01—Abstract
Summary
Summary of the 10-K filed February 25, 2011. Cited figures are marked; the original filing is the authoritative source.
Public Service Enterprise Group Incorporated (PEG) reported 2010 Net Income of $1.56 billiona, or $3.08 diluted EPS, versus $1.59 billion ($3.14) in 2009, on operating revenues of $11.79 billion.
Income from Continuing Operations was $1.56 billionb ($3.07 diluted), with Power contributing $1.14 billion, PSE&G $359 million, and Energy Holdings $49 million. Management attributes the decline mainly to lower natural gas prices reducing margins on Power's eastern PJM sales, customer migration away from BGS contracts, a $122 million charge to refund Market Transition Charge collections, and lower gas volumes from milder weather. The filing states that earnings are expected to be lower in 2011, while cash from operations is expected to remain strong, aided by about $750 million of cash benefits from two 2010 tax provisions on accelerated depreciation.
The filing highlights several growth and capital programs, including the Susquehanna-Roseland transmission line (up to $750 millionc, with in-service dates now expected in 2014 for the eastern portion and 2015 for the western portion), the reconfigured Roseland-to-Hudson 230 kV project (up to $700 million), and the Solar 4 All program (about $465 million for 80 MW). Power's 2011 to 2013 capital projections total $670 million, $485 million and $340 million, while PSE&G's total $1.47 billion, $1.51 billion and $1.60 billion over the same period. Key risks include the New Jersey LCAPP law enacted January 28, 2011, which provides for 2,000 MW of subsidized generation and is being challenged at FERC and in court, a pending IRS challenge to leveraged lease deductions (about $260 million currently payable if conceded, plus $150 million in penalties), and Power's $828 million potential additional collateral requirement if it lost investment-grade status.
Liquidity appears adequate, with total available credit of $3.35 billiond at December 31, 2010 and PSE&G's Mortgage coverage ratio of 3.6 to 1. The Board approved a first-quarter 2011 dividend of $0.3425 per share, an indicated annual rate of $1.37.
02—Key points
Key Highlights
- 2010 Net Income of $1.56 billion ($3.08 diluted EPS) vs. $1.59 billion ($3.14) in 2009; operating revenues of $11.79 billion vs. $12.04 billion.
- Power contributed $1.14 billion of 2010 Income from Continuing Operations, PSE&G $359 million, and Energy Holdings $49 million.
- Lower natural gas prices reduced margins on Power's eastern PJM sales, and customer migration from BGS contracts lowered realized prices; management expects lower earnings in 2011.
- A $122 million charge in June 2010 under a BPU settlement to refund previous Market Transition Charge collections over two years.
- Two 2010 tax provisions are expected to generate about $750 million of cash benefits, mostly in 2011; capital spending plans total $2.33 billion for 2011.
- Key risks include New Jersey's LCAPP law (2,000 MW of subsidized generation, enacted January 28, 2011) and a pending IRS challenge to leveraged lease deductions with about $260 million currently payable if conceded, plus $150 million in penalties.
- Quarterly dividend of $0.3425 per share approved for Q1 2011, an indicated annual rate of $1.37.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 25, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $11.79B$12.04B | −2.0% |
| Operating Expenses | $8.86B$8.92B | −0.7% |
| Operating Income | $2.94B$3.12B | −5.7% |
| Interest Expense | $472.00M$521.00M | −9.4% |
| Net Income | $1.56B$1.59B | −1.8% |
| EPS (Basic) | $3.09$3.15 | −1.9% |
| EPS (Diluted) | $3.08$3.14 | −1.9% |
| Shares Outstanding (Basic) | 505.99M505.99M | 0.0% |
| Shares Outstanding (Diluted) | 507.05M507.06M | 0.0% |
05—Questions
Frequently Asked Questions
How did earnings change in 2010 and what drove the change?
PSEG Net Income fell to $1.56 billion ($3.08 diluted EPS) from $1.59 billion ($3.14) in 2009. The filing attributes the decline to higher-priced BGS sales being replaced by lower-priced sales as customer migration increased, losses on certain wholesale energy supply contracts, the $122 million MTC refund charge, lower gas volumes from milder winter weather, and lower gains on lease sales. These were partly offset by higher electric volumes from warmer summer weather and higher PSE&G base rates.
What is the outlook for 2011 and beyond?
The filing states that earnings are expected to be lower in 2011, as pre-2010 forward sales close and lower energy prices have a larger impact. Lower RPM capacity pricing compared with 2010 is also expected to affect 2011 and 2012 results. Cash from operations is expected to remain strong, supported by about $750 million of tax-related cash benefits, most realized in 2011.
What are the main regulatory and legal risks to the business?
The New Jersey LCAPP law, enacted January 28, 2011, could artificially depress wholesale capacity prices; it is being challenged at FERC and in federal district court. Other risks include the pending FERC proceedings on transmission right of first refusal, environmental rules such as the proposed Clean Air Transport Rule and coal ash regulation, and the IRS challenge to leveraged lease tax deductions. The filing also notes that Power could have had to post about $828 million of additional collateral if it lost investment-grade status as of December 31, 2010.
How strong is the company's liquidity and financial position?
Total available liquidity under PSEG, Power and PSE&G credit facilities was $3.35 billion as of December 31, 2010, out of $3.65 billion in total facilities. The filing states the company is in compliance with its debt covenants. PSE&G's Mortgage coverage ratio was 3.6 to 1. Long-term debt maturities include about $650 million at Power due in 2011. The filing states PSEG has funded approximately 82% of its projected pension benefit obligation.
What major growth projects are underway?
Major projects include the Susquehanna-Roseland 500 kV line (estimated cost up to $750 million, now not expected in service before June 2014 for the eastern portion), the reconfigured Roseland-to-Hudson 230 kV project (up to $700 million, expected in service June 2015), and the Solar 4 All program (about $465 million for 80 MW of solar). Power is also building gas-fired peaking units at Kearny and in Connecticut and pursuing Peach Bottom uprate and steam path projects.
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