01—Abstract
Summary
Summary of the 10-K filed February 26, 2018. Cited figures are marked; the original filing is the authoritative source.
Public Service Enterprise Group Incorporated (PSEG) reported 2017 net income of $1.57 billiona, or $3.10 per diluted share, up from $887 million ($1.75 per diluted share) in 2016.
The filing attributes the increase primarily to favorable new tax legislation at Power and Energy Holdings, including a one-time, non-cash net income benefit of $745 millionb from remeasuring deferred tax liabilities under the Tax Act, along with higher transmission revenues at PSE&G. These gains were partially offset by $577 million (after tax) of charges related to the early retirement of Power's Hudson and Mercer coal/gas units, and by lower volumes and prices in energy sales. PSE&G, the regulated utility, earned $973 million in 2017 versus $889 million in 2016, while Power earned $479 million versus $18 million.
PSE&G's rate base and capital program remain central to the outlook, with projected 2018 total capital expenditures of $3.36 billionc across PSEG, including $2.67 billion at PSE&G. PSE&G filed a distribution base rate case in January 2018 requesting approximately a one percent revenue increase, with new rates expected in the fourth quarter of 2018. The company also proposed a $2.7 billion GSMP II gas program, which is pending before the BPU.
Key risks for investors include weak wholesale power and natural gas prices, the potential early retirement of the Salem and Hope Creek nuclear units absent New Jersey legislation, the bankruptcy-related write-downs of Energy Holdings' leveraged leases tied to GenOn and REMA, a FERC investigation into cost-based bids at Power's New Jersey fossil units with potential disgorgement of $35 million to $135 milliond plus penalties, and the Westinghouse Electric bankruptcy affecting nuclear fuel fabrication for Salem. The Board approved a first-quarter 2018 dividend of $0.45 per share, an indicative annual rate of $1.80.
02—Key points
Key Highlights
- Net income rose to $1.57 billion ($3.10 diluted EPS) in 2017 from $887 million ($1.75) in 2016, aided by a $745 million non-cash net income benefit from the Tax Act remeasurement of deferred tax liabilities.
- PSE&G net income was $973 million in 2017 versus $889 million in 2016; Power net income was $479 million versus $18 million.
- Power recorded $577 million of after-tax expenses in 2017 related to the early retirement of its Hudson and Mercer coal/gas generation plants.
- PSE&G's transmission revenues were $152 million higher in 2017 due to higher formula rate revenue requirements; the company plans $3.8 billion of transmission capital spending in 2018-2020.
- Projected 2018 capital expenditures total $3.36 billion for PSEG, including $2.67 billion at PSE&G, with PSE&G's GSMP II ($2.7 billion over five years) pending before the BPU.
- Power faces a FERC preliminary investigation into cost-based bids at its New Jersey fossil units; Power accrued $35 million, the low end of a $35 million to $135 million range before penalties.
- Quarterly dividend of $0.45 per share approved for Q1 2018, an indicative annual rate of $1.80 per share.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Public Service Enterprise Group kept $0.17.
- Revenue$9.09B100.0%
- Cost of revenue−$2.78B30.5%
- Gross profit$6.32B69.5%
- Operating costs−$4.89B53.7%
- Operating income$1.43B15.7%
- Interest, other & tax$145.0M1.6%
- Net income$1.57B17.3%
Where FY2017 revenue went
$9.09B- Operating costs: $4.89B, 54% of revenue
- Cost of revenue: $2.78B, 31% of revenue
- Operating income: $1.43B, 16% of revenue
Kept 16% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 26, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $9.09B$8.97B | +1.4% |
| Cost of Revenue | $2.78B$2.90B | −4.2% |
| Gross Profit | $6.32B$6.07B | +4.1% |
| Operating Expenses | $7.67B$7.37B | +4.0% |
| Operating Income | $1.43B$1.60B | −10.6% |
| Interest Expense | $391.00M$385.00M | +1.6% |
| Net Income | $1.57B$887.00M | +77.5% |
| EPS (Basic) | $3.12$1.76 | +77.3% |
| EPS (Diluted) | $3.10$1.75 | +77.1% |
| Shares Outstanding (Basic) | 505.00M505.00M | 0.0% |
| Shares Outstanding (Diluted) | 507.00M508.00M | −0.2% |
05—Questions
Frequently Asked Questions
What drove the increase in PSEG's 2017 net income?
The filing cites primarily favorable new tax legislation at Power and Energy Holdings in 2017, including a one-time, non-cash net income benefit of $745 million from remeasuring deferred tax liabilities. Higher transmission revenues at PSE&G, lower leveraged lease charges at Energy Holdings, and lower plant outage costs at Power also contributed. These were partially offset by higher charges for the early retirement of the Hudson and Mercer units and lower volumes and average prices of electricity sold.
How is the Tax Act expected to affect PSE&G's customers?
PSE&G had excess deferred taxes of approximately $2.1 billion at December 31, 2017 and recorded a $2.9 billion revenue impact as Regulatory Liabilities, where refunds to customers are probable. The filing states the amount and timing of refunds cannot be determined at this time. PSE&G's January 2018 base rate case reflects a reduction in the revenue requirement from the lower federal tax rate and a one-time credit for excess taxes collected.
What are the main risks to Power's nuclear fleet?
Power anticipates it would no longer cover its costs at the Salem and Hope Creek units if market prices stay depressed and New Jersey legislation providing compensation for nuclear attributes is not enacted, and it would anticipate retiring these units early. Early retirement costs would be material to PSEG and Power. The filing also notes that Westinghouse Electric Company, which provides fuel fabrication for Salem Units 1 and 2, filed for Chapter 11 bankruptcy in March 2017.
What exposure does Energy Holdings have to GenOn and REMA?
Energy Holdings recorded 2017 pre-tax charges of $55 million in the first quarter and $22 million in the second quarter related to REMA leveraged lease receivables, after $137 million of residual value write-downs in 2016. GenOn filed for Chapter 11 in June 2017, while REMA was not included in that filing. The company states further write-downs could be material, and that lease rejections or foreclosures could require additional write-offs and accelerated tax payments.
What is PSE&G's authorized return on equity for transmission?
PSE&G's approved base ROE on transmission investments is 11.68% on existing and new transmission investment, with certain investments entitled to an additional incentive rate. Its distribution rate base ROE is 10.3% under the most recent gas and electric base rate proceeding completed in mid-2010, and the January 2018 distribution filing requested a 10.3% return on equity with a 54% equity component.
06—Continue