Public Service Enterprise Group (NYSE:PEG; PSEG) Chairman, President and CEO Ralph Izzo said on July 30 that public support for Public Service Electric and Gas’ (PSE&G) “Energy Strong” program has grown since it proposed the 10-year investment program in February.
“As of today, 55 municipalities and five county governments have passed resolutions in support of our investment program,” Izzo said during the company’s 2Q13 earnings webcast. “The [New Jersey Board of Public Utilities (BPU)] has appointed a lead commissioner and we are in discussions regarding the scope and timing of the work to be performed.”
PSEG expects the program to receive careful consideration given the opportunity to improve the distribution system’s resiliency with little net impact on customers’ bills due to the coincidental expiration of other charges, Izzo said.
According to a Feb. 20 PSEG statement, key provisions of the program include raising, relocating or protecting all switching and substations affected by recent storms as well as those in newly designated flood zones; moving 20 miles of overhead electric distribution lines underground; and deploying smart grid technologies to better monitor system operations to increase our ability to more swiftly deploy repair teams.
PSE&G has asked the New Jersey Board of Public Utilities (BPU) for initial funding approval of $2.6bn during the first five years of the effort. Since some of the improvements will take more than five years to implement, the utility may seek approval to spend an additional $1.3bn in the following five years to complete the program, the company added.
In New York, the company is discussing the final terms of a renegotiated contract to operate the Long Island Power Authority’s (LIPA) distribution system at the beginning of 2014.
“These actions will strengthen the infrastructure and improve our system reliability throughout the region,” Izzo added.
On PSEG Power, he said that as a result of PJM Interconnection’s latest reliability pricing model (RPM) auction, PSEG Power’s assets will receive an average price of $166 per MW/day for the 2016, 2017 year. Those results are essentially in line with the average price of $167 per MW/day received in last year’s auction.
Izzo also said the company benefits from its close proximity to low-cost shale gas in the Marcellus basin, which has resulted in lower gas cost for PSE&G’s customers and provides the company’s large fleet of gas-fired, combined-cycle generating assets with a source of low-cost fuel supply.
“This profile allows us to capture value by managing volatility in the energy marketplace, while minimizing downside risk through the hedges on our baseload fleet,” he said.
Caroline Dorsa, PSEG executive vice president and CFO, said during the webcast that PSEG Power’s output during the quarter was basically unchanged from the 12.7 TWh generated in 2Q12, adding that an increase in output from PSEG Power’s baseload nuclear and coal fleet offset a decline in production at the company’s New Jersey-based coal units.
The nuclear fleet operated at an average capacity factor in the quarter of 87.9%, bringing the capacity factor for the fleet in the first half of the year to 94.4%. Dorsa added that the fleet’s performance in this quarter was influenced by a refueling outage and main generator repair work at Salem 1, which is 57% owned by PSEG and operated by PSEG Power, versus a refueling outage in 2Q12 at PSEG Power’s 100%-owned and operated Hope Creek unit.
PSEG Power’s baseload coal units in Pennsylvania increased their generation, she added, noting that the combined cycle gas-fired fleet ran at levels equivalent to their strong performance in the year-ago period, with a 57% capacity factor.
The forecast of PSEG Power’s operating earnings for 2013 remains unchanged at $535m to $600m, but given the company’s strong results in the first half of the year, PSEG expects operating earnings for the full year to be at the upper end of PSEG Power’s guidance, she said.
PSEG also continues to forecast an increase in PSEG Power’s O&M in the second half of the year, given major maintenance planned at two of the combined cycle units and a fall refueling outage at Hope Creek.
On PSE&G, Dorsa noted electricity demand continues to be affected by customer conservation in the face of a slowly improving economy. Electric kilowatt-hour sales declined about 2.5% in the quarter and electricity demand from the residential sector grew by about 0.8%.
Gas sales increased 17% quarter-over-quarter, reflecting primarily more normal winter weather versus 2012.
For the rest of the year, distribution-related O&M is expected to be lower than levels realized in the prior year, given expectations for a decline in storm-related restoration expense, Dorsa added.
“Our forecast of PSE&G’s operating earnings for 2013 remains unchanged at $580m to $635m,” she said. “Results will be influenced by a full year increase in transmission revenue and the absence of the negative impact of Superstorm Sandy on both sales and O&M.”
Izzo noted that the BPU has approved the company’s plans to invest up to an additional $446m in renewable energy through PSE&G’s “Solar Loan” and “Solar 4 All” programs. The investment will fund up to 143 MW of new solar capacity, he said.
Dorsa noted that PSE&G is projected to spend about $215m over the 2013 through 2015 period on the “Solar 4 All” extension and “Solar Loan” programs, resulting in total capital expenditures over this period for PSE&G of $5.1bn versus the prior forecast of $4.9bn. Spending on those programs will continue beyond 2015, she said.
PSEG on July 30 reported 2Q13 net income and income from continuing operations of $333m or 66 cents per share as compared to net income and income from continuing operations of $211m or 42 cents per share reported for 2Q12. Operating earnings for 2Q13 were $243m or 48 cents per share compared to 2Q12 operating earnings of $215m or 43 cents per share.