01—Abstract
Summary
Summary of the 10-K filed February 28, 2019. Cited figures are marked; the original filing is the authoritative source.
Public Service Enterprise Group Incorporated (PSEG) reported 2018 net income of $1,438 milliona, or $2.83 per diluted share, down from $1,574 million ($3.10) in 2017.
The decline was driven largely by a $745 millionb one-time non-cash tax benefit recorded in 2017 from the Tax Cuts and Jobs Act, and by $209 million of net unrealized losses on NDT Fund equity securities recognized in 2018 under new accounting guidance. Operating revenues rose to $9,696 million from $9,094 million, and operating income increased to $2,298 million from $1,429 million, largely because 2017 included accelerated depreciation of the Hudson and Mercer units. PSE&G net income rose to $1,067 million from $973 million, while Power's fell to $365 million from $479 million.
The company's growth plan centers on PSE&G, which expects to invest between $11 billionc and $16 billion over five years, supporting annual rate base growth of 7%-9%. Pending programs include Energy Strong Program II ($2.5 billion over five years), Clean Energy Future ($3.6 billion over six years), and GSMP II ($1.9 billion), all subject to BPU approval. At Power, the filing states that three New Jersey nuclear plants (Salem 1, Salem 2, and Hope Creek) will retire absent selection for Zero Emission Certificate payments in April 2019.
The board approved a $0.47d quarterly dividend for the first quarter of 2019, an indicative annual rate of $1.88 per share, and management stated it expects to fund planned capital needs without issuing new equity. Key risks include wholesale power and gas price volatility, FERC proceedings on PJM capacity market design, the outcome of the ZEC program, Passaic River environmental liabilities, and the possibility of further impairments of coal assets and leveraged leases.
02—Key points
Key Highlights
- Net income of $1,438 million ($2.83 diluted EPS) in 2018, versus $1,574 million ($3.10) in 2017, which included a $745 million one-time non-cash tax benefit.
- Operating revenues of $9,696 million in 2018, up from $9,094 million; operating income of $2,298 million, up from $1,429 million.
- PSE&G net income rose to $1,067 million from $973 million; Power net income fell to $365 million from $479 million.
- Plans to invest $11 billion to $16 billion over five years at PSE&G, supporting annual rate base growth of 7%-9%.
- Pending BPU decisions on Energy Strong II ($2.5 billion), Clean Energy Future ($3.6 billion), and GSMP II ($1.9 billion) programs; ZEC awards expected April 2019.
- Quarterly dividend of $0.47 per share approved for Q1 2019, an indicative annual rate of $1.88 per share.
- Power's fuel mix at year-end 2018 was 51% gas, 32% nuclear, 10% coal, 5% oil and 2% pumped storage; liquidity of $2,999 million available under $4.2 billion of credit facilities.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Public Service Enterprise Group kept $0.15.
- Revenue$9.70B100.0%
- Cost of revenue−$3.23B33.3%
- Gross profit$6.47B66.7%
- Operating costs−$4.17B43.0%
- Operating income$2.30B23.7%
- Interest, other & tax−$860.0M8.9%
- Net income$1.44B14.8%
Where FY2018 revenue went
$9.70B- Operating costs: $4.17B, 43% of revenue
- Cost of revenue: $3.23B, 33% of revenue
- Net income: $1.44B, 15% of revenue
- Interest, other & tax: $860.0M, 8.9% of revenue
Kept 15% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 28, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $9.70B$9.09B | +6.6% |
| Cost of Revenue | $3.23B$2.78B | +16.1% |
| Gross Profit | $6.47B$6.32B | +2.5% |
| Operating Expenses | $7.40B$7.67B | −3.5% |
| Operating Income | $2.30B$1.43B | +60.8% |
| Interest Expense | $476.00M$391.00M | +21.7% |
| Net Income | $1.44B$1.57B | −8.6% |
| EPS (Basic) | $2.85$3.12 | −8.7% |
| EPS (Diluted) | $2.83$3.10 | −8.7% |
| Shares Outstanding (Basic) | 504.00M505.00M | −0.2% |
| Shares Outstanding (Diluted) | 507.00M507.00M | 0.0% |
05—Questions
Frequently Asked Questions
Why did net income decline in 2018 despite higher operating income?
The filing attributes the decline primarily to a $745 million non-cash income benefit recorded in 2017 from remeasuring deferred tax liabilities under the Tax Act, and to $209 million of net unrealized losses on NDT Fund equity securities recognized in 2018 under new accounting guidance. These were partly offset by lower depreciation after the 2017 Hudson and Mercer accelerated depreciation, a lower federal tax rate at Power, and higher T&D earnings.
What happens to Power's nuclear plants if they are not selected for ZEC payments?
The filing states that if Salem 1, Salem 2 and Hope Creek are not selected to receive ZEC payments in April 2019 and do not otherwise experience a material financial change, Power will take all necessary steps to retire all three plants at or before their refueling outages in Fall 2019 (Hope Creek), Spring 2020 (Salem 2) and Fall 2020 (Salem 1). The filing says the associated costs and accounting charges would be material to both PSEG and Power.
What is PSE&G's expected investment and growth outlook?
Over the next five years, PSEG expects to invest between $11 billion and $16 billion, which is expected to provide annual rate base growth of 7%-9%. The 2019 capital expenditure projection for PSE&G totals $2,580 million, and the BPU approved a distribution rate base of $9.5 billion with a 9.6% ROE in October 2018.
How much dividend does PSEG pay and will it issue new equity?
The Board approved a $0.47 per share dividend for Q1 2019, an indicative annual rate of $1.88 per share. PSEG paid $1.80 per share in 2018 totaling $910 million. Management stated it expects to fund its planned capital requirements and the impacts of the Tax Act without issuing new equity.
What are the major risks to Power's earnings?
Key risks cited include low natural gas prices that reduce wholesale electricity prices, FERC's June 2018 finding that PJM's capacity market is not just and reasonable (which could affect nuclear units receiving ZEC payments), potential impairment of the Keystone and Conemaugh coal units, and collateral requirements if Power lost its investment grade rating. The filing states that a hypothetical downgrade could require additional collateral of approximately $857 million.
06—Continue