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Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2024, for Public Service Enterprise Group Incorporated (PSEG) and its wholly-owned subsidiary, Public Service Electric and Gas Company (PSE&G). PSEG operates as a public utility holding company with two primary reportable segments: PSE&G, a regulated electric and gas utility in New Jersey, and PSEG Power, a merchant nuclear generation business. The filing includes unaudited condensed consolidated financial statements and management discussion and analysis.

Key Financial Metrics (Six Months Ended June 30, 2024)

Note: PSEG Consolidated Net Income includes significant non-trading commodity mark-to-market (MTM) activity and Nuclear Decommissioning Trust (NDT) Fund results.

Material Changes vs. Prior Period

• Revenue Decline: Consolidated operating revenues decreased 16% ($993 million) compared to the first six months of 2023. This was primarily driven by a 47% decrease in PSEG Power revenues due to lower mark-to-market gains and reduced Zero Emission Certificate (ZEC) revenue.
• Profitability Drop: Consolidated Net Income fell 49% to $966 million from $1,878 million in the prior year. The decline is largely attributed to a shift from MTM gains in 2023 to MTM losses in 2024 and lower NDT Fund investment returns.
• Expense Increases: Energy costs rose 3% and Operation & Maintenance (O&M) expenses increased 8% year-over-year. Interest expense increased 16% due to higher interest rates on new debt issuances.
• Utility Segment Stability: PSE&G revenues increased 6% and Net Income remained relatively stable (down 4% to $790 million), supported by higher delivery volumes and rate adjustments, offsetting higher commodity costs.

Guidance, Outlook, and Risks

• Capital Investment: PSEG projects a regulated capital investment program of $18 billion to $21 billion for 2024-2028, aiming for a 6% to 7.5% compound annual growth rate in the regulated rate base.
• Nuclear Support: The company is leveraging the Inflation Reduction Act (IRA) Production Tax Credits (PTCs) for its nuclear fleet, which began in 2024. PSEG Power decided not to apply for the next ZEC period starting June 2025, relying instead on PTCs.
• Regulatory Proceedings: PSE&G is awaiting resolution on its distribution base rate case (seeking a 9% revenue increase) and the Clean Energy Future (CEF)-EE II program filing. The BPU has paused a transmission solicitation for offshore wind projects pending FERC rule implementation.
• Key Risks:
  • Commodity Volatility: Significant exposure to mark-to-market fluctuations in wholesale energy markets.
  • Environmental Liabilities: Ongoing Superfund remediation obligations (Passaic River, Hackensack River) with potential for material additional costs.
  • Interest Rates: Higher rates increase borrowing costs and interest expense.
  • Cybersecurity: Increasing frequency and sophistication of attacks on infrastructure.

Investor Verification Checklist

• MTM Volatility: Verify the magnitude of non-trading commodity mark-to-market losses in PSEG Power and their impact on reported earnings versus cash flow.
• PTC vs. ZEC Transition: Confirm the financial modeling assumptions regarding the IRA Production Tax Credits replacing Zero Emission Certificates for nuclear units post-2025.
• Environmental Accruals: Review the sufficiency of the $66 million accrued for the Passaic River and the $196 million for MGP remediation against potential future EPA cost assessments.
• Rate Case Outcomes: Monitor the BPU's decision on PSE&G's distribution base rate case and the CEF-EE II program approval, which are critical for future revenue recovery.
• Debt Maturity Wall: Assess the refinancing strategy for $1.25 billion of PSEG Power variable rate term loans due in March 2025 and other maturing notes in the current high-interest environment.