market in accordance with SFAS 133 “Accounting for Derivative Instruments and Hedging Activities,” (SFAS 133) with changes in fair value charged to the Consolidated Statements of Operations. Wherever possible, fair values for these contracts are obtained from quoted market sources. For contracts where no quoted market

30


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

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.

The availability and price of energy commodities are subject to fluctuations from factors such as weather, environmental policies, changes in supply and demand, state and federal regulatory policies, market conditions, transmission availability and other events. Power manages its risk of fluctuations of energy price and availability through derivative instruments, such as forward purchase or sale contracts, swaps, options, futures and FTRs.

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 September 30, 2008, the fair value of these hedges was $(88) million. These hedges resulted in a $(69) million after-tax impact on Accumulated Other Comprehensive Loss. As of December 31, 2007, the fair value of these hedges was $(427) million. These hedges, along with realized losses on hedges of $(4) million retained in Accumulated Other Comprehensive Loss, resulted in a $(250) million after-tax impact on Accumulated Other Comprehensive Loss. During the 12 months ending September 30, 2009, $(23) million of after-tax unrealized losses on these commodity derivatives is expected to be reclassified to earnings with another $(48) million of after-tax unrealized losses to be reclassified to earnings for the 12 months ending September 30, 2010. Ineffectiveness associated with these hedges, as defined in SFAS 133, was a gain of $11 million, pre-tax, at September 30, 2008. The expiration date of the longest-dated cash flow hedge is in 2011.

Other Derivatives

Power also enters into certain other contracts that are derivatives, but do not qualify for cash flow 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 and a portion is used in Power’s Nuclear Decommissioning Trust Funds (NDT). Therefore, the changes in fair market value of these derivative contracts are recorded in Energy Costs, Operating Revenues, Other Income or Other Deductions, as appropriate, on the Consolidated Statements of Operations. The net fair value of these instruments was $5 million and $(10) million as of September 30, 2008 and December 31, 2007, respectively.

Energy Holdings

Cash Flow Hedges

Energy Holdings uses forward sale and purchase contracts and swaps to hedge forecasted energy sales from one of the generation stations of its subsidiary, PSEG Texas. Energy Holdings also enters into swap transactions to hedge the price of fuel. These derivative transactions are designated and effective as cash flow hedges under SFAS 133. As of September 30, 2008, the fair value of these hedges was $4 million. During the 12 months ending September 30, 2009, substantially all of the after-tax unrealized gains on these commodity derivatives are expected to be reclassified to earnings. There was no ineffectiveness associated with these hedges, as defined in SFAS 133. These hedges resulted in an after-tax impact of $2 million on Accumulated Other Comprehensive Loss. The expiration date of the longest-dated cash flow hedge is in 2009.

Other Derivatives

The generation facilities of PSEG Texas enter into electricity forward and capacity sales contracts to sell a portion of their 2,000 MW capacity with the balance sold into the daily spot market. They 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 PSEG Texas, 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

31


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

recorded at fair value through the Consolidated Statements of Operations. The net fair value of the open positions was $60 million as of September 30, 2008 and $63 million as of December 31, 2007.

Interest Rates

PSEG, Power and PSE&G

PSEG, Power and PSE&G 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

PSEG uses an interest rate swap to convert Power’s fixed-rate debt of $250 million of 3.75% Senior Notes due April 2009 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 September 30, 2008 and December 31, 2007, the fair value of the hedge was $(1) million and $(2) million, respectively.

Cash Flow Hedges

PSE&G

PSE&G uses interest rate swaps and other interest rate derivatives to manage its exposure 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. As of September 30, 2008 the fair value of these cash flow hedges was $(2) million and $(4) million, respectively. The $(2) million and $(4) million as of September 30, 2008 and December 31, 2007 are deferred as Regulatory Assets and are expected to be recovered from PSE&G’s customers. As of September 30, 2008, there was no hedge ineffectiveness associated with these hedges.

Other Derivatives

Energy Holdings

Energy Holdings uses interest rate swaps at PSEG Texas to manage its exposure to variability of cash flows, primarily related to variable-rate debt instruments. The interest rate derivatives were previously effective as cash flow hedges; however as of September 30, 2008 they were de-designated due to a change in their underlying interest basis. The fair value of these swaps recorded in Accumulated Other Comprehensive Loss as of September 30, 2008 was ($6) million and will be amortized to earnings over the remaining life of the underlying debt. The fair value changes of the swap beginning October 2008 will be marked to market through earnings.

32


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 7. Comprehensive Income (Loss), Net of Tax

 

 

 

 

 

 

 

 

 

 

 

Power (A)

 

PSE&G

 

Other (B)

 

Consolidated
Total

 

 

(Millions)

For the Quarter Ended September 30, 2008:

 

 

 

 

 

 

 

 

Net Income

 

 

$

 

328

   

 

$

 

98

   

 

$

 

230

   

 

$

 

656

 

Other Comprehensive Income (Loss)

 

 

 

775

   

 

 

   

 

 

(75

)

 

 

 

 

700

 

 

 

 

 

 

 

 

 

 

Comprehensive Income

 

 

$

 

1,103

   

 

$

 

98

   

 

$

 

155

   

 

$

 

1,356

 

 

 

 

 

 

 

 

 

 

For the Quarter Ended September 30, 2007:

 

 

 

 

 

 

 

 

Net Income

 

 

$

 

339

   

 

$

 

107

   

 

$

 

60

   

 

$

 

506

 

Other Comprehensive Income

 

 

 

52

   

 

 

   

 

 

34

   

 

 

86

 

 

 

 

 

 

 

 

 

 

Comprehensive Income

 

 

$

 

391

   

 

$

 

107

   

 

$

 

94

   

 

$

 

592

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30, 2008:

 

 

 

 

 

 

 

 

Net Income (Loss)

 

 

$

 

843

   

 

$

 

287

   

 

$

 

(176

)

 

 

 

$

 

954

 

Other Comprehensive Income (Loss)

 

 

 

115

   

 

 

   

 

 

(95

)

 

 

 

 

20

 

 

 

 

 

 

 

 

 

 

Comprehensive Income (Loss)

 

 

$

 

958

   

 

$

 

287

   

 

$

 

(271

)

 

 

 

$

 

974

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30, 2007:

 

 

 

 

 

 

 

 

Net Income

 

 

$

 

736

   

 

$

 

302

   

 

$

 

72

   

 

$

 

1,110

 

Other Comprehensive Income (Loss)

 

 

 

(73

)

 

 

 

 

   

 

 

54

   

 

 

(19

)

 

 

 

 

 

 

 

 

 

 

Comprehensive Income

 

 

$

 

663

   

 

$

 

302

   

 

$

 

126

   

 

$

 

1,091

 

 

 

 

 

 

 

 

 

 


 

 

(A)

 

 

 

Changes at Power primarily relate to changes in SFAS 133 unrealized gains and losses on derivative contracts that qualify for hedge accounting in 2008 and 2007, as detailed below.

 

(B)

 

 

 

Other consists of activity at PSEG (as parent company), Energy Holdings, Services and intercompany eliminations. Changes for 2008 and 2007 primarily relate to the sale of Global’s investment in SAESA Group. Refer to Note 3. Discontinued Operations, Dispositions and Impairments.

Accumulated Other Comprehensive Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of
December 31,
2007

 

Power

 

PSE&G

 

Other

 

Balance as of
September 30,
2008

 

 

(Millions)

For the Nine Months Ended September 30, 2008:

 

 

 

 

 

 

 

 

 

 

Derivative Contracts

 

 

$

 

(259

)

 

 

 

$

 

181

   

 

$