Annual Reports

 
Quarterly Reports

  • 10-Q (Jul 28, 2017)
  • 10-Q (Apr 28, 2017)
  • 10-Q (Oct 31, 2016)
  • 10-Q (Jul 29, 2016)
  • 10-Q (May 2, 2016)
  • 10-Q (Oct 30, 2015)

 
8-K

 
Other

Public Service Enterprise Group 10-Q 2012
Form 10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED March 31, 2012

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    22-2625848
   (A New Jersey Corporation)   
   80 Park Plaza, P.O. Box 1171   
   Newark, New Jersey 07101-1171   
   973 430-7000   
   http://www.pseg.com   
001-34232    PSEG POWER LLC    22-3663480
   (A Delaware Limited Liability Company)   
   80 Park Plaza—T25   
   Newark, New Jersey 07102-4194   
   973 430-7000   
   http://www.pseg.com   
001-00973    PUBLIC SERVICE ELECTRIC AND GAS COMPANY    22-1212800
   (A New Jersey Corporation)   
   80 Park Plaza, P.O. Box 570   
   Newark, New Jersey 07101-0570   
   973 430-7000   
   http://www.pseg.com   

 

 

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 x No ¨

Indicate by check mark whether the registrants have submitted electronically and posted on their corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files).

 

Public Service Enterprise Group Incorporated    Yes x    No ¨
PSEG Power LLC    Yes x    No ¨
Public Service Electric and Gas Company    Yes x    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 x   Accelerated filer ¨   Non-accelerated filer ¨   Smaller reporting company ¨
PSEG Power LLC   Large accelerated filer ¨   Accelerated filer ¨   Non-accelerated filer x   Smaller reporting company ¨

Public Service Electric and Gas Company

  Large accelerated filer ¨   Accelerated filer ¨   Non-accelerated filer x   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 x

As of April 17, 2012, Public Service Enterprise Group Incorporated had outstanding 505,894,915 shares of its sole class of Common Stock, without par value.

As of April 17, 2012, Public Service Electric and Gas Company had issued and outstanding 132,450,344 shares of Common Stock, without nominal or par value, all of which were privately held, beneficially and of record by Public Service Enterprise Group Incorporated.

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

 

 

 


         

Page

 
FORWARD-LOOKING STATEMENTS      ii   
PART I. FINANCIAL INFORMATION   

Item 1.

 

Financial Statements

  
 

Public Service Enterprise Group Incorporated

     1   
 

PSEG Power LLC

     6   
 

Public Service Electric and Gas Company

     11   
 

Notes to Condensed Consolidated Financial Statements

  
 

Note 1. Organization and Basis of Presentation

     16   
 

Note 2. Recent Accounting Standards

     17   
 

Note 3. Variable Interest Entities (VIEs)

     18   
 

Note 4. Discontinued Operations and Dispositions

     18   
 

Note 5. Financing Receivables

     19   
 

Note 6. Available-for-Sale Securities

     22   
 

Note 7. Pension and Other Postretirement Benefits (OPEB)

     26   
 

Note 8. Commitments and Contingent Liabilities

     28   
 

Note 9. Changes in Capitalization

     39   
 

Note 10. Financial Risk Management Activities

     39   
 

Note 11. Fair Value Measurements

     45   
 

Note 12. Other Income and Deductions

     53   
 

Note 13. Income Taxes

     53   
 

Note 14. Accumulated Other Comprehensive Income (Loss), Net of Tax

     55   
 

Note 15. Earnings Per Share (EPS) and Dividends

     56   
 

Note 16. Financial Information by Business Segments

     57   
 

Note 17. Related-Party Transactions

     58   
 

Note 18. Guarantees of Debt

     61   

Item 2.

 

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

     63   
 

Overview of 2012 and Future Outlook

     63   
 

Results of Operations

     66   
 

Liquidity and Capital Resources

     72   
 

Capital Requirements

     74   
 

Accounting Matters

     74   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     75   

Item 4.

 

Controls and Procedures

     76   

PART II. OTHER INFORMATION

  

Item 1.

 

Legal Proceedings

     77   

Item 1A.

 

Risk Factors

     77   

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     77   

Item 5.

 

Other Information

     77   

Item 6.

 

Exhibits

     83   
 

Signatures

     84   

 

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,” “should,” “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 8. Commitments and Contingent Liabilities, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and other factors discussed in filings we make with the United States Securities and Exchange Commission (SEC). These factors include, but are not limited to:

 

 

adverse changes in the demand for or the price of the capacity and energy that we sell into wholesale electricity markets,

 

 

adverse changes in energy industry law, policies and regulation, including market structures and a potential shift away from competitive markets toward subsidized market mechanisms, transmission planning and cost allocation rules, including rules regarding how transmission is planned and who is permitted to build transmission in the future, and reliability standards,

 

 

any inability of our transmission and distribution businesses to obtain adequate and timely rate relief and regulatory approvals from federal and state regulators,

 

 

changes in federal and state environmental regulations that could increase our costs or limit our operations,

 

 

changes in nuclear regulation and/or general developments in the nuclear power industry, including various impacts from any accidents or incidents experienced at our facilities or by others in the industry, that could limit operations of our nuclear generating units,

 

 

actions or activities at one of our nuclear units located on a multi-unit site that might adversely affect our ability to continue to operate that unit or other units located at the same site,

 

 

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

 

 

any deterioration in our credit quality or the credit quality of our counterparties, including in our leveraged leases,

 

 

availability of capital and credit at commercially reasonable terms and conditions and our ability to meet cash needs,

 

 

any inability to realize anticipated tax benefits or retain tax credits,

 

 

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

 

 

delays in receipt of necessary permits and approvals for our construction and development activities,

 

 

delays or unforeseen cost escalations in our construction and development activities,

 

 

any inability to achieve, or continue to sustain, our expected levels of operating performance,

 

 

increase in competition in energy supply markets as well as competition for certain rate-based transmission projects,

 

 

challenges associated with recruitment and /or retention of a qualified workforce,

 

 

adverse performance of our decommissioning and defined benefit plan trust fund investments and changes in discount rates and funding requirements, and

 

 

changes in technology and customer usage patterns.

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 apply only as of the date of this report. While we may elect to update forward-looking statements from time to time, we specifically disclaim any obligation to do so, even if internal estimates change, unless otherwise required by applicable securities laws.

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

Millions

(Unaudited)

 

     For The Three Months Ended
March 31,
 
    

2012

   

2011

 

OPERATING REVENUES

   $ 2,875      $ 3,354   

OPERATING EXPENSES

    

Energy Costs

     1,179        1,563   

Operation and Maintenance

     628        651   

Depreciation and Amortization

     256        241   

Taxes Other Than Income Taxes

     29        43   
  

 

 

   

 

 

 

Total Operating Expenses

     2,092        2,498   
  

 

 

   

 

 

 

OPERATING INCOME

     783        856   

Income from Equity Method Investments

     0        3   

Other Income

     44        76   

Other Deductions

     (16     (13

Other-Than-Temporary Impairments

     (5     (4

Interest Expense

     (101     (127
  

 

 

   

 

 

 

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

     705        791   

Income Tax (Expense) Benefit

     (212     (329
  

 

 

   

 

 

 

INCOME FROM CONTINUING OPERATIONS

     493        462   

Income (Loss) from Discontinued Operations, including Gain on

    

Disposal, net of tax (expense) benefit of $(36) for the period ended 2011

     0        64   
  

 

 

   

 

 

 
NET INCOME    $ 493      $ 526   
  

 

 

   

 

 

 

WEIGHTED AVERAGE COMMON SHARE OUTSTANDING (THOUSANDS):

    

BASIC

     506,010        505,979   
  

 

 

   

 

 

 

DILUTED

     507,029        507,132   
  

 

 

   

 

 

 

EARNINGS PER SHARE:

    

BASIC

    

INCOME FROM CONTINUING OPERATIONS

   $ 0.97      $ 0.91   
  

 

 

   

 

 

 

NET INCOME

   $ 0.97      $ 1.04   
  

 

 

   

 

 

 

DILUTED

    
    

INCOME FROM CONTINUING OPERATIONS

   $ 0.97      $ 0.91   
  

 

 

   

 

 

 

NET INCOME

   $ 0.97      $ 1.04   
  

 

 

   

 

 

 

DIVIDENDS PAID PER SHARE OF COMMON STOCK

   $ 0.3550      $ 0.3425   
  

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements.

 

1


PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Millions

(Unaudited)

     For The Three Months Ended
March 31,
 
    

2012

   

2011

 

NET INCOME

   $ 493      $ 526   

Other Comprehensive Income, net of tax

    

Available-for-Sale Securities, net of tax of $38 and $(8)

     37        (5

Change in Fair Value of Derivative Instruments, net of tax of $14 and $6

     20        9   

Reclassification Adjustments for Net Amounts included in

    

Net Income, net of tax of $(15) and $(28)

     (20     (41

Pension/OPEB adjustment, net of tax of $5 and $4

     7        6   
  

 

 

   

 

 

 

Other Comprehensive Income, net of tax

     44        (31
  

 

 

   

 

 

 

COMPREHENSIVE INCOME

   $ 537      $ 495   
  

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements.

 

2


PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

Millions

(Unaudited)

 

     March 31,     December 31,  
    

2012

   

2011

 

ASSETS

  

CURRENT ASSETS     

Cash and Cash Equivalents

   $ 931      $ 834   

Accounts Receivable, net of allowances of $61 and $56 in 2012 and 2011, respectively

     992        967   

Tax Receivable

     16        16   

Unbilled Revenues

     230        289   

Fuel

     491        685   

Materials and Supplies, net

     375        367   

Prepayments

     315        308   

Derivative Contracts

     202        156   

Regulatory Assets

     381        167   

Other

     28        122   
  

 

 

   

 

 

 

Total Current Assets

     3,961        3,911   
  

 

 

   

 

 

 

PROPERTY, PLANT AND EQUIPMENT

     25,596        25,080   

Less: Accumulated Depreciation and Amortization

     (7,363     (7,231
  

 

 

   

 

 

 

Net Property, Plant and Equipment

     18,233        17,849   
  

 

 

   

 

 

 

NONCURRENT ASSETS

    

Regulatory Assets

     3,437        3,805   

Regulatory Assets of Variable Interest Entities (VIEs)

     877        925   

Long-Term Investments

     1,276        1,303   

Nuclear Decommissioning Trust (NDT) Fund

     1,449        1,349   

Other Special Funds

     226        172   

Goodwill

     16        16   

Other Intangibles

     136        131   

Derivative Contracts

     131        106   

Restricted Cash of VIEs

     22        22   

Other

     238        232   
  

 

 

   

 

 

 

Total Noncurrent Assets

     7,808        8,061   
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 30,002      $ 29,821   
  

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements.

 

3


PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

Millions

(Unaudited)

 

     March 31,     December 31,  
    

2012

   

2011

 
LIABILITIES AND CAPITALIZATION  
CURRENT LIABILITIES     

Long-Term Debt Due Within One Year (includes $50 at fair value in 2012 and  2011)

   $ 501      $ 417   

Securitization Debt of VIEs Due Within One Year

     218        216   

Commercial Paper and Loans

     29        0   

Accounts Payable

     1,030        1,184   

Derivative Contracts

     154        131   

Accrued Interest

     115        97   

Accrued Taxes

     59        30   

Deferred Income Taxes

     258        170   

Clean Energy Program

     199        214   

Obligation to Return Cash Collateral

     119        107   

Regulatory Liabilities

     81        100   

Other

     345        291   
  

 

 

   

 

 

 

Total Current Liabilities

     3,108        2,957   
  

 

 

   

 

 

 
NONCURRENT LIABILITIES     

Deferred Income Taxes and Investment Tax Credits (ITC)

     5,693        5,458   

Regulatory Liabilities

     216        228   

Regulatory Liabilities of VIEs

     10        9   

Asset Retirement Obligations

     497        489   

Other Postretirement Benefit (OPEB) Costs

     1,115        1,127   

Accrued Pension Costs

     613        734   

Clean Energy Program

     0        39   

Environmental Costs

     606        643   

Derivative Contracts

     20        26   

Long-Term Accrued Taxes

     154        292   

Other

     85        86   
  

 

 

   

 

 

 

Total Noncurrent Liabilities

     9,009        9,131   
  

 

 

   

 

 

 
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 8)     
CAPITALIZATION     

LONG-TERM DEBT

    

Long-Term Debt

     6,544        6,694   

Securitization Debt of VIEs

     671        723   

Project Level, Non-Recourse Debt

     44        44   
  

 

 

   

 

 

 

Total Long-Term Debt

     7,259        7,461   
  

 

 

   

 

 

 
STOCKHOLDERS’ EQUITY     

Common Stock, no par, authorized 1,000,000,000 shares; issued, 2012 and 2011—533,556,660 shares

     4,823        4,823   

Treasury Stock, at cost, 2012—27,663,745 shares; 2011—27,611,374 shares

     (605     (601

Retained Earnings

     6,699        6,385   

Accumulated Other Comprehensive Loss

     (293     (337
  

 

 

   

 

 

 

Total Common Stockholders’ Equity

     10,624        10,270   

Noncontrolling Interest

     2        2   
  

 

 

   

 

 

 

Total Stockholders’ Equity

     10,626        10,272   
  

 

 

   

 

 

 

Total Capitalization

     17,885        17,733   
  

 

 

   

 

 

 

TOTAL LIABILITIES AND CAPITALIZATION

   $ 30,002      $ 29,821   
  

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements.

 

4


PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Millions

(Unaudited)

 

     For the Three Months Ended  
     March 31,  
    

2012

   

2011

 

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net Income

   $     493      $     526   

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

    

Gain on Disposal of Discontinued Operations

     0        (81

Depreciation and Amortization

     256        245   

Amortization of Nuclear Fuel

     43        39   

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

     12        (152

Non-Cash Employee Benefit Plan Costs

     68        53   

Leveraged Lease Income, Adjusted for Rents Received and Deferred Taxes

     140        (11

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

     0        8   

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

     21        31   

Over (Under) Recovery of Societal Benefits Charge (SBC)

     0        23   

Cost of Removal

     (20     (13

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

     (15     (60

Net Change in Tax Receivable

     0        441   

Net Change in Certain Current Assets and Liabilities

     279        455   

Employee Benefit Plan Funding and Related Payments

     (154     (446

Other

     (35     (16
  

 

 

   

 

 

 

Net Cash Provided By (Used In) Operating Activities

     1,088        1,042   
  

 

 

   

 

 

 
CASH FLOWS FROM INVESTING ACTIVITIES     

Additions to Property, Plant and Equipment

     (687     (497

Proceeds from Sale of Discontinued Operations

     0        351   

Proceeds from Sales of Available-for-Sale Securities

     499        315   

Investments in Available-for-Sale Securities

     (511     (331

Other

     (7     7   
  

 

 

   

 

 

 

Net Cash Provided By (Used In) Investing Activities

     (706     (155
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

    

Net Change in Commercial Paper and Loans

     29        (43

Redemption of Long-Term Debt

     (66     0   

Redemption of Securitization Debt

     (49     (46

Repayment of Non-Recourse Debt

     0        (1

Cash Dividends Paid on Common Stock

     (179     (173

Other

     (20     (4
  

 

 

   

 

 

 

Net Cash Provided By (Used In) Financing Activities

     (285     (267
  

 

 

   

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

     97        620   

Cash and Cash Equivalents at Beginning of Period

     834        280   
  

 

 

   

 

 

 

Cash and Cash Equivalents at End of Period

   $ 931      $ 900   
  

 

 

   

 

 

 

Supplemental Disclosure of Cash Flow Information:

    

Income Taxes Paid (Received)

   $ 3      $ 8   

Interest Paid, Net of Amounts Capitalized

   $ 84      $ 85   
    

See Notes to Condensed Consolidated Financial Statements.

 

5


PSEG POWER LLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Millions

(Unaudited)

 

     For The Three Months Ended
March 31,
 
    

2012

   

2011

 

OPERATING REVENUES

   $ 1,561      $ 1,967   

OPERATING EXPENSES

    

Energy Costs

     822        1,135   

Operation and Maintenance

     241        277   

Depreciation and Amortization

     57        54   
  

 

 

   

 

 

 

Total Operating Expenses

     1,120        1,466   
  

 

 

   

 

 

 

OPERATING INCOME

     441        501   

Other Income

     30        70   

Other Deductions

     (15     (12

Other-Than-Temporary Impairments

     (5     (2

Interest Expense

     (30     (51
  

 

 

   

 

 

 

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

     421        506   

Income Tax (Expense) Benefit

     (168     (208
  

 

 

   

 

 

 

INCOME FROM CONTINUING OPERATIONS

     253        298   

Income (Loss) from Discontinued Operations, including Gain on Disposal, net of tax (expense) benefit of $(36) for the period ended 2011

     0        64   
  

 

 

   

 

 

 

EARNINGS AVAILABLE TO PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

   $ 253      $ 362   
  

 

 

   

 

 

 

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

 

6


PSEG POWER LLC

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Millions

(Unaudited)

     For The Three Months Ended
March 31,
 
    

2012

   

2011

 
NET INCOME    $ 253      $ 362   

Other Comprehensive Income, net of tax

    

Available-for-Sale Securities, net of tax of $39 and $(9)

     37        (7

Change in Fair Value of Derivative Instruments, net of tax of
$14 and $6

     20        9   

Reclassification Adjustments for Net Amounts included in
Net Income, net of tax of $(15) and $(28)

     (20     (41

Pension/OPEB adjustment, net of tax of $5 and $4

     7        6   
  

 

 

   

 

 

 

Other Comprehensive Income, net of tax

     44        (33
  

 

 

   

 

 

 

COMPREHENSIVE INCOME

   $ 297      $ 329   
  

 

 

   

 

 

 
    

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

 

7


PSEG POWER LLC

CONDENSED CONSOLIDATED BALANCE SHEETS

Millions

(Unaudited)

 

     March 31,     December 31,  
    

2012

   

2011

 

ASSETS

  

CURRENT ASSETS

    

Cash and Cash Equivalents

   $ 5      $ 12   

Accounts Receivable

     219        267   

Accounts Receivable—Affiliated Companies, net

     243        381   

Short-Term Loan to Affiliate

     1,035        907   

Fuel

     491        685   

Materials and Supplies, net

     278        272   

Derivative Contracts

     186        139   

Prepayments

     48        24   
  

 

 

   

 

 

 

Total Current Assets

     2,505        2,687   
  

 

 

   

 

 

 

PROPERTY, PLANT AND EQUIPMENT

     9,345        9,191   

Less: Accumulated Depreciation and Amortization

     (2,550     (2,460
  

 

 

   

 

 

 

Net Property, Plant and Equipment

     6,795        6,731   
  

 

 

   

 

 

 

NONCURRENT ASSETS

    

Nuclear Decommissioning Trust (NDT) Fund

     1,449        1,349   

Goodwill

     16        16   

Other Intangibles

     136        131   

Other Special Funds

     44        33   

Derivative Contracts

     51        55   

Other

     93        85   
  

 

 

   

 

 

 

Total Noncurrent Assets

     1,789        1,669   
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 11,089      $ 11,087   
  

 

 

   

 

 

 

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

 

8


PSEG POWER LLC

CONDENSED CONSOLIDATED BALANCE SHEETS

Millions

(Unaudited)

 

     March 31,     December 31,  
    

2012

   

2011

 
LIABILITIES AND MEMBER’S EQUITY  

CURRENT LIABILITIES

    

Long-Term Debt Due Within One Year

   $ 0      $ 66   

Accounts Payable

     473        541   

Derivative Contracts

     152        124   

Deferred Income Taxes

     56        53   

Accrued Interest

     49        32   

Other

     67        86   
  

 

 

   

 

 

 

Total Current Liabilities

     797        902   
  

 

 

   

 

 

 

NONCURRENT LIABILITIES

    

Deferred Income Taxes and Investment Tax Credits (ITC)

     1,364        1,266   

Asset Retirement Obligations

     264        259   

Other Postretirement Benefit (OPEB) Costs

     183        180   

Derivative Contracts

     18        24   

Accrued Pension Costs

     200        236   

Long-Term Accrued Taxes

     52        8   

Other

     84        83   
  

 

 

   

 

 

 

Total Noncurrent Liabilities

     2,165        2,056   
  

 

 

   

 

 

 

COMMITMENTS AND CONTINGENT LIABILITIES (See Note 8)

    

LONG-TERM DEBT

    

Total Long-Term Debt

     2,685        2,685   
  

 

 

   

 

 

 

MEMBER’S EQUITY

    

Contributed Capital

     2,028        2,028   

Basis Adjustment

     (986     (986

Retained Earnings

     4,632        4,678   

Accumulated Other Comprehensive Loss

     (232     (276
  

 

 

   

 

 

 

Total Member’s Equity

     5,442        5,444   
  

 

 

   

 

 

 

TOTAL LIABILITIES AND MEMBER’S EQUITY

   $ 11,089      $ 11,087   
  

 

 

   

 

 

 

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

 

9


PSEG POWER LLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Millions

(Unaudited)

 

     For the Three Months Ended
March 31,
 
    

2012

   

2011

 

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net Income

   $ 253      $ 362   

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

    

Gain on Disposal of Discontinued Operations

     0        (81

Depreciation and Amortization

     57        58   

Amortization of Nuclear Fuel

     43        39   

Provision for Deferred Income Taxes and ITC

     101        (139

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

     0        8   

Non-Cash Employee Benefit Plan Costs

     18        13   

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

     (15     (60

Net Change in Certain Current Assets and Liabilities:

    

Fuel, Materials and Supplies

     188        286   

Margin Deposit

     (34     (23

Accounts Receivable

     47        145   

Accounts Payable

     (11     (126

Accounts Receivable/Payable-Affiliated Companies, net

     145        500   

Other Current Assets and Liabilities

     (22     58   

Employee Benefit Plan Funding and Related Payments

     (38     (124

Other

     (1     (13
  

 

 

   

 

 

 

Net Cash Provided By (Used In) Operating Activities

     731        903   
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

    

Additions to Property, Plant and Equipment

     (237     (155

Proceeds from Sale of Discontinued Operations

     0        351   

Proceeds from Sales of Available-for-Sale Securities

     375        315   

Investments in Available-for-Sale Securities

     (385     (331

Short-Term Loan—Affiliated Company, net

     (128     (926

Other

     10        17   
  

 

 

   

 

 

 

Net Cash Provided By (Used In) Investing Activities

     (365     (729
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

    

Cash Dividend Paid

     (300     (175

Redemption of Long-Term Debt

     (66     0   

Other

     (7     0   
  

 

 

   

 

 

 

Net Cash Provided By (Used In) Financing Activities

     (373     (175
  

 

 

   

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

     (7     (1

Cash and Cash Equivalents at Beginning of Period

     12        11   
  

 

 

   

 

 

 

Cash and Cash Equivalents at End of Period

   $ 5      $ 10   
  

 

 

   

 

 

 

Supplemental Disclosure of Cash Flow Information:

    

Income Taxes Paid (Received)

   $ (2   $ 9   

Interest Paid, Net of Amounts Capitalized

   $ 15      $ 10   

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

 

 

10


PUBLIC SERVICE ELECTRIC AND GAS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Millions

(Unaudited)

 

     For The Three Months Ended
March 31,
 
    

2012

    

2011

 

OPERATING REVENUES

   $ 1,939       $ 2,306   

OPERATING EXPENSES

     

Energy Costs

     1,002         1,366   

Operation and Maintenance

     376         368   

Depreciation and Amortization

     190         179   

Taxes Other Than Income Taxes

     29         43   
  

 

 

    

 

 

 

Total Operating Expenses

     1,597         1,956   
  

 

 

    

 

 

 

OPERATING INCOME

     342         350   

Other Income

     11         5   

Other Deductions

     (1      (1

Other-Than-Temporary Impairments

     0         (1

Interest Expense

     (73      (79
  

 

 

    

 

 

 

INCOME BEFORE INCOME TAXES

     279         274   

Income Tax (Expense) Benefit

     (82      (111
  

 

 

    

 

 

 

EARNINGS AVAILABLE TO PUBLIC
SERVICE ENTERPRISE GROUP INCORPORATED

   $ 197       $ 163   
  

 

 

    

 

 

 

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

 

11


PUBLIC SERVICE ELECTRIC AND GAS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Millions

(Unaudited)

 

     For The Three Months Ended
March 31,
 
    

2012

   

2011

 

NET INCOME

   $ 197      $ 163   

Available-for-Sale Securities, net of tax of $(1) and $1

     (1     1   
  

 

 

   

 

 

 

COMPREHENSIVE INCOME

   $ 196      $ 164   
  

 

 

   

 

 

 

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

 

12


PUBLIC SERVICE ELECTRIC AND GAS COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

Millions

(Unaudited)

 

     March 31,     December 31,  
    

2012

   

2011

 

ASSETS

  

CURRENT ASSETS

    

Cash and Cash Equivalents

   $ 35      $ 143   

Accounts Receivable, net of allowances of $61 in 2012 and $56 in 2011, respectively

     764        691   

Tax Receivable

     16        16   

Unbilled Revenues

     230        289   

Materials and Supplies

     97        94   

Deferred Income Taxes

     5        0   

Prepayments

     65        117   

Regulatory Assets

     381        167   

Other

     18        21   
  

 

 

   

 

 

 

Total Current Assets

     1,611        1,538   
  

 

 

   

 

 

 

PROPERTY, PLANT AND EQUIPMENT

     15,637        15,306   

Less: Accumulated Depreciation and Amortization

     (4,572     (4,539
  

 

 

   

 

 

 

Net Property, Plant and Equipment

     11,065        10,767   
  

 

 

   

 

 

 

NONCURRENT ASSETS

    

Regulatory Assets

     3,437        3,805   

Regulatory Assets of VIEs

     877        925   

Long-Term Investments

     299        280   

Other Special Funds

     75        57   

Derivative Contracts

     34        4   

Restricted Cash of VIEs

     22        22   

Other

     94        89   
  

 

 

   

 

 

 

Total Noncurrent Assets

     4,838        5,182   
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 17,514      $ 17,487   
  

 

 

   

 

 

 

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

 

13


PUBLIC SERVICE ELECTRIC AND GAS COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

Millions

(Unaudited)

 

     March 31,      December 31,  
    

2012

    

2011

 
LIABILITIES AND CAPITALIZATION  

CURRENT LIABILITIES

     

Long-Term Debt Due Within One Year

   $ 450       $ 300   

Securitization Debt of VIEs Due Within One Year

     218         216   

Commercial Paper and Loans

     29         0   

Accounts Payable

     421         498   

Accounts Payable—Affiliated Companies, net

     280         280   

Accrued Interest

     65         65   

Clean Energy Program

     199         214   

Derivative Contracts

     2         7   

Deferred Income Taxes

     0         32   

Obligation to Return Cash Collateral

     119         107   

Regulatory Liabilities

     81         100   

Other

     278         186   
  

 

 

    

 

 

 

Total Current Liabilities

     2,142         2,005   
  

 

 

    

 

 

 

NONCURRENT LIABILITIES

     

Deferred Income Taxes and ITC

     3,803         3,675   

Other Postretirement Benefit (OPEB) Costs

     885         900   

Accrued Pension Costs

     282         355   

Regulatory Liabilities

     216         228   

Regulatory Liabilities of VIEs

     10         9   

Clean Energy Program

     0         39   

Environmental Costs

     555         592   

Asset Retirement Obligations

     228         226   

Long-Term Accrued Taxes

     23         83   

Other

     35         35   
  

 

 

    

 

 

 

Total Noncurrent Liabilities

     6,037         6,142   
  

 

 

    

 

 

 

COMMITMENTS AND CONTINGENT LIABILITIES (See Note 8)

     

CAPITALIZATION

     

LONG-TERM DEBT

     

Long-Term Debt

     3,821         3,970   

Securitization Debt of VIEs

     671         723   
  

 

 

    

 

 

 

Total Long-Term Debt

     4,492         4,693   
  

 

 

    

 

 

 

STOCKHOLDER’S EQUITY

     

Common Stock; 150,000,000 shares authorized; issued and outstanding, 2012 and 2011—132,450,344 shares

     892         892   

Contributed Capital

     420         420   

Basis Adjustment

     986         986   

Retained Earnings

     2,544         2,347   

Accumulated Other Comprehensive Income

     1         2   
  

 

 

    

 

 

 

Total Stockholder’s Equity

     4,843         4,647   
  

 

 

    

 

 

 

Total Capitalization

     9,335         9,340   
  

 

 

    

 

 

 

TOTAL LIABILITIES AND CAPITALIZATION

   $ 17,514       $ 17,487   
  

 

 

    

 

 

 

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

 

 

14


PUBLIC SERVICE ELECTRIC AND GAS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Millions

 

     For The Three Months Ended
March 31,
 
    

2012

   

2011

 

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net Income

   $ 197      $ 163   

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

    

Depreciation and Amortization

     190        179   

Provision for Deferred Income Taxes and ITC

     8        (8

Non-Cash Employee Benefit Plan Costs

     44        35   

Cost of Removal

     (20     (13

Market Transition Charge (MTC) Refund

     (14     (15

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

     21        31   

Over (Under) Recovery of SBC

     0        23   

Net Changes in Certain Current Assets and Liabilities:

    

Accounts Receivable and Unbilled Revenues

     (14     (47

Materials and Supplies

     (3     (3

Prepayments

     52        79   

Accounts Receivable/Payable-Affiliated Companies, net

     (8     (33

Other Current Assets and Liabilities

     51        40   

Employee Benefit Plan Funding and Related Payments

     (103     (276

Other

     (35     2   
  

 

 

   

 

 

 

Net Cash Provided By (Used In) Operating Activities

     366        157   
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

    

Additions to Property, Plant and Equipment

     (435     (339

Proceeds from Sale of Available-for-Sale Securities

     51        0   

Investments in Available-for-Sale Securities

     (51     0   

Solar Loan Investments

     (19     (10
  

 

 

   

 

 

 

Net Cash Provided By (Used In) Investing Activities

     (454     (349
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

    

Net Change in Short-Term Debt

     29        21   

Redemption of Securitization Debt

     (49     (46
  

 

 

   

 

 

 

Net Cash Provided By (Used In) Financing Activities

     (20     (25
  

 

 

   

 

 

 

Net Increase (Decrease) In Cash and Cash Equivalents

     (108     (217

Cash and Cash Equivalents at Beginning of Period

     143        245   
  

 

 

   

 

 

 

Cash and Cash Equivalents at End of Period

   $ 35      $ 28   
  

 

 

   

 

 

 

Supplemental Disclosure of Cash Flow Information:

    

Income Taxes Paid (Received)

   $ (22   $ 0   

Interest Paid, Net of Amounts Capitalized

   $    69      $    74   

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

 

15


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

This combined Form 10-Q is separately filed by Public Service Enterprise Group Incorporated (PSEG), PSEG Power LLC (Power) and Public Service Electric and Gas Company (PSE&G). Information relating to any individual company is filed by such company on its own behalf. Power and PSE&G each is only responsible for information about itself and its subsidiaries.

Note 1. Organization and Basis of Presentation

Organization

PSEG is a holding company with a diversified business mix within the energy industry. Its operations are primarily in the Northeastern and Mid Atlantic United States and in other select markets. PSEG’s four principal direct wholly owned subsidiaries are:

 

 

Power—which 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 functions through three principal direct wholly owned subsidiaries. Power’s subsidiaries are subject to regulation by the Federal Energy Regulatory Commission (FERC), the Nuclear Regulatory Commission (NRC) and the states in which they operate.

 

 

PSE&G—which is an operating public utility engaged principally in the transmission of electricity and distribution of electricity 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 is also investing in the development of solar generation projects and energy efficiency programs, which are regulated by the BPU.

 

 

PSEG Energy Holdings L.L.C. (Energy Holdings)—which has invested in leveraged leases and owns and operates primarily domestic projects engaged in the generation of energy through its direct wholly owned subsidiaries. Certain Energy Holdings’ subsidiaries are subject to regulation by FERC and the states in which they operate. Energy Holdings has also invested in solar generation projects and is exploring opportunities for other investments in renewable generation and has been awarded a contract to manage the transmission and distribution assets of the Long Island Power Authority (LIPA).

 

 

PSEG Services Corporation (Services)—which provides management, administrative and general services to PSEG and its subsidiaries at cost.

Basis of Presentation

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, the Annual Report on Form 10-K for the year ended December 31, 2011.

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. All significant intercompany accounts and transactions are eliminated in consolidation, except as discussed in Note 17. Related-Party Transactions. 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, 2011.

 

16


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 2. Recent Accounting Standards

New Standard Adopted during 2012

Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in GAAP and International Financial Reporting Standards (IFRS)

This accounting standard was issued to update guidance related to fair value measurements and disclosures as a step towards achieving convergence between GAAP and IFRS. The updated guidance

 

 

clarifies intent about application of existing fair value measurements and disclosures,

 

 

changes some requirements for fair value measurements, and

 

 

requires expanded disclosures.

We adopted this standard prospectively effective January 1, 2012. Upon adoption there was no material impact on our consolidated financial position, results of operations or cash flows; however, it has resulted in expanded disclosures. For additional information, see Note 11. Fair Value Measurements.

Presentation of Comprehensive Income

This accounting standard addresses the presentation of comprehensive income as a step towards achieving convergence between GAAP and IFRS. The updated guidance

 

 

allows an entity to present components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements, and

 

 

eliminates the current option to report other comprehensive income and its components in the statement of changes in equity.

In December 2011, the FASB issued an amendment to this standard to indefinitely defer the effective date for some of the specific disclosure requirements that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented. During the deferral period, the existing requirements in GAAP for the presentation of reclassification adjustments must continue to be followed.

We adopted this standard retrospectively effective January 1, 2012. Upon adoption of the new amended guidance, there was no impact on our consolidated financial position, results of operations or cash flows, but there was a change in the presentation of the components of other comprehensive income.

New Accounting Standards Issued But Not Yet Adopted

Disclosures about Offsetting Assets and Liabilities

This accounting standard was issued on balance sheet offsetting disclosures to facilitate comparability between financial statements prepared on the basis of GAAP and financial statements prepared on the basis of IFRS. This standard requires entities:

 

 

to disclose information about offsetting and related arrangements to enable users of financial statements to understand the effect of those arrangements on an entity’s financial position, and

 

 

to present both net (offset amounts) and gross information in the notes to the financial statements for relevant assets and liabilities that are offset.

The guidance is effective for fiscal years and interim periods beginning on or after January 1, 2013. As this standard requires disclosures only, it will not have any impact on our consolidated financial position, results of operations or cash flows upon adoption.

 

17


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 3. Variable Interest Entities (VIEs)

Variable Interest Entities for which PSE&G is the Primary Beneficiary

PSE&G is the primary beneficiary and consolidates two marginally capitalized VIEs, PSE&G Transition Funding LLC (Transition Funding) and PSE&G Transition Funding II LLC (Transition Funding II), which were created for the purpose of issuing transition bonds and purchasing bond transitional property of PSE&G, which is pledged as collateral to a trustee. PSE&G acts as the servicer for these entities to collect securitization transition charges authorized by the BPU. These funds are remitted to Transition Funding and Transition Funding II and are used for interest and principal payments on the transition bonds and related costs.

The assets and liabilities of these VIEs are presented separately on the face of the Condensed Consolidated Balance Sheets of PSEG and PSE&G because the Transition Funding and Transition Funding II assets are restricted and can only be used to settle their respective obligations. No Transition Funding or Transition Funding II creditor has any recourse to the general credit of PSE&G in the event the transition charges are not sufficient to cover the bond principal and interest payments of Transition Funding or Transition Funding II, respectively.

PSE&G’s maximum exposure to loss is equal to its equity investment in these VIEs which was $16 million as of March 31, 2012 and December 31, 2011. The risk of actual loss to PSE&G is considered remote. PSE&G did not provide any financial support to Transition Funding or Transition Funding II during the first three months of 2012 or in 2011. Further, PSE&G does not have any contractual commitments or obligations to provide financial support to Transition Funding or Transition Funding II.

Note 4. Discontinued Operations and Dispositions

Discontinued Operations

Power

In March 2011, Power completed the sale of its 1,000 MW gas-fired Guadalupe generating facility for a total price of $351 million, resulting in an after-tax gain of $53 million.

PSEG Texas’ operating results for the three months ended March 31, 2011, which were reclassified to Discontinued Operations, are summarized below:

 

    

Three Months Ended
March 31,

2011

 
     Millions  

Operating Revenues

   $ 63   

Income Before Income Taxes

   $ 18   

Net Income

   $ 11   

 

18


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 5. Financing Receivables

PSE&G

PSE&G sponsors a solar loan program designed to help finance the installation of solar power systems throughout its electric service area. The loans are generally paid back with Solar Renewable Energy Certificates (SRECs) generated from the installed solar electric system. The following table reflects the outstanding short and long-term loans by class of customer, none of which are considered “non-performing.”

 

Credit Risk Profile Based on Payment Activity  
     As of      As of  
     March 31,      December 31,  

Consumer Loans

  

2012

    

2011

 
     Millions  

Performing

     

Commercial/Industrial

   $ 125       $ 106   

Residential

     11         10   
  

 

 

    

 

 

 
   $ 136       $ 116   
  

 

 

    

 

 

 

Energy Holdings

Energy Holdings has investments in domestic energy and real estate assets subject primarily to leveraged lease accounting. A leveraged lease is typically comprised of an investment by an equity investor and debt provided by a third party debt investor. The debt is recourse only to the assets subject to lease and is not included on PSEG’s Condensed Consolidated Balance Sheets. As an equity investor, Energy Holdings’ investments in the leases are comprised of the total expected lease receivables on its investments over the lease terms plus the estimated residual values at the end of the lease terms, reduced for any income not yet earned on the leases. This amount is included in Long-Term Investments on PSEG’s Condensed Consolidated Balance Sheets. The more rapid depreciation of the leased property for tax purposes creates tax cash flow that will be repaid to the taxing authority in later periods. As such, the liability for such taxes due is recorded in Deferred Income Taxes on PSEG’s Condensed Consolidated Balance Sheets. The table below shows Energy Holdings’ gross and net lease investment as of March 31, 2012 and December 31, 2011, respectively.

 

     As of     As of  
     March 31,     December 31,  
    

2012

   

2011

 
     Millions  

Lease Receivables (net of Non-Recourse Debt)

   $ 726      $ 763   

Estimated Residual Value of Leased Assets

     535        553   
  

 

 

   

 

 

 
     1,261        1,316   

Unearned and Deferred Income

     (431     (435
  

 

 

   

 

 

 

Gross Investments in Leases

     830        881   

Deferred Tax Liabilities

     (694     (716
  

 

 

   

 

 

 

Net Investments in Leases

   $ 136      $ 165   
  

 

 

   

 

 

 

 

19


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The corresponding receivables associated with the lease portfolio are reflected below, net of non-recourse debt. The ratings in the table represent the ratings of the entities providing payment assurance to Energy Holdings. “Not Rated” counterparties relate to investments in leases of commercial real estate properties.

 

    

Lease Receivables, Net of
Non-Recourse Debt

 
     As of
March 31,
     As of
December 31,
 

Counterparties’ Credit Rating (S&P)

  

2012

    

2011

 
     Millions  

AA

   $ 21       $ 21   

A+

     73         110   

BBB - BB

     316         316   

B

     166         299   

CCC+

     134         0   

Not Rated

     16         17   
  

 

 

    

 

 

 
   $ 726       $ 763   
  

 

 

    

 

 

 

The “B” and “CCC+” ratings above represent lease receivables related to coal-fired assets in Illinois and Pennsylvania. As of March 31, 2012, the gross investment in the leases of such assets, net of non-recourse debt, was $552 million ($47 million, net of deferred taxes). A more detailed description of such assets under lease is presented in the table below.

 

Asset

 

Location

   

Gross
Investment

    

%
Owned

    

Total

    

Fuel
Type

  

Counterparties’
S&P Credit
Ratings

  

Counterparty

          Millions             MW                 

Powerton Station Units 5 and 6

    IL      $ 134         64%         1,538       Coal    CCC+    Edison Mission Energy

Joliet Station Units 7 and 8

    IL      $ 84         64%         1,044       Coal    CCC+    Edison Mission Energy

Keystone Station Units 1 and 2

    PA      $ 113         17%         1,711       Coal    B    GenOn REMA, LLC

Conemaugh Station Units 1 and 2

    PA      $ 113         17%         1,711       Coal    B    GenOn REMA, LLC

Shawville Station Units 1, 2, 3 and 4

    PA      $ 108         100%         603       Coal    B    GenOn REMA, LLC

Although all payments of equity rent, debt service and other fees are current, no assurances can be given that all payments in accordance with the lease contracts will continue. Factors which may impact future lease cash flows include, but are not limited to, new environmental legislation and regulation regarding air quality, water and other discharges in the process of generating electricity, market prices for fuel and electricity, overall financial condition of lease counterparties and the quality and condition of assets under lease. Of our facilities under lease to GenOn REMA, LLC (GenOn REMA), a subsidiary of GenOn Energy Inc (GenOn), PSEG believes Keystone has adequate environmental controls installed and Conemaugh has flue gas desulfurization controls and mercury controls, with the final component, selective catalytic reduction (SCR) equipment for Nitrogen Oxide (NOx) scheduled to be installed in 2014.

GenOn recently disclosed its intention to place the coal-fired units at the Shawville facility in a “long-term protective layup” effective April 2015. GenOn has indicated that it plans to continue paying the required rent

 

20


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

and maintaining the facility in accordance with the lease terms. The lessee is evaluating its options under the lease including termination for economic obsolescence or continuing to keep the facility in “long-term protective layup.” In the event of an early termination for obsolescence, the lessee would be required to pay the pre-determined termination value structured to recover Energy Holdings’ lease investment as specified in the lease agreement, and may have additional liability under the relevant documents.

With respect to Edison Mission Energy’s (EME) Midwest Generation leases on the Powerton and Joliet coal units in Illinois, the lessees completed investments in low NOx burners and Selective Non-Catalytic Reduction systems and plan to utilize a Trona system to reduce sulfur. EME and these units remain in litigation with the United States Environmental Protection Agency (EPA) and the State of Illinois regarding certain environmental matters, but EME has announced that the above actions should enable compliance with pending environmental rules. The federal district court has dismissed new source review claims in reference to Powerton and Joliet, but certain opacity claims remain active and under appeal by the EPA and the State of Illinois. The federal district court has stayed proceedings in connection with the opacity claims until the appeal is resolved. During the first quarter of 2012, the credit ratings of EME and Midwest Generation were lowered and continue to carry a negative outlook.

The credit exposure for lessors is partially mitigated through various credit enhancement mechanisms within the lease transactions. These credit enhancement features vary from lease to lease. Some of the leasing transactions include covenants that restrict the flow of dividends from the lessee to its parent, collateralization of the lessee with non-leased assets, historical and forward cash flow coverage tests that prohibit discretionary capital expenditures and dividend payments to the parent/lessee if stated minimum coverage ratios are not met. These covenants are designed to maintain cash reserves in the transaction entity for the benefit of the non-recourse lenders and the lessor/equity participants in the event of a temporary market downturn or degradation in operating performance of the leased assets. In the event of a default in any of the lease transactions, Energy Holdings would exercise its rights and attempt to seek recovery of its investment. The results of such efforts may not be known for a period of time. A bankruptcy of a lessee and failure to recover adequate value could lead to a foreclosure of the lease. If foreclosures were to occur, Energy Holdings could potentially record a pre-tax write-off up to its gross investment in these facilities and may also be required to pay significant cash tax liabilities.

On December 13, 2011, affiliates of Energy Holdings and Dynegy reached a settlement agreement resolving disputes that had arisen between them with regard to Dynegy Holding’s (DH) rejection of the Dynegy leases. The settlement agreement resolves certain disputes regarding the Dynegy leases, including claims under our Tax Indemnity Agreement with DH. The original terms of the settlement agreement included a cash payment of $7.5 million, which was received on January 4, 2012, and the allowance of a $110 million claim against DH payable through a mix of cash, senior secured notes and mandatorily convertible notes. On May 1, 2012, a settlement agreement entered into by DH, Dynegy and many of the creditors was filed with the Bankruptcy Court, which could change the method of payment to cash and stock in Dynegy on our claim against DH following confirmation of the DH plan of reorganization by the Bankruptcy Court. The settlement agreement provides that it must be made effective by the Bankruptcy Court by June 2012 or it could terminate.

On December 30, 2011, the effective date of the court order authorizing the Dynegy lease rejections, the leases no longer qualified for leveraged lease accounting treatment under GAAP since the lease agreements were effectively terminated. As a result, Energy Holdings wrote off the $264 million gross lease investment against the previously recorded reserve. As the owner of the two plants, Energy Holdings’ lessor entities ceased leveraged lease accounting, and recorded the generation assets and related nonrecourse project debt on their balance sheets at their respective fair values (See Note 11. Fair Value Measurements). DH remains responsible for the operations, including the financial obligations, of these lessor entities.

 

21


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 6. Available-for-Sale Securities

Nuclear Decommissioning Trust (NDT) Fund

Power maintains an external master nuclear decommissioning trust to fund its share of decommissioning for its five nuclear facilities upon termination of operation. The trust contains two separate funds: a qualified fund and a non-qualified fund. Section 468A of the Internal Revenue Code limits the amount of money that can be contributed into a qualified fund. The trust funds are managed by third party investment advisors who operate under investment guidelines developed by Power.

Power classifies investments in the NDT Fund as available-for-sale. The following tables show the fair values and gross unrealized gains and losses for the securities held in the NDT Fund:

 

    

As of March 31, 2012

 
    

Cost

    

Gross
Unrealized
Gains

    

Gross
Unrealized
Losses

   

Fair
Value

 
     Millions  
Equity Securities    $ 589       $ 187       $ (4   $ 772   
  

 

 

    

 

 

    

 

 

   

 

 

 
Debt Securities           

Government Obligations

     314         10         (1     323   

Other Debt Securities

     289         17         (1     305   
  

 

 

    

 

 

    

 

 

   

 

 

 
Total Debt Securities      603         27         (2     628   
Other Securities      49         0         0        49   
  

 

 

    

 

 

    

 

 

   

 

 

 
Total Available-for-Sale Securities    $ 1,241       $ 214       $ (6   $ 1,449   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

    

As of December 31, 2011

 
    

Cost

    

Gross
Unrealized
Gains

    

Gross
Unrealized
Losses

   

Fair
Value

 
     Millions  
Equity Securities    $ 582       $ 126       $ (23   $ 685   
  

 

 

    

 

 

    

 

 

   

 

 

 
Debt Securities           

Government Obligations

     343         16         0        359   

Other Debt Securities

     268         15         (2     281   
  

 

 

    

 

 

    

 

 

   

 

 

 
Total Debt Securities      611         31         (2     640   
Other Securities      24         0         0        24   
  

 

 

    

 

 

    

 

 

   

 

 

 
Total Available-for-Sale Securities    $ 1,217       $ 157       $ (25   $ 1,349   
  

 

 

    

 

 

    

 

 

   

 

 

 

These amounts do not include receivables and payables for NDT Fund transactions which have not settled at the end of each period. Such amounts are included in Accounts Receivable and Accounts Payable on the Condensed Consolidated Balance Sheets as shown in the following table.

 

    

As of
March 31,
2012

    

As of
December 31,
2011

 
     Millions  

Accounts Receivable

   $ 47       $ 27   

Accounts Payable

   $ 49       $ 22   

 

22


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The following table shows the value of securities in the NDT Fund that have been in an unrealized loss position for less than and greater than 12 months. Power does not consider these securities to be other-than-temporarily impaired as of March 31, 2012.

 

    As of March 31, 2012     As of December 31, 2011  
   

Less Than 12
Months

   

Greater Than 12
Months

   

Less Than 12
Months

   

Greater Than 12
Months

 
   

Fair
Value

   

Gross
Unrealized
Losses

   

Fair
Value

   

Gross
Unrealized
Losses

   

Fair
Value

   

Gross
Unrealized
Losses

   

Fair
Value

   

Gross
Unrealized
Losses

 
    Millions  

Equity Securities (A)

  $ 85      $ (4   $ 0      $ 0      $ 183      $ (23   $ 0      $ 0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Debt Securities

               

Government Obligations (B)

    89        (1     2        0        20        0        3        0   

Other Debt Securities (C)

    40        (1     6        0        56        (1     4        (1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Debt Securities

    129        (2     8        0        76        (1     7        (1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Securities

    0        0        0        0        0        0        0        0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Available-for-Sale Securities

  $ 214      $ (6   $ 8      $ 0      $ 259      $ (24   $ 7      $ (1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(A) Equity Securities—Represent investments primarily in common stock within a broad range of industries and sectors. The unrealized losses are distributed over two hundred companies with limited impairment durations.
(B) Debt Securities (Government)—Unrealized losses on investments in United States Treasury obligations and Federal Agency mortgage-backed securities were caused by interest rate changes. Since these investments are guaranteed by the United States government or an agency of the United States government, it is not expected that these securities will settle for less than their amortized cost basis. Power does not intend to sell nor will it be more-likely-than-not required to sell these securities.
(C) Debt Securities (Corporate)—Represent investment grade corporate bonds which are not expected to settle for less than their amortized cost. Power does not intend to sell nor will it be more-likely-than-not required to sell these securities.

The proceeds from the sales of and the net realized gains on securities in the NDT Fund were:

 

       Three Months Ended
March 31,
 
      

2012

    

2011

 
       Millions  

Proceeds from Sales

     $ 345       $ 315   
    

 

 

    

 

 

 

Net Realized Gains (Losses):

       

Gross Realized Gains

     $ 16       $ 59   

Gross Realized Losses

       (6      (7
    

 

 

    

 

 

 

Net Realized Gains (Losses)

     $ 10       $ 52   
    

 

 

    

 

 

 

Net realized gains disclosed in the above table were recognized in Other Income and Other Deductions in PSEG’s and Power’s Condensed Consolidated Statements of Operations. Net unrealized gains of $104 million (after-tax) were recognized in Accumulated Other Comprehensive Loss on Power’s Condensed Consolidated

 

23


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Balance Sheet as of March 31, 2012. The NDT available-for-sale debt securities held as of March 31, 2012 had the following maturities:

 

Time Frame

  

Fair Value

 
     Millions  

Less than one year

   $ 15   

1 - 5 years

     140   

6 - 10 years

     173   

11 - 15 years

     49   

16 - 20 years

     15   

Over 20 years

     236   
  

 

 

 
   $ 628   
  

 

 

 

The cost of these securities was determined on the basis of specific identification.

Power periodically assesses individual securities whose fair value is less than amortized cost to determine whether the investments are considered to be other-than-temporarily impaired. For equity securities, management considers the ability and intent to hold for a reasonable time to permit recovery in addition to the severity and duration of the loss. For fixed income securities, management considers its intent to sell or requirement to sell a security prior to expected recovery. In those cases where a sale is expected, any impairment would be recorded through earnings. For fixed income securities where there is no intent to sell or likely requirement to sell, management evaluates whether credit loss is a component of the impairment. If so, that portion is recorded through earnings while the noncredit loss component is recorded through Accumulated Other Comprehensive Income (Loss). In 2012, other-than-temporary impairments of $5 million were recognized on securities in the NDT Fund. Any subsequent recoveries in the value of these securities would be recognized in Accumulated Other Comprehensive Income (Loss) unless the securities are sold, in which case, any gain would be recognized in income. The assessment of fair market value compared to cost is applied on a weighted average basis taking into account various purchase dates and initial cost of the securities.

Rabbi Trust

PSEG maintains certain unfunded nonqualified benefit plans to provide supplemental retirement and deferred compensation benefits to certain key employees. Certain assets related to these plans have been set aside in a grantor trust commonly known as the “Rabbi Trust.” In March 2012, PSEG restructured the fixed income component of the Rabbi Trust.

 

24


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

PSEG classifies investments in the Rabbi Trust as available-for-sale. The following tables show the fair values, gross unrealized gains and losses and amortized cost basis for the securities held in the Rabbi Trust.

 

     As of March 31, 2012  
    

Cost

    

Gross
Unrealized
Gains

    

Gross
Unrealized
Losses

    

Estimated
Fair
Value

 
     Millions  

Equity Securities

   $ 16       $ 6       $ 0       $ 22   
  

 

 

    

 

 

    

 

 

    

 

 

 

Debt Securities

           

Government Obligations

     110         0         0         110   

Other Debt Securities

     41         0         0         41   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Debt Securities

     151         0         0         151   

Other Securities

     53         0         0         53   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Available-for-Sale Securities

   $ 220       $ 6       $ 0       $ 226   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     As of December 31, 2011  
    

Cost

    

Gross
Unrealized
Gains

    

Gross
Unrealized
Losses

    

Estimated
Fair
Value

 
     Millions  

Equity Securities

   $ 16       $ 3       $ 0       $ 19   

Debt Securities

     148         5         0         153   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Available-for-Sale Securities

   $ 164       $ 8       $ 0       $ 172   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of March 31, 2012, amounts in the above table do not include Accounts Receivable of $1 million and Accounts Payable of $51 million for Rabbi Trust Fund transactions which had not yet settled. These amounts are included on the Condensed Consolidated Balance Sheets.

 

     Three Months Ended
March 31,
 
    

2012

    

2011

 
     Millions  

Proceeds from Sales

   $ 154       $ 0   
  

 

 

    

 

 

 

Net Realized Gains (Losses):

     

Gross Realized Gains

   $ 5       $ 0   

Gross Realized Losses

     0         0   
  

 

 

    

 

 

 

Net Realized Gains (Losses)

   $ 5       $ 0   
  

 

 

    

 

 

 

 

25


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Gross realized gains disclosed in the above table were recognized in Other Income in the Condensed Consolidated Statements of Operations. Net unrealized gains of $3 million (after-tax) were recognized in Accumulated Other Comprehensive Loss on the Condensed Consolidated Balance Sheets as of March 31, 2012. The Rabbi Trust available-for-sale debt securities held as of March 31, 2012 had the following maturities:

 

Time Frame

  

Fair Value

 
     Millions  

Less than one year

   $ 0   

1 - 5 years

     53   

6 - 10 years

     29   

11 - 15 years

     15   

16 - 20 years

     3   

Over 20 years

     51   
  

 

 

 
   $ 151   
  

 

 

 

PSEG periodically assesses individual securities whose fair value is less than amortized cost to determine whether the investments are considered to be other-than-temporarily impaired. For equity securities, the Rabbi Trust is invested in a commingled indexed mutual fund. Due to the commingled nature of this fund, PSEG does not have the ability to hold these securities until expected recovery. As a result, any declines in fair market value below cost are recorded as a charge to earnings. For fixed income securities, management considers its intent to sell or requirement to sell a security prior to expected recovery. In those cases where a sale is expected, any impairment would be recorded through earnings. For fixed income securities where there is no intent to sell or likely requirement to sell, management evaluates whether credit loss is a component of the impairment. If so, that portion is recorded through earnings while the noncredit loss component is recorded through Accumulated Other Comprehensive Income (Loss). The assessment of fair market value compared to cost is applied on a weighted average basis taking into account various purchase dates and initial cost of the securities.

The cost of these securities was determined on the basis of specific identification.

The fair value of assets in the Rabbi Trust related to PSEG, Power and PSE&G are detailed as follows:

 

    

As of
March 31,
2012

    

As of
December 31,
2011

 
     Millions  

Power

   $ 44       $ 33   

PSE&G

     75         57   

Other

     107         82   
  

 

 

    

 

 

 

Total Available-for-Sale Securities

   $ 226       $ 172   
  

 

 

    

 

 

 

Note 7. Pension and OPEB

PSEG sponsors several qualified and nonqualified pension plans and OPEB plans covering PSEG’s and its participating affiliates’ current and former employees who meet certain eligibility criteria. The following table provides the components of net periodic benefit costs relating to all qualified and nonqualified pension and OPEB plans on an aggregate basis. OPEB costs are presented net of the federal subsidy expected for

 

26


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

prescription drugs under the Medicare Prescription Drug Improvement and Modernization Act of 2003. New federal health care legislation enacted in March 2010 eliminates the tax deductibility of retiree health care costs beginning in 2013, to the extent of federal subsidies received by plan sponsors that provide retiree prescription drug benefits equivalent to Medicare Part D coverage. See Note 13. Income Taxes for additional information.

Pension and OPEB costs for PSEG are detailed as follows:

 

     Pension Benefits
Three Months Ended
March 31,
    OPEB
Three Months Ended
March 31,
 
    

2012

   

2011

   

2012

   

2011

 
     Millions  

Components of Net Periodic Benefit Cost:

        

Service Cost

   $ 25      $ 24      $ 4      $ 4   

Interest Cost

     56        58        16        15   

Expected Return on Plan Assets

     (76     (81     (4     (4

Amortization of Net

        

Transition Obligation

     0        0        1        2   

Prior Service Cost

     (5     0        (4     (3

Actuarial Loss

     42        30        8        3   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Periodic Benefit Cost

   $ 42      $ 31      $ 21      $ 17   

Effect of Regulatory Asset

     0        0        5        5   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Benefit Costs, Including Effect of Regulatory Asset

   $ 42      $ 31      $ 26      $ 22   
  

 

 

   

 

 

   

 

 

   

 

 

 

Pension and OPEB costs for Power, PSE&G and PSEG’s other subsidiaries are detailed as follows:

 

     Pension
Three Months
Ended
March 31,
     OPEB
Three Months
Ended
March 31,
 
    

2012

    

2011

    

2012

    

2011

 
     Millions  

Power

   $ 13       $ 10       $ 5       $ 3   

PSE&G

     24         17         20         18   

Other

     5         4         1         1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Benefit Costs

   $ 42       $ 31       $ 26       $ 22   
  

 

 

    

 

 

    

 

 

    

 

 

 

During the three months ended March 31, 2012, PSEG contributed its entire planned contribution for the year 2012 of $124 million and $11 million into its pension and postretirement healthcare plans, respectively.

 

27


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 8. Commitments and Contingent Liabilities

Guaranteed Obligations

Power’s 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 with numerous counterparties and brokers that may require cash, cash-related instruments or guarantees.

Power has unconditionally guaranteed payments to counterparties by its subsidiaries in commodity-related transactions in order to

 

 

support current exposure, interest and other costs on sums due and payable in the ordinary course of business, and

 

 

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.

In order for Power to incur a liability for the face value of the outstanding guarantees, its subsidiaries would have to

 

 

fully utilize the credit granted to them by every counterparty to whom Power has provided a guarantee, and

 

 

all of the related contracts would have to be “out-of-the-money” (if the contracts are terminated, Power would owe money to the counterparties).

Power believes the probability of this result is unlikely. For this reason, Power believes that the current exposure at any point in time is a more meaningful representation of the potential liability under these guarantees. This current exposure consists of the net of accounts receivable and accounts payable and the forward value on open positions, less any collateral posted.

Power is subject to

 

 

counterparty collateral calls related to commodity contracts, and

 

 

certain creditworthiness standards as guarantor under performance guarantees of its subsidiaries.

Changes in commodity prices can have a material impact on collateral requirements under such contracts, which are posted and received primarily in the form of cash and letters of credit. Power also routinely enters into futures and options transactions for electricity and natural gas as part of its operations. These futures contracts usually require a cash margin deposit with brokers, which can change based on market movement and in accordance with exchange rules.

In addition to the guarantees discussed above, Power has also provided payment guarantees to third parties on behalf of its affiliated companies. These guarantees support various other non-commodity related contractual obligations.

 

28


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The face value of outstanding guarantees, current exposure and margin positions as of March 31, 2012 and December 31, 2011 are shown below:

 

    

As of
March 31,
2012

   

As of
December 31,
2011

 
     Millions  

Face Value of Outstanding Guarantees

   $ 1,803      $ 1,756   

Exposure under Current Guarantees

   $ 349      $ 315   

Letters of Credit Margin Posted

   $ 135      $ 135   

Letters of Credit Margin Received

   $ 142      $ 91   

Cash Deposited and Received

    

Counterparty Cash Margin Deposited

   $ 38      $ 20   

Counterparty Cash Margin Received

     (5     (7

Net Broker Balance Deposited (Received)

     (78     (92

In the Event Power were to Lose its Investment Grade Rating:

    

Additional Collateral that could be Required

   $ 876      $ 812   

Liquidity Available under PSEG’s and Power’s Credit Facilities to Post Collateral

   $ 3,510      $ 3,415   

Additional Amounts Posted

    

Other Letters of Credit

   $ 55      $ 52   

As part of determining credit exposure, Power nets receivables and payables with the corresponding net energy contract balances. See Note 10. Financial Risk Management Activities for further discussion. In accordance with our accounting policy, where it is applicable, cash (received)/deposited is allocated against derivative asset and liability positions with the same counterparty on the face of the Balance Sheet. The remaining balances of net cash (received)/deposited after allocation is generally included in Accounts Payable and Receivable, respectively.

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 further performance assurance. See table above.

In addition, during 2012, the SEC and the Commodity Futures Trading Commission (CFTC) are continuing efforts to implement new rules to enact stricter regulation over swaps and derivatives. Power will carefully monitor these new rules as they are developed to analyze the potential impact on its swap and derivatives transactions, including any potential increase to collateral requirements.

In addition to amounts for outstanding guarantees, current exposure and margin positions, Power had posted letters of credit to support various other non-energy contractual and environmental obligations. See table above.

Environmental Matters

Passaic River

Historic operations of PSEG companies and the operations of hundreds of other companies along the Passaic and Hackensack Rivers are alleged by federal and state agencies to have discharged substantial contamination into the Passaic River/Newark Bay Complex.

Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA)

The EPA has determined that an eight-mile stretch of the Passaic River in the area of Newark, New Jersey is a “facility” within the meaning of that term under CERCLA. The EPA has determined the need to perform a study of the entire 17-mile tidal reach of the lower Passaic River.

 

29


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

PSE&G and certain of its predecessors conducted operations at properties in this area on or adjacent to the Passaic River. The properties included one operating electric generating station (Essex Site), which was transferred to Power, one former generating station and four former manufactured gas plant (MGP) sites. When the Essex Site was transferred from PSE&G to Power, PSE&G obtained releases and indemnities for liabilities arising out of the former Essex generating station and Power assumed any environmental liabilities.

The EPA believes that certain hazardous substances were released from the Essex Site and one of PSE&G’s former MGP locations (Harrison Site). In 2006, the EPA notified the potentially responsible parties (PRPs) that the cost of its study would greatly exceed the original estimated cost of $20 million. The total cost of the study is now estimated at approximat