filings.toolsItem 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)
MANAGEMENT’S DISC****USSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)
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 is comprised of the operations of merchant nuclear generating assets and fuel supply functions engaged in 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 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); PSEG Energy Holdings L.L.C. (Energy Holdings), which primarily holds legacy lease investments and competitively bid, FERC regulated transmission; 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 2023 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 2023 and Future Outlook provided in Item 7 in our Form 10-K by describing significant events and business developments that have occurred during 2024 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 OVER****VIEW OF 2024 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 addition, the passage of the Inflation Reduction Act of 2022 (IRA) established a production tax credit (PTC) for existing nuclear facilities from 2024 through 2032. The PTC is expected to provide downside price protection for our nuclear generation fleet as the tax credit value is directly linked to a nuclear facility’s gross receipts.
For the years 2024-2028, our regulated capital investment program is estimated to be in a range of $18 billion to $21 billion. We expect these capital investments to result in a compound annual growth rate in our regulated rate base in a range of 6% to 7.5% from year-end 2023 to year-end 2028. The regulated capital investments represent the majority of PSEG’s total capital investment program of $19 billion to $22.5 billion. The low end of the 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 timeframes. The upper end of our capital investment range includes incremental investments, particularly for an expansion of our current EE programs as well as other clean energy and infrastructure investments.
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.
In 2023, the BPU approved a $280 million nine-month extension of our CEF-EE program through June 2024 and in May 2024 the BPU approved another approximate $300 million extension covering a commitment period from July 2024 through December 2024. In October 2024, the BPU approved our CEF-EE II filing authorizing a total spend of approximately $2.9 billion for energy efficiency projects committed between January 1, 2025 through June 30, 2027, and completed over an expected six-year period. The Order approved a program investment budget of approximately $1.9 billion, net of administrative expenses, and approximately $1 billion to continue our customer on-bill repayment program. This EE filing is a significant increase from our prior filings, driven by an increase in the savings targets required under the BPU Energy Efficiency Framework and higher costs to achieve those targeted savings. The filing also includes demand response programs and building decarbonization programs.
A remaining component of our CEF-Electric Vehicle (EV) program related to medium- and heavy-duty charging infrastructure has been the subject of a stakeholder process that the BPU began in 2021. In October 2024, the BPU released an Order that provided program guidance and minimum filing requirements for electric utility operated medium- and heavy-duty charging incentive programs, The Order caps PSE&G’s program investment at $30 million and requires electric utilities to submit program filings by February 20, 2025. In September 2022, the BPU released a draft Storage Incentive Program proposal and is undertaking a stakeholder process to determine the details of the program. Our proposed CEF-Energy Storage (ES) program for a $109 million investment is being held in abeyance until the BPU concludes its proceedings.
In 2023, the BPU also approved a two-year extension of our current GSMP program to replace at least 400 miles of cast iron and unprotected steel mains and services in our gas system. The GSMP program extension provides for main replacement through December 2025 plus trailing services replacement and paving costs into 2026 and totals approximately $900 million of investment. Of the $900 million, $750 million is recovered through three periodic rate updates with the balance recovered through a future distribution base rate case.
Our broader GSMP III, which also included projects to introduce renewable natural gas and hydrogen blending into our existing distribution system is being held in abeyance, with negotiations to be reinitiated by January 2025 with the intent of beginning the work in January 2026.
Pursuant to our GSMP II and Energy Strong II programs, we filed a distribution base rate case as required by the BPU in December 2023. In October 2024, the BPU issued an Order approving the settlement of PSE&G’s electric and gas distribution base rate case with new rates effective October 15, 2024. The Order provides for a $17.8 billion rate base, a 9.6% return on equity for PSE&G’s distribution business and a 55% equity component of its capitalization structure. For additional information, see Item 1. Note 4. Rate Filings.
PSEG Power
At PSEG Power, we seek to produce low-cost electricity by efficiently operating our nuclear generation assets, mitigate earnings volatility through the PTC mechanism and hedging, and support public policies that preserve these existing carbon-free base load nuclear generating plants. During the first nine months of 2024, our nuclear units generated approximately 23.3 terawatt hours and operated at a capacity factor of 91.4%. PSEG Power hedged approximately 90% to 95% of its expected generation output for 2024. Beginning in 2024, our hedging strategy has incorporated an estimated range of risk reduction impacts from the PTCs with potential incremental changes upon final U.S. Treasury guidance. In addition, we are exploring opportunities for the potential sale of power from our nuclear facilities pursuant to long-term agreements to supply large power users, such as data centers and hydrogen producers.
Climate Strategy and Sustainability Efforts
For more than a century, our purpose has been to provide safe access to an around-the-clock supply of reliable, affordable energy. Today, our vision is to power a future where people use less energy, and it is cleaner, safer and delivered more reliably than ever. We have established a net zero greenhouse gas (GHG) emissions by 2030 goal that includes direct GHG emissions (Scope 1) and indirect GHG emissions from operations (Scope 2) across our business operations, assuming advances in technology, public policy and customer behavior.
PSE&G has undertaken a number of initiatives that support the reduction of GHG emissions and the implementation of EE initiatives. PSE&G’s approved CEF-EE and EE II, CEF-Energy Cloud and CEF-EV programs and the proposed CEF-ES program are intended to support New Jersey’s Energy Master Plan (EMP) and Gubernatorial Executive Orders through programs designed to help customers use energy more efficiently, reduce GHG emissions, support the expansion of the EV infrastructure in New Jersey, install energy storage capacity to supplement solar generation and enhance grid resiliency, install smart meters and supporting infrastructure to allow for the integration of other clean energy technologies and to more efficiently respond to weather and other outage events.
In addition, PSE&G is committed to the safe and reliable delivery of natural gas to approximately 1.9 million customers throughout New Jersey and we are equally committed to reducing GHG emissions associated with such operations. The GSMP is designed to significantly reduce natural gas leaks in our distribution system, which would reduce the release of methane, a potent GHG, into the air. Through GSMP II, from 2018 through 2023 we reduced reported methane emissions by approximately 27% system wide. We continue to assess physical risks of climate change and adapt our capital investment program to improve the reliability and resiliency of our system in an environment of increasing frequency and severity of weather events.
We also continue to focus on providing cleaner energy for our customers by working to preserve the economic viability of our nuclear units, which provide over 85% of the carbon-free energy in New Jersey. These efforts include reducing market risk by advocating for state and federal policies, such as the PTC established by the IRA, and capacity market reform at PJM Interconnection, L.L.C. (PJM) that recognize the value of our nuclear fleet’s carbon-free generation and its contribution to grid reliability.
Competitively Bid, FERC Regulated Transmission Projects
PSEG continues to evaluate investment opportunities in regulated transmission beyond PSE&G. In December 2023, PJM awarded us an approximately $424 million project to address increasing load and reliability issues in Maryland and northern Virginia as part of its 2022 Window 3 competitive solicitation. The project has an expected in-service date of 2027.
In April 2024, PSE&G submitted bids to the BPU for what the BPU has termed the Pre-Build Infrastructure (PBI) project, which is a combination of onshore and near-shore underwater infrastructure. The BPU is expected to announce the winner(s) of the PBI solicitation later in 2024.
In April 2023, the BPU issued an order requesting that PJM conduct a second public policy transmission solicitation process utilizing the State Agreement Approach for transmission projects to support New Jersey’s expanded offshore wind goal. However, in June 2024, the BPU paused this solicitation while it considers the impact of PJM’s implementation of interconnection queue reform and the FERC Final Rule on transmission planning and cost allocation on its approach to procuring transmission to facilitate offshore wind development. The BPU has stated that the pause will last at least six months and will be reevaluated periodically.
PJM opened the 2024 Regional Transmission Expansion Plan (RTEP) Window 1 solicitation in July 2024, which includes the impacts of higher load growth forecasts on the 2029 to 2032 planning horizon. PSEG submitted a proposal into Window 1 for approximately $375 million.
PSEG will continue to evaluate opportunities to participate in transmission solicitation processes and may decide to submit bids for these opportunities, some of which could be material investments.
PSEG LI
In May 2024, LIPA issued requests for proposal for a service provider to operate its electrical transmission and distribution system and for power supply and fuel management services, respectively, upon expiry of the current service contracts with PSEG LI which run through December 31, 2025. PSEG has submitted proposals to continue as operations service provider for LIPA’s electrical transmission and distribution system, and to continue to provide power supply and fuel management services to LIPA, in each case after the current contracts expire.
Financial Results
The results for PSEG, PSE&G and PSEG Power & Other for the three and nine months ended September 30, 2024 and 2023 are presented as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||
| Millions | ||||||||||||||||||
| PSE&G | $ | 379 | $ | 401 | $ | 1,169 | $ | 1,224 | ||||||||||
| PSEG Power & Other (A) | 141 | (262 | ) | 317 | 793 | |||||||||||||
| PSEG Net Income | $ | 520 | $ | 139 | $ | 1,486 | $ | 2,017 | ||||||||||
| PSEG Net Income Per Share (Diluted) | $ | 1.04 | $ | 0.27 | $ | 2.97 | $ | 4.03 | ||||||||||
(A)
Other includes after-tax activities at the parent company, PSEG LI, and Energy Holdings as well as intercompany eliminations. Includes a $239 million after-tax pension charge due to the settlement of a portion of the qualified pension plans for the three and nine months ended September 30, 2023. See Item 1. Note 8. Pension and Other Postretirement Benefits (OPEB) for additional information.
PSEG Power’s results above include the Nuclear Decommissioning Trust (NDT) Fund activity and the impacts of non-trading commodity mark-to-market (MTM) activity, which consist of the financial impact from positions with future delivery dates.
The variances in our Net Income attributable to changes related to the NDT Fund and MTM are shown in the following table:
| Three Months Ended | Nine Months Ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||
| Millions, after tax | ||||||||||||||||||
| NDT Fund Income (Expense) (A) (B) | $ | 55 | $ | (27 | ) | $ | 120 | $ | 33 | |||||||||
| Non-Trading MTM Gains (Losses) (C) | $ | 17 | $ | (17 | ) | $ | (55 | ) | $ | 750 | ||||||||
(A)
NDT Fund Income (Expense) includes gains and losses on NDT securities which are recorded in Net Gains (Losses) on Trust Investments. See Item 1. Note 7. Trust Investments for additional information. NDT Fund Income
(Expense) also includes interest and dividend income and other costs related to the NDT Fund recorded in Net Other Income (Deductions), interest accretion expense on PSEG Power’s nuclear Asset Retirement Obligation (ARO) recorded in Operation and Maintenance (O&M) Expense and the depreciation related to the ARO asset recorded in Depreciation and Amortization (D&A) Expense.
(B)
Net of tax (expense) benefit of $(36) million and $15 million for the three months and $(79) million and $(25) million for the nine months ended September 30, 2024 and 2023, respectively.
(C)
Net of tax (expense) benefit of $(6) million and $8 million for the three months and $21 million and $(293) million for the nine months ended September 30, 2024 and 2023, respectively.
Our Net Income for the three months and nine months ended September 30, 2024 variances versus the comparable periods in 2023 were driven primarily by changes in the MTM and NDT Fund and the pension settlement charge recorded in 2023, as discussed above.
Regulatory, Legislative and Other Developments
We closely monitor and engage with stakeholders on significant regulatory and legislative developments.
Transmission Rate Proceedings and Return on Equity (ROE)
Under current FERC rules, PSE&G continues to earn a 50 basis point adder to its base ROE for its membership in PJM as a transmission owner. In April 2021, FERC proposed eliminating this ROE adder for Regional Transmission Owner participation. FERC has not acted on the proposal. If the adder was eliminated, it would reduce PSE&G’s annual Net Income and annual cash inflows by approximately $40 million.
New Jersey Stakeholder Proceedings
In February 2023, the governor of New Jersey issued executive orders (EOs) that establish or accelerate previously established 2050 targets for clean-sourced energy, building decarbonization, and EV adoption goals, with new target dates of 2030 or 2035, as applicable. The EOs direct the BPU and other state agencies to collaborate with stakeholders to develop plans to reach the targets and the BPU has convened a stakeholder proceeding to develop a plan for gas distribution utilities to reach the target of 50% natural gas emissions reductions over 2006 levels by 2030. The BPU commenced proceedings to update the State’s EMP via public input hearings in May and June 2024. We are unable to predict the outcomes of this proceeding, but it could have a material impact on our business, results of operations and cash flows.
Environmental Regulation
We are subject to liability under environmental laws for the costs and penalties of remediating contamination of property now or formerly owned by us and of property contaminated by hazardous substances that we generated. In particular, the historic operations of PSEG companies and the operations of numerous other companies along the Passaic and Hackensack Rivers are alleged by federal and state agencies to have discharged substantial contamination into the Passaic River/Newark Bay Complex in violation of various statutes. In addition, PSEG Power has retained ownership of certain liabilities excluded from the sale of its fossil generation portfolio, primarily related to obligations under New Jersey and Connecticut state law to investigate and remediate the sites. We are also currently involved in a number of proceedings relating to sites where other hazardous substances may have been discharged and may be subject to additional proceedings in the future, and the costs and penalties of any such remediation efforts could be material.
For further information regarding the matters described above, as well as other matters that may impact our financial condition and results of operations, see Item 1. Note 9. Commitments and Contingent Liabilities.
Nuclear
In April 2021, PSEG Power’s Salem 1, Salem 2 and Hope Creek nuclear plants were awarded zero emission certificates (ZECs) for the three-year eligibility period starting June 2022 at the same approximate $10 per megawatt hour (MWh) received during the prior ZEC period through May 2022. 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 used (which is equivalent to approximately $10 per MWh generated in payments to selected nuclear plants (ZEC payment)). As previously noted, in August 2022, the IRA was signed into law expanding incentives promoting carbon-free generation. The
enacted legislation established a PTC for electricity generated using existing nuclear energy, which began January 1, 2024 and continues through 2032 and impacted PSEG Power's decision not to apply for the next ZEC three-year eligibility period starting June 2025. The expected PTC rate is up to $15/MWh subject to adjustment based upon a facility’s gross receipts. The PTC rate and the gross receipts threshold are subject to annual inflation adjustments. The PTC amounts recorded to date are subject to change based on several factors, including but not limited to, adjustments to estimated market prices and generation and the issuance of authoritative guidance by Treasury/the Internal Revenue Service, including clarification of the definition of “gross receipts” used to determine the phase out. Any adjustments to amounts previously recorded could be material. We continue to analyze the impact of the IRA on our nuclear units, and will analyze any future guidance from the U.S. Treasury to assess any impact of PTCs on expected ZEC payments and/or any future ZEC application periods.
Interest Rate Matters
PSEG’s long-term financing plan is designed to replace maturities and support funding its capital program. Given our financing needs, the prevailing interest rate environment will be a key factor in determining interest expense on variable-rate debt and long-term rates on future financing plans. In order to increase the predictability of interest expense, we may use interest rate hedges to help limit our exposure to fluctuating interest rates. As of September 30, 2024, PSEG had entered into floating-to-fixed interest rate hedges totaling $1.25 billion in order to reduce the volatility in interest expense related to PSEG Power’s variable rate term loan due March 2025. In addition, from time to time, we may enter into interest rate hedges to fix a portion of our interest rate exposure for anticipated long-term financing plans at PSEG and PSEG Power. PSE&G’s interest rate risk is moderated due to annual transmission rate filings and distribution recoveries through base rate filings and clause-based investment programs.
Tax Legislation
Future federal and state tax legislation and clarification of enacted legislation could have a material impact on our effective tax rate and cash tax position.
In April 2023, the U.S. Treasury issued Revenue Procedure 2023-15 that provides a safe harbor method of accounting to determine the annual repair tax deduction for gas T&D property. The impact, if any, that this may have on PSEG and PSE&G’s financial statements has not yet been determined.
The IRA enacted a new 15% corporate alternative minimum tax (CAMT), which is based on adjusted financial statement income, a PTC for existing nuclear generation facilities and allows energy tax credits to be transferable. The U.S. Treasury has issued a notice of proposed rulemaking pertaining to the CAMT and final regulations pertaining to the prevailing wage requirements and transferability rules of energy tax credits. Many aspects of the IRA, including the CAMT proposed regulations, remain unclear and in need of further guidance; therefore, we continue to analyze the impact the IRA will have on PSEG’s and PSE&G’s results of operations, financial condition and cash flows, which could be material.
Future Outlook
Our future success will depend on our ability to continue to maintain strong operational and financial performance, address regulatory and legislative developments that impact our business and respond to the issues and challenges described below. In order to do this, we will continue to:
seek approval of and execute on our utility capital investment program to modernize our infrastructure, improve the reliability and resilience of the service we provide to our customers, and align our sustainability and climate goals with New Jersey’s energy policy,
seek a fair return for our T&D investments through our transmission formula rate, existing rate incentives, distribution infrastructure and clean energy investment programs and periodic distribution base rate case proceedings,
focus on controlling costs while maintaining safety, reliability and customer satisfaction and complying with applicable standards and requirements,
manage the risks and opportunities in federal and state clean energy policies,
advocate for appropriate regulatory guidance on the federal nuclear PTC to ensure long-term support for New Jersey’s largest carbon-free generation resource, and adapt our hedging program accordingly,
engage constructively with our multiple stakeholders, including regulators, government officials, customers, employees, investors, suppliers and the communities in which we do business, and
deliver on our human capital management strategy to attract, develop and retain a diverse, high-performing workforce.
In addition to the risks described elsewhere in this Form 10-Q for 2024 and beyond, the key issues and challenges we expect our business to confront include:
regulatory and political uncertainty, both with regard to transmission planning and rates policy, the role of distribution utilities and decarbonization impacts, future energy policy, tax regulations, design of energy and capacity markets, and environmental regulation, as well as with respect to the outcome of any legal, regulatory or other proceedings,
performance of the financial markets, including the impact on our pension funding requirements and interest rates on our future financing plans,
continuing to manage costs and maintain affordable customer rates in an inflationary environment, which could impact customer collections and future regulatory proceedings,
the increasing frequency, sophistication and magnitude of cybersecurity attacks against us and our respective vendors and business partners who may have our sensitive information and/or access to our environment, and the increasing frequency and magnitude of physical attacks on electric and gas infrastructure,
future changes in federal and state tax laws or any other associated tax guidance, and
the impact of changes in energy demand, natural gas and electricity prices, PJM’s challenge to ensure resource adequacy to meet demand growth, and expanded efforts to decarbonize several sectors of the economy.
We continually assess a broad range of strategic options to maximize long-term shareholder value and address the interests of our multiple stakeholders. We consider a wide variety of factors when determining how and when to efficiently deploy capital, including the performance and prospects of our businesses; returns and the sustainability and predictability of future earnings streams; the views of investors, regulators, public policy initiatives, rating agencies, customers and employees; our existing indebtedness and restrictions it imposes; and tax considerations, among other things. Strategic options available to us include:
investments in PSE&G, including T&D facilities to enhance reliability, resiliency and modernize the system to meet the growing needs and increasingly higher expectations of customers, and clean energy investments such as CEF-EE, CEF-EV, CEF-ES and solar,
continued operation of our nuclear generation facilities that are expected to be supported by the PTC through 2032 and can enable certain investments to increase the capacity of the units as well as potential license extensions, transition from an 18-month to 24-month refueling cycle at our Hope Creek facility and offtake contracts with potential customers such as data centers and hydrogen producers, and others seeking reliable, around-the-clock carbon-free power,
investments in competitive, regulated transmission investments through PJM processes and BPU solicitations that provide revenue predictability and reasonable risk-adjusted returns, and
acquisitions, dispositions, development and other transactions involving our common stock, assets or businesses that could provide value to customers and shareholders.
There can be no assurance, however, that we will successfully develop and execute any of the strategic options noted above, or any additional options we may consider in the future. The execution of any such strategic plan may not have the expected benefits or may have unexpected adverse consequences.
RESULTS OF OP****ERATIONS
PSEG
Our results of operations are comprised of the results of operations of our reportable segments, PSE&G and PSEG Power & Other, excluding charges related to intercompany transactions, which are eliminated in consolidation. For additional information on intercompany transactions, see Item 1. Note 18. Related-Party Transactions.
| Three Months Ended | Increase/ | Nine Months Ended | Increase/ | |||||||||||||||||||||||||||||||
| September 30, | (Decrease) | September 30, | (Decrease) | |||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 vs. 2023 | 2024 | 2023 | 2024 vs. 2023 | |||||||||||||||||||||||||||||
| Millions | Millions | % | Millions | Millions | % | |||||||||||||||||||||||||||||
| Operating Revenues | $ | 2,642 | $ | 2,456 | $ | 186 | 8 | $ | 7,825 | $ | 8,632 | $ | (807 | ) | (9 | ) | ||||||||||||||||||
| Energy Costs | 899 | 831 | 68 | 8 | 2,628 | 2,517 | 111 | 4 | ||||||||||||||||||||||||||
| Operation and Maintenance (A) | 808 | 792 | 16 | 2 | 2,415 | 2,279 | 136 | 6 | ||||||||||||||||||||||||||
| Depreciation and Amortization | 294 | 282 | 12 | 4 | 874 | 843 | 31 | 4 | ||||||||||||||||||||||||||
| Income from Equity Method Investments | 1 | — | 1 | N/A | 2 | 1 | 1 | 100 | ||||||||||||||||||||||||||
| Net Gains (Losses) on Trust Investments | 89 | (40 | ) | 129 | N/A | 191 | 63 | 128 | N/A | |||||||||||||||||||||||||
| Net Other Income (Deductions) | 37 | 41 | (4 | ) | (10 | ) | 119 | 132 | (13 | ) | (10 | ) | ||||||||||||||||||||||
| Net Non-Operating Pension and OPEB Credits (Costs) | 18 | (302 | ) | 320 | N/A | 55 | (245 | ) | 300 | N/A | ||||||||||||||||||||||||
| Interest Expense | 227 | 185 | 42 | 23 | 650 | 550 | 100 | 18 | ||||||||||||||||||||||||||
| Income Tax Expense (Benefit) | 39 | (74 | ) | 113 | N/A | 139 | 377 | (238 | ) | (63 | ) | |||||||||||||||||||||||
The following discussions for PSE&G and PSEG Power & Other provide a detailed explanation of their respective variances.
PSE&G
| Three Months Ended | Increase/ | Nine Months Ended | Increase/ | |||||||||||||||||||||||||||||||
| September 30, | (Decrease) | September 30, | (Decrease) | |||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 vs. 2023 | 2024 | 2023 | 2024 vs. 2023 | |||||||||||||||||||||||||||||
| Millions | Millions | % | Millions | Millions | % | |||||||||||||||||||||||||||||
| Operating Revenues | $ | 2,139 | $ | 1,999 | $ | 140 | 7 | $ | 6,335 | $ | 5,954 | $ | 381 | 6 | ||||||||||||||||||||
| Energy Costs | 839 | 765 | 74 | 10 | 2,450 | 2,300 | 150 | 7 | ||||||||||||||||||||||||||
| Operation and Maintenance (A) | 464 | 459 | 5 | 1 | 1,395 | 1,348 | 47 | 3 | ||||||||||||||||||||||||||
| Depreciation and Amortization | 254 | 244 | 10 | 4 | 758 | 728 | 30 | 4 | ||||||||||||||||||||||||||
| Net Other Income (Deductions) | 18 | 21 | (3 | ) | (14 | ) | 50 | 65 | (15 | ) | (23 | ) | ||||||||||||||||||||||
| Net Non-Operating Pension and OPEB Credits (Costs) | 20 | 30 | (10 | ) | (33 | ) | 58 | 86 | (28 | ) | (33 | ) | ||||||||||||||||||||||
| Interest Expense | 151 | 128 | 23 | 18 | 430 | 364 | 66 | 18 | ||||||||||||||||||||||||||
| Income Tax Expense (Benefit) | 90 | 53 | 37 | 70 | 241 | 141 | 100 | 71 | ||||||||||||||||||||||||||
(A)
Includes amortization of EE programs regulatory investment expenditures of $33 million, $22 million, $90 million and $58 million for the three months and nine months ended September 30, 2024 and 2023, respectively.
Three Months Ended September 30, 2024 as Compared to Three Months Ended September 30, 2023
Operating Revenues increased $140 million due to changes in delivery, commodity, clause and other operating revenues.
Delivery Revenues increased $74 million due primarily to
Electric and gas distribution revenues increased $61 million due primarily to a $24 million decrease in the flowback to customers of excess deferred tax liabilities and tax repair-related accumulated deferred income tax benefits resulting
from rate reductions, which is offset in Income Tax Expense, $15 million from Energy Strong II (ESII) collections, a $15 million increase in Green Program Recovery Charge (GPRC) collections and a $11 million increase from higher sales volumes. These increases were partially offset by a $4 million decrease in CIP decoupling revenues.
Transmission revenues were $13 million higher due primarily to an increase in revenue requirements attributable to higher rate base investment.
Commodity Revenues increased $71 million as a result of higher Electric revenues partially offset by lower Gas revenues. The changes in Commodity revenues for both electric and gas are entirely offset by the changes in Energy Costs. PSE&G earns no margin on the provision of BGS (basic generation service) and basic gas supply service (BGSS) to retail customers.
Electric commodity revenues increased $78 million due primarily to $53 million from higher BGS prices and $25 million from higher BGS sales volumes.
Gas commodity revenues decreased $7 million due primarily to lower BGSS prices.
Clause Revenues decreased $7 million due primarily to lower Societal Benefits Clause (SBC) revenues of $11 million and a $3 million decrease due to the absence of Margin Adjustment Clause revenues. These decreases were partially offset by a $7 million net increase in Tax Adjustment Credit (TAC) and GPRC deferrals. The changes in SBC and MAC revenues and TAC and GPRC deferral amounts are entirely offset by changes in the amortization of Regulatory Assets and Regulatory Liabilities and related costs in O&M, D&A, Interest and Income Tax Expenses. PSE&G does not earn margin on SBC or MAC revenues or on TAC and GPRC deferrals.
Operating Expenses
Energy Costs increased $74 million. This is entirely offset by changes in Commodity Revenues and Other Operating Revenues.
Operation and Maintenance increased $5 million due primarily to an increase in net distribution and transmission expenditures and higher billings from Services, partially offset by a reduction in clause and renewable costs.
Depreciation and Amortization increased $10 million due primarily to an increase in depreciation due to higher plant placed in service, partially offset by a decrease in the amortization of Regulatory Assets.
Net Non-Operating Pension and OPEB Credits decreased $10 million due primarily to a decrease in the amortization of net prior service credits.
Interest Expense increased $23 million due primarily to incremental debt and the replacement of maturing debt at higher rates.
Income Tax Expense increased $37 million due primarily to a decrease in the flowback of excess deferred income tax benefits.
Nine Months Ended September 30, 2024 as Compared to Nine Months Ended September 30, 2023
Operating Revenues increased $381 million due to changes in delivery, commodity, clause and other operating revenues.
Delivery Revenues increased $162 million due primarily to
Electric and gas distribution revenues increased $106 million due primarily to an $80 million increase from higher volumes, a $30 million decrease in the flowback to customers of excess deferred tax liabilities and tax repair-related accumulated deferred income tax benefits resulting from rate reductions, which is offset in Income Tax Expense, a $26 million increase in GPRC collections and a $21 million increase from ESII collections. These increases were partially offset by a $51 million reduction from CIP decoupling.
Transmission revenues were $56 million higher due primarily to an increase in revenue requirements attributable to higher rate base investment.
Commodity Revenues increased $116 million as a result of higher Electric revenues partially offset by lower Gas revenues. The changes in Commodity revenues for both electric and gas are entirely offset by the changes in Energy Costs. PSE&G earns no margin on the provision of BGS and BGSS to retail customers.
Electric commodity revenues increased $225 million due to $124 million from higher BGS sales volumes and $101 million from higher BGS prices.
Gas commodity revenues decreased $109 million due primarily to a decrease of $146 million from lower BGSS prices, partially offset by $37 million from higher BGSS sales volumes.
Clause Revenues increased $69 million due primarily to a $92 million increase in TAC and GPRC deferrals, partially offset by lower SBC revenues of $21 million. The changes in TAC and GPRC deferral amounts and SBC revenues are entirely offset by changes in the amortization of Regulatory Assets and Regulatory Liabilities and related costs in O&M, D&A, Interest and Income Tax Expenses. PSE&G does not earn margin on TAC and GPRC deferrals or on SBC revenue.
Other Operating Revenues increased $34 million due primarily to an increase in renewable energy certificates revenues.
Operating Expenses
Energy Costs increased $150 million. This is entirely offset by changes in Commodity Revenues and Other Operating Revenues.
Operation and Maintenance increased $47 million due primarily to an increase in net distribution and transmission expenditures and higher billings from Services partially offset by a reduction in clause and renewable costs.
Depreciation and Amortization increased $30 million due primarily to an increase in depreciation due to higher plant placed in service, partially offset by a decrease in the amortization of Regulatory Assets.
Net Other Income (Deductions) decreased $15 million due primarily to a decrease in Allowance for Funds Used During Construction and lower interest income.
Net Non-Operating Pension and OPEB Credits decreased $28 million due primarily to a decrease in the amortization of net prior service credits.
Interest Expense increased $66 million due primarily to incremental debt and the replacement of maturing debt at higher rates.
Income Tax Expense increased $100 million due primarily to a decrease in the flowback of excess deferred income tax benefits and higher pre-tax income.
PSEG Power & Other
| Three Months Ended | Increase/ | Nine Months Ended | Increase/ | |||||||||||||||||||||||||||||||
| September 30, | (Decrease) | September 30, | (Decrease) | |||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 vs. 2023 | 2024 | 2023 | 2024 vs. 2023 | |||||||||||||||||||||||||||||
| Millions | Millions | % | Millions | Millions | % | |||||||||||||||||||||||||||||
| Operating Revenues | $ | 584 | $ | 546 | $ | 38 | 7 | $ | 2,140 | $ | 3,475 | $ | (1,335 | ) | (38 | ) | ||||||||||||||||||
| Energy Costs | 141 | 155 | (14 | ) | (9 | ) | 828 | 1,014 | (186 | ) | (18 | ) | ||||||||||||||||||||||
| Operation and Maintenance | 344 | 333 | 11 | 3 | 1,020 | 931 | 89 | 10 | ||||||||||||||||||||||||||
| Depreciation and Amortization | 40 | 38 | 2 | 5 | 116 | 115 | 1 | 1 | ||||||||||||||||||||||||||
| Income from Equity Method Investments | 1 | — | 1 | N/A | 2 | 1 | 1 | 100 | ||||||||||||||||||||||||||
| Net Gains (Losses) on Trust Investments | 89 | (40 | ) | 129 | N/A | 191 | 63 | 128 | N/A | |||||||||||||||||||||||||
| Net Other Income (Deductions) | 20 | 22 | (2 | ) | (9 | ) | 73 | 71 | 2 | 3 | ||||||||||||||||||||||||
| Net Non-Operating Pension and OPEB Costs | (2 | ) | (332 | ) | (330 | ) | (99 | ) | (3 | ) | (331 | ) | (328 | ) | (99 | ) | ||||||||||||||||||
| Interest Expense | 77 | 59 | 18 | 31 | 224 | 190 | 34 | 18 | ||||||||||||||||||||||||||
| Income Tax Expense (Benefit) | (51 | ) | (127 | ) | (76 | ) | (60 | ) | (102 | ) | 236 | (338 | ) | N/A | ||||||||||||||||||||
Three Months Ended September 30, 2024 as Compared to Three Months Ended September 30, 2023
Operating Revenues increased $38 million due primarily to changes in generation and gas supply and other operating revenues.
Generation Revenues increased $40 million due primarily to
a net increase of $51 million due primarily to higher average realized prices in 2024, and
a net increase of $49 million due to MTM gains in 2024 as compared to MTM losses in 2023. Of this amount, there was a $33 million increase due to changes in forward prices in 2024 as compared to 2023 coupled with a $16 million increase due to positions reclassified to realized upon settlement,
partially offset by a net decrease of $55 million due primarily to lower ZEC revenue related to the Production Tax Credits (PTCs).
Gas Supply Revenues decreased $18 million due primarily to
a net decrease of $13 million in sales under the BGSS contract due primarily to $9 million from lower prices, and $4 million from lower sales volumes, and
a net decrease of $4 million related to sales to third parties due to $12 million from lower sales volumes, partially offset by $8 million from higher sales prices.
Operating Expenses
Energy Costs represent the cost of generation, which includes fuel costs for generation as well as purchased energy in the market, and gas purchases to meet PSEG Power’s obligation under its BGSS contract with PSE&G. Energy Costs decreased $14 million due to
Gas costs decreased $14 million due primarily to
a net decrease of $11 million related to sales under the BGSS contract due to the lower average cost of gas and volumes sold, and
a net decrease of $3 million related to sales to third parties due primarily to $11 million from lower volumes sold, partially offset by $8 million due to higher average cost of gas.
Operation and Maintenance increased $11 million due primarily to higher Nuclear and Long Island Electric Utility Servco, LLC’s (Servco) operating costs, partially offset by higher Services billings to PSE&G. See Note 3. Variable Interest Entity for additional information on Servco and LIPA.
Net Gains (Losses) on Trust Investments increased $129 million due primarily to NDT investments with $70 million of net unrealized gains on equity securities in 2024 as compared to $42 million of net unrealized losses in 2023, and an increase of $15 million in net realized gains in 2024.
Net Non-Operating Pension and OPEB Costs decreased $330 million primarily due to the pension lift-out settlement charge in August 2023.
Interest Expense increased $18 million due primarily to the incremental debt and the replacement of maturing long-term debt at higher rates, partially offset by a reduction in term loans.
Income Tax Benefit decreased $76 million due primarily to higher pre-tax income in 2024 as compared to the prior year, partially offset by the benefit from Nuclear PTCs.
Nine Months Ended September 30, 2024 as Compared to Nine Months Ended September 30, 2023
Operating Revenues decreased $1,335 million due primarily to changes in generation and gas supply and other operating revenues.
Generation Revenues decreased $1,238 million due primarily to
a net decrease of $1,142 million due to MTM losses in 2024 as compared to MTM gains in 2023. Of this amount, there was a $684 million decrease due to positions reclassified to realized upon settlement, coupled with $458 million decrease due to changes in forward prices in 2024 as compared to 2023,
a net decrease of $136 million due primarily to lower ZEC revenue related to the PTCs,
a net decrease of $30 million due primarily to electricity sold under the BGS contracts, which ended in May 2023, and lower volumes sold under other load contracts, and
a net decrease of $28 million in capacity revenue due primarily to lower capacity prices, partially offset by decreases in capacity expenses due to lower load volumes served,
partially offset by a net increase of $94 million due primarily to higher average realized prices, partially offset by lower volumes sold in 2024.
Gas Supply Revenues decreased $143 million due primarily to
a net decrease of $178 million in sales under the BGSS contract due primarily to $226 million from lower prices, partially offset by $48 million from higher sales volumes,
partially offset by a net increase of $22 million due primarily to lower MTM losses, primarily due to positions reclassified to realized upon settlement, partially offset by changes in forward prices, and
a net increase of $13 million related to sales to third parties due primarily to higher sales prices.
Operating Expenses
Energy Costs represent the cost of generation, which includes fuel costs for generation as well as purchased energy in the market, and gas purchases to meet PSEG Power’s obligation under its BGSS contract with PSE&G. Energy Costs decreased $186 million due to
Gas costs decreased $172 million due primarily to
a net decrease of $185 million related to sales under the BGSS contract, of which $225 million was due to the lower average cost of gas, partially offset by $40 million due to higher send out volumes,
partially offset by a net increase of $14 million related to sales to third parties due primarily to higher average cost of gas.
Generation costs decreased $14 million due primarily to lower renewable energy credit requirements caused by decreases in load volumes served.
Operation and Maintenance increased $89 million due primarily to a refueling outage in 2024 at our 100%-owned Hope Creek nuclear plant as compared to an outage at our 57%-owned Salem 2 nuclear plant in 2023, and higher Servco operating costs, partially offset by higher Services billings to PSE&G. See Note 3. Variable Interest Entity for additional information on Servco and LIPA.
Net Gains (Losses) on Trust Investments increased $128 million due primarily to NDT investments with $64 million in net realized gains in 2024 as compared to $6 million of net realized losses in 2023 and $56 million of higher net unrealized gains on equity securities as compared to the prior year.
Net Non-Operating Pension and OPEB Costs decreased $328 million primarily due to the pension lift-out settlement charge in August 2023.
Interest Expense increased $34 million due primarily to incremental debt and the replacement of maturing long-term debt at higher rates, partially offset by a reduction in term loans.
Income Tax Expense decreased $338 million due primarily to lower pre-tax income in 2024 and the benefit from Nuclear PTCs.
LIQUIDITY AND CAPIT****AL RESOURCES
The following discussion of our liquidity and capital resources is on a consolidated basis, noting the uses and contributions, where material, of our two direct major operating subsidiaries.
Operating Cash Flows
We continue to expect our operating cash flows combined with cash on hand and financing activities to be sufficient to fund planned capital expenditures and shareholder dividends.
For the nine months ended September 30, 2024, our operating cash flow decreased $1,330 million, as compared to the same period in 2023. The net decrease was primarily due to an outflow of $3 million in net cash collateral postings in 2024 as compared to a $1,175 million inflow in 2023 at PSEG Power, partially offset by a net change at PSE&G, as discussed below.
PSE&G
PSE&G’s operating cash flow increased $167 million from $952 million to $1,119 million for the nine months ended September 30, 2024, as compared to the same period in 2023. The increase was due primarily to the absence of returning cash collateral postings in 2024, which had been returned to BGS suppliers in 2023, and lower tax payments in 2024, partially offset by lower accounts receivable and unbilled revenues due primarily to lower gas commodity prices, a net increase in regulatory deferrals, and an increase in vendor and electric energy payments.
Short-Term Liquidity
PSEG meets its short-term liquidity requirements, as well as those of PSEG Power, primarily through the issuance of commercial paper and, from time to time, short-term loans. 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 facility.
Each of our credit facilities is restricted as to availability and use to the specific companies as listed below; however, if necessary, the PSEG facilities can also be used to support our subsidiaries’ liquidity needs.
Our total committed credit facilities and available liquidity as of September 30, 2024 were as follows:
| As of September 30, 2024 | ||||||||||||||
| Company/Facility | Total Facility | Usage | Available Liquidity | |||||||||||
| Millions | ||||||||||||||
| PSEG | $ | 1,500 | $ | 561 | $ | 939 | ||||||||
| PSE&G | 1,000 | 21 | 979 | |||||||||||
| PSEG Power | 1,325 | 82 | 1,243 | |||||||||||
| Total | $ | 3,825 | $ | 664 | $ | 3,161 | ||||||||
PSEG Power has uncommitted credit facilities totaling $200 million, which can be utilized for letters of credit. As of September 30, 2024, PSEG Power had $75 million in letters of credit outstanding under these uncommitted credit facilities. In addition, a subsidiary of PSEG Power has an uncommitted credit facility for $150 million, which can be utilized for cash collateral postings.
We continually monitor our liquidity and seek to add capacity as needed to meet our liquidity requirements, including to satisfy any additional collateral requirements. As of September 30, 2024, our liquidity position, including our credit facilities and access to external financing, was expected to be sufficient to meet our projected stressed requirements over our 12-month planning horizon. PSEG analyzes its liquidity requirements using stress scenarios that consider different events, including changes in commodity prices and the potential impact of PSEG Power losing its investment grade credit rating from S&P or Moody’s, which would represent a two-level downgrade from its current Moody’s and S&P ratings. In the event of a deterioration of PSEG Power’s credit rating, certain of PSEG Power’s agreements allow the counterparty to demand further
performance assurance. The potential additional collateral that we would be required to post under these agreements if PSEG Power were to lose its investment grade credit rating was approximately $705 million and $751 million as of September 30, 2024 and December 31, 2023, respectively.
For additional information, see Item 1. Note 10. Debt and Credit Facilities.
Long-Term Debt Financing
During the next twelve months,
PSEG has $550 million of 0.80% Senior Notes maturing in August 2025,
PSE&G has $250 million of 3.05% Secured Medium-Term Notes, Series J, due November 2024,
PSE&G has $350 million of 3.00% Secured Medium-Term Notes Series K, due May 2025, and
PSEG Power has $1.25 billion of a variable rate term loan due March 2025.
PSEG, PSEG Power, Energy Holdings, PSEG LI and Services participate in a corporate money pool, an aggregation of daily cash balances designed to efficiently manage their respective short-term liquidity needs, which are accounted for as intercompany loans. Servco does not participate in the corporate money pool. Servco’s short-term liquidity needs are met through an account funded and owned by LIPA.
For additional information see Item 1. Note 10. Debt and Credit Facilities.
Common Stock Dividends
On July 15, 2024, PSEG’s Board of Directors approved a $0.60 per share common stock dividend for the third quarter of 2024. This reflects an indicative annual dividend rate of $2.40 per share. We expect to continue to pay cash dividends on our common stock; however, the declaration and payment of future dividends to holders of our common stock will be at the discretion of the Board of Directors and will depend upon many factors, including our financial condition, earnings, capital requirements of our businesses, alternate investment opportunities, legal requirements, regulatory constraints, industry practice and other factors that the Board of Directors deems relevant. For additional information related to cash dividends on our common stock, see Item 1. Note 16. Earnings Per Share (EPS) and Dividends.
Credit Ratings
If the rating agencies lower or withdraw our credit ratings, such revisions may adversely affect the market price of our securities and serve to materially increase our cost of capital and limit access to capital. Credit Ratings shown are for securities that we typically issue. Outlooks are shown for the credit ratings at each entity and can be Stable, Negative, or Positive. There is no assurance that the ratings will continue for any given period of time or that they will not be revised by the rating agencies, if in their respective judgments, circumstances warrant. Each rating given by an agency should be evaluated independently of the other agencies’ ratings. The ratings should not be construed as an indication to buy, hold or sell any security.
| Moody’s (A) | S&P (B) | |||||
| PSEG | ||||||
| Outlook | Stable | Stable | ||||
| Senior Notes | Baa2 | BBB | ||||
| Commercial Paper | P2 | A2 | ||||
| PSE&G | ||||||
| Outlook | Stable | Stable | ||||
| Mortgage Bonds | A1 | A | ||||
| Commercial Paper | P2 | A2 | ||||
| PSEG Power | ||||||
| Outlook | Stable | Stable | ||||
| Issuer Rating | Baa2 | BBB | ||||
(A)
Moody’s ratings range from Aaa (highest) to C (lowest) for long-term securities and P1 (highest) to NP (lowest) for short-term securities. In June 2024, Moody’s changed the credit rating outlook for PSEG Power from Positive to Stable.
(B)
S&P ratings range from AAA (highest) to D (lowest) for long-term securities and A1 (highest) to D (lowest) for short-term securities.
CAPITAL RE****QUIREMENTS
We expect that all of our capital requirements over the next three years will come from a combination of internally generated funds and external debt financing. There were no material changes to our projected capital expenditures as compared to amounts disclosed in our 2023 Form 10-K.
PSE&G
During the nine months ended September 30, 2024, PSE&G made capital expenditures of $2,157 million, primarily for T&D system reliability and advanced electric metering. In addition, PSE&G had cost of removal, net of salvage, of $137 million associated with capital replacements, and expenditures for EE programs of $393 million, which are included in operating cash flows.
PSEG Power & Other
During the nine months ended September 30, 2024, PSEG Power & Other made capital expenditures of $180 million, excluding $65 million for nuclear fuel, primarily related to various nuclear projects at PSEG Power and various information technology projects at Services.
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