WASHINGTON, D.C. 20549
Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Public Service Electric and Gas Company and PSEG Power LLC are wholly owned subsidiaries of Public Service Enterprise Group Incorporated and meet the conditions set forth in General Instruction H(1) of Form 10-Q. Each is filing its Quarterly Report on Form 10-Q with the reduced disclosure format authorized by General Instruction H.
Certain of the matters discussed in this report about our and our subsidiaries’ future performance, including, without limitation, future revenues, earnings, strategies, prospects, consequences and all other statements that are not purely historical constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those anticipated. Such statements are based on management’s beliefs as well as assumptions made by and information currently available to management. When used herein, the words “anticipate,” “intend,” “estimate,” “believe,” “expect,” “plan,” “should,” “hypothetical,” “potential,” “forecast,” “project,” variations of such words and similar expressions are intended to identify forward-looking statements. Factors that may cause actual results to differ are often presented with the forward-looking statements themselves. Other factors that could cause actual results to differ materially from those contemplated in any forward-looking statements made by us herein are discussed in filings we make with the United States Securities and Exchange Commission (SEC), including our Annual Report on Form 10-K and subsequent reports on Form 10-Q and Form 8-K. These factors include, but are not limited to:
fluctuations in wholesale power and natural gas markets, including the potential impacts on the economic viability of our generation units;
changes in technology related to energy generation, distribution and consumption and customer usage patterns;
third-party credit risk relating to our sale of generation output and purchase of fuel;
risks associated with our ownership and operation of nuclear facilities, including regulatory risks, such as compliance with the Atomic Energy Act and trade control, environmental and other regulations, as well as financial, environmental and health and safety risks;
delays in receipt of, or an inability to receive, necessary licenses and permits;
adverse outcomes of any legal, regulatory or other proceeding, settlement, investigation or claim applicable to us and/or the energy industry;
the impact of our holding company structure on our ability to meet our corporate funding needs, service debt and pay dividends;
lack of growth or slower growth in the number of customers or changes in customer demand;
any inability of PSEG Power to meet its commitments under forward sale obligations;
reliance on transmission facilities that we do not own or control and the impact on our ability to maintain adequate transmission capacity;
any inability to successfully develop, obtain regulatory approval for, or construct generation, transmission and distribution projects;
our inability to exercise control over the operations of generation facilities in which we do not maintain a controlling interest;
any inability to recover the carrying amount of our long-lived assets and leveraged leases;
challenges associated with recruitment and/or retention of key executives and a qualified workforce;
All of the forward-looking statements made in this report are qualified by these cautionary statements and we cannot assure you that the results or developments anticipated by management will be realized or even if realized, will have the expected consequences to, or effects on, us or our business, prospects, financial condition, results of operations or cash flows. Readers are cautioned not to place undue reliance on these forward-looking statements in making any investment decision. Forward-looking statements made in this report apply only as of the date of this report. While we may elect to update forward-looking statements from time to time, we specifically disclaim any obligation to do so, even in light of new information or future events, unless otherwise required by applicable securities laws.
The forward-looking statements contained in this report are intended to qualify for the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
This combined Quarterly Report on Form 10-Q 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 relating to any individual company is filed by such company on its own behalf. PSE&G and PSEG Power are each only responsible for information about itself and its subsidiaries.
Discussions throughout the document refer to PSEG and its direct operating subsidiaries, PSE&G and PSEG Power. Depending on the context of each section, references to “we,” “us,” and “our” relate to PSEG or to the specific company or companies being discussed.
See Notes to Condensed Consolidated Financial Statements.
See Notes to Condensed Consolidated Financial Statements.
See Notes to Condensed Consolidated Financial Statements.
See Notes to Condensed Consolidated Financial Statements.
See Notes to Condensed Consolidated Financial Statements.
See Notes to Condensed Consolidated Financial Statements.
See disclosures regarding Public Service Electric and Gas Company included in the Notes to Condensed Consolidated Financial Statements.
See disclosures regarding Public Service Electric and Gas Company included in the Notes to Condensed Consolidated Financial Statements.
See disclosures regarding Public Service Electric and Gas Company included in the Notes to Condensed Consolidated Financial Statements.
See disclosures regarding Public Service Electric and Gas Company included in the Notes to Condensed Consolidated Financial Statements.
See disclosures regarding Public Service Electric and Gas Company included in the Notes to Condensed Consolidated Financial Statements.
See disclosures regarding Public Service Electric and Gas Company included in the Notes to Condensed Consolidated Financial Statements.
See disclosures regarding PSEG Power LLC included in the Notes to Condensed Consolidated Financial Statements.
See disclosures regarding PSEG Power LLC included in the Notes to Condensed Consolidated Financial Statements.
See disclosures regarding PSEG Power LLC included in the Notes to Condensed Consolidated Financial Statements.
See disclosures regarding PSEG Power LLC included in the Notes to Condensed Consolidated Financial Statements.
Note 1. Organization, Basis of Presentation and Significant Accounting Policies
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:
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.
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.
Note 2. Recent Accounting Standards
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-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.
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.
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.
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.
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 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.
Note 3. Revenues
The following is a description of principal activities by reportable segment from which PSEG, PSE&G and PSEG Power generate their revenues.
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, 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.
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 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 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.
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.
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.
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.
Energy Holdings generates lease revenues which are recorded pursuant to lease accounting guidance.
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 SeptemberJune 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 710 percent and 6 percent of accounts receivable (including unbilled revenues in 2020) as of SeptemberJune 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.
PSEG Power generally collects consideration upon satisfaction of performance obligations, and therefore, PSEG Power had no material contract balances as of SeptemberJune 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 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:
incremental 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.
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 increase 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
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.
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)
PSEG LI consolidates Servco, a marginally capitalized VIE, which was created for the purpose of operating LIPA’s T&D system in Long Island, New York as well as providing administrative support functions to LIPA. PSEG LI is the primary
beneficiary of Servco because it directs the operations of Servco, the activity that most significantly impacts Servco’s economic performance and it has the obligation to absorb losses of Servco that could potentially be significant to Servco. Such losses would be immaterial to PSEG.
Pursuant to the OSA, Servco’s operating costs are reimbursable 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 reimbursement 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$125 million and $126$118 million for the three months and $357$252 million and $355$233 million for the ninesix months ended SeptemberJune 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:
Note 7. Leases
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.
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.
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.
Note 8. Financing Receivables
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 June 30, 2020 | | | |
| | | As of June 30, 2020 | |
| | | | Millions | |
| | AA | | $ | 9 |
| |
| | A- | | 54 |
| |
| | BBB+ to BBB | | 237 |
| |
| | BB | | 132 |
| |
| | NR | | 38 |
| |
| | Total | | $ | 470 |
| |
| | | | | |
The “BB” and the “NR” ratings in the preceding table represent lease receivables related to coal and gas-fired assets in Illinois and Pennsylvania, respectively. As of SeptemberJune 30, 20192020, the gross investment in the leases of such assets, net of non-recourse debt, was $236235 million ($(25) 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 | |
| | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | 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 | | $ | 75 |
| | 100 | % | | 596 |
| | Gas | | NR | | Shawville Power, LLC | |
| | | | | | | | | | | | | | | | | |
The credit exposure for lessors is partially mitigated through various credit enhancement mechanisms within the lease structures. These credit enhancement features vary from lease to lease. The existing leveraged leases are either with counterparties with strong credit ratings, or with counterparties that are supplying parent guarantees or other credit support. PSEG believes no credit losses are necessary for the leveraged leases existing on June 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 June 30, 2020 | |
| | | Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | |
| | | Millions | |
| | Equity Securities | | | | | | | | |
| | Domestic | $ | 436 |
| | $ | 244 |
| | $ | (11 | ) | | $ | 669 |
| |
| | International | 395 |
| | 79 |
| | (26 | ) | | 448 |
| |
| | Total Equity Securities | 831 |
| | 323 |
| | (37 | ) | | 1,117 |
| |
| | Available-for-Sale Debt Securities | | | | | | | | |
| | Government | 513 |
| | 33 |
| | — |
| | 546 |
| |
| | Corporate | 554 |
| | 35 |
| | (2 | ) | | 587 |
| |
| | Total Available-for-Sale Debt Securities | 1,067 |
| | 68 |
| | (2 | ) | | 1,133 |
| |
| | Total NDT Fund Investments (A) | $ | 1,898 |
| | $ | 391 |
| | $ | (39 | ) | | $ | 2,250 |
| |
| | | | | | | | | | |
| |
| (A) | The NDT Fund Investments table excludes foreign currency of $1 million as of SeptemberJune 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$38 million (after-tax) were included in Accumulated Other Comprehensive Loss on PSEG’s and PSEG Power’s Condensed Consolidated Balance Sheets as of SeptemberJune 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 six months ended June 30, 2020. The portion of net unrealized gains (losses) recognized during the thirdsecond quarter and first nine monthshalf of 20192020 related to equity securities still held as of SeptemberJune 30, 20192020 was $(9)$172 million and $102$(1) million, respectively.
The amounts in the preceding tables do not include receivables and payables for NDT Fund transactions which have not settled at the end of each period. Such amounts are included in Accounts Receivable and Accounts Payable on the Condensed Consolidated Balance Sheets as shown in the following table.
|
| | | | | | | | | |
| | | | | | |
| | | 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 | |
| | | June 30,
2020 | | December 31,
2019 | |
| | | Millions | |
| | Accounts Receivable | $ | 13 |
| | $ | 11 |
| |
| | Accounts Payable | $ | 17 |
| | $ | 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.
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 | ) | |
| | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | As of June 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 | $ | 53 |
| | $ | (7 | ) | | $ | 5 |
| | $ | (4 | ) | | $ | 21 |
| | $ | (1 | ) | | $ | 6 |
| | $ | (3 | ) | |
| | International | 77 |
| | (15 | ) | | 23 |
| | (11 | ) | | 28 |
| | (2 | ) | | 34 |
| | (9 | ) | |
| | Total Equity Securities | 130 |
| | (22 | ) | | 28 |
| | (15 | ) | | 49 |
| | (3 | ) | | 40 |
| | (12 | ) | |
| | Available-for-Sale Debt Securities | | | | | | | | | | | | | | | | |
| | Government (B) | 19 |
| | — |
| | 1 |
| | — |
| | 99 |
| | (2 | ) | | 30 |
| | — |
| |
| | Corporate (C) | 46 |
| | (2 | ) | | 9 |
| | — |
| | 49 |
| | — |
| | 12 |
| | (1 | ) | |
| | Total Available-for-Sale Debt Securities | 65 |
| | (2 | ) | | 10 |
| | — |
| | 148 |
| | (2 | ) | | 42 |
| | (1 | ) | |
| | NDT Trust Investments | $ | 195 |
| | $ | (24 | ) | | $ | 38 |
| | $ | (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. 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.bonds. 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 before recovery of their amortized cost. PSEG Power doesdid not considerrecognize credit losses for U.S. Treasury obligations and Federal Agency mortgage-backed securities because these debt securities to be other-than-temporarily impaired asinvestments are guaranteed by the U.S. government or an agency of September 30, 2019.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). PSEG Power’s investments in corporate bonds are primarily in investment grade securities.Unrealized losses were due to market declines. 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 before recovery of their amortized cost. PSEG Power doesdid not considerrecognize credit losses for these debt securities to be other-than-temporarily impaired as of September 30, 2019.corporate bonds because they are primarily investment grade securities. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 | | Six Months Ended | |
| | | June 30, | | June 30, | |
| | | 2020 | | 2019 | | 2020 | | 2019 | |
| | | Millions | |
| | Proceeds from NDT Fund Sales (A) | $ | 493 |
| | $ | 427 |
| | $ | 1,048 |
| | $ | 880 |
| |
| | Net Realized Gains (Losses) on NDT Fund | | | | | | | | |
| | Gross Realized Gains | $ | 32 |
| | $ | 18 |
| | $ | 70 |
| | $ | 63 |
| |
| | Gross Realized Losses | (20 | ) | | (13 | ) | | (54 | ) | | (32 | ) | |
| | Net Realized Gains (Losses) on NDT Fund (B) | $ | 12 |
| | $ | 5 |
| | $ | 16 |
| | $ | 31 |
| |
| | Unrealized Gains (Losses) on Equity Securities | 182 |
| | 33 |
| | (39 | ) | | 132 |
| |
| | Impairment of Available-for-Sale Debt Securities (C) | — |
| | — |
| | (3 | ) | | — |
| |
| | Net Gains (Losses) on NDT Fund Investments | $ | 194 |
| | $ | 38 |
| | $ | (26 | ) | | $ | 163 |
| |
| | | | | | | | | | |
(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.
| |
| (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. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The NDT Fund debt securities held as of SeptemberJune 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 | | $ | 23 |
| |
| | 1 - 5 years | | 257 |
| |
| | 6 - 10 years | | 220 |
| |
| | 11 - 15 years | | 75 |
| |
| | 16 - 20 years | | 71 |
| |
| | Over 20 years | | 487 |
| |
| | Total NDT Available-for-Sale Debt Securities | $ | 1,133 |
| |
| | | | | |
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.”
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 |
| |
| | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | As of June 30, 2020 | |
| | | Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | |
| | | Millions | |
| | Domestic Equity Securities | $ | 21 |
| | $ | 5 |
| | $ | — |
| | $ | 26 |
| |
| | Available-for-Sale Debt Securities | | | | | | | | |
| | Government | 87 |
| | 10 |
| | — |
| | 97 |
| |
| | Corporate | 125 |
| | 11 |
| | — |
| | 136 |
| |
| | Total Available-for-Sale Debt Securities | 212 |
| | 21 |
| | — |
| | 233 |
| |
| | Total Rabbi Trust Investments | $ | 233 |
| | $ | 26 |
| | $ | — |
| | $ | 259 |
| |
| | | | | | | | | | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | 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 |
| | $ | — |
| | $ | 28 |
| |
| | Available-for-Sale Debt Securities | | | | | | | | |
| | Government | 100 |
| | 4 |
| | — |
| | 104 |
| |
| | Corporate | 107 |
| | 7 |
| | — |
| | 114 |
| |
| | Total Available-for-Sale Debt Securities | 207 |
| | 11 |
| | — |
| | 218 |
| |
| | Total Rabbi Trust Investments | $ | 228 |
| | $ | 18 |
| | $ | — |
| | $ | 246 |
| |
| | | | | | | | | | |
Net unrealized gains (losses) on debt securities of $11$15 million (after-tax) were included in Accumulated Other Comprehensive Loss on PSEG’s Condensed Consolidated Balance Sheet as of SeptemberJune 30, 2019.2020. The portion of net unrealized gains (losses) recognized during the thirdsecond quarter and first nine monthshalf of 20192020 related to equity securities still held as of SeptemberJune 30, 20192020 was less than $1$4 million and $4$(1) 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,
2019 | | December 31,
2018 | |
| | | Millions | |
| | Accounts Receivable | $ | 2 |
| | $ | 2 |
| |
| | Accounts Payable | $ | — |
| | $ | — |
| |
| | | | | | |
|
| | | | | | | | | |
| | | | | | |
| | | As of | | As of | |
| | | June 30,
2020 | | December 31,
2019 | |
| | | Millions | |
| | Accounts Receivable | $ | 1 |
| | $ | 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 | ) | |
| | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | As of June 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) | $ | 6 |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | 26 |
| | $ | — |
| | $ | 3 |
| | $ | — |
| |
| | Corporate (B) | 9 |
| | — |
| | 1 |
| | — |
| | 11 |
| | — |
| | 2 |
| | — |
| |
| | Total Available-for-Sale Debt Securities | 15 |
| | — |
| | 2 |
| | — |
| | 37 |
| | — |
| | 5 |
| | — |
| |
| | Rabbi Trust Investments | $ | 15 |
| | $ | — |
| | $ | 2 |
| | $ | — |
| | $ | 37 |
| | $ | — |
| | $ | 5 |
| | $ | — |
| |
| | | | | | | | | | | | | | | | | | |
| |
| (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. ThesePSEG also has investments in municipal bonds. It is not expected that these securities will settle for less than their amortized cost. 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 also has investments indid not recognize credit losses for municipal bonds thatbecause they are primarily in investment grade securities. It is not expected that these securities will settle |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
| |
| (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.Unrealized losses were due to market declines. 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 before recovery of their amortized cost. PSEG doesdid not considerrecognize credit losses for these debt securities to be other-than-temporarily impaired as of September 30, 2019.corporate bonds because they are primarily investment grade. |
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 | | Six Months Ended | |
| | | June 30, | | June 30, | |
| | | 2020 | | 2019 | | 2020 | | 2019 | |
| | | Millions | |
| | Proceeds from Rabbi Trust Sales (A) | $ | 61 |
| | $ | 42 |
| | $ | 115 |
| | $ | 86 |
| |
| | Net Realized Gains (Losses) on Rabbi Trust: | | | | | | | | |
| | Gross Realized Gains | $ | 5 |
| | $ | 1 |
| | $ | 10 |
| | $ | 2 |
| |
| | Gross Realized Losses | (2 | ) | | — |
| | (3 | ) | | (1 | ) | |
| | Net Realized Gains (Losses) on Rabbi Trust (B) | 3 |
| | 1 |
| | 7 |
| | 1 |
| |
| | Unrealized Gains (Losses) on Equity Securities | 4 |
| | — |
| | (1 | ) | | 3 |
| |
| | Net Gains (Losses) on Rabbi Trust Investments | $ | 7 |
| | $ | 1 |
| | $ | 6 |
| | $ | 4 |
| |
| | | | | | | | | | |
(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 SeptemberJune 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 | | $ | 1 |
| |
| | 1 - 5 years | | 32 |
| |
| | 6 - 10 years | | 32 |
| |
| | 11 - 15 years | | 16 |
| |
| | 16 - 20 years | | 32 |
| |
| | Over 20 years | | 120 |
| |
| | Total Rabbi Trust Available-for-Sale Debt Securities | $ | 233 |
| |
| | | | | |
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 are 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 | |
| | | June 30,
2020 | | December 31,
2019 | |
| | | Millions | |
| | PSE&G | $ | 50 |
| | $ | 48 |
| |
| | PSEG Power | 65 |
| | 62 |
| |
| | Other | 144 |
| | 136 |
| |
| | Total Rabbi Trust Investments | $ | 259 |
| | $ | 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.
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.their respective year-end Consolidated Balance Sheets.
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 | | Six Months Ended | | Six Months Ended | |
| | | June 30, | | June 30, | | June 30, | | June 30, | |
| | | 2020 |
| | 2019 | | 2020 |
| | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | |
| | | Millions | |
| | Components of Net Periodic Benefit (Credits) Costs | | | | | | | | | | | | | | | | |
| | Service Cost (included in O&M Expense) | $ | 35 |
| | $ | 28 |
| | $ | 3 |
| | $ | 3 |
| | $ | 70 |
| | $ | 57 |
| | $ | 5 |
| | $ | 5 |
| |
| | Non-Service Components of Pension and OPEB (Credits) Costs | | | | | | | | | | | | | | | | |
| | Interest Cost | 48 |
| | 58 |
| | 8 |
| | 11 |
| | 96 |
| | 116 |
| | 17 |
| | 22 |
| |
| | Expected Return on Plan Assets | (110 | ) | | (96 | ) | | (9 | ) | | (9 | ) | | (221 | ) | | (193 | ) | | (19 | ) | | (18 | ) | |
| | Amortization of Net | | | | | | | | | | | | | | | | |
| | Prior Service Credit | (3 | ) | | (4 | ) | | (32 | ) | | (32 | ) | | (5 | ) | | (9 | ) | | (64 | ) | | (64 | ) | |
| | Actuarial Loss | 23 |
| | 27 |
| | 11 |
| | 12 |
| | 46 |
| | 54 |
| | 23 |
| | 25 |
| |
| | Non-Service Components of Pension and OPEB (Credits) Costs | (42 | ) | | (15 | ) | | (22 | ) | | (18 | ) | | (84 | ) | | (32 | ) | | (43 | ) | | (35 | ) | |
| | Total Benefit (Credits) Costs | $ | (7 | ) | | $ | 13 |
| | $ | (19 | ) | | $ | (15 | ) | | $ | (14 | ) | | $ | 25 |
| | $ | (38 | ) | | $ | (30 | ) | |
| | | | | | | | | | | | | | | | | | |
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 |
| |
| | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | Pension Benefits | | OPEB | | Pension Benefits | | OPEB | |
| | | Three Months Ended | | Three Months Ended | | Six Months Ended | | Six Months Ended | |
| | | June 30, | | June 30, | | June 30, | | June 30, | |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | |
| | | Millions | |
| | PSE&G | $ | (6 | ) | | $ | 6 |
| | $ | (19 | ) | | $ | (16 | ) | | $ | (13 | ) | | $ | 13 |
| | $ | (38 | ) | | $ | (32 | ) | |
| | PSEG Power | (2 | ) | | 4 |
| | — |
| | 1 |
| | (3 | ) | | 7 |
| | — |
| | 2 |
| |
| | Other | 1 |
| | 3 |
| | — |
| | — |
| | 2 |
| | 5 |
| | — |
| | — |
| |
| | Total Benefit (Credits) Costs | $ | (7 | ) | | $ | 13 |
| | $ | (19 | ) | | $ | (15 | ) | | $ | (14 | ) | | $ | 25 |
| | $ | (38 | ) | | $ | (30 | ) | |
| | | | | | | | | | | | | | | | | | |
DuringPSEG 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 plans to
contribute $30 million into its pension plan during 2020. 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 is not expected to impact Servco’s pension contributions in 2020.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Servco’s pension-related revenues and costs were $14$7 million for both the three months ended June 30, 2020 and 2019, and $15 million and $28$14 million for the three months and ninesix months ended SeptemberJune 30, 2019, respectively. As of September 30, 2019, Servco completed its entire 2019 annual planned contribution into its pension plan. Servco’s pension-related revenues2020 and costs were $20 million and $40 million for the three months and nine months ended September 30, 2018,2019, respectively. The OPEB-related revenues earned and costs incurred were $1$2 million for each ofboth the three months ended SeptemberJune 30, 20192020 and 2018,2019, and $4 million and $3 million for each of the ninesix months ended SeptemberJune 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 SeptemberJune 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 | |
| | | June 30, 2020 | | December 31, 2019 | |
| | | Millions | |
| | Face Value of Outstanding Guarantees | $ | 1,828 |
| | $ | 1,854 |
| |
| | Exposure under Current Guarantees | $ | 113 |
| | $ | 171 |
| |
| | | | | | |
| | Letters of Credit Margin Posted | $ | 95 |
| | $ | 121 |
| |
| | Letters of Credit Margin Received | $ | 75 |
| | $ | 29 |
| |
| | | | | | |
| | Cash Deposited and Received: | | | | |
| | Counterparty Cash Collateral Deposited | $ | — |
| | $ | — |
| |
| | Counterparty Cash Collateral Received | $ | (4 | ) | | $ | (4 | ) | |
| | Net Broker Balance Deposited (Received) | $ | 16 |
| | $ | 48 |
| |
| | | | | | |
| | Additional Amounts Posted: | | | | |
| | Other Letters of Credit | $ | 83 |
| | $ | 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 late 2020 or early 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 SeptemberJune 30, 2019,2020, PSEG has accrued approximately $65 million for this matter. Of this amount, PSE&G has accrued $52 million as an Environmental Costs Liability 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.
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$346 million and $407$389 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$346 million as of SeptemberJune 30, 2019.2020. Of this amount, $69$78 million was recorded in Other Current Liabilities and $295$268 million was reflected as Environmental Costs in Noncurrent Liabilities. PSE&G has recorded a $364$346 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
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
PSE&G by the property owners, Newport Associates Development Company (NADC) and Newport Associates Phase I 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 continueis ongoing as part of the NJDEP site remediation program. We are currently in discussions with the federal government regarding the reimbursement of costs associated with the federal response to appear on the surfacethis matter and response actions relatedpayment of civil penalties, in an amount expected to be immaterial to the fluid discharge are ongoing, although at a significantly reduced scale. PSE&G remains concerned about future leaks and potential environmental impacts as a resultfinancial statements of reintroduction of fluid back into these lines and has determined that retirement of the affected facilities is appropriate. PSE&G has been unable to reach 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 2018PSEG 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 the&G.
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 $281.78359.98 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 | | |
| | | 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 | | |
| | | | | | | | | | | |
|
| | | | | | | | | | |
| | | | | | | | | | | |
| | | 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 | | |
| | | | | | | | | | | |
| |
| (A) | Prices set in the 20192020 BGS auction became effective on June 1, 20192020 when the 20162017 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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 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 SeptemberJune 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 |
| |
| | | | | |
|
| | | | | | |
| | | | | |
| | Fuel Type | | PSEG Power’s Share of Commitments through 2024 | |
| | | | Millions | |
| | Nuclear Fuel | | | |
| | Uranium | | $ | 173 |
| |
| | Enrichment | | $ | 333 |
| |
| | Fabrication | | $ | 170 |
| |
| | Natural Gas | | $ | 1,244 |
| |
| | | | | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
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 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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 six months ended June 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 ninesix months ended SeptemberJune 30, 2019:
PSEG
| |
• | issued $750 million of 2.875% Senior Notes due June 2024, and
|
repaid a $350 million term loan with an interest rate of 1 month LIBOR + 0.80%.2020:
PSE&G
| |
| • | issued $400300 million of 3.20%2.45% Secured Medium-Term Notes, Series M,N, due August 2049,January 2030, |
| |
• | issued $375 million of 3.20% Secured Medium-Term Notes, Series M, due May 2029,issued $300 million of 3.15% Secured Medium-Term Notes, Series N, due January 2050, and |
issued $375 million of 3.85%2.70% Secured Medium-Term Notes, Series M,N, due May 2049, and2050.
retired $250 million of 1.80% Medium-Term Notes at maturity, andPSEG Power
| |
| • | retired $250406 million of 2.00%5.13% Medium-TermSenior Notes at maturity. |
PSEG Power
PSEG Power executed an extension of the letter of credit backing $44 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.
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 SeptemberJune 30, 2019,2020, the total available credit capacity was $3.6 billion.
As of SeptemberJune 30, 2019,2020, no single institution represented more than 9% of the total commitments in the credit facilities.
As of SeptemberJune 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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The total credit facilities and available liquidity as of SeptemberJune 30, 20192020 were as follows:
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | 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 |
| | | | | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | As of June 30, 2020 | | | | | |
| | Company/Facility | | Total Facility | | Usage (D) | | Available Liquidity | | Expiration Date | | Primary Purpose | |
| | | | Millions | | | | | |
| | PSEG | | | | | | | | | | | |
| | 5-year Credit Facilities (A) | | $ | 1,500 |
| | $ | 408 |
| | $ | 1,092 |
| | Mar 2024 | | Commercial Paper Support/Funding/Letters of Credit | |
| | Total PSEG | | $ | 1,500 |
| | $ | 408 |
| | $ | 1,092 |
| | | | | |
| | 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 |
| | $ | 96 |
| | $ | 104 |
| | Sept 2021 | | Letters of Credit | |
| | 5-year Credit Facilities (C) | | 1,900 |
| | 40 |
| | 1,860 |
| | Mar 2024 | | Funding/Letters of Credit | |
| | Total PSEG Power | | $ | 2,100 |
| | $ | 136 |
| | $ | 1,964 |
| | | | | |
| | Total | | $ | 4,200 |
| | $ | 561 |
| | $ | 3,639 |
| | | | | |
| | | | | | | | | | | | | |
| |
| (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 SeptemberJune 30, 2019,2020, PSEG had $336$365 million outstanding at a weighted average interest rate of 2.44%0.4%. PSE&G had $10 millionno commercial paper outstanding at a weighted average interest rate of 2.17% under its Commercial Paper Program as of SeptemberJune 30, 2019.2020. |
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 and in April 2020 it entered into two 364-day variable rate term loan agreements for $200 million and $300 million.
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
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 SeptemberJune 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 SeptemberJune 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 $(7)$(6) million and $(5) million as of SeptemberJune 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) million and $(1)$(15) million as of SeptemberJune 30, 20192020 and December 31, 2018, respectively.2019. The after-tax unrealized losses on these hedges expected to be reclassified to earnings during the next 12 months are $(2)$(7) 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. |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | As of June 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 | | $ | 595 |
| | $ | (483 | ) | | $ | 112 |
| | $ | — |
| | $ | 112 |
| |
| | Noncurrent Assets | | 202 |
| | (172 | ) | | 30 |
| | — |
| | 30 |
| |
| | Total Mark-to-Market Derivative Assets | | $ | 797 |
| | $ | (655 | ) | | $ | 142 |
| | $ | — |
| | $ | 142 |
| |
| | Derivative Contracts | | | | | | | | | | | |
| | Current Liabilities | | $ | (501 | ) | | $ | 483 |
| | $ | (18 | ) | | $ | (6 | ) | | $ | (24 | ) | |
| | Noncurrent Liabilities | | (172 | ) | | 170 |
| | (2 | ) | | — |
| | (2 | ) | |
| | Total Mark-to-Market Derivative (Liabilities) | | $ | (673 | ) | | $ | 653 |
| | $ | (20 | ) | | $ | (6 | ) | | $ | (26 | ) | |
| | Total Net Mark-to-Market Derivative Assets (Liabilities) | | $ | 124 |
| | $ | (2 | ) | | $ | 122 |
| | $ | (6 | ) | | $ | 116 |
| |
| | | | | | | | | | | | | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | 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 |
| |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | 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 | ) | |
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | 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 |
| | $ | — |
| | $ | 113 |
| |
| | Noncurrent Assets | | 163 |
| | (139 | ) | | 24 |
| | — |
| | 24 |
| |
| | Total Mark-to-Market Derivative Assets | | $ | 799 |
| | $ | (662 | ) | | $ | 137 |
| | $ | — |
| | $ | 137 |
| |
| | Derivative Contracts | | | | | | | | | | | |
| | Current Liabilities | | $ | (553 | ) | | $ | 522 |
| | $ | (31 | ) | | $ | (5 | ) | | $ | (36 | ) | |
| | Noncurrent Liabilities | | (139 | ) | | 138 |
| | (1 | ) | | — |
| | (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 SeptemberJune 30, 20192020 and December 31, 2018.2019. |
| |
| (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 or(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 SeptemberJune 30, 20192020 and December 31, 2018,2019, PSEG Power had net cash collateral/margincollateral (receipts) payments to counterparties of $92$12 million and $393$44 million, respectively. Of these net cash/cash collateral margin(receipts) payments, $(1)$(2) million as of SeptemberJune 30, 20192020 and $153 million as December 31, 20182019 were netted against the corresponding net derivative contract positions. The $(1)$(2) million as of SeptemberJune 30, 20192020 was netted against noncurrent assets. Of the $153$(2) million as of December 31, 2018, $(2)2019, $(1) million was netted against current assets $(3)and $(1) million was netted against noncurrent assets, $96 million was netted against current liabilities and $62 million was netted against noncurrent liabilities.assets. |
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$25 million and $22$35 million as of SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively. As of SeptemberJune 30, 20192020 and December 31, 2018,2019, PSEG Power had the contractual right of offset of $6 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$19 million and $15$33 million as of SeptemberJune 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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 ninesix months ended SeptemberJune 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 | |
| | | 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 | |
| | | Three Months Ended | | | | Three Months Ended | |
| | | June 30, | | | | June 30, | |
| | | 2020 | | 2019 | | | | 2020 | | 2019 | |
| | | | Millions | | | | Millions | |
| | PSEG | | | | | | | | | | | |
| | Interest Rate Swaps | | $ | — |
| | $ | (19 | ) | | Interest Expense | | $ | (4 | ) | | $ | (1 | ) | |
| | Total PSEG | | $ | — |
| | $ | (19 | ) | | | | $ | (4 | ) | | $ | (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 | |
| | | Six Months Ended | | | | Six Months Ended | |
| | | June 30, | | | | June 30, | |
| | | 2020 | | 2019 | | | | 2020 | | 2019 | |
| | | | Millions | | | | Millions | |
| | PSEG | | | | | | | | | | | |
| | Interest Rate Swaps | | $ | (6 | ) | | $ | (24 | ) | | Interest Expense | | $ | (6 | ) | | $ | (1 | ) | |
| | Total PSEG | | $ | (6 | ) | | $ | (24 | ) | | | | $ | (6 | ) | | $ | (1 | ) | |
| | | | | | | | | | | | | |
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 ninesix months ended SeptemberJune 30, 2019,2020, the amount of gain or loss on interest rate hedges reclassified from Accumulated Other Comprehensive Income (Loss) into income was $(1)$(3) million after-tax. and $(4) 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 six months ended June 30, 2019 was immaterial.
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.
|
| | | | | | | | | | |
| | | | | | | |
| | 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 | | 6 |
| | 4 |
| |
| | Balance as of June 30, 2020 | | $ | (21 | ) | | $ | (15 | ) | |
| | | | | | | |
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 | ) | |
| | | | | | | |
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 ninesix months ended SeptemberJune 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 | | Six Months Ended | |
| | | | | | June 30, | | June 30, | |
| | | | | | 2020 | | 2019 | | 2020 | | 2019 | |
| | | | | | Millions | |
| | PSEG and PSEG Power | | | | | | | | | | | |
| | Energy-Related Contracts | | Operating Revenues | | $ | (27 | ) | | $ | 322 |
| | $ | 204 |
| | $ | 461 |
| |
| | Energy-Related Contracts | | Energy Costs | | 2 |
| | (61 | ) | | (66 | ) | | (74 | ) | |
| | Total PSEG and PSEG Power | | | | $ | (25 | ) | | $ | 261 |
| | $ | 138 |
| | $ | 387 |
| |
| | | | | | | | | | | | | |
The following table summarizes the net notional volume purchases/(sales) of open derivative transactions by commodity as of SeptemberJune 30, 20192020 and December 31, 2018.2019.
|
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | Type | | Notional | | Total | | PSEG | | PSEG Power | | PSE&G | |
| | | | | | Millions | |
| | As of September 30, 2019 | | | | | | | | | | | |
| | Natural Gas | | Dekatherm (Dth) | | 405 |
| | — |
| | 405 |
| | — |
| |
| | Electricity | | MWh | | (61 | ) | | — |
| | (61 | ) | | — |
| |
| | Financial Transmission Rights (FTRs) | | MWh | | 13 |
| | — |
| | 13 |
| | — |
| |
| | Interest Rate Swaps | | U.S. Dollars | | 700 |
| | 700 |
| | — |
| | — |
| |
| | As of December 31, 2018 | | | | | | | | | | | |
| | Natural Gas | | Dth | | 358 |
| | — |
| | 358 |
| | — |
| |
| | Electricity | | MWh | | (74 | ) | | — |
| | (74 | ) | | — |
| |
| | FTRs | | MWh | | 18 |
| | — |
| | 18 |
| | — |
| |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | Type | | Notional | | Total | | PSEG | | PSEG Power | | PSE&G | |
| | | | | | Millions | |
| | As of June 30, 2020 | | | | | | | | | | | |
| | Natural Gas | | Dekatherm (Dth) | | 371 |
| | — |
| | 371 |
| | — |
| |
| | Electricity | | MWh | | (58 | ) | | — |
| | (58 | ) | | — |
| |
| | Financial Transmission Rights (FTRs) | | MWh | | 30 |
| | — |
| | 30 |
| | — |
| |
| | Interest Rate Swaps | | U.S. Dollars | | 700 |
| | 700 |
| | — |
| | — |
| |
| | As of December 31, 2019 | | | | | | | | | | | |
| | Natural Gas | | Dth | | 341 |
| | — |
| | 341 |
| | — |
| |
| | Electricity | | MWh | | (62 | ) | | — |
| | (62 | ) | | — |
| |
| | FTRs | | MWh | | 13 |
| | — |
| | 13 |
| | — |
| |
| | Interest Rate Swaps | | U.S. Dollars | | 700 |
| | 700 |
| | — |
| | — |
| |
| | | | | | | | | | | | | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Credit Risk
Credit risk relates to the risk of loss that PSEG Power would incur as a result of non-performance by counterparties pursuant to the terms of their contractual obligations. 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 SeptemberJune 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.
As of SeptemberJune 30, 2019,2020, 99% of the net credit exposure for PSEG Power’s wholesale operations was with investment grade counterparties. Credit exposure is defined as any positive results of netting accounts receivable/accounts payable and the forward value of open positions (which includes all financial instruments including derivatives, NPNS and non-derivatives).
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | Rating | | Current Exposure | | Securities held as Collateral | | Net Exposure | | Number of Counterparties >10% | | Net Exposure of Counterparties >10% | | |
| | | | Millions | | | | Millions | | |
| | Investment Grade | | $ | 226 |
| | $ | 22 |
| | $ | 204 |
| | 2 |
| | $ | 100 |
| (A) | |
| | Non-Investment Grade | | 2 |
| | — |
| | 2 |
| | — |
| | — |
| | |
| | Total | | $ | 228 |
| | $ | 22 |
| | $ | 206 |
| | 2 |
| | $ | 100 |
| | |
| | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | Rating | | Current Exposure | | Securities Held as Collateral | | Net Exposure | | Number of Counterparties >10% | | Net Exposure of Counterparties >10% | | |
| | | | Millions | | | | Millions | | |
| | Investment Grade | | $ | 335 |
| | $ | 70 |
| | $ | 265 |
| | 3 |
| | $ | 136 |
| (A) | |
| | Non-Investment Grade | | 2 |
| | — |
| | 2 |
| | — |
| | — |
| | |
| | Total | | $ | 337 |
| | $ | 70 |
| | $ | 267 |
| | 3 |
| | $ | 136 |
| | |
| | | | | | | | | | | | | | |
| |
| (A) | Represents net exposure of $67$50 million with PSE&G and $3386 million with atwo non-affiliated counterparty.counterparties. |
As of SeptemberJune 30, 2019,2020, collateral held from counterparties where PSEG Power had credit exposure included $3 million in cash collateral and $19$67 million in letters of credit.
As of SeptemberJune 30, 2019,2020, PSEG Power had 127136 active 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 SeptemberJune 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 SeptemberJune 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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 14. Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Accounting guidance for fair value measurement emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and establishes a fair value hierarchy that distinguishes between assumptions based on market data obtained from independent sources and those based on an entity’s own assumptions. The hierarchy prioritizes the inputs to fair value measurement into three levels:
Level 1—measurements utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that PSEG, PSE&G and PSEG Power have the ability to access. These consist primarily of listed equity securities and money market mutual funds, as well as natural gas futures contracts executed on NYMEX.
Level 2—measurements include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and other observable inputs such as interest rates and yield curves that are observable at commonly quoted intervals. These consist primarily of non-exchange traded derivatives such as forward contracts or options and most fixed income securities.
Level 3—measurements use unobservable inputs for assets or liabilities, based on the best information available and might include an entity’s own data and assumptions. In some valuations, the inputs used may fall into different levels of the hierarchy. In these cases, the financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. These consist primarily of certain electric load contracts and gas contracts.
Certain derivative transactions may transfer from Level 2 to Level 3 if inputs become unobservable and internal modeling techniques are employed to determine fair value. Conversely, measurements may transfer from Level 3 to Level 2 if the inputs become observable.
The following tables present information about PSEG’s, PSE&G’s and PSEG Power’s respective assets and (liabilities) measured at fair value on a recurring basis as of SeptemberJune 30, 20192020 and December 31, 2018,2019, including the fair value measurements and the levels of inputs used in determining those fair values. Amounts shown for PSEG include the amounts shown for PSE&G and PSEG Power.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | Recurring Fair Value Measurements as of September 30, 2019 | |
| | Description | | Total | |
Netting (D) | | Quoted Market Prices for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | |
| | | | Millions | |
| | PSEG | | | | | | | | | | | |
| | Assets: | | | | | | | | | | | |
| | Derivative Contracts: | | | | | | | | | | | |
| | Energy-Related Contracts (A) | | $ | 45 |
| | $ | (544 | ) | | $ | 10 |
| | $ | 576 |
| | $ | 3 |
| |
| | NDT Fund (B) | | | | | | | | | | | |
| | Equity Securities | | $ | 1,072 |
| | $ | — |
| | $ | 1,071 |
| | $ | 1 |
| | $ | — |
| |
| | Debt Securities—U.S. Treasury | | $ | 219 |
| | $ | — |
| | $ | — |
| | $ | 219 |
| | $ | — |
| |
| | Debt Securities—Govt Other | | $ | 347 |
| | $ | — |
| | $ | — |
| | $ | 347 |
| | $ | — |
| |
| | Debt Securities—Corporate | | $ | 496 |
| | $ | — |
| | $ | — |
| | $ | 496 |
| | $ | — |
| |
| | Rabbi Trust (B) | | | | | | | | | | | |
| | Equity Securities | | $ | 25 |
| | $ | — |
| | $ | 25 |
| | $ | — |
| | $ | — |
| |
| | Debt Securities—U.S. Treasury | | $ | 68 |
| | $ | — |
| | $ | — |
| | $ | 68 |
| | $ | — |
| |
| | Debt Securities—Govt Other | | $ | 41 |
| | $ | — |
| | $ | — |
| | $ | 41 |
| | $ | — |
| |
| | Debt Securities—Corporate | | $ | 112 |
| | $ | — |
| | $ | — |
| | $ | 112 |
| | $ | — |
| |
| | Liabilities: | | | | | | | | | | | |
| | Derivative Contracts: | | | | | | | | | | | |
| | Energy-Related Contracts (A) | | $ | (30 | ) | | $ | 543 |
| | $ | (37 | ) | | $ | (534 | ) | | $ | (2 | ) | |
| | Interest Rate Swaps (C) | | $ | (7 | ) | | $ | — |
| | $ | — |
| | $ | (7 | ) | | $ | — |
| |
| | PSE&G | | | | | | | | | | | |
| | Assets: | | | | | | | | | | | |
| | Rabbi Trust (B) | | | | | | | | | | | |
| | Equity Securities | | $ | 5 |
| | $ | — |
| | $ | 5 |
| | $ | — |
| | $ | — |
| |
| | Debt Securities—U.S. Treasury | | $ | 13 |
| | $ | — |
| | $ | — |
| | $ | 13 |
| | $ | — |
| |
| | Debt Securities—Govt Other | | $ | 8 |
| | $ | — |
| | $ | — |
| | $ | 8 |
| | $ | — |
| |
| | Debt Securities—Corporate | | $ | 22 |
| | $ | — |
| | $ | — |
| | $ | 22 |
| | $ | — |
| |
| | PSEG Power | |
| | | | | | | | | |
| | Assets: | | | | | | | | | | | |
| | Derivative Contracts: | | | | | | | | | | | |
| | Energy-Related Contracts (A) | | $ | 45 |
| | $ | (544 | ) | | $ | 10 |
| | $ | 576 |
| | $ | 3 |
| |
| | NDT Fund (B) | | | | | | | | | | | |
| | Equity Securities | | $ | 1,072 |
| | $ | — |
| | $ | 1,071 |
| | $ | 1 |
| | $ | — |
| |
| | Debt Securities—U.S. Treasury | | $ | 219 |
| | $ | — |
| | $ | — |
| | $ | 219 |
| | $ | — |
| |
| | Debt Securities—Govt Other | | $ | 347 |
| | $ | — |
| | $ | — |
| | $ | 347 |
| | $ | — |
| |
| | Debt Securities—Corporate | | $ | 496 |
| | $ | — |
| | $ | — |
| | $ | 496 |
| | $ | — |
| |
| | Rabbi Trust (B) | | | | | | | | | | | |
| | Equity Securities | | $ | 7 |
| | $ | — |
| | $ | 7 |
| | $ | — |
| | $ | — |
| |
| | Debt Securities—U.S. Treasury | | $ | 17 |
| | $ | — |
| | $ | — |
| | $ | 17 |
| | $ | — |
| |
| | Debt Securities—Govt Other | | $ | 10 |
| | $ | — |
| | $ | — |
| | $ | 10 |
| | $ | — |
| |
| | Debt Securities—Corporate | | $ | 28 |
| | $ | — |
| | $ | — |
| | $ | 28 |
| | $ | — |
| |
| | Liabilities: | | | | | | | | | | | |
| | Derivative Contracts: | | | | | | | | | | | |
| | Energy-Related Contracts (A) | | $ | (30 | ) | | $ | 543 |
| | $ | (37 | ) | | $ | (534 | ) | | $ | (2 | ) | |
| | | | | | | | | | | | | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | Recurring Fair Value Measurements as of December 31, 2018 | |
| | Description | | Total | | Netting (D) | | Quoted Market Prices for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | |
| | | | Millions | |
| | PSEG | | | | | | | | | | | |
| | Assets: | | | | | | | | | | | |
| | Cash Equivalents (E) | | $ | 100 |
| | $ | — |
| | $ | 100 |
| | $ | — |
| | $ | — |
| |
| | Derivative Contracts: | | | | | | | | | | | |
| | Energy-Related Contracts (A) | | $ | 12 |
| | $ | (551 | ) | | $ | 29 |
| | $ | 527 |
| | $ | 7 |
| |
| | NDT Fund (B) | | | | | | | | | | | |
| | Equity Securities | | $ | 900 |
| | $ | — |
| | $ | 898 |
| | $ | 2 |
| | $ | — |
| |
| | Debt Securities—U.S. Treasury | | $ | 171 |
| | $ | — |
| | $ | — |
| | $ | 171 |
| | $ | — |
| |
| | Debt Securities—Govt Other | | $ | 320 |
| | $ | — |
| | $ | — |
| | $ | 320 |
| | $ | — |
| |
| | Debt Securities—Corporate | | $ | 487 |
| | $ | — |
| | $ | — |
| | $ | 487 |
| | $ | — |
| |
| | Rabbi Trust (B) | | | | | | | | | | | |
| | Equity Securities | | $ | 23 |
| | $ | — |
| | $ | 23 |
| | $ | — |
| | $ | — |
| |
| | Debt Securities—U.S. Treasury | | $ | 69 |
| | $ | — |
| | $ | — |
| | $ | 69 |
| | $ | — |
| |
| | Debt Securities—Govt Other | | $ | 40 |
| | $ | — |
| | $ | — |
| | $ | 40 |
| | $ | — |
| |
| | Debt Securities—Corporate | | $ | 92 |
| | $ | — |
| | $ | — |
| | $ | 92 |
| | $ | — |
| |
| | Liabilities: | | | | | | | | | | | |
| | Derivative Contracts: | | | | | | | | | | | |
| | Energy-Related Contracts (A) | | $ | (15 | ) | | $ | 704 |
| | $ | (36 | ) | | $ | (677 | ) | | $ | (6 | ) | |
| | PSE&G | | | | | | | | | | | |
| | Assets: | | | | | | | | | | | |
| | Rabbi Trust (B) | | | | | | | | | | | |
| | Equity Securities | | $ | 5 |
| | $ | — |
| | $ | 5 |
| | $ | — |
| | $ | — |
| |
| | Debt Securities—U.S. Treasury | | $ | 14 |
| | $ | — |
| | $ | — |
| | $ | 14 |
| | $ | — |
| |
| | Debt Securities—Govt Other | | $ | 8 |
| | $ | — |
| | $ | — |
| | $ | 8 |
| | $ | — |
| |
| | Debt Securities—Corporate | | $ | 18 |
| | $ | — |
| | $ | — |
| | $ | 18 |
| | $ | — |
| |
| | PSEG Power | | | | | | | | | | | |
| | Assets: | | | | | | | | | | | |
| | Derivative Contracts: | | | | | | | | | | | |
| | Energy-Related Contracts (A) | | $ | 12 |
| | $ | (551 | ) | | $ | 29 |
| | $ | 527 |
| | $ | 7 |
| |
| | NDT Fund (B) | | | | | | | | | | | |
| | Equity Securities | | $ | 900 |
| | $ | — |
| | $ | 898 |
| | $ | 2 |
| | $ | — |
| |
| | Debt Securities—U.S. Treasury | | $ | 171 |
| | $ | — |
| | $ | — |
| | $ | 171 |
| | $ | — |
| |
| | Debt Securities—Govt Other | | $ | 320 |
| | $ | — |
| | $ | — |
| | $ | 320 |
| | $ | — |
| |
| | Debt Securities—Corporate | | $ | 487 |
| | $ | — |
| | $ | — |
| | $ | 487 |
| | $ | — |
| |
| | Rabbi Trust (B) | | | | | | | | | | | |
| | Equity Securities | | $ | 6 |
| | $ | — |
| | $ | 6 |
| | $ | — |
| | $ | — |
| |
| | Debt Securities—U.S. Treasury | | $ | 17 |
| | $ | — |
| | $ | — |
| | $ | 17 |
| | $ | — |
| |
| | Debt Securities—Govt Other | | $ | 10 |
| | $ | — |
| | $ | — |
| | $ | 10 |
| | $ | — |
| |
| | Debt Securities—Corporate | | $ | 23 |
| | $ | — |
| | $ | — |
| | $ | 23 |
| | $ | — |
| |
| | Liabilities: | | | | | | | | | | | |
| | Derivative Contracts: | | | | | | | | | | | |
| | Energy-Related Contracts (A) | | $ | (15 | ) | | $ | 704 |
| | $ | (36 | ) | | $ | (677 | ) | | $ | (6 | ) | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | Recurring Fair Value Measurements as of June 30, 2020 | |
| | Description | | Total | |
Netting (E) | | Quoted Market Prices for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | |
| | | | Millions | |
| | PSEG | | | | | | | | | | | |
| | Assets: | | | | | | | | | | | |
| | Cash Equivalents (A) | | $ | 280 |
| | $ | — |
| | $ | 280 |
| | $ | — |
| | $ | — |
| |
| | Derivative Contracts: | | | | | | | | | | | |
| | Energy-Related Contracts (B) | | $ | 142 |
| | $ | (655 | ) | | $ | 27 |
| | $ | 758 |
| | $ | 12 |
| |
| | NDT Fund (C) | | | | | | | | | | | |
| | Equity Securities | | $ | 1,117 |
| | $ | — |
| | $ | 1,117 |
| | $ | — |
| | $ | — |
| |
| | Debt Securities—U.S. Treasury | | $ | 178 |
| | $ | — |
| | $ | — |
| | $ | 178 |
| | $ | — |
| |
| | Debt Securities—Govt Other | | $ | 368 |
| | $ | — |
| | $ | — |
| | $ | 368 |
| | $ | — |
| |
| | Debt Securities—Corporate | | $ | 587 |
| | $ | — |
| | $ | — |
| | $ | 587 |
| | $ | — |
| |
| | Rabbi Trust (C) | | | | | | | | | | | |
| | Equity Securities | | $ | 26 |
| | $ | — |
| | $ | 26 |
| | $ | — |
| | $ | — |
| |
| | Debt Securities—U.S. Treasury | | $ | 53 |
| | $ | — |
| | $ | — |
| | $ | 53 |
| | $ | — |
| |
| | Debt Securities—Govt Other | | $ | 44 |
| | $ | — |
| | $ | — |
| | $ | 44 |
| | $ | — |
| |
| | Debt Securities—Corporate | | $ | 136 |
| | $ | — |
| | $ | — |
| | $ | 136 |
| | $ | — |
| |
| | Liabilities: | | | | | | | | | | | |
| | Derivative Contracts: | | | | | | | | | | | |
| | Energy-Related Contracts (B) | | $ | (20 | ) | | $ | 653 |
| | $ | (59 | ) | | $ | (612 | ) | | $ | (2 | ) | |
| | Interest Rate Swaps (D) | | $ | (6 | ) | | $ | — |
| | $ | — |
| | $ | (6 | ) | | $ | — |
| |
| | PSE&G | | | | | | | | | | | |
| | Assets: | | | | | | | | | | | |
| | Cash Equivalents (A) | | $ | 180 |
| | $ | — |
| | $ | 180 |
| | $ | — |
| | $ | — |
| |
| | Rabbi Trust (C) | | | | | | | | | | | |
| | Equity Securities | | $ | 5 |
| | $ | — |
| | $ | 5 |
| | $ | — |
| | $ | — |
| |
| | Debt Securities—U.S. Treasury | | $ | 10 |
| | $ | — |
| | $ | — |
| | $ | 10 |
| | $ | — |
| |
| | Debt Securities—Govt Other | | $ | 8 |
| | $ | — |
| | $ | — |
| | $ | 8 |
| | $ | — |
| |
| | Debt Securities—Corporate | | $ | 27 |
| | $ | — |
| | $ | — |
| | $ | 27 |
| | $ | — |
| |
| | PSEG Power | |
| | | | | | | | | |
| | Assets: | | | | | | | | | | | |
| | Derivative Contracts: | | | | | | | | | | | |
| | Energy-Related Contracts (B) | | $ | 142 |
| | $ | (655 | ) | | $ | 27 |
| | $ | 758 |
| | $ | 12 |
| |
| | NDT Fund (C) | | | | | | | | | | | |
| | Equity Securities | | $ | 1,117 |
| | $ | — |
| | $ | 1,117 |
| | $ | — |
| | $ | — |
| |
| | Debt Securities—U.S. Treasury | | $ | 178 |
| | $ | — |
| | $ | — |
| | $ | 178 |
| | $ | — |
| |
| | Debt Securities—Govt Other | | $ | 368 |
| | $ | — |
| | $ | — |
| | $ | 368 |
| | $ | — |
| |
| | Debt Securities—Corporate | | $ | 587 |
| | $ | — |
| | $ | — |
| | $ | 587 |
| | $ | — |
| |
| | Rabbi Trust (C) | | | | | | | | | | | |
| | Equity Securities | | $ | 7 |
| | $ | — |
| | $ | 7 |
| | $ | — |
| | $ | — |
| |
| | Debt Securities—U.S. Treasury | | $ | 13 |
| | $ | — |
| | $ | — |
| | $ | 13 |
| | $ | — |
| |
| | Debt Securities—Govt Other | | $ | 11 |
| | $ | — |
| | $ | — |
| | $ | 11 |
| | $ | — |
| |
| | Debt Securities—Corporate | | $ | 34 |
| | $ | — |
| | $ | — |
| | $ | 34 |
| | $ | — |
| |
| | Liabilities: | | | | | | | | | | | |
| | Derivative Contracts: | | | | | | | | | | | |
| | Energy-Related Contracts (B) | | $ | (20 | ) | | $ | 653 |
| | $ | (59 | ) | | $ | (612 | ) | | $ | (2 | ) | |
| | | | | | | | | | | | | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | Recurring Fair Value Measurements as of December 31, 2019 | |
| | Description | | Total | | Netting (E) | | Quoted Market Prices for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | |
| | | | Millions | |
| | PSEG | | | | | | | | | | | |
| | Assets: | | | | | | | | | | | |
| | Cash Equivalents (A) | | $ | 50 |
| | $ | — |
| | $ | 50 |
| | $ | — |
| | $ | — |
| |
| | Derivative Contracts: | | | | | | | | | | | |
| | Energy-Related Contracts (B) | | $ | 137 |
| | $ | (662 | ) | | $ | 19 |
| | $ | 770 |
| | $ | 10 |
| |
| | NDT Fund (C) | | | | | | | | | | | |
| | Equity Securities | | $ | 1,151 |
| | $ | — |
| | $ | 1,150 |
| | $ | 1 |
| | $ | — |
| |
| | Debt Securities—U.S. Treasury | | $ | 225 |
| | $ | — |
| | $ | — |
| | $ | 225 |
| | $ | — |
| |
| | Debt Securities—Govt Other | | $ | 352 |
| | $ | — |
| | $ | — |
| | $ | 352 |
| | $ | — |
| |
| | Debt Securities—Corporate | | $ | 486 |
| | $ | — |
| | $ | — |
| | $ | 486 |
| | $ | — |
| |
| | Rabbi Trust (C) | | | | | | | | | | | |
| | Equity Securities | | $ | 28 |
| | $ | — |
| | $ | 28 |
| | $ | — |
| | $ | — |
| |
| | Debt Securities—U.S. Treasury | | $ | 57 |
| | $ | — |
| | $ | — |
| | $ | 57 |
| | $ | — |
| |
| | Debt Securities—Govt Other | | $ | 47 |
| | $ | — |
| | $ | — |
| | $ | 47 |
| | $ | — |
| |
| | Debt Securities—Corporate | | $ | 114 |
| | $ | — |
| | $ | — |
| | $ | 114 |
| | $ | — |
| |
| | Liabilities: | | | | | | | | | | | |
| | Derivative Contracts: | | | | | | | | | | | |
| | Energy-Related Contracts (B) | | $ | (32 | ) | | $ | 660 |
| | $ | (43 | ) | | $ | (646 | ) | | $ | (3 | ) | |
| | Interest Rate Swaps (D) | | $ | (5 | ) | | $ | — |
| | $ | — |
| | $ | (5 | ) | | $ | — |
| |
| | PSE&G | | | | | | | | | | | |
| | Assets: | | | | | | | | | | | |
| | Rabbi Trust (C) | | | | | | | | | | | |
| | Equity Securities | | $ | 5 |
| | $ | — |
| | $ | 5 |
| | $ | — |
| | $ | — |
| |
| | Debt Securities—U.S. Treasury | | $ | 11 |
| | $ | — |
| | $ | — |
| | $ | 11 |
| | $ | — |
| |
| | Debt Securities—Govt Other | | $ | 9 |
| | $ | — |
| | $ | — |
| | $ | 9 |
| | $ | — |
| |
| | Debt Securities—Corporate | | $ | 23 |
| | $ | — |
| | $ | — |
| | $ | 23 |
| | $ | — |
| |
| | PSEG Power | | | | | | | | | | | |
| | Assets: | | | | | | | | | | | |
| | Derivative Contracts: | | | | | | | | | | | |
| | Energy-Related Contracts (B) | | $ | 137 |
| | $ | (662 | ) | | $ | 19 |
| | $ | 770 |
| | $ | 10 |
| |
| | NDT Fund (C) | | | | | | | | | | | |
| | Equity Securities | | $ | 1,151 |
| | $ | — |
| | $ | 1,150 |
| | $ | 1 |
| | $ | — |
| |
| | Debt Securities—U.S. Treasury | | $ | 225 |
| | $ | — |
| | $ | — |
| | $ | 225 |
| | $ | — |
| |
| | Debt Securities—Govt Other | | $ | 352 |
| | $ | — |
| | $ | — |
| | $ | 352 |
| | $ | — |
| |
| | Debt Securities—Corporate | | $ | 486 |
| | $ | — |
| | $ | — |
| | $ | 486 |
| | $ | — |
| |
| | Rabbi Trust (C) | | | | | | | | | | | |
| | Equity Securities | | $ | 8 |
| | $ | — |
| | $ | 8 |
| | $ | — |
| | $ | — |
| |
| | Debt Securities—U.S. Treasury | | $ | 14 |
| | $ | — |
| | $ | — |
| | $ | 14 |
| | $ | — |
| |
| | Debt Securities—Govt Other | | $ | 12 |
| | $ | — |
| | $ | — |
| | $ | 12 |
| | $ | — |
| |
| | Debt Securities—Corporate | | $ | 28 |
| | $ | — |
| | $ | — |
| | $ | 28 |
| | $ | — |
| |
| | Liabilities: | | | | | | | | | | | |
| | Derivative Contracts: | | | | | | | | | | | |
| | Energy-Related Contracts (B) | | $ | (32 | ) | | $ | 660 |
| | $ | (43 | ) | | $ | (646 | ) | | $ | (3 | ) | |
| | | | | | | | | | | | | |
| |
| (A) | Represents money market mutual funds. |
| |
| (B) | Level 1—These contracts represent natural gas futures contracts executed on NYMEX, and are being valued solely on settled pricing inputs which come directly from the exchange. |
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
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
| |
(B)(C) | As of September 30, 2019, theThe fair value measurement table excludes foreign currency in the NDT Fund of $1 million.$1 million and $2 million as of June 30, 2020 and December 31, 2019, respectively. The NDT Fund maintains investments in various equity and fixed income securities. The Rabbi Trust maintains investments in a Russell 3000 index fund and various fixed income securities. These securities are generally valued with prices that are either exchange provided (equity securities) or market transactions for comparable securities and/or broker quotes (fixed income securities). |
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.
| |
(C)(D) | Interest rate swaps are valued using quoted prices on commonly quoted intervals, which are interpolated for periods different than the quoted intervals, as inputs to a market valuation model. Market inputs can generally be verified and model selection does not involve significant management judgment. |
| |
(D)(E) | Represents the netting of fair value balances with the same counterparty (where the right of offset exists) and the application of collateral. See Note 13. Financial Risk Management Activities for additional detail. |
| |
(E) | Represents money market mutual funds. |
Additional Information Regarding Level 3 Measurements
For valuations that include both observable and unobservable inputs, if the unobservable input is determined to be significant to the overall inputs, the entire valuation is categorized in Level 3. This includes derivatives valued using indicative price quotations for contracts with tenors that extend into periods with no observable pricing. In instances where observable data is unavailable, consideration is given to the assumptions that market participants would use in valuing the asset or liability. This includes assumptions about market risks such as liquidity, volatility and contract duration. Such instruments are categorized in Level 3 because the model inputs generally are not observable. PSEG’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
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
respective forward price curves, the fluctuations in fair value have been driven primarily by changes in the observable inputs.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following tables provide details surrounding significant Level 3 valuations as of SeptemberJune 30, 20192020 and December 31, 2018.2019.
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | Quantitative Information About Level 3 Fair Value Measurements | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | Significant | | | |
| | | | | | Fair Value as of | | Valuation | | Unobservable | | | |
| | Commodity | | Level 3 Position | | September 30, 2019 | | Technique(s) | | Input | | Range | |
| | | | | | Assets | | (Liabilities) | | | | | | | |
| | | | | | Millions | | | | | | | |
| | PSEG Power | | | | | | | | | | | | | |
| | Electricity | | Electric Load Contracts | | $ | 3 |
| | $ | (1 | ) | | Discounted Cash flow | | Historic Load Variability | | 0% to 10% | |
| | Gas | | Gas Physical Contracts | | — |
| | — |
| | Discounted Cash flow | | Average Historical Basis | | -40% to 0% | |
| �� | Electricity | | Electric Options | | $ | — |
| | $ | (1 | ) | | Discounted Cash flow | | Implied Volatilities | | 45% to 190% | |
| | Total PSEG Power | | | | $ | 3 |
| | $ | (2 | ) | | | | | | | |
| | Total PSEG | | | | $ | 3 |
| | $ | (2 | ) | | | | | | | |
| | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | Quantitative Information About Level 3 Fair Value Measurements | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | Significant | | | | | |
| | | | Level 3 | | Fair Value as of | | Valuation | | Unobservable | | | | Arithmetic | |
| | Commodity | | Position | | June 30, 2020 | | Technique(s) | | Input | | Range | | Average | |
| | | | | | Assets | | (Liabilities) | | | | | | | | | |
| | | | | | Millions | | | | | | | | | |
| | PSEG Power | | | | | | | | | | | | | | | |
| | Electricity | | Electric Load Contracts | | $ | 12 |
| | $ | — |
| | Discounted Cash flow | | Load Shaping Cost | | 0% to 11% | | 4% | |
| | Gas | | Gas Physical Contracts | | — |
| | (2 | ) | | Discounted Cash flow | | Historical Basis Adjustment | | -50% to 0% | | -27% | |
| | Total PSEG Power | | $ | 12 |
| | $ | (2 | ) | | | | | | | | | |
| | Total PSEG | | | | $ | 12 |
| | $ | (2 | ) | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | Quantitative Information About Level 3 Fair Value Measurements | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | Significant | | | |
| | | | | | Fair Value as of | | Valuation | | Unobservable | | | |
| | Commodity | | Level 3 Position | | December 31, 2018 | | Technique(s) | | Input | | Range | |
| | | | | | Assets | | (Liabilities) | | | | | | | |
| | | | | | Millions | | | | | | | |
| | PSEG Power | | | | | | | | | | | | | |
| | Electricity | | Electric Load Contracts | | $ | 2 |
| | $ | (5 | ) | | Discounted Cash flow | | Historic Load Variability | | 0% to 15% | |
| | Gas | | Gas Physical Contracts | | 5 |
| | (1 | ) | | Discounted Cash flow | | Average Historical Basis | | -40% to 0% | |
| | Total PSEG Power | | | | $ | 7 |
| | $ | (6 | ) | | | | | | | |
| | Total PSEG | | | | $ | 7 |
| | $ | (6 | ) | | | | | | | |
| | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | Quantitative Information About Level 3 Fair Value Measurements | |
| | | | | | | | | | | | | |
| | | | | | | | | | Significant | | | |
| | | | | | Fair Value as of | | Valuation | | Unobservable | | | |
| | Commodity | | Level 3 Position | | December 31, 2019 | | Technique(s) | | Input | | Range | |
| | | | | | Assets | | (Liabilities) | | | | | | | |
| | | | | | Millions | | | | | | | |
| | PSEG Power | | | | | | | | | | | | | |
| | Electricity | | Electric Load Contracts | | $ | 10 |
| | $ | — |
| | Discounted Cash flow | | Historic Load Variability | | 0% to 10% | |
| | Gas | | Gas Physical Contracts | | — |
| | (3 | ) | | Discounted Cash flow | | Average Historical Basis | | -50% to 0% | |
| | Total PSEG Power | | | | $ | 10 |
| | $ | (3 | ) | | | | | | | |
| | Total PSEG | | | | $ | 10 |
| | $ | (3 | ) | | | | | | | |
| | | | | | | | | | | | | | | |
SignificantAs of June 30, 2020, significant unobservable inputs listed above would have a direct impact on the fair values of the above Level 3 instruments if they were adjusted. For energy-related contracts in cases where PSEG Power is a seller, an increase in the load variability would decrease the fair value. For gas-related contracts in cases where PSEG Power is a buyer, an increase in the average historical basis would increase the fair value.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A reconciliation of the beginning and ending balances of Level 3 derivative contracts and securities for the three months and ninesix months ended SeptemberJune 30, 2020 and June 30, 2019, and September 30, 2018, respectively, follows:
Changes in Level 3 Assets and (Liabilities) Measured at Fair Value on a Recurring Basis
for the Three Months and Nine Months Ended September 30, 2019NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | Three Months Ended September 30, 2019 | |
| | Description | | Balance as of June 30, 2019 | | Total Gains or (Losses) Realized/Unrealized Included in Income (A) | | Purchases (Sales) | | Issuances/ Settlements (B) | | Transfers In/Out (C) | | Balance as of September 30, 2019 | |
| | | | Millions | |
| | PSEG and PSEG Power | | | | | | | | | | | |
| | Net Derivative Assets (Liabilities) | | $ | 4 |
| | $ | 1 |
| | $ | — |
| | $ | (4 | ) | | $ | — |
| | $ | 1 |
| |
| | | | | | | | | | | | | | | |
| | | | Nine Months Ended September 30, 2019 | |
| | Description | | Balance as of December 31, 2018 | | Total Gains or (Losses) Realized/Unrealized Included in Income (A) | | Purchases (Sales) | | Issuances/ Settlements (B) | | Transfers In/Out (C) | | Balance as of September 30, 2019 | |
| | | | Millions | |
| | PSEG and PSEG Power | | | | | | | | | | | |
| | Net Derivative Assets (Liabilities) | | $ | 1 |
| | $ | 10 |
| | $ | — |
| | $ | (10 | ) | | $ | — |
| | $ | 1 |
| |
| | | | | | | | | | | | | | | |
Changes in Level 3 Assets and (Liabilities) Measured at Fair Value on a Recurring Basis
for the Three Months and NineSix Months Ended SeptemberJune 30, 20182020 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | Three Months Ended September 30, 2018 | |
| | Description | | Balance as of June 30, 2018 | | Total Gains or (Losses) Realized/Unrealized Included in Income (A) | | Purchases (Sales) | | Issuances/ Settlements (B) | | Transfers In/Out (C) | | Balance as of September 30, 2018 | |
| | | | Millions | |
| | PSEG and PSEG Power | | | | | | | | | | | |
| | Net Derivative Assets (Liabilities) | | $ | 4 |
| | $ | (4 | ) | | $ | — |
| | $ | (1 | ) | | $ | — |
| | $ | (1 | ) | |
| | | | | | | | | | | | | | | |
| | | | Nine Months Ended September 30, 2018 | |
| | Description | | Balance as of December 31, 2017 | | Total Gains or (Losses) Realized/Unrealized Included in Income (A) | | Purchases (Sales) | | Issuances/ Settlements (B) | | Transfers In/Out (C) | | Balance as of September 30, 2018 | |
| | | | Millions | |
| | PSEG and PSEG Power | | | | | | | | | | | |
| | Net Derivative Assets (Liabilities) | | $ | 7 |
| | $ | (8 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | (1 | ) | |
| | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | Three Months Ended June 30, 2020 | |
| | Description | | Balance as of March 31, 2020 | | Total Gains or (Losses) Realized/Unrealized Included in Income (A) | | Purchases (Sales) | | Issuances/ Settlements (B) | | Transfers In/Out (C) | | Balance as of June 30, 2020 | |
| | | | Millions | |
| | PSEG and PSEG Power | | | | | | | | | | | |
| | Net Derivative Assets (Liabilities) | | $ | 19 |
| | $ | (4 | ) | | $ | — |
| | $ | (5 | ) | | $ | — |
| | $ | 10 |
| |
| | | | | | | | | | | | | | | |
| | | | Six Months Ended June 30, 2020 | |
| | Description | | Balance as of December 31, 2019 | | Total Gains or (Losses) Realized/Unrealized Included in Income (A) | | Purchases (Sales) | | Issuances/ Settlements (B) | | Transfers In/Out (C) | | Balance as of June 30, 2020 | |
| | | | Millions | |
| | PSEG and PSEG Power | | | | | | | | | | | |
| | Net Derivative Assets (Liabilities) | | $ | 7 |
| | $ | 9 |
| | $ | — |
| | $ | (6 | ) | | $ | — |
| | $ | 10 |
| |
| | | | | | | | | | | | | | | |
Changes in Level 3 Assets and (Liabilities) Measured at Fair Value on a Recurring Basis
for the Three Months and Six Months Ended June 30, 2019 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | Three Months Ended June 30, 2019 | |
| | Description | | Balance as of March 31, 2019 | | Total Gains or (Losses) Realized/Unrealized Included in Income (A) | | Purchases (Sales) | | Issuances/ Settlements (B) | | Transfers In/Out (C) | | Balance as of June 30, 2019 | |
| | | | Millions | |
| | PSEG and PSEG Power | | | | | | | | | | | |
| | Net Derivative Assets (Liabilities) | | $ | (2 | ) | | $ | 8 |
| | $ | — |
| | $ | (2 | ) | | $ | — |
| | $ | 4 |
| |
| | | | | | | | | | | | | | | |
| | | | Six Months Ended June 30, 2019 | |
| | Description | | Balance as of December 31, 2018 | | Total Gains or (Losses) Realized/Unrealized Included in Income (A) | | Purchases (Sales) | | Issuances/ Settlements (B) | | Transfers In/Out (C) | | Balance as of June 30, 2019 | |
| | | | Millions | |
| | PSEG and PSEG Power | | | | | | | | | | | |
| | Net Derivative Assets (Liabilities) | | $ | 1 |
| | $ | 9 |
| | $ | — |
| | $ | (6 | ) | | $ | — |
| | $ | 4 |
| |
| | | | | | | | | | | | | | | |
| |
| (A) | Unrealized gains (losses) in the following table represent the change in derivative assets and liabilities still held as of SeptemberJune 30, 20192020 and 2018.2019. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| | | | 2019 | | 2018 | | 2019 | | 2018 | |
| | | | Total Gains (Losses) | | Unrealized Gains (Losses) | | Total Gains (Losses) | | Unrealized Gains (Losses) | | Total Gains (Losses) | | Unrealized Gains (Losses) | | Total Gains (Losses) | | Unrealized Gains (Losses) | |
| | | | Millions | |
| | PSEG and PSEG Power | | | | | | | | | | | | | | | |
| | Operating Revenues | | $ | (2 | ) | | $ | (4 | ) | | $ | (8 | ) | | $ | (8 | ) | | $ | 14 |
| | $ | 5 |
| | $ | (7 | ) | | $ | (7 | ) | |
| | Energy Costs | | 4 |
| | 2 |
| | 4 |
| | 5 |
| | (4 | ) | | (4 | ) | | (1 | ) | | (1 | ) | |
| | Total | | $ | 2 |
| | $ | (2 | ) | | $ | (4 | ) | | $ | (3 | ) | | $ | 10 |
| | $ | 1 |
| | $ | (8 | ) | | $ | (8 | ) | |
| | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended June 30, | | Six Months Ended June 30, | |
| | | | 2020 | | 2019 | | 2020 | | 2019 | |
| | | | Total Gains (Losses) | | Unrealized Gains (Losses) | | Total Gains (Losses) | | Unrealized Gains (Losses) | | Total Gains (Losses) | | Unrealized Gains (Losses) | | Total Gains (Losses) | | Unrealized Gains (Losses) | |
| | | | Millions | |
| | PSEG and PSEG Power | | | | | | | | | | | | | | | |
| | Operating Revenues | | $ | (4 | ) | | $ | (9 | ) | | $ | 11 |
| | $ | 9 |
| | $ | 14 |
| | $ | 2 |
| | $ | 17 |
| | $ | 9 |
| |
| | Energy Costs | | — |
| | — |
| | (3 | ) | | (3 | ) | | (5 | ) | | 1 |
| | (8 | ) | | (6 | ) | |
| | Total | | $ | (4 | ) | | $ | (9 | ) | | $ | 8 |
| | $ | 6 |
| | $ | 9 |
| | $ | 3 |
| | $ | 9 |
| | $ | 3 |
| |
| | | | | | | | | | | | | | | | | | | |
| |
| (B) | Includes settlements of $(3)$(5) million and $(9)$(6) million for the three months and ninesix months ended SeptemberJune 30, 20192020, respectively, and $(1)$(2) million and $(6) million for the three months and six months ended SeptemberJune 30, 2018. 2019, respectively. |
| |
| (C) | There were no transfers into or out of Level 3 during the three months and ninesix months ended SeptemberJune 30, 20192020 and 2018.2019. |
As of SeptemberJune 30, 2019,2020, PSEG carried $2.4$2.9 billion of net assets that are measured at fair value on a recurring basis, of which $1$10 million of net assets was measured using unobservable inputs and classified as Level 3 within the fair value hierarchy.
As of SeptemberJune 30, 2018,2019, PSEG carried $2.3$2.5 billion of net assets that are measured at fair value on a recurring basis, of which $1$4 million of net liabilities wereassets was measured using unobservable inputs and classified as Level 3 within the fair value hierarchy.
Fair Value of Debt
The estimated fair values were determined using the market quotations or values of instruments with similar terms, credit ratings, remaining maturities and redemptions as of SeptemberJune 30, 20192020 and December 31, 2018.2019. |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | As of | | As of | |
| | | September 30, 2019 | | December 31, 2018 | |
| | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | |
| | | Millions | |
| | Long-Term Debt: | | | | | | | | |
| | PSEG (A) (B) | $ | 2,839 |
| | $ | 2,879 |
| | $ | 2,443 |
| | $ | 2,397 |
| |
| | PSE&G (B) | 9,826 |
| | 11,253 |
| | 9,184 |
| | 9,374 |
| |
| | PSEG Power (B) | 2,839 |
| | 3,162 |
| | 2,835 |
| | 2,996 |
| |
| | Total Long-Term Debt | $ | 15,504 |
| | $ | 17,294 |
| | $ | 14,462 |
| | $ | 14,767 |
| |
| | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | As of | | As of | |
| | | June 30, 2020 | | December 31, 2019 | |
| | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | |
| | | Millions | |
| | Long-Term Debt: | | | | | | | | |
| | PSEG (A) (B) | $ | 2,442 |
| | $ | 2,537 |
| | $ | 2,441 |
| | $ | 2,479 |
| |
| | PSE&G (B) | 10,795 |
| | 13,152 |
| | 9,827 |
| | 11,107 |
| |
| | PSEG Power (B) | 2,436 |
| | 2,840 |
| | 2,840 |
| | 3,137 |
| |
| | Total Long-Term Debt | $ | 15,673 |
| | $ | 18,529 |
| | $ | 15,108 |
| | $ | 16,723 |
| |
| | | | | | | | | | |
| |
| (A) | AsIncludes floating-rate term loan of September$700 million at PSEG as of June 30, 20192020 and December 31, 2018, includes floating-rate term loans of $700 million and $1,050 million, respectively.2019. The fair valuesvalue of the term loan debt (Level 2 measurement) approximateapproximates the carrying value because the interest payments are based on LIBOR rates that are reset monthly and the debt is redeemable at face value by PSEG at any time. |
| |
| (B) | Given that these bonds do not trade actively, the fair value amounts of taxable debt securities (primarily Level 2 measurements) are generally determined by a valuation model that is based on a conventional discounted cash flow methodology and utilizes assumptions of current market pricing curves. In order to incorporate the credit risk into the discount rates, pricing (i.e. U.S. Treasury rate plus credit spread) is based on expected new issue pricing across each of the companies’ respective debt maturity spectrum. The credit spreads of various tenors obtained from this information are added to the appropriate benchmark U.S. Treasury rates in order to determine the current market yields for the various tenors. The yields are then converted into discount rates of various tenors that are used for discounting the respective cash flows of the same tenor for each bond or note.methodology. The fair value amounts above do not represent the price at which the outstanding debt may be called for redemption by each issuer under their respective debt agreements. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 15. Other Income (Deductions)
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | PSE&G | | PSEG Power | | Other (A) | | Consolidated | |
| | | Millions | |
| | Three Months Ended September 30, 2019 | | | | | | | | |
| | NDT Fund Interest and Dividends | $ | — |
| | $ | 14 |
| | $ | — |
| | $ | 14 |
| |
| | Allowance for Funds Used During Construction | 14 |
| | — |
| | — |
| | 14 |
| |
| | Solar Loan Interest | 4 |
| | — |
| | — |
| | 4 |
| |
| | Other | 4 |
| | 1 |
| | (2 | ) | | 3 |
| |
| | Total Other Income (Deductions) | $ | 22 |
| | $ | 15 |
| | $ | (2 | ) | | $ | 35 |
| |
| | Nine Months Ended September 30, 2019 | | | | | | | | |
| | NDT Fund Interest and Dividends | $ | — |
| | $ | 44 |
| | $ | — |
| | $ | 44 |
| |
| | Allowance for Funds Used During Construction | 41 |
| | — |
| | — |
| | 41 |
| |
| | Solar Loan Interest | 12 |
| | — |
| | — |
| | 12 |
| |
| | Other | 7 |
| | (1 | ) | | (2 | ) | | 4 |
| |
| | Total Other Income (Deductions) | $ | 60 |
| | $ | 43 |
| | $ | (2 | ) | | $ | 101 |
| |
| | Three Months Ended September 30, 2018 | | | | | | | | |
| | NDT Fund Interest and Dividends | $ | — |
| | $ | 13 |
| | $ | — |
| | $ | 13 |
| |
| | Allowance for Funds Used During Construction | 13 |
| | — |
| | — |
| | 13 |
| |
| | Solar Loan Interest | 5 |
| | — |
| | — |
| | 5 |
| |
| | Other | 3 |
| | 1 |
| | (2 | ) | | 2 |
| |
| | Total Other Income (Deductions) | $ | 21 |
| | $ | 14 |
| | $ | (2 | ) | | $ | 33 |
| |
| | Nine Months Ended September 30, 2018 | | | | | | | | |
| | NDT Fund Interest and Dividends | $ | — |
| | $ | 40 |
| | $ | — |
| | $ | 40 |
| |
| | Allowance for Funds Used During Construction | 40 |
| | — |
| | — |
| | 40 |
| |
| | Solar Loan Interest | 14 |
| | — |
| | — |
| | 14 |
| |
| | Other | 7 |
| | (2 | ) | | — |
| | 5 |
| |
| | Total Other Income (Deductions) | $ | 61 |
| | $ | 38 |
| | $ | — |
| | $ | 99 |
| |
| | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | PSE&G | | PSEG Power | | Other (A) | | Consolidated | |
| | | Millions | |
| | Three Months Ended June 30, 2020 | | | | | | | | |
| | NDT Fund Interest and Dividends | $ | — |
| | $ | 14 |
| | $ | — |
| | $ | 14 |
| |
| | Allowance for Funds Used During Construction | 20 |
| | — |
| | — |
| | 20 |
| |
| | Solar Loan Interest | 4 |
| | — |
| | — |
| | 4 |
| |
| | Purchases of Tax Losses under New Jersey Technology Tax Benefit Transfer Program | — |
| | (1 | ) | | — |
| | (1 | ) | |
| | Other | 2 |
| | (1 | ) | | — |
| | 1 |
| |
| | Total Other Income (Deductions) | $ | 26 |
| | $ | 12 |
| | $ | — |
| | $ | 38 |
| |
| | Six Months Ended June 30, 2020 | | | | | | | | |
| | NDT Fund Interest and Dividends | $ | — |
| | $ | 27 |
| | $ | — |
| | $ | 27 |
| |
| | Allowance for Funds Used During Construction | 41 |
| | — |
| | — |
| | 41 |
| |
| | Solar Loan Interest | 8 |
| | — |
| | — |
| | 8 |
| |
| | Purchases of Tax Losses under New Jersey Technology Tax Benefit Transfer Program | — |
| | (36 | ) | | — |
| | (36 | ) | |
| | Other | 4 |
| | (2 | ) | | — |
| | 2 |
| |
| | Total Other Income (Deductions) | $ | 53 |
| | $ | (11 | ) | | $ | — |
| | $ | 42 |
| |
| | Three Months Ended June 30, 2019 | | | | | | | | |
| | NDT Fund Interest and Dividends | $ | — |
| | $ | 16 |
| | $ | — |
| | $ | 16 |
| |
| | Allowance for Funds Used During Construction | 14 |
| | — |
| | — |
| | 14 |
| |
| | Solar Loan Interest | 4 |
| | — |
| | — |
| | 4 |
| |
| | Other | 1 |
| | (1 | ) | | (1 | ) | | (1 | ) | |
| | Total Other Income (Deductions) | $ | 19 |
| | $ | 15 |
| | $ | (1 | ) | | $ | 33 |
| |
| | Six Months Ended June 30, 2019 | | | | | | | | |
| | NDT Fund Interest and Dividends | $ | — |
| | $ | 30 |
| | $ | — |
| | $ | 30 |
| |
| | Allowance for Funds Used During Construction | 27 |
| | — |
| | — |
| | 27 |
| |
| | Solar Loan Interest | 8 |
| | — |
| | — |
| | 8 |
| |
| | Other | 3 |
| | (2 | ) | | — |
| | 1 |
| |
| | Total Other Income (Deductions) | $ | 38 |
| | $ | 28 |
| | $ | — |
| | $ | 66 |
| |
| | | | | | | | | | |
| |
| (A) | Other consists of activity at PSEG (as parent company), Energy Holdings, Services, PSEG LI and intercompany eliminations. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 16. Income Taxes
PSEG’s, PSE&G’s and PSEG Power’s effective tax rates for the three months and ninesix months ended SeptemberJune 30, 20192020 and 20182019 were as follows:
|
| | | | | | | | | |
| | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended | |
| | | September 30, | | September 30, | |
| | | 2019 | | 2018 | | 2019 | | 2018 | |
| | PSEG | 6.9% | | 22.1% | | 11.2% | | 25.1% | |
| | PSE&G | 6.5% | | 25.5% | | 6.1% | | 26.1% | |
| | PSEG Power | 20.9% | | 16.7% | | 29.1% | | 24.1% | |
| | | | | | | | | | |
|
| | | | | | | | | |
| | | | | | | | | | |
| | | Three Months Ended | | Six Months Ended | |
| | | June 30, | | June 30, | |
| | | 2020 | | 2019 | | 2020 | | 2019 | |
| | PSEG | 19.5% | | (15.0)% | | 14.5% | | 13.1% | |
| | PSE&G | 14.2% | | 5.8% | | 17.7% | | 5.8% | |
| | PSEG Power | 27.4% | | 21.6% | | (3.4)% | | 30.6% | |
| | | | | | | | | | |
For the three months and ninesix months ended SeptemberJune 30, 2019,2020, the differences in PSEG’s and PSE&G’s effective tax rates as compared to the same periods in the prior year were due primarily to the reduction in the 2020 flowback of PSE&G’s excess deferred income tax liabilities as PSE&G refunded all FERC-approved transmission-related excess deferred income taxes that are not subject to thenormalization rules in 2019. For the three months and six months ended June 30, 2020, the differences in PSEG’s effective tax rates as compared to the statutory tax rate of 28.11% were due primarily to the flowback of PSE&G’s excess deferred income tax liabilities as a result of the Tax Act and tax repair-related accumulated deferred income taxes, the benefit of purchasing 2019 net operating losses (NOLs) 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 PSE&G’s 2018 settled distribution base rate case and the FERC- approved Section 205 filing, where applicable.settlement of the 2011-2016 federal income tax audits.
For the three months and ninesix months ended SeptemberJune 30, 2019,2020, the differences in PSEG Power’sPSE&G’s effective tax rates as compared to the same periods in the prior year were due primarily to the benefits associated withreduction in the remeasurement2020 flowback of uncertain tax positions and associated interest in connection with the nuclear carryback claim and the 2011 and 2012 federalPSE&G’s excess deferred income tax audit recordedliabilities, as PSE&G refunded all FERC-approved transmission-related excess deferred income taxes that are not subject to the normalization rules in 2019. For the third quarterthree months and six months ended June 30, 2020, the differences in PSE&G’s effective tax rates as compared to the statutory tax rate of 2018. 28.11% were due primarily to the flowback of PSE&G’s excess deferred income tax liabilities and tax repair-related accumulated deferred income taxes.
For the three months ended SeptemberJune 30, 2019,2020, the difference in PSEG
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Power’s effective tax rate as compared to the statutory rate of 28.11%same period in the prior year was due primarily to higher pre-tax income from the impactNDT qualified fund, which is subject to an additional trust tax, partially offset by the tax benefit from changes in uncertain tax positions as a result of the settlement of the 2011-2016 federal income tax creditsaudits. For the six months ended June 30, 2020 the differences in PSEG Power’s effective tax rates as compared to the same period in the prior year and the statutory tax rate of 28.11% were due primarily to the benefit of purchasing 2019 NOLs under the New Jersey Technology Tax Benefit Transfer Program in 2020, the tax benefit from changes in uncertain tax positions as a result of the settlement of the 2011-2016 federal income tax audits and the tax benefit of a pre-tax loss on lower pre-tax income.the NDT qualified fund.
Tax Cuts and Jobs Act of 2017 (Tax Act)
Effective January 1, 2018, the U.S. federal corporate tax rate was reduced from a maximum of 35% to 21% resulting in a decrease in PSEG’s, PSE&G’s and PSEG Power’s effective income tax rates. To the extent allowed under the Tax Act PSEG Power’s operating cash flows reflectestablished tax laws including, but not limited to, a limitation on deductible interest and limitations on the full expensingutilization of capital investments for income tax purposes. The Tax Act has led to lower customer rates due to lower income tax expense recoveries and the BPU and FERC have approved PSEG’s proposals to refund excess deferred income tax Regulatory Liabilities. The impact of the lower federal income tax rate on PSE&G was reflected in PSE&G’s distribution base rate proceeding and its 2018 transmission formula rate filings. The Tax Act is generally expected to result in lower operating cash flows for PSE&G resulting from the elimination of bonus depreciation, partially offset by higher revenues due to the higher rate base.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, 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.
In September 2019, the IRS released final and additional proposed regulations regarding the application ofas a deferred 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.
asset. Amounts recorded under the Tax Act and relevant statutes, including but not limited to depreciation and 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 further guidance or clarification could
In July 2020, the IRS issued final and proposed regulations addressing the limitation on deductible interest expense contained in the Tax Act. PSEG is in the process of analyzing these regulations, which may impact PSEG’s, PSE&G’s and PSEG Power’s financial statements.condition and cash flows.
Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
In March 2020, the CARES Act was signed into federal law. As applicable to PSEG and PSEG Power, the CARES Act favorably increases the limitation on the amount of interest that can be deducted in 2020. The increased limitation will allow a portion of the previously disallowed amounts to reduce PSEG’s and PSEG Power’s 2020 taxable income. The CARES Act also reversed certain NOL provisions from the Tax Act such as allowing five-year carrybacks of 2018, 2019 and 2020 NOLs.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
IRS PLR
In April 2020, the IRS issued a PLR to PSE&G concluding that certain excess deferred taxes previously classified as protected should be classified as unprotected. Unprotected excess deferred income taxes are not subject to the normalization rules allowing them to be refunded to customers sooner as agreed to with FERC and the BPU. In July 2020, FERC and the BPU approved PSE&G’s requests to refund these unprotected excess deferred income taxes to customers. FERC approved the refund of these unprotected excess deferred income taxes within the 2019 true-up filing. The BPU approved the refund of these unprotected excess deferred income taxes within the next five years beginning in July 2020. See Note 6. Rate Filings for additional information.
Unrecognized Tax Benefits
In April 2020, the Joint Committee on Taxation approved PSEG’s nuclear carryback claim and federal tax returns for the years 2011 and 2012. In June 2020, the federal income tax audits for years 2011 through 2016 and the nuclear carryback claim were concluded. As a result, in the second quarter of 2020, PSEG, PSE&G, and PSEG Power decreased their total unrecognized tax benefits by $149 million, $83 million, and $63 million, respectively. As these unrecognized tax benefits primarily relate to temporary differences for which there are associated accumulated deferred income taxes, PSEG, PSE&G, and PSEG Power recorded $37 million, $9 million, and $25 million, respectively, of income statement benefits. The final cash settlement is expected to be completed within the next twelve months.
New Jersey State Tax Reform
In July 2018, the State of New Jersey made significant changes to its income tax laws, including imposing a temporary surtax on allocated corporate taxable income 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 include an exemption for public utilities. PSEG believes 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.
In 2019, There are certain aspects of the State of New Jersey issuedlaw that remain unclear. Any further guidance regarding the temporary surtaxor clarification could impact PSEG’s and clarified that New Jersey net operating loss carryovers can be deducted in computing a taxpayer’s entire net income. This guidance has the effect of lowering or eliminating the temporary surtax.PSEG Power’s financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 17. Accumulated Other Comprehensive Income (Loss), Net of Tax
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | PSEG | | Three Months Ended September 30, 2019 | |
| | Accumulated Other Comprehensive Income (Loss) | | Cash Flow Hedges | | Pension and OPEB Plans | | Available-for-Sale Securities | | Total | |
| | | | Millions | |
| | Balance as of June 30, 2019 | | $ | (18 | ) | | $ | (437 | ) | | $ | 23 |
| | $ | (432 | ) | |
| | Other Comprehensive Income before Reclassifications | | — |
| | (20 | ) | | 13 |
| | (7 | ) | |
| | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | 1 |
| | 3 |
| | (3 | ) | | 1 |
| |
| | Net Current Period Other Comprehensive Income (Loss) | | 1 |
| | (17 | ) | | 10 |
| | (6 | ) | |
| | Balance as of September 30, 2019 | | $ | (17 | ) | | $ | (454 | ) | | $ | 33 |
| | $ | (438 | ) | |
| | | | | | | | | | | |
| | PSEG | | Three Months Ended September 30, 2018 | |
| | Accumulated Other Comprehensive Income (Loss) | | Cash Flow Hedges | | Pension and OPEB Plans | | Available-for-Sale Securities | | Total | |
| | | | Millions | |
| | Balance as of June 30, 2018 | | $ | (1 | ) | | $ | (391 | ) | | $ | (18 | ) | | $ | (410 | ) | |
| | Other Comprehensive Income before Reclassifications | | — |
| | — |
| | (6 | ) | | (6 | ) | |
| | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | — |
| | 7 |
| | 2 |
| | 9 |
| |
| | Net Current Period Other Comprehensive Income (Loss) | | — |
| | 7 |
| | (4 | ) | | 3 |
| |
| | Balance as of September 30, 2018 | | $ | (1 | ) | | $ | (384 | ) | | $ | (22 | ) | | $ | (407 | ) | |
| | | | | |
| | PSEG | | Nine Months Ended September 30, 2019 | |
| | Accumulated Other Comprehensive Income (Loss) | | Cash Flow Hedges | | Pension and OPEB Plans | | Available-for-Sale Securities | | Total | |
| | | | Millions | |
| | Balance as of December 31, 2018 | | $ | (1 | ) | | $ | (360 | ) | | $ | (16 | ) | | $ | (377 | ) | |
| | Cumulative Effect Adjustment to Reclassify Stranded Tax Effects Resulting from the Change in the Federal Corporate Income Tax Rate to Retained Earnings | | — |
| | (81 | ) | | — |
| | (81 | ) | |
| | Current Period Other Comprehensive Income (Loss) | | | | | | | | | |
| | Other Comprehensive Income before Reclassifications | | (17 | ) | | (23 | ) | | 54 |
| | 14 |
| |
| | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | 1 |
| | 10 |
| | (5 | ) | | 6 |
| |
| | Net Current Period Other Comprehensive Income (Loss) | | (16 | ) | | (13 | ) | | 49 |
| | 20 |
| |
| | Net Change in Accumulated Other Comprehensive Income (Loss) | | (16 | ) | | (94 | ) | | 49 |
| | (61 | ) | |
| | Balance as of September 30, 2019 | | $ | (17 | ) | | $ | (454 | ) | | $ | 33 |
| | $ | (438 | ) | |
| | | | | | | | | | | |
| | PSEG | | Nine Months Ended September 30, 2018 | |
| | Accumulated Other Comprehensive Income (Loss) | | Cash Flow Hedges | | Pension and OPEB Plans | | Available-for-Sale Securities | | Total | |
| | | | Millions | |
| | Balance as of December 31, 2017 | | $ | — |
| | $ | (406 | ) | | $ | 177 |
| | $ | (229 | ) | |
| | Cumulative Effect Adjustment to Reclassify Unrealized Net Gains on Equity Investments to Retained Earnings | | — |
| | — |
| | (176 | ) | | (176 | ) | |
| | Current Period Other Comprehensive Income (Loss) | | | | | | | | | |
| | Other Comprehensive Income before Reclassifications | | (1 | ) | | — |
| | (28 | ) | | (29 | ) | |
| | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | — |
| | 22 |
| | 5 |
| | 27 |
| |
| | Net Current Period Other Comprehensive Income (Loss) | | (1 | ) | | 22 |
| | (23 | ) | | (2 | ) | |
| | Net Change in Accumulated Other Comprehensive Income (Loss) | | (1 | ) | | 22 |
| | (199 | ) | | (178 | ) | |
| | Balance as of September 30, 2018 | | $ | (1 | ) | | $ | (384 | ) | | $ | (22 | ) | | $ | (407 | ) | |
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | PSEG | | Three Months Ended June 30, 2020 | |
| | Accumulated Other Comprehensive Income (Loss) | | Cash Flow Hedges | | Pension and OPEB Plans | | Available-for-Sale Securities | | Total | |
| | | | Millions | |
| | Balance as of March 31, 2020 | | $ | (18 | ) | | $ | (496 | ) | | $ | 33 |
| | $ | (481 | ) | |
| | Other Comprehensive Income before Reclassifications | | — |
| | — |
| | 30 |
| | 30 |
| |
| | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | 3 |
| | 3 |
| | (10 | ) | | (4 | ) | |
| | Net Current Period Other Comprehensive Income (Loss) | | 3 |
| | 3 |
| | 20 |
| | 26 |
| |
| | Balance as of June 30, 2020 | | $ | (15 | ) | | $ | (493 | ) | | $ | 53 |
| | $ | (455 | ) | |
| | | | | | | | | | | |
| | PSEG | | Three Months Ended June 30, 2019 | |
| | Accumulated Other Comprehensive Income (Loss) | | Cash Flow Hedges | | Pension and OPEB Plans | | Available-for-Sale Securities | | Total | |
| | | | Millions | |
| | Balance as of March 31, 2019 | | $ | (5 | ) | | $ | (441 | ) | | $ | 5 |
| | $ | (441 | ) | |
| | Other Comprehensive Income (Loss) before Reclassifications | | (13 | ) | | — |
| | 21 |
| | 8 |
| |
| | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | — |
| | 4 |
| | (3 | ) | | 1 |
| |
| | Net Current Period Other Comprehensive Income (Loss) | | (13 | ) | | 4 |
| | 18 |
| | 9 |
| |
| | Balance as of June 30, 2019 | | $ | (18 | ) | | $ | (437 | ) | | $ | 23 |
| | $ | (432 | ) | |
| | | | | |
| | PSEG | | Six Months Ended June 30, 2020 | |
| | Accumulated Other Comprehensive Income (Loss) | | Cash Flow Hedges | | Pension and OPEB Plans | | Available-for-Sale Securities | | Total | |
| | | | Millions | |
| | Balance as of December 31, 2019 | | $ | (15 | ) | | $ | (499 | ) | | $ | 25 |
| | $ | (489 | ) | |
| | Other Comprehensive Income (Loss) before Reclassifications | | (4 | ) | | — |
| | 44 |
| | 40 |
| |
| | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | 4 |
| | 6 |
| | (16 | ) | | (6 | ) | |
| | Net Current Period Other Comprehensive Income (Loss) | | — |
| | 6 |
| | 28 |
| | 34 |
| |
| | Balance as of June 30, 2020 | | $ | (15 | ) | | $ | (493 | ) | | $ | 53 |
| | $ | (455 | ) | |
| | | | | | | | | | | |
| | PSEG | | Six Months Ended June 30, 2019 | |
| | Accumulated Other Comprehensive Income (Loss) | | Cash Flow Hedges | | Pension and OPEB Plans | | Available-for-Sale Securities | | Total | |
| | | | Millions | |
| | Balance as of December 31, 2018 | | $ | (1 | ) | | $ | (360 | ) | | $ | (16 | ) | | $ | (377 | ) | |
| | Cumulative Effect Adjustment to Reclassify Stranded Tax Effects Resulting in the Change in the Federal Corporate Income Tax to Retained Earnings | | — |
| | (81 | ) | | — |
| | (81 | ) | |
| | Current Period Other Comprehensive Income (Loss) | | | | | | | | | |
| | Other Comprehensive Income (Loss) before Reclassifications | | (17 | ) | | (3 | ) | | 41 |
| | 21 |
| |
| | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | — |
| | 7 |
| | (2 | ) | | 5 |
| |
| | Net Current Period Other Comprehensive Income (Loss) | | (17 | ) | | 4 |
| | 39 |
| | 26 |
| |
| | Net Change in Accumulated Other Comprehensive Income (Loss) | | (17 | ) | | (77 | ) | | 39 |
| | (55 | ) | |
| | Balance as of June 30, 2019 | | $ | (18 | ) | | $ | (437 | ) | | $ | 23 |
| | $ | (432 | ) | |
| | | | | | | | | | | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | PSEG Power | | Three Months Ended September 30, 2019 | |
| | Accumulated Other Comprehensive Income (Loss) | | Cash Flow Hedges | | Pension and OPEB Plans | | Available-for-Sale Securities | | Total | |
| | | | Millions | |
| | Balance as of June 30, 2019 | | $ | — |
| | $ | (372 | ) | | $ | 18 |
| | $ | (354 | ) | |
| | Other Comprehensive Income before Reclassifications | | — |
| | (14 | ) | | 10 |
| | (4 | ) | |
| | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | — |
| | 2 |
| | (3 | ) | | (1 | ) | |
| | Net Current Period Other Comprehensive Income (Loss) | | — |
| | (12 | ) | | 7 |
| | (5 | ) | |
| | Balance as of September 30, 2019 | | $ | — |
| | $ | (384 | ) | | $ | 25 |
| | $ | (359 | ) | |
| | | | | |
| | PSEG Power | | Three Months Ended September 30, 2018 | |
| | Accumulated Other Comprehensive Income (Loss) | | Cash Flow Hedges | | Pension and OPEB Plans | | Available-for-Sale Securities | | Total | |
| | | | Millions | |
| | Balance as of June 30, 2018 | | $ | — |
| | $ | (335 | ) | | $ | (15 | ) | | $ | (350 | ) | |
| | Other Comprehensive Income before Reclassifications | | — |
| | — |
| | (5 | ) | | (5 | ) | |
| | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | — |
| | 7 |
| | 1 |
| | 8 |
| |
| | Net Current Period Other Comprehensive Income (Loss) | | — |
| | 7 |
| | (4 | ) | | 3 |
| |
| | Balance as of September 30, 2018 | | $ | — |
| | $ | (328 | ) | | $ | (19 | ) | | $ | (347 | ) | |
| | | | | | | | | | | |
| | PSEG Power | | Nine Months Ended September 30, 2019 | |
| | Accumulated Other Comprehensive Income (Loss) | | Cash Flow Hedges | | Pension and OPEB Plans | | Available-for-Sale Securities | | Total | |
| | | | Millions | |
| | Balance as of December 31, 2018 | | $ | — |
| | $ | (306 | ) | | $ | (13 | ) | | $ | (319 | ) | |
| | Cumulative Effect Adjustment to Reclassify Stranded Tax Effects Resulting from the Change in the Federal Corporate Income Tax Rate to Retained Earnings | | — |
| | (69 | ) | | — |
| | (69 | ) | |
| | Current Period Other Comprehensive Income (Loss) | | | | | | | | | |
| | Other Comprehensive Income before Reclassifications | | — |
| | (17 | ) | | 42 |
| | 25 |
| |
| | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | — |
| | 8 |
| | (4 | ) | | 4 |
| |
| | Net Current Period Other Comprehensive Income (Loss) | | — |
| | (9 | ) | | 38 |
| | 29 |
| |
| | Net Change in Accumulated Other Comprehensive Income (Loss) | | — |
| | (78 | ) | | 38 |
| | (40 | ) | |
| | Balance as of September 30, 2019 | | $ | — |
| | $ | (384 | ) | | $ | 25 |
| | $ | (359 | ) | |
| | | | | | | | | | | |
| | PSEG Power | | Nine Months Ended September 30, 2018 | |
| | Accumulated Other Comprehensive Income (Loss) | | Cash Flow Hedges | | Pension and OPEB Plans | | Available-for-Sale Securities | | Total | |
| | | | Millions | |
| | Balance as of December 31, 2017 | | $ | — |
| | $ | (347 | ) | | $ | 175 |
| | $ | (172 | ) | |
| | Cumulative Effect Adjustment to Reclassify Unrealized Net Gains on Equity Investments to Retained Earnings | | — |
| | — |
| | (175 | ) | | (175 | ) | |
| | Current Period Other Comprehensive Income (Loss) | | | | | | | | | |
| | Other Comprehensive Income before Reclassifications | | — |
| | — |
| | (23 | ) | | (23 | ) | |
| | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | — |
| | 19 |
| | 4 |
| | 23 |
| |
| | Net Current Period Other Comprehensive Income (Loss) | | — |
| | 19 |
| | (19 | ) | | — |
| |
| | Net Change in Accumulated Other Comprehensive Income (Loss) | | — |
| | 19 |
| | (194 | ) | | (175 | ) | |
| | Balance as of September 30, 2018 | | $ | — |
| | $ | (328 | ) | | $ | (19 | ) | | $ | (347 | ) | |
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | PSEG Power | | Three Months Ended June 30, 2020 | |
| | Accumulated Other Comprehensive Income (Loss) | | Cash Flow Hedges | | Pension and OPEB Plans | | Available-for-Sale Securities | | Total | |
| | | | Millions | |
| | Balance as of March 31, 2020 | | $ | — |
| | $ | (418 | ) | | $ | 26 |
| | $ | (392 | ) | |
| | Other Comprehensive Income before Reclassifications | | — |
| | — |
| | 24 |
| | 24 |
| |
| | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | — |
| | 3 |
| | (9 | ) | | (6 | ) | |
| | Net Current Period Other Comprehensive Income (Loss) | | — |
| | 3 |
| | 15 |
| | 18 |
| |
| | Balance as of June 30, 2020 | | $ | — |
| | $ | (415 | ) | | $ | 41 |
| | $ | (374 | ) | |
| | | | | |
| | PSEG Power | | Three Months Ended June 30, 2019 | |
| | Accumulated Other Comprehensive Income (Loss) | | Cash Flow Hedges | | Pension and OPEB Plans | | Available-for-Sale Securities | | Total | |
| | | | Millions | |
| | Balance as of March 31, 2019 | | $ | — |
| | $ | (375 | ) | | $ | 3 |
| | $ | (372 | ) | |
| | Other Comprehensive Income before Reclassifications | | — |
| | — |
| | 17 |
| | 17 |
| |
| | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | — |
| | 3 |
| | (2 | ) | | 1 |
| |
| | Net Current Period Other Comprehensive Income (Loss) | | — |
| | 3 |
| | 15 |
| | 18 |
| |
| | Balance as of June 30, 2019 | | $ | — |
| | $ | (372 | ) | | $ | 18 |
| | $ | (354 | ) | |
| | | | | | | | | | | |
| | PSEG Power | | Six Months Ended June 30, 2020 | |
| | Accumulated Other Comprehensive Income (Loss) | | Cash Flow Hedges | | Pension and OPEB Plans | | Available-for-Sale Securities | | Total | |
| | | | Millions | |
| | Balance as of December 31, 2019 | | $ | — |
| | $ | (420 | ) | | $ | 19 |
| | $ | (401 | ) | |
| | Other Comprehensive Income before Reclassifications | | — |
| | — |
| | 35 |
| | 35 |
| |
| | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | — |
| | 5 |
| | (13 | ) | | (8 | ) | |
| | Net Current Period Other Comprehensive Income (Loss) | | — |
| | 5 |
| | 22 |
| | 27 |
| |
| | Balance as of June 30, 2020 | | $ | — |
| | $ | (415 | ) | | $ | 41 |
| | $ | (374 | ) | |
| | | | | | | | | | | |
| | PSEG Power | | Six Months Ended June 30, 2019 | |
| | Accumulated Other Comprehensive Income (Loss) | | Cash Flow Hedges | | Pension and OPEB Plans | | Available-for-Sale Securities | | Total | |
| | | | Millions | |
| | Balance as of December 31, 2018 | | $ | — |
| | $ | (306 | ) | | $ | (13 | ) | | $ | (319 | ) | |
| | Cumulative Effect Adjustment to Reclassify Stranded Tax Effects Resulting in the Change in the Federal Corporate Income Tax to Retained Earnings | | — |
| | (69 | ) | | — |
| | (69 | ) | |
| | Current Period Other Comprehensive Income (Loss) | | | | | | | | | |
| | Other Comprehensive Income (Loss) before Reclassifications | | — |
| | (3 | ) | | 32 |
| | 29 |
| |
| | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | — |
| | 6 |
| | (1 | ) | | 5 |
| |
| | Net Current Period Other Comprehensive Income (Loss) | | — |
| | 3 |
| | 31 |
| | 34 |
| |
| | Net Change in Accumulated Other Comprehensive Income (Loss) | | — |
| | (66 | ) | | 31 |
| | (35 | ) | |
| | Balance as of June 30, 2019 | | $ | — |
| | $ | (372 | ) | | $ | 18 |
| | $ | (354 | ) | |
| | | | | | | | | | | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | PSEG | | | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) to Income Statement | |
| | | | | Three Months Ended | | Nine Months Ended | |
| | Description of Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | Location of Pre-Tax Amount In Statement of Operations | September 30, 2019 | | September 30, 2019 | |
| | | Pre-Tax Amount | | Tax (Expense) Benefit | | After-Tax Amount | | Pre-Tax Amount | | Tax (Expense) Benefit | | After-Tax Amount | |
| | | | | Millions | |
| | Cash Flow Hedges | | | | | | | | | | | | | | |
| | Interest Rate Swaps | | Interest Expense | $ | (1 | ) | | $ | — |
| | $ | (1 | ) | | $ | (2 | ) | | $ | 1 |
| | $ | (1 | ) | |
| | Total Cash Flow Hedges | | | (1 | ) | | — |
| | (1 | ) | | (2 | ) | | 1 |
| | (1 | ) | |
| | Pension and OPEB Plans | | | | | | | | | | | | |
| | Amortization of Prior Service (Cost) Credit | | Non-Operating Pension and OPEB Credits (Costs) | $ | 7 |
| | $ | (2 | ) | | $ | 5 |
| | $ | 20 |
| | $ | (6 | ) | | $ | 14 |
| |
| | Amortization of Actuarial Loss | | Non-Operating Pension and OPEB Credits (Costs) | (10 | ) | | 2 |
| | (8 | ) | | (33 | ) | | 9 |
| | (24 | ) | |
| | Total Pension and OPEB Plans | (3 | ) | | — |
| | (3 | ) | | (13 | ) | | 3 |
| | (10 | ) | |
| | Available-for-Sale Debt Securities | | | | | | | | | | | | |
| | Realized Gains (Losses) | | Net Gains (Losses) on Trust Investments | 6 |
| | (3 | ) | | 3 |
| | 9 |
| | (4 | ) | | 5 |
| |
| | Total Available-for-Sale Debt Securities | 6 |
| | (3 | ) | | 3 |
| | 9 |
| | (4 | ) | | 5 |
| |
| | Total | | | $ | 2 |
| | $ | (3 | ) | | $ | (1 | ) | | $ | (6 | ) | | $ | — |
| | $ | (6 | ) | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | PSEG | | | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) to Income Statement | |
| | | | | Three Months Ended | | Six Months Ended | |
| | Description of Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | Location of Pre-Tax Amount In Statement of Operations | June 30, 2020 | | June 30, 2020 | |
| | | Pre-Tax Amount | | Tax (Expense) Benefit | | After-Tax Amount | | Pre-Tax Amount | | Tax (Expense) Benefit | | After-Tax Amount | |
| | | | | Millions | |
| | Cash Flow Hedges | | | | | | | | | | | | | | |
| | Interest Rate Swaps | | Interest Expense | $ | (4 | ) | | $ | 1 |
| | $ | (3 | ) | | $ | (6 | ) | | $ | 2 |
| | $ | (4 | ) | |
| | Total Cash Flow Hedges | (4 | ) | | 1 |
| | (3 | ) | | (6 | ) | | 2 |
| | (4 | ) | |
| | Pension and OPEB Plans | | | | | | | | | | | | |
| | Amortization of Prior Service (Cost) Credit | | Non-Operating Pension and OPEB Credits (Costs) | 6 |
| | (1 | ) | | 5 |
| | 12 |
| | (3 | ) | | 9 |
| |
| | Amortization of Actuarial Loss | | Non-Operating Pension and OPEB Credits (Costs) | (10 | ) | | 2 |
| | (8 | ) | | (20 | ) | | 5 |
| | (15 | ) | |
| | Total Pension and OPEB Plans | (4 | ) | | 1 |
| | (3 | ) | | (8 | ) | | 2 |
| | (6 | ) | |
| | Available-for-Sale Debt Securities | | | | | | | | | | | | |
| | Realized Gains (Losses) and Impairments | | Net Gains (Losses) on Trust Investments | 17 |
| | (7 | ) | | 10 |
| | 26 |
| | (10 | ) | | 16 |
| |
| | Total Available-for-Sale Debt Securities | 17 |
| | (7 | ) | | 10 |
| | 26 |
| | (10 | ) | | 16 |
| |
| | Total | | | $ | 9 |
| | $ | (5 | ) | | $ | 4 |
| | $ | 12 |
| | $ | (6 | ) | | $ | 6 |
| |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | PSEG | | | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) to Income Statement | |
| | | | | Three Months Ended | | Nine Months Ended | |
| | Description of Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | Location of Pre-Tax Amount In Statement of Operations | September 30, 2018 | | September 30, 2018 | |
| | | Pre-Tax Amount | | Tax (Expense) Benefit | | After-Tax Amount | | Pre-Tax Amount | | Tax (Expense) Benefit | | After-Tax Amount | |
| | | | | Millions | |
| | Pension and OPEB Plans | | | | | | | | | | | | |
| | Amortization of Prior Service (Cost) Credit | | Non-Operating Pension and OPEB Credits (Costs) | $ | 1 |
| | $ | — |
| | $ | 1 |
| | $ | 3 |
| | $ | — |
| | $ | 3 |
| |
| | Amortization of Actuarial Loss | | Non-Operating Pension and OPEB Credits (Costs) | (11 | ) | | 3 |
| | (8 | ) | | (34 | ) | | 9 |
| | (25 | ) | |
| | Total Pension and OPEB Plans | (10 | ) | | 3 |
| | (7 | ) | | (31 | ) | | 9 |
| | (22 | ) | |
| | Available-for-Sale Debt Securities | | | | | | | | | | | | |
| | Realized Gains (Losses)
| | Net Gains (Losses) on Trust Investments | (2 | ) | | — |
| | (2 | ) | | (8 | ) | | 3 |
| | (5 | ) | |
| | Total Available-for-Sale Debt Securities | (2 | ) | | — |
| | (2 | ) | | (8 | ) | | 3 |
| | (5 | ) | |
| | Total | | | $ | (12 | ) | | $ | 3 |
| | $ | (9 | ) | | $ | (39 | ) | | $ | 12 |
| | $ | (27 | ) | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | PSEG | | | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) to Income Statement | |
| | | | | Three Months Ended | | Six Months Ended | |
| | Description of Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | Location of Pre-Tax Amount In Statement of Operations | June 30, 2019 | | June 30, 2019 | |
| | | Pre-Tax Amount | | Tax (Expense) Benefit | | After-Tax Amount | | Pre-Tax Amount | | Tax (Expense) Benefit | | After-Tax Amount | |
| | | | | Millions | |
| | Cash Flow Hedges | | | | | | | | | | | | | | |
| | Interest Rate Swaps | | Interest Expense | $ | (1 | ) | | $ | 1 |
| | $ | — |
| | $ | (1 | ) | | $ | 1 |
| | $ | — |
| |
| | Total Cash Flow Hedges | (1 | ) | | 1 |
| | — |
| | (1 | ) | | 1 |
| | — |
| |
| | Pension and OPEB Plans | | | | | | | | | | | | |
| | Amortization of Prior Service (Cost) Credit | | Non-Operating Pension and OPEB Credits (Costs) | 6 |
| | (2 | ) | | 4 |
| | 13 |
| | (4 | ) | | 9 |
| |
| | Amortization of Actuarial Loss | | Non-Operating Pension and OPEB Credits (Costs) | (11 | ) | | 3 |
| | (8 | ) | | (23 | ) | | 7 |
| | (16 | ) | |
| | Total Pension and OPEB Plans | (5 | ) | | 1 |
| | (4 | ) | | (10 | ) | | 3 |
| | (7 | ) | |
| | Available-for-Sale Debt Securities | | | | | | | | | | | | |
| | Realized Gains (Losses) | | Net Gains (Losses) on Trust Investments | 4 |
| | (1 | ) | | 3 |
| | 3 |
| | (1 | ) | | 2 |
| |
| | Total Available-for-Sale Debt Securities | 4 |
| | (1 | ) | | 3 |
| | 3 |
| | (1 | ) | | 2 |
| |
| | Total | | | $ | (2 | ) | | $ | 1 |
| | $ | (1 | ) | | $ | (8 | ) | | $ | 3 |
| | $ | (5 | ) | |
| | | | | | | | | | | | | | | | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | PSEG Power | | | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) to Income Statement | |
| | | | | Three Months Ended | | Nine Months Ended | |
| | Description of Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | Location of Pre-Tax Amount In Statement of Operations | September 30, 2019 | | September 30, 2019 | |
| | | Pre-Tax Amount | | Tax (Expense) Benefit | | After-Tax Amount | | Pre-Tax Amount | | Tax (Expense) Benefit | | After-Tax Amount | |
| | | | | Millions | |
| | Pension and OPEB Plans | | | | | | | | | | | | |
| | Amortization of Prior Service (Cost) Credit | | Non-Operating Pension and OPEB Credits (Costs) | $ | 6 |
| | $ | (2 | ) | | $ | 4 |
| | $ | 17 |
| | $ | (5 | ) | | $ | 12 |
| |
| | Amortization of Actuarial Loss | | Non-Operating Pension and OPEB Credits (Costs) | (9 | ) | | 3 |
| | (6 | ) | | (28 | ) | | 8 |
| | (20 | ) | |
| | Total Pension and OPEB Plans | (3 | ) | | 1 |
| | (2 | ) | | (11 | ) | | 3 |
| | (8 | ) | |
| | Available-for-Sale Debt Securities | | | | | | | | | | | | |
| | Realized Gains (Losses) | | Net Gains (Losses) on Trust Investments | 5 |
| | (2 | ) | | 3 |
| | 7 |
| | (3 | ) | | 4 |
| |
| | Total Available-for-Sale Debt Securities | 5 |
| | (2 | ) | | 3 |
| | 7 |
| | (3 | ) | | 4 |
| |
| | Total | | | $ | 2 |
| | $ | (1 | ) | | $ | 1 |
| | $ | (4 | ) | | $ | — |
| | $ | (4 | ) | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | PSEG Power | | | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) to Income Statement | |
| | | | | Three Months Ended | | Six Months Ended | |
| | Description of Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | Location of Pre-Tax Amount In Statement of Operations | June 30, 2020 | | June 30, 2020 | |
| | | Pre-Tax Amount | | Tax (Expense) Benefit | | After-Tax Amount | | Pre-Tax Amount | | Tax (Expense) Benefit | | After-Tax Amount | |
| | | | | Millions | |
| | Pension and OPEB Plans | | | | | | | | | | | | |
| | Amortization of Prior Service (Cost) Credit | | Non-Operating Pension and OPEB Credits (Costs) | $ | 6 |
| | $ | (2 | ) | | $ | 4 |
| | $ | 11 |
| | $ | (3 | ) | | $ | 8 |
| |
| | Amortization of Actuarial Loss | | Non-Operating Pension and OPEB Credits (Costs) | (9 | ) | | 2 |
| | (7 | ) | | (17 | ) | | 4 |
| | (13 | ) | |
| | Total Pension and OPEB Plans | (3 | ) | | — |
| | (3 | ) | | (6 | ) | | 1 |
| | (5 | ) | |
| | Available-for-Sale Debt Securities | | | | | | | | | | | | |
| | Realized Gains (Losses) and Impairments | | Net Gains (Losses) on Trust Investments | 14 |
| | (5 | ) | | 9 |
| | 21 |
| | (8 | ) | | 13 |
| |
| | Total Available-for-Sale Debt Securities | 14 |
| | (5 | ) | | 9 |
| | 21 |
| | (8 | ) | | 13 |
| |
| | Total | | | $ | 11 |
| | $ | (5 | ) | | $ | 6 |
| | $ | 15 |
| | $ | (7 | ) | | $ | 8 |
| |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | PSEG Power | | | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) to Income Statement | |
| | | | | Three Months Ended | | Nine Months Ended | |
| | Description of Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | Location of Pre-Tax Amount In Statement of Operations | September 30, 2018 | | September 30, 2018 | |
| | | Pre-Tax Amount | | Tax (Expense) Benefit | | After-Tax Amount | | Pre-Tax Amount | | Tax (Expense) Benefit | | After-Tax Amount | |
| | | | | Millions | |
| | Pension and OPEB Plans | | | | | | | | | | | | |
| | Amortization of Prior Service (Cost) Credit | | Non-Operating Pension and OPEB Credits (Costs) | $ | 1 |
| | $ | — |
| | $ | 1 |
| | $ | 3 |
| | $ | — |
| | $ | 3 |
| |
| | Amortization of Actuarial Loss | | Non-Operating Pension and OPEB Credits (Costs) | (11 | ) | | 3 |
| | (8 | ) | | (30 | ) | | 8 |
| | (22 | ) | |
| | Total Pension and OPEB Plans | (10 | ) | | 3 |
| | (7 | ) | | (27 | ) | | 8 |
| | (19 | ) | |
| | Available-for-Sale Debt Securities | | | | | | | | | | | | |
| | Realized Gains (Losses) | | Net Gains (Losses) on Trust Investments | (1 | ) | | — |
| | (1 | ) | | (7 | ) | | 3 |
| | (4 | ) | |
| | Total Available-for-Sale Debt Securities | (1 | ) | | — |
| | (1 | ) | | (7 | ) | | 3 |
| | (4 | ) | |
| | Total | | | $ | (11 | ) | | $ | 3 |
| | $ | (8 | ) | | $ | (34 | ) | | $ | 11 |
| | $ | (23 | ) | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | PSEG Power | | | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) to Income Statement | |
| | | | | Three Months Ended | | Six Months Ended | |
| | Description of Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | | Location of Pre-Tax Amount In Statement of Operations | June 30, 2019 | | June 30, 2019 | |
| | | Pre-Tax Amount | | Tax (Expense) Benefit | | After-Tax Amount | | Pre-Tax Amount | | Tax (Expense) Benefit | | After-Tax Amount | |
| | | | | Millions | |
| | Pension and OPEB Plans | | | | | | | | | | | | |
| | Amortization of Prior Service (Cost) Credit | | Non-Operating Pension and OPEB Credits (Costs) | $ | 5 |
| | $ | (1 | ) | | $ | 4 |
| | $ | 11 |
| | $ | (3 | ) | | $ | 8 |
| |
| | Amortization of Actuarial Loss | | Non-Operating Pension and OPEB Credits (Costs) | (9 | ) | | 2 |
| | (7 | ) | | (19 | ) | | 5 |
| | (14 | ) | |
| | Total Pension and OPEB Plans | (4 | ) | | 1 |
| | (3 | ) | | (8 | ) | | 2 |
| | (6 | ) | |
| | Available-for-Sale Debt Securities | | | | | | | | | | | | |
| | Realized Gains (Losses) | | Net Gains (Losses) on Trust Investments | 3 |
| | (1 | ) | | 2 |
| | 2 |
| | (1 | ) | | 1 |
| |
| | Total Available-for-Sale Debt Securities | 3 |
| | (1 | ) | | 2 |
| | 2 |
| | (1 | ) | | 1 |
| |
| | Total | | | $ | (1 | ) | | $ | — |
| | $ | (1 | ) | | $ | (6 | ) | | $ | 1 |
| | $ | (5 | ) | |
| | | | | | | | | | | | | | | | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 18. Earnings Per Share (EPS) and Dividends
EPS
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:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| | | 2019 | | 2018 | | 2019 | | 2018 | |
| | | Basic | | Diluted | | Basic | | Diluted | | Basic | | Diluted | | Basic | | Diluted | |
| | EPS Numerator (Millions): | | | | | | | | | | | | | | | | |
| | Net Income | $ | 403 |
| | $ | 403 |
| | $ | 412 |
| | $ | 412 |
| | $ | 1,256 |
| | $ | 1,256 |
| | $ | 1,239 |
| | $ | 1,239 |
| |
| | EPS Denominator (Millions): | | | | | | | | | | | | | | | | |
| | Weighted Average Common Shares Outstanding | 504 |
| | 504 |
| | 504 |
| | 504 |
| | 504 |
| | 504 |
| | 504 |
| | 504 |
| |
| | Effect of Stock Based Compensation Awards | — |
| | 3 |
| | — |
| | 3 |
| | — |
| | 3 |
| | — |
| | 3 |
| |
| | Total Shares | 504 |
| | 507 |
| | 504 |
| | 507 |
| | 504 |
| | 507 |
| | 504 |
| | 507 |
| |
| | | | | | | | | | | | | | | | | | |
| | EPS | | | | | | | | | | | | | | | | |
| | Net Income | $ | 0.80 |
| | $ | 0.79 |
| | $ | 0.82 |
| | $ | 0.81 |
| | $ | 2.49 |
| | $ | 2.47 |
| | $ | 2.46 |
| | $ | 2.44 |
| |
| | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, | |
| | | 2020 | | 2019 | | 2020 | | 2019 | |
| | | Basic | | Diluted | | Basic | | Diluted | | Basic | | Diluted | | Basic | | Diluted | |
| | EPS Numerator (Millions): | | | | | | | | | | | | | | | | |
| | Net Income | $ | 451 |
| | $ | 451 |
| | $ | 153 |
| | $ | 153 |
| | $ | 899 |
| | $ | 899 |
| | $ | 853 |
| | $ | 853 |
| |
| | EPS Denominator (Millions): | | | | | | | | | | | | | | | | |
| | Weighted Average Common Shares Outstanding | 504 |
| | 504 |
| | 504 |
| | 504 |
| | 504 |
| | 504 |
| | 504 |
| | 504 |
| |
| | Effect of Stock Based Compensation Awards | — |
| | 3 |
| | — |
| | 3 |
| | — |
| | 3 |
| | — |
| | 3 |
| |
| | Total Shares | 504 |
| | 507 |
| | 504 |
| | 507 |
| | 504 |
| | 507 |
| | 504 |
| | 507 |
| |
| | | | | | | | | | | | | | | | | | |
| | EPS | | | | | | | | | | | | | | | | |
| | Net Income | $ | 0.89 |
| | $ | 0.89 |
| | $ | 0.30 |
| | $ | 0.30 |
| | $ | 1.78 |
| | $ | 1.77 |
| | $ | 1.69 |
| | $ | 1.68 |
| |
| | | | | | | | | | | | | | | | | | |
Dividends
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended | |
| | | September 30, | | September 30, | |
| | Dividend Payments on Common Stock | 2019 | | 2018 | | 2019 | | 2018 | |
| | Per Share | $ | 0.47 |
| | $ | 0.45 |
| | $ | 1.41 |
| | $ | 1.35 |
| |
| | In Millions | $ | 238 |
| | $ | 227 |
| | $ | 713 |
| | $ | 682 |
| |
| | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | Three Months Ended | | Six Months Ended | |
| | | June 30, | | June 30, | |
| | Dividend Payments on Common Stock | 2020 | | 2019 | | 2020 | | 2019 | |
| | Per Share | $ | 0.49 |
| | $ | 0.47 |
| | $ | 0.98 |
| | $ | 0.94 |
| |
| | In Millions | $ | 247 |
| | $ | 237 |
| | $ | 495 |
| | $ | 475 |
| |
| | | | | | | | | | |
On July 21, 2020, the PSEG Board approved a $0.49 per share common stock dividend for the third quarter of 2020.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 19. Financial Information by Business Segment
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | PSE&G | | PSEG Power | | Other (A) | | Eliminations (B) | | Consolidated Total | |
| | | Millions | |
| | Three Months Ended September 30, 2019 | | | | | | | | | | |
| | Total Operating Revenues | $ | 1,604 |
| | $ | 771 |
| | $ | 151 |
| | $ | (224 | ) | | $ | 2,302 |
| |
| | Net Income (Loss) | 344 |
| | 53 |
| | 6 |
| | — |
| | 403 |
| |
| | Gross Additions to Long-Lived Assets | 608 |
| | 168 |
| | 3 |
| | — |
| | 779 |
| |
| | Nine Months Ended September 30, 2019 | | | | | | | | | | |
| | Operating Revenues | $ | 5,018 |
| | $ | 3,270 |
| | $ | 379 |
| | $ | (1,069 | ) | | $ | 7,598 |
| |
| | Net Income (Loss) (C) | 974 |
| | 309 |
| | (27 | ) | | — |
| | 1,256 |
| |
| | Gross Additions to Long-Lived Assets | 1,866 |
| | 507 |
| | 10 |
| | — |
| | 2,383 |
| |
| | Three Months Ended September 30, 2018 | | | | | | | | | | |
| | Total Operating Revenues | $ | 1,595 |
| | $ | 868 |
| | $ | 151 |
| | $ | (220 | ) | | $ | 2,394 |
| |
| | Net Income (Loss) | 278 |
| | 125 |
| | 9 |
| | — |
| | 412 |
| |
| | Gross Additions to Long-Lived Assets | 766 |
| | 253 |
| | 4 |
| | — |
| | 1,023 |
| |
| | Nine Months Ended September 30, 2018 | | | | | | | | | | |
| | Operating Revenues | $ | 4,826 |
| | $ | 3,038 |
| | $ | 421 |
| | $ | (1,057 | ) | | $ | 7,228 |
| |
| | Net Income (Loss) | 828 |
| | 400 |
| | 11 |
| | — |
| | 1,239 |
| |
| | Gross Additions to Long-Lived Assets | 2,213 |
| | 800 |
| | 15 |
| | — |
| | 3,028 |
| |
| | As of September 30, 2019 | | | | | | | | | | |
| | Total Assets | $ | 32,652 |
| | $ | 12,553 |
| | $ | 2,384 |
| | $ | (774 | ) | | $ | 46,815 |
| |
| | Investments in Equity Method Subsidiaries | $ | — |
| | $ | 67 |
| | $ | — |
| | $ | — |
| | $ | 67 |
| |
| | As of December 31, 2018 | | | | | | | | | | |
| | Total Assets | $ | 31,109 |
| | $ | 12,594 |
| | $ | 2,604 |
| | $ | (981 | ) | | $ | 45,326 |
| |
| | Investments in Equity Method Subsidiaries | $ | — |
| | $ | 86 |
| | $ | — |
| | $ | — |
| | $ | 86 |
| |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | PSE&G | | PSEG Power | | Other (A) | | Eliminations (B) | | Consolidated Total | |
| | | Millions | |
| | Three Months Ended June 30, 2020 | | | | | | | | | | |
| | Total Operating Revenues | $ | 1,456 |
| | $ | 683 |
| | $ | 148 |
| | $ | (237 | ) | | $ | 2,050 |
| |
| | Net Income (Loss) | 283 |
| | 170 |
| | (2 | ) | | — |
| | 451 |
| |
| | Gross Additions to Long-Lived Assets | 570 |
| | 121 |
| | 3 |
| | — |
| | 694 |
| |
| | Six Months Ended June 30, 2020 | | | | | | | | | | |
| | Operating Revenues | $ | 3,339 |
| | $ | 1,903 |
| | $ | 304 |
| | $ | (715 | ) | | $ | 4,831 |
| |
| | Net Income (Loss) | 723 |
| | 183 |
| | (7 | ) | | — |
| | 899 |
| |
| | Gross Additions to Long-Lived Assets | 1,190 |
| | 218 |
| | 6 |
| | — |
| | 1,414 |
| |
| | Three Months Ended June 30, 2019 | | | | | | | | | | |
| | Total Operating Revenues | $ | 1,382 |
| | $ | 1,083 |
| | $ | 87 |
| | $ | (236 | ) | | $ | 2,316 |
| |
| | Net Income (Loss) | 227 |
| | (40 | ) | | (34 | ) | | — |
| | 153 |
| |
| | Gross Additions to Long-Lived Assets | 633 |
| | 172 |
| | 4 |
| | — |
| | 809 |
| |
| | Six Months Ended June 30, 2019 | | | | | | | | | | |
| | Operating Revenues | $ | 3,414 |
| | $ | 2,499 |
| | $ | 228 |
| | $ | (845 | ) | | $ | 5,296 |
| |
| | Net Income (Loss) | 630 |
| | 256 |
| | (33 | ) | | — |
| | 853 |
| |
| | Gross Additions to Long-Lived Assets | 1,258 |
| | 339 |
| | 7 |
| | — |
| | 1,604 |
| |
| | As of June 30, 2020 | | | | | | | | | | |
| | Total Assets | $ | 34,445 |
| | $ | 12,508 |
| | $ | 2,618 |
| | $ | (791 | ) | | $ | 48,780 |
| |
| | Investments in Equity Method Subsidiaries | $ | — |
| | $ | 67 |
| | $ | 1 |
| | $ | — |
| | $ | 68 |
| |
| | As of December 31, 2019 | | | | | | | | | | |
| | Total Assets | $ | 33,266 |
| | $ | 12,805 |
| | $ | 2,715 |
| | $ | (1,056 | ) | | $ | 47,730 |
| |
| | Investments in Equity Method Subsidiaries | $ | — |
| | $ | 66 |
| | $ | 1 |
| | $ | — |
| | $ | 67 |
| |
| | | | | | | | | | | | |
| |
| (A) | Includes amounts applicable to Energy Holdings and PSEG LI, which are below the quantitative threshold for separate disclosure as reportable segments. Other also includes amounts applicable to PSEG (parent company) and Services. |
| |
| (B) | Intercompany eliminations primarily relate to intercompany transactions between PSE&G and PSEG Power. For a further discussion of the intercompany transactions between PSE&G and PSEG Power, see Note 20. Related-Party Transactions. |
| |
(C) | 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 generation plants. See Note 4. Early Plant Retirements/Asset Dispositions for additional information.
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 20. Related-Party Transactions
The following discussion relates to intercompany transactions, which are eliminated during the PSEG consolidation process in accordance with GAAP.
PSE&G
The financial statements for PSE&G include transactions with related parties presented as follows:
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended | |
| | | September 30, | | September 30, | |
| | Related-Party Transactions | 2019 | | 2018 | | 2019 | | 2018 | |
| | | Millions | |
| | Billings from Affiliates: | | | | | | | | |
| | Net Billings from PSEG Power (A) | $ | 220 |
| | $ | 229 |
| | $ | 1,099 |
| | $ | 1,079 |
| |
| | Administrative Billings from Services (B) | 72 |
| | 78 |
| | 227 |
| | 246 |
| |
| | Total Billings from Affiliates | $ | 292 |
| | $ | 307 |
| | $ | 1,326 |
| | $ | 1,325 |
| |
| | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | Three Months Ended | | Six Months Ended | |
| | | June 30, | | June 30, | |
| | Related-Party Transactions | 2020 | | 2019 | | 2020 | | 2019 | |
| | | Millions | |
| | Billings from Affiliates: | | | | | | | | |
| | Net Billings from PSEG Power (A) | $ | 227 |
| | $ | 246 |
| | $ | 717 |
| | $ | 879 |
| |
| | Administrative Billings from Services (B) | 78 |
| | 80 |
| | 156 |
| | 155 |
| |
| | Total Billings from Affiliates | $ | 305 |
| | $ | 326 |
| | $ | 873 |
| | $ | 1,034 |
| |
| | | | | | | | | | |
|
| | | | | | | | | |
| | | | | | |
| | | As of | | As of | |
| | Related-Party Transactions | September 30, 2019 | | December 31, 2018 | |
| | | Millions | |
| | Receivable from PSEG (C) | $ | 12 |
| | $ | 123 |
| |
| | Payable to PSEG Power (A) | $ | 152 |
| | $ | 245 |
| |
| | Payable to Services (B) | 56 |
| | 76 |
| |
| | Accounts Payable—Affiliated Companies | $ | 208 |
| | $ | 321 |
| |
| | Working Capital Advances to Services (D) | $ | 33 |
| | $ | 33 |
| |
| | Long-Term Accrued Taxes Payable | $ | 103 |
| | $ | 69 |
| |
| | | | | | |
|
| | | | | | | | | |
| | | | | | |
| | | As of | | As of | |
| | Related-Party Transactions | June 30, 2020 | | December 31, 2019 | |
| | | Millions | |
| | Receivable from PSEG (C) | $ | — |
| | $ | 1 |
| |
| | Payable to PSEG Power (A) | $ | 215 |
| | $ | 307 |
| |
| | Payable to Services (B) | 71 |
| | 83 |
| |
| | Payable to PSEG (C) | 87 |
| | — |
| |
| | Accounts Payable—Affiliated Companies | $ | 373 |
| | $ | 390 |
| |
| | Noncurrent Payable to PSEG Power (A) | $ | 11 |
| | $ | — |
| |
| | Working Capital Advances to Services (D) | $ | 33 |
| | $ | 33 |
| |
| | Long-Term Accrued Taxes Payable | $ | 19 |
| | $ | 115 |
| |
| | | | | | |
PSEG Power
The financial statements for PSEG Power include transactions with related parties presented as follows:
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended | |
| | | September 30, | | September 30, | |
| | Related-Party Transactions | 2019 | | 2018 | | 2019 | | 2018 | |
| | | Millions | |
| | Billings to Affiliates: | | | | | | | | |
| | Net Billings to PSE&G (A) | $ | 220 |
| | $ | 229 |
| | $ | 1,099 |
| | $ | 1,079 |
| |
| | Billings from Affiliates: | | | | | | | | |
| | Administrative Billings from Services (B) | $ | 41 |
| | $ | 38 |
| | $ | 132 |
| | $ | 113 |
| |
| | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | Three Months Ended | | Six Months Ended | |
| | | June 30, | | June 30, | |
| | Related-Party Transactions | 2020 | | 2019 | | 2020 | | 2019 | |
| | | Millions | |
| | Billings to Affiliates: | | | | | | | | |
| | Net Billings to PSE&G (A) | $ | 227 |
| | $ | 246 |
| | $ | 717 |
| | $ | 879 |
| |
| | Billings from Affiliates: | | | | | | | | |
| | Administrative Billings from Services (B) | $ | 42 |
| | $ | 46 |
| | $ | 87 |
| | $ | 91 |
| |
| | | | | | | | | | |
|
| | | | | | | | | |
| | | | | | |
| | | As of | | As of | |
| | Related-Party Transactions | September 30, 2019 | | December 31, 2018 | |
| | | Millions | |
| | Receivable from PSE&G (A) | $ | 152 |
| | $ | 245 |
| |
| | Receivable from PSEG (C) | 81 |
| | 29 |
| |
| | Accounts Receivable—Affiliated Companies | $ | 233 |
| | $ | 274 |
| |
| | Payable to Services (B) | $ | 20 |
| | $ | 16 |
| |
| | Accounts Payable—Affiliated Companies | $ | 20 |
| | $ | 16 |
| |
| | Short-Term Loan to (from) Affiliate (E) | $ | 86 |
| | $ | (193 | ) | |
| | Working Capital Advances to Services (D) | $ | 17 |
| | $ | 17 |
| |
| | Long-Term Accrued Taxes Payable | $ | 101 |
| | $ | 76 |
| |
| | | | | | |
|
| | | | | | | | | |
| | | | | | |
| | | As of | | As of | |
| | Related-Party Transactions | June 30, 2020 | | December 31, 2019 | |
| | | Millions | |
| | Receivable from PSE&G (A) | $ | 215 |
| | $ | 307 |
| |
| | Receivable from PSEG (C) | 66 |
| | 101 |
| |
| | Accounts Receivable—Affiliated Companies | $ | 281 |
| | $ | 408 |
| |
| | Payable to Services (B) | $ | 20 |
| | $ | 5 |
| |
| | Accounts Payable—Affiliated Companies | $ | 20 |
| | $ | 5 |
| |
| | Short-Term Loan to (from) Affiliate (E) | $ | 104 |
| | $ | 149 |
| |
| | Noncurrent Receivable from PSE&G (A) | $ | 11 |
| | $ | — |
| |
| | Working Capital Advances to Services (D) | $ | 17 |
| | $ | 17 |
| |
| | Long-Term Accrued Taxes Payable | $ | 53 |
| | $ | 115 |
| |
| | | | | | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| |
| (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 lossesNOLs 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 months and nine months ended September 30, 2019 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 |
| |
| | | | | | | | | | | | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | 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) |
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:
| |
| • | 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 |
| |
| • | 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; 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
Our business plan is designed to achieve growth while managing the risks associated with regulatory changes, fluctuating commodity prices and changes in customer demand. Over the past few years, our investments have altered our business mix to reflect a higher percentage of earnings contribution by PSE&G.
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 six months ended June 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 $11.5 billion to $14.5$15 billion, resulting in an expected compound annual rate base growth of 7.5%6.5% to 8.5%8%. These ranges are driven by certain unapproved investment programs, including the Clean Energy Future (CEF) program 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) 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) infrastructure program; (iii) an Energy Storage (ES) program, which was submitted to the BPU together with the EV infrastructure program in a single filing; and (iv) an Energy Cloud (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 approved a settlementFebruary 2020, PSE&G reached an agreement with the parties in the CEF-EE that extendsmatter which was approved by the matter into March 2020, and that authorizes, in the interim, an additional $27 million investment for PSE&GBPU to continue delivering four of its(a) extend several existing EE programs for six months, with an additional year.$111 million investment over the course of the programs, and (b) extend the timeline for review of the CEF-EE filing through September 2020. In June 2020, the BPU completed its stakeholder proceedings into certain aspects of EE and issued a final order outlining its policies, including which EE programs the State will manage and which will be managed by the State’s utilities, as well as the utility cost recovery features, such as return on equity, amortization period, lost revenue recovery and potential incentives and penalties. The BPU’s order is being employed in the resolution of PSE&G’s pending CEF-EE filing.
In November 2018, the New Jersey Division of Rate Counsel (Rate Counsel) filed a motion to dismissThe BPU has also issued procedural schedules for the CEF-EC filingand CEF-EV/ES investment programs, both providing for evidentiary hearings in the fourth quarter of 2020. In April 2020, PSE&G filed with the BPU an update of its CEF-EC petition to revise certain assumptions, including an updated 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$2.8 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 our 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 addition, PSE&G has informed both its residential customers and state regulators that all non-safety related service disconnections for non-payment have been temporarily suspended. As a result, PSE&G has seen 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. Gas distribution bad debt expense in excess of what is included in base rates could adversely impact PSE&G’s utility results from operations.Further, the implementation of actions to protect customers and employees, including physical distancing, mandatory PPE, and realignment of work crews, may have an adverse impact on operations and maintenance (O&M) costs. In addition, PSE&G has experienced a significant increase in the number of estimated C&I and residential customer bills, resulting from measures imposed by New Jersey to limit the spread of COVID-19, which prevented PSE&G from physically entering customer properties to read meters. As part of the New Jersey’s phased reopening plan, this limitation was lifted in July 2020. PSE&G expects to read the majority of customer meters in the third quarter of 2020 and make any appropriate adjustments to the amounts of customer bills relative to prior estimates, which adjustments are not expected to be material.
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. PSE&G is evaluating the order and the deferral amounts that would be allowed under the order and expects to record a deferral commencing in the third quarter of 2020.
While the impact on our results of operations, financial condition and cash flows for the six months ended June 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 performance 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 efficiency and believes that its recently completed investment program enhances its competitive position with the addition of efficient, clean, reliable combined cycle gas turbine capacity. In the first six months of 2020, our natural gas and nuclear units generated 10.1 and 15.8 terawatt hours and operated at a capacity factor of 44.3% and 93.4%, 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 balance 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 half 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.
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 megawatts (MW) of fossil generation located in New Jersey, Connecticut, New York and Maryland as well as the 467 MW combined cycle gas turbine construction program. These additionsSolar 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 the company is in the preliminary stage of this evaluation, the marketing of a potential transaction in one or a series of steps, anticipated to launch in the fourth quarter of this year, 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 dioxide (CO2) 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 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 ninesix 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,reliable manner, and
total nuclear fleet achieved aefficient combined cycle gas units improved our capacity factor of 91.0%.
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 ninesix 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.
In March 2020, PSEG entered into a $300 million, 364-day term loan agreement and in April 2020 it entered into two 364-day term loan agreements for $200 million and $300 million. These term loans provide an additional source of liquidity for our operations as we continue to monitor the impact of the ongoing coronavirus pandemic on the volatility and availability of the capital and commercial paper markets.
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 ninesix months ended SeptemberJune 30, 20192020 and 20182019 are presented as follows:
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| | | 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 |
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| | Other (B) | 6 |
| | 9 |
| | (27 | ) | | 11 |
| |
| | PSEG Net Income | $ | 403 |
| | $ | 412 |
| | $ | 1,256 |
| | $ | 1,239 |
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| | | | | | | | | | |
| | PSEG Net Income Per Share (Diluted) | $ | 0.79 |
| | $ | 0.81 |
| | $ | 2.47 |
| | $ | 2.44 |
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| | | Three Months Ended | | Six Months Ended | |
| | | June 30, | | June 30, | |
| | Earnings (Losses) | 2020 | | 2019 | | 2020 | | 2019 | |
| | | Millions | |
| | PSE&G | $ | 283 |
| | $ | 227 |
| | $ | 723 |
| | $ | 630 |
| |
| | PSEG Power (A) | 170 |
| | (40 | ) | | 183 |
| | 256 |
| |
| | Other (B) | (2 | ) | | (34 | ) | | (7 | ) | | (33 | ) | |
| | PSEG Net Income | $ | 451 |
| | $ | 153 |
| | $ | 899 |
| | $ | 853 |
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| | | | | | | | | | |
| | PSEG Net Income Per Share (Diluted) | $ | 0.89 |
| | $ | 0.30 |
| | $ | 1.77 |
| | $ | 1.68 |
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| (A) | Includes an after-tax lossimpairment charge of $286$284 million in the ninethree months and six months ended SeptemberJune 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. |
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| (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 chargescharge of $32 million in the second quarter of 2019 related to its investmentsinvestment in leveraged leases of $32 million and $14 million in the nine months ended September 30, 2019 and 2018, respectively.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:
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| | | | | | | | | | |
| | | 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 | ) | |
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| | | | | | | | | | |
| | | Three Months Ended | | Six Months Ended | |
| | | June 30, | | June 30, | |
| | | 2020 | | 2019 | | 2020 | | 2019 | |
| | | Millions, after tax | |
| | NDT Fund Income (Expense) (A) (B) | $ | 118 |
| | $ | 25 |
| | $ | (17 | ) | | $ | 101 |
| |
| | Non-Trading MTM Gains (Losses) (C) | $ | (77 | ) | | $ | 152 |
| | $ | — |
| | $ | 228 |
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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)O&M Expense and the depreciation related to the ARO asset recorded in Depreciation and Amortization (D&A) Expense. |
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| (B) | Net of tax (expense) benefit of $0$(74) million and $(16) million for the three months and $(67)$10 million and $(12)$(67) million for the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, respectively. |
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| (C) | Net of tax (expense) benefit of $33$30 million and $37$(58) million for the three months and $(55)$0 million and $23$(88) million for the ninesix months ended SeptemberJune 30, 2020 and 2019, and 2018, respectively. |
Our $9$298 million decreaseincrease in Net Income for the three months ended SeptemberJune 30, 2019 was driven largely by
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• | unrealizedlosses in 2019 as compared to unrealized gains in 2018 on equity securities on the NDT Fund at PSEG Power,
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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.
Our $17 million increase in Net Income for the nine months ended September 30, 20192020 was driven primarily by
MTMan asset impairment in 2019 related to the sale of PSEG Power’s interests in the Keystone and Conemaugh fossil generation plants (see Item 1. Note 4. Early Plant Retirements/Asset Dispositions),
higher net unrealized gains in 2019 as compared to MTM losses in 2018 at PSEG Power,
net gains in 20192020 on equity securities in the NDT Fund at PSEG Power,
the favorable impacthigher earnings due to investments in T&D programs at PSE&G, and
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| • | an impairment charge in 2019 related to a leveraged lease investment at Energy Holdings (see Item 1. Note 8. Financing Receivables), |
Our $46 million increase in Net Income for the six months ended June 30, 2020 was driven primarily by
the above mentioned asset impairment in 2019 related to the sale of PSEG Power’s interests in the Keystone and Conemaugh fossil generation plants,
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 startinghigher pension and OPEB credits,
partially offset by MTM gains in mid-April 2019 at PSEG Power, largely offset byand
a loss relatednet unrealized losses in 2020 as compared to the sale of PSEG Power’s ownership interestsnet unrealized gains on equity securities in the Keystone and Conemaugh generation plants in 2019.NDT Fund at PSEG Power.
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, reflectreflecting our long-term approach to managing our company. 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 ninesix 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 ourcontinued to evaluate a potential investment program in combined cycle gas turbines.offshore wind.
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 ReportsReport on Form 10-Q for the periodsperiod ending March 31, 2019 and June 30, 20192020 (first and second quarter 2019 10-Qs)2020 10-Q) 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) service 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. See Part II, Item 5. Other Information.
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. The BPU issued an order in May 2020 outlining the process for applying for ZECs for the next three-year eligibility period starting in June 2022 and is expected to issue a decision regarding any ZEC applications and any change in the amount of future ZEC payments by April 2021. PSEG Power is not aware of any changes that would materially affect its ability to establish eligibility to be awarded ZECs under the application requirements that resulted in the award of ZECs to Salem 1, Salem 2 and Hope Creek in April 2019. However, PSEG Power cannot predict whether other plants besides Salem 1, Salem 2 and Hope Creek will apply for ZECs in the future. In the event that (i) the ZEC program is overturned or otherwise materially adversely modified through legal process, (ii) the terms and conditions of the subsequent period under the ZEC program, including the amount of ZEC payments that may be awarded, materially 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 retire all of these plants subsequent to the initial ZEC period at or prior to a scheduled refueling outage. 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 takingwould still take all necessary steps to retire all of these plants following the end of the initial three year term of the ZECs program.plants. Retirement of these plants would result in a material adverse impact on PSEG’s and PSEG Power’s financial results.
FossilNuclear Refueling Outage
The Salem 1 nuclear generating plant is expected to enter into a scheduled refueling outage in October 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 expected to be replaced. The process for replacing Salem 1’s generator stator is highly complex. We also plan to perform additional reactor vessel inspections and upgrades. Limitations due to additional health protocols, delays in replacing the Keystonemain generator stator due to its complexity, or adverse findings from the reactor vessel inspections could result in an extended outage and Conemaugh generation plantsin turn, lower revenues and related assetsincreased costs, which could have a material impact on the results of operations of the plant 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.Power.
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 predictprotection and in June 2020 the ultimate outcome that this bankruptcy proceeding will have on our ability to collect all ofjudge approved PG&E’s bankruptcy plan, which included the revenues from these facilities due under the PPAs; however, any adverse changes to the termsassumption of PSEG Power’s PPAs as a result of this bankruptcy proceeding could result in the future impairment of these assets in amounts up to their current net book value.PPAs.
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.
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 byØrsted are exploring 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.offshore wind opportunities through GSOE.
Tax Legislation
The Tax Act, among other things, decreased the statutory U.S. corporate income tax rate from a maximum of 35% to 21%, effective January 1, 2018, and made certain changes to the bonus depreciation and interest disallowance rules.
In November 2018,July 2020, the IRS issued final and proposed regulations addressing the limitation on deductible interest disallowance rulesexpense contained in the Tax Act. PSEG is in the process of analyzing these regulations, which may impact PSEG’s, PSE&G’s and PSEG Power’s financial condition and cash flows.
In March 2020, the federal Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted. We continue to assess the impact 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 and cash tax position.
For non-regulated businesses, thesethe Tax Act enacted rules that 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 theirPSEG’s and PSEG Power’s interest willwas disallowed but is expected to be disallowed in the current period but realized in future periods. However, certain aspects of the proposed regulationslaw are unclear. Therefore, we recorded taxes based on our interpretation of the relevant statute. The CARES Act favorably increased the limitation on the amount of interest that can deducted in 2019 and 2020. While this will not impact 2019, the increased limitation will allow a portion of the previously disallowed amounts to reduce PSEG’s and PSEG Power’s 2020 taxable income. Amounts recorded under the Tax Act including but not limited toand the CARES Act, such as depreciation and 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 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 include 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. There are certain aspects of the law that are not clear. 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, 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,
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, investors and investors,suppliers, 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 2019 10-Qs2020 10-Q 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 reductions 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,
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) | | Six Months Ended | | Increase/ (Decrease) | |
| | | June 30, | | | June 30, | | |
| | | 2020 | | 2019 | | 2020 vs. 2019 | | 2020 | | 2019 | | 2020 vs. 2019 | |
| | | Millions | | Millions | | % | | Millions | | Millions | | % | |
| | Operating Revenues | $ | 2,050 |
| | $ | 2,316 |
| | $ | (266 | ) | | (11 | ) | | $ | 4,831 |
| | $ | 5,296 |
| | $ | (465 | ) | | (9 | ) | |
| | Energy Costs | 595 |
| | 704 |
| | (109 | ) | | (15 | ) | | 1,501 |
| | 1,828 |
| | (327 | ) | | (18 | ) | |
| | Operation and Maintenance | 733 |
| | 750 |
| | (17 | ) | | (2 | ) | | 1,487 |
| | 1,506 |
| | (19 | ) | | (1 | ) | |
| | Depreciation and Amortization | 315 |
| | 307 |
| | 8 |
| | 3 |
| | 639 |
| | 621 |
| | 18 |
| | 3 |
| |
| | Loss on Asset Dispositions | — |
| | 395 |
| | (395 | ) | | N/A |
| | — |
| | 395 |
| | (395 | ) | | N/A |
| |
| | Income from Equity Method Investments | 3 |
| | 5 |
| | (2 | ) | | (40 | ) | | 6 |
| | 7 |
| | (1 | ) | | (14 | ) | |
| | Net Gains (Losses) on Trust Investments | 201 |
| | 39 |
| | 162 |
| | N/A |
| | (20 | ) | | 167 |
| | (187 | ) | | N/A |
| |
| | Other Income (Deductions) | 38 |
| | 33 |
| | 5 |
| | 15 |
| | 42 |
| | 66 |
| | (24 | ) | | (36 | ) | |
| | Net Non-Operating Pension and OPEB Credits (Costs) | 62 |
| | 33 |
| | 29 |
| | 88 |
| | 124 |
| | 66 |
| | 58 |
| | 88 |
| |
| | Interest Expense | 151 |
| | 137 |
| | 14 |
| | 10 |
| | 304 |
| | 270 |
| | 34 |
| | 13 |
| |
| | Income Tax (Benefit) Expense | 109 |
| | (20 | ) | | 129 |
| | N/A |
| | 153 |
| | 129 |
| | 24 |
| | 19 |
| |
| | | | | | | | | | | | | | | | | | |
The following discussions for PSE&G and PSEG Power provide a detailed explanation of their respective variances.
PSE&G
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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 | $ | 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) | | Six Months Ended | | Increase/ (Decrease) | |
| | | June 30, | | | June 30, | | |
| | | 2020 | | 2019 | | 2020 vs. 2019 | | 2020 | | 2019 | | 2020 vs. 2019 | |
| | | Millions | | Millions | | % | | Millions | | Millions | | % | |
| | Operating Revenues | $ | 1,456 |
| | $ | 1,382 |
| | $ | 74 |
| | 5 |
| | $ | 3,339 |
| | $ | 3,414 |
| | $ | (75 | ) | | (2 | ) | |
| | Energy Costs | 510 |
| | 529 |
| | (19 | ) | | (4 | ) | | 1,218 |
| | 1,476 |
| | (258 | ) | | (17 | ) | |
| | Operation and Maintenance | 380 |
| | 369 |
| | 11 |
| | 3 |
| | 766 |
| | 777 |
| | (11 | ) | | (1 | ) | |
| | Depreciation and Amortization | 217 |
| | 202 |
| | 15 |
| | 7 |
| | 439 |
| | 414 |
| | 25 |
| | 6 |
| |
| | Net Gains (Losses) on Trust Investments | 1 |
| | — |
| | 1 |
| | N/A |
| | 1 |
| | 1 |
| | — |
| | — |
| |
| | Other Income (Deductions) | 26 |
| | 19 |
| | 7 |
| | 37 |
| | 53 |
| | 38 |
| | 15 |
| | 39 |
| |
| | Net Non-Operating Pension and OPEB Credits (Costs) | 52 |
| | 29 |
| | 23 |
| | 79 |
| | 103 |
| | 59 |
| | 44 |
| | 75 |
| |
| | Interest Expense | 98 |
| | 89 |
| | 9 |
| | 10 |
| | 194 |
| | 176 |
| | 18 |
| | 10 |
| |
| | Income Tax Expense (Benefit) | 47 |
| | 14 |
| | 33 |
| | N/A |
| | 156 |
| | 39 |
| | 117 |
| | N/A |
| |
| | | | | | | | | | | | | | | | | | |
Three Months Ended SeptemberJune 30, 20192020 as Compared to 20182019
Operating Revenues increased $9$74 million due to changes in delivery, commodity, clause and other operating revenues.
Delivery Revenues increased $8$69 million due primarily to
| |
• | Transmission revenues were $32 million higher due to increased 2019 revenue requirements primarily attributable to higher rate base investment.Transmission revenues were $66 million higher due to increased 2020 revenue requirements attributable to higher rate base investment and the prior year flowback of certain excess deferred taxes that ended at year-end 2019. Gas distribution revenues increased by $11 million due primarily to a $26 million increase due to higher volumes and a $5 million increase from the GSMP I and GSMP II, partially offset by a $20 million decrease in Weather Normalization Charges (WNCs). Electric distribution revenues increased by $3 million due to a $7 million increase due to higher volumes, partially offset by a $4 million decrease in the collection of Green Program Recovery Charges (GPRC). |
| |
• | 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 (GPRC) revenues, partially offset by a $6 million decrease due to lower sales volumes.
|
| |
| • | Gas distributionand Electric revenues increased $22decreased by $11 million due primarily to a $19 million increase from the favorable impact of the distribution base rate tariff effective November 2018 and a $2 millionan increase in revenues from GSMP I. |
| |
• | Gas, Electric and Transmission revenue requirements were reduced by $72 million duethe flowback to the flowbackcustomers 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.
|
Commodity Revenues decreased$23 $34 million as a result of lower Electric revenues, partlypartially offset by higher 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 million due primarily to a $205 million decrease in BGS prices, partially offset by $178Electric commodity revenues decreased $60 million due primarily to $67 million in lower BGS prices, partially offset by $5 million in higher BGS sales volumes. |
| |
| • | Gas commodity revenues increased$3 $26 million due primarily to $42 million higher BGSS sales volumes, partially offset by a $15 million decrease in prices. |
Clause Revenues decreased$31increased $23 million due primarily to $22a $15 million of lower reduction in Tax Adjustment Credit (TAC) deferrals a $5 million reduction in GPRC deferrals and lower Societal Benefit Charge (SBC)higher SBC revenues of $3 million.$9 million. The changes in the TAC and GPRC deferralsdeferral and SBC revenuesamounts 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 or GPRC deferrals or on SBC revenues.
Other Operating Revenues increased $55by $16 million due primarily to an $11 million increase in solar renewable energy credit (SREC) revenues and $4 million in higher ZEC revenues billed after the ZEC program was approved by the BPU in Aprilsince mid-April 2019. See Item 1. Note 11. Commitments and Contingent Liabilities. TheseThe changes in these components of revenues are entirely offset by changes to Energy Costs.
Operating Expenses
Energy Costs increased $25decreased $19 million. This is entirely offset by changes in Commodity Revenues and Other Operating Revenues.
Operation and Maintenance decreased $1increased $11 million due primarily to a $5$10 million reduction in distribution preventative and corrective maintenance expenditures, a $3COVID-19 related costs, an $8 million reduction increase in transmission expenditures, a $3 million decrease in injuries and damagesgas bad debt expense and a $5net $3 million net reductionincrease in other operating expenses.clause and renewable-related expenditures. These decreasesincreases were partially offset by a net $11$6 millionincrease decrease in clauseappliance service costs, a $2 million decrease in distribution corrective and renewable-relatedpreventative expenditures and a $5$2 million increase decrease in storm costs.transmission-related expenditures.
Depreciation and Amortization increased $14$15 million due primarily to an $11 million increase related to additional plant in service and software placed into service.a $3 million increase in the amortization of Regulatory Assets.
Other Income (Deductions) increased $7 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 $23 million due primarily to due primarilyto a $26$12 million increase in the amortization of the prior service credit mainly related to the December 2018 OPEBexpected return on plan amendment,assets, a $4$9 million decrease in interest cost and a $3$3 million decrease in the amortization of the net unrecognizedactuarial loss, partially offset by a reduction of $2$1 million decrease in the long-term expected return on plan assets.amortization of prior service credit.
Interest Expense increased $9 million due primarily to increases of $7a $6 million increase from debt issuances in January and May 2020 and a $4 million increase from net debt issuances in the secondMay and third quarters of 2019 and $2 million from net debt issuances in 2018.August 2019.
Income Tax Expense decreased $71increased $33 million due primarily to the flowback to ratepayers of excess deferredhigher pre-tax income tax liabilities and tax repair-related accumulated deferred income taxes.an increase in bad debt flow-through.
NineSix Months Ended SeptemberJune 30, 20192020 as Compared to 20182019
Operating Revenues increased $192decreased $75 million due to changes in delivery, commodity, clause and other operating revenues.
Delivery Revenues decreased $30increased $159 million due primarily to
Gas, Electric and Transmission revenues were $139 million higher due to increased 2020 revenue requirements were reduced by $277 million dueattributable to higher rate base investment and the prior year flowback of certain 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.
Gas distribution revenues increased $92$26 million due primarily to a $36 million increase in WNCs and an $89$18 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 tariffGSMP I and a $14 million increase in GPRC revenues.GSMP II. These increases were partially offset by a $16$25 million decreasereduction due to lower volumes and a $3 million decrease in GPRC revenues.
Electric distribution revenues decreased $4 million due primarily to a $7 million decrease attributable to lower sales volumes.volumes, partially offset by a $3 million increase in GPRC collections.
| |
| • | Electric and Gas revenues further decreased by $2 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 resulting from rate reductions,which is offset in Income Tax Expense. |
Commodity Revenues increased $153decreased $326 million as a result of higherlower Gas and 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.
Electric commodity revenues decreased $190 million due primarily to $156 million in lower BGS prices and $38 million in lower BGS sales volumes.
Gas commodity revenues increased $129decreased $136 million due primarily to higherlower BGSS prices of $106$83 million and higherlower BGSS sales volumes of $23$53 million.
Electric commodity revenues increased $24 million due primarily to $47 million in higher BGS sales volumes, partially offset by $24 million in lower BGS prices.
Clause Revenues decreased $11increased $25 million due primarily to a $15$25 million reduction forincrease in TAC deferrals and ahigher SBC revenues of $6 million decrease for GPRC deferrals.million. These decreasesincreases were partially offset by a $7 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.revenues. The changes in theTAC deferral amounts, SBC and MAC SPRC and SBC revenues and TAC and GPRC deferral amounts are entirely offset by changes in the amortization of Regulatory Assets and Regulatory Liabilities and related costs in O&M, D&A, Interest and InterestIncome Tax Expenses. PSE&G does not earn margin on TAC deferrals, SBC and MAC SPRC or SBC revenues or on TAC or GPRC deferrals.revenues.
Other Operating Revenues increased by $8067 million due primarily to $42 million in ZEC revenues billed since mid-April 2019.2019 and a $25 million increase in SREC revenues. See Item 1. Note 11. Commitments and Contingent Liabilities. TheseThe changes in these components of revenues are entirely offset by changes to Energy Costs.
Operating Expenses
Energy Costs increased $231decreased $258 million. This is entirely offset by changes in Commodity Revenues and Other Operating Revenues.
Operation and Maintenance increased $32decreased $11 million due primarily to a net $45$10 million increasedecrease in clause and renewable-related expenditures, and a $4 million increase in injuries and damages. These increases were partially offset by an $8 million decrease in appliance service costs, a $5 million decrease in distribution preventativecorrective and correctivepreventative maintenance expenditures, a $6$4 million reductiondecrease in seasonal storm costsinjuries and damages, a $1$4 million decrease in transmission-related expenditures.expenditures and a $3 million reduction in other operating expenses. These decreases were partially offset by $12 million of COVID-19 related costs and an $11 million increase in gas bad debt expense.
Depreciation and Amortization increased $51$25 million due primarily to a $44$22 million increase related to additional plant and software placed intoin service and a $7$2 million increase due to updated depreciation rates put into effect in November 2018.the amortization of Regulatory Assets.
Other Income (Deductions) increased $15 million due primarily to an increase in AFUDC.
Net Non-Operating Pension and OPEB Credits (Costs) increased $61 $44 million due primarily to a $77$23 million increase in the expected return on plan assets, a $17 million decrease in interest cost and a $7 million decrease in the amortization of the net actuarial loss, partially offset by a $3 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$18 million due primarily to a $12 million increase from net debt issuances in May and September 2018August 2019 and a $10 million increase from net debt issuances in 2019.January and May 2020. These increases were partially offset by a decrease of $3 million due to a reduction in short-term borrowings.
Income Tax Expense decreased $229increased $117 million due primarily to higher pre-tax income and the reduction in the 2020 flowback to ratepayers of PSE&G’s excess deferred income tax liabilities, and tax repair-related accumulatedas PSE&G refunded all FERC-approved, transmission-related excess deferred income taxes.taxes that are not subject to the normalization rules in 2019.
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) | | Six Months Ended | | Increase/ (Decrease) | |
| | | June 30, | | | June 30, | | |
| | | 2020 | | 2019 |
| | 2020 vs. 2019 | | 2020 | | 2019 | | 2020 vs. 2019 | |
| | | Millions | | Millions | | % | | Millions | | Millions | | % | |
| | Operating Revenues | $ | 683 |
| | $ | 1,083 |
| | $ | (400 | ) | | (37 | ) | | $ | 1,903 |
| | $ | 2,499 |
| | $ | (596 | ) | | (24 | ) | |
| | Energy Costs | 323 |
| | 411 |
| | (88 | ) | | (21 | ) | | 999 |
| | 1,197 |
| | (198 | ) | | (17 | ) | |
| | Operation and Maintenance | 225 |
| | 268 |
| | (43 | ) | | (16 | ) | | 466 |
| | 503 |
| | (37 | ) | | (7 | ) | |
| | Depreciation and Amortization | 91 |
| | 95 |
| | (4 | ) | | (4 | ) | | 185 |
| | 189 |
| | (4 | ) | | (2 | ) | |
| | Loss on Asset Dispositions | — |
| | 395 |
| | (395 | ) | | N/A |
| | — |
| | 395 |
| | (395 | ) | | N/A |
| |
| | Income from Equity Method Investments | 3 |
| | 5 |
| | (2 | ) | | (40 | ) | | 6 |
| | 7 |
| | (1 | ) | | (14 | ) | |
| | Net Gains (Losses) on Trust Investments | 196 |
| | 38 |
| | 158 |
| | N/A |
| | (24 | ) | | 164 |
| | (188 | ) | | N/A |
| |
| | Other Income (Deductions) | 12 |
| | 15 |
| | (3 | ) | | (20 | ) | | (11 | ) | | 28 |
| | (39 | ) | | N/A |
| |
| | Net Non-Operating Pension and OPEB Credits (Costs) | 9 |
| | 3 |
| | 6 |
| | N/A |
| | 17 |
| | 6 |
| | 11 |
| | N/A |
| |
| | Interest Expense | 30 |
| | 26 |
| | 4 |
| | 15 |
| | 64 |
| | 51 |
| | 13 |
| | 25 |
| |
| | Income Tax Expense (Benefit) | 64 |
| | (11 | ) | | 75 |
| | N/A |
| | (6 | ) | | 113 |
| | (119 | ) | | N/A |
| |
| | | | | | | | | | | | | | | | | | |
Three Months Ended SeptemberJune 30, 20192020 as Compared to 20182019
Operating Revenues decreased $97$400 million due primarily to changes in generation and gas supply revenues.
Generation Revenues decreased $59$435 million due primarily to
a net decrease of $50$403 million due to MTM losses in 2020 as compared to MTM gains in 2019. Of this amount, there was a $310 million decrease due to changes in forward prices this year as compared to last year coupled with a $93 million decrease due to more losses on positions reclassified to realized upon settlement,
a net decrease of $30 million in capacity revenues due primarily to lower volumes of electricity solddecreases in the PJM and New York (NY) regions, coupled with lower average realizedauction prices in the PJM NY,region, and New England (NE) regions, partially offset by higher volumes of electricity sold in the NE region,
a decrease of $25$16 million in electricity sold under our BGS contracts, primarily due to lower volumes coupled with lower prices,
a net decrease
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$16 million in ZEC revenue due to ZEC revenues earned since mid-April 2019.increased generation at the Salem nuclear generating station.
Gas Supply Revenues decreased $39increased $35 million due primarily to
a net decreaseincrease of $45$24 million in sales under the BGSS contract, of which $28 million was due to an increase in sales volumes, partially offset by $4 million due to lower average sales prices, and
a net increase of $12 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 million was due to higher sales volumes and $2 million to higher average sales prices during 2019.
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 million due to
Generation costs decreased $39 million due primarily to
a net decrease of $30 million due to MTM gains in 2019, as compared to MTM losses in 2018, due primarily to positions reclassified as realized upon settlement, and
a net decrease of $10 million primarily due to decreases in energy purchases in the NE region due to BH5 beginning commercial operations in June 2019.
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 related to sales under the BGSS contract, of which $5$27 million was due to higher volumes and $5 million to higher average gas costs.
Depreciation and Amortization decreased$1 million due primarily to the sale of PSEG Power’s ownership interests in the Keystone and Conemaugh generation plants, largely offset by the BH5 station being placed into service in June 2019.
Net Gains (Losses) on Trust Investments decreased $48 million due primarily to a $55 million decrease resulting from net unrealized losses in 2019 as compared to net unrealized gains in 2018 on equity investments in the NDT Fund,sold, partially offset by a $6 million increase in net realized gains on NDT Fund investments.
Non-Operating Pension and OPEB Credits (Costs) increased $4$15 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 $5 million due primarily to lower capitalized interest as a result of BH5 being placed into service in June 2019.
Income Tax Expense (Benefit) decreased $11 million due primarily to lower pre-tax income in 2019, partially offset by benefits associated with the remeasurement of uncertain tax positions recorded in 2018.
Nine Months Ended September 30, 2019 as Compared to 2018
Operating Revenues increased $232 million due primarily to changes in generation and gas supply revenues.
Generation Revenues increased $277 million due primarily to
a net increase of $272 million due to MTM gains in 2019 as compared to MTM losses in 2018. Of this amount, there was a $268 million increase from changes in forward prices in 2019 as compared to 2018, coupled with a $4 million increase due to more gains on positions reclassified to realized upon settlement,
an increase of $85 million due to ZEC revenues earned since mid-April 2019,
a net increase of $12 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 decrease in auction prices in the PJM region, and
a net increase of $5 million due primarily to higher volumes of electricity sold in the PJM and NE regions, somewhat offset by lower volumes sold in the NY region and lower average realized prices in the PJM, NE and NY regions,
partially offset by a decrease of $93 million in electricity sold under our BGS contracts due to lower volumes and lower prices.
Gas Supply Revenuesdecreased $47 million due primarily to
a decrease of $93 million related to sales to third parties, primarily 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 $88 million due to
Generation costs increased $33decreased $113 million due primarily to higher
a net decrease of $86 million due to MTM gains in 2020 as compared to MTM losses in 2019. Of this amount, there was a $54 million decrease due to changes in forward prices this year as compared to last year coupled with a $36 million decrease due to more gains on positions reclassified to realized upon settlement,
a net decrease of $19 million in fuel costs reflectingdue to lower usage of coal in the PJM region primarily due to the sale of our ownership interests in Keystone and Conemaugh generation plants coupled with lower volumes of gas in the PJM region. This was partially offset by utilization of higher volumes of gas at the new Keys and Sewaren 7 fossil stations and BH5, coupled with higher prices of gas in the PJMNew England (NE) region partially offset bydue to the commencement of commercial operations of Bridgeport Harbor Station Unit 5 (BH5) in June 2019, and
utilization$9 million due to a favorable lower of lower volumes and prices of gascost or market (LOCOM) adjustment on oil inventory due to the recovery 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.prices.
Gas costs decreased $27increased $25 million due mainly to
a net decreaseincrease of $76$13 million related to sales to third parties, of which $26 million was due primarily to lowerhigher volumes sold,
partially offset by $13 million due to a decrease in the average cost of gas, and
a net increase of $51$12 million related to sales under the BGSS contract, primarily resulting fromof which $27 million was due to an increase in sendout volumes, partially offset by $15 million due to a decrease in the average cost of gas.
Operation and Maintenance decreased $9$43 million due primarily to a $34 million 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 and lower planned outage costs in 2020. In addition, there was an $8 million net decrease due to lower outage costs at our nuclear plants.
Loss on Asset DispositionsDepreciation and Amortization isadecreased $4024 million lossdue primarily to a $3 million 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 $2 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.
Loss on Asset Dispositions of $395 million in 2019 was due to an asset impairment related to the sale of PSEG Power’s interests in the Keystone and Conemaugh fossil generation plants (see Item 1. Note 4. Early Plant Retirements/Asset Dispositions).
Net Gains (Losses) on Trust Investments increased $130 $158 million due primarily to a $127$149 million increase resulting from net unrealized gains in 2019 as compared to net unrealized losses in 2018 on equity investments in the NDT Fund.
Other Income (Deductions) increased $5Fund and a $7 million primarily due to higher interest and dividend incomeincrease in net realized gains on NDT Fund investments.
Net Non-Operating Pension and OPEB Credits (Costs) increased $3$6 million due to a $14$3 million decrease in interest cost, a $2 million increase in the amortization of prior service credit mainly related to the December 2018 OPEBexpected return on plan amendment, a $4 million decrease in interest costassets, 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.actuarial loss.
Interest Expense increased $38$4 million due primarily to lower capitalized interest as a result of KeysBH5 being place into service in 2019, partially offset by an April 2020 debt maturity.
Income Tax Expense increased $75 million due primarily to higher pre-tax income, including higher pre-tax income from the NDT qualified fund, which is subject to an additional trust tax, partially offset by the tax benefit from changes in uncertain tax positions as a result of the settlement of the 2011-2016 federal income tax audits.
Six Months Ended June 30, 2020 as Compared to 2019
Operating Revenues decreased $596 million due primarily to changes in generation and Sewaren 7gas supply revenues.
Generation Revenues decreased $500 million due primarily to
a net decrease of $336 million due to lower MTM gains in 2020 as compared to 2019. Of this amount, there was a $218 million decrease due to changes in forward prices this year as compared to last year coupled with a $118 million decrease due to losses on positions reclassified to realized upon settlement in 2020 compared to gains in 2019,
a net decrease of $113 million due primarily to lower average realized prices in PJM, NE and New York (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 BH5 in June 2019,
a net decrease of $65 million in capacity revenues due primarily to decreases in auction prices in the PJM region, partially offset by the commencement of commercial operations of BH5 in June 2019 in the NE region, and
a decrease of $48 million in electricity sold under our BGS contracts primarily due to lower volumes coupled with lower prices,
partially offset by an increase of $67 million due to ZECs revenues that started in mid-April 2019.
Gas Supply Revenues decreased $96 million due primarily to
a decrease of $101 million in sales under the BGSS contract, of which $61 million was due to a decrease in sales volumes and $40 million was due to lower average sales prices,
partially offset by a net increase of $9 million related to sales to third parties, of which $57 million was due to higher volumes sold partially offset by $48 million due to lower 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 decreased $198 million due to
Generation costs decreased $123 million due primarily to
a net decrease of $106 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 the Keystone and Conemaugh generation plants, and lower volumes of gas used 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 commencement of commercial operations at BH5 in June 2019, and
a net decrease of $25 million due to less MTM losses in 2020 as compared to 2019 resulting from changes in forward prices this year as compared to last year,
partially offset by an $11 million increase due to a net LOCOM adjustment on oil inventory caused by a decrease in oil demand and pricing earlier in 2020.
Gas costs decreased $75 million due mainly to
a decrease of $86 million related to sales under the BGSS contract, of which $49 million was due to a decrease in sendout volumes and $37 million to a decrease in the average cost of gas,
partially offset by a net increase of $11 million related to sales to third parties, of which $53 million was due to higher volumes sold, partially offset by $42 million due to a decrease in the average cost of gas.
Operation and Maintenance decreased $37 million due primarily to a net decrease at our fossil stationsplants, due to the sale of our ownership interests in the Keystone and Conemaugh generation plants in 2019, coupled with lower planned outage costs in 2020.
Depreciation and Amortization decreased$4 million due primarily to a $3 million 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. This decrease was coupled with a $2 million net decrease at our fossil plants, primarily due to the sale of our ownership interests in the Keystone and Conemaugh generation plants in 2019, partially offset by an increase due to BH5 being placed into service in mid-2018.June 2019.
Loss on Asset Dispositions of $395 million in 2019 was due to an asset impairment related to the sale of PSEG Power’s interests in the Keystone and Conemaugh fossil generation plants (see Item 1. Note 4. Early Plant Retirements/Asset Dispositions).
Net Gains (Losses) on Trust Investments decreased $188 million due primarily to a $171 million decrease resulting from net unrealized losses in 2020 as compared to net unrealized gains in 2019 on equity investments in the NDT Fund and a $15 million decrease in net realized gains on NDT Fund investments.
Other Income (Deductions) decreased $39 million primarily due to purchases of net operating losses (NOLs) in 2020 under New Jersey’s Technology Tax Benefit Transfer Program.
Net Non-Operating Pension and OPEB Credits (Costs) increased $11 million due to a $5 million increase in the expected return on plan assets, a $5 million decrease in interest cost and a $2 million decrease in the amortization of the net actuarial loss, partially offset by a $1 million decrease in the amortization of prior service credit.
Interest Expense increased $13 million due primarily to lower capitalized interest as a result of BH5 being place into service in 2019, partially offset by an April 2020 debt maturity.
Income Tax Expense decreased $119 million due primarily to lower pre-tax income, including lower pre-tax income from the NDT qualified fund, which is subject to an additional trust tax, the benefit from the 2019 NOLs 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.
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 ninesix months ended SeptemberJune 30, 20192020, our operating cash flow increaseddecreased $217160 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 byand lower net tax payments in 2020 at PSEGthe parent company and its other subsidiariesEnergy 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. While the negative impact on customer payment patterns, including a significant decrease in 2019 comparedcash inflow and higher Accounts Receivable aging and associated increasing bad debt expense did not have a material impact on our cash flows for the six months ended June 30, 2020, we expect a prolonged adverse change to tax refunds in 2018.customer payment patterns could materially and adversely impact our cash flows from operations beyond the duration of the coronavirus pandemic.
PSE&G
PSE&G’s operating cash flow increased$84 $161 million from $1,397$838 million to $1,481$999 million for the ninesix months ended SeptemberJune 30, 2019,2020, as compared to the same period in 2018,2019, due primarily to higher earnings in 2020, and $136 million in decreased payments dueto lower BGS payments from decreased sales. These increases were partially offset by tax payments in 2020 as compared to tax refunds in 2019 as compared to tax payments in 2018, and an increase of $89 million from a change in regulatory deferrals, partially offset by a decrease of $79$154 million relatingfrom increased regulatory deferrals including BGS due to lower sales, a lower reduction in accounts receivableWeather Normalization deferral resulting from a warmer than normal winter, and unbilled revenues in 2019, and $70 million in increased vendor payments.the Tax Adjustment Credit.
PSEG Power
PSEG Power’s operating cash flow increased $357decreased $524 million from $1,005$1,150 million to $1,362$626 million for the ninesix months ended SeptemberJune 30, 2019,2020, as compared to the same period in 2018,2019, due to a $378$360 million higher reduction related to counterparty cash collateral posting requirements, lower earnings, a $63 million decrease from net collections of counterparty receivables, a $20 milliondecreasein margin deposit requirements,the usage of fuels, materials and supplies, 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.2019.
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 and in April 2020 it entered into two 364-day term loan agreements for $200 million and $300 million. These term loans provide an additional source of liquidity for our operations as we continue to monitor the impact of the ongoing coronavirus pandemic on the volatility and availability of the capital and commercial paper markets. 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 SeptemberJune 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 June 30, 2020 | |
| | Total Facility | | Usage | | Available Liquidity | |
| | | | Millions | |
| | PSEG | | $ | 1,500 |
| | $ | 408 |
| | $ | 1,092 |
| |
| | PSE&G | | 600 |
| | 17 |
| | 583 |
| |
| | PSEG Power | | 2,100 |
| | 136 |
| | 1,964 |
| |
| | Total | | $ | 4,200 |
| | $ | 561 |
| | $ | 3,639 |
| |
| | | | | | | | | |
As of SeptemberJune 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 the potential 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$845 million and $857$974 million as of SeptemberJune 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. PSE&G has $250 million of 3.50% Medium Term2020,
| |
| • | PSE&G has $250 million of 3.50% Medium-Term Notes (MTN), Series G, maturing in August 2020, $9 million of 7.04% MTN, Series A, maturing in November 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 a $700 million3.00% Senior Note maturing in June 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. In April 2020, PSEG utilized external sources of liquidity, including the commercial paper markets and term loans, to repay a loan to PSEG Power through the money pool and PSEG Power hasused the proceeds from this loan repayment to redeem its $406 million of 5.13% Senior Notes maturing in April 2020.at maturity.
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.
|
| | | | | | | | | |
| | | | | | |
| | | Six Months Ended | | Year Ended | |
| | | June 30, 2020 | | December 31, 2019 | |
| | | Millions | |
| | Operating Revenues (A) | $ | 1,867 |
| | $ | 4,315 |
| |
| | Operating Income | $ | 250 |
| | $ | 451 |
| |
| | Net Income | $ | 191 |
| | $ | 484 |
| |
| | | | | | |
| |
| (A) | Operating Revenues include sales to affiliates of $710 million and $1,463 million, respectively for the six months ended June 30, 2020 and year ended December 31, 2019, respectively. |
|
| | | | | | | | | | |
| | | | | | | |
| | | | As of | | As of | |
| | | | June 30, 2020 | December 31, 2019 | |
| | | | Millions | |
| | Current Receivables from Subsidiaries and Affiliates | | $ | 2,274 |
| | $ | 2,456 |
| |
| | Total Current Assets | | $ | 3,289 |
| | $ | 3,559 |
| |
| | Noncurrent Receivables from Affiliates | | $ | 28 |
| | $ | 17 |
| |
| | Total Noncurrent Assets | | $ | 7,056 |
| | $ | 7,025 |
| |
| | | | | | | |
| | Current Payables to Subsidiaries and Affiliates | | $ | 249 |
| | $ | 218 |
| |
| | Total Current Liabilities | | $ | 1,373 |
| | $ | 1,155 |
| |
| | Noncurrent Payables to Affiliates | | $ | 53 |
| | $ | 115 |
| |
| | Total Noncurrent Liabilities | | $ | 4,274 |
| | $ | 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.
|
| | | | | | |
| | | | | | | |
| | | | 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. |
| |
| (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 as compared to amounts disclosed in our Form 10-K. See Executive Overview of 20192020 and Future Outlook for additional information.
PSE&G
During the ninesix months ended SeptemberJune 30, 2019,2020, PSE&G made capital expenditures of $1,866$1,190 million, primarily for T&D system reliability. This does not include expenditures for cost of removal, net of salvage, of $87$44 million, which are included in operating cash flows.
PSEG Power
During the ninesix months ended SeptemberJune 30, 2019,2020, PSEG Power made capital expenditures of $406$114 million, excluding $101104 million for nuclear fuel, primarily related to our BH5various nuclear and other generationsolar projects.
ACCOUNTING MATTERS
For information related to recent accounting matters, see Item 1. Note 2. Recent Accounting Standards.
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| 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 JulyApril through September 2019,June 2020, MTM VaR was relatively stable between a low of $10$9 million and a high of $26$15 million at the 95% confidence level. The range of VaR was narrower for the three months ended SeptemberJune 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 |
| |
| | Average for the Period | | $ | 25 |
| | $ | 22 |
| |
| | High | | $ | 41 |
| | $ | 72 |
| |
| | Low | | $ | 15 |
| | $ | 9 |
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| | | | | | | |
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| | | | | | | | | | |
| | | | | | | |
| | | | MTM VaR | |
| | | | Three Months Ended June 30, 2020 | | Year Ended December 31, 2019 | |
| | | | Millions | |
| | 95% Confidence Level, Loss could exceed VaR one day in 20 days | | | | | |
| | Period End | | $ | 9 |
| | $ | 9 |
| |
| | Average for the Period | | $ | 11 |
| | $ | 12 |
| |
| | High | | $ | 15 |
| | $ | 35 |
| |
| | Low | | $ | 9 |
| | $ | 5 |
| |
| | 99.5% Confidence Level, Loss could exceed VaR one day in 200 days | | | | | |
| | Period End | | $ | 14 |
| | $ | 14 |
| |
| | Average for the Period | | $ | 18 |
| | $ | 19 |
| |
| | High | | $ | 24 |
| | $ | 54 |
| |
| | Low | | $ | 14 |
| | $ | 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 |
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 thirdsecond 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
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 2019 10-Qs2020 10-Q and in this Quarterly Form 10-Q.
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 changes toWe expect that the risk factors set forthrisks 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 above-referenced filing asongoing coronavirus pandemic and any related, sustained economic downturn, which could extend beyond the duration of September 30, 2019.the pandemic.
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| 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 2019 10-Qs.10-K. References are to the related pages on the Form 10-K and the first and second quarter 2019 10-Qs.2020 10-Q.
Federal Regulation
Energy Clearing PricesCapacity Market Issues—PJM
December 31, 20182019 Form 10-K page 16 and March 31, 20192020 Form 10-Q page 83.81. In AprilDecember 2019, FERC issued an order directingestablishing new rules for PJM’s capacity market. In this new order, FERC extended the PJM MOPR, which currently applies to new natural gas-fired generators, 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 York Independent System Operator, Inc. (NYISO)Jersey nuclear plants that receive ZEC payments will be subject to change their rules governing pricingthe 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 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 price energy reserves has created additional uncertainty regarding the impact of the MOPR expansion in future RPM auctions on PSEG Power’s nuclear units that receive ZECs. One of the findings made by FERC in that order will affect how the MOPR offer floors are calculated and could have the effect, in the future, of increasing the price floors for fast-start resources.the plants and thereby increasing the risk of being unable to clear in an RPM auction. In its Orderaddition, if one or more electric distribution zones in New Jersey (or another state) were to become FRR service areas, procurements needed for that area could provide an alternate means for nuclear units whose ability to clear in RPM auctions was affected by the MOPR to provide capacity within PJM.
We cannot 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 these units in future RPM auctions.
Transmission Rate Proceedings and Return on Equity
December 31, 2019 Form 10-K page 17 and March 31, 2020 Form 10-Q page 82. In June 2020, FERC foundissued a cybersecurity incentives policy white paper, which recognizes the importance of infrastructure security and proposes a new framework for providing transmission incentives to utilities for cybersecurity investments that current fast-start pricing practices areexceed the requirements of the Critical Infrastructure Protection Reliability Standards. FERC is seeking comments from the industry on the proposals contained in the white paper. We cannot predict the outcome of this matter.
In November 2019, FERC issued an order establishing a new ROE policy for reviewing existing transmission ROEs. The new methodology uses the DCF model and CAPM to determine if an existing base ROE is unjust and unreasonable because they do not allow prices to reflectand, if so, what replacement ROE is appropriate. PSE&G joined the marginal costPJM Transmission Owners in requesting rehearing of serving load. FERC required PJM and NYISO to make various changes to their respective tariffs to allowFERC’s order on the start-up costs of fast-start resources to be reflected in prices, among other things. In August 2019, PJM statedgrounds that new tariff provisions would apply fast-start pricing to all eligible fast-start resources; however, the new rulesmethodology is flawed. In May 2020, FERC partially granted rehearing of the November 2019 order and again revised the ROE methodology by reinstating the risk premium model with the CAPM and DCF models. FERC’s order indicated that it would not be implemented untilbound 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 issuesregarding 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 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 material.
State Regulation
Energy Efficiency Initiatives
December 31, 2019 Form 10-K page 19. 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. Numerous stakeholders, including public utilities like PSE&G, have been engaged in several stakeholder proceedings being conducted by the BPU Staff to establish the final policies, rules, and guidelines that will govern the conduct of these energy efficiency initiatives. In June 2020, the BPU issued an order approving them. Wefinalizing 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.
BGS Process
December 31, 2019 Form 10-K page 19. InJuly 2020, the State’s electric distribution companies (EDCs) filed their annual proposal for the conduct of the February 2021 BGS auction covering electric supply for energy years 2022 through 2024. In prior years, the BPU and BGS suppliers expressed concerns regarding transmission costs incurred by BGS participants that are collected from customers but not paid to the BGS suppliers due to several unresolved proceedings at FERC. To address these concerns, the EDCs are proposing, among other things, to remove transmission from the BGS product through the transfer of specific PJM billing items from the BGS supplier (who would remain the LSE) to the EDC. If the BPU approves this proposal in November/December 2020, the EDCs, rather than the BGS suppliers, will continuebe responsible for transmission and transmission-related costs on a going forward basis. The EDCs are also proposing to participate in this process before FERC.remove transmission from the BGS product for prior BGS contracts via contract amendments. BGS suppliers would be able to execute such amendments at their option. Each EDC will collect from its BGS customers the amounts required to meet its transmission payment obligations to PJM through a specific transmission charge.
Environmental Matters
Hazardous Air Pollutants Regulation
Climate ChangeIn February 2012—, CO2 Regulation under the EPA published Mercury Air Toxics Standards (MATS) for both newly-built and existing electric generating sources under the National Emission Standard for Hazardous Air Pollutants provisions of the Clean Air Act
December 31, 2018 Form 10-K page 21Act. The MATS established allowable levels for mercury as well as other hazardous air pollutants (HAPS) and June 30, 2019 Form 10-Q page 89. went into effect in April 2015. In June 2019,2015, the U.S. Supreme Court held that it was unreasonable for the EPA issued its final Affordable Clean Energy (ACE) rule as a replacement forto refuse to consider the repealed Clean Power Plan, a greenhouse gas emission regulation for existingmateriality of costs in determining whether to regulate hazardous air pollutants from power plants. In April 2016, the EPA released the final Supplemental Finding that considers the materiality of costs in determiningwhether to regulate hazardous air pollutants from power plants in response to the U.S. Supreme Court’s ruling. The ACE rule narrowly defines2016 Supplemental Finding determined that HAPS from
existing electric generating units should be regulated and that the “best systemenvironmental and health benefits derived from the reduction in emissions 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 coalitionboth HAPS and co-benefit pollutants far outweighed the cost of power companies, including PSEG,compliance. Industry participants and various state authorities filed a Petition for Review of the ACE Rulepetitions with the United States Court of Appeals for the District of ColumbiaD.C. Circuit challenging the EPA’s narrow interpretationSupplemental Finding.
In May 2020, the EPA finalized a revised Supplemental Finding that reversed the 2016 Supplemental Finding, concluding that it was not “appropriate and necessary” to regulate HAPS from electric generating sources. However, the EPA retained the emission standards and other requirements of BSER.MATS. A major coal mining company filed a lawsuit to force the EPA to vacate MATS. We have filed as intervenors to the coal mining company’s suit to challenge the company’s attempt to vacate MATS. In addition, we have joined a challenge against the EPA’s revised Supplemental Finding in the D.C. Circuit Court. We cannot estimatepredict the impactoutcome of this action on our business or results of operations.
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: | | 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) |
Date: OctoberJuly 31, 20192020
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) |
Date: OctoberJuly 31, 20192020
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) |
Date: OctoberJuly 31, 20192020