PSEG Seeks Approval For Upgradation - Analyst Blog

Public Service Enterprise Group Incorporated (PEG) announced it will seek approval of the New Jersey Board of Utilities for the North Central Reliability Project. The aforementioned project is for upgrading transmission lines and substations from existing 138,000-volt (138kV) power to 230,000-volt (230kV) power in the northern and central regions of New Jersey.

The upgrade was necessary for PJM Interconnection, L.L.C., the independent regional planning organization. The project will maintain electricity transmission reliability along with providing better power quality, and reduce transmission system congestion.

PSE&G will file for project approval with the New Jersey Board of Public Utilities (BPU) in May of 2011. With BPU approval, work could begin in early 2012, with a tentative completion date of June 2014. The company estimates the cost of the project to be within $300 million–$350 million.

Public Service Enterprise Group based in Newark, New Jersey, is a diversified utility holding company. Its operations are mostly located in the Northeastern and Mid-Atlantic parts of the U.S.  The company principally operates through three key subsidiaries: Public Service Electric and Gas Company (PSE&G), PSEG Power LLC (PSEG Power) and PSEG Energy Holdings LLC (PSEG Energy).

Public Service Enterprise's robust portfolio of regulated as well as non-regulated utility assets provides the company with a steady earnings base and significant growth prospect over the long run. The company has been striving to optimize generation margins by improving cost-structure, performance and reliability of its nuclear as well as fossil units. Management has taken several measures to regain financial stability and reduce the overall risk profile of the company. 

Public Service expects its fiscal 2011 earnings per share in the range of $2.50–$2.75. Going forward, the company's robust portfolio of regulated and non-regulated utility assets, offers a steady earnings base and significant long-term growth prospects.

The company remains focused on operational excellence, financial strength and disciplined investment. Also, the company's earnings growth will be driven by a low cost nuclear fleet, assumed rate relief and addition to generating capacities.

However, the increasing cost of coal, higher pension and financial costs, and power-price volatility are areas of concern. In the near term, we see shares of the company performing poorly versus the broader market and thus reiterate short-term Zacks #4 Rank (Sell rating) on the stock, along with a longer-term ‘Neutral' recommendation.

In the near term, we would advise investors to accumulate its short-term Zacks #2 Rank (Buy rating) peers like The AES Corporation (AES) and Central Vermont Public Service Corporation (CV).