PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED - Company Profile, Information, Business Description, History, Background Information on PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED



80 Park Plaza
Newark
New Jersey
07101
United States

History of PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

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 state's population. PSEG is New Jersey's 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 Enterprise's 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 Enterprise's assets, contributed 6.2% of the holding company's earnings in 1990 with a target goal of contributing 10%.

Enterprise's profits depend primarily on PSEG's 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 company's founder in 1903 when the corporation's 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 Jersey's 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. Uzal's brother, 35-year-old lawyer Thomas Nesbitt McCarter, was the youngest attorney general in the state's 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 McCarter's 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 Philadelphia's United Gas Improvement Company; John I. Waterbury, president of New York's 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 company's 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.

McCarter's original belief that PSC's 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. PSC's 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 world's 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, PSC's early gas acquisitions tended to be relatively sound physically and financially, and PSC's goal was to consolidate and expand these properties. In the early years gas was manufactured from coal or oil--natural gas pipelines were in the future--and 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 company's 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 company's generating capability was 10.1 million kilowatts, and electric revenues were $3.3 billion.

The character of PSEG's 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 world's 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 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.

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 pumpedstorage generating plants were also built as part of the company's 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 PSEG's 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 company's 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. Enterprise's 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 PSEG's 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 Enterprise's 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 state's largest utility.

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

Additional Details

Further Reference

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.

User Contributions:

Comment about this article, ask questions, or add new information about this topic: