Public Service Enterprise Group Incorporated (PSEG) — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Amounts are in millions of dollars except per-share data. The filing covers PSEG and its wholly owned utility subsidiary, PSE&G.
Business context and outlook
PSEG operates regulated electric and gas utility PSE&G and merchant generation business PSEG Power. PSEG completed the sale of its 6,750 MW fossil generation portfolio in February 2022, shifting the business mix further toward regulated utility earnings.
Management estimates PSE&G’s 2021–2025 capital investment program at $14–$16 billion, with expected rate-base compound annual growth of 6%–7.5% from year-end 2021 through year-end 2025. PSEG provided no specific 2022 earnings guidance in the supplied filing text. It expects capital requirements over the next three years to be funded through internally generated funds and external debt, without new equity issuance.
Key financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Operating revenue | $2,076 | $1,874 | $4,389 | $4,763 |
| Operating income (loss) | $296 | $(294) | $244 | $447 |
| Net income (loss) | $131 | $(177) | $129 | $471 |
| Diluted EPS | $0.26 | $(0.35) | $0.26 | $0.93 |
| Operating cash flow | Not separately provided for quarter | $356 | $1,049 |
For the six months, PSE&G reported revenue of $3,952 and net income of $814, versus $3,587 and $786 a year earlier. PSEG Power reported a six-month net loss of $681, versus a loss of $322.
At June 30, PSEG reported cash and cash equivalents of $2,207; total available credit capacity of $3,387; and long-term debt of $17,671, including debt due within one year. Commercial paper and loans were $3,313. Total assets were $49,608 and stockholders’ equity was $13,428. The filing states liquidity was expected to cover stressed requirements over a 12-month planning horizon.
Material changes and notable items
- Q2 net income improved from the prior-year loss, principally because 2021 included a fossil-asset impairment and Q2 2022 had lower commodity mark-to-market losses. NDT investment losses partly offset the improvement.
- First-half net income fell year over year, mainly because of larger 2022 commodity mark-to-market losses and NDT investment losses; the comparison also includes a 2021 fossil impairment. First-half non-trading commodity mark-to-market losses were $682 after tax, compared with $240 in 2021.
- First-half operating cash flow declined $693, largely reflecting higher cash collateral requirements and tax payments. PSEG Power’s net cash collateral postings were $2.1 billion at June-end and $2.5 billion at July-end; management said most relates to hedges through 2023 and is expected to be returned as obligations are met.
- PSEG paid $541 in common dividends in the first half and completed its $500 million share repurchase authorization. The board approved a $0.54-per-share third-quarter dividend, equivalent to an indicated annual rate of $2.16 per share.
Risks, contingencies, and management commentary
- Commodity price volatility can drive mark-to-market earnings swings, collateral calls, and liquidity needs. A downgrade of PSEG Power below investment grade could trigger additional collateral; the filing estimates potential requirements of approximately $976 million at June 30.
- Environmental matters include the Passaic River Superfund proceedings, for which PSEG had accrued approximately $66 million, and other remediation exposures that may be material but are not currently estimable. The company also described potential liabilities related to fossil assets excluded from the sale.
- The Salem and Hope Creek nuclear units receive New Jersey Zero Emission Certificate support through May 2025. Legal or regulatory changes, market conditions, or other factors could affect plant economics; management warns that early closure could result in material charges and costs.
- The NRC returned Peach Bottom’s stated license expiration dates to 2033 and 2034 pending further environmental review. PSEG had not changed useful lives or asset retirement assumptions but said future changes could materially affect results.
- Other risks include inflation, higher interest rates, supply-chain constraints, customer collection pressures, regulatory recovery and approval uncertainty, cybersecurity, severe weather, pension and decommissioning trust performance, and delays or cost increases at Ocean Wind 1.
- Management reported effective disclosure controls. It noted negative pension-asset returns in 2022 could affect future pension costs, although it expected no impact on 2022 pension costs from that year’s asset performance.
Investor facts to verify
- How commodity mark-to-market results, NDT returns, and collateral movements affect earnings and cash availability in subsequent quarters.
- Whether regulatory approvals and cost recovery support PSE&G’s planned investment program and forecast rate-base growth.
- Updates on Passaic River and other environmental matters, the Peach Bottom license review, and legal or regulatory challenges to nuclear ZEC support.
- Progress, funding needs, and schedule for Ocean Wind 1, including the planned 2025 commercial operation date.
- Debt maturities, refinancing costs, credit ratings, and the continued availability of liquidity under stressed market conditions.