Public Service Enterprise Group 10-Q 2023-03-31

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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 March 31, 2023

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 April 18, 2023, Public Service Enterprise Group Incorporated had outstanding 498,965,138 shares of its sole class of Common Stock, without par value.

As of April 18, 2023, 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) & Other, primarily comprised of 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), the Federal Energy Regulatory Commission (FERC), and other federal and New Jersey state regulators. PSE&G also invests in regulated solar generation projects and energy efficiency (EE) 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) and other federal regulators and state regulators in the states in which they operate.

The PSEG Power & Other reportable segment also includes amounts related to the parent company as well as PSEG’s other direct wholly owned subsidiaries, which are: PSEG Energy Holdings L.L.C. (Energy Holdings), which holds our investments in legacy lease investments and investments in offshore wind ventures; 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 Item 1. Business of our 2022 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 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 2022 and Future Outlook provided in Item 7 in our Form 10-K by describing significant events and business developments that have occurred during 2023 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 2023 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 nuclear generation business. Our business plan focuses on achieving growth by allocating capital primarily toward regulated investments in an effort to continue to improve the sustainability and predictability of our business. We are focused on investing to modernize our energy infrastructure, improve reliability and resilience, increase EE and deliver cleaner energy to meet customer expectations and be well aligned with public policy objectives. In furtherance of these goals, over the past few years, our investments have simplified our business mix to reflect a higher percentage of earnings contribution by PSE&G. We have further proactively changed our business mix through the sale of our fossil generation portfolio which closed in 2022. See Item 1. Note 3. Early Plant Retirements/Asset Dispositions and Impairments for additional information. In addition, the passage of the Inflation Reduction Act (IRA) established a Production Tax Credit (PTC) for existing nuclear facilities from 2024 through 2032 which is expected to provide downside price protection for our nuclear generation fleet.

PSE&G

At PSE&G, our focus is on investing capital in T&D infrastructure and clean energy programs to enhance the reliability and resiliency of our T&D system, meet customer expectations and support public policy objectives. For the years 2023-2027, PSE&G’s capital investment program is estimated to be in a range of $15.5 billion to $18 billion, resulting in an expected compound annual growth in rate base of 6% to 7.5% from year-end 2022 to year-end 2027. The low end of this range includes an extension of our Gas System Modernization Program (GSMP) and Clean Energy Future (CEF)-EE program at their current average annual investment levels plus inflation, as these programs are expected to continue beyond their currently approved timeframe of 2023. The upper end of our capital investment range includes an extension of our Energy Strong program, which otherwise concludes in 2024, as well as the remaining portion of our CEF proposal (portion of Electric Vehicle (EV) and

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Energy Storage (ES) programs) and a potentially higher amount of investments for GSMP and CEF-EE beyond current levels. We filed for a $320 million short-term extension of our CEF-EE program in September 2022, which we expect will be resolved in 2023. We also filed for a three-year extension of GSMP in March 2023 which would provide for continuation of the program. The $2.5 billion proposal provides for acceleration of the replacement of the remaining cast iron and unprotected steel main in our system as well as initiating projects to introduce the renewable natural gas and hydrogen blending into our existing distribution system. A remaining component of our CEF-EV program related to medium and heavy duty charging infrastructure has been the subject of a stakeholder process that the BPU began in 2021 and we expect that this effort will result in PSE&G submitting a filing targeting infrastructure investments for the medium and heavy duty EV market in 2023. In September 2022, the BPU released a draft Storage Incentive Program proposal and is currently undertaking a stakeholder process to receive comments. In the meantime, our CEF-ES program is being held in abeyance. Pursuant to our GSMP II and Energy Strong II programs, we are required to file a distribution base rate case no later than December 31, 2023. Among other things, the rate case will recover capital expenditures associated with these programs that are not already in rates, as well as the Advanced Metering Infrastructure and EV programs, other investments that are not recovered through periodic rate roll-ins, and several other cost and return factors. We expect to conclude the case in the second half of 2024.

PSEG Power

At PSEG Power, we seek to produce low-cost electricity by efficiently operating our nuclear generation assets, mitigate volatility by contracting in advance for a significant portion of their output and support public policies that preserve these existing nuclear generating plants. During the first three months of 2023, our nuclear units generated 8.4 terawatt hours and operated at a capacity factor of 100%.

More than 90% of PSEG Power’s expected gross margin in 2023 relates to hedged energy margin, known capacity revenues, Zero Emission Certificate (ZEC) revenues and, certain gas operations and ancillary service payments such as reactive power, which limits our exposure to uncontracted market prices. During the second half of 2021 and continuing into 2023, forward energy prices have demonstrated considerable pric

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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

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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 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 January through March 2023, MTM VaR varied between a low of $61 million and a high of $127 million at the 95% confidence level. The range of VaR was narrower for the three months ended March 31, 2023 as compared with the year ended December 31, 2022.

See Item 1. Note 12. 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

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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 first quarter of 2023 that have materially affected, or are reasonably likely to materially affect, each registrant’s internal control over financial reporting.

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 10. Commitments and Contingent Liabilities in this Quarterly Report on Form 10-Q.

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 coronavirus pandemic and any related, sustained economic downturn which could extend beyond the duration of the pandemic.

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

From time to time, PSEG may repurchase shares to satisfy obligations under equity compensation awards and repurchase shares to satisfy purchases by employees under the Employee Stock Purchase Plan (ESPP).

In December 2022, we entered into a share repurchase plan that complies with Rule 10b5-1 of the Exchange Act, as amended,

solely with respect to the repurchase of shares to satisfy obligations under equity compensation awards that are expected to be

issued in 2023 and the repurchase of shares to satisfy purchases by employees under the ESPP during 2023. The following table indicates our common share repurchases in the open market during the first quarter of 2023. There are no remaining shares available for repurchase under the plan.

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Certain information is provided below for new matters that have arisen subsequent to the filing of the Form 10-K.

Human Capital Management

Labor Relations

December 31, 2022 Form 10-K page 9. In March 2023, in advance of 2023 contract expirations, negotiations with all five unions representing New Jersey workers resulted in ratification of new four-year collective bargaining agreements effective in the second quarter 2023.

Federal Regulation

Capacity Market Issues

December 31, 2022 Form 10-K page 11. PJM’s most recent base residual auction was held in December 2022. In an order issued in February 2023, FERC allowed PJM to recalculate the clearing price in one particular capacity zone for that auction and also accepted tariff changes that will permit PJM to implement similar changes in future auctions. PJM has recently filed at FERC seeking approval to delay the upcoming June 2023 base residual auction for the 2025/2026 Delivery Year, as well as future auctions, while it considers changes to its capacity markets.

Compliance**—**Reliability Standards

December 31, 2022 Form 10-K page 11. As a result of physical attacks in 2022 to electric infrastructure, the North American Electric Reliability Corporation (NERC) is studying whether the Critical Infrastructure Protection standard governing physical security should be revised. Additionally, FERC, NERC, and NERC’s Regional Entities announced a joint inquiry into the operation of the Bulk Power System (BPS) during Winter Storm Elliott that struck in late 2022 and caused power outages for millions and significantly strained the BPS in certain regions of the country. We will comply with any information requests that we may receive as part of this joint inquiry. Relatedly, in February 2023, FERC approved additional reliability standards governing extreme cold weather preparedness and operations, which will go into effect in 2024. We continue to analyze these new standards.

State Regulation

New Jersey EMP and Future of Gas Stakeholder Proceeding

December 31, 2022 Form 10-K page 12. In January 2023, the New Jersey governor’s office announced the commencement of planning for the development of a new EMP for release in 2024 to update and expand upon the existing EMP and consider recent state and federal policies and how federal funding can provide additional support for advancement of critical clean energy policies. Subsequently, in February 2023, Governor Murphy issued three EOs regarding clean energy, electrification, and gas emissions targets, including accelerated goals for building and vehicle electrification to be included in the development of the 2024 EMP. One of those orders directs the BPU to immediately convene a stakeholder process on the future of gas to develop a plan to meet the State’s current EMP goal to reduce emissions by 50% versus 2006 levels by 2030. In March 2023, the BPU opened a stakeholder proceeding to implement such EO but has not yet indicated a schedule or format for the proceeding. We anticipate that this proceeding will consider the continued provision by natural gas utilities of critical services and well-paying jobs to New Jersey residents and businesses, new revenue streams for natural gas utilities (e.g., conversion of existing facilities to district geothermal), and how to minimize investment in new natural gas infrastructure to avoid potential stranded assets. We cannot predict the impact on our business or results of operations from the EMP, the Future of Gas proceeding, or any laws, rules, or regulations promulgated as a result thereof, particularly as they may relate to PSEG Power’s nuclear energy generating stations and PSE&G’s electric transmission and gas distribution assets.

Stakeholder Proceeding on Gas Competition, BGSS

In February 2023, the BPU announced that it would open a new docket to conduct a stakeholder proceeding regarding gas supply issues previously raised by competitive gas suppliers, including third party suppliers’ participation in New Jersey gas distribution companies’ annual BGSS filings, and other aspects of the existing BGSS construct.

Energy Efficiency, Triennial Review

In March 2023, the BPU announced the issuance of a series of stakeholder meetings and request for comment in advance of the issuance of its Energy Efficiency Framework Order for the second program cycle to be implemented pursuant to the New Jersey Clean Energy Act of 2018. The Framework Order is expected to be issued on or before July 1, 2023 and is expected to set forth the energy savings targets and program requirements for the second program cycle.

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BGS Process

December 31, 2022 Form 10-K page 13. In March 2023, PSE&G filed a petition for the BPU’s approval of a BGS time-of-use rate solution for residential EV charging, which remains pending. PSE&G is participating in a working group led by BPU Staff to consider proposals for a commercial direct current, fast-charging rate solution for inclusion in the June 1, 2023 joint electric distribution company (EDC) BGS filing.

Grid Modernization

December 31, 2022 Form 10-K page 13. The BPU is currently considering revising its interconnection rules to speed up the interconnection of renewable resources to the distribution grid. The BPU will commence a rulemaking proceeding this year. We cannot predict the impact on our business or results of operations from this Grid Modernization plan or any resultant promulgation of laws, rules or regulations, particularly as they may relate to PSE&G’s electric distribution assets.

New Jersey Solar Initiatives

December 31, 2022 Form 10-K page 13. In 2019, the BPU established a “Community Solar Energy Pilot Program,” permitting customers to participate in solar energy projects remotely located from their properties, and allowing for bill credits related to that participation. In March 2023, the BPU Staff issued a straw proposal regarding a permanent Community Solar Energy Program, seeking input on issues, including eligibility requirements, registration processes, the implementation of consolidated billing for the benefit of project developers and participants, and development of a cost recovery mechanism for the EDCs.

Environmental Matters

Environmental Justice (EJ)

December 31, 2022 Form 10-K page 16. The New Jersey Department of Environmental Protection (NJDEP) has finalized its EJ regulations. The regulations supersede a previously issued EJ administrative order and require review of potential EJ impacts from a wide variety of environmental permit applications at certain designated facilities. The NJDEP may impose permit conditions or deny permits if the impacts cannot be satisfactorily mitigated. The impact of these regulations is being evaluated for both PSE&G and PSEG Power and the outcome cannot be determined at this time.

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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: May 2, 2023

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: May 2, 2023