Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED September 30, 2024
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
CommissionFile Number
Name of Registrant, Address, and Telephone Number
State or other jurisdiction of Incorporation or Organization
I.R.S. Employer Identification Number
001-09120
Public Service Enterprise Group Incorporated
New Jersey
22-2625848
80 Park Plaza
Newark,
07102
973
430-7000
001-00973
Public Service Electric and Gas Company
22-1212800
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each ExchangeOn Which Registered
Common Stock without par value
PEG
New York Stock Exchange
8.00% First and Refunding Mortgage Bonds, due 2037
PEG37D
5.00% First and Refunding Mortgage Bonds, due 2037
PEG37J
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrants have submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrants were required to submit such files). Yes ☒ No ☐
Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
Smaller reporting company
Emerging growth company
(Cover continued on next page)
(Cover continued from previous page)
If any of the registrants is an emerging growth company, indicate by check mark if such registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether any of the registrants is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 22, 2024, Public Service Enterprise Group Incorporated had outstanding 498,225,421 shares of its sole class of Common Stock, without par value.
As of October 22, 2024, Public Service Electric and Gas Company had issued and outstanding 132,450,344 shares of Common Stock, without nominal or par value, all of which were privately held, beneficially and of record, by Public Service Enterprise Group Incorporated.
Public Service Electric and Gas Company is a wholly owned subsidiary of Public Service Enterprise Group Incorporated and meets the conditions set forth in General Instruction H(1) of Form 10-Q. Public Service Electric and Gas Company is filing its Quarterly Report on Form 10-Q with the reduced disclosure format authorized by General Instruction H.
Page
FORWARD-LOOKING STATEMENTS
ii
FILING FORMAT
iii
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
1
7
Notes to Condensed Consolidated Financial Statements
Note 1. Organization, Basis of Presentation and Significant Accounting Policies
13
Note 2. Revenues
14
Note 3. Variable Interest Entity (VIE)
19
Note 4. Rate Filings
20
Note 5. Leases
22
Note 6. Financing Receivables
Note 7. Trust Investments
24
Note 8. Pension and Other Postretirement Benefits (OPEB)
29
Note 9. Commitments and Contingent Liabilities
31
Note 10. Debt and Credit Facilities
37
Note 11. Financial Risk Management Activities
38
Note 12. Fair Value Measurements
43
Note 13. Net Other Income (Deductions)
48
Note 14. Income Taxes
49
Note 15. Accumulated Other Comprehensive Income (Loss), Net of Tax
51
Note 16. Earnings Per Share (EPS) and Dividends
54
Note 17. Financial Information by Business Segment
Note 18. Related-Party Transactions
56
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
57
Executive Overview of 2024 and Future Outlook
Results of Operations
64
Liquidity and Capital Resources
69
Capital Requirements
71
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
72
Item 4.
Controls and Procedures
73
PART II. OTHER INFORMATION
Legal Proceedings
74
Item 1A.
Risk Factors
Item 5.
Other Information
Item 6.
Exhibits
77
Signatures
78
i
Certain of the matters discussed in this report about our and our subsidiaries’ future performance, including, without limitation, future revenues, earnings, strategies, prospects, consequences and all other statements that are not purely historical constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those anticipated. Such statements are based on management’s beliefs as well as assumptions made by and information currently available to management. When used herein, the words “anticipate,” “intend,” “estimate,” “believe,” “expect,” “plan,” “should,” “hypothetical,” “potential,” “forecast,” “project,” variations of such words and similar expressions are intended to identify forward-looking statements. Factors that may cause actual results to differ are often presented with the forward-looking statements themselves. Other factors that could cause actual results to differ materially from those contemplated in any forward-looking statements made by us herein are discussed in filings we make with the United States Securities and Exchange Commission (SEC), including our Annual Report on Form 10-K and subsequent reports on Form 10-Q and Form 8-K. These factors include, but are not limited to:
All of the forward-looking statements made in this report are qualified by these cautionary statements and we cannot assure you that the results or developments anticipated by management will be realized or even if realized, will have the expected consequences to, or effects on, us or our business, prospects, financial condition, results of operations or cash flows. Readers are cautioned not to place undue reliance on these forward-looking statements in making any investment decision. Forward-looking statements made in this report apply only as of the date of this report. While we may elect to update forward-looking statements from time to time, we specifically disclaim any obligation to do so, even in light of new information or future events, unless otherwise required by applicable securities laws.
The forward-looking statements contained in this report are intended to qualify for the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
From time to time, PSEG and PSE&G release important information via postings on their corporate Investor Relations website at https://investor.pseg.com. Investors and other interested parties are encouraged to visit the Investor Relations website to review new postings. You can sign up for automatic email alerts regarding new postings at the bottom of the webpage at https://investor.pseg.com or by navigating to the Email Alerts webpage at https://investor.pseg.com/resources/email-alerts/default.aspx. The information on https://investor.pseg.com and https://investor.pseg.com/resources/email-alerts/default.aspx is not incorporated herein and is not part of this Form 10-Q.
This combined Quarterly Report on Form 10-Q is separately filed by Public Service Enterprise Group Incorporated (PSEG) and Public Service Electric and Gas Company (PSE&G). Information relating to any individual company is filed by such company on its own behalf. PSE&G is only responsible for information about itself and its subsidiaries.
Discussions throughout the document refer to PSEG and its direct operating subsidiaries. Depending on the context of each section, references to “we,” “us,” and “our” relate to PSEG or to the specific company or companies being discussed.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Millions, except per share data
(Unaudited)
Three Months Ended
Nine Months Ended
September 30,
2024
2023
OPERATING REVENUES
$
2,642
2,456
7,825
8,632
OPERATING EXPENSES
Energy Costs
899
831
2,628
2,517
Operation and Maintenance
808
792
2,415
2,279
Depreciation and Amortization
294
282
874
843
Total Operating Expenses
2,001
1,905
5,917
5,639
OPERATING INCOME
641
551
1,908
2,993
Income from Equity Method Investments
—
2
Net Gains (Losses) on Trust Investments
89
(40
)
191
63
Net Other Income (Deductions)
41
119
132
Net Non-Operating Pension and Other Postretirement Benefit (OPEB) Credits (Costs)
18
(302
55
(245
Interest Expense
(227
(185
(650
(550
INCOME BEFORE INCOME TAXES
559
65
1,625
2,394
Income Tax Benefit (Expense)
(39
(139
(377
NET INCOME
520
139
1,486
2,017
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC
498
497
DILUTED
500
NET INCOME PER SHARE:
1.04
0.28
2.98
4.06
0.27
2.97
4.03
See Notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Millions
Other Comprehensive Income (Loss), net of tax
Unrealized Gains (Losses) on Available-for-Sale Securities, net of tax (expense) benefit of $(24), $19, $(14) and $8 for the three and nine months ended 2024 and 2023, respectively
(31
(13
Unrealized Gains (Losses) on Cash Flow Hedges, net of tax (expense) benefit of $3, $(4), $(4) and $(8) for the three and nine months ended 2024 and 2023, respectively
(8
11
9
21
Pension/OPEB adjustment, net of tax (expense) benefit of $(1), $(126), $(2) and $(129) for the three and nine months ended 2024 and 2023, respectively
322
6
329
302
337
COMPREHENSIVE INCOME
441
1,523
2,354
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30,2024
December 31,2023
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents
203
Accounts Receivable, net of allowance of $235 in 2024 and $279 in 2023
1,451
1,482
Tax Receivable
148
10
Unbilled Revenues, net of allowance of $3 in 2024 and $4 in 2023
183
244
Fuel
271
264
Materials and Supplies, net
907
759
Prepayments
278
144
Derivative Contracts
35
112
Regulatory Assets
489
273
Other
27
Total Current Assets
3,992
3,373
PROPERTY, PLANT AND EQUIPMENT
50,615
48,603
Less: Accumulated Depreciation and Amortization
(11,014
(10,572
Net Property, Plant and Equipment
39,601
38,031
NONCURRENT ASSETS
6,034
5,157
Operating Lease Right-of-Use Assets
167
179
Long-Term Investments
265
295
Nuclear Decommissioning Trust (NDT) Fund
2,799
2,524
Long-Term Receivable of Variable Interest Entity (VIE)
632
Rabbi Trust Fund
175
36
370
342
Total Noncurrent Assets
10,487
9,337
TOTAL ASSETS
54,080
50,741
3
LIABILITIES AND CAPITALIZATION
CURRENT LIABILITIES
Long-Term Debt Due Within One Year
2,400
1,500
Commercial Paper and Loans
547
949
Accounts Payable
1,121
1,214
86
Accrued Interest
225
170
Accrued Taxes
15
8
Clean Energy Program
185
145
Obligation to Return Cash Collateral
93
Regulatory Liabilities
603
349
651
Total Current Liabilities
5,858
5,057
NONCURRENT LIABILITIES
Deferred Income Taxes and Investment Tax Credits (ITC)
7,190
6,671
2,309
2,075
Operating Leases
159
173
Asset Retirement Obligations
1,497
1,468
OPEB Costs
321
OPEB Costs of Servco
533
514
Accrued Pension Costs
595
606
Accrued Pension Costs of Servco
91
102
Environmental Costs
229
213
Long-Term Accrued Taxes
45
196
201
Total Noncurrent Liabilities
13,167
12,423
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 9)
CAPITALIZATION
LONG-TERM DEBT
18,960
17,784
STOCKHOLDERS’ EQUITY
Common Stock, no par, authorized 1,000 shares; issued, 2024 and 2023—534 shares
5,036
5,018
Treasury Stock, at cost, 2024 and 2023—36 shares
(1,405
(1,379
Retained Earnings
12,606
12,017
Accumulated Other Comprehensive Loss
(142
(179
Total Stockholders’ Equity
16,095
15,477
Total Capitalization
35,055
33,261
TOTAL LIABILITIES AND CAPITALIZATION
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income
Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities:
Amortization of Nuclear Fuel
Provision for Deferred Income Taxes and ITC
283
293
Non-Cash Employee Benefit Plan (Credits) Costs
357
Net Realized and Unrealized (Gains) Losses on Energy Contracts and Other Derivatives
76
(1,041
Cost of Removal
(137
(121
Energy Efficiency Programs Regulatory Investment Expenditures
(393
(335
Amortization of Energy Efficiency Programs Regulatory Investment Expenditures
90
58
Net Change in Other Regulatory Assets and Liabilities
(81
32
Net (Gains) Losses and (Income) Expense from NDT Fund
(242
(107
Net Change in Certain Current Assets and Liabilities:
(138
(134
(204
Cash Collateral
(3
1,175
(197
Other Current Assets and Liabilities
(96
137
Employee Benefit Plan Funding and Related Payments
(41
17
5
Net Cash Provided By (Used In) Operating Activities
1,766
3,096
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Property, Plant and Equipment
(2,402
(2,360
Proceeds from Sales of Trust Investments
1,256
998
Purchases of Trust Investments
(1,294
(1,025
Proceeds from Sales of Equity Method Investments
291
Proceeds from Sales of Long-Lived Assets
46
Net Cash Provided By (Used In) Investing Activities
(2,363
(2,030
CASH FLOWS FROM FINANCING ACTIVITIES
Net Change in Commercial Paper and Loans
98
(5
Proceeds from Short-Term Loans
750
Payment of Short-Term Loans
(500
(2,250
Issuance of Long-Term Debt
3,350
1,800
Payment of Long-Term Debt
(1,250
(825
Cash Dividends Paid on Common Stock
(897
(853
(75
(94
Net Cash Provided By (Used In) Financing Activities
726
(1,477
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash
129
(411
Cash, Cash Equivalents and Restricted Cash at Beginning of Period
99
511
Cash, Cash Equivalents and Restricted Cash at End of Period
228
100
Supplemental Disclosure of Cash Flow Information:
Income Taxes Paid (Received)
97
Interest Paid, Net of Amounts Capitalized
565
501
Accrued Property, Plant and Equipment Expenditures
508
425
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Common Stock
Treasury Stock
Retained
AccumulatedOtherComprehensive
Shares
Amount
Earnings
Income (Loss)
Total
Balance as of June 30, 2024
534
5,020
(36
(1,408
12,385
(173
15,824
Other Comprehensive Income (Loss), net of tax (expense) benefit of $(22)
Comprehensive Income
Cash Dividends at $0.60 per share on Common Stock
(299
16
Balance as of September 30, 2024
Balance as of June 30, 2023
5,054
(37
(1,386
11,900
(515
15,053
Other Comprehensive Income (Loss), net of tax (expense) benefit of $(111)
Cash Dividends at $0.57 per share on Common Stock
(284
(46
(44
Balance as of September 30, 2023
5,008
(1,384
11,755
(213
15,166
Balance as of December 31, 2023
Other Comprehensive Income (Loss), net of tax (expense) benefit of $(20)
Cash Dividends at $1.80 per share on Common Stock
(26
Balance as of December 31, 2022
5,065
(1,377
10,591
13,729
Other Comprehensive Income (Loss), net of tax (expense) benefit of $(129)
Cash Dividends at $1.71 per share on Common Stock
(57
(7
(64
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
2,139
1,999
6,335
5,954
839
765
2,450
2,300
464
459
1,395
1,348
254
758
728
1,557
4,603
4,376
582
531
1,732
1,578
50
Net Non-Operating Pension and OPEB Credits (Costs)
30
(151
(128
(430
(364
469
454
1,410
1,365
Income Tax Expense
(90
(53
(241
(141
379
401
1,169
1,224
See disclosures regarding Public Service Electric and Gas Company included in the Notes to Condensed Consolidated Financial Statements.
Unrealized Gains (Losses) on Available-for-Sale Securities, net of tax (expense) benefit of $0 for the three and nine months ended 2024 and 2023
(1
380
400
1,170
1,101
1,076
643
519
2,764
2,230
45,546
43,753
(8,999
(8,711
36,547
35,042
96
95
117
216
6,473
5,601
45,784
42,873
600
712
780
Accounts Payable—Affiliated Companies
221
504
136
360
434
2,910
3,615
Deferred Income Taxes and ITC
6,326
5,813
85
404
210
384
396
162
151
156
160
10,011
9,297
14,645
12,913
STOCKHOLDER’S EQUITY
Common Stock; 150 shares authorized; issued and outstanding, 2024 and 2023—132 shares
892
Contributed Capital
2,156
15,173
14,004
(4
Total Stockholder’s Equity
18,218
17,048
32,863
29,961
297
Accounts Receivable and Unbilled Revenues
177
Materials and Supplies
(124
(130
(82
(154
(51
(20
Accounts Receivable/Payable—Affiliated Companies, net
(231
(334
(42
(17
(52
1,119
952
(2,157
(2,149
(2,134
(2,132
(425
2,100
Redemption of Long-Term Debt
Cash Dividends Paid
(25
1,150
983
Net Increase (Decrease) In Cash, Cash Equivalents and Restricted Cash
135
75
266
39
111
413
339
378
369
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY
CommonStock
ContributedCapital
RetainedEarnings
AccumulatedOtherComprehensiveIncome (Loss)
14,794
17,838
Other Comprehensive Income (Loss), net of tax (expense) benefit of $0
13,462
16,506
13,788
16,831
12,639
15,682
12
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Organization
Public Service Enterprise Group Incorporated (PSEG) is a public utility holding company that, acting through its wholly owned subsidiaries, is a predominantly regulated electric and gas utility and a nuclear generation business. PSEG’s principal operating subsidiaries are:
PSEG’s other direct wholly owned subsidiaries are: PSEG Long Island LLC (PSEG LI), which operates the Long Island Power Authority’s (LIPA) electric transmission and distribution (T&D) system under an Operations Services Agreement (OSA); PSEG Energy Holdings L.L.C. (Energy Holdings), which primarily holds legacy lease investments and competitively bid, FERC regulated transmission; and PSEG Services Corporation (Services), which provides certain management, administrative and general services to PSEG and its subsidiaries at cost.
Basis of Presentation
The respective financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) applicable to Quarterly Reports on Form 10-Q. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting guidance generally accepted in the United States (GAAP) have been condensed or omitted pursuant to such rules and regulations. These Condensed Consolidated Financial Statements and Notes to Condensed Consolidated Financial Statements (Notes) should be read in conjunction with, and update and supplement matters discussed in, the Annual Report on Form 10-K for the year ended December 31, 2023.
The unaudited condensed consolidated financial information furnished herein reflects all adjustments which are, in the opinion of management, necessary to fairly state the results for the interim periods presented. All such adjustments are of a normal recurring nature. All significant intercompany accounts and transactions are eliminated in consolidation. The year-end Condensed Consolidated Balance Sheets were derived from the audited Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2023. Certain line item reclassifications have been made to prior year financial statements to conform with current year presentation. These reclassifications had no impact on PSEG’s or PSE&G’s results of operations, financial condition or cash flows.
Significant Accounting Policies
Cash, Cash Equivalents and Restricted Cash
The following provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of the same such amounts for the beginning (December 31, 2023) and ending periods shown in the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024. Restricted cash consists primarily of deposits received related to various construction projects at PSE&G.
PSE&G
PSEG Power& Other (A)
Consolidated
As of December 31, 2023
Restricted Cash in Other Current Assets
23
Restricted Cash in Other Noncurrent Assets
As of September 30, 2024
Nature of Goods and Services
The following is a description of principal activities by which PSEG and its subsidiaries generate their revenues.
Revenues from Contracts with Customers
Electric and Gas Distribution and Transmission Revenues—PSE&G sells gas and electricity to customers under default commodity supply tariffs. PSE&G’s regulated electric and gas default commodity supply and distribution services are separate tariffs which are satisfied as the product(s) and/or service(s) are delivered to the customer. The electric and gas commodity and delivery tariffs are recurring contracts in effect until modified through the regulatory approval process as appropriate. Revenue is recognized over time as the service is rendered to the customer. Included in PSE&G’s regulated revenues are unbilled electric and gas revenues which represent the estimated amount customers will be billed for services rendered from the most recent meter reading to the end of the respective accounting period.
PSE&G’s transmission revenues are earned under a separate tariff using a FERC-approved annual formula rate mechanism. The performance obligation of transmission service is satisfied and revenue is recognized as it is provided to the customer. The formula rate mechanism provides for an annual filing of an estimated revenue requirement with rates effective January 1 of each year and a true-up to that estimate based on actual revenue requirements. The true-up mechanism is an alternative revenue which is outside the scope of revenue from contracts with customers.
Other Revenues from Contracts with Customers
Other revenues from contracts with customers, which are not a material source of PSE&G revenues, are generated primarily from appliance repair services and solar generation projects. The performance obligations under these contracts are satisfied and revenue is recognized as control of products is delivered or services are rendered.
Revenues Unrelated to Contracts with Customers
Other PSE&G revenues unrelated to contracts with customers are derived from alternative revenue mechanisms recorded pursuant to regulatory accounting guidance. These revenues, which include the Conservation Incentive Program (CIP), green energy program true-ups and transmission formula rate true-ups, are not a material source of PSE&G revenues.
PSEG Power & Other
Electricity and Related Products—PSEG Power owns generation solely within PJM Interconnection, L.L.C. (PJM), which facilitates the dispatch of energy and energy-related products. PSEG Power primarily sells to the PJM Independent System Operator (ISO) energy and ancillary services which are separately transacted in the day-ahead or real-time energy markets. The energy and ancillary services performance obligations are typically satisfied over time as delivered and revenue is recognized accordingly. Also, revenue for wholesale load contracts is recognized over time as the bundled service is provided to the customer. PSEG generally reports electricity sales and purchases conducted with PJM net on an hourly basis in either Operating Revenues or Energy Costs in its Condensed Consolidated Statements of Operations. The classification depends on the net hourly activity.
PSEG Power enters into capacity sales and capacity purchases through PJM. The transactions are reported on a net basis dependent on PSEG Power’s monthly net sale or purchase position through PJM. The performance obligations with PJM are satisfied over time upon delivery of the capacity and revenue is recognized accordingly. In addition to capacity sold through PJM, PSEG Power sells capacity through bilateral contracts and the related revenue is reported on a gross basis and recognized over time upon delivery of the capacity.
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. These nuclear plants are expected to receive ZEC revenue from the electric distribution companies (EDCs) in New Jersey. PSEG Power recognizes revenue when the units generate electricity, which is when the performance obligation is satisfied. These revenues are considered variable consideration within the scope of revenue from contracts with customers and are included in PJM Sales in the following tables. ZEC revenue recorded has been reduced by the estimated production tax credits (PTCs) generated from PSEG Power’s Salem 1, Salem 2, and Hope Creek nuclear plants through the nine months ended September 30, 2024. ZEC revenue will be adjusted based upon the actual value of the PTCs generated by these nuclear plants and that adjustment could be material. See Note 14. Income Taxes for further discussion on the factors that could result in an adjustment to the value of the PTCs.
Gas Contracts—PSEG Power sells wholesale natural gas, primarily through an index based full-requirements Basic Gas Supply Service (BGSS) contract with PSE&G to meet the gas supply requirements of PSE&G’s customers. The BGSS contract remains in effect unless terminated by either party with a two-year notice. Based upon the availability of natural gas, storage and pipeline capacity beyond PSE&G’s daily needs, PSEG Power also sells gas and pipeline capacity to other counterparties under bilateral contracts. The performance obligation is primarily the delivery of gas which is satisfied over time. Revenue is recognized as gas is delivered or pipeline capacity is released.
PSEG LI Contract—PSEG LI has a contract with LIPA which generates revenues. PSEG LI’s subsidiary, Long Island Electric Utility Servco, LLC (Servco) records costs which are recovered from LIPA and records the recovery of those costs as revenues when Servco is a principal in the transaction.
PSEG Power has entered into long-term contracts with LIPA for energy management and fuel procurement services. Revenue is recognized over time as services are rendered.
PSEG Power’s revenues unrelated to contracts with customers include electric, gas and certain energy-related transactions accounted for in accordance with Derivatives and Hedging accounting guidance. See Note 11. Financial Risk Management Activities for further discussion.
Energy Holdings generates lease revenues which are recorded pursuant to lease accounting guidance.
Disaggregation of Revenues
PSEG Power & Other (A)
Eliminations
Three Months Ended September 30, 2024
Electric Distribution
1,406
Gas Distribution
Transmission
Electricity and Related Product Sales
PJM
Third-Party Sales
206
Sales to Affiliates
ISO-New England (NE)
Gas Sales
(48
Other Revenues from Contracts with Customers (B)
87
181
267
Total Revenues from Contracts with Customers
2,096
(80
2,527
Revenues Unrelated to Contracts with Customers (C)
115
Total Operating Revenues
583
Nine Months Ended September 30, 2024
3,170
1,385
1,313
(87
ISO-NE
155
(559
263
524
783
6,131
1,930
7,411
204
414
2,140
Three Months Ended September 30, 2023
1,281
147
422
(32
44
(55
163
(2
251
1,940
513
(89
2,364
59
33
92
546
Nine Months Ended September 30, 2023
2,795
1,380
1,251
703
(703
262
727
5,688
2,130
(797
7,021
1,345
1,611
3,475
Contract Balances
PSE&G did not have any material contract balances (rights to consideration for services already provided or obligations to provide services in the future for consideration already received) as of September 30, 2024 and December 31, 2023. Substantially all of PSE&G’s accounts receivable and unbilled revenues result from contracts with customers that are priced at tariff rates. Allowances represented approximately 16% and 18% of accounts receivable (including unbilled revenues) as of September 30, 2024 and December 31, 2023, respectively.
Accounts Receivable—Allowance for Credit Losses
PSE&G’s accounts receivable, including unbilled revenues, is primarily comprised of utility customer receivables for the provision of electric and gas service and appliance services, and are reported on the balance sheet as gross outstanding amounts adjusted for an allowance for credit losses. The allowance for credit losses reflects PSE&G’s best estimate of losses on the account balances. The allowance is based on PSE&G’s projection of accounts receivable aging, historical experience, economic factors and other currently available evidence, including the estimated impact of the COVID-19 pandemic on the outstanding balances as of September 30, 2024. PSE&G’s electric bad debt expense is recoverable through its Societal Benefits Clause (SBC) mechanism. As of September 30, 2024, PSE&G had a deferred balance of $120 million from electric bad debts recorded as a Regulatory Asset, which included approximately $78 million of incremental bad debt due to the impact of the coronavirus pandemic. In addition, as of September 30, 2024, PSE&G had deferred incremental gas bad debt expense of $68 million as a Regulatory Asset for future regulatory recovery due to the impact of the coronavirus pandemic. In June 2024, the BPU approved recovery of the incremental electric and gas bad debt amounts of $78 million and $68 million charged to PSE&G’s electric SBC and deferred COVID-19 deferrals, respectively. See Note 4. Rate Filings for additional information.
The following provides a reconciliation of PSE&G’s allowance for credit losses for the three months and nine months ended September 30, 2024 and 2023:
Balance as of June 30
253
Utility Customer and Other Accounts
Provision
Write-offs, net of Recoveries of $10 million and $7 million in 2024 and 2023, respectively
(35
(49
Balance as of September 30
238
Balance as of Beginning of Year
62
Write-offs, net of Recoveries of $24 million and $20 million in 2024 and 2023, respectively
(110
(118
Balance as of End of Period
PSEG Power generally collects consideration upon satisfaction of performance obligations, and therefore, PSEG Power had no material contract balances as of September 30, 2024 and December 31, 2023.
PSEG Power’s accounts receivable include amounts resulting from contracts with customers and other contracts which are out of scope of accounting guidance for revenues from contracts with customers. The majority of these accounts receivable are subject to master netting agreements. As a result, accounts receivable resulting from contracts with customers and receivables unrelated to contracts with customers are netted within Accounts Receivable and Accounts Payable on the Condensed Consolidated Balance Sheets.
PSEG Power’s accounts receivable consist mainly of revenues from energy and ancillary services sold directly to ISOs and other counterparties. In the wholesale energy markets in which PSEG Power operates, payment for services rendered and products transferred are typically due within 30 days of delivery. As such, there is little credit risk associated with these receivables. PSEG Power did not record an allowance for credit losses for these receivables as of September 30, 2024 or December 31, 2023. PSEG Power monitors the status of its counterparties on an ongoing basis to assess whether there are any anticipated credit losses.
PSEG LI did not have any material contract balances as of September 30, 2024 and December 31, 2023.
Remaining Performance Obligations under Fixed Consideration Contracts
PSEG primarily records revenues as allowed by the guidance, which states that if an entity has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date, the entity may recognize revenue in the amount to which the entity has a right to invoice. PSEG has future performance obligations under contracts with fixed consideration as follows:
Capacity Revenues from the PJM Annual Base Residual and Incremental Auctions—The Base Residual Auction is generally conducted annually three years in advance of the operating period. However, changes to capacity market rules have resulted in auction suspensions and delays so that recent auctions have been run closer in time to their operating periods. In February 2023, the results of the 2024/2025 auction were released and in July 2024 the results of the 2025/2026 auction were released. PSEG Power expects to realize the following average capacity prices resulting from the base and incremental auctions, including unit specific bilateral contracts for previously cleared capacity obligations.
Delivery Year
$ per Megawatt (MW)-Day
MW Cleared
June 2024 to May 2025
61
3,700
June 2025 to May 2026
270
3,500
Amended OSA—In April 2022, PSEG LI entered into an amended OSA with LIPA. The OSA remains a 12-year services contract ending in 2025 with annual fixed and variable components. The fixed fee for the provision of services thereunder in 2024 is approximately $44 million and is updated each year based on the change in the Consumer Price Index.
VIE for which PSEG LI is the Primary Beneficiary
PSEG LI consolidates Servco, a marginally capitalized VIE, which was created for the purpose of operating LIPA’s T&D system in Long Island, New York as well as providing administrative support functions to LIPA. PSEG LI is the primary beneficiary of Servco because it directs the operations of Servco, the activity that most significantly impacts Servco’s economic performance and it has the obligation to absorb losses of Servco that could potentially be significant to Servco. Such losses would be immaterial to PSEG.
Pursuant to the OSA, Servco’s operating costs are paid entirely by LIPA, and therefore, PSEG LI’s risk is limited related to the activities of Servco. PSEG LI has no current obligation to provide direct financial support to Servco. In addition to payment of
Servco’s operating costs as provided for in the OSA, PSEG LI receives an annual contract management fee. PSEG LI’s annual contract management fee, in certain situations, could be partially offset by Servco’s annual storm costs that are denied reimbursement by the Federal Emergency Management Agency, limited contingent liabilities and penalties for failing to meet certain performance metrics.
For transactions in which Servco acts as principal and controls the services provided to LIPA, such as transactions with its employees for labor and labor-related activities, including pension and OPEB-related transactions, Servco records revenues and the related pass-through expenditures separately in Operating Revenues and Operation and Maintenance (O&M) Expense, respectively. Servco recorded $157 million and $140 million for the three months ended September 30, 2024 and 2023, respectively, and $449 million and $397 million for the nine months ended September 30, 2024 and 2023, respectively, of O&M Expense, the full reimbursement of which was reflected in Operating Revenues. For transactions in which Servco acts as an agent for LIPA, it records revenues and the related expenses on a net basis, resulting in no impact on PSEG’s Condensed Consolidated Statement of Operations.
This Note should be read in conjunction with Note 6. Regulatory Assets and Liabilities to the Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2023.
In addition to items previously reported in the Annual Report on Form 10-K, significant regulatory orders received and currently pending rate filings with the BPU or FERC by PSE&G are as follows:
Electric and Gas Distribution Base Rate Case Filings – In October 2024, the BPU issued an Order approving the settlement of PSE&G’s distribution base rate case with new rates effective October 15, 2024. The Order provides for a $17.8 billion rate base, a 9.6% return on equity for PSE&G’s distribution business and a 55% equity component of its capitalization structure. The settlement results in a net increase in annual revenues of approximately $505 million, comprised of a $711 million increase in base revenues, offset by the return of tax benefits of approximately $206 million.
The return of tax benefits includes the flowback to customers of excess accumulated deferred income taxes and the flowback of previously recovered deferred income taxes and current tax repair deductions under the Tax Adjustment Credit (TAC) mechanism approved by the BPU in PSE&G’s 2018 distribution base rate case. The settlement approves an additional flowback of previously recovered deferred income taxes and current mixed service cost deductions. As a result of the approval to flowback previously recovered deferred income taxes related to mixed service costs, PSE&G recognized a $509 million regulatory liability and a corresponding regulatory asset as of September 30, 2024.
The settlement also approved the recovery of regulatory assets primarily associated with deferred storm costs, PSE&G’s electric vehicle charging program (CEF-EV) and electric meter AMI deployment program (CEF-EC), including stranded costs associated with the early retirement of legacy meters.
In addition, the Order approved mechanisms associated with the recovery of future storm costs as well as the recovery of annual pension and OPEB expenses beginning January 1, 2025.
BGSS—In April 2024, the BPU gave final approval to PSE&G’s BGSS rate of 40 cents per therm.
In September 2024, the BPU approved on a provisional basis, PSE&G's request to decrease its BGSS rate to approximately 33 cents per therm, with new rate effective October 1, 2024.
CIP—In April 2024, the BPU gave final approval to provisional gas CIP rates which were effective October 1, 2023.
In July 2024, the BPU approved on a provisional basis, PSE&G’s annual electric CIP petition to recover deficient electric revenues of approximately $99 million based on the 12-month period ended May 31, 2024 with new rates effective August 1, 2024.
In September 2024, BPU approved on a provisional basis, PSE&G's annual gas CIP petition to recover estimated deficient gas revenues of approximately $107 million based on the 12-month period ended September 30, 2024 with new rates effective October 1, 2024.
COVID-19 Deferral—In June 2024, the BPU approved recovery of PSE&G’s previously deferred incremental COVID-19 costs over a five-year period, effective June 1, 2025. As of September 30, 2024, PSE&G has deferred approximately $131 million as a Regulatory Asset for its net incremental costs, including $68 million for incremental gas bad debt expense associated with customer accounts receivable.
Energy Strong II—In April 2024, the BPU approved an annualized increase in electric revenue requirement of $12 million, with rates effective May 1, 2024. The approved electric revenue increase represents the return of and on actual Energy Strong II investments placed in service through December 31, 2023.
Green Program Recovery Charges (GPRC)—In May 2024, the BPU approved PSE&G’s petition for a second extension of its Clean Energy Future (CEF)-EE subprogram investment (a component of GPRC) by approximately $300 million covering a commitment period from July 2024 through December 2024.
In June 2024, the BPU approved PSE&G’s updated 2023 GPRC cost recovery petition for $49 million and $15 million in annual electric and gas revenues, respectively.
In June 2024, PSE&G filed its 2024 GPRC cost recovery petition requesting BPU approval for recovery of increases of $68 million and $24 million in annual electric and gas revenues, respectively. This matter is pending.
In October 2024, the BPU approved PSE&G’s CEF-EE II investment program as a new component of GPRC. The Order authorizes a total spend of approximately $2.9 billion for energy efficiency projects committed between January 1, 2025 through June 30, 2027, and completed over an expected six-year period. The Order approving CEF-EE II will result in an annual increase in gas revenues of approximately $3 million, effective January 1, 2025.
Infrastructure Advancement Program (IAP)—In May 2024, the BPU approved PSE&G's updated IAP cost recovery petition seeking BPU approval to recover in electric base rates an annual revenue increase of $5 million. This increase represents the return of and on investment for IAP electric investments in service through January 31, 2024. New rates were effective June 1, 2024.
In November 2024, PSE&G filed an IAP cost recovery petition seeking BPU approval to recover in electric and gas base rates an annual revenue increase of $6 million and $5 million, respectively, effective May 1, 2025. This matter is pending.
SBC—In March 2024, the BPU approved annual increases in electric and gas SBC revenues of $27 million and $32 million, respectively, pursuant to PSE&G’s 2023 SBC filing to recover electric and gas costs incurred under its EE & Renewable Energy and Social Programs. As part of the COVID-19 Order approved by the BPU in June 2024, PSE&G will commence recovery of the $78 million deferred electric bad debt expense over a five-year period effective with the approval of PSE&G’s next SBC filing.
Tax Adjustment Credit (TAC)—In February 2024, the BPU approved PSE&G’s 2023 TAC filing to increase annual electric and gas revenues by approximately $61 million and $40 million, respectively, with new rates effective March 1, 2024.
Transmission Formula Rates— In June 2024, in accordance with its transmission formula rate protocols, PSE&G filed with the FERC its 2023 true-up adjustment pertaining to its transmission formula rates in effect for calendar year 2023, as established by its 2023 annual forecast filing. The June 2024 true-up filing resulted in an approximate $12 million increase in the 2023 annual revenue requirement from the revenue requirement numbers contained in the forecast filing. PSE&G had previously recognized the majority of the increased revenue requirement in 2023.
In October 2024, PSE&G filed its Annual Transmission Formula Rate Update with FERC, which will result in a $64 million increase in its annual transmission revenue effective January 1, 2025, subject to true-up.
ZEC Program—In August 2024, the BPU approved the final ZEC price of $9.95 per MWh for the Energy Year ended May 31, 2024. As a result, PSE&G purchased approximately $166 million of ZECs including interest, from the eligible nuclear plants selected by the BPU with the final payment made in August 2024. As total customer collections equaled the required ZEC payments, there were no over-collected revenues from customers for the Energy Year ended May 31, 2024.
PSEG and its subsidiaries are both a lessor and a lessee in operating leases. As of September 30, 2024, PSEG and its subsidiaries were lessors for leases classified as operating leases or leveraged leases. See Note 6. Financing Receivables. There was no significant change in amounts reported in Note 7. Leases in the Annual Report on Form 10-K for the year ended December 31, 2023 for operating leases in which PSEG and its subsidiaries are lessees.
PSEG and its subsidiaries, as lessors, have lease agreements with lease and non-lease components, which are primarily related to generating facilities and real estate assets. Rental income from these leases is included in Operating Revenues.
A wholly owned subsidiary of PSEG Power is the lessor in an operating lease for certain parcels of land with terms through 2050, plus five optional renewal periods of ten years.
Energy Holdings is the lessor in leveraged leases. See Note 6. Financing Receivables.
Energy Holdings is the lessor in an operating lease for a domestic energy generation facility with a remaining term through 2036. As of September 30, 2024, Energy Holdings’ property subject to the lease had a total carrying value of $10 million.
The following is the operating lease income for the three months and nine months ended September 30, 2024 and 2023:
Fixed Lease Income
Total Operating Lease Income
PSE&G’s Solar Loan Programs are designed to help finance the installation of solar power systems throughout its electric service area. Interest income on the loans is recorded on an accrual basis. The loans are paid back with SRECs generated from the related installed solar electric system. PSE&G uses collection experience as a credit quality indicator for its Solar Loan Programs and conducted a comprehensive credit review for all borrowers. As of September 30, 2024, none of the solar loans were impaired; however, in the event a loan becomes impaired, the basis of the solar loan would be recovered through a regulatory recovery mechanism. Therefore, no current credit losses have been recorded for Solar Loan Programs I, II and III. A substantial portion of these loan amounts are noncurrent and reported in Long-Term Investments on PSEG’s and PSE&G’s Condensed Consolidated Balance Sheets. The following table reflects the outstanding loans by class of customer, none of which would be considered “non-performing.”
As of
Outstanding Loans by Class of Customers
Commercial/Industrial
42
60
Residential
Current Portion (included in Accounts Receivable)
(18
(23
Noncurrent Portion (included in Long-Term Investments)
26
40
The solar loans originated under three Solar Loan Programs are comprised as follows:
Programs
Funding Provided
Residential Loan Term
Non-ResidentialLoan Term
Solar Loan I
prior to 2013
10 years
15 years
Solar Loan II
prior to 2015
Solar Loan III
prior to 2022
The average life of loans paid in full is eight years, which is lower than the loan terms of 10 to 15 years due to the generation of SRECs being greater than expected and/or cash payments made to the loan. Payments on all outstanding loans were current as of September 30, 2024 and have an average remaining life of approximately two years. There are no remaining residential loans outstanding under the Solar Loan I program.
Energy Holdings
Energy Holdings, through its indirect subsidiaries, has investments in assets subject primarily to leveraged lease accounting. A leveraged lease is typically comprised of an investment by an equity investor and debt provided by a third-party debt investor. The debt is recourse only to the assets subject to lease and is not included on PSEG’s Condensed Consolidated Balance Sheets. As an equity investor, Energy Holdings’ equity investments in the leases are comprised of the total expected lease receivables over the lease terms, reduced for any income not yet earned on the leases. This amount is included in Long-Term Investments on PSEG’s Condensed Consolidated Balance Sheets. The more rapid depreciation of the leased property for tax purposes creates tax cash flow that will be repaid to the taxing authority in later periods. As such, the liability for such taxes due is recorded in Deferred Income Taxes on PSEG’s Condensed Consolidated Balance Sheets.
Leveraged leases outstanding as of September 30, 2024 commenced in or prior to 2000. The following table shows Energy Holdings’ gross and net lease investments as of September 30, 2024 and December 31, 2023.
Lease Receivables (net of Non-Recourse Debt)
200
223
Unearned and Deferred Income
(62
Gross Investments in Leases
161
Deferred Tax Liabilities
(33
Net Investments in Leases
114
125
The corresponding receivables associated with the lease portfolio are reflected as follows, net of non-recourse debt. The ratings in the table represent the ratings of the entities providing payment assurance to Energy Holdings.
Lease Receivables, Net ofNon-Recourse Debt
Counterparties' Standard & Poor's (S&P) Credit Rating as of September 30, 2024
AA
A-
BBB+
154
PSEG recorded no credit losses for the leveraged leases existing on September 30, 2024. Upon the occurrence of certain defaults, indirect subsidiaries of Energy Holdings would exercise their rights and seek recovery of their investments, potentially including stepping into the lease directly to protect their investments. While these actions could ultimately protect or mitigate the loss of value, they could require the use of significant capital and trigger certain material tax obligations which could, for certain leases, wholly or partially be mitigated by tax indemnification claims against the counterparty. A bankruptcy of a lessee would likely delay and potentially limit any efforts on the part of the lessors to assert their rights upon default and could delay the monetization of claims.
PSEG Power maintains an external master NDT to fund its share of decommissioning costs for its five nuclear facilities upon their respective termination of operation. The trust contains two separate funds: a qualified fund and a non-qualified fund. Section 468A of the Internal Revenue Code limits the amount of money that can be contributed into a qualified fund. The funds are managed by third-party investment managers who operate under investment guidelines developed by PSEG Power.
The following tables show the amortized costs basis, gross unrealized gains and losses and fair values for the securities held in the NDT Fund.
Cost
GrossUnrealizedGains
GrossUnrealizedLosses
FairValue
Equity Securities
Domestic
506
407
911
International
418
(11
544
Total Equity Securities
924
1,455
Available-for-Sale Debt Securities
Government
822
(61
770
Corporate
558
542
Total Available-for-Sale Debt Securities
(86
1,312
Total NDT Fund Investments (A)
2,304
562
(99
2,767
482
300
423
118
530
905
1,310
(72
691
555
522
1,314
(111
1,213
2,219
428
2,523
Net unrealized gains (losses) on debt securities of $(40) million (after-tax) were included in Accumulated Other Comprehensive Loss (AOCL) on PSEG’s Condensed Consolidated Balance Sheet as of September 30, 2024. The portion of net unrealized gains (losses) recognized in the third quarter and first nine months of 2024 related to equity securities still held as of September 30, 2024 was $86 million and $168 million, respectively.
The amounts in the preceding tables do not include receivables and payables for NDT Fund transactions which have not settled at the end of each period. Such amounts are included in Accounts Receivable and Accounts Payable on the Condensed Consolidated Balance Sheets as shown in the following table.
Accounts Receivable
The following table shows the value of securities in the NDT Fund that have been in an unrealized loss position for less than and greater than 12 months.
Less Than 12Months
Greater Than 12Months
Equity Securities (A)
(6
28
79
Government (B)
409
432
(71
Corporate (C)
255
664
109
761
NDT Trust Investments
684
(92
188
793
25
The proceeds from the sales of and the net gains (losses) on securities in the NDT Fund were:
Proceeds from NDT Fund Sales (A)
268
1,231
972
Net Realized Gains (Losses) on NDT Fund
Gross Realized Gains
107
Gross Realized Losses
(12
(16
(43
Net Realized Gains (Losses) on NDT Fund (B)
Net Unrealized Gains (Losses) on Equity Securities
70
Net Gains (Losses) on NDT Fund Investments
88
189
The NDT Fund debt securities held as of September 30, 2024 had the following maturities:
Time Frame
Fair Value
Less than one year
1 - 5 years
335
6 - 10 years
233
11 - 15 years
16 - 20 years
Over 20 years
537
Total NDT Available-for-Sale Debt Securities
PSEG Power periodically assesses individual debt securities whose fair value is less than amortized cost to determine whether the investments are impaired. For these securities, management considers its intent to sell or requirement to sell a security prior to expected recovery. In those cases where a sale is expected, any impairment would be recorded through earnings. For fixed income securities where there is no intent to sell or likely requirement to sell, management evaluates whether credit loss is a component of the impairment. If so, that portion is recorded through earnings while the noncredit loss component is recorded through Accumulated Other Comprehensive Income (Loss). Any subsequent recoveries of the noncredit loss component of the impairment would be recorded through Accumulated Other Comprehensive Income (Loss). Any subsequent recoveries of the credit loss component would be recognized through earnings. The assessment of fair market value compared to cost is applied on a weighted average basis taking into account various purchase dates and initial cost of the securities.
Rabbi Trust
PSEG maintains certain unfunded nonqualified benefit plans to provide supplemental retirement and deferred compensation benefits to certain key employees. Certain assets related to these plans have been set aside in a grantor trust commonly known as a “Rabbi Trust.”
The following tables show the amortized cost basis, gross unrealized gains and losses and fair values for the securities held in the Rabbi Trust.
Domestic Equity Securities
104
Total Rabbi Trust Investments
190
110
(19
80
(10
(29
Net unrealized gains (losses) on debt securities of $(18) million (after-tax) were included in AOCL on PSEG’s Condensed Consolidated Balance Sheet as of September 30, 2024. The portion of net unrealized gains (losses) recognized during the third quarter and first nine months of 2024 related to equity securities still held as of September 30, 2024 were each approximately $1 million.
The amounts in the preceding tables do not include receivables and payables for Rabbi Trust Fund transactions which have not settled at the end of each period. Such amounts are included in Accounts Receivable and Accounts Payable on the Condensed Consolidated Balance Sheets as shown in the following table.
The following table shows the value of securities in the Rabbi Trust Fund that have been in an unrealized loss position for less than 12 months and greater than 12 months.
Government (A)
83
Corporate (B)
53
130
143
Rabbi Trust Investments
The proceeds from the sales of and the net gains (losses) on securities in the Rabbi Trust Fund were:
Proceeds from Rabbi Trust Sales
Net Realized Gains (Losses) on Rabbi Trust:
Net Realized Gains (Losses) on Rabbi Trust (A)
Net Gains (Losses) on Rabbi Trust Investments
The Rabbi Trust debt securities held as of September 30, 2024 had the following maturities:
Total Rabbi Trust Available-for-Sale Debt Securities
PSEG periodically assesses individual debt securities whose fair value is less than amortized cost to determine whether the investments are considered to be impaired. For these securities, management considers its intent to sell or requirement to sell a security prior to expected recovery. In those cases where a sale is expected, any impairment would be recorded through earnings. For fixed income securities where there is no intent to sell or likely requirement to sell, management evaluates whether credit loss is a component of the impairment. If so, that portion is recorded through earnings while the noncredit loss component is recorded through Accumulated Other Comprehensive Income (Loss). Any subsequent recoveries of the noncredit loss component of the impairment would be recorded through Accumulated Other Comprehensive Income (Loss). Any subsequent recoveries of the credit loss component would be recognized through earnings. The assessment of fair market value compared to cost is applied on a weighted average basis taking into account various purchase dates and initial cost of the securities.
The fair value of the Rabbi Trust related to PSE&G and PSEG Power & Other is detailed as follows:
PSEG sponsors and Services administers qualified and nonqualified pension plans and OPEB plans covering PSEG’s and its participating affiliates’ current and former employees who meet certain eligibility criteria.
PSEG and PSE&G are required to record the under or over funded positions of their defined benefit pension and OPEB plans on their respective balance sheets. Such funding positions are required to be measured as of the date of their respective year-end Consolidated Balance Sheets.
The following table provides the components of net periodic benefit costs (credits) relating to all qualified and nonqualified pension and OPEB plans on an aggregate basis for PSEG, excluding Servco. Amounts shown do not reflect the impacts of capitalization, co-owner allocations and the 2023 BPU accounting order. Only the service cost component is eligible for capitalization, when applicable.
Pension Benefits
OPEB
Components of Net Periodic Benefit (Credits) Costs
Service Cost (included in O&M Expense)
68
Non-Service Components of Pension and OPEB (Credits) Costs
Interest Cost
169
Expected Return on Plan Assets
(9
(278
Amortization of Net
Prior Service Credit
Actuarial Loss (Gain)
67
Settlement Charge Resulting from Pension Lift-Out
332
326
Total Net Benefit (Credits) Costs
52
389
Pension and OPEB (credits) costs for PSE&G and PSEG Power & Other are detailed as follows:
352
PSEG has completed its entire $5 million contribution planned in 2024 for its OPEB plan and does not plan to contribute to its pension plan in 2024.
In July 2023, PSEG and Fiduciary Counselors Inc., as independent fiduciary of the Pension Plan of Public Service Enterprise Group Incorporated and Pension Plan of Public Service Enterprise Group Incorporated II (together, the Plans), entered into a commitment agreement (for a “lift-out”) with The Prudential Insurance Company of America (the Insurer) under which the Plans agreed to purchase a nonparticipating single premium group annuity contract that has transferred to the Insurer approximately $1 billion of the Plans’ defined benefit pension obligations and associated Plan assets related to certain pension benefits. The contract covers approximately 2,000 retirees from PSEG Power & Other, excluding Services (Participants). To the extent provided in the contract, the Insurer has made an irrevocable commitment, and will be solely responsible, to pay benefits of each Participant that are due on and after December 31, 2023. The transaction resulted in no changes to the amount of benefits payable to Participants.
PSEG completed the transaction in August 2023. As a result of the transaction, PSEG recognized a one-time settlement charge of $332 million ($239 million, net of tax) in the third quarter of 2023 related to the immediate recognition of unamortized net actuarial loss associated with the portion of the pension involved in the transaction.
Servco Pension and OPEB
Servco sponsors a qualified pension plan and OPEB plan covering its employees who meet certain eligibility criteria. Under the OSA, employee benefit costs for these plans are funded by LIPA. See Note 3. Variable Interest Entity. These obligations, as well as the offsetting long-term receivable, are separately presented on the Condensed Consolidated Balance Sheet of PSEG.
Servco amounts are not included in any of the preceding pension and OPEB cost disclosures. Pension and OPEB costs of Servco are accounted for according to the OSA. Servco recognizes expenses for contributions to its pension plan trusts and for OPEB payments made to retirees. Operating Revenues are recognized for the reimbursement of these costs. Servco has completed its entire $25 million contribution planned in 2024 for its pension plan. Servco’s pension-related revenues and costs were $12 million and $9 million for three months ended September 30, 2024 and 2023, respectively, and $25 million and $18 million for the nine months ended September 30, 2024 and 2023, respectively. The OPEB-related revenues earned and costs incurred were $3 million for both the three months ended September 30, 2024 and 2023, and $10 million and $9 million for the nine months ended September 30, 2024 and 2023, respectively.
Guaranteed Obligations
PSEG Power’s activities primarily involve the purchase and/or sale of energy, nuclear fuel and other related products under transportation, physical, financial and forward contracts at fixed and variable prices. These transactions are with numerous counterparties and brokers that may require cash, letters of credit or guarantees as a form of collateral.
PSEG Power has unconditionally guaranteed payments to counterparties on behalf of its subsidiaries in commodity-related transactions in order to
PSEG Power is subject to
Under these agreements, guarantees cover credit extended between entities and is often reciprocal in nature. The exposure between counterparties can move in either direction.
In order for PSEG Power to incur a liability for the face value of the outstanding guarantees,
PSEG Power believes the probability of this result is unlikely. For this reason, PSEG Power believes that the current exposure at any point in time is a more meaningful representation of the potential liability under these guarantees. Current exposure consists of the net of accounts receivable and accounts payable and the forward value on open positions, less any collateral posted.
Changes in commodity prices can have a material impact on collateral requirements under such contracts, which are posted and received primarily in the form of cash and letters of credit.
PSEG Power also routinely enters into futures and options transactions for electricity and natural gas as part of its operations. These futures contracts usually require a cash margin deposit with brokers, which can change based on market movement and in accordance with exchange rules.
In addition to the guarantees discussed above, PSEG Power has also provided payment guarantees to third parties and regulatory authorities on behalf of its affiliated companies. These guarantees support various other non-commodity related obligations.
The following table shows the face value of PSEG Power’s outstanding guarantees, current exposure and margin positions as of September 30, 2024 and December 31, 2023.
Face Value of Outstanding Guarantees
1,340
1,381
Exposure under Current Guarantees
Letters of Credit - Counterparty Margining Posted
Letters of Credit - Counterparty Margining Received
Cash Deposited and Received
Counterparty Cash Collateral Deposited
Counterparty Cash Collateral Received
Net Broker Balance Deposited (Received)
Additional Amounts Posted
Other Letters of Credit
180
As part of determining credit exposure, PSEG Power nets receivables and payables with the corresponding net fair values of energy contracts. See Note 11. Financial Risk Management Activities for further discussion. In accordance with PSEG’s accounting policy, where it is applicable, cash (received)/deposited is allocated against derivative asset and liability positions with the same counterparty on the face of the Condensed Consolidated Balance Sheet. The remaining balances of net cash (received)/deposited after allocation are generally included in Accounts Payable and Receivable, respectively.
In addition to amounts for outstanding guarantees, current exposure and margin positions, PSEG and PSEG Power have posted letters of credit to support PSEG Power’s various other non-energy contractual and environmental obligations. See Other Letters of Credit in the preceding table.
Environmental Matters
Passaic River
Lower Passaic River Study Area
The U.S. Environmental Protection Agency (EPA) has determined that a 17-mile stretch of the Passaic River (Lower Passaic River Study Area (LPRSA)) in New Jersey is a “Superfund” site under the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA). PSE&G and certain of its predecessors conducted operations at properties in this area, including at one site that was transferred to PSEG Power.
The EPA has announced two separate cleanup plans for the Lower 8.3 miles and Upper 9 miles of the LPRSA. The EPA’s plan for the Lower 8.3 miles involves dredging and capping sediments at an estimated cost of $2.3 billion, and its plan for the Upper 9 miles involves dredging and capping sediments at an estimated cost of $550 million. Additional cleanup work may be required depending on the results of these initial phases of work.
Occidental Chemical Corporation (Occidental) has voluntarily completed the design of the cleanup plan for the Lower 8.3 miles and has received an EPA Unilateral Administrative Order directing it to design the cleanup plan for the Upper 9 miles. It
has filed two lawsuits against PSE&G and others to attempt to recover costs associated with this work and to obtain a declaratory judgement of parties’ shares of any future costs. PSEG cannot predict the outcome of the litigation.
The EPA has announced a proposed settlement with 82 parties who have agreed to pay $150 million to resolve their LPRSA CERCLA liability, in whole or in part. It is uncertain whether the settlement will be finalized as currently proposed. PSE&G and PSEG Power are not included in the proposed settlement, but the EPA sent PSE&G, Occidental, and several other Potentially Responsible Parties (PRPs) a letter in March 2022 inviting them to submit to the EPA individually or jointly an offer to fund or participate in the next stages of the remediation. PSEG submitted a good faith offer to the EPA in June 2022 on behalf of PSE&G and PSEG Power. PSEG understands that the EPA is evaluating its offer.
As of September 30, 2024, PSEG has approximately $66 million accrued for this matter. PSE&G has an Environmental Costs Liability of $53 million and a corresponding Regulatory Asset based on its continued ability to recover such costs in its rates. PSEG Power has an Environmental Costs Liability of $13 million.
The outcome of this matter is uncertain, and until (i) a final remedy for the entire LPRSA is selected and an agreement is reached by the PRPs to fund it, (ii) PSE&G’s and PSEG Power’s respective shares of the costs are determined, and (iii) PSE&G’s ability to recover the costs in its rates is determined, it is not possible to predict this matter’s ultimate impact on PSEG’s financial statements. It is possible that PSE&G and PSEG Power will record additional costs beyond what they have accrued, and that such costs could be material, but PSEG cannot at the current time estimate the amount or range of any additional costs.
Newark Bay Study Area
The EPA has established the Newark Bay Study Area, which is an extension of the LPRSA and includes Newark Bay and portions of surrounding waterways. The EPA has notified PSEG and 21 other PRPs of their potential liability. PSE&G and PSEG Power are unable to estimate their respective portions of any loss or possible range of loss related to this matter. In December 2018, PSEG Power completed the sale of the site of the Hudson electric generating station. PSEG Power contractually transferred all land rights and structures on the Hudson site to a third-party purchaser, along with the assumption of the environmental liabilities for the site.
Natural Resource Damage Claims
New Jersey and certain federal regulators have alleged that PSE&G, PSEG Power and 56 other PRPs may be liable for natural resource damages within the LPRSA. In particular, PSE&G, PSEG Power and other PRPs received notice from federal regulators of the regulators’ intent to move forward with a series of studies assessing potential damages to natural resources at the Diamond Alkali Superfund site, which includes the LPRSA and the Newark Bay Study Area. PSE&G and PSEG Power are unable to estimate their respective portions of any possible loss or range of loss related to this matter.
Hackensack River
In 2022, the EPA announced it had designated approximately 23 river miles of the Lower Hackensack River as a federal Superfund site. PSE&G and certain of its predecessors conducted operations at properties in this area, including at the Hudson, Bergen and Kearny generating stations that were transferred to PSEG Power. PSEG Power subsequently contractually transferred all land rights and structures on the Hudson generating station site to a third-party purchaser, along with the assumption of the environmental liabilities for that site. In 2024, the EPA identified PSE&G and four other parties as PRPs for the site and requested that they voluntarily perform a technical study of a portion of the river designated as “Operable Unit 2.” The EPA estimates that the technical study will cost $55 million to complete and PSE&G and PSEG Power have agreed to participate in the technical study. PSE&G and PSEG Power do not believe participation in the technical study will have a material impact on their results of operations and financial condition based upon EPA’s estimate of the study costs; however, future costs related to this matter could be material.
Manufactured Gas Plant (MGP) Remediation Program
PSE&G is working with the New Jersey Department of Environmental Protection (NJDEP) to assess, investigate and remediate environmental conditions at its former MGP sites. To date, 38 sites requiring some level of remedial action have been identified. Based on its current studies, PSE&G has determined that the estimated cost to remediate all MGP sites to
completion could range between $222 million and $246 million on an undiscounted basis, including its $53 million share for the Passaic River as discussed above. Since no amount within the range is considered to be most likely, PSE&G has recorded a liability of $222 million as of September 30, 2024. Of this amount, $64 million was recorded in Other Current Liabilities and $158 million was reflected as Environmental Costs in Noncurrent Liabilities. PSE&G has recorded a $222 million Regulatory Asset with respect to these costs. PSE&G periodically updates its studies taking into account any new regulations or new information which could impact future remediation costs and adjusts its recorded liability accordingly. PSE&G completed sampling in the Passaic River in 2020 to delineate coal tar from certain MGP sites that abut the Passaic River Superfund site. PSEG cannot determine at this time the magnitude of any impact on the Passaic River Superfund remedy.
Legacy Environmental Obligations at Former Fossil Generating Sites
PSEG Power has retained ownership of certain liabilities excluded from the 2022 sale of its fossil generation portfolio. These liabilities primarily relate to obligations under the New Jersey Industrial Site Recovery Act (ISRA) and the Connecticut Transfer Act (CTA) to investigate and remediate PSEG Power’s two formerly owned generating station sites in Connecticut, and six formerly owned generating station sites in New Jersey. In addition, PSEG Power still owns two former generating station sites in New Jersey that triggered ISRA in 2015.
PSEG Power is in the process of fulfilling its obligations under the New Jersey ISRA and the CTA to investigate these sites. It will require multiple years and comprehensive environmental sampling to understand the extent of and to carry out the required remediation. At this stage in the remediation process, the full remediation costs are not estimable, but given the number and operating history of the facilities in the portfolio, the full remediation costs will likely be material in the aggregate. The costs could potentially include costs for, among other things, excavating soil, implementation of institutional controls, and the construction, operation and maintenance of engineering controls.
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. PSEG is in the process of investigating each of the sites that PSEG Power currently owns that are subject to the CCR Rule, as well as sites that were formerly owned that are subject to the CCR Rule where PSEG Power retained certain environmental obligations to investigate and, if necessary, remediate. PSEG is currently unable to estimate the impact of the CCR Rule, but it could have a material impact on PSEG’s business, results of operations and cash flows.
Clean Water Act (CWA) Section 316(b) Rule
The EPA’s CWA Section 316(b) rule establishes requirements for the design and operation of cooling water intake structures at existing power plants and industrial facilities with a design flow of more than two million gallons of water per day.
In June 2016, the NJDEP issued a final New Jersey Pollutant Discharge Elimination System permit for Salem. In July 2016, the Delaware Riverkeeper Network (Riverkeeper) filed an administrative hearing request challenging certain conditions of the permit, including the NJDEP’s application of the 316(b) rule. If the Riverkeeper’s challenge is successful, PSEG Power may be required to incur additional costs to comply with the CWA. Potential cooling water and/or service water system modification costs could be material and could adversely impact the economic competitiveness of this facility.
Basic Generation Service (BGS), BGSS and ZECs
Each year, PSE&G obtains its electric supply requirements through annual New Jersey BGS auctions for two categories of customers that choose not to purchase electric supply from third-party suppliers. The first category is residential and smaller commercial and industrial customers (BGS-Residential Small Commercial Pricing (RSCP)). The second category is larger customers that exceed a BPU-established load (kilowatt (kW)) threshold (BGS-Commercial and Industrial Energy Pricing (CIEP)). Pursuant to applicable BPU rules, PSE&G enters into the Supplier Master Agreements with the winners of these RSCP and CIEP BGS auctions to purchase BGS for PSE&G’s load requirements. The winners of the RSCP and CIEP auctions are responsible for fulfilling all the requirements of a PJM load-serving entity including the provision of capacity, energy, ancillary services and any other services required by PJM. BGS suppliers assume all volume risk and customer migration risk and must satisfy New Jersey’s renewable portfolio standards.
34
The BGS-CIEP auction is for a one-year supply period from June 1 to May 31 with the BGS-CIEP auction price measured in dollars per MW-day for capacity. The final price for the BGS-CIEP auction year commencing June 1, 2024 is $378.21 per MW-day, replacing the BGS-CIEP auction year price ending May 31, 2024 of $330.72 per MW-day. Energy for BGS-CIEP is priced at hourly PJM locational marginal prices for the contract period.
PSE&G contracts for its anticipated BGS-RSCP load on a three-year rolling basis, whereby each year one-third of the load is procured for a three-year period. The contract prices in dollars per MWh for the BGS-RSCP supply, as well as the approximate load, are as follows:
Auction Year
2021
2022
36-Month Terms Ending
May 2024
May 2025
May 2026
May 2027
(A)
Load (MW)
2,900
2,800
$ per MWh
64.80
76.30
93.11
80.88
PSE&G has a full-requirements contract with PSEG Power to meet the gas supply requirements of PSE&G’s gas customers. PSEG Power has entered into hedges for a portion of these anticipated BGSS obligations, as permitted by the BPU. The BPU permits PSE&G to recover the cost of gas hedging up to 115 billion cubic feet or 80% of its residential gas supply annual requirements through the BGSS tariff. Current plans call for PSEG Power to hedge on behalf of PSE&G approximately 70 billion cubic feet or 50% of its residential gas supply annual requirements. For additional information, see Note 18. Related-Party Transactions.
Pursuant to a process established by the BPU, New Jersey EDCs, including PSE&G, are required to purchase ZECs from eligible nuclear plants selected by the BPU. In April 2021, PSEG Power’s Salem 1, Salem 2 and Hope Creek nuclear plants were awarded ZECs for the three-year eligibility period from June 2022 through May 2025. PSE&G has implemented a tariff to collect a non-bypassable distribution charge in the amount of $0.004 per KWh from its retail distribution customers to be used to purchase the ZECs from these plants. PSE&G will purchase the ZECs on a monthly basis with payment to be made annually following completion of each energy year.
Minimum Fuel Purchase Requirements
PSEG Power’s nuclear fuel strategy is to maintain certain levels of uranium and to make periodic purchases to support such levels. As such, the commitments referred to in the following table may include estimated quantities to be purchased that deviate from contractual nominal quantities. PSEG Power’s minimum nuclear fuel commitments cover approximately 100% of its estimated uranium, enrichment and fabrication requirements through 2027 and a significant portion through 2028 at Salem, Hope Creek and Peach Bottom.
PSEG Power has various multi-year contracts for natural gas and firm transportation and storage capacity for natural gas that are primarily used to meet its obligations to PSE&G.
As of September 30, 2024, the total minimum purchase requirements included in these commitments were as follows:
Fuel Type
PSEG Power’s Share of Commitments through 2028
Nuclear Fuel
Uranium
Enrichment
287
Fabrication
Natural Gas
1,286
Pending FERC Matters
FERC has been conducting a non-public investigation of the Roseland-Pleasant Valley transmission project. FERC staff presented PSE&G with its non-public preliminary findings, alleging that PSE&G violated FERC regulations. PSE&G disagrees with FERC staff’s allegations and believes it has factual and legal defenses that refute these allegations. PSE&G has the opportunity to respond to these preliminary findings. The matter is pending and the investigation is ongoing. PSE&G is unable to predict the outcome or estimate the range of possible loss related to this matter; however, depending on the success of PSE&G’s factual and legal arguments, the potential financial and other penalties that PSE&G may incur could be material to PSEG’s and PSE&G’s results of operations and financial condition.
BPU Audit of PSE&G
In 2020, the BPU ordered the commencement of a comprehensive affiliate and management audit of PSE&G. It has been more than ten years since the BPU last conducted a management and affiliate audit of this kind of PSE&G, which is initiated periodically as required by New Jersey statutes/regulations. Phase 1 of the audit reviews affiliate relations and cost allocation between PSE&G and its affiliates, including an analysis of the relationship between PSE&G and PSEG Energy Resources & Trade, LLC, a wholly owned subsidiary of PSEG Power over the past ten years, and between PSE&G and PSEG LI. Phase 2 is a comprehensive management audit, which addresses, among other things, executive management, corporate governance, system operations, human resources, cyber security, compliance with customer protection requirements and customer safety. The audit officially began in late May 2021. The BPU Audit Staff submitted the final audit report to the BPU in June 2023. The BPU is currently considering public comments on the audit report and has not yet determined which audit recommendations it will require PSE&G to implement. It is not possible at this time to predict the outcome of this matter.
Litigation
Sewaren 7 Construction
In June 2018, a complaint was filed in federal court in Newark, New Jersey against PSEG Fossil LLC, which at the time was a wholly owned subsidiary of PSEG Power, regarding an ongoing dispute with Durr Mechanical Construction, Inc. (Durr), a contractor on the Sewaren 7 project. Among other things, Durr seeks damages of $93 million and alleges that PSEG Power withheld money owed to Durr and that PSEG Power’s intentional conduct led to the inability of Durr to obtain prospective contracts. PSEG Power intends to vigorously defend against these allegations. In January 2021, the court partially granted PSEG Power’s motion to dismiss certain claims, reducing the amount claimed to $68 million. In December 2018, Durr filed for Chapter 11 bankruptcy in the federal court in the Southern District of New York (SDNY). The SDNY bankruptcy court has allowed the New Jersey litigation to proceed. PSEG Power has accrued an amount related to outstanding invoices which does not reflect an assessment of claims and potential counterclaims in this matter. Due to its preliminary nature, PSEG Power cannot predict the outcome of this matter.
Other Litigation and Legal Proceedings
PSEG and its subsidiaries are party to various lawsuits in the ordinary course of business. In view of the inherent difficulty in predicting the outcome of such matters, PSEG and PSE&G generally cannot predict the eventual outcome of the pending matters, the timing of the ultimate resolution of these matters, or the eventual loss, fines or penalties related to each pending matter.
In accordance with applicable accounting guidance, a liability is accrued when those matters present loss contingencies that are both probable and reasonably estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. PSEG will continue to monitor the matter for further developments that could affect the amount of the accrued liability that has been previously established.
Based on current knowledge, management does not believe that loss contingencies arising from pending matters, other than the matters described herein, could have a material adverse effect on PSEG’s or PSE&G’s consolidated financial position or liquidity. However, in light of the inherent uncertainties involved in these matters, some of which are beyond PSEG’s control, and the large or indeterminate damages sought in some of these matters, an adverse outcome in one or more of these matters could be material to PSEG’s or PSE&G’s results of operations or liquidity for any particular reporting period.
Long-Term Debt Financing Transactions
The following long-term debt transactions occurred in the nine months ended September 30, 2024:
PSEG
Short-Term Liquidity
PSEG meets its short-term liquidity requirements, as well as those of PSEG Power, primarily through the issuance of commercial paper and, from time to time, short-term loans. PSE&G maintains its own separate commercial paper program to meet its short-term liquidity requirements. Each commercial paper program is fully back-stopped by its own separate credit facility.
The commitments under the $3.8 billion credit facilities are provided by a diverse bank group. As of September 30, 2024, the total available credit capacity was $3.2 billion.
As of September 30, 2024, no single institution represented more than 9% of the total commitments in the credit facilities.
As of September 30, 2024, PSEG’s liquidity position, including credit facilities and access to external financing, was expected to be sufficient to meet its projected stressed requirements over a 12-month planning horizon.
Each of the credit facilities is restricted as to availability and use to the specific companies as listed in the following table; however, if necessary, the PSEG facilities can also be used to support its subsidiaries’ liquidity needs.
The total committed credit facilities and available liquidity as of September 30, 2024 were as follows:
Company/Facility
TotalFacility
Usage (B)
AvailableLiquidity
ExpirationDate
Primary Purpose
Revolving Credit Facility (A)
561
939
Mar 2028
Commercial Paper Support/Funding/Letters of Credit
Total PSEG
Revolving Credit Facility
1,000
979
Total PSE&G
PSEG Power
1,250
Funding/Letters of Credit
Letter of Credit Facility
Apr 2026
Letters of Credit
Total PSEG Power
1,325
82
1,243
Total (C)
3,825
3,161
PSEG Power has uncommitted credit facilities totaling $200 million, which can be utilized for letters of credit. As of September 30, 2024, PSEG Power had $75 million in letters of credit outstanding under these uncommitted credit facilities. In addition, a subsidiary of PSEG Power has an uncommitted credit facility for $150 million, which can be utilized for cash collateral postings.
Short-Term Loans
In April 2023, PSEG entered into a new 364-day variable rate term loan agreement for $750 million. In August 2023, PSEG repaid $250 million of the $750 million 364-day variable rate term loan and the remaining $500 million matured in April 2024.
Derivative accounting guidance requires that a derivative instrument be recognized as either an asset or a liability at fair value, with changes in fair value of the derivative recognized in earnings each period. Other accounting treatments are available through special election and designation provided that the derivative instrument meets specific, restrictive criteria, both at the time of designation and on an ongoing basis. These alternative permissible treatments include normal purchases and normal sales (NPNS), cash flow hedge and fair value hedge accounting. PSEG uses interest rate swaps and other derivatives, which are designated and qualifying as cash flow or fair value hedges. PSEG Power enters into additional contracts that are derivatives, but are not designated as either cash flow hedges or fair value hedges. These transactions are economic hedges and are recorded at fair market value with changes recognized in earnings.
Commodity Prices
Within PSEG and its affiliate companies, PSEG Power has the most exposure to commodity price risk primarily relating to changes in the market price of electricity, natural gas and other commodities. Fluctuations in market prices result from changes
in supply and demand, fuel costs, market conditions, weather, state and federal regulatory policies, environmental policies, transmission availability and other factors. PSEG Power uses a variety of derivative and non-derivative instruments, such as financial options, futures, swaps, fuel purchases and forward purchases and sales of electricity, to manage the exposure to fluctuations in commodity prices and optimize the value of PSEG Power’s expected generation. PSEG Power also uses derivatives to hedge a portion of its anticipated BGSS obligations with PSE&G. For additional information see Note 9. Commitments and Contingent Liabilities. Additionally, prospective changes in the fair market value of these derivative contracts are recorded in earnings.
Interest Rates
PSEG, PSE&G and PSEG Power are subject to the risk of fluctuating interest rates in the normal course of business. Exposure to this risk is managed by targeting a balanced debt maturity profile which limits refinancing in any given period or interest rate environment. PSEG, PSE&G and PSEG Power may use a mix of fixed and floating rate debt and interest rate hedges.
Cash Flow Hedges
PSEG uses interest rate hedges which are designated and effective as cash flow hedges, to manage its exposure to the variability of cash flows, primarily related to variable-rate debt instruments or anticipated future long-term debt issuances.
As of September 30, 2024, PSEG had interest rate hedges outstanding totaling $1.25 billion which were executed to convert to fixed PSEG Power’s $1.25 billion variable rate term loan due March 2025. The fair value of these hedges was $1 million and $5 million as of September 30, 2024 and December 31, 2023, respectively.
In the third quarter of 2024, PSEG entered into interest rate hedges to fix the interest rate for a portion of anticipated debt issuances for PSEG and PSEG Power. As of September 30, 2024, these swaps had a fair value of $(3) million.
The Accumulated Other Comprehensive Income (Loss) (after tax) related to outstanding and terminated interest rate hedges designated as cash flow hedges was $12 million and $3 million as of September 30, 2024 and December 31, 2023, respectively. The after-tax unrealized gains on these hedges expected to be reclassified to earnings during the next 12 months is $3 million.
Fair Values of Derivative Instruments
The following are the fair values of derivative instruments on the Condensed Consolidated Balance Sheets. The following tables also include disclosures for offsetting derivative assets and liabilities which are subject to a master netting or similar agreement. In general, the terms of the agreements provide that in the event of an early termination the counterparties have the right to offset amounts owed or owing under that and any other agreement with the same counterparty. Accordingly, and in accordance with PSEG’s accounting policy, these positions are offset on the Condensed Consolidated Balance Sheets of PSEG. For additional information see Note 12. Fair Value Measurements.
Substantially all derivative instruments are contracts subject to master netting agreements. Contracts not subject to master netting or similar agreements are immaterial and did not have any collateral posted or received as of September 30, 2024 and December 31, 2023. The following tabular disclosure does not include the offsetting of trade receivables and payables.
Not Designated
Balance Sheet Location
InterestRateDerivatives
Energy-RelatedContracts
Netting(A)
Total PSEGPower
TotalDerivatives
Current Assets
509
(475
Noncurrent Assets
507
(472
Total Mark-to-Market Derivative Assets
1,016
(947
Current Liabilities
(558
541
Noncurrent Liabilities
(444
Total Mark-to-Market Derivative (Liabilities)
(1,002
982
(24
Total Net Mark-to-Market Derivative Assets (Liabilities)
47
912
(806
106
440
1,352
(1,217
141
(890
820
(70
(424
419
(1,314
1,239
Certain of PSEG Power’s derivative instruments contain provisions that require PSEG Power to post collateral. This collateral may be posted in the form of cash or credit support with thresholds contingent upon PSEG Power’s credit rating from each of
the major credit rating agencies. The collateral and credit support requirements vary by contract and by counterparty. These credit risk-related contingent features stipulate that if PSEG Power were to be downgraded to a below investment grade rating by S&P or Moody’s, it would be required to provide additional collateral. A below investment grade credit rating for PSEG Power would represent a two-level downgrade from its current Moody’s and S&P ratings. This incremental collateral requirement can offset collateral requirements related to other derivative instruments that are assets with the same counterparty, where the contractual right of offset exists under applicable master agreements. PSEG Power may also enter into commodity transactions on the New York Mercantile Exchange (NYMEX) and Intercontinental Exchange (ICE). The NYMEX and ICE clearing houses act as counterparties to each trade. Transactions on the NYMEX and ICE must adhere to comprehensive collateral and margin requirements.
The aggregate fair value of all derivative instruments with credit risk-related contingent features in a liability position that are not fully collateralized (excluding transactions on the NYMEX and ICE that are fully collateralized) was $32 million as of September 30, 2024 and $77 million as of December 31, 2023. As of September 30, 2024 and December 31, 2023, PSEG Power had the contractual right of offset of $12 million and $3 million, respectively, related to derivative instruments that are assets with the same counterparty under master agreements and net of margin posted. If PSEG Power had been downgraded to a below investment grade rating, it would have had additional collateral obligations of $20 million and $74 million as of September 30, 2024 and December 31, 2023, respectively, related to its derivatives, net of the contractual right of offset under master agreements and the application of collateral.
The following shows the effect on the Condensed Consolidated Statements of Operations and on AOCL of derivative instruments designated as cash flow hedges for the three and nine months ended September 30, 2024 and 2023:
Amount of Pre-TaxGain (Loss)Recognized in AOCL on Derivatives
Location ofPre-Tax Gain (Loss) Reclassified from AOCL into Income
Amount of Pre-TaxGain (Loss)Reclassified from AOCL into Income
Derivatives in Cash Flow
Hedging Relationships
Interest Rate Derivatives
The effect of interest rate cash flow hedges is recorded in Interest Expense in PSEG’s Condensed Consolidated Statement of Operations. For the nine months ended September 30, 2024 and 2023, the amount of gain on interest rate hedges reclassified from AOCL into income was $8 million and $2 million after-tax, respectively.
The following reconciles the Accumulated Other Comprehensive Income (Loss) for derivative activity included in AOCL of PSEG on a pre-tax and after-tax basis.
Accumulated Other Comprehensive Income (Loss)
Pre-Tax
After-Tax
Gain Recognized in AOCL
Less: Gain Reclassified into Income
The following shows the effect on the Condensed Consolidated Statements of Operations of derivative instruments not designated as hedging instruments or as NPNS for the three months and nine months ended September 30, 2024 and 2023, respectively. PSEG Power’s derivative contracts reflected in this table include contracts to hedge the purchase and sale of electricity and natural gas, and the purchase of fuel.
Derivatives Not Designated as Hedges
Location of Pre-TaxGain (Loss)Recognized in Incomeon Derivatives
Pre-Tax Gain (Loss) Recognized in Income on Derivatives
Energy-Related Contracts
Operating Revenues
133
1,244
The following table summarizes the net notional volume purchases/(sales) of open derivative transactions by commodity as of September 30, 2024 and December 31, 2023.
Type
Notional
September 30, 2024
December 31, 2023
Dekatherm (Dth)
66
Electricity
MWh
(60
Financial Transmission Rights (FTRs)
U.S. Dollars
1,750
2,000
Credit Risk
Credit risk relates to the risk of loss that PSEG Power would incur as a result of non-performance by counterparties pursuant to the terms of their contractual obligations for the purchase and/or sale of energy, nuclear fuel and other related products, where PSEG Power has extended unsecured credit. PSEG has established credit policies that it believes significantly minimize credit risk. These policies include an evaluation of potential counterparties’ financial condition (including credit rating), collateral requirements under certain circumstances and the use of standardized agreements, which allow for the netting of positive and negative exposures associated with a single counterparty. In the event of non-performance or non-payment by a major counterparty, there may be a material adverse impact on PSEG’s financial condition, results of operations or net cash flows.
As of September 30, 2024, nearly 100% of the net credit exposure for PSEG Power’s wholesale operations was with investment grade counterparties. There were two counterparties with credit exposure greater than 10% of the total. These credit exposures were with PSE&G and one non-affiliated counterparty. The PSE&G credit exposure is eliminated in consolidation. See Note 18. Related-Party Transactions for additional information.
PSE&G’s supplier master agreements are approved by the BPU and govern the terms of its electric supply procurement contracts. These agreements define a supplier’s performance assurance requirements and allow a supplier to meet its credit requirements with a certain amount of unsecured credit. The amount of unsecured credit is determined based on the supplier’s credit ratings from the major credit rating agencies and the supplier’s tangible net worth. The credit position is based on the initial market price, which is the forward price of energy on the day the procurement transaction is executed, compared to the forward price curve for energy on the valuation day. To the extent that the forward price curve for energy exceeds the initial market price, the supplier is required to post a parental guarantee or other security instrument such as a letter of credit or cash, as collateral to the extent the credit exposure is greater than the supplier’s unsecured credit limit. As of September 30, 2024, PSEG held parental guarantees, letters of credit and cash as security. PSE&G’s BGS suppliers’ credit exposure is calculated each business day. As of September 30, 2024, PSE&G had no unsecured mark-to-market credit exposure with its suppliers.
PSE&G is permitted to recover its costs of procuring energy through the BPU-approved BGS tariffs. PSE&G’s counterparty credit risk is mitigated by its ability to recover realized energy costs through customer rates.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Accounting guidance for fair value measurement emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and establishes a fair value hierarchy that distinguishes between assumptions based on market data obtained from independent sources and those based on an entity’s own assumptions. The hierarchy prioritizes the inputs to fair value measurement into three levels:
Level 1—measurements utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that PSEG and PSE&G have the ability to access. These consist primarily of listed equity securities and money market mutual funds, as well as natural gas futures contracts executed on an exchange.
Level 2—measurements include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and other observable inputs such as interest rates and yield curves that are observable at commonly quoted intervals. These consist primarily of non-exchange traded derivatives such as forward contracts or options and most fixed income securities.
Level 3—measurements use unobservable inputs for assets or liabilities, based on the best information available and might include an entity’s own data and assumptions. In some valuations, the inputs used may fall into different levels of the hierarchy. In these cases, the financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. These consist primarily of certain electric load contracts.
Certain derivative transactions may transfer from Level 2 to Level 3 if inputs become unobservable and internal modeling techniques are employed to determine fair value. Conversely, measurements may transfer from Level 3 to Level 2 if the inputs become observable.
The following tables present information about PSEG’s and PSE&G’s respective assets and (liabilities) measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023, including the fair value measurements and the levels of inputs used in determining those fair values. Amounts shown for PSEG include the amounts shown for PSE&G.
Recurring Fair Value Measurements as of September 30, 2024
Description
Netting (E)
Quoted Market Prices for Identical Assets(Level 1)
Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs (Level 3)
Assets:
Cash Equivalents (A)
Derivative Contracts:
Energy-Related Contracts (B)
1,013
Interest Rate Derivatives (C)
NDT Fund (D)
Debt Securities—U.S. Treasury
348
Debt Securities—Govt Other
Debt Securities—Corporate
Rabbi Trust (D)
Liabilities:
(1,000
Recurring Fair Value Measurements as of December 31, 2023
1,339
398
(1,311
Level 2—Fair values for energy-related contracts are obtained primarily using a market-based approach. Most derivative contracts (forward purchase or sale contracts and swaps) are valued using settled prices from similar assets and liabilities from an exchange, such as NYMEX, ICE and Nodal Exchange, or auction prices. Prices used in the valuation process are also corroborated independently by management to determine that values are based on actual transaction data or, in the absence of transactions, bid and offers for the day. Examples may include certain exchange and non-exchange traded capacity and electricity contracts and natural gas physical or swap contracts based on market prices, basis adjustments and other premiums where adjustments and premiums are not considered significant to the overall inputs.
Level 3—Unobservable inputs are used for the valuation of certain contracts. See “Additional Information Regarding Level 3 Measurements” for more information on the utilization of unobservable inputs.
Level 1—Investments in marketable equity securities within the NDT Fund are primarily investments in common stocks across a broad range of industries and sectors. Most equity securities are priced utilizing the principal market close price or, in some cases, midpoint, bid or ask price. Certain other equity securities in the NDT and Rabbi Trust Funds consist primarily of investments in money market funds which seek a high level of current income as is consistent with the preservation of capital and the maintenance of liquidity. To pursue its goals, the funds normally invest in diversified portfolios of high quality, short-term, dollar-denominated debt securities and government securities. The funds’ net asset value is priced and published daily. The Rabbi Trust’s Russell 3000 index fund is valued based on quoted prices in an active market and can be redeemed daily without restriction.
Level 2—NDT and Rabbi Trust fixed income securities include investment grade corporate bonds, collateralized mortgage obligations, asset-backed securities and certain government and U.S. Treasury obligations or Federal Agency asset-backed securities and municipal bonds with a wide range of maturities. Since many fixed income securities do not trade on a daily basis, they are priced using an evaluated pricing methodology that varies by asset class and reflects observable market information such as the most recent exchange price or quoted bid for similar securities. Market-based standard inputs typically include benchmark yields, reported trades, broker/dealer quotes and issuer spreads. Certain short-term investments are valued using observable market prices or market parameters such as time-to-maturity, coupon rate, quality rating and current yield.
Additional Information Regarding Level 3 Measurements
For valuations that include both observable and unobservable inputs, if the unobservable input is determined to be significant to the overall inputs, the entire valuation is categorized in Level 3. This includes derivatives valued using indicative price quotations for contracts with tenors that extend into periods with no observable pricing. In instances where observable data is unavailable, consideration is given to the assumptions that market participants would use in valuing the asset or liability. This includes assumptions about market risks such as liquidity, volatility and contract duration. Such instruments are categorized in Level 3 because the model inputs generally are not observable. PSEG considers credit and non-performance risk in the valuation of derivative contracts categorized in Levels 2 and 3, including both historical and current market data, in its assessment of credit and non-performance risk by counterparty. The impacts of credit and non-performance risk were not material to the financial statements.
As of September 30, 2024, PSEG carried $3.1 billion of net assets that were measured at fair value on a recurring basis, of which $1 million of net liabilities were measured using unobservable inputs and classified as Level 3 within the fair value hierarchy and are considered immaterial.
As of September 30, 2023, PSEG carried $2.5 billion of net assets that were measured at fair value on a recurring basis, of which $4 million of net liabilities were measured using unobservable inputs and classified as Level 3 within the fair value hierarchy and are considered immaterial.
There were no transfers to or from Level 3 during the nine months ended September 30, 2024 and 2023, respectively.
Fair Value of Debt
The estimated fair values, carrying amounts and methods used to determine the fair value of long-term debt as of September 30, 2024 and December 31, 2023 are included in the following table and accompanying notes.
CarryingAmount
Long-Term Debt:
PSEG (A)
4,865
4,877
4,371
4,240
PSE&G (A)
15,245
14,336
13,663
12,460
PSEG Power (B)
Total Long-Term Debt
21,360
20,463
19,284
17,950
NDT Fund Interest and Dividends
Allowance for Funds Used During Construction
Solar Loan Interest
Other Interest
Total Net Other Income (Deductions)
A reconciliation of reported income tax expense for PSEG with the amount computed by multiplying pre-tax income by the statutory federal income tax rate of 21% is as follows:
Pre-Tax Income
Tax Computed at Statutory Rate @ 21% Increase (Decrease) Attributable to:
341
503
State Income Taxes (net of federal income tax)
157
NDT Fund
Uncertain Tax Positions
Leasing Activities
GPRC-CEF-EE
Tax Credits
(195
Estimated Annual Effective Tax Rate Interim Period Adjustment
TAC
(100
(188
Subtotal
(78
(88
(202
(126
Total Income Tax Expense (Benefit)
(74
377
Effective Income Tax Rate
7.0
%
N/A
8.6
15.7
A reconciliation of reported income tax expense for PSE&G with the amount computed by multiplying pre-tax income by the statutory federal income tax rate of 21% is as follows:
296
Bad Debt Flow-Through
(146
Total Income Tax Expense
241
19.2
11.7
17.1
10.3
PSEG’s and PSE&G’s total income tax expense (benefit) for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter, PSEG and PSE&G update the respective estimated annual effective tax rates, and if the estimated tax rate changes, PSEG and PSE&G make cumulative adjustments.
In August 2022, the Inflation Reduction Act (IRA) was signed into law. The IRA enacted a new 15% corporate alternative minimum tax (CAMT), which is based on adjusted financial statement income, effective in 2023, and made certain changes to existing energy tax credit laws.
PSEG has determined that it is not subject to the CAMT for 2023 and 2024 as it is not an applicable corporation in accordance with the statute. The U.S. Treasury issued a notice of proposed rulemaking in September 2024 that provided proposed regulations regarding the CAMT. The proposed CAMT regulations and certain relevant rules remain unclear and require further guidance. As such, the impact of the CAMT on PSEG’s and PSE&G’s financial statements is subject to continued evaluation.
The IRA established a new PTC for existing qualified nuclear generation facilities, effective 2024 through 2032, a new technology neutral energy tax credit, inclusive of both new nuclear units and increases to nuclear generation capacity, effective 2025, and the transferability of energy tax credits, effective 2023.
The PTC for a given nuclear facility can be multiplied by five if prevailing wage requirements are met, and the value of the PTC is designed to phase down as the facility’s gross receipts increase. Both the PTC rate and phase down amount are subject to the Internal Revenue Service’s determination of annual inflation.
In 2024, PSEG recorded the benefit of the estimated PTCs generated by PSEG’s nuclear plants within Income Tax Expense in its Consolidated Statements of Operations in accordance with Accounting Standards Codification Topic 740, Income Taxes. The amounts recorded are subject to change based on several factors, including but not limited to, adjustments to estimated market prices and generation and the issuance of authoritative guidance by Treasury/the Internal Revenue Service, including clarification of the definition of “gross receipts” used to determine the phase out. Any adjustments to amounts previously recorded could be material.
The enactment of additional federal or state tax legislation and clarification of previously enacted tax laws could impact PSEG’s and PSE&G’s financial statements.
Pension and OPEB Plans
Available-for-Sale Securities
(98
(95
Other Comprehensive Income (Loss) before Reclassifications
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)
Net Current Period Other Comprehensive Income (Loss)
(58
(419
(103
240
243
(97
(102
(426
(28
247
260
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) to Statement of Operations
Description of Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)
Location of Pre-Tax Amount In Statement of Operations
Pre-Tax Amount
Tax (Expense) Benefit
After-Tax Amount
Total Cash Flow Hedges
Amortization of Prior Service (Cost) Credit
Amortization of Net Actuarial Loss
Total Pension and OPEB Plans
Realized Gains (Losses)
September 30, 2023
Pension Settlement Charge
(332
(239
(333
(240
(343
(247
(15
(338
(243
(365
105
(260
EPS
Basic EPS is calculated by dividing Net Income by the weighted average number of shares of common stock outstanding. Diluted EPS is calculated by dividing Net Income by the weighted average number of shares of common stock outstanding, plus dilutive potential shares related to PSEG’s stock based compensation. The following table shows the effect of these dilutive potential shares on the weighted average number of shares outstanding used in calculating diluted EPS:
Three Months Ended September 30,
Nine Months Ended September 30,
Basic
Diluted
EPS Numerator (Millions):
EPS Denominator (Millions):
Weighted Average Common Shares Outstanding
Effect of Stock Based Compensation Awards
Total Shares
Dividends
Dividend Payments on Common Stock
Per Share
0.60
0.57
1.80
1.71
In Millions
299
284
897
853
PSE&G earns revenues from its tariffs, under which it provides electric transmission and electric and gas distribution services to residential, commercial and industrial customers in New Jersey. The rates charged for electric transmission are regulated by FERC while the rates charged for electric and gas distribution are regulated by the BPU. Revenues are also earned from several other activities such as investments in EE equipment on customers’ premises, solar investments, the appliance service business and other miscellaneous services.
This reportable segment is comprised primarily of PSEG Power which earns revenues primarily by bidding energy, capacity and ancillary services into the markets for these products. PSEG Power also enters into bilateral contracts for energy, gas and other energy-related contracts to optimize the value of its portfolio of generating assets and gas supply obligations. In addition, PSEG Power’s Salem 1, Salem 2 and Hope Creek nuclear plants generate PTCs beginning in 2024 and receive ZEC revenue from the EDCs in New Jersey, including PSE&G.
This reportable segment also includes amounts applicable to PSEG LI, which generates revenues under its contract with LIPA, primarily for the recovery of costs when Servco is a principal in the transaction (see Note 3. Variable Interest Entity for additional information) as well as fixed and variable fee components under the contract, and Energy Holdings which holds an immaterial portfolio of remaining lease investments. Other also includes amounts applicable to PSEG (parent company) and Services.
Eliminations (A)
Consolidated Total
Net Income (B)
Gross Additions to Long-Lived Assets
672
768
317
2,157
245
2,402
(262
813
103
916
2,149
211
2,360
Total Assets
8,550
(254
Investments in Equity Method Subsidiaries
8,407
(539
The following discussion relates to intercompany transactions, which are eliminated during the PSEG consolidation process in accordance with GAAP.
The financial statements for PSE&G include transactions with related parties presented as follows:
Related-Party Transactions
Billings from Affiliates:
Net Billings from PSEG Power (A)
645
Administrative Billings from Services (B)
122
375
313
Total Billings from Affiliates
1,020
1,074
Payable to PSEG Power (A)
Payable to Services (B)
94
121
Payable to PSEG (C)
Working Capital Advances to Services (D)
Long-Term Accrued Taxes Receivable (Payable)
This combined MD&A is separately filed by Public Service Enterprise Group Incorporated (PSEG) and Public Service Electric and Gas Company (PSE&G). Information contained herein relating to any individual company is filed by such company on its own behalf.
PSEG’s business consists of two reportable segments, PSE&G and PSEG Power LLC (PSEG Power) & Other, primarily comprised of our principal direct wholly owned subsidiaries, which are:
The PSEG Power & Other reportable segment also includes amounts related to the parent company as well as PSEG’s other direct wholly owned subsidiaries, which are: PSEG Long Island LLC (PSEG LI), which operates the Long Island Power Authority’s (LIPA) transmission and distribution (T&D) system under an Operations Services Agreement (OSA); PSEG Energy Holdings L.L.C. (Energy Holdings), which primarily holds legacy lease investments and competitively bid, FERC regulated transmission; and PSEG Services Corporation (Services), which provides certain management, administrative and general services to PSEG and its subsidiaries at cost.
Our business discussion in Item 1. Business of our 2023 Annual Report on 10-K (Form 10-K) provides a review of the regions and markets where we operate and compete, as well as our strategy for conducting our businesses within these markets, focusing on operational excellence, financial strength and making disciplined investments. Our risk factor discussion in Item 1A. Risk Factors of Form 10-K provides information about factors that could have a material adverse impact on our businesses. The following supplements that discussion and the discussion included in the Executive Overview of 2023 and Future Outlook provided in Item 7 in our Form 10-K by describing significant events and business developments that have occurred during 2024 and changes to the key factors that we expect may drive our future performance. The following discussion refers to the Condensed Consolidated Financial Statements (Statements) and the Related Notes to Condensed Consolidated Financial Statements (Notes). This discussion should be read in conjunction with such Statements, Notes and the Form 10-K.
EXECUTIVE OVERVIEW OF 2024 AND FUTURE OUTLOOK
We are a public utility holding company that, acting through our wholly owned subsidiaries, is a predominantly regulated electric and gas utility and a nuclear generation business. Our 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 our business. We are focused on investing to modernize our energy infrastructure, improve reliability and resilience, increase EE and deliver cleaner energy to meet customer expectations and be well aligned with public policy objectives. In addition, the passage of the Inflation Reduction Act of 2022 (IRA) established a production tax credit (PTC) for existing nuclear facilities from 2024 through 2032. The PTC is expected to provide downside price protection for our nuclear generation fleet as the tax credit value is directly linked to a nuclear facility’s gross receipts.
For the years 2024-2028, our regulated capital investment program is estimated to be in a range of $18 billion to $21 billion. We expect these capital investments to result in a compound annual growth rate in our regulated rate base in a range of 6% to 7.5% from year-end 2023 to year-end 2028. The regulated capital investments represent the majority of PSEG’s total capital investment program of $19 billion to $22.5 billion. The low end of the range includes an extension of our Gas System Modernization Program (GSMP) and Clean Energy Future (CEF)-EE program at their current average annual investment levels plus inflation, as these programs are expected to continue beyond their currently approved timeframes. The upper end of our capital investment range includes incremental investments, particularly for an expansion of our current EE programs as well as other clean energy and infrastructure investments.
At PSE&G, our focus is on investing capital in T&D infrastructure and clean energy programs to enhance the reliability and resiliency of our T&D system, meet customer expectations and support public policy objectives.
In 2023, the BPU approved a $280 million nine-month extension of our CEF-EE program through June 2024 and in May 2024 the BPU approved another approximate $300 million extension covering a commitment period from July 2024 through December 2024. In October 2024, the BPU approved our CEF-EE II filing authorizing a total spend of approximately $2.9 billion for energy efficiency projects committed between January 1, 2025 through June 30, 2027, and completed over an expected six-year period. The Order approved a program investment budget of approximately $1.9 billion, net of administrative expenses, and approximately $1 billion to continue our customer on-bill repayment program. This EE filing is a significant increase from our prior filings, driven by an increase in the savings targets required under the BPU Energy Efficiency Framework and higher costs to achieve those targeted savings. The filing also includes demand response programs and building decarbonization programs.
A remaining component of our CEF-Electric Vehicle (EV) program related to medium- and heavy-duty charging infrastructure has been the subject of a stakeholder process that the BPU began in 2021. In October 2024, the BPU released an Order that provided program guidance and minimum filing requirements for electric utility operated medium- and heavy-duty charging incentive programs, The Order caps PSE&G’s program investment at $30 million and requires electric utilities to submit program filings by February 20, 2025. In September 2022, the BPU released a draft Storage Incentive Program proposal and is undertaking a stakeholder process to determine the details of the program. Our proposed CEF-Energy Storage (ES) program for a $109 million investment is being held in abeyance until the BPU concludes its proceedings.
In 2023, the BPU also approved a two-year extension of our current GSMP program to replace at least 400 miles of cast iron and unprotected steel mains and services in our gas system. The GSMP program extension provides for main replacement through December 2025 plus trailing services replacement and paving costs into 2026 and totals approximately $900 million of investment. Of the $900 million, $750 million is recovered through three periodic rate updates with the balance recovered through a future distribution base rate case.
Our broader GSMP III, which also included projects to introduce renewable natural gas and hydrogen blending into our existing distribution system is being held in abeyance, with negotiations to be reinitiated by January 2025 with the intent of beginning the work in January 2026.
Pursuant to our GSMP II and Energy Strong II programs, we filed a distribution base rate case as required by the BPU in December 2023. In October 2024, the BPU issued an Order approving the settlement of PSE&G’s electric and gas distribution base rate case with new rates effective October 15, 2024. The Order provides for a $17.8 billion rate base, a 9.6% return on equity for PSE&G’s distribution business and a 55% equity component of its capitalization structure. For additional information, see Item 1. Note 4. Rate Filings.
At PSEG Power, we seek to produce low-cost electricity by efficiently operating our nuclear generation assets, mitigate earnings volatility through the PTC mechanism and hedging, and support public policies that preserve these existing carbon-free base load nuclear generating plants. During the first nine months of 2024, our nuclear units generated approximately 23.3 terawatt hours and operated at a capacity factor of 91.4%. PSEG Power hedged approximately 90% to 95% of its expected generation output for 2024. Beginning in 2024, our hedging strategy has incorporated an estimated range of risk reduction impacts from the PTCs with potential incremental changes upon final U.S. Treasury guidance. In addition, we are exploring opportunities for the potential sale of power from our nuclear facilities pursuant to long-term agreements to supply large power users, such as data centers and hydrogen producers.
Climate Strategy and Sustainability Efforts
For more than a century, our purpose has been to provide safe access to an around-the-clock supply of reliable, affordable energy. Today, our vision is to power a future where people use less energy, and it is cleaner, safer and delivered more reliably than ever. We have established a net zero greenhouse gas (GHG) emissions by 2030 goal that includes direct GHG emissions (Scope 1) and indirect GHG emissions from operations (Scope 2) across our business operations, assuming advances in technology, public policy and customer behavior.
PSE&G has undertaken a number of initiatives that support the reduction of GHG emissions and the implementation of EE initiatives. PSE&G’s approved CEF-EE and EE II, CEF-Energy Cloud and CEF-EV programs and the proposed CEF-ES program are intended to support New Jersey’s Energy Master Plan (EMP) and Gubernatorial Executive Orders through programs designed to help customers use energy more efficiently, reduce GHG emissions, support the expansion of the EV infrastructure in New Jersey, install energy storage capacity to supplement solar generation and enhance grid resiliency, install smart meters and supporting infrastructure to allow for the integration of other clean energy technologies and to more efficiently respond to weather and other outage events.
In addition, PSE&G is committed to the safe and reliable delivery of natural gas to approximately 1.9 million customers throughout New Jersey and we are equally committed to reducing GHG emissions associated with such operations. The GSMP is designed to significantly reduce natural gas leaks in our distribution system, which would reduce the release of methane, a potent GHG, into the air. Through GSMP II, from 2018 through 2023 we reduced reported methane emissions by approximately 27% system wide. We continue to assess physical risks of climate change and adapt our capital investment program to improve the reliability and resiliency of our system in an environment of increasing frequency and severity of weather events.
We also continue to focus on providing cleaner energy for our customers by working to preserve the economic viability of our nuclear units, which provide over 85% of the carbon-free energy in New Jersey. These efforts include reducing market risk by advocating for state and federal policies, such as the PTC established by the IRA, and capacity market reform at PJM Interconnection, L.L.C. (PJM) that recognize the value of our nuclear fleet’s carbon-free generation and its contribution to grid reliability.
Competitively Bid, FERC Regulated Transmission Projects
PSEG continues to evaluate investment opportunities in regulated transmission beyond PSE&G. In December 2023, PJM awarded us an approximately $424 million project to address increasing load and reliability issues in Maryland and northern Virginia as part of its 2022 Window 3 competitive solicitation. The project has an expected in-service date of 2027.
In April 2024, PSE&G submitted bids to the BPU for what the BPU has termed the Pre-Build Infrastructure (PBI) project, which is a combination of onshore and near-shore underwater infrastructure. The BPU is expected to announce the winner(s) of the PBI solicitation later in 2024.
In April 2023, the BPU issued an order requesting that PJM conduct a second public policy transmission solicitation process utilizing the State Agreement Approach for transmission projects to support New Jersey’s expanded offshore wind goal. However, in June 2024, the BPU paused this solicitation while it considers the impact of PJM’s implementation of interconnection queue reform and the FERC Final Rule on transmission planning and cost allocation on its approach to procuring transmission to facilitate offshore wind development. The BPU has stated that the pause will last at least six months and will be reevaluated periodically.
PJM opened the 2024 Regional Transmission Expansion Plan (RTEP) Window 1 solicitation in July 2024, which includes the impacts of higher load growth forecasts on the 2029 to 2032 planning horizon. PSEG submitted a proposal into Window 1 for approximately $375 million.
PSEG will continue to evaluate opportunities to participate in transmission solicitation processes and may decide to submit bids for these opportunities, some of which could be material investments.
PSEG LI
In May 2024, LIPA issued requests for proposal for a service provider to operate its electrical transmission and distribution system and for power supply and fuel management services, respectively, upon expiry of the current service contracts with PSEG LI which run through December 31, 2025. PSEG has submitted proposals to continue as operations service provider for LIPA’s electrical transmission and distribution system, and to continue to provide power supply and fuel management services to LIPA, in each case after the current contracts expire.
Financial Results
The results for PSEG, PSE&G and PSEG Power & Other for the three and nine months ended September 30, 2024 and 2023 are presented as follows:
PSEG Net Income
PSEG Net Income Per Share (Diluted)
PSEG Power’s results above include the Nuclear Decommissioning Trust (NDT) Fund activity and the impacts of non-trading commodity mark-to-market (MTM) activity, which consist of the financial impact from positions with future delivery dates.
The variances in our Net Income attributable to changes related to the NDT Fund and MTM are shown in the following table:
Millions, after tax
NDT Fund Income (Expense) (A) (B)
(27
120
Non-Trading MTM Gains (Losses) (C)
Our Net Income for the three months and nine months ended September 30, 2024 variances versus the comparable periods in 2023 were driven primarily by changes in the MTM and NDT Fund and the pension settlement charge recorded in 2023, as discussed above.
Regulatory, Legislative and Other Developments
We closely monitor and engage with stakeholders on significant regulatory and legislative developments.
Transmission Rate Proceedings and Return on Equity (ROE)
Under current FERC rules, PSE&G continues to earn a 50 basis point adder to its base ROE for its membership in PJM as a transmission owner. In April 2021, FERC proposed eliminating this ROE adder for Regional Transmission Owner participation. FERC has not acted on the proposal. If the adder was eliminated, it would reduce PSE&G’s annual Net Income and annual cash inflows by approximately $40 million.
New Jersey Stakeholder Proceedings
In February 2023, the governor of New Jersey issued executive orders (EOs) that establish or accelerate previously established 2050 targets for clean-sourced energy, building decarbonization, and EV adoption goals, with new target dates of 2030 or 2035, as applicable. The EOs direct the BPU and other state agencies to collaborate with stakeholders to develop plans to reach the targets and the BPU has convened a stakeholder proceeding to develop a plan for gas distribution utilities to reach the target of 50% natural gas emissions reductions over 2006 levels by 2030. The BPU commenced proceedings to update the State’s EMP via public input hearings in May and June 2024. We are unable to predict the outcomes of this proceeding, but it could have a material impact on our business, results of operations and cash flows.
Environmental Regulation
We are subject to liability under environmental laws for the costs and penalties of remediating contamination of property now or formerly owned by us and of property contaminated by hazardous substances that we generated. In particular, the historic operations of PSEG companies and the operations of numerous other companies along the Passaic and Hackensack Rivers are alleged by federal and state agencies to have discharged substantial contamination into the Passaic River/Newark Bay Complex in violation of various statutes. In addition, PSEG Power has retained ownership of certain liabilities excluded from the sale of its fossil generation portfolio, primarily related to obligations under New Jersey and Connecticut state law to investigate and remediate the sites. We are also currently involved in a number of proceedings relating to sites where other hazardous substances may have been discharged and may be subject to additional proceedings in the future, and the costs and penalties of any such remediation efforts could be material.
For further information regarding the matters described above, as well as other matters that may impact our financial condition and results of operations, see Item 1. Note 9. Commitments and Contingent Liabilities.
Nuclear
In April 2021, PSEG Power’s Salem 1, Salem 2 and Hope Creek nuclear plants were awarded zero emission certificates (ZECs) for the three-year eligibility period starting June 2022 at the same approximate $10 per megawatt hour (MWh) received during the prior ZEC period through May 2022. Pursuant to a process established by the BPU, ZECs are purchased from selected nuclear plants and recovered through a non-bypassable distribution charge in the amount of $0.004 per kilowatt-hour used (which is equivalent to approximately $10 per MWh generated in payments to selected nuclear plants (ZEC payment)). As previously noted, in August 2022, the IRA was signed into law expanding incentives promoting carbon-free generation. The
enacted legislation established a PTC for electricity generated using existing nuclear energy, which began January 1, 2024 and continues through 2032 and impacted PSEG Power's decision not to apply for the next ZEC three-year eligibility period starting June 2025. The expected PTC rate is up to $15/MWh subject to adjustment based upon a facility’s gross receipts. The PTC rate and the gross receipts threshold are subject to annual inflation adjustments. The PTC amounts recorded to date are subject to change based on several factors, including but not limited to, adjustments to estimated market prices and generation and the issuance of authoritative guidance by Treasury/the Internal Revenue Service, including clarification of the definition of “gross receipts” used to determine the phase out. Any adjustments to amounts previously recorded could be material. We continue to analyze the impact of the IRA on our 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.
Interest Rate Matters
PSEG’s long-term financing plan is designed to replace maturities and support funding its capital program. Given our financing needs, the prevailing interest rate environment will be a key factor in determining interest expense on variable-rate debt and long-term rates on future financing plans. In order to increase the predictability of interest expense, we may use interest rate hedges to help limit our exposure to fluctuating interest rates. As of September 30, 2024, PSEG had entered into floating-to-fixed interest rate hedges totaling $1.25 billion in order to reduce the volatility in interest expense related to PSEG Power’s variable rate term loan due March 2025. In addition, from time to time, we may enter into interest rate hedges to fix a portion of our interest rate exposure for anticipated long-term financing plans at PSEG and PSEG Power. PSE&G’s interest rate risk is moderated due to annual transmission rate filings and distribution recoveries through base rate filings and clause-based investment programs.
Tax Legislation
Future federal and state tax legislation and clarification of enacted legislation could have a material impact on our effective tax rate and cash tax position.
In April 2023, the U.S. Treasury issued Revenue Procedure 2023-15 that provides a safe harbor method of accounting to determine the annual repair tax deduction for gas T&D property. The impact, if any, that this may have on PSEG and PSE&G’s financial statements has not yet been determined.
The IRA enacted a new 15% corporate alternative minimum tax (CAMT), which is based on adjusted financial statement income, a PTC for existing nuclear generation facilities and allows energy tax credits to be transferable. The U.S. Treasury has issued a notice of proposed rulemaking pertaining to the CAMT and final regulations pertaining to the prevailing wage requirements and transferability rules of energy tax credits. Many aspects of the IRA, including the CAMT proposed regulations, remain unclear and in need of further guidance; therefore, we continue to analyze the impact the IRA will have on PSEG’s and PSE&G’s results of operations, financial condition and cash flows, which could be material.
Future Outlook
Our future success will depend on our ability to continue to maintain strong operational and financial performance, address regulatory and legislative developments that impact our business and respond to the issues and challenges described below. In order to do this, we will continue to:
In addition to the risks described elsewhere in this Form 10-Q for 2024 and beyond, the key issues and challenges we expect our business to confront include:
We continually assess a broad range of strategic options to maximize long-term shareholder value and address the interests of our multiple stakeholders. We consider a wide variety of factors when determining how and when to efficiently deploy capital, including the performance and prospects of our businesses; returns and the sustainability and predictability of future earnings streams; the views of investors, regulators, public policy initiatives, rating agencies, customers and employees; our existing indebtedness and restrictions it imposes; and tax considerations, among other things. Strategic options available to us include:
There can be no assurance, however, that we will successfully develop and execute any of the strategic options noted above, or any additional options we may consider in the future. The execution of any such strategic plan may not have the expected benefits or may have unexpected adverse consequences.
RESULTS OF OPERATIONS
Our results of operations are comprised of the results of operations of our reportable segments, PSE&G and PSEG Power & Other, excluding charges related to intercompany transactions, which are eliminated in consolidation. For additional information on intercompany transactions, see Item 1. Note 18. Related-Party Transactions.
Increase/
(Decrease)
2024 vs. 2023
186
(807
Operation and Maintenance (A)
128
320
227
650
550
Income Tax Expense (Benefit)
113
(238
(63
The following discussions for PSE&G and PSEG Power & Other provide a detailed explanation of their respective variances.
140
381
150
(14
430
364
Three Months Ended September 30, 2024 as Compared to Three Months Ended September 30, 2023
Operating Revenues increased $140 million due to changes in delivery, commodity, clause and other operating revenues.
Delivery Revenues increased $74 million due primarily to
Commodity Revenues increased $71 million as a result of higher Electric revenues partially offset by lower Gas revenues. The changes in Commodity revenues for both electric and gas are entirely offset by the changes in Energy Costs. PSE&G earns no margin on the provision of BGS (basic generation service) and basic gas supply service (BGSS) to retail customers.
Clause Revenues decreased $7 million due primarily to lower Societal Benefits Clause (SBC) revenues of $11 million and a $3 million decrease due to the absence of Margin Adjustment Clause revenues. These decreases were partially offset by a $7 million net increase in Tax Adjustment Credit (TAC) and GPRC deferrals. The changes in SBC and MAC revenues and TAC and GPRC deferral amounts are entirely offset by changes in the amortization of Regulatory Assets and Regulatory Liabilities and related costs in O&M, D&A, Interest and Income Tax Expenses. PSE&G does not earn margin on SBC or MAC revenues or on TAC and GPRC deferrals.
Operating Expenses
Energy Costs increased $74 million. This is entirely offset by changes in Commodity Revenues and Other Operating Revenues.
Operation and Maintenance increased $5 million due primarily to an increase in net distribution and transmission expenditures and higher billings from Services, partially offset by a reduction in clause and renewable costs.
Depreciation and Amortization increased $10 million due primarily to an increase in depreciation due to higher plant placed in service, partially offset by a decrease in the amortization of Regulatory Assets.
Net Non-Operating Pension and OPEB Credits decreased $10 million due primarily to a decrease in the amortization of net prior service credits.
Interest Expense increased $23 million due primarily to incremental debt and the replacement of maturing debt at higher rates.
Income Tax Expense increased $37 million due primarily to a decrease in the flowback of excess deferred income tax benefits.
Nine Months Ended September 30, 2024 as Compared to Nine Months Ended September 30, 2023
Operating Revenues increased $381 million due to changes in delivery, commodity, clause and other operating revenues.
Delivery Revenues increased $162 million due primarily to
Commodity Revenues increased $116 million as a result of higher Electric revenues partially offset by lower Gas revenues. The changes in Commodity revenues for both electric and gas are entirely offset by the changes in Energy Costs. PSE&G earns no margin on the provision of BGS and BGSS to retail customers.
Clause Revenues increased $69 million due primarily to a $92 million increase in TAC and GPRC deferrals, partially offset by lower SBC revenues of $21 million. The changes in TAC and GPRC deferral amounts and SBC revenues are entirely offset by changes in the amortization of Regulatory Assets and Regulatory Liabilities and related costs in O&M, D&A, Interest and Income Tax Expenses. PSE&G does not earn margin on TAC and GPRC deferrals or on SBC revenue.
Other Operating Revenues increased $34 million due primarily to an increase in renewable energy certificates revenues.
Energy Costs increased $150 million. This is entirely offset by changes in Commodity Revenues and Other Operating Revenues.
Operation and Maintenance increased $47 million due primarily to an increase in net distribution and transmission expenditures and higher billings from Services partially offset by a reduction in clause and renewable costs.
Depreciation and Amortization increased $30 million due primarily to an increase in depreciation due to higher plant placed in service, partially offset by a decrease in the amortization of Regulatory Assets.
Net Other Income (Deductions) decreased $15 million due primarily to a decrease in Allowance for Funds Used During Construction and lower interest income.
Net Non-Operating Pension and OPEB Credits decreased $28 million due primarily to a decrease in the amortization of net prior service credits.
Interest Expense increased $66 million due primarily to incremental debt and the replacement of maturing debt at higher rates.
Income Tax Expense increased $100 million due primarily to a decrease in the flowback of excess deferred income tax benefits and higher pre-tax income.
584
(1,335
(38
828
1,014
(186
344
333
931
116
Net Non-Operating Pension and OPEB Costs
(330
(331
(328
224
(127
(76
236
Operating Revenues increased $38 million due primarily to changes in generation and gas supply and other operating revenues.
Generation Revenues increased $40 million due primarily to
Gas Supply Revenues decreased $18 million due primarily to
Energy Costs represent the cost of generation, which includes fuel costs for generation as well as purchased energy in the market, and gas purchases to meet PSEG Power’s obligation under its BGSS contract with PSE&G. Energy Costs decreased $14 million due to
Gas costs decreased $14 million due primarily to
Operation and Maintenance increased $11 million due primarily to higher Nuclear and Long Island Electric Utility Servco, LLC’s (Servco) operating costs, partially offset by higher Services billings to PSE&G. See Note 3. Variable Interest Entity for additional information on Servco and LIPA.
Net Gains (Losses) on Trust Investments increased $129 million due primarily to NDT investments with $70 million of net unrealized gains on equity securities in 2024 as compared to $42 million of net unrealized losses in 2023, and an increase of $15 million in net realized gains in 2024.
Net Non-Operating Pension and OPEB Costs decreased $330 million primarily due to the pension lift-out settlement charge in August 2023.
Interest Expense increased $18 million due primarily to the incremental debt and the replacement of maturing long-term debt at higher rates, partially offset by a reduction in term loans.
Income Tax Benefit decreased $76 million due primarily to higher pre-tax income in 2024 as compared to the prior year, partially offset by the benefit from Nuclear PTCs.
Operating Revenues decreased $1,335 million due primarily to changes in generation and gas supply and other operating revenues.
Generation Revenues decreased $1,238 million due primarily to
Gas Supply Revenues decreased $143 million due primarily to
Energy Costs represent the cost of generation, which includes fuel costs for generation as well as purchased energy in the market, and gas purchases to meet PSEG Power’s obligation under its BGSS contract with PSE&G. Energy Costs decreased $186 million due to
Gas costs decreased $172 million due primarily to
Generation costs decreased $14 million due primarily to lower renewable energy credit requirements caused by decreases in load volumes served.
Operation and Maintenance increased $89 million due primarily to a refueling outage in 2024 at our 100%-owned Hope Creek nuclear plant as compared to an outage at our 57%-owned Salem 2 nuclear plant in 2023, and higher Servco operating costs, partially offset by higher Services billings to PSE&G. See Note 3. Variable Interest Entity for additional information on Servco and LIPA.
Net Gains (Losses) on Trust Investments increased $128 million due primarily to NDT investments with $64 million in net realized gains in 2024 as compared to $6 million of net realized losses in 2023 and $56 million of higher net unrealized gains on equity securities as compared to the prior year.
Net Non-Operating Pension and OPEB Costs decreased $328 million primarily due to the pension lift-out settlement charge in August 2023.
Interest Expense increased $34 million due primarily to incremental debt and the replacement of maturing long-term debt at higher rates, partially offset by a reduction in term loans.
Income Tax Expense decreased $338 million due primarily to lower pre-tax income in 2024 and the benefit from Nuclear PTCs.
LIQUIDITY AND CAPITAL RESOURCES
The following discussion of our liquidity and capital resources is on a consolidated basis, noting the uses and contributions, where material, of our two direct major operating subsidiaries.
Operating Cash Flows
We continue to expect our operating cash flows combined with cash on hand and financing activities to be sufficient to fund planned capital expenditures and shareholder dividends.
For the nine months ended September 30, 2024, our operating cash flow decreased $1,330 million, as compared to the same period in 2023. The net decrease was primarily due to an outflow of $3 million in net cash collateral postings in 2024 as compared to a $1,175 million inflow in 2023 at PSEG Power, partially offset by a net change at PSE&G, as discussed below.
PSE&G’s operating cash flow increased $167 million from $952 million to $1,119 million for the nine months ended September 30, 2024, as compared to the same period in 2023. The increase was due primarily to the absence of returning cash collateral postings in 2024, which had been returned to BGS suppliers in 2023, and lower tax payments in 2024, partially offset by lower accounts receivable and unbilled revenues due primarily to lower gas commodity prices, a net increase in regulatory deferrals, and an increase in vendor and electric energy payments.
Each of our credit facilities is restricted as to availability and use to the specific companies as listed below; however, if necessary, the PSEG facilities can also be used to support our subsidiaries’ liquidity needs.
Our total committed credit facilities and available liquidity as of September 30, 2024 were as follows:
Usage
We continually monitor our liquidity and seek to add capacity as needed to meet our liquidity requirements, including to satisfy any additional collateral requirements. As of September 30, 2024, our liquidity position, including our credit facilities and access to external financing, was expected to be sufficient to meet our projected stressed requirements over our 12-month planning horizon. PSEG analyzes its liquidity requirements using stress scenarios that consider different events, including changes in commodity prices and the potential impact of PSEG Power losing its investment grade credit rating from S&P or Moody’s, which would represent a two-level downgrade from its current Moody’s and S&P ratings. In the event of a deterioration of PSEG Power’s credit rating, certain of PSEG Power’s agreements allow the counterparty to demand further
performance assurance. The potential additional collateral that we would be required to post under these agreements if PSEG Power were to lose its investment grade credit rating was approximately $705 million and $751 million as of September 30, 2024 and December 31, 2023, respectively.
For additional information, see Item 1. Note 10. Debt and Credit Facilities.
Long-Term Debt Financing
During the next twelve months,
PSEG, PSEG Power, Energy Holdings, PSEG LI and Services participate in a corporate money pool, an aggregation of daily cash balances designed to efficiently manage their respective short-term liquidity needs, which are accounted for as intercompany loans. Servco does not participate in the corporate money pool. Servco’s short-term liquidity needs are met through an account funded and owned by LIPA.
For additional information see Item 1. Note 10. Debt and Credit Facilities.
Common Stock Dividends
On July 15, 2024, PSEG’s Board of Directors approved a $0.60 per share common stock dividend for the third quarter of 2024. This reflects an indicative annual dividend rate of $2.40 per share. We expect to continue to pay cash dividends on our common stock; however, the declaration and payment of future dividends to holders of our common stock will be at the discretion of the Board of Directors and will depend upon many factors, including our financial condition, earnings, capital requirements of our businesses, alternate investment opportunities, legal requirements, regulatory constraints, industry practice and other factors that the Board of Directors deems relevant. For additional information related to cash dividends on our common stock, see Item 1. Note 16. Earnings Per Share (EPS) and Dividends.
Credit Ratings
If the rating agencies lower or withdraw our credit ratings, such revisions may adversely affect the market price of our securities and serve to materially increase our cost of capital and limit access to capital. Credit Ratings shown are for securities that we typically issue. Outlooks are shown for the credit ratings at each entity and can be Stable, Negative, or Positive. There is no assurance that the ratings will continue for any given period of time or that they will not be revised by the rating agencies, if in their respective judgments, circumstances warrant. Each rating given by an agency should be evaluated independently of the other agencies’ ratings. The ratings should not be construed as an indication to buy, hold or sell any security.
Moody’s (A)
S&P (B)
Outlook
Stable
Senior Notes
Baa2
BBB
Commercial Paper
P2
A2
Mortgage Bonds
A1
A
Issuer Rating
CAPITAL REQUIREMENTS
We expect that all of our capital requirements over the next three years will come from a combination of internally generated funds and external debt financing. There were no material changes to our projected capital expenditures as compared to amounts disclosed in our 2023 Form 10-K.
During the nine months ended September 30, 2024, PSE&G made capital expenditures of $2,157 million, primarily for T&D system reliability and advanced electric metering. In addition, PSE&G had cost of removal, net of salvage, of $137 million associated with capital replacements, and expenditures for EE programs of $393 million, which are included in operating cash flows.
During the nine months ended September 30, 2024, PSEG Power & Other made capital expenditures of $180 million, excluding $65 million for nuclear fuel, primarily related to various nuclear projects at PSEG Power and various information technology projects at Services.
The risk inherent in our market-risk sensitive instruments and positions is the potential loss arising from adverse changes in commodity prices, equity security prices and interest rates as discussed in the Notes to Consolidated Financial Statements. It is our policy to use derivatives to manage risk consistent with business plans and prudent practices. We have a Risk Management Committee comprised of executive officers who utilize a risk oversight function to ensure compliance with our corporate policies and risk management practices.
Additionally, we are exposed to counterparty credit losses in the event of non-performance or non-payment. We have a credit management process, which is used to assess, monitor and mitigate counterparty exposure. In the event of non-performance or non-payment by a major counterparty, there may be a material adverse impact on our financial condition, results of operations or net cash flows.
Commodity Contracts
The availability and price of energy-related commodities are subject to fluctuations from factors such as weather, environmental policies, changes in supply and demand, state and federal regulatory policies, market rules and other events. To reduce price risk caused by market fluctuations, we enter into supply contracts and derivative contracts, including forwards, futures, swaps, treasury locks, and options with approved counterparties. These contracts, in conjunction with physical sales and other services, help reduce risk and optimize the value of owned electric generation capacity.
Value-at-Risk (VaR) Models
VaR represents the potential losses, under normal market conditions, for instruments or portfolios due to changes in market factors, for a specified time period and confidence level. We estimate VaR across our commodity businesses.
MTM VaR consists of MTM derivatives that are economic hedges. The calculation does not include market risks associated with activities that are subject to accrual accounting, primarily our generating facilities and some load-serving activities.
The VaR models used are variance/covariance models adjusted for the change of positions with 95% and 99.5% confidence levels and a one-day holding period for the MTM activities. The models assume no new positions throughout the holding periods; however, we actively manage our portfolio.
From July through September 2024, MTM VaR varied between a low of $32 million and a high of $57 million at the 95% confidence level. The range of VaR was narrower for the three months ended September 30, 2024 as compared with the year ended December 31, 2023.
MTM VaR
Year Ended December 31, 2023
95% Confidence Level, Loss could exceed VaR one day in 20 days
Period End
Average for the Period
High
127
Low
99.5% Confidence Level, Loss could exceed VaR one day in 200 days
198
See Item 1. Note 11. Financial Risk Management Activities for a discussion of credit risk.
Disclosure Controls and Procedures
PSEG and PSE&G
We have established and maintain disclosure controls and procedures as defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to provide reasonable assurance that information required to be disclosed in the reports that are filed or submitted under the Exchange Act is recorded, processed, summarized and reported and is accumulated and communicated to the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) of each respective company, as appropriate, by others within the entities to allow timely decisions regarding required disclosure. We have established a disclosure committee which includes several key management employees and which reports directly to the CFO and CEO of each of PSEG and PSE&G. The committee monitors and evaluates the effectiveness of these disclosure controls and procedures. The CFO and CEO of each of PSEG and PSE&G have evaluated the effectiveness of the disclosure controls and procedures and, based on this evaluation, have concluded that disclosure controls and procedures at each respective company were effective at a reasonable assurance level as of the end of the period covered by the report.
Internal Controls
There have been no changes in internal control over financial reporting that occurred during the third quarter of 2024 that have materially affected, or are reasonably likely to materially affect, each registrant’s internal control over financial reporting.
ITEM 1. LEGAL PROCEEDINGS
We are party to various lawsuits and environmental and regulatory matters, including in the ordinary course of business. For information regarding material legal proceedings, including updates to information reported in Item 3 of Part I of the Form 10-K, see Part I, Item 1. Note 9. Commitments and Contingent Liabilities in this Quarterly Report on Form 10-Q.
ITEM 1A. RISK FACTORS
The discussion of our business and operations in this Quarterly Report on Form 10-Q should be read together with the risk factors contained in Part I, Item 1A of our Form 10-K which describes various risks and uncertainties that could have a material adverse impact on our business, prospects, financial position, results of operations or cash flows and could cause results to differ materially from those expressed elsewhere in this report.
If we are unable to enter into or extend certain significant contracts on terms acceptable to us, this may negatively affect our financial condition and operating results.
We are party to, and are also exploring opportunities to enter into, several contracts from which we currently or may in the future derive significant revenues. PSEG Power sells wholesale natural gas, primarily through a full-requirements BGSS contract with PSE&G to meet the needs of PSE&G’s default gas supply service customers. In 2022, the BPU approved an extension of the long-term BGSS contract to March 31, 2027, and thereafter the contract remains in effect unless terminated by either party with a two-year notice. PSEG LI has an OSA with LIPA to operate LIPA’s electric T&D system in Long Island. The OSA continues through 2025, but can be extended by mutual agreement of the parties. Further, PSEG Power provides fuel procurement and power management services to LIPA under separate agreements that expire at the end of 2025. It is uncertain whether any of these contracts and agreements will be extended on terms acceptable to us or at all, which may negatively affect our financial condition and operating results. In addition, we are exploring opportunities for the potential sale of power from our nuclear facilities pursuant to long-term agreements with large power users, such as data centers and hydrogen producers. It is uncertain whether we will be successful in entering into any of such contracts on terms acceptable to us or at all, including without limitation in connection with various ongoing regulatory proceedings.
ITEM 5. OTHER INFORMATION
Certain information is provided below for new matters that have arisen subsequent to the filing of the Form 10-K and the first and second quarter 2024 10-Q.
Director and Officer Rule 10b5-1 and non-Rule 10b5-1 Trading Plans
During the three months ended September 30, 2024, none of our officers or directors adopted, terminated or modified a Rule 10b5-1 trading plan or non-Rule 10b5-1 trading plan for the sale of PSEG common stock.
Federal Regulation
Regulation of Wholesale Sales—Generation/Market Issues/Market Power
December 31, 2023 Form 10-K page 10, March 31, 2024 Form 10-Q page 64 and June 30, 2024 Form 10-Q page 71. In October 2024, FERC issued a Final Rule that eliminates compensation for reactive power in circumstances when the generator is operating within the normal power factor range specified in its interconnection agreement. As PJM will need to submit a compliance filing implementing this Final Rule, the timing of loss of reactive power compensation is uncertain and its impact will be prospective only. PSEG Power currently receives reactive power compensation, and we are analyzing the Final Rule to determine its impacts for us.
In addition, there are several ongoing proceedings at FERC that may impact future data center arrangements involving the supply of power from nuclear units, including whether certain data center customers, depending on their configuration, will pay transmission service charges. On November 1, 2024, FERC issued an order rejecting an amended agreement between Talen Energy (Talen), PJM and PPL Electric Utilities that would have permitted Talen to withdraw incremental power from one of its nuclear units beyond previous approvals to provide power to an adjacent data center. FERC is also more broadly examining issues concerning whether and to what extent there are potential reliability, cost and customer impacts raised by the location of large customers at generating facilities. We cannot predict the outcome of these proceedings.
Capacity Market Issues
In September 2024, several parties filed a complaint at FERC alleging that the PJM capacity market design is unjust and unreasonable because it does not properly reflect the reliability contribution of retiring generating units with contractual commitments to continue to run for a defined period of time. In October 2024, PJM issued a notice stating that it intends to ask FERC for authorization to delay the 2026/2027 Base Residual Auction, which is scheduled for December 2024, by approximately six months so PJM has adequate time to discuss with its members potential changes to capacity market rules that could be submitted to FERC in a future filing. Depending upon the changes that PJM proposes and subsequent FERC action, such changes could affect the capacity revenue that generators receive for the 2026/2027 delivery year and future delivery years.
Compliance – Reliability Standards
In September 2024, FERC proposed changes to NERC’s Critical Infrastructure Protection (CIP) Reliability Standards. First, FERC proposed to approve the creation of a new CIP standard that requires entities to expand their efforts to monitor for malicious cyber activity. Second, FERC directed NERC to modify the supply chain standard to ensure that entities properly identify, assess and respond to risks in their supply chain risk plans, including setting maximum time frames between conducting a risk assessment and installing procured equipment. FERC also directed NERC to modify the supply chain standard to expand the type of equipment subject to the supply chain protections.
State Regulation
Regional Energy Access (REA) Expansion Project
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&G’s BGSS customers, is a participant. The court found that FERC failed to properly consider the environmental consequences of the project, and the alleged lack of market demand for additional natural gas capacity in New Jersey. PSEG is monitoring and evaluating this on-going proceeding, which could impact FERC’s analysis of future gas projects, as well as PSE&G’s acquisition of supplies for and provision of Basic Gas Supply Service.
BGS Process
In June 2024, New Jersey’s EDCs, including PSE&G, filed their annual joint proposal for the conduct of the February 2025 BGS auction covering energy years 2026 through 2028. PSE&G’s company-specific addendum to the joint filing includes a proposal for an optional, two-year pilot program for time-of-use rates for residential customers.
Electric Vehicle (EV) Activity
December 31, 2023 Form 10-K, page 13. In June 2021, the BPU issued an initial straw proposal, and in December 2022 issued a revised straw proposal, for the establishment of an EV infrastructure ecosystem for medium- and heavy-duty EVs in New Jersey. In October 2024, the BPU released an Order that provided program guidance and minimum filing requirements for electric utility operated medium- and heavy-duty charging incentive programs. The Order caps PSE&G’s program investment at $30 million and requires electric utilities to submit program filings by February 20, 2025.
Grid Modernization
December 31, 2023 Form 10-K page 13. In June 2022, following a consultant study, the BPU Staff issued a grid modernization report containing findings and recommendations to update the BPU’s interconnection regulations and processes. In furtherance of the recommendations, in June 2024 the BPU published proposed rules for public comment that amend its interconnection rules to speed up the interconnection of renewable resources to the distribution grid. Separately, in July 2024, BPU Staff convened a working group to develop recommendations for integrated distribution planning for distributed energy resources as part of its grid modernization plan.
Hazardous Substance Liability
Pursuant to the 2022 “Dirty Dirt” legislation, the NJDEP is proposing new requirements for the transportation, handling and disposal of soil and other waste materials generated by utility companies, including PSE&G. NJDEP has not yet finalized the requirements and, therefore, PSE&G is unable to quantify the increased costs of complying with these potential new requirements.
ITEM 6. EXHIBITS
A listing of exhibits being filed with this document is as follows:
a. PSEG:
Exhibit 10.1:
Agreement with Tamara L. Linde, dated September 16, 2024
Exhibit 10.2:
Agreement with Grace Park, dated September 16, 2024
Exhibit 31:
Certification by Ralph LaRossa Pursuant to Rules 13a-14 and 15d-14 of the 1934 Act
Exhibit 31.1:
Certification by Daniel J. Cregg Pursuant to Rules 13a-14 and 15d-14 of the 1934 Act
Exhibit 32:
Certification by Ralph LaRossa Pursuant to Section 1350 of Chapter 63 of Title 18 of the U.S. Code
Exhibit 32.1:
Certification by Daniel J. Cregg Pursuant to Section 1350 of Chapter 63 of Title 18 of the U.S. Code
Exhibit 101.INS:
Inline XBRL Instance Document - The Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
Exhibit 101.SCH:
Inline XBRL Taxonomy Extension Schema
Exhibit 104:
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
b. PSE&G:
Exhibit 31.2:
Exhibit 31.3:
Exhibit 32.2:
Exhibit 32.3:
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.
(Registrant)
By:
/S/ ROSE M. CHERNICK
Rose M. Chernick
Vice President and Controller
(Principal Accounting Officer)
Date: November 4, 2024