01—Abstract
Summary
Summary of the 10-K filed February 26, 2013. Cited figures are marked; the original filing is the authoritative source.
Public Service Enterprise Group Incorporated (PSEG) reported 2012 operating revenues of $9.78 billiona, down from $11.08 billion in 2011, and net income of $1.28 billion, or $2.51 per diluted share, versus $1.50 billion and $2.96 per share in 2011.
The decline was driven mainly by lower electricity and natural gas prices, lower BGS revenues, and mark-to-market losses at Power, partly offset by higher transmission revenues at PSE&G and the absence of the 2011 $170 millionb after-tax leveraged lease charge. Superstorm Sandy caused the highest level of customer outages in the company's history, with Power incurring about $85 million of costs and PSE&G about $295 million to restore service, much of which was deferred under a December 2012 BPU order. The company operates through three subsidiaries: Power, a merchant generator with about 13,226 MW of owned capacity; PSE&G, a New Jersey regulated utility earning returns on transmission and distribution; and Energy Holdings, which holds lease investments and solar projects.
The filing emphasizes a shift in business mix toward regulated utility investment. PSEG projects about $6.1 billionc of capital expenditures over 2013 to 2015, about 80% at PSE&G, and filed a $3.9 billion ten-year grid hardening petition with the BPU in February 2013.
The company also cites ongoing regulatory uncertainty, including New Jersey's LCAPP subsidized generation program, FERC Order 1000 transmission rules, and proposed EPA cooling water intake rules. For investors, the filing shows a strong balance sheet with $379 milliond of cash and $3.9 billion of available liquidity, and a dividend increased to $1.42 per share in 2012, with the Board approving a $0.36 quarterly rate ($1.44 indicated annually) for the first quarter of 2013.
02—Key points
Key Highlights
- Net income of $1,275 million ($2.51 diluted EPS) in 2012, down from $1,503 million ($2.96) in 2011; operating revenues of $9,781 million vs. $11,079 million.
- Power's income from continuing operations fell to $647 million from $1,002 million, reflecting lower average realized prices, BGS volume and pricing declines, and MTM losses.
- PSE&G's income from continuing operations rose to $528 million from $521 million, supported by higher transmission revenues and tax benefits from IRS audit settlements.
- Superstorm Sandy led to Power costs of about $85 million and PSE&G restoration costs of about $295 million, with $180 million of PSE&G costs recorded as a regulatory asset under a BPU deferral order.
- Capital expenditure forecast of approximately $6.1 billion over 2013-2015, with about 80% at PSE&G; a further $3.9 billion ten-year distribution hardening program was filed with the BPU.
- Dividends declared rose to $1.42 per share in 2012 from $1.37; the Board approved $0.36 per share for Q1 2013, an indicated annual rate of $1.44.
- Liquidity of $4.3 billion in total credit facilities with $3,855 million available at year-end 2012 and $379 million of cash on hand.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 26, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $9.78B$11.08B | −11.7% |
| Operating Expenses | $7.50B$8.34B | −10.0% |
| Operating Income | $2.28B$2.74B | −16.9% |
| Interest Expense | $423.00M$475.00M | −10.9% |
| Net Income | $1.27B$1.50B | −15.2% |
| EPS (Basic) | $2.52$2.97 | −15.2% |
| EPS (Diluted) | $2.51$2.96 | −15.2% |
| Shares Outstanding (Basic) | 506.00M505.95M | 0.0% |
| Shares Outstanding (Diluted) | 507.00M506.98M | 0.0% |
05—Questions
Frequently Asked Questions
Why did PSEG's earnings decline in 2012?
Income from continuing operations fell to $1,275 million from $1,407 million, mainly because Power faced lower average prices for electricity and natural gas, lower BGS revenues from customer migration and warmer winter weather, unfavorable mark-to-market activity, and higher O&M costs from Superstorm Sandy. These were partly offset by the absence of the 2011 $170 million after-tax leveraged lease charge and higher PSE&G transmission revenues.
How is PSEG shifting its business mix?
The filing says management has focused on increasing investment in the regulated utility. It cites $1.1 billion invested in transmission in 2012, a $6.1 billion three-year capital forecast with about 80% at PSE&G, and a shift in dividend policy to reflect growing contributions from regulated operations, while the generation business faces low prices.
What are the main regulatory risks highlighted?
The filing identifies New Jersey's LCAPP program, which subsidizes about 2,000 MW of new generation and may depress capacity prices; FERC Order 1000, which may open transmission construction to competition; the proposed EPA 316(b) cooling water rule, which could require closed-cycle cooling and be material; and BPU audits and investigations. It notes Power could have had to post about $654 million of additional collateral if it lost investment grade status as of year-end 2012.
What was the financial impact of Superstorm Sandy?
Power recorded about $85 million of Sandy costs in O&M, offset by $19 million of pending insurance recovery, and estimated additional future costs up to about $215 million. PSE&G incurred about $295 million to restore service, of which about $40 million was expensed, $75 million capitalized, and $180 million deferred as a regulatory asset under the BPU's December 2012 order.
What is the outlook for the dividend?
On February 19, 2013, the Board approved a $0.36 per share dividend for the first quarter of 2013, an indicated annual rate of $1.44. The filing states that future dividends remain at the Board's discretion and depend on financial condition, earnings, capital requirements and other factors.
06—Continue