Table of Contents and Tables - New Jersey Final Report...This document, and the opinions, analysis, evaluations, or recommendations contained herein are for the sole use and benefit

Public Version – Confidential Materials Redacted

Audit of Relationships and Transactions Between Public Service Electric and Gas Company and its Affiliates

and a Comprehensive Management Audit of Public Service Electric and Gas Company

Submitted to:

New Jersey Board of Public Utilities

Submitted by:

Overland Consulting 11551 Ash Street, Suite 215

Leawood, KS 66211 (913) 599-3323

January 2012

This document, and the opinions, analysis, evaluations, or recommendations contained herein are for the sole use and benefit of the contracting parties for the purposes defined by our agreements. There are no intended third party beneficiaries, and any use of this document by third parties is strictly prohibited absent express written permission by Overland Consulting.

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Contents 1. Executive Summary and Background

Introduction ........................................................................................................................................... 1-1 Affiliate Overview (Chapter 2) ............................................................................................................... 1-5 PSEG Services (Chapter 3) ...................................................................................................................... 1-6 Appliance Services (Chapter 4) .............................................................................................................. 1-8 Organizational Structure (Including Nuclear Operations) (Chapter 5) .................................................. 1-9 Executive Management and Corporate Governance (Chapter 6) ......................................................... 1-9 Risk Management (Chapter 7) ............................................................................................................. 1-11 Strategic Planning (Chapter 8) ............................................................................................................. 1-12 External Relations (Chapter 9) ............................................................................................................. 1-13 Finance (Chapter 10) ............................................................................................................................ 1-14 Rates and Regulation (Chapter 11) ...................................................................................................... 1-16 Accounting and Property Records (Chapter 12) .................................................................................. 1-17 Power Supply Management (Chapter 13) ........................................................................................... 1-18 Demand Response, Energy Efficiency and Renewable Generation (Chapter 14) ................................ 1-18 Non-Utility Generation Contracts (Chapter 15) ................................................................................... 1-20 Power Supply and Transmission Affiliate Issues (Chapter 16) ............................................................. 1-21 Interconnection and Non-Power Services (Chapter 17) ...................................................................... 1-23 Gas Procurement and Supply (Chapter 18) ......................................................................................... 1-25 Distribution Operations and Maintenance - Electric (Chapter 19) ...................................................... 1-26 Distribution and Operations Management – Gas (Chapter 20) ........................................................... 1-28 Contractor Performance (Chapter 21) ................................................................................................. 1-29 Customer Service and Meter Reading (Chapter 22) ............................................................................ 1-30 Salary, Wage and Compensation, and Benefits (Chapter 23) .............................................................. 1-31 Productivity and Utilization Level of the Workforce (Chapter 24) ...................................................... 1-32 Development, Training, Evaluation, and HR Ability to Access Personnel Information and Perform Assigned Duties (Chapter 25) ............................................................................................................... 1-32 Labor Relations, Affirmative Action, and Equal Employment Opportunity (Chapter 26) .................... 1-33 Remediation Costs (Chapter 27) .......................................................................................................... 1-34 Support Services (Chapter 28) ............................................................................................................. 1-34 Significant Subsequent Events Occurring in 2011 ............................................................................... 1-37

Attachment 1-1 2. Overview of Affiliate Relationships and Transactions

Summary of Findings .............................................................................................................................. 2-1 PSEG Services (Chapter 3) .................................................................................................................. 2-1 Non-Utility Generation Contracts (Chapter 15) ................................................................................. 2-1 PSEG Power (Chapters 16) ................................................................................................................. 2-2 Interconnection and Non-Power Services (Chapter 17) .................................................................... 2-3 EDECA Affiliates and Prior EDECA Audit Recommendations ............................................................. 2-4

Recommendations ................................................................................................................................. 2-5 Summary of PSEG’s Affiliate Structure and Operating Companies ....................................................... 2-6 Summary of Transactions Between PSE&G and Affiliates ................................................................... 2-10 Charges by PSE&G to Affiliates ............................................................................................................ 2-12 Compliance with EDECA Standards ...................................................................................................... 2-13

Utility Competitive Services ............................................................................................................. 2-14

Public Version Confidential Materials Redacted

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“Affected Affiliates” ......................................................................................................................... 2-14 Prior Audit Recommendations ......................................................................................................... 2-16

3. PSEG Services Corporation Scope, Objectives and Conclusion ......................................................................................................... 3-1 Summary of Findings .............................................................................................................................. 3-1 Recommendations ................................................................................................................................. 3-3 Service Company Organization and Services ......................................................................................... 3-3 Overview of Services by Practice Area ................................................................................................... 3-4 Servco Accounting and Allocation Processes ....................................................................................... 3-29 Management Controls ......................................................................................................................... 3-34 Analysis of Direct Charging and Cost Allocation Methods ................................................................... 3-37 Convenience Payments ........................................................................................................................ 3-45

4. Public Service Electric and Gas Appliance Service Business Summary of Findings .............................................................................................................................. 4-1 Recommendations ................................................................................................................................. 4-2 Background ............................................................................................................................................ 4-2 Organization ........................................................................................................................................... 4-2

Training .............................................................................................................................................. 4-4 Organizational Separation ................................................................................................................. 4-4 Accounting Separation ....................................................................................................................... 4-4 Corporate Governance and Management Separation ...................................................................... 4-4 Office and Operating Facilities Separation ........................................................................................ 4-5 Asset Separation ................................................................................................................................ 4-5 Employee Separation ......................................................................................................................... 4-5 Centralized and Shared Services ........................................................................................................ 4-6 ASB Marketing .................................................................................................................................... 4-6 Utility and Corporate Brand Association ........................................................................................... 4-7

Appliance Service Profitability, Pricing, and Cross-Subsidization .......................................................... 4-7 Financial Results ................................................................................................................................. 4-7 ASB Pricing ......................................................................................................................................... 4-8 Floor Prices ......................................................................................................................................... 4-9 Current Customer Rates ................................................................................................................... 4-10 Discounted Contracts Program ........................................................................................................ 4-11

Analysis of the Competitive Market Advantages and Disadvantages Associated with Utility Affiliation .............................................................................................................................. 4-12

Competitive Advantages .................................................................................................................. 4-12 Competitive Disadvantages ............................................................................................................. 4-13

Follow-up on the Recommendations from the Prior Audit of Appliance Services .............................. 4-13 5. Organizational Structure

PSEG’s Legal Organization Structure ...................................................................................................... 5-1 Overview of PSEG’s Management Organization Structure .................................................................... 5-1 Nuclear Operations ................................................................................................................................ 5-7

6. Executive Management and Corporate Governance Summary of Findings .............................................................................................................................. 6-1 Recommendations ................................................................................................................................. 6-2 PSEG and PSE&G Board of Directors ...................................................................................................... 6-3 Senior Management ............................................................................................................................ 6-23


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Executive Compensation ...................................................................................................................... 6-24 Ethics and Compliance ......................................................................................................................... 6-33 Sarbanes-Oxley (SOX) Compliance ....................................................................................................... 6-37 Compliance with Other Relevant NYSE Rules and SEC Requirements ................................................. 6-44 Attachment 6-1 Attachment 6-2

7. Risk Management Summary of Findings .............................................................................................................................. 7-1 Performance Assessment ...................................................................................................................... 7-6

8. Strategic Planning Introduction and Framework for the Strategic Planning Process .......................................................... 8-1 Summary of Findings .............................................................................................................................. 8-2 Overview of the Strategic Planning Process at PSEG ............................................................................. 8-2 Performance Assessment ...................................................................................................................... 8-4 Communicating the Corporate Strategy ................................................................................................ 8-5 Mergers & Acquisition Process .............................................................................................................. 8-7 Strategic Planning Surrounding Federal and State Energy Policy .......................................................... 8-8 PSE&G Non-Utility Investments ............................................................................................................. 8-8 PSEG Commitment to Non-Regulated Business Units ........................................................................... 8-9 PSEG Strengths, Weaknesses, Opportunities, and Threats ................................................................. 8-11

9. External Relations Summary of Findings .............................................................................................................................. 9-1 Recommendations ................................................................................................................................. 9-1 Performance Measurement ................................................................................................................... 9-3 State Governmental Affairs ................................................................................................................... 9-4 Federal Affairs and Policy ....................................................................................................................... 9-6 Outside Lobbying ................................................................................................................................... 9-8 PSEG Foundation .................................................................................................................................. 9-13 Community Development .................................................................................................................... 9-14 Public Affairs Future Initiatives ............................................................................................................ 9-15

10. Finance Summary of Findings ............................................................................................................................ 10-1 Equity ................................................................................................................................................... 10-2 Dividend Policy ..................................................................................................................................... 10-4 Cost of Capital and Capital Structure ................................................................................................... 10-6 Credit Ratings and Credit Quality ....................................................................................................... 10-13 Collateral Requirements .................................................................................................................... 10-16 Mechanisms to Protect PSE&G from the Financial Problems of Affiliates (Ring-Fencing) ................ 10-17 Response to the Financial Crisis (2007-2008) .................................................................................... 10-18 Cash Management ............................................................................................................................. 10-19 Rate Filings ......................................................................................................................................... 10-21 Leveraged Leases ............................................................................................................................... 10-22 Financial Statement Presentation ...................................................................................................... 10-24

11. Rates And Regulation Summary of Findings ............................................................................................................................ 11-1 Regulatory Organization ...................................................................................................................... 11-2 Electric Rates ........................................................................................................................................ 11-3


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Gas Rates .............................................................................................................................................. 11-5 Rate Case Filings ................................................................................................................................... 11-7 Morris Energy Group Order ................................................................................................................. 11-8 Cost Recovery Mechanisms ................................................................................................................. 11-9 Non-Rate Related Revenues .............................................................................................................. 11-17

Attachment 11-1 12. Accounting and Property Records

Findings ................................................................................................................................................ 12-1 Recommendations ............................................................................................................................... 12-2 Organization and Staffing .................................................................................................................... 12-3 Accounting Functions ........................................................................................................................... 12-5 Accounting Systems ............................................................................................................................. 12-6 Performance Metrics ........................................................................................................................... 12-7 Benchmarking .................................................................................................................................... 12-12 Internal Controls ................................................................................................................................ 12-16 Other Accounting Matters ................................................................................................................. 12-23

13. Power Supply Management Summary of Findings ............................................................................................................................ 13-1 PSE&G Power Purchases ...................................................................................................................... 13-2 BGS Overview ..................................................................................................................................... 13-4 PJM Markets ......................................................................................................................................... 13-6 PJM Energy Markets ............................................................................................................................. 13-6 PJM Capacity Market ............................................................................................................................ 13-8 Market Power Mitigation ................................................................................................................... 13-10 PJM Transmission Planning ................................................................................................................ 13-10 Market Uncertainty ............................................................................................................................ 13-12 Benefits and Challenges in PJM Markets .......................................................................................... 13-14 Generation Deregulation Momentum ............................................................................................... 13-16 New Jersey LCAPP Law ....................................................................................................................... 13-17 PSE&G Management - Objectives and Overall Strategy .................................................................... 13-19 Organization and Staffing ................................................................................................................... 13-20 Energy Acquisition Group ................................................................................................................... 13-20 Transmission Business Strategy Group .............................................................................................. 13-21 Electric Delivery Planning Group ........................................................................................................ 13-22 Power Supply Plans ............................................................................................................................ 13-24 Management Direction and Oversight ............................................................................................... 13-25 14. Demand Reponse, Energy Efficiency, and Renewable Generation Summary of Findings ............................................................................................................................ 14-1 Recommendations ............................................................................................................................... 14-3 Organization and Staffing ..................................................................................................................... 14-3 Demand Response ................................................................................................................................ 14-4 PJM Programs ....................................................................................................................................... 14-5 Curtailment Services Providers ............................................................................................................ 14-6 PJM Capacity Program .......................................................................................................................... 14-7 New PJM DR Capacity Products ........................................................................................................ 14-10 PSE&G’s Air Conditioning Cycling Program ........................................................................................ 14-12 PJM Economic Program ...................................................................................................................... 14-17


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Energy Efficiency ................................................................................................................................ 14-21 Renewable Generation ...................................................................................................................... 14-32 15. Non-Utility Generation Contracts Summary of Findings ............................................................................................................................ 15-1 Recommendations ............................................................................................................................... 15-2 Background ........................................................................................................................................... 15-2 Non-Unit Specific Contracts ................................................................................................................. 15-3 Non-Unit Specific Contract Restructuring ........................................................................................... 15-5 Non-Unit Specific Contracts - Scheduling Flexibility ............................................................................ 15-8 Non-Unit Specific Contracts - Capacity Credits .................................................................................... 15-9 Non-Unit Specific Contracts - JP Morgan 2008 Proposal ................................................................... 15-10 Unit-Specific Contracts ...................................................................................................................... 15-11 Unit Specific Contracts - PS ER&T Scheduling Agreement ................................................................. 15-11 Unit Specific Contracts - Resale Revenue ........................................................................................... 15-12 Edgeboro Restructuring ..................................................................................................................... 15-13 NGC Cost Deferral .............................................................................................................................. 15-14 Mitigation Efforts ............................................................................................................................... 15-14 Mitigation Management .................................................................................................................... 15-15 16. Power Supply and Transmission Affiliate Summary of Findings ........................................................................................................................... 16-1 Recommendations ............................................................................................................................... 16-4 Affiliate Agreements ............................................................................................................................ 16-4 PS Power Generation Capacity ............................................................................................................ 16-5 PJM Nuclear Capacity ........................................................................................................................... 16-6 PJM Steam Capacity ............................................................................................................................. 16-7 PJM Combined Cycle Capacity.............................................................................................................. 16-7 PJM Combustion Turbine Capacity....................................................................................................... 16-9 PS Power Fuel Mix ................................................................................................................................ 16-9 PS Power Financial Results ................................................................................................................. 16-11 Market Power ..................................................................................................................................... 16-13 Market Power Mitigation - Energy Markets ...................................................................................... 16-15 Market Power Mitigation - Capacity Market ..................................................................................... 16-17 Market Power Mitigation - Monitoring Program ............................................................................. 16-19 BGS Power Supply ............................................................................................................................ 16-20 Independent Transmission Control .................................................................................................... 16-24 Affiliate Relations Rules ..................................................................................................................... 16-26 BPU Affiliate Relations Rules .............................................................................................................. 16-28 BPU Holding Company Rules .............................................................................................................. 16-28 FERC Standards Of Conduct For Transmission Providers .................................................................. 16-29 FERC Affiliate Restrictions .................................................................................................................. 16-32 FERC Cross-Subsidization Rules .......................................................................................................... 16-34 PSE&G Compliance Policy .................................................................................................................. 16-34 Operational Separation ...................................................................................................................... 16-35 Information Sharing Restrictions ........................................................................................................ 16-38 Energy Management System ............................................................................................................. 16-41 BGSS Requirements Contract ............................................................................................................ 16-43 Gas Transportation Services ............................................................................................................... 16-46


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Joint Participation in PJM and FERC Matters ..................................................................................... 16-48 PJM Voting Patterns and FERC Positions ............................................................................................ 16-48 Unified Position Development Process .............................................................................................. 16-52 Joint Legal Representation in PJM and FERC Matters ........................................................................ 16-54 Regulatory Oversight .......................................................................................................................... 16-55 Separate Utility Positions - Recommendations .................................................................................. 16-57 17. Interconnection and Non-Power Services Summary of Findings ............................................................................................................................ 17-1 Recommendations ............................................................................................................................... 17-2 Generation Interconnection Process ................................................................................................... 17-4 Nuclear Expansion Transmission Impact Study .................................................................................. 17-11 Interconnection Agreements with PS Power ..................................................................................... 17-15 Station Power ..................................................................................................................................... 17-19 PSE&G Sales of Non-Power Goods and Services to PS Power ........................................................... 17-30 18. Gas Procurement and Supply

Introduction and Summary .................................................................................................................. 18-1 Summary of Findings ............................................................................................................................ 18-1 Recommendations ............................................................................................................................... 18-2 Technical Analysis ................................................................................................................................ 18-3

Background ...................................................................................................................................... 18-3 PSE&G Gas Supply Organization ...................................................................................................... 18-6 Gas Commodity Procurement.......................................................................................................... 18-7 Heating Degree Day Index ............................................................................................................... 18-7 Demand Forecasts ........................................................................................................................... 18-8 Gas Prices ....................................................................................................................................... 18-10 Gas Supply ...................................................................................................................................... 18-12 Gas Accounting Information Systems ............................................................................................ 18-14 Spot Market Gas Procurement Strategies ..................................................................................... 18-16 Interstate Pipeline Transportation ................................................................................................. 18-17 Gas Storage .................................................................................................................................... 18-21 PSE&G and PSEG ER&T Relationship ............................................................................................. 18-24 Transfer of Gas Supply Portfolio to PSE&G ER&T .......................................................................... 18-25 Internal Auditing ............................................................................................................................ 18-27 Commodity and Capacity Release .................................................................................................. 18-28 Review of Previous NJBPU Report ................................................................................................. 18-30

19. Electric Delivery and Operations Management Introduction and Summary .................................................................................................................. 19-1 Summary of Findings ............................................................................................................................ 19-1 Recommendations ............................................................................................................................... 19-3 Background .......................................................................................................................................... 19-4 System Operations and Maintenance .................................................................................................. 19-4 System Reliability ............................................................................................................................... 19-18 System Planning and Design .............................................................................................................. 19-29 Construction and Operations Budget ................................................................................................ 19-33 Load Management ............................................................................................................................. 19-40 Renewable Energy ............................................................................................................................. 19-42 Pooling Interchange and Economic Dispatch .................................................................................... 19-45


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Smart Grid activities ........................................................................................................................... 19-46 IT Support Systems............................................................................................................................. 19-50

20. Gas Delivery and Operations Management Introduction and Summary .................................................................................................................. 20-1 Summary of Findings ............................................................................................................................ 20-1 Recommendations ............................................................................................................................... 20-4 Background .......................................................................................................................................... 20-4 System Operations and Maintenance .................................................................................................. 20-4 System Reliability ............................................................................................................................... 20-26 Gas System Capital and O&M Costs ................................................................................................... 20-34 System Planning and Design .............................................................................................................. 20-42 Load Forecasting and the Gas Systems Operations Center ............................................................... 20-47

21. Contractor Performance Introduction and Summary .................................................................................................................. 21-1 Summary of Findings ............................................................................................................................ 21-1 Background .......................................................................................................................................... 21-1 Damage Prevention Program ............................................................................................................... 21-2

Damage Prevention Best Practices .................................................................................................. 21-3 Damage Trends ................................................................................................................................ 21-3 Benchmark Comparison ................................................................................................................... 21-5

Management of Outside Contractors .................................................................................................. 21-7 Organization for Large Projects ....................................................................................................... 21-7 Large Gas Projects Managed by Delivery Projects and Construction ............................................ 21-10 Contractor Project Schedule Oversight.......................................................................................... 21-10 Contractor Project Work Plan and Schedule Requirements .......................................................... 21-10 Field Status Monitoring .................................................................................................................. 21-10 Inspection and Verification of Material Supplier Deliverables ...................................................... 21-11 Verification of Quality and Quantity .............................................................................................. 21-11 Change Order Requests ................................................................................................................. 21-11 Safety Performance Verification .................................................................................................... 21-12 Invoice Accuracy Oversight and Contract Closeout ....................................................................... 21-12 Projects Managed within Gas Delivery or Electric Delivery ........................................................... 21-12 Inspecting Contractors ................................................................................................................... 21-13 Level of Outsourced Work ............................................................................................................. 21-13

22. Customer Service and Meter Reading Summary of Findings ............................................................................................................................ 22-1 Recommendations ............................................................................................................................... 22-3 Organization and Staffing .................................................................................................................... 22-3 Customer Service Functions ................................................................................................................. 22-5 System .................................................................................................................................................. 22-6 Performance Metrics ......................................................................................................................... 22-13 Benchmarking .................................................................................................................................... 22-17 Customer Satisfaction ........................................................................................................................ 22-22 Meter Reading ................................................................................................................................... 22-24 Call Centers ........................................................................................................................................ 22-27 Billing, Payment Processing, and Credit & Collections ...................................................................... 22-29

Attachment 22-1


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23. Salary, Wage and Compensation, and Benefits Introduction ......................................................................................................................................... 23-1 Summary of Findings ............................................................................................................................ 23-1 Recommendations ............................................................................................................................... 23-2 Executive Compensation ...................................................................................................................... 23-3 Regular Compensation ......................................................................................................................... 23-6 Employee Evaluation and Performance ............................................................................................. 23-12 Organizational Structure & Position Descriptions ............................................................................. 23-19 Incentive Programs ............................................................................................................................ 23-25 Performance Goals ............................................................................................................................. 23-29 Performance Awards ......................................................................................................................... 23-34 Benefits Programs .............................................................................................................................. 23-36

24. Productivity and Utilization Level of the Workforce Introduction ......................................................................................................................................... 24-1 Summary of Findings ............................................................................................................................ 24-1 Recommendations ............................................................................................................................... 24-1 Employee Productivity ......................................................................................................................... 24-1 HR Role in Strategic Direction of the Company ................................................................................... 24-3 Staffing Levels and Spans of Control .................................................................................................... 24-9

25. Development, Training, Evaluation, and HR Ability to Access Personnel Information and Perform Assigned Duties

Introduction ......................................................................................................................................... 25-1 Summary of Findings ............................................................................................................................ 25-1 Recommendations ............................................................................................................................... 25-1 Recruitment and Hiring ........................................................................................................................ 25-1 PSE&G Training, Development, and Evaluation Techniques ............................................................... 25-3 Affiliate Standards Compliance Training ............................................................................................ 25-12 Personnel Information ....................................................................................................................... 25-12

26. Labor Relations, Affirmative Action (AA), and Equal Employment Opportunity (EEO) Introduction ......................................................................................................................................... 26-1 Summary of Findings ............................................................................................................................ 26-1 Recommendations ............................................................................................................................... 26-1 PSE&G Communications with Unions .................................................................................................. 26-1 PSE&G Labor Relations Training .......................................................................................................... 26-2 PSE&G Relationships with Unions........................................................................................................ 26-3 PSE&G Dispute Resolution Process ...................................................................................................... 26-3 PSEG EEO and Affirmative Action Programs ........................................................................................ 26-4 PSEG Compliance with the EEO/AA Requirements.............................................................................. 26-9

27. Remediation Costs Summary of Findings ............................................................................................................................ 27-1 Recommendations ............................................................................................................................... 27-1 Background .......................................................................................................................................... 27-2 Historical Reviews of PSE&G Remediation Costs ................................................................................. 27-4 Internal Controls Over Remediation Costs .......................................................................................... 27-5

28. Support Services Summary of Findings ............................................................................................................................ 28-1 Information Technology ....................................................................................................................... 28-2


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Security and Claims ............................................................................................................................ 28-11 Law ..................................................................................................................................................... 28-17 Corporate Records and Library .......................................................................................................... 28-22 Fleet Management ............................................................................................................................. 28-26 Supply Chain ....................................................................................................................................... 28-33


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List of Tables Table 1 -1 - PSEG Earnings and (Losses), in millions .................................................................................. 1-5 Table 2-1 – PSEG Business Structure ......................................................................................................... 2-6 Table 2-2 – PSEG Power, Generation Facilities Summary .......................................................................... 2-7 Table 2-3 – PSEG Energy Holdings, Generation Facilities Summary .......................................................... 2-9 Table 2-4 – Summary of Charges To PSE&G By Affiliates ........................................................................ 2-12 Table 2-5 – Summary of Charges By PSE&G To Affiliates ........................................................................ 2-13 Table 3-1 – Cost Distributions to Segments ............................................................................................... 3-1 Table 3-2 – Costs Incurred by Practice Area .............................................................................................. 3-4 Table 3-3 – Cost Distributions - Accounting Services ................................................................................. 3-6 Table 3-4 – Cost Distributions - Business Center ....................................................................................... 3-7 Table 3-5 – Cost Distributions - Claims ...................................................................................................... 3-7 Table 3-6 – Cost Distributions - Communications & Advertising ............................................................... 3-9 Table 3-7 – Cost Distributions - Corporate Development .......................................................................... 3-9 Table 3-8 – Cost Distributions - Corporate Planning ................................................................................ 3-11 Table 3-9 – Cost Distributions - Corporate Secretary .............................................................................. 3-11 Table 3-10 – Cost Distributions - Corporate Security .............................................................................. 3-13 Table 3-11 – Cost Distributions - Enterprise Risk Management .............................................................. 3-14 Table 3-12 - Cost Distributions - Environmental, Health & Safety ........................................................... 3-16 Table 3-13 – Service Company Environmental, Health and Safety Services............................................ 3-17 Table 3-14 – Cost Distributions - Federal Affairs & Policy ....................................................................... 3-18 Table 3-15 – Cost Distributions - Operating Company – Dedicated Finance ........................................... 3-19 Table 3-16 – Cost Distributions – Human Resources ............................................................................... 3-19 Table 3-17 – Significant Human Resources Service Distributions to Segment in 2009 ........................... 3-22 Table 3-18 – Cost Distributions - Significant Information Technology Services Distributions to Segments in 2009 ........................................................................................... 3-23 Table 3-19 – Cost Distributions - Information Technology ...................................................................... 3-24 Table 3-20 – Cost Distributions - Internal Audit ...................................................................................... 3-25 Table 3-21 – Cost Distributions - Investor Relations ................................................................................ 3-25 Table 3-22 – Cost Distributions - Law ...................................................................................................... 3-26 Table 3-23 – Cost Distributions - Records & Library ................................................................................ 3-27 Table 3-24 – Cost Distributions - State Government Affairs .................................................................... 3-27 Table 3-25 – Cost Distributions – Supply Chain Management ................................................................ 3-28 Table 3-26 - Cost Distributions – Treasury Management ........................................................................ 3-29 Table 3-27 – Cost Distributions by Billing Type ........................................................................................ 3-30 Table 3-28 – Cost Distributions by Degree of Control ............................................................................. 3-31 Table 3-29 - Cost Distributions to O&M and Capital................................................................................ 3-32 Table 3-30 - Cost Distributions to Segments and Lines of Business ........................................................ 3-33 Table 3-31 – Budget vs. Actual Cost Distributions, O&M, Capital and Total ........................................... 3-36 Table 3-32 – Distribution Amounts by Major Billing/Allocation Method ................................................ 3-39 Table 3-33 – 2009 Service Price Calculations – Accounting Services Practice Area ................................ 3-40 Table 3-34 – 2009 Service Price Calculations – Human Resources .......................................................... 3-42 Table 3-35 – Information Technology Practice Area ............................................................................... 3-43 Table 3-36 – Enterprise Services Allocation Factors - 2008 ..................................................................... 3-44 Table 3-37 – Enterprise Services Allocation Factors - 2009 ..................................................................... 3-44


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Table 3-38 – Distribution of Enterprise Services Costs ............................................................................ 3-45 Table 3-39 – Sample #1 - Fringe Benefits Transaction ............................................................................. 3-46 Table 3-40 – Sample #2 – Real Estate Tax Adjustment ............................................................................ 3-47 Table 3-41 – Sample #3 – Gas Remediation Costs ................................................................................... 3-47 Table 4-1 – Appliance Services Organizational Chart ................................................................................ 4-3 Table 4-2 - Summary of Financial Results [Begin Confidential] ................................................................. 4-7 Table 4-3 - Audit Calculation of Fully Allocated Cost per AST Hour [Begin Confidential] .......................... 4-9 Table 4-4 – Selected Comparison of Floor Rates and Fully Allocated Costs [Begin Confidential] ........... 4-10 Table 4-5 – Selected Comparison of Floor Rates and Tariffed Prices ...................................................... 4-11 Table 5-1 – PSEG Legal Organization ......................................................................................................... 5-1 Table 5-2 – PSEG’s Management Organization Structure ......................................................................... 5-2 Table 5-3 – Employee Headcount .............................................................................................................. 5-2 Table 5-4 – PSEG’s Executive Management ............................................................................................... 5-4 Table 5-5 – PSE&G Operations Management ............................................................................................ 5-5 Table 5-6 – PSEG Power ............................................................................................................................. 5-6 Table 5-7 – PSEG Energy Holdings ............................................................................................................. 5-7 Table 6-1 – Corporate Governance Quotient ............................................................................................ 6-4 Table 6-2 – PSEG & Subsidiaries Board of Directors (12/31/09) ............................................................... 6-7 Table 6-3 – Board Member Compensation .............................................................................................. 6-10 Table 6-4 – Mercer’s Peer Group Financial Data [Begin Confidential] .................................................... 6-11 Table 6-5 – General Board – Cash Compensation [Begin Confidential] .................................................. 6-12 Table 6-6 – General Board – Equity Compensation [Begin Confidential] ................................................ 6-13 Table 6-7 – Committee – Total Direct Compensation [Begin Confidential] ............................................ 6-14 Table 6-8 – PSEG Board of Directors Stock Ownership Summary .......................................................... 6-15 Table 6-9 – PSEG Board of Directors’ and Related Committees’ Meeting Summary .............................. 6-18 Table 6-10 – Board Committee Structures .............................................................................................. 6-20 Table 6-11 - Composition of Compensation for Named Executive Officers - 2008 ................................. 6-25 Table 6-12 – Short Term Incentive Compensation Weightings For Selected Executives ........................ 6-28 Table 6-13 – Comparison of Total Exective Compensation ..................................................................... 6-32 Table 7-1 – Risk Management Organization Chart .................................................................................... 7-3 Table 7-2 – Risk Management Balanced Scorecard ................................................................................... 7-6 Table 8-1 – Strategic Planning Organizational Chart ................................................................................. 8-3 Table 8-2 – Corporate Planning Balanced Scorecard ................................................................................. 8-4 Table 8-3 - Generation Portfolio as of December 31, 2009 .................................................................... 8-10 Table 9-1 – External Affairs Balanced Scorecard ....................................................................................... 9-3 Table 9-2 – State Government Affairs Organizational Chart ..................................................................... 9-6 Table 9-3 – Federal Organizational Chart .................................................................................................. 9-7 Table 9-4 – State Government Affairs Consultants for PSEG and PSE&G .................................................. 9-9 Table 9-5 – Federal Affairs and Public Policy Consultants ....................................................................... 9-10 Table 9-6 – Environmental Policy Consultants ........................................................................................ 9-12 Table 9-7 – PSEG Contributions to Foundation ....................................................................................... 9-13 Table 9-8 – % of Pretax Contributions ..................................................................................................... 9-14


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Table 10-1 – Equity Activity ..................................................................................................................... 10-3 Table 10-2 – PSEG Peer Group Per Share Comparison ............................................................................ 10-5 Table 10-3 – PSEG Dividends to Parent ................................................................................................... 10-6 Table 10-4 – Cost of Equity of Utilities with Significant Unregulated Operations ................................... 10-7 Table 10-5 – Cost of Equity of Utilities with Predominately Regulated Operations ................................ 10-8 Table 10-6 – Capital Structure ................................................................................................................. 10-9 Table 10-7 – Debt Rollforward ............................................................................................................... 10-10 Table 10-8 – PSE&G Scheduled Debt Maturities ................................................................................... 10-11 Table 10-9 – Projection of Future Financing Activity ............................................................................. 10-11 Table 10-10 – Debt Activity .................................................................................................................... 10-12 Table 10-11 – PSEG Ratings Summnary ................................................................................................. 10-14 Table 10-12 – PSE&G Ratings Summary ................................................................................................ 10-14 Table 10-13 – PSE&G Credit Facililty Utilizations ................................................................................... 10-20 Table 10-14 – PSEG - Consolidated Balance Sheets - Assets ................................................................. 10-24 Table 10-15 – PSEG - Consolidated Balance Sheets – Liabilities and Stockholders’ Equity ................... 10-25 Table 10-16 – PSEG - Consolidated Statements of Income ................................................................... 10-26 Table 10-17 – PSEG - Consolidated Statements of Cash Flows .............................................................. 10-27 Table 10-18 – PSE&G - Consolidated Balance Sheets ............................................................................ 10-28 Table 10-19 – PSE&G – Consolidated Balance Sheets ........................................................................... 10-29 Table 10-20 – PSE&G Consolidated Statements of Income ................................................................... 10-30 Table 10-21 – Consolidated Statements of Cash Flows ......................................................................... 10-31 Table 10-22 – PSE&G Finance Balanced Scorecard ............................................................................... 10-32 Table 11-1 – Regulatory Organization Chart ............................................................................................ 11-3 Table 11-2 – Quarterly Comparison of Electric Residential Service......................................................... 11-4 Table 11-3 – Typical Commercial Electric Bill........................................................................................... 11-4 Table 11-4 – Typical Industrial Electric Bill ............................................................................................... 11-5 Table 11-5 – Typical Residential Gas Bill .................................................................................................. 11-6 Table 11-6 – Typical Commercial Gas Bill ................................................................................................ 11-6 Table 11-7 – Typical Industrial Gas Bill .................................................................................................... 11-7 Table 11-8 – Non-Rate Related Revenues and Income ......................................................................... 11-19 Table 11-9 – Gains (Losses) on Disposition of Property ......................................................................... 11-20 Table 12-1 - PSEG Services Corporation Organization Chart ................................................................... 12-3 Table 12-2 – Accounting Services (Controller’s Department) - Balanced Scorecard Results .................. 12-8 Table 12-3 - Finance - PSE&G Department - Balanced Scorecard Results ............................................... 12-9 Table 12-4 - Internal Auditing Services Department - Balanced Scorecard Results .............................. 12-10 Table 12-5 - Internal Audit Report Results ............................................................................................. 12-19 Table 12-6 - Sarbanes-Oxley Testing Results ......................................................................................... 12-22 Table 13-1 - PSE&G Power Purchases Year 2009 ................................................................................... 13-2 Table 13-2 - PSE&G Sources and Dispositions of Energy 2009. ............................................................... 13-3 Table 13-3 - PSE&G BGS-FP Auction 2004 to 2011 Auctions ................................................................... 13-4


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Table 13-4 - PSEG Analysis of BGS 2004 to 2011 ................................................................................... 13-5 Table 13-5 - PJM and PSE&G Zone Average Prices, Day-Ahead Load Weighted Average ..................... 13-7 Table 13-6 - PSEG Zone Energy Prices Versus Natural Gas Prices ......................................................... 13-7 Table 13-7 - RTO and PSEG Zone RPM Prices, Base Residual Auction - Generator Price ...................... 13-9 Table 13-8 - PJM 2011 Summer Peak Load Forecast, Percent Change from 2010 Forcast ................. 13-11 Table 13-9 - PJM Regional Transmission Expansaion Plans ................................................................. 13-12 Table 13-10 - PJM Region, RTO Annual Savings Estimated by PJM ..................................................... 13-15 Table 13-11 - PJM Net Revenue Adequacy Analysis, PSE&G Transmission Zone ................................ 13-16 Table 13-12 - Retail Choice States in US, Percentage of Generation from Utility Owned Plants 2010 ....................................................................................................... 13-17 Table 13-13 -LCAPP Agent Recommendation Portfolio SOCAs ........................................................... 13-18 Table 13-14 -Transmission Business Strategy Group, Headcounts as of September 2010 ................. 13-22 Table 14-1 - PJM Demand Response Capacity Products ...................................................................... 14-6 Table 14-2 - Limited DR Resources ........................................................................................................ 14-8 Table 14-3 - PJM Limited DR Resources MW Capacity Cleared ............................................................. 14-9 Table 14-4 - PSEG 2008 Demand Response Proposal 2014 Capacity Targets ..................................... 14-13 Table 14-5 - PSEG Air Conditioning Cycling Program Capacity Bid into RPM ...................................... 14-15 Table 14-6 - PJM Economic Load Response Program Energy Curtailment by Zone ............................ 14-18 Table 14-7 - NJ Clean Energy Program Energy Efficiency Budget by Customer Type .......................... 14-22 Table 14-8 - 2008 CEP EE Residential Program Participants by Type .................................................. 14-23 Table 14-9 - PSEG CA and E3 Electric Programs, 2011 Budget ............................................................ 14-25 Table 14-10 - PJM Economic Efficiency Capacity Cleared in May 2009 and 2010 Base Residual Auctions ....................................................................................................... 14-31 Table 14-11 - Total System Levelized Costs, Plants Entering Service in 2016 ..................................... 14-34 Table 14-12 - NJ Renewable Portfolio Standards Prior to 2010 Legislation ........................................ 14-36 Table 14-13 - NJ Renewable Energy Capacity Installed 2001 to November 30, 2010 ......................... 14-37 Table 14-14 - PSE&G Solar Capacity RPM Bid ...................................................................................... 14-41 Table 14-15 - PSE&G Owned Solar Capacity ........................................................................................ 14-42 Table 15-1 - Cost Above Markets ........................................................................................................... 15-3 Table 15-2 - CB I, CB II and UCF Contracts - Capacity and Termination Dates....................................... 15-4 Table 15-3 - CB I Scheduled Energy Deliveries and Fixed Prices ............................................................ 15-4 Table 15-4 - CB II Scheduled Energy Deliveries and Fixed Prices ........................................................... 15-4 Table 15-5 - UCF Scheduled Energy Deliveries and Fixed Prices ........................................................... 15-5 Table 15-6 - PSEG Transmission Zone Day-Ahead Energy Market Prices .............................................. 15-5 Table 15-7 - CB I, CB II and UCF Contracts Generation Source Prior to Contract Restructuring ........... 15-6 Table 15-8 - CB I, CB II and UCF NUG Contracts Delivery Rate Requirements ....................................... 15-8 Table 15-9 - UCF Energy Resales Prices Compared to Eagle Point Node ............................................... 15-9 Table 15-10 - RPM Capacity Prices RTO Versus PSE&G Zone .............................................................. 15-10 Table 15-11 -Unit Specific NUG Contracts. .......................................................................................... 15-11 Table 15-12 - Comparison of Day-Ahead and Real Time Prices ........................................................... 15-12 Table 15-13 - Unit Specific NJG Contracts Energy Resales Prices ........................................................ 15-13


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Table 15-14 - PSE&G NUG Contract Mitigation RPM Dispute Negotiating Team ................................ 15-16 Table 15-15 - PSE&G NUG Contract Mitigation - 2008 JP Morgan Energy Pricing Proposal ............... 15-16 Table 16-1 - PSE&G Affiliate Power Supply Related Agreements .......................................................... 16-4 Table 16-2 - PS Power Generating Capacity By RTO. ............................................................................. 16-5 Table 16-3 - PS Power PJM Generating Capacity by Type ..................................................................... 16-6 Table 16-4 - PS Power PJM Nuclear Capacity ........................................................................................ 16-6 Table 16-5 - PS Power PJM Steam Capacity ........................................................................................... 16-7 Table 16-6 - PS Power Combined Cycle Capacity ................................................................................... 16-8 Table 16-7 - PS Power PJM Combustion Turbine Capacity .................................................................... 16-9 Table 16-8 - PS Power Plants in PJM Net Generation by Plant 2008 and 2009 ................................... 16-10 Table 16-9 - PS Power Net Generation in PJM Percentage by Type of Fuel 2009 and 2010 ............... 16-10 Table 16-10 - PS Power Return on Equity 2007 to 2010 ...................................................................... 16-11 Table 16-11 - PJM and PSE&G Zone Average Energy Prices Day-Ahead Load Weighted Average 2006-2010 ............................................................................................................................................ 16-12 Table 16-12 - PSEG Generation Capacity Ownership Share as of December 2009 ............................. 16-13 Table 16-13 - PJM Energy Market Unit Hours Price Capped Three Pivotal Supplier Test ................... 16-16 Table 16-14 - May 2010 RPM Base Residual Auction for 2013/2014 Delivery Year ............................ 16-17 Table 16-15 - May 2010 RPM Base Residual Auction for Delivery Year 2013/2014 ............................ 16-18 Table 16-16 - May 2010 RPM Base Residual Auction for Delivery Year 2013/2014 ............................ 16-19 Table 16-17 - PSE&G BGS-FP Auction Prices 2005 to 2010 Auctions ................................................... 16-20 Table 16-18 - BGS-FP Traches Awarded to PS Power (ER&T) .............................................................. 16-21 Table 16-19 - PSE&G BGS-FP Tranches Awarded to PS Power (ER&T) ................................................ 16-21 Table 16-20 - PSE&G Percentage of BGS-FP Load Supplied by PS Power (ER&T) ................................ 16-22 Table 16-21 - BPU Affiliate Relations Rules, PSE&G Competitive Business Segments Number of Employees ............................................................................................................................................ 16-28 Table 16-22 - FERC Standards of Conduct for Transmission Providers, PSE&G Transmission Function Employees ............................................................................................................................. 16-30 Table 16-23 - FERC Standards of Conduct for Transmission Providers PS Power Marketing Function Employees ............................................................................................................................. 16-30 Table 16-24 - PSE&G Groups with Power Supply Management Functions ......................................... 16-24 Table 16-25 - ER&T BGSS Gas Supply Employees by Function ............................................................ 16-44 Table 16-26 - BGSS Requirement Contract, Generation Gas Sold to PS Power Pricing Method ......... 16-44 Table 16-27 - PJM Voting Results Percentage PSE&G Voted with Each Sector ................................... 16-50 Table 16-28 - PSEG RTO Issues Meetings Invitation List ...................................................................... 16-53 Table 16-29 - PSEG Federal Regulatory Policy Team Membership by Company ................................. 16-53 Table 17-1 - Large Power Plants in PSE&G Zone .................................................................................... 17-4 Table 17-2 - PSE&G Network Upgrade Charges to Generation Developers. ....................................... 17-10 Table 17-3 - System Upgrade Cost Estimates From Generation Interconnection Transmission Impact Studies..................................................................................................................................... .17-11 Table 17-4 - PSE&G Attachment Facilities Maintenance Charges to PS Power ..................................... 17-18 Table 17-5 - PSE&G Attachment Facilities Maintenance Charges to Non-Affiliates .............................. 17-19


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Table 17-6 - PS Power Generating Units Gross Generation and Station Power Take-Offs.................... 17-21 Table 17-7 - Station Power Deliveries to PS Power Using Local Distribution Facilities ......................... 17-25 Table 17-8 - PSE&G Station Power Facilities Charges by Plant for 2009 ............................................... 17-26 Table 17-9 - Station Power Facilities Charges ........................................................................................ 17-27 Table 17-10 - Station Power Facility Charges Common Plant Allocation Factors .................................. 17-27 Table 17-11 - Station Power Facility Charges Common Plant Allocation Dollars .................................. 17-28 Table 17-12 - PSE&G Charges to PS Power, Non-Power Goods and Services By Category ................... 17-31 Table 17-13 - PSE&G Equipment Maintenance and Construction Charges to PS Power ...................... 17-32 Table 17-14 - PSE&G Attachment Facility Charges to PS Power ............................................................ 17-33 Table 17-15 - PSE&G Rent Charges to PS Power, Hadley Road Facility by Type of Space ..................... 17-40 Table 17-16 - PS Power Charges to PSE&G, Non-Power Goods and Services by Category ................... 17-41 Table 17-17 - PS Power Charges to PSE&G, Distribution and Transmission System Maintenance ....... 17-42 Table 17-18 - Non-Power Goods and Services, Provided to PSE&G by PS Power ................................. 17-43 Table 17-19 - MTS Labor Rate Comparison, 2008 Benchmarking Study ............................................... 17-47 Table 18-1 - PSE&G Gas Supply Organization Chart ................................................................................ 18-6 Table 18-2 - Calendar Month Normal Heating Degree Days ................................................................... 18-8 Table 18-3 – 2008-2009 Peak Day.......................................................................................................... 18-10 Table 18-4 – PA-NJ-NY Regional Gas Price ............................................................................................. 18-12 Table 18-5 – Breakdown of Gas Supply Between PSE&G and Third-party Suppliers ............................ 18-12 Table 18-6 – Various Daily and Monthly Reports .................................................................................. 18-16 Table 18-7 - Residential Participation in Third-Party Supplier Option ................................................... 18-16 Table 18-8 - PSE&G Third Party Supplier Accounts ................................................................................ 18-17 Table 18-9 - Summary of Firm Gas Transportation for BGSS ................................................................. 18-18 Table 18-10 - Projects Delivering Natural Gas ....................................................................................... 18-19 Table 18-11 – Summary of Storage and Peaking Supply for BGSS ......................................................... 18-23 Table 18-12 – LNG and LPA Utilization .................................................................................................. 18-23 Table 18-13 – Propane Peaking Plant Capacity...................................................................................... 18-24 Table 18-14 - Internal Audits ................................................................................................................. 18-28 Table 18-15 - Total Capacity Release Contracts ..................................................................................... 18-29 Table 18-16 - Capacity Release Contracts at Maximum Rate ................................................................ 18-29 Table 18-17 – Generation Gas .............................................................................................................. 18-30 Table 19-1 - O&M Spending Levels per Customer ................................................................................... 19-5 Table 19-2 – Vegetation Spend and Trim Level ....................................................................................... 19-6 Table 19-3 – Vegetation Management Miles Trimmed ........................................................................... 19-7 Table 19-4 – Vegetation Management Spending Levels ......................................................................... 19-8 Table 19-5 – Outages by Cause ................................................................................................................ 19-8 Table 19-6 - Electric Delivery Headcount ................................................................................................. 19-9 Table 19-7 - Overtime Percent ............................................................................................................... 19-11 Table 19-8 - Electric Delivery Work Order Performance ....................................................................... 19-12 Table 19-9 - T&D Outsourced Work Effort ............................................................................................. 19-12 Table 19-10 - Inspection Practices ......................................................................................................... 19-14


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Table 19-11 - Inspection Backlog ........................................................................................................... 19-17 Table 19-12 - Reliability Indices for 2005-2009 ..................................................................................... 19-21 Table 19-13 - 2008 I.E.E.E Reliability Survey – CAIDI ............................................................................. 19-22 Table 19-14 - 2008 I.E.E.E. Reliability Survey – SAIFI ............................................................................. 19-22 Table 19-15 - Average Time to Dispatch, Minutes ................................................................................. 19-23 Table 19-16 - Electric Outages by Cause ................................................................................................ 19-23 Table 19-17 - Customer Outage Hours by Cause ................................................................................... 19-24 Table 19-18 - Outage Cause ................................................................................................................... 19-24 Table 19-19 - Customer Hours by Cause ................................................................................................ 19-25 Table 19-20 - 2009 Top Outage Causes ................................................................................................. 19-25 Table 19-21 - Outage Cause Improvements .......................................................................................... 19-26 Table 19-22 - Capital Initiatives to Reduce Outages .............................................................................. 19-26 Table 19-23 - Major Storm Events ......................................................................................................... 19-28 Table 19-24 - Mutual Assistance ............................................................................................................ 19-28 Table 19-25 - Reductions in Delivery O&M Budgets .............................................................................. 19-34 Table 19-26 - Capital Spending .............................................................................................................. 19-36 Table 19-27 - Load Management Compliance 2009/2010 Delivery Year .............................................. 19-41 Table 20-1 - 2009 Top 11 Largest Gas Distribution Companies per Number of Customers .................... 20-4 Table 20-2 - Public Service Electric and Gas Company Gas Delivery Headcount ..................................... 20-6 Table 20-3 - Public Service Electric and Gas Company Corporate Data .................................................. 20-7 Table 20-4 - PSE&G Top 11 U.S. Utilities with Cast-Iron Main ................................................................. 20-8 Table 20-5 - PSE&G Miles of Distribution Main by Pressure System ....................................................... 20-9 Table 20-6 - PSE&G Explosions of Injuries 2005 - 2009 ......................................................................... 20-10 Table 20-7 - PSEG Gas Distribution System Mains Inventory Profile, 2009 ........................................... 20-10 Table 20-8 - PSE&G Gas Distribution System Services Inventory Profile, 2009 ..................................... 20-11 Table 20-9 - PSE&G Gas Distribution System Age Profile of Mains, 2009 .......................

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Table of Contents and Tables - New Jersey Final Report...This document, and the opinions, analysis, evaluations, or recommendations contained herein are for the sole use and benefit