PSEG 10-Q Summary: First Quarter 2023
Reporting period: Three months ended March 31, 2023. PSEG is a regulated electric and gas utility holding company with nuclear generation operations. This combined filing covers both PSEG and its wholly owned utility subsidiary, PSE&G; figures below are identified by entity where relevant. Financial amounts are in millions unless otherwise noted.
Financial performance
- PSEG consolidated revenue was $3,755, up 62% from $2,313. Operating income was $1,648 versus an operating loss of $52.
- Net income was $1,287, or $2.58 diluted per share, compared with a $2 net loss and $0.00 per share in Q1 2022. The improvement was largely driven by non-trading commodity mark-to-market (MTM) results: after-tax MTM gains of $555 versus losses of $608. NDT fund results also improved, to $25 after tax from a $46 loss.
- PSE&G revenue was $2,293, up slightly from $2,284; net income declined to $487 from $509. Increased transmission and program-related revenues were partly offset by lower pension/OPEB credits and higher interest expense.
- Cash flow: PSEG operating cash flow was $1,837 versus $472; investing cash outflow was $714, including $739 of property, plant and equipment additions; financing cash outflow was $380. PSE&G operating cash flow fell to $378 from $736, while capital additions were $676.
- Balance sheet and liquidity: PSEG reported $1,205 cash and cash equivalents, $18,965 long-term debt including amounts due within one year, and $14,726 stockholders’ equity at March 31. Available committed credit capacity was $3,931. Net cash collateral postings were approximately $727 and may remain volatile.
- Dividends: PSEG paid $0.57 per share in the quarter and approved another $0.57 per share for Q2 2023.
Material changes and business developments
- Results swung sharply year over year, principally because of volatile MTM energy-contract valuations and improved NDT investment results; these items make reported earnings less representative of recurring operating performance.
- PSEG Power’s fossil generation portfolio sale closed in February 2022, reducing generation costs and operating expenses in the comparison period. PSE&G remained the principal reportable segment, earning $487; PSEG Power & Other earned $800, including substantial MTM gains.
- PSEG reported nuclear generation of 8.4 TWh and a 100% capacity factor for Q1. Management stated that more than 90% of expected 2023 gross margin is associated with hedged energy margin, known capacity and ZEC revenues, and certain gas and ancillary-service revenues.
Outlook, risks and contingencies
- PSE&G estimates a 2023–2027 capital investment program of $15.5 billion to $18 billion, with expected rate-base compound annual growth of 6% to 7.5% from year-end 2022 to year-end 2027. Program extensions and components remain subject to regulatory decisions. Management said projected capital needs are expected to be funded by internally generated funds and external debt financing.
- Key proceedings include proposed extensions to energy-efficiency and gas-system modernization programs, a pending distribution rate case expected to conclude in the second half of 2024, and New Jersey proceedings on gas policy, clean-energy targets and gas supply. Outcomes could affect investment recovery, earnings and cash flows.
- Nuclear units’ ZEC awards run through May 2025. Federal nuclear production tax credits are expected to begin in 2024, but Treasury guidance and the effect on ZEC payments were still under review. Management warns that adverse economics or regulatory outcomes could lead to plant closure costs and material charges.
- Environmental and legal exposures include the Passaic River cleanup, for which PSEG had accrued $66; additional costs could be material but were not estimable. MGP remediation liability was $202, with a corresponding regulatory asset. Legacy remediation obligations at former fossil sites are also not estimable and may be material. Other matters include a pending FERC investigation and litigation related to the Sewaren 7 project.
- Other risks cited include energy-price and collateral volatility, interest rates and inflation, pension performance, cybersecurity and physical security, supply-chain constraints, credit/counterparty risk, and regulatory or tax changes. Management stated liquidity, including credit facilities and external financing access, was expected to cover stressed needs over a 12-month planning horizon.
Most important facts for investors to verify
- How much of the $1,287 quarterly net income reflects MTM and NDT movements versus recurring utility and generation earnings.
- Whether PSE&G obtains approvals and cost recovery for its proposed capital programs and rate filings, and whether the projected $15.5–$18 billion investment plan is delivered.
- How collateral postings, debt maturities and financing costs evolve; available committed credit capacity was $3,931 at quarter-end.
- What Treasury guidance and regulatory decisions mean for nuclear tax credits, ZEC revenues, and the long-term economics of the nuclear fleet.
- Whether environmental, litigation and regulatory matters—including Passaic River remediation and the FERC investigation—result in material additional costs or penalties.