Public Service Enterprise Group (PSEG) reported second quarter 2016 Net Income of $187 million or $0.37 per share as compared to Net Income of $345 millionor $0.68 per share reported for the second quarter of 2015. Operating Earnings for both the second quarter of 2016 and 2015 were $289 million or $0.57 per share.
Ralph Izzo, chairman, president and chief executive officer said, "PSEG's second quarter earnings benefited from its expanded investment program and an alignment of costs with current power market dynamics. We remain focused on investments that meet customers' demand for reliable, efficient, and clean energy as well as drive long-term value creation."
Management uses Operating Earnings in its internal analysis, and in communications with investors and analysts, as a consistent measure for comparing PSEG's financial performance to previous financial results. Operating Earnings exclude the impact of returns(losses) associated with Nuclear Decommissioning Trust (NDT), Mark-to-Market (MTM) accounting and material one-time items. The table below provides a reconciliation of PSEG's Net Income to Operating Earnings for the second quarter. See Attachment 12 for a complete list of items excluded from Net Income in the determination of Operating Earnings. The presentation of Operating Earnings is intended to complement, and should not be considered an alternative to, the presentation of Net Income, which is an indicator of financial performance determined in accordance with GAAP. In addition, Operating Earnings as presented in this release may not be comparable to similarly titled measures used by other companies.
Operating Earnings Review and Outlook by Operating Subsidiary
See Attachment 6 for detail regarding the quarter-over-quarter reconciliations for each of PSEG's businesses. Due to the forward looking nature of Operating Earnings guidance, PSEG is unable to reconcile this non-GAAP financial measure to the most directly comparable GAAP financial measure. Management is unable to project certain reconciling items, in particular MTM and NDT gains (losses), for future periods due to market volatility.
PSE&G
PSE&G reported Net Income of $179 million ($0.35 per share) for the second quarter of 2016 compared with Net Income of $167 million ($0.33 per share) for the second quarter of 2015.
PSE&G's results for the second quarter reflect the impact of revenue growth associated with an expansion of its capital investment program.
The New Jersey economy continues to show steady growth with employment improving from a year-ago. Weather-normalized electric sales for the 12 months ended June 30, 2016 were slightly lower by (0.2%) compared to the prior period as growth in the number of customers was offset by a continued decline in usage per customer due to increased energy efficiency measures and a decrease in the Industrial sector.
Returns on PSE&G's expanded investment in transmission added $0.03 per share to earnings in the quarter. An increase in depreciation and O&M ($0.02 per share) was partially offset by a decline in taxes and other items of $0.01 per share.
PSE&G's capital program remains on schedule. PSE&G invested approximately $1.4 billion in the first half of the year as part of its planned capital investment for 2016 of $3.0 billion in upgrades to the electric and gas distribution and transmission system.
PSE&G, in May 2016, filed a petition with the New Jersey Board of Public Utilities (BPU) requesting an extension of its existing landfill/brownfield solar program to construct 100-MW of grid-connected solar facilities. The program represents a capital investment of up to $240 million over a 5-year period. Parties to the proceeding have agreed to a procedural schedule under which we could see a decision by the BPU during the fourth quarter of the year. PSE&G has also increased its estimate of Distribution capital expenditures over 2016 – 2018 by $300 million to address new business requests and replace certain aging equipment and infrastructure. The expansion of capital spending under these programs could represent an increase of over$500 million in PSE&G's planned $12 billion capital spending program over the 5-year period ended 2020.
Finally, as part of its annual BGSS filing with the BPU, PSE&G has proposed a reduction in its basic gas supply rate to 34 cents per therm from 40 cents per therm. If approved, the rate reduction would be effective onOctober 1, 2016.
The forecast of PSE&G's Operating Earnings for 2016 has been adjusted upward to $900 - $935 million from$875 - $925 million.
PSEG Power
PSEG Power reported a Net Loss of $11 million ($0.02 per share) for the second quarter of 2016 and adjusted EBITDA of $272 million compared with Net Income of $166 million ($0.33 per share) and adjusted EBITDA of$301 million for the second quarter of 2015. Operating Earnings for the second quarter of 2016 were $91 million ($0.18 per share) versus $110 million ($0.22 per share) for the second quarter of 2015.
Management uses Adjusted EBITDA in its internal analysis, and in communications with investors and analysts, regarding Power's financial performance as compared to previous financial results. Adjusted EBITDA excludes the same items as our Operating Earnings measure as well as income tax expense, interest expense, depreciation and amortization and major maintenance at Power's fossil generation facilities. See Attachment 12 for a complete list of items excluded from Net Income in the determination of Adjusted EBITDA. The presentation of Adjusted EBITDA is intended to complement, and should not be considered an alternative to, the presentation of Net Income, which is an indicator of financial performance determined in accordance with GAAP.
Power's operating results for the second quarter reflect the impact of the known decline in PJM capacity revenues and average prices on energy hedges in addition to the margin effect of an extended refueling outage at Salem 1.
A decline in capacity revenue associated with the June 2015 retirement of peaking capacity in PJM reduced quarter-over-quarter income by $0.02 per share. A decline in the average price on energy hedges as well as lower market prices and gas volumes combined to reduce quarter-over-quarter income by $0.03 per share. A decline in output during the quarter was primarily associated with fossil units due to weak weather-related demand and pricing which reduced income by $0.01 per share. A reduction in O&M expense improved Power's quarter-over-quarter income by $0.07 per share. An increase in depreciation expense was offset by a decline in interest expense. However, an absence in 2016 of tax credits received in the year-ago quarter and other tax items contributed to a reduction in quarter-over-quarter income of $0.05 per share.
Output at Power's generation facilities declined 6% in the quarter. The average capacity factor for the nuclear fleet was 83% in the quarter versus an average capacity factor of 86% in the year-ago quarter as output from the nuclear fleet declined to 7.0 TWh from 7.1 TWh. An extended refueling outage at Salem 1 to repair degraded baffle bolts was the primary cause for the decline in the nuclear fleet's operations. The impact of the outage at Salem was largely offset by an increase in output at Peach Bottom associated with completion of an extended power uprate capital program on both units which added 130 MWs of capacity to Power's interest. The extension of the Salem 1 outage into July and an unplanned outage at Salem 2 will have a continuing effect on third quarter performance. Output from the gas-fired combined cycle fleet declined slightly to 4.4 TWh from 4.6 TWh given mild weather conditions relative to the year-ago quarter. Low gas prices reduced the dispatch of Power's coal-fired fleet during the quarter with output declining to 0.9 TWh from 1.3 TWh.
Power is reducing its forecast of output for 2016 to 50 – 52 TWh from its prior forecast of 52 – 54 TWh. The revised range incorporates the impact of the extended outage at Salem 1 as well as the impact of an unplanned outage at Salem 2. Approximately 75% - 80% of anticipated production for the second half of 2016 of 25 – 26 TWh is hedged at an average price of $50 MWh. For 2017, Power has hedged 55% - 60% of its forecast generation of 53 – 55 TWh at an average price of $48 per MWh. For 2018, approximately 25% - 30% of forecast generation of 58 – 60 TWh is hedged at an average price of $46 per MWh. The hedge data for 2016 continues to assume BGS hedges represent 11 – 12 TWh of output.
The forecast range of Power's Operating Earnings for 2016 has been lowered to $460 million - $525 millionfrom $490 - $540 million. The forecast of Operating Earnings represents Adjusted EBITDA for the full year of$1,270 - $1,375 million.
PSEG is unable to reconcile forecasted Adjusted EBITDA to the most directly comparable GAAP financial measure. Management is unable to project certain reconciling items, in particular MTM and NDT gains(losses), for future periods due to market volatility.
PSEG Enterprise/Other
PSEG Enterprise/Other reported Net Income of $19 million ($0.04 per share) for the second quarter of 2016 versus Net Income of $12 million ($0.02 per share) during the second quarter of 2015. The increase in quarter-over-quarter income reflects contractual payments associated with the operation of PSEG Long Island and certain tax items at PSEG Energy Holdings. The forecast of PSEG Enterprise/Other Operating Earnings for 2016 has been increased to $65 million from $60 million.
Financing
PSEG closed the quarter ended June 30, 2016 with $648 million of cash on its balance sheet with debt at the end of the quarter representing approximately 45% of consolidated capital. PSEG Power, during the quarter, issued $700 million of 3.0% Senior Notes due June 2021.
