Public Service Enterprise Group Incorporated (PEG) is a diversified energy company that operates primarily through its wholly-owned subsidiaries, Public Service Electric and Gas Company (PSE&G) and PSEG Power LLC. As New Jersey's largest provider of electric and gas service, PSEG has a long and storied history of powering the Garden State's homes and businesses while navigating an evolving energy landscape.
Company Overview
Founded in 1903, PSEG has grown to become a leading utility and energy company, serving approximately 2.3 million electric customers and 1.9 million gas customers across New Jersey. The company's regulated utility, PSE&G, is primarily engaged in the transmission of electricity and distribution of electricity and natural gas in certain areas of New Jersey. PSE&G maintains and upgrades the state's electric transmission and distribution (T&D) infrastructure, while also investing in clean energy initiatives like energy efficiency (EE) programs and solar generation projects.
PSEG operates through two main reportable segments: PSEG and PSEG Power Other. The PSEG segment represents the regulated utility operations, while PSEG Power Other primarily comprises the company's merchant nuclear generating assets and competitive energy sales.
Historical Challenges and Milestones
PSEG has faced various challenges and milestones throughout its history. In the 1970s, the company's nuclear generation business encountered public scrutiny and increased regulations following the Three Mile Island accident. This led PSEG to make significant investments to enhance the safety and reliability of its nuclear fleet. During the 2000s, PSEG successfully navigated through the deregulation of energy markets, adapting its business model to focus more on regulated utility operations while managing its merchant nuclear generation assets.
In 2022, PSEG reached a major milestone with the sale of its fossil fuel generation assets. This strategic move allowed the company to concentrate on its core regulated utility business and clean energy generation through its nuclear fleet. The divestiture also provided PSEG with financial flexibility to invest in infrastructure upgrades and energy efficiency programs to better serve its customers in New Jersey.
Financials
Over the years, PSEG has demonstrated strong financial performance, reporting net income of $2.56 billion and total revenue of $11.24 billion in 2023. The company's balanced business model, with a mix of regulated and competitive operations, has helped it weather industry challenges and deliver consistent returns to shareholders. PSEG's regulated utility segment, PSE&G, accounts for the majority of the company's earnings, contributing $823 million in net income during the first half of 2024, while PSEG Power and Other contributed $176 million.
For the most recent quarter (Q2 2024), PSEG reported revenue of $2.42 billion, a 2% increase year-over-year, primarily due to higher electric and gas distribution and transmission revenues. However, net income decreased 26% to $434 million, primarily due to lower mark-to-market gains compared to the prior year quarter. Operating cash flow for the quarter was $482 million, while free cash flow was negative $355 million.
The PSEG segment reported operating revenues of $1.86 billion for Q2 2024, an increase of $201 million or 12% compared to the same period in 2023. This increase was driven by higher delivery, commodity, clause, and other operating revenues. The PSEG Power Other segment reported operating revenues of $684 million for Q2 2024, a decrease of $218 million or 24% compared to the same period in 2023, primarily due to changes in generation and gas supply revenues.
Capital Investment and Growth
PSEG's financial strength is underpinned by its robust capital investment program, which the company plans to execute over the next five years. From 2024 to 2028, PSEG expects to invest $18 billion to $21 billion in its regulated utility operations, focused on modernizing the electric and gas infrastructure, expanding energy efficiency initiatives, and supporting the state's clean energy goals. This capital plan is expected to drive a compound annual growth rate in rate base of 6% to 7.5% over the same period.
In addition to its T&D investments, PSEG is also pursuing opportunities in the competitive transmission market, leveraging its expertise to bid on projects that support New Jersey's offshore wind and broader grid modernization efforts. The company recently won a $424 million project to address reliability issues in the Mid-Atlantic region, further diversifying its asset base and revenue streams.
Sustainability Initiatives
PSEG's commitment to sustainability is evident in its clean energy initiatives, which include the expansion of its award-winning energy efficiency programs and the preservation of its nuclear fleet. The company's three nuclear plants – Salem 1, Salem 2, and Hope Creek – generate over 85% of New Jersey's carbon-free electricity, a critical asset in the state's efforts to reduce greenhouse gas emissions. PSEG's nuclear facilities have also been awarded zero-emission certificates (ZECs) through 2025, providing a valuable revenue stream and helping to maintain the economic viability of these carbon-free assets.
Future Outlook
Looking ahead, PSEG is well-positioned to capitalize on the ongoing energy transition. The company's robust capital plan, diversified business model, and focus on sustainability position it as a key player in New Jersey's clean energy future. PSEG's management team has demonstrated the ability to navigate industry challenges, such as rising interest rates and supply chain disruptions, while maintaining a strong financial profile and delivering value to shareholders.
PSEG has reaffirmed its full-year 2024 non-GAAP operating earnings guidance of $3.60 to $3.70 per share. The company has also reiterated its forecast of long-term 5% to 7% compound annual growth in non-GAAP operating earnings through 2028, supported by its capital investment programs and the nuclear Production Tax Credit.
Liquidity
Despite the headwinds facing the utility sector, PSEG has continued to perform well, reporting non-GAAP operating earnings of $1.94 per share for the first six months of 2024, in line with its full-year guidance. The company has also maintained its commitment to shareholder returns, with a stable and growing dividend that has been increased for 22 consecutive years.
As of the most recent quarter, PSEG's liquidity position remains strong. The company has $113 million in cash and $2.95 billion in total committed credit facilities available. PSEG's debt-to-equity ratio stands at 1.35, while its current ratio and quick ratio are 0.65 and 0.46, respectively. These metrics indicate that while the company's leverage is moderate, it maintains sufficient liquidity to meet its short-term obligations.
Conclusion
In conclusion, PSEG's long history, financial strength, and strategic focus on clean energy make it a compelling investment opportunity for those seeking exposure to a well-managed utility with a strong track record of performance and a clear path to future growth. As New Jersey's energy landscape continues to evolve, PSEG is poised to play a crucial role in powering the state's sustainable future. The company's balanced business model, with a focus on regulated utility operations and its nuclear fleet, provides stability and growth potential in an increasingly clean energy-focused environment.