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PSEG Announces 2019 Second Quarter Results

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NEWARK, N.J., July 30, 2019 /PRNewswire/ -- Public Service Enterprise Group (NYSE:PEG) reported Net Income for the second quarter of 2019 of $153 million, or $0.30 per share, compared to Net Income of $269 million, or $0.53 per share, in the second quarter of 2018.  Non-GAAP Operating Earnings for the second quarter of 2019 were $294 million, or $0.58 per share, compared to non-GAAP Operating Earnings for the second quarter of 2018 of $325 million, or $0.64 per share.  Non-GAAP results for the second quarter of 2019 exclude the recognition of net unrealized gains on Nuclear Decommissioning Trust (NDT) equity securities, Mark to Market (MTM) gains, and charges associated with the anticipated sale of the company's interests in two fossil generation plants and lease related activity. 

Public Service Enterprise Group (PSEG) is a publicly traded diversified energy company. Its operating subsidiaries are: PSEG Power, Public Service Electric and Gas Company (PSE&G) and PSEG Long Island.

Ralph Izzo, chairman, president and chief executive officer commented, "We have had a constructive second quarter that has advanced our long-term strategy on several fronts.  PSE&G has reached an agreement in principle with key parties in the Energy Strong II (ES II) infrastructure filing that will enable the continuation of increasing the resiliency and improving the reliability of critical energy infrastructure in New Jersey.  Separately, parties in PSE&G's Clean Energy Future-Energy Efficiency (CEF-EE) filing have reached an agreement in principle that extends the matter into 2020, in anticipation of finalization of the state's Energy Master Plan, and that authorizes, in the interim, PSE&G to continue work on four of its existing, award-winning Energy Efficiency programs for an additional year."

"Earlier this year, on April 18, the New Jersey Board of Public Utilities (NJBPU) awarded Zero Emission Certificates to PSEG Power's three New Jersey nuclear units, helping to preserve the state's largest source of carbon free generation.  In addition, PSEG Power completed its 1,800 MW combined cycle gas turbine (CCGT) construction program with the commercial operation of the Bridgeport Harbor 5 generating station in early June."

"In late June, PSEG Power announced the sale of its 776 megawatt interest in the Keystone and Conemaugh coal-fired generating units in Pennsylvania.  The sale, expected to close later this year subject to customary closing conditions and regulatory approvals, disposes of a non-core asset and moves PSEG Power closer to eliminating all coal by mid-2021, when the Bridgeport Harbor 3 coal-fired generating plant is scheduled to be retired.  The sale announcement resulted in an after-tax impairment charge of $284 million that reduced Net Income in the second quarter."

"As part of its Powering Progress initiative, PSEG recently committed to a goal of reducing PSEG Power's CO2 emissions 80% from 2005 levels by 2046, with a vision for net-zero CO2 emissions by 2050.  In addition, starting in 2020, PSEG has committed to reporting annually on sustainability and climate using the Task Force on Climate-related Financial Disclosures (TCFD) framework, when PSEG will also issue its first Climate Report."     

The table below provides a reconciliation of PSEG's Net Income to non-GAAP Operating Earnings for the second quarter.  See Attachment 10 for a complete list of items excluded from Net Income in the determination of non-GAAP Operating Earnings.

PSEG CONSOLIDATED RESULTS (unaudited)

Second Quarter Comparative Results

2019 and 2018



Income


Diluted Earnings


($ millions)


Per Share


2019


2018


2019


2018

Net Income

$153


$269


$0.30


$0.53

  Reconciling Items

141


56


0.28


0.11

Non-GAAP Operating Earnings

$294


$325


$0.58


$0.64




Avg. Shares

    507M


         507M

 

Ralph Izzo added, "New Jersey continues to advance its Clean Energy agenda and recently issued a draft Energy Master Plan to reach 100% clean energy by 2050.  Part of that path includes the development of a robust offshore wind industry in the state.  In June, the NJBPU awarded the first of three planned solicitations to Ørsted's 1,100 MW Ocean Wind project.  We expect to make a decision on our option to pursue an equity interest in the Ocean Wind project in the coming months."

"As outlined earlier this year, PSEG expects to grow non-GAAP Operating Earnings by approximately 4% over 2018 at the mid-point of our guidance of $3.15 - $3.35 per share."

The following table outlines PSEG's expectations for non-GAAP Operating Earnings by subsidiary for 2019:

2019 Non-GAAP Operating Earnings Guidance

($ millions, except EPS)




2019E

PSE&G

$1,200 - $1,230

PSEG Power

$395 - $460

PSEG Enterprise/Other

  $5 - $10

Non-GAAP Operating Earnings

  $1,600 - $1,700

Non-GAAP Operating EPS

$3.15 - $3.35

E = Estimate   


Results and Outlook by Operating Subsidiary

See Attachment 5 for detail regarding the quarter-over-quarter reconciliations for each of PSEG's businesses.

PSE&G

PSE&G reported Net Income of $227 million ($0.45 per share) for the second quarter of 2019 compared with Net Income of $231 million ($0.46 per share) for the second quarter of 2018.

PSE&G's results in the quarter were driven by continued investment in its infrastructure programs, rate relief, lower weather related demand, and an increase in the utility's effective tax rate compared to the higher level of tax reform benefits flowed back to customers during the first quarter of 2019.  PSE&G's continued investment in Transmission added $0.04 per share to quarter over quarter Net Income comparisons.  Weather impacted results by ($0.01) unfavorable as a result of a mild spring and cool early summer.  Gas margin improved quarter-over-quarter Net Income comparisons by $0.02, benefiting from the 2018 distribution rate case settlement as well as the remaining recovery of investments made under the Gas System Modernization Program I (GSMP).  Electric margin was flat compared to the year-ago quarter, as rate relief was offset by lower demand.  Higher O&M expense reduced Net Income by $0.01 per share.  In addition, higher depreciation and interest expense, reflecting the utility's expanded asset base, each reduced Net Income by $0.01 per share versus the second quarter of 2018.  Non-operating pension and OPEB added $0.01 per share versus Q2 2018.  The effect of flow through taxes in Q2 2019 had a negative $0.04 per share impact on Net Income compared with Q2 2018, reflecting the reversal of a benefit seen in Q1 2019 when the flow back of excess deferred taxes to customers had a larger impact on revenue and tax expense.      

Weather for Q2 2019 was unfavorable compared with the colder weather experienced during the Q2 2018.  Heating degree days were 23% lower, and the summer weather was cooler on an average, causing lower demand.  On a trailing 12-month basis, which provides longer-term trending data, weather normalized electric and gas sales were both relatively flat.  Residential electric and gas customer growth continues to trend higher at approximately 1% per year. 

PSE&G is working with the NJBPU Staff, Rate Counsel, and other parties on finalizing a stipulation of settlement of the Energy Strong II proceeding, which we will then submit to the NJBPU for approval in the third quarter.  The agreement provides for $842 million of investment for projects that commence in Q4 2019 and which are expected to be completed by December 2023, providing an annual level of spend comparable to the level of Energy Strong I.  PSE&G would be eligible to recover $692 million on an accelerated basis, with the remaining $150 million recovered in a future rate case.  The ES II program is split $741 million to electric and $101 million to gas.  PSE&G's original filing of the ES II infrastructure plan outlined $2.5 billion of capital spend over five years. 

The Energy Efficiency component of PSE&G's Clean Energy Future filing remains pending before the NJBPU.  The parties in the CEF-EE filing have reached an agreement in principle to extend the matter into 2020; the agreement also authorizes PSE&G in the interim to continue work on four of its existing Energy Efficiency programs for an additional year.  The CEF-EE filing is designed to achieve the electricity and gas energy savings goals outlined in 2018's Clean Energy Act, which requires the state's utilities to implement energy efficiency programs to achieve annual savings of 2% and 0.75% for electric and gas usage, respectively.  The agreement covering an extension of both the CEF-EE matter and the four existing Energy Efficiency programs will require NJBPU approval.

PSE&G is on track to invest $2.7 billion in electric and gas infrastructure upgrades to its transmission and distribution facilities during 2019 to maintain reliability and increase resiliency.  We continue to forecast over 90% of PSEG's planned capital investment will be directed to the utility over the 2019-2023 timeframe.  Updating for the recent ES II agreement, PSE&G is narrowing its estimated capital spending range to $12 to $14.5 billion from $11 to $16 billion, which translates to a compound annual growth rate of 7.5% to 8.5%, from the starting point of $19 billion of year-end 2018 rate base.

PSE&G's forecast of Net Income for 2019 is unchanged at $1,200 million - $1,230 million.

PSEG Power

PSEG Power reported a Net Loss of $40 million ($0.08 per share) for the second quarter of 2019 compared with Net Income of $41 million ($0.08 per share) for the second quarter of 2018. PSEG Power's non-GAAP Operating Earnings and non-GAAP Adjusted EBITDA for the second quarter of 2019 were $69 million ($0.13 per share) and $211 million, respectively, compared to non-GAAP Operating Earnings of $83 million ($0.16 per share) and non-GAAP Adjusted EBITDA of $210 million, respectively, for the second quarter of 2018. 

PSEG Power's Net Income comparison for the second quarter reflects a decrease in capacity revenue of $0.01 per share compared with Q2 2018.  Re-contracting and market impacts reduced results by $0.03 per share, reflecting an approximate $3 per MWh decline in the average hedge price compared with the year-ago quarter and lower realized margins.  PSEG Power's three New Jersey nuclear plants were awarded Zero Emission Certificates starting on April 18, which added $0.05 compared with the year-ago quarter.  Volume increases versus the year-ago quarter added $0.01 per share.  Gas operations were lower by $0.02 per share versus the year-ago quarter, reflecting the absence of a cold April 2018 and reduced off-system sales on lower gas prices.  Higher depreciation and higher interest expense together lowered Net Income comparisons by $0.04 per share versus the year-ago quarter.  Taxes and other were a $0.01 per share benefit over Q2 2018.

Generation output increased by 0.8 TWh to a total of 13.1 TWh driven by the addition of new CCGT capacity compared with Q2 2018.  PSEG Power's CCGT fleet produced 4.8 TWh of output, up 36%, primarily from the benefit of a full quarter of production from Keys and Sewaren, and the addition of Bridgeport Harbor 5 late in the second quarter.  Lower spark spreads continued to pressure realized margins as infrastructure build-out in the Marcellus shale gas region continues to erode PSEG Power's gas cost advantage and power prices fell by more than gas prices.  Coal generated 1.2 TWh, down slightly as a result of lower market demand.  PSEG Power's nuclear fleet operated at an average capacity factor of 84.4% for the quarter, producing 7.1 TWh and representing 54% of total generation. 

Lower prices for power and natural gas, as well as the expected sale of PSEG Power's interests in Keystone and Conemaugh, have prompted a reduction in projected volumes for the remainder of 2019, as well as 2020 and 2021, from our previous 60 – 62 TWh.  The sale of Keystone and Conemaugh is expected to lower volumes by 1.2 TWh in 2019, and by 5 TWh in each of 2020 and 2021.  PSEG Power is now forecasting output for the remainder of 2019 of 30 – 32 TWh, and has hedged approximately 85% – 90% of production at an average price of

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