Public Service Enterprise Group Incorporated (PSEG) — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. The combined filing covers PSEG and its wholly owned regulated utility subsidiary, Public Service Electric and Gas Company (PSE&G). Amounts are in millions of dollars except per-share data. Results are unaudited.
Business context and financial results
PSEG operates regulated electric and gas utility PSE&G and competitive generation business PSEG Power, alongside other businesses. In February 2022, PSEG completed the sale of its 6,750 MW fossil-generation portfolio, a major step in shifting its business mix toward regulated utility earnings.
| Metric | PSEG Q1 2022 | PSEG Q1 2021 | PSE&G Q1 2022 | PSE&G Q1 2021 |
|---|---|---|---|---|
| Operating revenue | $2,313 | $2,889 | $2,284 | $2,073 |
| Operating income (loss) | $(52) | $741 | $612 | $559 |
| Net income (loss) | $(2) | $648 | $509 | $477 |
| Diluted EPS | $0.00 | $1.28 | Not applicable | Not applicable |
| Operating margin | (2.2%) | 25.6% | 26.8% | 27.0% |
PSEG’s consolidated operating margin is calculated as operating income divided by revenue. PSE&G revenue rose 10% and net income rose 7%; PSEG Power reported a $519 million loss, compared with $161 million of income a year earlier. PSEG’s tax benefit was $152 million, compared with $117 million of tax expense in Q1 2021.
Cash flow, balance sheet and liquidity
- Cash flow: PSEG operating cash flow was $472 million, down from $1,027 million. Investing activities provided $1,183 million, including $1,890 million of proceeds from long-lived asset sales; financing activities used $876 million. Cash, cash equivalents and restricted cash ended at $1,642 million, versus $863 million at year-end 2021.
- Capital investment: PSEG invested $686 million in property, plant and equipment. PSE&G accounted for $628 million, primarily for transmission and distribution reliability.
- Debt: At March 31, PSEG reported $16,968 million of long-term debt, $700 million due within one year, and $1,676 million of commercial paper and loans. It issued $1,750 million of long-term debt during the quarter, including PSE&G’s $500 million, 3.10% green bond due 2032 and PSEG Power’s $1.25 billion variable-rate term loan due 2025.
- Liquidity: Available credit capacity was $3,242 million under $3,850 million of facilities, extended generally through March 2027. Management said liquidity, including access to external financing, was expected to cover stressed needs over the next 12 months.
- Shareholder returns: PSEG paid $271 million in common dividends, or $0.54 per share, and repurchased $500 million of stock during the quarter. The board approved a second-quarter dividend of $0.54 per share, an indicative annual rate of $2.16.
Material changes, outlook and risks
- Drivers of PSEG’s loss: PSEG Power recorded $608 million of after-tax non-trading mark-to-market losses, versus $34 million of losses a year earlier, largely reflecting rising forward energy prices. NDT fund activity was a $46 million after-tax expense, versus $32 million of income. The fossil-portfolio sale also generated a $43 million additional impairment in Q1; PSEG had recorded a $2,691 million pre-tax impairment in 2021.
- Utility performance: PSE&G’s higher earnings reflected continued investment and favorable Conservation Incentive Program effects. Revenue also increased with gas prices and volumes; the related commodity revenue and energy costs largely offset, and the utility says it earns no margin on basic gas and electric supply.
- Energy-market collateral: PSEG Power’s net cash collateral postings rose to $1.5 billion at March-end and $2.6 billion at April-end, after increasing energy prices drove calls on out-of-the-money hedges. Most collateral relates to hedges through 2023 and is expected to be returned as obligations are met. PSEG also disclosed that a below-investment-grade downgrade could trigger approximately $1,270 million of additional collateral requirements at March 31.
- Investment outlook: PSE&G estimates a $14–$16 billion capital investment program for 2021–2025 and expected rate-base compound annual growth of 6.5%–8%. The upper end depends partly on regulatory approvals for proposed programs. PSEG expects to fund requirements with internally generated funds and external debt, without new equity issuance; no specific earnings or EPS guidance is provided in the supplied filing text.
- Projects and regulation: Ocean Wind 1, in which PSEG owns 25%, is expected to reach commercial operation in 2025; PSEG expects to fund about $250 million of further development to final investment decision. PSE&G’s pending rate filings include proposed Energy Strong II increases and a GSMP II revenue increase. A FERC investigation concerning a transmission project and multiple environmental matters remain unresolved.
- Key contingencies: PSEG accrued $66 million for the Passaic River matter; further costs could be material but are not currently estimable. PSE&G recorded a $221 million liability for its MGP remediation program, with a corresponding regulatory asset. Potential environmental liabilities retained after the fossil sale are also not currently estimable and may be material.
- Other risks: Customer collections and bad debts remain affected by pandemic-era shutoff protections; PSE&G recorded a $120 million COVID-19 regulatory asset and expects recovery, subject to regulatory processes. Other identified risks include supply-chain and inflation pressures, commodity volatility, nuclear economics and ZEC regulation, project execution, cyber and severe-weather events, and changes in energy-market rules.
Most important facts for investors to verify
- How much of PSEG Power’s mark-to-market loss is timing-related and how future energy prices and hedge settlements affect reported earnings and cash.
- Whether collateral postings stabilize or rise further, and the timing of expected collateral returns.
- Final sale adjustments and any retained environmental obligations related to the fossil-asset divestiture.
- Regulatory outcomes and cost recovery for PSE&G’s proposed investment programs, COVID-19 deferrals and remediation costs.
- Progress, funding needs and regulatory milestones for Ocean Wind 1 and other offshore-wind opportunities.
- Developments in the nuclear plants’ ZEC support, NRC license review, and any proceedings that could affect plant economics or operating lives.