Business context and reporting period
Public Service Enterprise Group Incorporated (PSEG) filed this combined Form 10-K for the fiscal year ended December 31, 2020. PSEG operates principally through regulated New Jersey utility PSE&G and merchant generator and energy marketer PSEG Power. Management is pursuing a shift toward a primarily regulated utility and contracted-generation business.
Financial performance and position
| Metric | 2020 | 2019 |
|---|---|---|
| Operating revenue | $9.603 billion | $10.076 billion |
| Operating income | $2.270 billion | $1.943 billion |
| Net income | $1.905 billion | $1.693 billion |
| Diluted EPS | $3.76 | $3.33 |
| Operating cash flow | $3.102 billion | $3.379 billion |
| Capital expenditures | $2.923 billion | $3.166 billion |
- Revenue fell about 5%; net income rose about 13%. Calculated operating margin increased to approximately 23.6% from 19.3%, reflecting lower operating expenses, including asset-disposition effects.
- 2020 net income included an $86 million after-tax gain on the Yards Creek sale; 2019 included a $286 million after-tax loss on the Keystone and Conemaugh sales. PSEG Power also recorded mark-to-market losses in 2020 versus gains in 2019.
- Segment net income was $1.327 billion at PSE&G, up from $1.250 billion, and $594 million at PSEG Power, up from $468 million. PSEG Power revenue declined 17% to $3.634 billion, mainly from lower realized prices, lower volumes, and mark-to-market movements; PSE&G revenue was broadly flat at $6.608 billion.
- Operating cash flow declined $277 million. The filing attributes the decrease chiefly to lower PSEG Power cash flow, tax-payment timing, customer collection delays, and regulatory deferrals. Cash and cash equivalents were $543 million at year-end; cash, cash equivalents, and restricted cash totaled $572 million.
- Year-end long-term debt carrying value was approximately $16.180 billion; commercial paper and loans were $1.063 billion. Credit facilities totaled $4.2 billion, with $3.25 billion available. PSEG reported compliance with debt covenants.
- Common dividends were $1.96 per share in 2020. The board approved $0.51 per share for first-quarter 2021, an indicated annual rate of $2.04.
Material changes, outlook, risks and unusual items
- PSE&G plans $13–$15 billion of investment over 2021–2025, with expected annual rate-base growth of 6.5%–8%. Planned 2021–2023 transmission spending is $2.5 billion. These plans depend partly on regulatory approvals and extensions of programs.
- PSEG is marketing PSEG Power’s non-nuclear generation fleet, with potential transactions expected in 2021; no sale is assured. The relevant assets remained held for use, with no impairment recorded at year-end, but a change in sale assumptions or held-for-sale classification could result in material impairment. The strategic review may also trigger debt covenant amendments or costly note redemptions.
- PSEG agreed to acquire a 25% interest in the 1,100-MW Ocean Wind offshore wind project, subject to BPU approval and other conditions. Management anticipates closing in the first half of 2021 and expects substantial investment over the project’s life.
- New Jersey nuclear plants Salem 1, Salem 2, and Hope Creek receive Zero Emission Certificate (ZEC) support through May 2022; applications for the next three-year period were pending, with a BPU decision expected in April 2021. Management warned that loss or material reduction of support, or adverse market or regulatory changes, could lead to plant closures and material charges.
- Management stated COVID-19 had not materially affected 2020 results, but reported lower commercial demand, collection deterioration, and higher bad-debt expense. PSE&G recorded a $51 million COVID-19 regulatory asset; ultimate recovery remains subject to regulatory review.
- Major contingencies include the Passaic River Superfund matter: PSEG accrued $65 million, including $52 million at PSE&G and $13 million at PSEG Power, but additional costs could be material and cannot currently be estimated. LIPA also sued PSEG LI seeking specific performance and $70 million over its Tropical Storm Isaias response; termination of the operating agreement is possible.
- Other significant exposures include wholesale power and fuel-price volatility, capacity-market and transmission-rate decisions, environmental regulation and remediation, nuclear operations and decommissioning, cybersecurity, and pension/NDT investment performance. The auditor issued unqualified opinions on the financial statements and PSEG’s internal control over financial reporting.
Most important facts for investors to verify
- Progress, terms, timing, and debt-covenant consequences of any sale of PSEG Power’s non-nuclear assets, along with impairment assumptions.
- Outcome of the next ZEC award process and any resulting nuclear-plant operating or retirement decisions.
- Regulatory approval, construction costs, and expected returns for PSE&G’s investment programs and Ocean Wind.
- Cash collection trends, bad-debt recovery, and regulatory treatment of COVID-19-related costs.
- Developments in the Passaic River liability, LIPA litigation and OSA review, and other environmental or regulatory proceedings.
- Debt maturities, available liquidity, collateral needs, and the sustainability of dividends alongside planned capital spending.