PSEG Announces Higher Third-Quarter Earnings Estimate

Company sees ‘solid results’ despite damage inflicted on power plants and infrastructure by Hurricane Sandy

PSEG President, Chairman, and CEO Ralph Izzo
Public Service Enterprise Group yesterday raised its earning’s guidance, a projection based on the higher prices its fleet of power plants are charging, lower fuel costs, and increased investments in upgrading its transmission system.

In a third-quarter earnings call with analysts, the Newark energy company revised its operating earnings outlook to $2.40-$2.55 per share from the previous guidance of $2.25-$2.59 per share for the full year.

Despite its power plants and utility infrastructure being severely damaged by Hurricane Sandy last fall, as well as witnessing in a drop in sales from its gas and electric utility, the performance was viewed as “solid results’’ by the company’s top executive.

“A year ago were responding to the devastation to our system caused by superstorm Sandy,’’ said Ralph Izzo, chairman, president, and chief executive of PSEG. “It’s only due to the tireless efforts of a dedicated workforce that we are on track to meet our near- and long-term targets for capital investment and can raise our full-year guidance for operating earnings.’’

The earnings report and call detailed the company’s increased reliance on its utility, Public Service Electric & Gas, to deliver profits to its parent. The utility is investing $3.4 billion in transmission-related projects from 2013 through 2015, involving five major transmission lines, all of which are expected to be operational by 2015, according to Izzo.

Some of those projects may soon boost profits for the company. Earlier this month PSE&G filed a request to increase its revenue requirements from transmission projects to $176 million at the beginning of 2014.

By 2015, 40 percent of the utility’s rate base will come from transmission, a jump from 28 percent. Unlike the utility’s investments in its distribution system — which delivers electricity to homes and businesses through substations linked to transmission lines — those costs are not reviewed by state regulators, but instead fall under the purview of the Federal Energy Regulatory Commission.

New Jersey regulators also have little influence on how much utility customers pay for the electricity delivered to their homes since the state no longer controls how much power suppliers can charge for the electricity they produce. The power industry was deregulated in 1999.

The increasing reliance on the utility to generate profits for its parent is an issue of high concern, because PSE&G also has filed a petition with the New Jersey Board of Public Utilities to spend $3.9 billion to improve the resiliency of its power grid to future storms like Hurricane Sandy.

That case is under review by the BPU, but largely focuses on upgrading dozens of utility substations and switching stations knocked out by the superstorm because of flooding. The proposal also includes plans to install new lines underground to avert outages and to deploy smart-grid systems to allow the utility to respond more quickly to outages.

With load growth for the utility slowing because of the recession and more aggressive efforts by consumers to reduce energy usage, Izzo does not expect to see those earnings increase.

“PSE&G is not about load growth,’’ Izzo said in a response to an analyst’s question. “PSE&G is all about rate-based growth.’’ It is something state regulators have to recognize, he said.

The overall company, however, is benefitting from cheap natural gas supplies in the Marcellus Shale formation in Pennsylvania, a trend that helps its power plants and the utility’s gas customers.

“They’ve locked up contracts at low costs,’’ explained Izzo, saying why the efforts have rewarded both the company and customers. “It’s just good management,’’ he said.

“They have been benefitting from lower natural gas prices,’’ agreed Paul Patterson, an energy analyst who listened to the earnings call. “It’s less clear how sustainable that will be.’’