Public Service Enterprise Group 10-Q 2022-06-30

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED June 30, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrants have submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrants were required to submit such files). Yes ☒ No ☐

Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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If any of the registrants is an emerging growth company, indicate by check mark if such registrant has elected not to use

the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether any of the registrants is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 19, 2022, Public Service Enterprise Group Incorporated had outstanding 498,860,141 shares of its sole class of Common Stock, without par value.

As of July 19, 2022, Public Service Electric and Gas Company had issued and outstanding 132,450,344 shares of Common Stock, without nominal or par value, all of which were privately held, beneficially and of record, by Public Service Enterprise Group Incorporated.

Public Service Electric and Gas Company is a wholly owned subsidiary of Public Service Enterprise Group Incorporated and meets the conditions set forth in General Instruction H(1) of Form 10-Q. Public Service Electric and Gas Company is filing its Quarterly Report on Form 10-Q with the reduced disclosure format authorized by General Instruction H.

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This combined MD&A is separately filed by Public Service Enterprise Group Incorporated (PSEG) and Public Service Electric and Gas Company (PSE&G). Information contained herein relating to any individual company is filed by such company on its own behalf.

PSEG’s business consists of two reportable segments, PSE&G and PSEG Power LLC (PSEG Power), our principal direct wholly owned subsidiaries, which are:

• 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, and

• PSEG Power**—which is an energy supply company that integrates the operations of its merchant nuclear generating assets with its fuel supply functions through competitive energy sales via its principal direct wholly owned subsidiaries. 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 Energy Holdings L.L.C. (Energy Holdings), which holds our investments in offshore wind ventures and legacy lease investments; PSEG Long Island LLC (PSEG LI), which operates the Long Island Power Authority’s (LIPA) transmission and distribution (T&D) system under an Operations Services Agreement (OSA); and PSEG Services Corporation (Services), which provides certain management, administrative and general services to PSEG and its subsidiaries at cost.

Our business discussion in Part I, Item 1. Business of our 2021 Annual Report on 10-K (Form 10-K) provides a review of the regions and markets where we operate and compete, as well as our strategy for conducting our businesses within these markets, focusing on operational excellence, financial strength and making disciplined investments. Our risk factor discussion in Part I, Item 1A. Risk Factors of Form 10-K provides information about factors that could have a material adverse impact on our businesses. The following supplements that discussion and the discussion included in the Executive Overview of 2021 and Future Outlook provided in Item 7 in our Form 10-K by describing significant events and business developments that have occurred during 2022 and changes to the key factors that we expect may drive our future performance. The following discussion refers to the Condensed Consolidated Financial Statements (Statements) and the Related Notes to Condensed Consolidated Financial Statements (Notes). This discussion should be read in conjunction with such Statements, Notes and the Form 10-K.

EXECUTIVE OVERVIEW OF 2022 AND FUTURE OUTLOOK

We are a public utility holding company that, acting through our wholly owned subsidiaries, is a predominantly regulated electric and gas utility and a carbon-free generation and infrastructure company. We are focused on meeting customer expectations and being well aligned with public policy objectives by investing to modernize our energy infrastructure, improve reliability, increase energy efficiency and deliver cleaner energy. Our business plan focuses on achieving growth by allocating capital primarily toward regulated and contracted investments in an effort to improve the sustainability and predictability of our business and reduce the impact of fluctuating commodity prices. In furtherance of these goals, over the past few years, our investments have altered our business mix to reflect a higher percentage of earnings contribution by PSE&G, which improves the sustainability and predictability of our earnings and cash flows. In February 2022, we completed the sale of PSEG Power’s 6,750 MW of fossil generation located in New Jersey, Connecticut, New York and Maryland, which represented an important milestone in our strategy and has further altered our business mix, resulting in an even higher percentage of earnings contribution by PSE&G going forward and provides more financial flexibility.

The ongoing coronavirus (COVID-19) pandemic and associated government actions and economic effects continue to impact our businesses as discussed further below.

PSE&G

At PSE&G, our focus is on enhancing reliability and resiliency of our T&D system, meeting customer expectations and supporting public policy objectives by investing capital in T&D infrastructure and clean energy programs. For the years 2021-2025, PSE&G’s capital investment program is estimated to be in a range of $14 billion to $16 billion, resulting in an expected compound annual growth in rate base of 6% to 7.5% from year-end 2021 to year-end 2025. The low end of this range includes the Infrastructure Advancement Program (IAP) which the BPU approved in June 2022 and an extension of our Gas System Modernization Program (GSMP) and Clean Energy Future (CEF)-Energy Efficiency (EE) program at their average annual investment levels, as these programs are expected to continue at least at those current rates beyond their currently

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approved timeframe of 2023. The IAP is a $511 million investment program made over four years to improve the reliability of the “last mile” of our electric distribution system and address aging substations and gas metering and regulating stations, with $351 million of the investment being recovered through periodic rate updates and the remaining $160 million recovered through future base rate cases. The upper end of our capital investment range includes an extension of our Energy Strong program, which otherwise concludes in 2023, as well as the remaining portion of our CEF proposal (portion of Electric Vehicle (EV) and Energy Storage (ES) programs) and a potentially higher amount of investments for GSMP and CEF-EE beyond current levels. During 2022, we expect to file for extensions of our GSMP and CEF-EE program, which we expect will be resolved in 2023. A remaining component of our CEF-EV program related to medium and heavy duty charging infrastructure is the subject of a stakeholder process that the BPU began in 2021. We currently anticipate that this effort will conclude with PSE&G submitting a filing later in 2022 targeting infrastructure investments for the medium and heavy duty EV market. Our CEF-ES program is being held in abeyance pending a future written framework from the BPU.

PSEG Power

In May 2021, PSEG Power Ventures LLC (Power Ventures), a direct wholly owned subsidiary of PSEG Power, entered into a purchase agreement with Quattro Solar, LLC, an affiliate of LS Power, relating to the sale by Power Ventures of 100% of its ownership interest in PSEG Solar Source LLC (Solar Source) including its related assets and liabilities. The transaction closed in June 2021.

In August 2021, PSEG entered into two agreements to sell PSEG Power’s 6,750 MW fossil generating portfolio to newly formed subsidiaries of ArcLight Energy Partners Fund VII, L.P., a fund controlled by ArcLight Capital Partners, LLC. In February 2022, PSEG completed the sale of this fossil generating portfolio. These transformative transactions reduce overall business risk and earnings volatility, improve PSEG’s financial flexibility and are consistent with PSEG’s climate strategy and sustainability efforts, which are to focus on clean energy investments, methane reduction, and reducing emissions from our operations in order to transition to carbon-free generation.

We seek to achieve operational excellence and manage costs in order to optimize cash flow generation from our nuclear fleet in light of volatile wholesale power and gas prices, environmental considerations and competitive market forces that reward efficiency and reliabilit

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The risk inherent in our market-risk sensitive instruments and positions is the potential loss arising from adverse changes in commodity prices, equity security prices and interest rates as discussed in the Notes to the Condensed Consolidated Financial Statements. It is our policy to use derivatives to manage risk consistent with business plans and prudent practices. We have a Risk Management Committee comprised of executive officers who utilize a risk oversight function to ensure compliance with our corporate policies and risk management practices.

Additionally, we are exposed to counterparty credit losses in the event of non-performance or non-payment. We have a credit management process, which is used to assess, monitor and mitigate counterparty exposure. In the event of non-performance or non-payment by a major counterparty, there may be a material adverse impact on our financial condition, results of operations or net cash flows.

Commodity Contracts

The availability and price of energy-related commodities are subject to fluctuations from factors such as weather, environmental policies, changes in supply and demand, state and federal regulatory policies, market rules and other events. To reduce price risk caused by market fluctuations, we enter into supply contracts and derivative contracts, including forwards, futures, swaps

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and options with approved counterparties. These contracts, in conjunction with physical sales and other services, help reduce risk and optimize the value of owned electric generation capacity.

Value-at-Risk (VaR) Models

VaR represents the potential losses, under normal market conditions, for instruments or portfolios due to changes in market factors, for a specified time period and confidence level. We estimate VaR across our commodity businesses.

MTM VaR consists of MTM derivatives that are economic hedges. The MTM VaR calculation does not include market risks associated with activities that are subject to accrual accounting, primarily our generating facilities and some load-serving activities.

The VaR models used are variance/covariance models adjusted for the change of positions with 95% and 99.5% confidence levels and a one-day holding period for the MTM activities. The models assume no new positions throughout the holding periods; however, we actively manage our portfolio.

From April through June 2022, MTM VaR varied between a low of $76 million and a high of $365 million at the 95% confidence level. The range of VaR was wider for the three months ended June 30, 2022 as compared with the year ended December 31, 2021.

See Item 1. Note 13. Financial Risk Management Activities for a discussion of credit risk.

Disclosure Controls and Procedures

PSEG and PSE&G

We have established and maintain disclosure controls and procedures as defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to provide reasonable assurance that information required to be disclosed in the reports that are filed or submitted under the Exchange Act is recorded, processed, summarized and reported and is accumulated and communicated to the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) of each respective company, as appropriate, by others within the entities to allow timely decisions regarding required disclosure. We have established a disclosure committee which includes several key management employees and which reports directly to the CFO and CEO of each of PSEG and PSE&G. The committee monitors and evaluates the effectiveness of these disclosure controls and procedures. The CFO and CEO of each of PSEG and PSE&G have evaluated the effectiveness of the disclosure controls and procedures and, based on this evaluation, have concluded that disclosure controls and procedures at each respective company were effective at a reasonable assurance level as of the end of the period covered by the report.

Internal Controls

PSEG and PSE&G

There have been no changes in internal control over financial reporting that occurred during the second quarter of 2022 that have materially affected, or are reasonably likely to materially affect, each registrant’s internal control over financial reporting.

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PART II. OTHER INFORMATION

We are party to various lawsuits and environmental and regulatory matters, including in the ordinary course of business. For information regarding material legal proceedings, including updates to information reported in Item 3 of Part I of the Form 10-K, see Part I, Item 1. Note 11. Commitments and Contingent Liabilities.

The discussion of our business and operations in this Quarterly Report on Form 10-Q should be read together with the risk factors contained in Part I, Item 1A of our Form 10-K, which describes various risks and uncertainties that could have a material adverse impact on our business, prospects, financial position, results of operations or cash flows and could cause results to differ materially from those expressed elsewhere in this report. We expect that the risks and uncertainties described in this Form 10-Q and our Form 10-K will be further adversely impacted by the ongoing coronavirus pandemic and any related, sustained economic downturn, which could extend beyond the duration of the pandemic.

Financial market performance directly affects the asset values of our Nuclear Decommissioning Trust (NDT) Fund and defined benefit plan trust funds. Market performance and other factors could decrease the value of trust assets and could result in the need for significant additional funding.

The performance of the financial markets will affect the value of the assets that are held in trust to satisfy our future obligations under our defined benefit plans and to decommission our nuclear generating plants. A decline in the market value of our NDT Fund could increase PSEG Power’s funding requirements to decommission its nuclear plants. A decline in the market value of the defined benefit plan trust funds could increase our pension plan funding requirements and result in increased pension costs in future years. The market value of our trusts could be negatively impacted by adverse financial market conditions that reduce the rate of return on trust assets, decreased interest rates used to measure the required minimum funding levels and future government regulation. Additional funding requirements for our defined benefit plans could be caused by changes in required or voluntary contributions, an increase in the number of employees becoming eligible to retire and changes in life expectancy assumptions. Increased costs could also lead to additional funding requirements for our decommissioning trust. Failure to manage adequately our investments in our NDT Fund and defined benefit plan trusts could result in the need for us to make significant cash contributions in the future to maintain our funding at sufficient levels, which would negatively impact our results of operations, cash flows and financial position.

**ITEM 2.**UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table indicates our common share repurchases during the second quarter of 2022:

(A)In September 2021, PSEG announced a $500 million share repurchase program authorized by the Board of Directors. In December 2021, under this $500 million share repurchase program authorization, PSEG entered into an open market share repurchase plan for $250 million of our common stock. During January and through mid-February 2022, we purchased the full $250 million of common stock under the open market share repurchase plan.

(B)In March 2022, PSEG entered into a Master Confirmation and Supplemental Confirmation with an investment banking firm to effect an accelerated share repurchase agreement (ASR Agreement) of the remaining authorized $250 million of shares of PSEG’s outstanding common stock under PSEG’s $500 million share repurchase program

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authorization. Under the ASR Agreement, PSEG paid $250 million and received initial delivery of approximately 3.0 million shares of common stock in mid-March, representing approximately 80% of the total number of shares of common stock initially underlying the ASR Agreement. In mid-May 2022, the investment banking firm exercised its right to accelerate the termination of the ASR agreement and PSEG received the balance of the shares owed under the ASR Agreement, as presented in the above table.

During the entire term of the ASR Agreement, PSEG purchased an aggregate of 3,584,690 shares under the ASR Agreement at an average price paid per share of $69.74.

Certain information reported in the Form 10-K is updated below. Additionally, certain information is provided for new matters that have arisen subsequent to the filing of the Form 10-K and first quarter 2022 10-Q. References are to the related pages on the Form 10-K.

State Regulation

Gas Capacity Review

December 31, 2021 Form 10-K page 16. In September 2019, the BPU formally opened a stakeholder proceeding to explore gas capacity procurement service to all New Jersey natural gas customers. The BPU retained a consultant and conducted public hearings. PSE&G and other interested parties responded to the BPU’s questions. In June 2022, the BPU accepted the consultant’s key finding that, through 2030, New Jersey’s firm gas capacity can meet firm demand under normal design day conditions. The only potential gas supply shortfall was found during a “1-in-90 design day” (i.e., a 24-hour period in which the temperature is colder than every day, except one in 90 years) and/or a “perfect storm,” which occurs when there is an outage on a transcontinental pipeline during a design day. The BPU noted that its consultant’s analysis - detailing the nature of the pipeline infrastructure, including the numerous receipt and delivery points capable of supporting the State’s GDCs - supports the argument against the need for additional interstate pipeline capacity, including projects like PennEast, and also supports the BPU’s aggressive policy approach to reduce the State’s overall reliance on fossil fuels, and achieve the Governor’s goal of 100% clean energy by 2050.

Grid Modernization

December 31, 2021 Form 10-K page 16. In October 2021, the BPU commenced a stakeholder proceeding to develop and implement a systemic Grid Modernization plan in accordance with strategies outlined in the New Jersey Energy Master Plan. The BPU retained a consultant that gathered detailed and comprehensive information from the State’s electric distribution companies (EDCs), including PSE&G, regarding resource issues and policy changes needed to interconnect the clean energy capacity required under state policy. In June 2022, the BPU’s consultant issued a draft report with its findings and recommendations to update the BPU’s interconnection regulations and processes. We cannot predict the impact on our business or results of operations from this Grid Modernization plan or any laws, rules or regulations promulgated as a result thereof, particularly as they may relate to PSE&G’s electric distribution assets.

Environmental Matters

New Jersey Protecting Against Climate Threats

December 31, 2021 Form 10-K page 19. In June 2022, the NJDEP adopted the Greenhouse Gas Monitoring and Reporting Rule. The NJDEP requires gas utilities to submit an annual report on replacement of mains and service lines in the State and to quantify maintenance-venting events, referred to as blowdown events. In addition, the NJDEP requires registration, recordkeeping, and reporting requirements for facilities with a refrigeration system requiring 50 pounds or more of a refrigerant with high global warming potential. A “refrigeration system” includes industrial process refrigeration utilized at PSE&G and our nuclear facilities.

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A listing of exhibits being filed with this document is as follows:

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SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.

Date: August 2, 2022

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.

Date: August 2, 2022