01—Abstract
Summary
Summary of the 10-K filed March 4, 2002. Cited figures are marked; the original filing is the authoritative source.
Public Service Enterprise Group Incorporated (PSEG) is an exempt public utility holding company whose four principal subsidiaries are PSE&G (New Jersey electric and gas transmission and distribution), PSEG Power (generation and energy trading), PSEG Energy Holdings (Global, Resources and Energy Technologies), and PSEG Services.
For 2001, PSEG reported net income of $770 milliona, or $3.70 per basic and diluted share, compared with $764 million, or $3.55, in 2000. Total operating revenues were $9.815 billion, and total assets were $25.397 billion at year-end 2001. Management attributed the improvement to new acquisitions, asset sales and improved operations at Global, new leveraged lease investments at Resources, strong nuclear performance and higher energy trading margins, which offset unfavorable weather, two 2% BPU-mandated rate reductions and the January 2001 securitization.
The company said it expects a 7%b compound annual growth rate in earnings per share over the next five years. The filing highlights a growing reliance on competitive businesses. Power, PSE&G and Energy Holdings contributed approximately 50%, 30% and 20% of 2001 net income, and management projects 50% to 55% from Power, 25% to 30% from Energy Holdings and 20% to 25% from PSE&G for 2002 and 2003.
The main risk flagged is Argentina, where Global has total investment exposure of $632 millionc and AES has sought to terminate a Stock Purchase Agreement for Global's minority Argentine interests. Other key items include the BGS auction for New Jersey supply beginning August 1, 2002, a pending $1 billion PSE&G debt authorization, and a Goodwill review under SFAS 142 that the company said is likely to be material.
02—Key points
Key Highlights
- 2001 net income of $770 million, or $3.70 per basic and diluted share, versus $764 million, or $3.55, in 2000
- Total operating revenues of $9.815 billion in 2001 versus $9.495 billion in 2000; total assets of $25.397 billion at December 31, 2001
- Energy trading margins rose to $140 million in 2001 from $72 million in 2000
- Projected 2002 and 2003 earnings contributions: 50% to 55% from Power, 25% to 30% from Energy Holdings, 20% to 25% from PSE&G
- Global has $632 million of investment exposure in Argentina; AES has notified Global of its intent to terminate the Stock Purchase Agreement for Global's Argentine minority interests, which Global disputes
- PSE&G secured contracts for its expected peak load of 9,600 MW in the BGS auction, with supply beginning August 1, 2002 at $.0511 per kWh
- Dividends of $2.16 per share were paid in 2001, unchanged since 1992; total long-term debt rose to $10.301 billion from $5.297 billion
03—Questions
Frequently Asked Questions
What drove the increase in PSEG's 2001 earnings?
Management attributed the increase to new acquisitions, asset sales and improved operations at Global, new leveraged lease investments at Resources, continued strong performance of nuclear generating facilities, and improved energy trading performance. These offset unfavorable weather at PSE&G, two BPU-mandated 2% rate reductions, and the effects of the January 31, 2001 securitization transaction.
What is the Argentina exposure and what is the status of the AES sale?
As of December 31, 2001, Global had total investment exposure in Argentina of approximately $632 million. Global had agreed on August 24, 2001 to sell its minority interests in certain Argentine assets to AES, but on February 6, 2002 AES notified Global of its intent to terminate, alleging a Political Risk Event. Global disagrees, is pursuing its rights and is in ongoing discussions with AES. The filing states the outcome cannot be predicted, and under a worst-case scenario Global would record a pre-tax write-off of approximately $632 million.
How will PSE&G's customers and earnings be affected by the BGS auction?
The BPU approved the auction results on February 15, 2002, with PSE&G securing contracts for its expected peak load of 9,600 MW at $.0511 per kWh for August 1, 2002 to July 31, 2003. Customers continue to pay below-market BGS shopping credit rates, and PSE&G estimates the underrecovery for that period at approximately $250 million, or $125 million net of NUG sales. The difference is to be deferred and recovered with interest in the future.
How much debt does PSEG carry and how is it financed?
Consolidated long-term debt was $10.301 billion at December 31, 2001, up from $5.297 billion a year earlier, partly due to the $2.525 billion securitization bonds issued by PSE&G Transition Funding and $1.8 billion of Power senior notes. The ratio of debt to capitalization under the company's credit facilities was .64 to 1 against a maximum of .70 to 1. Credit ratings were investment grade across the major agencies, with PSEG's preferred securities rated below investment grade by Standard & Poor's (BB+).
What are the most significant risks flagged for future results?
The filing highlights credit and counterparty risk on the new BGS contracts, energy trading and market price volatility, the possibility of asset impairments in Argentina, the potential adoption impact of SFAS 142 on goodwill (with $142 million of RGE goodwill, $63 million of EDEERSA goodwill and $53 million of Energy Technologies goodwill identified as possibly impaired), and regulatory outcomes including the BPU electric base rate case expected in 2002 and PJM and FERC RTO developments.
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