Public Service Enterprise Group Incorporated — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed February 24, 2022. This is an annual filing, not a standalone fourth-quarter report. PSEG is a diversified energy holding company, principally comprising regulated New Jersey utility PSE&G and merchant generator PSEG Power. Amounts below are U.S. dollars unless noted.
Financial performance and position
| Metric | FY2021 | FY2020 |
|---|---|---|
| Operating revenue | $9.722 billion | $9.603 billion |
| Operating income (loss) | $(856) million | $2.270 billion |
| Net income (loss) | $(648) million | $1.905 billion |
| Diluted earnings (loss) per share | $(1.29) | $3.76 |
| Cash from operating activities | $1.736 billion | $3.102 billion |
| Capital expenditures | $2.719 billion | $2.923 billion |
Reported profitability was dominated by the fossil-generation sale-related impairment and charges: PSEG recorded a $2.691 billion pretax impairment and other sale-related costs, including a $298 million pretax loss on debt extinguishment. PSEG Power reported a $2.056 billion net loss, while PSE&G earned $1.446 billion, up from $1.327 billion. PSEG also reported a $446 million after-tax non-trading mark-to-market loss, compared with a $58 million loss in 2020. The filing does not provide a single adjusted earnings figure or a clearly stated normalized margin.
Revenue rose about 1% year over year. PSE&G revenue increased 8% to $7.122 billion, supported by delivery and infrastructure-related revenues; much of the increase in commodity revenue was offset by energy costs. PSEG Power revenue fell 13% to $3.147 billion, with mark-to-market losses and lower BGS-related volumes among the drivers.
At year-end, PSEG had $818 million of cash and cash equivalents, $15.919 billion of long-term debt including current maturities, and $3.519 billion of commercial paper and loans. Available credit-facility liquidity was $2.915 billion. Operating cash flow declined $1.366 billion, principally reflecting higher collateral postings and PSE&G cash-collection pressures. PSEG Power’s net cash collateral postings reached $844 million amid rising energy prices. PSEG paid $2.04 per share in 2021 dividends; the board approved a first-quarter 2022 dividend of $0.54 per share.
Material changes and strategy
- PSEG completed the sale of its solar portfolio in June 2021 and completed the sale of its 6,750 MW fossil generation portfolio in February 2022, after year-end. Management expects the sales to reduce business risk and earnings volatility, increase the relative contribution of regulated PSE&G, and improve financial flexibility.
- PSEG redeemed all remaining PSEG Power senior notes in October 2021, paying an approximately $294 million make-whole premium. It issued $1.5 billion of senior notes in November. Moody’s downgraded PSEG, PSE&G and PSEG Power ratings in October 2021; the disclosed Moody’s outlooks were Stable at year-end.
- PSE&G’s transmission settlement reduced its base return on equity from 11.18% to 9.90%, effective August 1, 2021. A further proposed elimination of the 50-basis-point RTO adder could reduce annual net income and cash inflows by approximately $30 million to $40 million.
Outlook, risks and contingencies
PSE&G estimates $14 billion to $16 billion of capital investment for 2021–2025, implying expected annual rate-base growth of 6.5% to 8%. The higher end depends partly on unapproved programs. Planned PSEG capital expenditures are $3.060 billion in 2022, $3.645 billion in 2023 and $2.740 billion in 2024. PSEG gave no specific consolidated earnings-per-share guidance in the supplied filing text.
Approved utility programs include $1 billion for energy efficiency, $707 million for smart meters and related grid technology, and approximately $166 million for electric-vehicle charging infrastructure. A proposed $848 million Infrastructure Advancement Program and extensions of several programs remain subject to regulatory approval; the proposed $109 million energy-storage program is on hold pending policy guidance. PSEG also holds a 25% interest in the Ocean Wind offshore project, targeted for commercial operation in 2025; further development spending and project execution remain risks.
Management identifies regulatory and market-design uncertainty, nuclear economics and ZEC support, commodity-price and collateral volatility, inflation and supply-chain constraints, customer collections and bad debt, climate and severe-weather exposure, cybersecurity, and access to capital as material risks. The New Jersey nuclear plants’ ZEC awards extend through May 2025, but legal challenges and potential changes to compensation remain important; management warns that insufficient economic support could lead to plant closures. PSE&G’s allowance for credit losses increased by approximately $265 million since the pandemic began. The filing also describes uncertain environmental remediation exposure, including Passaic River matters and environmental liabilities retained after the fossil-asset sale; some potential costs cannot be estimated and may be material. PSEG’s financial statements received an unqualified audit opinion.
Key facts investors should verify
- Post-sale earnings mix, proceeds and any purchase-price or working-capital adjustments for the fossil generation disposition, including the agreement’s cash-flow adjustment mechanism.
- Whether PSE&G obtains timely regulatory approval and cost recovery for planned investment programs, and the realized rate-base growth relative to the 6.5%–8% target.
- Final transmission-rate effects, including the impact of the 9.90% base ROE and any decision on the RTO adder.
- Cash collections, bad-debt recovery and collateral requirements as energy prices and customer payment conditions change.
- Outcomes of nuclear ZEC and capacity-market proceedings, and whether the nuclear fleet continues to earn acceptable returns.
- Potential environmental liabilities, the LIPA operations agreement approval and related proceedings, and progress, costs and permits for Ocean Wind.