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Public Service Enterprise Group Inc.

Public Service Enterprise Group Inc.

80 Park Plaza
Newark, New Jersey 07101
U.S.A.
Telephone: (973) 430-7000
Fax: (973) 623-5983
Web site: http://www.pseg.com

Public Company
Incorporated: 1903 as Public Service Corporation of New Jersey
Employees: 10,709
Sales: $6.8 billion (2000)
Stock Exchanges: New York Philadelphia London
Ticker Symbol: PEG
NAIC: 221111 Hydroelectric Power Generation; 221112 Fossil Fuel Electric Power Generation; 221113 Nuclear Electric Power Generation; 221119 Other Electric Power Generation; 221121 Electric Bulk Power Transmission and Control; 221122 Electric Power Distribution; 22121 Natural Gas Distribution

Public Service Enterprise Group Inc. (PSEG) operates as an energy and energy services firm with three major subsidiaries including PSE&G, PSEG Power LLC, and PSEG Energy Holdings. During the late 1990s and into the new millennium, PSEG transformed itself from a traditional regulated utility to a diverse global energy firm with over $21 billion in assets. Subsidiary PSE&G operates as a regulated public utility company that provides electric and gas service to more than 3.5 million residential and business customers in New Jersey. Its service area covers a 2,600 square mile area from Bergen to Gloucester counties. PSEG Power acts as a non-regulated independent power producer with generating plants in the Northeast region of the United States. Its three subsidiaries include: PSEG Fossil, which oversees the firms natural gas, coal, and oil-fired electric generating units; PSEG Nuclear, operator of several nuclear generation stations in New Jersey; and PSEG Energy Resources & Trade, a buyer and seller of electric and gas commodities. PSEG Energy Holdings was created to expand PSEGs international reach and acts as a holding company for three unregulated businesses. PSEG Global operates and develops generation, PSEG Resources manages energy investments, and PSEG Energy Technologies provides energy-related services related to energy management, operation, maintenance, and finance.

Public Service Corp.s Early History: Early 1900s

At the beginning of the 20th century New Jerseys utilities were primarily operators of streetcars; secondarily manufacturers and distributors of gas; and minimally producers of electricity, most of which was used to power trolley cars. Streets, homes, and businesses were, for the most part, lighted by gas, and the industrial use of electricity was in its infancy. The utility operators were fragmented into hundreds of small companies, many of which were owned by out-of-state interests, inefficiently run, and poorly maintained. On February 19, 1903, in Newark a streetcar full of high school students skidded down an icy hill onto a railroad crossing and was struck by a train, killing and injuring more than 30 people. A subsequent investigation into the affairs of the car operator and the North Jersey Street Railway Company, revealed shoddy management and extreme financial instability, not only of North Jersey but of many other New Jersey streetcar, electric, and gas companies.

Reform was called for by the public, and by the insurance companies and banks whose utility investments were at risk. One of the largest of these banks, the Fidelity Trust Company of Newark, was managed by a member of a prominent New Jersey family, Uzal McCarter. Uzals brother, 35-year-old lawyer Thomas Nesbitt McCarter, was the youngest attorney general in the states history, a director of Prudential Insurance Company, and a director and general counsel of Fidelity Trust. Thomas McCarter saw the opportunity offered by the utility crisis and proposed the creation of a single company that would provide transportation, gas, and electricity services for the entire state. The New Jersey, New York, and Pennsylvania financial and political establishments, with which he was well connected, agreed to McCarters plan; and he resigned his public office to become president of the new corporation.

With an initial $10 million capitalization to begin its acquisition program, Public Service Corporation of New Jersey (PSC) was incorporated in May 1903. The original shareholders were Thomas Dolan, president of Philadelphias United Gas Improvement Company; John I. Waterbury, president of New Yorks Manhattan Trust Company; and Thomas McCarter, who in effect represented Prudential Insurance Company and Fidelity Trust. The company clearly originated in the desire of these institutions to secure and re-establish the value of their New Jersey utility investments. Their plan was successful largely thanks to McCarter, who proved to be a strong, skillful manager, especially capable in the financial and political affairs so critical to a growing regulated utility. McCarter served as president for 36 years and as chairman of the board for an additional 6 years, until his retirement in 1945. During this long period he dominated the companys affairs.

PSC began by acquiring the securities of four street railway companies and one electric generating company, the beginning of an acquisition program that eventually brought more than 500 gas, electric, and traction businesses under the control of PSC and its successor companies. Revenues for 1904, the first year of operation, were $8.4 million from street railways, $5.4 million from gas manufacturing and sale, and $3.5 million from electricity.

Along with growth in operations and revenues over time came changes in corporate structure. Until 1907 PSC was a straightforward operating company, acquiring and leasing properties and improving and managing them. State regulation of utilities was institutionalized in 1907, by the creation of the State Railroad Commission, which expanded in 1910 to become the New Jersey State Board of Public Utility Commissioners. In August 1907, PSC was obliged to incorporate the Public Service Railway Company as a wholly owned subsidiary to operate its traction lines. In 1909, PSC formed Public Service Gas Company, also wholly owned, and in 1910 created Public Service Electric Company to generate and distribute electricity. PSC therefore became a holding company for the operating companies. There were further changes for the operating companies. In 1924, the gas and electric businesses were merged to form Public Service Electric and Gas Company(PSE&G), and in 1948, PSC was dissolved and PSE&G became the parent company with the transportation company as a subsidiary.

The Transportation Business: 1916-79

McCarters original belief that PSCs future lay primarily in the transportation business proved to be erroneous. This business did grow and prosper in the early years, culminating in the opening in 1916 of a magnificent new street railway terminal and office building in Newark. PSCs transportation system grew to carry over 450 million passengers a year. It included street and interurban railways centered around Newark and reaching south to Camden and Trenton, as well as the ownership of amusement parks, ferry lines, cab companies in Newark and Camden, and eventually jitney and bus lines.

The company pioneered the development and use of gas-electric streetcars and buses, and in 1937 began operating the worlds first diesel-electric bus fleet. The subsidiary Public Service Transportation Company was formed in 1924 to operate buses, and in 1928, this company and Public Service Railway Company were merged to form Public Service Coordinated Transport Company. The spread of suburban residential areas coupled with the rise of the automobile led to the gradual replacement of the streetcar and the interurban rail by the bus, however, and eventually to declining profitability for all forms of public transportation. The 1960s and 1970s saw a continuation of rising fares and increasing dependence on state subsidies. In 1971, Public Service Coordinated Transport became Transport of New Jersey, largely an operator of buses owned by the state and leased to the company.

In 1979, legislation was passed to permit New Jersey to acquire and operate private bus lines, and PSE&G negotiated the sale of its transport subsidiary to the state.

Unlike the traction companies it acquired, PSCs early gas acquisitions tended to be relatively sound physically and financially, and PSC sgoal was to consolidate and expand these properties. In the early years gas was manufactured from coal or oilnatural gas pipelines were in the futureand sold mainly for lighting, cooking, and heating water; electricity use by the public was still minimal. PSC increased its gas sales by aggressively marketing gas stoves and water heaters as well as by increasing its distribution areas. Gas sales grew from 5 billion cubic feet in 1904 to about 20 billion cubic feet by the mid-1920s, then slowed during the 1930s and early 1940s. After World War II, the use of gas for home heating expanded enormously, outstripping the companys gas manufacturing capacity. In 1949, PSE&G began purchasing natural gas from Texas Eastern Gas Corporation and in 1950 from Transcontinental Gas Pipe Line Corporation.

Customers gradually were switched over from manufactured gas to natural gas, a process completed by 1965. During the energy shortages of the early 1970s, PSE&G experimented with plans to purchase liquefied natural gas from Algeria and to produce synthetic natural gas from naphtha. Both projects proved to be impractical because of cost, but gas sales continued to increase, reaching 200 billion cubic feet annually by the late 1970s. In 1972, PSE&G established subsidiary Energy Development Corp. (EDC) to engage in gas exploration and development. PSE&G also continued to expand its gas sales by encouraging home heating conversions from oil, selling gas for electric cogeneration, and experimenting with natural-gas-fueled vehicles. The firm also enlarged its gas supply by initiating purchases of natural gas from Canada in 1990.

Company Perspectives:

We strive to extend our geographic footprint to increase earnings while remaining steadfast in our commitment to provide safe, reliable, high-quality delivery of energy to our customers in New Jersey,

Development of Electric and Nuclear Power Generation Plants: Early 1900s-1980s

Electric generating machinery at the turn of the century was still primitive and unreliable, with little residential or industrial use of electricity. When PSC began operations, its 14 generating stations had a capacity of about 40,000 kilowatts, most of which went to power street railways, realizing $3.5 million in electric revenues in 1904. Generator technology improved and electrical use increased tremendously over time. By 1978, PSE&G operated 13 generating plants with a capacity of 9 million kilowatts and achieved electric revenues of more than $1.5 billion. In 1990, the companys generating capability was 10.1 million kilowatts, and electric revenues were $3.3 billion.

The character of PSE&Gs electrical history was shaped by its role as an innovator and pioneer of advanced techniques in power generation. PSE&G began early in this role by installing then-new rotating steam turbines in its Newark and Jersey City plants in 1905 and 1906. These two formerly separate plants acquired by PSC were linked into a single network, increasing the reliability and efficiency of the power system. The idea of linkage was enlarged in 1927 by agreements with Philadelphia Electric Company and Pennsylvania Power & Light Company for the interconnection and exchange of power. This led to the operation of a 230,000-volt transmission ring that was the worlds first integrated power pool and that has expanded over the years to become the Pennsylvania-New Jersey-Maryland interconnection.

In 1933, the firm experimented with a 20,000-kilowatt mercury boiler-turbine, the largest unit of its type in the world, but mercury technology proved unsatisfactory. The company was also one of the first utilities to experiment with windpower generation, financing pilot wind-power stations in Burlington, New Jersey, during the early 1930s. Slowing service growth during the Great Depression put an end to this project, however.

The firm pioneered the use of airplane-type jet engines to drive electric generators for periods of peak power requirements. Generating units at the mouths of coal mines and pumped storage generating plants were also built as part of the companys continued search for low-cost power. Tests of solar generating systems were carried out during the late 1970s but proved not to be cost effective.

PSE&G joined with Philadelphia Electric Company, Atlantic City Electric Company, and Delmarva Power & Light Company during the 1960s to plan and build nuclear generating facilities. The first plant, owned jointly with Philadelphia Electric Company, was put in service at Peach Bottom, Pennsylvania, in 1974. Another nuclear plant began operation in 1977 at Salem, New Jersey, and a third went on line at Hope Creek, New Jersey, both in the southern part of the state.

Along with construction cost overruns, the company had other problems with nuclear power, including the temporary closing of the Peach Bottom units in 1987 by the U.S. Nuclear Regulatory Commission because of mismanagement. Among the infractions were workers sleeping on duty. This incident led to financial losses, although Philadelphia Electric, as the operator, was generally held responsible. The firm was also criticized in 1988 because of below average performance of its Salem and Hope Creek facilities. In 1989, the company was required to pay customers a $32 million rebate as compensation for the Peach Bottom shutdown. PSEG made a determined effort to improve its nuclear operations, and in 1990 reported that its nuclear plants had their most productive year ever. The company held a 95 percent interest in the Hope Creek plant, and a 42.5 percent interest in the Peach Bottom and Salem units. In 1990, about 47 percent of PSEGs electricity supplied to customers was provided by nuclear generation.

The period during the mid-1980s was marked by a corporate restructuring and a gradual move to diversify. On May 1, 1986, PSE&G became a subsidiary of Public Service Enterprise Group (PSEG), which also served as a parent of the companys nonutility subsidiaries. In 1989, the nonutility businesses were gathered together into a nonutility subholding company subsidiary, Enterprise Diversified Holdings, Inc. (Holdings). In 1989, PSEG agreed to buy Pelto Oil Corporation from the Southdown Company for about $320 million. Pelto, with substantial oil and gas reserves, operated as a subsidiary of Holdings. PSEGs other nonutility investments included aircraft and utility plant leasing, alternative energy projects, cogeneration, real estate, venture capital, and leveraged buyout funds.

Key Dates:

1903:
Public Service Corporation of New Jersey (PSC) is incorporated.
1907:
State regulation of utilities becomes institutionalized.
1924:
Public Service Electric and Gas Company (PSE&G) is formed.
1927:
Agreements are formed with both Philadelphia Electric Co. and Pennsylvania Power & Light Co. for the interconnection and exchange of power.
1937:
PSC begins operating the worlds first diesel-electric bus fleet.
1948:
PSC is dissolved; PSE&G becomes the parent company.
1972:
Subsidiary Energy Development Corp. is created.
1974:
The firms first nuclear plant in Pennsylvania begins operation.
1986:
Public Service Enterprise Group (PSEG) is formed to act as a holding company.
1989:
Enterprise Diversified Holdings is formed to consolidate the firms unregulated business.
1993:
The Federal Energy Regulatory Commission completes deregulation of the supply segment of the natural gas industry; the National Energy Policy Act takes effect.
1994:
A PSEG subsidiary signs a joint venture contract to build, own, and operate a power plant in China.
1996:
PSEG sells Energy Development Corp.
1997:
Energis Resources is created to take advantage of deregulation in the energy services market.
2000:
Subsidiary PSEG Power is formed as an unregulated business.

The central motive for this diversification was that the state of New Jersey limited PSE&Gs earnings to 13 percent of equity. Like many utilities, PSEG felt it must diversify to grow. E. James Ferland, chairman, president, and CEO since 1986, focused PSEGs efforts on acquiring and forming partnerships with businesses related to the energy industry. The announcement in November 1990 of a joint venture with Brooklyn Union Gas Company to build and operate a $250 million cogeneration plant to produce electricity for Kennedy International Airport near New York City was a step in that direction.

Continued Diversification and Deregulation in the 1990s

The 1990s were marked by continued diversification and change. In 1993, the Federal Energy Regulatory Commission (FERC) completed the deregulation of the supply segment of the natural gas industry. The National Energy Policy Act also went into effect, creating increased competition in the wholesale electric market. Ferland stated in a 1993 letter to PSEG shareholders, We, like the telecommunications and airline industries before us, are quickly moving from a relatively safe, secure, and protected field of operations to one of full-bore competition with little time for adjustment in between.

As such, PSEG focused not only on PSE&G operations, but on international expansion and restructuring as well. In 1994, the firms Community Energy Alternatives Inc. (CEA) subsidiary began a joint venture to build, own, and operate a power plant in Chinathe first U.S. company to do so. The following year, CEA also began a venture in Venezuela. In 1995, PSEG created a new subsidiary entitled Enterprise Energy Technology Group to act as a energy management services company. As part of PSEGs strategy to pursue the development of new products and new market penetration, the firm sold its Energy Development Corp. subsidiary to Noble Affliates Inc. for $775 million.

Deregulation of the gas and electric utilities industry continued in the late mid-to-late 1990s. In response to increased competition, PSEG formed Energis Resources in 1997 to market energy products and services to business customers. By 1998, PSEG had also invested nearly $3 billion in non-regulated businesses, with almost half in international territories including Brazil, the Netherlands, Argentina, and China. In 1999, PSEG and California-based Sempra Energy announced plans to purchase 90 percent of Chilquinta Energia S.A., a Chilean-based energy firm. That same year, PSEG and Texas-based Panda Energy International Inc. formed a $1.3 billion joint venture to build three power plants in Texas.

As a result of the completion of deregulation in New Jersey, PSE&Gs monopoly that controlled power sales to over 2.5 million New Jersey customers came to an end in August 1999. By that time, PSEG had reorganized its operations into operating units that focused on both domestic and international operations.

Operating As a Global Energy Firm in the New Millennium

Despite the increased competition, PSEG entered the new millennium on solid ground. Operating earnings for 2000 increased by eight percent over 1999 results. That year, PSE&G was ordered to transfer its electric generation assets and liabilities to an unregulated business as part of the deregulation order. As a result, PSEG Power was formed. The unregulated business began operation with over 10,000 megawatts of capacity, securing its position as a leading independent merchant energy operator in the United States.

By 2001, PSEG had successfully transformed itself from a traditional utility to a global energy firm. Determined to avoid electric supply problems that had surfaced in states including California, PSEG Power invested in wholesale markets in both New Jersey and New York, and was dedicated to building additional capacity in its home state to ensure adequate power supplies.

Along with its domestic operations, PSEG continued its international expansion in the new millennium. Through PSEG Global, the firm had begun operation of power plants in Texas, India, and China. It had also started construction of plants in California and Poland, and announced plans to purchase the SAESA group of electric distribution firms in both Chile and Argentina.

While eyeing new opportunities in energy services and related markets as key to remaining competitive, PSEG was dedicated to its long-standing tradition of providing gas and electric service to both business and residential customers on the home front. PSEGs successful diversification efforts during the deregulation of the electric and gas industries left management confident that the energy firm would experience continued achievements among its regulated and unregulated subsidiaries.

Principal Subsidiaries

Public Service Electric and Gas Co.; PSEG Energy Holdings; PSEG Global; PSEG Resources; PSEG Energy Technologies; PSEG Power; PSEG Fossil; PSEG Nuclear; PSEG Energy Resources & Trade.

Principal Competitors

Conectiv; GPU Inc.; New Jersey Resources Corporation.

Further Reading

Chilquinta Deal Inked, Oil Daily, June 11, 1999.

Conniff, James C.G., and Richard Conniff, The Energy People: A History of PSE&G, Newark, N.J.: Public Service Electric and Gas Company, 1978.

DeMarrais, Kevin G., Newark, N.J.-Based Utility Company Posts Strong Year Despite Deregulation, Record (New Jersey), January 20, 2000.

, New Jersey Utilities Expand Overseas, Record (New Jersey), September 26, 1998.

Elder, Laura E., New Jersey Utility Shedding Its Local Energy Development Corp., Houston Business Journal, March 29, 1996, p. 3A.

Gottschalk, Arthur, Power Players: US Firms Find Global Energy Opportunities, Journal of Commerce, September 16, 1994, p. 1A.

Hogan, Rick, Noble Affiliates Agrees to Buy EDC, Plans to Merge It With Samedan Oil, Oil Daily, July 3, 1996, p. 3.

JFK Gets Power Plant, Crains New York Business, November 12, 1990, p. 57.

Public Service and Panda Form $1.3 Billion Venture, New York Times, April 6, 1999, p. 4.

Robertshaw, Nicky, Utilitys Problems Not Hurting Stock, Crains New York Business, December 2, 1991, p. 43.

Smith, Robert I., A Cycle of Service: The Story of Public Service Electric and Gas Company, New York: Newcomen Society in North America, 1980.

Weimer, DeAnn, Dont Be Shocked by Surges in the Price of Power, Business Week, July 27, 1998.

Bernard A. Block

update: Christina M. Stansell

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Public Service Enterprise Group Incorporated

Public Service Enterprise Group Incorporated

80 Park Plaza
Newark, New Jersey 07101
U.S.A.
(201) 430-7000
Fax: (201) 430-5983

Public Company
Incorporated: 1903 as Public Service Corporation of New Jersey
Employees: 13,500
Sales: $4.80 billion
Stock Exchanges: New York Philadelphia London

Public Service Enterprise Group Incorporated (Enterprise) is a diversified New Jersey holding company whose principal wholly owned subsidiary is Public Service Electric and Gas Company (PSEG). PSEG is a regulated public utility company that provides electric and gas service to more than 5.5 million residents of New Jersey, about 70% of the states population. PSEG is New Jerseys largest utility; its service area covers about 2,600 square miles in northeast and central New Jersey, and includes the metropolitan areas of Jersey City, Newark, and Trenton.

A smaller wholly owned subsidiary, Enterprise Diversified Holdings, Inc., functions as the parent of Enterprises nonutility businesses, which include power cogeneration, oil and gas exploration and development, commercial real estate investment and development, and other financial investments. The nonutility businesses, representing about 17% of Enterprises assets, contributed 6.2% of the holding companys earnings in 1990 with a target goal of contributing 10%.

Enterprises profits depend primarily on PSEGs sale of electricity, which provides about 73% of utility revenues, and gas, which accounts for about 27% of utility revenues. This is a far different outcome than was anticipated by the companys founder in 1903 when the corporations main activity and hope for future growth involved the business of transportation, especially the operation of trolley cars.

At the beginning of the 20th century New Jerseys utilities were primarily operators of streetcars; secondarily manufacturers and distributors of gas; and minimally producers of electricity, most of which was used to power trolley cars. Streets, homes, and businesses were, for the most part, lighted by gas, and the industrial use of electricity was in its infancy. The utility operators were fragmented into hundreds of small companies, many of which were owned by out-of-state interests, inefficiently run, and poorly maintained. On February 19, 1903, in Newark a streetcar full of high school students skidded down an icy hill onto a railroad crossing and was struck by a train, killing and injuring more than 30 people. A subsequent investigation into the affairs of the car operator, the North Jersey Street Railway Company, revealed shoddy management and extreme financial instability, not only of North Jersey but of many other New Jersey streetcar, electric, and gas companies.

Reform was called for by the public, and by the insurance companies and banks whose utility investments were at risk. One of the largest of these banks, the Fidelity Trust Company of Newark, was managed by a member of a prominent New Jersey family, Uzal McCarter. Uzals brother, 35-year-old lawyer Thomas Nesbitt McCarter, was the youngest attorney general in the states history, a director of Prudential Insurance Company, and a director and general counsel of Fidelity Trust. Thomas McCarter saw the opportunity offered by the utility crisis and proposed the creation of a single company that would provide transportation, gas, and electricity services for the entire state. The New Jersey, New York, and Pennsylvania financial and political establishments, with which he was well connected, agreed to McCarters plan; and he resigned his public office to become president of the new corporation.

With an initial $10 million capitalization to begin its acquisition program, Public Service Corporation of New Jersey (PSC) was incorporated in May 1903. The original shareholders were Thomas Dolan, president of Philadelphias United Gas Improvement Company; John I. Waterbury, president of New Yorks Manhattan Trust Company; and Thomas McCarter, who in effect represented Prudential Insurance Company and Fidelity Trust. The company clearly originated in the desire of these institutions to secure and re-establish the value of their New Jersey utility investments. Their plan was successful largely thanks to McCarter, who proved to be a strong, skillful manager, especially capable in the financial and political affairs so critical to a growing regulated utility. McCarter served as president for 36 years and as chairman of the board for an additional 6 years, until his retirement in 1945. During this long period he dominated the companys affairs.

PSC began by acquiring the securities of four street railway companies and one electric generating company, the beginning of an acquisition program that eventually brought more than 500 gas, electric, and traction businesses under the control of PSC and its successor companies. Revenues for 1904, the first year of operation, were $8.4 million from street railways, $5.4 million from gas manufacturing and sale, and $3.5 million from electricity.

Along with growth in operations and revenues over time came changes in corporate structure. Until 1907 PSC was a straightforward operating company, acquiring and leasing properties and improving and managing them. State regulation of utilities was institutionalized in 1907, by the creation of the State Railroad Commission, which expanded in 1910 to become the New Jersey State Board of Public Utility Commissioners. In August 1907 PSC was obliged to incorporate the Public Service Railway Company as a wholly owned subsidiary to operate its traction lines. In 1909 PSC formed Public Service Gas Company, also wholly owned, and in 1910 created Public Service Electric Company to generate and distribute electricity. PSC therefore became a holding company for the operating companies. There were further changes for the operating companies. In 1924 the gas and electric businesses were merged to form Public Service Electric and Gas Company, and in 1948 PSC was dissolved and PSEG became the parent company with the transportation company as a subsidiary.

McCarters original belief that PSCs future lay primarily in the transportation business proved to be erroneous. This business did grow and prosper in the early years, culminating in the opening in 1916 of a magnificent new street railway terminal and office building in Newark. PSCs transportation system grew to carry over 450 million passengers a year. It included street and interurban railways centered around Newark and reaching south to Camden and Trenton, as well as the ownership of amusement parks, ferry lines, cab companies in Newark and Camden, and eventually jitney and bus lines.

The company pioneered the development and use of gas-electric streetcars and buses, and in 1937 began operating the worlds first diesel-electric bus fleet. The subsidiary Public Service Transportation Company was formed in 1924 to operate buses, and in 1928 this company and Public Service Railway Company were merged to form Public Service Coordinated Transport Company. The spread of suburban residential areas coupled with the rise of the automobile led to the gradual replacement of the streetcar and the interurban rail by the bus, however, and eventually to declining profitability for all forms of public transportation. The 1960s and 1970s saw a continuation of rising fares and increasing dependence on state subsidies. In 1971 Public Service Coordinated Transport became Transport of New Jersey, largely an operator of buses owned by the state and leased to the company. In 1979 legislation was passed to permit New Jersey to acquire and operate private bus lines, and PSEG negotiated the sale of its transport subsidiary to the state.

Unlike the traction companies it acquired, PSCs early gas acquisitions tended to be relatively sound physically and financially, and PSCs goal was to consolidate and expand these properties. In the early years gas was manufactured from coal or oilnatural gas pipelines were in the futureand sold mainly for lighting, cooking, and heating water; electricity use by the public was still minimal. PSC increased its gas sales by aggressively marketing gas stoves and water heaters as well as by increasing its distribution areas. Gas sales grew from 5 billion cubic feet in 1904 to about 20 billion cubic feet by the mid-1920s, then slowed during the 1930s and early 1940s. After World War II the use of gas for home heating expanded enormously, outstripping the companys gas manufacturing capacity. In 1949 PSEG began purchasing natural gas from Texas Eastern Gas Corporation and in 1950 from Transcontinental Gas Pipe Line Corporation.

Customers gradually were switched over from manufactured gas to natural gas, a process completed by 1965. During the energy shortages of the early 1970s PSEG experimented with plans to purchase liquefied natural gas from Algeria and to produce synthetic natural gas from naphtha. Both projects proved to be impractical because of cost, but gas sales continued to increase, reaching 200 billion cubic feet annually by the late 1970s. In 1972 PSEG established a subsidiary, Energy Development Corporation, to engage in gas exploration and development. EDC continued to explore for oil and gas for Public Service Enterprise Group as a subsidiary of its Enterprise Diversified Holdings Company. PSEG also continued to expand its gas sales by encouraging home heating conversions from oil, selling gas for electric cogeneration, and experimenting with natural-gas-fueled vehicles. PSEG also enlarged its gas supply by initiating purchases of natural gas from Canada in 1990.

Electric generating machinery at the turn of the century was still primitive and unreliable, with little residential or industrial use of electricity. When PSC began operations, its 14 generating stations had a capacity of about 40,000 kilowatts, most of which went to power street railways, realizing $3.5 million in electric revenues in 1904. Generator technology improved and electrical use increased tremendously over time. By 1978 PSEG operated 13 generating plants with a capacity of 9 million kilowatts and achieved electric revenues of more than $1.5 billion. In 1990 the companys generating capability was 10.1 million kilowatts, and electric revenues were $3.3 billion.

The character of PSEGs electrical history was shaped by its role as an innovator and pioneer of advanced techniques in power generation. PSEG began early in this role by installing then-new rotating steam turbines in its Newark and Jersey City plants in 1905 and 1906. These two formerly separate plants acquired by PSC were linked into a single network, increasing the reliability and efficiency of the power system. The idea of linkage was enlarged in 1927 by agreements with Philadelphia Electric Company and Pennsylvania Power & Light Company for the interconnection and exchange of power. This led to the operation of a 230,000-volt transmission ring that was the worlds first integrated power pool and that has expanded over the years to become the Pennsylvania-New Jersey-Maryland interconnection.

In 1933 PSEG experimented with a 20,000-kilowatt mercury boiler-turbine, the largest unit of its type in the world, but mercury technology proved unsatisfactory. The company was also one of the first utilities to experiment with wind-power generation, financing pilot wind-power stations in Burlington, New Jersey, during the early 1930s. Slowing service growth during the Great Depression put an end to this project, however.

PSEG pioneered the use of airplane-type jet engines to drive electric generators for periods of peak power requirements. Generating units at the mouths of coal mines and pumped-storage generating plants were also built as part of the companys continued search for low-cost power. Tests of solar generating systems were carried out during the late 1970s but proved not to be cost-effective.

PSEG joined with Philadelphia Electric Company, Atlantic City Electric Company, and Delmarva Power & Light Company during the 1960s to plan and build nuclear generating facilities. The first plant, owned jointly with Philadelphia Electric Company, was put in service at Peach Bottom, Pennsylvania, in 1974. Another nuclear plant began operation in 1977 at Salem, New Jersey, and a third went on line at Hope Creek, New Jersey, both in the southern part of the state.

Along with construction cost overruns, PSEG has had other problems with nuclear power, including the temporary closing of the Peach Bottom units in 1987 by the U.S. Nuclear Regulatory Commission because of mismanagement. Among the infractions were workers sleeping on duty. This incident led to financial losses, although Philadelphia Electric, as the operator, was generally held responsible. PSEG was also criticized in 1988 because of below-average performance of its Salem and Hope Creek facilities. In 1989, PSEG was required to pay customers a $32 million rebate as compensation for the Peach Bottom shutdown. PSEG made a determined effort to improve its nuclear operations, and in 1990 reported that its nuclear plants had their most productive year ever. The company held a 95% interest in the Hope Creek plant, and a 42.5% interest in the Peach Bottom and Salem units. In 1990 about 47% of PSEGs electricity supplied to customers was provided by nuclear generation.

The period since the mid-1980s has seen a corporate restructuring and a gradual move to diversify. On May 1, 1986, PSEG became a subsidiary of Enterprise, which also serves as a parent of the companys nonutility subsidiaries. In 1989, the nonutility businesses were gathered together into a nonutility subholding company subsidiary, Enterprise Diversified Holdings, Inc. (Holdings). In 1989 Enterprise agreed to buy Pelto Oil Corporation from the Southdown Company for about $320 million. Pelto, with substantial oil and gas reserves, operated as a subsidiary of Holdings. Enterprises other nonutility investments include aircraft and utility plant leasing, alternative energy projects, cogeneration, real estate, venture capital, and leveraged buyout funds.

The central motive for this diversification is that the state of New Jersey limits PSEGs earnings to 13% of equity. Thus Enterprise, like many utilities, feels it must diversify to grow. E. James Ferland, chairman, president, and CEO since 1986, has stated that Enterprises future diversification will be focused on businesses relating to the energy industry. The announcement in November 1990 of a joint venture with Brooklyn Union Gas Company to build and operate a $250 million cogeneration plant to produce electricity for Kennedy International Airport in New York City is a step in that direction. Meanwhile Enterprise will continue for the foreseeable future primarily to serve the people of New Jersey through its ownership of the states largest utility.

Principal Subsidiaries

Public Service Electric and Gas Company; Enterprise Diversified Holdings, Inc.

Further Reading

Conniff, James C.G., and Richard Conniff, The Energy People: A History of PSE&G, Newark, New Jersey, Public Service Electric and Gas Company, 1978; Smith, Robert I., A Cycle of Service: The Story of Public Service Electric and Gas Company, New York, The Newcomen Society in North America, 1980.

Bernard A. Block

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"Public Service Enterprise Group Incorporated." International Directory of Company Histories. . Encyclopedia.com. 23 Nov. 2017 <http://www.encyclopedia.com>.

"Public Service Enterprise Group Incorporated." International Directory of Company Histories. . Encyclopedia.com. (November 23, 2017). http://www.encyclopedia.com/books/politics-and-business-magazines/public-service-enterprise-group-incorporated

"Public Service Enterprise Group Incorporated." International Directory of Company Histories. . Retrieved November 23, 2017 from Encyclopedia.com: http://www.encyclopedia.com/books/politics-and-business-magazines/public-service-enterprise-group-incorporated