WASHINGTON, D.C. 20549
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Millions, except per share data
(Unaudited)
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| OPERATING REVENUES | $ | 2,302 |
| | $ | 2,394 |
| | $ | 7,598 |
| | $ | 7,228 |
| |
| OPERATING EXPENSES | | | | | | | | |
| Energy Costs | 753 |
| | 804 |
| | 2,581 |
| | 2,356 |
| |
| Operation and Maintenance | 745 |
| | 742 |
| | 2,251 |
| | 2,221 |
| |
| Depreciation and Amortization | 307 |
| | 294 |
| | 928 |
| | 854 |
| |
| Loss on Asset Dispositions | 7 |
| | — |
| | 402 |
| | — |
| |
| Total Operating Expenses | 1,812 |
| | 1,840 |
| | 6,162 |
| | 5,431 |
| |
| OPERATING INCOME | 490 |
| | 554 |
| | 1,436 |
| | 1,797 |
| |
| Income from Equity Method Investments | 3 |
| | 5 |
| | 10 |
| | 12 |
| |
| Net Gains (Losses) on Trust Investments | (3 | ) | | 45 |
| | 164 |
| | 31 |
| |
| Other Income (Deductions) | 35 |
| | 33 |
| | 101 |
| | 99 |
| |
| Non-Operating Pension and OPEB Credits (Costs) | 55 |
| | 19 |
| | 121 |
| | 57 |
| |
| Interest Expense | (147 | ) | | (127 | ) | | (417 | ) | | (341 | ) | |
| INCOME BEFORE INCOME TAXES | 433 |
| | 529 |
| | 1,415 |
| | 1,655 |
| |
| Income Tax Benefit (Expense) | (30 | ) | | (117 | ) | | (159 | ) | | (416 | ) | |
| NET INCOME | $ | 403 |
| | $ | 412 |
| | $ | 1,256 |
| | $ | 1,239 |
| |
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | | | | | | | | |
| BASIC | 504 |
| | 504 |
| | 504 |
| | 504 |
| |
| DILUTED | 507 |
| | 507 |
| | 507 |
| | 507 |
| |
| NET INCOME PER SHARE: | | | | | | | | |
| BASIC | $ | 0.80 |
| | $ | 0.82 |
| | $ | 2.49 |
| | $ | 2.46 |
| |
| DILUTED | $ | 0.79 |
| | $ | 0.81 |
| | $ | 2.47 |
| | $ | 2.44 |
| |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2020 | | 2019 | | 2020 | | 2019 | |
| OPERATING REVENUES | $ | 2,370 | | | $ | 2,302 | | | $ | 7,201 | | | $ | 7,598 | | |
| OPERATING EXPENSES | | | | | | | | |
| Energy Costs | 775 | | | 753 | | | 2,276 | | | 2,581 | | |
| Operation and Maintenance | 767 | | | 745 | | | 2,254 | | | 2,251 | | |
| Depreciation and Amortization | 317 | | | 307 | | | 956 | | | 928 | | |
| (Gain) Loss on Asset Dispositions | (122) | | | 7 | | | (122) | | | 402 | | |
| Total Operating Expenses | 1,737 | | | 1,812 | | | 5,364 | | | 6,162 | | |
| OPERATING INCOME | 633 | | | 490 | | | 1,837 | | | 1,436 | | |
| Income from Equity Method Investments | 4 | | | 3 | | | 10 | | | 10 | | |
| Net Gains (Losses) on Trust Investments | 107 | | | (3) | | | 87 | | | 164 | | |
| Other Income (Deductions) | 39 | | | 35 | | | 81 | | | 101 | | |
| Net Non-Operating Pension and Other Postretirement Benefit (OPEB) Credits (Costs) | 62 | | | 55 | | | 186 | | | 121 | | |
| Interest Expense | (149) | | | (147) | | | (453) | | | (417) | | |
| INCOME BEFORE INCOME TAXES | 696 | | | 433 | | | 1,748 | | | 1,415 | | |
| Income Tax Benefit (Expense) | (121) | | | (30) | | | (274) | | | (159) | | |
| NET INCOME | $ | 575 | | | $ | 403 | | | $ | 1,474 | | | $ | 1,256 | | |
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | | | | | | | | |
| BASIC | 504 | | | 504 | | | 504 | | | 504 | | |
| DILUTED | 507 | | | 507 | | | 507 | | | 507 | | |
| NET INCOME PER SHARE: | | | | | | | | |
| BASIC | $ | 1.15 | | | $ | 0.80 | | | $ | 2.93 | | | $ | 2.49 | | |
| DILUTED | $ | 1.14 | | | $ | 0.79 | | | $ | 2.91 | | | $ | 2.47 | | |
| | | | | | | | | |
See Notes to Condensed Consolidated Financial Statements.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Millions
(Unaudited)
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| NET INCOME | $ | 403 |
| | $ | 412 |
| | $ | 1,256 |
| | $ | 1,239 |
| |
| Other Comprehensive Income (Loss), net of tax | | | | | | | | |
| Unrealized Gains (Losses) on Available-for-Sale Securities, net of tax (expense) benefit of $(5), $2, $(30) and $15 for the three and nine months ended 2019 and 2018, respectively | 10 |
| | (4 | ) | | 49 |
| | (23 | ) | |
| Unrealized Gains (Losses) on Cash Flow Hedges, net of tax (expense) benefit of $0, $0, $6 and $1 for the three and nine months ended 2019 and 2018, respectively | 1 |
| | — |
| | (16 | ) | | (1 | ) | |
| Pension/OPEB adjustment, net of tax (expense) benefit of $7, $(3), $1 and $(9) for the three and nine months ended 2019 and 2018, respectively | (17 | ) | | 7 |
| | (13 | ) | | 22 |
| |
| Other Comprehensive Income (Loss), net of tax | (6 | ) | | 3 |
| | 20 |
| | (2 | ) | |
| COMPREHENSIVE INCOME | $ | 397 |
| | $ | 415 |
| | $ | 1,276 |
| | $ | 1,237 |
| |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2020 | | 2019 | | 2020 | | 2019 | |
| NET INCOME | $ | 575 | | | $ | 403 | | | $ | 1,474 | | | $ | 1,256 | | |
| Other Comprehensive Income (Loss), net of tax | | | | | | | | |
| Unrealized Gains (Losses) on Available-for-Sale Securities, net of tax (expense) benefit of $3, $(5), $(15) and $(30) for the three and nine months ended 2020 and 2019, respectively | (4) | | | 10 | | | 24 | | | 49 | | |
| Unrealized Gains (Losses) on Cash Flow Hedges, net of tax (expense) benefit of $(1), $0, $(1) and $6 for the three and nine months ended 2020 and 2019, respectively | 4 | | | 1 | | | 4 | | | (16) | | |
| Pension/OPEB adjustment, net of tax (expense) benefit of $(1), $7, $(3) and $1 for the three and nine months ended 2020 and 2019, respectively | 3 | | | (17) | | | 9 | | | (13) | | |
| Other Comprehensive Income (Loss), net of tax | 3 | | | (6) | | | 37 | | | 20 | | |
| COMPREHENSIVE INCOME | $ | 578 | | | $ | 397 | | | $ | 1,511 | | | $ | 1,276 | | |
| | | | | | | | | |
See Notes to Condensed Consolidated Financial Statements.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
Millions
(Unaudited)
|
| | | | | | | | | |
| | | | | |
| | September 30, 2019 | | December 31, 2018 | |
| ASSETS | |
| CURRENT ASSETS | | | | |
| Cash and Cash Equivalents | $ | 120 |
| | $ | 177 |
| |
| Accounts Receivable, net of allowances of $61 in 2019 and $63 in 2018 | 1,184 |
| | 1,435 |
| |
| Tax Receivable | — |
| | 242 |
| |
| Unbilled Revenues | 161 |
| | 240 |
| |
| Fuel | 346 |
| | 331 |
| |
| Materials and Supplies, net | 579 |
| | 571 |
| |
| Prepayments | 249 |
| | 94 |
| |
| Derivative Contracts | 18 |
| | 11 |
| |
| Regulatory Assets | 352 |
| | 389 |
| |
| Other | 50 |
| | 17 |
| |
| Total Current Assets | 3,059 |
| | 3,507 |
| |
| PROPERTY, PLANT AND EQUIPMENT | 45,500 |
| | 44,201 |
| |
| Less: Accumulated Depreciation and Amortization | (10,093 | ) | | (9,838 | ) | |
| Net Property, Plant and Equipment | 35,407 |
| | 34,363 |
| |
| NONCURRENT ASSETS | | | | |
| Regulatory Assets | 3,593 |
| | 3,399 |
| |
| Operating Lease Right-of-Use Assets | 285 |
| | — |
| |
| Long-Term Investments | 812 |
| | 896 |
| |
| Nuclear Decommissioning Trust (NDT) Fund | 2,135 |
| | 1,878 |
| |
| Long-Term Tax Receivable | 150 |
| | — |
| |
| Long-Term Receivable of Variable Interest Entity (VIE) | 639 |
| | 624 |
| |
| Rabbi Trust Fund | 246 |
| | 224 |
| |
| Goodwill | 16 |
| | 16 |
| |
| Other Intangibles | 188 |
| | 143 |
| |
| Derivative Contracts | 27 |
| | 1 |
| |
| Other | 258 |
| | 275 |
| |
| Total Noncurrent Assets | 8,349 |
| | 7,456 |
| |
| TOTAL ASSETS | $ | 46,815 |
| | $ | 45,326 |
| |
| | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | |
| | September 30, 2020 | | December 31, 2019 | |
| ASSETS | |
| CURRENT ASSETS | | | | |
| Cash and Cash Equivalents | $ | 966 | | | $ | 147 | | |
| Accounts Receivable, net of allowance of $154 in 2020 and $60 in 2019 | 1,299 | | | 1,313 | | |
| Tax Receivable | 102 | | | 21 | | |
| Unbilled Revenues, net of allowance of $4 in 2020 | 175 | | | 239 | | |
| Fuel | 309 | | | 310 | | |
| Materials and Supplies, net | 608 | | | 587 | | |
| Prepayments | 128 | | | 79 | | |
| Derivative Contracts | 46 | | | 113 | | |
| Regulatory Assets | 342 | | | 351 | | |
| Assets Held for Sale | 0 | | | 30 | | |
| Other | 48 | | | 41 | | |
| Total Current Assets | 4,023 | | | 3,231 | | |
| PROPERTY, PLANT AND EQUIPMENT | 47,949 | | | 45,944 | | |
| Less: Accumulated Depreciation and Amortization | (10,900) | | | (10,100) | | |
| Net Property, Plant and Equipment | 37,049 | | | 35,844 | | |
| NONCURRENT ASSETS | | | | |
| Regulatory Assets | 3,669 | | | 3,677 | | |
| Operating Lease Right-of-Use Assets | 270 | | | 282 | | |
| Long-Term Investments | 608 | | | 812 | | |
| Nuclear Decommissioning Trust (NDT) Fund | 2,359 | | | 2,216 | | |
| Long-Term Tax Receivable | 0 | | | 150 | | |
| Long-Term Receivable of Variable Interest Entity (VIE) | 830 | | | 813 | | |
| Rabbi Trust Fund | 261 | | | 246 | | |
| Other Intangibles | 228 | | | 149 | | |
| Derivative Contracts | 17 | | | 24 | | |
| Other | 262 | | | 286 | | |
| Total Noncurrent Assets | 8,504 | | | 8,655 | | |
| TOTAL ASSETS | $ | 49,576 | | | $ | 47,730 | | |
| | | | | |
See Notes to Condensed Consolidated Financial Statements.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
Millions
(Unaudited)
|
| | | | | | | | | |
| | | | | |
| | September 30, 2019 | | December 31, 2018 | |
| LIABILITIES AND CAPITALIZATION | |
| CURRENT LIABILITIES | | | | |
| Long-Term Debt Due Within One Year | $ | 1,056 |
| | $ | 1,294 |
| |
| Commercial Paper and Loans | 346 |
| | 1,016 |
| |
| Accounts Payable | 1,244 |
| | 1,451 |
| |
| Derivative Contracts | 32 |
| | 11 |
| |
| Accrued Interest | 174 |
| | 110 |
| |
| Accrued Taxes | 37 |
| | 26 |
| |
| Clean Energy Program | 187 |
| | 143 |
| |
| Obligation to Return Cash Collateral | 123 |
| | 136 |
| |
| Regulatory Liabilities | 346 |
| | 311 |
| |
| Other | 522 |
| | 437 |
| |
| Total Current Liabilities | 4,067 |
| | 4,935 |
| |
| NONCURRENT LIABILITIES | | | | |
| Deferred Income Taxes and Investment Tax Credits (ITC) | 6,143 |
| | 5,713 |
| |
| Regulatory Liabilities | 2,972 |
| | 3,221 |
| |
| Operating Leases | 275 |
| | — |
| |
| Asset Retirement Obligations | 1,073 |
| | 1,063 |
| |
| OPEB Costs | 695 |
| | 704 |
| |
| OPEB Costs of Servco | 525 |
| | 501 |
| |
| Accrued Pension Costs | 819 |
| | 791 |
| |
| Accrued Pension Costs of Servco | 98 |
| | 109 |
| |
| Environmental Costs | 361 |
| | 327 |
| |
| Derivative Contracts | 5 |
| | 4 |
| |
| Long-Term Accrued Taxes | 165 |
| | 181 |
| |
| Other | 244 |
| | 232 |
| |
| Total Noncurrent Liabilities | 13,375 |
| | 12,846 |
| |
| COMMITMENTS AND CONTINGENT LIABILITIES (See Note 11) |
|
| |
|
| |
| CAPITALIZATION |
| | | |
| LONG-TERM DEBT | 14,448 |
| | 13,168 |
| |
| STOCKHOLDERS’ EQUITY |
| | | |
| Common Stock, no par, authorized 1,000 shares; issued, 2019 and 2018—534 shares | 4,989 |
| | 4,980 |
| |
| Treasury Stock, at cost, 2019 and 2018—30 shares | (832 | ) | | (808 | ) | |
| Retained Earnings | 11,206 |
| | 10,582 |
| |
| Accumulated Other Comprehensive Loss | (438 | ) | | (377 | ) | |
| Total Stockholders’ Equity | 14,925 |
| | 14,377 |
| |
| Total Capitalization | 29,373 |
| | 27,545 |
| |
| TOTAL LIABILITIES AND CAPITALIZATION | $ | 46,815 |
| | $ | 45,326 |
| |
| |
|
| | | |
| | | | | | | | | | | | | | | | | |
| | | | | |
| | September 30, 2020 | | December 31, 2019 | |
| LIABILITIES AND CAPITALIZATION | |
| CURRENT LIABILITIES | | | | |
| Long-Term Debt Due Within One Year | $ | 2,093 | | | $ | 1,365 | | |
| Commercial Paper and Loans | 300 | | | 1,115 | | |
| Accounts Payable | 1,332 | | | 1,358 | | |
| Derivative Contracts | 8 | | | 36 | | |
| Accrued Interest | 171 | | | 116 | | |
| Accrued Taxes | 238 | | | 41 | | |
| Clean Energy Program | 187 | | | 143 | | |
| Obligation to Return Cash Collateral | 103 | | | 119 | | |
| Regulatory Liabilities | 306 | | | 234 | | |
| | | | | |
| Other | 522 | | | 520 | | |
| Total Current Liabilities | 5,260 | | | 5,047 | | |
| NONCURRENT LIABILITIES | | | | |
| Deferred Income Taxes and Investment Tax Credits (ITC) | 6,334 | | | 6,256 | | |
| Regulatory Liabilities | 2,773 | | | 3,002 | | |
| Operating Leases | 260 | | | 273 | | |
| Asset Retirement Obligations | 1,198 | | | 1,087 | | |
| OPEB Costs | 737 | | | 734 | | |
| OPEB Costs of Servco | 649 | | | 626 | | |
| Accrued Pension Costs | 862 | | | 952 | | |
| Accrued Pension Costs of Servco | 159 | | | 171 | | |
| Environmental Costs | 316 | | | 349 | | |
| Derivative Contracts | 1 | | | 1 | | |
| Long-Term Accrued Taxes | 110 | | | 182 | | |
| Other | 289 | | | 218 | | |
| Total Noncurrent Liabilities | 13,688 | | | 13,851 | | |
| COMMITMENTS AND CONTINGENT LIABILITIES (See Note 11) | | | | |
| CAPITALIZATION | | | | |
| LONG-TERM DEBT | 14,792 | | | 13,743 | | |
| STOCKHOLDERS’ EQUITY | | | | |
| Common Stock, no par, authorized 1,000 shares; issued, 2020 and 2019—534 shares | 5,016 | | | 5,003 | | |
| Treasury Stock, at cost, 2020 and 2019—30 shares | (863) | | | (831) | | |
| Retained Earnings | 12,135 | | | 11,406 | | |
| Accumulated Other Comprehensive Loss | (452) | | | (489) | | |
| Total Stockholders’ Equity | 15,836 | | | 15,089 | | |
| Total Capitalization | 30,628 | | | 28,832 | | |
| TOTAL LIABILITIES AND CAPITALIZATION | $ | 49,576 | | | $ | 47,730 | | |
| | | | | |
See Notes to Condensed Consolidated Financial Statements.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Millions
(Unaudited)
|
| | | | | | | | | |
| | | | | |
| | Nine Months Ended | |
| | September 30, | |
| | 2019 | | 2018 | |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | |
| Net Income | $ | 1,256 |
| | $ | 1,239 |
| |
| Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities: | | | | |
| Depreciation and Amortization | 928 |
| | 854 |
| |
| Amortization of Nuclear Fuel | 137 |
| | 143 |
| |
| Loss on Asset Dispositions
| 402 |
| | — |
| |
| Emission Allowances and Renewable Energy Credit (REC) Compliance Accrual
| 80 |
| | 74 |
| |
| Provision for Deferred Income Taxes (Other than Leases) and ITC | 139 |
| | 510 |
| |
| Non-Cash Employee Benefit Plan (Credits) Costs | (26 | ) | | 52 |
| |
| Leveraged Lease (Income) Loss, Adjusted for Rents Received and Deferred Taxes | (8 | ) | | (27 | ) | |
| Net (Gain) Loss on Lease Investments | 32 |
| | 14 |
| |
| Net Realized and Unrealized (Gains) Losses on Energy Contracts and Other Derivatives | (201 | ) | | 78 |
| |
| Cost of Removal | (87 | ) | | (121 | ) | |
| Net Change in Regulatory Assets and Liabilities | 54 |
| | (35 | ) | |
| Net (Gains) Losses and (Income) Expense from NDT Fund | (195 | ) | | (62 | ) | |
| Net Change in Certain Current Assets and Liabilities: | | | | |
| Tax Receivable | 77 |
| | (98 | ) | |
| Accrued Taxes | (11 | ) | | (12 | ) | |
| Margin Deposit | 301 |
| | (77 | ) | |
| Other Current Assets and Liabilities | (155 | ) | | 12 |
| |
| Employee Benefit Plan Funding and Related Payments | (33 | ) | | (85 | ) | |
| Other | 19 |
| | 33 |
| |
| Net Cash Provided By (Used In) Operating Activities | 2,709 |
| | 2,492 |
| |
| CASH FLOWS FROM INVESTING ACTIVITIES |
|
| | | |
| Additions to Property, Plant and Equipment | (2,383 | ) | | (3,028 | ) | |
| Purchase of Emission Allowances and RECs | (73 | ) | | (111 | ) | |
| Proceeds from Sales of Trust Investments | 1,374 |
| | 1,085 |
| |
| Purchases of Trust Investments | (1,402 | ) | | (1,100 | ) | |
| Other | 125 |
| | 41 |
| |
| Net Cash Provided By (Used In) Investing Activities | (2,359 | ) | | (3,113 | ) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | |
| Net Change in Commercial Paper and Loans | (670 | ) | | (123 | ) | |
| Issuance of Long-Term Debt | 1,900 |
| | 2,050 |
| |
| Redemption of Long-Term Debt | (850 | ) | | (750 | ) | |
| Cash Dividends Paid on Common Stock | (713 | ) | | (682 | ) | |
| Other | (60 | ) | | (83 | ) | |
| Net Cash Provided By (Used In) Financing Activities | (393 | ) | | 412 |
| |
| Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | (43 | ) | | (209 | ) | |
| Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 199 |
| | 315 |
| |
| Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 156 |
| | $ | 106 |
| |
| Supplemental Disclosure of Cash Flow Information: | | | | |
| Income Taxes Paid (Received) | $ | 31 |
| | $ | 64 |
| |
| Interest Paid, Net of Amounts Capitalized | $ | 345 |
| | $ | 292 |
| |
| Accrued Property, Plant and Equipment Expenditures | $ | 514 |
| | $ | 543 |
| |
| | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | |
| | Nine Months Ended | |
| | September 30, | |
| | 2020 | | 2019 | |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | |
| Net Income | $ | 1,474 | | | $ | 1,256 | | |
| Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities: | | | | |
| Depreciation and Amortization | 956 | | | 928 | | |
| Amortization of Nuclear Fuel | 144 | | | 137 | | |
| (Gain) Loss on Asset Dispositions
| (122) | | | 402 | | |
| Emission Allowances and Renewable Energy Credit (REC) Compliance Accrual
| 115 | | | 80 | | |
| Provision for Deferred Income Taxes (Other than Leases) and ITC | 40 | | | 139 | | |
| Non-Cash Employee Benefit Plan (Credits) Costs | (79) | | | (26) | | |
| Leveraged Lease (Income), (Gains) and Losses, Adjusted for Rents Received and Deferred Taxes | (155) | | | 24 | | |
| Net Realized and Unrealized (Gains) Losses on Energy Contracts and Other Derivatives | 81 | | | (201) | | |
| Cost of Removal | (77) | | | (87) | | |
| Net Change in Regulatory Assets and Liabilities | 4 | | | 54 | | |
| Net (Gains) Losses and (Income) Expense from NDT Fund | (107) | | | (195) | | |
| Net Change in Certain Current Assets and Liabilities: | | | | |
| Tax Receivable | 68 | | | 77 | | |
| Accrued Taxes | 228 | | | (11) | | |
| Cash Collateral | (12) | | | 301 | | |
| Other Current Assets and Liabilities | 19 | | | (155) | | |
| Employee Benefit Plan Funding and Related Payments | (12) | | | (33) | | |
| Other | (48) | | | 19 | | |
| Net Cash Provided By (Used In) Operating Activities | 2,517 | | | 2,709 | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | |
| Additions to Property, Plant and Equipment | (2,092) | | | (2,383) | | |
| Purchase of Emission Allowances and RECs | (94) | | | (73) | | |
| Proceeds from Sales of Trust Investments | 1,796 | | | 1,374 | | |
| Purchases of Trust Investments | (1,817) | | | (1,402) | | |
| Proceeds from Sales of Long-Lived Assets and Lease Investments | 300 | | | 70 | | |
| Other | 52 | | | 55 | | |
| Net Cash Provided By (Used In) Investing Activities | (1,855) | | | (2,359) | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | |
| Net Change in Commercial Paper | (1,115) | | | (670) | | |
| Proceeds from Short-Term Loans | 800 | | | 0 | | |
| Payment of Short-Term Loans | (500) | | | 0 | | |
| Issuance of Long-Term Debt | 2,450 | | | 1,900 | | |
| Redemption of Long-Term Debt | (656) | | | (850) | | |
| Cash Dividends Paid on Common Stock | (743) | | | (713) | | |
| Other | (75) | | | (60) | | |
| Net Cash Provided By (Used In) Financing Activities | 161 | | | (393) | | |
| Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | 823 | | | (43) | | |
| Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 176 | | | 199 | | |
| Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 999 | | | $ | 156 | | |
| Supplemental Disclosure of Cash Flow Information: | | | | |
| Income Taxes Paid (Received) | $ | 176 | | | $ | 31 | | |
| Interest Paid, Net of Amounts Capitalized | $ | 384 | | | $ | 345 | | |
| Accrued Property, Plant and Equipment Expenditures | $ | 449 | | | $ | 514 | | |
| | | | | |
See Notes to Condensed Consolidated Financial Statements.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Millions
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | Common Stock | | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | |
| | | Shs. | | Amount | | Shs. | | Amount | | Total | |
| Balance as of June 30, 2020 | | 534 | | | $ | 5,003 | | | (30) | | | $ | (865) | | | $ | 11,808 | | | $ | (455) | | | $ | 15,491 | | |
| Net Income | | — | | | — | | | — | | | — | | | 575 | | | — | | | 575 | | |
| Other Comprehensive Income (Loss), net of tax (expense) benefit of $1 | | — | | | — | | | — | | | — | | | — | | | 3 | | | 3 | | |
| Comprehensive Income | | | | | | | | | | | | | | 578 | | |
| | | | | | | | | | | | | | | | |
| Cash Dividends at $0.49 per share on Common Stock | | — | | | — | | | — | | | — | | | (248) | | | 0 | | | (248) | | |
| Other | | 0 | | | 13 | | | 0 | | | 2 | | | 0 | | | 0 | | | 15 | | |
| Balance as of September 30, 2020 | | 534 | | | $ | 5,016 | | | (30) | | | $ | (863) | | | $ | 12,135 | | | $ | (452) | | | $ | 15,836 | | |
| | | | | | | | | | | | | | | | |
| Balance as of June 30, 2019 | | 534 | | | $ | 4,980 | | | (30) | | | $ | (835) | | | $ | 11,041 | | | $ | (432) | | | $ | 14,754 | | |
| Net Income | | — | | | — | | | — | | | — | | | 403 | | | — | | | 403 | | |
| Other Comprehensive Income (Loss), net of tax (expense) benefit of $2 | | — | | | — | | | — | | | — | | | — | | | (6) | | | (6) | | |
| Comprehensive Income | | | | | | | | | | | | | | 397 | | |
| Cash Dividends at $0.47 per share on Common Stock | | — | | | — | | | — | | | — | | | (238) | | | 0 | | | (238) | | |
| Other | | 0 | | | 9 | | | 0 | | | 3 | | | 0 | | | 0 | | | 12 | | |
| Balance as of September 30, 2019 | | 534 | | | $ | 4,989 | | | (30) | | | $ | (832) | | | $ | 11,206 | | | $ | (438) | | | $ | 14,925 | | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
|
| | Common Stock | | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | |
| | | Shs. | | Amount | | Shs. | | Amount | | Total | |
| Balance as of June 30, 2019 | | 534 |
| | $ | 4,980 |
| | (30 | ) | | $ | (835 | ) | | $ | 11,041 |
| | $ | (432 | ) | | $ | 14,754 |
| |
| Net Income | | — |
| | — |
| | — |
| | — |
| | 403 |
| | — |
| | 403 |
| |
| Other Comprehensive Income (Loss), net of tax (expense) benefit of $2 | | — |
| | — |
| | — |
| | — |
| | — |
| | (6 | ) | | (6 | ) | |
| Comprehensive Income | | | | | | | | | | | | | | 397 |
| |
| Cash Dividends at $0.47 per share on Common Stock | | — |
| | — |
| | — |
| | — |
| | (238 | ) | | — |
| | (238 | ) | |
| Other | | — |
| | 9 |
| | — |
| | 3 |
| | — |
| | — |
| | 12 |
| |
| Balance as of September 30, 2019 | | 534 |
| | $ | 4,989 |
| | (30 | ) | | $ | (832 | ) | | $ | 11,206 |
| | $ | (438 | ) | | $ | 14,925 |
| |
| | | | | | | | | | | | | | | | |
| Balance as of June 30, 2018 | | 534 |
| | $ | 4,955 |
| | (30 | ) | | $ | (813 | ) | | $ | 10,426 |
| | $ | (410 | ) | | $ | 14,158 |
| |
| Net Income | | — |
| | — |
| | — |
| | — |
| | 412 |
| | — |
| | 412 |
| |
| Other Comprehensive Income (Loss), net of tax (expense) benefit of $(1) | | — |
| | — |
| | — |
| | — |
| | — |
| | 3 |
| | 3 |
| |
| Comprehensive Income | | | | | | | | | | | | | | 415 |
| |
| Cash Dividends at $0.45 per share on Common Stock | | — |
| | — |
| | — |
| | — |
| | (227 | ) | | — |
| | (227 | ) | |
| Other | | — |
| | 11 |
| | — |
| | 2 |
| | — |
| | — |
| | 13 |
| |
| Balance as of September 30, 2018 | | 534 |
| | $ | 4,966 |
| | (30 | ) | | $ | (811 | ) | | $ | 10,611 |
| | $ | (407 | ) | | $ | 14,359 |
| |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | Common Stock | | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | |
| | | Shs. | | Amount | | Shs. | | Amount | | Total | |
| Balance as of December 31, 2018 | | 534 |
| | $ | 4,980 |
| | (30 | ) | | $ | (808 | ) | | $ | 10,582 |
| | $ | (377 | ) | | $ | 14,377 |
| |
| Net Income | | — |
| | — |
| | — |
| | — |
| | 1,256 |
| | — |
| | 1,256 |
| |
| Cumulative Effect Adjustment to Reclassify Stranded Tax Effects Resulting from the Change in the Federal Corporate Income Tax Rate | | — |
| | — |
| | — |
| | — |
| | 81 |
| | (81 | ) | | — |
| |
| Other Comprehensive Income (Loss), net of tax (expense) benefit of $(23) | | — |
| | — |
| | — |
| | — |
| | — |
| | 20 |
| | 20 |
| |
| Comprehensive Income | | | | | | | | | | | | | | 1,276 |
| |
| Cash Dividends at $1.41 per share on Common Stock | | — |
| | — |
| | — |
| | — |
| | (713 | ) | | — |
| | (713 | ) | |
| Other | | — |
| | 9 |
| | — |
| | (24 | ) | | — |
| | — |
| | (15 | ) | |
| Balance as of September 30, 2019 | | 534 |
| | $ | 4,989 |
| | (30 | ) | | $ | (832 | ) | | $ | 11,206 |
| | $ | (438 | ) | | $ | 14,925 |
| |
| | | | | | | | | | | | | | | | |
| Balance as of December 31, 2017 | | 534 |
| | $ | 4,961 |
| | (29 | ) | | $ | (763 | ) | | $ | 9,878 |
| | $ | (229 | ) | | $ | 13,847 |
| |
| Net Income | | — |
| | — |
| | — |
| | — |
| | 1,239 |
| | — |
| | 1,239 |
| |
| Cumulative Effect Adjustment to Reclassify Unrealized Net Gains on Equity Investments | | — |
| | — |
| | — |
| | — |
| | 176 |
| | (176 | ) | | — |
| |
| Other Comprehensive Income (Loss), net of tax (expense) benefit of $7 | | — |
| | — |
| | — |
| | — |
| | — |
| | (2 | ) | | (2 | ) | |
| Comprehensive Income | | | | | | | | | | | | | | 1,237 |
| |
| Cash Dividends at $1.35 per share on Common Stock | | — |
| | — |
| | — |
| | — |
| | (682 | ) | | — |
| | (682 | ) | |
| Other | | — |
| | 5 |
| | (1 | ) | | (48 | ) | | — |
| | — |
| | (43 | ) | |
| Balance as of September 30, 2018 | | 534 |
| | $ | 4,966 |
| | (30 | ) | | $ | (811 | ) | | $ | 10,611 |
| | $ | (407 | ) | | $ | 14,359 |
| |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | Common Stock | | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | |
| | | Shs. | | Amount | | Shs. | | Amount | | Total | |
| Balance as of December 31, 2019 | | 534 | | | $ | 5,003 | | | (30) | | | $ | (831) | | | $ | 11,406 | | | $ | (489) | | | $ | 15,089 | | |
| Net Income | | — | | | — | | | — | | | — | | | 1,474 | | | — | | | 1,474 | | |
| Other Comprehensive Income (Loss), net of tax (expense) benefit of $(19) | | — | | | — | | | — | | | — | | | — | | | 37 | | | 37 | | |
| Comprehensive Income | | | | | | | | | | | | | | 1,511 | | |
| Cumulative Effect Adjustment for Current Expected Credit Losses (CECL) | | — | | | — | | | — | | | — | | | (2) | | | — | | | (2) | | |
| Cash Dividends at $1.47 per share on Common Stock | | — | | | — | | | — | | | — | | | (743) | | | 0 | | | (743) | | |
| Other | | 0 | | | 13 | | | 0 | | | (32) | | | 0 | | | 0 | | | (19) | | |
| Balance as of September 30, 2020 | | 534 | | | $ | 5,016 | | | (30) | | | $ | (863) | | | $ | 12,135 | | | $ | (452) | | | $ | 15,836 | | |
| | | | | | | | | | | | | | | | |
| Balance as of December 31, 2018 | | 534 | | | $ | 4,980 | | | (30) | | | $ | (808) | | | $ | 10,582 | | | $ | (377) | | | $ | 14,377 | | |
| Net Income | | — | | | — | | | — | | | — | | | 1,256 | | | — | | | 1,256 | | |
| Cumulative Effect Adjustment to Reclassify Stranded Tax Effects Resulting from the Change in the Federal Corporate Income Tax Rate | | — | | | — | | | — | | | — | | | 81 | | | (81) | | | — | | |
| Other Comprehensive Income (Loss), net of tax (expense) benefit of $(23) | | — | | | — | | | — | | | — | | | — | | | 20 | | | 20 | | |
| Comprehensive Income | | | | | | | | | | | | | | 1,276 | | |
| Cash Dividends at $1.41 per share on Common Stock | | — | | | — | | | — | | | — | | | (713) | | | 0 | | | (713) | | |
| Other | | 0 | | | 9 | | | 0 | | | (24) | | | 0 | | | 0 | | | (15) | | |
| Balance as of September 30, 2019 | | 534 | | | $ | 4,989 | | | (30) | | | $ | (832) | | | $ | 11,206 | | | $ | (438) | | | $ | 14,925 | | |
| | | | | | | | | | | | | | | | |
See Notes to Condensed Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Millions
(Unaudited)
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| OPERATING REVENUES | $ | 1,604 |
| | $ | 1,595 |
| | $ | 5,018 |
| | $ | 4,826 |
| |
| OPERATING EXPENSES | | | | | | | | |
| Energy Costs | 618 |
| | 593 |
| | 2,094 |
| | 1,863 |
| |
| Operation and Maintenance | 388 |
| | 389 |
| | 1,165 |
| | 1,133 |
| |
| Depreciation and Amortization | 206 |
| | 192 |
| | 620 |
| | 569 |
| |
| Total Operating Expenses | 1,212 |
| | 1,174 |
| | 3,879 |
| | 3,565 |
| |
| OPERATING INCOME | 392 |
| | 421 |
| | 1,139 |
| | 1,261 |
| |
| Net Gains (Losses) on Trust Investments | — |
| | — |
| | 1 |
| | — |
| |
| Other Income (Deductions) | 22 |
| | 21 |
| | 60 |
| | 61 |
| |
| Non-Operating Pension and OPEB Credits (Costs) | 46 |
| | 14 |
| | 105 |
| | 44 |
| |
| Interest Expense | (92 | ) | | (83 | ) | | (268 | ) | | (246 | ) | |
| INCOME BEFORE INCOME TAXES | 368 |
| | 373 |
| | 1,037 |
| | 1,120 |
| |
| Income Tax Benefit (Expense) | (24 | ) | | (95 | ) | | (63 | ) | | (292 | ) | |
| NET INCOME | $ | 344 |
| | $ | 278 |
| | $ | 974 |
| | $ | 828 |
| |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2020 | | 2019 | | 2020 | | 2019 | |
| OPERATING REVENUES | $ | 1,660 | | | $ | 1,604 | | | $ | 4,999 | | | $ | 5,018 | | |
| OPERATING EXPENSES | | | | | | | | |
| Energy Costs | 663 | | | 618 | | | 1,881 | | | 2,094 | | |
| Operation and Maintenance | 409 | | | 388 | | | 1,175 | | | 1,165 | | |
| Depreciation and Amortization | 218 | | | 206 | | | 657 | | | 620 | | |
| Total Operating Expenses | 1,290 | | | 1,212 | | | 3,713 | | | 3,879 | | |
| OPERATING INCOME | 370 | | | 392 | | | 1,286 | | | 1,139 | | |
| Net Gains (Losses) on Trust Investments | 1 | | | 0 | | | 2 | | | 1 | | |
| Other Income (Deductions) | 28 | | | 22 | | | 81 | | | 60 | | |
| Net Non-Operating Pension and OPEB Credits (Costs) | 51 | | | 46 | | | 154 | | | 105 | | |
| Interest Expense | (97) | | | (92) | | | (291) | | | (268) | | |
| INCOME BEFORE INCOME TAXES | 353 | | | 368 | | | 1,232 | | | 1,037 | | |
| Income Tax Benefit (Expense) | (40) | | | (24) | | | (196) | | | (63) | | |
| NET INCOME | $ | 313 | | | $ | 344 | | | $ | 1,036 | | | $ | 974 | | |
| | | | | | | | | |
See disclosures regarding Public Service Electric and Gas Company included in the Notes to Condensed Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Millions
(Unaudited)
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| NET INCOME | $ | 344 |
| | $ | 278 |
| | $ | 974 |
| | $ | 828 |
| |
| Unrealized Gains (Losses) on Available-for-Sale Securities, net of tax (expense) benefit of $0, $0, $(1) and $0 for the three and nine months ended 2019 and 2018, respectively | 1 |
| | (1 | ) | | 3 |
| | (1 | ) | |
| COMPREHENSIVE INCOME | $ | 345 |
| | $ | 277 |
| | $ | 977 |
| | $ | 827 |
| |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2020 | | 2019 | | 2020 | | 2019 | |
| NET INCOME | $ | 313 | | | $ | 344 | | | $ | 1,036 | | | $ | 974 | | |
| Unrealized Gains (Losses) on Available-for-Sale Securities, net of tax (expense) benefit of $0, $0, $(1) and $(1) for the three and nine months ended 2020 and 2019, respectively | 0 | | | 1 | | | 1 | | | 3 | | |
| COMPREHENSIVE INCOME | $ | 313 | | | $ | 345 | | | $ | 1,037 | | | $ | 977 | | |
| | | | | | | | | |
See disclosures regarding Public Service Electric and Gas Company included in the Notes to Condensed Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
Millions
(Unaudited)
|
| | | | | | | | | |
| | | | | |
| | September 30, 2019 | | December 31, 2018 | |
| ASSETS | |
| CURRENT ASSETS |
| | | |
| Cash and Cash Equivalents | $ | 25 |
| | $ | 39 |
| |
| Accounts Receivable, net of allowances of $61 in 2019 and $63 in 2018 | 852 |
| | 879 |
| |
| Tax Receivable | — |
| | 20 |
| |
| Accounts Receivable—Affiliated Companies | 12 |
| | 123 |
| |
| Unbilled Revenues | 161 |
| | 240 |
| |
| Materials and Supplies, net | 213 |
| | 196 |
| |
| Prepayments | 123 |
| | 10 |
| |
| Regulatory Assets | 352 |
| | 389 |
| |
| Other | 39 |
| | 11 |
| |
| Total Current Assets | 1,777 |
| | 1,907 |
| |
| PROPERTY, PLANT AND EQUIPMENT | 33,298 |
| | 31,633 |
| |
| Less: Accumulated Depreciation and Amortization | (6,532 | ) | | (6,277 | ) | |
| Net Property, Plant and Equipment | 26,766 |
| | 25,356 |
| |
| NONCURRENT ASSETS | | | | |
| Regulatory Assets | 3,593 |
| | 3,399 |
| |
| Operating Lease Right-of-Use Assets | 97 |
| | — |
| |
| Long-Term Investments | 251 |
| | 270 |
| |
| Rabbi Trust Fund | 48 |
| | 45 |
| |
| Other | 120 |
| | 132 |
| |
| Total Noncurrent Assets | 4,109 |
| | 3,846 |
| |
| TOTAL ASSETS | $ | 32,652 |
| | $ | 31,109 |
| |
| | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | |
| | September 30, 2020 | | December 31, 2019 | |
| ASSETS | |
| CURRENT ASSETS | | | | |
| Cash and Cash Equivalents | $ | 224 | | | $ | 21 | | |
| Accounts Receivable, net of allowance of $154 in 2020 and $60 in 2019 | 948 | | | 901 | | |
| | | | | |
| Accounts Receivable—Affiliated Companies | 0 | | | 1 | | |
| Unbilled Revenues, net of allowance of $4 in 2020 | 175 | | | 239 | | |
| Materials and Supplies, net | 213 | | | 213 | | |
| Prepayments | 92 | | | 35 | | |
| Regulatory Assets | 342 | | | 351 | | |
| | | | | |
| Other | 33 | | | 28 | | |
| Total Current Assets | 2,027 | | | 1,789 | | |
| PROPERTY, PLANT AND EQUIPMENT | 35,658 | | | 33,900 | | |
| Less: Accumulated Depreciation and Amortization | (7,030) | | | (6,623) | | |
| Net Property, Plant and Equipment | 28,628 | | | 27,277 | | |
| NONCURRENT ASSETS | | | | |
| Regulatory Assets | 3,669 | | | 3,677 | | |
| Operating Lease Right-of-Use Assets | 102 | | | 98 | | |
| Long-Term Investments | 225 | | | 248 | | |
| Rabbi Trust Fund | 51 | | | 48 | | |
| Other | 131 | | | 129 | | |
| Total Noncurrent Assets | 4,178 | | | 4,200 | | |
| TOTAL ASSETS | $ | 34,833 | | | $ | 33,266 | | |
| | | | | |
See disclosures regarding Public Service Electric and Gas Company included in the Notes to Condensed Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
Millions
(Unaudited)
|
| | | | | | | | | |
| | | | | |
| | September 30, 2019 | | December 31, 2018 | |
| LIABILITIES AND CAPITALIZATION | |
| CURRENT LIABILITIES | | | | |
| Long-Term Debt Due Within One Year | $ | 250 |
| | $ | 500 |
| |
| Commercial Paper and Loans | 10 |
| | 272 |
| |
| Accounts Payable | 633 |
| | 713 |
| |
| Accounts Payable—Affiliated Companies | 208 |
| | 321 |
| |
| Accrued Interest | 106 |
| | 84 |
| |
| Clean Energy Program | 187 |
| | 143 |
| |
| Obligation to Return Cash Collateral | 123 |
| | 136 |
| |
| Regulatory Liabilities | 346 |
| | 311 |
| |
| Other | 422 |
| | 345 |
| |
| Total Current Liabilities | 2,285 |
| | 2,825 |
| |
| NONCURRENT LIABILITIES | | | | |
| Deferred Income Taxes and ITC | 4,132 |
| | 3,830 |
| |
| Regulatory Liabilities | 2,972 |
| | 3,221 |
| |
| Operating Leases | 85 |
| | — |
| |
| Asset Retirement Obligations | 300 |
| | 302 |
| |
| OPEB Costs | 476 |
| | 486 |
| |
| Accrued Pension Costs | 420 |
| | 400 |
| |
| Environmental Costs | 299 |
| | 268 |
| |
| Long-Term Accrued Taxes | 103 |
| | 69 |
| |
| Other | 127 |
| | 124 |
| |
| Total Noncurrent Liabilities | 8,914 |
| | 8,700 |
| |
| COMMITMENTS AND CONTINGENT LIABILITIES (See Note 11) |
|
| |
|
| |
| CAPITALIZATION | | | | |
| LONG-TERM DEBT | 9,576 |
| | 8,684 |
| |
| STOCKHOLDER’S EQUITY | | | | |
| Common Stock; 150 shares authorized; issued and outstanding, 2019 and 2018—132 shares | 892 |
| | 892 |
| |
| Contributed Capital | 1,095 |
| | 1,095 |
| |
| Basis Adjustment | 986 |
| | 986 |
| |
| Retained Earnings | 8,902 |
| | 7,928 |
| |
| Accumulated Other Comprehensive Income (Loss) | 2 |
| | (1 | ) | |
| Total Stockholder’s Equity | 11,877 |
| | 10,900 |
| |
| Total Capitalization | 21,453 |
| | 19,584 |
| |
| TOTAL LIABILITIES AND CAPITALIZATION | $ | 32,652 |
| | $ | 31,109 |
| |
| | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | |
| | September 30, 2020 | | December 31, 2019 | |
| LIABILITIES AND CAPITALIZATION | |
| CURRENT LIABILITIES | | | | |
| Long-Term Debt Due Within One Year | $ | 443 | | | $ | 259 | | |
| Commercial Paper and Loans | 0 | | | 362 | | |
| Accounts Payable | 713 | | | 639 | | |
| Accounts Payable—Affiliated Companies | 272 | | | 390 | | |
| Accrued Interest | 115 | | | 91 | | |
| Clean Energy Program | 187 | | | 143 | | |
| | | | | |
| Obligation to Return Cash Collateral | 103 | | | 119 | | |
| Regulatory Liabilities | 306 | | | 234 | | |
| Other | 432 | | | 436 | | |
| Total Current Liabilities | 2,571 | | | 2,673 | | |
| NONCURRENT LIABILITIES | | | | |
| Deferred Income Taxes and ITC | 4,463 | | | 4,189 | | |
| Regulatory Liabilities | 2,773 | | | 3,002 | | |
| Operating Leases | 90 | | | 87 | | |
| Asset Retirement Obligations | 311 | | | 303 | | |
| OPEB Costs | 495 | | | 495 | | |
| Accrued Pension Costs | 441 | | | 501 | | |
| Environmental Costs | 266 | | | 294 | | |
| | | | | |
| Long-Term Accrued Taxes | 20 | | | 115 | | |
| Other | 168 | | | 136 | | |
| Total Noncurrent Liabilities | 9,027 | | | 9,122 | | |
| COMMITMENTS AND CONTINGENT LIABILITIES (See Note 11) | | | | |
| CAPITALIZATION | | | | |
| LONG-TERM DEBT | 10,472 | | | 9,568 | | |
| STOCKHOLDER’S EQUITY | | | | |
| Common Stock; 150 shares authorized; issued and outstanding, 2020 and 2019—132 shares | 892 | | | 892 | | |
| Contributed Capital | 1,095 | | | 1,095 | | |
| Basis Adjustment | 986 | | | 986 | | |
| Retained Earnings | 9,787 | | | 8,928 | | |
| Accumulated Other Comprehensive Income | 3 | | | 2 | | |
| Total Stockholder’s Equity | 12,763 | | | 11,903 | | |
| Total Capitalization | 23,235 | | | 21,471�� | | |
| TOTAL LIABILITIES AND CAPITALIZATION | $ | 34,833 | | | $ | 33,266 | | |
| | | | | |
See disclosures regarding Public Service Electric and Gas Company included in the Notes to Condensed Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Millions
(Unaudited)
|
| | | | | | | | | |
| | | | | |
| | Nine Months Ended | |
| | September 30, | |
| | 2019 | | 2018 | |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | |
| Net Income | $ | 974 |
| | $ | 828 |
| |
| Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities: | | | | |
| Depreciation and Amortization | 620 |
| | 569 |
| |
| Provision for Deferred Income Taxes and ITC | 10 |
| | 330 |
| |
| Non-Cash Employee Benefit Plan (Credits) Costs | (39 | ) | | 28 |
| |
| Cost of Removal | (87 | ) | | (121 | ) | |
| Net Change in Regulatory Assets and Liabilities | 54 |
| | (35 | ) | |
| Net Change in Certain Current Assets and Liabilities: |
| | | |
| Accounts Receivable and Unbilled Revenues | 105 |
| | 184 |
| |
| Materials and Supplies | (16 | ) | | (3 | ) | |
| Prepayments | (97 | ) | | (73 | ) | |
| Accounts Payable | (77 | ) | | (7 | ) | |
| Accounts Receivable/Payable—Affiliated Companies, net | 8 |
| | (232 | ) | |
| Other Current Assets and Liabilities | 66 |
| | 10 |
| |
| Employee Benefit Plan Funding and Related Payments | (19 | ) | | (73 | ) | |
| Other | (21 | ) | | (8 | ) | |
| Net Cash Provided By (Used In) Operating Activities | 1,481 |
| | 1,397 |
| |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | |
| Additions to Property, Plant and Equipment | (1,866 | ) | | (2,213 | ) | |
| Proceeds from Sales of Trust Investments | 27 |
| | 15 |
| |
| Purchases of Trust Investments | (25 | ) | | (17 | ) | |
| Solar Loan Investments | 2 |
| | (15 | ) | |
| Other | 7 |
| | 6 |
| |
| Net Cash Provided By (Used In) Investing Activities | (1,855 | ) | | (2,224 | ) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | |
| Net Change in Commercial Paper and Loans | (262 | ) | | 40 |
| |
| Issuance of Long-Term Debt | 1,150 |
| | 1,350 |
| |
| Redemption of Long-Term Debt | (500 | ) | | (750 | ) | |
| Other | (14 | ) | | (14 | ) | |
| Net Cash Provided By (Used In) Financing Activities | 374 |
| | 626 |
| |
| Net Increase (Decrease) In Cash, Cash Equivalents and Restricted Cash | — |
| | (201 | ) | |
| Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 61 |
| | 244 |
| |
| Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 61 |
| | $ | 43 |
| |
| Supplemental Disclosure of Cash Flow Information: | | | | |
| Income Taxes Paid (Received) | $ | (82 | ) | | $ | 60 |
| |
| Interest Paid, Net of Amounts Capitalized | $ | 240 |
| | $ | 223 |
| |
| Accrued Property, Plant and Equipment Expenditures | $ | 348 |
| | $ | 375 |
| |
| | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | |
| | Nine Months Ended | |
| | September 30, | |
| | 2020 | | 2019 | |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | |
| Net Income | $ | 1,036 | | | $ | 974 | | |
| Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities: | | | | |
| Depreciation and Amortization | 657 | | | 620 | | |
| Provision for Deferred Income Taxes and ITC | 58 | | | 10 | | |
| Non-Cash Employee Benefit Plan (Credits) Costs | (77) | | | (39) | | |
| Cost of Removal | (77) | | | (87) | | |
| Net Change in Regulatory Assets and Liabilities | 4 | | | 54 | | |
| Net Change in Certain Current Assets and Liabilities: | | | | |
| Accounts Receivable and Unbilled Revenues | 8 | | | 105 | | |
| Materials and Supplies | 0 | | | (16) | | |
| Prepayments | (57) | | | (97) | | |
| Accounts Payable | 46 | | | (77) | | |
| Accounts Receivable/Payable—Affiliated Companies, net | (88) | | | 8 | | |
| Other Current Assets and Liabilities | (9) | | | 66 | | |
| Employee Benefit Plan Funding and Related Payments | (1) | | | (19) | | |
| Other | (76) | | | (21) | | |
| Net Cash Provided By (Used In) Operating Activities | 1,424 | | | 1,481 | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | |
| Additions to Property, Plant and Equipment | (1,777) | | | (1,866) | | |
| Proceeds from Sales of Trust Investments | 32 | | | 27 | | |
| Purchases of Trust Investments | (32) | | | (25) | | |
| Solar Loan Investments | 5 | | | 2 | | |
| Other | 9 | | | 7 | | |
| Net Cash Provided By (Used In) Investing Activities | (1,763) | | | (1,855) | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | |
| Net Change in Commercial Paper and Loans | (362) | | | (262) | | |
| Issuance of Long-Term Debt | 1,350 | | | 1,150 | | |
| Redemption of Long-Term Debt | (250) | | | (500) | | |
| Cash Dividend Paid | (175) | | | 0 | | |
| Other | (17) | | | (14) | | |
| Net Cash Provided By (Used In) Financing Activities | 546 | | | 374 | | |
| Net Increase (Decrease) In Cash, Cash Equivalents and Restricted Cash | 207 | | | 0 | | |
| Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 50 | | | 61 | | |
| Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 257 | | | $ | 61 | | |
| Supplemental Disclosure of Cash Flow Information: | | | | |
| Income Taxes Paid (Received) | $ | 143 | | | $ | (82) | | |
| Interest Paid, Net of Amounts Capitalized | $ | 261 | | | $ | 240 | | |
| Accrued Property, Plant and Equipment Expenditures | $ | 366 | | | $ | 348 | | |
| | | | | |
See disclosures regarding Public Service Electric and Gas Company included in the Notes to Condensed Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY
Millions
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | Common Stock | | Contributed Capital | | Basis Adjustment | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | |
| | | | | | Total | |
| Balance as of June 30, 2020 | | $ | 892 | | | $ | 1,095 | | | $ | 986 | | | $ | 9,474 | | | $ | 3 | | | $ | 12,450 | | |
| Net Income | | — | | | — | | | — | | | 313 | | | — | | | 313 | | |
| Other Comprehensive Income (Loss), net of tax (expense) benefit of $0 | | — | | | — | | | — | | | — | | | 0 | | | 0 | | |
| Comprehensive Income | | | | | | | | | | | | 313 | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Balance as of September 30, 2020 | | $ | 892 | | | $ | 1,095 | | | $ | 986 | | | $ | 9,787 | | | $ | 3 | | | $ | 12,763 | | |
| | | | | | | | | | | | | | |
| Balance as of June 30, 2019 | | $ | 892 | | | $ | 1,095 | | | $ | 986 | | | $ | 8,558 | | | $ | 1 | | | $ | 11,532 | | |
| Net Income | | — | | | — | | | — | | | 344 | | | — | | | 344 | | |
| Other Comprehensive Income (Loss), net of tax (expense) benefit of $0 | | — | | | — | | | — | | | — | | | 1 | | | 1 | | |
| Comprehensive Income | | | | | | | | | | | | 345 | | |
| Balance as of September 30, 2019 | | $ | 892 | | | $ | 1,095 | | | $ | 986 | | | $ | 8,902 | | | $ | 2 | | | $ | 11,877 | | |
| | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | Common Stock | | Contributed Capital | | Basis Adjustment | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | |
| | | | | | Total | |
| Balance as of June 30, 2019 | | $ | 892 |
| | $ | 1,095 |
| | $ | 986 |
| | $ | 8,558 |
| | $ | 1 |
| | $ | 11,532 |
| |
| Net Income | | — |
| | — |
| | — |
| | 344 |
| | — |
| | 344 |
| |
| Other Comprehensive Income (Loss), net of tax (expense) benefit of $0 | | — |
| | — |
| | — |
| | — |
| | 1 |
| | 1 |
| |
| Comprehensive Income | | | | | | | | | | | | 345 |
| |
| Balance as of September 30, 2019 | | $ | 892 |
| | $ | 1,095 |
| | $ | 986 |
| | $ | 8,902 |
| | $ | 2 |
| | $ | 11,877 |
| |
| | | | | | | | | | | | | | |
| Balance as of June 30, 2018 | | $ | 892 |
| | $ | 1,095 |
| | $ | 986 |
| | $ | 7,411 |
| | $ | — |
| | $ | 10,384 |
| |
| Net Income | | — |
| | — |
| | — |
| | 278 |
| | — |
| | 278 |
| |
| Other Comprehensive Income (Loss), net of tax (expense) benefit of $0 | | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) | |
| Comprehensive Income | | | | | | | | | | | | 277 |
| |
| Balance as of September 30, 2018 | | $ | 892 |
| | $ | 1,095 |
| | $ | 986 |
| | $ | 7,689 |
| | $ | (1 | ) | | $ | 10,661 |
| |
| | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | Common Stock | | Contributed Capital | | Basis Adjustment | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | |
| | | | | | Total | |
| Balance as of December 31, 2018 | | $ | 892 |
| | $ | 1,095 |
| | $ | 986 |
| | $ | 7,928 |
| | $ | (1 | ) | | $ | 10,900 |
| |
| Net Income | | — |
| | — |
| | — |
| | 974 |
| | — |
| | 974 |
| |
| Other Comprehensive Income (Loss), net of tax (expense) benefit of $(1) | | — |
| | — |
| | — |
| | — |
| | 3 |
| | 3 |
| |
| Comprehensive Income | | | | | | | | | | | | 977 |
| |
| Balance as of September 30, 2019 | | $ | 892 |
| | $ | 1,095 |
| | $ | 986 |
| | $ | 8,902 |
| | $ | 2 |
| | $ | 11,877 |
| |
| | | | | | | | | | | | | | |
| Balance as of December 31, 2017 | | $ | 892 |
| | $ | 1,095 |
| | $ | 986 |
| | $ | 6,861 |
| | $ | — |
| | $ | 9,834 |
| |
| Net Income | | — |
| | — |
| | — |
| | 828 |
| | — |
| | 828 |
| |
| Other Comprehensive Income (Loss), net of tax (expense) benefit of $0 | | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) | |
| Comprehensive Income | | | | | | | | | | | | 827 |
| |
| Balance as of September 30, 2018 | | $ | 892 |
| | $ | 1,095 |
| | $ | 986 |
| | $ | 7,689 |
| | $ | (1 | ) | | $ | 10,661 |
| |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | Common Stock | | Contributed Capital | | Basis Adjustment | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | |
| | | | | | Total | |
| Balance as of December 31, 2019 | | $ | 892 | | | $ | 1,095 | | | $ | 986 | | | $ | 8,928 | | | $ | 2 | | | $ | 11,903 | | |
| Net Income | | — | | | — | | | — | | | 1,036 | | | — | | | 1,036 | | |
| Other Comprehensive Income (Loss), net of tax (expense) benefit of $(1) | | — | | | — | | | — | | | — | | | 1 | | | 1 | | |
| Comprehensive Income | | | | | | | | | | | | 1,037 | | |
| Cumulative Effect Adjustment for CECL | | — | | | — | | | — | | | (2) | | | — | | | (2) | | |
| Cash Dividend Paid | | — | | | — | | | — | | | (175) | | | — | | | (175) | | |
| Balance as of September 30, 2020 | | $ | 892 | | | $ | 1,095 | | | $ | 986 | | | $ | 9,787 | | | $ | 3 | | | $ | 12,763 | | |
| | | | | | | | | | | | | | |
| Balance as of December 31, 2018 | | $ | 892 | | | $ | 1,095 | | | $ | 986 | | | $ | 7,928 | | | $ | (1) | | | $ | 10,900 | | |
| Net Income | | — | | | — | | | — | | | 974 | | | — | | | 974 | | |
| Other Comprehensive Income (Loss), net of tax (expense) benefit of $(1) | | — | | | — | | | — | | | — | | | 3 | | | 3 | | |
| Comprehensive Income | | | | | | | | | | | | 977 | | |
| Balance as of September 30, 2019 | | $ | 892 | | | $ | 1,095 | | | $ | 986 | | | $ | 8,902 | | | $ | 2 | | | $ | 11,877 | | |
| | | | | | | | | | | | | | |
See disclosures regarding Public Service Electric and Gas Company included in the Notes to Condensed Consolidated Financial Statements.
PSEG POWER LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Millions
(Unaudited)
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | |
|
| Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| OPERATING REVENUES | $ | 771 |
| | $ | 868 |
| | $ | 3,270 |
| | $ | 3,038 |
| |
| OPERATING EXPENSES | | | | | | | | |
| Energy Costs | 359 |
| | 431 |
| | 1,556 |
| | 1,550 |
| |
| Operation and Maintenance | 233 |
| | 231 |
| | 736 |
| | 745 |
| |
| Depreciation and Amortization | 93 |
| | 94 |
| | 282 |
| | 260 |
| |
| Loss on Asset Dispositions | 7 |
| | — |
| | 402 |
| | — |
| |
| Total Operating Expenses | 692 |
| | 756 |
| | 2,976 |
| | 2,555 |
| |
| OPERATING INCOME | 79 |
| | 112 |
| | 294 |
| | 483 |
| |
| Income from Equity Method Investments | 3 |
| | 5 |
| | 10 |
| | 12 |
| |
| Net Gains (Losses) on Trust Investments | (4 | ) | | 44 |
| | 160 |
| | 30 |
| |
| Other Income (Deductions) | 15 |
| | 14 |
| | 43 |
| | 38 |
| |
| Non-Operating Pension and OPEB Credits (Costs) | 8 |
| | 4 |
| | 14 |
| | 11 |
| |
| Interest Expense | (34 | ) | | (29 | ) | | (85 | ) | | (47 | ) | |
| INCOME BEFORE INCOME TAXES | 67 |
| | 150 |
| | 436 |
| | 527 |
| |
| Income Tax Benefit (Expense) | (14 | ) | | (25 | ) | | (127 | ) | | (127 | ) | |
| NET INCOME | $ | 53 |
| | $ | 125 |
| | $ | 309 |
| | $ | 400 |
| |
| | | | | |
|
| | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2020 | | 2019 | | 2020 | | 2019 | |
| OPERATING REVENUES | $ | 746 | | | $ | 771 | | | $ | 2,649 | | | $ | 3,270 | | |
| OPERATING EXPENSES | | | | | | | | |
| Energy Costs | 290 | | | 359 | | | 1,289 | | | 1,556 | | |
| Operation and Maintenance | 213 | | | 233 | | | 679 | | | 736 | | |
| Depreciation and Amortization | 91 | | | 93 | | | 276 | | | 282 | | |
| (Gain) Loss on Asset Dispositions | (122) | | | 7 | | | (122) | | | 402 | | |
| Total Operating Expenses | 472 | | | 692 | | | 2,122 | | | 2,976 | | |
| OPERATING INCOME | 274 | | | 79 | | | 527 | | | 294 | | |
| Income from Equity Method Investments | 4 | | | 3 | | | 10 | | | 10 | | |
| Net Gains (Losses) on Trust Investments | 103 | | | (4) | | | 79 | | | 160 | | |
| Other Income (Deductions) | 11 | | | 15 | | | 0 | | | 43 | | |
| Net Non-Operating Pension and OPEB Credits (Costs) | 8 | | | 8 | | | 25 | | | 14 | | |
| Interest Expense | (28) | | | (34) | | | (92) | | | (85) | | |
| INCOME BEFORE INCOME TAXES | 372 | | | 67 | | | 549 | | | 436 | | |
| Income Tax Benefit (Expense) | (118) | | | (14) | | | (112) | | | (127) | | |
| NET INCOME | $ | 254 | | | $ | 53 | | | $ | 437 | | | $ | 309 | | |
| | | | | | | | | |
See disclosures regarding PSEG Power LLC included in the Notes to Condensed Consolidated Financial Statements.
PSEG POWER LLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Millions
(Unaudited)
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| NET INCOME | $ | 53 |
| | $ | 125 |
| | $ | 309 |
| | $ | 400 |
| |
| Other Comprehensive Income (Loss), net of tax | | | | | | | | |
| Unrealized Gains (Losses) on Available-for-Sale Securities, net of tax (expense) benefit of $(4), $2, $(26) and $13 for the three and nine months ended 2019 and 2018, respectively | 7 |
| | (4 | ) | | 38 |
| | (19 | ) | |
| Pension/OPEB adjustment, net of tax (expense) benefit of $5, $(3), $0 and $(8) for the three and nine months ended 2019 and 2018, respectively | (12 | ) | | 7 |
| | (9 | ) | | 19 |
| |
| Other Comprehensive Income (Loss), net of tax | (5 | ) | | 3 |
| | 29 |
| | — |
| |
| COMPREHENSIVE INCOME | $ | 48 |
| | $ | 128 |
| | $ | 338 |
| | $ | 400 |
| |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2020 | | 2019 | | 2020 | | 2019 | |
| NET INCOME | $ | 254 | | | $ | 53 | | | $ | 437 | | | $ | 309 | | |
| Other Comprehensive Income (Loss), net of tax | | | | | | | | |
| Unrealized Gains (Losses) on Available-for-Sale Securities, net of tax (expense) benefit of $2, $(4), $(14) and $(26) for the three and nine months ended 2020 and 2019, respectively | (2) | | | 7 | | | 20 | | | 38 | | |
| Pension/OPEB adjustment, net of tax (expense) benefit of $(1), $5, $(2) and $0 for the three and nine months ended 2020 and 2019, respectively | 2 | | | (12) | | | 7 | | | (9) | | |
| Other Comprehensive Income (Loss), net of tax | 0 | | | (5) | | | 27 | | | 29 | | |
| COMPREHENSIVE INCOME | $ | 254 | | | $ | 48 | | | $ | 464 | | | $ | 338 | | |
| | | | | | | | | |
See disclosures regarding PSEG Power LLC included in the Notes to Condensed Consolidated Financial Statements.
PSEG POWER LLC
CONDENSED CONSOLIDATED BALANCE SHEETS
Millions
(Unaudited)
|
| | | | | | | | | |
| | | | | |
| | September 30, 2019 | | December 31, 2018 | |
| ASSETS | |
| CURRENT ASSETS | | | | |
| Cash and Cash Equivalents | $ | 80 |
| | $ | 22 |
| |
| Accounts Receivable | 279 |
| | 477 |
| |
| Accounts Receivable—Affiliated Companies | 233 |
| | 274 |
| |
| Short-Term Loan to Affiliate | 86 |
| | — |
| |
| Fuel | 346 |
| | 331 |
| |
| Materials and Supplies, net | 364 |
| | 373 |
| |
| Prepayments | 19 |
| | 14 |
| |
| Derivative Contracts | 18 |
| | 11 |
| |
| Other | 6 |
| | 5 |
| |
| Total Current Assets | 1,431 |
| | 1,507 |
| |
| PROPERTY, PLANT AND EQUIPMENT | 11,853 |
| | 12,224 |
| |
| Less: Accumulated Depreciation and Amortization | (3,358 | ) | | (3,382 | ) | |
| Net Property, Plant and Equipment | 8,495 |
| | 8,842 |
| |
| NONCURRENT ASSETS | | | | |
| Operating Lease Right-of-Use Assets | 72 |
| | — |
| |
| Long-Term Investments | 67 |
| | 86 |
| |
| NDT Fund | 2,135 |
| | 1,878 |
| |
| Rabbi Trust Fund | 62 |
| | 56 |
| |
| Goodwill | 16 |
| | 16 |
| |
| Other Intangibles | 188 |
| | 143 |
| |
| Derivative Contracts | 27 |
| | 1 |
| |
| Other | 60 |
| | 65 |
| |
| Total Noncurrent Assets | 2,627 |
| | 2,245 |
| |
| TOTAL ASSETS | $ | 12,553 |
| | $ | 12,594 |
| |
| | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | |
| | September 30, 2020 | | December 31, 2019 | |
| ASSETS | |
| CURRENT ASSETS | | | | |
| Cash and Cash Equivalents | $ | 15 | | | $ | 21 | | |
| Accounts Receivable | 304 | | | 309 | | |
| Accounts Receivable—Affiliated Companies | 154 | | | 408 | | |
| Short-Term Loan to Affiliate | 333 | | | 149 | | |
| Fuel | 309 | | | 310 | | |
| Materials and Supplies, net | 392 | | | 372 | | |
| Prepayments | 22 | | | 11 | | |
| Derivative Contracts | 46 | | | 113 | | |
| Assets Held for Sale | 0 | | | 28 | | |
| Other | 2 | | | 5 | | |
| Total Current Assets | 1,577 | | | 1,726 | | |
| PROPERTY, PLANT AND EQUIPMENT | 11,949 | | | 11,699 | | |
| Less: Accumulated Depreciation and Amortization | (3,644) | | | (3,273) | | |
| Net Property, Plant and Equipment | 8,305 | | | 8,426 | | |
| NONCURRENT ASSETS | | | | |
| Operating Lease Right-of-Use Assets | 64 | | | 71 | | |
| Long-Term Investments | 66 | | | 66 | | |
| NDT Fund | 2,359 | | | 2,216 | | |
| Rabbi Trust Fund | 65 | | | 62 | | |
| Other Intangibles | 228 | | | 149 | | |
| Derivative Contracts | 17 | | | 24 | | |
| Other | 38 | | | 65 | | |
| Total Noncurrent Assets | 2,837 | | | 2,653 | | |
| TOTAL ASSETS | $ | 12,719 | | | $ | 12,805 | | |
| | | | | |
See disclosures regarding PSEG Power LLC included in the Notes to Condensed Consolidated Financial Statements.
PSEG POWER LLC
CONDENSED CONSOLIDATED BALANCE SHEETS
Millions
(Unaudited)
|
| | | | | | | | | |
| | | | | |
| | September 30, 2019 | | December 31, 2018 | |
| LIABILITIES AND MEMBER’S EQUITY | |
| CURRENT LIABILITIES | | | | |
| Long-Term Debt Due Within One Year | $ | 406 |
| | $ | 44 |
| |
| Accounts Payable | 448 |
| | 498 |
| |
| Accounts Payable—Affiliated Companies | 20 |
| | 16 |
| |
| Short-Term Loan from Affiliate | — |
| | 193 |
| |
| Derivative Contracts | 26 |
| | 11 |
| |
| Accrued Interest | 49 |
| | 21 |
| |
| Other | 77 |
| | 59 |
| |
| Total Current Liabilities | 1,026 |
| | 842 |
| |
| NONCURRENT LIABILITIES | | | | |
| Deferred Income Taxes and ITC | 1,803 |
| | 1,619 |
| |
| Operating Leases | 63 |
| | — |
| |
| Asset Retirement Obligations | 770 |
| | 758 |
| |
| OPEB Costs | 177 |
| | 176 |
| |
| Accrued Pension Costs | 252 |
| | 246 |
| |
| Derivative Contracts | 4 |
| | 4 |
| |
| Long-Term Accrued Taxes | 101 |
| | 76 |
| |
| Other | 151 |
| | 122 |
| |
| Total Noncurrent Liabilities | 3,321 |
| | 3,001 |
| |
| COMMITMENTS AND CONTINGENT LIABILITIES (See Note 11) |
|
| |
|
| |
| LONG-TERM DEBT | 2,433 |
| | 2,791 |
| |
| MEMBER’S EQUITY |
| | | |
| Contributed Capital | 2,214 |
| | 2,214 |
| |
| Basis Adjustment | (986 | ) | | (986 | ) | |
| Retained Earnings | 4,904 |
| | 5,051 |
| |
| Accumulated Other Comprehensive Loss | (359 | ) | | (319 | ) | |
| Total Member’s Equity | 5,773 |
| | 5,960 |
| |
| TOTAL LIABILITIES AND MEMBER’S EQUITY | $ | 12,553 |
| | $ | 12,594 |
| |
| | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | |
| | September 30, 2020 | | December 31, 2019 | |
| LIABILITIES AND MEMBER’S EQUITY | |
| CURRENT LIABILITIES | | | | |
| Long-Term Debt Due Within One Year | $ | 950 | | | $ | 406 | | |
| Accounts Payable | 458 | | | 505 | | |
| Accounts Payable—Affiliated Companies | 22 | | | 5 | | |
| | | | | |
| Derivative Contracts | 6 | | | 31 | | |
| Accrued Interest | 39 | | | 21 | | |
| Other | 96 | | | 91 | | |
| Total Current Liabilities | 1,571 | | | 1,059 | | |
| NONCURRENT LIABILITIES | | | | |
| Deferred Income Taxes and ITC | 1,891 | | | 1,876 | | |
| Operating Leases | 54 | | | 62 | | |
| Asset Retirement Obligations | 885 | | | 781 | | |
| OPEB Costs | 194 | | | 192 | | |
| Accrued Pension Costs | 263 | | | 284 | | |
| Derivative Contracts | 1 | | | 1 | | |
| Long-Term Accrued Taxes | 58 | | | 115 | | |
| Other | 136 | | | 111 | | |
| Total Noncurrent Liabilities | 3,482 | | | 3,422 | | |
| COMMITMENTS AND CONTINGENT LIABILITIES (See Note 11) | | | | |
| LONG-TERM DEBT | 1,487 | | | 2,434 | | |
| MEMBER’S EQUITY | | | | |
| Contributed Capital | 2,214 | | | 2,214 | | |
| Basis Adjustment | (986) | | | (986) | | |
| Retained Earnings | 5,325 | | | 5,063 | | |
| Accumulated Other Comprehensive Loss | (374) | | | (401) | | |
| Total Member’s Equity | 6,179 | | | 5,890 | | |
| TOTAL LIABILITIES AND MEMBER’S EQUITY | $ | 12,719 | | | $ | 12,805 | | |
| | | | | |
See disclosures regarding PSEG Power LLC included in the Notes to Condensed Consolidated Financial Statements.
PSEG POWER LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Millions
(Unaudited)
|
| | | | | | | | | |
| | | | | |
| | Nine Months Ended | |
| | September 30, | |
| | 2019 | | 2018 | |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | |
| Net Income | $ | 309 |
| | $ | 400 |
| |
| Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities: | | | | |
| Depreciation and Amortization | 282 |
| | 260 |
| |
| Amortization of Nuclear Fuel | 137 |
| | 143 |
| |
| Loss on Asset Dispositions | 402 |
| | — |
| |
| Emission Allowances and REC Compliance Accrual | 80 |
| | 74 |
| |
| Provision for Deferred Income Taxes and ITC | 157 |
| | 177 |
| |
| Non-Cash Employee Benefit Plan (Credits) Costs | 7 |
| | 17 |
| |
| Interest Accretion on Asset Retirement Obligation | 30 |
| | 31 |
| |
| Net Realized and Unrealized (Gains) Losses on Energy Contracts and Other Derivatives | (201 | ) | | 78 |
| |
| Net (Gains) Losses and (Income) Expense from NDT Fund | (195 | ) | | (62 | ) | |
| Net Change in Certain Current Assets and Liabilities: | | | | |
| Fuel, Materials and Supplies | (29 | ) | | (50 | ) | |
| Margin Deposit | 301 |
| | (77 | ) |
|
| Accounts Receivable | 48 |
| | 42 |
| |
| Accounts Payable | (62 | ) | | (22 | ) | |
| Accounts Receivable/Payable—Affiliated Companies, net | 80 |
| | 65 |
| |
| Other Current Assets and Liabilities | 20 |
| | (11 | ) | |
| Employee Benefit Plan Funding and Related Payments | (9 | ) | | (7 | ) | |
| Other | 5 |
| | (53 | ) | |
| Net Cash Provided By (Used In) Operating Activities | 1,362 |
| | 1,005 |
| |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | |
| Additions to Property, Plant and Equipment | (507 | ) | | (800 | ) | |
| Purchase of Emission Allowances and RECs | (73 | ) | | (111 | ) | |
| Proceeds from Sales of Trust Investments | 1,277 |
| | 1,024 |
| |
| Purchases of Trust Investments | (1,306 | ) | | (1,037 | ) | |
| Short-Term Loan to Affiliate | (86 | ) | | (119 | ) | |
| Other | 110 |
| | 33 |
| |
| Net Cash Provided By (Used In) Investing Activities | (585 | ) | | (1,010 | ) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | |
| Issuance of Long-Term Debt | — |
| | 700 |
| |
| Cash Dividend Paid | (525 | ) | | (400 | ) | |
| Short-Term Loan from Affiliate | (193 | ) | | (281 | ) | |
| Other | (1 | ) | | (5 | ) | |
| Net Cash Provided By (Used In) Financing Activities | (719 | ) | | 14 |
| |
| Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | 58 |
| | 9 |
| |
| Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 22 |
| | 32 |
| |
| Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 80 |
| | $ | 41 |
| |
| Supplemental Disclosure of Cash Flow Information: | | | | |
| Income Taxes Paid (Received) | $ | (37 | ) | | $ | 31 |
| |
| Interest Paid, Net of Amounts Capitalized | $ | 60 |
| | $ | 32 |
| |
| Accrued Property, Plant and Equipment Expenditures | $ | 166 |
| | $ | 168 |
| |
| | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | |
| | Nine Months Ended | |
| | September 30, | |
| | 2020 | | 2019 | |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | |
| Net Income | $ | 437 | | | $ | 309 | | |
| Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities: | | | | |
| Depreciation and Amortization | 276 | | | 282 | | |
| Amortization of Nuclear Fuel | 144 | | | 137 | | |
| (Gain) Loss on Asset Dispositions | (122) | | | 402 | | |
| Emission Allowances and REC Compliance Accrual | 115 | | | 80 | | |
| Provision for Deferred Income Taxes and ITC | (1) | | | 157 | | |
| Non-Cash Employee Benefit Plan (Credits) Costs | (4) | | | 7 | | |
| Interest Accretion on Asset Retirement Obligation | 31 | | | 30 | | |
| Net Realized and Unrealized (Gains) Losses on Energy Contracts and Other Derivatives | 81 | | | (201) | | |
| | | | | |
| Net (Gains) Losses and (Income) Expense from NDT Fund | (107) | | | (195) | | |
| Net Change in Certain Current Assets and Liabilities: | | | | |
| Fuel, Materials and Supplies | (30) | | | (29) | | |
| Cash Collateral | (12) | | | 301 | | |
| Accounts Receivable | 43 | | | 48 | | |
| Accounts Payable | (51) | | | (62) | | |
| Accounts Receivable/Payable—Affiliated Companies, net | 242 | | | 80 | | |
| Other Current Assets and Liabilities | 9 | | | 20 | | |
| Employee Benefit Plan Funding and Related Payments | (6) | | | (9) | | |
| Other | (45) | | | 5 | | |
| Net Cash Provided By (Used In) Operating Activities | 1,000 | | | 1,362 | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | |
| Additions to Property, Plant and Equipment | (307) | | | (507) | | |
| Purchase of Emission Allowances and RECs | (94) | | | (73) | | |
| Proceeds from Sales of Trust Investments | 1,673 | | | 1,277 | | |
| Purchases of Trust Investments | (1,695) | | | (1,306) | | |
| Proceeds from Sales of Long-Lived Assets | 151 | | | 70 | | |
| Short-Term Loan to Affiliate | (184) | | | (86) | | |
| Other | 32 | | | 40 | | |
| Net Cash Provided By (Used In) Investing Activities | (424) | | | (585) | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | |
| | | | | |
| Cash Dividend Paid | (175) | | | (525) | | |
| Redemption of Long-Term Debt | (406) | | | 0 | |
| Short-Term Loan from Affiliate | 0 | | | (193) | | |
| Other | (1) | | | (1) | | |
| Net Cash Provided By (Used In) Financing Activities | (582) | | | (719) | | |
| Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | (6) | | | 58 | | |
| Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 21 | | | 22 | | |
| Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 15 | | | $ | 80 | | |
| Supplemental Disclosure of Cash Flow Information: | | | | |
| Income Taxes Paid (Received) | $ | 83 | | | $ | (37) | | |
| Interest Paid, Net of Amounts Capitalized | $ | 71 | | | $ | 60 | | |
| Accrued Property, Plant and Equipment Expenditures | $ | 83 | | | $ | 166 | | |
| | | | | |
See disclosures regarding PSEG Power LLC included in the Notes to the Condensed Consolidated Financial Statements.
PSEG POWER LLC
CONDENSED CONSOLIDATED STATEMENTS OF MEMBER’S EQUITY
Millions
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | Contributed Capital | | Basis Adjustment | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | |
| | | | | Total | |
| Balance as of June 30, 2019 | | $ | 2,214 |
| | $ | (986 | ) | | $ | 5,126 |
| | $ | (354 | ) | | $ | 6,000 |
| |
| Net Income | | — |
| | — |
| | 53 |
| | — |
| | 53 |
| |
| Other Comprehensive Income (Loss), net of tax (expense) benefit of $1 | | — |
| | — |
| | — |
| | (5 | ) | | (5 | ) | |
| Comprehensive Income | | | | | | | | | | 48 |
| |
| Cash Dividends Paid | | — |
| | — |
| | (275 | ) | | — |
| | (275 | ) | |
| Balance as of September 30, 2019 | | $ | 2,214 |
| | $ | (986 | ) | | $ | 4,904 |
| | $ | (359 | ) | | $ | 5,773 |
| |
| | | | | | | | | | | | |
| Balance as of June 30, 2018 | | $ | 2,214 |
| | $ | (986 | ) | | $ | 5,161 |
| | $ | (350 | ) | | $ | 6,039 |
| |
| Net Income | | — |
| | — |
| | 125 |
| | — |
| | 125 |
| |
| Other Comprehensive Income (Loss), net of tax (expense) benefit of $(1) | | — |
| | — |
| | — |
| | 3 |
| | 3 |
| |
| Comprehensive Income | | | | | | | | | | 128 |
| |
| Cash Dividends Paid | | — |
| | — |
| | (200 | ) | | — |
| | (200 | ) | |
| Balance as of September 30, 2018 | | $ | 2,214 |
| | $ | (986 | ) | | $ | 5,086 |
| | $ | (347 | ) | | $ | 5,967 |
| |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | Contributed Capital | | Basis Adjustment | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | |
| | | | | Total | |
| Balance as of June 30, 2020 | | $ | 2,214 | | | $ | (986) | | | $ | 5,246 | | | $ | (374) | | | $ | 6,100 | | |
| Net Income | | — | | | — | | | 254 | | | — | | | 254 | | |
| Other Comprehensive Income (Loss), net of tax (expense) benefit of $1 | | — | | | — | | | — | | | 0 | | | 0 | | |
| Comprehensive Income | | | | | | | | | | 254 | | |
| Cash Dividends Paid | | — | | | — | | | (175) | | | — | | | (175) | | |
| Balance as of September 30, 2020 | | $ | 2,214 | | | $ | (986) | | | $ | 5,325 | | | $ | (374) | | | $ | 6,179 | | |
| | | | | | | | | | | | |
| Balance as of June 30, 2019 | | $ | 2,214 | | | $ | (986) | | | $ | 5,126 | | | $ | (354) | | | $ | 6,000 | | |
| Net Income | | — | | | — | | | 53 | | | — | | | 53 | | |
| Other Comprehensive Income (Loss), net of tax (expense) benefit of $1 | | — | | | — | | | — | | | (5) | | | (5) | | |
| Comprehensive Income | | | | | | | | | | 48 | | |
| Cash Dividends Paid | | — | | | — | | | (275) | | | — | | | (275) | | |
| Balance as of September 30, 2019 | | $ | 2,214 | | | $ | (986) | | | $ | 4,904 | | | $ | (359) | | | $ | 5,773 | | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | Contributed Capital | | Basis Adjustment | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | |
| | | | | Total | |
| Balance as of December 31, 2018 | | $ | 2,214 |
| | $ | (986 | ) | | $ | 5,051 |
| | $ | (319 | ) | | $ | 5,960 |
| |
| Net Income | | — |
| | — |
| | 309 |
| | — |
| | 309 |
| |
| Cumulative Effect Adjustment to Reclassify Stranded Tax Effects Resulting from the Change in the Federal Corporate Income Tax Rate | | — |
| | — |
| | 69 |
| | (69 | ) | | — |
| |
| Other Comprehensive Income (Loss), net of tax (expense) benefit of $(26) | | — |
| | — |
| | — |
| | 29 |
| | 29 |
| |
| Comprehensive Income | | | | | | | | | | 338 |
| |
| Cash Dividends Paid | | — |
| | — |
| | (525 | ) | | — |
| | (525 | ) | |
| Balance as of September 30, 2019 | | $ | 2,214 |
| | $ | (986 | ) | | $ | 4,904 |
| | $ | (359 | ) | | $ | 5,773 |
| |
| | | | | | | | | | | | |
| Balance as of December 31, 2017 | | $ | 2,214 |
| | $ | (986 | ) | | $ | 4,911 |
| | $ | (172 | ) | | $ | 5,967 |
| |
| Net Income | | — |
| | — |
| | 400 |
| | — |
| | 400 |
| |
| Cumulative Effect Adjustment to Reclassify Unrealized Net Gains on Equity Investments | | — |
| | — |
| | 175 |
| | (175 | ) | | — |
| |
| Other Comprehensive Income (Loss), net of tax (expense) benefit of $5 | | — |
| | — |
| | — |
| | — |
| | — |
| |
| Comprehensive Income | | | | | | | | | | 400 |
| |
| Cash Dividends Paid | | — |
| | — |
| | (400 | ) | | — |
| | (400 | ) | |
| Balance as of September 30, 2018 | | $ | 2,214 |
| | $ | (986 | ) | | $ | 5,086 |
| | $ | (347 | ) | | $ | 5,967 |
| |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | Contributed Capital | | Basis Adjustment | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | |
| | | | | Total | |
| Balance as of December 31, 2019 | | $ | 2,214 | | | $ | (986) | | | $ | 5,063 | | | $ | (401) | | | $ | 5,890 | | |
| Net Income | | — | | | — | | | 437 | | | — | | | 437 | | |
| Other Comprehensive Income (Loss), net of tax (expense) benefit of $(16) | | — | | | — | | | — | | | 27 | | | 27 | | |
| Comprehensive Income | | | | | | | | | | 464 | | |
| Cash Dividends Paid | | — | | | — | | | (175) | | | — | | | (175) | | |
| Balance as of September 30, 2020 | | $ | 2,214 | | | $ | (986) | | | $ | 5,325 | | | $ | (374) | | | $ | 6,179 | | |
| | | | | | | | | | | | |
| Balance as of December 31, 2018 | | $ | 2,214 | | | $ | (986) | | | $ | 5,051 | | | $ | (319) | | | $ | 5,960 | | |
| Net Income | | — | | | — | | | 309 | | | — | | | 309 | | |
| Cumulative Effect Adjustment to Reclassify Stranded Tax Effects Resulting from the Change in the Federal Corporate Income Tax Rate | | — | | | — | | | 69 | | | (69) | | | 0 | | |
| Other Comprehensive Income (Loss), net of tax (expense) benefit of $(26) | | — | | | — | | | — | | | 29 | | | 29 | | |
| Comprehensive Income | | | | | | | | | | 338 | | |
| Cash Dividends Paid | | — | | | — | | | (525) | | | — | | | (525) | | |
| Balance as of September 30, 2019 | | $ | 2,214 | | | $ | (986) | | | $ | 4,904 | | | $ | (359) | | | $ | 5,773 | | |
| | | | | | | | | | | | |
See disclosures regarding PSEG Power LLC included in the Notes to the Condensed Consolidated Financial Statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Organization, Basis of Presentation and Significant Accounting Policies
Organization
Public Service Enterprise Group Incorporated (PSEG) is a holding company with a diversified business mix within the energy industry. Its operations are primarily in the Northeastern and Mid-Atlantic United States and in other select markets. PSEG’s principal direct wholly owned subsidiaries are:
| |
• | •Public Service Electric and Gas Company (PSE&G)—which is a public utility engaged principally in the transmission of electricity and distribution of electricity and natural gas in certain areas of New Jersey. PSE&G is subject to regulation by the New Jersey Board of Public Utilities (BPU) and the Federal Energy Regulatory Commission (FERC). PSE&G also invests in regulated solar generation projects and energy efficiency and related programs in New Jersey, which are regulated by the BPU. •—which is a public utility engaged principally in the transmission of electricity and distribution of electricity and natural gas in certain areas of New Jersey. PSE&G is subject to regulation by the New Jersey Board of Public Utilities (BPU) and the Federal Energy Regulatory Commission (FERC). PSE&G also invests in regulated solar generation projects and energy efficiency and related programs in New Jersey, which are regulated by the BPU. |
| |
• | PSEG Power LLC (PSEG Power)—which is a multi-regional energy supply company that integrates the operations of its merchant nuclear and fossil generating assets with its power marketing businesses and fuel supply functions through competitive energy sales in well-developed energy markets primarily in the Northeast and Mid-Atlantic United States through its principal direct wholly owned subsidiaries. In addition, PSEG Power owns and operates solar generation in various states. PSEG Power’s subsidiaries are subject to regulation by FERC, the Nuclear Regulatory Commission (NRC), the Environmental Protection Agency (EPA) and the states in which they operate. |
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 has investments in leveraged leases; 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 principlesguidance 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, 2018.2019.
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, 2018.2019.
Significant Accounting Policies
Cash, Cash Equivalents and Restricted Cash
Cash equivalents consist of short-term, highly liquid investments with original maturities of three months or less. Restricted cash consists primarily of deposits received related to various construction projects at PSE&G.
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, 2018)2019) and ending periods shown in the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019.2020. Restricted cash consists primarily of deposits received related to various construction projects at PSE&G.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | PSE&G | | PSEG Power | | Other (A) | | Consolidated | |
| | Millions | |
| As of December 31, 2019 | | | | | | | | |
| Cash and Cash Equivalents | $ | 21 | | | $ | 21 | | | $ | 105 | | | $ | 147 | | |
| Restricted Cash in Other Current Assets | 11 | | | 0 | | | 0 | | | 11 | | |
| Restricted Cash in Other Noncurrent Assets | 18 | | | 0 | | | 0 | | | 18 | | |
| Cash, Cash Equivalents and Restricted Cash | $ | 50 | | | $ | 21 | | | $ | 105 | | | $ | 176 | | |
| As of September 30, 2020 | | | | | | | | |
| Cash and Cash Equivalents | $ | 224 | | | $ | 15 | | | $ | 727 | | | $ | 966 | | |
| Restricted Cash in Other Current Assets | 11 | | | 0 | | | 0 | | | 11 | | |
| Restricted Cash in Other Noncurrent Assets | 22 | | | 0 | | | 0 | | | 22 | | |
| Cash, Cash Equivalents and Restricted Cash | $ | 257 | | | $ | 15 | | | $ | 727 | | | $ | 999 | | |
| | | | | | | | | |
(A)Includes amounts applicable to PSEG (parent company), Energy Holdings and Services.
Fuel Inventory
Fuel inventory at PSEG Power is valued at the lower of average cost or market and includes stored natural gas, coal, fuel oil and propane used to generate power and to satisfy obligations under PSEG Power’s gas supply contracts with PSE&G. The costs of fuel, including initial transportation costs, are included in inventory when purchased and charged to Energy Costs when used or sold.
In the first quarter of 2020, PSEG Power recorded a $20 million lower of cost or market (LOCOM) adjustment to its fuel oil inventory due to the significant decline in market pricing. In the second quarter of 2020, PSEG Power reversed $9 million of the LOCOM adjustment recorded in the first quarter of 2020 due to recovery in the market price of oil. No adjustment was recorded in the third quarter of 2020. PSEG Power may continue to reverse the LOCOM adjustment in the fourth quarter of 2020, limited to the adjustment recorded in the three months ended March 31, 2020, if oil market pricing has additional recovery within the 2020 calendar year. However, downward adjustments in future quarters may be required if the market price of oil declines.
Property, Plant and Equipment
PSEG Power capitalizes costs, including those related to its jointly-owned facilities that increase the capacity, improve or extend the life of an existing asset; represent a newly acquired or constructed asset; or represent the replacement of a retired asset. The cost of maintenance, repair and replacement of minor items of property is charged to appropriate expense accounts as incurred. Environmental costs are capitalized if the costs mitigate or prevent future environmental contamination or if the costs improve existing assets’ environmental safety or efficiency. All other environmental expenditures are expensed as incurred. PSEG Power also capitalizes spare parts that meet specific criteria. Capitalized spares are depreciated over the remaining lives of their associated assets.
In March 2020, the NRC approved Peach Bottom’s second license extension for both units. Concurrent with the license extensions, PSEG Power has extended the useful life of the asset to match the 80-year life expectation and reassessed the related Asset Retirement Cost (ARC) and Asset Retirement Obligation (ARO) assumptions. This resulted in an increase to the ARC asset and ARO liability of $74 million, primarily due to lower discount rates offset by a longer discounting period as a result of the Peach Bottom units’ longer expected useful life.
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | PSE&G | | PSEG Power | | Other (A) | | Consolidated | |
| | Millions | |
| As of December 31, 2018 | | | | | | | | |
| Cash and Cash Equivalents | $ | 39 |
| | $ | 22 |
| | $ | 116 |
| | $ | 177 |
| |
| Restricted Cash in Other Current Assets | 8 |
| | — |
| | — |
| | 8 |
| |
| Restricted Cash in Other Noncurrent Assets | 14 |
| | — |
| | — |
| | 14 |
| |
| Cash, Cash Equivalents and Restricted Cash | $ | 61 |
| | $ | 22 |
| | $ | 116 |
| | $ | 199 |
| |
| As of September 30, 2019 | | | | | | | | |
| Cash and Cash Equivalents | $ | 25 |
| | $ | 80 |
| | $ | 15 |
| | $ | 120 |
| |
| Restricted Cash in Other Current Assets | 18 |
| | — |
| | — |
| | 18 |
| |
| Restricted Cash in Other Noncurrent Assets | 18 |
| | — |
| | — |
| | 18 |
| |
| Cash, Cash Equivalents and Restricted Cash | $ | 61 |
| | $ | 80 |
| | $ | 15 |
| | $ | 156 |
| |
| | | | | | | | | |
| |
(A) | Includes amounts applicable to PSEG (parent company), Energy Holdings and Services. |
Note 2. Recent Accounting Standards
New Standards Issued and Adopted
Leases—Accounting Standards Update (ASU) 2016-02, updated by ASUs 2018-01, 2018-10, 2018-11, 2018-20 and 2019-01
This accounting standard, and related updates, replace existing lease accounting guidance and require lessees to recognize leases with a term greater than 12 months on the balance sheet using a right-of-use asset approach. At lease commencement, a lessee will recognize a lease asset and corresponding lease obligation. A lessee will classify its leases as either finance leases or operating leases and a lessor will classify its leases as operating leases, direct financing leases, or sales-type leases. The standard requires additional disclosure of key information. Existing guidance related to leveraged leases does not change.
PSEG adopted the optional transition method on January 1, 2019. There was no cumulative effect adjustment required to be recorded to Retained Earnings at adoption. The optional transition method requires disclosure under Accounting Standards Codification (ASC) 840—Leases, the previously existing lease guidance for prior periods.
PSEG elected various practical expedients allowed by the standard, including the package of three practical expedients related to not reassessing existing or expired contracts and initial direct costs; and excluding evaluation of land easements that exist or expired before adoption that were not previously accounted for as leases.
The impact of adoption on PSEG’s Consolidated Balance Sheet was to record Operating Lease Right-of-Use Assets of $261 million and Operating Lease Liabilities of $282 million. As part of that impact, PSEG reclassified deferred rent incentives and deferred rent liabilities of approximately $21 million, which were previously classified as Other Noncurrent Liabilities, to Operating Lease Right-of-Use Assets in accordance with this standard. PSE&G’s assets and liabilities each increased by $91 million and PSEG Power’s assets and liabilities each increased by $46 million. PSEG’s adoption of this standard did not have a material impact on the Consolidated Statements of Operations or Consolidated Statements of Cash Flows of PSEG, PSE&G and PSEG Power. See Note 7. Leases for additional information.
Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities—ASU 2017-12, updated by ASU 2018-16 and 2019-04
This accounting standard’s amendments more closely align hedge accounting with companies’ risk management activities in the financial statements and ease the operational burden of applying hedge accounting.
PSEG adopted this standard on January 1, 2019. The standard requires using a modified retrospective method upon adoption. PSEG analyzed the impact of this standard on its consolidated financial statements and has determined that the standard could enable PSEG to enter into certain transactions that can be deemed hedges that previously would not have qualified. Adoption of this standard did not have a material impact on PSEG’s financial statements.
Premium Amortization on Purchased Callable Debt Securities—ASU 2017-08
This accounting standard was issued to shorten the amortization period for certain callable debt securities held at a premium. Specifically, the standard requires the premium to be amortized to the earliest call date.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
PSEG adopted this standard on January 1, 2019 on a modified retrospective basis through a cumulative effect adjustment directly to Retained Earnings as of the beginning of 2019. Adoption of this standard did not have a material impact on PSEG’s financial statements.
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income—ASU 2018-02
This accounting standard affects any entity that is required to apply the provisions of the ASC topic, “Income Statement-Reporting Comprehensive Income,” and has items of Other Comprehensive Income for which the related tax effects are presented in Other Comprehensive Income as required by GAAP. Specifically, this standard allows entities to record a reclassification from Accumulated Other Comprehensive Income to Retained Earnings for stranded tax effects resulting from the recent decrease in the federal corporate income tax rate.
PSEG adopted this standard on January 1, 2019. The impact of adoption on PSEG’s Consolidated Balance Sheet was to increase Retained Earnings and Accumulated Other Comprehensive Loss by approximately $81 million. PSEG Power’s Retained Earnings and Accumulated Other Comprehensive Loss increased by approximately $69 million. The impact on PSE&G’s Consolidated Balance Sheet was immaterial. PSEG’s adoption of this standard did not have a material impact on the Consolidated Statements of Operations or Consolidated Statements of Cash Flows of PSEG, PSE&G and PSEG Power.
New Standards Issued But Not Yet Adopted
Measurement of Credit Losses on Financial Instruments—ASUAccounting Standards Update (ASU) 2016-13, updated by ASU 2018-19, 2019-04, 2019-05, 2019-11 and 2019-052020-02
This accounting standard provides a new model for recognizing credit losses on financial assets. The new model requires entities to use an estimate of expected credit losses that will be recognized as an impairment allowance rather than a direct write-down of the amortized cost basis. The estimate of expected credit losses is to be based on past events, current conditions and supportable forecasts over a reasonable period. For purchased financial assets with credit deterioration, a similar model is to be used; however, the initial allowance will beis added to the purchase price rather than reported as an allowance. Credit losses on available-for-saleavailable-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
for-sale debt securities will beare measured in a manner similar to current GAAP; however, this standard requires those credit losses to be presented as an allowance, rather than a write-down. This new standard also requires additional disclosures of the allowance for credit losses by financial asset type, including disclosures of credit quality indicators for each class of financial asset disaggregated by year of origination.
The standard is effective for annual and interim periods beginning after December 15, 2019. Adoption of thePSEG adopted this standard will be applied usingon January 1, 2020 on a modified retrospective approach throughbasis. Upon adoption, PSE&G recorded an increase of $8 million to its allowance for credit losses, offset by a cumulative-effect adjustment$6 million increase to Regulatory and Other Assets, and a $2 million cumulative effect charge to Retained Earnings as of the effective date of January 1, 2020. PSEG is currently analyzing its financial statements and determining the appropriate methods for calculating credit losses on its various classes of assets, as well as evaluating the overallEarnings. See Note 3. Revenues. There was no impact from adoption of this standard on its consolidatedthe financial statements.statements of PSEG Power.
Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement—ASU 2018-13
This accounting standard modifies the disclosure requirements for fair value measurements. Certain current disclosure requirements relating to Level 3 fair value measurements, and transfers between Level 1 and Level 2 fair value measurements will behave been eliminated. The standard will also addadds certain other disclosure requirements for Level 3 fair value measurements.
The standard is effective for annual and interim periods beginning after December 15, 2019. PSEG adopted this standard on January 1, 2020. Certain amendments in the standard will behave been applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption.2020. All other amendments of the standard will bewere applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. PSEG is currently analyzing the impact of this standard on its financial statements.presented.
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract—ASU 2018-15
This accounting standard aligns the capitalization requirements for implementation costs incurred in a hosting arrangement that is a service contract with capitalization requirements for implementation costs incurred to develop or obtain internal-use software, including hosting arrangements that include an internal-use software license. The standard follows the guidance in ASCAccounting Standard Codification 350—Intangibles—Goodwill and Other to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The standard requires the amortization of capitalized costs to be presented in Operation and Maintenance (O&M) Expense. In addition, the standard also adds presentation requirements for these costs in the statements of cash flows and financial position.
The standard is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted, including adoption in any interim period. This standard will be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. PSEG is currently analyzing the impact ofadopted this standard prospectively on itsJanuary 1, 2020. PSEG, PSE&G and PSEG Power do not expect a material impact on their respective financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Targeted Improvements to Related Party Guidance for Variable Interest Entities (VIE)-—ASU 2018-17
This accounting standard improves the VIE guidance in the area of decision-making fees. Consistent with how indirect interests held through related parties under common control are considered for determining whether a reporting entity must consolidate a VIE, indirect interests held through related parties in common control arrangements will beare considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests.
This standard is effective for annual and interim periods beginning after December 15, 2019. The standard is required to be applied retrospectively with a cumulative effect adjustment to Retained Earnings at the beginning of the earliest period presented. Early adoption is permitted. PSEG is currently analyzing the impactadopted this standard on January 1, 2020. Adoption of this standard did not have an impact on itsthe financial statements.statements of PSEG, PSE&G and PSEG Power.
Simplifying the Test for Goodwill Impairment—ASU 2017-04
This accounting standard requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable.
This standard will be appliedrequires application on a prospective basis and the entity will be required to disclosedisclosure of the nature of and reason for the change in accounting principle upon transition. The new standard is effective for impairment tests for periods beginning January 1, 2020. Early adoption is permittedPSEG early adopted this standard in the fourth quarter of 2019, and recorded an impairment loss of $16 million in O&M Expense.
Codification Improvements to Financial Instruments—ASU 2020-03
This accounting standard provides clarification of guidance for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.financial instruments and makes narrow scope amendments related to various issues. PSEG does not expect adoptionadopted this standard effective upon issuance. Adoption of this standard todid not have a materialan impact on the financial statements of PSEG, PSE&G and PSEG Power.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Facilitation of the Effects of Reference Rate Reform on Financial Reporting—ASU 2020-04
This accounting standard provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The standard is effective from its issuance date, March 12, 2020, through December 31, 2022. PSEG adopted this standard effective upon issuance. Adoption of this standard did not have an impact on the financial statements.statements of PSEG, PSE&G and PSEG Power.
New Standards Issued But Not Yet Adopted as of September 30, 2020
Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans—ASU 2018-14
This accounting standard modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans, including the elimination of certain current disclosure requirements. Certain other disclosure requirements related to interest crediting rates have been added and certain clarifications were made to other disclosure requirements.
The standard is effective for fiscal years ending after December 15, 2020 and early adoption is permitted. Amendments in this standard will be applied on a retrospective basis to all periods presented. PSEG is currently analyzing the impact of this standard on its disclosures.
Simplifying the Accounting for Income Taxes—ASU 2019-12
This accounting standard simplifies the accounting for income taxes, including the elimination of certain exceptions to current requirements. Certain other requirements related to franchise taxes that are partially based on income, step-up of tax basis of goodwill and allocation of consolidated taxes to legal entities have been added and certain clarifications were made to other requirements.
The standard is effective for fiscal years beginning after December 15, 2020 and early adoption is permitted. Certain amendments in this standard will be applied on a retrospective basis to all periods presented. Certain other amendments will be applied on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative effect adjustment to Retained Earnings as of the beginning of the fiscal year of adoption. All other amendments will be applied on a prospective basis. PSEG is currently analyzing the impact of this standard on its financial statements.
Clarifying the Interactions between Investments-Equity Securities, Investments-Equity Method and Joint Ventures, and Derivatives and Hedging—ASU 2020-01
This accounting standard clarifies that an entity should consider transaction prices for purposes of measuring the fair value of certain equity securities immediately before applying or upon discontinuing the equity method. This accounting standard also clarifies that when accounting for contracts entered into to purchase equity securities, an entity should not consider whether, upon the settlement of the forward contract or exercise of the purchased option, the underlying securities would be accounted for under the equity method or the fair value option.
The standard is effective for fiscal years beginning after December 15, 2020. Amendments in this standard will be applied prospectively. PSEG is currently analyzing the impact of this standard on its financial statements.
Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity—ASU 2020-06
This accounting standard simplifies the accounting for convertible debt and convertible preferred stock by removing the requirements to separately present certain conversion features in equity. In addition, the ASU eliminates certain criteria that must be satisfied in order to classify a contract as equity, which is expected to decrease the number of freestanding instruments and embedded derivatives accounted for as assets or liabilities. The ASU also revises the guidance on calculating earnings per share, requiring use of the if-converted method for all convertible instruments and rescinding the ability to rebut the presumption of share settlement for instruments that may be settled in cash or other assets.
The standard is effective for fiscal years beginning after December 15, 2020. Amendments in this standard will be applied on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative effect adjustment to Retained Earnings as of the beginning of the fiscal year of adoption. Early adoption is permitted. PSEG does not currently have any convertible debt or convertible preferred stock outstanding.
Codification Improvements to Callable Debt Securities—ASU 2020-08
This accounting standard clarifies that an entity should reevaluate for each reporting period whether a purchased callable debt security that has multiple call dates is within the scope of certain guidance on nonrefundable fees and other costs related to receivables.
The standard is effective for fiscal years beginning after December 15, 2020 and early adoption is not permitted. Amendments
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
in this standard will be applied prospectively. PSEG is currently analyzing the impact of this standard on its financial statements.
Note 3. Revenues
Nature of Goods and Services
The following is a description of principal activities by reportable segment from which PSEG, PSE&G and PSEG Power generate their revenues.
PSE&G
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 servicesservice(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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Payment for services rendered and products transferred are typically due on average within 30 days of month of delivery.
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 weather normalization, green energy program true-ups and transmission formula rate true-ups, are not a material source of PSE&G revenues.
PSEG Power
Revenues from Contracts with Customers
Electricity and Related Products—Wholesale and retail load contracts are executed in the different Independent System Operator (ISO) regions for the bundled supply of energy, capacity, renewable energy credits (RECs) and ancillary services representing PSEG Power’s performance obligations. Revenue for these contracts is recognized over time as the bundled service is provided to the customer. Transaction terms generally run from several months to three years. PSEG Power also sells to the ISOs 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. PSEG Power generally reports electricity sales and purchases conducted with those individual ISOs 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 the ISOs. The transactions are reported on a net basis dependent on PSEG Power’s monthly net sale or purchase position through the individual ISOs. The performance obligations with the ISOs are satisfied over time upon delivery of the capacity and revenue is recognized accordingly. In addition to capacity sold through the ISOs, 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.
In April 2019, PSEG Power’s Salem 1, Salem 2 and Hope Creek nuclear plants were awarded Zero Emission Certificates (ZECs) by the BPU. These nuclear plants are expected to receive ZEC revenue for approximately three years, through May
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2022, 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 included in PJM Interconnection, L.L.C. (PJM) Sales in the tables below.following tables. See Note 4. Early Plant Retirements/Asset Dispositions for additional information.
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. The performance obligation is primarily delivery of gas which is satisfied over time. Revenue is recognized as gas is delivered. 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 under these contracts is satisfied over time upon delivery of the gas or capacity, and revenue is recognized accordingly.
Other Revenues from Contracts with Customers
PSEG Power enters into bilateral contracts to sell solar power and solar RECs from its solar facilities. Contract terms range from 15 to 30 years. The performance obligations are generally solar power and RECs which are transferred to customers upon generation. Revenue is recognized upon generation of the solar power.
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.
Revenues Unrelated to Contracts with Customers
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 13. Financial Risk Management Activities for further discussion. PSEG Power is also a party to solar contracts that qualify as leases and are accounted for in accordance with lease accounting guidance.
Other
Revenues from Contracts with Customers
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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Revenues Unrelated to Contracts with Customers
Energy Holdings generates lease revenues which are recorded pursuant to lease accounting guidance.
Disaggregation of Revenues
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | PSE&G | | PSEG Power | | Other | | Eliminations | | Consolidated | |
| | Millions | |
| Three Months Ended September 30, 2019 | | | | | | | | | | |
| Revenues from Contracts with Customers | | | | | | | | | | |
| Electric Distribution | $ | 1,096 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,096 |
| |
| Gas Distribution | 130 |
| | — |
| | — |
| | (5 | ) | | 125 |
| |
| Transmission | 295 |
| | — |
| | — |
| | — |
| | 295 |
| |
| Electricity and Related Product Sales | | | | | | | | | | |
| PJM | | | | | | | | | | |
| Third Party Sales | — |
| | 488 |
| | — |
| | — |
| | 488 |
| |
| Sales to Affiliates | — |
| | 160 |
| | — |
| | (160 | ) | | — |
| |
| New York ISO | — |
| | 38 |
| | — |
| | — |
| | 38 |
| |
| ISO New England | — |
| | 37 |
| | — |
| | — |
| | 37 |
| |
| Gas Sales | | | | | | | | | | |
| Third Party Sales | — |
| | 12 |
| | — |
| | — |
| | 12 |
| |
| Sales to Affiliates | — |
| | 58 |
| | — |
| | (58 | ) | | — |
| |
| Other Revenues from Contracts with Customers (A) | 64 |
| | 13 |
| | 141 |
| | (1 | ) | | 217 |
| |
| Total Revenues from Contracts with Customers | 1,585 |
| | 806 |
| | 141 |
| | (224 | ) | | 2,308 |
| |
| Revenues Unrelated to Contracts with Customers (B) | 19 |
| | (35 | ) | | 10 |
| | — |
| | (6 | ) | |
| Total Operating Revenues | $ | 1,604 |
| | $ | 771 |
| | $ | 151 |
| | $ | (224 | ) | | $ | 2,302 |
| |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | PSE&G | | PSEG Power | | Other | | Eliminations | | Consolidated | |
| | Millions | |
| Three Months Ended September 30, 2020 | | | | | | | | | | |
| Revenues from Contracts with Customers | | | | | | | | | | |
| Electric Distribution | $ | 1,157 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 1,157 | | |
| Gas Distribution | 116 | | | 0 | | | 0 | | | (4) | | | 112 | | |
| Transmission | 370 | | | 0 | | | 0 | | | 0 | | | 370 | | |
| Electricity and Related Product Sales | | | | | | | | | | |
| PJM | | | | | | | | | | |
| Third-Party Sales | 0 | | | 464 | | | 0 | | | 0 | | | 464 | | |
| Sales to Affiliates | 0 | | | 123 | | | 0 | | | (123) | | | 0 | | |
| New York ISO | 0 | | | 36 | | | 0 | | | 0 | | | 36 | | |
| ISO New England | 0 | | | 13 | | | 0 | | | 0 | | | 13 | | |
| Gas Sales | | | | | | | | | | |
| Third-Party Sales | 0 | | | 14 | | | 0 | | | 0 | | | 14 | | |
| Sales to Affiliates | 0 | | | 50 | | | 0 | | | (50) | | | 0 | | |
| Other Revenues from Contracts with Customers (A) | 76 | | | 13 | | | 162 | | | (2) | | | 249 | | |
| Total Revenues from Contracts with Customers | 1,719 | | | 713 | | | 162 | | | (179) | | | 2,415 | | |
| Revenues Unrelated to Contracts with Customers (B) | (59) | | | 33 | | | (19) | | | 0 | | | (45) | | |
| Total Operating Revenues | $ | 1,660 | | | $ | 746 | | | $ | 143 | | | $ | (179) | | | $ | 2,370 | | |
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | PSE&G | | PSEG Power | | Other | | Eliminations | | Consolidated | |
| | Millions | |
| Nine Months Ended September 30, 2019 | | | | | | | | | | |
| Revenues from Contracts with Customers | | | | | | | | | | |
| Electric Distribution | $ | 2,613 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2,613 |
| |
| Gas Distribution | 1,272 |
| | — |
| | — |
| | (11 | ) | | 1,261 |
| |
| Transmission | 887 |
| | — |
| | — |
| | — |
| | 887 |
| |
| Electricity and Related Product Sales | | | | | | | | | | |
| PJM | | | | | | | | | | |
| Third Party Sales | — |
| | 1,426 |
| | — |
| | — |
| | 1,426 |
| |
| Sales to Affiliates | — |
| | 416 |
| | — |
| | (416 | ) | | — |
| |
| New York ISO | — |
| | 108 |
| | — |
| | — |
| | 108 |
| |
| ISO New England | — |
| | 85 |
| | — |
| | — |
| | 85 |
| |
| Gas Sales | | | | | | | | | | |
| Third Party Sales | — |
| | 70 |
| | — |
| | — |
| | 70 |
| |
| Sales to Affiliates | — |
| | 639 |
| | — |
| | (639 | ) | | — |
| |
| Other Revenues from Contracts with Customers (A) | 196 |
| | 37 |
| | 406 |
| | (3 | ) | | 636 |
| |
| Total Revenues from Contracts with Customers | 4,968 |
| | 2,781 |
| | 406 |
| | (1,069 | ) | | 7,086 |
| |
| Revenues Unrelated to Contracts with Customers (B) | 50 |
| | 489 |
| | (27 | ) | | — |
| | 512 |
| |
| Total Operating Revenues | $ | 5,018 |
| | $ | 3,270 |
| | $ | 379 |
| | $ | (1,069 | ) | | $ | 7,598 |
| |
| | | | | | | | | | | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | PSE&G | | PSEG Power | | Other | | Eliminations | | Consolidated | |
| | Millions | |
| Nine Months Ended September 30, 2020 | | | | | | | | | | |
| Revenues from Contracts with Customers | | | | | | | | | | |
| Electric Distribution | $ | 2,529 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 2,529 | | |
| Gas Distribution | 1,125 | | | 0 | | | 0 | | | (8) | | | 1,117 | | |
| Transmission | 1,114 | | | 0 | | | 0 | | | 0 | | | 1,114 | | |
| Electricity and Related Product Sales | | | | | | | | | | |
| PJM | | | | | | | | | | |
| Third-Party Sales | 0 | | | 1,178 | | | 0 | | | 0 | | | 1,178 | | |
| Sales to Affiliates | 0 | | | 355 | | | 0 | | | (355) | | | 0 | | |
| New York ISO | 0 | | | 85 | | | 0 | | | 0 | | | 85 | | |
| ISO New England | 0 | | | 86 | | | 0 | | | 0 | | | 86 | | |
| Gas Sales | | | | | | | | | | |
| Third-Party Sales | 0 | | | 58 | | | 0 | | | 0 | | | 58 | | |
| Sales to Affiliates | 0 | | | 528 | | | 0 | | | (528) | | | 0 | | |
| Other Revenues from Contracts with Customers (A) | 241 | | | 37 | | | 447 | | | (3) | | | 722 | | |
| Total Revenues from Contracts with Customers | 5,009 | | | 2,327 | | | 447 | | | (894) | | | 6,889 | | |
| Revenues Unrelated to Contracts with Customers (B) | (10) | | | 322 | | | 0 | | | 0 | | | 312 | | |
| Total Operating Revenues | $ | 4,999 | | | $ | 2,649 | | | $ | 447 | | | $ | (894) | | | $ | 7,201 | | |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | PSE&G | | PSEG Power | | Other | | Eliminations | | Consolidated | |
| | Millions | |
| Three Months Ended September 30, 2019 | | | | | | | | | | |
| Revenues from Contracts with Customers | | | | | | | | | | |
| Electric Distribution | $ | 1,096 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 1,096 | | |
| Gas Distribution | 130 | | | 0 | | | 0 | | | (5) | | | 125 | | |
| Transmission | 295 | | | 0 | | | 0 | | | 0 | | | 295 | | |
| Electricity and Related Product Sales | | | | | | | | | | |
| PJM | | | | | | | | | | |
| Third-Party Sales | 0 | | | 488 | | | 0 | | | 0 | | | 488 | | |
| Sales to Affiliates | 0 | | | 160 | | | 0 | | | (160) | | | 0 | | |
| New York ISO | 0 | | | 38 | | | 0 | | | 0 | | | 38 | | |
| ISO New England | 0 | | | 37 | | | 0 | | | 0 | | | 37 | | |
| Gas Sales | | | | | | | | | | |
| Third-Party Sales | 0 | | | 12 | | | 0 | | | 0 | | | 12 | | |
| Sales to Affiliates | 0 | | | 58 | | | 0 | | | (58) | | | 0 | | |
| Other Revenues from Contracts with Customers (A) | 64 | | | 13 | | | 141 | | | (1) | | | 217 | | |
| Total Revenues from Contracts with Customers | 1,585 | | | 806 | | | 141 | | | (224) | | | 2,308 | | |
| Revenues Unrelated to Contracts with Customers (B) | 19 | | | (35) | | | 10 | | | 0 | | | (6) | | |
| Total Operating Revenues | $ | 1,604 | | | $ | 771 | | | $ | 151 | | | $ | (224) | | | $ | 2,302 | | |
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | PSE&G | | PSEG Power | | Other | | Eliminations | | Consolidated | |
| | Millions | |
| Three Months Ended September 30, 2018 | | | | | | | | | | |
| Revenues from Contracts with Customers | | | | | | | | | | |
| Electric Distribution | $ | 1,072 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,072 |
| |
| Gas Distribution | 142 |
| | — |
| | — |
| | (6 | ) | | 136 |
| |
| Transmission | 312 |
| | — |
| | — |
| | — |
| | 312 |
| |
| Electricity and Related Product Sales | | | | | | | | | | |
| PJM | | | | | | | | | | |
| Third Party Sales | — |
| | 558 |
| | — |
| | — |
| | 558 |
| |
| Sales to Affiliates | — |
| | 166 |
| | — |
| | (166 | ) | | — |
| |
| New York ISO | — |
| | 56 |
| | — |
| | — |
| | 56 |
| |
| ISO New England | — |
| | 12 |
| | — |
| | — |
| | 12 |
| |
| Gas Sales | | | | | | | | | | |
| Third Party Sales | — |
| | 24 |
| | — |
| | — |
| | 24 |
| |
| Sales to Affiliates | — |
| | 47 |
| | — |
| | (47 | ) | | — |
| |
| Other Revenues from Contracts with Customers (A) | 60 |
| | 12 |
| | 142 |
| | (1 | ) | | 213 |
| |
| Total Revenues from Contracts with Customers | 1,586 |
| | 875 |
| | 142 |
| | (220 | ) | | 2,383 |
| |
| Revenues Unrelated to Contracts with Customers (B) | 9 |
| | (7 | ) | | 9 |
| | — |
| | 11 |
| |
| Total Operating Revenues | $ | 1,595 |
| | $ | 868 |
| | $ | 151 |
| | $ | (220 | ) | | $ | 2,394 |
| |
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | PSE&G | | PSEG Power | | Other | | Eliminations | | Consolidated | |
| | Millions | |
| Nine Months Ended September 30, 2018 | | | | | | | | | | |
| Revenues from Contracts with Customers | | | | | | | | | | |
| Electric Distribution | $ | 2,516 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2,516 |
| |
| Gas Distribution | 1,149 |
| | — |
| | — |
| | (13 | ) | | 1,136 |
| |
| Transmission | 925 |
| | — |
| | — |
| | — |
| | 925 |
| |
| Electricity and Related Product Sales | | | | | | | | | | |
| PJM | | | | | | | | | | |
| Third Party Sales | — |
| | 1,429 |
| | — |
| | — |
| | 1,429 |
| |
| Sales to Affiliates | — |
| | 489 |
| | — |
| | (489 | ) | | — |
| |
| New York ISO | — |
| | 161 |
| | — |
| | — |
| | 161 |
| |
| ISO New England | — |
| | 73 |
| | — |
| | — |
| | 73 |
| |
| Gas Sales | | | | | | | | | | |
| Third Party Sales | — |
| | 118 |
| | — |
| | — |
| | 118 |
| |
| Sales to Affiliates | — |
| | 552 |
| | — |
| | (552 | ) | | — |
| |
| Other Revenues from Contracts with Customers (A) | 195 |
| | 35 |
| | 404 |
| | (3 | ) | | 631 |
| |
| Total Revenues from Contracts with Customers | 4,785 |
| | 2,857 |
| | 404 |
| | (1,057 | ) | | 6,989 |
| |
| Revenues Unrelated to Contracts with Customers (B) | 41 |
| | 181 |
| | 17 |
| | — |
| | 239 |
| |
| Total Operating Revenues | $ | 4,826 |
| | $ | 3,038 |
| | $ | 421 |
| | $ | (1,057 | ) | | $ | 7,228 |
| |
| | | | | | | | | | | |
| |
(A) | Includes primarily revenues from appliance repair services at PSE&G, solar power projects and energy management and fuel service contracts with LIPA at PSEG Power, and PSEG LI’s OSA with LIPA in Other. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | PSE&G | | PSEG Power | | Other | | Eliminations | | Consolidated | |
| | Millions | |
| Nine Months Ended September 30, 2019 | | | | | | | | | | |
| Revenues from Contracts with Customers | | | | | | | | | | |
| Electric Distribution | $ | 2,613 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 2,613 | | |
| Gas Distribution | 1,272 | | | 0 | | | 0 | | | (11) | | | 1,261 | | |
| Transmission | 887 | | | 0 | | | 0 | | | 0 | | | 887 | | |
| Electricity and Related Product Sales | | | | | | | | | | |
| PJM | | | | | | | | | | |
| Third-Party Sales | 0 | | | 1,426 | | | 0 | | | 0 | | | 1,426 | | |
| Sales to Affiliates | 0 | | | 416 | | | 0 | | | (416) | | | 0 | | |
| New York ISO | 0 | | | 108 | | | 0 | | | 0 | | | 108 | | |
| ISO New England | 0 | | | 85 | | | 0 | | | 0 | | | 85 | | |
| Gas Sales | | | | | | | | | | |
| Third-Party Sales | 0 | | | 70 | | | 0 | | | 0 | | | 70 | | |
| Sales to Affiliates | 0 | | | 639 | | | 0 | | | (639) | | | 0 | | |
| Other Revenues from Contracts with Customers (A) | 196 | | | 37 | | | 406 | | | (3) | | | 636 | | |
| Total Revenues from Contracts with Customers | 4,968 | | | 2,781 | | | 406 | | | (1,069) | | | 7,086 | | |
| Revenues Unrelated to Contracts with Customers (B) | 50 | | | 489 | | | (27) | | | 0 | | | 512 | | |
| Total Operating Revenues | $ | 5,018 | | | $ | 3,270 | | | $ | 379 | | | $ | (1,069) | | | $ | 7,598 | | |
| | | | | | | | | | | |
| |
(B) | (A)Includes primarily revenues from appliance repair services at PSE&G, solar power projects and energy management and fuel service contracts with LIPA at PSEG Power, and PSEG LI’s OSA with LIPA in Other. (B)Includes primarily alternative revenues at PSE&G, derivative contracts and lease contracts at PSEG Power, and lease contracts in Other. For the nine months ended September 30, 2019, Other includes a $58 million pre-tax charge related to one of Energy Holdings’ lease investments. See Note 8. Financing Receivables for additional information. |
Contract Balances
PSE&G
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, 20192020 and December 31, 2018.2019. 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 7 percent12% and 6% of accounts receivable (including unbilled revenues in 2020) as of September 30, 20192020 and December 31, 2018.2019, respectively. As of December 31, 2019, there was no allowance for unbilled revenues. Effective January 1, 2020, PSE&G adopted ASU 2016-13 and recorded an allowance for unbilled revenues. See Note 2. Recent Accounting Standards.
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 in 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 ongoing coronavirus pandemic on the outstanding balances as of September 30, 2020. PSE&G’s electric bad debt expense is recoverable through its Societal Benefits Clause mechanism. As of September 30, 2020, PSE&G deferred approximately $19 million of incremental gas bad debt expense for future regulatory recovery due to the impact of the ongoing pandemic. See Note 6. Rate Filings for additional information.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following provides a reconciliation of PSE&G’s allowance for credit losses for the three months and nine months ended September 30, 2020:
| | | | | | | | | | | |
| | | |
| | Three Months Ended September 30, 2020 | |
| | Millions | |
| Balance as of June 30, 2020 | $ | 121 | | |
| Utility Customer and Other Accounts | | |
| Provision | 43 | | |
| Write-offs, net of Recoveries of $1 million | (6) | | |
| Balance as of September 30, 2020 | $ | 158 | | |
| | | |
| | Nine Months Ended September 30, 2020 | |
| | Millions | |
| Balance as of January 1, 2020 (A) | $ | 68 | | |
| Utility Customer and Other Accounts | | |
| Provision | 120 | | |
| Write-offs, net of Recoveries of $4 million | (30) | | |
| Balance as of September 30, 2020 | $ | 158 | | |
| | | |
(A)Includes an $8 million pre-tax increase upon adoption of ASU 2016-13. See Note 2. Recent Accounting Standards.
PSEG Power
PSEG Power generally collects consideration upon satisfaction of performance obligations, and therefore, PSEG Power had no material contract balances as of September 30, 20192020 and December 31, 2018.2019.
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 wholesale load contracts and capacity sales which are executed in the different ISO regions. PSEG Power also sells energy and ancillary services 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 month of delivery. As such, there is little credit risk associated with these receivables andreceivables. PSEG Power typically records no allowances.did not record an allowance for credit losses for these receivables as of September 30, 2020. PSEG Power monitors the status of its counterparties on an ongoing basis to assess whether there are any anticipated credit losses.
Other
PSEG LI did not have any material contract balances as of September 30, 20192020 and December 31, 2018.2019.
Remaining Performance Obligations under Fixed Consideration Contracts
PSEG Power and PSE&G primarily record 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'sentity’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:
PSEG Power
As previously stated, above, capacity transactions with ISOs are reported on a net basis dependent on PSEG Power’s monthly net sale or purchase position through the individual ISOs.
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. The 2022/2023 auction has yet to be held and is not expected until mid-2021. PSEG Power expects to realize the following average capacity prices resulting from the base and incremental
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
auctions, including unit specific bilateral contracts for previously cleared capacity obligations. These numbers exclude cleared capacity associated with our ownership interests in the Keystone and Conemaugh generation plants that were sold in September 2019. For additional information see Note 4. Early Plant Retirements/Asset Dispositions.
|
| | | | | | | |
| | | | | | |
| Delivery Year | | $ per MW-Day | | MW Cleared | |
| June 2019 to May 2020 | | $116 | | 8,300 |
| |
| June 2020 to May 2021 | | $179 | | 7,300 |
| |
| June 2021 to May 2022 | | $182 | | 6,900 |
| |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| Delivery Year | | $ per MW-Day | | MW Cleared | |
| June 2020 to May 2021 | | $167 | | 7,600 | | |
| June 2021 to May 2022 | | $180 | | 7,000 | | |
| | | | | | |
Capacity Payments from the ISO New England ISO Forward Capacity Market—The Forward Capacity Market (FCM)—The FCM Auction is conducted annually three years in advance of the operating period. The table below includes PSEG Power’s cleared capacity in the FCM Auction for the Bridgeport Harbor Station 5 (BH5), which cleared the 2019/2020 auction at $231/MW-day for seven years, and the planned retirement of Bridgeport Harbor Station 3 (BH3) in May 2021. PSEG Power expects to realize the following average capacity prices for capacity obligations to be satisfied resulting from the FCM auctionsAuctions which have been completed:completed through May 2024 and the seven-year rate lock for BH5 through May 2026:
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| Delivery Year | | $ per MW-Day (A) | | MW Cleared | |
| June 2020 to May 2021 | | $195 | | 1,330 | | |
| June 2021 to May 2022 | | $192 | | 950 | | |
| June 2022 to May 2023 | | $179 | | 950 | | |
| June 2023 to May 2024 | | $152 | | 930 | | |
| June 2024 to May 2025 | | $231 | | 480 | | |
| June 2025 to May 2026 | | $231 | | 480 | | |
| | | | | | |
table of contents(A) Capacity cleared prices for BH5 through 2026 will be escalated based upon the Handy-Whitman Index. These adjustments are not included above.
|
| | | | | | | |
| | | | | | |
| Delivery Year | | $ per MW-Day (A) | | MW Cleared | |
| June 2019 to May 2020 | | $231 | | 1,330 |
| |
| June 2020 to May 2021 | | $195 | | 1,330 |
| |
| June 2021 to May 2022 | | $192 | | 950 |
| |
| June 2022 to May 2023 | | $179 | | 950 |
| |
| June 2023 to May 2024 | | $231 | | 480 |
| |
| June 2024 to May 2025 | | $231 | | 480 |
| |
| June 2025 to May 2026 | | $231 | | 480 |
| |
| | | | | | |
| |
(A) | Capacity cleared prices for BH5 through 2026 will be escalated based upon the Handy-Whitman Index. These adjustments are not included above. |
Bilateral capacity contracts—Capacity obligations pursuant to contract terms through 2029 are anticipated to result in revenues totaling $168$146 million.
Other
The LIPA OSA is a 12-year services contract ending in 2025 with annual fixed and incentive components. The fixed fee for the provision of services thereunder in 20192020 is $65$67 million and could increaseis updated each year based on the change in the Consumer Price Index (CPI). The incentive for 2019 can range from zero to approximately $10 million and could increase each year thereafter based on the change in the CPI.Index.
Note 4. Early Plant Retirements/Asset Dispositions
Nuclear
In April 2019, PSEG Power’s Salem 1, Salem 2 and Hope Creek nuclear plants were awarded Zero Emission Certificates (ZECs)ZECs by the BPU. 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 (KWh) used (which is equivalent to approximately $10 per megawatt hour (MWh) generated in payments to selected nuclear plants (ZEC payment)). These nuclear plants are expected to receive ZEC revenue for approximately three years, through May 2022, and will be obligated to maintain operations during that period, subject to exceptions specified in the ZEC legislation. PSEG Power anticipates ithas and will continue to recognize revenue monthly as the nuclear plants generate electricity and satisfy their performance obligations. The ZEC legislation requires nuclear plants to reapply for any subsequent three year periods. The ZEC payment may be adjusted by the BPU (a) at any time to offset environmental or fuel diversity payments that a selected nuclear plant may receive from another source or (b) at certain times specified in the ZEC legislation if the BPU determines that the purposes of the ZEC legislation can be achieved through a reduced charge that will nonetheless be sufficient to achieve the state’s air quality and other environmental objectives by preventing the retirement of nuclear plants. For instance, the New Jersey Rate Counsel, in written comments filed with the BPU, has advocated for the BPU to offset market benefits resulting from New Jersey’s rejoining the Regional Greenhouse Gas Initiative from the ZEC payment. PSEG intends to vigorously defend against these arguments. Due to its preliminary nature, PSEG cannot predict the outcome of this matter.
The BPU’s decision awarding ZECs has been appealed by the Division ofNew Jersey Rate Counsel. PSEG cannot predict the outcome of this matter.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In October 2020, PSEG Power filed with the BPU its ZEC applications for Salem 1, Salem 2 and Hope Creek for the three-year eligibility period starting in June 2022. No other plants applied for ZECs for this eligibility period. The BPU’s schedule to consider these applications includes the BPU Staff issuing their preliminary findings regarding ZEC eligibility and the value of ZEC payments for this period in December 2020, followed by public and evidentiary hearings and a final BPU decision by April 2021. PSEG Power is not aware of any changes from its ZEC application for the first eligibility period that would materially affect its ability to establish eligibility to be awarded ZECs during the second eligibility period. PSEG cannot predict the outcome of either the BPU Staff’s preliminary findings or the BPU’s final determination.
In the event that (i) the ZEC program is overturned or is otherwise materially adversely modified through legal process; (ii) the amount of ZEC payments that may be awarded or other terms and conditions of the second ZEC eligibility period proposed by the BPU Staff in the December 2020 preliminary findings or by the BPU in its final decision differ from those of the current ZEC period; or (iii) any of the Salem 1, Salem 2 and Hope Creek plants is not awarded ZEC payments by the BPU and does not otherwise experience a material financial change, PSEG Power will take all necessary steps to cease to operate all of these plants. Alternatively, if all of the Salem 1, Salem 2 and Hope Creek plants are selected to continue to receive ZEC payments but the financial condition of the plants may nonetheless beis materially adversely impacted by potentialchanges in commodity prices, FERC’s changes to the capacity market construct being considered by FERC (absent sufficient capacity revenues provided under a program approved by the BPU in accordance with a FERC- authorizedFERC-authorized capacity mechanism), and,or, in the case of the Salem nuclear plants, decisions by the EPA and state environmental regulators regarding the implementation of Section 316(b) of the Clean Water Act and related state regulations, or other factors. Absent a material financial change, these adverse impacts could still result infactors, PSEG Power takingwill take all necessary steps to retirecease to operate all of these plants followingand will incur associated costs and accounting charges. These may include, among other things, one-time impairment charges or accelerated Depreciation and Amortization Expense on the endremaining carrying value of the initial three year termplants, potential penalties associated with the early termination of capacity obligations and fuel contracts, accelerated asset retirement costs, severance costs, environmental remediation costs and, in certain circumstances potential additional funding of the ZECs program. RetirementNuclear Decommissioning Trust Fund, which would be material to both PSEG and PSEG Power.
Non-Nuclear
In July 2020, PSEG announced that it is exploring strategic alternatives for PSEG Power’s non-nuclear generating fleet, which includes more than 6,750 MW of fossil generation located in New Jersey, Connecticut, New York and Maryland as well as the 467 MW Solar Source portfolio located in various states. PSEG intends to retain ownership of PSEG Power’s existing nuclear fleet. While PSEG is in the preliminary stage of this evaluation, the marketing of a potential transaction in one or a series of steps is anticipated to launch in the fourth quarter of this year, and any potential transaction is expected to be completed sometime in 2021. As a result, PSEG Power performed a recoverability test for impairment of its portfolio of generating assets in the PJM, NYISO and NEPOOL regions using a weighted probability cash flow analysis that considers the likelihood of a potential sale or disposition or continuing to operate the assets through their remaining estimated useful lives. As of September 30, 2020, the estimated undiscounted future cash flows of each of the asset groups exceeded the carrying amount and no impairment was identified. However, certain assumptions are subject to change as the potential sales and marketing process progresses.
There is no assurance that the strategic review will result in a sale or other disposition of all or any portion of these plantsassets on terms that are favorable to us, or at all. Any transaction would resultbe subject to market conditions and customary closing conditions, including the receipt of all required regulatory approvals. A change in the held-for-use classification of the remaining fossil and solar units may have a material adverse impact on PSEG’s and PSEG Power’s future financial results.
FossilIn September 2020, PSEG Power completed the sale of its ownership interest in the Yards Creek generation facility. PSEG Power recorded a pre-tax gain on disposition of approximately $122 million in the third quarter of 2020 as the sale price was greater than book value.
In September 2019, PSEG Power completed the sale of its ownership interests in the Keystone and Conemaugh generation plants and related assets and liabilities. PSEG Power recorded a pre-tax loss on disposition of approximately $400 million in the second quarter of 2019 as the sale price was less than book value.
Note 5. Variable Interest Entity (VIE)
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
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
beneficiary of Servco because it directs the operations of Servco, the activity that most significantly impacts Servco’s economic
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 reimbursablepaid 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 reimbursementpayment of Servco’s operating costs as provided for in the OSA, PSEG LI receives an annual contract management fee. PSEG LI’s annual contractual management fee, in certain situations, could be partially offset by Servco’s annual storm costs not approved 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 O&M Expense, respectively. Servco recorded $124$145 million and $126$124 million for the three months and $357$397 million and $355$357 million for the nine months ended September 30, 20192020 and 2018,2019, respectively, of O&M costs, 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.
Note 6. Rate Filings
This Note should be read in conjunction with Note 7. Regulatory Assets and Liabilities to the Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2018.2019.
In addition to items previously reported in the Annual Report on Form 10-K, significant regulatory orders received and currently pending rate filings with FERC and the BPU by PSE&G are as follows:
Transmission Formula Rate FilingsCOVID-19 Deferral——In July 2020, the BPU authorized regulated utilities in the State of New Jersey to create a COVID-19-related Regulatory Asset by deferring on their books and records the prudently incurred incremental costs related to COVID-19 beginning on March 9, 2020 through September 30, 2021, or 60 days after the New Jersey governor determines that the Public Health Emergency is no longer in effect, or in the absence of such a determination, 60 days from the time the Public Health Emergency automatically terminates by law, whichever is later. Deferred costs should be offset by any federal or state assistance that the utility may receive as a direct result of the COVID-19 pandemic. Utilities must file quarterly reports of the costs incurred and offsets. In October 2020, the BPU broadened the scope of the docket to include all pandemic issues in a generic proceeding that will include submission of public comments and consideration of, among other things, the timing and scope of current and planned clean energy programs. other utility filings and mechanisms; utility financial strength; customer concerns; regulatory compliance and priorities; and ensuring the continued provision of safe and adequate service at just and reasonable rates, while recognizing the ramifications from the COVID-19 pandemic.
Each New Jersey utility regulated by the BPU must file a petition documenting its prudently incurred incremental COVID-19 costs by December 31, 2021, or within 60 days of the close of the Regulatory Asset period as described above, whichever is later. Any potential rate recovery, including any prudency determinations and the appropriate period of recovery, will be addressed through that filing, or in the alternative, the utility may request that the BPU defer consideration of rate recovery for a future base rate case.
PSE&G has made two quarterly filings as required by the BPU and recorded a Regulatory Asset of approximately $35 million in the third quarter of 2020 for net incremental costs which PSE&G believes are recoverable under the BPU order.
Clean Energy Future-Energy Efficiency (CEF-EE), a New Component of the Green Program Recovery Charge (GPRC)—In September 2020, the BPU approved PSE&G’s CEF-EE filing which provides for energy efficient investments of $1 billion over a three-year period. Costs will be recovered through the GPRC, with returns aligned with PSE&G’s most recent base rate case and a ten-year amortization period.
The approval also included a Conservation Incentive Program (CIP), amechanism that will provide for recovery of lost electric and gas variable margin revenues. The CIP is effective in June 2021 for electric and October 2021 for gas. PSE&G will suspend its gas Weather Normalization Charge (WNC) when the gas CIP deferral period begins.
Transition Incentive Program, a New Component of the GPRC—In 2019, the BPU approved an order establishing a Transition Incentive Program to serve as a bridge between the existing Solar Renewable Energy Certificate (SREC) program and a to-be-established successor program and created a new incentive mechanism known as the Transition Renewable Energy Certificate (TRECs) Program. TRECs will be awarded to qualifying solar projects under the new program. In the TREC Order, the BPU directed the New Jersey EDCs to engage a TREC Administrator to acquire, on behalf of the EDCs, TRECs produced
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
by eligible solar projects, which will be funded through a TREC charge to electric customers collected by the EDCs. The order allows the EDCs to recover their costs associated with the TREC program in an annual filing, subject to approval by the BPU.
In August 2020, the BPU approved PSE&G’s request for increased rates of approximately $23 million annually for recovery of its expected share of TREC costs. These costs will be recovered as a new component of PSE&G’s existing electric GPRC, which is updated on an annual basis.
GPRC—In June 2020, PSE&G filed its 20192020 GPRC cost recovery petition requesting recovery of approximately $67 million and $20 million in electric and gas revenues, respectively, on an annual basis. This matter is pending.
Transmission Formula Rates—In October 2020, PSE&G filed its 2020 Annual Transmission Formula Rate updateUpdate with FERC requesting approximately $332which will result in $119 million in increased annual transmission revenue effective January 1, 2020,2021, subject to true-up.
In June 2019,2020, PSE&G filed its 20182019 true-up adjustment pertaining to its transmission formula rates in effect for 2018.2019. This filing resulted in an additional annual revenue requirement adjustment of $52$24 million more than the 20182019 originally filed revenue requirement.revenue.
In April 2020, the Internal Revenue Service (IRS) issued a Private Letter Ruling (PLR) to PSE&G hadconcluding that certain excess deferred taxes previously recognizedclassified as protected should be classified as unprotected. Unprotected excess deferred income taxes are not subject to the majoritynormalization rules allowing them to be refunded to customers sooner as agreed to with FERC and the BPU. In July 2020, FERC approved PSE&G’s request to allow the entire amount of these unprotected excess deferred income taxes be returned to customers in the 2019 true-up filing. As a result of the additionalFERC approval, PSE&G recorded a revenue requirementreduction of approximately $38 million in the third quarter of 2020, fully offset by a reduction in Income Tax Expense. The refund will be provided to transmission ratepayers as a reduction to the 2021 transmission rates.
Basic Gas Supply Service (BGSS)—In September 2020, the BPU provisionally approved PSE&G’s request to maintain the current BGSS rate of 32 cents. This rate is subject to final approval.
Gas System Modernization Program II (GSMP II)—In July 2020, the BPU approved PSE&G’s GSMP II cost recovery petition requesting approximately $18 million in gas revenues on an annual basis, which included GSMP II investments in service as of February 29, 2020. The increase was effective July 16, 2020.
In September 2020, PSE&G updated its 2018 Consolidated StatementGSMP II cost recovery petition seeking BPU approval to recover in gas base rates an estimated annual revenue increase of Operations.approximately $20 million effective December 1, 2020. This increase represents the return on and of GSMP II investments placed in service through August 31, 2020. This matter is pending.
Tax Adjustment Credit (TAC)——In September 2019,October 2020, PSE&G made its initial annual 2020 TAC filing following the implementation of the TAC as a result of the settlement of PSE&G’s distribution base rate case in 2018.filing. The TAC allows for the flowback to customers of excess accumulated deferred income taxes resulting from the reduction of the federal income tax rates provided in the Tax Cuts and Jobs Act of 2017 (Tax Act) as well as the accumulated deferred income taxes from previously realized tax repair deductions and tax benefits from future tax repair deductions as realized. The 20192020 TAC filing requests BPU approval to reduce electric revenues by approximately $23 million and increase gas revenues by approximately $15$49 million and $10 million, respectively, on an annual basis starting January 1, 2020. 2021. This matter is pending.
BGSSIn July 2020, the BPU gave final approval to PSE&G’s 2019—TAC filing that had been approved on a provisional basis in January 2020, with additional credits included in the final ruling. The final approval resulted in a reduction to electric and gas revenues of $25 million and $29 million, respectively, on an annual basis, effective July 16, 2020.
As discussed above, PSE&G received a PLR from the IRS in April 2020 that concluded thatcertain excess deferred taxes previously classified as protected should be classified as unprotected. Unprotected excess deferred income taxes are not subject to the tax normalization rules allowing them to be refunded to customers sooner as agreed to with the BPU. As part of a procedural discovery to obtain the BPU’s final approval, PSE&G proposed that it change its current provisional TAC rates to increase the credit and start flowing back these unprotected amounts starting in July 2020 through December 31, 2024, which the BPU approved. This resulted in a total additional credit to electric and gas customers of $50 million and $46 million, respectively, of which $10 million and $19 million will be flowed back in 2020 for electric and gas, respectively.
WNC—In September 2019,2020, the BPU provisionally approved PSE&G’s request to decrease its BGSS rates which will decrease annual BGSS revenues by approximately $13 million. The BGSSa provisional rate decreased from approximately 35 cents to 34 cents per therm for residential gas customers effective October 1, 2019.2020 for the collection of $10 million from customers over the 2020-2021 Winter Period for the estimated undercollection resulting from the warmer-than-normal 2019-2020 Winter Period.
In March 2019, the BPU approved the final BGSS rates which were effective October 1, 2018.
Gas System Modernization Program I (GSMP I)Remediation Adjustment Charge (RAC)——In September 2019,2020, the BPU approved PSE&G’s final GSMP I costRAC 27 filing requesting recovery petition requestingof approximately $11$53 million in net manufactured gas revenues, on an annual basis, which included GSMP I investments in service as of June 30, 2019. The increase was effective Octoberplant remediation expenditures from August 1, 2018 through July 31, 2019.
Gas System Modernization Program II (GSMP II)—In September 2019, PSE&G updated its first GSMP II cost recovery petition to include GSMP II investments in service as of August 31, 2019. The updated petition seeks BPU approval to recover in gas base rates an estimated annual revenue increase of $17 million effective December 1, 2019.
Green Program Recovery Charges (GPRC)—In September 2019, the BPU approved a one year extension of PSE&G’s Energy Efficiency (EE) 2017 component of its GPRC programs, authorizing an additional $27 million of EE Investments and $6 million of additional administrative costs for recovery though its existing filing mechanism.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In June 2019, PSE&G filed its 2019 GPRC cost recovery petition requesting recovery of approximately $52 million and $11 million in electric and gas revenues, respectively, on an annual basis. This matter is pending.
In May 2019, the BPU approved PSE&G’s 2018 GPRC cost recovery petition requesting recovery of approximately $65 million and $6 million in electric and gas revenues, respectively, on an annual basis.
Weather Normalization Clause (WNC)—In September 2019, the BPU approved PSE&G’s 2019-2020 WNC rates on a provisional basis allowing an approximate $8 million of overcollections from the colder-than-normal 2018-2019 Winter Period, to be refunded to customers over the 2019-2020 Winter Period, with rates effective October 1, 2019.
In March 2019, the BPU approved the final 2018-2019 WNC rates which allowed a net recovery of $14 million to be collected over the 2018-2019 Winter Period. The $14 million net recovery was the result of $9 million of excess revenues from the colder-than-normal 2017-2018 Winter Period offset by $23 million of remaining prior Winter Period undercollection.
Remediation Adjustment Clause (RAC)—In August 2019, the BPU approved PSE&G’s filing with respect to its RAC 26 petition allowing recovery of $73 million effective September 1, 2019 related to Manufactured Gas Plant (MGP) remediation expenditures from August 1, 2017 through July 31, 2018.
ZEC Program
—In April 2019, the BPU authorized the New Jersey EDCs, including PSE&G, to purchase ZECs from eligible nuclear plants selected by the BPU. In conjunction with this Order, the BPU authorized tariffs to collect a non-bypassable distribution charge in the amount of $0.004 per kilowatt-hour from each EDC’s retail distribution customers to be used to purchase ZECs from the selected plants. Each EDC purchases ZECs on a monthly basis with payment to be made annually following completion of each energy year. Under the program, any revenue collected in excess of the purchase price will be refunded to customers in the following year.
For the energy year ended May 31, 2019, PSE&G purchased approximately $17 million in ZECs, including interest, from the eligible nuclear plants selected by the BPU. The payment for $17 million was made in August 2019. In addition, there was approximately $0.2 million, including interest, in overcollected revenues which will be refunded to customers pending BPU approval of the refunding mechanism.
Note 7. Leases
PSEG and its subsidiaries when acting asare both a lessor and a lessee or lessor, determine if an arrangement is a lease at inception. PSEG assesses contracts to determine if the arrangement conveys (i) the right to control the use of the identified property, (ii) the right to obtain substantially all of the economic benefits from the use of the property, and (iii) the right to direct the use of the property.
in operating leases. As of September 30, 2019, PSEG and subsidiaries were both a lessee and a lessor in Operating Leases. PSEG and subsidiaries were neither the lessee nor the lessor in any material non-operating leases.
Lessee
The current portion of Operating Lease Liabilities is included in Other Current Liabilities. Operating Lease Right-of-Use Assets and noncurrent Operating Lease Liabilities are included as separate captions in Noncurrent Assets and Noncurrent Liabilities, respectively, on the Condensed Consolidated Balance Sheets of PSEG, PSE&G and PSEG Power.2020, PSEG and its subsidiaries have elected an accounting policy to exclude the application of ASC 842 requirements to recognize Operating Lease Right-of-Use Assets and Operating Lease Liabilitieswere lessors for leases whereclassified as operating leases or leveraged leases. See Note 8. Financing Receivables. There was no significant change in amounts reported in Note 8. Leases in the term is twelve months or less.
Operating Lease Right-of-Use Assets represent the right to use an underlying assetAnnual Report on Form 10-K for the lease term and Operating Lease Liabilities represent the obligation to make lease payments arising from the lease. Operating Lease Right-of-Use Assets and Operating Lease Liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term.
year ended December 31, 2019 for operating leases in which PSEG and its subsidiaries recognize the lease payments in O&M Expense on a straight-line basis over the term of the leases and variable lease payments in the period in which the obligations for those payments are incurred.
As lessee, most of the Operating Leases of PSEG and its subsidiaries do not provide an implicit rate; therefore, incremental borrowing rates are used based on the information available at commencement date in determining the present value of lease payments. The implicit rate is used when readily determinable. PSE&G’s incremental borrowing rates are based on secured borrowing rates. PSEG’s and PSEG Power’s borrowing rates are generally unsecured rates. Having calculated simulated secured rates for each of PSEG and PSEG Power, it was determined that the difference between the unsecured borrowing rates and the simulated secured rates had an immaterial effect on their recorded Operating Lease Right-of-Use Assets and Operating Lease Liabilities.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Services, PSEG LI and other subsidiaries of PSEG that do not borrow funds or issue debt may enter into leases. Since these companies do not have credit ratings and related incremental borrowing rates, PSEG has determined that it is appropriate for these companies to use the incremental borrowing rate of PSEG, the parent company.
Lease terms may include options to extend or terminate the lease when it is reasonably certain that such options will be exercised.
PSEG and its subsidiaries have lease agreements with lease and non-lease components. For real estate, equipment and vehicle leases, the lease and non-lease components are accounted for as a single lease component.
PSE&Glessees.
PSE&G has Operating Leases for office space for customer service centers; rooftops and land for its Solar 4 All® facilities; equipment; vehicles; and land for certain electric substations. These leases have remaining lease terms through 2039, some of which include options to extend the leases for up to two five-year terms. Some leases have fixed rent payments that have escalations based on certain indices, such as the CPI. Certain leases contain variable payments.
PSEG Power
PSEG Power has Operating Leases for buildings; land leases for its solar generating facilities; merchant transmission; and equipment. These leases have remaining terms through 2052, some of which include options to extend the leases for up to 7 5-year terms and certain other leases which include options to extend the leases for 15 to 20 year terms. Some leases have fixed rent payments that have escalations based on certain indices, such as the CPI.
Other
Services has Operating Leases for real estate and office equipment. These leases have remaining terms through 2030. Services’ lease for its headquarters, which ends in 2030, includes options to extend for 2 five-year terms. Energy Holdings has land leases with remaining lease terms through 2027, some of which include options to extend the leases for up to 8 five-year terms. Some leases have fixed rent payments that have escalations based on certain indices, such as the CPI. Certain leases contain variable payments.
Operating Lease Costs
The following amounts relate to total Operating Lease costs, including both amounts recognized in the Condensed Consolidated Statements of Operations during the three and nine months ended September 30, 2019 and any amounts capitalized as part of the cost of another asset, and the cash flows arising from lease transactions.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | PSE&G | | PSEG Power | | Other | | Total | |
| | Millions | |
| Operating Lease Costs | | | | | | | | |
| Three Months Ended September 30, 2019 | | | | | | | | |
| Long-term Lease Costs | $ | 7 |
| | $ | 4 |
| | $ | 3 |
| | $ | 14 |
| |
| Short-term Lease Costs | 3 |
| | 2 |
| | — |
| | 5 |
| |
| Variable Lease Costs | — |
| | 5 |
| | 2 |
| | 7 |
| |
| Total Operating Lease Costs | $ | 10 |
| | $ | 11 |
| | $ | 5 |
| | $ | 26 |
| |
| Nine Months Ended September 30, 2019 | | | | | | | | |
| Long-term Lease Costs | $ | 16 |
| | $ | 9 |
| | $ | 11 |
| | $ | 36 |
| |
| Short-term Lease Costs | 12 |
| | 7 |
| | — |
| | 19 |
| |
| Variable Lease Costs | 1 |
| | 7 |
| | 7 |
| | 15 |
| |
| Total Operating Lease Costs | $ | 29 |
| | $ | 23 |
| | $ | 18 |
| | $ | 70 |
| |
| | | | | | | | | |
| Three Months Ended September 30, 2019 | | | | | | | | |
| Cash Paid for Amounts Included in the Measurement of Operating Lease Liabilities | $ | 5 |
| | $ | 4 |
| | $ | 3 |
| | $ | 12 |
| |
| Nine Months Ended September 30, 2019 | | | | | | | | |
| Cash Paid for Amounts Included in the Measurement of Operating Lease Liabilities | $ | 12 |
| | $ | 8 |
| | $ | 11 |
| | $ | 31 |
| |
| | | | | | | | | |
| Weighted Average Remaining Lease Term in Years | 13 |
| | 13 |
| | 11 |
| | 12 |
| |
| Weighted Average Discount Rate | 3.6 | % | | 4.4 | % | | 4.2 | % | | 4.1 | % | |
| | | | | | | | | |
Operating Lease commitments as of December 31, 2018 had the following maturities:
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | PSE&G | | PSEG Power | | Other | | Total | |
| | | Millions | |
| 2019 | | $ | 15 |
| | $ | 11 |
| | $ | 15 |
| | $ | 41 |
| |
| 2020 | | 11 |
| | 13 |
| | 16 |
| | 40 |
| |
| 2021 | | 10 |
| | 13 |
| | 16 |
| | 39 |
| |
| 2022 | | 8 |
| | 14 |
| | 16 |
| | 38 |
| |
| 2023 | | 8 |
| | 8 |
| | 15 |
| | 31 |
| |
| Thereafter | | 66 |
| | 51 |
| | 105 |
| | 222 |
| |
| Total Minimum Lease Payments | | $ | 118 |
| | $ | 110 |
| | $ | 183 |
| | $ | 411 |
| |
| | | | | | | | | | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Operating Lease Liabilities as of September 30, 2019 had the following maturities:
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | PSE&G | | PSEG Power | | Other | | Total | |
| | | Millions | |
| 2019 | | $ | 4 |
| | $ | 3 |
| | $ | 4 |
| | $ | 11 |
| |
| 2020 | | 15 |
| | 13 |
| | 16 |
| | 44 |
| |
| 2021 | | 12 |
| | 13 |
| | 16 |
| | 41 |
| |
| 2022 | | 10 |
| | 14 |
| | 15 |
| | 39 |
| |
| 2023 | | 8 |
| | 8 |
| | 15 |
| | 31 |
| |
| 2024 | | 8 |
| | 3 |
| | 15 |
| | 26 |
| |
| Thereafter | | 67 |
| | 48 |
| | 90 |
| | 205 |
| |
| Total Minimum Lease Payments | | $ | 124 |
| | $ | 102 |
| | $ | 171 |
| | $ | 397 |
| |
| | | | | | | | | | |
The following is a reconciliation of the undiscounted cash flows to the discounted Operating Lease Liabilities recognized on the Condensed Consolidated Balance Sheets:
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | As of September 30, 2019 | |
| | | PSE&G | | PSEG Power | | Other | | Total | |
| | | Millions | |
| Undiscounted Cash Flows | | $ | 124 |
| | $ | 102 |
| | $ | 171 |
| | $ | 397 |
| |
| Reconciling Amount due to Discount Rate | | (27 | ) | | (29 | ) | | (33 | ) | | (89 | ) | |
| Total Discounted Operating Lease Liabilities | | $ | 97 |
| | $ | 73 |
| | $ | 138 |
| | $ | 308 |
| |
| | | | | | | | | | |
As of September 30, 2019, the current portions of Operating Lease Liabilities included in Other Current Liabilities were $33 million, $12 million and $10 million for PSEG, PSE&G and PSEG Power, respectively.
Lessor
Property subject to Operating Leases, where PSEG or one of its subsidiaries is the lessor, is included in Property, Plant and Equipment and rental income from these leases is included in Operating Revenues.
PSEG and its subsidiaries, as lessors, have lease agreements with lease and non-lease components, which are primarily related to real estate assets and solar generating facilities. PSEG and subsidiaries account for the lease and non-lease components as a single lease component. Energy Holdings’ leveragedfacilities. Rental income from these leases are accounted foris included in Operating Revenues and in Noncurrent Long-Term Investments. See Note 8. Financing Receivables.Revenues.
PSEG Power
Certain of PSEG Power’s sales agreements related to its solar generating plants qualify as Operating Leasesoperating leases with remaining terms through 2043 with no extension terms. Lease income is based on solar energy generation; therefore, all rental income is variable under these leases. As of September 30, 2019, PSEG Power’s solar generating plants subject to these leases had a total carrying value of $333 million.
Other
Energy Holdings is the lessor in leveraged leases. Leveraged lease accounting guidance is grandfathered for existing leveraged leases. If modified after January 1, 2019, thosesuch leveraged leases will be accounted for as operating, direct financing, or financingsales-type leases. See Note 8. Financing Receivables.
Energy Holdings is the lessor in various Operating Leasesan operating lease for a domestic energy generation facility with a remaining term through 2036. Energy Holdings was previously the lessor in operating leases for real estate with remaining terms through 2033. As of September 30, 2019, Energy Holdings’ property subject to these leases had a total carrying value of $24 million.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
assets which were sold in March 2020.
The following is the Operating Lease Incomeoperating lease income for PSEG Power and Energy Holdings for the three and nine months ended September 30, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | PSEG Power | | Energy Holdings | | Total | |
| | Millions | |
| Operating Lease Income | | | | | | |
| Three Months Ended September 30, 2020 | | | | | | |
| Fixed Lease Income | $ | 0 | | | $ | 4 | | | $ | 4 | | |
| Variable Lease Income | 8 | | | 0 | | | 8 | | |
| Total Operating Lease Income | $ | 8 | | | $ | 4 | | | $ | 12 | | |
| Nine Months Ended September 30, 2020 | | | | | | |
| Fixed Lease Income | $ | 0 | | | $ | 12 | | | $ | 12 | | |
| Variable Lease Income | 21 | | | 0 | | | 21 | | |
| Total Operating Lease Income | $ | 21 | | | $ | 12 | | | $ | 33 | | |
| | | | | | | |
| Three Months Ended September 30, 2019 | | | | | | |
| Fixed Lease Income | $ | 0 | | | $ | 6 | | | $ | 6 | | |
| Variable Lease Income | 7 | | | 0 | | | 7 | | |
| Total Operating Lease Income | $ | 7 | | | $ | 6 | | | $ | 13 | | |
| Nine Months Ended September 30, 2019 | | | | | | |
| Fixed Lease Income | $ | 0 | | | $ | 17 | | | $ | 17 | | |
| Variable Lease Income | 19 | | | 0 | | | 19 | | |
| Total Operating Lease Income | $ | 19 | | | $ | 17 | | | $ | 36 | | |
| | | | | | | |
|
| | | | | | | | | | | | | |
| | | | | | | |
| | PSEG Power | | Energy Holdings | | Total | |
| | Millions | |
| Operating Lease Income | | | | |
|
| |
| Three Months Ended September 30, 2019 | | | | | | |
| Fixed Lease Income | $ | — |
| | $ | 6 |
| | $ | 6 |
| |
| Variable Lease Income | 7 |
| | — |
| | 7 |
| |
| Total Operating Lease Income | $ | 7 |
| | $ | 6 |
| | $ | 13 |
| |
| Nine Months Ended September 30, 2019 | | | | | | |
| Fixed Lease Income | $ | — |
| | $ | 17 |
| | $ | 17 |
| |
| Variable Lease Income | 19 |
| | — |
| | 19 |
| |
| Total Operating Lease Income | $ | 19 |
| | $ | 17 |
| | $ | 36 |
| |
| | | | | | | |
Energy Holdings’ Operating Leases had the following minimum future fixed lease receipts as of September 30, 2019:
|
| | | | | | | |
| | | | | |
| | | Millions | |
| 2019 | | $ | 2 |
| | |
| 2020 | | 20 |
| | |
| 2021 | | 18 |
| | |
| 2022 | | 17 |
| | |
| 2023 | | 17 |
| | |
| 2024 | | 16 |
| | |
| Thereafter | | 171 |
| | |
| Total Minimum Future Lease Receipts | | $ | 261 |
| | |
| | | | | |
32
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 8. Financing Receivables
PSE&G
PSE&G sponsors a solar loan program&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 generally paid back with solar renewable energy certificatesSRECs generated from the related installed solar electric system. InPSE&G uses collection experience as a credit quality indicator for its Solar Loan Programs and conducts a comprehensive credit review for all prospective borrowers. As of September 30, 2020, none of the solar loans were impaired; however, in the event of a loan default or if a loan becomes impaired, the basis of the solar loan would be recovered through a regulatory recovery mechanism. NoneAs of September 30, 2020, none of the solar loans were delinquent and no loans are impaired; however,currently expected to become delinquent in the event a loan becomes impaired, the basislight of the loan would be recovered through a regulatory recoverypayment mechanism. Therefore, no current credit losses have been recorded for Solar Loan Programs I, II and III. A substantial portion of these 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 | | As of | |
| Outstanding Loans by Class of Customers | | September 30, 2020 | | December 31, 2019 | |
| | | Millions | |
| Commercial/Industrial | | $ | 144 | | | $ | 156 | | |
| Residential | | 7 | | | 8 | | |
| Total | | 151 | | | 164 | | |
| Current Portion (included in Accounts Receivable) | | (28) | | | (28) | | |
| Noncurrent Portion (included in Long-Term Investments) | | $ | 123 | | | $ | 136 | | |
| | | | | | |
|
| | | | | | | | | | |
| | | | | | |
| Outstanding Loans by Class of Customer | |
| | | As of | | As of | |
| Consumer Loans | | September 30, 2019 | | December 31, 2018 | |
| | | Millions | |
| Commercial/Industrial | | $ | 153 |
| | $ | 164 |
| |
| Residential | | 8 |
| | 9 |
| |
| Total | | $ | 161 |
| | $ | 173 |
| |
| Current Portion (included in Accounts Receivable) | | (24 | ) | | (24 | ) | |
| Noncurrent Portion (included in Long-Term Investments) | | $ | 137 |
| | $ | 149 |
| |
| | | | | | |
The solar loans originated under three Solar Loan Programs are comprised as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| Programs | | Balance as of September 30, 2020 | | Funding Provided | | Residential Loan Term | | Non-Residential Loan Term | |
| | | Millions | | | | | | | |
| Solar Loan I | | $ | 22 | | | prior to 2013 | | 10 years | | 15 years | |
| Solar Loan II | | 72 | | | prior to 2015 | | 10 years | | 15 years | |
| Solar Loan III | | 57 | | | largely funded as of December 31, 2019 | | 10 years | | 10 years | |
| Total | | $ | 151 | | | | | | | | |
| | | | | | | | | | |
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, 2020 and have an average remaining life of approximately four years.
Energy Holdings
Energy Holdings, through several of its indirect subsidiary companies,subsidiaries, has investments in domestic energy and real estate 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 plus the estimated residual values at the end of 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.
DuringIn the second quarter of 2019,2020, Energy Holdings completed its annual review of estimated residual values embedded in domestic energy leveraged leases and determined no impairments were necessary. During the leveraged leases. Thesecond quarter of 2019, the outcome of Energy Holdings’ annual review indicated that the updated residual value estimate of the coal-fired Powerton lease was lower than the recorded residual value and the decline was deemed to be other than temporary as a result of expected future adverse
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
market conditions. As a result, a pre-tax write-down of $58 million was reflected in Operating Revenues in the quarter ended June 30, 2019, calculated by comparing the gross investment in the leases before and after the revised residual estimates.
In September 2020, wholly owned subsidiaries of PSEG Energy Holdings L.L.C. (the Sellers) completed the sale to Midwest Generation, LLC (the Buyer) of the Sellers’ ownership interests in the Powerton and Joliet generation facilities and related assets, including the assumption by the Buyer of related liabilities. The loss, net of taxes, resulting from the transaction was immaterial.
Leveraged leases outstanding as of September 30, 2020 commenced in or prior to 2000. The following table shows Energy Holdings’ gross and net lease investment as of September 30,
20192020 and December 31,
2018. |
| | | | | | | | | |
| | | | | |
| | As of | | As of | |
| | September 30, 2019 | | December 31, 2018 | |
| | Millions | |
| Lease Receivables (net of Non-Recourse Debt) | $ | 500 |
| | $ | 504 |
| |
| Estimated Residual Value of Leased Assets | 201 |
| | 326 |
| |
| Total Investment in Rental Receivables | 701 |
| | 830 |
| |
| Unearned and Deferred Income | (208 | ) | | (290 | ) | |
| Gross Investments in Leases | 493 |
| | 540 |
| |
| Deferred Tax Liabilities | (331 | ) | | (354 | ) | |
| Net Investments in Leases | $ | 162 |
| | $ | 186 |
| |
| | | | | |
2019.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| | | | | | | | | | | | | | | | | |
| | | | | |
| | As of | | As of | |
| | September 30, 2020 | | December 31, 2019 | |
| | Millions | |
| Lease Receivables (net of Non-Recourse Debt) | $ | 334 | | | $ | 498 | | |
| Estimated Residual Value of Leased Assets | 124 | | | 202 | | |
| Total Investment in Rental Receivables | 458 | | | 700 | | |
| Unearned and Deferred Income | (141) | | | (203) | | |
| Gross Investments in Leases | 317 | | | 497 | | |
| Deferred Tax Liabilities | (131) | | | (328) | | |
| Net Investments in Leases | $ | 186 | | | $ | 169 | | |
| | | | | |
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 of Non-Recourse Debt | |
| Counterparties’ Credit Rating Standard and Poor’s (S&P) as of September 30, 2019 | | | |
| | As of September 30, 2019 | |
| | | Millions | |
| AA | | $ | 12 |
| |
| A- | | 58 |
| |
| BBB+ — BBB- | | 258 |
| |
| BB | | 133 |
| |
| NR | | 39 |
| |
| Total | | $ | 500 |
| |
| | | | |
| | | | | | | | | | | | | | | | |
| | | | | | |
| | | Lease Receivables, Net of Non-Recourse Debt | | | |
| Counterparties' Standard & Poor's (S&P) Credit Rating as of September 30, 2020 | | | | | |
| | As of September 30, 2020 | | | |
| | | Millions | | | |
| AA | | $ | 9 | | | | |
| A- | | 54 | | | | |
| BBB+ to BBB | | 236 | | | | |
| NR | | 35 | | | | |
| Total | | $ | 334 | | | | |
| | | | | | |
The “BB” and the “NR” ratingsrating in the preceding table represent lease receivables related to coalShawville Units 1, 2, 3 and 4. The Shawville Units, wholly owned by PSEG, are 596 MW gas-fired assets located in IllinoisPennsylvania and Pennsylvania, respectively.Shawville Power, LLC is the lease counterparty. As of September 30, 2019,2020, the gross investment in the leaseslease of suchShawville assets, net of non-recourse debt, was $236$72 million ($(25) ($4 million,, net of deferred taxes). A more detailed description of such assets under lease is presented in the following table. |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Asset | | Location | | Gross Investment | | % Owned | | Total MW | | Fuel Type | | Counterparties’ S&P Credit Ratings | | Counterparty | |
| | | | | Millions | | | | | | | | | | | |
| Powerton Station Units 5 and 6 | | IL | | $ | 75 |
| | 64 | % | | 1,538 |
| | Coal | | BB | | NRG Energy, Inc. | |
| Joliet Station Units 7 and 8 | | IL | | $ | 85 |
| | 64 | % | | 1,036 |
| | Gas | | BB | | NRG Energy, Inc. | |
| Shawville Station Units 1, 2, 3 and 4 | | PA | | $ | 76 |
| | 100 | % | | 596 |
| | Gas | | NR | | REMA | |
| | | | | | | | | | | | | | | | |
The credit exposure for lessorsthat lease is partially mitigated through variousa letter of credit enhancement mechanismssupporting the lease payments that are required within the lease structures. Thesestructure.
PSEG believes no credit enhancement features vary from lease to lease.losses are necessary for the leveraged leases existing on September 30, 2020. Upon the occurrence of certain defaults, indirect subsidiary companiessubsidiaries of Energy Holdings would exercise their rights and seek recovery of their investment, 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.
Additional factors that may impact future lease cash flows include, but are not limited to, new environmental legislation and regulation regarding air quality, water and other discharges in the process of generating electricity, market prices for fuel, electricity and capacity, overall financial condition of lease counterparties and their affiliates and the quality and condition of assets under lease.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 9. Trust Investments
Nuclear Decommissioning Trust (NDT) Fund
PSEG Power maintains an external master NDT to fund its share of decommissioning costs for its 5 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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following tables show the fair values and gross unrealized gains and losses for the securities held in the NDT Fund. |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | As of September 30, 2019 | |
| | Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | |
| | Millions | |
| Equity Securities | | | | | | | | |
| Domestic | $ | 444 |
| | $ | 195 |
| | $ | (7 | ) | | $ | 632 |
| |
| International | 387 |
| | 71 |
| | (18 | ) | | 440 |
| |
| Total Equity Securities | 831 |
| | 266 |
| | (25 | ) | | 1,072 |
| |
| Available-for Sale Debt Securities | | | | | | | | |
| Government | 544 |
| | 22 |
| | — |
| | 566 |
| |
| Corporate | 480 |
| | 18 |
| | (2 | ) | | 496 |
| |
| Total Available-for-Sale Debt Securities | 1,024 |
| | 40 |
| | (2 | ) | | 1,062 |
| |
| Total NDT Fund Investments (A) | $ | 1,855 |
| | $ | 306 |
| | $ | (27 | ) | | $ | 2,134 |
| |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | As of September 30, 2020 | |
| | Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | |
| | Millions | |
| Equity Securities | | | | | | | | |
| Domestic | $ | 517 | | | $ | 257 | | | $ | (13) | | | $ | 761 | | |
| International | 381 | | | 101 | | | (24) | | | 458 | | |
| Total Equity Securities | 898 | | | 358 | | | (37) | | | 1,219 | | |
| Available-for-Sale Debt Securities | | | | | | | | |
| Government | 527 | | | 30 | | | 0 | | | 557 | | |
| Corporate | 550 | | | 35 | | | (3) | | | 582 | | |
| Total Available-for-Sale Debt Securities | 1,077 | | | 65 | | | (3) | | | 1,139 | | |
| Total NDT Fund Investments (A) | $ | 1,975 | | | $ | 423 | | | $ | (40) | | | $ | 2,358 | | |
| | | | | | | | | |
| |
(A) | (A)The NDT Fund Investments table excludes foreign currency of $1 million as of September 30, 2020, which is part of the NDT Fund. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of December 31, 2019 | | | | Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | | | Millions | | | Equity Securities | | | | | | | | | | Domestic | $ | 425 | | | $ | 238 | | | $ | (4) | | | $ | 659 | | | | International | 400 | | | 103 | | | (11) | | | 492 | | | | Total Equity Securities | 825 | | | 341 | | | (15) | | | 1,151 | | | | Available-for-Sale Debt Securities | | | | | | | | | | Government | 563 | | | 16 | | | (2) | | | 577 | | | | Corporate | 470 | | | 17 | | | (1) | | | 486 | | | | Total Available-for-Sale Debt Securities | 1,033 | | | 33 | | | (3) | | | 1,063 | | | | Total NDT Fund Investments (A) | $ | 1,858 | | | $ | 374 | | | $ | (18) | | | $ | 2,214 | | | | | | | | | | | | |
(A)The NDT Fund Investments table excludes foreign currency of $2 million as of December 31, 2019, which is part of the NDT Fund. |
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | As of December 31, 2018 | |
| | Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | |
| | Millions | |
| Equity Securities | | | | | | | | |
| Domestic | $ | 447 |
| | $ | 153 |
| | $ | (29 | ) | | $ | 571 |
| |
| International | 323 |
| | 36 |
| | (30 | ) | | 329 |
| |
| Total Equity Securities | 770 |
| | 189 |
| | (59 | ) | | 900 |
| |
| Available-for Sale Debt Securities | | | | | | | | |
| Government | 498 |
| | 2 |
| | (9 | ) | | 491 |
| |
| Corporate | 501 |
| | 1 |
| | (15 | ) | | 487 |
| |
| Total Available-for-Sale Debt Securities | 999 |
| | 3 |
| | (24 | ) | | 978 |
| |
| Total NDT Fund Investments | $ | 1,769 |
| | $ | 192 |
| | $ | (83 | ) | | $ | 1,878 |
| |
| | | | | | | | | |
Net unrealized gains (losses) on debt securities of $22$36 million (after-tax) were included in Accumulated Other Comprehensive Loss on PSEG’s and PSEG Power’s Condensed Consolidated Balance Sheets as of September 30, 2019.2020. An impairment of debt securities of $(3) million was included in Net Gains (Losses) on Trust Investments on PSEG Power’s Condensed Consolidated Statement of Operations for the nine months ended September 30, 2020. The portion of net unrealized gains (losses)related to equity securities still held as of September 30, 2020 recognized during the third quarter and first nine months of 2019 related to equity securities still held as of September 30, 20192020 was $(9) million and $102 million, respectively.$48 million.
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.
|
| | | | | | | | | |
| | | | | |
| | As of | | As of | |
| | September 30, 2019 | | December 31, 2018 | |
| | Millions | |
| Accounts Receivable | $ | 14 |
| | $ | 17 |
| |
| Accounts Payable | $ | 13 |
| | $ | 5 |
| |
| | | | | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| | | | | | | | | | | | | | | | | |
| | | | | |
| | As of | | As of | |
| | September 30, 2020 | | December 31, 2019 | |
| | Millions | |
| Accounts Receivable | $ | 13 | | | $ | 11 | | |
| Accounts Payable | $ | 26 | | | $ | 11 | | |
| | | | | |
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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | As of September 30, 2020 | | As of December 31, 2019 | |
| | Less Than 12 Months | | Greater Than 12 Months | | Less Than 12 Months | | Greater Than 12 Months | |
| | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | |
| | Millions | |
| Equity Securities (A) | | | | | | | | | | | | | | | | |
| Domestic | $ | 142 | | | $ | (10) | | | $ | 4 | | | $ | (3) | | | $ | 21 | | | $ | (1) | | | $ | 6 | | | $ | (3) | | |
| International | 68 | | | (13) | | | 26 | | | (11) | | | 28 | | | (2) | | | 34 | | | (9) | | |
| Total Equity Securities | 210 | | | (23) | | | 30 | | | (14) | | | 49 | | | (3) | | | 40 | | | (12) | | |
| Available-for-Sale Debt Securities | | | | | | | | | | | | | | | | |
| Government (B) | 63 | | | 0 | | | 0 | | | 0 | | | 99 | | | (2) | | | 30 | | | 0 | | |
| Corporate (C) | 54 | | | (2) | | | 9 | | | (1) | | | 49 | | | 0 | | | 12 | | | (1) | | |
| Total Available-for-Sale Debt Securities | 117 | | | (2) | | | 9 | | | (1) | | | 148 | | | (2) | | | 42 | | | (1) | | |
| NDT Trust Investments | $ | 327 | | | $ | (25) | | | $ | 39 | | | $ | (15) | | | $ | 197 | | | $ | (5) | | | $ | 82 | | | $ | (13) | | |
| | | | | | | | | | | | | | | | | |
(A)Equity Securities—Investments in marketable equity securities within the NDT Fund are primarily in common stocks within a broad range of industries and sectors. Unrealized gains and losses on these securities are recorded in Net Income.
(B)Debt Securities (Government)—Unrealized gains and losses on these securities are recorded in Accumulated Other Comprehensive Income (Loss). The unrealized losses on PSEG Power’s NDT investments in U.S. Treasury obligations and Federal Agency mortgage-backed securities were caused by interest rate changes. PSEG Power also has investments in municipal bonds. It is not expected that these securities will settle for less than their amortized cost. PSEG Power does not intend to sell these securities nor will it be more-likely-than-not required to sell before recovery of their amortized cost. PSEG Power did not recognize credit losses for U.S. Treasury obligations and Federal Agency mortgage-backed securities because these investments are guaranteed by the U.S. government or an agency of the U.S. government. PSEG Power did not recognize credit losses for municipal bonds because they are primarily investment grade securities.
(C)Debt Securities (Corporate)—Unrealized gains and losses on these securities are recorded in Accumulated Other Comprehensive Income (Loss). Unrealized losses were due to market declines. It is not expected that these securities would settle for less than their amortized cost. PSEG Power does not intend to sell these securities nor will it be more-likely-than-not required to sell before recovery of their amortized cost. PSEG Power did not recognize credit losses for these corporate bonds because they are primarily investment grade securities.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | As of September 30, 2019 | | As of December 31, 2018 | |
| | Less Than 12 Months | | Greater Than 12 Months | | Less Than 12 Months | | Greater Than 12 Months | |
| | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | |
| | Millions | |
| Equity Securities (A) | | | | | | | | | | | | | | | | |
| Domestic | $ | 69 |
| | $ | (5 | ) | | $ | 6 |
| | $ | (2 | ) | | $ | 147 |
| | $ | (26 | ) | | $ | 5 |
| | $ | (3 | ) | |
| International | 45 |
| | (4 | ) | | 39 |
| | (14 | ) | | 131 |
| | (28 | ) | | 5 |
| | (2 | ) | |
| Total Equity Securities | 114 |
| | (9 | ) | | 45 |
| | (16 | ) | | 278 |
| | (54 | ) | | 10 |
| | (5 | ) | |
| Available-for Sale Debt Securities | | | | | | | | | | | | | | | | |
| Government (B) | 36 |
| | — |
| | 43 |
| | — |
| | 51 |
| | — |
| | 317 |
| | (9 | ) | |
| Corporate (C) | 36 |
| | — |
| | 19 |
| | (2 | ) | | 150 |
| | (5 | ) | | 222 |
| | (10 | ) | |
| Total Available-for-Sale Debt Securities | 72 |
| | — |
| | 62 |
| | (2 | ) | | 201 |
| | (5 | ) | | 539 |
| | (19 | ) | |
| NDT Trust Investments | $ | 186 |
| | $ | (9 | ) | | $ | 107 |
| | $ | (18 | ) | | $ | 479 |
| | $ | (59 | ) | | $ | 549 |
| | $ | (24 | ) | |
| | | | | | | | | | | | | | | | | |
| |
(A) | Equity Securities—Investments in marketable equity securities within the NDT Fund are primarily in common stocks within a broad range of industries and sectors. Unrealized gains and losses on these securities are recorded in Net Income. |
| |
(B) | Debt Securities (Government)—Unrealized gains and losses on these securities are recorded in Accumulated Other Comprehensive Income (Loss). The unrealized losses on PSEG Power’s NDT investments in U.S. Treasury obligations and Federal Agency mortgage-backed securities were caused by interest rate changes. These investments are guaranteed by the U.S. government or an agency of the U.S. government. PSEG Power also has investments in municipal bonds that are primarily in investment grade securities. It is not expected that these securities will settle for less than their amortized cost. Since PSEG Power does not intend to sell these securities nor will it be more-likely-than-not required to sell, PSEG Power does not consider these debt securities to be other-than-temporarily impaired as of September 30, 2019. |
| |
(C) | Debt Securities (Corporate)—Unrealized gains and losses on these securities are recorded in Accumulated Other Comprehensive Income (Loss). PSEG Power’s investments in corporate bonds are primarily in investment grade securities. It is not expected that these securities would settle for less than their amortized cost. Since PSEG Power does not intend to sell these securities nor will it be more-likely-than-not required to sell, PSEG Power does not consider these debt securities to be other-than-temporarily impaired as of September 30, 2019. |
The proceeds from the sales of and the net gains (losses) on securities in the NDT Fund were: |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| | Millions | |
| Proceeds from NDT Fund Sales (A) | $ | 365 |
| | $ | 231 |
| | $ | 1,245 |
| | $ | 1,005 |
| |
| Net Realized Gains (Losses) on NDT Fund | | | | | | | | |
| Gross Realized Gains | $ | 27 |
| | $ | 17 |
| | $ | 90 |
| | $ | 75 |
| |
| Gross Realized Losses | (11 | ) | | (7 | ) | | (43 | ) | | (29 | ) | |
| Net Realized Gains (Losses) on NDT Fund (B) | $ | 16 |
| | $ | 10 |
| | $ | 47 |
| | $ | 46 |
| |
| Unrealized Gains (Losses) on Equity Securities in NDT Fund | (21 | ) | | $ | 34 |
| | 111 |
| | (16 | ) | |
| Net Gains (Losses) on NDT Fund Investments | $ | (5 | ) | | $ | 44 |
| | $ | 158 |
| | $ | 30 |
| |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2020 | | 2019 | | 2020 | | 2019 | |
| | Millions | |
| Proceeds from NDT Fund Sales (A) | $ | 583 | | | $ | 365 | | | $ | 1,631 | | | $ | 1,245 | | |
| Net Realized Gains (Losses) on NDT Fund | | | | | | | | |
| Gross Realized Gains | $ | 91 | | | $ | 27 | | | $ | 161 | | | $ | 90 | | |
| Gross Realized Losses | (23) | | | (11) | | | (77) | | | (43) | | |
| Net Realized Gains (Losses) on NDT Fund (B) | 68 | | | 16 | | | 84 | | | 47 | | |
| Unrealized Gains (Losses) on Equity Securities | 34 | | | (21) | | | (5) | | | 111 | | |
| Impairment of Available-for-Sale Debt Securities (C) | 0 | | | 0 | | | (3) | | | 0 | | |
| Net Gains (Losses) on NDT Fund Investments | $ | 102 | | | $ | (5) | | | $ | 76 | | | $ | 158 | | |
| | | | | | | | | |
(A)Includes activity in accounts related to the liquidation of funds being transitioned to new managers.
(B)The cost of these securities was determined on the basis of specific identification.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(C)PSEG Power recognized an impairment of available-for-sale debt securities that it intends to sell. PSEG Power’s policy is to sell all such securities that are rated below investment grade.
(UNAUDITED)
The NDT Fund debt securities held as of September 30, 20192020 had the following maturities:
|
| | | | | | |
| | | | |
| Time Frame | | Fair Value | |
| | | Millions | |
| Less than one year | | $ | 26 |
| |
| 1 - 5 years | | 267 |
| |
| 6 - 10 years | | 192 |
| |
| 11 - 15 years | | 55 |
| |
| 16 - 20 years | | 74 |
| |
| Over 20 years | | 448 |
| |
| Total NDT Available-for-Sale Debt Securities | $ | 1,062 |
| |
| | | | |
| | | | | | | | | | | | | | |
| | | | |
| Time Frame | | Fair Value | |
| | | Millions | |
| Less than one year | | $ | 25 | | |
| 1 - 5 years | | 276 | | |
| 6 - 10 years | | 205 | | |
| 11 - 15 years | | 79 | | |
| 16 - 20 years | | 76 | | |
| Over 20 years | | 478 | | |
| Total NDT Available-for-Sale Debt Securities | $ | 1,139 | | |
| | | | |
PSEG Power periodically assesses individual debt securities whose fair value is less than amortized cost to determine whether the investments are considered to be other-than-temporarily 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 inof the valuenoncredit loss component of these securitiesthe impairment would be recognized inrecorded through Accumulated Other Comprehensive Income (Loss) unless. Any subsequent recoveries of the securities are sold, in which case, any gaincredit loss component would be recognized in income.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 fair values, gross unrealized gains and losses and amortized cost basis for the securities held in the Rabbi Trust.
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | As of September 30, 2019 | |
| | Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | |
| | Millions | |
| Domestic Equity Securities | $ | 20 |
| | $ | 5 |
| | $ | — |
| | $ | 25 |
| |
| Available-for-Sale Debt Securities | | | | | | | | |
| Government | 101 |
| | 8 |
| | — |
| | 109 |
| |
| Corporate | 105 |
| | 7 |
| | — |
| | 112 |
| |
| Total Available-for-Sale Debt Securities | 206 |
| | 15 |
| | — |
| | 221 |
| |
| Total Rabbi Trust Investments | $ | 226 |
| | $ | 20 |
| | $ | — |
| | $ | 246 |
| |
| | | | | | | | | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | As of September 30, 2020 | |
| | Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | |
| | Millions | |
| Domestic Equity Securities | $ | 20 | | | $ | 7 | | | $ | 0 | | | $ | 27 | | |
| Available-for-Sale Debt Securities | | | | | | | | |
| Government | 91 | | | 9 | | | 0 | | | 100 | | |
| Corporate | 124 | | | 10 | | | 0 | | | 134 | | |
| Total Available-for-Sale Debt Securities | 215 | | | 19 | | | 0 | | | 234 | | |
| Total Rabbi Trust Investments | $ | 235 | | | $ | 26 | | | $ | 0 | | | $ | 261 | | |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | As of December 31, 2018 | |
| | Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | |
| | Millions | |
| Domestic Equity Securities | $ | 22 |
| | $ | 1 |
| | $ | — |
| | $ | 23 |
| |
| Available-for-Sale Debt Securities | | | | | | | | |
| Government | 110 |
| | 1 |
| | (2 | ) | | 109 |
| |
| Corporate | 96 |
| | — |
| | (4 | ) | | 92 |
| |
| Total Available-for-Sale Debt Securities | 206 |
| | 1 |
| | (6 | ) | | 201 |
| |
| Total Rabbi Trust Investments | $ | 228 |
| | $ | 2 |
| | $ | (6 | ) | | $ | 224 |
| |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | As of December 31, 2019 | |
| | Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | |
| | Millions | |
| Domestic Equity Securities | $ | 21 | | | $ | 7 | | | $ | 0 | | | $ | 28 | | |
| Available-for-Sale Debt Securities | | | | | | | | |
| Government | 100 | | | 4 | | | 0 | | | 104 | | |
| Corporate | 107 | | | 7 | | | 0 | | | 114 | | |
| Total Available-for-Sale Debt Securities | 207 | | | 11 | | | 0 | | | 218 | | |
| Total Rabbi Trust Investments | $ | 228 | | | $ | 18 | | | $ | 0 | | | $ | 246 | | |
| | | | | | | | | |
Net unrealized gains (losses) on debt securities of $11$13 million (after-tax) were included in Accumulated Other Comprehensive Loss on PSEG’s Condensed Consolidated Balance Sheet as of September 30, 2019.2020. The portion of net unrealized gains (losses) recognized during the third quarter and first nine months of 20192020 related to equity securities still held as of September 30, 20192020 was $2 million and less than $1 million and $4 million, respectively.
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.
| | | | | | | | | | | | | | | | | |
| | | | | |
| | As of | | As of | |
| | September 30, 2020 | | December 31, 2019 | |
| | Millions | |
| Accounts Receivable | $ | 3 | | | $ | 2 | | |
| Accounts Payable | $ | 3 | | | $ | 0 | | |
| | | | | |
|
| | | | | | | | | |
| | | | | |
| | As of | | As of | |
| | September 30, 2019 | | December 31, 2018 | |
| | Millions | |
| Accounts Receivable | $ | 2 |
| | $ | 2 |
| |
| Accounts Payable | $ | — |
| | $ | — |
| |
| | | | | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | As of September 30, 2019 | | As of December 31, 2018 | |
| | Less Than 12 Months | | Greater Than 12 Months | | Less Than 12 Months | | Greater Than 12 Months | |
| | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | |
| | Millions | |
| Available-for-Sale Debt Securities | | | | | | | | | | | | | | | | |
| Government (A) | $ | 10 |
| | $ | — |
| | $ | 5 |
| | $ | — |
| | $ | 18 |
| | $ | — |
| | $ | 59 |
| | $ | (2 | ) | |
| Corporate (B) | 9 |
| | — |
| | 4 |
| | — |
| | 50 |
| | (3 | ) | | 29 |
| | (1 | ) | |
| Total Available-for-Sale Debt Securities | 19 |
| | — |
| | 9 |
| | — |
| | 68 |
| | (3 | ) | | 88 |
| | (3 | ) | |
| Rabbi Trust Investments | $ | 19 |
| | $ | — |
| | $ | 9 |
| | $ | — |
| | $ | 68 |
| | $ | (3 | ) | | $ | 88 |
| | $ | (3 | ) | |
| | | | | | | | | | | | | | | | | |
| |
(A) | Debt Securities (Government)—Unrealized gains and losses on these securities are recorded in Accumulated Other Comprehensive Income (Loss). The unrealized losses on PSEG’s Rabbi Trust investments in U.S. Treasury obligations and Federal Agency mortgage-backed securities were caused by interest rate changes. These investments are guaranteed by the U.S. government or an agency of the U.S. government. PSEG also has investments in municipal bonds that are primarily in investment grade securities. It is not expected that these securities will settle |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | As of September 30, 2020 | | As of December 31, 2019 | |
| | Less Than 12 Months | | Greater Than 12 Months | | Less Than 12 Months | | Greater Than 12 Months | |
| | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | |
| | Millions | |
| Available-for-Sale Debt Securities | | | | | | | | | | | | | | | | |
| Government (A) | $ | 21 | | | $ | 0 | | | $ | 1 | | | $ | 0 | | | $ | 26 | | | $ | 0 | | | $ | 3 | | | $ | 0 | | |
| Corporate (B) | 18 | | | 0 | | | 1 | | | 0 | | | 11 | | | 0 | | | 2 | | | 0 | | |
| Total Available-for-Sale Debt Securities | 39 | | | 0 | | | 2 | | | 0 | | | 37 | | | 0 | | | 5 | | | 0 | | |
| | | | | | | | | | | | | | | | | |
| Rabbi Trust Investments | $ | 39 | | | $ | 0 | | | $ | 2 | | | $ | 0 | | | $ | 37 | | | $ | 0 | | | $ | 5 | | | $ | 0 | | |
| | | | | | | | | | | | | | | | | |
Debt Securities (Government)—Unrealized gains and losses on these securities are recorded in Accumulated Other Comprehensive Income (Loss). The unrealized losses on PSEG’s Rabbi Trust investments in U.S. Treasury obligations and Federal Agency mortgage-backed securities were caused by interest rate changes. PSEG also has investments in municipal bonds. It is not expected that these securities will settle for less than their amortized cost. Since PSEG does not intend to sell these securities nor will it be more-likely-than-not required to sell before recovery of their amortized cost. PSEG did not recognize credit losses for U.S. Treasury obligations and Federal Agency mortgage-backed securities because these investments are guaranteed by the U.S. government or an agency of the U.S. government. PSEG did not recognize credit losses for municipal bonds because they are primarily investment grade securities.
(B)Debt Securities (Corporate)—Unrealized gains and losses on these securities are recorded in Accumulated Other Comprehensive Income (Loss). Unrealized losses were due to market declines. It is not expected that these securities would settle for less than their amortized cost. PSEG does not considerintend to sell these debt securities nor will it be more-likely-than-not required to be other-than-temporarily impaired assell before recovery of September 30, 2019.their amortized cost. PSEG did not recognize credit losses for these corporate bonds because they are primarily investment grade.
| |
(B) | Debt Securities (Corporate)—Unrealized gains and losses on these securities are recorded in Accumulated Other Comprehensive Income (Loss). PSEG’s investments in corporate bonds are primarily in investment grade securities. It is not expected that these securities would settle for less than their amortized cost. Since PSEG does not intend to sell these securities nor will it be more-likely-than-not required to sell, PSEG does not consider these debt securities to be other-than-temporarily impaired as of September 30, 2019. |
The proceeds from the sales of and the net gains (losses) on securities in the Rabbi Trust Fund were:
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| | Millions | |
| Proceeds from Rabbi Trust Sales (A) | $ | 43 |
| | $ | 33 |
| | $ | 129 |
| | $ | 80 |
| |
| Net Realized Gains (Losses) on Rabbi Trust: | | | | | | | | |
| Gross Realized Gains | $ | 3 |
| | $ | — |
| | $ | 5 |
| | $ | 2 |
| |
| Gross Realized Losses | (2 | ) | | (1 | ) | | (3 | ) | | (3 | ) | |
| Net Realized Gains (Losses) on Rabbi Trust (B) | 1 |
| | (1 | ) | | 2 |
| | (1 | ) | |
| Unrealized Gains (Losses) on Equity Securities in Rabbi Trust | 1 |
| | 2 |
| | 4 |
| | 2 |
| |
| Net Gains (Losses) on Rabbi Trust Investments | $ | 2 |
| | $ | 1 |
| | $ | 6 |
| | $ | 1 |
| |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2020 | | 2019 | | 2020 | | 2019 | |
| | Millions | |
| Proceeds from Rabbi Trust Sales (A) | $ | 50 | | | $ | 43 | | | $ | 165 | | | $ | 129 | | |
| Net Realized Gains (Losses) on Rabbi Trust: | | | | | | | | |
| Gross Realized Gains | $ | 4 | | | $ | 3 | | | $ | 14 | | | $ | 5 | | |
| Gross Realized Losses | (1) | | | (2) | | | (4) | | | (3) | | |
| Net Realized Gains (Losses) on Rabbi Trust (B) | 3 | | | 1 | | | 10 | | | 2 | | |
| Unrealized Gains (Losses) on Equity Securities | 2 | | | 1 | | | 1 | | | 4 | | |
| | | | | | | | | |
| Net Gains (Losses) on Rabbi Trust Investments | $ | 5 | | | $ | 2 | | | $ | 11 | | | $ | 6 | | |
| | | | | | | | | |
(A)Includes activity in accounts related to the liquidation of funds being transitioned to new managers.
(B)The cost of these securities was determined on the basis of specific identification.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Rabbi Trust debt securities held as of September 30, 20192020 had the following maturities:
|
| | | | | | |
| | | | |
| Time Frame | | Fair Value | |
| | | Millions | |
| Less than one year | | $ | 4 |
| |
| 1 - 5 years | | 30 |
| |
| 6 - 10 years | | 33 |
| |
| 11 - 15 years | | 12 |
| |
| 16 - 20 years | | 27 |
| |
| Over 20 years | | 115 |
| |
| Total Rabbi Trust Available-for-Sale Debt Securities | $ | 221 |
| |
| | | | |
| | | | | | | | | | | | | | |
| | | | |
| Time Frame | | Fair Value | |
| | | Millions | |
| Less than one year | | $ | 0 | | |
| 1 - 5 years | | 35 | | |
| 6 - 10 years | | 35 | | |
| 11 - 15 years | | 14 | | |
| 16 - 20 years | | 32 | | |
| Over 20 years | | 118 | | |
| Total Rabbi Trust Available-for-Sale Debt Securities | $ | 234 | | |
| | | | |
PSEG periodically assesses individual debt securities whose fair value is less than amortized cost to determine whether the investments are considered to be other-than-temporarily 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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The fair value of the Rabbi Trust related to PSEG, PSE&G and PSEG Power areis detailed as follows:
|
| | | | | | | | | |
| | | | | |
| | As of | | As of | |
| | September 30, 2019 | | December 31, 2018 | |
| | Millions | |
| PSE&G | $ | 48 |
| | $ | 45 |
| |
| PSEG Power | 62 |
| | 56 |
| |
| Other | 136 |
| | 123 |
| |
| Total Rabbi Trust Investments | $ | 246 |
| | $ | 224 |
| |
| | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | |
| | As of | | As of | |
| | September 30, 2020 | | December 31, 2019 | |
| | Millions | |
| PSE&G | $ | 51 | | | $ | 48 | | |
| PSEG Power | 65 | | | 62 | | |
| Other | 145 | | | 136 | | |
| Total Rabbi Trust Investments | $ | 261 | | | $ | 246 | | |
| | | | | |
Note 10. Pension and Other Postretirement Benefits (OPEB)
PSEG sponsors qualified and nonqualified pension plans and OPEB plans covering PSEG’s and its participating affiliates’ current and former employees who meet certain eligibility criteria.
In late June 2019, PSEG, approved a plan amendmentPSE&G and PSEG Power are required to its qualifiedrecord the under or over funded positions of their defined benefit pension plan, effective July 1, 2019. The amendment involved the spin-offand OPEB plans on their respective balance sheets. Such funding positions of predominantly active participants from the existing qualified pension plan into a new qualified pension plan. Benefits offeredeach PSEG company are required to the plan participants remain unchanged. As a resultbe measured as of the amendment, the existing plan’s pension benefit obligations, as well as the asset values, were remeasured asdate of July 1, 2019. The weighted average discount rate for the combined plans decreased from 4.41% to 3.65%. The expected long-term rate of return on plan assets remains at 7.80%. Actuarial gains and losses associated with the existing plan will be amortized over the average remaining life expectancy of the inactive participants (as opposed to the average remaining service of active participants prior to the plan being split). Actuarial gains and losses associated with the new plan will be amortized over the average remaining service of active participants. The combined remeasured qualified pension plans’ projected benefit obligation as of July 1, 2019 was $6.4 billion.their respective year-end Consolidated Balance Sheets.
In December 2018, PSEG amended certain provisions of its OPEB plans applicable to all current and future Medicare-eligible retirees and spouses who receive or will receive subsidized healthcare from PSEG. Effective January 1, 2021, the PSEG-sponsored Medicare-eligible plans will be replaced by a Medicare private exchange. For each Medicare-eligible retiree and spouse, PSEG will provide annual credits to a Health Reimbursement Arrangement, which can be used to pay for medical, prescription drug, and dental plan premiums, as well as certain out-of-pocket costs. The amendment resulted in a $559 million reduction in PSEG’s OPEB obligation as of December 31, 2018.
The following table provides the components of net periodic benefit costs 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 and co-owner allocations. Only the service cost component is eligible for capitalization, when applicable.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | Pension Benefits | | OPEB | | Pension Benefits | | OPEB | |
| | Three Months Ended | | Three Months Ended | | Nine Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | | September 30, | | September 30, | |
| | 2019 |
| | 2018 | | 2019 |
| | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | |
| | Millions | |
| Components of Net Periodic Benefit (Credits) Costs | | | | | | | | | | | | | | | | |
| Service Cost (included in O&M Expense) | $ | 33 |
| | $ | 32 |
| | $ | 2 |
| | $ | 4 |
| | $ | 90 |
| | $ | 97 |
| | $ | 7 |
| | $ | 13 |
| |
| Non-Service Components of Pension and OPEB (Credits) Costs | | | | | | | | | | | | | | | | |
| Interest Cost | 51 |
| | 52 |
| | 12 |
| | 16 |
| | 167 |
| | 156 |
| | 34 |
| | 49 |
| |
| Expected Return on Plan Assets | (108 | ) | | (111 | ) | | (9 | ) | | (9 | ) | | (301 | ) | | (331 | ) | | (27 | ) | | (30 | ) | |
| Amortization of Net | | | | | | | | | | | | | | | | |
| Prior Service Credit | (4 | ) | | (4 | ) | | (32 | ) | | (1 | ) | | (13 | ) | | (13 | ) | | (96 | ) | | (1 | ) | |
| Actuarial Loss | 21 |
| | 22 |
| | 13 |
| | 16 |
| | 75 |
| | 64 |
| | 38 |
| | 48 |
| |
| Non-Service Components of Pension and OPEB (Credits) Costs | (40 | ) | | (41 | ) | | (16 | ) | | 22 |
| | (72 | ) | | (124 | ) | | (51 | ) | | 66 |
| |
| Total Benefit (Credits) Costs | $ | (7 | ) | | $ | (9 | ) | | $ | (14 | ) | | $ | 26 |
| | $ | 18 |
| | $ | (27 | ) | | $ | (44 | ) | | $ | 79 |
| |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | Pension Benefits | | OPEB | | Pension Benefits | | OPEB | |
| | Three Months Ended | | Three Months Ended | | Nine Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | | September 30, | | September 30, | |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | |
| | Millions | |
| Components of Net Periodic Benefit (Credits) Costs | | | | | | | | | | | | | | | | |
| Service Cost (included in O&M Expense) | $ | 36 | | | $ | 33 | | | $ | 2 | | | $ | 2 | | | $ | 106 | | | $ | 90 | | | $ | 7 | | | $ | 7 | | |
| Non-Service Components of Pension and OPEB (Credits) Costs | | | | | | | | | | | | | | | | |
| Interest Cost | 48 | | | 51 | | | 8 | | | 12 | | | 144 | | | 167 | | | 25 | | | 34 | | |
| Expected Return on Plan Assets | (111) | | | (108) | | | (10) | | | (9) | | | (332) | | | (301) | | | (29) | | | (27) | | |
| Amortization of Net | | | | | | | | | | | | | | | | |
| Prior Service Credit | (3) | | | (4) | | | (32) | | | (32) | | | (8) | | | (13) | | | (96) | | | (96) | | |
| Actuarial Loss | 23 | | | 21 | | | 12 | | | 13 | | | 69 | | | 75 | | | 35 | | | 38 | | |
| Non-Service Components of Pension and OPEB (Credits) Costs | (43) | | | (40) | | | (22) | | | (16) | | | (127) | | | (72) | | | (65) | | | (51) | | |
| Total Benefit (Credits) Costs | $ | (7) | | | $ | (7) | | | $ | (20) | | | $ | (14) | | | $ | (21) | | | $ | 18 | | | $ | (58) | | | $ | (44) | | |
| | | | | | | | | | | | | | | | | |
Pension and OPEB
(credits) costs for PSE&G, PSEG Power and PSEG’s other subsidiaries, excluding Servco, are detailed as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | Pension Benefits | | OPEB | | Pension Benefits | | OPEB | |
| | Three Months Ended | | Three Months Ended | | Nine Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | | September 30, | | September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | |
| | Millions | |
| PSE&G | $ | (6 | ) | | $ | (8 | ) | | $ | (14 | ) | | $ | 17 |
| | $ | 7 |
| | $ | (23 | ) | | $ | (46 | ) | | $ | 51 |
| |
| PSEG Power | (2 | ) | | (2 | ) | | — |
| | 8 |
| | 5 |
| | (7 | ) | | 2 |
| | 24 |
| |
| Other | 1 |
| | 1 |
| | — |
| | 1 |
| | 6 |
| | 3 |
| | — |
| | 4 |
| |
| Total Benefit (Credits) Costs | $ | (7 | ) | | $ | (9 | ) | | $ | (14 | ) | | $ | 26 |
| | $ | 18 |
| | $ | (27 | ) | | $ | (44 | ) | | $ | 79 |
| |
| | | | | | | | | | | | | | | | | |
During | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | Pension Benefits | | OPEB | | Pension Benefits | | OPEB | |
| | Three Months Ended | | Three Months Ended | | Nine Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | | September 30, | | September 30, | |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | |
| | Millions | |
| PSE&G | $ | (7) | | | $ | (6) | | | $ | (19) | | | $ | (14) | | | $ | (20) | | | $ | 7 | | | $ | (57) | | | $ | (46) | | |
| PSEG Power | (1) | | | (2) | | | 0 | | | 0 | | | (4) | | | 5 | | | 0 | | | 2 | | |
| Other | 1 | | | 1 | | | (1) | | | 0 | | | 3 | | | 6 | | | (1) | | | 0 | | |
| Total Benefit (Credits) Costs | $ | (7) | | | $ | (7) | | | $ | (20) | | | $ | (14) | | | $ | (21) | | | $ | 18 | | | $ | (58) | | | $ | (44) | | |
| | | | | | | | | | | | | | | | | |
PSEG does not plan to contribute to its pension and OPEB plans in 2020. IRS minimum funding requirements for pension plans are determined based on the three months ended March 31, 2019, PSEG contributed its entire 2019 annual planned contributionfund’s assets and liabilities at the end of $10 million into its OPEB plan.a calendar year for the subsequent calendar year. As a result, the market downturn associated with the ongoing coronavirus pandemic is not expected to impact PSEG’s pension contributions in 2020.
Servco Pension and OPEB
At the direction of LIPA, Servco sponsors benefit plans that cover its current and former employees who meet certain eligibility criteria. Under the OSA, all of these and any future employee benefit costs are to be funded by LIPA. See Note 5. 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’s pension-related revenues and costs were $14 million and $28 million for the three months and nine months ended September 30, 2019, respectively. As of September 30, 2019,2020, Servco completed its entire 20192020 annual planned contribution into its pension plan. IRS minimum funding requirements for pension plans are determined based on the fund’s assets and liabilities at the end of a calendar year for the subsequent calendar year. As a result, the market downturn associated with the ongoing coronavirus pandemic did not impact
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Servco’s pension contributions in 2020.Servco’s pension-related revenues and costs were $20$15 million and $40$14 million for the three months ended September 30, 2020 and 2019, respectively, and $30 million and $28 million for the nine months ended September 30, 2018,2020 and 2019, respectively. The OPEB-related revenues earned and costs incurred were $3 million and $1 million for each of the three months ended September 30, 2020 and 2019, and 2018,$7 million and $4 million for each of the nine months ended September 30, 2020 and 2019, and 2018.respectively.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 11. Commitments and Contingent Liabilities
Guaranteed Obligations
PSEG Power’s activities primarily involve the purchase and sale of energy and 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, cash-related instruments or guarantees as a form of collateral.
PSEG Power has unconditionally guaranteed payments to counterparties byon behalf of its subsidiaries in commodity-related transactions in order to
•support current exposure, interest and other costs on sums due and payable in the ordinary course of business, and
•obtain credit.
PSEG Power is subject to
•counterparty collateral calls related to commodity contracts of its subsidiaries, and
•certain creditworthiness standards as guarantor under performance guarantees of its subsidiaries.
Under these agreements, guarantees cover lines of credit between entities and are 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,
•its subsidiaries would have to fully utilize the credit granted to them by every counterparty to whom PSEG Power has provided a guarantee, and
•the net position of the related contracts would have to be “out-of-the-money” (if the contracts are terminated, PSEG Power would owe money to the counterparties).
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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following table shows the face value of PSEG Power’s outstanding guarantees, current exposure and margin positions as of September 30, 20192020 and December 31, 2018.2019.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
| | | | | | | | | |
| | | | | |
| | As of | | As of | |
| | September 30, 2019 | | December 31, 2018 | |
| | Millions | |
| Face Value of Outstanding Guarantees | $ | 1,827 |
| | $ | 1,772 |
| |
| Exposure under Current Guarantees | $ | 134 |
| | $ | 198 |
| |
| | | | | |
| Letters of Credit Margin Posted | $ | 137 |
| | $ | 115 |
| |
| Letters of Credit Margin Received | $ | 34 |
| | $ | 26 |
| |
| | | | | |
| Cash Deposited and Received: | | | | |
| Counterparty Cash Margin Deposited | $ | — |
| | $ | — |
| |
| Counterparty Cash Margin Received | $ | (3 | ) | | $ | (10 | ) | |
| Net Broker Balance Deposited (Received) | $ | 95 |
| | $ | 403 |
| |
| | | | | |
| Additional Amounts Posted: | | | | |
| Other Letters of Credit | $ | 53 |
| | $ | 52 |
| |
| | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | |
| | As of | | As of | |
| | September 30, 2020 | | December 31, 2019 | |
| | Millions | |
| Face Value of Outstanding Guarantees | $ | 1,828 | | | $ | 1,854 | | |
| Exposure under Current Guarantees | $ | 86 | | | $ | 171 | | |
| | | | | |
| Letters of Credit Margin Posted | $ | 135 | | | $ | 121 | | |
| Letters of Credit Margin Received | $ | 42 | | | $ | 29 | | |
| | | | | |
| Cash Deposited and Received: | | | | |
| Counterparty Cash Collateral Deposited | $ | 0 | | | $ | 0 | | |
| Counterparty Cash Collateral Received | $ | (1) | | | $ | (4) | | |
| Net Broker Balance Deposited (Received) | $ | 57 | | | $ | 48 | | |
| | | | | |
| Additional Amounts Posted: | | | | |
| Other Letters of Credit | $ | 52 | | | $ | 82 | | |
| | | | | |
As part of determining credit exposure, PSEG Power nets receivables and payables with the corresponding net fair values of energy contracts. See Note 13. 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 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 1 site that was transferred to PSEG Power.
Certain Potentially Responsible Parties (PRPs), including PSE&G and PSEG Power, formed a Cooperating Parties Group (CPG) and agreed to conduct a Remedial Investigation and Feasibility Study of the LPRSA. The CPG allocated, on an interim basis, the associated costs among its members. The interim allocation is subject to change. In June 2019, the EPA conditionally approved the CPG’s Remedial Investigation. In August 2019,May 2020, the CPG submitted a revised draft Feasibility Study (FS) to the EPA which evaluated various adaptive management scenarios for the remediation of only the upper 9 miles of the LPRSA.LPRSA and incorporated the EPA’s comments on an earlier FS draft. The EPA’s selection of its preferred adaptive management scenario will be subject to public review and comment prior to the EPA’s announcement of a final selection, which is expected in 2021.
Separately, the EPA has released a Record of Decision (ROD) for the LPRSA’s lower 8.3 miles that requires the removal of sediments at an estimated cost of $2.3 billion (ROD Remedy). An EPA-commenced process to allocate the associated costs is underway and PSEG cannot predict the outcome. The allocation does not address certain costs incurred by the EPA for which they may be entitled to reimbursement and which may be material. Occidental Chemical Corporation (OCC), one of the PRPs, has commenced the design of the ROD Remedy, but declined to participate in the allocation process. Instead, it filed suit against PSE&G and others seeking cost recovery and contribution under CERCLA.CERCLA but has not quantified alleged damages. The litigation is ongoing and PSEG cannot predict the outcome.
Two PRPs, Tierra Solutions, Inc. (Tierra) and Maxus Energy Corporation (Maxus), have filed for Chapter 11 bankruptcy. The trust representing the creditors in this proceeding has filed a complaint asserting claims against Tierra’s and Maxus’ current and former parent entities, among others. Any damages awarded may be used to fund the remediation of the LPRSA.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
As of September 30, 2019,2020, PSEG has accrued approximately $65 million accrued for this matter. Of this amount, PSE&G has accrued $52 million as an Environmental Costs Liability of $52 million and a corresponding Regulatory Asset based on its continued ability to recover such costs in its rates. PSEG Power has accrued $13 million as an Other Noncurrent Liability with the corresponding O&M Expense.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 continued ability to recover the costs in its rates is determined, it is not possible to predict this matter’s ultimate impact on
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
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.
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 11 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 partythird-party purchaser, along with the assumption of the environmental liabilities for the site.
MGPManufactured 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 $364$339 million and $407$377 million on an undiscounted basis through 2023, including its $52 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 $364$339 million as of September 30, 2019.2020. Of this amount, $69$78 million was recorded in Other Current Liabilities and $295$261 million was reflected as Environmental Costs in Noncurrent Liabilities. PSE&G has recorded a $364$339 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 has agreed to conductis conducting sampling in the Passaic River to delineate coal tar from certain MGP sites that abut the Passaic River Superfund site. PSEG cannot determine at this time whether this will have an impact on the Passaic River Superfund remedy.
Clean Water Act (CWA) Section 316(b) Rule
The EPA’s CWA Section 316(b) rule establishes requirements for the regulation of cooling water intakes at existing power plants and industrial facilities with a design flow of more than two million gallons of water per day. The EPA requires that National Pollutant Discharge Elimination System permits be renewed every five years and that each state Permitting Director manage renewal permits for its respective power generation facilities on a case by case basis. The NJDEP manages the permits under the New Jersey Pollutant Discharge Elimination System (NJPDES) program. Connecticut and New York also have permits to manage their respective pollutant discharge elimination system programs.
In June 2016, the NJDEP issued a final NJPDES 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. The NJDEP had granted the hearing request but no hearing date has been established.
State permitting decisions at Bridgeport and New Haven could also have a material impact on PSEG Power’s ability to renew permits at its existing larger once-through cooled plants without making significant upgrades to existing intakes and cooling systems.
PSEG Power is unable to predict the outcome of these permitting decisions and the effect, if any, that they may have on PSEG Power’s future capital requirements, financial condition or results of operations.
To address compliance with the EPA’s CWA Section 316(b) rule at Bridgeport Harbor Station Unit 3 (BH3), PSEG Power has proposed to continue to operate BH3 without making the capital expenditures for modification to the existing intake structure and retire BH3 in 2021, which is four years earlier than the previously estimated useful life ending in 2025.
PSEG Power has entered into a Community Environmental Benefit Agreement (CEBA) with the City of Bridgeport, Connecticut and local community organizations. That CEBA provides that PSEG Power would retire BH3 early if all of its conditions precedent occur, which include receipt of all final permits to build and operate a proposed new combined cycle generating facility on the same site that BH3 currently operates. Absent those conditions being met, and the permit for the
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
cooling water intake structure referred to above not being issued, PSEG Power may seek to operate BH3 through the previously estimated useful life.
In February 2016, the proposed new generating facility at Bridgeport Harbor was awarded a capacity obligation. The Connecticut Siting Council issued an order to approve siting BH5. In June 2019, BH5 began commercial operations. PSEG Power’s obligations under the CEBA are being monitored regularly and carried out as needed.
Jersey City, New Jersey Subsurface Feeder Cable Matter
In October 2016, a discharge of dielectric fluid from subsurface feeder cables located in the Hudson River near Jersey City, New Jersey, was identified and reported to the NJDEP. The feeder cables are located within a subsurface easement granted to PSE&G by the property owners, Newport Associates Development Company (NADC) and Newport Associates Phase I
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Developer Limited Partnership. The feeder cables are subject to agreements between PSE&G and Consolidated Edison Company of New York, Inc. (Con Edison) and are jointly owned by PSE&G and Con Edison, with PSE&G owning the portion of the cables locatedEdison. The impacted cable was repaired in New Jersey and Con Edison owning the portion of the cables located in New York. The NJDEP declared an emergency and an emergencySeptember 2017. A federal response action was undertaken to investigate, contain, remediate and stop the fluid discharge; to assess, repair and restore the cables to good working order, if feasible; and to restore the property. The regulatory agencies overseeing the emergency response, includinginitially led by the U.S. Coast Guard, the NJDEP and the Army Corps of Engineers, issued multiple notices, orders and directives to the various parties related to this matter and the parties may also be subject to the assessment of civil penalties related to the discharge and response.Guard. The U.S. Coast Guard transitioned control of the federal response to the EPA, in May 2018. In August 2018,and the EPA ended the federal response to the matter.matter in 2018. The response has now transitioned to the NJDEP site remediation program.
The impacted cable was repaired in late September 2017; however,investigation of small amounts of residual dielectric fluid believed to be contained withinwith the marina sediment continue to appear on the surface and response actions related to the fluid discharge areis ongoing although at a significantly reduced scale. PSE&G remains concerned about future leaks and potential environmental impacts as a result of reintroduction of fluid back into these lines and has determined that retirementpart of the affected facilities is appropriate.NJDEP site remediation program. In August 2020, PSE&G has been unablefinalized a settlement with the federal government regarding the reimbursement of costs associated with the federal response to reachthis matter and payment of civil penalties of an agreement with Con Edison and, as a result, in May 2018, PSE&G filed an action at FERC to resolve the matter. FERC dismissed PSE&G’s Complaint against Con Edison in September 2018 and PSE&G challenged FERC’s decision. In September 2019, FERC denied PSE&G’s challenge to the order dismissing the Complaint. Also ongoing is theimmaterial amount.
A lawsuit in federal court is pending to determine ultimate responsibility for the costs to address the leak among PSE&G, Con Edison and NADC. In addition, Con Edison filed counter claims against PSE&G and NADC, including seeking injunctive relief and damages. Based on the information currently available and depending on the outcome of the federal court action, PSE&G’s portion of the costs to address the leak may be material; however, PSE&G anticipates that it will recover theseits costs, other than civil penalties, through regulatory proceedings.
Basic Generation Service (BGS), BGSS and ZECs
PSE&G obtains its electric supply requirements through the annual New Jersey BGS auctions for two categories of customers who choose not to purchase electric supply from third-party suppliers. The first category, which represents about 80% of PSE&G’s load requirement, 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 (kW) threshold (BGS-Commercial and Industrial Energy Pricing (CIEP)). Pursuant to applicable BPU rules, PSE&G enters into the Supplier Master Agreement with the winners of these BGS auctions following the BPU’s approval of the auction results. PSE&G has entered into contracts with winning BGS suppliers, including PSEG Power, to purchase BGS for PSE&G’s load requirements. The winners of the auction (including PSEG Power) are responsible for fulfilling all the requirements of a PJM Load-Serving Entity including the provision of capacity, energy, ancillary services, transmission 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.
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, 20192020 is $281.78$359.98 per MW-day, replacing the BGS-CIEP auction year price ending May 31, 20192020 of $287.76$281.78 per MW-day. Energy for BGS-CIEP is priced at hourly PJM locational marginal prices for the contract period.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 | | |
| | 2017 | | 2018 | | 2019 | | 2020 | | |
| 36-Month Terms Ending | May 2020 | | May 2021 | | May 2022 | | May 2023 | (A) | |
| Load (MW) | 2,800 | | 2,900 | | 2,800 | | 2,800 | | |
| $ per MWh | $90.78 | | $91.77 | | $98.04 | | $102.16 | | |
| | | | | | | | | | |
|
| | | | | | | | | | |
| | | | | | | | | | |
| | Auction Year | | |
| | 2016 | | 2017 | | 2018 | | 2019 | | |
| 36-Month Terms Ending | May 2019 | | May 2020 | | May 2021 | | May 2022 | (A) | |
| Load (MW) | 2,800 | | 2,800 | | 2,900 | | 2,800 | | |
| $ per MWh | $96.38 | | $90.78 | | $91.77 | | $98.04 | | |
| | | | | | | | | | |
(A)Prices set in the 2020 BGS auction became effective on June 1, 2020 when the 2017 BGS auction agreements expired. | |
(A) | Prices set in the 2019 BGS auction became effective on June 1, 2019 when the 2016 BGS auction agreements expired. |
PSEG Power seeks to mitigate volatility in its results by contracting in advance for the sale of most of its anticipated electric output as well as its anticipated fuel needs. As part of its objective, PSEG Power has entered into contracts to directly supply PSE&G and other New Jersey EDCs with a portion of their respective BGS requirements through the New Jersey BGS auction process, described above.
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 20. 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 2019, PSEG Power’s Salem 1, Salem 2 and Hope Creek nuclear plants
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
were selected to receive ZEC revenue for approximately three years, through May 2022. PSE&G has implemented a tariff to collect a non-bypassable distribution charge in the amount of $0.004 per kilowatt-hourKWh 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. The legislation also requires nuclear plants to reapply for any subsequent three-year periods and allows the BPU to adjust prospective ZEC payments.
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 nuclear fuel commitments cover approximately 100% of its estimated uranium, enrichment and fabrication requirements through 2021 and a significant portion through 2022 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. When there is excess delivery capacity available beyond the needs of PSE&G’s customers, PSEG Power can use the gas to supply its fossil generating stations in New Jersey.
In connection with the sale of its ownership interests in the Keystone and Conemaugh generation plants in September 2019, PSEG Power transferred the related coal purchase commitments to the buyers.
As of September 30, 2019,2020, the total minimum purchase requirements included in these commitments were as follows: |
| | | | | | |
| | | | |
| Fuel Type | | PSEG Power's Share of Commitments through 2023 | |
| | | Millions | |
| Nuclear Fuel | | | |
| Uranium | | $ | 203 |
| |
| Enrichment | | $ | 328 |
| |
| Fabrication | | $ | 141 |
| |
| Natural Gas | | $ | 1,082 |
| |
| | | | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| | | | | | | | | | | | | | |
| | | | |
| Fuel Type | | PSEG Power’s Share of Commitments through 2024 | |
| | | Millions | |
| Nuclear Fuel | | | |
| Uranium | | $ | 180 | | |
| Enrichment | | $ | 279 | | |
| Fabrication | | $ | 152 | | |
| Natural Gas | | $ | 1,164 | | |
| | | | |
Pending FERC Matters
In June 2015, Hudson Power Transmission Developers, LLC (Hudson Power), formerly known as TranSource LLC, a merchant transmission developer, filed a complaint against PJM claiming that PJM wrongfully refused to provide data and a transparent process for evaluating transmission network upgrade requests that the transmission developer had submitted to PJM. Although not named as a respondent, the complaint identifies PSE&G as one of the companies claimed to have been involved. In January 2018, a FERC administrative law judge (ALJ) issued an order generally finding that PJM and transmission owners, including PSE&G, did not engage in wrongful conduct. In addition, the developer’s assertion of an entitlement to monetary damages was expressly denied. However, in a determination disputed by PSE&G, the order found that the PJM process lacked transparency. In August 2019, FERC reversed the ALJ’s decision on the transparency-related findings. FERC did find that PJM violated its Tariff and FERC orders, but found those errors were immaterial and ordered no remedies. Hudson Power filed comments alleging FERC erred in overturning the ALJ’s decision, which was subsequently rejected by FERC. However, Hudson Power has the right to challenge this determination. We are unable to predict the outcome of these proceedings.Matter
PSE&G has also received requests for information and a Notice of Investigation from FERC’s Office of Enforcement concerning a transmission project. PSE&G retained outside counsel to assist with an internal investigation. PSE&G is fully cooperating with FERC’s requests for information and the investigation. It is not possible at this time to predict the outcome of this matter.
Pending Tropical Storm Matter
Following the effects of Tropical Storm Isaias, the New York Attorney General initiated an inquiry into PSEG LI’s preparation and response to the storm. In addition, the Department of Public Service within the New York State Public Service Commission launched an investigation of state electric service providers, including PSEG LI, and other state telephone, cable and internet providers into their preparation and restoration efforts following Tropical Storm Isaias. LIPA also initiated its own review of PSEG LI’s performance. PSEG LI agreed with LIPA that it would fund claims by customers for food and medication spoilage costs incurred as a result of being without electric service during the storm up to the amount of incentive compensation earned by PSEG LI in 2020. PSEG LI does not expect the claims to be material. PSEG LI is fully cooperating in each of these inquiries, which remain ongoing. PSEG LI cannot predict their outcome.
Pending BPU Audit of PSE&G
In September 2020, the BPU ordered the commencement of a comprehensive affiliate and management audit of PSE&G. Phase 1 of the planned audit will review 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 will be a comprehensive management audit, which will address, among other things, executive management, corporate governance, system operations, human resources, cyber security, compliance with customer protection requirements and customer safety. 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, a wholly owned
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 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.
Newark Customer Incident
On the morning of July 5, 2018, PSE&G discontinued electricity to the home of a customer residing in Newark because of outstanding arrears on that customer’s account. Subsequent to the discontinuation of electricity, that customer died on the afternoon of July 5th. The family of the customer, who was on hospice care, raised allegations in the media regarding PSE&G’s conduct surrounding the discontinuation and restoration of electricity to the home of the customer, claiming that the discontinuation of electric service prevented the customer from using life sustaining medical equipment. The BPU initiated an investigation into the matter and that investigation is ongoing. In addition, PSE&G received a grand jury subpoena from the Essex County Prosecutor’s Office (ECPO) for records and correspondence between PSE&G and the customer. PSE&G is fully cooperating with the BPU and the ECPO in both proceedings. PSEG cannot predict the outcome of the pending proceedings regarding this incident at this time.
The PSEG Board of Directors (PSEG Board) retained outside counsel to conduct an independent investigation of the facts surrounding this incident with the full support and cooperation of management. The independent investigation concluded that the disconnection itself was not improper; however, it did identify issues related to PSE&G’s response once it was notified of the disconnection. The PSEG Board reviewed and considered the findings and conclusions of the investigation and PSE&G’s proposed corrective actions. PSE&G’s progress on implementation of the corrective actions will continue to be overseen by the PSEG Board.
Caithness Energy, L.L.C. (Caithness)
In August 2018, Caithness, a Long Island power plant developer, filed a complaint in federal district court in the Eastern District of New York (EDNY) against PSEG and PSEG LI alleging violations of state and federal antitrust laws and a claim of intentional interference of prospective business relations. Caithness alleges that PSEG and PSEG LI interfered with LIPA’s consideration of the Caithness proposal for a 750 MW combined cycle generation project that was identified as a finalist for a Request For Proposal issued by LIPA. The complaint alleges hundreds of millions of dollars of harm. The EDNY granted PSEG’s and PSEG LI’s motion to dismiss the complaint but gave Caithness an opportunity to file an amended claim. Caithness has represented to the court that it will no longer pursue its antitrust claims and is considering whether to file its claim of intentional interference of prospective business relations in state court. PSEG intends to vigorously defend against these allegations. Based upon the preliminary nature of this matter, a loss is not considered probable nor is the amount of loss, if any, estimable as of September 30, 2019.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Hudson Power
In January 2019, Hudson Power filed a complaint against PJM, PSE&G and three other transmission owners in Pennsylvania state court. Hudson Power has sued the transmission owner defendants for fraud and intentional misrepresentation relating to information provided to PJM and FERC regarding the costs of upgrades for Hudson Power’s proposed project. These allegations appear to be based on alleged conduct that is the subject of the Hudson Power proceeding discussed under “Pending FERC Matters.” This action was removed to federal court in the Eastern District of Pennsylvania in February 2019. In light of the FERC proceeding, the federal court granted a motion to stay the federal proceeding until the conclusion of the FERC proceeding. Based upon the preliminary nature of this matter, a loss is not considered probable nor is the amount of loss, if any, estimable as of September 30, 2019.
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, PSE&G and PSEG Power 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, PSE&G’s or PSEG Power’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, PSE&G’s or PSEG Power’s results of operations or liquidity for any particular reporting period.
Ongoing Coronavirus Pandemic
PSE&G, PSEG Power and PSEG LI are providing essential services during this national emergency related to the ongoing coronavirus (COVID-19) pandemic. The ongoing coronavirus pandemic has not had a material impact on our results of operations, financial condition or cash flows for the nine months ended September 30, 2020. However, the potential future impact of the pandemic and the associated economic impacts, which could extend beyond the duration of the pandemic, could have risks that drive certain accounting considerations. The ultimate impact of the ongoing coronavirus pandemic is highly uncertain and cannot be predicted at this time.
Note 12. Debt and Credit Facilities
Long-Term Debt Financing Transactions
The following long-term debt transactions occurred in the nine months ended September 30, 2019:2020:
PSEG
| |
• | issued $750 million of 2.875% Senior Notes due June 2024, and
|
repaid a $350•issued $550 million term loan with an interest rate of 1 month LIBOR + 0.80%. Senior Notes due August 2025, and
•issued $550 million of 1.60% Senior Notes due August 2030.
PSE&G
| |
• | •issued $300 million of 2.45% Secured Medium-Term Notes, Series N, due January 2030, •issued $300 million of 3.15% Secured Medium-Term Notes, Series N, due January 2050, •$400 million of 3.20% Secured Medium-Term Notes, Series M, due August 2049, |
| |
• | issued $375 million of 3.20% Secured Medium-Term Notes, Series M, due May 2029,
|
issued $375 million of 3.85%2.70% Secured Medium-Term Notes, Series M,N, due May 2049,2050,
•issued $375 million of 2.05% Secured Medium-Term Notes, Series N, due August 2050, and
•retired $250 million of 1.80%3.50% Medium-Term Notes, at maturity, and
| |
• | retired $250 million of 2.00% Medium-Term NotesSeries G, at maturity.
|
PSEG Power
PSEG Power executed an extension of the letter of credit backing $44•retired $406 million of Pennsylvania Economic Development Financing Authority Variable Rate Demand Bonds. The existing letter of credit, which was scheduled to expire in November 2019, was extended through March 2022.5.13% Senior Notes at maturity.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Short-Term Liquidity
PSEG meets its short-term liquidity requirements, as well as those of PSEG Power, primarily with cash and through the issuance of commercial paper.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 facilities.
The commitments under the $4.2 billion credit facilities are provided by a diverse bank group. As of September 30, 2019,2020, the total available credit capacity was $3.6$4.0 billion.
As of September 30, 2019,2020, no single institution represented more than 9% of the total commitments in the credit facilities.
As of September 30, 2019,2020, total credit capacity was in excess of the total anticipated maximum liquidity requirements over PSEG’s 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 credit facilities and available liquidity as of September 30, 20192020 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | As of September 30, 2020 | | | | | |
| Company/Facility | | Total Facility | | Usage (D) | | Available Liquidity | | Expiration Date | | Primary Purpose | |
| | | Millions | | | | | |
| PSEG | | | | | | | | | | | |
| 5-year Credit Facilities (A) | | $ | 1,500 | | | $ | 13 | | | $ | 1,487 | | | Mar 2024 | | Commercial Paper Support/Funding/Letters of Credit | |
| Total PSEG | | $ | 1,500 | | | $ | 13 | | | $ | 1,487 | | | | | | |
| PSE&G | | | | | | | | | | | |
| 5-year Credit Facility (B) | | $ | 600 | | | $ | 17 | | | $ | 583 | | | Mar 2024 | | Commercial Paper Support/Funding/Letters of Credit | |
| Total PSE&G | | $ | 600 | | | $ | 17 | | | $ | 583 | | | | | | |
| PSEG Power | | | | | | | | | | | |
| 3-year Letter of Credit Facilities | | $ | 200 | | | $ | 136 | | | $ | 64 | | | Sept 2021 | | Letters of Credit | |
| 5-year Credit Facilities (C) | | 1,900 | | | 39 | | | 1,861 | | | Mar 2024 | | Funding/Letters of Credit | |
| Total PSEG Power | | $ | 2,100 | | | $ | 175 | | | $ | 1,925 | | | | | | |
| Total | | $ | 4,200 | | | $ | 205 | | | $ | 3,995 | | | | | | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | As of September 30, 2019 | | | | | |
| Company/Facility | | Total Facility | | Usage (D) | | Available Liquidity | | Expiration Date | | Primary Purpose | |
| | | Millions | | | | | |
| PSEG | | | | | | | | | | | |
| 5-year Credit Facilities (A) | | $ | 1,500 |
| | $ | 349 |
| | $ | 1,151 |
| | Mar 2023 | | Commercial Paper Support/Funding/Letters of Credit | |
| Total PSEG | | $ | 1,500 |
| | $ | 349 |
| | $ | 1,151 |
| | | | | |
| PSE&G | | | | | | | | | | | |
| 5-year Credit Facility (B) | | $ | 600 |
| | $ | 26 |
| | $ | 574 |
| | Mar 2023 | | Commercial Paper Support/Funding/Letters of Credit | |
| Total PSE&G | | $ | 600 |
| | $ | 26 |
| | $ | 574 |
| | | | | |
| PSEG Power | | | | | | | | | | | |
| 3-year Letter of Credit Facilities | | $ | 200 |
| | $ | 136 |
| | $ | 64 |
| | Sept 2021 | | Letters of Credit | |
| 5-year Credit Facilities (C) | | 1,900 |
| | 40 |
| | 1,860 |
| | Mar 2023 | | Funding/Letters of Credit | |
| Total PSEG Power | | $ | 2,100 |
| | $ | 176 |
| | $ | 1,924 |
| | | | | |
| Total | | $ | 4,200 |
| | $ | 551 |
| | $ | 3,649 |
| | | | | |
| | | | | | | | | | | | |
(A)PSEG facilities will be reduced by $9 million in March 2022.(B)PSE&G facility will be reduced by $4 million in March 2022.
(C)PSEG Power facilities will be reduced by $12 million in March 2022.
(D)The primary use of PSEG’s and PSE&G’s credit facilities is to support their respective Commercial Paper Programs, under which as of September 30, 2020, PSEG and PSE&G had no commercial paper outstanding.
Except as otherwise noted in the table above, in March 2020, PSEG, PSE&G and PSEG Power and their respective lenders agreed to extend the expiration dates on their credit agreements from March 2023 to March 2024.
Short-Term Loans
PSEG
In March 2020, PSEG entered into a $300 million, 364-day variable rate term loan agreement. In April 2020, PSEG entered into two 364-day variable rate term loan agreements for $200 million and $300 million which were prepaid in August 2020.
| |
(A) | PSEG facilities will be reduced by $9 million in March 2022. |
| |
(B) | PSE&G facility will be reduced by $4 million in March 2022. |
| |
(C) | PSEG Power facilities will be reduced by $12 million in March 2022. |
| |
(D) | The primary use of PSEG’s and PSE&G’s credit facilities is to support their respective Commercial Paper Programs, under which as of September 30, 2019, PSEG had $336 million outstanding at a weighted average interest rate of 2.44%. PSE&G had $10 million outstanding at a weighted average interest rate of 2.17% under its Commercial Paper Program as of September 30, 2019. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 13. Financial Risk Management Activities
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, PSEG Power and PSE&G have applied the NPNS scope exception to certain derivative contracts for the forward sale of generation, power procurement agreements and fuel agreements. PSEG uses interest rate swaps and other derivatives, which are designated and effectivequalifying 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.value with changes recognized in earnings.
Commodity Prices
Within PSEG and its affiliate companies, PSEG Power has the most exposure to commodity price risk. PSEG Power is exposed to commodity price risk primarily relating to changes in the market price of electricity, fossil fuels 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 11. Commitments and Contingent Liabilities. Changes in the fair market value of these derivative contracts are recorded in earnings.
Interest Rates
PSEG, PSEG Power and PSE&G 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. In addition, they have used a mix of fixed and floating rate debt and interest rate swaps.
Fair Value Hedges
PSEG enters into fair value hedges to convert fixed-rate debt into variable-rate debt. The changes in fair value of the interest rate swaps are fully offset by changes in the fair value of the underlying forecasted interest payments of the debt. There were no outstanding fair value interest rate swaps as of September 30, 2019 or2020 and December 31, 2018.2019.
Cash Flow Hedges
PSEG uses interest rate swaps and other derivatives, 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. As of September 30, 2019,2020, PSEG had interest rate hedges outstanding totaling $700 million. These hedges convert PSEG’s $700 million variable-rate term loan due November 2020 into a fixed-rate loan. PSEG interest rate hedges totaling $600 million were terminated during the second quarter and a loss of $(12) million was recorded in Accumulated Other Comprehensive Income (Loss) (after tax) and will amortize to interest expense over the remaining life of PSEG’s $750 million of 2.875% Senior Notes due June 2024. For additional information see Note 12. Debt and Credit Facilities.
The fair value of these hedges was $(7)$(2) million and $(5) million as of September 30, 20192020 and there were no outstanding interest rate hedges as of December 31, 2018.2019, respectively. The Accumulated Other Comprehensive Income (Loss) (after tax) related to outstanding and terminated interest rate derivatives designated as cash flow hedges was $(17)$(11) million and $(1)$(15) million as of September 30, 20192020 and December 31, 2018,2019, respectively. The after-tax unrealized losses on these hedges expected to be reclassified to earnings during the next 12 months are $(2)$(4) 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 Power and PSEG. For additional information see Note 14. Fair Value Measurements. The following tabular disclosure does not include the offsetting of trade receivables and payables.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | As of September 30, 2020 | |
| | | PSEG Power (A) | | PSEG (A) | | Consolidated | |
| | | Not Designated | | | | | | Cash Flow Hedges | | | |
| Balance Sheet Location | | Energy- Related Contracts | | Netting (B) | | Total PSEG Power | | Interest Rate Swaps | | Total Derivatives | |
| | | Millions | |
| Derivative Contracts | | | | | | | | | | | |
| Current Assets | | $ | 383 | | | $ | (337) | | | $ | 46 | | | $ | 0 | | | $ | 46 | | |
| Noncurrent Assets | | 133 | | | (116) | | | 17 | | | 0 | | | 17 | | |
| Total Mark-to-Market Derivative Assets | | $ | 516 | | | $ | (453) | | | $ | 63 | | | $ | 0 | | | $ | 63 | | |
| Derivative Contracts | | | | | | | | | | | |
| Current Liabilities | | $ | (333) | | | $ | 327 | | | $ | (6) | | | $ | (2) | | | $ | (8) | | |
| Noncurrent Liabilities | | (126) | | | 125 | | | (1) | | | 0 | | | (1) | | |
| Total Mark-to-Market Derivative (Liabilities) | | $ | (459) | | | $ | 452 | | | $ | (7) | | | $ | (2) | | | $ | (9) | | |
| Total Net Mark-to-Market Derivative Assets (Liabilities) | | $ | 57 | | | $ | (1) | | | $ | 56 | | | $ | (2) | | | $ | 54 | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | As of December 31, 2019 | |
| | | PSEG Power (A) | | PSEG (A) | | Consolidated | |
| | | Not Designated | | | | | | Cash Flow Hedges | | | |
| Balance Sheet Location | | Energy- Related Contracts | | Netting (B) | | Total PSEG Power | | Interest Rate Swaps | | Total Derivatives | |
| | | Millions | |
| Derivative Contracts | | | | | | | | | | | |
| Current Assets | | $ | 636 | | | $ | (523) | | | $ | 113 | | | $ | 0 | | | $ | 113 | | |
| Noncurrent Assets | | 163 | | | (139) | | | 24 | | | 0 | | | 24 | | |
| Total Mark-to-Market Derivative Assets | | $ | 799 | | | $ | (662) | | | $ | 137 | | | $ | 0 | | | $ | 137 | | |
| Derivative Contracts | | | | | | | | | | | |
| Current Liabilities | | $ | (553) | | | $ | 522 | | | $ | (31) | | | $ | (5) | | | $ | (36) | | |
| Noncurrent Liabilities | | (139) | | | 138 | | | (1) | | | 0 | | | (1) | | |
| Total Mark-to-Market Derivative (Liabilities) | | $ | (692) | | | $ | 660 | | | $ | (32) | | | $ | (5) | | | $ | (37) | | |
| Total Net Mark-to-Market Derivative Assets (Liabilities) | | $ | 107 | | | $ | (2) | | | $ | 105 | | | $ | (5) | | | $ | 100 | | |
| | | | | | | | | | | | |
(A)Substantially all of PSEG Power’s and PSEG’s 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, 2020 and December 31, 2019.
(B)Represents the netting of fair value balances with the same counterparty (where the right of offset exists) and the application of collateral. All cash collateral (received) posted that has been allocated to derivative positions, where the right of offset exists, has been offset on the Condensed Consolidated Balance Sheets. As of September 30, 2020 and December 31, 2019, PSEG Power had net cash collateral (receipts) payments to counterparties of $56 million and $44 million, respectively. Of these net cash collateral (receipts) payments, $(1) million and $(2) million as of September 30, 2020 and December 31, 2019, respectively, were netted against the corresponding net derivative contract positions. Of the $(1) million as of September 30, 2020, $(11) million was netted against current assets, $(1) million was netted against noncurrent assets, and $11 million was netted against noncurrent liabilities. Of the $(2) million as of December 31, 2019, $(1) million was netted against current assets and $(1) million was netted against noncurrent assets.
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | As of September 30, 2019 | |
| | | PSEG Power (A) | | PSEG (A) | | Consolidated | |
| | | Not Designated | | | | | | Cash Flow Hedges | | | |
| Balance Sheet Location | | Energy- Related Contracts | | Netting (B) | | Total PSEG Power | | Interest Rate Swaps | | Total Derivatives | |
| | | Millions | |
| Derivative Contracts | | | | | | | | | | | |
| Current Assets | | $ | 361 |
| | $ | (343 | ) | | $ | 18 |
| | $ | — |
| | $ | 18 |
| |
| Noncurrent Assets | | 228 |
| | (201 | ) | | 27 |
| | — |
| | 27 |
| |
| Total Mark-to-Market Derivative Assets | | $ | 589 |
| | $ | (544 | ) | | $ | 45 |
| | $ | — |
| | $ | 45 |
| |
| Derivative Contracts | | | | | | | | | | | |
| Current Liabilities | | $ | (369 | ) | | $ | 343 |
| | $ | (26 | ) | | $ | (6 | ) | | $ | (32 | ) | |
| Noncurrent Liabilities | | (204 | ) | | 200 |
| | (4 | ) | | (1 | ) | | (5 | ) | |
| Total Mark-to-Market Derivative (Liabilities) | | $ | (573 | ) | | $ | 543 |
| | $ | (30 | ) | | $ | (7 | ) | | $ | (37 | ) | |
| Total Net Mark-to-Market Derivative Assets (Liabilities) | | $ | 16 |
| | $ | (1 | ) | | $ | 15 |
| | $ | (7 | ) | | $ | 8 |
| |
| | | | | | | | | | | | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | As of December 31, 2018 | |
| | | PSEG Power (A) | | Consolidated | |
| | | Not Designated | | | | | | | |
| Balance Sheet Location | | Energy- Related Contracts | | Netting (B) | | Total PSEG Power | | Total Derivatives | |
| | | Millions | |
| Derivative Contracts | | | | | | | | | |
| Current Assets | | $ | 426 |
| | $ | (415 | ) | | $ | 11 |
| | $ | 11 |
| |
| Noncurrent Assets | | 137 |
| | (136 | ) | | 1 |
| | 1 |
| |
| Total Mark-to-Market Derivative Assets | | $ | 563 |
| | $ | (551 | ) | | $ | 12 |
| | $ | 12 |
| |
| Derivative Contracts | | | | | | | | | |
| Current Liabilities | | $ | (521 | ) | | $ | 510 |
| | $ | (11 | ) | | $ | (11 | ) | |
| Noncurrent Liabilities | | (198 | ) | | 194 |
| | (4 | ) | | (4 | ) | |
| Total Mark-to-Market Derivative (Liabilities) | | $ | (719 | ) | | $ | 704 |
| | $ | (15 | ) | | $ | (15 | ) | |
| Total Net Mark-to-Market Derivative Assets (Liabilities) | | $ | (156 | ) | | $ | 153 |
| | $ | (3 | ) | | $ | (3 | ) | |
| | | | | | | | | | |
| |
(A) | Substantially all of PSEG Power’s and PSEG’s 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, 2019 and December 31, 2018. |
| |
(B) | Represents the netting of fair value balances with the same counterparty (where the right of offset exists) and the application of collateral. All cash collateral received or posted that has been allocated to derivative positions, where the right of offset exists, has been offset on the Condensed Consolidated Balance Sheets. As of September 30, 2019 and December 31, 2018, PSEG Power had net cash collateral/margin payments to counterparties of $92 million and $393 million, respectively. Of these net cash/collateral margin payments, $(1) million as of September 30, 2019 and $153 million as December 31, 2018 were netted against the corresponding net derivative contract positions. The $(1) million as of September 30, 2019 was netted against noncurrent assets. Of the $153 million as of December 31, 2018, $(2) million was netted against current assets, $(3) million was netted against noncurrent assets, $96 million was netted against current liabilities and $62 million was netted against noncurrent liabilities. |
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
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 three level downgrade from its current S&P or Moody’s 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 also enters 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 $35$16 million and $22$35 million as of September 30, 20192020 and December 31, 2018,2019, respectively. As of September 30, 20192020 and December 31, 2018,2019, PSEG Power had the contractual right of offset of $6$11 million and $7$2 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 $29$5 million and $15$33 million as of September 30, 20192020 and December 31, 2018,2019, 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 Accumulated Other Comprehensive Income (AOCI) of derivative instruments designated as cash flow hedges for the three months and nine months ended September 30, 20192020 and 2018:2019:
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Derivatives in Cash Flow Hedging Relationships | | Amount of Pre-Tax Gain (Loss) Recognized in AOCI on Derivatives | | Location of Pre-Tax Gain (Loss) Reclassified from AOCI into Income | | Amount of Pre-Tax Gain (Loss) Reclassified from AOCI into Income | |
| | Three Months Ended | | | | Three Months Ended | |
| | September 30, | | | | September 30, | |
| | 2019 | | 2018 | | | | 2019 | | 2018 | |
| | | Millions | | | | Millions | |
| PSEG | | | | | | | | | | | |
| Interest Rate Swaps | | $ | — |
| | $ | — |
| | Interest Expense | | $ | (1 | ) | | $ | — |
| |
| Total PSEG | | $ | — |
| | $ | — |
| | | | $ | (1 | ) | | $ | — |
| |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Derivatives in Cash Flow Hedging Relationships | | Amount of Pre-Tax Gain (Loss) Recognized in AOCI on Derivatives | | Location of Pre-Tax Gain (Loss) Reclassified from AOCI into Income | | Amount of Pre-Tax Gain (Loss) Reclassified from AOCI into Income | |
| | Three Months Ended | | | | Three Months Ended | |
| | September 30, | | | | September 30, | |
| | 2020 | | 2019 | | | | 2020 | | 2019 | |
| | | Millions | | | | Millions | |
| PSEG | | | | | | | | | | | |
| | | | | | | | | | | | |
| Interest Rate Swaps | | $ | 0 | | | $ | 0 | | | Interest Expense | | $ | (5) | | | $ | (1) | | |
| Total PSEG | | $ | 0 | | | $ | 0 | | | | | $ | (5) | | | $ | (1) | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Derivatives in Cash Flow Hedging Relationships | | Amount of Pre-Tax Gain (Loss) Recognized in AOCI on Derivatives | | Location of Pre-Tax Gain (Loss) Reclassified from AOCI into Income | | Amount of Pre-Tax Gain (Loss) Reclassified from AOCI into Income | |
| | Nine Months Ended | | | | Nine Months Ended | |
| | September 30, | | | | September 30, | |
| | 2019 | | 2018 | | | | 2019 | | 2018 | |
| | | Millions | | | | Millions | |
| PSEG | | | | | | | | | | | |
| Interest Rate Swaps | | $ | (24 | ) | | $ | — |
| | Interest Expense | | $ | (2 | ) | | $ | — |
| |
| Total PSEG | | $ | (24 | ) | | $ | — |
| | | | $ | (2 | ) | | $ | — |
| |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Derivatives in Cash Flow Hedging Relationships | | Amount of Pre-Tax Gain (Loss) Recognized in AOCI on Derivatives | | Location of Pre-Tax Gain (Loss) Reclassified from AOCI into Income | | Amount of Pre-Tax Gain (Loss) Reclassified from AOCI into Income | |
| | Nine Months Ended | | | | Nine Months Ended | |
| | September 30, | | | | September 30, | |
| | 2020 | | 2019 | | | | 2020 | | 2019 | |
| | | Millions | | | | Millions | |
| PSEG | | | | | | | | | | | |
| | | | | | | | | | | | |
| Interest Rate Swaps | | $ | (6) | | | $ | (24) | | | Interest Expense | | $ | (11) | | | $ | (2) | | |
| Total PSEG | | $ | (6) | | | $ | (24) | | | | | $ | (11) | | | $ | (2) | | |
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| | | | | | | | | | | | |
| | | | | | | | | | | | |
The effect of interest rate cash flow hedges is recorded in Interest Expense in PSEG’s Condensed Consolidated Statement of Operations. For the three months and nine months ended September 30, 2019,2020, the amount of gain or loss on interest rate hedges reclassified from Accumulated Other Comprehensive Income (Loss) into income was $(1)$(4) million after-tax. and $(8) million after-tax, respectively. The amount of gain or loss on interest rate hedges reclassified from Accumulated Other Comprehensive Income (Loss) into income for 2018the three months and nine months ended September 30, 2019 was immaterial.$(1) million.
The following reconciles the Accumulated Other Comprehensive Income (Loss) for derivative activity included in the Accumulated Other Comprehensive Loss of PSEG on a pre-tax and after-tax basis.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
| | | | | | | | | | |
| | | | | | |
| Accumulated Other Comprehensive Income (Loss) | | Pre-Tax | | After-Tax | |
| | | Millions | |
| Balance as of December 31, 2017 | | $ | — |
| | $ | — |
| |
| Loss Recognized in AOCI | | (2 | ) | | (1 | ) | |
| Less: Loss Reclassified into Income | | — |
| | — |
| |
| Balance as of December 31, 2018 | | $ | (2 | ) | | $ | (1 | ) | |
| Loss Recognized in AOCI | | (24 | ) | | (17 | ) | |
| Less: Loss Reclassified into Income | | 2 |
| | 1 |
| |
| Balance as of September 30, 2019 | | $ | (24 | ) | | $ | (17 | ) | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| Accumulated Other Comprehensive Income (Loss) | | Pre-Tax | | After-Tax | |
| | | Millions | |
| | | | | | |
| | | | | | |
| | | | | | |
| Balance as of December 31, 2018 | | $ | (2) | | | $ | (1) | | |
| Loss Recognized in AOCI | | (23) | | | (17) | | |
| Less: Loss Reclassified into Income | | 4 | | | 3 | | |
| Balance as of December 31, 2019 | | $ | (21) | | | $ | (15) | | |
| Loss Recognized in AOCI | | (6) | | | (4) | | |
| Less: Loss Reclassified into Income | | 11 | | | 8 | | |
| Balance as of September 30, 2020 | | $ | (16) | | | $ | (11) | | |
| | | | | | |
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, 20192020 and 2018,2019, 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. The table does not include contracts that PSEG Power has designated as NPNS, such as its BGS contracts and certain other energy supply contracts that it has with other utilities and companies with retail load.
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Derivatives Not Designated as Hedges | | Location of Pre-Tax Gain (Loss) Recognized in Income on Derivatives | | Pre-Tax Gain (Loss) Recognized in Income on Derivatives | |
| | | | | Three Months Ended | | Nine Months Ended | |
| | | | | September 30, | | September 30, | |
| | | | | 2019 | | 2018 | | 2019 | | 2018 | |
| | | | | Millions | |
| PSEG and PSEG Power | | | | | | | | | | | |
| Energy-Related Contracts | | Operating Revenues | | $ | (76 | ) | | $ | (130 | ) | | $ | 385 |
| | $ | (154 | ) | |
| Energy-Related Contracts | | Energy Costs | | (3 | ) | | 5 |
| | (77 | ) | | 12 |
| |
| Total PSEG and PSEG Power | | | | $ | (79 | ) | | $ | (125 | ) | | $ | 308 |
| | $ | (142 | ) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Derivatives Not Designated as Hedges | | Location of Pre-Tax Gain (Loss) Recognized in Income on Derivatives | | Pre-Tax Gain (Loss) Recognized in Income on Derivatives | |
| | | | | Three Months Ended | | Nine Months Ended | |
| | | | | September 30, | | September 30, | |
| | | | | 2020 | | 2019 | | 2020 | | 2019 | |
| | | | | Millions | |
| PSEG and PSEG Power | | | | | | | | | | | |
| Energy-Related Contracts | | Operating Revenues | | $ | (49) | | | $ | (76) | | | $ | 155 | | | $ | 385 | | |
| Energy-Related Contracts | | Energy Costs | | 15 | | | (3) | | | (51) | | | (77) | | |
| Total PSEG and PSEG Power | | | | $ | (34) | | | $ | (79) | | | $ | 104 | | | $ | 308 | | |
| | | | | | | | | | | | |
The following table summarizes the net notional volume purchases/(sales) of open derivative transactions by commodity as of September 30, 20192020 and December 31, 2018.2019.
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. 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 Power’s and PSEG’s financial condition, results of operations or net cash flows.
The following table provides information on PSEG Power’s credit risk from wholesale counterparties, net of collateral, as of September 30, 2019.2020. It further delineates that exposure by the credit rating of the counterparties, which is determined by the lowest rating from S&P, Moody’s or an internal scoring model. In addition, it provides guidance on the concentration of credit risk to individual counterparties and an indication of the quality of PSEG Power’s credit risk by credit rating of the counterparties.
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 guaranty 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, 2019,2020, primarily all of the posted collateral was in the form of parental guarantees. The unsecured credit used by the suppliers represents PSE&G’s net credit exposure. PSE&G’s BGS suppliers’ credit exposure is calculated each business day. As of September 30, 2019,2020, PSE&G had no net credit exposure with suppliers, including PSEG Power.
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.
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” below 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. The preferred stocks are not actively traded on a daily basis and therefore, are also priced using an evaluated pricing methodology. 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.
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’s Risk Management Committee (RMC) approves risk management policies and objectives for risk assessment, control and valuation, counterparty credit approval and the monitoring and reporting of risk exposures. The RMC reports to the Corporate Governance and Audit Committees of the PSEG Board on the scope of the risk management activities and is responsible for approving all valuation procedures at PSEG. Forward price curves for the power market utilized by PSEG Power to manage the portfolio are maintained and reviewed by PSEG’s Enterprise Risk Management market pricing group and used for financial reporting purposes. PSEG considers credit and nonperformance 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 nonperformance risk by counterparty. The impacts of credit and nonperformance risk were not material to the financial statements.
The fair value of PSEG Power’s electric load contracts in which load consumption may change hourly based on demand are measured using certain unobservable inputs, such as historic load variability and, accordingly, are categorized as Level 3. The fair value of PSEG Power’s gas physical contracts at certain illiquid delivery locations are measured using average historical basis and, accordingly, are categorized as Level 3. While these physical gas contracts have an unobservable component in their
respective forward price curves, the fluctuations in fair value have been driven primarily by changes in the observable inputs.
The following tables provide details surrounding significant Level 3 valuations as of September 30, 20192020 and December 31, 2018.2019.
A reconciliation of the beginning and ending balances of Level 3 derivative contracts and securities for the three months and nine months ended September 30, 20192020 and September 30, 2018,2019, respectively, follows:
Changes in Level 3 Assets and (Liabilities) Measured at Fair Value on a Recurring Basis
Changes in Level 3 Assets and (Liabilities) Measured at Fair Value on a Recurring Basis
As of September 30, 2019, PSEG carried $2.4 billion of net assets that are measured at fair value on a recurring basis, of which $1 million of net assets was measured using unobservable inputs and classified as Level 3 within the fair value hierarchy.
Note 15. Other Income (Deductions)
Note 16. Income Taxes
In November 2018, the IRS issued proposed regulations addressing the interest disallowance rules contained in the Tax Act. For non-regulated businesses, these rules set a cap on the amount of interest that can be deducted in a given year. Any amount that is disallowed can be carried forward indefinitely. For 2018 and 2019, PSEG and PSEG Power expect thatthe tax deductibility of a portion of thePSEG’s and PSEG Power’s interest will beexpense was disallowed in the current period but realized in future periods. However, certain aspects of the proposed regulations are unclear. Therefore, PSEGand was recorded taxes based on its interpretation of the relevant statutes.
Note 17. Accumulated Other Comprehensive Income (Loss), Net of Tax
Note 18. Earnings Per Share (EPS) and Dividends
Diluted EPS is calculated by dividing Net Income by the weighted average number of shares of common stock outstanding, including shares issuable upon exercise of stock options outstanding or vesting of restricted stock awards granted under PSEG’s stock compensation plans and upon payment of performance share units or restricted stock units. The following table shows the effect of these stock options, performance share units and restricted stock units on the weighted average number of shares outstanding used in calculating diluted EPS:
Note 19. Financial Information by Business Segment
Note 20. Related-Party Transactions
The following discussion relates to intercompany transactions, which are eliminated during the PSEG consolidation process in accordance with GAAP.
The financial statements for PSEG Power include transactions with related parties presented as follows:
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| |
(A) | (A)PSE&G has entered into a requirements contract with PSEG Power under which PSEG Power provides the gas supply services needed to meet PSE&G’s BGSS and other contractual requirements. PSEG Power has also entered into contracts to supply energy, capacity and ancillary services to PSE&G through the BGS auction process and sells ZECs to PSE&G under the ZEC program. The rates in the BGS and BGSS contracts and for the ZEC sales are prescribed by the BPU. BGS and BGSS sales are billed and settled on a monthly basis. ZEC sales are billed on a monthly basis and settled annually following completion of each energy year. In addition, PSEG Power and PSE&G provide certain technical services for each other generally at cost in compliance with FERC and BPU affiliate rules. |
| |
(B) | Services provides and bills administrative services to PSE&G and PSEG Power at cost. In addition, PSE&G and PSEG Power have other payables to Services, including amounts related to certain common costs, such as pension and OPEB costs, which Services pays on behalf of each of the operating companies. |
| |
(C) | PSEG files a consolidated federal income tax return with its affiliated companies. A tax allocation agreement exists between PSEG and each of its affiliated companies. The general operation of these agreements is that the subsidiary company will compute its taxable income on a stand-alone basis. If the result is a net tax liability, such amount shall be paid to PSEG. If there are net operating losses and/or tax credits, the subsidiary shall receive payment for the tax savings from PSEG to the extent that PSEG is able to utilize those benefits. |
| |
(D) | PSE&G and PSEG Power have advanced working capital to Services. The amounts are included in Other Noncurrent Assets on PSE&G’s and PSEG Power’s Condensed Consolidated Balance Sheets. |
| |
(E) | PSEG Power’s short-term loans with PSEG are for working capital and other short-term needs. Interest Income and Interest Expense relating to these short-term funding activities were immaterial. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 21. Guarantees of Debt
PSEG Power’s Senior Notes are fully and unconditionally and jointly and severally guaranteed by its subsidiaries, PSEG Fossil LLC, PSEG Nuclear LLC and PSEG Energy Resources & Trade LLC. The following tables present condensed financial information for the guarantor subsidiaries, as well as PSEG Power’s non-guarantor subsidiaries, as of September 30, 2019 and December 31, 2018 and for the three monthsZEC sales are prescribed by the BPU. BGS and nine months ended September 30, 2019BGSS sales are billed and 2018. |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | PSEG Power | | Guarantor Subsidiaries | | Other Subsidiaries | | Consolidating Adjustments | | Total | |
| | Millions | |
| Three Months Ended September 30, 2019 | | | | | | | | | | |
| Operating Revenues | $ | — |
| | $ | 748 |
| | $ | 78 |
| | $ | (55 | ) | | $ | 771 |
| |
| Operating Expenses | — |
| | 672 |
| | 75 |
| | (55 | ) | | 692 |
| |
| Operating Income (Loss) | — |
| | 76 |
| | 3 |
| | — |
| | 79 |
| |
| Equity Earnings (Losses) of Subsidiaries | 69 |
| | (10 | ) | | 3 |
| | (59 | ) | | 3 |
| |
| Net Gains (Losses) on Trust Investments | 1 |
| | (5 | ) | | — |
| | — |
| | (4 | ) | |
| Other Income (Deductions) | 42 |
| | 53 |
| | — |
| | (80 | ) | | 15 |
| |
| Non-Operating Pension and OPEB Credits (Costs) | — |
| | 7 |
| | 1 |
| | — |
| | 8 |
| |
| Interest Expense | (71 | ) | | (27 | ) | | (16 | ) | | 80 |
| | (34 | ) | |
| Income Tax Benefit (Expense) | 12 |
| | (30 | ) | | 4 |
| | — |
| | (14 | ) | |
| Net Income (Loss) | $ | 53 |
| | $ | 64 |
| | $ | (5 | ) | | $ | (59 | ) | | $ | 53 |
| |
| Comprehensive Income (Loss) | $ | 48 |
| | $ | 70 |
| | $ | (5 | ) | | $ | (65 | ) | | $ | 48 |
| |
| Nine Months Ended September 30, 2019 | | | | | | | | | | |
| Operating Revenues | $ | — |
| | $ | 3,212 |
| | $ | 200 |
| | $ | (142 | ) | | $ | 3,270 |
| |
| Operating Expenses | 3 |
| | 2,914 |
| | 201 |
| | (142 | ) | | 2,976 |
| |
| Operating Income (Loss) | (3 | ) | | 298 |
| | (1 | ) | | — |
| | 294 |
| |
| Equity Earnings (Losses) of Subsidiaries | 363 |
| | (28 | ) | | 10 |
| | (335 | ) | | 10 |
| |
| Net Gains (Losses) on Trust Investments | 2 |
| | 158 |
| | — |
| | — |
| | 160 |
| |
| Other Income (Deductions) | 134 |
| | 166 |
| | — |
| | (257 | ) | | 43 |
| |
| Non-Operating Pension and OPEB Credits (Costs) | — |
| | 13 |
| | 1 |
| | — |
| | 14 |
| |
| Interest Expense | (224 | ) | | (82 | ) | | (36 | ) | | 257 |
| | (85 | ) | |
| Income Tax Benefit (Expense) | 37 |
| | (175 | ) | | 11 |
| | — |
| | (127 | ) | |
| Net Income (Loss) | $ | 309 |
| | $ | 350 |
| | $ | (15 | ) | | $ | (335 | ) | | $ | 309 |
| |
| Comprehensive Income (Loss) | $ | 338 |
| | $ | 384 |
| | $ | (15 | ) | | $ | (369 | ) | | $ | 338 |
| |
| Nine Months Ended September 30, 2019 | | | | | | | | | | |
| Net Cash Provided By (Used In) Operating Activities | $ | 171 |
| | $ | 1,345 |
| | $ | 75 |
| | $ | (229 | ) | | $ | 1,362 |
| |
| Net Cash Provided By (Used In) Investing Activities | $ | 154 |
| | $ | (708 | ) | | $ | (253 | ) | | $ | 222 |
| | $ | (585 | ) | |
| Net Cash Provided By (Used In) Financing Activities | $ | (256 | ) | | $ | (640 | ) | | $ | 170 |
| | $ | 7 |
| | $ | (719 | ) | |
| | | | | | | | | | | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | PSEG Power | | Guarantor Subsidiaries | | Other Subsidiaries | | Consolidating Adjustments | | Total | |
| | Millions | |
| Three Months Ended September 30, 2018 | | | | | | | | | | |
| Operating Revenues | $ | — |
| | $ | 849 |
| | $ | 59 |
| | $ | (40 | ) | | $ | 868 |
| |
| Operating Expenses | 2 |
| | 733 |
| | 61 |
| | (40 | ) | | 756 |
| |
| Operating Income (Loss) | (2 | ) | | 116 |
| | (2 | ) | | — |
| | 112 |
| |
| Equity Earnings (Losses) of Subsidiaries | 117 |
| | (7 | ) | | 5 |
| | (110 | ) | | 5 |
| |
| Net Gains (Losses) on Trust Investments | — |
| | 45 |
| | (1 | ) | | — |
| | 44 |
| |
| Other Income (Deductions) | 40 |
| | 45 |
| | — |
| | (71 | ) | | 14 |
| |
| Non-Operating Pension and OPEB Credits (Costs) | — |
| | 4 |
| | — |
| | — |
| | 4 |
| |
| Interest Expense | (65 | ) | | (28 | ) | | (7 | ) | | 71 |
| | (29 | ) | |
| Income Tax Benefit (Expense) | 35 |
| | (64 | ) | | 4 |
| | — |
| | (25 | ) | |
| Net Income (Loss) | $ | 125 |
| | $ | 111 |
| | $ | (1 | ) | | $ | (110 | ) | | $ | 125 |
| |
| Comprehensive Income (Loss) | $ | 128 |
| | $ | 107 |
| | $ | (1 | ) | | $ | (106 | ) | | $ | 128 |
| |
| Nine Months Ended September 30, 2018 | | | | | | | | | | |
| Operating Revenues | $ | — |
| | $ | 2,982 |
| | $ | 161 |
| | $ | (105 | ) | | $ | 3,038 |
| |
| Operating Expenses | 5 |
| | 2,493 |
| | 162 |
| | (105 | ) | | 2,555 |
| |
| Operating Income (Loss) | (5 | ) | | 489 |
| | (1 | ) | | — |
| | 483 |
| |
| Equity Earnings (Losses) of Subsidiaries | 406 |
| | (14 | ) | | 12 |
| | (392 | ) | | 12 |
| |
| Net Gains (Losses) on Trust Investments | — |
| | 31 |
| | (1 | ) | | — |
| | 30 |
| |
| Other Income (Deductions) | 116 |
| | 118 |
| | — |
| | (196 | ) | | 38 |
| |
| Non-Operating Pension and OPEB Credits (Costs) | — |
| | 10 |
| | 1 |
| | — |
| | 11 |
| |
| Interest Expense | (161 | ) | | (64 | ) | | (18 | ) | | 196 |
| | (47 | ) | |
| Income Tax Benefit (Expense) | 44 |
| | (179 | ) | | 8 |
| | — |
| | (127 | ) | |
| Net Income (Loss) | $ | 400 |
| | $ | 391 |
| | $ | 1 |
| | $ | (392 | ) | | $ | 400 |
| |
| Comprehensive Income (Loss) | $ | 400 |
| | $ | 374 |
| | $ | 1 |
| | $ | (375 | ) | | $ | 400 |
| |
| Nine Months Ended September 30, 2018 | | | | | | | | | | |
| Net Cash Provided By (Used In) Operating Activities | $ | (255 | ) | | $ | 1,169 |
| | $ | (26 | ) | | $ | 117 |
| | $ | 1,005 |
| |
| Net Cash Provided By (Used In) Investing Activities | $ | (417 | ) | | $ | (1,132 | ) | | $ | (290 | ) | | $ | 829 |
| | $ | (1,010 | ) | |
| Net Cash Provided By (Used In) Financing Activities | $ | 672 |
| | $ | (32 | ) | | $ | 320 |
| | $ | (946 | ) | | $ | 14 |
| |
| | | | | | | | | | | |
each energy year. In addition, PSEG Power and PSE&G provide certain technical services for each other generally at cost in compliance with FERC and BPU affiliate rules.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(B)Services provides and bills administrative services to PSE&G and PSEG Power at cost. In addition, PSE&G and PSEG Power have other payables to Services, including amounts related to certain common costs, which Services pays on behalf of each of the operating companies.
(UNAUDITED)(C)PSEG files a consolidated federal income tax return with its affiliated companies. A tax allocation agreement exists between PSEG and each of its affiliated companies. The general operation of these agreements is that the subsidiary company will compute its taxable income on a stand-alone basis. If the result is a net tax liability, such amount shall be paid to PSEG. If there are NOLs and/or tax credits, the subsidiary shall receive payment for the tax savings from PSEG to the extent that PSEG is able to utilize those benefits.
PSE&G and PSEG Power have advanced working capital to Services. The amounts are included in Other Noncurrent Assets on PSE&G’s and PSEG Power’s Condensed Consolidated Balance Sheets.
(E)PSEG Power’s short-term loans with PSEG are for working capital and other short-term needs. Interest Income and Interest Expense relating to these short-term funding activities were immaterial.
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| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | PSEG Power | | Guarantor Subsidiaries | | Other Subsidiaries | | Consolidating Adjustments | | Total | |
| | Millions | |
| As of September 30, 2019 | | | | | | | | | | |
| Current Assets | $ | 4,142 |
| | $ | 1,459 |
| | $ | 327 |
| | $ | (4,497 | ) | | $ | 1,431 |
| |
| Property, Plant and Equipment, net | 44 |
| | 4,484 |
| | 3,967 |
| | — |
| | 8,495 |
| |
| Investment in Subsidiaries | 5,184 |
| | 1,078 |
| | — |
| | (6,262 | ) | | — |
| |
| Noncurrent Assets | 289 |
| | 2,526 |
| | 116 |
| | (304 | ) | | 2,627 |
| |
| Total Assets | $ | 9,659 |
| | $ | 9,547 |
| | $ | 4,410 |
| | $ | (11,063 | ) | | $ | 12,553 |
| |
| Current Liabilities | $ | 903 |
| | $ | 2,467 |
| | $ | 2,153 |
| | $ | (4,497 | ) | | $ | 1,026 |
| |
| Noncurrent Liabilities | 550 |
| | 2,216 |
| | 859 |
| | (304 | ) | | 3,321 |
| |
| Long-Term Debt | 2,433 |
| | — |
| | — |
| | — |
| | 2,433 |
| |
| Member’s Equity | 5,773 |
| | 4,864 |
| | 1,398 |
| | (6,262 | ) | | 5,773 |
| |
| Total Liabilities and Member’s Equity | $ | 9,659 |
| | $ | 9,547 |
| | $ | 4,410 |
| | $ | (11,063 | ) | | $ | 12,553 |
| |
| As of December 31, 2018 | | | | | | | | | | |
| Current Assets | $ | 4,317 |
| | $ | 1,479 |
| | $ | 304 |
| | $ | (4,593 | ) | | $ | 1,507 |
| |
| Property, Plant and Equipment, net | 49 |
| | 4,971 |
| | 3,822 |
| | — |
| | 8,842 |
| |
| Investment in Subsidiaries | 5,062 |
| | 1,107 |
| | — |
| | (6,169 | ) | | — |
| |
| Noncurrent Assets | 273 |
| | 2,109 |
| | 101 |
| | (238 | ) | | 2,245 |
| |
| Total Assets | $ | 9,701 |
| | $ | 9,666 |
| | $ | 4,227 |
| | $ | (11,000 | ) | | $ | 12,594 |
| |
| Current Liabilities | $ | 437 |
| | $ | 2,971 |
| | $ | 2,027 |
| | $ | (4,593 | ) | | $ | 842 |
| |
| Noncurrent Liabilities | 513 |
| | 1,996 |
| | 730 |
| | (238 | ) | | 3,001 |
| |
| Long-Term Debt | 2,791 |
| | — |
| | — |
| | — |
| | 2,791 |
| |
| Member’s Equity | 5,960 |
| | 4,699 |
| | 1,470 |
| | (6,169 | ) | | 5,960 |
| |
| Total Liabilities and Member’s Equity | $ | 9,701 |
| | $ | 9,666 |
| | $ | 4,227 |
| | $ | (11,000 | ) | | $ | 12,594 |
| |
| | | | | | | | | | | |
| |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A) |
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)
This combined MD&A is separately filed by Public Service Enterprise Group Incorporated (PSEG), Public Service Electric and Gas Company (PSE&G) and PSEG Power LLC (PSEG Power). Information contained herein relating to any individual company is filed by such company on its own behalf. PSE&G and PSEG Power each make representations only as to itself and make no representations whatsoever as to any other company.
PSEG’s business consists of two reportable segments, our principal direct wholly owned subsidiaries, which are:
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• | •PSE&G—which is a public utility engaged principally in the transmission of electricity and distribution of electricity and natural gas in certain areas of New Jersey. PSE&G is subject to regulation by the New Jersey Board of Public Utilities (BPU) and the Federal Energy Regulatory Commission (FERC). PSE&G also invests in regulated solar generation projects and energy efficiency and related programs in New Jersey, which are regulated by the BPU, and •—which is a public utility engaged principally in the transmission of electricity and distribution of electricity and natural gas in certain areas of New Jersey. PSE&G is subject to regulation by the New Jersey Board of Public Utilities (BPU) and the Federal Energy Regulatory Commission (FERC). PSE&G also invests in regulated solar generation projects and energy efficiency and related programs in New Jersey, which are regulated by the BPU, and |
| |
• | PSEG Power—which is a multi-regional energy supply company that integrates the operations of its merchant nuclear and fossil generating assets with its power marketing businesses and fuel supply functions through competitive energy sales in well-developed energy markets primarily in the Northeast and Mid-Atlantic United States through its principal direct wholly owned subsidiaries. In addition, PSEG Power owns and operates solar generation in various states. PSEG Power’s subsidiaries are subject to regulation by FERC, the Nuclear Regulatory Commission (NRC), the Environmental Protection Agency (EPA) and the states in which they operate. |
PSEG’s other direct wholly owned subsidiaries 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;Agreement (OSA); PSEG Energy Holdings L.L.C. (Energy Holdings), which primarily has investments in leveraged leases; and PSEG Services Corporation (Services), which provides certain management, administrative and general services to PSEG and its subsidiaries at cost.
Our business discussion in Part I, Item 1. Business of our 20182019 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 Part I, 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 20182019 and Future Outlook provided in Item 7 in our Form 10-K by describing significant events and business developments that have occurred during 20192020 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 20192020 AND FUTURE OUTLOOK
We are continuing our transformation into a primarily regulated electric and gas utility that is focused on meeting customer expectations and is aligned with public policy objectives promoting clean energy investments. Our business plan is designed to achievefocuses on achieving growth while controlling costs and managing the risks associated with regulatory changes, fluctuating commodity prices and changes in customer demand. In furtherance of these goals, over the past few years, our investments have altered our business mix to reflect a higher percentage of earnings contribution by PSE&G. We also announced in July 2020 that we are exploring strategic alternatives for PSEG Power’s non-nuclear generating fleet, which includes more than 6,750 megawatts (MW) of fossil generation located in New Jersey, Connecticut, New York and Maryland as well as the 467 MW Solar Source portfolio located in various states.
PSE&G, PSEG Power and PSEG LI continue to provide essential services during the ongoing coronavirus (COVID-19) pandemic. We have implemented a comprehensive set of enhanced safety actions to help protect our employees, customers and communities, and we will continue to closely monitor developments and adjust as needed to ensure that we continue to provide reliable service while protecting the safety and health of our workforce and the communities we serve. We continue to be guided by the recommendations of health authorities at the federal, state and local levels. Employees who can perform their job duties remotely are doing so. Those employees who must report to a work site are wearing personal protective equipment (PPE) and practicing physical distancing measures. Extensive cleaning protocols are also in place. Earlier this year, we suspended non-essential work activities, while continuing to respond to customer outages and requests for emergency service as well as infrastructure maintenance and upgrades. As New Jersey has relaxed its coronavirus response protocols over the past few months, we have initiated a phased re-starting of certain of these activities (i.e., inside premises appliance repair and monthly meter reading activities), while maintaining protocols for physical distancing and PPE. Similarly, we have also begun to formulate policies and protocols for the responsible reopening of our offices and work sites. Our “responsible reentry” policies
and protocols will continue to focus on the health and safety of our employees, customers and the communities we serve while also taking a cautious and measured approach toward reopening. We are continuing to assess the appropriate timeline for this process. In connection with their reopening plans, New Jersey, New York and Connecticut have issued advisories for anyone returning from states that have a significant degree of community-wide spread of COVID-19, referred to as “designated states.” These advisories include exceptions for essential employees and we are assessing what impact this may have on members of our workforce who may live in a designated state. We are also using enhanced physical distancing and safety protocols where there are impacts on members of our workforce who may live in or travel from a designated state.
The ongoing coronavirus pandemic has not had a material impact on our results of operations, financial condition or cash flows for the nine months ended September 30, 2020. However, the potential future impact of the pandemic and the associated economic impacts, which could extend beyond the duration of the pandemic, will depend on a number of factors outside of our control, including the duration and severity of the outbreak as well as third-party actions taken to contain its spread and mitigate its public health effects. While we currently cannot estimate the potential impact to our results of operations, financial condition and cash flows, this MD&A includes a discussion of potential effects of a prolonged outbreak.
PSE&G
At PSE&G, our focus is on enhancing reliability and resiliency of our T&D system, meeting customer expectations and supporting public policy objectives by investing capital in T&D infrastructure and clean energy programs. OverFor the past few years, our investments have altered our business mixfive-year period ending December 31, 2024, PSE&G expects to reflect a higher percentage of earnings contribution by PSE&G. Based upon the settlement of the Energy Strong Program II (ES II) noted below, PSE&G has narrowed its five-year capital expenditure range to $12invest between $12.5 billion to $14.5$14.7 billion, resulting in an expected compound annual rate base growth of 7.5%7% to 8.5%8%. These ranges are driven by certain unapproved investment programs, including the Energy Cloud (EC) and Electric Vehicle (EV)/Energy Storage (ES) portions of the Clean Energy Future (CEF) program, any extension of the CEF Energy Efficiency (EE) program beyond the initial three-years approved by the BPU in September 2020, and incremental reliability and resiliency investments anticipated in the 2024 timeframe that we intend to seek approval for under the third phase of existing infrastructure programs. See below for a description of the CEF program.
In 2019, we commenced our BPU-approved Gas System Modernization Program II (GSMP II), an expanded, five-year program to invest $1.9 billion beginning in 2019 to replace approximately 875 miles of cast iron and unprotected steel mains in addition to other improvements to the gas system. Approximately $1.6 billion will be recovered through periodic rate roll-ins, with the remaining $300 million to be recovered through a future base rate proceeding. As part of the settlement approved by the BPU, PSE&G agreed to file for a base rate proceeding no later than December 2023, to maintain a base level of gas distribution capital expenditures of $155 million per year and to achieve certain leakleakage reduction targets.
In June 2018, we filed forAlso in 2019, the BPU approved our ESEnergy Strong II a proposed five-year $2.5 billionProgram (ES II), an $842 million program to harden, modernize and improve the resiliency of our electric and gas distribution systems. In September 2019, the BPU approved an $842 millionThis program for gas and electric projects which will beginbegan in the fourth quarter of 2019 and is expected to be completed atby the end of 2023. As part of the settlement agreement, approximatelyApproximately $692 million of the program will be recovered through periodic rate recovery filings,
with the balance to be recovered in our next distribution base rate case, which is required to be filed no later than December 2023.case.
In October 2018, we filed our proposed Clean Energy Future (CEF)CEF program with the BPU, a six-year estimated $3.5 billion investment covering four programs; (i) an Energy Efficiency (EE)EE program totaling $2.5 billion of investment designed to achieve energy efficiency targets required under New Jersey’s Clean Energy law; (ii) an Electric Vehicle (EV)EV infrastructure program; (iii) an Energy Storage (ES)ES program, which was submitted to the BPU together with the EV infrastructure program in a single filing; and (iv) an Energy Cloud (EC)EC program which will include installing approximately two million electric smart meters and associated infrastructure. The BPU is reviewing the CEF-EE program concurrently withIn January 2020, New Jersey released its efforts related to implementing provisions of the Clean Energy Act related to energy efficiency. The BPU is also addressing stakeholder input as it works to finalize New Jersey’s Energy Master Plan currently scheduled to be released in December 2019. As a result,(EMP) which, among other things, recognizes the CEF-EE filing remains pending beforeimportance of the BPU. State’s EE targets and supported EVs, ES, and advanced metering infrastructure (AMI).
In September 2019, the BPU approved2020, PSE&G reached a settlement reached with theall parties in the CEF-EE proceeding, which the BPU approved. The settlement provides for an investment of $1 billion over a three-year period. Costs will be recovered through annual rate-making, with returns aligned with our most recent base rate case and a ten-year amortization period.
The approval also included a Conservation Incentive Program (CIP), a mechanism that extends the matter into March 2020,will provide for recovery of lost electric and that authorizes,gas variable margin revenues. The CIP is effective in the interim, an additional $27 million investmentJune 2021 for electric and October 2021 for gas. PSE&G to continue delivering fourwill suspend its gas Weather Normalization Charge (WNC) when the gas CIP deferral period begins.
The BPU has also issued procedural schedules for the CEF-EC and CEF-EV/ES investment program filings, with evidentiary hearings scheduled for the fourth quarter of 2020. In April 2020, PSE&G filed with the BPU an update of its existing EE programs forCEF-EC petition to revise certain assumptions, including an additional year.
In November 2018, the New Jersey Division of Rate Counsel (Rate Counsel) filed a motion to dismiss the CEF-EC filingupdated deployment schedule based on the basis that the BPU announced a moratorium on electric distribution companies’ advanced meter infrastructure programs. In December 2018, Rate Counsel filed a motion to stay the CEF-EV/ES filing, arguing that the BPU should conclude other regulatory proceedings addressing EVs and ES, including the new Energy Master Plan and initiatives required by the Clean Energy Act, before it rules on PSE&G’s program. We opposed Rate Counsel’s motions, asking for the BPU to permit these filings to proceed. There is no timetable for the BPU to decide on Rate Counsel’s motions. We continue to pursue procedural schedules to initiate the BPU’s review of our proposed CEF-EV/ES and CEF-EC programs.schedule.
We also continue to invest in transmission infrastructure in order to (i) maintain and enhance system integrity and grid reliability, grid security and safety, (ii) address an aging transmission infrastructure, (iii) leverage technology to improve the operation of the system, (iv) reduce transmission constraints, (v) meet growing demand and (vi) meet environmental requirements and standards set by various regulatory bodies. Our planned capital spending for transmission in 2019-20212020-2022 is $3.6$2.9 billion.
As noted above, PSE&G has been deemed by New Jersey to provide essential services during the ongoing coronavirus pandemic. Our capital programs, including GSMP II, ES II and our transmission infrastructure investments, have not been materially impacted to date. However, a prolonged outbreak and the associated economic impacts, which could extend beyond the duration of the pandemic, could impact our ability to obtain necessary permits and approvals and could lead to shortages of necessary materials, supplies and labor. In addition, a determination by any state or federal regulatory authority that one or all of our projects is non-essential could require us to temporarily halt work. Any delay in our planned capital program could impact our operational performance and could materially impact our results of operations and financial condition through decreased cost recovery.
Further, the ongoing coronavirus pandemic has led many state and federal agencies to implement remote working protocols and divert resources to address the pandemic which, if prolonged, could impact regulatory agencies’ ability to review proposed programs and delay the timing of approvals for matters subject to regulatory approval, including parts ofour CEF program that is currently before the BPU and the approval of various clause recovery mechanisms.
PSE&G has experienced a reduction in demand from its commercial and industrial (C&I) customers, partially offset by increases in residential demand, and adverse changes to residential and C&I payment patterns, and expects these changes to continue during a prolonged coronavirus pandemic. In October 2020, the state formally extended its moratorium on non-safety related service disconnections for non-payment for residential customers through March 15, 2021. During the moratorium, PSE&G has experienced a significant decrease in cash inflow and higher Accounts Receivable aging and an associated increase in bad debt expense, which we expect could extend beyond the duration of the coronavirus pandemic.PSE&G’s electric distribution bad debt expense is recoverable through its Societal Benefits Clause (SBC) mechanism. PSE&G has deferred its incremental gas distribution bad debt expense as a result of COVID-19 as a Regulatory Asset and will seek recovery of that cost, as well as other net incremental COVID-19 costs, in its next base rate case as discussed below.
In July 2020, the BPU authorized regulated utilities in New Jersey, including PSE&G, to create a COVID-19-related Regulatory Asset by deferring on their books and records the prudently incurred incremental costs related to COVID-19 beginning on March 9, 2020 through September 30, 2021, or 60 days after the New Jersey governor determines that the Public Health Emergency is no longer in effect, or in the absence of such a determination, 60 days from the time the Public Health Emergency automatically terminates by law, whichever is later. Deferred costs are to be offset by any federal or state assistance that the utility may receive as a direct result of the COVID-19 pandemic. During the third quarter of 2020, PSE&G recorded a Regulatory Asset related to COVID-19 to defer incremental costs of $35 million. There is no assurance that these costs will ultimately be recovered.
While the impact on our results of operations, financial condition and cash flows for the nine months ended September 30, 2020 has not been material, a prolonged coronavirus pandemic and the associated economic impacts, which could extend beyond the duration of the pandemic, could materially impact cash from operations, Accounts Receivable and bad debt expense.
PSEG Power
At PSEG Power, we strive to improve performanceachieve operational excellence and reducemanage costs in order to optimize cash flow generation from our fleet in light of low wholesale power and gas prices, environmental considerations and competitive market forces that reward efficiency and reliability. PSEG Power continues to move its fleet toward improved efficiencyIn the first nine months of 2020, our natural gas and believes that its recently completed investment program enhances its competitive position with the additionnuclear units generated 16.8 and 24.0 terawatt hours and operated at a capacity factor of efficient, clean, reliable combined cycle gas turbine capacity.49.0% and 94.2%, respectively. Our commitments for load, such as basic generation service (BGS) in New Jersey and other bilateral supply contracts, are backed by this generation or may be combined with the use of physical commodity purchases and financial instruments from the market to optimize the economic efficiency of serving our obligations. PSEG Power’s hedging practices and ability to capitalize on market opportunities help it to balancemanage some of the volatility of the merchant power business. Approximately 75%More than 70% of PSEG Power’s expected gross margin in 20192020 relates to hedging of our energy margin, our expected revenues from the capacity market mechanisms, Zero Emission Certificate (ZEC) revenues that commenced in April 2019 and certain ancillary service payments such as reactive power.
As discussed further below under “Wholesale Power Market Design,” FERC issued an order establishing new rules for PJM’s capacity market, extending the PJM Minimum Offer Price Rule (MOPR) to include both new and existing resources that receive or are entitled to receive certain out-of-market payments, with certain exemptions. PSEG Power’s New Jersey nuclear plants that receive ZEC payments will be subject to the new MOPR. In addition, as a result of FERC’s finding that default procurement auctions such as BGS could be considered subsidies, it is possible that other PSEG units could be subject to the MOPR. The MOPR’s floor prices are not expected to prevent either our nuclear or gas-fired units from clearing in the next Reliability Pricing Model (RPM) auction. We commenced commercial operationscannot predict whether additional changes will be made to the MOPR, or whether changes will occur in the PJM market that would impact our ability to clear any of Keys Energy Center (Keys) and Sewaren 7these units in mid-2018. Uponfuture RPM auctions.
In the startfirst nine months of commercial operation2020, as a result of Bridgeport Harbor Station Unit 5 (BH5) in June 2019,the ongoing coronavirus pandemic, PSEG Power completedexperienced a decrease in aggregate wholesale electric demand. An extended outbreak could have a material adverse impact on future results of operations and cash flows.
PSEG Power has also implemented protocols to ensure the safety and health of employees at its 1,800generation facilities and contractors working at the facilities during planned outages. A prolonged unavailability of employees and contractors due to the ongoing coronavirus pandemic could materially and adversely impact our ability to operate our generation facilities, which would have a material impact on our business, results of operations and cash flows.
PSEG LI
Following the effects of Tropical Storm Isaias, the New York Attorney General initiated an inquiry into PSEG LI’s preparation and response to the storm. In addition, the Department of Public Service within the New York State Public Service Commission launched an investigation of state electric service providers, including PSEG LI, and other state telephone, cable and internet providers into their preparation and restoration efforts following Tropical Storm Isaias. LIPA also initiated its own review of PSEG LI’s performance. PSEG LI agreed with LIPA that it would fund claims by customers for food and medication spoilage costs incurred as a result of being without electric service during the storm up to the amount of incentive compensation earned by PSEG LI in 2020. PSEG LI does not expect the claims to be material. PSEG LI is fully cooperating in each of these inquiries, which remain ongoing. We cannot predict their outcome.
Strategic Alternatives for PSEG Power’s Non-Nuclear Fleet
On July 31, 2020, PSEG announced that it is exploring strategic alternatives for PSEG Power’s non-nuclear generating fleet, which includes more than 6,750 MW combined cycle gas turbine construction program. These additionsof fossil generation located in New Jersey, Connecticut, New York and Maryland as well as the 467 MW Solar Source portfolio located in various states. An exit from the fossil generation business would accelerate PSEG’s transition to our fleet both expand our geographic diversitya primarily regulated and adjust our fuel mixcontracted business, with a zero-carbon generation platform. It is expected to reduce overall business risk and enhance the environmentalearnings volatility, improve PSEG’s credit profile and overall efficiencyis consistent with PSEG’s climate strategy and sustainability efforts, which is to focus on clean energy investments, methane reduction, and zero-carbon generation. PSEG intends to retain ownership of PSEG Power’s existing nuclear fleet. While PSEG is in the preliminary stage of this evaluation, the marketing of a potential transaction in one or a series of steps is anticipated to launch in the fourth quarter of this year, and any potential transaction is expected to be completed sometime in 2021. There is no assurance that the strategic review will result in a sale or other disposition of all or any portion of these assets on terms that are favorable to us, or at all. Any transaction would be subject to market conditions and customary closing conditions, including the receipt of all required regulatory approvals.
Climate Strategy and Sustainability Efforts
For more than a century, our mission has been to provide safe access to an around-the-clock supply of reliable, affordable power. Building on this mission, we believe in a future where customers universally use less energy, the energy they use is cleaner, and its delivery is more reliable and more resilient.In July 2019, we announced that we expect to cut carbon emissions at PSEG Power’s generation fleet.fleet by 80% by 2046, from 2005 levels. We have also announced our vision of attaining net zero- carbon emissions by 2050, assuming advances in technology, public policy and customer behavior.
PSE&G has also undertaken a number of initiatives that support the reduction of greenhouse gas (GHG) emissions and the implementation of energy efficiency initiatives. The first phase of our GSMP replaced approximately 450 miles of cast-iron and unprotected steel gas infrastructure, and the second phase of this program is expected to replace an additional 875 miles of gas pipes through 2023. The GSMP is designed to significantly reduce gas leaks in our distribution system, which would reduce the release of methane, a GHG, into the air. In addition, PSE&G’s CEF-EE program, which was approved by the BPU in September 2020 and CEF-EV/ES and EC proposals, which are under review by the BPU, are intended to support New Jersey’s EMP through programs designed to help customers increase their energy efficiency, support the expansion of the electric vehicle infrastructure in the State, 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.
Operational Excellence
We emphasize operational performance while developing opportunities in both our competitive and regulated businesses. Flexibility in our generating fleet has allowed us to take advantage of opportunities in a rapidly evolving market as we remain diligent in managing costs. In the first nine months of 2019,2020, our
utility continued its efforts to control costs while maintaining strong operational performance including rankingand has implemented protocols to ensure that we are providing essential services to our customers during the ongoing coronavirus pandemic in the top quartile among large utilities in the East in JD Power’s 2019 Electric Utility Residential Customer Satisfaction Study,
diverse fuel mixa safe and dispatch flexibility allowed us to generate approximately 43 terawatt hours while addressing fuel availability and price volatility, and
total nuclear fleet achieved a capacity factor of 91.0%.
reliable manner.
Financial Strength
Our financial strength is predicated on a solid balance sheet, positive operating cash flow and reasonable risk-adjusted returns on increased investment. Our financial position remained strong during the first nine months of 20192020 as we
•maintained sufficient liquidity,
•maintained solid investment grade credit ratings, and
•increased our indicative annual dividend for 20192020 to $1.88$1.96 per share.
We expect to be able to fund our planned capital requirements, as described in Liquidity and Capital Resources, and the impacts of the Tax Cuts and Jobs Act of 2017 (Tax Act) without the issuance of new equity. For additional information on the impacts of the Tax Act, see Tax Legislation below.
Financial Results
As a result of the settlement of PSE&G’s distribution base rate proceeding in October 2018, with new rates effective November 1, 2018, PSE&G’s overall annual revenues were reduced by approximately $13 million, comprised of a $212 million increase in base revenues, including recovery of deferred storm costs, offset by the return of tax benefits of approximately $225 million. The tax benefits include the flowback to customers of excess accumulated deferred income taxes resulting from the reduction of the federal income tax rates provided in the Tax Act as well as the accumulated deferred income taxes from previously realized tax repair deductions and tax benefits from future tax repair deductions as realized.
PSE&G also filed a revised 2019 Annual Transmission Formula Rate Update to include the refund of the approved excess deferred income tax benefits. The revised 2019 Annual Transmission Formula Rate, as filed with FERC in January 2019, decreases overall annual transmission revenues by approximately $54 million, subject to true-up.
The results for PSEG, PSE&G and PSEG Power for the three months and nine months ended September 30, 20192020 and 20182019 are presented as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| Earnings (Losses) | 2020 | | 2019 | | 2020 | | 2019 | |
| | Millions | |
| PSE&G | $ | 313 | | | $ | 344 | | | $ | 1,036 | | | $ | 974 | | |
| PSEG Power (A) | 254 | | | 53 | | | 437 | | | 309 | | |
| Other (B) | 8 | | | 6 | | | 1 | | | (27) | | |
| PSEG Net Income | $ | 575 | | | $ | 403 | | | $ | 1,474 | | | $ | 1,256 | | |
| | | | | | | | | |
| PSEG Net Income Per Share (Diluted) | $ | 1.14 | | | $ | 0.79 | | | $ | 2.91 | | | $ | 2.47 | | |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| Earnings (Losses) | 2019 | | 2018 | | 2019 | | 2018 | |
| | Millions | |
| PSE&G | $ | 344 |
| | $ | 278 |
| | $ | 974 |
| | $ | 828 |
| |
| PSEG Power (A) | 53 |
| | 125 |
| | 309 |
| | 400 |
| |
| Other (B) | 6 |
| | 9 |
| | (27 | ) | | 11 |
| |
| PSEG Net Income | $ | 403 |
| | $ | 412 |
| | $ | 1,256 |
| | $ | 1,239 |
| |
| | | | | | | | | |
| PSEG Net Income Per Share (Diluted) | $ | 0.79 |
| | $ | 0.81 |
| | $ | 2.47 |
| | $ | 2.44 |
| |
| | | | | | | | | |
(A)Includes an after-tax gain of $86 million in the three and nine months ended September 30, 2020 related to the sale of PSEG Power’s interest in the Yards Creek generation facility and an after-tax loss of $286 million in the nine months ended September 30, 2019 related to the sale of PSEG Power’s ownership interests in the Keystone and Conemaugh fossil generation plants. See Item 1. Note 4. Early Plant Retirements/Asset Dispositions for additional information. | |
(A) | Includes an after-tax loss of $286 million in the nine months ended September 30, 2019 related to the sale of PSEG Power’s ownership interests in the Keystone and Conemaugh fossil generation plants. See Item 1. Note 4. Early Plant Retirements/Asset Dispositions for additional information. |
| |
(B) | Other includes after-tax activities at the parent company, PSEG LI, and Energy Holdings as well as intercompany eliminations. Energy Holdings recorded after-tax charges related to its investments in leveraged leases of $32 million and $14 million in the nine months ended September 30, 2019 and 2018, respectively. See Item 1. Note 8. Financing Receivables for additional information. |
(B)Other includes after-tax activities at the parent company, PSEG LI, and Energy Holdings as well as intercompany eliminations. Energy Holdings recorded an after-tax charge of $32 million in the nine months ended September 30, 2019 related to its investment in leveraged leases. See Item 1. Note 8. Financing Receivables for additional information.
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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2020 | | 2019 | | 2020 | | 2019 | |
| | Millions, after tax | |
| NDT Fund Income (Expense) (A) (B) | $ | 60 | | | $ | (4) | | | $ | 43 | | | $ | 97 | | |
| Non-Trading MTM Gains (Losses) (C) | $ | (59) | | | $ | (88) | | | $ | (59) | | | $ | 140 | | |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| | Millions, after tax | |
| NDT Fund Income (Expense) (A) (B) | $ | (4 | ) | | $ | 27 |
| | $ | 97 |
| | $ | 16 |
| |
| Non-Trading MTM Gains (Losses) (C) | $ | (88 | ) | | $ | (96 | ) | | $ | 140 |
| | $ | (59 | ) | |
| | | | | | | | | |
(A)NDT Fund Income (Expense) includes gains and losses on NDT securities which are recorded in Net Gains (Losses) on Trust Investments. See Item 1. Note 9. Trust Investments for additional information. NDT Fund Income (Expense) also includes interest and dividend income and other costs related to the NDT Fund recorded in Other Income (Deductions), interest accretion expense on PSEG Power’s nuclear Asset Retirement Obligation (ARO) recorded in O&M Expense and the depreciation related to the ARO asset recorded in Depreciation and Amortization (D&A) Expense.
(B)Net of tax (expense) benefit of $(40) million and $0 million for the three months and $(30) million and $(67) million for the nine months ended September 30, 2020 and 2019, respectively.
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(A) | NDT Fund Income (Expense) includes gains and losses on NDT securities which are recorded in Net Gains (Losses) on Trust Investments. See Item 1. Note 9. Trust Investments for additional information. NDT Fund Income (Expense) also includes interest and dividend income and other costs related to the NDT Fund recorded in Other Income (Deductions), interest accretion expense on PSEG Power’s nuclear Asset Retirement Obligation (ARO) recorded in Operation and Maintenance (O&M) Expense and the depreciation related to the ARO asset recorded in Depreciation and Amortization (D&A) Expense. |
| |
(B) | Net of tax (expense) benefit of $0 million and $(16) million for the three months and $(67) million and $(12) million for the nine months ended September 30, 2019 and 2018, respectively. |
| |
(C) | Net of tax (expense) benefit of $33 million and $37 million for the three months and $(55) million and $23 million for the nine months ended September 30, 2019 and 2018, respectively. |
Our $9$172 million decreaseincrease in Net Income for the three months ended September 30, 20192020 was driven largelyprimarily by
| |
• | unrealizeda gain on the sale of PSEG Power��s ownership interest in the Yards Creek generating facility in 2020 (see Item 1. Note 4. Early Plant Retirements/Asset Dispositions),
•Net unrealized gains in 2020 on equity securities in the NDT Fund as compared to net unrealized losses in 2019 as compared to unrealized gains in 2018 on equity securities on the NDT Fund at PSEG Power, |
lower volumes of electricity sold at lower average prices in the PJM region and under the BGS contracts as well as a decrease in capacity revenue at PSEG Power, and
an income tax benefit in 2018 resulting from the reserve for uncertain tax positions in connection with a nuclear carryback claim and closure of the 2011 and 2012 federal tax audit at PSEG Power, partially offset by
•higher earnings due to investments in T&D programs and the favorable impact of new rates effective November 1, 2018 as a result of the BPU’s approval of our distribution base rate proceeding at PSE&G,
the favorable impact of retiree medical plan benefit changes implemented in 2019, and
revenue from Zero Emissions Certificates (ZECs) starting in mid-April 2019 at PSEG Power.&G.
Our $17$218 million increase in Net Income for the nine months ended September 30, 20192020 was driven primarily by
MTM gains•a gain on sale of PSEG Power’s ownership interest in the Yards Creek generating facility in 2020,
•an asset impairment in 2019 as comparedrelated to MTM losses in 2018 atthe sale of PSEG Power,
net gains in 2019 on equity securitiesPower’s interests in the NDT Fund at PSEG Power,Keystone and Conemaugh fossil generation plants (see Item 1. Note 4. Early Plant Retirements/Asset Dispositions),
the favorable impact of retiree medical plan benefit changes implemented in 2019,
•higher earnings due to investments in T&D programs and the favorable impact of new rates effective November 1, 2018 as a result of the BPU’s approval of our distribution base rate proceeding at PSE&G, and
revenue from ZECs starting•higher pension and OPEB credits,
•partially offset by MTM losses in mid-April2020 as compared to gains in 2019 at PSEG Power, largelyand
•a decrease at PSEG Power due to lower average realized prices on lower volumes of electricity sold in PJM and under the BGS contracts, as well as lower capacity revenues, partially offset by
a loss related to the sale of PSEG Power’s ownership interestsnet decrease in the Keystonefuel costs and Conemaugh generation plantshigher ZEC revenues starting in 2019.mid-April 2020.
The greater emphasis on capital spending in recent years for projects at PSE&G relative to PSEG Power, particularly those on which we receive contemporaneous returns at PSE&G has yielded strong results, which when combined with the cash flow generated by PSEG Power, has allowed us to increase our dividend annually. These actions to meet customer needs and address market conditions and investor expectations reflect our long-term approach to managing our company.expectations. We continue our focus on operational excellence, financial strength and disciplined investment. These guiding principles have provided the base from which we have been able to execute our strategic initiatives.
Disciplined Investment
We utilize rigorous criteria and consider a number of external factors, including the economic impact of the ongoing coronavirus pandemic, when deploying capitaldetermining how and seekwhen to investefficiently deploy capital. We principally explore opportunities for investment in areas that complement our existing business and provide reasonable risk-adjusted returns. These areas include upgrading our energy infrastructure and improving our environmental footprint to align with public policy objectives. In the first nine months of 2019,2020, we
•made additional investments in T&D infrastructure projects on time and on budget,
•continued to execute our Energy Efficiency and other existing BPU-approved utility programs, and
completed construction and placed into service our BH5 generation project, the final stage of our investment program in combined cycle gas turbines.•continued to evaluate potential offshore wind opportunities.
Regulatory, Legislative and Other Developments
In our pursuit of operational excellence, financial strength and disciplined investment, we closely monitor and engage with stakeholders on significant regulatory and legislative developments. Transmission planning rules and wholesale power market
design are of particular importance to our results and we continue to advocate for policies and rules that promote fair and efficient electricity markets. For additional information about regulatory, legislative and other developments that may affect us, see Part I, Item 1. Business—Regulatory Issues in our Form 10-K and Item 5. Other Information in our Quarterly Reports on Form 10-Q for the periods ending March 31, 20192020 and June 30, 20192020 (first and second quarter 20192020 10-Qs) and this Quarterly Report on Form 10-Q.
Transmission Planning
There are several matters pending before FERC that may impact the allocation of costs associated with transmission projects, including those being constructed by PSE&G. Regardless of how these proceedings are resolved, PSE&G’s ability to recover the costs of these projects will not be affected. However, the result of these proceedings could ultimately impact the amount of costs borne by customers in New Jersey. In addition, as a BGS supplier, PSEG Power provides services that include specified transmission costs. If the allocation of the costs associated with the transmission projects were to increase these BGS-related transmission costs, BGS suppliers would be entitled to recovery, subject to BPU approval. We do not believe that these matters will have a material effectRate Proceedings and Return on PSEG Power’s business or results of operations.
Several complaints have been filed and several remain pending at FERC against transmission owners around the country, challenging those transmission owners’ base return on equityEquity (ROE). Certain of those complaints have resulted in decisions and others have been settled, resulting in reductions of those transmission owners’ base ROEs. The results of these other proceedings could set precedents for other transmission owners with formula rates in place, including PSE&G.
In October 2018, FERC issued an order establishing a new framework for determining whether a company’s ROE is unjust and unreasonable. FERC proposes to rely on financial models to establish a composite zone of reasonableness that will be used to determine whether an ROE complaint should be dismissed. If FERC determines that an ROE for a company is not just and reasonable, it intends to reset the ROE based on averaging the results of various financial models. We continue to analyze the potential impact of these methodologies and cannot predict the outcome of ongoing ROE proceedings.
In March 2019,2020, FERC issued two Noticesa Notice of Inquiry (NOI) that could affect a company’s ROE: (i) an NOI seeking comment on improvementsProposed Rulemaking (NOPR) proposing to FERC’srevise its electric transmission incentivesincentive policy to ensure that it appropriately encouragesencourage the development of the infrastructure needed to ensure grid reliability and reduce congestion to lower the cost of power for consumers (Incentive NOI),consumers. The NOPR proposes to shift the focus in granting incentives from an approach based on the risks and (ii)challenges faced by a project to an NOI seeking comments whether,approach based on economic and if so how, FERC should change its policies for establishing just and reasonable ROEs.reliability benefits to consumers. The Incentive NOI is intendedNOPR proposes to examine whetherretain several existing incentives, such asincrease the 50 basis point adder for Regional Transmission Organization membership, should(RTO) participation to 100 basis points and provide incentives for transmission technologies that enhance reliability, efficiency and capacity.
In May 2020, FERC issued an order revising an earlier order that established a new ROE policy for reviewing existing transmission ROEs. The revised methodology uses the Discounted Cash Flow (DCF) model, the Capital Asset Pricing model(CAPM) and the risk premium model to determine if an existing base ROE is unjust and unreasonable and, if so, what replacement ROE is appropriate. FERC’s order indicated that it would not be bound by this revised methodology when
considering the just and reasonableness of a utility’s ROE in future proceedings. We continue to analyze the potential impact of these methodologies.
ROE complaints have been pending before FERC regarding MISO transmission owners, the ISO New England Inc. transmission owners and utilities in other jurisdictions. In addition, over the past few years, several companies have negotiated settlements that have resulted in reduced ROEs.
We are engaged in settlement discussions with the BPU Staff and the New Jersey Division of Rate Counsel (New Jersey Rate Counsel) about the level of PSE&G’s base transmission ROE; however, we cannot predict the outcome of these settlement discussions. An adverse change to PSE&G’s base transmission ROE or ROE incentives could be grantedmaterial. We estimate that for each 25 basis point reduction in PSE&G’s base transmission ROE, and whether new incentives should be established.all other factors unchanged, PSE&G’s annual Net Income and annual cash inflows would decrease by approximately $15 million.
Wholesale Power Market Design
In June 2018, FERC issued an order finding that PJM’s current capacity market is not just and reasonable because it enabled state-supported resources to bid below their costs which resulted in suppressed clearing prices. In particular, FERC found that nuclear generating units that receive zero emission certificate payments were of concern. Depending on the outcome of this matter, our generating stations could be impacted.
In late JulyDecember 2019, FERC issued an order directingestablishing new rules for PJM’s capacity market, extending the PJM MOPR to include both new and existing resources that receive or are entitled to receive certain out-of-market payments, with certain exemptions.
PSEG Power’s New Jersey nuclear plants that receive ZEC payments will be subject to the new MOPR. In addition, as a result of FERC’s finding that default procurement auctions such as BGS could be considered subsidies, it is possible that other PSEG units could be subject to the MOPR. Resources that are subject to the MOPR continue to have the ability to justify a bid below the MOPR floor price under the unit-specific exemption. The MOPR floor prices are not expected to prevent either our nuclear units or gas-fired units from clearing in the next RPM auction. A FERC order issued in May 2020 authorizing enhancements to the methodology used by PJM to delay its capacity auction until it can approve replacement auction rules and provide greater certainty toprice energy reserves has created additional uncertainty regarding the market than conducting the auction under existing rules. FERC also denied PJM’s request to clarify that any just and reasonable replacement auction rules ultimately adopted would operate prospectively. FERC held that it would not rule prematurely on the issue of an appropriate remedy prior to rendering a determination on the meritsimpact of the replacement auction rules. Since oneMOPR expansion in future RPM auctions on PSEG Power’s nuclear units that receive ZECs. One of the Commissioners is recused from this matter,findings made by FERC does notin that order will affect how the MOPR offer floors are calculated and could have a quorumthe effect, in the future, of increasing the price floors for the plants and thereby increasing the risk of being unable to issueclear in an order. We do not anticipateRPM auction. In addition, if one or more electric distribution zones in New Jersey (or another state) were to become fixed resource requirement (FRR) alternativeservice areas, procurements needed for that area could provide an orderalternate means for nuclear units whose ability to clear in this matter until the earlier of either the end of Commissioner Glick’s recusal on November 29, 2019 or when James Danly is confirmedRPM auctions was affected by the Senate and sworn in as a Commissioner.MOPR to provide capacity within PJM. We cannot predict when FERCwhether additional changes will issue replacementbe made to the MOPR, or whether changes will occur in the PJM market that would impact our ability to clear any of these units in future RPM auctions.
States that have clean energy programs designed to achieve public policy goals that support such resources as solar, offshore wind and nuclear, are not prevented from pursuing those programs by the expanded MOPR and could choose to utilize the existing FRR approach authorized under the PJM tariff. Subsidized units that cannot clear in a RPM capacity auction because of the expanded MOPR could still count as capacity resources to a load serving entity (LSE) using the FRR approach. In a March 2020 order, the BPU initiated an investigation to examine whether New Jersey can achieve its long-term clean energy and environmental objectives under the current resource adequacy procurement paradigm and potential alternatives. One of the areas of inquiry concerns the potential creation of FRR service areas within New Jersey. We cannot predict the impact these rules and what impact those rulesor any measures taken by the BPU will have on the capacity market or our generating stations.
In October 2018, PJM filed with FERC to reviseJanuary 2020, New Jersey rejoined the shape of the Variable Resource Requirement (VRR) curveRegional Greenhouse Gas Initiative (RGGI). As a result, generating plants operating in New Jersey, including those owned by PSEG Power, that emit CO2 emissions will be implementedrequired to procure credits for each ton they emit. In response to RGGI, PJM initiated a process in 2019 to investigate the next capacity auction. The VRR curve isdevelopment of a carbon pricing mechanism that may mitigate the administratively determined demand curveenvironmental and financial distortions that serves as one of the key elements for establishing the amount of generation capacity to be procured in the auction. PJM’s proposed tariff revisions will result in lower Cost of New Entry values as comparedcould occur when emissions “leak” from non-participating states to the currently effective VRR curve. PSEG protested PJM’s proposalRGGI states. If the process leads to a market solution, it could have a material impact on the grounds that it would result in understated prices for capacity relative to the costvalue of constructing a new referencePSEG Power’s generating unit and will result in prices that are unjust and unreasonable. In April 2019, FERC issued an Order approving PJM’s filing without modification and these changes are expected to be in place for the 2022/2023 PJM capacity auction, which has been delayed until FERC approves new auction rules. In mid-May 2019, PSEG filed a request for rehearing which remains pending before FERC.fleet.
Environmental Regulation
We are subject to liability under environmental laws for the costs of remediating environmental 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. 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 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 11. Commitments and Contingent Liabilities.
Nuclear
In April 2019, PSEG Power’s Salem 1, Salem 2 and Hope Creek nuclear plants were awarded ZECs by the BPU. 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 megawatt hour (MWh)generated in payments to selected nuclear plants (ZEC payment)). These nuclear plants are expected to receive ZEC revenue for approximately three years, through May 2022, and will be obligated to maintain operations during that period, subject to exceptions specified in the ZEC legislation. PSEG Power anticipates ithas and will continue to recognize revenue monthly as the nuclear plants generate electricity and satisfy their performance obligations. The ZEC legislation requires nuclear plants to reapply for any subsequent three year periods. The ZEC payment may be adjusted by the BPU (a) at any time to offset environmental or fuel diversity payments that a selected nuclear plant may receive from another source or (b) at certain times specified in the ZEC legislation if the BPU determines that the purposes of the ZEC legislation can be achieved through a reduced charge that will nonetheless be sufficient to achieve the state’sState’s air quality and other environmental objectives by preventing the retirement of nuclear plants. For instance, the New Jersey Rate Counsel, in written comments filed with the BPU, has advocated for the BPU to offset market benefits resulting from New Jersey’s rejoining the RGGI from the ZEC payment. PSEG intends to vigorously defend against these arguments. Due to its preliminary nature, PSEG cannot predict the outcome of this matter.
The BPU’s decision awarding ZECs has been appealed by the New Jersey Rate Counsel. PSEG cannot predict the outcome of this matter.
In October 2020, PSEG Power filed with the BPU its ZEC applications for Salem 1, Salem 2 and Hope Creek for the three-year eligibility period starting in June 2022. No other plants applied for ZECs for this eligibility period. The BPU’s schedule to consider these applications includes the BPU Staff issuing their preliminary findings regarding ZEC eligibility and the value of ZEC payments for this period in December 2020, followed by public and evidentiary hearings and a final BPU decision by April 2021. PSEG Power is not aware of any changes from its ZEC application for the first eligibility period that would materially affect its ability to establish eligibility to be awarded ZECs during the second eligibility period. We cannot predict the outcome of either the BPU Staff’s preliminary findings or the BPU’s final determination.
In the event that (i) the ZEC program is overturned or is otherwise materially adversely modified through legal process; (ii) the amount of ZEC payments that may be awarded or other terms and conditions of the second ZEC eligibility period proposed by the BPU Staff in the December 2020 preliminary findings or by the BPU in its final decision differ from those of the current ZEC period; or (iii) any of the Salem 1, Salem 2 and Hope Creek plants is not awarded ZEC payments by the BPU and does not otherwise experience a material financial change, PSEG Power will take all necessary steps to cease to operate all of these plants. Alternatively, if all of the Salem 1, Salem 2 and Hope Creek plants are selected to continue to receive ZEC payments but the financial condition of the plants may nonetheless beis materially adversely impacted by potentialchanges in commodity prices, FERC’s changes to the capacity market construct being considered by FERC (absent sufficient capacity revenues provided under a program approved by the BPU in accordance with a FERC authorizedFERC-authorized capacity mechanism), and,or, in the case of the Salem nuclear plants, decisions by the EPA and state environmental regulators regarding the implementation of Section 316(b) of the Clean Water Act and related state regulations, or other factors. Absent a material financial change, these adverse impacts could still result infactors, PSEG Power takingwill take all necessary steps to retirecease to operate all of these plants following the end of the initial three year term of the ZECs program. Retirementplants. Ceasing operations of these plants would result in a material adverse impact on PSEG’s and PSEG Power’s financial results.results of operations.
FossilNuclear Refueling Outage
The Salem 1 nuclear generating plant entered a scheduled refueling outage in October 2020, which is expected to continue through mid-December 2020. In September 2019, PSEG Power completedlight of the saleCOVID-19 pandemic, we have implemented additional health protocols to protect the health and safety of our employees and contractors, including daily health screenings, increased hygiene, physical distancing, PPE requirements and close-contact monitoring. During this outage, the plant’s main generator stator, which has reached the end of its ownership interestsuseful life, is being replaced. The process for replacing Salem 1’s generator stator is highly complex. During the outage, we are also performing additional reactor vessel inspections and upgrades. Limitations due to additional health protocols, delays in replacing the Keystone and Conemaugh generation plants and related assets and liabilities. PSEG Power recorded a pre-tax loss on disposition of approximately $400 million inmain generator stator due to its complexity, or adverse findings from the second quarter of 2019 as the sale price was less than book value.
California Solar Facilities
As part of its solar production portfolio, PSEG Power owns and operates two California-based solar facilities with an aggregate capacity of approximately 30 MW direct current whose output is sold to Pacific Gas and Electric Company (PG&E) under power purchase agreements (PPAs) with twenty year terms. The net book value of these solar facilities was approximately $56 million as of September 30, 2019. In January 2019, PG&E and its parent company PG&E Corporation filed for Chapter 11 bankruptcy protection. PSEG Power cannot predict the ultimate outcome that this bankruptcy proceeding will have on our ability to collect all of the revenues from these facilities due under the PPAs; however, any adverse changes to the terms of PSEG Power’s PPAs as a result of this bankruptcy proceedingreactor vessel inspections could result in an extended outage and in turn, lower revenues and increased costs, which could have a material impact on the future impairmentresults of these assets in amounts up to their current net book value.operations of the plant and PSEG Power.
Offshore Wind
In June 2019, the BPU selected Ørsted US Offshore Wind’s Ocean Wind project as the winning bid in New Jersey’s initial solicitation for 1,100 MW of offshore wind generation. In connection with the Ocean Wind bid, PSEG agreed to provide energy management services and the potential lease of land for use in project development. In October 2019, PSEG exercised its option on Ørsted’s Ocean Wind project, resulting in a period of exclusive negotiation for PSEG to potentially acquire a 25% equity interest in the project, subject to negotiations toward a joint venture agreement, advanced due diligence and any required regulatory approvals.
Leveraged Leases
In December 2018, NRG REMA, Additionally, PSEG and Ørsted each owns 50% of Garden State Offshore Energy LLC emerged from its in-court proceeding under Chapter 11 of the Bankruptcy Code. As a result of the restructuring, the remaining deferred tax liabilities related(GSOE) which holds rights to the Keystonean offshore wind lease area. PSEG and Conemaugh lease investments were reclassified to current tax liabilities. PSEG will realize the remaining tax liability related to the restructuring of approximately $85 million with the filing of the consolidated federal income tax return by the end of 2019.Ørsted are exploring other offshore wind opportunities through GSOE.
Additional facilities in our leveraged lease portfolio include the Shawville, Joliet and Powerton generating facilities. Converted natural gas units such as Shawville and Joliet may have higher operating costs and fuel consumption, as well as longer start-up times, compared to newer combined cycle gas units. Powerton is a coal-fired generating facility in Illinois. Each of these three facilities may not be as economically competitive as newer combined cycle gas units and could continue to be adversely impacted by the same economic conditions experienced by other less efficient natural gas and coal generation facilities, which could require Energy Holdings to write down the residual value of the leveraged lease receivables associated with these facilities.
During the second quarter of 2019, Energy Holdings completed its annual review of estimated residual values embedded in the leveraged leases. The outcome indicated that the updated residual value estimate of the coal-fired Powerton lease was lower than the recorded residual value and the decline was deemed to be other than temporary as a result of expected future adverse market conditions. As a result, a pre-tax write-down of $58 million was reflected in Operating Revenues in the quarter ended June 30, 2019, calculated by comparing the gross investment in the leases before and after the revised residual estimates.
Tax Legislation
In July 2020, the Internal Revenue Service (IRS) issued final and proposed regulations addressing the limitation on deductible business interest expense contained in the Tax Act. These regulations retroactively allow depreciation to be added back in computing the 30% adjusted taxable income (ATI) cap, increasing the amount of interest that can be deducted by unregulated businesses in years before 2022. For years after 2021 the regulations continue to disallow the addback of depreciation in the computation of ATI, effectively lowering the cap on the amount of deductible business interest. The Taxportion of PSEG’s and PSEG Power’s business interest expense that was disallowed in 2018 and 2019 will now be deductible in those respective years. PSEG is still in the process of analyzing these regulations, which may impact the financial condition and cash flows of PSEG, PSE&G and PSEG Power.
In March 2020, the federal Coronavirus Aid, Relief, and Economic Security Act among other things, decreased(CARES Act) was enacted. We continue to assess the statutory U.S. corporate incomeimpact of the tax aspects of the CARES Act on our results of operations and cash flow. We expect that a prolonged coronavirus pandemic, the tax provisions of the CARES Act and any future coronavirus-related federal or state legislation could have a material impact on our effective tax rate from a maximum of 35% to 21%, effectiveand cash tax position.
Effective January 1, 2018, the Tax Act established tax laws including, but not limited to, a limitation on deductible interest and made certain changes tolimitations on the bonus depreciation and interest disallowance rules.utilization of net operating losses (NOLs), such as eliminating carrybacks.
In November 2018, the IRS issued proposed regulations addressing the interest disallowance rules contained in the Tax Act. For non-regulated businesses, thesethe Tax Act enacted rules that set a cap on the amount of business interest that can be deducted in a given year. Any amount that is disallowed can be carried forward indefinitely. For 2019, PSEG and PSEG Power expect that a portion of their interest will be disallowed in the current period but realized in future periods. However, certain aspects of the proposed regulations are unclear. Therefore, we recorded taxes based on our interpretation of the relevant statute. Amounts recorded under the Tax Act including but not limited toand the CARES Act, such as depreciation and business interest disallowance, are subject to change based on several factors, including but not limited to, the IRS and state taxing authorities issuing additional guidance and/or further clarification. Any such further guidance or clarification could impact PSEG’s, PSE&G’s and PSEG Power’s financial statements. For additional information, see Item 1. Note 16. Income Taxes.
In September 2019 the IRS released final and additional proposed regulations regarding the application of tax depreciation rules as amended by the Tax Act. We do not believe the final or proposed regulations materially impact our application of the rules.
In July 2018, the State of New Jersey made changes to its income tax laws, including imposing a temporary surtax of 2.5% effective January 1, 2018 and 2019 and 1.5% in 2020 and 2021, as well as requiring corporate taxpayers to file in a combined reporting group as defined under New Jersey law starting in 2019. Both provisions includeThis provision includes an exemption for public utilities. We believe PSE&G meets the definition of a public utility and, therefore, will not be impacted by the temporary surtax or be included in the combined reporting group. We expect these new provisions to unfavorably affect our non-utility business. In accordance with accounting principles generally accepted in the United States for income taxes, deferred taxes are required to be measured at the enacted tax rate expected to apply to taxable income in the periods in which the deferred taxes are expected to settle. The newly enactedanticipate New Jersey tax legislation did not have a materialwill be issuing clarifying guidance regarding combined reporting rules. Any further guidance or clarification could impact on PSEG’s deferred income tax balance.and PSEG Power’s financial statements.
Future Outlook
For more than a century, our mission has been to provide universal access to an around-the-clock supply of reliable, affordable power. Building on this mission, we believe in a future where customers universally use less energy, the energy they use is cleaner, and its delivery is more reliable and more resilient.In July 2019, we announced that we expect to cut carbon emissions at PSEG Power’s generation fleet by 80% by 2046, from 2005 levels. We have also announced our vision of attaining net-zero CO2 emissions by 2050, assuming advances in technology and public policy.
Our future success will depend on our ability to continue to maintain strong operational and financial performance in an environment with low gas prices, to capitalize on or otherwise address regulatory and legislative developments that impact our business and to respond to the issues and challenges described below. In order to do this, we must continue to:
focus on controlling costs while maintaining safety, reliability and customer satisfaction and complying with applicable standards and requirements,
successfully manage our energy obligations and re-contract our open supply positions in response to changes in prices and demand,
•obtain approval of and execute our utility capital investment program, including ES II, GSMP II,the remainder of our CEF program and transmission and other investments that yield contemporaneous and reasonable risk-adjusted returns, while enhancing the resiliency of our infrastructure and maintaining the reliability of the service we provide to our customers,
•focus on controlling costs while maintaining safety, reliability and customer satisfaction and complying with applicable standards and requirements,
successfully manage our energy obligations and re-contract our open supply positions in response to changes in prices and demand,
•advocate for the continuation of the ZEC program and measures to ensure the implementation by PJM, FERC and FERCstate regulators of market design and transmission planning rules that continue to promote fair and efficient electricity markets, including recognition of the cost of emissions,
•engage multiple stakeholders, including regulators, government officials, customers, and investors and suppliers,
•finalize our analysis of our strategic alternatives for PSEG Power’s non-nuclear generating assets and successfully execute any transactions involving those assets, and
•successfully operate the LIPA T&D system and manage LIPA’s fuel supply and generation dispatch obligations.
In addition to the risks described elsewhere in this Form 10-Q, the first and second quarter 20192020 10-Qs and in our Form 10-K, for 20192020 and beyond, the key issues and challenges we expect our business to confront include:
•regulatory and political uncertainty, both with regard to future energy policy, design of energy and capacity markets, transmission policy and environmental regulation, as well as with respect to the outcome of any legal, regulatory or other proceedings,
•the continuing impact of the ongoing coronavirus pandemic and the associated economic impact, which could extend beyond the duration of the pandemic,
•the continuing impacts of the Tax Act and CARES Acts and future changes in federal and state tax laws, and
•the impact of reductionschanges in demand, and lower natural gas and electricity prices and increasing environmental compliance costs.
We continually assess a broad range of strategic options to maximize long-term stockholder value. In assessing our options, we consider a wide variety of factors, including the performance and prospects of our businesses; the views of investors, regulators, customers and rating agencies; our existing indebtedness and restrictions it imposes; and tax considerations, among other things. Strategic options available to us include:
•the acquisition, construction or disposition of T&D facilities, clean energy investments and/or generation projects, including offshore wind opportunities,
•the disposition or reorganization of our merchant generation business or portions thereof or other existing businesses or the acquisition or development of new businesses, and
the expansion of our geographic footprint, including the operation of T&D facilities outside of our traditional service territory, and
•investments in capital improvements and additions, including the installation of environmental upgrades and retrofits, improvements to system resiliency, modernizing existing infrastructure and participation in transmission projects through FERC’s “open window” solicitation process.
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
PSEG
Our results of operations are primarily comprised of the results of operations of our principal operating subsidiaries, PSE&G and PSEG Power, excluding charges related to intercompany transactions, which are eliminated in consolidation. For additional information on intercompany transactions, see Item 1. Note 20. Related-Party Transactions.
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Increase/ (Decrease) | | Nine Months Ended | | Increase/ (Decrease) | |
| | September 30, | | | September 30, | | |
| | 2019 | | 2018 | | 2019 vs. 2018 | | 2019 | | 2018 | | 2019 vs. 2018 | |
| | Millions | | Millions | | % | | Millions | | Millions | | % | |
| Operating Revenues | $ | 2,302 |
| | $ | 2,394 |
| | $ | (92 | ) | | (4 | ) | | $ | 7,598 |
| | $ | 7,228 |
| | $ | 370 |
| | 5 |
| |
| Energy Costs | 753 |
| | 804 |
| | (51 | ) | | (6 | ) | | 2,581 |
| | 2,356 |
| | 225 |
| | 10 |
| |
| Operation and Maintenance | 745 |
| | 742 |
| | 3 |
| | — |
| | 2,251 |
| | 2,221 |
| | 30 |
| | 1 |
| |
| Depreciation and Amortization | 307 |
| | 294 |
| | 13 |
| | 4 |
| | 928 |
| | 854 |
| | 74 |
| | 9 |
| |
| Loss on Asset Dispositions | 7 |
| | — |
| | 7 |
| | N/A |
| | 402 |
| | — |
| | 402 |
| | N/A |
| |
| Income from Equity Method Investments | 3 |
| | 5 |
| | (2 | ) | | (40 | ) | | 10 |
| | 12 |
| | (2 | ) | | (17 | ) | |
| Net Gains (Losses) on Trust Investments | (3 | ) | | 45 |
| | (48 | ) | | N/A |
| | 164 |
| | 31 |
| | 133 |
| | N/A |
| |
| Other Income (Deductions) | 35 |
| | 33 |
| | 2 |
| | 6 |
| | 101 |
| | 99 |
| | 2 |
| | 2 |
| |
| Non-Operating Pension and OPEB Credits (Costs) | 55 |
| | 19 |
| | 36 |
| | N/A |
| | 121 |
| | 57 |
| | 64 |
| | N/A |
| |
| Interest Expense | 147 |
| | 127 |
| | 20 |
| | 16 |
| | 417 |
| | 341 |
| | 76 |
| | 22 |
| |
| Income Tax (Benefit) Expense | 30 |
| | 117 |
| | (87 | ) | | (74 | ) | | 159 |
| | 416 |
| | (257 | ) | | (62 | ) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Increase/ (Decrease) | | Nine Months Ended | | Increase/ (Decrease) | |
| | September 30, | | | September 30, | | |
| | 2020 | | 2019 | | 2020 vs. 2019 | | 2020 | | 2019 | | 2020 vs. 2019 | |
| | Millions | | Millions | | % | | Millions | | Millions | | % | |
| Operating Revenues | $ | 2,370 | | | $ | 2,302 | | | $ | 68 | | | 3 | | | $ | 7,201 | | | $ | 7,598 | | | $ | (397) | | | (5) | | |
| Energy Costs | 775 | | | 753 | | | 22 | | | 3 | | | 2,276 | | | 2,581 | | | (305) | | | (12) | | |
| Operation and Maintenance | 767 | | | 745 | | | 22 | | | 3 | | | 2,254 | | | 2,251 | | | 3 | | | — | | |
| Depreciation and Amortization | 317 | | | 307 | | | 10 | | | 3 | | | 956 | | | 928 | | | 28 | | | 3 | | |
| (Gain) Loss on Asset Dispositions | (122) | | | 7 | | | (129) | | | N/A | | (122) | | | 402 | | | (524) | | | N/A | |
| Income from Equity Method Investments | 4 | | | 3 | | | 1 | | | 33 | | | 10 | | | 10 | | | — | | | — | | |
| Net Gains (Losses) on Trust Investments | 107 | | | (3) | | | 110 | | | N/A | | 87 | | | 164 | | | (77) | | | (47) | | |
| Other Income (Deductions) | 39 | | | 35 | | | 4 | | | 11 | | | 81 | | | 101 | | | (20) | | | (20) | | |
| Net Non-Operating Pension and OPEB Credits (Costs) | 62 | | | 55 | | | 7 | | | 13 | | | 186 | | | 121 | | | 65 | | | 54 | | |
| Interest Expense | 149 | | | 147 | | | 2 | | | 1 | | | 453 | | | 417 | | | 36 | | | 9 | | |
| Income Tax (Benefit) Expense | 121 | | | 30 | | | 91 | | | N/A | | 274 | | | 159 | | | 115 | | | 72 | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
The following discussions for PSE&G and PSEG Power provide a detailed explanation of their respective variances.
PSE&G
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Increase/ (Decrease) | | Nine Months Ended | | Increase/ (Decrease) | |
| | September 30, | | | September 30, | | |
| | 2019 | | 2018 | | 2019 vs. 2018 | | 2019 | | 2018 | | 2019 vs. 2018 | |
| | Millions | | Millions | | % | | Millions | | Millions | | % | |
| Operating Revenues | $ | 1,604 |
| | $ | 1,595 |
| | $ | 9 |
| | 1 |
| | $ | 5,018 |
| | $ | 4,826 |
| | $ | 192 |
| | 4 |
| |
| Energy Costs | 618 |
| | 593 |
| | 25 |
| | 4 |
| | 2,094 |
| | 1,863 |
| | 231 |
| | 12 |
| |
| Operation and Maintenance | 388 |
| | 389 |
| | (1 | ) | | — |
| | 1,165 |
| | 1,133 |
| | 32 |
| | 3 |
| |
| Depreciation and Amortization | 206 |
| | 192 |
| | 14 |
| | 7 |
| | 620 |
| | 569 |
| | 51 |
| | 9 |
| |
| Net Gains (Losses) on Trust Investments | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
| | N/A |
| |
| Other Income (Deductions) | 22 |
| | 21 |
| | 1 |
| | 5 |
| | 60 |
| | 61 |
| | (1 | ) | | (2 | ) | |
| Non-Operating Pension and OPEB Credits (Costs) | 46 |
| | 14 |
| | 32 |
| | N/A |
| | 105 |
| | 44 |
| | 61 |
| | N/A |
| |
| Interest Expense | 92 |
| | 83 |
| | 9 |
| | 11 |
| | 268 |
| | 246 |
| | 22 |
| | 9 |
| |
| Income Tax Expense (Benefit) | 24 |
| | 95 |
| | (71 | ) | | (75 | ) | | 63 |
| | 292 |
| | (229 | ) | | (78 | ) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Increase/ (Decrease) | | Nine Months Ended | | Increase/ (Decrease) | |
| | September 30, | | | September 30, | | |
| | 2020 | | 2019 | | 2020 vs. 2019 | | 2020 | | 2019 | | 2020 vs. 2019 | |
| | Millions | | Millions | | % | | Millions | | Millions | | % | |
| Operating Revenues | $ | 1,660 | | | $ | 1,604 | | | $ | 56 | | | 3 | | | $ | 4,999 | | | $ | 5,018 | | | $ | (19) | | | — | | |
| Energy Costs | 663 | | | 618 | | | 45 | | | 7 | | | 1,881 | | | 2,094 | | | (213) | | | (10) | | |
| Operation and Maintenance | 409 | | | 388 | | | 21 | | | 5 | | | 1,175 | | | 1,165 | | | 10 | | | 1 | | |
| Depreciation and Amortization | 218 | | | 206 | | | 12 | | | 6 | | | 657 | | | 620 | | | 37 | | | 6 | | |
| Net Gains (Losses) on Trust Investments | 1 | | | — | | | 1 | | | N/A | | 2 | | | 1 | | | 1 | | | 100 | | |
| Other Income (Deductions) | 28 | | | 22 | | | 6 | | | 27 | | | 81 | | | 60 | | | 21 | | | 35 | | |
| Net Non-Operating Pension and OPEB Credits (Costs) | 51 | | | 46 | | | 5 | | | 11 | | | 154 | | | 105 | | | 49 | | | 47 | | |
| Interest Expense | 97 | | | 92 | | | 5 | | | 5 | | | 291 | | | 268 | | | 23 | | | 9 | | |
| Income Tax Expense (Benefit) | 40 | | | 24 | | | 16 | | | 67 | | | 196 | | | 63 | | | 133 | | | N/A | |
| | | | | | | | | | | | | | | | | |
Three Months Ended September 30, 20192020 as Compared to 20182019
Operating Revenues increased $9$56 million due to changes in delivery, commodity, clause and other operating revenues.
Delivery Revenues increased $8decreased $1 million due primarily to
| |
• | Transmission revenues were $32 million higher due to increased 2019 revenue requirements primarily attributable to higher rate base investment.
|
| |
• | Electric distribution revenues increased $26 million due to a $26 million increase resulting from the favorable impact of the distribution base rate tariff and a $6 million increase in Green Program Recovery Charge•Gas distribution revenues decreased by $24 million due primarily to a $27 million decrease in the WNC, partially offset by a $3 million increase from the GSMP I and GSMP II. •Electric and Gas revenues decreased by $11 million due to an increase in the flowback to customers of excess deferred tax liabilities and tax repair-related accumulated deferred income tax benefits resulting from rate reductions, which is offset in Income Tax Expense. •Transmission revenues were $25 million higher due primarily to an increase in 2020 revenue requirements attributable to higher rate base investment. •Electric distribution revenues increased by $9 million due to a $13 million increase from higher volumes, partially offset by a $4 million decrease in the collection of Green Program Recovery Charges (GPRC) revenues, partially offset by a $6 million decrease due to lower sales volumes. |
| |
• | Gas distribution revenues increased $22 million due primarily to a $19 million increase from the favorable impact of the distribution base rate tariff effective November 2018 and a $2 million increase in revenues from GSMP I.
|
| |
• | Gas, Electric and Transmission revenue requirements were reduced by $72 million due to the flowback of excess deferred tax liabilities and tax repair-related accumulated deferred income tax benefits as a result of settlements with the BPU and FERC. This reduction is offset in Income Tax Expense.
|
Commodity Revenues decreased$23increased $42 million as a result of lowerhigher Electric revenues, partlypartially offset by higherlower 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 andor basic gas supply service (BGSS) to retail customers.
| |
• | Electric commodity revenues decreased$26•Electric commodity revenues increased $52 million due primarily to $31 million from higher BGS sales volumes and $20 million in higher prices. •Gas commodity revenues decreased $10 million due primarily to $6 million from lower BGSS sales volumes and a $3 million due primarily to a $205 million decrease in BGS prices, partially offset by $178 million in higher sales volumes. |
| |
• | Gas commodity revenues increased$3 million due primarily to higher BGSS prices.
|
Clause Revenues decreased$31increased $15 million due primarily to $22higher SBC revenues of $9 million, of lower a $6 million increase in GPRC deferrals and a $2 million increase in Margin Adjustment Clause (MAC) collections. These increases were partially offset by a $2 million decrease in Tax Adjustment Credit (TAC) deferrals, a $5 million reduction in GPRC deferrals and lower Societal Benefit Charge (SBC) revenues of $3 million.deferrals. The changes in the SBC and MAC amounts and the GPRC and TAC and GPRC deferrals 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 InterestIncome Tax Expenses. PSE&G does not earn margin on TACSBC or MAC revenues or GPRC deferrals or on SBC revenues.and TAC deferrals.
Other Operating Revenues increased$55was flat over the prior year. A $3 million due primarily to ZEC increase in solar renewable energy credits (SREC) included in this component of revenues billed after the ZEC program was approved by the BPU in April 2019. See Item 1. Note 11. Commitments and Contingent Liabilities. These revenues areis entirely offset by changes to Energy Costs.
Energy Costs increased $25$45 million. This is entirely offset by changes in Commodity Revenues and Other Operating Revenues.
Operation and Maintenance decreased $1increased $21 million due primarily to a $5$10 million reduction increase in distribution preventativegas maintenance costs, a $10 million increase in appliance service costs, a net $6 million increase in clause and corrective maintenance expenditures, a $3 million reduction in transmission expenditures, a $3 million decrease in injuries and damages andrenewable-related expenses, a $5 million net reductionincrease in storm costs, a $4 million increase in vegetation management and a $9 million increase in other operating expenses. These decreasesincreases were partially offset by a net $11reductions of $12 millionincrease and $11 million for COVID-19 related costs and gas bad debt expense, respectively, due primarily to the deferrals recorded in clause and renewable-related expenditures and a $5 million increase in storm costs.the third quarter as authorized by the BPU. See Note 6. Rate Filings for additional information.
Depreciation and Amortization increased $14$12 million due primarily to additional plant and software placed intoin service.
Other Income (Deductions) increased $6 million due primarily to an increase in the allowance for funds used during construction (AFUDC).
Net Non-Operating Pension and OPEB Credits (Costs) increased $32$5 million due primarily to due primarilyto a $26$4 million increase in the expected return on plan assets and a $3 million decrease in interest cost, partially offset by a $1 million increase in the amortization of the prior service credit mainly related to the December 2018 OPEB plan amendment, a $4 million decrease in interest costnet actuarial loss and a $3$1 million decrease in the amortization of the net unrecognized loss, partially offset by a reduction of $2 million in the long-term expected return on plan assets.prior service credit.
Interest Expense increased $9$5 million due primarily to increases of $7a $7 million increase from new debt issuances in 2020 and a $1 million increase from net debt issuances in the secondAugust 2019. These increases were partially offset by a $2 million decrease due to a reduction in short-term borrowings and third quarters of 2019 and $2 million from net debt issuances in 2018.AFUDC.
Income Tax Expense decreased $71increased $16 million due primarily to an increase in bad debt flow-through and the reduction in the 2020 flowback to ratepayers of PSE&G’s excess deferred income tax liabilities and tax repair-related accumulated deferred income taxes.liabilities.
Nine Months Ended September 30, 20192020 as Compared to 20182019
Operating Revenues increased $192decreased $19 million due to changes in delivery, commodity, clause and other operating revenues.
Delivery Revenues decreased $30increased $156 million due primarily to
•Transmission revenues were $163 million higher due to an increase of $89 million in 2020 revenue requirements attributable to higher rate base investment and a decrease in the net flowback to customers of $74 million of certain excess deferred taxes.
•Electric distribution revenues increased $7 million due primarily to a $13 million increase attributable to higher sales volumes, partially offset by a $6 million decrease in GPRC collections.
•Gas distribution revenues decreased $1 million due primarily to a $28 million reduction due to lower volumes and a $3 million decrease in GPRC revenues. These decreases were partially offset by a $21 million increase from the GSMP I and GSMP II and a $9 million increase in WNC.
•Electric and Transmission revenue requirements were reducedGas revenues decreased by $277$13 million due to a net increase in the flowback to customers of excess deferred tax liabilities and tax repair-related accumulated deferred income tax benefits as a result of settlements with the BPU and FERC. This reductionresulting from rate reductions,which is offset in Income Tax Expense.
Gas distribution revenues increased $92 million due primarily to an $89 million increase from the favorable impact of the distribution base rate tariff effective November 2018.
Transmission revenues were $90 million higher due to increased 2019 revenue requirements primarily attributable to higher rate base investment.
Electric distribution revenues increased $65 million due to a $67 million increase resulting from the favorable impact of the distribution base rate tariff and a $14 million increase in GPRC revenues. These increases were partially offset by a $16 million decrease due to lower sales volumes.
Commodity Revenues increased $153decreased $285 million as a result of higherlower Gas revenues and lower Electric revenues. The changes in Commodity revenues for both gas and electric are entirely offset by the changes in Energy Costs. PSE&G earns no margin on the provision of BGSS and BGS to retail customers.
•Gas commodity revenues increased $129decreased $146 million due primarily to higherlower BGSS prices of $106$87 million and higherlower BGSS sales volumes of $23$59 million.
•Electric commodity revenues increased $24decreased $139 million due primarily to $47 million in higher BGS sales volumes, partially offset by $24$143 million in lower BGS prices.prices, partially offset by a $5 million increase in non-utility generation charges.
Clause Revenues decreased $11increased $40 million due primarily to a $15$32 million reduction forincrease in TAC and GPRC deferrals and a $6 million decrease for GPRC deferrals.higher SBC revenues of $15 million. These decreasesincreases were partially offset by a $7$6 million increasedecrease in Margin Adjustment Clause (MAC) revenues, a $2 million increase in Solar Pilot Recovery Charges (SPRC) and higher SBC revenues of $1 million.MAC revenues. The changes in the MAC, SPRC and SBC revenues and TAC and GPRC deferral amounts, SBC and MAC 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 InterestIncome Tax Expenses. PSE&G does not earn margin on TAC and GPRC deferrals, SBC and MAC SPRC or SBC revenues or on TAC or GPRC deferrals.revenues.
Other Operating Revenues increased by $80$70 million due primarily to $44 million in ZEC revenues billed since mid-April 2019.2019 and a $28 million increase in SREC revenues. See Item 1. Note 11. Commitments and Contingent Liabilities. These4. Early Plant Retirements/Asset Disposition. The changes in these components of revenues are entirely offset by changes to Energy Costs.
Operating Expenses
Energy Costs increased $231decreased $213 million. This is entirely offset by changes in Commodity Revenues and Other Operating Revenues.
Operation and Maintenance increased $32$10 million due primarily to a net $45$17 million increase in clause and renewable-related expendituresgas maintenance costs, a $12 million increase in vegetation management and a $4$7 million increase in injuries and damages.storm costs. These increases were partially offset by an $8a $6 million decrease in distribution corrective and preventative maintenance, a $5 million decrease in injuries and corrective maintenance expenditures,damages, a $6$4 million net decrease in clause and renewable-related expenses and an $11 million reduction in seasonal storm costs and a $1 million decrease in transmission-related expenditures.other operating expenses.
Depreciation and Amortization increased $51$37 million due primarily to a $44$32 million increase related to additional plant and software placed intoin service and a $7$3 million increase due to updated depreciation rates put into effect in November 2018.the amortization of Regulatory Assets.
Other Income (Deductions) increased $21 million due primarily to an increase in AFUDC.
Net Non-Operating Pension and OPEB Credits (Costs) increased $61$49 million due primarily to a $77$27 million increase in the expected return on plan assets, a $20 million decrease in interest cost and a $6 million decrease in the amortization of the net actuarial loss, partially offset by a $4 million decrease in the amortization of prior service credit mainly related to the December 2018 OPEB plan amendment and a $3 million decrease in interest cost, partially offset by a $16 million reduction in the long-term expected return on plan assets and a $4 million increase in the amortization of the net unrecognized loss.credit.
Interest Expense increased $22$23 million due primarily to a $16 million increase from net debt issuances in 2020 and a $12 million increase from net debt issuances in May and September 2018August 2019. These increases were partially offset by a decrease of $6 million due to a reduction in short-term borrowings and a $10 million increase from net debt issuances in 2019.AFUDC.
Income Tax Expense decreased $229increased $133 million due primarily to higher pre-tax income, the reduction in the 2020 flowback to ratepayers of PSE&G’s excess deferred income tax liabilities and tax repair-related accumulated deferred income taxes.an increase in bad debt flow-through.
PSEG Power
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Increase/ (Decrease) | | Nine Months Ended | | Increase/ (Decrease) | |
| | September 30, | | | September 30, | | |
| | 2019 | | 2018 |
| | 2019 vs. 2018 | | 2019 | | 2018 | | 2019 vs. 2018 | |
| | Millions | | Millions | | % | | Millions | | Millions | | % | |
| Operating Revenues | $ | 771 |
| | $ | 868 |
| | $ | (97 | ) | | (11 | ) | | $ | 3,270 |
| | $ | 3,038 |
| | $ | 232 |
| | 8 |
| |
| Energy Costs | 359 |
| | 431 |
| | (72 | ) | | (17 | ) | | 1,556 |
| | 1,550 |
| | 6 |
| | — |
| |
| Operation and Maintenance | 233 |
| | 231 |
| | 2 |
| | 1 |
| | 736 |
| | 745 |
| | (9 | ) | | (1 | ) | |
| Depreciation and Amortization | 93 |
| | 94 |
| | (1 | ) | | (1 | ) | | 282 |
| | 260 |
| | 22 |
| | 8 |
| |
| Loss on Asset Dispositions | 7 |
| | — |
| | 7 |
| | N/A |
| | 402 |
| | — |
| | 402 |
| | N/A |
| |
| Income from Equity Method Investments | 3 |
| | 5 |
| | (2 | ) | | (40 | ) | | 10 |
| | 12 |
| | (2 | ) | | (17 | ) | |
| Net Gains (Losses) on Trust Investments | (4 | ) | | 44 |
| | (48 | ) | | N/A |
| | 160 |
| | 30 |
| | 130 |
| | N/A |
| |
| Other Income (Deductions) | 15 |
| | 14 |
| | 1 |
| | 7 |
| | 43 |
| | 38 |
| | 5 |
| | 13 |
| |
| Non-Operating Pension and OPEB Credits (Costs) | 8 |
| | 4 |
| | 4 |
| | 100 |
| | 14 |
| | 11 |
| | 3 |
| | 27 |
| |
| Interest Expense | 34 |
| | 29 |
| | 5 |
| | 17 |
| | 85 |
| | 47 |
| | 38 |
| | 81 |
| |
| Income Tax Expense (Benefit) | 14 |
| | 25 |
| | (11 | ) | | (44 | ) | | 127 |
| | 127 |
| | — |
| | — |
| |
| | | | | | | | | | | | | | | | | |
- | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Increase/ (Decrease) | | Nine Months Ended | | Increase/ (Decrease) | |
| | September 30, | | | September 30, | | |
| | 2020 | | 2019 | | 2020 vs. 2019 | | 2020 | | 2019 | | 2020 vs. 2019 | |
| | Millions | | Millions | | % | | Millions | | Millions | | % | |
| Operating Revenues | $ | 746 | | | $ | 771 | | | $ | (25) | | | (3) | | | $ | 2,649 | | | $ | 3,270 | | | $ | (621) | | | (19) | | |
| Energy Costs | 290 | | | 359 | | | (69) | | | (19) | | | 1,289 | | | 1,556 | | | (267) | | | (17) | | |
| Operation and Maintenance | 213 | | | 233 | | | (20) | | | (9) | | | 679 | | | 736 | | | (57) | | | (8) | | |
| Depreciation and Amortization | 91 | | | 93 | | | (2) | | | (2) | | | 276 | | | 282 | | | (6) | | | (2) | | |
| (Gain) Loss on Asset Dispositions | (122) | | | 7 | | | (129) | | | N/A | | (122) | | | 402 | | | (524) | | | N/A | |
| Income from Equity Method Investments | 4 | | | 3 | | | 1 | | | 33 | | | 10 | | | 10 | | | — | | | — | | |
| Net Gains (Losses) on Trust Investments | 103 | | | (4) | | | 107 | | | N/A | | 79 | | | 160 | | | (81) | | | (51) | | |
| Other Income (Deductions) | 11 | | | 15 | | | (4) | | | (27) | | | — | | | 43 | | | (43) | | | (100) | | |
| Net Non-Operating Pension and OPEB Credits (Costs) | 8 | | | 8 | | | — | | | — | | | 25 | | | 14 | | | 11 | | | 79 | | |
| Interest Expense | 28 | | | 34 | | | (6) | | | (18) | | | 92 | | | 85 | | | 7 | | | 8 | | |
| Income Tax Expense (Benefit) | 118 | | | 14 | | | 104 | | | N/A | | 112 | | | 127 | | | (15) | | | (12) | | |
| | | | | | | | | | | | | | | | | |
Three Months Ended September 30, 20192020 as Compared to 20182019
Operating Revenues decreased $97$25 million due primarily to changes in generation and gas supply revenues.
Generation Revenues decreased $59$24 million due primarily to
•a net decrease of $50$30 million due primarily to lower generation in the PJM region primarily due to the sale of our ownership interests in Keystone and Conemaugh generation plants in 2019 coupled with lower prices in the PJM region. This was partially offset by higher volumes of electricity sold under our load contract obligations in the PJM and New York (NY) regions, coupled with lower average realized prices in the PJM, NY, and New England (NE) regions, partially offset by higher volumes of electricity sold in the NE region,and
•a decrease of $25$18 million in electricity sold under our BGS contracts primarily due to lower volumes coupled with
lower prices,
•partially offset by a net decreaseincrease of $20$23 million due to higherless MTM losses in 20192020 as compared to 2018.2019. Of this amount, there was a $57$41 million increase due to changes in forward prices this year as compared to last year, partially offset by an $18 million decrease due to more losses on positions reclassified to realized upon settlement, partially offset by a $37 million increase from changes in forward prices in 2019 as compared to 2018, and
a net decrease of $19 million in capacity revenues due primarily to decreases in auction prices for cleared capacity in the PJM region, partially offset by increased capacity payments in the NE region due to BH5 beginning commercial operations in June 2019,
partially offset by an increase of $51 million due to ZEC revenues earned since mid-April 2019.settlement.
Gas Supply Revenues decreased $39$1 million due primarily to
•a net decrease of $45$6 million in sales under the BGSS contract, primarily due to lower average sales prices, and
•a decrease of $5 million due to MTM losses in 2020, primarily due to changes in forward prices,
•partially offset by a net increase of $10 million related to sales to third parties, of which $48 million was due to lower volumes sold, modestly offset by a $3 million increase due to higher average sales prices,
partially offset by a net increase of $5 million in sales under the BGSS contract, of which $3$23 million was due to higher sales volumes and $2sold, partially offset by $13 million due to higherlower average sales prices during 2019.prices.
Operating Expenses
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 $72$69 million due to
Generation costs decreased $39$57 million due primarily to
•a net decrease of $30$51 million in fuel costs primarily in the PJM region reflecting utilization of lower gas volumes and lower gas prices coupled with the utilization of lower volumes of coal due to MTM gainsthe sale of our ownership interests in 2019, as compared to MTM losses in 2018, due primarily to positions reclassified as realized upon settlement,Keystone and Conemaugh generation plants, and
•a net decrease of $10$21 million primarily due to decreaseshigher MTM gains in energy purchases in the NE region2020 as compared to 2019. Of this amount, there was a $15 million decrease due to BH5 beginning commercial operationschanges in June 2019.forward prices this year as compared to last year coupled with a $6 million decrease due to more gains on positions reclassified to realized upon settlement,
Gas costs• decreased $33 million due primarily to
a decrease of $42 million related to sales to third parties due primarily to lower volumes sold,
partially offset by a net increase of $10 million primarily due to increased renewable energy credit obligations in the PJM and NE regions.
Gas costs decreased $12 million due mainly to
•a net decrease of $20 million related to sales under the BGSS contract, which was primarily due to a net decrease in the average cost of gas. Included in the average cost of gas were $11 million of interstate gas pipeline refunds due to a settlement on pipeline rates from prior periods,
•partially offset by a net increase of $8 million related to sales to third parties, of which $5$21 million was due to higher volumes and $5sold, partially offset by $13 million due to highera decrease in the average gas costs.cost of gas.
DepreciationOperation and Amortization decreasedMaintenance $1decreased $20 million due primarily to a net decrease at our fossil plants due to the sale of PSEG Power’sour ownership interests in the Keystone and Conemaugh generation plants largelyin 2019 and our ownership interest in the Yards Creek generation facility in September 2020, coupled with higher planned outage costs in 2019.
Depreciation and Amortization decreased $2 million due primarily to a net decrease at our nuclear plants due to the Peach Bottom License Renewal that was approved by the NRC in March 2020, partially offset by an increased asset base.
(Gain) Loss on Asset Dispositions reflects a gain on the BH5 station being placed into servicesale of our ownership interest in Junethe Yards Creek generation facility in September 2020 and a loss related to the sale of our ownership interests in the Keystone and Conemaugh generation plants in 2019. (see Item 1. Note 4. Early Plant Retirements/Asset Dispositions).
Net Gains (Losses) on Trust Investments decreased $48increased $107 million due primarily to a $55 million decreaseincrease resulting from net unrealized lossesgains in 20192020 as compared to net unrealized gainslosses in 20182019 on equity investments in the NDT Fund partially offset byand a $6$52 million increase in net realized gains on NDT Fund investments.
Non-Operating Pension and OPEB Credits (Costs) increased $4 million due to a $5 million increase in the amortization of prior service credit mainly related to the December 2018 OPEB plan amendment, a $2 million decrease in the amortization of the net unrecognized loss and a $1 million decrease in interest cost, largely offset by a $4 million reduction in the long-term expected return on plan assets.
Interest Expense increased $5decreased $6 million due primarily to lower capitalized interest as a result of BH5 being placed into service in June 2019.an April 2020 debt maturity.
Income Tax Expense (Benefit) decreased $11increased $104 million due primarily to lowerhigher pre-tax income, including higher pre-tax income from the NDT qualified fund, which is subject to an additional trust tax, and the impact of the increase in 2019, partially offset by benefits associated with the remeasurement of uncertain tax positions recorded in 2018.2020 New Jersey temporary surtax.
Nine Months Ended September 30, 20192020 as Compared to 20182019
Operating Revenues increased $232decreased $621 million due primarily to changes in generation and gas supply revenues.
Generation Revenues increased $277decreased $524 million due primarily to
•a net increasedecrease of $272$313 million due to MTM gainslosses in 20192020 as compared to MTM lossesgains in 2018.2019. Of this amount, there was a $268$164 million increase from changes in forward prices in 2019 as compared to 2018, coupled with a $4 million increasedecrease due to more gainslosses on positions reclassified to realized upon settlement in 2020 compared to gains in 2019 coupled with a $149 million decrease due to changes in forward prices this year as compared to last year,
an increase•a net decrease of $85$143 million due primarily to ZEC revenues earned since mid-Aprillower average realized prices in PJM, NE and NY regions coupled with lower volumes sold in the PJM region primarily due to the sale of our ownership interests in Keystone and Conemaugh generation plants. This was partially offset by higher volumes of electricity sold in the NE region, primarily due to the commencement of commercial operations of Bridgeport Harbor Unit 5 (BH5) in Connecticut in June 2019 and higher volumes of electricity sold in the NY region,
•a net increasedecrease of $12$67 million in capacity revenues due primarily to the commencement of commercial operations of Keys and Sewaren 7 in in mid-2018 and BH5 in June 2019, partially offset by a decreasedecreases in auction prices in the PJM region and
a net increasecoupled with lower volumes due to the sale of $5 million due primarily to higher volumes of electricity soldour ownership interests in the PJMKeystone and NE regions, somewhat offset by lower volumes sold in the NY regionConemaugh generation plants, and lower average realized prices in the PJM, NE and NY regions,
partially offset by •a decrease of $93$66 million in electricity sold under our BGS contracts primarily due to lower volumes andcoupled with lower prices.prices,
•partially offset by an increase of $70 million due to ZEC revenues that started in mid-April 2019.
Gas Supply Revenues decreased $47 $97 million due primarily to
•a decrease of $93$107 million in sales under the BGSS contract, of which $64 million was due to a decrease in sales volumes and $43 million was due to lower average sales prices, and
•a decrease of $9 million due to MTM losses in 2020, primarily due to changes in forward prices,
•partially offset by a net increase of $19 million related to sales to third parties, primarilyof which $80 million was due to higher volumes sold, partially offset by $61 million due to lower volumes sold,
partially offset by an increase of $41 million in sales under the BGSS contract, primarily due to higher average sales prices.
Operating Expenses
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 increased $6decreased $267 million due to
Generation costs increased $33decreased $180 million due primarily to higher
•a net decrease of $159 million in fuel costs, reflecting lower gas prices in the PJM and NY regions coupled with the utilization of lower volumes of coal in the PJM region primarily due to the sale of our ownership interests in Keystone and Conemaugh generation plants, and lower volumes of gas in the PJM region. This was partially offset by utilization of higher volumes of gas in the NE region at higher prices due to the new Keys and Sewaren 7 fossil stations andcommencement of commercial operations of BH5 in June 2019 coupled with higher prices of gas in the PJM region, partially offset by
utilization of lowerhigher volumes and prices of gas in the NY region, lower prices of gas in the NE region, utilization of lower volumes of oil in the PJM region, and lower coal costs in the PJM and NE regions.
Gas costs•decreased $27 million due mainly to
a net decrease of $76$46 million relateddue to saleshigher MTM gains in 2020 as compared to third parties2019. Of this amount, there was a $34 million decrease due primarily to lower volumes sold,changes in forward prices this year as compared to last year coupled with a $12 million decrease due to higher gains on positions reclassified to realized upon settlement in 2020 as compared to 2019,
•partially offset by a net increase of $51$21 million in emission costs primarily due to New Jersey reentering the RGGI program beginning in 2020, and
•an $11 million increase due to a net lower of cost or market adjustment on oil inventory caused by a decrease in oil demand and pricing earlier in 2020.
Gas costs decreased $87 million due mainly to
•a decrease of $106 million related to sales under the BGSS contract, primarily resulting from an increaseof which $58 million was due to a decrease in the average cost of gas and $48 million was due to a decrease in send out volumes. Included in the average cost of gas were $18 million of interstate gas pipeline refunds due to a settlement on pipeline rates from prior periods,
•partially offset by a net increase of $19 million related to sales to third parties, of which $74 million was due to higher volumes sold, partially offset by $55 million due to a decrease in the average cost of gas.
Operation and Maintenance decreased $9$57 million due primarily to a net decrease related toat our nuclearfossil plants due to planned outage costs incurred in 2019 for our 57%-owned Salem Unit 1 as compared to planned outage costs at our 100%-owned Hope Creek nuclear plant in 2018.
Depreciation and Amortization increased$22 milliondue primarily to the new Keys and Sewaren 7 fossil stations and BH5 station, partially offset by the sale of PSEG Power’sour ownership interests in the Keystone and Conemaugh generation plants.plants in 2019 and our ownership interest in the Yards Creek generation facility in September 2020, coupled with lower planned outage costs in 2020.
Depreciation and Amortization isdecreased $6 million due primarily to a$402 $6 millionloss net decrease at our nuclear plants due to the Peach Bottom License Renewal that was approved by the NRC in 2019 relatedMarch 2020, partially offset by an increased asset base. This decrease was coupled with a $1 million net decrease at our fossil plants, primarily due to the sale of PSEG Power’sour ownership interests in the Keystone and Conemaugh generation plants.plants in 2019, partially offset by an increase due to BH5 being placed into service in June 2019.
(Gain) Loss on Asset Dispositions reflects a gain on the sale of our ownership interest in the Yards Creek generation facility in September 2020 and a loss on the sale of our ownership interests in the Keystone and Conemaugh generation plants in 2019. (see Item 1. Note 4. Early Plant Retirements/Asset Dispositions).
Net Gains (Losses) on Trust Investments increased $130decreased $81 million due primarily to a $127$116 million increasedecrease resulting from net unrealized gainslosses in 20192020 as compared to net unrealized lossesgains in 20182019 on equity investments in the NDT Fund.Fund, partially offset by a $37 million increase in net realized gains on NDT Fund investments.
Other Income (Deductions) increased $5decreased $43 million primarily due to higherpurchases of net operating losses in 2020 under New Jersey’s Technology Tax Benefit Transfer Program and lower interest and dividend income on NDT Fund investments.
Net Non-Operating Pension and OPEB Credits (Costs) increased $3$11 million due to a $14$7 million decrease in interest cost, a $5 million increase in the amortization of prior service credit mainly related to the December 2018 OPEBexpected return on plan amendment,assets, and a $4$3 million decrease in interest costthe amortization of the net actuarial loss, partially offset by a $3 million increase in co-owner charges and a $1 million decrease in the amortization of the net unrecognized loss, largely offset by a $16 million decrease in the long-term expected return on plan assets.prior service credit.
Interest Expense increased $38$7 million due primarily to lower capitalized interest as a result of Keys and Sewaren 7 fossil stationsBH5 being placed into service in mid-2018.2019, partially offset by an April 2020 debt maturity.
Income Tax Expense decreased $15 million due primarily to the benefit from the 2019 net operating losses purchased under the New Jersey Technology Tax Benefit Transfer Program in 2020, and the tax benefit from changes in uncertain tax positions as a result of the settlement of the 2011-2016 federal income tax audits, offset by higher pre-tax income and changes in uncertain tax positions unrelated to the settlement of the 2011-2016 federal income tax audits.
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 provide opportunities for shareholder dividend payments.dividends.
For the nine months ended September 30, 2019,2020, our operating cash flow increased$217decreased $192 million as compared to the same period in 2018.2019. The net changes weredecrease was primarily due to the net changes from our subsidiaries, as discussed below, partially offset by tax payments at PSEG and its other subsidiaries in 2019 compared tonet tax refunds in 2018.2020 as compared to net tax payments in 2019 at the parent company and lower tax payments in 2020 at Energy Holdings.
Given the current economic challenges, PSE&G has informed both our residential customers and state regulators that all non-safety related service disconnections for non-payment will be temporarily suspended. In addition, the current economic conditions have adversely impacted residential and C&I customer payment patterns. During the moratorium, PSE&G has experienced a significant decrease in cash inflow and higher Accounts Receivable aging and an associated increase in bad debt expense, which we expect will extend beyond the duration of the coronavirus pandemic. While the impact on our results of operations, financial condition and cash flows for the nine months ended September 30, 2020 has not been material, a prolonged coronavirus pandemic and the associated economic impacts, which could extend beyond the duration of the pandemic, is expected to materially impact cash from operations, Accounts Receivable and bad debt expense.
PSE&G
PSE&G’s operating cash flow increased$84decreased $57 million from $1,397$1,481 million to $1,481$1,424 million for the nine months ended September 30, 2019,2020, as compared to the same period in 2018,2019, due primarily to tax payments in 2020 as compared to tax refunds in 2019, a decrease of $97 million from higher accounts receivable in 2020 and a net decrease of $50 million deferred as comparedRegulatory Assets due to tax payments in 2018,storm and COVID-19 costs, reduced revenues from a warmer than normal winter, and an increase of $89 million fromin the TAC with a changepartial offsetting decrease in regulatory deferrals,transmission formula rate true-ups. These decreases were partially offset by a decrease$123 million increase largely due to lower BGS payments from decreased sales and higher earnings.
PSEG Power
PSEG Power’s operating cash flow increased $357decreased $362 million from $1,005$1,362 million to $1,362$1,000 million for the nine months ended September 30, 2019,2020, as compared to the same period in 2018,2019, due to a $378$313 million higherreduction resulting from an increase in counterparty cash collateral posting requirements in 2020 as compared to a significant reduction in margin deposit requirements,postings in 2019, and tax payments in 2020 as compared to tax refunds in 2019, compared to tax payments in 2018, partially offset by an increase of $40 million in payments to counterparties.higher earnings.
Short-Term Liquidity
PSEG meets its short-term liquidity requirements, as well as those of PSEG Power, primarily with cash and through the issuance of commercial paper.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 facilities.
We continually monitor our liquidity and seek to add capacity as needed to meet our liquidity requirements. 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.
In March 2020, PSEG entered into a $300 million, 364-day term loan agreement. In April 2020, PSEG entered into two 364-day term loan agreements for $200 million and $300 million which were prepaid in August 2020. These term loans are not included in the credit facility amounts presented in the following table.
Our total credit facilities and available liquidity as of September 30, 20192020 were as follows:
|
| | | | | | | | | | | | | | |
| | | | | | | | |
| Company/Facility | | As of September 30, 2019 | |
| Total Facility | | Usage | | Available Liquidity | |
| | | Millions | |
| PSEG | | $ | 1,500 |
| | $ | 349 |
| | $ | 1,151 |
| |
| PSE&G | | 600 |
| | 26 |
| | 574 |
| |
| PSEG Power | | 2,100 |
| | 176 |
| | 1,924 |
| |
| Total | | $ | 4,200 |
| | $ | 551 |
| | $ | 3,649 |
| |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Company/Facility | | As of September 30, 2020 | |
| Total Facility | | Usage | | Available Liquidity | |
| | | Millions | |
| PSEG | | $ | 1,500 | | | $ | 13 | | | $ | 1,487 | | |
| PSE&G | | 600 | | | 17 | | | 583 | | |
| PSEG Power | | 2,100 | | | 175 | | | 1,925 | | |
| Total | | $ | 4,200 | | | $ | 205 | | | $ | 3,995 | | |
| | | | | | | | |
As of September 30, 2019,2020, our credit facility capacity was in excess of our projected maximum liquidity requirements over our 12 month planning horizon.horizon as we continue to monitor the impact and volatility of the ongoing coronavirus pandemic on cash flows and capital market conditions. Our maximum liquidity requirements are based on stress scenarios that incorporate changes in commodity prices and thepotential impact of PSEG Power losing its investment grade credit rating from S&P or Moody’s, which would represent a three level downgrade from its current S&P or Moody’s 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 $872$844 million and $857$974 million as of September 30, 20192020 and December 31, 2018,2019, respectively.
For additional information, see Item 1. Note 12. Debt and Credit Facilities.
Long-Term Debt Financing
During the next twelve months,
•PSEG has $400a $700 million of 1.60% Senior Notesfloating rate term loan maturing in November 2019. 2020,
•PSE&G has $250$9 million of 3.50% Medium Term7.04% Medium-Term Notes (MTN), Series A, maturing in AugustNovember 2020, $300 million of 1.90% MTN, Series K, maturing in March 2021 and $134 million of 9.25% Mortgage Bonds Series CC maturing in June 2021, and
•PSEG Power has $406a $700 million of 5.13%3.00% Senior NotesNote maturing in April 2020.June 2021 and a $250 million 4.15% Senior Note maturing in September 2021.
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.
For additional information see Item 1. Note 12. Debt and Credit Facilities.
Guarantor Financial Information
PSEG Power’s Senior Notes are fully and unconditionally guaranteed on a joint and several basis by its subsidiaries, PSEG Fossil LLC, PSEG Nuclear LLC and PSEG Energy Resources & Trade LLC. Each guarantor subsidiary is a wholly owned consolidated subsidiary of PSEG Power.
Summarized financial information is being presented, on a combined basis, only for PSEG Power (parent company) and the guarantors of PSEG Power’s Senior Notes, excluding investments in, and earnings (losses) from, subsidiaries that are not guarantors. All transactions between PSEG Power (parent company) and the guarantor subsidiaries are eliminated in the combined summarized financial information. The required disclosures for the year-to-date interim period and the most recent fiscal year have been moved outside the Notes to Condensed Consolidated Financial Statements and are provided in the following tables.
| | | | | | | | | | | | | | | | | |
| | | | | |
| | Nine Months Ended | | Year Ended | |
| | September 30, 2020 | | December 31, 2019 | |
| | Millions | |
| Operating Revenues (A) | $ | 2,592 | | | $ | 4,315 | | |
| Operating Income | $ | 518 | | | $ | 451 | | |
| Net Income | $ | 440 | | | $ | 484 | | |
| | | | | |
(A)Operating Revenues include sales to affiliates of $883 million and $1,463 million, respectively for the nine months ended September 30, 2020 and year ended December 31, 2019, respectively.
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| | | As of | | As of | |
| | | September 30, 2020 | December 31, 2019 | |
| | | Millions | |
| Current Receivables from Subsidiaries and Affiliates | | $ | 2,380 | | | $ | 2,456 | | |
| Total Current Assets | | $ | 3,395 | | | $ | 3,559 | | |
| Noncurrent Receivables from Affiliates | | $ | 17 | | | $ | 17 | | |
| Total Noncurrent Assets | | $ | 7,194 | | | $ | 7,025 | | |
| | | | | | |
| Current Payables to Subsidiaries and Affiliates | | $ | 259 | | | $ | 218 | | |
| Total Current Liabilities | | $ | 1,740 | | | $ | 1,155 | | |
| Noncurrent Payables to Affiliates | | $ | 58 | | | $ | 115 | | |
| Total Noncurrent Liabilities | | $ | 4,052 | | | $ | 4,934 | | |
| | | | | | |
Pension and NDT Fund Obligations
IRS minimum funding requirements for pension plans are determined based on the fund assets and liabilities at the end of a calendar year for the subsequent calendar year. As a result, the market downturn associated with the ongoing coronavirus pandemic is not expected to impact our pension contributions in 2020. In the event of a prolonged economic downturn associated with the ongoing coronavirus pandemic, our contributions to the pension plans may increase in future periods to meet IRS minimum funding requirements. PSEG hadaccumulated funding credits totaling approximately $600 million through 2019, which represent historical contributions in excess of IRS minimum funding requirements, and these credits can be applied to offset any future cash contribution obligations.
In addition, the NRC requires a biennial filing of the NDT fund balances against the decommissioning liability estimate. Any funding shortfalls are required to be cured prior to the next NRC reporting period. The market downturn associated with the ongoing coronavirus pandemic is not currently expected to result in any supplemental required funding of the NDT Fund. To the extent of a prolonged economic downturn associated with the ongoing coronavirus pandemic, our funding requirements may increase in future periods to meet NRC minimum funding requirements.
Common Stock Dividends
On July 16, 2019,21, 2020, our Board of Directors declared a $0.47$0.49 dividend per share of common stock for the third quarter of 2019.2020. This reflects an indicative annual dividend rate of $1.88$1.96 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, the impact of the ongoing coronavirus pandemic on our business and the capital and credit markets 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 18. 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 Issuer Credit Ratings (Moody’s) and Corporate Credit Ratings (S&P) 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.
In August 2020, S&P lowered PSEG Power’s Senior Note rating to BBB from BBB+. | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| | | Moody’s (A) | | S&P (B) | |
| PSEG | | Moody’s (A) | | S&P (B) | |
| PSEG | | | | | |
| Outlook | | Stable | | Stable | |
| Senior Notes | | Baa1 | | BBB | |
| Commercial Paper | | P2 | | A2 | |
| PSE&G | | | | | |
| Outlook | | Stable | | Stable | |
| Mortgage Bonds | | Aa3 | | A | |
| Commercial Paper | | P1 | | A2 | |
| PSEG Power | | | | | |
| Outlook | | Stable | | Stable | |
| Senior Notes | | Baa1 | | BBB+ | |
| | | | | | |
| |
(A) | Moody’s ratings range from Aaa (highest) to C (lowest) for long-term securities and P1 (highest) to NP (lowest) for short-term securities.Outlook | | Stable | | Stable | |
| Senior Notes | | Baa1 | | BBB | |
| Commercial Paper | | P2 | | A2 | |
| PSE&G | | | | | |
(B) | S&P ratings range from AAA (highest) to D (lowest) for long-term securities and A1 (highest) to D (lowest) for short-term securities.Outlook | | Stable | | Stable | |
| Mortgage Bonds | | Aa3 | | A | |
| Commercial Paper | | P1 | | A2 | |
| PSEG Power | | | | | |
| Outlook | | Stable | | Stable | |
| Senior Notes | | Baa1 | | BBB | |
| | | | | | |
(A)Moody’s ratings range from Aaa (highest) to C (lowest) for long-term securities and P1 (highest) to NP (lowest) for short-term securities. (B)S&P ratings range from AAA (highest) to D (lowest) for long-term securities and A1 (highest) to D (lowest) for short-term securities.
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 at PSEG Power and Services as compared to amounts disclosed in our 2019 Form 10-K.
In September 2020, the BPU issued an Order approving our CEF-EE program, authorizing PSE&G to spend $1 billion to achieve energy efficiency targets required under New Jersey’s Clean Energy law over a three-year period. The CEF-EE program was not included in PSE&G’s projected capital expenditures disclosed in our 2019 Form 10-K. See Executive Overview of 20192020 and Future Outlook for additional information.
PSE&G
During the nine months ended September 30, 2019,2020, PSE&G made capital expenditures of $1,866$1,777 million, primarily for T&D system reliability. This does not include expenditures for cost of removal, net of salvage, of $87$77 million, which are included in operating cash flows.
PSEG Power
During the nine months ended September 30, 2019,2020, PSEG Power made capital expenditures of $406$147 million, excluding $101$160 million for nuclear fuel, primarily related to our BH5various nuclear, solar and other generationfossil projects.
ACCOUNTING MATTERS
For information related to recent accounting matters, see Item 1. Note 2. Recent Accounting Standards.
| |
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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.Notes to Condensed 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 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 MTM VaR calculation does not include market risks associated with activities that are subject to accrual accounting, primarily our generating facilities and some load servingload-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 2019,2020, MTM VaR was relatively stable between a low of $10$5 million and a high of $26$12 million at the 95% confidence level. The range of VaR was narrower for the three months ended September 30, 20192020 as compared with the year ended December 31, 2018.2019. |
| | | | | | | | | | |
| | | | | | |
| | | MTM VaR | |
| | | Three Months Ended September 30, 2019 | | Year Ended December 31, 2018 | |
| | | Millions | |
| 95% Confidence Level, Loss could exceed VaR one day in 20 days | | | | | |
| Period End | | $ | 10 |
| | $ | 21 |
| |
| Average for the Period | | $ | 16 |
| | $ | 14 |
| |
| High | | $ | 26 |
| | $ | 46 |
| |
| Low | | $ | 10 |
| | $ | 6 |
| |
| 99.5% Confidence Level, Loss could exceed VaR one day in 200 days | | | | | |
| Period End | | $ | 16 |
| | $ | 32 |
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| Average for the Period | | $ | 25 |
| | $ | 22 |
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| High | | $ | 41 |
| | $ | 72 |
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| Low | | $ | 15 |
| | $ | 9 |
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| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| | | MTM VaR | |
| | | Three Months Ended September 30, 2020 | | Year Ended December 31, 2019 | |
| | | Millions | |
| 95% Confidence Level, Loss could exceed VaR one day in 20 days | | | | | |
| Period End | | $ | 7 | | | $ | 9 | | |
| Average for the Period | | $ | 8 | | | $ | 12 | | |
| High | | $ | 12 | | | $ | 35 | | |
| Low | | $ | 5 | | | $ | 5 | | |
| 99.5% Confidence Level, Loss could exceed VaR one day in 200 days | | | | | |
| Period End | | $ | 11 | | | $ | 14 | | |
| Average for the Period | | $ | 12 | | | $ | 19 | | |
| High | | $ | 19 | | | $ | 54 | | |
| Low | | $ | 8 | | | $ | 8 | | |
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See Item 1. Note 13. Financial Risk Management Activities for a discussion of credit risk.
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ITEM 4. | CONTROLS AND PROCEDURES |
ITEM 4.CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
PSEG, PSE&G and PSEG Power
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, PSE&G and PSEG Power. The committee monitors and evaluates the effectiveness of these disclosure controls and procedures. The CFO and CEO of each of PSEG, PSE&G and PSEG Power 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
PSEG, PSE&G and PSEG Power
There have been no changes in internal control over financial reporting that occurred during the third quarter of 20192020 that have materially affected, or are reasonably likely to materially affect, each registrant’s internal control over financial reporting.
PART II. OTHER INFORMATION
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 11. Commitments and Contingent Liabilities and Item 5. Other Information in the first and second quarter 20192020 10-Qs and in this Quarterly 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 and Part II, Item 1A in the first quarter 2020 10-Q, 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. There have been no material changesWe expect that the risks and uncertainties described in this Form 10-Q, our first quarter 2020 10-Q and our Form 10-K will be further adversely impacted by the ongoing coronavirus pandemic and any related, sustained economic downturn, which could extend beyond the duration of the pandemic. In addition to the foregoing, the following risk factor should be read together with the risk factors set forthin our first quarter 2020 10-Q and our Form 10-K.
The timeline and ultimate outcome of PSEG’s exploration of strategic alternatives relating to its non-nuclear generating fleet is uncertain.
In July 2020, PSEG announced that it was exploring strategic alternatives for PSEG Power’s non-nuclear generating fleet with the intention of accelerating the transformation of PSEG into a primarily regulated electric and gas utility, with a contracted generation business. PSEG further announced that it was then in the above-referenced filing aspreliminary stages of September 30, 2019.this process and it anticipated beginning the marketing process in the fourth quarter of 2020, with the expectation that the process would be completed sometime in 2021.
The timeline and ultimate outcome of this process are uncertain. The ability of PSEG to divest all or a portion of these assets, and the applicable terms, conditions and timeline, will depend in large part on the participation of potentially interested parties and the value such parties place on the applicable assets. It is possible that third parties may wish to acquire all, a portion or none of the applicable assets, and the value that such third parties may place on such assets is uncertain. The process may further be impacted by, among other things, global and domestic market and economics conditions, conditions generally impacting the fossil and solar generating industries and changes in the regulatory environment. Any transaction agreement that
PSEG may enter into will contain various terms and conditions, and it is possible that even if entered into, such transaction may fail to be completed. It is also possible that such a transaction could be completed on a shorter timeline than currently anticipated.
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ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In December 2018,November 2019, we entered into a share repurchase plan that complies with Rule 10b5-1 of the Exchange Act, as amended, solely with respect to the repurchase of shares to satisfy obligations under equity compensation awards that are expected to vest or be exercised in 2019.2020. There wereare no common share repurchases inremaining shares available for repurchase under the open market during the third quarter of 2019.plan.
ITEM 5. OTHER INFORMATION
Certain information reported in the Form 10-K is updated below. Additionally, certain information is provided for new matters that have arisen subsequent to the filing of the Form 10-K and first and second quarter 20192020 10-Qs. References are to the related pages on the Form 10-K and the first quarter and second quarter 20192020 10-Qs.
FederalState Regulation
Energy Clearing PricesEfficiency Initiatives
December 31, 20182019 Form 10-K page 1619 and June 30, 2020 Form 10-Q page 92. In May 2018, the New Jersey governor signed legislation that requires the State’s electric and gas utilities to implement energy efficiency programs that are expected to achieve energy savings targets for electric and gas usage within five years of the utilities’ implementation of those BPU-approved energy efficiency programs. In June 2020, the BPU issued an order finalizing this stakeholder process, setting forth its conclusions and directives regarding utility energy efficiency programs, including the appropriate scope of utility programs versus programs run by the State, as well as utility cost recovery and the measurement of utility performance in achieving the State’s energy savings goals. In September 2020, PSE&G reached a settlement with all parties in the CEF-EE proceeding, which the BPU approved. The settlement provides for an investment of $1 billion over a three-year period. Costs will be recovered through annual rate-making, with returns aligned with our most recent base rate case and a ten-year amortization period.
In May 2020, the BPU initiated a stakeholder proceeding to consider the role of the State’s electric utilities in developing an EV ecosystem. In September 2020, the Board issued an order adopting a “shared responsibility model” pursuant to which the utilities’ role would be primarily to prepare sites for publicly accessible charging infrastructure. The order does not require PSE&G to refile its pending CEF–EV proposal.
New Jersey Solar Initiatives
December 31, 2019 Form 10-K page 19 and March 31, 20192020 Form 10-Q page 83.pg. 82. In April 2019, FERC issued an order directing PJM andPursuant to New York Independent System Operator, Inc. (NYISO)Jersey’s Clean Energy Act of 2018, the BPU was required to change their rules governing pricing for fast-start resources. In its Order FERC found that current fast-start pricing practices are unjust and unreasonable because they do not allow prices to reflect the marginal cost of serving load. FERC required PJM and NYISO to make various changes to their respective tariffs to allow the start-up costs of fast-start resources to be reflectedundertake several initiatives in prices, among other things. In August 2019, PJM stated that new tariff provisions would apply fast-start pricing to all eligible fast-start resources; however, the new rules would not be implemented until FERC issues an order approving them. We will continueconnection with New Jersey’s solar energy market.
The BPU established a “Community Solar Energy Pilot Program,” permitting customers to participate in thissolar energy projects remotely located from their properties, and allowing for bill credits related to that participation effective in February 2019. The BPU is currently engaged in a stakeholder process with the State’s EDCs and others regarding issues including minor modifications to the community solar pilot program, discussions regarding the potential implementation of consolidated billing for the benefit of project developers and participants, and developing a cost recovery mechanism for the EDCs.
The New Jersey Clean Energy Act of 2018 required the BPU to close the existing solar renewable energy certificate (SREC) program to new applications at the earlier of June 1, 2021 or the date at which 5.1% of New Jersey retail electric sales are derived from solar. The 5.1% threshold was attained and the SREC market was closed to new applications on April 30, 2020, with limited exceptions related to the impact of COVID-19 on projects under development. Solar projects that failed to achieve commercial operation before FERC.April 30, 2020 may be entitled to receive transition renewable energy certificates (TRECs) for each megawatt hour of solar production. The New Jersey electric distribution companies (EDCs), including PSE&G, are required to purchase, using the services of a TREC administrator, TRECs from solar projects at rates set by the BPU. PSE&G filed for rate recovery of these costs in April 2020. In August 2020, the BPU approved PSE&G’s rate recovery filing. The BPU is continuing to work with the state’s EDCs to establish the mechanisms for implementing the transition incentive program.
Environmental Matters
Climate ChangeEnvironmental Justice—CO2 Regulation
In September 2020, the New Jersey governor signed legislation that enacted an environmental justice process for applicants seeking environmental permits, including those emission permits regulated under Title V of theClean Air Act, for facilities
December 31, 2018 Form 10-K page 21 and June 30, 2019 Form 10-Q page 89. Table of ContentsIn June 2019,
located in what the EPA issued its final Affordable Clean Energy (ACE) rulelaw defines as overburdened communities. With this law, New Jersey has embarked on a replacement for the repealed Clean Power Plan,path toward a greenhouse gas emission regulation for existing power plants. The ACE rule narrowly defines the “best system of emissions reductions” (BSER) as heat improvements to be applied only to an individual unit, excluding other potential mechanisms to address climate change. In September 2019, a coalition of power companies, including PSEG, filed a Petition for Reviewdeclared legislative goal that no community should bear “a disproportionate share of the ACE Ruleadverse environmental and public health consequences that accompany New Jersey’s economic growth.” In some cases, this process may result in permit denials, and in others, the imposition of permit conditions to alleviate adverse impacts. The law does not go into effect until the New Jersey Department of Environmental Protection (NJDEP) adopts implementing regulations. The NJDEP’s initial action is to publish a list of environmental justice communities within 120 days of passage of the law. PSEG has multiple facilities with Title V permits that would potentially be subject to the United States Courtrequirements of Appeals for the Districtregulations depending on the final structure of Columbia Circuit challenging the EPA’s narrow interpretationrules and list of BSER.overburdened communities. We cannot estimate the impact of this action on our business or resultsoperations at this time.
ITEM 6.EXHIBITS
A listing of exhibits being filed with this document is as follows:
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a. PSEG: | | |
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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 101.CAL: | | Inline XBRL Taxonomy Extension Calculation Linkbase |
Exhibit 101.LAB: | | Inline XBRL Taxonomy Extension Labels Linkbase |
Exhibit 101.PRE: | | Inline XBRL Taxonomy Extension Presentation Linkbase |
Exhibit 101.DEF: | | Inline XBRL Taxonomy Extension Definition Document |
Exhibit 104: | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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b. PSE&G: | | |
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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 101.CAL: | | Inline XBRL Taxonomy Extension Calculation Linkbase |
Exhibit 101.LAB: | | Inline XBRL Taxonomy Extension Labels Linkbase |
Exhibit 101.PRE: | | Inline XBRL Taxonomy Extension Presentation Linkbase |
Exhibit 101.DEF: | | Inline XBRL Taxonomy Extension Definition Document |
Exhibit 104: | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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c. PSEG Power: | | |
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Exhibit 101.INS: | | |
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 101.CAL: | | Inline XBRL Taxonomy Extension Calculation Linkbase |
Exhibit 101.LAB: | | Inline XBRL Taxonomy Extension Labels Linkbase |
Exhibit 101.PRE: | | Inline XBRL Taxonomy Extension Presentation Linkbase |
Exhibit 101.DEF: | | Inline XBRL Taxonomy Extension Definition Document |
Exhibit 104: | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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.
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PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED |
(Registrant) |
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By: | /S/ ROSE M. CHERNICK |
| Rose M. Chernick Vice President and Controller
(Principal Accounting Officer)
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Date: October 31, 201930, 2020
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.
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PUBLIC SERVICE ELECTRIC AND GAS COMPANY |
(Registrant) |
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By: | /S/ ROSE M. CHERNICK |
| Rose M. Chernick Vice President and Controller
(Principal Accounting Officer)
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Date: October 31, 201930, 2020
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.
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PSEG POWER LLC |
(Registrant) |
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By: | /S/ ROSE M. CHERNICK |
| Rose M. Chernick Vice President and Controller
(Principal Accounting Officer)
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Date: October 31, 201930, 2020