01—Abstract
Summary
Summary of the 10-K filed February 26, 2015. Cited figures are marked; the original filing is the authoritative source.
Public Service Enterprise Group Incorporated (PSEG) reported 2014 net income of $1.52 billiona, or $2.99 per diluted share, up from $1.24 billion ($2.45 per diluted share) in 2013.
Operating revenues rose to $10.89 billionb from $9.97 billion. The company operates through two principal subsidiaries: PSE&G, a regulated New Jersey transmission and distribution utility that earned $725 million, and PSEG Power, a wholesale generator with roughly 13,146 MW of nuclear and fossil capacity that earned $760 million. Other operations, including Energy Holdings and the Long Island T&D operation (PSEG LI), contributed $33 million.
The increase was driven mainly by higher transmission revenues at PSE&G, mark-to-market gains at Power, and lower pension and OPEB costs, partially offset by lower BGS volumes and higher fuel costs. Key risks include continued low natural gas and electricity prices, capacity market design uncertainty in PJM (including demand response litigation and the Capacity Performance proposal), an open FERC investigation into errors in Power's fossil unit bids, and potential cooling-water permit requirements at Salem that could be material. The company also faces pending environmental regulation such as EPA's proposed carbon rule for existing plants and the Passaic River cleanup.
Power had $402 millionc in cash at year-end, $4.1 billion of available liquidity, and a 2015 dividend indicated at $1.56 per share. The filing is a combined Form 10-K for PSEG, PSE&G and PSEG Power LLC. Capital spending plans total $3.22 billion for 2015, of which $2.62 billion is at PSE&G, with the Energy Strong program and PJM-assigned transmission projects, including the $1.2 billion Bergen-Linden Corridor, as major drivers.
02—Key points
Key Highlights
- Net income rose to $1,518 million ($2.99 diluted EPS) in 2014 from $1,243 million ($2.45) in 2013, a $275 million increase.
- Operating revenues were $10,886 million versus $9,968 million in 2013; PSE&G revenues were $6,766 million and Power revenues were $5,434 million.
- PSE&G earned $725 million and Power earned $760 million; the increase was driven by higher transmission revenues, mark-to-market gains and lower pension/OPEB costs.
- The 2015 Formula Rate Update added approximately $182 million in annual transmission revenues effective January 1, 2015, with an allowed ROE of 11.68%.
- Power cleared 8,693 MW in the May 2014 PJM capacity auction at an average of $164.61/MW-day for 2017-2018, and its base-load generation was 100% contracted for 2015.
- Power may be required to post approximately $945 million of additional collateral if it lost its investment grade rating, against $4.1 billion of total available credit liquidity.
- The Board approved a $0.39 per share first-quarter 2015 dividend, an indicated annual rate of $1.56 per share, up from $1.48 paid in 2014.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 26, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $10.89B$9.97B | +9.2% |
| Operating Expenses | $8.26B$7.67B | +7.7% |
| Operating Income | $2.62B$2.30B | +14.1% |
| Interest Expense | $389.00M$402.00M | −3.2% |
| Net Income | $1.52B$1.24B | +22.1% |
| EPS (Basic) | $3.00$2.46 | +22.0% |
| EPS (Diluted) | $2.99$2.45 | +22.0% |
| Shares Outstanding (Basic) | 506.00M506.00M | 0.0% |
| Shares Outstanding (Diluted) | 508.00M508.00M | 0.0% |
05—Questions
Frequently Asked Questions
What drove the increase in PSEG's 2014 net income?
The filing attributes the $275 million increase primarily to higher transmission revenues at PSE&G, mark-to-market gains at Power in 2014 versus losses in 2013, higher BGSS gas volumes from colder weather, and lower O&M expense largely due to reduced pension and OPEB costs. These were partly offset by lower BGS electricity volumes and higher fuel costs.
How exposed is PSEG to the capacity market and natural gas prices?
Power's results depend heavily on PJM capacity prices and wholesale energy prices, which are influenced by natural gas prices. The filing notes that lower gas prices have reduced electricity prices and margins, and that pending PJM and FERC proceedings on demand response and the Capacity Performance product could significantly affect future capacity revenues.
What are the main regulatory and legal uncertainties?
The filing discloses an ongoing non-public FERC staff investigation into errors in Power's cost-based bids for New Jersey fossil units, which could result in disgorgement, civil penalties, or other remedies, with no estimate currently possible. Other matters include potential closed-cycle cooling requirements at Salem, the EPA's proposed greenhouse gas rule for existing plants, and the Passaic River cleanup, for which the company believes its share is immaterial but cannot yet predict.
What is PSEG's planned capital spending?
Projected capital expenditures are $3.22 billion for 2015, $2.90 billion for 2016 and $2.58 billion for 2017. PSE&G accounts for the majority, with $2.62 billion planned for 2015, mainly for transmission and distribution reliability and the Energy Strong program. Power's planned spending is $555 million for 2015.
How strong is PSEG's liquidity and balance sheet?
PSEG ended 2014 with $402 million of cash and $4.08 billion of available liquidity across its credit facilities totaling $4.3 billion. Total assets were $35.3 billion, and the company stated it is in compliance with its debt covenants and maintains investment grade credit ratings.
06—Continue