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CEO: PSEG delivers 'solid results' despite mild weather, low energy prices

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Essential Energy Insights - September 17, 2020

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CEO: PSEG delivers 'solid results' despite mild weather, low energy prices

Despitemild winter temperatures and low prices for natural gas and energy, delivered"solid results" for the first quarter. During PSEG's first-quarter 2016 earnings call, companyChairman, President and CEO Ralph Izzo said extreme temperature differences betweenthe first quarter of 2016 and the first quarter of 2015 contributed significantlyto this quarter's operating results.

"The first quarter of 2016 was 10% warmer than normal and the fifth- warmeston record," Izzo said, citing the extremely mild weather in March and heatingdegree days 25% lower than normal.

Additionally, weatherfor the first quarter was 27% warmer than the first quarter of 2015, Izzo said,noting that 2015 was the coldest on record. "Our results were strong in the face of this headwind,"he said.

PSEGon April 29 reported adrop in its first-quarter 2016 operating earnings to $463 million, or 91 cents pershare, from $529 million, or $1.04 per share, in the corresponding period of 2015.The result beat the S&P Global Market Intelligence normalized EPS consensusestimate of 88 cents.

In 2016, the company plans to invest$3 billion as part of its five-year, $12 billion capital program, Izzo said, addingthat transmission will be the largest part of that spending, at 60%.

In the Q&A portion of the call,Izzo said PSEG is eager to pursue partnerships with other companies to go aftercompetitive transmission projects in the MidcontinentIndependent System Operator Inc. region, though he declined to disclosedetails. In March, Indiana utility VectrenCorp. announcedit was teaming up with PSEG to bid on a 345-kV project MISO intends to award througha competitive process.

"We don't know the system everywhere in the country,"Izzo said. "So to the extent that we can combine our project management skillsand our construction management know-how with peoples' systems knowledge, that'sa win-win for everyone."

The availability and low price of gasas well as tougher reliability requirements have caused PSEG to work to improveits cost structure and efficiency, Izzo said, noting that PSEG Power LLC will add around 1,800 MW of clean capacityto its fleet with a $2 billion investment in three new combined-cycle gas turbines.

Izzo also confirmed that the constructionof several new plants is on schedule. PSEG'splanned 755-MW PSEG Keys EnergyCenter in Maryland and the 540-MW Sewaren Gas Power plant in New Jersey are on track to begincommercial operation in 2018 and its 485-MW Bridgeport Harbor Station combined-cycle unit in Connecticutin 2019, Izzo said.

The new capacity added will overhaulPSEG Power's fleet, Izzo said. "Power's baseload nuclear capacity will becomelimited by a flexible, low-cost fleet of combined-cycle gas units capable of respondingto the market." Moreover, he noted that the company's carbon footprint would likelydecrease, with nuclear generation currently representing around 50% of the fleet'soutput.

Izzopraised the U.S. Supreme Court's decision overturninga Maryland program to provide long-term guarantees to power plant developers, aswell as a FERC decisionthat would require Ohio utilities to submit state-approved power purchase agreementsbetween corporate affiliates to be submitted for commission review.

Regulatedutility subsidiary Public ServiceElectric and Gas Co. contributed $262 million, or 52 cents per share,toward first-quarter 2016 operating earnings; it had contributed $242 million, or47 cents per share, in the first quarter of 2015 and the improved result reflectsrevenue growth at the segment, given PSE&G's capital investment program, whichyielded a return of 4 cents per share.

The gainswere offset at PSEG Power LLC, which reported first-quarter 2016 operating earningsof $184 million, or 36 cents per share, down from $278 million, or 55 cents pershare, in the first quarter of 2015. The segment also reported a drop in its first-quarter2016 adjusted EBITDA to $416 million, from $626 million in the 2015 first quarter.

PSEGcontinues to maintain its 2016 operating earnings guidance at between $1.43 billionand $1.53 billion, or $2.80 per share to $3.00 per share.