PSEG earnings growth driven by transmission investment – CEO

Public Service Enterprise Group (PSEG; NYSE:PEG) on Oct. 30 reported “strong operating earnings” for 3Q13, as well as strong year to date operating earnings that the company’s CEO said were being, and will continue to be, driven largely by the investment in transmission being made by the company’s utility, Public Service Electric and Gas (PSE&G).

“PSE&G is on track to provide double-digit growth in earnings driven by increased investment in transmission,” Ralph Izzo, chairman, president and CEO of PSEG, said during the company’s 3Q13 earnings call.

He noted that the $3.4bn transmission investment program includes five major transmission lines that are on time and on budget, and scheduled to be operational during 2014 through 2015.

Those projects, along with improvements to the utility’s distribution system, benefit the company’s investors and the utility’s customers, he said.

“Our shareholders continue to realize the benefits of earnings from the expansion of our investment in transmission and distribution, while our customers enjoy the improvements in reliability that come along with it,” Izzo said.

Since PSE&G’s transmission expansion project began in 2009, the company has made a net investment representing 28% of its rate base. By the time the final project is energized in 2015, that investment is expected to have grown to approximately $4.8bn, or 40% of its rate base.

Among others, PSEG transmission projects include the 145-mile, 500-kV Susquehanna to Roseland project, which is under construction jointly with PPL’s (NYSE:PPL) PPL Electric Utilities. That project, with an estimated cost of $1.42bn, is set to be completed in 2015.

PSE&G filed its annual update of revenue requirements associated with its transmission investment program with FERC in mid-October. If accepted, transmission revenue in 2014 would increase by $176m at the beginning of 2014.

In addition to the investment in transmission, the company benefited from strong locational advantages enjoyed by its unregulated power generation subsidiary, PSEG Power. The subsidiary’s generating units sit in close proximity to the Marcellus fairway, proving it with access to low-cost gas from the Marcellus Basin, Izzo said.

Overall, the company reported operating earnings of $385m for 3Q13, an increase from $382m in operating earnings reported during the same period in 2012 . Of that $385m, $168m was attributable to PSE&G, $216m to PSEG Power, and $1m to PSEG Energy Holdings.

PSEG focuses on the non-GAAP financial measure of “operating earnings” because it believes the measure provides “a consistent and comparable measure of performance of its businesses to help shareholders understand performance trends,” the company said in an Oct. 30 statement announcing earnings results. Operating earnings exclude the impact of returns and/or losses associated with the nuclear decommissioning trust, certain mark-to-market accounting and other material one-time items, the company added.

On a GAAP basis, the company reported net income from operations of $390m for 3Q13, compared to $347m during 3Q12. As a result of the strong financial performance, the company announced that it was increasing its earnings guidance from $2.25 to $2.50 a share to $2.40 to $2.55 per share.