Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

This combined Form 10-K is separately filed by PSEG, PSE&G and PSEG Power. Information contained herein relating to any individual company is filed by such company on its own behalf. PSE&G and PSEG Power each make representations only as to itself and make no representations as to any other company.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Public Service Enterprise Group Incorporated

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Public Service Enterprise Group Incorporated and subsidiaries (the “Company” or PSEG) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2019, the related notes and the consolidated financial statement schedule listed in the Index at Item 15(B)(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 26, 2020, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Early Plant Retirements/Asset Dispositions - Nuclear - Refer to Notes 4 and 13 to the financial statements

Critical Audit Matter Description

PSEG’s wholly-owned subsidiary PSEG Power LLC (PSEG Power) owns and operates nuclear plants in New Jersey and has recorded associated asset retirement obligations (ARO) for their eventual decommissioning. In April 2019, the New Jersey Board of Public Utilities (BPU) awarded Zero Emission Certificates (ZEC) to PSEG Power’s Salem 1, Salem 2 and Hope Creek nuclear plants for an initial period of approximately three years through May 2022. As described in Note 4, there are certain legal, regulatory, and economic matters in the markets in which these nuclear plants operate, which, if not favorably resolved, would result in PSEG taking all necessary steps to retire all of these nuclear plants subsequent to the initial ZEC period at or prior to a scheduled refueling outage, which is significantly in advance of their currently estimated remaining

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useful lives. This would result in material charges associated with accelerated depreciation and amortization, impairment charges, and accelerated asset retirement costs, among other costs.

We identified the potential early retirement of the nuclear plants as a critical audit matter because of the significant estimates and assumptions management made in determining the nuclear plants’ useful lives and in evaluating the recorded investments in the nuclear plants for potential impairment. Further, management’s estimates used in recording the ARO included a number of assumptions, including the timing of cash flows associated with the eventual decommissioning of the nuclear plants following the retirement of the assets. Auditing each of these assumptions required a high degree of auditor judgment.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the potential early retirement of the nuclear plants and the related impact on the recorded investments in the nuclear plants and the related ARO included the following, among others:


•	We tested the effectiveness of controls over the evaluation of potential impairment indicators.


•	We tested the effectiveness of controls over the evaluation of legal matters related to the appeal of the initial awarding of the ZECs and the potential impact on PSEG’s evaluation of impairment indicators.


•	We tested the effectiveness of controls over the evaluation of retirement date assumptions used in the calculation of the ARO, including the probability weighting of the various cash flow scenarios.


•	We evaluated management’s judgments over the probability of early retirement of the nuclear plants and impairment triggers.


•	We evaluated management’s assumptions over the weighted-probability of early retirement of the nuclear plants used in calculating the recorded nuclear ARO balance.


•	We evaluated the related disclosures for consistency with our understanding.

Commitments and Contingent Liabilities - Passaic River Environmental Liability - Refer to Note 15 to the financial statements

Critical Audit Matter Description

As described in Note 15, the U.S. Environmental Protection Agency (EPA) has designated a 17-mile stretch of the lower Passaic River (Lower Passaic River Study Area (LPRSA)) in New Jersey as a superfund site requiring environmental remediation and has identified certain potentially responsible parties (PRPs), including PSEG’s subsidiaries Public Service Electric and Gas Company (PSE&G) and PSEG Power. The EPA has released a Record of Decision (ROD) for the LPRSA’s lower 8.3 miles that requires the removal of sediments at an estimated cost of $2.3 billion (ROD Remedy). An EPA-commenced process to allocate the associated costs to the PRPs is underway, and PSEG cannot predict the outcome. Additionally, one of the PRPs has filed suit against PSE&G and others seeking cost recovery and contribution under the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, but has not quantified alleged damages. The litigation is ongoing and PSEG cannot predict the outcome. As of December 31, 2019, PSEG recorded an environmental liability for its estimated share of the remediation of the environmental contamination, a portion of which has been deferred as a regulatory asset based on PSE&G’s assessment that it will recover such costs in future rates.

The outcome of this matter is uncertain, and PSEG cannot predict this matter’s ultimate impact on its financial statements. It is possible that PSEG will record additional costs beyond what it has accrued, and that such costs could be material, but PSEG cannot at the current time estimate the amount or range of any additional costs.

We identified the accounting for the Passaic River environmental liability as a critical audit matter due to the uncertainties inherent in estimating PSEG’s liability. Auditing PSEG’s allocable share of the remediation cost, the environmental liability recorded, and the evaluation of future recovery of the regulatory asset recorded by PSE&G required a high degree of auditor judgment and the involvement of our environmental specialists.

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How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the Passaic River environmental liability included the following, among others:


•	We tested the effectiveness of controls over the Passaic River environmental liability, including those over the evaluation of recent events and changes in circumstances that have or may give rise to a change in the allocable share of the estimated total remediation costs.


•	We tested the effectiveness of controls over the Passaic River regulatory asset, including controls over the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering the Passaic River regulatory asset in future rates.


•	With the assistance of our environmental specialists, we evaluated management’s judgments and estimates associated with the planned remediation techniques and associated estimated costs used in estimating the environmental liability.


•	We evaluated the assumptions used by management to estimate the allocable share of the environmental obligation, including consideration of publicly available information.


•	We requested and received a written response from internal counsel and external legal firms representing PSEG and evaluated the legal conclusions for consistency with those used in management’s accounting judgments and disclosures.


•	We evaluated management’s analysis over the assertion that the Passaic River regulatory asset is probable of recovery.


•	We evaluated the related disclosures for consistency with our understanding.

Regulatory Assets and Liabilities - Income Taxes - Refer to Notes 7 and 22 to the financial statements

Critical Audit Matter Description

PSEG’s subsidiary, PSE&G, is an electric and gas transmission and distribution utility regulated by the BPU and the Federal Energy Regulatory Commission (FERC). Management believes that PSE&G’s transmission and distribution businesses continue to meet the accounting requirements for rate-regulated entities, and PSE&G’s financial statements reflect the economic effects of cost-based rate regulation. PSE&G defers the recognition of costs (regulatory assets) or records the recognition of obligations (regulatory liabilities) if it is probable that, through the rate-making process, there will be a corresponding increase or decrease in future rates. Accordingly, PSE&G has deferred certain costs and recoveries, which are being amortized over various future periods. To the extent that collection of any such costs or payment of liabilities becomes no longer probable as a result of changes in regulation and/or competitive position, the associated regulatory asset or regulatory liability is charged or credited to income.

Through the rate-making process, PSE&G’s rates to customers also include the recovery of income tax expense associated with PSE&G’s electric and gas distribution and electric transmission operations. As a result of the 2017 Tax Cuts and Jobs Act, which reduced the federal corporate income tax rate from 35% to 21%, PSE&G recorded regulatory liabilities for excess accumulated deferred income taxes (ADIT). These regulatory liabilities will be refunded to customers in future periods. PSE&G’s most recent electric and gas distribution base rate case, concluded in 2018, established the tax adjustment credit (TAC) that provides for the refund of these excess ADIT regulatory liabilities as well as the flow through to customers of historical and current accumulated deferred income taxes for tax-deductible repairs. The flow through of the current tax benefits results in lower revenues and lower income tax expense, as well as the recognition of a regulatory asset, as management believes it is probable that the accumulated tax benefits, treated as a flow-through item to PSE&G customers, will be recovered from customers in the future. The accounting for the return of the excess ADIT and the flow-through results in an annual effective tax rate for PSE&G and PSEG that is currently significantly lower than the statutory tax rate.

We identified the accounting for the TAC as a critical audit matter due to the complexity in accounting for the impact of rate regulation on income tax expense. Auditing the significant judgments made by management to support its assertion that the TAC regulatory assets are probable of future recovery required auditor judgment and specialized knowledge of accounting matters specific to rate regulation. Further, the determination of the estimated benefit of current tax-deductible repairs under the Internal Revenue Code, and the resulting impacts on the TAC regulatory asset and income tax expense recorded in the financial statements was complex and required the involvement of our income tax specialists.

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How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures to evaluate the accounting for the impact of rate regulation on income tax expense and associated regulatory assets and regulatory liabilities included the following, among others:


•	We tested the effectiveness of controls over the calculation of the amounts refunded through the TAC, including controls over the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering the TAC regulatory assets in future rates.


•	We evaluated management’s analysis over the assertion that the TAC regulatory assets are probable of recovery.


•	We evaluated relevant regulatory orders related to the ratemaking treatment of income taxes.


•	With the assistance of our income tax specialists, we tested the accuracy of recorded income tax expense and tax related regulatory assets and liabilities.


•	We evaluated the financial statement presentation and related disclosures for consistency with our understanding.




/s/ DELOITTE & TOUCHE LLP

Parsippany, New Jersey
February 26, 2020

We have served as the Company's auditor since 1934.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Sole Stockholder of

Public Service Electric and Gas Company

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Public Service Electric and Gas Company and subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations, comprehensive income, common stockholder’s equity, and cash flows for each of the three years in the period ended December 31, 2019, the related notes and the consolidated financial statement schedule listed in the Index at Item 15(B)(b) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.




/s/ DELOITTE & TOUCHE LLP

Parsippany, New Jersey
February 26, 2020

We have served as the Company's auditor since 1934.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Sole Member of

PSEG Power LLC

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of PSEG Power LLC and subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income, member’s equity, and cash flows for each of the three years in the period ended December 31, 2019, the related notes and the consolidated financial statement schedule listed in the Index at Item 15(B)(c) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.




/s/ DELOITTE & TOUCHE LLP

Parsippany, New Jersey
February 26, 2020

We have served as the Company's auditor since 2000.

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PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

Millions, except per share data




	Years Ended December 31,
	2019			2018			2017
OPERATING REVENUES	$	10,076		$	9,696		$	9,094
OPERATING EXPENSES
Energy Costs	3,372			3,225			2,778
Operation and Maintenance	3,111			3,069			2,901
Depreciation and Amortization	1,248			1,158			1,986
(Gain) Loss on Asset Dispositions	402			(54		)	—
Total Operating Expenses	8,133			7,398			7,665
OPERATING INCOME	1,943			2,298			1,429
Income from Equity Method Investments	14			15			14
Net Gains (Losses) on Trust Investments	260			(143		)	134
Other Income (Deductions)	125			85			82
Non-Operating Pension and OPEB Credits (Costs)	177			76			—
Interest Expense	(569		)	(476		)	(391		)
INCOME BEFORE INCOME TAXES	1,950			1,855			1,268
Income Tax Benefit (Expense)	(257		)	(417		)	306
NET INCOME	$	1,693		$	1,438		$	1,574
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC	504			504			505
DILUTED	507			507			507
NET INCOME PER SHARE:
BASIC	$	3.35		$	2.85		$	3.12
DILUTED	$	3.33		$	2.83		$	3.10

See Notes to Consolidated Financial Statements.

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PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Millions




	Years Ended December 31,
		2019			2018			2017
NET INCOME		$	1,693		$	1,438		$	1,574
Other Comprehensive Income (Loss), net of tax
Unrealized Gains (Losses) on Available-for-Sale Securities, net of tax (expense) benefit of $(26), $11 and $(37) for the years ended 2019, 2018 and 2017, respectively		41			(17		)	44
Unrealized Gains (Losses) on Cash Flow Hedges, net of tax (expense) benefit of $6, $1, and $1 for the years ended 2019, 2018 and 2017, respectively		(14		)	(1		)	(2		)
Pension/OPEB adjustment, net of tax (expense) benefit of $18, $(18) and $(4) for the years ended 2019, 2018 and 2017, respectively		(58		)	46			(8		)
Other Comprehensive Income (Loss), net of tax		(31		)	28			34
COMPREHENSIVE INCOME		$	1,662		$	1,466		$	1,608

See Notes to Consolidated Financial Statements.

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PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

CONSOLIDATED BALANCE SHEETS

Millions




	December 31,
	2019			2018
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents	$	147		$	177
Accounts Receivable, net of allowances of $60 in 2019 and $63 in 2018	1,313			1,435
Tax Receivable	21			242
Unbilled Revenues	239			240
Fuel	310			331
Materials and Supplies, net	587			571
Prepayments	79			94
Derivative Contracts	113			11
Regulatory Assets	351			389
Assets Held for Sale	30			—
Other	41			17
Total Current Assets	3,231			3,507
PROPERTY, PLANT AND EQUIPMENT	45,944			44,201
Less: Accumulated Depreciation and Amortization	(10,100		)	(9,838		)
Net Property, Plant and Equipment	35,844			34,363
NONCURRENT ASSETS
Regulatory Assets	3,677			3,399
Operating Lease Right-of-Use Assets	282			—
Long-Term Investments	812			896
Nuclear Decommissioning Trust (NDT) Fund	2,216			1,878
Long-Term Tax Receivable	150			—
Long-Term Receivable of Variable Interest Entity	813			624
Rabbi Trust Fund	246			224
Goodwill	—			16
Other Intangibles	149			143
Derivative Contracts	24			1
Other	286			275
Total Noncurrent Assets	8,655			7,456
TOTAL ASSETS	$	47,730		$	45,326

See Notes to Consolidated Financial Statements.

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PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

CONSOLIDATED BALANCE SHEETS

Millions




	December 31,
	2019			2018
LIABILITIES AND CAPITALIZATION
CURRENT LIABILITIES
Long-Term Debt Due Within One Year	$	1,365		$	1,294
Commercial Paper and Loans	1,115			1,016
Accounts Payable	1,358			1,451
Derivative Contracts	36			11
Accrued Interest	116			110
Accrued Taxes	41			26
Clean Energy Program	143			143
Obligation to Return Cash Collateral	119			136
Regulatory Liabilities	234			311
Other	520			437
Total Current Liabilities	5,047			4,935
NONCURRENT LIABILITIES
Deferred Income Taxes and Investment Tax Credits (ITC)	6,256			5,713
Regulatory Liabilities	3,002			3,221
Operating Leases	273			—
Asset Retirement Obligations	1,087			1,063
Other Postretirement Benefit (OPEB) Costs	734			704
OPEB Costs of Servco	626			501
Accrued Pension Costs	952			791
Accrued Pension Costs of Servco	171			109
Environmental Costs	349			327
Derivative Contracts	1			4
Long-Term Accrued Taxes	182			181
Other	218			232
Total Noncurrent Liabilities	13,851			12,846
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 15)
CAPITALIZATION
LONG-TERM DEBT	13,743			13,168
STOCKHOLDERS’ EQUITY
Common Stock, no par, authorized 1,000 shares; issued, 2019 and 2018— 534 shares	5,003			4,980
Treasury Stock, at cost, 2019 and 2018—30 shares	(831		)	(808		)
Retained Earnings	11,406			10,582
Accumulated Other Comprehensive Loss	(489		)	(377		)
Total Stockholders’ Equity	15,089			14,377
Total Capitalization	28,832			27,545
TOTAL LIABILITIES AND CAPITALIZATION	$	47,730		$	45,326

See Notes to Consolidated Financial Statements.

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PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

Millions




	Years Ended December 31,
	2019			2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	1,693		$	1,438		$	1,574
Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities:
Depreciation and Amortization	1,248			1,158			1,986
Amortization of Nuclear Fuel	178			187			199
(Gain) Loss on Asset Dispositions	402			(54		)	—
Emission Allowances and Renewable Energy Credit (REC) Compliance Accrual	108			97			103
Provision for Deferred Income Taxes (Other than Leases) and ITC	180			568			(167		)
Non-Cash Employee Benefit Plan (Credits) Costs	(48		)	70			89
Leveraged Lease (Income) Loss, Adjusted for Rents Received and Deferred Taxes	(14		)	(149		)	(159		)
Net (Gain) Loss on Lease Investments	32			5			48
Net Realized and Unrealized (Gains) Losses on Energy Contracts and Other Derivatives	(290		)	116			188
Cost of Removal	(108		)	(160		)	(107		)
Net Change in Regulatory Assets and Liabilities	25			(153		)	(188		)
Net (Gains) Losses and (Income) Expense from NDT Fund	(296		)	98			(156		)
Net Change in Certain Current Assets and Liabilities:
Tax Receivable	77			17			65
Accrued Taxes	(9		)	(69		)	16
Cash Collateral	349			(247		)	(90		)
Other Current Assets and Liabilities	(145		)	70			(72		)
Employee Benefit Plan Funding and Related Payments	(39		)	(101		)	(81		)
Other	36			22			12
Net Cash Provided By (Used In) Operating Activities	3,379			2,913			3,260
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Property, Plant and Equipment	(3,166		)	(3,912		)	(4,190		)
Purchase of Emissions Allowances and RECs	(98		)	(146		)	(117		)
Proceeds from Sales of Trust Investments	1,787			1,501			2,319
Purchases of Trust Investments	(1,814		)	(1,473		)	(2,340		)
Other	146			114			72
Net Cash Provided By (Used In) Investing Activities	(3,145		)	(3,916		)	(4,256		)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Change in Commercial Paper and Loans	99			474			154
Issuance of Long-Term Debt	1,900			2,750			2,175
Redemption of Long-Term Debt	(1,250		)	(1,350		)	(500		)
Cash Dividends Paid on Common Stock	(950		)	(910		)	(870		)
Other	(56		)	(77		)	(74		)
Net Cash Provided By (Used In) Financing Activities	(257		)	887			885
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash	(23		)	(116		)	(111		)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	199			315			426
Cash, Cash Equivalents and Restricted Cash at End of Period	$	176		$	199		$	315
Supplemental Disclosure of Cash Flow Information:
Income Taxes Paid (Received)	$	41		$	99		$	(8	)
Interest Paid, Net of Amounts Capitalized	$	539		$	454		$	377
Accrued Property, Plant and Equipment Expenditures	$	499		$	517		$	722

See Notes to Consolidated Financial Statements.

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PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Millions




	Common Stock			Treasury Stock					Retained Earnings			Accumulated Other Comprehensive Income (Loss)
	Shs.	Amount		Shs.		Amount			Total
Balance as of January 1, 2017	534	$	4,936	(29	)	$	(717	)	$	9,174		$	(263	)	$	13,130
Net Income	—	—		—		—			1,574			—			1,574
Other Comprehensive Income (Loss), net of tax (expense) benefit of $(40)	—	—		—		—			—			34			34
Comprehensive Income															1,608
Cash Dividends at $1.72 per share on Common Stock	—	—		—		—			(870		)	—			(870		)
Other	—	25		—		(46		)	—			—			(21		)
Balance as of December 31, 2017	534	$	4,961	(29	)	$	(763	)	$	9,878		$	(229	)	$	13,847
Net Income	—	—		—		—			1,438			—			1,438
Cumulative Effect Adjustment to Reclassify Unrealized Net Gains on Equity Investments	—	—		—		—			176			(176		)	—
Other Comprehensive Income (Loss), net of tax (expense) benefit of $(6)	—	—		—		—			—			28			28
Comprehensive Income															1,466
Cash Dividends at $1.80 per share on Common Stock	—	—		—		—			(910		)	—			(910		)
Other	—	19		(1	)	(45		)	—			—			(26		)
Balance as of December 31, 2018	534	$	4,980	(30	)	$	(808	)	$	10,582		$	(377	)	$	14,377
Net Income	—	—		—		—			1,693			—			1,693
Cumulative Effect Adjustment to Reclassify Stranded Tax Effects Resulting from the Change in the Federal Corporate Income Tax Rate	—	—		—		—			81			(81		)	—
Other Comprehensive Income (Loss), net of tax (expense) benefit of $(2)	—	—		—		—			—			(31		)	(31		)
Comprehensive Income															1,662
Cash Dividends at $1.88 per share on Common Stock	—	—		—		—			(950		)	—			(950		)
Other	—	23		—		(23		)	—			—			—
Balance as of December 31, 2019	534	$	5,003	(30	)	$	(831	)	$	11,406		$	(489	)	$	15,089

See Notes to Consolidated Financial Statements.

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PUBLIC SERVICE ELECTRIC AND GAS COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

Millions




	Years Ended December 31,
	2019			2018			2017
OPERATING REVENUES	$	6,625		$	6,471		$	6,324
OPERATING EXPENSES
Energy Costs	2,738			2,520			2,421
Operation and Maintenance	1,581			1,575			1,458
Depreciation and Amortization	837			770			685
Total Operating Expenses	5,156			4,865			4,564
OPERATING INCOME	1,469			1,606			1,760
Net Gains (Losses) on Trust Investments	2			(1		)	2
Other Income (Deductions)	83			80			85
Non-Operating Pension and OPEB Credits (Costs)	150			59			(8		)
Interest Expense	(361		)	(333		)	(303		)
INCOME BEFORE INCOME TAXES	1,343			1,411			1,536
Income Tax Expense	(93		)	(344		)	(563		)
NET INCOME	$	1,250		$	1,067		$	973

See disclosures regarding Public Service Electric and Gas Company included in the Notes to Consolidated Financial Statements.

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PUBLIC SERVICE ELECTRIC AND GAS COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Millions




	Years Ended December 31,
		2019		2018			2017
NET INCOME		$	1,250	$	1,067		$	973
Other Comprehensive Income (Loss), net of tax
Unrealized Gains (Losses) on Available-for-Sale Securities, net of tax (expense) benefit of $(1), $1 and $0 for the years ended 2019, 2018 and 2017, respectively		3		(1		)	(1		)
COMPREHENSIVE INCOME		$	1,253	$	1,066		$	972

See disclosures regarding Public Service Electric and Gas Company included in the Notes to Consolidated Financial Statements.

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PUBLIC SERVICE ELECTRIC AND GAS COMPANY

CONSOLIDATED BALANCE SHEETS

Millions




	December 31,
	2019			2018
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents	$	21		$	39
Accounts Receivable, net of allowances of $60 in 2019 and $63 in 2018	901			879
Tax Receivable	—			20
Accounts Receivable—Affiliated Companies	1			123
Unbilled Revenues	239			240
Materials and Supplies, net	213			196
Prepayments	35			10
Regulatory Assets	351			389
Other	28			11
Total Current Assets	1,789			1,907
PROPERTY, PLANT AND EQUIPMENT	33,900			31,633
Less: Accumulated Depreciation and Amortization	(6,623		)	(6,277		)
Net Property, Plant and Equipment	27,277			25,356
NONCURRENT ASSETS
Regulatory Assets	3,677			3,399
Operating Lease Right-of-Use Assets	98			—
Long-Term Investments	248			270
Rabbi Trust Fund	48			45
Other	129			132
Total Noncurrent Assets	4,200			3,846
TOTAL ASSETS	$	33,266		$	31,109

See disclosures regarding Public Service Electric and Gas Company included in the Notes to Consolidated Financial Statements.

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PUBLIC SERVICE ELECTRIC AND GAS COMPANY

CONSOLIDATED BALANCE SHEETS

Millions




	December 31,
	2019		2018
LIABILITIES AND CAPITALIZATION
CURRENT LIABILITIES
Long-Term Debt Due Within One Year	$	259	$	500
Commercial Paper and Loans	362		272
Accounts Payable	639		713
Accounts Payable—Affiliated Companies	390		321
Accrued Interest	91		84
Clean Energy Program	143		143
Obligation to Return Cash Collateral	119		136
Regulatory Liabilities	234		311
Other	436		345
Total Current Liabilities	2,673		2,825
NONCURRENT LIABILITIES
Deferred Income Taxes and ITC	4,189		3,830
Regulatory Liabilities	3,002		3,221
Operating Leases	87		—
Asset Retirement Obligations	303		302
OPEB Costs	495		486
Accrued Pension Costs	501		400
Environmental Costs	294		268
Long-Term Accrued Taxes	115		69
Other	136		124
Total Noncurrent Liabilities	9,122		8,700
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 15)
CAPITALIZATION
LONG-TERM DEBT	9,568		8,684
STOCKHOLDER’S EQUITY
Common Stock; 150 shares authorized; issued and outstanding, 2019 and 2018—132 shares	892		892
Contributed Capital	1,095		1,095
Basis Adjustment	986		986
Retained Earnings	8,928		7,928
Accumulated Other Comprehensive Income (Loss)	2		(1		)
Total Stockholder’s Equity	11,903		10,900
Total Capitalization	21,471		19,584
TOTAL LIABILITIES AND CAPITALIZATION	$	33,266	$	31,109

See disclosures regarding Public Service Electric and Gas Company included in the Notes to Consolidated Financial Statements.

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PUBLIC SERVICE ELECTRIC AND GAS COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

Millions




	Years Ended December 31,
	2019			2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	1,250		$	1,067		$	973
Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities:
Depreciation and Amortization	837			770			685
Provision for Deferred Income Taxes and ITC	(28		)	405			616
Non-Cash Employee Benefit Plan (Credits) Costs	(62		)	37			50
Cost of Removal	(108		)	(160		)	(107		)
Net Change in Other Regulatory Assets and Liabilities	25			(153		)	(188		)
Net Change in Certain Current Assets and Liabilities
Accounts Receivable and Unbilled Revenues	(18		)	65			(106		)
Materials and Supplies	(14		)	1			(13		)
Prepayments	(9		)	14			(35		)
Accounts Payable	(59		)	64			1
Accounts Receivable/Payable—Affiliated Companies, net	203			(139		)	101
Other Current Assets and Liabilities	62			5			15
Employee Benefit Plan Funding and Related Payments	(21		)	(85		)	(68		)
Other	(23		)	(38		)	(86		)
Net Cash Provided By (Used In) Operating Activities	2,035			1,853			1,838
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Property, Plant and Equipment	(2,542		)	(2,896		)	(2,919		)
Proceeds from Sales of Trust Investments	36			20			36
Purchases of Trust Investments	(34		)	(22		)	(37		)
Solar Loan Investments	8			(5		)	7
Other	10			9			10
Net Cash Provided By (Used In) Investing Activities	(2,522		)	(2,894		)	(2,903		)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Change in Commercial Paper and Loans	90			272			—
Issuance of Long-Term Debt	1,150			1,350			775
Redemption of Long-Term Debt	(500		)	(750		)	—
Contributed Capital	—			—			150
Cash Dividend Paid	(250		)	—			—
Other	(14		)	(14		)	(9		)
Net Cash Provided By (Used In) Financing Activities	476			858			916
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash	(11		)	(183		)	(149		)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	61			244			393
Cash, Cash Equivalents and Restricted Cash at End of Period	$	50		$	61		$	244
Supplemental Disclosure of Cash Flow Information:
Income Taxes Paid (Received)	$	(48	)	$	94		$	(104	)
Interest Paid, Net of Amounts Capitalized	$	343		$	318		$	294
Accrued Property, Plant and Equipment Expenditures	$	335		$	350		$	429

See disclosures regarding Public Service Electric and Gas Company included in the Notes to Consolidated Financial Statements.

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PUBLIC SERVICE ELECTRIC AND GAS COMPANY

CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER’S EQUITY

Millions




	Common Stock		Contributed Capital		Basis Adjustment		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance as of January 1, 2017	$	892	$	945	$	986	$	5,888		$	1		$	8,712
Net Income	—		—		—		973			—			973
Other Comprehensive Income (Loss), net of tax (expense) benefit of $0	—		—		—		—			(1		)	(1		)
Comprehensive Income													972
Contributed Capital	—		150		—		—			—			150
Balance as of December 31, 2017	$	892	$	1,095	$	986	$	6,861		$	—		$	9,834
Net Income	—		—		—		1,067			—			1,067
Other Comprehensive Income (Loss), net of tax (expense) benefit of $1	—		—		—		—			(1		)	(1		)
Comprehensive Income													1,066
Balance as of December 31, 2018	$	892	$	1,095	$	986	$	7,928		$	(1	)	$	10,900
Net Income	—		—		—		1,250			—			1,250
Other Comprehensive Income (Loss), net of tax (expense) benefit of $(1)	—		—		—		—			3			3
Comprehensive Income													1,253
Cash Dividends Paid	—		—		—		(250		)	—			(250		)
Balance as of December 31, 2019	$	892	$	1,095	$	986	$	8,928		$	2		$	11,903

See disclosures regarding Public Service Electric and Gas Company included in the Notes to Consolidated Financial Statements.

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PSEG POWER LLC

CONSOLIDATED STATEMENTS OF OPERATIONS

Millions




	Years Ended December 31,
	2019			2018			2017
OPERATING REVENUES	$	4,385		$	4,146		$	3,860
OPERATING EXPENSES
Energy Costs	2,118			2,197			1,913
Operation and Maintenance	1,040			1,053			1,046
Depreciation and Amortization	377			354			1,268
(Gain) Loss on Asset Dispositions	402			(54		)	—
Total Operating Expenses	3,937			3,550			4,227
OPERATING INCOME (LOSS)	448			596			(367		)
Income from Equity Method Investments	14			15			14
Net Gains (Losses) on Trust Investments	253			(140		)	125
Other Income (Deductions)	54			21			20
Non-Operating Pension and OPEB (Costs) Credits	21			15			8
Interest Expense	(119		)	(76		)	(50		)
INCOME (LOSS) BEFORE INCOME TAXES	671			431			(250		)
Income Tax Benefit (Expense)	(203		)	(66		)	729
NET INCOME	$	468		$	365		$	479

See disclosures regarding PSEG Power LLC included in the Notes to Consolidated Financial Statements.

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PSEG POWER LLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Millions




	Years Ended December 31,
		2019			2018			2017
NET INCOME		$	468		$	365		$	479
Other Comprehensive Income (Loss), net of tax
Unrealized Gains (Losses) on Available-for-Sale Securities, net of tax (expense) benefit of $(22), $9, and $(39) for the years ended 2019, 2018 and 2017, respectively		32			(13		)	46
Pension/OPEB adjustment, net of tax (expense) benefit of $13, $(16) and $(3) for the years ended 2019, 2018 and 2017, respectively		(45		)	41			(7		)
Other Comprehensive Income (Loss), net of tax		(13		)	28			39
COMPREHENSIVE INCOME		$	455		$	393		$	518

See disclosures regarding PSEG Power LLC included in the Notes to Consolidated Financial Statements.

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PSEG POWER LLC

CONSOLIDATED BALANCE SHEETS

Millions




	December 31,
	2019			2018
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents	$	21		$	22
Accounts Receivable	309			477
Accounts Receivable—Affiliated Companies	408			274
Short-Term Loan to Affiliate	149			—
Fuel	310			331
Materials and Supplies, net	372			373
Derivative Contracts	113			11
Prepayments	11			14
Assets Held for Sale	28			—
Other	5			5
Total Current Assets	1,726			1,507
PROPERTY, PLANT AND EQUIPMENT	11,699			12,224
Less: Accumulated Depreciation and Amortization	(3,273		)	(3,382		)
Net Property, Plant and Equipment	8,426			8,842
NONCURRENT ASSETS
Operating Lease Right-of-Use Assets	71			—
NDT Fund	2,216			1,878
Long-Term Investments	66			86
Goodwill	—			16
Other Intangibles	149			143
Rabbi Trust Fund	62			56
Derivative Contracts	24			1
Other	65			65
Total Noncurrent Assets	2,653			2,245
TOTAL ASSETS	$	12,805		$	12,594

See disclosures regarding PSEG Power LLC included in the Notes to Consolidated Financial Statements.

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PSEG POWER LLC

CONSOLIDATED BALANCE SHEETS

Millions




	December 31,
	2019			2018
LIABILITIES AND MEMBER’S EQUITY
CURRENT LIABILITIES
Long-Term Debt Due Within One Year	$	406		$	44
Accounts Payable	505			498
Accounts Payable—Affiliated Companies	5			16
Short-Term Loan from Affiliate	—			193
Derivative Contracts	31			11
Accrued Interest	21			21
Other	91			59
Total Current Liabilities	1,059			842
NONCURRENT LIABILITIES
Deferred Income Taxes and ITC	1,876			1,619
Operating Leases	62			—
Asset Retirement Obligations	781			758
OPEB Costs	192			176
Accrued Pension Costs	284			246
Derivative Contracts	1			4
Long-Term Accrued Taxes	115			76
Other	111			122
Total Noncurrent Liabilities	3,422			3,001
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 15)
LONG-TERM DEBT	2,434			2,791
MEMBER’S EQUITY
Contributed Capital	2,214			2,214
Basis Adjustment	(986		)	(986		)
Retained Earnings	5,063			5,051
Accumulated Other Comprehensive Loss	(401		)	(319		)
Total Member’s Equity	5,890			5,960
TOTAL LIABILITIES AND MEMBER’S EQUITY	$	12,805		$	12,594

See disclosures regarding PSEG Power LLC included in the Notes to Consolidated Financial Statements.

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PSEG POWER LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

Millions




	Years Ended December 31,
	2019			2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	468		$	365		$	479
Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities:
Depreciation and Amortization	377			354			1,268
Amortization of Nuclear Fuel	178			187			199
(Gain) Loss on Asset Dispositions	402			(54		)	—
Emission Allowances and Renewable Energy Credit (REC) Compliance Accrual	108			97			103
Provision for Deferred Income Taxes and ITC	248			206			(807		)
Non-Cash Employee Benefit Plan Costs	7			23			28
Interest Accretion on Asset Retirement Obligation	40			41			30
Net Realized and Unrealized (Gains) Losses on Energy Contracts and Other Derivatives	(290		)	116			188
Net (Gains) Losses and (Income) Expense from NDT Fund	(296		)	98			(156		)
Net Change in Certain Current Assets and Liabilities
Fuel, Materials and Supplies	(1		)	(39		)	42
Cash Collateral	349			(247		)	(90		)
Accounts Receivable	(32		)	51			(45		)
Accounts Payable	5			(13		)	39
Accounts Receivable/Payable—Affiliated Companies, net	(112		)	(56		)	(2		)
Other Current Assets and Liabilities	14			(40		)	10
Employee Benefit Plan Funding and Related Payments	(11		)	(9		)	(7		)
Other	25			4			47
Net Cash Provided By (Used In) Operating Activities	1,479			1,084			1,326
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Property, Plant and Equipment	(607		)	(996		)	(1,231		)
Purchase of Emissions Allowances and RECs	(98		)	(146		)	(117		)
Proceeds from Sales of Trust Investments	1,658			1,423			2,182
Purchases of Trust Investments	(1,685		)	(1,392		)	(2,199		)
Short-Term Loan to Affiliate	(149		)	—			87
Other	120			60			46
Net Cash Provided By (Used In) Investing Activities	(761		)	(1,051		)	(1,232		)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Long-Term Debt	—			700			—
Cash Dividend Paid	(525		)	(400		)	(350		)
Redemption of Long-Term Debt	—			(250		)	—
Short-Term Loan from Affiliate	(193		)	(88		)	281
Other	(1		)	(5		)	(4		)
Net Cash Provided By (Used In) Financing Activities	(719		)	(43		)	(73		)
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash	(1		)	(10		)	21
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	22			32			11
Cash, Cash Equivalents and Restricted Cash at End of Period	$	21		$	22		$	32
Supplemental Disclosure of Cash Flow Information:
Income Taxes Paid (Received)	$	(41	)	$	(92	)	$	77
Interest Paid, Net of Amounts Capitalized	$	113		$	73		$	48
Accrued Property, Plant and Equipment Expenditures	$	164		$	167		$	293

See disclosures regarding PSEG Power LLC included in the Notes to Consolidated Financial Statements.

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PSEG POWER LLC

CONSOLIDATED STATEMENTS OF MEMBER’S EQUITY

Millions




	Contributed Capital		Basis Adjustment			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance as of January 1, 2017	$	2,214	$	(986	)	$	4,782		$	(211	)	$	5,799
Net Income	—		—			479			—			479
Other Comprehensive Income (Loss), net of tax (expense) benefit of $(42)	—		—			—			39			39
Comprehensive Income												518
Cash Dividends Paid	—		—			(350		)	—			(350		)
Balance as of December 31, 2017	$	2,214	$	(986	)	$	4,911		$	(172	)	$	5,967
Net Income	—		—			365			—			365
Cumulative Effect Adjustment to Reclassify Unrealized Net Gains on Equity Investments	—		—			175			(175		)	—
Other Comprehensive Income (Loss), net of tax (expense) benefit of $(7)	—		—			—			28			28
Comprehensive Income												393
Cash Dividends Paid	—		—			(400		)	—			(400		)
Balance as of December 31, 2018	$	2,214	$	(986	)	$	5,051		$	(319	)	$	5,960
Net Income	—		—			468			—			468
Cumulative Effect Adjustment to Reclassify Stranded Tax Effects Resulting from the Change in the Federal Corporate Income Tax Rate	—		—			69			(69		)	—
Other Comprehensive Income (Loss), net of tax (expense) benefit of $(9)	—		—			—			(13		)	(13		)
Comprehensive Income												455
Cash Dividends Paid	—		—			(525		)	—			(525		)
Balance as of December 31, 2019	$	2,214	$	(986	)	$	5,063		$	(401	)	$	5,890

See disclosures regarding PSEG Power LLC included in the Notes to Consolidated Financial Statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization, Basis of Presentation and Summary of Significant Accounting Policies

Public Service Enterprise Group Incorporated (PSEG) is a holding company with a diversified business mix within the energy industry. Its operations are primarily in the Northeastern and Mid-Atlantic United States and in other select markets. PSEG’s principal direct wholly owned subsidiaries are:


•	Public Service Electric and Gas Company (PSE&G)—which is a public utility engaged principally in the transmission of electricity and distribution of electricity and natural gas in certain areas of New Jersey. PSE&G is subject to regulation by the New Jersey Board of Public Utilities (BPU) and the Federal Energy Regulatory Commission (FERC). PSE&G also invests in regulated solar generation projects and energy efficiency and related programs in New Jersey, which are regulated by the BPU.

•

Public Service Electric and Gas Company (PSE&G)—which is a public utility engaged principally in the transmission of electricity and distribution of electricity and natural gas in certain areas of New Jersey. PSE&G is subject to regulation by the New Jersey Board of Public Utilities (BPU) and the Federal Energy Regulatory Commission (FERC). PSE&G also invests in regulated solar generation projects and energy efficiency and related programs in New Jersey, which are regulated by the BPU.


•	PSEG Power LLC (PSEG Power)—which is a multi-regional energy supply company that integrates the operations of its merchant nuclear and fossil generating assets with its power marketing businesses and fuel supply functions through competitive energy sales in well-developed energy markets primarily in the Northeast and Mid-Atlantic United States through its principal direct wholly owned subsidiaries. In addition, PSEG Power owns and operates solar generation in various states. PSEG Power’s subsidiaries are subject to regulation by FERC, the Nuclear Regulatory Commission (NRC), the Environmental Protection Agency (EPA) and the states in which they operate.

•

PSEG Power LLC (PSEG Power)—which is a multi-regional energy supply company that integrates the operations of its merchant nuclear and fossil generating assets with its power marketing businesses and fuel supply functions through competitive energy sales in well-developed energy markets primarily in the Northeast and Mid-Atlantic United States through its principal direct wholly owned subsidiaries. In addition, PSEG Power owns and operates solar generation in various states. PSEG Power’s subsidiaries are subject to regulation by FERC, the Nuclear Regulatory Commission (NRC), the Environmental Protection Agency (EPA) and the states in which they operate.

PSEG’s other direct wholly owned subsidiaries are: PSEG Long Island LLC (PSEG LI), which operates the Long Island Power Authority’s (LIPA) electric transmission and distribution (T&D) system under an Operations Services Agreement (OSA); PSEG Energy Holdings L.L.C. (Energy Holdings), which primarily has investments in leveraged leases; and PSEG Services Corporation (Services), which provides certain management, administrative and general services to PSEG and its subsidiaries at cost.

Basis of Presentation

The respective financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) applicable to Annual Reports on Form 10-K and in accordance with accounting guidance generally accepted in the United States (GAAP).

Significant Accounting Policies

Principles of Consolidation

Each company consolidates those entities in which it has a controlling interest or is the primary beneficiary. See Note 5. Variable Interest Entity. Entities over which the companies exhibit significant influence, but do not have a controlling interest and/or are not the primary beneficiary, are accounted for under the equity method of accounting. For investments in which significant influence does not exist and the investor is not the primary beneficiary, the cost method of accounting is applied. All significant intercompany accounts and transactions are eliminated in consolidation.

PSE&G and PSEG Power also have undivided interests in certain jointly-owned facilities, with each responsible for paying its respective ownership share of construction costs, fuel purchases and operating expenses. PSE&G and PSEG Power consolidate their portion of any revenues and expenses related to their respective jointly-owned facilities in the appropriate revenue and expense categories.

Accounting for the Effects of Regulation

In accordance with accounting guidance for rate-regulated entities, PSE&G’s financial statements reflect the economic effects of regulation. PSE&G defers the recognition of costs (a Regulatory Asset) or records the recognition of obligations (a Regulatory Liability) if it is probable that, through the rate-making process, there will be a corresponding increase or decrease in future rates. Accordingly, PSE&G has deferred certain costs and recoveries, which are being amortized over various future periods. To the extent that collection of any such costs or payment of liabilities becomes no longer probable as a result of changes in regulation and/or competitive position, the associated Regulatory Asset or Liability is charged or credited to income. Management believes that PSE&G’s T&D businesses continue to meet the accounting requirements for rate-regulated entities. For additional information, see Note 7. Regulatory Assets and Liabilities.

Cash, Cash Equivalents and Restricted Cash

Cash equivalents consist of short-term, highly liquid investments with original maturities of three months or less. Restricted cash consists primarily of deposits received related to various construction projects at PSE&G.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets that sum to the total of the same such amounts in the Consolidated Statements of Cash Flows for the years ended December 31, 2018 and 2019.




	PSE&G		PSEG Power		Other (A)		Consolidated
	Millions
As of December 31, 2018
Cash and Cash Equivalents	$	39	$	22	$	116	$	177
Restricted Cash in Other Current Assets	8		—		—		8
Restricted Cash in Other Noncurrent Assets	14		—		—		14
Cash, Cash Equivalents and Restricted Cash	$	61	$	22	$	116	$	199
As of December 31, 2019
Cash and Cash Equivalents	$	21	$	21	$	105	$	147
Restricted Cash in Other Current Assets	11		—		—		11
Restricted Cash in Other Noncurrent Assets	18		—		—		18
Cash, Cash Equivalents and Restricted Cash	$	50	$	21	$	105	$	176


(A)	Includes amounts applicable to PSEG (parent company), Energy Holdings and Services.

Derivative Instruments

Each company uses derivative instruments to manage risk pursuant to its business plans and prudent practices.

Within PSEG and its affiliate companies, PSEG Power has the most exposure to commodity price risk. PSEG Power is exposed to commodity price risk primarily relating to changes in the market price of electricity, fossil fuels and other commodities. Fluctuations in market prices result from changes in supply and demand, fuel costs, market conditions, weather, state and federal regulatory policies, environmental policies, transmission availability and other factors. PSEG Power uses a variety of derivative and non-derivative instruments, such as financial options, futures, swaps, fuel purchases and forward purchases and sales of electricity, to manage the exposure to fluctuations in commodity prices and optimize the value of PSEG Power’s expected generation. Changes in the fair market value of the derivative contracts are recorded in earnings.

Determining whether a contract qualifies as a derivative requires that management exercise significant judgment, including assessing the contract’s market liquidity. PSEG has determined that contracts to purchase and sell certain products do not meet the definition of a derivative under the current authoritative guidance since they do not provide for net settlement, or the markets are not sufficiently liquid to conclude that physical forward contracts are readily convertible to cash.

Under current authoritative guidance, all derivatives are recognized on the balance sheet at their fair value, except for derivatives that are designated as normal purchases and normal sales (NPNS). Further, derivatives that qualify for hedge accounting can be designated as fair value or cash flow hedges. For fair value hedges, changes in fair values for both the derivative and the underlying hedged exposure are recognized in earnings each period.

Certain offsetting derivative assets and liabilities are subject to a master netting or similar agreement. In general, the terms of the agreements provide that in the event of an early termination the counterparties have the right to offset amounts owed or owing under that and any other agreement with the same counterparty. Accordingly, these positions are offset on the Consolidated Balance Sheets of PSEG Power and PSEG.

For cash flow hedges, the gain or loss on a derivative instrument designated and qualifying as a cash flow hedge is deferred in Accumulated Other Comprehensive Income (Loss) until earnings are affected by the variability of cash flows of the hedged transaction.

For derivative contracts that do not qualify or are not designated as cash flow or fair value hedges or as NPNS, changes in fair value are recorded in current period earnings. PSEG does not currently elect fair value or cash flow hedge accounting on its commodity derivative positions.

Contracts that qualify for, and are designated, as NPNS are accounted for upon settlement. Contracts which qualify for NPNS are contracts for which physical delivery is probable, they will not be financially settled, and the quantities under contract are expected to be used or sold in the normal course of business over a reasonable period of time.

For additional information regarding derivative financial instruments, see Note 18. Financial Risk Management Activities.

Revenue Recognition

PSE&G’s regulated electric and gas revenues are recorded primarily based on services rendered to customers. PSE&G records unbilled revenues for the estimated amount customers will be billed for services rendered from the time meters were last read to

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the end of the respective accounting period. The unbilled revenue is estimated each month based on usage per day, the number of unbilled days in the period, estimated seasonal loads based upon the time of year and the variance of actual degree-days and temperature-humidity-index hours of the unbilled period from expected norms.

Regulated revenues from the transmission of electricity are recognized as services are provided based on a FERC-approved annual formula rate mechanism. This mechanism provides for an annual filing of estimated revenue requirement with rates effective January 1 of each year. After completion of the annual period ending December 31, PSE&G files a true-up whereby it compares its actual revenue requirement to the original estimate to determine any over or under collection of revenue. PSE&G records the estimated financial statement impact of the difference between the actual and the filed revenue requirement as a refund or deferral for future recovery when such amounts are probable and can be reasonably estimated in accordance with accounting guidance for rate-regulated entities.

The majority of PSEG Power’s revenues relate to bilateral contracts, which are accounted for on the accrual basis as the energy is delivered. PSEG Power’s revenue also includes changes in the value of energy derivative contracts that are not designated as NPNS. See Note 18. Financial Risk Management Activities for further discussion.

PJM Interconnection, L.L.C. (PJM), the Independent System Operator-New England (ISO-NE) and the New York Independent System Operator (NYISO) facilitate the dispatch of energy and energy-related products. PSEG Power generally reports electricity sales and purchases conducted with those individual ISOs on a net hourly basis in either Revenues or Energy Costs in its Consolidated Statement of Operations, the classification of which depends on the net hourly activity. Capacity revenue and expense are also reported net based on PSEG Power’s monthly net sale or purchase position in the individual ISOs.

PSEG LI is the primary beneficiary of Long Island Electric Utility Servco, LLC (Servco). For transactions in which Servco acts as principal, Servco records revenues and the related pass-through expenditures separately in Operating Revenues and Operations and Maintenance (O&M) Expense, respectively. See Note 5. Variable Interest Entity for further information.

For additional information regarding Revenues, see Note 3. Revenues.

Depreciation and Amortization (D&A)

PSE&G calculates depreciation under the straight-line method based on estimated average remaining lives of the several classes of depreciable property. These estimates are reviewed on a periodic basis and necessary adjustments are made as approved by the BPU or FERC. The average depreciation rate stated as a percentage of original cost of depreciable property was as follows:




	2019		2018		2017
	Avg Rate		Avg Rate		Avg Rate
Electric Transmission	2.41	%	2.42	%	2.41	%
Electric Distribution	2.54	%	2.51	%	2.51	%
Gas Distribution	1.85	%	1.61	%	1.63	%

PSEG Power calculates depreciation on generation-related assets under the straight-line method based on the assets’ estimated useful lives. The estimated useful lives are:


•	general plant assets—3 years to 20 years


•	fossil production assets—30 years to 56 years


•	nuclear generation assets—approximately 60 years


•	pumped storage facilities—76 years


•	solar assets—25 years to 35 years

Allowance for Funds Used During Construction (AFUDC) and Interest Capitalized During Construction (IDC)

AFUDC represents the cost of debt and equity funds used to finance the construction of new utility assets at PSE&G. IDC represents the cost of debt used to finance construction at PSEG Power. The amount of AFUDC or IDC capitalized as Property, Plant and Equipment is included as a reduction of interest charges or other income for the equity portion. The amounts and average rates used to calculate AFUDC or IDC for the years ended December 31, 2019, 2018 and 2017 were as follows:

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	AFUDC/IDC Capitalized
	2019				2018				2017
	Millions		Avg Rate		Millions		Avg Rate		Millions		Avg Rate
PSE&G	$	81	7.22	%	$	70	7.74	%	$	73	7.42	%
PSEG Power	$	27	4.60	%	$	67	4.60	%	$	78	4.60	%

Income Taxes

PSEG and its subsidiaries file a consolidated federal income tax return and income taxes are allocated to PSEG’s subsidiaries based on the taxable income or loss of each subsidiary on a separate return basis in accordance with a tax-sharing agreement between PSEG and each of its affiliated subsidiaries. Allocations between PSEG and its subsidiaries are recorded through intercompany accounts. Investment tax credits deferred in prior years are being amortized over the useful lives of the related property.

Uncertain income tax positions are accounted for using a benefit recognition model with a two-step approach, a more-likely-than-not recognition criterion and a measurement attribute that measures the position as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement. If it is not more-likely-than-not that the benefit will be sustained on its technical merits, no benefit will be recorded. Uncertain tax positions that relate only to timing of when an item is included on a tax return are considered to have met the recognition threshold. See Note 22. Income Taxes for further discussion.

Impairment of Long-Lived Assets and Leveraged Leases

Management evaluates long-lived assets for impairment whenever events or changes in circumstances, such as significant adverse changes in regulation, business climate, counterparty credit worthiness or market conditions, including prolonged periods of adverse commodity and capacity prices or a current expectation that a long-lived asset will be sold or disposed of significantly before the end of its previously estimated useful life, could potentially indicate an asset’s or asset group’s carrying amount may not be recoverable. In such an event, an undiscounted cash flow analysis is performed to determine if an impairment exists. When a long-lived asset’s or asset group’s carrying amount exceeds the associated undiscounted estimated future cash flows, the asset/asset group is considered impaired to the extent that its fair value is less than its carrying amount. An impairment would result in a reduction of the value of the long-lived asset/asset group through a non-cash charge to earnings. See Note 4. Early Plant Retirements/Asset Dispositions for more information.

For PSEG Power, cash flows for long-lived assets and asset groups are determined at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The cash flows from the generation units are generally evaluated at a regional portfolio level (PJM, NYISO, ISO-NE) along with cash flows generated from the customer supply and risk management activities, inclusive of cash flows from contracts, including those that are accounted for as derivatives and meet the NPNS scope exception. In certain cases, generation assets are evaluated on an individual basis where those assets are individually contracted on a long-term basis with a third party and operations are independent of other generation assets (typically PSEG Power’s solar plants and Kalaeloa).

Energy Holdings’ leveraged leases are comprised of Lease Receivables (net of non-recourse debt), the estimated residual value of leased assets, and unearned and deferred income. Residual values are the estimated values of the leased assets at the end of the respective lease per the original lease terms, net of any subsequent impairments. A review of the residual valuations, which are calculated by discounting the cash flows related to the leased assets after the lease term, is performed at least annually for each asset subject to lease using specific assumptions tailored to each asset. Those valuations are compared to the recorded residual values to determine if an impairment is warranted.

Accounts Receivable—Allowance for Doubtful Accounts

PSE&G’s accounts receivable are reported in the balance sheet as gross outstanding amounts adjusted for doubtful accounts. The allowance for doubtful accounts reflects PSE&G’s best estimates of losses on the accounts receivable balances. The allowance is based on accounts receivable aging, historical experience, write-off forecasts and other currently available evidence.

Accounts receivable are charged off in the period in which the receivable is deemed uncollectible. Recoveries of accounts receivable are recorded when it is known they will be received.

Materials and Supplies and Fuel

PSE&G’s and PSEG Power’s materials and supplies are carried at average cost and charged to inventory when purchased and expensed or capitalized to Property, Plant and Equipment, as appropriate, when installed or used. Fuel inventory at PSEG Power is valued at the lower of average cost or market and includes stored natural gas, coal, fuel oil and propane used to

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generate power and to satisfy obligations under PSEG Power’s gas supply contracts with PSE&G. The costs of fuel, including initial transportation costs, are included in inventory when purchased and charged to Energy Costs when used or sold. The cost of nuclear fuel is capitalized within Property, Plant and Equipment and amortized to fuel expense using the units-of-production method.

Property, Plant and Equipment

PSE&G’s additions to and replacements of existing property, plant and equipment are capitalized at cost. The cost of maintenance, repair and replacement of minor items of property is charged to expense as incurred. At the time units of depreciable property are retired or otherwise disposed of, the original cost, adjusted for net salvage value, is charged to accumulated depreciation.

PSEG Power capitalizes costs, including those related to its jointly-owned facilities, which increase the capacity, improve or extend the life of an existing asset, represent a newly acquired or constructed asset or represent the replacement of a retired asset. The cost of maintenance, repair and replacement of minor items of property is charged to appropriate expense accounts as incurred. Environmental costs are capitalized if the costs mitigate or prevent future environmental contamination or if the costs improve existing assets’ environmental safety or efficiency. All other environmental expenditures are expensed as incurred. PSEG Power also capitalizes spare parts that meet specific criteria. Capitalized spares are depreciated over the remaining lives of their associated assets.

Leases

Effective January 1, 2019, PSEG and its subsidiaries adopted new accounting guidance. See Note 2. Recent Accounting Standards for additional information.

PSEG and its subsidiaries, when acting as lessee or lessor, determine if an arrangement is a lease at inception. PSEG assesses contracts to determine if the arrangement conveys (i) the right to control the use of the identified property, (ii) the right to obtain substantially all of the economic benefits from the use of the property, and (iii) the right to direct the use of the property.

PSEG and its subsidiaries are neither the lessee nor the lessor in any material leases that are not classified as operating leases.

Lessee—Operating Lease Right-of-Use Assets represent the right to use an underlying asset for the lease term and Operating Lease Liabilities represent the obligation to make lease payments arising from the lease. Operating Lease Right-of-Use Assets and Operating Lease Liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term.

The current portion of Operating Lease Liabilities is included in Other Current Liabilities. Operating Lease Right-of-Use Assets and noncurrent Operating Lease Liabilities are included as separate captions in Noncurrent Assets and Noncurrent Liabilities, respectively, on the Consolidated Balance Sheets of PSEG, PSE&G and PSEG Power. PSEG and its subsidiaries do not recognize Operating Lease Right-of-Use Assets and Operating Lease Liabilities for leases where the term is twelve months or less.

PSEG and its subsidiaries recognize the lease payments on a straight-line basis over the term of the leases and variable lease payments in the period in which the obligations for those payments are incurred.

As lessee, most of the operating leases of PSEG and its subsidiaries do not provide an implicit rate; therefore, incremental borrowing rates are used based on the information available at commencement date in determining the present value of lease payments. The implicit rate is used when readily determinable. PSE&G’s incremental borrowing rates are based on secured borrowing rates. PSEG’s and PSEG Power’s incremental borrowing rates are generally unsecured rates. Having calculated simulated secured rates for each of PSEG and PSEG Power, it was determined that the difference between the unsecured borrowing rates and the simulated secured rates had an immaterial effect on their recorded Operating Lease Right-of-Use Assets and Operating Lease Liabilities. Services, PSEG LI and other subsidiaries of PSEG that do not borrow funds or issue debt may enter into leases. Since these companies do not have credit ratings and related incremental borrowing rates, PSEG has determined that it is appropriate for these companies to use the incremental borrowing rate of PSEG, the parent company.

Lease terms may include options to extend or terminate the lease when it is reasonably certain that such options will be exercised.

PSEG and its subsidiaries have lease agreements with lease and non-lease components. For real estate, equipment and vehicle leases, the lease and non-lease components are accounted for as a single lease component.

Lessor—Property subject to operating leases, where PSEG or one of its subsidiaries is the lessor, is included in Property, Plant and Equipment and rental income from these leases is included in Operating Revenues.

PSEG and its subsidiaries, have lease agreements with lease and non-lease components, which are primarily related to real estate assets and solar generating facilities. PSEG and subsidiaries account for the lease and non-lease components as a single lease component.

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Energy Holdings is the lessor in leveraged leases. Leveraged lease accounting guidance is grandfathered for existing leveraged leases. Energy Holdings’ leveraged leases are accounted for in Operating Revenues and in Noncurrent Long-Term Investments. If modified after January 1, 2019, those leveraged leases will be accounted for as operating or financing leases. See Note 9. Long-Term Investments and Note 10. Financing Receivables.

See Note 8. Leases for detailed information on leases.

Trust Investments

These securities comprise the Nuclear Decommissioning Trust (NDT) Fund, a master independent external trust account maintained to provide for the costs of decommissioning upon termination of operations of PSEG Power’s nuclear facilities and amounts that are deposited to fund a Rabbi Trust which was established to meet the obligations related to non-qualified pension plans and deferred compensation plans.

Effective January 1, 2018, unrealized gains and losses on equity security investments are recorded in Net Income instead of Other Comprehensive Income (Loss). The debt securities continue to be classified as available-for-sale with the unrealized gains and losses recorded as a component of Accumulated Other Comprehensive Income (Loss). Realized gains and losses on both equity and available-for-sale debt security investments are recorded in earnings and are included with the unrealized gains and losses on equity securities in Net Gains (Losses) on Trust Investments. Other-than-temporary impairments on NDT and Rabbi Trust debt securities are also included in Net Gains (Losses) on Trust Investments. See Note 11. Trust Investments for further discussion.

Pension and Other Postretirement Benefits (OPEB) Plans

The market-related value of plan assets held for the qualified pension and OPEB plans is equal to the fair value of those assets as of year-end. Fair value is determined using quoted market prices and independent pricing services based upon the security type as reported by the trustee at the measurement date (December 31) as well as investments in unlisted real estate which is valued via third-party appraisals.

PSEG recognizes a long-term receivable primarily related to future funding by LIPA of Servco’s recognized pension and OPEB liabilities. This receivable is presented separately on the Consolidated Balance Sheet of PSEG as a noncurrent asset.

Pursuant to the OSA, Servco records expense for contributions to its pension plan trusts and for OPEB payments made to retirees.

See Note 14. Pension, Other Postretirement Benefits (OPEB) and Savings Plans for further discussion.

Basis Adjustment

PSE&G and PSEG Power have recorded a Basis Adjustment in their respective Consolidated Balance Sheets related to the generation assets that were transferred from PSE&G to PSEG Power in August 2000 at the price specified by the BPU. Because the transfer was between affiliates, the transaction was recorded at the net book value of the assets and liabilities rather than the transfer price. The difference between the total transfer price and the net book value of the generation-related assets and liabilities, $986 million, net of tax, was recorded as a Basis Adjustment on PSE&G’s and PSEG Power’s Consolidated Balance Sheets. The $986 million is an addition to PSE&G’s Common Stockholder’s Equity and a reduction of PSEG Power’s Member’s Equity. These amounts are eliminated on PSEG’s consolidated financial statements.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Note 2. Recent Accounting Standards

New Standards Adopted in 2019

Leases—Accounting Standards Update (ASU) 2016-02, updated by ASUs 2018-01, 2018-10, 2018-11, 2018-20 and 2019-01

This accounting standard, and related updates, replace existing lease accounting guidance and require lessees to recognize leases with a term greater than 12 months on the balance sheet using a right-of-use asset approach. At lease commencement, a lessee will recognize a lease asset and corresponding lease obligation. A lessee will classify its leases as either finance leases or operating leases and a lessor will classify its leases as operating leases, direct financing leases, or sales-type leases. The standard requires additional disclosure of key information. Existing guidance related to leveraged leases does not change.

PSEG adopted the optional transition method on January 1, 2019. There was no cumulative effect adjustment required to be

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recorded to Retained Earnings at adoption. The optional transition method requires disclosure under Accounting Standards Codification (ASC) 840—Leases, the previously existing lease guidance for prior periods.

PSEG elected various practical expedients allowed by the standard, including the package of three practical expedients related to not reassessing existing or expired contracts and initial direct costs; and excluding evaluation of land easements that exist or expired before adoption that were not previously accounted for as leases.

The impact of adoption on PSEG’s Consolidated Balance Sheet was to record Operating Lease Right-of-Use Assets of $261 million and Operating Lease Liabilities of $282 million. As part of that impact, PSEG reclassified deferred rent incentives and deferred rent liabilities of approximately $21 million, which were previously classified as Other Noncurrent Liabilities, to Operating Lease Right-of-Use Assets in accordance with this standard. PSE&G’s assets and liabilities each increased by $91 million and PSEG Power’s assets and liabilities each increased by $46 million. PSEG’s adoption of this standard did not have a material impact on the Consolidated Statements of Operations or Consolidated Statements of Cash Flows of PSEG, PSE&G and PSEG Power. See Note 8. Leases for additional information.

Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities—ASU 2017-12, updated by ASU 2018-16 and 2019-04

This accounting standard’s amendments more closely align hedge accounting with companies’ risk management activities in the financial statements and ease the operational burden of applying hedge accounting.

PSEG adopted this standard on January 1, 2019. The standard requires using a modified retrospective method upon adoption. PSEG analyzed the impact of this standard on its consolidated financial statements and determined that the standard could enable PSEG to enter into certain transactions that can be deemed hedges that previously would not have qualified. Adoption of this standard did not have a material impact on the financial statements of PSEG, PSE&G and PSEG Power.

Premium Amortization on Purchased Callable Debt Securities—ASU 2017-08

This accounting standard was issued to shorten the amortization period for certain callable debt securities held at a premium. Specifically, the standard requires the premium to be amortized to the earliest call date.

PSEG adopted this standard on January 1, 2019 on a modified retrospective basis through a cumulative effect adjustment directly to Retained Earnings as of the beginning of 2019. Adoption of this standard did not have a material impact on the financial statements of PSEG, PSE&G and PSEG Power.

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income—ASU 2018-02

This accounting standard affects any entity that is required to apply the provisions of the ASC topic, “Income Statement-Reporting Comprehensive Income,” and has items of Other Comprehensive Income for which the related tax effects are presented in Other Comprehensive Income as required by GAAP. Specifically, this standard allows entities to record a reclassification from Accumulated Other Comprehensive Income to Retained Earnings for stranded tax effects resulting from the recent decrease in the federal corporate income tax rate.

PSEG adopted this standard on January 1, 2019. The impact of adoption on PSEG’s Consolidated Balance Sheet was to increase Retained Earnings and Accumulated Other Comprehensive Loss by approximately $81 million. PSEG Power’s Retained Earnings and Accumulated Other Comprehensive Loss increased by approximately $69 million. The impact on PSE&G’s Consolidated Balance Sheet was immaterial. PSEG’s adoption of this standard did not have a material impact on the Consolidated Statements of Operations or Consolidated Statements of Cash Flows of PSEG, PSE&G and PSEG Power.

Simplifying the Test for Goodwill Impairment—ASU 2017-04

This accounting standard requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable.

This standard requires application on a prospective basis and disclosure of the nature of and reason for the change in accounting principle upon transition. The new standard is effective for impairment tests for periods beginning January 1, 2020. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. PSEG early adopted this standard in the fourth quarter of 2019. See Note 12. Goodwill and Other Intangibles.

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New Standards Issued But Not Yet Adopted As of December 31, 2019

Measurement of Credit Losses on Financial Instruments—ASU 2016-13, updated by ASU 2018-19, 2019-04, 2019-05, 2019-11 and 2020-02

This accounting standard provides a new model for recognizing credit losses on financial assets. The new model requires entities to use an estimate of expected credit losses that will be recognized as an impairment allowance rather than a direct write-down of the amortized cost basis. The estimate of expected credit losses is to be based on past events, current conditions and supportable forecasts over a reasonable period. For purchased financial assets with credit deterioration, a similar model is to be used; however, the initial allowance will be added to the purchase price rather than reported as an allowance. Credit losses on available-for-sale debt securities will be measured in a manner similar to current GAAP; however, this standard requires those credit losses to be presented as an allowance, rather than a write-down. This new standard also requires additional disclosures of the allowance for credit losses by financial asset type, including disclosures of credit quality indicators for each class of financial asset disaggregated by year of origination.

The standard is effective for annual and interim periods beginning after December 15, 2019. PSEG adopted this standard on January 1, 2020 on a modified retrospective basis through a cumulative effect charge to Retained Earnings. The impact of adoption of this standard was immaterial on the financial statements of PSEG, PSE&G and PSEG Power.

Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement—ASU 2018-13

This accounting standard modifies the disclosure requirements for fair value measurements. Certain current disclosure requirements relating to Level 3 fair value measurements, and transfers between Level 1 and Level 2 fair value measurements will be eliminated. The standard will also add certain other disclosure requirements for Level 3 fair value measurements.

The standard is effective for annual and interim periods beginning after December 15, 2019. Certain amendments in the standard will be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments of the standard will be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted.

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract—ASU 2018-15

This accounting standard aligns the capitalization requirements for implementation costs incurred in a hosting arrangement that is a service contract with capitalization requirements for implementation costs incurred to develop or obtain internal-use software, including hosting arrangements that include an internal-use software license. The standard follows the guidance in ASC 350—Intangibles—Goodwill and Other to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The standard requires the amortization of capitalized costs to be presented in O&M Expense. In addition, the standard also adds presentation requirements for these costs in the statements of cash flows and financial position.

The standard is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted, including adoption in any interim period. This standard can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. PSEG adopted this standard prospectively on January 1, 2020. PSEG, PSE&G and PSEG Power do not expect a material impact on their respective financial statements.

Targeted Improvements to Related Party Guidance for Variable Interest Entities (VIE)-ASU 2018-17

This accounting standard improves the VIE guidance in the area of decision-making fees. Consistent with how indirect interests held through related parties under common control are considered for determining whether a reporting entity must consolidate a VIE, indirect interests held through related parties in common control arrangements will be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests.

This standard is effective for annual and interim periods beginning after December 15, 2019. The standard is required to be applied retrospectively with a cumulative effect adjustment to Retained Earnings at the beginning of the earliest period presented. Early adoption is permitted. PSEG adopted this standard on January 1, 2020. Adoption of this standard did not have an impact on the financial statements of PSEG, PSE&G and PSEG Power.

Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans—ASU 2018-14

This accounting standard modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans, including the elimination of certain current disclosure requirements. Certain other disclosure requirements related to interest crediting rates have been added and certain clarifications were made to other disclosure requirements.

The standard is effective for fiscal years ending after December 15, 2020 and early adoption is permitted. Amendments in this standard will be applied on a retrospective basis to all periods presented.

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Simplifying the Accounting for Income Taxes—ASU 2019-12

This accounting standard simplifies the accounting for income taxes, including the elimination of certain exceptions to current requirements. Certain other requirements related to franchise taxes that are partially based on income, step-up of tax basis of goodwill and allocation of consolidated taxes to legal entities have been added and certain clarifications were made to other requirements.

The standard is effective for fiscal years beginning after December 15, 2020 and early adoption is permitted. Certain amendments in this standard will be applied on a retrospective basis to all periods presented. Certain other amendments will be applied on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative effect adjustment to Retained Earnings as of the beginning of the fiscal year of adoption. All other amendments will be applied on a prospective basis. PSEG is currently analyzing the impact of this standard on its financial statements.

Clarifying the Interactions between Investments-Equity Securities, Investments-Equity Method and Joint Ventures, and Derivatives and Hedging—ASU 2020-01

This accounting standard clarifies that an entity should consider transaction prices for purposes of measuring the fair value of certain equity securities immediately before applying or upon discontinuing the equity method. This accounting standard also clarifies that when accounting for contracts entered into to purchase equity securities, an entity should not consider whether, upon the settlement of the forward contract or exercise of the purchased option, the underlying securities would be accounted for under the equity method or the fair value option.

The standard is effective for fiscal years beginning after December 15, 2020. Amendments in this standard will be applied prospectively. Under a prospective transition, PSEG will apply the amendments at the beginning of the interim period that includes the adoption date. PSEG is currently analyzing the impact of this standard on its financial statements.

Note 3. Revenues

Nature of Goods and Services

The following is a description of principal activities by reportable segment from which PSEG, PSE&G and PSEG Power generate their revenues.

PSE&G

Revenues from Contracts with Customers

Electric and Gas Distribution and Transmission Revenues—PSE&G sells gas and electricity to customers under default commodity supply tariffs. PSE&G’s regulated electric and gas default commodity supply and distribution services are separate tariffs which are satisfied as the product(s) and/or services are delivered to the customer. The electric and gas commodity and delivery tariffs are recurring contracts in effect until modified through the regulatory approval process as appropriate. Revenue is recognized over time as the service is rendered to the customer. Included in PSE&G’s regulated revenues are unbilled electric and gas revenues which represent the estimated amount customers will be billed for services rendered from the most recent meter reading to the end of the respective accounting period.

PSE&G’s transmission revenues are earned under a separate tariff using a FERC-approved annual formula rate mechanism. The performance obligation of transmission service is satisfied and revenue is recognized as it is provided to the customer. The formula rate mechanism provides for an annual filing of an estimated revenue requirement with rates effective January 1 of each year and a true-up to that estimate based on actual revenue requirements. The true-up mechanism is an alternative revenue which is outside the scope of revenue from contracts with customers.

Other Revenues from Contracts with Customers

Other revenues from contracts with customers, which are not a material source of PSE&G revenues, are generated primarily from appliance repair services and solar generation projects. The performance obligations under these contracts are satisfied and revenue is recognized as control of products is delivered or services are rendered.

Payment for services rendered and products transferred are typically due within 30 days of month of delivery.

Revenues Unrelated to Contracts with Customers

Other PSE&G revenues unrelated to contracts with customers are derived from alternative revenue mechanisms recorded pursuant to regulatory accounting guidance. These revenues, which include weather normalization, green energy program true-ups and transmission formula rate true-ups, are not a material source of PSE&G revenues.

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PSEG Power

Revenues from Contracts with Customers

Electricity and Related Products—Wholesale and retail load contracts are executed in the different ISO regions for the bundled supply of energy, capacity, renewable energy credits (RECs) and ancillary services representing PSEG Power’s performance obligations. Revenue for these contracts is recognized over time as the bundled service is provided to the customer. Transaction terms generally run from several months to three years. PSEG Power also sells to the ISOs energy and ancillary services which are separately transacted in the day-ahead or real-time energy markets. The energy and ancillary services performance obligations are typically satisfied over time as delivered and revenue is recognized accordingly. PSEG Power generally reports electricity sales and purchases conducted with those individual ISOs net on an hourly basis in either Operating Revenues or Energy Costs in its Consolidated Statements of Operations. The classification depends on the net hourly activity.

PSEG Power enters into capacity sales and capacity purchases through the ISOs. The transactions are reported on a net basis dependent on PSEG Power’s monthly net sale or purchase position through the individual ISOs. The performance obligations with the ISOs are satisfied over time upon delivery of the capacity and revenue is recognized accordingly. In addition to capacity sold through the ISOs, PSEG Power sells capacity through bilateral contracts and the related revenue is reported on a gross basis and recognized over time upon delivery of the capacity.

In April 2019, PSEG Power’s Salem 1, Salem 2 and Hope Creek nuclear plants were awarded Zero Emission Certificates (ZECs) by the BPU. These nuclear plants are expected to receive ZEC revenue for approximately three years, through May 2022 from the electric distribution companies (EDCs) in New Jersey. PSEG Power recognizes revenue when the units generate electricity, which is when the performance obligation is satisfied. These revenues are included in PJM Sales in the following tables. See Note 4. Early Plant Retirements/Asset Dispositions for additional information.

Gas Contracts—PSEG Power sells wholesale natural gas, primarily through an index based full-requirements Basic Gas Supply Service (BGSS) contract with PSE&G to meet the gas supply requirements of PSE&G’s customers. The BGSS contract remains in effect unless terminated by either party with a two-year notice. The performance obligation is primarily delivery of gas which is satisfied over time. Revenue is recognized as gas is delivered. Based upon the availability of natural gas, storage and pipeline capacity beyond PSE&G’s daily needs, PSEG Power also sells gas and pipeline capacity to other counterparties under bilateral contracts. The performance obligation under these contracts is satisfied over time upon delivery of the gas or capacity, and revenue is recognized accordingly.

Other Revenues from Contracts with Customers

PSEG Power enters into bilateral contracts to sell solar power and solar RECs from its solar facilities. Contract terms range from 15 to 30 years. The performance obligations are generally solar power and RECs which are transferred to customers upon generation. Revenue is recognized upon generation of the solar power.

PSEG Power has entered into long-term contracts with LIPA for energy management and fuel procurement services. Revenue is recognized over time as services are rendered.

Revenues Unrelated to Contracts with Customers

PSEG Power’s revenues unrelated to contracts with customers include electric, gas and certain energy-related transactions accounted for in accordance with Derivatives and Hedging accounting guidance. See Note 18. Financial Risk Management Activities for further discussion. PSEG Power is also a party to solar contracts that qualify as leases and are accounted for in accordance with lease accounting guidance.

Other

Revenues from Contracts with Customers

PSEG LI has a contract with LIPA which generates revenues. PSEG LI’s subsidiary, Servco records costs which are recovered from LIPA and records the recovery of those costs as revenues when Servco is a principal in the transaction.

Revenues Unrelated to Contracts with Customers

Energy Holdings generates lease revenues which are recorded pursuant to lease accounting guidance.

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Disaggregation of Revenues




	PSE&G		PSEG Power		Other			Eliminations			Consolidated
	Millions
Year Ended December 31, 2019
Revenues from Contracts with Customers
Electric Distribution	$	3,224	$	—	$	—		$	—		$	3,224
Gas Distribution	1,870		—		—			(15		)	1,855
Transmission	1,181		—		—			—			1,181
Electricity and Related Product Sales
PJM
Third-Party Sales	—		1,785		—			—			1,785
Sales to Affiliates	—		536		—			(536		)	—
NY-ISO	—		143		—			—			143
ISO-NE	—		137		—			—			137
Gas Sales
Third-Party Sales	—		92		—			—			92
Sales to Affiliates	—		927		—			(927		)	—
Other Revenues from Contracts with Customers (A)	284		46		566			(5		)	891
Total Revenues from Contracts with Customers	6,559		3,666		566			(1,483		)	9,308
Revenues Unrelated to Contracts with Customers (B)	66		719		(17		)	—			768
Total Operating Revenues	$	6,625	$	4,385	$	549		$	(1,483	)	$	10,076




	PSE&G		PSEG Power		Other		Eliminations			Consolidated
	Millions
Year Ended December 31, 2018
Revenues from Contracts with Customers
Electric Distribution	$	3,131	$	—	$	—	$	—		$	3,131
Gas Distribution	1,756		—		—		(18		)	1,738
Transmission	1,236		—		—		—			1,236
Electricity and Related Product Sales
PJM
Third-Party Sales	—		1,933		—		—			1,933
Sales to Affiliates	—		609		—		(609		)	—
NY-ISO	—		209		—		—			209
ISO-NE	—		92		—		—			92
Gas Sales
Third-Party Sales	—		151		—		—			151
Sales to Affiliates	—		861		—		(861		)	—
Other Revenues from Contracts with Customers (A)	275		44		532		(4		)	847
Total Revenues from Contracts with Customers	6,398		3,899		532		(1,492		)	9,337
Revenues Unrelated to Contracts with Customers (B)	73		247		39		—			359
Total Operating Revenues	$	6,471	$	4,146	$	571	$	(1,492	)	$	9,696

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	PSE&G		PSEG Power		Other			Eliminations			Consolidated
	Millions
Year Ended December 31, 2017
Revenues from Contracts with Customers
Electric Distribution	$	3,088	$	—	$	—		$	—		$	3,088
Gas Distribution	1,684		—		—			(14		)	1,670
Transmission	1,222		—		—			—			1,222
Electricity and Related Product Sales
PJM
Third-Party Sales	—		1,199		—			—			1,199
Sales to Affiliates	—		734		—			(734		)	—
NY-ISO	—		181		—			—			181
ISO-NE	—		39		—			—			39
Gas Sales
Third-Party Sales	—		134		—			—			134
Sales to Affiliates	—		804		—			(804		)	—
Other Revenues from Contracts with Customers (A)	265		42		511			(4		)	814
Total Revenues from Contracts with Customers	6,259		3,133		511			(1,556		)	8,347
Revenues Unrelated to Contracts with Customers (B)	65		727		(45		)	—			747
Total Operating Revenues	$	6,324	$	3,860	$	466		$	(1,556	)	$	9,094


(A)	Includes primarily revenues from appliance repair services at PSE&G, solar power projects and energy management and fuel service contracts with LIPA at PSEG Power, and PSEG LI’s OSA with LIPA in Other.


(B)	Includes primarily alternative revenues at PSE&G, derivative contracts at PSEG Power, and lease contracts in Other. For the years ended December 31, 2019, 2018 and 2017, Other includes losses of $58 million, $8 million and $77 million, respectively, related to Energy Holdings’ investments in leases. For additional information, see Note 9. Long-Term Investments.

Contract Balances

PSE&G

PSE&G did not have any material contract balances (rights to consideration for services already provided or obligations to provide services in the future for consideration already received) as of December 31, 2019 and 2018. Substantially all of PSE&G’s accounts receivable result from contracts with customers that are priced at tariff rates. Allowances represented approximately six percent and seven percent of accounts receivable as of December 31, 2019 and 2018, respectively.

PSEG Power

PSEG Power generally collects consideration upon satisfaction of performance obligations, and therefore, PSEG Power had no material contract balances as of December 31, 2019 and 2018.

PSEG Power’s accounts receivable include amounts resulting from contracts with customers and other contracts which are out of scope of accounting guidance for revenues from contracts with customers. The majority of these accounts receivable are subject to master netting agreements. As a result, accounts receivable resulting from contracts with customers and receivables unrelated to contracts with customers are netted within Accounts Receivable and Accounts Payable on the Consolidated Balance Sheets. In the wholesale energy markets in which PSEG Power operates, payment for services rendered and products transferred are typically due within 30 days of month of delivery. As such, there is little credit risk associated with these receivables and PSEG Power typically records no allowances.

Other

PSEG LI does not have any material contract balances as of December 31, 2019 and 2018.

Remaining Performance Obligations under Fixed Consideration Contracts

PSEG Power and PSE&G primarily record revenues as allowed by the guidance, which states that if an entity has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the entity's performance completed to date, the entity may recognize revenue in the amount to which the entity has a right to invoice. PSEG has future performance obligations under contracts with fixed consideration as follows:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PSEG Power

As previously stated, capacity transactions with ISOs are reported on a net basis dependent on PSEG Power’s monthly net sale or purchase position through the individual ISOs.

Capacity Revenues from the PJM Annual Base Residual and Incremental Auctions—The Base Residual Auction is conducted annually three years in advance of the operating period. PSEG Power expects to realize the following average capacity prices resulting from the base and incremental auctions, including unit specific bilateral contracts for previously cleared capacity obligations. These numbers exclude cleared capacity associated with our ownership interests in the Keystone and Conemaugh generation plants that were sold in September 2019. For additional information see Note 4. Early Plant Retirements/Asset Dispositions.




Delivery Year	$ per Megawatt (MW)-Day	MW Cleared
June 2019 to May 2020	$116	8,300
June 2020 to May 2021	$179	7,300
June 2021 to May 2022	$182	6,900

Capacity Payments from the ISO-NE Forward Capacity Market—The Forward Capacity Market (FCM) Auction is conducted annually three years in advance of the operating period. The table below includes PSEG Power’s cleared capacity in the FCM Auction for the Bridgeport Harbor Station 5 (BH5), which cleared the 2019/2020 auction at $231/MW-day for seven years, and the planned retirement of Bridgeport Harbor Station 3 (BH3) in 2021. PSEG Power expects to realize the following average capacity prices for capacity obligations to be satisfied resulting from the FCM auctions which have been completed:




Delivery Year	$ per MW-Day (A)	MW Cleared
June 2019 to May 2020	$231	1,330
June 2020 to May 2021	$195	1,330
June 2021 to May 2022	$192	950
June 2022 to May 2023	$179	950
June 2023 to May 2024	$231	480
June 2024 to May 2025	$231	480
June 2025 to May 2026	$231	480


(A)	Capacity cleared prices for BH5 through 2026 will be escalated based upon the Handy-Whitman Index. These adjustments are not included above.

Bilateral capacity contracts—Capacity obligations pursuant to contract terms through 2029 are anticipated to result in revenues totaling $168 million.

Other

The LIPA OSA is a 12-year services contract ending in 2025 with annual fixed and incentive components. The fixed fee for the provision of services thereunder in 2020 is $67 million and could increase each year based on the change in the Consumer Price Index (CPI).

Note 4. Early Plant Retirements/Asset Dispositions

Nuclear

In April 2019, PSEG Power’s Salem 1, Salem 2 and Hope Creek nuclear plants were awarded ZECs by the BPU. Pursuant to a process established by the BPU, ZECs are purchased from selected nuclear plants and recovered through a non-bypassable distribution charge in the amount of $0.004 per kilowatt-hour (KWh) used (which is equivalent to approximately $10 per megawatt hour (MWh) generated in payments to selected nuclear plants (ZEC payment)). These nuclear plants are expected to receive ZEC revenue for approximately three years, through May 2022, and will be obligated to maintain operations during that period, subject to exceptions specified in the ZEC legislation. PSEG Power has and will continue to recognize revenue monthly as the nuclear plants generate electricity and satisfy their performance obligations. The ZEC legislation requires nuclear plants to reapply for any subsequent three year periods. The ZEC payment may be adjusted by the BPU (a) at any time to offset environmental or fuel diversity payments that a selected nuclear plant may receive from another source or (b) at certain times specified in the ZEC legislation if the BPU determines that the purposes of the ZEC legislation can be achieved through a reduced charge that will nonetheless be sufficient to achieve the state’s air quality and other environmental objectives by

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preventing the retirement of nuclear plants. The BPU’s decision awarding ZECs has been appealed by the Division of Rate Counsel. PSEG cannot predict the outcome of this matter. In the event that (i) the ZEC program is overturned or otherwise materially adversely modified through legal process, (ii) the terms and conditions of the subsequent period under the ZEC program, including the amount of ZEC payments that may be awarded, materially differ from those of the current ZEC period, or (iii) any of the Salem 1, Salem 2 and Hope Creek plants is not awarded ZEC payments by the BPU and does not otherwise experience a material financial change, PSEG Power will take all necessary steps to retire all of these plants subsequent to the initial ZEC period at or prior to a scheduled refueling outage. Alternatively, if all of the Salem 1, Salem 2 and Hope Creek plants are selected to continue to receive ZEC payments but the financial condition of the plants is materially adversely impacted by changes in commodity prices, FERC’s changes to the capacity market construct (absent sufficient capacity revenues provided under a program approved by the BPU in accordance with a FERC-authorized capacity mechanism), or, in the case of the Salem nuclear plants, decisions by the EPA and state environmental regulators regarding the implementation of Section 316(b) of the Clean Water Act and related state regulations, or other factors, PSEG Power would still take all necessary steps to retire all of these plants. The costs and accounting charges associated with any such retirement, which may include, among other things, accelerated D&A, impairment charges, potential penalties associated with the early termination of capacity obligations and fuel contracts, accelerated asset retirement costs, severance costs, environmental remediation costs and, in certain circumstances potential additional funding of the NDT Fund, would be material to both PSEG and PSEG Power.

Fossil

In June 2017, PSEG Power completed its retirement of the generation operations of the existing coal/gas units at the Hudson and Mercer generating stations.

During the year ended December 31, 2017, PSEG Power recognized total D&A of $964 million for the Hudson and Mercer units to reflect the significant shortening of their expected economic useful lives. In December 2018, PSEG Power completed the sale of the sites of the retired Hudson and Mercer units. PSEG Power transferred all land rights and structures on the sites to a third-party purchaser, along with the assumption of the environmental liabilities for the sites. As a result of the sale and transfer of liabilities, PSEG Power recorded a pre-tax gain in 2018 of $54 million.

In September 2019, PSEG Power completed the sale of its ownership interests in the Keystone and Conemaugh generation plants and related assets and liabilities. PSEG Power recorded a pre-tax loss on disposition of approximately $400 million in the second quarter of 2019 as the sale price was less than book value.

On February 23, 2020, PSEG Fossil LLC (Fossil), a direct wholly owned subsidiary of PSEG Power, entered into a Purchase Agreement with Yards Creek Energy, LLC (Yards Creek Energy), an affiliate of LS Power, relating to the sale by Fossil of its ownership interests in the Yards Creek generation facility and related assets, including the assumption by Yards Creek Energy of related liabilities. The transaction is targeted to close during the second half of 2020, subject to customary closing conditions and regulatory approvals. As a result, in the fourth quarter of 2019, $28 million of Property, Plant and Equipment was reclassified as Assets Held for Sale on PSEG’s and PSEG Power’s Consolidated Balance Sheets.

Note 5. Variable Interest Entity (VIE)

VIE for which PSEG LI is the Primary Beneficiary

PSEG LI consolidates Servco, a marginally capitalized VIE, which was created for the purpose of operating LIPA’s T&D system in Long Island, New York as well as providing administrative support functions to LIPA. PSEG LI is the primary beneficiary of Servco because it directs the operations of Servco, the activity that most significantly impacts Servco’s economic performance and it has the obligation to absorb losses of Servco that could potentially be significant to Servco. Such losses would be immaterial to PSEG.

Pursuant to the OSA, Servco’s operating costs are reimbursable entirely by LIPA, and therefore, PSEG LI’s risk is limited related to the activities of Servco. PSEG LI has no current obligation to provide direct financial support to Servco. In addition to reimbursement of Servco’s operating costs as provided for in the OSA, PSEG LI receives an annual contract management fee. PSEG LI’s annual contractual management fee, in certain situations, could be partially offset by Servco’s annual storm costs not approved by the Federal Emergency Management Agency, limited contingent liabilities and penalties for failing to meet certain performance metrics.

For transactions in which Servco acts as principal and controls the services provided to LIPA, such as transactions with its employees for labor and labor-related activities, including pension and OPEB-related transactions, Servco records revenues and the related pass-through expenditures separately in Operating Revenues and O&M Expense, respectively. In 2019, 2018 and 2017, Servco recorded $490 million, $458 million and $438 million, respectively, of O&M costs, the full reimbursement of which was reflected in Operating Revenues. For transactions in which Servco acts as an agent for LIPA, it records revenues and the related expenses on a net basis, resulting in no impact on PSEG’s Consolidated Statement of Operations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6. Property, Plant and Equipment and Jointly-Owned Facilities

Information related to Property, Plant and Equipment as of December 31, 2019 and 2018 is detailed below:




	PSE&G		PSEG Power		Other		PSEG Consolidated
	Millions
2019
Transmission and Distribution:
Electric Transmission	$	12,908	$	—	$	—	$	12,908
Electric Distribution	9,255		—		—		9,255
Gas Distribution and Transmission	8,430		—		—		8,430
Construction Work in Progress	1,607		—		—		1,607
Other	639		—		—		639
Total Transmission and Distribution	32,839		—		—		32,839
Generation:
Fossil Production	—		6,570		—		6,570
Nuclear Production	—		3,087		—		3,087
Nuclear Fuel in Service	—		761		—		761
Other Production-Solar	663		911		—		1,574
Construction Work in Progress	—		277		—		277
Total Generation	663		11,606		—		12,269
Other	398		93		345		836
Total	$	33,900	$	11,699	$	345	$	45,944




	PSE&G		PSEG Power		Other		PSEG Consolidated
	Millions
2018
Transmission and Distribution:
Electric Transmission	$	11,991	$	—	$	—	$	11,991
Electric Distribution	8,989		—		—		8,989
Gas Distribution and Transmission	7,854		—		—		7,854
Construction Work in Progress	1,170		—		—		1,170
Other	624		—		—		624
Total Transmission and Distribution	30,628		—		—		30,628
Generation:
Fossil Production	—		6,541		—		6,541
Nuclear Production	—		2,971		—		2,971
Nuclear Fuel in Service	—		765		—		765
Other Production-Solar	623		833		—		1,456
Construction Work in Progress	—		1,011		—		1,011
Total Generation	623		12,121		—		12,744
Other	382		103		344		829
Total	$	31,633	$	12,224	$	344	$	44,201

As part of its solar production portfolio, PSEG Power owns and operates two California-based solar facilities with an aggregate capacity of approximately 30 MW direct current whose output is sold to Pacific Gas and Electric Company (PG&E) under power purchase agreements (PPAs) with twenty year terms. The net book value of these solar facilities was approximately $55 million as of December 31, 2019. In January 2019, PG&E and its parent company PG&E Corporation filed for Chapter 11 bankruptcy protection. PSEG Power cannot predict the ultimate outcome that this bankruptcy proceeding will have on its ability to collect all of the future revenues from these facilities due under the PPAs; however, any adverse changes to the terms of

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PSEG Power’s PPAs as a result of this bankruptcy proceeding could result in the future impairment of these assets in amounts up to their current net book value.

PSE&G and PSEG Power have ownership interests in and are responsible for providing their respective shares of the necessary financing for the following jointly-owned facilities to which they are a party. All amounts reflect PSE&G’s or PSEG Power’s share of the jointly-owned projects and the corresponding direct expenses are included in the Consolidated Statements of Operations as Operating Expenses.




			As of December 31,
			2019				2018
	Ownership				Accumulated				Accumulated
	Interest		Plant		Depreciation		Plant		Depreciation
			Millions
PSE&G:
Transmission Facilities	Various		$	161	$	60	$	162	$	58
PSEG Power:
Coal Generating (A):
Conemaugh	23	%	N/A		N/A		$	417	$	192
Keystone	23	%	N/A		N/A		$	416	$	200
Nuclear Generating:
Peach Bottom	50	%	$	1,340	$	435	$	1,334	$	389
Salem	57	%	$	1,256	$	384	$	1,196	$	333
Nuclear Support Facilities	Various		$	247	$	107	$	244	$	95
Pumped Storage Facilities:
Yards Creek (B)	50	%	$	55	$	27	$	48	$	26
Merrill Creek Reservoir	14	%	$	1	$	—	$	1	$	—


(A)	In September 2019, PSEG Power completed the sale of its ownership interests in the Keystone and Conemaugh generation plants and related assets and liabilities.


(B)	On February 23, 2020, a Purchase Agreement was entered into to sell ownership interests in this generation facility. See Note 4. Early Plant Retirements/Asset Dispositions for additional information.

PSEG Power holds undivided ownership interests in the jointly-owned facilities above. PSEG Power is entitled to shares of the generating capability and output of each unit equal to its respective ownership interests. PSEG Power also pays its ownership share of additional construction costs, fuel inventory purchases and operating expenses. PSEG Power’s share of expenses for the jointly-owned facilities is included in the appropriate expense category. Each owner is responsible for any financing with respect to its pro rata share of capital expenditures.

PSEG Power co-owns Salem and Peach Bottom with Exelon Generation. PSEG Power is the operator of Salem and Exelon Generation is the operator of Peach Bottom. A committee appointed by the co-owners provides oversight. Proposed O&M budgets and requests for major capital expenditures are reviewed and approved as part of the normal PSEG Power governance process.

PSEG Power is a co-owner in the Yards Creek Pumped Storage Generation Facility. Jersey Central Power & Light Company (JCP&L) is also a co-owner and the operator of this facility. JCP&L submits separate capital and O&M budgets, subject to PSEG Power’s approval as part of the normal PSEG Power governance process.

PSEG Power is a minority owner in the Merrill Creek Reservoir and Environmental Preserve in Warren County, New Jersey. Merrill Creek Owners Group is the owner-operator of this facility. The operator submits separate capital and O&M budgets, subject to PSEG Power’s approval as part of the normal PSEG Power governance process.

Note 7. Regulatory Assets and Liabilities

PSE&G prepares its financial statements in accordance with GAAP for regulated utilities as described in Note 1. Organization, Basis of Presentation and Significant Accounting Policies. PSE&G has deferred certain costs based on rate orders issued by the BPU or FERC or based on PSE&G’s experience with prior rate proceedings. Most of PSE&G’s Regulatory Assets and Liabilities as of December 31, 2019 are supported by written orders, either explicitly or implicitly through the BPU’s treatment of various cost items. These costs will be recovered and amortized over various future periods.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Regulatory Assets and other investments and costs incurred under our various infrastructure filings and clause mechanisms are subject to prudence reviews and can be disallowed in the future by regulatory authorities. To the extent that collection of any infrastructure or clause mechanism revenue, Regulatory Assets or payments of Regulatory Liabilities is no longer probable, the amounts would be charged or credited to income.

PSE&G had the following Regulatory Assets and Liabilities:




	As of December 31,
	2019		2018
	Millions
Regulatory Assets
Current
New Jersey Clean Energy Program	$	143	$	143
Electric Energy Costs—Basic Generation Service (BGS)	57		115
2018 Distribution Base Rate Case Regulatory Assets (BRC)	56		56
Societal Benefits Charge (SBC)	30		9
Green Program Recovery Charges (GPRC)	10		34
Other	55		32
Total Current Regulatory Assets	$	351	$	389
Noncurrent
Pension and OPEB Costs	$	1,284	$	1,090
Deferred Income Tax Regulatory Assets	966		896
Manufactured Gas Plant (MGP) Remediation Costs	357		321
Electric Transmission and Gas Cost of Removal	216		223
Asset Retirement Obligation	172		166
BRC	159		214
Remediation Adjustment Charge (RAC) (Other SBC)	158		175
GPRC	118		95
Unamortized Loss on Reacquired Debt and Debt Expense	42		49
Gas Costs—BGSS	27		31
Other	178		139
Total Noncurrent Regulatory Assets	$	3,677	$	3,399
Total Regulatory Assets	$	4,028	$	3,788




	As of December 31,
	2019		2018
	Millions
Regulatory Liabilities
Current
Deferred Income Tax Regulatory Liabilities	$	193	$	299
Weather Normalization Charge (WNC)	15		—
Tax Adjustment Credit (TAC)	12		4
Gas Margin Adjustment Clause	5		8
Other	9		—
Total Current Regulatory Liabilities	$	234	$	311
Noncurrent
Deferred Income Tax Regulatory Liabilities	$	2,955	$	3,170
Electric Distribution Cost of Removal	47		51
Total Noncurrent Regulatory Liabilities	$	3,002	$	3,221
Total Regulatory Liabilities	$	3,236	$	3,532

All Regulatory Assets and Liabilities are excluded from PSE&G’s rate base unless otherwise noted. The Regulatory Assets and Liabilities in the table above are defined as follows:

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•	Asset Retirement Obligation: These costs represent the differences between rate-regulated cost of removal accounting and asset retirement accounting under GAAP. These costs will be recovered in future rates as assets are retired.


•	BRC: Represents deferred costs, primarily comprised of storm costs incurred in the cleanup of major storms from 2010 through 2018, which are being amortized over five years pursuant to the 2018 Distribution Base Rate Case Settlement.

•

Deferred Income Tax Regulatory Assets: These amounts relate to deferred income taxes arising from utility operations that have not been included in customer rates relating to depreciation, investment tax credits and other flow-through items, including the flowback to customers of accumulated deferred income taxes related to tax repair deductions. As part of its base rate case settlement with the BPU and the establishment of the TAC mechanism in 2018, PSE&G agreed to a ten-year flowback to customers of its accumulated deferred income taxes from previously realized tax repair deductions which resulted in the recognition of a $581 million Regulatory Asset and Regulatory Liability as of September 30, 2018. In addition, PSE&G agreed to the current flowback of tax benefits from ongoing tax repair deductions as realized which results in the recording of a Regulatory Asset upon flowback. For the years ended December 31, 2019 and 2018, PSE&G had provided $58 million and $15 million, respectively, in current tax repair flowbacks to customers. The recovery and amortization of the tax repair-related Deferred Income Tax Regulatory Assets will be determined in PSE&G’s subsequent base rate cases.

•

Deferred Income Tax Regulatory Liabilities: These liabilities relate to amounts due to customers for excess deferred income taxes as a result of the reduction in the federal income tax provided in the Tax Cuts and Jobs Act of 2017 (the Tax Act), and accumulated deferred income taxes from previously realized tax repair deductions as described above. As part of its settlement with its regulators, PSE&G agreed to refund the excess deferred income taxes as follows:

•

$705 million of distribution-related excess deferred income taxes refunded to customers over five years through PSE&G’s TAC mechanism with the remaining $1.1 billion of distribution-related excess deferred income taxes refunded to customers over the remaining useful life of distribution property, plant and equipment. As of December 31, 2019 and 2018, the balance remaining to be flowed back to customers was $1.6 billion and $1.8 billion, respectively.


•	$150 million of transmission-related excess deferred income taxes refunded to customers during the year ended December 31, 2019 with the remaining $977 million of transmission-related excess deferred income taxes returned over the remaining useful life of the property, plant and equipment.

In addition, PSE&G agreed to flow back to customers $581 million of previously realized tax repair deductions over a ten-year period through the TAC mechanism. As of December 31, 2019 and 2018, the balance remaining to be flowed back to customers was $537 million and $575 million, respectively.


•	Electric and Gas Cost of Removal: PSE&G accrues and collects in rates for the cost of removing, dismantling and disposing of its T&D assets upon retirement. The Regulatory Asset or Liability for non-legally required cost of removal represents the difference between amounts collected in rates and costs actually incurred.

•

Electric Energy Costs—BGS: These costs represent the over or under recovered amounts associated with BGS, as approved by the BPU. Pursuant to BPU requirements, PSE&G serves as the supplier of last resort for electric customers within its service territory that are not served by another supplier. Pricing for those services are set by the BPU as a pass-through, resulting in no margin for PSE&G’s operations. Over or under recovered balances with interest are returned or recovered through monthly filings.

•

Gas Costs—BGSS: These costs represent the over or under recovered amounts associated with BGSS, as approved by the BPU. Pursuant to BPU requirements, PSE&G serves as the supplier of last resort for gas customers within its service territory that are not served by another supplier. Pricing for those services are set by the BPU as a pass-through, resulting in no margin for PSE&G’s operations. Over or under collected balances are returned or recovered through an annual filing. Interest is accrued only on over recovered balances.

•

Gas Margin Adjustment Clause: This mechanism credits Firm delivery customers for net distribution margin revenue collected from Transportation Gas Service Non-Firm (TSG-NF) delivery customers. The balance represents the difference between the net margin collected from the TSG-NF customers versus bill credits provided to Firm delivery customers. Over or under recovered balances with interest are returned or recovered through the subsequent annual filing.

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•

GPRC: This amount represents costs of the over or under collected balances associated with various renewable energy and energy efficiency programs. PSE&G files annually with the BPU for recovery of amounts that include a return on and of its investment over the lives of the underlying investments and capital assets which range from five to ten years. Interest is accrued monthly on any over or under recovered balances. Components of the GPRC include: Carbon Abatement, Energy Efficiency Economic Stimulus Program (EEE), EEE Extension Program, EEE Extension II Program, the Demand Response Program, Solar Generation Investment Program (Solar 4 All®), Solar 4 All® Extension, Solar 4 All® Extension II, Solar Loan II Program, Solar Loan III Program and the Energy Efficiency (EE) 2017 Program.


•	MGP Remediation Costs: Represents the low end of the range for the remaining environmental investigation and remediation program cleanup costs for MGPs that are probable of recovery in future rates. Once these costs are incurred, they are recovered through the RAC in the SBC over a seven year period with interest.


•	New Jersey Clean Energy Program: The BPU approved future funding requirements for Energy Efficiency and Renewable Energy Programs through the first half of 2020. The BPU funding requirements are recovered through the SBC.

•

Pension and OPEB Costs: Pursuant to the adoption of accounting guidance for employers’ defined benefit pension and OPEB plans, PSE&G recorded the unrecognized costs for defined benefit pension and other OPEB plans on the balance sheet as a Regulatory Asset. These costs represent actuarial gains or losses and prior service costs which have not been expensed. These costs are amortized and recovered in future rates.


•	RAC (Other SBC): Costs incurred to clean up MGPs which are recovered over seven years with interest through an annual filing.

•

SBC: The SBC, as authorized by the BPU and the New Jersey Electric Discount and Energy Competition Act, includes costs related to PSE&G’s electric and gas business as follows: (1) the Universal Service Fund; (2) Energy Efficiency and Renewable Energy Programs; (3) Electric bad debt expense; and (4) the RAC for incurred MGP remediation expenditures. Over or under recovered balances with interest are to be returned or recovered through an annual filing.

•

TAC: This represents the over or under collected balances associated with the return of excess accumulated deferred income taxes and the flowback of previously realized and current tax repair deductions under a mechanism approved by the BPU in PSE&G’s 2018 Base Rate Case Settlement. Over or under collected balances are returned or recovered through an annual filing. PSE&G includes a return component on the flowback of the excess accumulated deferred income taxes and the previously realized tax repairs. Interest is accrued monthly on any over or under recovered balances.


•	Unamortized Loss on Reacquired Debt and Debt Expense: Represents losses on reacquired long-term debt and expenses associated with issuances of new debt, which are recovered through rates over the remaining life of the debt.

•

WNC: This represents the over or under recovery of gas margin which is filed annually with the BPU. The WNC requires PSE&G to calculate, at the end of each October-to-May period, the level by which margin revenues differed from what would have resulted if normal weather had occurred. Over recoveries are returned to customers in the next winter season while under recoveries (subject to an earnings cap) are recovered from customers in the next winter season.

Significant 2018 and 2019 regulatory orders received and currently pending rate filings with FERC and the BPU by PSE&G are as follows:

•

Electric and Gas Distribution Base Rate Filings—In October 2018, the BPU issued an Order approving the settlement of PSE&G’s distribution base rate proceeding with new rates effective November 1, 2018. The settlement resulted in a net reduction in overall annual revenues of approximately $13 million, comprised of a $212 million increase in base revenues, including recovery of deferred storm costs, offset by the return of tax benefits of approximately $225 million. The tax benefits include the flowback to customers of excess accumulated deferred income taxes resulting from the reduction of the federal income tax rates provided in the Tax Act as well as the accumulated deferred income taxes from previously realized tax repair deductions and tax benefits from future tax repair deductions as realized. The Order provided for a $9.5 billion rate base, a 9.6% return on equity for PSE&G’s distribution business and a 54% equity component of its capitalization structure. In addition to the $13 million annual revenue reduction, the Order provided for a $28 million one-time refund to customers in November and December 2018 for taxes collected at the higher federal income tax rate for the January 1 to March 31, 2018 period. Previously,

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the BPU had approved a rate reduction effective April 1, 2018, to PSE&G’s then-current electric and gas base rates of approximately $71 million and $43 million, respectively, on an annual basis, to reflect the lower federal income tax rate for the period April 1 and forward. As a result of the agreement to flow back tax repair-related accumulated deferred income taxes in the settlement, PSE&G recognized a Regulatory Liability and a corresponding Regulatory Asset.


•	Transmission Formula Rate Filings—In October 2019, PSE&G filed its 2020 Transmission Formula Rate Annual Update with FERC requesting approximately $332 million in increased annual transmission revenue effective January 1, 2020, subject to true-up.

In June 2019, PSE&G filed its 2018 true-up adjustment pertaining to its transmission formula rates in effect for 2018. This filing resulted in an additional revenue requirement adjustment of $52 million more than the 2018 originally filed revenue requirement. PSE&G had previously recognized the majority of the additional revenue requirement in its 2018 Consolidated Statement of Operations.

•

BGSS—In September 2019, the BPU provisionally approved PSE&G’s request to decrease its BGSS rates from approximately 35 cents to 34 cents per therm for residential gas customers effective October 1, 2019. In December 2019, a self-implementing reduction of 2 cents per therm was filed with the BPU to further reduce the BGSS rate to approximately 32 cents per therm effective January 1, 2020, which was given final approval by the BPU in February 2020. The final reduction in the BGSS rate to 32 cents per therm will decrease annual BGSS revenues by approximately $34 million. In addition, PSE&G issued a self-implementing one-time bill credit of 7.5 cents per therm to be returned during the months of February and March 2020.


•	Gas System Modernization Program II (GSMP II)—In November 2019, the BPU approved PSE&G’s first GSMP II cost recovery petition requesting approximately $17 million in gas revenues on an annual basis, which included GSMP II investments in service as of August 31, 2019. The increase was effective December 1, 2019.

In December 2019, PSE&G filed its second GSMP II cost recovery petition seeking BPU approval to recover in gas base rates an estimated annual revenue increase of $18 million effective June 1, 2020. This increase represents the return of and on investment for GSMP II investments expected to be in service through February 29, 2020. The request will be updated in March 2020 for actual costs.


•	Gas System Modernization Program I (GSMP I)—In September 2019, the BPU approved PSE&G’s final GSMP I cost recovery petition requesting approximately $11 million in gas revenues, on an annual basis, which included GSMP I investments in service as of June 30, 2019. The increase was effective October 1, 2019.

•

GPRC—In February 2020, the BPU approved a six-month extension of PSE&G’s Energy Efficiency (EE) 2017 component of its GPRC programs, authorizing $111 million of EE investments and $19 million of administrative costs for recovery over the course of the programs though its existing filing mechanism. In September 2019, the BPU approved a one year extension of PSE&G’s EE 2017 component of its GPRC programs, authorizing an additional $27 million of EE investments and $6 million of additional administrative costs for recovery though its existing filing mechanism.

In January 2020, the BPU approved PSE&G’s 2019 GPRC cost recovery petition requesting recovery of approximately $52 million and $11 million in electric and gas revenues, respectively, on an annual basis. This increase was effective February 1, 2020.

In May 2019, the BPU approved PSE&G’s 2018 GPRC cost recovery petition requesting recovery of approximately $65 million and $6 million in electric and gas revenues, respectively, on an annual basis.


•	RAC—In January 2020, PSE&G filed its RAC 27 petition with the BPU seeking recovery of $53 million of net MGP remediation expenditures from August 1, 2018 through July 31, 2019. This matter is pending.

In August 2019, the BPU approved PSE&G’s RAC 26 filing requesting recovery of approximately $73 million in net MGP remediation expenditures from August 1, 2017 through July 31, 2018.


•	SBC—In January 2020, the BPU approved PSE&G’s petition to increase electric and gas rates by approximately $27 million and $7 million, respectively, on an annual basis, in order to recover electric and gas costs incurred through October 31, 2019 under its EE and Renewable Energy and Social Programs. The new rates were effective February 1, 2020.

•

TAC—In January 2020, the BPU approved PSE&G’s initial TAC filing on a provisional basis allowing a reduction to electric and gas revenues by $15 million and $10 million, respectively, on an annual basis effective February 1, 2020. The TAC was a result of the settlement of PSE&G’s distribution base rate case in 2018. The TAC allows for the flowback to customers of excess accumulated deferred income taxes resulting from the reduction of the federal income

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tax rates provided in the Tax Act as well as the accumulated deferred income taxes from previously realized tax repair deductions and tax benefits from future tax repair deductions as realized.


•	WNC—In February 2020, the BPU gave final approval to PSE&G’s 2019-2020 WNC rates allowing an approximate $8 million of overcollections from the colder-than-normal 2018-2019 Winter Period, to be refunded to customers over the 2019-2020 Winter Period, with rates effective October 1, 2019.

In March 2019, the BPU approved the final 2018-2019 WNC rates which allowed a net recovery of $14 million to be collected over the 2018-2019 Winter Period. The $14 million net recovery was the result of $9 million of excess revenues from the colder-than-normal 2017-2018 Winter Period offset by $23 million of remaining prior Winter Period undercollection.

•

ZEC Program—In April 2019, the BPU authorized the New Jersey EDCs, including PSE&G, to purchase ZECs from eligible nuclear plants selected by the BPU. In conjunction with this Order, the BPU authorized tariffs to collect a non-bypassable distribution charge in the amount of $0.004 per KWh from each EDC’s retail distribution customers to be used to purchase ZECs from the selected plants. Each EDC purchases ZECs on a monthly basis with payment to be made annually following completion of each energy year. Under the program, any revenue collected in excess of the purchase price will be refunded to customers in the following year.

For the energy year ended May 31, 2019, PSE&G purchased approximately $17 million in ZECs, including interest, from the eligible nuclear plants selected by the BPU. The payment for $17 million was made in August 2019. In addition, there was approximately $0.2 million, including interest, in overcollected revenues which will be refunded to customers pending BPU approval of the refunding mechanism.

Note 8. Leases

As of December 31, 2019, PSEG and its subsidiaries were both a lessee and a lessor in operating leases.

Lessee

PSE&G

PSE&G has operating leases for office space for customer service centers, rooftops and land for its Solar 4 All® facilities, equipment, vehicles and land for certain electric substations. These leases have remaining lease terms through 2039, some of which include options to extend the leases for up to two five-year terms. Some leases have fixed rent payments that have escalations based on certain indices, such as the CPI. Certain leases contain variable payments.

PSEG Power

PSEG Power has operating leases for buildings, land leases for its solar generating facilities, merchant transmission and equipment. These leases have remaining terms through 2055, some of which include options to extend the leases for up to seven five-year terms and certain other leases which include options to extend the leases for 15 to 20 year terms. Some leases have fixed rent payments that have escalations based on certain indices, such as the CPI. Certain leases contain variable payments.

Other

Services has operating leases for real estate and office equipment. These leases have remaining terms through 2030. Services’ lease for its headquarters, which ends in 2030, includes options to extend for two five-year terms. Energy Holdings has land leases with remaining lease terms through 2027, some of which include options to extend the leases for up to eight five-year terms. Some leases have fixed rent payments that have escalations based on certain indices, such as the CPI. Certain leases contain variable payments.

Operating Lease Costs

The following amounts relate to total operating lease costs, including both amounts recognized in the Consolidated Statements of Operations during the year ended December 31, 2019 and any amounts capitalized as part of the cost of another asset, and the cash flows arising from lease transactions.

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	PSE&G			PSEG Power			Other			Total
	Millions
Operating Lease Costs
Year Ended December 31, 2019
Long-term Lease Costs	$	24		$	13		$	15		$	52
Short-term Lease Costs	14			10			—			24
Variable Lease Costs	2			10			10			22
Total Operating Lease Costs	$	40		$	33		$	25		$	98

Year Ended December 31, 2019
Cash Paid for Amounts Included in the Measurement of Operating Lease Liabilities	$	16		$	11		$	15		$	42

Weighted Average Remaining Lease Term in Years	13			14			10			12
Weighted Average Discount Rate	3.6		%	4.4		%	4.2		%	4.1		%

Operating lease commitments as of December 31, 2018 had the following maturities:




	PSE&G		PSEG Power		Other		Total
	Millions
2019	$	15	$	11	$	15	$	41
2020	11		13		16		40
2021	10		13		16		39
2022	8		14		16		38
2023	8		8		15		31
Thereafter	66		51		105		222
Total Minimum Lease Payments	$	118	$	110	$	183	$	411

Operating lease liabilities as of December 31, 2019 had the following maturities:




	PSE&G		PSEG Power		Other		Total
	Millions
2020	$	15	$	13	$	16	$	44
2021	13		14		16		43
2022	10		14		16		40
2023	9		8		15		32
2024	8		3		15		26
Thereafter	71		48		90		209
Total Minimum Lease Payments	$	126	$	100	$	168	$	394

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The following is a reconciliation of the undiscounted cash flows to the discounted Operating Lease Liabilities recognized on the Consolidated Balance Sheets:




	As of December 31, 2019
	PSE&G			PSEG Power			Other			Total
	Millions
Undiscounted Cash Flows	$	126		$	100		$	168		$	394
Reconciling Amount due to Discount Rate	(27		)	(28		)	(33		)	(88		)
Total Discounted Operating Lease Liabilities	$	99		$	72		$	135		$	306

As of December 31, 2019, the current portions of Operating Lease Liabilities included in Other Current Liabilities were $33 million, $12 million and $10 million for PSEG, PSE&G and PSEG Power, respectively.

Lessor

PSEG Power

Certain of PSEG Power’s sales agreements related to its solar generating plants qualify as operating leases with remaining terms through 2043 with no extension terms. Lease income is based on solar energy generation; therefore, all rental income is variable under these leases. As of December 31, 2019, PSEG Power’s solar generating plants subject to these leases had a total carrying value of $393 million.

Other

Energy Holdings is the lessor in leveraged leases. See Note 9. Long-Term Investments and Note 10. Financing Receivables.

Energy Holdings is the lessor in various operating leases for domestic energy and real estate assets with remaining terms through 2036. As of December 31, 2019, Energy Holdings’ property subject to these leases had a total carrying value of $22 million.

The following is the operating lease income for PSEG Power and Energy Holdings for the year ended December 31, 2019:




	PSEG Power		Energy Holdings		Total
	Millions
Operating Lease Income
Year Ended December 31, 2019
Fixed Lease Income	$	—	$	22	$	22
Variable Lease Income	23		—		23
Total Operating Lease Income	$	23	$	22	$	45

Energy Holdings’ operating leases had the following minimum future fixed lease receipts as of December 31, 2019:




	Millions
2020	$	20
2021	18
2022	17
2023	17
2024	16
Thereafter	172
Total Minimum Future Lease Receipts	$	260

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Note 9. Long-Term Investments

Long-Term Investments as of December 31, 2019 and 2018 included the following:




	As of December 31,
	2019		2018
	Millions
PSE&G
Life Insurance and Supplemental Benefits	$	111	$	121
Solar Loans	137		149
PSEG Power
Equity Method Investments (A)	66		86
Energy Holdings
Lease Investments	497		540
Equity Method Investments	1		—
Total Long-Term Investments	$	812	$	896


(A)	During the three years ended December 31, 2019, 2018 and 2017, dividends from these investments were $15 million, $16 million and $18 million, respectively.

Leases

Energy Holdings, through several of its indirect subsidiary companies, has investments in domestic energy and real estate assets subject primarily to leveraged lease accounting. A leveraged lease is typically comprised of an investment by an equity investor and debt provided by a third-party debt investor. The debt is recourse only to the assets subject to lease and is not included on PSEG’s Consolidated Balance Sheets. As an equity investor, Energy Holdings’ equity investments in the leases are comprised of the total expected lease receivables over the lease terms plus the estimated residual values at the end of the lease terms, reduced for any income not yet earned on the leases. This amount is included in Long-Term Investments on PSEG’s Consolidated Balance Sheets. The more rapid depreciation of the leased property for tax purposes creates tax cash flow that will be repaid to the taxing authority in later periods. As such, the liability for such taxes due is recorded in Deferred Income Taxes on PSEG’s Consolidated Balance Sheets.

During the second quarter of 2019, Energy Holdings completed its annual review of estimated residual values embedded in the leveraged leases. The outcome indicated that the updated residual value estimate of the coal-fired Powerton lease was lower than the recorded residual value and the decline was deemed to be other than temporary as a result of expected future adverse market conditions. As a result, a pre-tax write-down of $58 million was reflected in Operating Revenues in 2019, calculated by comparing the gross investment in the leases before and after the revised residual estimates.

In the first quarter of 2020, PSEG’s Board of Directors approved the marketing and sale of certain non-core assets held by subsidiaries of Energy Holdings. As a result, PSEG expects to reclassify approximately $160 million as Assets Held for Sale on its Consolidated Balance Sheet in the first quarter of 2020.

Due to liquidity issues facing NRG REMA, LLC (REMA) prior to its emergence from bankruptcy protection, economic challenges facing coal generation in PJM and based upon ongoing reviews of available alternatives as well as certain discussions with REMA management leading up to and in connection with REMA’s bankruptcy, Energy Holdings recorded pre-tax charges of $20 million in 2018 and $77 million (including a residual value impairment of $7 million) in 2017. Pre-tax charges were reflected in Operating Revenues in each year and are included in Gross Investment in Leases as of December 31, 2019.

In December 2018, REMA emerged from its in-court proceeding under Chapter 11 of the Bankruptcy Code. As a result of the restructuring, Energy Holdings recognized a pre-tax gain in Operating Revenues of approximately $12 million ($9 million after tax). PSEG realized the remaining tax liability related to the restructuring of approximately $120 million with the filing of the consolidated federal and state income tax returns in 2019.

The following table shows Energy Holdings’ gross and net lease investment as of December 31, 2019 and 2018.

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	As of December 31,
	2019			2018
	Millions
Lease Receivables (net of Non-Recourse Debt)	$	498		$	504
Estimated Residual Value of Leased Assets	202			326
Total Investment in Rental Receivables	700			830
Unearned and Deferred Income	(203		)	(290		)
Gross Investments in Leases	497			540
Deferred Tax Liabilities	(328		)	(354		)
Net Investments in Leases	$	169		$	186

The pre-tax income (loss) and income tax effects related to investments in leases, excluding gains and losses on sales and the impacts of the Tax Act, were as follows:




	Years Ended December 31,
	2019			2018		2017
	Millions
Pre-Tax Income (Loss) from Leases	$	(39	)	$	17	$	(69	)
Income Tax Expense (Benefit) on Income from Leases	$	(22	)	$	6	$	(26	)

Equity Method Investments

PSEG Power had the following equity method investments as of December 31, 2019 and 2018:




	As of December 31,
Name	2019		2018		Location	% Owned
	Millions
PSEG Power
Keystone Fuels, LLC (A)	$	—	$	9	PA	23%
Conemaugh Fuels, LLC (A)	—		8		PA	23%
Kalaeloa	66		69		HI	50%
Total	$	66	$	86


(A)	In September 2019, PSEG Power completed the sale of its ownership interests in the Keystone and Conemaugh generation plants and related assets and liabilities.

Note 10. Financing Receivables

PSE&G

PSE&G sponsors a solar loan program designed to help finance the installation of solar power systems throughout its electric service area. Interest income on the loans is recorded on an accrual basis. The loans are generally paid back with solar renewable energy certificates generated from the installed solar electric system. In the event of a loan default, the basis of the solar loan would be recovered through a regulatory recovery mechanism. None of the solar loans are impaired; however, in the event a loan becomes impaired, the basis of the loan would be recovered through a regulatory recovery mechanism. A substantial portion of these amounts are noncurrent and reported in Long-Term Investments on PSEG’s and PSE&G’s Consolidated Balance Sheets. The following table reflects the outstanding loans by class of customer, none of which would be considered “non-performing.”

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




Outstanding Loans by Class of Customer
	As of December 31,
Consumer Loans	2019			2018
	Millions
Commercial/Industrial	$	156		$	164
Residential	8			9
Total	$	164		$	173
Current Portion (included in Accounts Receivable)	(28		)	(24		)
Noncurrent Portion (included in Long-Term Investments)	$	136		$	149

Energy Holdings

Energy Holdings had a net investment in domestic energy and real estate assets subject to leveraged lease accounting of $169 million as of December 31, 2019 and $186 million as of December 31, 2018 (See Note 9. Long-Term Investments).

The corresponding receivables associated with the lease portfolio are reflected as follows, net of non-recourse debt. The ratings in the table represent the ratings of the entities providing payment assurance to Energy Holdings.




	Lease Receivables, Net of Non-Recourse Debt
Counterparties’ Credit Rating Standard & Poor’s (S&P) as of December 31, 2019	As of December 31, 2019
	Millions
AA	$	12
A-	58
BBB+ — BBB	258
BB	132
NR	38
Total	$	498

The “BB” and the “NR” ratings in the preceding table represent lease receivables related to coal and gas-fired assets in Illinois and Pennsylvania, respectively. As of December 31, 2019, the gross investment in the leases of such assets, net of non-recourse debt, was $235 million ($(22) million, net of deferred taxes). A more detailed description of such assets under lease follows:




Asset	Location	Gross Investment		% Owned		Total MW	Fuel Type	Counterparties’ S&P Credit Ratings	Counterparty
		Millions
Powerton Station Units 5 and 6	IL	$	75	64	%	1,538	Coal	BB	NRG Energy, Inc.
Joliet Station Units 7 and 8	IL	$	85	64	%	1,036	Gas	BB	NRG Energy, Inc.
Shawville Station Units 1, 2, 3 and 4	PA	$	75	100	%	596	Gas	NR	REMA (A)


(A)	REMA emerged from Chapter 11 of the U.S. Bankruptcy Code in December 2018. For additional information, see Note 9. Long-Term Investments.

The credit exposure for lessors is partially mitigated through various credit enhancement mechanisms within the lease structures. These credit enhancement features vary from lease to lease. Upon the occurrence of certain defaults, indirect subsidiary companies of Energy Holdings would exercise their rights and seek recovery of their investment, potentially including stepping into the lease directly to protect their investments. While these actions could ultimately protect or mitigate the loss of value, they could require the use of significant capital and trigger certain material tax obligations which could, for certain leases, wholly or partially be mitigated by tax indemnification claims against the counterparty. A bankruptcy of a lessee would likely delay and potentially limit any efforts on the part of the lessors to assert their rights upon default and could delay the monetization of claims.

Additional factors that may impact future lease cash flows include, but are not limited to, new environmental legislation and regulation regarding air quality, water and other discharges in the process of generating electricity, market prices for fuel,

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electricity and capacity, overall financial condition of lease counterparties and their affiliates and the quality and condition of assets under lease.

Note 11. Trust Investments

NDT Fund

In accordance with NRC regulations, entities owning an interest in nuclear generating facilities are required to determine the costs and funding methods necessary to decommission such facilities upon termination of operation. As a general practice, each nuclear owner places funds in independent external trust accounts it maintains to provide for decommissioning. PSEG Power is required to file periodic reports with the NRC demonstrating that its NDT Fund meets the formula-based minimum NRC funding requirements. PSEG Power maintains an external master NDT to fund its share of decommissioning costs for its five nuclear facilities upon their respective termination of operation. The trust contains two separate funds: a qualified fund and a non-qualified fund. Section 468A of the Internal Revenue Code limits the amount of money that can be contributed into a qualified fund. PSEG Power’s share of decommissioning costs related to its five nuclear units was estimated to be between $2.8 billion and $3.0 billion, including contingencies. The liability for decommissioning recorded on a discounted basis as of December 31, 2019 was approximately $740 million and is included in the Asset Retirement Obligation. The funds are managed by third-party investment managers who operate under investment guidelines developed by PSEG Power.

The following tables show the fair values and gross unrealized gains and losses for the securities held in the NDT Fund.




	As of December 31, 2019
	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	Millions
Equity Securities
Domestic	$	425	$	238	$	(4	)	$	659
International	400		103		(11		)	492
Total Equity Securities	825		341		(15		)	1,151
Available-for-Sale Debt Securities
Government	563		16		(2		)	577
Corporate	470		17		(1		)	486
Total Available-for-Sale Debt Securities	1,033		33		(3		)	1,063
Total NDT Fund Investments (A)	$	1,858	$	374	$	(18	)	$	2,214

(A) The NDT Fund Investments table excludes foreign currency of $2 million as of December 31, 2019,

which is part of the NDT Fund.




	As of December 31, 2018
	Cost		Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
	Millions
Equity Securities
Domestic	$	447	$	153		$	(29	)	$	571
International	323		36		—	(30		)	329
Total Equity Securities	770		189			(59		)	900
Available-for-Sale Debt Securities
Government	498		2			(9		)	491
Corporate	501		1			(15		)	487
Total Available-for-Sale Debt Securities	999		3			(24		)	978
Total NDT Fund Investments	$	1,769	$	192		$	(83	)	$	1,878

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Net unrealized gains (losses) on debt securities of $17 million (after-tax) were included in Accumulated Other Comprehensive Loss on PSEG’s and PSEG Power’s Consolidated Balance Sheets as of December 31, 2019. The portion of net unrealized gains (losses) recognized during 2019 related to equity securities still held at the end of December 31, 2019 was $194 million.

The amounts in the preceding tables do not include receivables and payables for NDT Fund transactions which have not settled at the end of each period. Such amounts are included in Accounts Receivable and Accounts Payable on the Consolidated Balance Sheets as shown in the following table.




	As of December 31,
	2019		2018
	Millions
Accounts Receivable	$	11	$	17
Accounts Payable	$	11	$	5

The following table shows the value of securities in the NDT Fund that have been in an unrealized loss position for less than and greater than 12 months.




	As of December 31, 2019										As of December 31, 2018
	Less Than 12 Months					Greater Than 12 Months					Less Than 12 Months					Greater Than 12 Months
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
	Millions
Equity Securities (A)
Domestic	$	21	$	(1	)	$	6	$	(3	)	$	147	$	(26	)	$	5	$	(3	)
International	28		(2		)	34		(9		)	131		(28		)	5		(2		)
Total Equity Securities	49		(3		)	40		(12		)	278		(54		)	10		(5		)
Available-for-Sale Debt Securities
Government (B)	99		(2		)	30		—			51		—			317		(9		)
Corporate (C)	49		—			12		(1		)	150		(5		)	222		(10		)
Total Available-for-Sale Debt Securities	148		(2		)	42		(1		)	201		(5		)	539		(19		)
NDT Trust Investments	$	197	$	(5	)	$	82	$	(13	)	$	479	$	(59	)	$	549	$	(24	)


(A)	Equity Securities—Investments in marketable equity securities within the NDT Fund are primarily in common stocks within a broad range of industries and sectors. Unrealized gains and losses on these securities are recorded in Net Income.

(B)

Debt Securities (Government)—Unrealized gains and losses on these securities are recorded in Accumulated Other Comprehensive Income (Loss). The unrealized losses on PSEG Power’s NDT investments in U.S. Treasury obligations and Federal Agency mortgage-backed securities were caused by interest rate changes. These investments are guaranteed by the U.S. government or an agency of the U.S. government. PSEG Power also has investments in municipal bonds that are primarily in investment grade securities. It is not expected that these securities will settle for less than their amortized cost. Since PSEG Power does not intend to sell these securities nor will it be more-likely-than-not required to sell, PSEG Power does not consider these debt securities to be other-than-temporarily impaired as of December 31, 2019.

(C)

Debt Securities (Corporate)—Unrealized gains and losses on these securities are recorded in Accumulated Other Comprehensive Income (Loss). PSEG Power’s investments in corporate bonds are primarily in investment grade securities. It is not expected that these securities would settle for less than their amortized cost. Since PSEG Power does not intend to sell these securities nor will it be more-likely-than-not required to sell, PSEG Power does not consider these debt securities to be other-than-temporarily impaired as of December 31, 2019.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The proceeds from the sales of and the net gains (losses) on securities in the NDT Fund were:




	Years Ended December 31,
	2019			2018			2017
	Millions
Proceeds from Sales (A)	$	1,614		$	1,398		$	2,137
Net Realized Gains (Losses):
Gross Realized Gains	$	107		$	121		$	157
Gross Realized Losses	(53		)	(51		)	(23		)
Net Realized Gains (Losses) on NDT Fund (B)	54			70			134
Unrealized Gains (Losses) on Equity Securities in NDT Fund (C)	196			(209		)	N/A
Other-Than-Temporary-Impairments (OTTI)	—			—			(12		)
Net Gains (Losses) on NDT Fund Investments	$	250		$	(139	)	$	122


(A)	Includes activity in accounts related to the liquidation of funds being transitioned to new managers.


(B)	The cost of these securities was determined on the basis of specific identification.


(C)	Effective January 1, 2018, unrealized gains (losses) on equity securities are recorded in Net Income instead of Other Comprehensive Income (Loss).

The NDT Fund debt securities held as of December 31, 2019 had the following maturities:




Time Frame	Fair Value
	Millions
Less than one year	$	19
1 - 5 years	273
6 - 10 years	188
11 - 15 years	51
16 - 20 years	77
Over 20 years	455
Total NDT Available-for-Sale Debt Securities	$	1,063

PSEG Power periodically assesses individual debt securities whose fair value is less than amortized cost to determine whether the investments are considered to be other-than-temporarily impaired. For these securities, management considers its intent to sell or requirement to sell a security prior to expected recovery. In those cases where a sale is expected, any impairment would be recorded through earnings. For fixed income securities where there is no intent to sell or likely requirement to sell, management evaluates whether credit loss is a component of the impairment. If so, that portion is recorded through earnings while the noncredit loss component is recorded through Accumulated Other Comprehensive Income (Loss). Any subsequent recoveries in the value of these securities would be recognized in Accumulated Other Comprehensive Income (Loss) unless the securities are sold, in which case, any gain would be recognized in income. The assessment of fair market value compared to cost is applied on a weighted average basis taking into account various purchase dates and initial cost of the securities.

Rabbi Trust

PSEG maintains certain unfunded nonqualified benefit plans to provide supplemental retirement and deferred compensation benefits to certain key employees. Certain assets related to these plans have been set aside in a grantor trust commonly known as a “Rabbi Trust.”

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables show the fair values, gross unrealized gains and losses and amortized cost basis for the securities held in the Rabbi Trust.




	As of December 31, 2019
	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	Millions
Equity Securities
Domestic	$	21	$	7	$	—	$	28
International	—		—		—		—
Total Equity Securities	21		7		—		28
Available-for-Sale Debt Securities
Government	100		4		—		104
Corporate	107		7		—		114
Total Available-for-Sale Debt Securities	207		11		—		218
Total Rabbi Trust Investments	$	228	$	18	$	—	$	246




	As of December 31, 2018
	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	Millions
Equity Securities
Domestic	$	22	$	1	$	—		$	23
International	—		—		—			—
Total Equity Securities	22		1		—			23
Available-for-Sale Debt Securities
Government	110		1		(2		)	109
Corporate	96		—		(4		)	92
Total Available-for-Sale Debt Securities	206		1		(6		)	201
Total Rabbi Trust Investments	$	228	$	2	$	(6	)	$	224

Net unrealized gains (losses) on debt securities of $8 million (after-tax) were included in Accumulated Other Comprehensive Loss on PSEG’s Consolidated Balance Sheet as of December 31, 2019. The portion of net unrealized gains (losses) recognized during 2019 related to equity securities still held at the end of December 31, 2019 was $6 million.

The amounts in the preceding tables do not include receivables and payables for Rabbi Trust Fund transactions which have not settled at the end of each period. Such amounts are included in Accounts Receivable and Accounts Payable on the Consolidated Balance Sheets as shown in the following table.




	As of December 31,
	2019		2018
	Millions
Accounts Receivable	$	2	$	2
Accounts Payable	$	—	$	—

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table shows the value of securities in the Rabbi Trust Fund that have been in an unrealized loss position for less than and greater than 12 months:




	As of December 31, 2019								As of December 31, 2018
	Less Than 12 Months				Greater Than 12 Months				Less Than 12 Months					Greater Than 12 Months
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
	Millions
Available-for-Sale Debt Securities
Government (A)	$	26	$	—	$	3	$	—	$	18	$	—		$	59	$	(2	)
Corporate (B)	11		—		2		—		50		(3		)	29		(1		)
Total Available-for-Sale Debt Securities	37		—		5		—		68		(3		)	88		(3		)
Rabbi Trust Investments	$	37	$	—	$	5	$	—	$	68	$	(3	)	$	88	$	(3	)

(A)

Debt Securities (Government)—Unrealized gains and losses on these securities are recorded in Accumulated Other Comprehensive Income (Loss). The unrealized losses on PSEG’s Rabbi Trust investments in U.S. Treasury obligations and Federal Agency mortgage-backed securities were caused by interest rate changes. These investments are guaranteed by the U.S. government or an agency of the U.S. government. PSEG also has investments in municipal bonds that are primarily in investment grade securities. It is not expected that these securities will settle for less than their amortized cost. Since PSEG does not intend to sell these securities nor will it be more-likely-than-not required to sell, PSEG does not consider these debt securities to be other-than-temporarily impaired as of December 31, 2019.

(B)

Debt Securities (Corporate)—Unrealized gains and losses on these securities are recorded in Accumulated Other Comprehensive Income (Loss). PSEG’s investments in corporate bonds are primarily in investment grade securities. It is not expected that these securities would settle for less than their amortized cost. Since PSEG does not intend to sell these securities nor will it be more-likely-than-not required to sell, PSEG does not consider these debt securities to be other-than-temporarily impaired as of December 31, 2019.

The proceeds from the sales of and the net gains (losses) on securities in the Rabbi Trust Fund were:




	Years Ended December 31,
	2019			2018			2017
	Millions
Proceeds from Rabbi Trust Sales (A)	$	173		$	103		$	182
Net Realized Gains (Losses):
Gross Realized Gains	$	7		$	2		$	17
Gross Realized Losses	(3		)	(4		)	(5		)
Net Realized Gains (Losses) on Rabbi Trust (B)	4			(2		)	12
Unrealized Gains (Losses) on Equity Securities in Rabbi Trust (C)	6			(2		)	N/A
Net Gains (Losses) on Rabbi Trust Investments	$	10		$	(4	)	$	12


(A)	Includes activity in accounts related to the liquidation of funds being transitioned to new managers.


(B)	The cost of these securities was determined on the basis of specific identification.


(C)	Effective January 1, 2018, unrealized gains (losses) on equity securities are recorded in Net Income instead of Other Comprehensive Income (Loss).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Rabbi Trust debt securities held as of December 31, 2019 had the following maturities:




Time Frame	Fair Value
	Millions
Less than one year	$	3
1 - 5 years	28
6 - 10 years	33
11 - 15 years	14
16 - 20 years	28
Over 20 years	112
Total Rabbi Trust Available-for-Sale Debt Securities	$	218

PSEG periodically assesses individual debt securities whose fair value is less than amortized cost to determine whether the investments are considered to be other-than-temporarily impaired. For these securities, management considers its intent to sell or requirement to sell a security prior to expected recovery. In those cases where a sale is expected, any impairment would be recorded through earnings. For fixed income securities where there is no intent to sell or likely requirement to sell, management evaluates whether credit loss is a component of the impairment. If so, that portion is recorded through earnings while the noncredit loss component is recorded through Accumulated Other Comprehensive Income (Loss). The assessment of fair market value compared to cost is applied on a weighted average basis taking into account various purchase dates and initial cost of the securities. The fair value of the Rabbi Trust related to PSEG, PSE&G and PSEG Power are detailed as follows:




	As of December 31,		As of December 31,
	2019		2018
	Millions
PSE&G	$	48	$	45
PSEG Power	62		56
Other	136		123
Total Rabbi Trust Investments	$	246	$	224

Note 12. Goodwill and Other Intangibles

As of December 31, 2018, PSEG Power had goodwill of $16 million. PSEG Power conducts a review for goodwill impairment in the fourth quarter of each year. In 2019, PSEG Power determined its fair value using a market-based enterprise valuation technique. Based on the results of the annual impairment test, PSEG Power’s entire goodwill was determined to be impaired. As such, PSEG Power recorded an impairment loss of $16 million in O&M Expense. The decrease in the fair value was primarily due to the continued decline in wholesale power market pricing.

In addition to goodwill, as of December 31, 2019 and 2018, PSEG Power had intangible assets of $149 million and $143 million, respectively, related to emissions allowances and RECs. Emissions allowances and RECs are recorded at cost and evaluated for impairment at least annually. Emissions expense includes impairments of emissions allowances, if any, and costs for emissions, which is recorded as emissions occur. As load is served under contracts requiring energy from renewable sources, the related expense is recorded. The changes to PSEG Power’s intangible assets during 2018 and 2019 are as follows:




	Emissions Allowances			RECs			Total Other Intangibles
	Millions
Balance as of January 1, 2018	$	74		$	40		$	114
Retirements	(26		)	(90		)	(116		)
Purchases	36			110			146
Sales and Transfers, net	—			(1		)	(1		)
Balance as of December 31, 2018	$	84		$	59		$	143
Retirements	(6		)	(83		)	(89		)
Purchases	26			72			98
Sales and Transfers, net	—			(3		)	(3		)
Balance as of December 31, 2019	$	104		$	45		$	149

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13. Asset Retirement Obligations (AROs)

PSEG, PSE&G and PSEG Power recognize liabilities for the expected cost of retiring long-lived assets for which a legal obligation exists to remove or dispose of an asset or some component of an asset at retirement. These AROs are recorded at fair value in the period in which they are incurred and are capitalized as part of the carrying amount of the related long-lived assets. PSE&G, as a rate-regulated entity, recognizes Regulatory Assets or Liabilities as a result of timing differences between the recording of costs and costs recovered through the rate-making process. We accrete the ARO liability to reflect the passage of time with the corresponding expense recorded in O&M.

PSE&G has conditional AROs primarily for legal obligations related to the removal of treated wood poles and the requirement to seal natural gas pipelines at all sources of gas when the pipelines are no longer in service. PSE&G does not record an ARO for its protected steel and poly-based natural gas lines, as management believes that these categories of gas lines have an indeterminable life.

PSEG Power’s ARO liability primarily relates to the decommissioning of its nuclear power plants in accordance with NRC requirements. PSEG Power has an independent external trust that is intended to fund decommissioning of its nuclear facilities upon termination of operation. For additional information, see Note 11. Trust Investments. PSEG Power also identified conditional AROs primarily related to PSEG Power’s fossil generation units and solar facilities, including liabilities for removal of asbestos, ash ponds, stored hazardous liquid material and underground storage tanks from industrial power sites, and demolition of certain plants, and the restoration of the sites at which they reside, when the plants are no longer in service. To estimate the fair value of its AROs, PSEG Power uses a probability weighted, discounted cash flow model which, on a unit by unit basis, considers multiple outcome scenarios that include significant estimates and assumptions, and are based on third-party decommissioning cost estimates, cost escalation rates, inflation rates and discount rates.

Updated cost studies are obtained triennially unless new information necessitates more frequent updates. The most recent cost study was done in 2018. When assumptions are revised to calculate fair values of existing AROs, generally, the ARO balance and corresponding long-lived asset are adjusted which impact the amount of accretion and depreciation expense recognized in future periods. For PSE&G, Regulatory Assets and Regulatory Liabilities result when accretion and amortization are adjusted to match rates established by regulators resulting in the regulatory deferral of any gain or loss.

The changes to the ARO liabilities for PSEG, PSE&G and PSEG Power during 2018 and 2019 are presented in the following table:




	PSEG			PSE&G			PSEG Power			Other
	Millions
ARO Liability as of January 1, 2018	$	1,024		$	212		$	810		$	2
Liabilities Settled	(10		)	(9		)	(1		)	—
Liabilities Incurred	1			—			1			—
Accretion Expense	41			—			41			—
Accretion Expense Deferred and Recovered in Rate Base (A)	12			12			—			—
Revision to Present Values of Estimated Cash Flows	(5		)	87			(93		)	1
ARO Liability as of December 31, 2018	$	1,063		$	302		$	758		$	3
Liabilities Settled	(19		)	(18		)	(1		)	—
Liabilities Incurred	3			1			2			—
Accretion Expense	40			—			40			—
Accretion Expense Deferred and Recovered in Rate Base (A)	16			16			—			—
Revision to Present Values of Estimated Cash Flows	(16		)	2			(18		)	—
ARO Liability as of December 31, 2019	$	1,087		$	303		$	781		$	3


(A)	Not reflected as expense in Consolidated Statements of Operations

In 2019, PSEG Power’s decrease of $18 million was primarily due to the sale of its interests in the Keystone and Conemaugh units. These changes had an immaterial impact in PSEG Power’s Consolidated Statement of Operations. See Note 4. Early Plant Retirements/Asset Dispositions for additional information. In addition, PSEG Power reviewed its probabilities of early retirement on its nuclear units and concluded that no adjustments were necessary as of December 31, 2019.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In 2018, PSE&G’s increase of $87 million was primarily due to the impact of an increase in labor rates. These changes had no impact in PSE&G’s Consolidated Statement of Operations.

In 2018, PSEG Power’s decrease of $93 million was primarily due to changes in discount rates and decommissioning assumptions related to nuclear. The changes in decommissioning assumptions, including a reduction for the lower probability of early retirement of the nuclear units, were due in part to the enactment of the New Jersey ZEC legislation in May 2018 and that the Salem and Hope Creek Units were the sole applicants under the ZEC program. This reduction was also due to the sale of the Hudson and Mercer units, partially offset by increases in estimated costs to decommission PSEG Power’s fossil units pursuant to its most recent cost study.

Note 14. Pension, Other Postretirement Benefits (OPEB) and Savings Plans

PSEG sponsors qualified and nonqualified pension plans and OPEB plans covering PSEG’s and its participating affiliates’ current and former employees who meet certain eligibility criteria. Eligible employees participate in non-contributory pension and OPEB plans sponsored by PSEG and administered by Services. In addition, represented and nonrepresented employees are eligible for participation in PSEG’s two defined contribution plans described below.

PSEG, PSE&G and PSEG Power are required to record the under or over funded positions of their defined benefit pension and OPEB plans on their respective balance sheets. Such funding positions of each PSEG company are required to be measured as of the date of its respective year-end Consolidated Balance Sheets. For underfunded plans, the liability is equal to the difference between the plan’s benefit obligation and the fair value of plan assets. For defined benefit pension plans, the benefit obligation is the projected benefit obligation. For OPEB plans, the benefit obligation is the accumulated postretirement benefit obligation. In addition, GAAP requires that the total unrecognized costs for defined benefit pension and OPEB plans be recorded as an after-tax charge to Accumulated Other Comprehensive Income (Loss), a separate component of Stockholders’ Equity. However, for PSE&G, because the amortization of the unrecognized costs is being collected from customers, the accumulated unrecognized costs are recorded as a Regulatory Asset. The unrecognized costs represent actuarial gains or losses and prior service costs which had not been expensed.

For PSE&G, the Regulatory Asset is amortized and recorded as net periodic pension cost in the Consolidated Statements of Operations. For PSEG Power, the charge to Accumulated Other Comprehensive Income (Loss) is amortized and recorded as net periodic pension cost in the Consolidated Statements of Operations.

In late June 2019, PSEG approved a plan amendment to its qualified pension plan, effective July 1, 2019. The amendment involved the spin-off of predominantly active participants from the existing qualified pension plan (Pension Plan) into a new qualified pension plan (Pension Plan II). Benefits offered to the plan participants remain unchanged. The existing plan’s pension benefit obligations, as well as the asset values, were remeasured as of July 1, 2019 as a result of the amendment. As of July 1, 2019, the weighted average discount rate for the combined plans decreased from 4.41% to 3.65% and the expected long-term rate of return on plan assets remained at 7.80%. Actuarial gains and losses associated with the Pension Plan will be amortized over the average remaining life expectancy of the inactive participants (as opposed to the average remaining service of active participants prior to the plan being split). Actuarial gains and losses associated with Pension Plan II will be amortized over the average remaining service of active participants. The combined remeasured qualified pension plans’ projected benefit obligation as of July 1, 2019 was $6.4 billion.

In December 2018, PSEG amended certain provisions of its OPEB plans applicable to all current and future Medicare-eligible retirees and spouses who receive or will receive subsidized healthcare from PSEG. Effective January 1, 2021, the PSEG-sponsored Medicare-eligible plans will be replaced by a Medicare private exchange. For each Medicare-eligible retiree and spouse, PSEG will provide annual credits to a Health Reimbursement Arrangement, which can be used to pay for medical, prescription drug, and dental plan premiums, as well as certain out-of-pocket costs. The amendment resulted in a $559 million reduction in PSEG’s OPEB obligation as of December 31, 2018.

Amounts for Servco are not included in any of the following pension and OPEB benefit information for PSEG and its affiliates but rather are separately disclosed later in this note.

The following table provides a roll-forward of the changes in the benefit obligation and the fair value of plan assets during each of the two years in the periods ended December 31, 2019 and 2018. It also provides the funded status of the plans and the amounts recognized and amounts not recognized on the Consolidated Balance Sheets at the end of both years.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




	Pension Benefits						Other Benefits
	2019			2018			2019			2018
	Millions
Change in Benefit Obligation
Benefit Obligation at Beginning of Year (A)	$	5,921		$	6,359		$	1,203		$	1,976
Service Cost	123			130			10			18
Interest Cost	218			208			45			66
Actuarial (Gain) Loss	955			(460		)	109			(222		)
Gross Benefits Paid	(325		)	(316		)	(82		)	(76		)
Plan Amendments	—			—			—			(559		)
Benefit Obligation at End of Year (A)	$	6,892		$	5,921		$	1,285		$	1,203
Change in Plan Assets
Fair Value of Assets at Beginning of Year	$	5,120		$	5,812		$	488		$	511
Actual Return on Plan Assets	1,122			(388		)	107			(36		)
Employer Contributions	12			12			27			89
Gross Benefits Paid	(325		)	(316		)	(82		)	(76		)
Fair Value of Assets at End of Year	$	5,929		$	5,120		$	540		$	488
Funded Status
Funded Status (Plan Assets less Benefit Obligation)	$	(963	)	$	(801	)	$	(745	)	$	(715	)
Additional Amounts Recognized in the Consolidated Balance Sheets
Current Accrued Benefit Cost	$	(11	)	$	(10	)	$	(11	)	$	(11	)
Noncurrent Accrued Benefit Cost	(952		)	(791		)	(734		)	(704		)
Amounts Recognized	$	(963	)	$	(801	)	$	(745	)	$	(715	)
Additional Amounts Recognized in Accumulated Other Comprehensive Income (Loss), Regulated Assets and Deferred Assets (B)
Prior Service Credit	$	(10	)	$	(28	)	$	(433	)	$	(561	)
Net Actuarial Loss	2,150			2,005			409			420
Total	$	2,140		$	1,977		$	(24	)	$	(141	)


(A)	Represents projected benefit obligation for pension benefits and the accumulated postretirement benefit obligation for other benefits. The vested benefit obligation is the actuarial present value of the vested benefits to which the employee is currently entitled but based on the employee’s expected date of separation or retirement.

(B)

Includes $695 million ($499 million, after-tax) and $619 million ($360 million, after-tax) in Accumulated Other Comprehensive Loss related to Pension and OPEB as of December 31, 2019 and 2018, respectively. Also includes Regulatory Assets of $1,284 million and Deferred Assets of $137 million as of December 31, 2019 and Regulatory Assets of $1,090 million and Deferred Assets of $127 million as of December 31, 2018.

The pension benefits table above provides information relating to the funded status of the qualified and nonqualified pension and OPEB plans on an aggregate basis. As of December 31, 2019, PSEG had funded approximately 86% of its projected pension benefit obligation. This percentage does not include $246 million of assets in the Rabbi Trust as of December 31, 2019 which were used partially to fund the nonqualified pension plans. As of December 31, 2019, the nonqualified pension plans included in the projected benefit obligation in the above table were $176 million.

Accumulated Benefit Obligation

The accumulated benefit obligation for all PSEG’s defined benefit pension plans was $6.7 billion as of December 31, 2019 and $5.7 billion as of December 31, 2018.

The following table provides the components of net periodic benefit cost relating to all qualified and nonqualified pension and OPEB plans on an aggregate basis for PSEG, excluding Servco for the years ended December 31, 2019, 2018 and 2017. Amounts shown do not reflect the impacts of capitalization and co-owner allocations. Effective with the adoption of ASU 2017-07 on January 1, 2018, only the service cost component is eligible for capitalization, when applicable.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




	Pension Benefits Years Ended December 31,									Other Benefits Years Ended December 31,
	2019			2018			2017			2019			2018			2017
	Millions
Components of Net Periodic Benefit (Credits) Costs
Service Cost (included in O&M Expense)	$	123		$	130		$	114		$	10		$	18		$	17
Non-Service Components of Pension and OPEB (Credits) Costs
Interest Cost	218			208			204			45			66			63
Expected Return on Plan Assets	(408		)	(441		)	(394		)	(36		)	(41		)	(34		)
Amortization of Net
Prior Service Credit	(18		)	(18		)	(18		)	(128		)	(1		)	(11		)
Actuarial Loss	96			85			97			50			64			51
Non-Service Components of Pension and OPEB (Credits) Costs	(112		)	(166		)	(111		)	(69		)	88			69
Total Benefit (Credits) Costs	$	11		$	(36	)	$	3		$	(59	)	$	106		$	86

Pension costs and OPEB costs for PSEG, PSE&G and PSEG Power are detailed as follows:




	Pension Benefits Years Ended December 31,								Other Benefits Years Ended December 31,
	2019		2018			2017			2019			2018		2017
	Millions
PSE&G	$	—	$	(31	)	$	(4	)	$	(62	)	$	68	$	54
PSEG Power	4		(9		)	1			3			32		27
Other	7		4			6			—			6		5
Total Benefit (Credits) Costs	$	11	$	(36	)	$	3		$	(59	)	$	106	$	86

The following table provides the pre-tax changes recognized in Accumulated Other Comprehensive Income (Loss), Regulatory Assets and Deferred Assets:




	Pension						OPEB
	2019			2018			2019			2018
	Millions
Net Actuarial (Gain) Loss in Current Period	$	241		$	369		$	39		$	(145	)
Amortization of Net Actuarial Gain (Loss)	(96		)	(85		)	(50		)	(64		)
Prior Service Cost (Credit) in current period	—			—			—			(559		)
Amortization of Prior Service Credit	18			18			128			1
Total	$	163		$	302		$	117		$	(767	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amounts that are expected to be amortized from Accumulated Other Comprehensive Loss, Regulatory Assets and Deferred Assets into Net Periodic Benefit Cost in 2020 are as follows:




	Pension Benefits			Other Benefits
	2020			2020
	Millions
Actuarial Loss	$	92		$	47
Prior Service Credit	$	(10	)	$	(128	)

The following assumptions were used to determine the benefit obligations and net periodic benefit costs:




	Pension Benefits						Other Benefits
	2019		2018		2017		2019			2018			2017
Weighted-Average Assumptions Used to Determine Benefit Obligations as of December 31
Discount Rate	3.30	%	4.41	%	3.73	%	3.20		%	4.31		%	3.76		%
Rate of Compensation Increase	3.90	%	3.90	%	3.90	%	3.90		%	3.90		%	3.90		%
Weighted-Average Assumptions Used to Determine Net Periodic Benefit Cost for Years Ended December 31
Discount Rate	4.41	%	3.73	%	4.29	%	4.31		%	3.76		%	4.37		%
Service Cost Interest Rate	4.58	%	3.88	%	4.53	%	4.48		%	3.90		%	4.64		%
Interest Cost Interest Rate	4.03	%	3.35	%	3.63	%	3.91		%	3.39		%	3.69		%
Expected Return on Plan Assets	7.80	%	7.80	%	7.80	%	7.79		%	7.80		%	7.80		%
Rate of Compensation Increase	3.90	%	3.90	%	3.61	%	3.90		%	3.90		%	3.61		%
Assumed Health Care Cost Trend Rates as of December 31
Health Care Costs
Immediate Rate							6.68		%	7.28		%	7.93		%
Ultimate Rate							4.75		%	4.75		%	4.75		%
Year Ultimate Rate Reached							2029			2026			2026
							Millions
Effect of a 1% Increase in the Assumed Rate of Increase in Health Care Benefit Costs
Total of Service Cost and Interest Cost							$	1		$	1		$	13
Postretirement Benefit Obligation							$	20		$	21		$	240
Effect of a 1% Decrease in the Assumed Rate of Increase in Health Care Benefit Costs
Total of Service Cost and Interest Cost							$	(1	)	$	(1	)	$	(10	)
Postretirement Benefit Obligation							$	(18	)	$	(20	)	$	(198	)

Plan Assets

The investments of pension and OPEB plans are held in a trust account by the Trustee and consist of an undivided interest in an investment account of the Master Trust. The investments in the pension and OPEB plans are measured at fair value within a hierarchy that prioritizes the inputs to fair value measurements into three levels. See Note 19. Fair Value Measurements for more information on fair value guidance. Use of the Master Trust permits the commingling of pension plan assets and OPEB plan assets for investment and administrative purposes. Although assets of the plans are commingled in the Master Trust, the Trustee maintains supporting records for the purpose of allocating the net gain or loss of the investment account to the respective participating plans. The net investment income of the investment assets is allocated by the Trustee to each participating plan based on the relationship of the interest of each plan to the total of the interests of the participating plans. As of December 31, 2019, the pension plan interest and OPEB plan interest in such assets of the Master Trust were approximately 92% and 8%, respectively.

The following tables present information about the investments measured at fair value on a recurring basis as of December 31, 2019 and 2018, including the fair value measurements and the levels of inputs used in determining those fair values.

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	Recurring Fair Value Measurements as of December 31, 2019
				Quoted Market Prices for Identical Assets			Significant Other Observable Inputs		Significant Unobservable Inputs
Description	Total			(Level 1)			(Level 2)		(Level 3)
	Millions
Cash Equivalents (A)	$	104		$	103		$	1	$	—
Equity Securities
Common Stock (B)	1,487			1,487			—		—
Commingled (C)	1,707			1,042			665		—
Preferred Stock (B)	19			19			—		—
Other (D)	3			3			—		—
Debt Securities (E)
U.S. Treasury	544			—			544		—
Government—Other	284			—			284		—
Corporate	837			—			837		—
Commingled	3			3			—		—
Other (Future Contracts)	(3		)	(3		)	—		—
Subtotal Fair Value	$	4,985		$	2,654		$	2,331	$	—
Measured at net asset value practical expedient
Commingled—Equities (F)	1,154
Real Estate Investment (G)	302
Private Equity (H)	8
Total Fair Value (I)	$	6,449




	Recurring Fair Value Measurements as of December 31, 2018
			Quoted Market Prices for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	Total		(Level 1)		(Level 2)		(Level 3)
	Millions
Cash Equivalents (A)	$	99	$	88	$	11	$	—
Equity Securities
Common Stock (B)	1,156		1,156		—		—
Commingled (C)	1,338		960		378		—
Preferred Stock (B)	7		7		—		—
Other (D)	1		1		—		—
Debt Securities (E)
U.S. Treasury	526		—		526		—
Government—Other	302		—		302		—
Corporate	948		—		948		—
Subtotal Fair Value	$	4,377	$	2,212	$	2,165	$	—
Measured at net asset value practical expedient
Commingled—Equities (F)	1,208
Private Equity (H)	10
Total Fair Value (I)	$	5,595


(A)	The Collective Investment Fund publishes a daily net asset value (NAV) which participants may use for daily redemptions without restrictions (Level 1). Certain temporary investments are valued using inputs such as time-to-maturity, coupon rate, quality rating and current yield (Level 2).

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(B)	Common stocks and preferred stocks are measured using observable data in active markets and considered Level 1.


(C)	Commingled Funds that allow daily redemption at their daily published NAV without restrictions are classified as Level 1. Commingled Funds that publish daily NAV but with certain near-term redemption restrictions which prevent redemption at the published daily NAV are classified as Level 2.


(D)	Investment in a publicly traded limited partnership.

(E)

Debt securities include mainly investment grade corporate and municipal bonds, U.S. Treasury obligations and Federal Agency asset-backed securities with a wide range of maturities. These investments are valued using an evaluated pricing approach that varies by asset class and reflects observable market information such as the most recent exchange price or quoted bid for similar securities. Market-based standard inputs typically include benchmark yields, reported trades, broker/dealer quotes and issuer spreads or the most recent quotes for similar securities which are a Level 2 measure.

(F)

Certain commingled equity funds are not included in the fair value hierarchy as they are measured at fair value using the NAV per share (or its equivalent) practical expedient. These funds do not meet the definition of readily determinable fair value due to the frequency of publishing NAV (monthly). The objectives of these funds are mainly tracking the S&P Index or achieving long-term growth through investment in foreign equity securities and the Morgan Stanley Capital International Index.

(G)

The unlisted real estate fund invests in office, apartment, industrial and retail space. The fund is valued using the NAV per unit of funds. The investment value of the real estate properties are determined on a quarterly basis by independent market appraisers engaged by the board of directors of the fund. The ability to redeem funds is subject to the availability of cash arising from net investment income, allocations and the sale of investments in the normal course of business. The fund’s NAV is published quarterly. In addition, redemptions require one quarter advance notice prior to redemption and are fulfilled quarterly. The fund, therefore, does not meet the definition of readily determinable fair value. The purpose of the fund is to acquire, own, hold for investment and ultimately dispose of investments in real estate and real estate-related assets with the intention of achieving current income, capital appreciation or both.

(H)

Private equity investments primarily include various limited partnerships that invest in either operating companies through acquisitions or developing a portfolio of non-U.S. distressed investments to maximize total return on capital. These investments are valued at NAV (or its equivalent) on a quarterly basis and have significant redemption restrictions preventing redemption until fund liquidation and limited ability to sell these investments. Fund liquidation is not expected to occur for several more years. These investments are not included in the fair value hierarchy in accordance with the guidance on NAV practical expedient.


(I)	Excludes net receivables of $15 million and $14 million as of December 31, 2019 and 2018, respectively, which consist of interest, dividends and receivables and payables related to pending securities sales and purchases. In addition, the table excludes cash and foreign currency of $5 million as of December 31, 2019.

The following table provides the percentage of fair value of total plan assets for each major category of plan assets held for the qualified pension and OPEB plans as of the measurement date, December 31:




	As of December 31,
Investments	2019		2018
Equity Securities	68	%	66	%
Debt Securities	26		32
Other Investments	6		2
Total Percentage	100	%	100	%

PSEG utilizes forecasted returns, risk, and correlation of all asset classes in order to develop an efficient portfolio. PSEG’s latest asset/liability study indicates that a long-term target asset allocation of 59% equities, 18% real asset and 23% fixed income is consistent with the funds’ financial objectives. Derivative financial instruments are used by the plans’ investment managers primarily to adjust the fixed income duration of the portfolio and hedge the currency risk component of foreign investments. The expected long-term rate of return on plan assets was 7.8% for 2019 and will be 7.7% for 2020. This expected return was determined based on the study discussed above, including a premium for active management and considered the plans’ historical annualized rate of return since inception.

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Plan Contributions

PSEG does not plan to contribute to its pension and OPEB plans in 2020.

Estimated Future Benefit Payments

The following pension benefit and postretirement benefit payments are expected to be paid to plan participants.




Year	Pension Benefits		Other Benefits
	Millions
2020	$	382	$	90
2021	354		85
2022	367		86
2023	378		86
2024	389		86
2025-2029	2,074		409
Total	$	3,944	$	842

401(k) Plans

PSEG sponsors two 401(k) plans, which are defined contribution retirement plans subject to the Employee Retirement Income Security Act (ERISA). Eligible represented employees of PSEG’s subsidiaries participate in the PSEG Employee Savings Plan (Savings Plan), while eligible non-represented employees of PSEG’s subsidiaries participate in the PSEG Thrift and Tax-Deferred Savings Plan (Thrift Plan). Eligible employees may contribute up to 50% of their compensation to these plans, not to exceed the Internal Revenue Service (IRS) maximums, including any catch-up contributions for those employees age 50 and above. PSEG matches 50% of such employee contributions up to 7% of pay for Savings Plan participants and up to 8% of pay for Thrift Plan participants. The amounts paid for employer matching contributions to the plans for PSEG, PSE&G and PSEG Power are detailed as follows:




	Thrift Plan and Savings Plan
	Years Ended December 31,
	2019		2018		2017
	Millions
PSE&G	$	25	$	26	$	25
PSEG Power	10		10		11
Other	5		5		5
Total Employer Matching Contributions	$	40	$	41	$	41

Servco Pension and OPEB

Servco sponsors a qualified pension plan and OPEB plan covering its employees who meet certain eligibility criteria. Under the OSA, employee benefit costs for these plans are funded by LIPA. See Note 5. Variable Interest Entity. These obligations, as well as the offsetting long-term receivable, are separately presented on the Consolidated Balance Sheet of PSEG.

The following table provides a roll-forward of the changes in Servco’s benefit obligation and the fair value of its plan assets during the years ended December 31, 2019 and 2018. It also provides the funded status of the plans and the amounts recognized and amounts not recognized on the Consolidated Balance Sheets at the end of both years.

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	Pension Benefits						Other Benefits
	2019			2018			2019			2018
	Millions
Change in Benefit Obligation
Benefit Obligation at Beginning of Year	$	321		$	320		$	501		$	542
Service Cost	26			30			16			18
Interest Cost	14			12			22			20
Actuarial (Gain) Loss	96			(38		)	96			(73		)
Gross Benefits Paid	(4		)	(3		)	(6		)	(6		)
Plan Amendments	—			—			(3		)	—
Benefit Obligation at End of Year (A)	$	453		$	321		$	626		$	501
Change in Plan Assets
Fair Value of Assets at Beginning of Year	$	212		$	191		$	—		$	—
Actual Return on Plan Assets	46			(16		)	—			—
Employer Contributions	28			40			6			6
Gross Benefits Paid	(4		)	(3		)	(6		)	(6		)
Fair Value of Assets at End of Year	$	282		$	212		$	—		$	—
Funded Status
Funded Status (Plan Assets less Benefit Obligation)	$	(171	)	$	(109	)	$	(626	)	$	(501	)
Additional Amounts Recognized in the Consolidated Balance Sheets
Accrued Pension Costs of Servco	$	(171	)	$	(109	)	N/A			N/A
OPEB Costs of Servco	N/A			N/A			(626		)	(501		)
Amounts Recognized (B)	$	(171	)	$	(109	)	$	(626	)	$	(501	)


(A)	Represents projected benefit obligation for pension benefits and the accumulated postretirement benefit obligation for other benefits. The vested benefit obligation is the actuarial present value of the vested benefits to which the employee is currently entitled but based on the employee’s expected date of separation or retirement.


(B)	Amounts equal to the accrued pension and OPEB costs of Servco are offset in Long-Term Receivable of VIE on PSEG’s Consolidated Balance Sheets.

Pension and OPEB costs of Servco are accounted for according to the OSA. Servco recognizes expenses for contributions to its pension plan trusts and for OPEB payments made to retirees. Operating Revenues are recognized for the reimbursement of these costs. The pension-related revenues and costs for 2019, 2018 and 2017 were $28 million, $40 million and $35 million, respectively. Servco has contributed its entire planned contribution amount to its pension plan trusts during 2019. The OPEB-related revenues earned and costs incurred were $6 million, $6 million and $4 million in 2019, 2018 and 2017, respectively. The following assumptions were used to determine the benefit obligations of Servco:




	Pension Benefits						Other Benefits
	2019		2018		2017		2019			2018			2017
Weighted-Average Assumptions Used to Determine Benefit Obligations as of December 31
Discount Rate	3.52	%	4.60	%	3.90	%	3.60		%	4.67		%	3.96		%
Rate of Compensation Increase	3.25	%	3.25	%	3.25	%	3.25		%	3.25		%	3.25		%
Assumed Health Care Cost Trend Rates as of December 31
Health Care Costs
Immediate Rate							6.94		%	8.03		%	7.69		%
Ultimate Rate							4.75		%	4.75		%	4.75		%
Year Ultimate Rate Reached							2029			2026			2026
							Millions
Effect of a 1% Increase in the Assumed Rate of Increase in Health Care Benefit Costs
Postretirement Benefit Obligation							$	135		$	108		$	131
Effect of a 1% Decrease in the Assumed Rate of Increase in Health Care Benefit Costs
Postretirement Benefit Obligation							$	(104	)	$	(83	)	$	(99	)

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Plan Assets

All the investments of Servco’s pension plans are held in a trust account by the Trustee and consist of an undivided interest in an investment account of the Master Trust. The investments in the pension are measured at fair value within a hierarchy that prioritizes the inputs to fair value measurements into three levels. See Note 19. Fair Value Measurements for more information on fair value guidance. The Actuary maintains supporting records for the purpose of allocating the net gain or loss of the investment account to the respective participating plans. The net investment income of the investment assets is allocated by the Actuary to each participating plan based on the relationship of the interest of each plan to the total of the interests of the participating plans.

The following tables present information about Servco’s investments measured at fair value on a recurring basis as of December 31, 2019 and 2018, including the fair value measurements and the levels of inputs used in determining those fair values.




	Recurring Fair Value Measurements as of December 31, 2019
			Quoted Market Prices for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	Total		(Level 1)		(Level 2)		(Level 3)
	Millions
Commingled Equities (A)	$	202	$	—	$	202	$	—
Commingled Bonds (A)	80		—		80		—
Total	$	282	$	—	$	282	$	—




	Recurring Fair Value Measurements as of December 31, 2018
			Quoted Market Prices for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	Total		(Level 1)		(Level 2)		(Level 3)
	Millions
Commingled Equities (A)	$	141	$	—	$	141	$	—
Commingled Bonds (A)	71		—		71		—
Total	$	212	$	—	$	212	$	—


(A)	Investments in commingled equity and bond funds have a readily determinable fair value as they publish a daily NAV available to investors which is the basis for current transactions and contain certain redemption restrictions requiring advance notice of one to two days for withdrawals (Level 2).

The following table provides the percentage of fair value of total plan assets for each major category of plan assets held for the qualified pension and OPEB plans of Servco as of the measurement date, December 31:




	As of December 31,
Investments	2019		2018
Equity Securities	72	%	67	%
Debt Securities	28		33
Total Percentage	100	%	100	%

Servco utilizes forecasted returns, risk, and correlation of all asset classes in order to develop an efficient portfolio. The results from Servco’s latest asset/liability study indicated that a long-term target asset allocation of 60% equities, 15% real assets and 25% fixed income is consistent with the funds’ financial objectives. The expected long-term rate of return on plan assets was 7.6% for 2019 and will be 7.6% for 2020. This expected return was determined based on the study discussed above, including a premium for active management.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Plan Contributions

Servco plans to contribute $30 million into its pension plan during 2020.

Estimated Future Benefit Payments

The following pension benefit and postretirement benefit payments are expected to be paid to Servco’s plan participants:




Year	Pension Benefits		Other Benefits
	Millions
2020	$	6	$	7
2021	8		9
2022	10		11
2023	12		13
2024	14		15
2025-2029	109		104
Total	$	159	$	159

Servco 401(k) Plans

Servco sponsors two 401(k) plans, which are defined contribution retirement plans subject to ERISA. Eligible non-represented employees of Servco participate in the Long Island Electric Utility Servco LLC Incentive Thrift Plan I (Thrift Plan I), and eligible represented employees of Servco participate in the Long Island Electric Utility Servco LLC Incentive Thrift Plan II (Thrift Plan II). Participants in the plans may contribute up to 50% of their eligible compensation to these plans, not to exceed the IRS maximums, including any catch-up contributions for those employees age 50 and above. Servco does not provide an employer match or core contribution for employees in Thrift Plan II. For employees in Thrift Plan I, Servco matches 50% of such employee contributions up to 8% of eligible compensation and provides core contributions (based on years of service and age) to employees who do not participate in Servco’s Retirement Income Plan. The amounts expensed by Servco for employer matching contributions for the years ended December 31, 2019, 2018 and 2017 were $8 million, $7 million and $6 million, respectively, and pursuant to the OSA, Servco recognizes Operating Revenues for the reimbursement of these costs.

Note 15. Commitments and Contingent Liabilities

Guaranteed Obligations

PSEG Power’s activities primarily involve the purchase and sale of energy and related products under transportation, physical, financial and forward contracts at fixed and variable prices. These transactions are with numerous counterparties and brokers that may require cash, cash-related instruments or guarantees as a form of collateral.

PSEG Power has unconditionally guaranteed payments to counterparties on behalf of its subsidiaries in commodity-related transactions in order to


•	support current exposure, interest and other costs on sums due and payable in the ordinary course of business, and


•	obtain credit.

PSEG Power is subject to


•	counterparty collateral calls related to commodity contracts of its subsidiaries, and


•	certain creditworthiness standards as guarantor under performance guarantees of its subsidiaries.

Under these agreements, guarantees cover lines of credit between entities and are often reciprocal in nature. The exposure between counterparties can move in either direction.

In order for PSEG Power to incur a liability for the face value of the outstanding guarantees,


•	its subsidiaries would have to fully utilize the credit granted to them by every counterparty to whom PSEG Power has provided a guarantee, and


•	the net position of the related contracts would have to be “out-of-the-money” (if the contracts are terminated, PSEG Power would owe money to the counterparties).

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PSEG Power believes the probability of this result is unlikely. For this reason, PSEG Power believes that the current exposure at any point in time is a more meaningful representation of the potential liability under these guarantees. Current exposure consists of the net of accounts receivable and accounts payable and the forward value on open positions, less any collateral posted.

Changes in commodity prices can have a material impact on collateral requirements under such contracts, which are posted and received primarily in the form of cash and letters of credit. PSEG Power also routinely enters into futures and options transactions for electricity and natural gas as part of its operations. These futures contracts usually require a cash margin deposit with brokers, which can change based on market movement and in accordance with exchange rules.

In addition to the guarantees discussed above, PSEG Power has also provided payment guarantees to third parties and regulatory authorities on behalf of its affiliated companies. These guarantees support various other non-commodity related obligations.

The following table shows the face value of PSEG Power’s outstanding guarantees, current exposure and margin positions as of December 31, 2019 and 2018.




	As of December 31, 2019			As of December 31, 2018
	Millions
Face Value of Outstanding Guarantees	$	1,854		$	1,772
Exposure under Current Guarantees	$	171		$	198

Letters of Credit Margin Posted	$	121		$	115
Letters of Credit Margin Received	$	29		$	26

Cash Deposited and Received
Counterparty Cash Collateral Deposited	$	—		$	—
Counterparty Cash Collateral Received	$	(4	)	$	(10	)
Net Broker Balance Deposited (Received)	$	48		$	403

Additional Amounts Posted
Other Letters of Credit	$	82		$	52

As part of determining credit exposure, PSEG Power nets receivables and payables with the corresponding net fair values of energy contracts. See Note 18. Financial Risk Management Activities for further discussion. In accordance with PSEG’s accounting policy, where it is applicable, cash (received)/deposited is allocated against derivative asset and liability positions with the same counterparty on the face of the Consolidated Balance Sheet. The remaining balances of net cash (received)/deposited after allocation are generally included in Accounts Payable and Receivable, respectively.

In addition to amounts for outstanding guarantees, current exposure and margin positions, PSEG and PSEG Power have posted letters of credit to support PSEG Power’s various other non-energy contractual and environmental obligations. See the preceding table.

Environmental Matters

Passaic River

Lower Passaic River Study Area

The U.S. Environmental Protection Agency (EPA) has determined that a 17-mile stretch of the Passaic River (Lower Passaic River Study Area (LPRSA)) in New Jersey is a “Superfund” site under the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA). PSE&G and certain of its predecessors conducted operations at properties in this area, including at one site that was transferred to PSEG Power.

Certain Potentially Responsible Parties (PRPs), including PSE&G and PSEG Power, formed a Cooperating Parties Group (CPG) and agreed to conduct a Remedial Investigation and Feasibility Study of the LPRSA. The CPG allocated, on an interim basis, the associated costs among its members. The interim allocation is subject to change. In June 2019, the EPA conditionally approved the CPG’s Remedial Investigation. In August 2019, the CPG submitted a draft Feasibility Study (FS) to the EPA which evaluated various adaptive management scenarios for the remediation of only the upper 9 miles of the LPRSA. The CPG is evaluating the EPA’s comments received to date on the draft FS.

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Separately, the EPA has released a Record of Decision (ROD) for the LPRSA’s lower 8.3 miles that requires the removal of sediments at an estimated cost of $2.3 billion (ROD Remedy). An EPA-commenced process to allocate the associated costs is underway and PSEG cannot predict the outcome. Occidental Chemical Corporation (OCC), one of the PRPs, has commenced the design of the ROD Remedy, but declined to participate in the allocation process. Instead, it filed suit against PSE&G and others seeking cost recovery and contribution under CERCLA but has not quantified alleged damages. The litigation is ongoing and PSEG cannot predict the outcome.

Two PRPs, Tierra Solutions, Inc. (Tierra) and Maxus Energy Corporation (Maxus), have filed for Chapter 11 bankruptcy. The trust representing the creditors in this proceeding has filed a complaint asserting claims against Tierra’s and Maxus’ current and former parent entities, among others. Any damages awarded may be used to fund the remediation of the LPRSA.

As of December 31, 2019, PSEG has accrued approximately $65 million for this matter. Of this amount, PSE&G has accrued $52 million as an Environmental Costs Liability and a corresponding Regulatory Asset based on its continued ability to recover such costs in its rates. PSEG Power has accrued $13 million as an Other Noncurrent Liability with the corresponding O&M Expense.

The outcome of this matter is uncertain, and until (i) a final remedy for the entire LPRSA is selected and an agreement is reached by the PRPs to fund it, (ii) PSE&G’s and PSEG Power’s respective shares of the costs are determined, and (iii) PSE&G’s ability to recover the costs in its rates is determined, it is not possible to predict this matter’s ultimate impact on PSEG’s financial statements. It is possible that PSE&G and PSEG Power will record additional costs beyond what they have accrued, and that such costs could be material, but PSEG cannot at the current time estimate the amount or range of any additional costs.

Natural Resource Damage Claims

New Jersey and certain federal regulators have alleged that PSE&G, PSEG Power and 56 other PRPs may be liable for natural resource damages within the LPRSA. In particular, PSE&G, PSEG Power and other PRPs received notice from federal regulators of the regulators’ intent to move forward with a series of studies assessing potential damages to natural resources at the Diamond Alkali Superfund Site, which includes the LPRSA and the Newark Bay Study Area. PSE&G and PSEG Power are unable to estimate their respective portions of any possible loss or range of loss related to this matter.

Newark Bay Study Area

The EPA has established the Newark Bay Study Area, which is an extension of the LPRSA and includes Newark Bay and portions of surrounding waterways. The EPA has notified PSEG and 11 other PRPs of their potential liability. PSE&G and PSEG Power are unable to estimate their respective portions of any loss or possible range of loss related to this matter. In December 2018, PSEG Power completed the sale of the site of the Hudson electric generating station. PSEG Power contractually transferred all land rights and structures on the Hudson site to a third-party purchaser, along with the assumption of the environmental liabilities for the site.

MGP Remediation Program

PSE&G is working with the New Jersey Department of Environmental Protection (NJDEP) to assess, investigate and remediate environmental conditions at its former MGP sites. To date, 38 sites requiring some level of remedial action have been identified. Based on its current studies, PSE&G has determined that the estimated cost to remediate all MGP sites to completion could range between $357 million and $400 million on an undiscounted basis through 2023, including its $52 million share for the Passaic River as discussed above. Since no amount within the range is considered to be most likely, PSE&G has recorded a liability of $357 million as of December 31, 2019. Of this amount, $68 million was recorded in Other Current Liabilities and $289 million was reflected as Environmental Costs in Noncurrent Liabilities. PSE&G has recorded a $357 million Regulatory Asset with respect to these costs. PSE&G periodically updates its studies taking into account any new regulations or new information which could impact future remediation costs and adjusts its recorded liability accordingly. PSE&G has agreed to conduct sampling in the Passaic River to delineate coal tar from certain MGP sites that abut the Passaic River Superfund site. PSEG cannot determine at this time whether this will have an impact on the Passaic River Superfund remedy.

Clean Water Act (CWA) Section 316(b) Rule

The EPA’s CWA Section 316(b) rule establishes requirements for the regulation of cooling water intakes at existing power plants and industrial facilities with a design flow of more than two million gallons of water per day. The EPA requires that National Pollutant Discharge Elimination System permits be renewed every five years and that each state Permitting Director manage renewal permits for its respective power generation facilities on a case by case basis. The NJDEP manages the permits under the New Jersey Pollutant Discharge Elimination System (NJPDES) program. Connecticut and New York also have permits to manage their respective pollutant discharge elimination system programs.

In June 2016, the NJDEP issued a final NJPDES permit for Salem. In July 2016, the Delaware Riverkeeper Network (Riverkeeper) filed an administrative hearing request challenging certain conditions of the permit, including the NJDEP’s

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

application of the 316(b) rule. If the Riverkeeper’s challenge is successful, PSEG Power may be required to incur additional costs to comply with the CWA. Potential cooling water and/or service water system modification costs could be material and could adversely impact the economic competitiveness of this facility. The NJDEP had granted the hearing request but no hearing date has been established.

State permitting decisions at BH3 and New Haven could also have a material impact on PSEG Power’s ability to renew permits at its existing larger once-through cooled plants without making significant upgrades to existing intakes and cooling systems. PSEG Power has proposed to continue to operate BH3 without making the capital expenditures for modification to the existing intake structure and retire BH3 in 2021, which is four years earlier than the previously estimated useful life ending in 2025. PSEG Power is unable to predict the outcome of these permitting decisions and the effect, if any, that they may have on PSEG Power’s future capital requirements, financial condition or results of operations.

Jersey City, New Jersey Subsurface Feeder Cable Matter

In October 2016, a discharge of dielectric fluid from subsurface feeder cables located in the Hudson River near Jersey City, New Jersey, was identified and reported to the NJDEP. The feeder cables are located within a subsurface easement granted to PSE&G by the property owners, Newport Associates Development Company (NADC) and Newport Associates Phase I Developer Limited Partnership. The feeder cables are subject to agreements between PSE&G and Consolidated Edison Company of New York, Inc. (Con Edison) and are jointly owned by PSE&G and Con Edison, with PSE&G owning the portion of the cables located in New Jersey and Con Edison owning the portion of the cables located in New York. The NJDEP declared an emergency and an emergency response action was undertaken to investigate, contain, remediate and stop the fluid discharge; to assess, repair and restore the cables to good working order, if feasible; and to restore the property. The U.S. Coast Guard transitioned control of the federal response to the EPA, and the EPA ended the federal response to the matter in 2018. The response is a part of the NJDEP site remediation program. The parties may be subject to the assessment of civil penalties related to the discharge and response. We are currently in discussions with the U.S. Coast Guard regarding the reimbursement of costs associated with the federal response to this matter and potential payment of civil penalties. We cannot predict the outcome of these discussions.

The impacted cable was repaired in late September 2017; however, small amounts of residual dielectric fluid believed to be contained within the marina sediment continue to appear on the surface and response actions related to the fluid discharge are ongoing, although at a significantly reduced scale. PSE&G remains concerned about future leaks and potential environmental impacts as a result of reintroduction of fluid back into these lines and has determined that retirement of the affected facilities is appropriate. A lawsuit in federal court is pending to determine ultimate responsibility for the costs to address the leak among PSE&G, Con Edison and NADC. In addition, Con Edison filed counter claims against PSE&G and NADC, including seeking injunctive relief and damages. Based on the information currently available and depending on the outcome of the federal court action, PSE&G’s portion of the costs to address the leak may be material; however, PSE&G anticipates that it will recover these costs through regulatory proceedings.

BGS, BGSS and ZECs

PSE&G obtains its electric supply requirements through the annual New Jersey BGS auctions for two categories of customers who choose not to purchase electric supply from third-party suppliers. The first category, which represents about 79% of PSE&G’s load requirement, is residential and smaller commercial and industrial customers (BGS-Residential Small Commercial Pricing (RSCP)). The second category is larger customers that exceed a BPU-established load (kW) threshold (BGS-Commercial and Industrial Energy Pricing (CIEP)). Pursuant to applicable BPU rules, PSE&G enters into the Supplier Master Agreement with the winners of these BGS auctions following the BPU’s approval of the auction results. PSE&G has entered into contracts with winning BGS suppliers, including PSEG Power, to purchase BGS for PSE&G’s load requirements. The winners of the auction (including PSEG Power) are responsible for fulfilling all the requirements of a PJM Load-Serving Entity including the provision of capacity, energy, ancillary services, transmission and any other services required by PJM. BGS suppliers assume all volume risk and customer migration risk and must satisfy New Jersey’s renewable portfolio standards.

The BGS-CIEP auction is for a one-year supply period from June 1 to May 31 with the BGS-CIEP auction price measured in dollars per MW-day for capacity. The final price for the BGS-CIEP auction year commencing June 1, 2020 is $359.98 per MW-day, replacing the BGS-CIEP auction year price ending May 31, 2020 of $281.78 per MW-day. Energy for BGS-CIEP is priced at hourly PJM locational marginal prices for the contract period.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PSE&G contracts for its anticipated BGS-RSCP load on a three-year rolling basis, whereby each year one-third of the load is procured for a three-year period. The contract prices in dollars per MWh for the BGS-RSCP supply, as well as the approximate load, are as follows:




	Auction Year
	2017	2018	2019	2020
36-Month Terms Ending	May 2020	May 2021	May 2022	May 2023	(A)
Load (MW)	2,800	2,900	2,800	2,800
$ per MWh	$90.78	$91.77	$98.04	$102.16


(A)	Prices set in the 2020 BGS auction will become effective on June 1, 2020 when the 2017 BGS auction agreements expire.

PSEG Power seeks to mitigate volatility in its results by contracting in advance for the sale of most of its anticipated electric output as well as its anticipated fuel needs. As part of its objective, PSEG Power has entered into contracts to directly supply PSE&G and other New Jersey EDCs with a portion of their respective BGS requirements through the New Jersey BGS auction process, described above.

PSE&G has a full-requirements contract with PSEG Power to meet the gas supply requirements of PSE&G’s gas customers. PSEG Power has entered into hedges for a portion of these anticipated BGSS obligations, as permitted by the BPU. The BPU permits PSE&G to recover the cost of gas hedging up to 115 billion cubic feet or 80% of its residential gas supply annual requirements through the BGSS tariff. Current plans call for PSEG Power to hedge on behalf of PSE&G approximately 70 billion cubic feet or 50% of its residential gas supply annual requirements. For additional information, see Note 26. Related-Party Transactions.

Pursuant to a process established by the BPU, New Jersey EDCs, including PSE&G, are required to purchase ZECs from eligible nuclear plants selected by the BPU. In April 2019, PSEG Power’s Salem 1, Salem 2 and Hope Creek nuclear plants were selected to receive ZEC revenue for approximately three years, through May 2022. PSE&G has implemented a tariff to collect a non-bypassable distribution charge in the amount of $0.004 per KWh from its retail distribution customers to be used to purchase the ZECs from these plants. PSE&G will purchase the ZECs on a monthly basis with payment to be made annually following completion of each energy year. The legislation also requires nuclear plants to reapply for any subsequent three-year periods and allows the BPU to adjust prospective ZEC payments.

Minimum Fuel Purchase Requirements

PSEG Power’s nuclear fuel strategy is to maintain certain levels of uranium and to make periodic purchases to support such levels. As such, the commitments referred to in the following table may include estimated quantities to be purchased that deviate from contractual nominal quantities. PSEG Power’s nuclear fuel commitments cover approximately 100% of its estimated uranium, enrichment and fabrication requirements through 2021 and a significant portion through 2022 at Salem, Hope Creek and Peach Bottom.

PSEG Power has various multi-year contracts for natural gas and firm transportation and storage capacity for natural gas that are primarily used to meet its obligations to PSE&G. When there is excess delivery capacity available beyond the needs of PSE&G’s customers, PSEG Power can use the gas to supply its fossil generating stations in New Jersey.

In connection with the sale of its ownership interests in the Keystone and Conemaugh generation plants in September 2019, PSEG Power transferred the related coal purchase commitments to the buyers.

As of December 31, 2019, the total minimum purchase requirements included in these commitments were as follows:




Fuel Type	PSEG Power's Share of Commitments through 2024
	Millions
Nuclear Fuel
Uranium	$	187
Enrichment	$	357
Fabrication	$	185
Natural Gas	$	1,342

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Pending FERC Matters

In June 2015, Hudson Power Transmission Developers, LLC (Hudson Power), formerly known as TranSource LLC, a merchant transmission developer, filed a complaint against PJM claiming that PJM wrongfully refused to provide data and a transparent process for evaluating transmission network upgrade requests that the transmission developer had submitted to PJM. Although not named as a respondent, the complaint identifies PSE&G as one of the companies claimed to have been involved. In January 2018, a FERC administrative law judge (ALJ) issued an order generally finding that PJM and transmission owners, including PSE&G, did not engage in wrongful conduct. In addition, the developer’s assertion of an entitlement to monetary damages was expressly denied. However, in a determination disputed by PSE&G, the order found that the PJM process lacked transparency. In August 2019, FERC reversed the ALJ’s decision on the transparency-related findings. FERC did find that PJM violated its Tariff and FERC orders, but found those errors were immaterial and ordered no remedies. Hudson Power filed comments alleging FERC erred in overturning the ALJ’s decision, which was subsequently rejected by FERC. In October 2019, FERC dismissed Hudson Power’s comments on the grounds that it did not meet FERC’s requirements for a properly filed rehearing request. Hudson Power did not seek judicial review of this decision.

PSE&G has also received requests for information and a Notice of Investigation from FERC’s Office of Enforcement concerning a transmission project. PSE&G retained outside counsel to assist with an internal investigation. PSE&G is fully cooperating with FERC’s requests for information and the investigation. It is not possible at this time to predict the outcome of this matter.

Litigation

Sewaren 7 Construction

In June 2018, a complaint was filed in federal court in Newark, New Jersey against PSEG Fossil LLC, a wholly owned subsidiary of PSEG Power, regarding an ongoing dispute with Durr Mechanical Construction, Inc. (Durr), a contractor on the Sewaren 7 project. Among other things, Durr seeks damages of $93 million and alleges that PSEG Power withheld money owed to Durr and that PSEG Power’s intentional conduct led to the inability of Durr to obtain prospective contracts. PSEG Power intends to vigorously defend against these allegations. In December 2018, Durr filed for Chapter 11 bankruptcy in the federal court in the Southern District of New York (SDNY). The SDNY bankruptcy court has allowed the New Jersey litigation to proceed. PSEG Power has accrued an amount related to outstanding invoices which does not reflect an assessment of claims and potential counterclaims in this matter. Due to its preliminary nature, PSEG Power cannot predict the outcome of this matter.

Caithness Energy, L.L.C. (Caithness)

In August 2018, Caithness, a Long Island power plant developer, filed a complaint in federal district court in the Eastern District of New York (EDNY) against PSEG and PSEG LI alleging violations of state and federal antitrust laws and a claim of intentional interference of prospective business relations. Caithness alleges that PSEG and PSEG LI interfered with LIPA’s consideration of the Caithness proposal for a 750 MW combined cycle generation project that was identified as a finalist for a Request For Proposal issued by LIPA. The complaint alleges hundreds of millions of dollars of harm. The EDNY granted PSEG’s and PSEG LI’s motion to dismiss the complaint but gave Caithness an opportunity to file an amended claim. Pursuant to a request by Caithness, the EDNY dismissed the antitrust claims with prejudice but allowed Caithness the opportunity to file its claim of intentional interference of prospective business in state court. Caithness has not yet refiled this claim in state court. PSEG intends to vigorously defend against these allegations. Based upon the preliminary nature of this matter, a loss is not considered probable nor is the amount of loss, if any, estimable as of December 31, 2019.

Hudson Power

In January 2019, Hudson Power filed a complaint against PJM, PSE&G and three other transmission owners in Pennsylvania state court. Hudson Power sued the transmission owner defendants for fraud and intentional misrepresentation relating to information provided to PJM and FERC regarding the costs of upgrades for Hudson Power’s proposed project. These allegations appear to be based on alleged conduct that is the subject of the Hudson Power proceeding discussed under “Pending FERC Matters.” This action was removed to federal court in the Eastern District of Pennsylvania in February 2019. In light of the FERC proceeding, the federal court granted a motion to stay the federal proceeding until the conclusion of the FERC proceeding. In December 2019, the parties filed a stipulation with the federal court that dismissed all claims brought by Hudson Power, concluding the litigation.

Telephone Consumer Protection Act (TCPA) Matter

In February 2020, a putative class action complaint was filed in federal court in Newark, New Jersey against PSEG for violations of the TCPA related to alleged automated telemarketing calls directed to plaintiffs’ cellular telephone numbers. Due to its preliminary nature, PSEG cannot predict the outcome of this matter.

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Other Litigation and Legal Proceedings

PSEG and its subsidiaries are party to various lawsuits in the ordinary course of business. In view of the inherent difficulty in predicting the outcome of such matters, PSEG, PSE&G and PSEG Power generally cannot predict the eventual outcome of the pending matters, the timing of the ultimate resolution of these matters, or the eventual loss, fines or penalties related to each pending matter.

In accordance with applicable accounting guidance, a liability is accrued when those matters present loss contingencies that are both probable and reasonably estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. PSEG will continue to monitor the matter for further developments that could affect the amount of the accrued liability that has been previously established.

Based on current knowledge, management does not believe that loss contingencies arising from pending matters, other than the matters described herein, could have a material adverse effect on PSEG’s, PSE&G’s or PSEG Power’s consolidated financial position or liquidity. However, in light of the inherent uncertainties involved in these matters, some of which are beyond PSEG’s control, and the large or indeterminate damages sought in some of these matters, an adverse outcome in one or more of these matters could be material to PSEG’s, PSE&G’s or PSEG Power’s results of operations or liquidity for any particular reporting period.

Nuclear Insurance Coverages and Assessments

PSEG Power is a member of the joint underwriting association, American Nuclear Insurers (ANI), which provides nuclear liability insurance coverage at the Salem and Hope Creek site and the Peach Bottom site. The ANI policies are designed to satisfy the financial protection requirements outlined in the Price-Anderson Act, which sets the limit of liability for claims that could arise from an incident involving any licensed nuclear facility in the United States. The limit of liability per incident per site is composed of primary and excess layers. As of December 31, 2019, nuclear sites were required to purchase $450 million of primary liability coverage for each site (through ANI). The primary layer is supplemented by an excess layer, which is an industry self-insurance pool. In the event a nuclear site, which is part of the industry self-insurance pool, has a claim that exceeds the primary layer, each licensee would be assessed a prorated share of the excess layer. The excess layer limit is $13.5 billion. PSEG Power’s maximum aggregate assessment per incident is $433 million (based on PSEG Power’s ownership interests in Salem, Hope Creek and Peach Bottom) and its maximum aggregate annual assessment per incident is $65 million. If the damages exceed the limit of liability, Congress could impose further revenue-raising measures on the nuclear industry to pay claims. Further, a decision by the U.S. Supreme Court, not involving PSEG Power, held that the Price-Anderson Act did not preclude punitive damage awards based on state law claims.

PSEG Power is also a member of an industry mutual insurance company, Nuclear Electric Insurance Limited (NEIL), which provides the property, decontamination and decommissioning liability insurance at the Salem and Hope Creek site and the Peach Bottom site. NEIL also provides replacement power coverage through its accidental outage policy. NEIL policies may make retrospective premium assessments in the case of adverse loss experience. The current maximum aggregate annual retrospective premium obligation for PSEG Power is approximately $61 million. NEIL requires its members to maintain an investment grade credit rating or to ensure collectability of their annual retrospective premium obligation by providing a financial guarantee, letter of credit, deposit premium, or some other means of assurance. Certain provisions in the NEIL policies provide that the insurer may suspend coverage with respect to all nuclear units on a site without notice if the NRC suspends or revokes the operating license for any unit on that site, issues a shutdown order with respect to such unit or issues a confirmatory order keeping such unit down.

The ANI and NEIL policies all include coverage for claims arising out of acts of terrorism. However, NEIL policies are subject to an industry aggregate limit of $3.2 billion plus such additional amounts as NEIL recovers for such losses from reinsurance, indemnity and any other source applicable to such losses.

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Note 16. Debt and Credit Facilities

Long-Term Debt




		As of December 31,
	Maturity	2019			2018
		Millions
PSEG
Term Loan:
Variable Rate	2019	$	—		$	350
Variable Rate	2020	700			700
Total Term Loan		700			1,050
Senior Notes:
1.60%	2019	—			400
2.00%	2021	300			300
2.65%	2022	700			700
2.88%	2024	750			—
Total Senior Notes		1,750			1,400
Principal Amount Outstanding		2,450			2,450
Amounts Due Within One Year		(700		)	(750		)
Net Unamortized Discount and Debt Issuance Costs		(9		)	(7		)
Total Long-Term Debt of PSEG		$	1,741		$	1,693

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		As of December 31,
	Maturity	2019			2018
		Millions
PSE&G
First and Refunding Mortgage Bonds (A):
9.25%	2021	$	134		$	134
8.00%	2037	7			7
5.00%	2037	8			8
Total First and Refunding Mortgage Bonds		149			149
Medium-Term Notes (MTNs) (A):
1.80%	2019	—			250
2.00%	2019	—			250
3.50%	2020	250			250
7.04%	2020	9			9
1.90%	2021	300			300
2.38%	2023	500			500
3.25%	2023	325			325
3.75%	2024	250			250
3.15%	2024	250			250
3.05%	2024	250			250
3.00%	2025	350			350
2.25%	2026	425			425
3.00%	2027	425			425
3.70%	2028	375			375
3.65%	2028	325			325
3.20%	2029	375			—
5.25%	2035	250			250
5.70%	2036	250			250
5.80%	2037	350			350
5.38%	2039	250			250
5.50%	2040	300			300
3.95%	2042	450			450
3.65%	2042	350			350
3.80%	2043	400			400
4.00%	2044	250			250
4.05%	2045	250			250
4.15%	2045	250			250
3.80%	2046	550			550
3.60%	2047	350			350
4.05%	2048	325			325
3.85%	2049	375			—
3.20%	2049	400			—
Total MTNs		9,759			9,109
Principal Amount Outstanding		9,908			9,258
Amounts Due Within One Year		(259		)	(500		)
Net Unamortized Discount and Debt Issuance Costs		(81		)	(74		)
Total Long-Term Debt of PSE&G		$	9,568		$	8,684

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		As of December 31,
	Maturity	2019			2018
		Millions
PSEG Power
Senior Notes:
5.13%	2020	$	406		$	406
3.00%	2021	700			700
4.15%	2021	250			250
3.85%	2023	700			700
4.30%	2023	250			250
8.63%	2031	500			500
Total Senior Notes		2,806			2,806
Pollution Control Notes:
Floating Rate (B)	2022	44			44
Total Pollution Control Notes		44			44
Principal Amount Outstanding		2,850			2,850
Amounts Due Within One Year		(406		)	(44		)
Net Unamortized Discount and Debt Issuance Costs		(10		)	(15		)
Total Long-Term Debt of PSEG Power		$	2,434		$	2,791


(A)	Secured by essentially all property of PSE&G pursuant to its First and Refunding Mortgage.


(B)	The Pennsylvania Economic Development Financing Authority (PEDFA) bond that is serviced and secured by PSEG Power Pollution Control Notes is a variable rate bond that is in weekly reset mode.

Long-Term Debt Maturities

The aggregate principal amounts of maturities for each of the five years following December 31, 2019 are as follows:




Year	PSEG		PSE&G		PSEG Power		Total

2020	$	700	$	259	$	406	$	1,365
2021	300		434		950		1,684
2022	700		—		44		744
2023	—		825		950		1,775
2024	750		750		—		1,500
Thereafter	—		7,640		500		8,140
Total	$	2,450	$	9,908	$	2,850	$	15,208

Long-Term Debt Financing Transactions

During 2019, PSEG and its subsidiaries had the following Long-Term Debt issuances, maturities and redemptions:

PSEG


•	issued $750 million of 2.875% Senior Notes due June 2024,


•	repaid a $350 million term loan with an interest rate of 1 month LIBOR + 0.80%, and


•	retired $400 million of 1.60% Senior Notes at maturity.

PSE&G

issued $400 million of 3.20% Secured Medium-Term Notes, Series M, due August 2049,

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•	issued $375 million of 3.20% Secured Medium-Term Notes, Series M, due May 2029,


•	issued $375 million of 3.85% Secured Medium-Term Notes, Series M, due May 2049,


•	retired $250 million of 1.80% Medium-Term Notes, Series I, at maturity, and


•	retired $250 million of 2.00% Medium-Term Notes, Series J, at maturity.

In January 2020, PSE&G issued $300 million of 2.45% Medium-Term Notes, Series N, due January 2030 and $300 million of 3.15% Medium-Term Notes, Series N, due January 2050.

PSEG Power


•	PSEG Power executed an extension of the letter of credit backing $44 million of PEDFA Variable Rate Demand Bonds. The existing letter of credit, which was scheduled to expire in November 2019, was extended through March 2022.

Short-Term Liquidity

PSEG meets its short-term liquidity requirements, as well as those of PSEG Power, primarily with cash and through the issuance of commercial paper. PSE&G maintains its own separate commercial paper program to meet its short-term liquidity requirements. Each commercial paper program is fully back-stopped by its own separate credit facilities.

The commitments under the $4.2 billion credit facilities are provided by a diverse bank group. As of December 31, 2019, the total available credit capacity was $2.9 billion.

As of December 31, 2019, no single institution represented more than 9% of the total commitments in the credit facilities.

As of December 31, 2019, the total credit capacity was in excess of the anticipated maximum liquidity requirements over PSEG’s 12-month planning horizon.

Each of the credit facilities is restricted as to availability and use to the specific companies as listed in the following table; however, if necessary, the PSEG facilities can also be used to support our subsidiaries’ liquidity needs.

The total credit facilities and available liquidity as of December 31, 2019 were as follows:




	As of December 31, 2019
Company/Facility	Total Facility		Usage (D)		Available Liquidity		Expiration Date	Primary Purpose
	Millions
PSEG
5-year Credit Facilities (A)	$	1,500	$	796	$	704	Mar 2023	Commercial Paper Support/Funding/Letters of Credit
Total PSEG	$	1,500	$	796	$	704
PSE&G
5-year Credit Facility (B)	$	600	$	379	$	221	Mar 2023	Commercial Paper Support/Funding/Letters of Credit
Total PSE&G	$	600	$	379	$	221
PSEG Power
3-year Letter of Credit Facilities	$	200	$	121	$	79	Sept 2021	Letters of Credit
5-year Credit Facilities (C)	1,900		40		1,860		Mar 2023	Funding/Letters of Credit
Total PSEG Power	$	2,100	$	161	$	1,939
Total	$	4,200	$	1,336	$	2,864

(A)PSEG facilities will be reduced by $9 million in March 2022.


(B)	PSE&G facility will be reduced by $4 million in March 2022.


(C)	PSEG Power facilities will be reduced by $12 million in March 2022.


(D)	The primary use of PSEG’s and PSE&G’s credit facilities is to support their respective Commercial Paper Programs, under which as of December 31, 2019, PSEG had $753 million outstanding at a weighted average interest rate of 2.08%. PSE&G had $362 million outstanding at a weighted average interest rate of 1.95% under its Commercial Paper Program as of December 31, 2019.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value of Debt

The estimated fair values, carrying amounts and methods used to determine fair value of long-term debt as of December 31, 2019 and 2018 are included in the following table and accompanying notes as of December 31, 2019 and 2018. See Note 19. Fair Value Measurements for more information on fair value guidance and the hierarchy that prioritizes the inputs to fair value measurements into three levels.




	December 31, 2019				December 31, 2018
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	Millions
Long-Term Debt:
PSEG (A) (B)	$	2,441	$	2,479	$	2,443	$	2,397
PSE&G (B)	9,827		11,107		9,184		9,374
PSEG Power (B)	2,840		3,137		2,835		2,996
Total Long-Term Debt	$	15,108	$	16,723	$	14,462	$	14,767


(A)	As of December 31, 2019 and 2018, fair value includes floating rate term loans of $700 million and $1,050 million, respectively. The fair values of the term loan debt (Level 2 measurement) approximate the carrying value because the interest payments are based on LIBOR rates that are reset monthly and the debt is redeemable at face value by PSEG at any time.

(B)

Given that these bonds do not trade actively, the fair value amounts of taxable debt securities (primarily Level 2 measurements) are generally determined by a valuation model that is based on a conventional discounted cash flow methodology and utilizes assumptions of current market pricing curves. In order to incorporate the credit risk into the discount rates, pricing (i.e. U.S. Treasury rate plus credit spread) is based on expected new issue pricing across each of the companies’ respective debt maturity spectrum. The credit spreads of various tenors obtained from this information are added to the appropriate benchmark U.S. Treasury rates in order to determine the current market yields for the various tenors. The yields are then converted into discount rates of various tenors that are used for discounting the respective cash flows of the same tenor for each bond or note. The fair value amounts above do not represent the price at which the outstanding debt may be called for redemption by each issuer under their respective debt agreements.

Note 17. Schedule of Consolidated Capital Stock




	As of December 31,
	Outstanding Shares		Book Value
	2019	2018	2019		2018
	Millions
PSEG Common Stock (no par value) (A)
Authorized 1,000 shares	504	504	$	4,172	$	4,172


(A)	PSEG did not issue any new shares under the Dividend Reinvestment and Stock Purchase Plan or the Employee Stock Purchase Plan in 2019 or 2018.

As of December 31, 2019, PSE&G had an aggregate of 7.5 million shares of $100 par value and 10 million shares of $25 par value Cumulative Preferred Stock, which were authorized and unissued and which, upon issuance, may or may not provide for mandatory sinking fund redemption.

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Note 18. Financial Risk Management Activities

Derivative accounting guidance requires that a derivative instrument be recognized as either an asset or a liability at fair value, with changes in fair value of the derivative recognized in earnings each period. Other accounting treatments are available through special election and designation provided that the derivative instrument meets specific, restrictive criteria, both at the time of designation and on an ongoing basis. These alternative permissible treatments include NPNS, cash flow hedge and fair value hedge accounting. PSEG, PSEG Power and PSE&G have applied the NPNS scope exception to certain derivative contracts for the forward sale of generation, power procurement agreements and fuel agreements. PSEG uses interest rate swaps and other derivatives, which are designated and qualifying as cash flow or fair value hedges. PSEG Power enters into additional contracts that are derivatives, but are not designated as either cash flow hedges or fair value hedges. These transactions are economic hedges and are recorded at fair market value.

Commodity Prices

Within PSEG and its affiliate companies, PSEG Power has the most exposure to commodity price risk. PSEG Power is exposed to commodity price risk primarily relating to changes in the market price of electricity, fossil fuels and other commodities. Fluctuations in market prices result from changes in supply and demand, fuel costs, market conditions, weather, state and federal regulatory policies, environmental policies, transmission availability and other factors. PSEG Power uses a variety of derivative and non-derivative instruments, such as financial options, futures, swaps, fuel purchases and forward purchases and sales of electricity, to manage the exposure to fluctuations in commodity prices and optimize the value of PSEG Power’s expected generation. PSEG Power also uses derivatives to hedge a portion of its anticipated BGSS obligations with PSE&G. For additional information see Note 15. Commitments and Contingent Liabilities. Changes in the fair market value of these derivative contracts are recorded in earnings.

Interest Rates

PSEG, PSEG Power and PSE&G are subject to the risk of fluctuating interest rates in the normal course of business. Exposure to this risk is managed by targeting a balanced debt maturity profile which limits refinancing in any given period or interest rate environment. In addition, they have used a mix of fixed and floating rate debt and interest rate swaps.

Fair Value Hedges

PSEG enters into fair value hedges to convert fixed-rate debt into variable-rate debt. The changes in fair value of the interest rate swaps are fully offset by changes in the fair value of the underlying forecasted interest payments of the debt. There were no outstanding interest rate swaps as of December 31, 2019 or 2018.

Cash Flow Hedges

PSEG uses interest rate swaps and other derivatives, which are designated and qualifying as cash flow hedges, to manage its exposure to the variability of cash flows, primarily related to variable-rate debt instruments. As of December 31, 2019, PSEG had interest rate hedges outstanding totaling $700 million. These hedges convert PSEG’s $700 million variable-rate term loan due November 2020 into a fixed-rate loan. PSEG interest rate hedges totaling $600 million were terminated during the second quarter and a loss of $(12) million was recorded in Accumulated Other Comprehensive Income (Loss) (after tax) and will amortize to interest expense over the remaining life of PSEG’s $750 million of 2.875% Senior Notes due June 2024. For additional information see Note 16. Debt and Credit Facilities.

The fair value of these hedges was $(5) million as of December 31, 2019 and there were no outstanding interest rate hedges as of December 31, 2018. The Accumulated Other Comprehensive Income (Loss) (after tax) related to outstanding and terminated interest rate derivatives designated as cash flow hedges was $(15) million and $(1) million as of December 31, 2019 and December 31, 2018, respectively. The after-tax unrealized losses on these hedges expected to be reclassified to earnings during the next 12 months are $(2) million.

Fair Values of Derivative Instruments

The following are the fair values of derivative instruments on the Consolidated Balance Sheets. The following tables also include disclosures for offsetting derivative assets and liabilities which are subject to a master netting or similar agreement. In general, the terms of the agreements provide that in the event of an early termination the counterparties have the right to offset amounts owed or owing under that and any other agreement with the same counterparty. Accordingly, and in accordance with PSEG’s accounting policy, these positions are offset on the Consolidated Balance Sheets of PSEG Power and PSEG. For additional information see Note 19. Fair Value Measurements.

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The following tabular disclosure does not include the offsetting of trade receivables and payables.




	As of December 31, 2019
	PSEG Power (A)									PSEG (A)			Consolidated
	Not Designated									Cash Flow Hedges
Balance Sheet Location	Energy- Related Contracts			Netting (B)			Total PSEG Power			Interest Rate Swaps			Total Derivatives
	Millions
Derivative Contracts
Current Assets	$	636		$	(523	)	$	113		$	—		$	113
Noncurrent Assets	163			(139		)	24			—			24
Total Mark-to-Market Derivative Assets	$	799		$	(662	)	$	137		$	—		$	137
Derivative Contracts
Current Liabilities	$	(553	)	$	522		$	(31	)	$	(5	)	$	(36	)
Noncurrent Liabilities	(139		)	138			(1		)	—			(1		)
Total Mark-to-Market Derivative (Liabilities)	$	(692	)	$	660		$	(32	)	$	(5	)	$	(37	)
Total Net Mark-to-Market Derivative Assets (Liabilities)	$	107		$	(2	)	$	105		$	(5	)	$	100




	As of December 31, 2018
		PSEG Power (A)									Consolidated
		Not Designated
Balance Sheet Location		Energy- Related Contracts			Netting (B)			Total PSEG Power			Total Derivatives
	Millions
Derivative Contracts
Current Assets		$	426		$	(415	)	$	11		$	11
Noncurrent Assets		137			(136		)	1			1
Total Mark-to-Market Derivative Assets		$	563		$	(551	)	$	12		$	12
Derivative Contracts
Current Liabilities		$	(521	)	$	510		$	(11	)	$	(11	)
Noncurrent Liabilities		(198		)	194			(4		)	(4		)
Total Mark-to-Market Derivative (Liabilities)		$	(719	)	$	704		$	(15	)	$	(15	)
Total Net Mark-to-Market Derivative Assets (Liabilities)		$	(156	)	$	153		$	(3	)	$	(3	)


(A)	Substantially all of PSEG Power’s and PSEG’s derivative instruments are contracts subject to master netting agreements. Contracts not subject to master netting or similar agreements are immaterial and did not have any collateral posted or received as of December 31, 2019 and 2018.

(B)

Represents the netting of fair value balances with the same counterparty (where the right of offset exists) and the application of cash collateral. All cash collateral (received) posted that has been allocated to derivative positions, where the right of offset exists, has been offset on the Consolidated Balance Sheets. As of December 31, 2019 and 2018, PSEG Power had net cash collateral payments to counterparties of $44 million and $393 million, respectively. Of these net cash collateral (receipts) payments, $(2) million as of December 31, 2019 and $153 million as of December 31, 2018 were netted against the corresponding net derivative contract positions. Of the $(2) million as of December 31, 2019, $(1) million was netted against current assets, and $(1) million was netted against noncurrent assets. Of the $153 million as of December 31, 2018, $(2) million was netted against current assets, $(3) million was netted against noncurrent assets, $96 million was netted against current liabilities and $62 million was netted against noncurrent liabilities.

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Certain of PSEG Power’s derivative instruments contain provisions that require PSEG Power to post collateral. This collateral may be posted in the form of cash or credit support with thresholds contingent upon PSEG Power’s credit rating from each of the major credit rating agencies. The collateral and credit support requirements vary by contract and by counterparty. These credit risk-related contingent features stipulate that if PSEG Power were to be downgraded to a below investment grade rating by S&P or Moody’s, it would be required to provide additional collateral. A below investment grade credit rating for PSEG Power would represent a three level downgrade from its current S&P or Moody’s ratings. This incremental collateral requirement can offset collateral requirements related to other derivative instruments that are assets with the same counterparty, where the contractual right of offset exists under applicable master agreements. PSEG Power also enters into commodity transactions on the New York Mercantile Exchange (NYMEX) and Intercontinental Exchange (ICE). The NYMEX and ICE clearing houses act as counterparties to each trade. Transactions on the NYMEX and ICE must adhere to comprehensive collateral and margin requirements.

The aggregate fair value of all derivative instruments with credit risk-related contingent features in a liability position that are not fully collateralized (excluding transactions on the NYMEX and ICE that are fully collateralized) was $35 million and $22 million as of December 31, 2019 and 2018, respectively. As of December 31, 2019 and 2018, PSEG Power had the contractual right of offset of $2 million and $7 million, respectively, related to derivative instruments that are assets with the same counterparty under master agreements and net of margin posted. If PSEG Power had been downgraded to a below investment grade rating, it would have had additional collateral obligations of $33 million and $15 million as of December 31, 2019 and 2018, respectively, related to its derivatives, net of the contractual right of offset under master agreements and the application of collateral.

The following shows the effect on the Consolidated Statements of Operations and on Accumulated Other Comprehensive Loss (AOCL) of derivative instruments designated as cash flow hedges for the years ended December 31, 2019, 2018 and 2017.




		Amount of Pre-Tax Gain (Loss) Recognized in AOCL on Derivatives								Location of Pre-Tax Gain (Loss) Reclassified from AOCL into Income		Amount of Pre-Tax Gain (Loss) Reclassified from AOCL into Income
Derivatives in Cash Flow Hedging Relationships	Years Ended December 31,										Years Ended December 31,
		2019			2018			2017				2019			2018		2017
		Millions										Millions
PSEG
Interest Rate Swaps		$	(23	)	$	(2	)	$	—	Interest Expense		$	(4	)	$	—	$	3
Total PSEG		$	(23	)	$	(2	)	$	—			$	(4	)	$	—	$	3

The effect of interest rate cash flow hedges is recorded in Interest Expense in PSEG’s Consolidated Statement of Operations. For the year ended December 31, 2019, the amount of gain or loss on interest rate hedges reclassified from Accumulated Other Comprehensive Income (Loss) into income was $(3) million after tax and immaterial as of December 31, 2018 and 2017.

The following reconciles the Accumulated Other Comprehensive Income (Loss) for derivative activity included in the AOCL of PSEG on a pre-tax and after-tax basis.




Accumulated Other Comprehensive Income (Loss)	Pre-Tax			After-Tax
	Millions
Balance as of December 31, 2017	$	—		$	—
Loss Recognized in AOCI	(2		)	(1		)
Less: Gain Reclassified into Income	—			—
Balance as of December 31, 2018	$	(2	)	$	(1	)
Loss Recognized in AOCI	(23		)	(17		)
Less: Loss Reclassified into Income	4			3
Balance as of December 31, 2019	$	(21	)	$	(15	)

The following shows the effect on the Consolidated Statements of Operations of derivative instruments not designated as hedging instruments or as NPNS for the years ended December 31, 2019, 2018 and 2017. PSEG Power’s derivative contracts reflected in this table include contracts to hedge the purchase and sale of electricity and natural gas, and the purchase of fuel. The table does not include contracts which PSEG Power has designated as NPNS, such as its BGS contracts and certain other

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

energy supply contracts that it has with other utilities and companies with retail load.




Derivatives Not Designated as Hedges	Location of Pre-Tax Gain (Loss) Recognized in Income on Derivatives	Pre-Tax Gain (Loss) Recognized in Income on Derivatives
		Years Ended December 31,
		2019			2018			2017
		Millions
PSEG Power
Energy-Related Contracts	Operating Revenues	$	560		$	(182	)	$	66
Energy-Related Contracts	Energy Costs	(119		)	(9		)	(11		)
Total PSEG and PSEG Power		$	441		$	(191	)	$	55

The following table summarizes the net notional volume purchases/(sales) of open derivative transactions by commodity as of December 31, 2019 and 2018.




Type	Notional	Total		PSEG	PSEG Power		PSE&G
	Millions
As of December 31, 2019
Natural Gas	Dekatherm (Dth)	341		—	341		—
Electricity	MWh	(62	)	—	(62	)	—
Financial Transmission Rights (FTRs)	MWh	13		—	13		—
Interest Rate Swaps	U.S. Dollars	700		700	—		—
As of December 31, 2018
Natural Gas	Dth	358		—	358		—
Electricity	MWh	(74	)	—	(74	)	—
FTRs	MWh	18		—	18		—

Credit Risk

Credit risk relates to the risk of loss that PSEG Power would incur as a result of non-performance by counterparties pursuant to the terms of their contractual obligations. PSEG has established credit policies that it believes significantly minimize credit risk. These policies include an evaluation of potential counterparties’ financial condition (including credit rating), collateral requirements under certain circumstances and the use of standardized agreements, which allow for the netting of positive and negative exposures associated with a single counterparty. In the event of non-performance or non-payment by a major counterparty, there may be a material adverse impact on PSEG Power’s and PSEG’s financial condition, results of operations or net cash flows.

The following table provides information on PSEG Power’s credit risk from wholesale counterparties, net of collateral, as of December 31, 2019. It further delineates that exposure by the credit rating of the counterparties, which is determined by the lowest rating from S&P, Moody’s or an internal scoring model. In addition, it provides guidance on the concentration of credit risk to individual counterparties and an indication of the quality of PSEG Power’s credit risk by credit rating of the counterparties.

As of December 31, 2019, 99% of the net credit exposure for PSEG Power’s wholesale operations was with investment grade counterparties. Credit exposure is defined as any positive results of netting accounts receivable/accounts payable and the forward value of open positions (which includes all financial instruments including derivatives, NPNS and non-derivatives).

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Rating	Current Exposure		Securities held as Collateral		Net Exposure		Number of Counterparties >10%	Net Exposure of Counterparties >10%
	Millions							Millions
Investment Grade	$	505	$	26	$	479	2	$	263	(A)
Non-Investment Grade	3		—		3		—	—
Total	$	508	$	26	$	482	2	$	263


(A)	Represents net exposure of $213 million with PSE&G and $50 million with a non-affiliated counterparty.

As of December 31, 2019, collateral held from counterparties where PSEG Power had credit exposure includes $4 million in cash and $22 million in letters of credit.

As of December 31, 2019, PSEG Power had 153 active counterparties.

PSE&G’s supplier master agreements are approved by the BPU and govern the terms of its electric supply procurement contracts. These agreements define a supplier’s performance assurance requirements and allow a supplier to meet its credit requirements with a certain amount of unsecured credit. The amount of unsecured credit is determined based on the supplier’s credit ratings from the major credit rating agencies and the supplier’s tangible net worth. The credit position is based on the initial market price, which is the forward price of energy on the day the procurement transaction is executed, compared to the forward price curve for energy on the valuation day. To the extent that the forward price curve for energy exceeds the initial market price, the supplier is required to post a parental guaranty or other security instrument such as a letter of credit or cash, as collateral to the extent the credit exposure is greater than the supplier’s unsecured credit limit. As of December 31, 2019, primarily all of the posted collateral was in the form of parental guarantees. The unsecured credit used by the suppliers represents PSE&G’s net credit exposure. PSE&G’s BGS suppliers’ credit exposure is calculated each business day. As of December 31, 2019, PSE&G had no net credit exposure with suppliers, including PSEG Power.

PSE&G is permitted to recover its costs of procuring energy through the BPU-approved BGS tariffs. PSE&G’s counterparty credit risk is mitigated by its ability to recover realized energy costs through customer rates.

Note 19. Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Accounting guidance for fair value measurement emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and establishes a fair value hierarchy that distinguishes between assumptions based on market data obtained from independent sources and those based on an entity’s own assumptions. The hierarchy prioritizes the inputs to fair value measurement into three levels:

Level 1—measurements utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that PSEG, PSE&G and PSEG Power have the ability to access. These consist primarily of listed equity securities and money market mutual funds, as well as natural gas futures contracts executed on NYMEX.

Level 2—measurements include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and other observable inputs such as interest rates and yield curves that are observable at commonly quoted intervals. These consist primarily of non-exchange traded derivatives such as forward contracts or options and most fixed income securities.

Level 3—measurements use unobservable inputs for assets or liabilities, based on the best information available and might include an entity’s own data and assumptions. In some valuations, the inputs used may fall into different levels of the hierarchy. In these cases, the financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. These consist primarily of certain electric load contracts and gas contracts.

Certain derivative transactions may transfer from Level 2 to Level 3 if inputs become unobservable and internal modeling techniques are employed to determine fair value. Conversely, measurements may transfer from Level 3 to Level 2 if the inputs become observable.

The following tables present information about PSEG’s, PSE&G’s and PSEG Power’s respective assets and (liabilities) measured at fair value on a recurring basis as of December 31, 2019 and December 31, 2018, including the fair value measurements and the levels of inputs used in determining those fair values. Amounts shown for PSEG include the amounts shown for PSE&G and PSEG Power.

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	Recurring Fair Value Measurements as of December 31, 2019
Description	Total			Netting (E)			Quoted Market Prices for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
	Millions
PSEG
Assets:
Cash Equivalents (A)	$	50		$	—		$	50		$	—		$	—
Derivative Contracts:
Energy-Related Contracts (B)	$	137		$	(662	)	$	19		$	770		$	10
NDT Fund (C)
Equity Securities	$	1,151		$	—		$	1,150		$	1		$	—
Debt Securities—U.S. Treasury	$	225		$	—		$	—		$	225		$	—
Debt Securities—Govt Other	$	352		$	—		$	—		$	352		$	—
Debt Securities—Corporate	$	486		$	—		$	—		$	486		$	—
Rabbi Trust (C)
Equity Securities	$	28		$	—		$	28		$	—		$	—
Debt Securities—U.S. Treasury	$	57		$	—		$	—		$	57		$	—
Debt Securities—Govt Other	$	47		$	—		$	—		$	47		$	—
Debt Securities—Corporate	$	114		$	—		$	—		$	114		$	—
Liabilities:
Derivative Contracts:
Energy-Related Contracts (B)	$	(32	)	$	660		$	(43	)	$	(646	)	$	(3	)
Interest Rate Swaps (D)	$	(5	)	$	—		$	—		$	(5	)	$	—
PSE&G
Assets:
Rabbi Trust (C)
Equity Securities	$	5		$	—		$	5		$	—		$	—
Debt Securities—U.S. Treasury	$	11		$	—		$	—		$	11		$	—
Debt Securities—Govt Other	$	9		$	—		$	—		$	9		$	—
Debt Securities—Corporate	$	23		$	—		$	—		$	23		$	—
PSEG Power
Assets:
Derivative Contracts:
Energy-Related Contracts (B)	$	137		$	(662	)	$	19		$	770		$	10
NDT Fund (C)
Equity Securities	$	1,151		$	—		$	1,150		$	1		$	—
Debt Securities—U.S. Treasury	$	225		$	—		$	—		$	225		$	—
Debt Securities—Govt Other	$	352		$	—		$	—		$	352		$	—
Debt Securities—Corporate	$	486		$	—		$	—		$	486		$	—
Rabbi Trust (C)
Equity Securities	$	8		$	—		$	8		$	—		$	—
Debt Securities—U.S. Treasury	$	14		$	—		$	—		$	14		$	—
Debt Securities—Govt Other	$	12		$	—		$	—		$	12		$	—
Debt Securities—Corporate	$	28		$	—		$	—		$	28		$	—
Liabilities:
Derivative Contracts:
Energy-Related Contracts (B)	$	(32	)	$	660		$	(43	)	$	(646	)	$	(3	)

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	Recurring Fair Value Measurements as of December 31, 2018
Description	Total			Netting (E)			Quoted Market Prices for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
	Millions
PSEG
Assets:
Cash Equivalents (A)	$	100		$	—		$	100		$	—		$	—
Derivative Contracts:
Energy-Related Contracts (B)	$	12		$	(551	)	$	29		$	527		$	7
NDT Fund (C)
Equity Securities	$	900		$	—		$	898		$	2		$	—
Debt Securities—U.S. Treasury	$	171		$	—		$	—		$	171		$	—
Debt Securities—Govt Other	$	320		$	—		$	—		$	320		$	—
Debt Securities—Corporate	$	487		$	—		$	—		$	487		$	—
Rabbi Trust (C)
Equity Securities	$	23		$	—		$	23		$	—		$	—
Debt Securities—U.S. Treasury	$	69		$	—		$	—		$	69		$	—
Debt Securities—Govt Other	$	40		$	—		$	—		$	40		$	—
Debt Securities—Corporate	$	92		$	—		$	—		$	92		$	—
Liabilities:
Derivative Contracts:
Energy-Related Contracts (B)	$	(15	)	$	704		$	(36	)	$	(677	)	$	(6	)
PSE&G
Assets:
Rabbi Trust (C)
Equity Securities	$	5		$	—		$	5		$	—		$	—
Debt Securities—U.S. Treasury	$	14		$	—		$	—		$	14		$	—
Debt Securities—Govt Other	$	8		$	—		$	—		$	8		$	—
Debt Securities—Corporate	$	18		$	—		$	—		$	18		$	—
PSEG Power
Assets:
Derivative Contracts:
Energy-Related Contracts (B)	$	12		$	(551	)	$	29		$	527		$	7
NDT Fund (C)
Equity Securities	$	900		$	—		$	898		$	2		$	—
Debt Securities—U.S. Treasury	$	171		$	—		$	—		$	171		$	—
Debt Securities—Govt Other	$	320		$	—		$	—		$	320		$	—
Debt Securities—Corporate	$	487		$	—		$	—		$	487		$	—
Rabbi Trust (C)
Equity Securities	$	6		$	—		$	6		$	—		$	—
Debt Securities—U.S. Treasury	$	17		$	—		$	—		$	17		$	—
Debt Securities—Govt Other	$	10		$	—		$	—		$	10		$	—
Debt Securities—Corporate	$	23		$	—		$	—		$	23		$	—
Liabilities:
Derivative Contracts:
Energy-Related Contracts (B)	$	(15	)	$	704		$	(36	)	$	(677	)	$	(6	)


(A)	Represents money market mutual funds.


(B)	Level 1—These contracts represent natural gas futures contracts executed on NYMEX, and are being valued solely

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on settled pricing inputs which come directly from the exchange.

Level 2—Fair values for energy-related contracts are obtained primarily using a market-based approach. Most derivative contracts (forward purchase or sale contracts and swaps) are valued using settled prices from similar assets and liabilities from an exchange, such as NYMEX, ICE and Nodal Exchange, or auction prices. Prices used in the valuation process are also corroborated independently by management to determine that values are based on actual transaction data or, in the absence of transactions, bid and offers for the day. Examples may include certain exchange and non-exchange traded capacity and electricity contracts and natural gas physical or swap contracts based on market prices, basis adjustments and other premiums where adjustments and premiums are not considered significant to the overall inputs.

Level 3—Unobservable inputs are used for the valuation of certain contracts. See “Additional Information Regarding Level 3 Measurements” below for more information on the utilization of unobservable inputs.

(C)

As of December 31, 2019, the fair value measurement table excludes foreign currency of $2 million in the NDT Fund. The NDT Fund maintains investments in various equity and fixed income securities. The Rabbi Trust maintains investments in a Russell 3000 index fund and various fixed income securities. These securities are generally valued with prices that are either exchange provided (equity securities) or market transactions for comparable securities and/or broker quotes (fixed income securities).

Level 1—Investments in marketable equity securities within the NDT Fund are primarily investments in common stocks across a broad range of industries and sectors. Most equity securities are priced utilizing the principal market close price or, in some cases, midpoint, bid or ask price. Certain other equity securities in the NDT and Rabbi Trust Funds consist primarily of investments in money market funds which seek a high level of current income as is consistent with the preservation of capital and the maintenance of liquidity. To pursue its goals, the funds normally invest in diversified portfolios of high quality, short-term, dollar-denominated debt securities and government securities. The funds’ net asset value is priced and published daily. The Rabbi Trust’s Russell 3000 index fund is valued based on quoted prices in an active market and can be redeemed daily without restriction.

Level 2—NDT and Rabbi Trust fixed income securities include investment grade corporate bonds, collateralized mortgage obligations, asset-backed securities and certain government and U.S. Treasury obligations or Federal Agency asset-backed securities and municipal bonds with a wide range of maturities. Since many fixed income securities do not trade on a daily basis, they are priced using an evaluated pricing methodology that varies by asset class and reflects observable market information such as the most recent exchange price or quoted bid for similar securities. Market-based standard inputs typically include benchmark yields, reported trades, broker/dealer quotes and issuer spreads. The preferred stocks are not actively traded on a daily basis and therefore, are also priced using an evaluated pricing methodology. Certain short-term investments are valued using observable market prices or market parameters such as time-to-maturity, coupon rate, quality rating and current yield.


(D)	Interest rate swaps are valued using quoted prices on commonly quoted intervals, which are interpolated for periods different than the quoted intervals, as inputs to a market valuation model. Market inputs can generally be verified and model selection does not involve significant management judgment.


(E)	Represents the netting of fair value balances with the same counterparty (where the right of offset exists) and the application of collateral. See Note 18. Financial Risk Management Activities for additional detail.

Additional Information Regarding Level 3 Measurements

For valuations that include both observable and unobservable inputs, if the unobservable input is determined to be significant to the overall inputs, the entire valuation is categorized in Level 3. This includes derivatives valued using indicative price quotations for contracts with tenors that extend into periods with no observable pricing. In instances where observable data is unavailable, consideration is given to the assumptions that market participants would use in valuing the asset or liability. This includes assumptions about market risks such as liquidity, volatility and contract duration. Such instruments are categorized in Level 3 because the model inputs generally are not observable. PSEG’s Risk Management Committee (RMC) approves risk management policies and objectives for risk assessment, control and valuation, counterparty credit approval and the monitoring and reporting of risk exposures. The RMC reports to the Corporate Governance and Audit Committees of the PSEG Board on the scope of the risk management activities and is responsible for approving all valuation procedures at PSEG. Forward price curves for the power market utilized by PSEG Power to manage the portfolio are maintained and reviewed by PSEG’s Enterprise Risk Management market pricing group and used for financial reporting purposes. PSEG considers credit and nonperformance risk in the valuation of derivative contracts categorized in Levels 2 and 3, including both historical and current market data, in its assessment of credit and nonperformance risk by counterparty. The impacts of credit and nonperformance risk were not material to the financial statements.

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The fair value of PSEG Power’s electric load contracts in which load consumption may change hourly based on demand are measured using certain unobservable inputs, such as historic load variability and, accordingly, are categorized as Level 3. The fair value of PSEG Power’s gas physical contracts at certain illiquid delivery locations are measured using average historical basis and, accordingly, are categorized as Level 3. While these physical gas contracts have an unobservable component in their respective forward price curves, the fluctuations in fair value have been driven primarily by changes in the observable inputs. The following tables provide details surrounding significant Level 3 valuations as of December 31, 2019 and 2018.




	Quantitative Information About Level 3 Fair Value Measurements
Commodity	Level 3 Position	Fair Value as of December 31, 2019					Valuation Technique(s)	Significant Unobservable Input	Range

		Assets		(Liabilities)
		Millions
PSEG Power
Electricity	Electric Load Contracts	$	10	$	—		Discounted Cash flow	Historic Load Variability	0% to 10%
Gas	Gas Physical Contracts	—		(3		)	Discounted Cash flow	Average Historical Basis	-50% to 0%
Total PSEG and PSEG Power		$	10	$	(3	)




	Quantitative Information About Level 3 Fair Value Measurements
Commodity	Level 3 Position	Fair Value as of December 31, 2018					Valuation Technique(s)	Significant Unobservable Input	Range

		Assets		(Liabilities)
		Millions
PSEG Power
Electricity	Electric Load Contracts	$	2	$	(5	)	Discounted Cash flow	Historic Load Variability	0% to 15%
Gas	Gas Physical Contracts	5		(1		)	Discounted Cash flow	Average Historical Basis	-40% to 0%
Total PSEG and PSEG Power		$	7	$	(6	)

Significant unobservable inputs listed above would have a direct impact on the fair values of the above Level 3 instruments if they were adjusted. For energy-related contracts in cases where PSEG Power is a seller, an increase in the load variability would decrease the fair value. For gas-related contracts in cases where PSEG Power is a buyer, an increase in the average historical basis would increase the fair value.

A reconciliation of the beginning and ending balances of Level 3 derivative contracts and securities for the years ended December 31, 2019 and 2018, respectively, follows:

Changes in Level 3 Assets and (Liabilities) Measured at Fair Value on a Recurring Basis

for the Year Ended December 31, 2019




Description	Balance as of December 31, 2018		Total Gains or (Losses) Realized/Unrealized Included in Income (A)		Purchases, (Sales)		Issuances/ Settlements (B)			Transfers In/Out (C)		Balance as of December 31, 2019

PSEG and PSEG Power
Net Derivative Assets (Liabilities)	$	1	$	14	$	—	$	(8	)	$	—	$	7

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Changes in Level 3 Assets and (Liabilities) Measured at Fair Value on a Recurring Basis

for the Year Ended December 31, 2018




Description	Balance as of December 31, 2017		Total Gains or (Losses) Realized/Unrealized Included in Income (A)			Purchases, (Sales)		Issuances/ Settlements (B)		Transfers In/Out (C)		Balance as of December 31, 2018
	Millions
PSEG and PSEG Power
Net Derivative Assets (Liabilities)	$	7	$	(6	)	$	—	$	—	$	—	$	1

(A)Unrealized gains (losses) in the following table represent the change in derivative assets and liabilities still held as of December 31, 2019 and 2018.




	Years Ended December 31,
	2019						2018
	Total Gains (Losses)			Unrealized Gains (Losses)			Total Gains (Losses)			Unrealized Gains (Losses)
	Millions
PSEG and PSEG Power
Operating Revenues	$	23		$	12		$	(2	)	$	—
Energy Costs	(9		)	(6		)	(4		)	(6		)
Total	$	14		$	6		$	(6	)	$	(6	)


(B)	Includes $(7) million in settlements for derivative contracts in 2019.


(C)	There were no transfers in 2019 and 2018 to or from Level 3.

As of December 31, 2019, PSEG carried $2.6 billion of net assets that are measured at fair value on a recurring basis, of which $7 million of net assets were measured using unobservable inputs and classified as Level 3 within the fair value hierarchy.

As of December 31, 2018, PSEG carried $2.2 billion of net assets that are measured at fair value on a recurring basis, of which $1 million of net assets were measured using unobservable inputs and classified as Level 3 within the fair value hierarchy.

Note 20. Stock Based Compensation

PSEG’s Amended and Restated 2004 Long-Term Incentive Plan (LTIP) is a broad-based equity compensation program that provides for grants of various long-term incentive compensation awards, such as stock options, stock appreciation rights, performance share units, restricted stock, restricted stock units, cash awards or any combination thereof. The types of long-term incentive awards that have been granted under the LTIP are non-qualified options to purchase shares of PSEG’s common stock, restricted stock unit awards and performance share unit awards. The type of equity award that is granted and the details of that award may vary from time to time and is subject to the approval of the Organization and Compensation Committee of PSEG’s Board of Directors (O&CC), the LTIP’s administrative committee.

The LTIP currently provides for the issuance of equity awards with respect to approximately 16 million shares of common stock. As of December 31, 2019, there were approximately 12 million shares available for future awards under the LTIP.

Stock Options

Under the LTIP, non-qualified options to acquire shares of PSEG common stock may be granted to officers and other key employees selected by the O&CC. Option awards are granted with an exercise price equal to the market price of PSEG’s common stock at the grant date. The options generally vest over four years of continuous service. Vesting schedules may be accelerated upon the occurrence of certain events, such as a change-in-control (unless substituted with an equity award of equal value), retirement, death or disability. Options are exercisable over a period of time designated by the O&CC (but not prior to one year or longer than ten years from the date of grant) and are subject to such other terms and conditions as the O&CC determines. Payment by option holders upon exercise of an option may be made in cash or, with the consent of the O&CC, by delivering previously acquired shares of PSEG common stock. No options have been granted since 2009.

Restricted Stock Units (RSUs)

Under the LTIP, PSEG has granted RSU awards to officers and other key employees. These awards, which are bookkeeping entries only, are subject to risk of forfeiture until vested by continued employment. Until distributed, the units are credited with

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

dividend equivalent units (DEUs) proportionate to the dividends paid on PSEG common stock. Distributions are made in shares of common stock. The RSU grants for 2019 and 2018 generally vest at the end of three years. Vesting may be accelerated (pro-rated basis or full vesting) upon certain events such as change-in-control, retirement, disability or death.

Performance Share Units (PSUs)

Under the LTIP, PSEG has granted PSUs to officers and other key employees. These provide for distribution in shares of PSEG common stock based on achievement of certain financial goals over a three-year performance period. Following the end of the performance period, the payout varies from 0% to 200% of the number of PSUs granted depending on PSEG’s performance with respect to certain financial targets, including targets related to comparative performance against other companies in a peer group of energy companies. The PSUs are credited with DEUs proportionate to the dividends paid on PSEG common stock. Distributions are made in shares of common stock. Vesting may be accelerated on a pro-rated basis for the period of the employee’s service during the performance period as a result of certain events, such as change-in-control, retirement, death or disability.

Stock-Based Compensation

PSEG recognizes compensation expense for stock options based on their grant date fair values, which are determined using the Black-Scholes option-pricing model. Stock option awards are expensed on a tranche-specific basis over the requisite service period of the award. Ultimately, compensation expense for stock options is recognized for awards that vest.

PSEG recognizes compensation expense for RSUs over the vesting period based on the grant date fair value of the shares, which is equal to the closing market price of PSEG’s common stock on the date of the grant.

PSEG recognizes compensation expense for the total shareholder return (TSR) target for its PSU awards based on the grant date fair values of the award, which are determined using the Monte Carlo model. The following table provides the assumptions used to calculate the grant date fair value of the TSR portion of the PSU awards for 2019, 2018 and 2017:




Grant Date	Risk-Free Interest Rate	Volatility

February 19, 2019	2.47%	16.74%
February 20, 2018	2.36%	17.57%
February 21, 2017	1.50%	20.00%

The accrual of compensation cost is based on the probable achievement of the performance conditions, which result in a payout from 0% to 200% of the initial grant. PSEG recognizes compensation expense for the return on invested capital target for its PSUs based on the grant date fair value of the awards, which is equal to the market price of PSEG’s common stock on the date of the grant. The accrual during the year of grant is estimated at 100% of the original grant. Such accrual may be adjusted to reflect the actual outcome.




	2019		2018		2017
	Millions
Compensation Cost included in Operation and Maintenance Expense	$	33	$	30	$	31
Income Tax Benefit Recognized in Consolidated Statement of Operations	$	9	$	9	$	13

For 2019, 2018 and 2017, PSEG also recorded excess tax benefit of $5 million, $3 million and $4 million, respectively.

PSEG recognizes compensation cost of awards issued over the shorter of the original vesting period or the period beginning on the date of grant and ending on the date an individual is eligible for retirement and the award vests.

Stock Options

As of January 1, 2019, there were 231,933 stock options outstanding, all of which were exercised in 2019 at a weighted average price of $33.49. There were no stock options granted or vested in 2019, 2018 and 2017.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Activity for options exercised for the years ended December 31, 2019, 2018 and 2017 is shown below:




	2019		2018		2017
	Millions
Total Intrinsic Value of Options Exercised	$	5	$	2	$	5
Cash Received from Options Exercised	$	8	$	4	$	26
Tax Benefit Realized from Options Exercised	$	1	$	—	$	—

RSUs

Changes in RSUs for the year ended December 31, 2019 are summarized as follows:




	Shares	Weighted Average Grant Date Fair Value		Weighted Average Remaining Years Contractual Term	Aggregate Intrinsic Value
Non-vested as of January 1, 2019	257,583	$	46.58
Granted	200,923	$	56.24
Vested	207,126	$	51.34
Canceled/Forfeited	36,399	$	50.23
Non-vested as of December 31, 2019	214,981	$	50.41	1.1	$	12,694,628

The weighted average grant date fair value per share for RSUs during the years ended December 31, 2019, 2018 and 2017 was $56.24, $49.34 and $44.33 per share, respectively.

The total intrinsic value of RSUs distributed during the years ended December 31, 2019, 2018 and 2017 was $16 million, $12 million and $13 million, respectively.

As of December 31, 2019, there was approximately $4 million of unrecognized compensation cost related to the RSUs, which is expected to be recognized over a weighted average period of one year. DEUs of 21,535 accrued on the RSUs during the year.

PSUs

Changes in PSUs for the year ended December 31, 2019 are summarized as follows:




	Shares	Weighted Average Grant Date Fair Value		Weighted Average Remaining Years Contractual Term	Aggregate Intrinsic Value
Non-vested as of January 1, 2019	377,541	$	51.94
Granted	320,078	$	62.17
Vested	299,201	$	54.10
Canceled/Forfeited	63,903	$	54.52
Non-vested as of December 31, 2019	334,515	$	59.30	1.6	$	19,753,111

The weighted average grant date fair value per share for PSUs during the years ended December 31, 2019, 2018 and 2017 was $62.17, $54.95 and $45.02 per share, respectively.

The total intrinsic value of PSUs distributed during the years ended December 31, 2019, 2018 and 2017 was $17 million, $17 million and $18 million, respectively.

As of December 31, 2019, there was approximately $20 million of unrecognized compensation cost related to the PSUs, which is expected to be recognized over a weighted average period of 1.6 years. DEUs of 33,351 accrued on the PSUs during the year.

Outside Directors

Under the Directors Equity Plan, annually, on the first business day of May, each non-employee member of the Board of Directors is awarded stock units based on the amount of annual compensation to be paid at the closing price of PSEG common stock on that date. DEUs are credited quarterly and distributions will commence upon the director leaving the Board as specified by him/her in accordance with the provisions of the Directors Equity Plan.

The fair value of these awards is recorded as compensation expense in the Consolidated Statements of Operations. Compensation expense for the plan was immaterial for each of the years ended December 31, 2019, 2018 and 2017.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Employee Stock Purchase Plan (ESPP)

PSEG maintains an ESPP for all eligible employees of PSEG and its subsidiaries. Under the ESPP, shares of PSEG common stock may be purchased at 95% of the fair market value for represented employees and 90% for non-represented employees through payroll deductions. Dividends had been reinvested for all employees at 95% of the fair market price unless the participant elected to receive a cash dividend. Effective October 1, 2019, dividends are to be paid out in cash unless the participant elects the dividends to be reinvested at fair market price. All employees are required to hold the shares purchased under the ESPP for at least three months from the purchase date. In any year, employees may purchase shares having a value not exceeding 10% of their base pay. Compensation expense recognized under this program was $1 million for December 31, 2019, and immaterial for each of the years ended December 31, 2018 and 2017.

During the years ended December 31, 2019, 2018 and 2017, employees purchased 280,077 shares, 286,559 shares and 288,527 shares, respectively, at an average price of $54.67, $47.44 and $42.07 per share, respectively. As of December 31, 2019, 2.6 million shares were available for future issuance under this plan.

Note 21. Other Income (Deductions)




	PSE&G			PSEG Power			Other (A)			Consolidated Total
	Millions
Year Ended December 31, 2019
NDT Fund Interest and Dividends	$	—		$	57		$	—		$	57
Allowance for Funds Used During Construction	59			—			—			59
Solar Loan Interest	16			—			—			16
Donations	—			—			(11		)	(11		)
Other	8			(3		)	(1		)	4
Total Other Income (Deductions)	$	83		$	54		$	(12	)	$	125
Year Ended December 31, 2018
NDT Fund Interest and Dividends	$	—		$	52		$	—		$	52
Allowance for Funds Used During Construction	54			—			—			54
Solar Loan Interest	18			—			—			18
Donations	—			—			(17		)	(17		)
Other	8			(31		)	1			(22		)
Total Other Income (Deductions)	$	80		$	21		$	(16	)	$	85
Year Ended December 31, 2017
NDT Fund Interest and Dividends	$	—		$	45		$	—		$	45
Allowance for Funds Used During Construction	56			—			—			56
Solar Loan Interest	21			—			—			21
Donations	(1		)	(2		)	(25		)	(28		)
Other	9			(23		)	2			(12		)
Total Other Income (Deductions)	$	85		$	20		$	(23	)	$	82


(A)	Other consists of activity at PSEG (as parent company), Energy Holdings, Services, PSEG LI and intercompany eliminations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 22. Income Taxes

A reconciliation of reported income tax expense for PSEG with the amount computed by multiplying pre-tax income by the statutory federal income tax rate of 21% in 2019 and 2018 and 35% in 2017 is as follows:




	Years Ended December 31,
PSEG	2019			2018			2017
	Millions
Net Income	$	1,693		$	1,438		$	1,574
Income Taxes:
Operating Income:
Current (Benefit) Expense:
Federal	$	84		$	(97	)	$	86
State	18			83			(31		)
Total Current	102			(14		)	55
Deferred Expense (Benefit):
Federal	3			373			(482		)
State	132			71			92
Total Deferred	135			444			(390		)
Investment Tax Credit (ITC)	20			(13		)	29
Total Income Tax Expense (Benefit)	$	257		$	417		$	(306	)
Pre-Tax Income	$	1,950		$	1,855		$	1,268
Tax Computed at Statutory Rate @ 21% in 2019 and 2018 and 35% in 2017	$	410		$	390		$	444
Increase (Decrease) Attributable to Flow-Through of Certain Tax Adjustments:
State Income Taxes (net of federal income tax)	117			123			36
Uncertain Tax Positions	—			(24		)	(3		)
Manufacturing Deduction	—			—			(13		)
NDT Fund	34			(13		)	19
Plant-Related Items	(2		)	(10		)	(23		)
Tax Credits	(18		)	(16		)	(22		)
Audit Settlement	—			—			6
Tax Adjustment Credit	(272		)	(30		)	—
Deferred Tax Expense (Benefit) - Tax Act	—			3			(755		)
Other	(12		)	(6		)	5
Subtotal	(153		)	27			(750		)
Total Income Tax Expense (Benefit)	$	257		$	417		$	(306	)
Effective Income Tax Rate	13.2		%	22.5		%	(24.1		)%

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is an analysis of deferred income taxes for PSEG:




	As of December 31,
PSEG	2019		2018
	Millions
Deferred Income Taxes
Assets:
Noncurrent
Regulatory Liability Excess Deferred Tax	$	539	$	606
OPEB	151		163
Related to Uncertain Tax Positions	97		71
Interest Disallowance Carry Forward	76		—
Operating Leases	64		—
Other	128		—
Total Noncurrent Assets	$	1,055	$	840

Liabilities:
Noncurrent:
Plant-Related Items	$	5,051	$	4,817
New Jersey Corporate Business Tax	876		756
Leasing Activities	284		307
AROs and NDT Fund	277		196
Taxes Recoverable Through Future Rates (net)	108		89
Pension Costs	98		111
Operating Leases	59		—
Other	273		12
Total Noncurrent Liabilities	$	7,026	$	6,288
Summary of Accumulated Deferred Income Taxes:
Net Noncurrent Deferred Income Tax Liabilities	$	5,971	$	5,448
ITC	285		265
Net Total Noncurrent Deferred Income Taxes and ITC	$	6,256	$	5,713

The deferred tax effect of certain assets and liabilities is presented in the table above net of the deferred tax effect associated with the respective regulatory deferrals.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A reconciliation of reported income tax expense for PSE&G with the amount computed by multiplying pre-tax income by the statutory federal income tax rate of 21% in 2019 and 2018 and 35% in 2017 is as follows:




	Years Ended December 31,
PSE&G	2019			2018			2017
	Millions
Net Income	$	1,250		$	1,067		$	973
Income Taxes:
Operating Income:
Current (Benefit) Expense:
Federal	$	121		$	(62	)	$	(52	)
State	—			1			(1		)
Total Current	121			(61		)	(53		)
Deferred Expense (Benefit):
Federal	(156		)	287			492
State	117			122			129
Total Deferred	(39		)	409			621
ITC	11			(4		)	(5		)
Total Income Tax Expense	$	93		$	344		$	563
Pre-Tax Income	$	1,343		$	1,411		$	1,536
Tax Computed at Statutory Rate @ 21% in 2019 and 2018 and 35% in 2017	$	282		$	296		$	538
Increase (Decrease) Attributable to Flow-Through of Certain Tax Adjustments:
State Income Taxes (net of federal income tax)	92			98			83
Uncertain Tax Positions	1			(1		)	(9		)
Plant-Related Items	(2		)	(10		)	(23		)
Tax Credits	(8		)	(8		)	(9		)
Tax Adjustment Credit	(272		)	(30		)	—
Deferred Tax Benefit - Tax Act	—			—			(10		)
Other	—			(1		)	(7		)
Subtotal	(189		)	48			25
Total Income Tax Expense	$	93		$	344		$	563
Effective Income Tax Rate	6.9		%	24.4		%	36.7		%

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is an analysis of deferred income taxes for PSE&G:




	As of December 31,
PSE&G	2019		2018
	Millions
Deferred Income Taxes
Assets:
Noncurrent:
Regulatory Liability Excess Deferred Tax	$	539	$	606
OPEB	97		114
Related to Uncertain Tax Positions	42		—
Operating Leases	21		—
Other	55		—
Total Noncurrent Assets	$	754	$	720
Liabilities:
Noncurrent:
Plant-Related Items	$	3,754	$	3,622
New Jersey Corporate Business Tax	588		486
Pension Costs	160		159
Taxes Recoverable Through Future Rates (net)	108		89
Conservation Costs	44		36
Operating Leases	21		—
Other	183		84
Total Noncurrent Liabilities	$	4,858	$	4,476
Summary of Accumulated Deferred Income Taxes:
Net Noncurrent Deferred Income Tax Liabilities	$	4,104	$	3,756
ITC	85		74
Net Total Noncurrent Deferred Income Taxes and ITC	$	4,189	$	3,830

The deferred tax effect of certain assets and liabilities is presented in the table above net of the deferred tax effect associated with the respective regulatory deferrals.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A reconciliation of reported income tax expense for PSEG Power with the amount computed by multiplying pre-tax income by the statutory federal income tax rate of 21% in 2019 and 2018 and 35% in 2017 is as follows:




	Years Ended December 31,
PSEG Power	2019			2018			2017
	Millions
Net Income	$	468		$	365		$	479
Income Taxes:
Operating Income:
Current (Benefit) Expense:
Federal	$	(48	)	$	(164	)	$	95
State	3			24			(17		)
Total Current	(45		)	(140		)	78
Deferred Expense (Benefit):
Federal	208			214			(804		)
State	31			1			(37		)
Total Deferred	239			215			(841		)
ITC	9			(9		)	34
Total Income Tax Expense (Benefit)	$	203		$	66		$	(729	)
Pre-Tax Income (Loss)	$	671		$	431		$	(250	)
Tax Computed at Statutory Rate @ 21% in 2019 and 2018 and 35% in 2017	$	141		$	91		$	(88	)
Increase (Decrease) Attributable to Flow-Through of Certain Tax Adjustments:
State Income Taxes (net of federal income tax)	25			21			(36		)
Manufacturing Deduction	—			—			(13		)
NDT Fund	34			(13		)	19
Tax Credits	(10		)	(7		)	(12		)
Related to Uncertain Tax Positions	11			(24		)	7
Audit Settlement	—			—			1
Deferred Tax Benefit - Tax Act	—			(1		)	(610		)
Other	2			(1		)	3
Subtotal	62			(25		)	(641		)
Total Income Tax Expense (Benefit)	$	203		$	66		$	(729	)
Effective Income Tax Rate	30.3		%	15.3		%	291.6		%

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is an analysis of deferred income taxes for PSEG Power:




	As of December 31,
PSEG Power	2019		2018
	Millions
Deferred Income Taxes
Assets:
Noncurrent:
Related to Uncertain Tax Positions	$	72	$	60
Pension Costs	61		52
OPEB	40		37
Operating Leases	15		—
Interest Disallowance Carry Forward	12		—
Contractual Liabilities & Environmental Costs	7		9
Other	30		61
Total Noncurrent Assets	$	237	$	219
Liabilities:
Noncurrent:
Plant-Related Items	$	1,292	$	1,189
New Jersey Corporate Business Tax	282		260
AROs and NDT Fund	278		197
Operating Leases	15		—
Other	45		—
Total Noncurrent Liabilities	$	1,912	$	1,646
Summary of Accumulated Deferred Income Taxes:
Net Noncurrent Deferred Income Tax Liabilities	$	1,675	$	1,427
ITC	201		192
Net Total Noncurrent Deferred Income Taxes and ITC	$	1,876	$	1,619

PSEG, PSE&G and PSEG Power each provide deferred taxes at the enacted statutory tax rate for all temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities irrespective of the treatment for rate-making purposes. Management believes that it is probable that the accumulated tax benefits that previously have been treated as a flow-through item to PSE&G customers will be recovered from or refunded to PSE&G’s customers in the future. See Note 7. Regulatory Assets and Liabilities.

Effective January 1, 2018, the U.S. federal corporate income tax rate was reduced from a maximum of 35% to 21% resulting in a decrease in PSEG’s, PSE&G’s and PSEG Power’s effective income tax rates. To the extent allowed under the Tax Act, PSEG Power’s operating cash flows reflect the full expensing of qualifying capital investments for income tax purposes. The impact of the lower federal income tax rate on PSE&G was reflected in PSE&G’s 2018 distribution base rate proceeding and its 2018 transmission rate filing. The distribution base rate proceeding established a TAC mechanism that provides for the refund to customers of the excess deferred income tax regulatory liabilities as well as the flowback of previously realized and current period deferred income taxes related to tax repair deductions. The accounting for the TAC mechanism results in lower revenues and lower tax expense and a current effective tax rate for PSEG and PSE&G that is significantly lower than the statutory rate.

The decrease in the federal tax rate resulted in PSE&G recording excess deferred income taxes of approximately $2.1 billion and a Regulatory Liability of approximately $2.9 billion as of December 31, 2018. In 2019, PSE&G returned approximately $380 million of excess deferred income taxes and previously realized and current period deferred income taxes related to tax repair deductions to its customers with a reduction to tax expense of approximately $272 million. The flowback to customers of the excess deferred income taxes and previously realized tax repair deductions resulted in a decrease of approximately $321 million in the Regulatory Liability. The current period tax repair deduction reduces tax expense and revenue and recognizes a Regulatory Asset as PSE&G believes it is probable that the current period tax repair deductions flowed through to the customers will be recovered from customers in the future. See Note 7. Regulatory Assets and Liabilities for additional information.

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The Tax Act is generally expected to result in lower operating cash flows for PSE&G resulting from the elimination of bonus depreciation, partially offset by higher revenues due to the higher rate base.

In November 2018, the IRS issued proposed regulations addressing the interest disallowance rules contained in the Tax Act. For non-regulated businesses, these rules set a cap on the amount of interest that can be deducted in a given year. Any amount that is disallowed can be carried forward indefinitely. For 2018 and 2019, a portion of PSEG’s and PSEG Power’s interest expense was disallowed for tax purposes but it is anticipated that these amounts will be realized in future periods. However, certain aspects of the proposed regulations are unclear. PSEG recorded taxes based on its interpretation of the relevant statutes.

In September 2019, the IRS released final and additional proposed regulations regarding the application of tax depreciation rules as amended by the Tax Act. PSEG, PSE&G and PSEG Power do not believe the final or proposed regulations will materially impact their respective financial statements.

Amounts recorded under the Tax Act, including but not limited to depreciation and interest disallowance, are subject to change based on several factors, including but not limited to, the IRS and state taxing authorities issuing additional guidance and/or further clarification. Any further guidance or clarification could impact PSEG’s, PSE&G’s and PSEG Power’s financial statements.

In 2019, PSE&G generated a $16 million New Jersey Corporate Business Tax NOL that is expected to be fully realized in the future. There are no other material tax carryforwards in other jurisdictions.

PSEG recorded the following amounts related to its unrecognized tax benefits, which were primarily comprised of amounts recorded for PSE&G, PSEG Power and Energy Holdings:




2019	PSEG			PSE&G			PSEG Power			Energy Holdings
	Millions
Total Amount of Unrecognized Tax Benefits as of January 1, 2019	$	318		$	108		$	151		$	54
Increases as a Result of Positions Taken in a Prior Period	17			5			8			5
Decreases as a Result of Positions Taken in a Prior Period	(37		)	(1		)	(13		)	(22		)
Increases as a Result of Positions Taken during the Current Period	27			12			15			—
Decreases as a Result of Positions Taken during the Current Period	—			—			—			—
Decreases as a Result of Settlements with Taxing Authorities	(4		)	—			—			(4		)
Decreases due to Lapses of Applicable Statute of Limitations	—			—			—			—
Total Amount of Unrecognized Tax Benefits as of December 31, 2019	$	321		$	124		$	161		$	33
Accumulated Deferred Income Taxes Associated with Unrecognized Tax Benefits	(184		)	(71		)	(105		)	(7		)
Regulatory Asset—Unrecognized Tax Benefits	(46		)	(46		)	—			—
Total Amount of Unrecognized Tax Benefits that if Recognized, would Impact the Effective Tax Rate (including Interest and Penalties)	$	91		$	7		$	56		$	26




2018	PSEG			PSE&G			PSEG Power			Energy Holdings
	Millions
Total Amount of Unrecognized Tax Benefits as of January 1, 2018	$	334		$	135		$	142		$	53
Increases as a Result of Positions Taken in a Prior Period	11			4			4			3
Decreases as a Result of Positions Taken in a Prior Period	(70		)	(31		)	(37		)	(2		)
Increases as a Result of Positions Taken during the Current Period	52			3			48			—
Decreases as a Result of Positions Taken during the Current Period	(3		)	(3		)	—			—
Decreases as a Result of Settlements with Taxing Authorities	(6		)	—			(6		)	—
Decreases due to Lapses of Applicable Statute of Limitations	—			—			—			—
Total Amount of Unrecognized Tax Benefits as of December 31, 2018	$	318		$	108		$	151		$	54
Accumulated Deferred Income Taxes Associated with Unrecognized Tax Benefits	(173		)	(57		)	(104		)	(12		)
Regulatory Asset—Unrecognized Tax Benefits	(46		)	(46		)	—			—
Total Amount of Unrecognized Tax Benefits that if Recognized, would Impact the Effective Tax Rate (including Interest and Penalties)	$	99		$	5		$	47		$	42

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




2017	PSEG			PSE&G			PSEG Power			Energy Holdings
	Millions
Total Amount of Unrecognized Tax Benefits as of January 1, 2017	$	328		$	140		$	128		$	57
Increases as a Result of Positions Taken in a Prior Period	40			15			18			8
Decreases as a Result of Positions Taken in a Prior Period	(32		)	(11		)	(10		)	(13		)
Increases as a Result of Positions Taken during the Current Period	12			5			6			1
Decreases as a Result of Positions Taken during the Current Period	(1		)	(1		)	—			—
Decreases as a Result of Settlements with Taxing Authorities	—			—			—			—
Decreases due to Lapses of Applicable Statute of Limitations	(13		)	(13		)	—			—
Total Amount of Unrecognized Tax Benefits as of December 31, 2017	$	334		$	135		$	142		$	53
Accumulated Deferred Income Taxes Associated with Unrecognized Tax Benefits	(157		)	(73		)	(72		)	(12		)
Regulatory Asset—Unrecognized Tax Benefits	(56		)	(56		)	—			—
Total Amount of Unrecognized Tax Benefits that if Recognized, would Impact the Effective Tax Rate (including Interest and Penalties)	$	121		$	6		$	70		$	41

PSEG and its subsidiaries include accrued interest and penalties related to uncertain tax positions required to be recorded as Income Tax Expense in the Consolidated Statements of Operations. Accumulated interest and penalties that are recorded on the Consolidated Balance Sheets on uncertain tax positions were as follows:




	Accumulated Interest and Penalties on Uncertain Tax Positions as of December 31,
	2019		2018		2017
	Millions
PSEG	$	40	$	43	$	70
PSE&G	$	16	$	12	$	25
PSEG Power	$	12	$	9	$	24
Energy Holdings	$	13	$	22	$	21

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

It is reasonably possible that total unrecognized tax benefits will significantly increase or decrease within the next twelve months due to either agreements with various taxing authorities upon audit, the expiration of the Statute of Limitations, or other pending tax matters. These potential increases or decreases are as follows:




Possible (Increase)/Decrease in Total Unrecognized Tax Benefits	Over the next 12 Months
	Millions
PSEG	$	190
PSE&G	$	107
PSEG Power	$	77

A description of income tax years that remain subject to examination by material jurisdictions, where an examination has not already concluded are:




	PSEG	PSE&G	PSEG Power
United States
Federal	2011-2018	N/A	N/A
New Jersey	2011-2018	2011-2018	N/A
Pennsylvania	2015-2018	2015-2018	N/A
Connecticut	2016-2018	N/A	N/A
Maryland	2016-2018	N/A	N/A
New York	2017-2018	N/A	N/A

New Jersey State Tax Reform

In July 2018, the State of New Jersey made changes to its income tax laws, including imposing a temporary surtax on allocated corporate taxable income of 2.5% effective January 1, 2018 and 2019 and 1.5% in 2020 and 2021, as well as requiring corporate taxpayers to file in a combined reporting group as defined under New Jersey law starting in 2019. Both provisions include an exemption for public utilities. PSEG believes PSE&G meets the definition of a public utility and, therefore, will not be impacted by the temporary surtax or be included in the combined reporting group.

The State of New Jersey issued further guidance regarding the temporary surtax and clarified that New Jersey net operating loss carryovers can be deducted in computing a taxpayer’s entire net income. This guidance has the effect of lowering or eliminating the temporary surtax.

There are certain aspects of the law that remain unclear. In particular, PSEG anticipates that the State of New Jersey will issue clarifying guidance regarding the combined reporting rules. Any further guidance or clarification could impact PSEG’s and PSEG Power’s financial statements.

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 23. Accumulated Other Comprehensive Income (Loss), Net of Tax




PSEG	Other Comprehensive Income (Loss)
Accumulated Other Comprehensive Income (Loss)	Cash Flow Hedges			Pension and OPEB Plans			Available-for -Sale Securities			Total
	Millions
Balance as of December 31, 2016	$	2		$	(398	)	$	133		$	(263	)
Other Comprehensive Income before Reclassifications	—			(32		)	109			77
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)	(2		)	24			(65		)	(43		)
Net Current Period Other Comprehensive Income (Loss)	(2		)	(8		)	44			34
Balance as of December 31, 2017	$	—		$	(406	)	$	177		$	(229	)
Cumulative Effect Adjustment to Reclassify Unrealized Net Gains on Equity Investments to Retained Earnings	—			—			(176		)	(176		)
Current Period Other Comprehensive Income (Loss)
Other Comprehensive Income before Reclassifications	(1		)	17			(25		)	(9		)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)	—			29			8			37
Net Current Period Other Comprehensive Income (Loss)	(1		)	46			(17		)	28
Net Change in Accumulated Other Comprehensive Income (Loss)	(1		)	46			(193		)	(148		)
Balance as of December 31, 2018	$	(1	)	$	(360	)	$	(16	)	$	(377	)
Cumulative Effect Adjustment to Reclassify Stranded Tax Effects Resulting in the Change in the Federal Corporate Income Tax to Retained Earnings	—			(81		)	—			(81		)
Current Period Other Comprehensive Income (Loss)
Other Comprehensive Income before Reclassifications	(17		)	(70		)	49			(38		)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)	3			12			(8		)	7
Net Current Period Other Comprehensive Income (Loss)	(14		)	(58		)	41			(31		)
Net Change in Accumulated Other Comprehensive Income (Loss)	(14		)	(139		)	41			(112		)
Balance as of December 31, 2019	$	(15	)	$	(499	)	$	25		$	(489	)

PSEG Power	Other Comprehensive Income (Loss)
Accumulated Other Comprehensive Income (Loss)	Cash Flow Hedges			Pension and OPEB Plans			Available-for -Sale Securities			Total
	Millions
Balance as of December 31, 2016	$	—		$	(340	)	$	129		$	(211	)
Other Comprehensive Income before Reclassifications	—			(28		)	106			78
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)	—			21			(60		)	(39		)
Net Current Period Other Comprehensive Income (Loss)	—			(7		)	46			39
Balance as of December 31, 2017	$	—		$	(347	)	$	175		$	(172	)
Cumulative Effect Adjustment to Reclassify Unrealized Net Gains on Equity Investments to Retained Earnings	—			—			(175		)	(175		)
Current Period Other Comprehensive Income (Loss)
Other Comprehensive Income before Reclassifications	—			16			(19		)	(3		)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)	—			25			6			31
Net Current Period Other Comprehensive Income (Loss)	—			41			(13		)	28
Net Change in Accumulated Other Comprehensive Income (Loss)	—			41			(188		)	(147		)
Balance as of December 31, 2018	$	—		$	(306	)	$	(13	)	$	(319	)
Cumulative Effect Adjustment to Reclassify Stranded Tax Effects Resulting in the Change in the Federal Corporate Income Tax to Retained Earnings	—			(69		)	—			(69		)
Current Period Other Comprehensive Income (Loss)
Other Comprehensive Income before Reclassifications	—			(55		)	38			(17		)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)	—			10			(6		)	4
Net Current Period Other Comprehensive Income (Loss)	—			(45		)	32			(13		)
Net Change in Accumulated Other Comprehensive Income (Loss)	—			(114		)	32			(82		)
Balance as of December 31, 2019	$	—		$	(420	)	$	19		$	(401	)

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





PSEG		Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) to Income Statement
		Year Ended December 31, 2017
Description of Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)	Location of Pre-Tax Amount in Statement of Operations	Pre-Tax Amount			Tax (Expense) Benefit			After-Tax Amount
		Millions
Cash Flow Hedges
Interest Rate Swaps	Interest Expense	$	3		$	(1	)	$	2
Total Cash Flow Hedges		3			(1		)	2
Pension and OPEB Plans
Amortization of Prior Service (Cost) Credit	Non-Operating Pension and OPEB Credits (Costs)	10			(4		)	6
Amortization of Actuarial Loss	Non-Operating Pension and OPEB Credits (Costs)	(51		)	21			(30		)
Total Pension and OPEB Plans		(41		)	17			(24		)
Available-for-Sale Securities
Realized Gains (Losses) and Other-Than-Temporary Impairments (OTTI)	Net Gains (Losses) on Trust Investments	134			(69		)	65
Total Available-for-Sale Securities		134			(69		)	65
Total		$	96		$	(53	)	$	43

PSEG Power		Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) to Income Statement
		Year Ended December 31, 2017
Description of Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)	Location of Pre-Tax Amount in Statement of Operations	Pre-Tax Amount			Tax (Expense) Benefit			After-Tax Amount
		Millions
Pension and OPEB Plans
Amortization of Prior Service (Cost) Credit	Non-Operating Pension and OPEB Credits (Costs)	$	9		$	(4	)	$	5
Amortization of Actuarial Loss	Non-Operating Pension and OPEB Credits (Costs)	(44		)	18			(26		)
Total Pension and OPEB Plans		(35		)	14			(21		)
Available-for-Sale Securities
Realized Gains (Losses) and OTTI	Net Gains (Losses) on Trust Investments	125			(65		)	60
Total Available-for-Sale Securities		125			(65		)	60
Total		$	90		$	(51	)	$	39

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





PSEG		Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) to Income Statement
		Year Ended December 31, 2018
Description of Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)	Location of Pre-Tax Amount in Statement of Operations	Pre-Tax Amount			Tax (Expense) Benefit			After-Tax Amount
		Millions
Pension and OPEB Plans
Amortization of Prior Service (Cost) Credit	Non-Operating Pension and OPEB Credits (Costs)	$	6		$	(2	)	$	4
Amortization of Actuarial Loss	Non-Operating Pension and OPEB Credits (Costs)	(47		)	14			(33		)
Total Pension and OPEB Plans		(41		)	12			(29		)
Available-for-Sale Securities
Realized Gains (Losses)	Net Gains (Losses) on Trust Investments	(13		)	5			(8		)
Total Available-for-Sale Securities		(13		)	5			(8		)
Total		$	(54	)	$	17		$	(37	)

PSEG Power		Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) to Income Statement
		Year Ended December 31, 2018
Description of Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)	Location of Pre-Tax Amount in Statement of Operations	Pre-Tax Amount			Tax (Expense) Benefit			After-Tax Amount
		Millions
Pension and OPEB Plans
Amortization of Prior Service (Cost) Credit	Non-Operating Pension and OPEB Credits (Costs)	$	5		$	(1	)	$	4
Amortization of Actuarial Loss	Non-Operating Pension and OPEB Credits (Costs)	(40		)	11			(29		)
Total Pension and OPEB Plans		(35		)	10			(25		)
Available-for-Sale Securities
Realized Gains (Losses)	Net Gains (Losses) on Trust Investments	(11		)	5			(6		)
Total Available-for-Sale Securities		(11		)	5			(6		)
Total		$	(46	)	$	15		$	(31	)

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





PSEG		Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) to Income Statement
		Year Ended December 31, 2019
Description of Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)	Location of Pre-Tax Amount in Statement of Operations	Pre-Tax Amount			Tax (Expense) Benefit			After-Tax Amount
		Millions
Cash Flow Hedges
Interest Rate Swaps	Interest Expense	$	(4	)	$	1		$	(3	)
Total Cash Flow Hedges		(4		)	1			(3		)
Pension and OPEB Plans
Amortization of Prior Service (Cost) Credit	Non-Operating Pension and OPEB Credits (Costs)	26			(7		)	19
Amortization of Actuarial Loss	Non-Operating Pension and OPEB Credits (Costs)	(43		)	12			(31		)
Total Pension and OPEB Plans		(17		)	5			(12		)
Available-for-Sale Securities
Realized Gains (Losses)	Net Gains (Losses) on Trust Investments	13			(5		)	8
Total Available-for-Sale Securities		13			(5		)	8
Total		$	(8	)	$	1		$	(7	)

PSEG Power		Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) to Income Statement
		Year Ended December 31, 2019
Description of Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)	Location of Pre-Tax Amount in Statement of Operations	Pre-Tax Amount			Tax (Expense) Benefit			After-Tax Amount
		Millions
Pension and OPEB Plans
Amortization of Prior Service (Cost) Credit	Non-Operating Pension and OPEB Credits (Costs)	$	23		$	(7	)	$	16
Amortization of Actuarial Loss	Non-Operating Pension and OPEB Credits (Costs)	(36		)	10			(26		)
Total Pension and OPEB Plans		(13		)	3			(10		)
Available-for-Sale Securities
Realized Gains (Losses)	Net Gains (Losses) on Trust Investments	10			(4		)	6
Total Available-for-Sale Securities		10			(4		)	6
Total		$	(3	)	$	(1	)	$	(4	)

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 24. Earnings Per Share (EPS) and Dividends

EPS

Diluted EPS is calculated by dividing Net Income by the weighted average number of shares of common stock outstanding, including shares issuable upon exercise of stock options outstanding or vesting of restricted stock awards granted under PSEG’s stock compensation plans and upon payment of PSUs or RSUs. For additional information on PSEG’s stock compensation plans see Note 20. Stock Based Compensation. The following table shows the effect of these stock options, PSUs and RSUs on the weighted average number of shares outstanding used in calculating diluted EPS:




	Years Ended December 31,
	2019				2018				2017
	Basic		Diluted		Basic		Diluted		Basic		Diluted
EPS Numerator:
(Millions)
Net Income	$	1,693	$	1,693	$	1,438	$	1,438	$	1,574	$	1,574
EPS Denominator:
(Millions)
Weighted Average Common Shares Outstanding	504		504		504		504		505		505
Effect of Stock Based Compensation Awards	—		3		—		3		—		2
Total Shares	504		507		504		507		505		507
EPS:
Net Income	$	3.35	$	3.33	$	2.85	$	2.83	$	3.12	$	3.10

For additional information on all the types of long-term incentive awards, see Note 20. Stock Based Compensation.

Dividends




	Years Ended December 31,
Dividend Payments on Common Stock	2019		2018		2017
Per Share	$	1.88	$	1.80	$	1.72
in Millions	$	950	$	910	$	870

On February 18, 2020, PSEG’s Board of Directors approved a $0.49 per share common stock dividend for the first quarter of 2020.

Note 25. Financial Information by Business Segment

Basis of Organization

PSEG’s, PSE&G’s and PSEG Power’s operating segments were determined by management in accordance with GAAP. These segments were determined based on how management measures performance based on segment Net Income, as illustrated in the following table, and how resources are allocated to each business. PSEG’s reportable segments are PSE&G and PSEG Power. PSE&G and PSEG Power each represent a single reportable segment and therefore no separate segment information is provided for these Registrants.

PSE&G

PSE&G earns revenues from its tariffs, under which it provides electric transmission and electric and gas distribution services to residential, commercial and industrial customers in New Jersey. The rates charged for electric transmission are regulated by FERC while the rates charged for electric and gas distribution are regulated by the BPU. Revenues are also earned from several other activities such as solar investments, sundry sales, the appliance service business, wholesale transmission services and other miscellaneous services.

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PSEG Power

PSEG Power earns revenues by selling energy, capacity and ancillary services on a wholesale basis under contract to power marketers and to load-serving entities and by bidding energy, capacity and ancillary services into the markets for these products. A significant portion of PSEG Power’s revenue is obtained from the various ISOs in which PSEG Power operates. The ISOs act similarly to a clearing house for all of its members in that all revenues paid out are collected from market participants based on their consumption of energy and energy-related products. PSEG Power also enters into bilateral contracts for energy, capacity, FTRs, gas, emission allowances and other energy-related contracts to optimize the value of its portfolio of generating assets and its electric and gas supply obligations. In addition, PSEG Power’s Salem 1, Salem 2 and Hope Creek nuclear plants receive ZEC revenue from the EDCs in New Jersey including PSE&G.

Other

This category includes amounts applicable to Energy Holdings and PSEG LI, which are below the quantitative threshold for separate disclosure as reportable segments. Other also includes amounts applicable to PSEG (parent corporation) and Services.




	PSE&G		PSEG Power		Other (A)			Eliminations (B)			Consolidated Total
	Millions
Year Ended December 31, 2019
Operating Revenues	$	6,625	$	4,385	$	549		$	(1,483	)	$	10,076
Depreciation and Amortization	837		377		34			—			1,248
Operating Income (Loss)	1,469		448		26			—			1,943
Income from Equity Method Investments	—		14		—			—			14
Interest Income	18		7		6			(5		)	26
Interest Expense	361		119		94			(5		)	569
Income (Loss) before Income Taxes	1,343		671		(64		)	—			1,950
Income Tax Expense (Benefit)	93		203		(39		)	—			257
Net Income (Loss) (C)	$	1,250	$	468	$	(25	)	$	—		$	1,693
Gross Additions to Long-Lived Assets	$	2,542	$	607	$	17		$	—		$	3,166
As of December 31, 2019
Total Assets	$	33,266	$	12,805	$	2,715		$	(1,056	)	$	47,730
Investments in Equity Method Subsidiaries	$	—	$	66	$	1		$	—		$	67




	PSE&G		PSEG Power		Other (A)		Eliminations (B)			Consolidated Total
	Millions
Year Ended December 31, 2018
Operating Revenues	$	6,471	$	4,146	$	571	$	(1,492	)	$	9,696
Depreciation and Amortization	770		354		34		—			1,158
Operating Income (Loss)	1,606		596		96		—			2,298
Income from Equity Method Investments	—		15		—		—			15
Interest Income	21		5		9		(6		)	29
Interest Expense	333		76		73		(6		)	476
Income (Loss) before Income Taxes	1,411		431		13		—			1,855
Income Tax Expense (Benefit)	344		66		7		—			417
Net Income (Loss)	$	1,067	$	365	$	6	$	—		$	1,438
Gross Additions to Long-Lived Assets	$	2,896	$	996	$	20	$	—		$	3,912
As of December 31, 2018
Total Assets	$	31,109	$	12,594	$	2,604	$	(981	)	$	45,326
Investments in Equity Method Subsidiaries	$	—	$	86	$	—	$	—		$	86

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




	PSE&G		PSEG Power			Other (A)			Eliminations (B)			Consolidated Total
	Millions
Year Ended December 31, 2017
Operating Revenues	$	6,324	$	3,860		$	466		$	(1,556	)	$	9,094
Depreciation and Amortization	685		1,268			33			—			1,986
Operating Income (Loss)	1,760		(367		)	36			—			1,429
Income from Equity Method Investments	—		14			—			—			14
Interest Income	24		3			5			(2		)	30
Interest Expense	303		50			40			(2		)	391
Income (Loss) before Income Taxes	1,536		(250		)	(18		)	—			1,268
Income Tax Expense (Benefit)	563		(729		)	(140		)	—			(306		)
Net Income (Loss)	$	973	$	479		$	122		$	—		$	1,574
Gross Additions to Long-Lived Assets	$	2,919	$	1,231		$	40		$	—		$	4,190
As of December 31, 2017
Total Assets	$	28,554	$	12,418		$	2,666		$	(922	)	$	42,716
Investments in Equity Method Subsidiaries	$	—	$	87		$	—		$	—		$	87


(A)	Includes amounts applicable to Energy Holdings and PSEG LI, which are below the quantitative threshold for separate disclosure as reportable segments. Other also includes amounts applicable to PSEG (parent corporation) and Services.


(B)	Intercompany eliminations primarily relate to intercompany transactions between PSE&G and PSEG Power. For a further discussion of the intercompany transactions between PSE&G and PSEG Power, see Note 26. Related-Party Transactions.


(C)	Includes an after-tax loss of $286 million related to the sale of PSEG Power’s ownership interests in the Keystone and Conemaugh generation plants. See Note 4. Early Plant Retirements/Asset Dispositions for additional information.

Note 26. Related-Party Transactions

The following discussion relates to intercompany transactions, which are eliminated during the PSEG consolidation process in accordance with GAAP.

PSE&G

The financial statements for PSE&G include transactions with related parties presented as follows:




	Years Ended December 31,
Related Party Transactions	2019		2018		2017
	Millions
Billings from Affiliates:
Net Billings from PSEG Power (A)	$	1,512	$	1,514	$	1,580
Administrative Billings from Services (B)	310		333		331
Total Billings from Affiliates	$	1,822	$	1,847	$	1,911

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




	Years Ended December 31,
Related Party Transactions	2019		2018
	Millions
Receivables from PSEG (C)	$	1	$	123
Payable to PSEG Power (A)	$	307	$	245
Payable to Services (B)	83		76
Accounts Payable—Affiliated Companies	$	390	$	321
Working Capital Advances to Services (D)	$	33	$	33
Long-Term Accrued Taxes Payable	$	115	$	69

PSEG Power

The financial statements for PSEG Power include transactions with related parties presented as follows:




	Years Ended December 31,
Related Party Transactions	2019		2018		2017
	Millions
Billings to Affiliates:
Net Billings to PSE&G (A)	$	1,512	$	1,514	1,580
Billings from Affiliates:
Administrative Billings from Services (B)	$	156	$	145	$	168




	Years Ended December 31,
Related Party Transactions	2019		2018
	Millions
Receivable from PSE&G (A)	$	307	$	245
Receivables from PSEG (C)	101		29
Accounts Receivable—Affiliated Companies	$	408	$	274
Payable to Services (B)	$	5	$	16
Accounts Payable—Affiliated Companies	$	5	$	16
Short-Term Loan to (from) Affiliate (E)	$	149	$	(193	)
Working Capital Advances to Services (D)	$	17	$	17
Long-Term Accrued Taxes Payable	$	115	$	76

(A)

PSE&G has entered into a requirements contract with PSEG Power under which PSEG Power provides the gas supply services needed to meet PSE&G’s BGSS and other contractual requirements. PSEG Power has also entered into contracts to supply energy, capacity and ancillary services to PSE&G through the BGS auction process and sells ZECs to PSE&G under the ZEC program. The rates in the BGS and BGSS contracts and for the ZEC sales are prescribed by the BPU. BGS and BGSS sales are billed and settled on a monthly basis. ZEC sales are billed on a monthly basis and settled annually following completion of each energy year. In addition, PSEG Power and PSE&G provide certain technical services for each other generally at cost in compliance with FERC and BPU affiliate rules.


(B)	Services provides and bills administrative services to PSE&G and PSEG Power at cost. In addition, PSE&G and PSEG Power have other payables to Services, including amounts related to certain common costs, which Services pays on behalf of each of the operating companies.

(C)

PSEG files a consolidated federal income tax return with its affiliated companies. A tax allocation agreement exists between PSEG and each of its affiliated companies. The general operation of these agreements is that the subsidiary company will compute its taxable income on a stand-alone basis. If the result is a net tax liability, such amount shall be paid to PSEG. If there are net operating losses and/or tax credits, the subsidiary shall receive payment for the tax savings from PSEG to the extent that PSEG is able to utilize those benefits.


(D)	PSE&G and PSEG Power have advanced working capital to Services. The amounts are included in Other Noncurrent Assets on PSE&G’s and PSEG Power’s Consolidated Balance Sheets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(E)	PSEG Power’s short-term loans with PSEG are for working capital and other short-term needs. Interest Income and Interest Expense relating to these short-term funding activities were immaterial.

Note 27. Selected Quarterly Data (Unaudited)

The information shown in the following tables, in the opinion of PSEG, PSE&G and PSEG Power includes all adjustments, consisting only of normal recurring accruals, necessary to fairly present such amounts.




	Quarter Ended
	March 31,				June 30, (A)				September 30,				December 31, (B)
	2019		2018		2019		2018		2019		2018		2019		2018
PSEG Consolidated:	Millions, except per share data
Operating Revenues	$	2,980	$	2,818	$	2,316	$	2,016	$	2,302	$	2,394	$	2,478	$	2,468
Operating Income	$	786	$	832	$	160	$	411	$	490	$	554	$	507	$	501
Net Income	$	700	$	558	$	153	$	269	$	403	$	412	$	437	$	199
Earnings Per Share:
Basic:
Net Income	$	1.39	$	1.11	$	0.30	$	0.53	$	0.80	$	0.82	$	0.86	$	0.39
Diluted:
Net Income	$	1.38	$	1.10	$	0.30	$	0.53	$	0.79	$	0.81	$	0.86	$	0.39
Weighted Average Common Shares Outstanding:
Basic	504		504		504		504		504		504		504		504
Diluted	507		507		507		507		507		507		507		508




	Quarter Ended
	March 31,				June 30,				September 30,				December 31,
	2019		2018		2019		2018		2019		2018		2019		2018
PSE&G:	Millions
Operating Revenues	$	2,032	$	1,845	$	1,382	$	1,386	$	1,604	$	1,595	$	1,607	$	1,645
Operating Income	$	465	$	482	$	282	$	358	$	392	$	421	$	330	$	345
Net Income	$	403	$	319	$	227	$	231	$	344	$	278	$	276	$	239




	Quarter Ended
	March 31,				June 30, (A)					September 30,				December 31, (B)
	2019		2018		2019			2018		2019		2018		2019		2018
PSEG Power:	Millions
Operating Revenues	$	1,416	$	1,403	$	1,083		$	767	$	771	$	868	$	1,115	$	1,108
Operating Income (Loss)	$	301	$	329	$	(86	)	$	42	$	79	$	112	$	154	$	113
Net Income (Loss)	$	296	$	234	$	(40	)	$	41	$	53	$	125	$	159	$	(35	)


(A)	The decrease in Operating Income and Net Income at PSEG consolidated and PSEG Power in the second quarter of 2019 as compared to the same quarter in 2018 was primarily due to the loss in 2019 related to the sale of PSEG Power’s ownership interests in the Keystone and Conemaugh fossil generation plants, offsetting MTM net gains in 2019 as compared to net losses in 2018.


(B)	The increase in Net Income at PSEG consolidated and PSEG Power in the fourth quarter of 2019 as compared to the same quarter in 2018 was primarily due to net gains in 2019 as compared to net losses in 2018 on equity securities in PSEG Power’s NDT Fund.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 28. Guarantees of Debt

PSEG Power’s Senior Notes are fully and unconditionally and jointly and severally guaranteed by its subsidiaries, PSEG Fossil LLC, PSEG Nuclear LLC and PSEG Energy Resources & Trade LLC. The following tables present condensed financial information for the guarantor subsidiaries, as well as PSEG Power’s non-guarantor subsidiaries, as of December 31, 2019 and 2018 and for the years ended December 31, 2019, 2018 and 2017.




	PSEG Power			Guarantor Subsidiaries			Other Subsidiaries			Consolidating Adjustments			Total
	Millions
Year Ended December 31, 2019
Operating Revenues	$	—		$	4,315		$	299		$	(229	)	$	4,385
Operating Expenses	12			3,852			302			(229		)	3,937
Operating Income (Loss)	(12		)	463			(3		)	—			448
Equity Earnings (Losses) of Subsidiaries	554			(34		)	14			(520		)	14
Net Gains (Losses) on Trust Investments	3			250			—			—			253
Other Income (Deductions)	168			206			—			(320		)	54
Non-Operating Pension and OPEB Credits (Costs)	—			20			1			—			21
Interest Expense	(284		)	(104		)	(51		)	320			(119		)
Income Tax Benefit (Expense)	39			(265		)	23			—			(203		)
Net Income (Loss)	$	468		$	536		$	(16	)	$	(520	)	$	468
Comprehensive Income (Loss)	$	455		$	565		$	(16	)	$	(549	)	$	455
As of December 31, 2019
Current Assets	$	4,235		$	1,870		$	376		$	(4,755	)	$	1,726
Property, Plant and Equipment, net	46			4,426			3,954			—			8,426
Investment in Subsidiaries	5,363			1,075			—			(6,438		)	—
Noncurrent Assets	300			2,467			100			(214		)	2,653
Total Assets	$	9,944		$	9,838		$	4,430		$	(11,407	)	$	12,805
Current Liabilities	$	1,010		$	2,691		$	2,113		$	(4,755	)	$	1,059
Noncurrent Liabilities	610			2,104			922			(214		)	3,422
Long-Term Debt	2,434			—			—			—			2,434
Member’s Equity	5,890			5,043			1,395			(6,438		)	5,890
Total Liabilities and Member’s Equity	$	9,944		$	9,838		$	4,430		$	(11,407	)	$	12,805
Year Ended December 31, 2019
Net Cash Provided By (Used In) Operating Activities	$	107		$	1,507		$	94		$	(229	)	$	1,479
Net Cash Provided By (Used In) Investing Activities	$	119		$	(846	)	$	(257	)	$	223		$	(761	)
Net Cash Provided By (Used In) Financing Activities	$	(225	)	$	(664	)	$	164		$	6		$	(719	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




	PSEG Power			Guarantor Subsidiaries			Other Subsidiaries			Consolidating Adjustments			Total
	Millions
Year Ended December 31, 2018
Operating Revenues	$	—		$	4,078		$	224		$	(156	)	$	4,146
Operating Expenses	14			3,460			232			(156		)	3,550
Operating Income (Loss)	(14		)	618			(8		)	—			596
Equity Earnings (Losses) of Subsidiaries	406			(28		)	15			(378		)	15
Net Gains (Losses) on Trust Investments	(1		)	(139		)	—			—			(140		)
Other Income (Deductions)	135			166			—			(280		)	21
Non-Operating Pension and OPEB Credits (Costs)	—			13			2			—			15
Interest Expense	(230		)	(96		)	(30		)	280			(76		)
Income Tax Benefit (Expense)	69			(143		)	8			—			(66		)
Net Income (Loss)	$	365		$	391		$	(13	)	$	(378	)	$	365
Comprehensive Income (Loss)	$	393		$	379		$	(13	)	$	(366	)	$	393
As of December 31, 2018
Current Assets	$	4,317		$	1,479		$	304		$	(4,593	)	$	1,507
Property, Plant and Equipment, net	49			4,971			3,822			—			8,842
Investment in Subsidiaries	5,062			1,107			—			(6,169		)	—
Noncurrent Assets	273			2,109			101			(238		)	2,245
Total Assets	$	9,701		$	9,666		$	4,227		$	(11,000	)	$	12,594
Current Liabilities	$	437		$	2,971		$	2,027		$	(4,593	)	$	842
Noncurrent Liabilities	513			1,996			730			(238		)	3,001
Long-Term Debt	2,791			—			—			—			2,791
Member’s Equity	5,960			4,699			1,470			(6,169		)	5,960
Total Liabilities and Member’s Equity	$	9,701		$	9,666		$	4,227		$	(11,000	)	$	12,594
Year Ended December 31, 2018
Net Cash Provided By (Used In) Operating Activities	$	(74	)	$	1,007		$	42		$	109		$	1,084
Net Cash Provided By (Used In) Investing Activities	$	(402	)	$	(1,034	)	$	(406	)	$	791		$	(1,051	)
Net Cash Provided By (Used In) Financing Activities	$	476		$	27		$	354		$	(900	)	$	(43	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




	PSEG Power			Guarantor Subsidiaries			Other Subsidiaries			Consolidating Adjustments			Total
	Millions
Year Ended December 31, 2017
Operating Revenues	$	—		$	3,821		$	174		$	(135	)	$	3,860
Operating Expenses	8			4,159			195			(135		)	4,227
Operating Income (Loss)	(8		)	(338		)	(21		)	—			(367		)
Equity Earnings (Losses) of Subsidiaries	567			60			14			(627		)	14
Net Gains (Losses) on Trust Investments	3			122			—			—			125
Other Income (Deductions)	71			91			2			(144		)	20
Non-Operating Pension and OPEB Credits (Costs)	—			8			—			—			8
Interest Expense	(128		)	(49		)	(17		)	144			(50		)
Income Tax Benefit (Expense)	(26		)	588			167			—			729
Net Income (Loss)	$	479		$	482		$	145		$	(627	)	$	479
Comprehensive Income (Loss)	$	518		$	529		$	145		$	(674	)	$	518
Year Ended December 31, 2017
Net Cash Provided By (Used In) Operating Activities	$	(42	)	$	1,185		$	238		$	(55	)	$	1,326
Net Cash Provided By (Used In) Investing Activities	$	506		$	(448	)	$	(525	)	$	(765	)	$	(1,232	)
Net Cash Provided By (Used In) Financing Activities	$	(464	)	$	(736	)	$	307		$	820		$	(73	)

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