01—Abstract
Summary
Summary of the 10-K filed February 26, 2014. Cited figures are marked; the original filing is the authoritative source.
Public Service Enterprise Group Incorporated (PSEG) filed this combined 10-K for fiscal 2013 together with PSEG Power LLC (Power) and Public Service Electric and Gas Company (PSE&G).
PSEG reported 2013 net income of $1.243 billiona, or $2.45 diluted earnings per share, compared with $1.275 billion, or $2.51 per share, in 2012, and operating revenues of $9.968 billion. The decline was attributed primarily to higher operations and maintenance costs from planned outages and higher mark-to-market losses at Power, partly offset by higher PJM capacity prices and higher transmission revenues at PSE&G. PSE&G earned $612 million in 2013 versus $528 million in 2012, while Power earned $644 million versus $666 million.
The filing highlights a utility growing its transmission and distribution investment. PSE&G made $2.207 billionb of capital expenditures in 2013, and PSEG's three-year capital forecast totals $7.1 billion. The company also proposed a $3.9 billion ten-year Energy Strong resiliency program to the New Jersey Board of Public Utilities, which remains pending.
PSEG's board approved a first-quarter 2014 dividend of $0.370c per share, an indicated annual rate of $1.48. Key risks include continued low natural gas and power prices affecting Power's margins, regulatory uncertainty around capacity markets and state subsidies, and environmental rules such as the EPA's cooling water intake rule, which the filing says could be material.
Power's nuclear and fossil fleet faces potential closed-cycle cooling requirements, and the Superstorm Sandy insurance recovery remains in litigation. The LCAPP subsidy program was ruled unconstitutional, with the appeal pending.
02—Key points
Key Highlights
- Net income of $1.243 billion ($2.45 diluted EPS) in 2013, down from $1.275 billion ($2.51) in 2012
- Operating revenues of $9.968 billion in 2013 versus $9.781 billion in 2012
- PSE&G net income rose to $612 million from $528 million; Power net income fell to $644 million from $666 million
- PSE&G invested $2.207 billion in capital expenditures in 2013; three-year capital forecast totals $7.1 billion
- Proposed $3.9 billion Energy Strong program over ten years, with $2.6 billion sought in an initial five-year period; BPU review pending
- Dividend declared per share of $1.44 for 2013; first-quarter 2014 dividend of $0.370 per share (indicated annual rate $1.48)
- Credit ratings upgraded by S&P in April 2013 to BBB+ for PSEG, Power and PSE&G; Moody's upgraded PSE&G's mortgage bonds to Aa3 in January 2014
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 26, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $9.97B$9.78B | +1.9% |
| Operating Expenses | $7.67B$7.50B | +2.2% |
| Operating Income | $2.30B$2.28B | +0.9% |
| Interest Expense | $402.00M$423.00M | −5.0% |
| Net Income | $1.24B$1.27B | −2.5% |
| EPS (Basic) | $2.46$2.52 | −2.4% |
| EPS (Diluted) | $2.45$2.51 | −2.4% |
| Shares Outstanding (Basic) | 506.00M506.00M | 0.0% |
| Shares Outstanding (Diluted) | 508.00M507.00M | +0.2% |
05—Questions
Frequently Asked Questions
Why did PSEG's net income decline in 2013?
The filing attributes the $32 million decrease primarily to higher operations and maintenance costs from planned outage work and higher mark-to-market losses at Power. 2012 results also included recoveries from a leveraged lease investment and a one-time tax benefit from the settlement of 1997-2006 IRS audits. These were partly offset by higher market prices, fuel supply cost savings, higher capacity pricing at Power, and higher transmission revenues at PSE&G.
How much is PSEG planning to invest in its utility business?
PSEG's projected capital expenditures total $2.68 billion for 2014, $2.44 billion for 2015 and $1.975 billion for 2016. PSE&G accounts for $2.155 billion, $2.040 billion and $1.680 billion of those amounts, mainly for transmission and distribution reliability. The filing notes that the proposed Energy Strong program is not included in this forecast.
What is the Energy Strong program and what is its status?
In February 2013, PSE&G petitioned the BPU for approval of an Energy Strong program of improvements to its gas and electric distribution systems, with a current estimated total cost of $3.9 billion over ten years. PSE&G sought approval for $0.9 billion of gas investment and $1.7 billion of electric investment over an initial five-year period, with contemporaneous cost recovery. Public hearings were completed in October 2013, and the review remains ongoing at the BPU.
What are the main regulatory and market risks to Power's earnings?
Power's earnings are sensitive to natural gas prices, which set electricity prices in its markets, and to capacity market design in PJM and New England. The filing notes that lower gas prices have reduced margins because nuclear and coal costs have not fallen similarly. Court rulings struck down New Jersey's LCAPP subsidy program, with an appeal pending, and the FERC's market power review of Power's market-based rate authority is also pending. Power would need up to $691 million of additional collateral if it lost its investment grade rating.
What environmental issues could materially affect PSEG?
The filing identifies the EPA's Section 316(b) cooling water intake rule, scheduled for a final decision on April 17, 2014, as a potential material issue, since most of PSEG's electric stations could be affected. Power's Salem permit renewal could require closed-cycle cooling, with an earlier estimate of about $1 billion for cooling towers, of which Power's share was about $575 million. Other matters include the Passaic River Superfund cleanup, MGP remediation with a recorded liability of $445 million, and nuclear fuel disposal, for which Power estimates an annualized pre-tax benefit of about $30 million if the Nuclear Waste Fee is eliminated.
06—Continue