Business context and reporting period
Public Service Enterprise Group Incorporated (PSEG) filed this combined Form 10-K for the fiscal year ended December 31, 2022. PSEG’s primary businesses are PSE&G, its regulated New Jersey electric and gas utility, and PSEG Power, its nuclear generation and energy-marketing business. The figures below are for PSEG consolidated unless otherwise noted.
PSEG completed the sale of its 6,750 MW fossil generation portfolio in February 2022, following the sale of its solar portfolio in 2021. The business is now more weighted toward regulated utility operations and nuclear generation.
Financial performance and position
| Metric | 2022 | 2021 |
|---|---|---|
| Operating revenue | $9.800 billion | $9.722 billion |
| Operating income (loss) | $1.381 billion | $(856) million |
| Net income (loss) | $1.031 billion | $(648) million |
| Diluted EPS | $2.06 | $(1.29) |
| Cash from operating activities | $1.503 billion | $1.736 billion |
| Capital expenditures | $2.888 billion | $2.719 billion |
| Common dividends paid | $1.079 billion | $1.031 billion |
- PSE&G earned $1.565 billion in 2022, up from $1.446 billion. PSEG Power & Other reported a $534 million loss, compared with a $2.094 billion loss in 2021.
- Revenue rose about 1%; energy costs increased 15% to $4.018 billion. Much of the utility’s commodity revenue and costs are pass-through items and do not generate margin.
- At December 31, 2022, PSEG reported $18.070 billion of long-term debt, including current maturities, plus $2.200 billion of commercial paper and loans. Cash and cash equivalents were $465 million; cash, cash equivalents and restricted cash totaled $511 million.
- Committed credit facilities totaled $4.150 billion, with $3.689 billion available. Management said liquidity was expected to cover stressed requirements over its 12-month planning horizon. PSEG was in compliance with debt covenants.
- PSE&G operating cash flow increased to $2.028 billion from $1.724 billion. PSEG consolidated operating cash flow declined $233 million year over year.
- Nuclear generation was 31.3 TWh with a 92.2% capacity factor. PSEG Power’s net cash collateral postings reached $1.5 billion at year-end, then were about $700 million on February 17, 2023.
Material changes versus the prior comparable period
- PSEG returned to profitability largely because 2021 included a $2.691 billion pre-tax impairment loss tied to the fossil portfolio sale, related debt-extinguishment costs, and other charges. The sale closed in February 2022; an additional $50 million pre-tax impairment was recorded in 2022.
- PSE&G’s earnings benefited from continued transmission and distribution investment and the Conservation Incentive Program. Its revenue increased 11%, while higher operating and maintenance costs partly offset those gains.
- PSEG Power & Other revenue fell 13%, primarily reflecting the fossil and solar portfolio sales and lower generation volumes and realized prices. NDT investment losses and non-trading mark-to-market losses also weighed on results.
- Rising energy prices increased collateral needs on hedge positions, tightening working-capital demands. Pension assets also had negative returns in 2022, although higher discount rates reduced pension obligations.
Outlook, risks and unusual items
- PSE&G estimates a $15.5 billion to $18 billion capital investment program for 2023–2027 and expects rate base to grow 6%–7.5% annually from year-end 2022 through year-end 2027. These plans depend partly on regulatory approvals and program extensions.
- Planned total capital expenditures are $3.640 billion in 2023, $3.050 billion in 2024 and $3.055 billion in 2025. Management expects operating cash flow, cash on hand and financing to fund capital spending and dividends.
- PSEG expects more than 90% of PSEG Power’s 2023 expected gross margin to be supported by energy hedges, capacity mechanisms, New Jersey Zero Emission Certificates (ZECs), gas operations and ancillary services. Nuclear generation sales are contracted at 95%–100% for 2023 and 55%–60% for 2024.
- The Inflation Reduction Act created a nuclear production tax credit for 2024–2032, potentially up to $15/MWh, but Treasury guidance and interaction with ZEC payments remained uncertain. ZEC awards for Salem and Hope Creek run through May 2025.
- Key exposures include regulatory recovery and approval risk; wholesale power and gas price volatility; collateral and liquidity demands; nuclear operating, fuel, licensing and decommissioning risks; inflation and supply-chain constraints; climate policy and possible declining gas demand; severe weather; cybersecurity and physical security; and pension funding volatility.
- Environmental contingencies include the Passaic River Superfund matter, for which PSEG had accrued $66 million but could not estimate additional exposure, and remediation at retained former fossil sites, whose full costs are not estimable and are expected to be material. A Hackensack River Superfund designation may also affect the companies; the impact is unknown.
- Other notable items: 2022 included $78 million of pre-tax Energy Holdings impairments; the IRA led to a $145 million reduction in the nuclear asset retirement cost and obligation estimate. The board approved a first-quarter 2023 dividend of $0.57 per share, or an indicated annual rate of $2.28.
Important facts for investors to verify
- Whether the planned utility investment programs and rate recovery are approved on expected terms, and whether the projected rate-base growth is achieved.
- Final PJM capacity-auction outcomes and regulatory decisions, and how nuclear tax credits interact with ZEC revenue and hedging.
- Collateral requirements, cash-flow impacts and credit-rating sensitivity as energy prices and hedge positions change.
- Updated estimates, accruals and recoverability for Passaic River, Hackensack River and retained fossil-site remediation obligations.
- Execution of the 2023–2027 capital plan, refinancing of near-term debt maturities, and the sustainability of dividends amid investment and financing needs.
Deloitte issued unqualified opinions on PSEG’s and PSE&G’s financial statements. PSEG’s internal control over financial reporting was reported effective; the filing identifies rate-regulated accounting and recovery judgments as a critical audit matter.