01—Abstract
Summary
Summary of the 10-K filed February 27, 2017. Cited figures are marked; the original filing is the authoritative source.
Public Service Enterprise Group Incorporated (PSEG) reported 2016 Net Income of $887 milliona, or $1.75 per diluted share, down from $1,679 million ($3.30 per diluted share) in 2015.
The decrease was driven primarily by charges for the early retirement of the Hudson and Mercer coal/gas units, which the filing says recorded $396 millionb of after-tax expenses at Power, along with mark-to-market losses in 2016 versus gains in 2015, lower sales volumes and prices, and a $92 million after-tax leveraged lease charge at Energy Holdings. Operating Revenues fell to $9.06 billion from $10.42 billion, while Depreciation and Amortization rose to $1.48 billion from $1.21 billion, largely from accelerated depreciation of the retiring units. PSE&G, the regulated utility, earned $889 million in 2016 versus $787 million in 2015, supported by higher transmission revenues, and the filing notes its $1.2 billion Energy Strong Program and $905 million Gas System Modernization Program.
Power's net income fell to $18 millionc from $856 million. The company reported $3.31 billion of operating cash flow and $4.20 billion of capital additions in 2016, planned capital spending of $4.66 billion for 2017, and raised its indicative annual dividend to $1.72 per share. Key open matters include an ongoing FERC Staff investigation into errors in Power's PJM cost-based bids, which the filing says could result in material losses, and Passaic River environmental costs.
The filing states that PSEG met its funding needs through internally generated cash and external financings without issuing new equity, and that it maintained investment-grade credit ratings. Its distribution base rate case must be filed with the New Jersey BPU no later than November 1, 2017.
02—Key points
Key Highlights
- Net Income of $887 million ($1.75 diluted EPS) in 2016, down from $1,679 million ($3.30) in 2015.
- Power's 2016 net income fell to $18 million from $856 million, reflecting Hudson and Mercer early-retirement charges and mark-to-market losses.
- PSE&G net income rose to $889 million from $787 million, driven by higher transmission revenues.
- Operating Revenues declined to $9.06 billion from $10.42 billion; Depreciation and Amortization increased to $1.48 billion from $1.21 billion.
- Hudson and Mercer coal/gas units to cease operations June 1, 2017, with $958 million of remaining depreciation expected in 2017.
- Planned capital expenditures of $4.66 billion for 2017, of which $3.41 billion is at PSE&G and $1.20 billion at Power.
- Indicative annual dividend increased to $1.72 per share; 2016 dividends declared were $1.64 per share.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Public Service Enterprise Group kept $0.10.
- Revenue$8.97B100.0%
- Cost of revenue−$2.90B32.4%
- Gross profit$6.07B67.6%
- Operating costs−$4.47B49.8%
- Operating income$1.60B17.8%
- Interest, other & tax−$711.0M7.9%
- Net income$887.0M9.9%
Where FY2016 revenue went
$8.97B- Operating costs: $4.47B, 50% of revenue
- Cost of revenue: $2.90B, 32% of revenue
- Net income: $887.0M, 9.9% of revenue
- Interest, other & tax: $711.0M, 7.9% of revenue
Kept 9.9% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 27, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $8.97B$10.41B | −13.9% |
| Cost of Revenue | $2.90B— | — |
| Gross Profit | $6.07B— | — |
| Operating Expenses | $7.37B$7.45B | −1.1% |
| Operating Income | $1.60B$2.96B | −46.0% |
| Interest Expense | $385.00M$393.00M | −2.0% |
| Net Income | $887.00M$1.68B | −47.2% |
| EPS (Basic) | $1.76$3.32 | −47.0% |
| EPS (Diluted) | $1.75$3.30 | −47.0% |
| Shares Outstanding (Basic) | 505.00M505.00M | 0.0% |
| Shares Outstanding (Diluted) | 508.00M508.00M | 0.0% |
05—Questions
Frequently Asked Questions
Why did PSEG's net income decline significantly in 2016?
The filing attributes the decline primarily to charges related to the early retirement of Power's Hudson and Mercer coal/gas units, which totaled $396 million after tax, plus mark-to-market losses in 2016 compared with gains in 2015, lower volumes and realized prices, a $92 million after-tax charge tied to leveraged lease investments at Energy Holdings, and the absence of 2015 Superstorm Sandy insurance recoveries.
How is PSE&G performing compared with Power?
PSE&G, the regulated New Jersey utility, earned $889 million in 2016 versus $787 million in 2015, aided by higher transmission revenues under its formula rate. Power, the merchant generator, earned $18 million versus $856 million, reflecting early plant retirement costs, lower energy prices and volumes, and mark-to-market losses.
What capital investments does PSEG plan?
PSEG projects total capital expenditures of $4.66 billion in 2017, $3.32 billion in 2018 and $2.19 billion in 2019. PSE&G's projected spending is $3.41 billion in 2017, including transmission and distribution, Energy Strong, and the Gas System Modernization Program. Power's 2017 projection is $1.20 billion, including $825 million for fossil growth opportunities such as Keys Energy Center, Sewaren 7 and Bridgeport Harbor 5.
What regulatory or legal risks are highlighted?
The filing discloses an ongoing preliminary non-public FERC Staff investigation into errors in calculating components of Power's cost-based bids for New Jersey fossil units in the PJM energy market; the company states that potential disgorgement and penalties could be material if its legal arguments do not prevail. It also reports that PSE&G must file its next distribution base rate case by November 1, 2017, and cites ongoing Passaic River Superfund and natural resource damage matters.
Is PSEG's financial position sound, and will it need to issue equity?
The filing says PSEG maintained sufficient liquidity and solid investment-grade credit ratings, with total credit facilities of $4.15 billion and available liquidity of $3.54 billion at December 31, 2016. Management states it expects to fund planned capital requirements without issuing new equity, and it reported $423 million of consolidated cash and cash equivalents.
06—Continue