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PSE&G EARNS HIGH MARKS IN MANAGEMENT AUDIT

 PSE&G EARNS HIGH MARKS IN MANAGEMENT AUDIT
 NEWARK, N.J., Feb. 12 /PRNewswire/ -- When compared to other leading


U.S. electric and gas utilities, Public Service Electric and Gas Company (PSE&G) is among the best, particularly in the areas of senior management leadership and responsiveness to external constituencies, according to a recently completed management audit.
 New Jersey law requires the Board of Regulatory Commissioners (BRC) to direct an audit of all utilities in the state once every three to six years. The audit, conducted by an independent management firm, examines all facets of utility company operations, including customer service, costs, financial performance, and management effectiveness. The PSE&G audit was conducted by Richard Metzler & Associates (RM&A) of Chicago. The results of the PSE&G audit, which was conducted in 1991, are contained in a 911-page report that has just been approved and made public by the BRC.
 In reaching its conclusions, RM&A said PSE&G can be regarded among the nation's best utilities for a number of "salient and subtle characteristics."
 "The company is well led by an informed and highly qualified board of directors and an experienced and adept senior management team," RM&A reported. "Both of these groups are very active in the oversight and governance of the firm and together provide leadership of the highest caliber."
 RM&A also found that "unlike many in the electric and gas utility industries, the company is acutely aware of the external environment in which it is operating and has taken an anticipatory or proactive approach to dealing with emerging issues."
 RM&A suggested that PSE&G's future pre-eminence would be assured by maintaining these attributes and by continuing its efforts to obtain adequate rate relief, control costs and improve earnings.
 In conducting the audit, RM&A said its approach to the assessment of PSE&G's performance was developed from two perspectives: first, how a leading utility is viewed by its external publics, and second, how a leading utility's senior management should direct control of its internal operations.
 RM&A defined the utility's external constituencies as its customers, the financial community, its regulators, its employees, and the public at large. With respect to the external constituencies' perspective, it reached these conclusions:
 -- PSE&G's approach to customer service is above average, but the company should continue striving to reduce costs in this area.
 -- The company has strong and consistent financial policies and is generally well regarded by the financial community (rating agencies, analysts, etc.), but these is room for earnings improvement.
 -- The company has moved to establish more collaborative and constructive relationships with its regulators while maintaining a formal and professional posture.
 -- PSE&G has achieved a strong relationship with its employees.
 -- PSE&G has taken an impressive stance in managing its approach to, and communication with, the public at large.
 From the perspective of PSE&G's senior management, RM&A said, key attributes are a striving for excellence, effective planning, a well- designed organization, an ability to manage the "big dollars," the continuing development of employees and the successful exploitation of information technology. With these factors in mind, RM&A concluded:
 -- PSE&G has conceived and adopted a clear and consistent goal of achieving excellence in the utilities industry.
 -- Overall strategic planning is comprehensive, well-integrated, and supportive of company goals.
 -- PSE&G's organization structure is supportive of overall goals and promotes collaboration among business and functional units.
 -- PSE&G, with few exceptions, is managing major cost control efforts well.
 -- The overall quality of PSE&G's "human capital," or employees, is high and human resources programs are generally well-conceived.
 -- PSE&G clearly recognizes the strategic importance of information technology and should continue efforts to strengthen its application of it.
 In its report, RM&A lauded PSE&G for undertaking and successfully implementing "many initiatives at the highest levels in an effort to reshape the company to meet the challenges of the evolving electric and gas utilities industries." RM&A said these efforts, begun over the last six years, primarily focused on strengthening the organization, enhancing the planning process, and achieving operational excellence.
 The auditing firm noted, however, that PSE&G still faces "challenges in several important areas." According to RM&A, these include:
 -- Projections of continued slow growth in electric sales over the next decade, which could make capital expansion difficult and adversely impact the economics of replacing older, high-maintenance facilities.
 -- The gradual transition toward deregulation and increased competition in the electric and gas businesses, which will test PSE&G's ability to effectively bid for new generation sources, to provide for energy and capacity off system, and to supply both gas and gas transportation service inexpensively.
 -- Increasing market demands, which will require the utility to alter its mix of products and services.
 -- The need for demonstrated environmental stewardship, particularly as the public's awareness of environmental issues increases.
 -- The rapidly shifting population demographics, which could affect recruitment and training of employees and change overall customer service programs and policies.
 -- Continuing cost escalation that utilities have confronted for decades, which affects the overall cost of service and tests the company's competitiveness.
 In general, the audit report focuses on findings about each of PSE&G seven business units and on 119 specific recommendations by RM&A. In addition, the report includes a response by PSE&G.
 "While we acknowledge that we are doing many things well, we also agree with RM&A that there are a number of opportunities for improvement within the many processes and systems at work within our company," said E. James Ferland, chairman of the board, in the company's response.
 "Since we attempt to improve continuously, we agree that the vast majority of RM&A's recommendations should be implemented. However, we are not fully convinced about other recommendations since they do not offer a high probability of producing business benefits."
 For example, PSE&G noted that RM&A recommended the elimination of the use of shared management to fulfill certain functions on behalf of both PSE&G and Enterprise Diversified Holdings Incorporated (EDHI), another subsidiary of Public Service Enterprise Group and parent of its non-utility businesses.
 In its response, PSE&G stated: "The company believes that the issue raised is overstated, in that no problem currently exists; in addition, shared management for certain functions -- cash management, corporate finance, and corporate governance -- results in services being provided at lower costs to all entities. We will agree to monitor the situation as the diversified businesses grow."
 Despite this and other views on various recommendations, Ferland said PSE&G considers the audit to be a "balanced, fair, and accurate portrayal of the company, and it has added value by pointing out opportunities for further performance gains."
 -0- 2/12/92
 /CONTACT: Neil Brown of PSE&G, 201-430-6017/ CO: Public Service Electric and Gas Company ST: New Jersey IN: UTI SU:


SM-JT -- NY087 -- 9384 02/12/92 16:20 EST
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Date:Feb 12, 1992
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