10-K: PSEG Reports Increased Regulated Rate Base, Navigates Energy Transition in 2024

Public Service Enterprise Group (PSEG) focuses on regulated investments and nuclear generation, reporting an increased regulated rate base and navigating evolving energy policies in its 2024 10-K filing.

Summary

• Public Service Enterprise Group (PSEG) is a public utility holding company primarily focused on regulated electric and gas utility operations and nuclear generation.
• In 2024, PSEG increased its regulated rate base from approximately $30 billion to $34 billion.
• The company's regulated capital investment program is projected to be in the range of $21 billion to $24 billion for the years 2025-2029.
• PSEG anticipates a compound annual growth rate in its regulated rate base of 6% to 7.5% from year-end 2024 to year-end 2029.
• PSEG Power's nuclear plants generated approximately 31 terawatt hours in 2024, operating at a capacity factor of approximately 90%.
• The Inflation Reduction Act (IRA) of 2022 established a production tax credit (PTC) for existing nuclear facilities from 2024 through 2032, which is expected to provide downside price protection for PSEG's nuclear generation fleet.
• PSEG is participating in a process to continue as operations service provider for LIPA's electrical transmission and distribution system, with resolution expected in the first half of 2025.
• PSEG is evaluating options for the potential sale of its interest in Garden State Offshore Energy LLC (GSOE).
• PSEG is targeting net zero greenhouse gas (GHG) emissions by 2030 for Scopes 1 and 2 emissions.
• PSEG's Net Income decreased from $2,563 million in 2023 to $1,772 million in 2024, primarily due to changes in mark-to-market gains and losses.

Sentiment

Score: 6

Explanation: The sentiment is neutral. While the company highlights positive aspects like increased rate base and clean energy initiatives, it also acknowledges challenges such as decreased net income and regulatory uncertainties. The outlook is cautiously optimistic.

Positives

• PSEG is focused on investing capital in T&D infrastructure and clean energy programs to meet growing demand, enhance the reliability and resiliency of its T&D system, meet customer expectations and support public policy objectives.
• The Inflation Reduction Act (IRA) of 2022 established a production tax credit (PTC) for existing nuclear facilities from 2024 through 2032, which is expected to provide downside price protection for PSEG's nuclear generation fleet.
• PSE&G's Clean Energy Future Energy Efficiency II Program provides nearly $1 billion of funding to continue the on-bill repayment program.
• PSEG is committed to the safe and reliable delivery of natural gas to approximately 1.9 million customers throughout New Jersey and is equally committed to reducing GHG emissions associated with such operations.
• PSEG Power's Salem 1, Salem 2 and Hope Creek nuclear plants have been awarded zero emission certificates (ZECs) by the BPU through May 2025.

Negatives

• PSEG's Net Income decreased from $2,563 million in 2023 to $1,772 million in 2024, primarily due to changes in mark-to-market gains and losses.
• Lower natural gas prices often result in lower electricity prices, which could reduce PSEG's margins where nuclear generation costs may not have declined similarly.
• If the markets, PTC and/or the ZEC program do not provide sufficient financial support, PSEG Power may take all necessary steps to cease to operate all of its New Jersey nuclear plants.
• The U.S. Treasury has not yet defined gross receipts for the PTC, creating uncertainty about the actual value of the credit.
• PSEG may be subject to climate change lawsuits that may seek injunctive relief, monetary compensation, penalties, and punitive damages.

Risks

• Inability to successfully develop, obtain regulatory approval for, or construct T&D, and nuclear generation projects could adversely impact PSEG's businesses.
• PSEG is subject to physical, financial and transition risks related to climate change, including potentially increased legislative and regulatory burdens and changing customer preferences.
• Asset and equipment failures, accidents, natural disasters, severe weather events, acts of war or terrorism, sabotage, physical attacks or security breaches, cyberattacks, or other incidents could impact PSEG's ability to provide safe and reliable service.
• Disruptions or cost increases in PSEG's supply chain, including labor shortages, could materially impact its business.
• Inability to maintain sufficient liquidity or access sufficient capital at reasonable rates or on commercially reasonable terms could adversely impact PSEG's business.
• Cybersecurity attacks, data breaches, or intrusions or other disruptions to PSEG's IT, operational or other systems could adversely impact its businesses.
• An increasing demand for power and load growth, potentially compounded by a shift away from natural gas toward increased electrification could cause reliability issues and higher costs for customers.
• Failure to attract and retain a qualified workforce could have an adverse effect on PSEG's business.
• Covenants in PSEG's debt instruments and credit agreements may adversely affect its business.
• Financial market performance directly affects the asset values of PSEG's defined benefit plan trust funds and Nuclear Decommissioning Trust (NDT) Fund.
• If PSEG is unable to enter into or extend certain significant contracts, this may negatively affect its financial condition and operating results.
• Fluctuations in the wholesale power and natural gas markets could negatively affect PSEG's financial condition, results of operations and cash flows.
• PSEG may be unable to obtain an adequate nuclear fuel supply in the future.
• The introduction or expansion of technologies related to energy generation, distribution and consumption and changes in customer usage patterns could adversely impact PSEG.
• PSEG is subject to third-party credit risk relating to its sale of nuclear generation output.
• There may be periods when PSEG Power generation may not operate and/or may not be able to meet its commitments under forward sale obligations and PJM rules at a reasonable cost or at all.
• PSE&G's revenues, earnings and results of operations are dependent upon state laws and regulations that affect distribution and related activities.
• PSE&G's proposed investment projects or programs may not be fully approved by regulators and actual capital investment by PSE&G may be lower than planned, which would cause lower than anticipated rate base.
• PSEG is subject to comprehensive federal regulation that affects, or may affect, its businesses.
• The markets, PTC and/or ZEC program may not provide sufficient financial support for PSEG's New Jersey nuclear plants which could result in the retirement of all of these nuclear plants.
• PSEG may be adversely affected by changes in energy regulatory policies, including energy and capacity market design rules and developments affecting transmission.
• PSEG's ownership and operation of nuclear power plants involve regulatory risks as well as financial, environmental and health and safety risks.
• PSEG is subject to numerous federal, state and local environmental laws and regulations that may significantly limit or affect its businesses, adversely impact its business plans or expose it to significant environmental fines and liabilities.
• PSEG may not receive necessary licenses, permits and siting approvals in a timely manner or at all, which could adversely impact its business and results of operations.
• Changes in tax laws and regulations may adversely affect PSEG's financial condition, results of operations and cash flows.

Future Outlook

PSEG expects its regulated capital investments to result in a compound annual growth rate in its regulated rate base in a range of 6% to 7.5% from year-end 2024 to year-end 2029. The company will continue to focus on operational excellence, financial strength, and disciplined investments.

Management Comments

• PSEG's business plan focuses on achieving growth by allocating capital primarily toward regulated investments in an effort to continue to improve the sustainability and predictability of its business and realizing the value of the consistent and reliable carbon free generation from its nuclear units.
• PSEG is focused on investing to meet growing energy demand, modernize its energy infrastructure, improve reliability and resilience, increase EE and deliver clean energy to meet customer expectations and be well aligned with public policy objectives.

Industry Context

The announcement reflects the ongoing trend in the utility industry towards regulated investments, grid modernization, and clean energy initiatives, driven by policy goals and customer demand. The focus on nuclear generation aligns with efforts to maintain baseload carbon-free energy sources.

Comparison to Industry Standards

• The projected regulated rate base growth of 6% to 7.5% is competitive with other large, regulated utilities.
• The 90% capacity factor for nuclear generation is considered high, indicating efficient operations.
• The focus on energy efficiency programs and EV infrastructure investments aligns with industry trends and regulatory mandates in states like New Jersey.
• Companies like NextEra Energy and Duke Energy are also pursuing similar strategies of regulated investments and clean energy transitions.

Legal Proceedings

• The United States Circuit Court for the District of Columbia Circuit vacated FERC approval of the REA Expansion Project, which involves a natural gas pipeline running through New Jersey and several other states, and in which PSEG Energy Resources & Trade, LLC, the provider of gas supplies to satisfy PSE&Gs BGSS customers, is a customer.
• In December 2024, a coalition of industrial customers and state ratepayer advocates filed a complaint at FERC against various named public utilities and RTOs/ISOs, including PJM.
• In May 2024, the EPA finalized revisions to the coal combustion residuals rule (CCR Rule) which established new requirements for the investigation and, if necessary, the cleanup of certain types of coal ash placed at certain fossil generation station sites, including certain sites owned or formerly owned by PSEG Power.
• In September 2024, the United States Circuit Court for the District of Columbia Circuit vacated FERC approval of the REA Expansion Project, which involves a natural gas pipeline running through New Jersey and several other states, and in which PSEG Energy Resources & Trade, LLC, the provider of gas supplies to satisfy PSE&Gs BGSS customers, is a customer.

Related Party Transactions

• PSE&G procures the supply requirements of its default service BGSS gas customers through a full-requirements contract with PSEG Power.
• PSEG LI has been operating LIPAs electric T&D system in Long Island, New York since 2014 under a 12-year OSA with LIPA that expires on December 31, 2025.
• PSEG Services Corporation (Services), which provides certain management, administrative and general services to PSEG and its subsidiaries at cost.

Stakeholder Impact

• Customers may face higher electricity and gas prices due to increasing demand and the costs associated with clean energy initiatives.
• Shareholders may experience fluctuations in earnings due to market volatility and regulatory changes.
• Employees may be affected by changes in workforce planning and the need for new skills in the evolving energy landscape.
• Suppliers may face increased demand for equipment and materials related to infrastructure modernization and clean energy projects.

Next Steps

• PSEG will continue to negotiate its proposal with LIPA to continue as operations service provider for LIPA's electrical transmission and distribution system.
• PSEG will continue to evaluate opportunities to participate in transmission solicitation processes and may decide to submit bids for these opportunities.
• PSEG will continue to analyze the impact of the IRA on its nuclear units, and will analyze any future guidance from the U.S. Treasury to assess any impact of PTCs on expected ZEC payments and/or any future ZEC application periods.
• PSE&G commenced extension discussions for its GSMP program in January 2025 with the intent of beginning a new program in January 2026.

Key Dates