Business context and reporting period
Public Service Enterprise Group Incorporated (PSEG) filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2023. PSEG is a New Jersey utility holding company whose principal businesses are regulated electric and gas utility PSE&G and nuclear generation business PSEG Power. The filing also includes separate, reduced-format financial statements for wholly owned subsidiary PSE&G. Amounts below are in millions of dollars, except per-share data.
Financial performance and condition
- PSEG, second quarter: Operating revenue was $2,421, up 17% from $2,076; operating income was $794 versus $296; net income was $591 versus $131; diluted EPS was $1.18 versus $0.26. Operating margin was approximately 32.8%, compared with 14.3% in the prior-year quarter.
- PSEG, first six months: Revenue was $6,176, up 41%; operating income was $2,442 versus $244; net income was $1,878 versus $129; diluted EPS was $3.76 versus $0.26. Operating margin was approximately 39.5%, versus 5.6%.
- PSE&G: Second-quarter revenue was nearly flat at $1,662 versus $1,668, while net income increased to $336 from $305. Six-month revenue was $3,955 versus $3,952 and net income was $823 versus $814. Higher transmission and program-related revenues were partly offset by lower sales volumes and commodity revenues.
- Cash flow: PSEG generated $2,409 of operating cash in the first half, compared with $356 in 2022; investing cash outflow was $1,119 and financing cash outflow was $1,204. The operating cash increase principally reflected a $1,095 inflow from net cash collateral postings in 2023 versus a $1,244 outflow in 2022. PSE&G operating cash flow fell to $543 from $1,312, mainly due to lower supplier collateral receipts and higher payments and working-capital needs.
- Capital spending and dividends: PSEG capital additions were $1,444 in the first half, including $1,336 at PSE&G. PSEG paid $569 in common dividends in the first half, or $1.14 per share, and approved a third-quarter dividend of $0.57 per share.
- Balance sheet and liquidity: At June 30, PSEG reported cash and cash equivalents of $547 (cash, cash equivalents and restricted cash totaled $597), long-term debt of $16,394, debt due within one year of $2,075, and commercial paper and loans of $1,197. It had $3,489 of available committed credit capacity out of $4,150. Management stated liquidity was expected to cover stressed requirements over the next 12 months.
Material changes versus the prior comparable period
- The substantial increase in consolidated earnings was driven largely by non-trading commodity mark-to-market results and nuclear decommissioning trust (NDT) investment performance—not solely by recurring utility growth. After-tax non-trading MTM results were gains of $212 in the quarter and $767 for the first half, versus losses of $74 and $682, respectively, in 2022. NDT results were $35 and $60, versus losses of $117 and $163.
- PSEG Power & Other reported net income of $255 for the quarter versus a $174 loss, and $1,055 for the first half versus a $685 loss. PSE&G earnings were comparatively stable. PSEG notes that the 2022 fossil generation portfolio sale also reduced certain costs and affected comparability.
- Consolidated interest expense increased to $185 from $150 in the quarter and to $365 from $287 for the first half, reflecting higher-rate debt and variable borrowing costs. Net non-operating pension and OPEB credits also declined year over year.
Outlook, risks and unusual items
- PSEG estimates a 2023–2027 capital investment program of $16.3 billion to $18.9 billion; PSE&G accounts for $15.5 billion to $18 billion. PSEG expects PSE&G rate base to grow at a 6%–7.5% compound annual rate from year-end 2022 through year-end 2027. These plans depend in part on regulatory approvals and program extensions. The filing does not provide a specific earnings guidance range.
- PSEG reported nuclear generation of 16.1 TWh and a 95.8% capacity factor for the first half. Management said more than 90% of PSEG Power’s expected 2023 gross margin relates to hedged energy margin, known capacity revenues, ZEC revenues, and certain gas and ancillary-service revenues. Nuclear units have ZEC awards through May 2025; the federal nuclear production tax credit is expected to begin in 2024, but its interaction with ZEC payments remains under evaluation.
- In July 2023, PSEG agreed to transfer approximately $1 billion of pension obligations and associated assets to an insurer. Subject to closing conditions, the transaction was expected to complete in August and to result in a one-time third-quarter pretax settlement charge of $315–$360 ($225–$260 after tax).
- Environmental and legal exposures include the Passaic River Superfund matter, for which PSEG accrued approximately $66; additional costs could be material but cannot currently be estimated. PSE&G recorded a $198 MGP remediation liability, with a corresponding regulatory asset. Other retained former fossil-site remediation costs are not estimable and are expected to be material. A pending FERC investigation and other proceedings could also result in material penalties or costs.
- Key risks include regulatory and market-design changes, approval and execution of utility investment programs, inflation and higher interest rates, pension performance, volatile commodity prices and collateral requirements, cybersecurity and severe weather, environmental obligations, nuclear operating and fuel risks, and evolving climate and tax rules. Net cash collateral postings were approximately $426 at June 30 and may remain volatile.
Important facts for investors to verify
- How much of reported earnings growth persists after excluding commodity MTM and NDT investment gains, and how the associated positions settle or reverse.
- Regulatory outcomes and timing for PSE&G’s proposed rate recoveries, program extensions, and anticipated distribution base-rate case.
- Final completion and accounting charge for the pension annuity transfer, and the effect of pension market performance on future costs.
- Updates to environmental, FERC, and other legal contingencies, including whether additional liabilities become estimable.
- Debt refinancing needs, interest costs, collateral calls, and available liquidity under stressed commodity-price and credit-rating scenarios.