PUBLIC SERVICE ENTERPRISE GROUP, INC. This combined MD&A is separately filed by
PSEG's business consists of two reportable segments,
•PSE&G-which is a public utility engaged principally in the transmission of electricity and distribution of electricity and natural gas in certain areas ofNew Jersey . PSE&G is subject to regulation by theNew Jersey Board of Public Utilities (BPU) and theFederal Energy Regulatory Commission (FERC). PSE&G also invests in regulated solar generation projects and energy efficiency and related programs inNew Jersey , which are regulated by the BPU, and •PSEG Power-which is an energy supply company that integrates the operations of its merchant nuclear generating assets with its fuel supply functions through competitive energy sales via its principal direct wholly owned subsidiaries.PSEG Power's subsidiaries are subject to regulation byFERC , theNuclear Regulatory Commission (NRC), theEnvironmental Protection Agency (EPA ) and the states in which they operate. PSEG's other direct wholly owned subsidiaries are:PSEG Energy Holdings L.L.C. (Energy Holdings ), which holds our investments in offshore wind ventures and legacy lease investments;PSEG Long Island LLC (PSEG LI), which operates theLong Island Power Authority's (LIPA) transmission and distribution (T&D) system under an Operations Services Agreement (OSA); andPSEG 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 2021 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 2021 and Future Outlook provided in Item 7 in our Form 10-K by describing significant events and business developments that have occurred during 2022 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 2022 AND FUTURE OUTLOOK
We are a public utility holding company that, acting through our wholly owned subsidiaries, is a predominantly regulated electric and gas utility and a carbon-free generation and infrastructure company. We are focused on meeting customer expectations and being well aligned with public policy objectives by investing to modernize our energy infrastructure, improve reliability, increase energy efficiency and deliver cleaner energy. Our business plan focuses on achieving growth by allocating capital primarily toward regulated and contracted investments in an effort to improve the sustainability and predictability of our business and reduce the impact of fluctuating commodity prices. In furtherance of these goals, over the past few years, our investments have altered our business mix to reflect a higher percentage of earnings contribution by PSE&G, which improves the sustainability and predictability of our earnings and cash flows. InFebruary 2022 , we completed the sale ofPSEG Power's 6,750 MW of fossil generation located inNew Jersey ,Connecticut ,New York andMaryland , which represented an important milestone in our strategy and has further altered our business mix, resulting in an even higher percentage of earnings contribution by PSE&G going forward and provides more financial flexibility.
The ongoing coronavirus (COVID-19) pandemic and associated government actions and economic effects continue to impact our businesses as discussed further below.
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. For the years 2021-2025, PSE&G's capital investment program is estimated to be in a range of$14 billion to$16 billion , resulting in an expected compound annual growth in rate base of 6% to 7.5% from year-end 2021 to year-end 2025. The low end of this range includes the Infrastructure Advancement Program (IAP) which the BPU approved inJune 2022 and an extension of our Gas System Modernization Program (GSMP) and Clean Energy Future (CEF)-Energy Efficiency (EE) program at their average annual investment levels, as these programs are expected to continue at least at those current rates beyond their currently 57 --------------------------------------------------------------------------------
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approved timeframe of 2023. The IAP is a$511 million investment program made over four years to improve the reliability of the "last mile" of our electric distribution system and address aging substations and gas metering and regulating stations, with$351 million of the investment being recovered through periodic rate updates and the remaining$160 million recovered through future base rate cases. The upper end of our capital investment range includes an extension of our Energy Strong program, which otherwise concludes in 2023, as well as the remaining portion of our CEF proposal (portion of Electric Vehicle (EV) and Energy Storage (ES) programs) and a potentially higher amount of investments for GSMP and CEF-EE beyond current levels. During 2022, we expect to file for extensions of our GSMP and CEF-EE program, which we expect will be resolved in 2023. A remaining component of our CEF-EV program related to medium and heavy duty charging infrastructure is the subject of a stakeholder process that the BPU began in 2021. We currently anticipate that this effort will conclude with PSE&G submitting a filing later in 2022 targeting infrastructure investments for the medium and heavy duty EV market. Our CEF-ES program is being held in abeyance pending a future written framework from the BPU.
InMay 2021 ,PSEG Power Ventures LLC (Power Ventures ), a direct wholly owned subsidiary ofPSEG Power , entered into a purchase agreement withQuattro Solar, LLC , an affiliate ofLS Power , relating to the sale byPower Ventures of 100% of its ownership interest inPSEG Solar Source LLC (Solar Source) including its related assets and liabilities. The transaction closed inJune 2021 . InAugust 2021 , PSEG entered into two agreements to sellPSEG Power's 6,750 MW fossil generating portfolio to newly formed subsidiaries ofArcLight Energy Partners Fund VII, L.P. , a fund controlled byArcLight Capital Partners, LLC . InFebruary 2022 , PSEG completed the sale of this fossil generating portfolio. These transformative transactions reduce overall business risk and earnings volatility, improve PSEG's financial flexibility and are consistent with PSEG's climate strategy and sustainability efforts, which are to focus on clean energy investments, methane reduction, and reducing emissions from our operations in order to transition to carbon-free generation. We seek to achieve operational excellence and manage costs in order to optimize cash flow generation from our nuclear fleet in light of volatile wholesale power and gas prices, environmental considerations and competitive market forces that reward efficiency and reliability. During the first six months of 2022, our nuclear units generated 16.0 terawatt hours and operated at a capacity factor of 95.1%.PSEG Power's hedging practices help to manage a significant amount of the earnings volatility of the merchant nuclear power business. More than 90% ofPSEG Power's expected gross margin in 2022 relates to hedging of our energy margin, our expected revenues from the capacity market mechanisms, Zero Emission Certificate (ZEC) revenues and, certain gas operations and ancillary service payments such as reactive power. While this limits our exposure to decreasing prices, our ability to realize benefits from rising market prices is also limited. During the second half of 2021 and continuing into 2022, forward energy prices have demonstrated considerable price volatility and have increased dramatically. This has led to significantly higher variation in our daily collateral requirements, which have also increased substantially over that time period for hedge positions that are out-of-the money.PSEG Power's net cash collateral postings related to these hedge positions increased from$343 million at the end ofJune 2021 to$2.1 billion at the end ofJune 2022 . Subsequent toJune 2022 , collateral postings continued to increase and we continued to experience significantly higher variation in our daily collateral requirements. Net cash collateral postings were$2.5 billion at the end ofJuly 2022 . The majority of this collateral relates to hedges in place through the end of 2023 and is expected to be returned as we satisfy our obligations under those contracts. PSEG continues to maintain sufficient liquidity as described in Liquidity and Capital Resources.
Climate Strategy and Sustainability Efforts
For more than a century, our purpose has been to provide safe access to an around-the-clock supply of reliable, affordable energy. Today, our vision is to power a future where people use less energy, and it is cleaner, safer and delivered more reliably than ever. We have established a net zero greenhouse gas (GHG) emissions by 2030 goal that includes direct GHG emissions (Scope 1) and indirect GHG emissions from operations (Scope 2) across our operations, assuming advances in technology, public policy and customer behavior. Scope 1 emissions include power generation, methane leaks, vehicle fleet emissions, sulfur hexafluoride and refrigerant leaks. Scope 2 emissions include both gas and electric purchased energy for our PSE&G facilities and line losses. We have also committed to theUnited Nations -backed Race to Zero campaign. We have agreed to develop and submit science-based emission reduction targets following the criteria and recommendations of the Science Based Targets Initiative bySeptember 2023 . Targets will encompass Scopes 1, 2, and 3 (which includes downstream/customer use of energy products as well as purchased goods and services for our own operations) and must be in line with 1.5oC emissions scenarios. PSE&G has undertaken a number of initiatives that support the reduction of GHG emissions and the implementation of energy efficiency initiatives. PSE&G's approved CEF-EE, CEF-Energy Cloud and CEF-EV programs and the proposed CEF-ES program are intended to supportNew Jersey's Energy Master Plan through programs designed to help customers increase their energy efficiency, support the expansion of the EV infrastructure in the State, install energy storage capacity to supplement 58 --------------------------------------------------------------------------------
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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.
In addition, PSE&G is committed to the safe and reliable delivery of natural gas to almost two million customers throughoutNew Jersey and we are equally committed to reducing GHG emissions associated with such operations. The first phase of our GSMP replaced approximately 450 miles of cast-iron and unprotected steel gas main 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 natural gas leaks in our distribution system, which would reduce the release of methane, a potent GHG, into the air. Through GSMP II, from 2018 through 2023 we expect to reduce methane leaks by approximately 22% system wide and assuming a continuation of GSMP, we expect to achieve an overall reduction in methane emissions of approximately 60% over the 2011 through 2030 period. As noted previously, later in 2022 we will file for an extension of GSMP which would continue and accelerate these methane reductions. We also continue to assess physical risks of climate change and adapt our capital investment program to improve the reliability and resiliency of our system in an environment of increasing frequency and severity of weather events, notably through our investments in our Energy Strong program. These investments have proven effective in recent severe weather events, including Tropical Storm Ida inAugust 2021 , which brought significant flooding to our service territory but did not result in the loss of any of our electric distribution substations. We also continue to focus on providing cleaner energy for our customers. Our priority is to preserve the economic viability of our nuclear units, which provide over 90% of the carbon-free energy inNew Jersey , by advocating for state and federal policies that recognize the value of carbon-free generation and reduce market risk. We also continue to explore investment opportunities in offshore wind, both generation and transmission to support the cost-efficient connection of offshore wind generation projects to theNew Jersey electric system.
Offshore Wind
InApril 2021 , PSEG completed its acquisition of a 25% equity interest in ØrstedNorth America Inc.'s (Ørsted)Ocean Wind 1 project which is currently in development.Ocean Wind 1 was selected byNew Jersey to be the first offshore wind farm as part of the State's intention to add 7,500 MW of offshore wind generating capacity by 2035. The Ocean Wind 1 project is expected to achieve full commercial operation in 2025. Additionally, PSEG and Ørsted each owns 50% ofGarden State Offshore Energy LLC (GSOE) which holds rights to an offshore wind lease area just south ofNew Jersey . InDecember 2021 , theMaryland Public Service Commission awarded Ørsted's 846 MW Skipjack 2 project Offshore Renewable Energy Credits underMaryland's second round of offshore wind solicitations. Skipjack 2 utilizes a portion of the GSOE lease area, and PSEG has an option to purchase 50% of Skipjack 2 and the previously awarded 120 MW Skipjack 1 project, which will be constructed concurrently. PSEG expects to determine whether to exercise this option during 2022. PSEG and Ørsted are also exploring further opportunities to develop the remaining GSOE lease area. InApril 2021 , PJM announced the opening of the first public policy Order 1000 bid window that would utilize the state agreement approach for transmission projects to supportNew Jersey's planned offshore wind generation. The state agreement approach requires customers in the requesting state - in this caseNew Jersey - to pay for the costs of these public policy transmission projects. InSeptember 2021 , PSEG and Ørsted jointly submitted several proposals in response to the solicitation, including multi-spur options and an offshore network proposal. If awarded, the projects would be developed through a 50/50 joint venture with Ørsted. The BPU has announced that it will select the winning proposals in the second half of 2022 with likely in-service dates by 2030.
Ongoing Coronavirus Pandemic
As a result of the COVID-19 pandemic, we have incurred additional expenses to protect our employees and customers. The pandemic has also impacted PSE&G's sales, with a reduction in demand from its commercial and industrial (C&I) customers, largely offset by increases in residential sales volumes. As a result, there has been no substantive net margin impact and changes are now largely addressed through the Conservation Incentive Program (CIP) that became effective in 2021. The most substantive impact of the pandemic has been adverse changes to residential and C&I payment patterns as theState of New Jersey has imposed a moratorium on non-safety related service disconnections for non-payment sinceMarch 2020 throughmid-March 2022 . While collections and shut-offs re-commenced after the moratorium ended, the State passed legislation that provides protection from shut-offs to customers who apply for payment assistance programs byJune 15, 2022 . Those applying for assistance will be protected from shut-offs while awaiting their application determination. As a result, sinceMarch 2020 , PSE&G experienced a significant decrease in cash inflow and higher Accounts Receivable aging and an associated increase in bad debt expense, which we expect will take the next several years to fully return to normal levels. Over that time, PSE&G's allowance for credit losses has increased by approximately$275 million . PSE&G's electric distribution bad debt expense is recoverable through its Societal Benefits Clause (SBC) mechanism. PSE&G has deferred its incremental gas distribution bad 59 --------------------------------------------------------------------------------
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debt expense as a result of COVID-19 as a Regulatory Asset and will seek recovery of that cost, as well as other net incremental COVID-19 costs, in its next base rate case.
The BPU has authorized regulated utilities inNew Jersey , including PSE&G, to defer prudently incurred incremental costs related to COVID-19 beginning onMarch 9, 2020 throughDecember 31, 2022 for recovery in a future rate case. 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. As ofJune 30, 2022 , PSE&G has recorded a Regulatory Asset related to COVID-19 to defer incremental costs of$118 million , which PSE&G believes are recoverable under the BPU Order. 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. These include the duration and severity of the outbreaks as well as third-party actions taken to contain their spread and mitigate their public health effects, and governmental or regulatory actions regarding customer collections, potential limitations on rate increases, recovery of incremental costs, and other matters. We cannot estimate the ultimate impact to our results of operations, financial condition and cash flows.
Operational Excellence
We emphasize excellence in operational performance while developing opportunities in both our regulated and contracted businesses. In 2022, PSE&G continued its efforts to control costs while maintaining strong operational performance. PSE&G's safety and reliability metrics continue to achieve top decile results as compared to our peer group.
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 six months of 2022 as we
•maintained sufficient liquidity, including the extension of the expiration of
our revolving credit facilities from
•completed the sale of
•maintained solid investment grade credit ratings, and
•increased our indicative annual dividend per share for 2022 to
In 2021, the Board of Directors authorized senior management to implement a$500 million share repurchase program. InDecember 2021 , under this authorization, we entered into an open market share repurchase plan for$250 million of our common shares. During January and throughmid-February 2022 , we purchased the full$250 million of common shares under the open market share repurchase plan. InMarch 2022 , under this authorization, PSEG entered into an accelerated share repurchase agreement for$250 million of our common shares which was completed inMay 2022 . See Item 1. Note 18. Earnings Per Share (EPS) and Dividends for additional information. We expect to be able to fund our planned capital requirements, as described in Liquidity and Capital Resources without the issuance of new equity. Our planned capital requirements, which are driven by growth in our regulated utility, and the sale of our fossil generating fleet enhances our business profile and underpins solid investment grade credit ratings with improved financial flexibility. The current inflationary environment has prompted theFederal Reserve to tighten monetary policy resulting in higher interest rates, which have impacted financial markets, reducing the value of fixed income investments and created uncertainty about the future economic outlook weakening equity markets. These factors have resulted in negative returns on our pension assets during 2022. As our pension costs are set at the beginning of the calendar year, there is no impact on pension costs for 2022 resulting from asset performance during the year. However, pension costs in future years may be materially impacted, depending on pension fund performance for 2022. The higher interest rates translate into a higher discount rate for our pension obligations, which would lower our pension liability and positively affect our funded ratio, which is expected to remain strong. Further, higher interest rates on borrowings will contribute to higher interest expense on variable rate debt, which has increased due to cash collateral postings, and to long-term rates on future financing plans. Inflation will also result in upward pressure on operating costs and capital spending. In addition, energy supply costs are a pass-through putting upward pressure on utility customer bills, which could be an area of focus with regulators. 60 --------------------------------------------------------------------------------
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Financial Results
The results for PSEG,
Three Months Ended Six Months Ended
June 30, June 30,
Earnings (Losses) 2022 2021 2022 2021
Millions
PSE&G $ 305 $ 309 $ 814 $ 786
PSEG Power (A) (162) (483) (681) (322)
Other (B) (12) (3) (4) 7
PSEG Net Income (Loss) $ 131 $ (177) $ 129 $ 471 PSEG Net Income (Loss) Per Share
(Diluted) $ 0.26 $ (0.35) $ 0.26 $ 0.93 (A)Includes a
(B)Other includes after-tax activities at the parent company, PSEG LI, and
PSEG Power's results above include theNuclear 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 (Loss) attributable to changes related to the
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Millions, after tax
NDT Fund Income (Expense) (A) (B) $ (117) $ 47 $ (163) $ 79
Non-Trading MTM Gains (Losses) (C) $ (74) $ (206) $ (682) $ (240)
(A)NDT Fund Income (Expense) includes gains and losses on NDT securities which
are recorded in Net Gains (Losses) on Trust Investments. See Item 1. Note 9.
Trust Investments for additional information. NDT Fund Income (Expense) also
includes interest and dividend income and other costs related to the NDT Fund
recorded in Other Income (Deductions), interest accretion expense on PSEG
Power's nuclear Asset Retirement Obligation (ARO) recorded in Operation and
Maintenance (O&M) Expense and the depreciation related to the ARO asset recorded
in Depreciation and Amortization (D&A) Expense.
(B)Net of tax (expense) benefit of $68 million and $(30) million for the three
months and $94 million and $(53) million for the six months ended June 30, 2022
and 2021, respectively.
(C)Net of tax (expense) benefit of $30 million and $79 million for the three
months and $267 million and $92 million for the six months ended June 30, 2022
and 2021, respectively.
Our Net Income for the three months ended
•an impairment of the
•lower MTM losses in 2022 due to a more significant increase in energy prices in 2021,
•partially offset by net losses on
The decrease in our Net Income for the six months ended
•higher MTM losses in 2022 at
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•unrealized losses on equity securities in 2022 in the
•partially offset by an impairment in the second quarter of 2021 of the NE
fossil asset grouping at
•higher earnings in 2022 due to continued investments in T&D programs at PSE&G, and
•the favorable impact of the CIP in 2022 at PSE&G.
We utilize rigorous criteria and consider a number of external factors, focusing on the value for our investors and other key stakeholders, as well as other impacts, when determining how and when to efficiently deploy capital. We principally explore opportunities for investment in areas that complement our existing business and provide reasonable risk-adjusted returns and continuously assess and optimize our business mix as appropriate. In the first six months of 2022, 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
•continued to evaluate potential offshore wind opportunities.
Regulatory, Legislative and Other Developments
In our pursuit of operational excellence, financial strength and disciplined investment, we closely monitor and engage with stakeholders on significant regulatory and legislative developments. Transmission planning rules and wholesale power market design are of particular importance to our results and we continue to advocate for policies and rules that promote fair and efficient electricity markets. For additional information about regulatory, legislative and other developments that may affect us, see Part I, Item 1. Business-Regulatory Issues in our Form 10-K and Item 5. Other Information in this Quarterly Report on Form 10-Q.
Transmission Rate Proceedings and Return on Equity (ROE)
InOctober 2021 ,FERC approved a settlement agreement effectiveAugust 1, 2021 that we reached with the BPU and theNew Jersey Division of Rate Counsel about the level of PSE&G's base transmission ROE and other formula rate matters. The settlement reduces PSE&G's base ROE from 11.18% to 9.9% and makes several other changes regarding the recovery of certain costs. The agreement provides that the settling parties will not seek changes to our transmission formula rate for three years. We have implemented the terms of the agreement and PJM issued refunds to customers inJanuary 2022 . Under currentFERC rules, we continue to earn a 50 basis point adder to that base ROE for our membership in PJM. Elimination of the adder forRegional Transmission Organization membership could reduce PSE&G's annual Net Income and annual cash inflows by approximately$30 million to$40 million .
Wholesale Power Market Design
FERC issued a notice effectiveSeptember 2021 that essentially put into effect a new MinimumOffer Price Rule (MOPR) that would accommodate certain state public policy programs.PSEG Power's New Jersey nuclear plants that receive ZEC payments were not subject to the MOPR in theJune 2022 Base Residual Auction. These new MOPR rules are being challenged by a group of generators in theCourt of Appeals for the Third Circuit . PSEG has intervened in the proceeding in support of the new MOPR rules. We cannot predict the outcome of this proceeding. A factor that influenced the results of the June base residual auction wasFERC's 2021 order related to the Market SellerOffer Cap which ultimately eliminated the default offer cap. In its place,FERC adopted a unit-specific approach to reviewing certain capacity market offers. These new rules, which require market offers for many resource types to be approved by the Independent Market Monitor and PJM resulted in lower capacity prices in the June auction. InJuly 2021 , the BPU issued a report on its investigation related to whetherNew Jersey can achieve its long-term clean energy and environmental objectives under the current resource adequacy procurement paradigm. The report found that participating in the regional market is the most efficient way forNew Jersey to achieve its clean energy goals and therefore consideration of leaving the regional market is paused while market reforms are being considered at the regional and national level. We cannot predict whether the BPU will ultimately take any measures in the future that will have an impact on the capacity market or our generating stations. Environmental Regulation We are subject to liability under environmental laws for the costs and penalties of remediating 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 thePassaic and Hackensack Rivers are 62 --------------------------------------------------------------------------------
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alleged by federal and state agencies to have discharged substantial contamination into thePassaic River/Newark Bay Complex in violation of various statutes. In addition,PSEG Power has retained ownership of certain assets and liabilities excluded from the sale of its fossil generation business, primarily related to obligations under certain environmental regulations, including possible remediation obligations under the New Jersey Industrial Site Recovery Act and the Connecticut Transfer Act. The amounts for any such environmental remediation are not estimable, but may be material. 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 and penalties 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
InApril 2021 ,PSEG Power's Salem 1,Salem 2 andHope Creek nuclear plants were awarded ZECs for the three-year eligibility period startingJune 2022 at the same approximate$10 per megawatt hour (MWh) received during the prior ZEC period throughMay 2022 . 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 MWh generated in payments to selected nuclear plants (ZEC payment)). While the ZEC program has preserved these units to date, PSEG will simultaneously seek long-term legislative or other solutions for ourNew Jersey nuclear plants that sufficiently values them for their carbon-free, fuel diversity and resilience attributes. No assurances can be given regarding future ZEC awards or other long-term solutions. See Note 4. Early Plant Retirements/Asset Dispositions and Impairments for additional information.
Tax Legislation
A prolonged pandemic, further economic stimulus, or future federal and state tax legislation could have a material impact on our effective tax rate and cash tax position. The Consolidated Appropriations Act, 2021 (CAA), enacted in lateDecember 2020 , provides a 30% investment tax credit (ITC) for offshore wind projects that begin construction beforeDecember 31, 2025 . In addition, onDecember 31, 2020 , Notice 2021-05 was issued. For qualifying offshore wind projects, the notice extends the four year continuity safe harbor to ten calendar years commencing the calendar year after which construction of the project begins. Subject to potential additional legislation, the CAA and the associated Notice will impact our offshore wind investment. InJuly 2020 , the Internal Revenue Service (IRS) issued final and proposed regulations addressing the limitation on deductible business interest expense contained in the Tax Cuts and Jobs Act. These regulations retroactively allow depreciation to be added back in computing the 30% adjusted taxable income (ATI) cap, increasing the amount of interest that can be deducted by unregulated businesses in years before 2022. The portion ofPSEG's andPSEG Power's business interest expense that was disallowed in 2018 and 2019 is now deductible in those respective years. For 2022 and after, the regulations disallow the addback of depreciation in the computation of ATI, effectively lowering the cap on the amount of deductible business interest. We do not believe this change will result in limitations on the deductible business interest expense ofPSEG andPSEG Power . InMarch 2020 , the federal Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted. The CARES Act allows a five-year carryback of any net operating loss (NOL) generated in a taxable year beginning afterDecember 31, 2017 and beforeJanuary 1, 2021 . The CARES Act allowed us to carry back the 2018 tax NOL generated by the final Section 163(j) regulations, which will provide a future tax benefit, subject to approval by theIRS and theJoint Committee on Taxation . Future Outlook Our future success will depend on our ability to continue to maintain strong operational and financial performance 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 will continue to: •obtain approval of and execute on our utility capital investment program to modernize our infrastructure, improve the reliability of the service we provide to our customers, and align our sustainability and climate goals withNew Jersey's energy policy, •manage the risks and opportunities in environmental, social and governance (ESG) matters, which is an integral part of our long-term strategy to be a clean energy leader for the benefit of all stakeholders,
•focus on controlling costs while maintaining safety, reliability and customer satisfaction and complying with applicable standards and requirements,
•deliver on our human capital management strategy to attract, develop and retain a diverse, high-performing workforce,
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•successfully manage our energy obligations and re-contract our open supply positions in response to changes in prices and demand,
•advocate for federal and state programs to properly valueNew Jersey's largest carbon-free generation resource in nuclear and measures that promote fair and efficient electricity markets, including recognition of the cost of emissions,
•engage constructively with our multiple stakeholders, including regulators, government officials, customers, employees, investors, suppliers and the communities in which we do business,
•seek a fair return for our T&D investments through our transmission formula rate, distribution infrastructure and clean energy investment programs and periodic distribution base rate case proceedings, 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 and in our Form 10-K, for 2022 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, the role of distribution utilities and decarbonization impacts, 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 regulations and economic impacts, including continued supply chain constraints and increases in the cost of goods and services, which could extend beyond the duration of the pandemic,
•the current inflationary environment and associated volatility in the financial and commodity markets,
•increases in commodity prices and customer rates, which may adversely affect customer collections and future regulatory proceedings,
•future changes in federal and state tax laws or any other associated tax guidance, and
•the impact of changes in demand, natural gas and electricity prices, and expanded efforts to decarbonize several sectors of the economy.
We continually assess a broad range of strategic options to maximize long-term stockholder value and address the interests of our multiple stakeholders. In assessing our options, we consider a wide variety of factors, including the performance and prospects of our businesses; the views of investors, regulators, rating agencies, customers and employees; our existing indebtedness and restrictions it imposes; and tax considerations, among other things. Strategic options available to us include: •investments in PSE&G, including T&D facilities to enhance reliability, resiliency and modernize the system to meet the growing needs and increasingly higher expectations of customers, and clean energy investments such as CEF-EE, CEF-EV, CEF-ES and Solar,
•investments in regional offshore wind with long-term contracts or regulated transmission returns that provide revenue predictability and a reasonable risk-adjusted return,
•continued operation of our nuclear generation facilities, to the extent there is sufficient certainty that their operation will render an acceptable risk-adjusted return, and
•acquisitions, dispositions, development and other transactions involving our
common stock, assets or businesses that could provide value to customers and
shareholders.
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.
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--------------------------------------------------------------------------------Table of Contents RESULTS OF OPERATIONS PSEG Our results of operations are primarily comprised of the results of operations of our principal operating segments,PSE&G andPSEG 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. Three Months Ended Increase/ Six Months Ended Increase/ June 30, (Decrease) June 30, (Decrease) 2022 2021 2022 vs. 2021 2022 2021 2022 vs. 2021 Millions Millions % Millions Millions % Operating Revenues$ 2,076 $ 1,874 $ 202 11$ 4,389 $ 4,763 $ (374) (8) Energy Costs 765 606 159 26 2,010 1,635 375 23 Operation and Maintenance 751 783 (32) (4) 1,545 1,561 (16) (1) Depreciation and Amortization 269 322 (53) (16) 552 663 (111) (17) (Gains) Losses on Asset Dispositions and Impairments (5) 457 (462) N/A 38 457 (419) (92) Income from Equity Method Investments 7 6 1 17 11 9 2 22Net Gains (Losses) on Trust Investments (187) 81 (268) N/A (255) 141 (396) N/A Other Income (Deductions) 38 33 5 15 43 58 (15) (26) Net Non-Operating Pension and OPEB Credits (Costs) 94 82 12 15 188 164 24 15 Interest Expense 150 147 3 2 287 293 (6) (2) Income Tax (Benefit) Expense (33) (62) 29 (47) (185) 55 (240) N/A
The following discussions for
PSE&G
Three Months Ended Increase/ Six Months Ended Increase/
June 30, (Decrease) June 30, (Decrease)
2022 2021 2022 vs. 2021 2022 2021 2022 vs. 2021
Millions Millions % Millions Millions %
Operating Revenues $ 1,668 $ 1,514 $ 154 10 $ 3,952 $ 3,587 $ 365 10
Energy Costs 630 509 121 24 1,598 1,358 240 18
Operation and Maintenance 434 393 41 10 897 817 80 10
Depreciation and Amortization 227 231 (4) (2) 468 472 (4) (1)
Net Gains (Losses) on Trust
Investments (2) - (2) N/A (2) 1 (3) N/A
Other Income (Deductions) 22 24 (2) (8) 41 52 (11) (21)
Net Non-Operating Pension and
OPEB Credits (Costs) 71 66 5 8 141 132 9 7
Interest Expense 107 101 6 6 210 199 11 6
Income Tax Expense (Benefit) 56 61 (5) (8) 145 140 5 4
Three Months Ended
Operating Revenues increased
Delivery Revenues increased
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•Gas distribution revenues increased$13 million due primarily to increases of$7 million in GSMP II collections,$5 million from CIP decoupling and$1 million due to higher sales volumes.
•Electric distribution revenues increased
•Electric and Gas distribution revenues also increased$2 million due to a net decrease in the flowback to customers of excess deferred tax liabilities and tax repair-related accumulated deferred income tax benefits resulting from rate reductions, which is offset in Income Tax Expense.
•Transmission revenues were
Commodity Revenues increased$118 million as a result of higher Electric revenues and 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 basic generation service (BGS) to retail customers and basic gas supply service (BGSS).
•Electric commodity revenues increased
•Gas commodity revenues increased
Clause Revenues increased$3 million due primarily to higher SBC revenues of$7 million partially offset by a$3 million decrease in Tax Adjustment Credit (TAC) deferrals. The changes in SBC revenues and in TAC 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 Income Tax Expenses. PSE&G does not earn margin on SBC revenue or TAC deferrals. Other Operating Revenues increased$14 million due primarily to revenue increases of$7 million in appliance services,$2 million in Solar Renewable Energy Certificates (SREC) and$1 million from the Successor Solar Incentive (SuSi) Program. Transition Renewable Energy Certificate (TREC) and ZEC revenues were unchanged. The SREC, SuSi, TREC and ZEC components of other operating revenues are entirely offset by changes to Energy Costs.
Operating Expenses
Energy Costs increased
Operation and Maintenance increased$41 million due primarily to increases of$19 million in clause and renewable-related expenses,$6 million in Electric distribution corrective and preventative expenditures,$5 million in injuries and damages,$5 million in gas tariff expenditures,$1 million in appliance service competitive services costs and$12 million in other operating expenses. These increases were partially offset by a$7 million decrease in transmission expenditures.
Depreciation and Amortization decreased
Other Income (Deductions) decreased$2 million primarily due to a$4 million decrease in the equity portion of the allowance for funds used during construction (AFUDC), partially offset by a$2 million increase in investment interest and dividend income. Net Non-Operating Pension and OPEB Credits (Costs) increased$5 million due primarily to a$13 million decrease in the amortization of the net actuarial loss, partially offset by a$5 million decrease in the expected return on plan assets and a$3 million increase in interest cost.
Interest Expense increased
Income Tax Expense decreased
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Six Months Ended
Operating Revenues increased
Delivery Revenues increased
•Gas distribution revenues increased$75 million due primarily to increases of$33 million from CIP decoupling,$33 million in GSMP II collections,$7 million due to higher sales volumes and$2 million in Green Program Recovery Charge (GPRC) collections. •Electric distribution revenues increased$30 million due primarily to$28 million from CIP decoupling,$9 million from Energy Strong II, and$1 million in GPRC collections, partially offset by a decrease of$8 million from lower sales volumes. •Electric and Gas distribution revenues also increased$18 million due to a net decrease in the flowback to customers of excess deferred tax liabilities and tax repair-related accumulated deferred income tax benefits resulting from rate reductions, which is offset in Income Tax Expense.
•Transmission revenues were
Commodity Revenues increased$238 million as a result of higher Gas revenues and higher Electric revenues. The changes in Commodity revenues for both gas and electric are entirely offset by the changes in Energy Costs. PSE&G earns no margin on the provision of BGSS and BGS to retail customers.
•Gas commodity revenues increased
•Electric commodity revenues increased
Clause Revenues decreased$8 million due primarily to an$18 million decrease in TAC deferrals and a$4 million decrease in GPRC deferrals, partially offset by higher SBC revenues of$15 million . The changes in TAC and GPRC deferral amounts and SBC revenues are entirely offset by changes in the amortization of Regulatory Assets and Regulatory Liabilities and related costs in O&M, D&A, Interest and Income Tax Expenses. PSE&G does not earn margin on TAC and GPRC deferrals or SBC revenue. Other Operating Revenues increased$24 million due primarily to revenue increases of$14 million in appliance services,$2 million in SRECs,$1 million in ZECs and$1 million from the SuSi Program. These increases were partially offset by a$2 million decrease in TREC revenues. The SREC, ZEC, SuSi and TREC components of other operating revenues are entirely offset by changes to Energy Costs. Operating Expenses
Energy Costs increased
Operation and Maintenance increased$80 million due primarily to increases of$37 million in clause and renewable-related expenses,$10 million in Electric distribution corrective and preventative expenditures,$9 million in injuries and damages,$6 million in gas tariff expenditures,$3 million in appliance service competitive services costs and$20 million in other operating expenses. These increases were partially offset by a$5 million decrease in transmission expenditures.
Depreciation and Amortization decreased
Other Income (Deductions) decreased$11 million primarily due to a$12 million decrease in the equity portion of the AFUDC, partially offset by a$2 million increase in investment interest and dividend income. Net Non-Operating Pension and OPEB Credits (Costs) increased$9 million due primarily to a$26 million decrease in the amortization of the net actuarial loss, partially offset by a$10 million decrease in the expected return on plan assets and a$7 million increase in interest cost. Interest Expense increased$11 million due primarily to a$5 million increase from the 2022 debt issuance, a$3 million increase in AFUDC and a$1 million increase from net debt issuances in 2021.
Income Tax Expense increased
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PSEG Power
Three Months Ended Increase/ Six Months Ended Increase/
June 30, (Decrease) June 30, (Decrease)
2022 2021 2022 vs. 2021 2022 2021 2022 vs. 2021
Millions Millions % Millions Millions %
Operating Revenues $ 488 $ 380 $ 108 28 $ 948 $ 1,547 $ (599) (39)
Energy Costs 372 271 101 37 1,233 953 280 29
Operation and Maintenance 182 259 (77) (30) 386 481 (95) (20)
Depreciation and Amortization 35 83 (48) (58) 69 175 (106) (61)
(Gains) Losses on Asset
Dispositions and Impairments (5) 457 (462) N/A 38 457 (419) (92)
Income from Equity Method
Investments 6 6 - - 10 9 1 11
Net Gains (Losses) on Trust
Investments (182) 79 (261) N/A (248) 137 (385) N/A
Other Income (Deductions) 15 8 7 88 - 4 (4) N/A
Net Non-Operating Pension and
OPEB Credits (Costs) 18 11 7 64 35 23 12 52
Interest Expense 10 24 (14) (58) 15 51 (36) (71)
Income Tax Expense (Benefit) (87) (127) 40 (31) (315) (75) (240) N/A
Three Months Ended
Operating Revenues increased
Gas Supply Revenues increased
•a net increase of
•a net increase of
•an increase of
Generation Revenues decreased
•a net decrease of$207 million due primarily to lower volumes sold in the PJM, NE andNew York (NY) regions primarily due to the sale of the fossil generating plants, coupled with lower average realized prices in the PJM regions, •a net decrease of$56 million in capacity revenue due primarily to the sale of the fossil generating plants coupled with lower capacity prices in the PJM region, partially offset by decreases in capacity expenses due to lower load volumes served,
•a net decrease of
•a net decrease of
•partially offset by a net increase of$241 million due to lower MTM losses in 2022 as compared to 2021. Of this amount, there was a$170 million increase due to gains on positions reclassified to realized upon settlement in 2022 as compared to losses in 2021 coupled with a$71 million increase due to changes in forward prices.
Other Operating Revenues decreased
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 meetPSEG Power's obligation under its BGSS contract with PSE&G. Energy Costs increased$101 million due to 68 --------------------------------------------------------------------------------
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Gas costs increased
•a net increase of
•a net increase of
Generation costs decreased
•a net decrease of
•a net decrease of
•partially offset by a net increase of$86 million due to net MTM losses in 2022 as compared to net MTM gains in 2021. Of this amount, there was a$73 million increase due to changes in forward prices coupled with a$13 million increase due to less gains on positions reclassified to realized upon settlement in 2022 as compared to 2021. Operation and Maintenance decreased$77 million due primarily to the sales of the fossil generating plants and our ownership interest in the solar plants inFebruary 2022 andJune 2021 , respectively. The decrease was also due to an outage at our 57%-ownedSalem 2 nuclear plant in 2022 as compared to a refueling outage at our 100%-ownedHope Creek nuclear plant in 2021. Depreciation and Amortization decreased$48 million due primarily to ceasing depreciation expense on the then pending sales of the solar and fossil generating plants since May andAugust 2021 , respectively, and the retirement ofBridgeport Harbor 3 (BH3) effectiveMay 31, 2021 . (Gains) Losses on Asset Dispositions and Impairments reflects a$519 million impairment loss of the ISO NE fossil asset grouping in 2021, partially offset by a$62 million gain from the sale of Solar Source in 2021. See Item 1. Note 4. Early Plant Retirements/Asset Dispositions and Impairments.Net Gains (Losses) on Trust Investments decreased$261 million due primarily to NDT investments with$171 million of unrealized losses on equity securities and$10 million of net realized losses in 2022 as compared to$19 million of unrealized gains on equity securities and$60 million of net realized gains in 2021. Other Income (Deductions) increased$7 million due primarily to lower purchases of NOL tax benefits under the New Jersey Technology Tax Benefit Transfer Program in 2022.
Non-Operating Pension and OPEB Credits (Costs) increased
Interest Expense decreased$14 million due primarily to the early redemption of all outstanding Senior Notes in 2021, partially offset by a term loan entered into inMarch 2022 . Income Tax (Benefit) decreased$40 million due primarily to a lower pre-tax loss in 2022, partially offset by the recapture of ITCs related to the sale of Solar Source in 2021 and increased tax benefits in 2022 on losses from the NDT qualified fund.
Six Months Ended
Operating Revenues decreased
Gas Supply Revenues increased
•a net increase of
•a net increase of
•an increase of
Generation Revenues decreased
•a net decrease of$540 million due to higher MTM losses in 2022 as compared to 2021. Of this amount, there was a$745 million decrease due to changes in forward prices, partially offset by a$205 million increase due to gains on positions reclassified to realized upon settlement in 2022 as compared to losses in 2021, •a net decrease of$230 million due primarily to lower volumes sold in the PJM, NE and NY regions primarily due to the sale of the fossil generating plants, coupled with lower average realized prices in the PJM region, partially offset by higher average realized prices in the NE and NY regions, 69 --------------------------------------------------------------------------------
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•a net decrease of
•a net decrease of$60 million in capacity revenue due primarily to the sale of the fossil generating plants coupled with lower capacity prices in the PJM region, partially offset by decreases in capacity expenses due to lower load volumes served, and
•a net decrease of
Other Operating Revenues decreased
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 meetPSEG Power's obligation under its BGSS contract with PSE&G. Energy Costs increased$280 million due to
Gas costs increased
•a net increase of
•a net increase of
Generation costs decreased
•a net decrease of$96 million in fuel costs, primarily due to lower volumes of gas in the PJM, NY, and NE regions caused by the sale of the fossil generating plants, partially offset by higher gas prices. Additionally, there was a decrease in coal costs in the NE region due to the retirement of the BH3 plant in 2021, •a net decrease of$50 million in energy purchases due primarily to lower REC requirements and lower ancillary charges caused by decreases in load served in the PJM and NE regions, and
•a net decrease of
•partially offset by a net increase of$93 million due to net MTM losses in 2022 as compared to net MTM gains in 2021. Of this amount, there was a$69 million increase in losses due to changes in forward prices coupled with a$24 million increase in losses due to higher gains on positions reclassified to realized upon settlement in 2022 as compared to 2021. Operation and Maintenance decreased$95 million due primarily to the sale of the fossil generating plants inFebruary 2022 and the sale of our ownership interest in the solar plants inJune 2021 . The decrease was also due to an outage at our 57%-ownedSalem 2 nuclear plant in 2022 as compared to a refueling outage at our 100%-ownedHope Creek nuclear plant in 2021. Depreciation and Amortization decreased$106 million due primarily to ceasing depreciation expense on the then pending sales of the solar and fossil generating plants since May andAugust 2021 , respectively, and the retirement of BH3 in 2021. (Gains) Losses on Asset Dispositions and Impairments in 2022 primarily reflects an impairment loss due to the sale of the fossil generating plants inFebruary 2022 . The$457 million net loss in 2021 reflects a$597 million impairment loss of the ISO NE fossil asset grouping in 2021, partially offset by a$62 million gain from the sale of Solar Source in 2021. See Item 1. Note 4. Early Plant Retirements/Asset Dispositions and Impairments.Net Gains (Losses) on Trust Investments decreased$385 million due primarily to NDT investments with$232 million of unrealized losses on equity securities and$15 million of net realized losses in 2022 as compared to$13 million of unrealized gains on equity securities and$124 million of net realized gains in 2021.
Non-Operating Pension and OPEB Credits (Costs) increased
Interest Expense decreased$36 million due primarily to the early redemption of all outstanding Senior Notes in 2021, partially offset by a term loan entered into inMarch 2022 . Income Tax (Benefit) increased$240 million due primarily to a higher pre-tax loss in 2022, the recapture of ITCs related to the sale of Solar Source inJune 2021 and increased tax benefits on losses from the NDT qualified fund. 70 --------------------------------------------------------------------------------
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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 shareholder dividends. For the six months endedJune 30, 2022 , our operating cash flow decreased$693 million as compared to the same period in 2021. The net decrease was primarily due to a$955 million reduction related to net cash collateral posting requirements and higher tax payments in 2022 atPSEG Power and a net change at PSE&G, as discussed below. In addition, there were tax payments in 2022 as compared to tax refunds in 2021 atEnergy Holdings and the parent company. Current economic conditions have adversely impacted residential and C&I customer payment patterns. During the moratorium, as previously discussed, PSE&G has experienced a significant decrease in cash inflow and higher Accounts Receivable aging and an associated increase in bad debt expense, which we expect will extend beyond the duration of the coronavirus pandemic.
PSE&G
PSE&G's operating cash flow increased$632 million from$680 million to$1,312 million for the six months endedJune 30, 2022 , as compared to the same period in 2021, due primarily to higher cash collateral postings received from BGS suppliers, decreases in electric energy and vendor payments, higher tax payments in 2021 and higher earnings in 2022, partially offset by a net increase in regulatory deferrals in 2022.
Short-Term Liquidity
PSEG meets its short-term liquidity requirements, as well as those of
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. During the second half of 2021 and continuing into 2022, forward energy prices have demonstrated considerable price volatility and have increased dramatically. This has led to significantly higher variation in our daily collateral requirements which have also increased substantially over that time period for hedge positions that are out-of-the money.PSEG Power's net cash collateral postings related to these hedge positions increased from$343 million at the end ofJune 2021 to$2.1 billion at the end ofJune 2022 . Subsequent toJune 2022 , collateral postings continued to increase andPSEG Power continued to experience significantly higher variation in our daily collateral requirements. Net cash collateral postings were$2.5 billion at the end ofJuly 2022 . The majority of this collateral relates to hedges in place through the end of 2023 and is expected to be returned as we satisfy our obligations under those contracts. Proceeds from the sale of Fossil, the closing of a$1.25 billion term loan inMarch 2022 atPSEG Power , and short-term borrowings at PSEG have contributed to available liquidity to help supportPSEG Power's current collateral requirements in 2022. In March andMay 2021 , PSEG entered into two 364-day variable rate term loan agreements for$500 million and$750 million , respectively. InAugust 2021 , PSEG entered into a$1.25 billion , 364-day variable rate term loan agreement. InMarch 2022 , the$500 million term loan matured and PSEG prepaid the$750 million term loan due inMay 2022 . InJuly 2022 , PSEG repaid the$1.25 billion term loan due inAugust 2022 . These term loans are not included in the credit facility amounts presented in the following table.
In
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Our total credit facilities and available liquidity as ofJune 30, 2022 were as follows: As of June 30, 2022 Total Available Company/Facility Facility Usage Liquidity Millions PSEG$ 1,500 $ 65 $ 1,435 PSE&G 1,000 18 982 PSEG Power 1,550 580 970 Total$ 4,050 $ 663 $ 3,387 We continually monitor our liquidity and seek to add capacity as needed to meet our liquidity requirements, including to satisfy any additional collateral requirements. As ofJune 30, 2022 , our liquidity position, including our credit facilities and access to external financing, was expected to be sufficient to meet our projected stressed requirements over our 12 month planning horizon. PSEG analyzes its liquidity requirements using stress scenarios that consider different events, including changes in commodity prices and the potential impact ofPSEG Power losing its investment grade credit rating from S&P or Moody's, which would represent a two level downgrade from its current Moody's and S&P ratings. In the event of a deterioration ofPSEG Power's credit rating, certain ofPSEG 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 ifPSEG Power were to lose its investment grade credit rating was approximately$976 million and$1,151 million as ofJune 30, 2022 andDecember 31, 2021 , respectively.
For additional information, see Item 1. Note 12. Debt and Credit Facilities.
Long-Term Debt Financing
During the next twelve months,
•PSEG has
•PSE&G has
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.Long Island Electric Utility Servco, LLC (Servco) does not participate in the corporate money pool. Servco's short-term liquidity needs are met through an account funded and owned by LIPA.
For additional information see Item 1. Note 12. Debt and Credit Facilities.
Common Stock Dividends
OnJuly 19, 2022 , PSEG's Board of Directors approved a$0.54 per share common stock dividend for the third quarter of 2022. This reflects an indicative annual dividend rate of$2.16 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 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 the credit ratings at each entity 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. 72 --------------------------------------------------------------------------------
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Moody's (A) S&P (B)
PSEG
Outlook Stable Stable
Senior Notes Baa2 BBB
Commercial Paper P2 A2
PSE&G
Outlook Stable Stable
Mortgage Bonds A1 A
Commercial Paper P2 A2
PSEG Power
Outlook Stable Stable
Issuer Rating Baa2 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
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 2021 Form 10-K.
PSE&G
During the six months endedJune 30, 2022 , PSE&G made capital expenditures of$1,171 million , primarily for T&D system reliability. This does not include expenditures for energy efficiency and electric vehicle programs of approximately$105 million and cost of removal, net of salvage, of$63 million , which are included in operating cash flows.
Other
During the six months endedJune 30, 2022 , PSEG made capital expenditures of$47 million , excluding$73 million for nuclear fuel, primarily related to various nuclear projects. ACCOUNTING MATTERS
For information related to recent accounting matters, see Item 1. Note 2. Recent Accounting Standards.
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