Public Service Enterprise Group (NYSE: PEG) reported today Net Income for the first quarter of 2018 of $558 million, or $1.10 per share as compared to Net Income of $114 million, or $0.22 per share, in the first quarter of 2017. Non-GAAP Operating Earnings for the first quarter of 2018 were $492 million, or $0.97 per share, compared to non-GAAP Operating Earnings for the first quarter of 2017 of $466 million, or $0.92 per share. Prior year results included costs related to the early retirement of the Hudson and Mercer generating stations and a reserve for the impairment of leveraged leases.
Ralph Izzo, chairman, president and chief executive officer, commented that "we have begun 2018 with solid results. Our service area experienced four consecutive Nor'easters in March that wreaked havoc on trees and power lines. PSEG employees, once again, rose to the challenge, efficiently and safely completing PSE&G and PSEG-Long Island customer restorations and then assisting neighboring utilities with their restoration efforts. The diversity of PSEG's generating fleet was also responsive to the extremes in weather that ranged from the near-zero temperatures experienced in January to the very mild weather in February."
The table below provides a reconciliation of PSEG's Net Income to non-GAAP Operating Earnings for the first quarter. See Attachment 8 for a complete list of items excluded from Net Income in the determination of non-GAAP Operating Earnings.
Ralph Izzo went on to say, "We are re-affirming our non-GAAP Operating Earnings guidance for 2018 of $3.00 - $3.20 per share. PSEG continues to focus on its strategic investment program of $13 billion to $15 billion over the 2018 to 2022 period. The recent settlement of the second phase of PSE&G's Gas System Modernization Program (GSMP II) is aligned with our investment goals. PSEG's financial flexibility will enable it to fund its capital program over the 5-year period without the need for equity issuance."
Non-GAAP Operating Earnings Review and Outlook by Operating Subsidiary
See Attachment 4 for detail regarding the quarter-over-quarter reconciliations for each of PSEG's businesses.
PSE&G
PSE&G reported Net Income of $319 million ($0.63 per share) for the first quarter of 2018 compared with Net Income of $299 million ($0.59 per share) for the first quarter of 2017.
PSE&G's first quarter results reflect continued successful execution of its infrastructure investment programs and costs related to winter storm activity and higher depreciable plant. Growth in PSE&G's investment in Transmission added $0.03 per share to quarter- over-quarter Net Income comparisons. Recovery of investments made under the Gas System Modernization Program (GSMP) improved quarter-over-quarter Net Income comparisons by $0.02 and weather added $0.01 per share. PSE&G experienced higher costs associated with restoring service to customers following four separate storms that occurred over a 30-day period. The increase in storm costs, when combined with a change in pension accounting standards for non-service costs, increased O&M by $0.01 per share. In addition, higher depreciation expense reflecting the utility's expanded asset base, reduced Net Income by $0.01per share versus the first quarter of 2017.
Weather-normalized electric sales to Residential and Commercial customers rose by 0.4% compared with Q1 2017. Weather normalized gas sales were higher by 1.6% in the quarter, led by increased Residential and Commercial usage. Residential customer growth continues to trend higher at 0.8% per year.
PSE&G implemented a revised $64 million annual increase in transmission revenue under the company's FERC-approved formula rate effective January 1, 2018 after incorporating a $148 milliondecrease in its revenue requirement associated with the reduction in the Federal corporate tax rate. Transmission revenues are adjusted each year to reflect an update of the company's investment program for the coming year.
PSE&G has reached a settlement of its GSMP II filing with the Staff of the New Jersey Board of Public Utilities (BPU), Rate Counsel and other parties, which remains subject to BPU approval. Modeled after the BPU's recently enacted Infrastructure Investment Program (IIP) initiative, the agreement will allow PSE&G to invest $1.9 billion over five years beginning in 2019 to continue and accelerate the replacement of cast iron and unprotected steel mains in addition to other improvements to the gas system. The settlement provides five-year project visibility to efficiently plan labor, materials, vendors and permitting. Approximately $1.6 billion of the total program will be eligible for semi-annual rate roll-ins, with the remaining $300 million to be addressed in a future base rate case. The return on equity for GSMP II investment will be determined in PSE&G's pending base rate case. As part of the settlement, PSE&G agreed to file a base rate case no later than five years from commencement of GSMP II, as well as maintain a base level of gas distribution capital spending of $155 million and achieve certain leak reduction targets.
PSE&G's pending electric and gas distribution base rate case filed in January 2018 is progressing. The company is scheduled to provide a routine update to its filing with the BPU in May. In response to the BPU's recent order regarding the Tax Cut and Jobs Act of 2017, PSE&G filed to lower its electric and gas revenue requirement by $114 million annually effective April 1 to reflect the reduction in the federal corporate tax rate from 35% to 21%. Overall, tax reform has reduced PSE&G's transmission and distribution revenue requirements by approximately $262 million per year, providing customers with rate savings as the utility continues to invest in improving the reliability and resiliency of its T&D system and advancing the state's clean energy goals.
Earlier in April, the New Jersey Legislature passed a Clean Energy bill requiring the state's utilities to implement energy efficiency programs that would achieve annual savings of 2% and 0.75% for electric and gas usage, respectively. Once the Clean Energy bill is signed by Governor Murphy, PSE&G expects it will make a filing with the BPU to outline a broader range of planned investments and proposed programs to achieve the state's targeted energy savings goals in a cost efficient manner to benefit the most customers.
PSE&G's forecast of Net Income for 2018 is unchanged at $1,000 million - $1,030 million.
PSEG Power
PSEG Power reported Net Income of $234 million ($0.46 per share) for the first quarter of 2018 compared with a Net Loss of $170 million ($0.34 per share) for the first quarter of 2017. PSEG Power's non-GAAP Operating Earnings and non-GAAP Adjusted EBITDA for the first quarter of 2018 were $168 million ($0.33 per share) and $313 million, respectively, compared to non-GAAP Operating Earnings of $150 million ($0.30 per share) and non-GAAP Adjusted EBITDA of $359 million for the first quarter of 2017.
PSEG Power's Net Income comparison for the first quarter reflects an increase in capacity prices of $0.01 per share. Re-contracting and lower market demand reduced results by $0.06 per share versus first quarter 2017. Planned maintenance increased O&M expense and reduced Net Income comparisons by $0.01 per share. Lower depreciation from cost savings associated with the early retirement of Hudson and Mercer generating stations last June along with lower interest added $0.02per share versus the year-ago quarter. A reduction in the corporate tax rate from the recently enacted Tax Cut and Jobs Act and other tax items improved first quarter Net Income comparisons by $0.07 per share.
Generation output declined modestly compared with Q1 2017. Output was affected by severe winter weather at the start of the year. In conjunction with an unseasonably warm February and higher planned outage hours at the Bergen and Linden CCGTs, Power's gas-fired CCGT fleet operated at an average capacity factor of 37% and produced 2.7 TWh of output. A higher price for gas favored a shift to more production from coal and a doubling of peaking output. Higher prices for gas had a favorable impact on the coal fleet which generated 1.5 TWh in the quarter. Power's nuclear fleet operated at an average capacity factor of 99.5% for the quarter, producing 8.4 TWh representing 66% of total generation. Of note, Hope Creek achieved a breaker-to-breaker run of 517 continuous days of production before entering its planned refueling and maintenance outage on April 13.
Power continues to forecast an improvement in output for 2018 to 55 – 57 TWh. For the remainder of 2018, Power has hedged 80% - 85% of total forecast production at an average price of $38 per MWh. For 2019, Power has hedged 60% - 65% of forecast production of 59 – 61 TWh at an average price of $37 per MWh. For 2020, output is forecast to be 63 – 65 TWh at an average price of $36 per MWh. The forecasted increase in output for 2018 – 2020 includes generation associated with the mid-2018 commercial start–up of 1,300 MWs of gas-fired combined cycle capacity at the Keys Energy Center in Maryland and Sewaren in New Jersey, and the mid-2019 commercial start-up of the 485 MW gas-fired CCGT at Bridgeport Harbor, Connecticut.
The Federal Energy Regulatory Commission (FERC) has issued an order resolving the Power cost based bidding matter that has been pending at FERC since 2014. In accordance with the order, Power has recorded an incremental $5 million pretax charge to income in the first quarter that will conclude the issue.
The forecast of Power's non-GAAP Operating Earnings for 2018 and non-GAAP Adjusted EBITDA remain unchanged at $485 million - $560 million and $1,075 million - $1,180 million, respectively.
PSEG Enterprise/Other
PSEG Enterprise/Other reported Net Income of $5 million ($0.01 per share) for the first quarter of 2018 compared to a Net Loss of $15 million ($0.03 per share) for the first quarter of 2017.
Net Income for the first quarter of 2018 reflects the absence of tax benefits in the year-ago quarter at PSEG Energy Holdings and higher interest expense at the Parent. The Net Loss in the first quarter of 2017 included a $55 million pre-tax charge related to continuing liquidity issues facing NRG REMA, LLC, partially offset by tax benefits at PSEG Energy Holdings.
For 2018, the forecast of PSEG Enterprise/Other Net Income remains unchanged at $35 million.
About PSEG:
Public Service Enterprise Group (NYSE:PEG) is a publicly traded diversified energy company with annual revenue of $9.1 billion. Its operating subsidiaries are: Public Service Electric and Gas Company (PSE&G), PSEG Power LLC, and PSEG Long Island.
PSE&G is New Jersey's oldest and largest regulated gas and electric delivery utility, serving nearly three-quarters of the state's population. PSE&G is the winner of the ReliabilityOne Award for superior electric system reliability.
PSEG Power LLC is an independent power producer that generates and sells electricity in the PJM, New York and New England wholesale power markets.
