PUBLIC SERVICE ENTERPRISE GROUP, INC. This combined MD&A is separately filed byPublic Service Enterprise Group Incorporated (PSEG),Public Service Electric and Gas Company (PSE&G) andPSEG Power LLC (PSEG Power ). Information contained herein relating to any individual company is filed by such company on its own behalf.PSE&G andPSEG 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
Commission (FERC). PSE&G also invests in regulated solar generation
projects and energy efficiency and related programs in
are regulated by the BPU, and
•
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,
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 2019 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 2019 and
Future Outlook provided in Item 7 in our Form 10-K by describing significant
events and business developments that have occurred during 2020 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 2020 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 are providing 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 and practicing physical distancing measures. Extensive
cleaning protocols are also in place. We have suspended nonessential work
activities, while continuing to respond to customer outages and requests for
emergency service as well as infrastructure maintenance and upgrades that have
been deemed essential. The ongoing coronavirus pandemic has not had a material
impact on our results of operations, financial condition or cash flows for the
quarter ended March 31, 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
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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. For the five-year period endingDecember 31, 2024 , PSE&G expects to invest between$11.5 billion to$15 billion , resulting in an expected compound annual rate base growth of 6.5% to 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 thanDecember 2023 , to maintain a base level of gas distribution capital expenditures of$155 million per year and to achieve certain leakage reduction targets. Also in 2019, the BPU approved our Energy Strong II Program (ES II ), an$842 million program to harden, modernize and improve the resiliency of our electric and gas distribution systems. This program began in the fourth quarter of 2019 and is expected to be completed by the end of 2023. Approximately$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. InOctober 2018 , we filed our proposed 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 underNew 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 with its efforts to complete a stakeholder process to define key terms and policy parameters regarding returns, amortization and lost revenue recovery related to implementing energy efficiency programs statewide. Additionally, the State released its Energy Master Plan (EMP) inJanuary 2020 , which is supportive of energy efficiency but gives the BPU discretion in implementation between state-and utility-operated programs. The EMP is also supportive of EVs, ES, and advanced metering infrastructure (AMI). InFebruary 2020 , PSE&G reached an agreement with parties in the CEF-EE matter which was approved by the BPU to (a) extend several existing EE programs for six months, with an additional$111 million investment over the course of the programs, and (b) extend the timeline for review of the CEF-EE filing throughSeptember 2020 . The BPU has issued procedural schedules for the CEF-EC and CEF-EV/ES investment programs, both providing for evidentiary hearings in the fourth quarter of 2020. InApril 2020 , theNew Jersey Division of Rate Counsel filed a motion to dismiss the electric vehicles portion of PSE&G's proposed CEF-EV/ES filing on regulatory and statutory grounds; PSE&G intends to oppose Rate Counsel's motion. InApril 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 procedural 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 2020-2022 is$2.8 billion . As noted above, PSE&G has been deemed by theState of 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. 65 --------------------------------------------------------------------------------
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PSE&G has experienced a reduction in demand from its commercial and industrial (C&I) customers and adverse changes to residential, C&I payment patterns, which would be expected 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 will be temporarily suspended. Further, the implementation of actions to protect customers and employees, including physical distancing, mandatory personal protective equipment, and realignment of work crews, may have an adverse impact on operations and maintenance costs. While the impact on our results of operations, financial condition and cash flows for the quarter endedMarch 31, 2020 have 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. 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.PSEG Power At PSEG Power , we strive to improve performance and manage 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 three months of 2020, our natural gas and nuclear units generated 5.1 and 8.0 terawatt hours and operated at a capacity factor of 44.9% and 94.9%, respectively. Our commitments for load, such as basic generation service (BGS) inNew 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. More than 70% ofPSEG Power's expected gross margin in 2020 relates to hedging of our energy margin, our expected revenues from the capacity market mechanisms, Zero Emission Certificate (ZEC) revenues that commenced inApril 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 MinimumOffer 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 ofFERC's finding that default procurement auctions such as BGS can also confer subsidies, it is possible that other PSEG units could be subject to the MOPR. Based on PJM'sMarch 2020 compliance filings, if PJM's proposals for nuclear unit floor prices are accepted byFERC , the floor prices are not expected to prevent the nuclear units receiving ZECs, as well asPSEG Power's Peach Bottom units if the MOPR applies to it as a result of payments from BGS auctions, from clearing in the next Reliability Pricing Model (RPM) auction. Further, if any gas-fired units are deemed to be subject to the MOPR, they are also not expected to be affected. However,FERC has not yet acted on this filing and the impact in future RPM auctions may differ.PSEG Power completed its 1,800 MW combined cycle gas turbine construction program with the addition of the Keys Energy Center (Keys) inMaryland andSewaren 7 inNew Jersey in 2018 and Bridgeport Harbor Station Unit 5 (BH5) inConnecticut in 2019. These additions to our fleet expanded our geographic diversity, adjusted our fuel mix and enhanced the environmental profile and overall efficiency ofPSEG Power's generation fleet. In the first quarter of 2020, as a result of the ongoing coronavirus pandemic,PSEG Power has seen 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 generation 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. 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 three months of 2020, our • utility continued its efforts to control costs while maintaining strong operational performance and has implemented protocols to ensure that we are providing essential services to our customers during the ongoing coronavirus pandemic in a safe and reliable manner, and
• efficient combined cycle gas units benefited our capacity factor across
the natural gas fleet and were readily available to operate when needed,
all while diligently adhering to our cost control programs.
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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 three months of 2020 as we • maintained sufficient liquidity,
• maintained solid investment grade credit ratings, and
• increased our indicative annual dividend for 2020 to
InMarch 2020 , PSEG entered into a$300 million , 364-day term loan agreement and inApril 2020 it entered into two 364-day term loan agreements for$200 million and$300 million . These term loans provide an additional source of liquidity for our operations as we continue to monitor the impact of the ongoing coronavirus pandemic on the volatility and availability of the capital and commercial paper markets. We expect to be able to fund our planned capital requirements, as described in Liquidity and Capital Resources, and the impacts of the Tax Cuts and Jobs Act of 2017 (Tax Act) without the issuance of new equity. Financial Results The results for PSEG,PSE&G andPSEG Power for the three months endedMarch 31, 2020 and 2019 are presented as follows: Three Months Ended March 31, Earnings (Losses) 2020 2019 Millions PSE&G$ 440 $ 403 PSEG Power 13 296 Other (A) (5 ) 1 PSEG Net Income$ 448 $ 700 PSEG Net Income Per Share (Diluted)$ 0.88 $ 1.38
(A) 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 attributable to changes related to theNDT Fund and MTM are shown in the following table: Three Months Ended March 31, 2020 2019 Millions, after tax NDT Fund Income (Expense) (A) (B)$ (135 ) $ 76 Non-Trading MTM Gains (Losses) (C) $ 77$ 76
(A) NDT Fund Income (Expense) includes gains and losses on NDT securities
which are recorded in
Note 9. Trust Investments for additional information. NDT Fund Income
(Expense) also includes interest and dividend income and other costs
related to the
accretion expense on
(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 $84 million and $(51) million for the
three months ended March 31, 2020 and 2019, respectively.
(C) Net of tax (expense) benefit of
ended March 31, 2020 and 2019, respectively.
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Our$252 million decrease in Net Income for the three months endedMarch 31, 2020 was driven primarily by • net losses in 2020 as compared to net gains on equity securities in the
• generally lower volumes of electricity and gas sold at lower average
prices, reduced capacity revenues and a lower of cost or market (LOCOM)
adjustment of oil inventory at
• partially offset by higher earnings due to investments in T&D programs at
PSE&G, and
• ZEC revenues that started in
and average prices of gas purchases and generation fuels.
The greater emphasis on capital spending in recent years for projects on which we receive contemporaneous returns at PSE&G has yielded strong results, which when combined with the cash flow generated byPSEG Power , has allowed us to meet customer needs and address market conditions and investor expectations, reflecting 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 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. In the first three months of 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
• continued to evaluate a potential investment in 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 this Quarterly Report on Form 10-Q. Transmission Rate Proceedings and Return on Equity InMarch 2020 ,FERC issued a Notice of Proposed Rulemaking (NOPR) proposing to revise its electric transmission incentive policy to encourage the development of infrastructure needed to ensure grid reliability and reduce congestion to lower the cost of power for consumers. The NOPR proposes to shift the focus in granting incentives from an approach based on the risks and challenges faced by a project to an approach based on economic and reliability benefits to consumers. The NOPR proposes to retain several existing incentives, increase the 50 basis point adder forRegional Transmission Organization (RTO) participation to 100 basis points and provide incentives for transmission technologies that enhance reliability, efficiency and capacity. InNovember 2019 ,FERC issued an order establishing a new Return on Equity (ROE) policy for reviewing existing transmission ROEs.FERC applied the methodology outlined in the new policy to two complaints filed against theMidcontinent Independent System Operator (MISO) transmission owners and found that the MISO transmission owners' ROE was unjust and unreasonable and directed that the ROE be lowered. Other ROE complaints have been pending beforeFERC regarding theISO New England Inc. Transmission Owners and utilities in other jurisdictions. In parallel to these proceedings, over the past few years, several companies have negotiated settlements that have resulted in reduced ROEs. We continue to analyze the potential impact of these methodologies and cannot predict the outcome of ongoing ROE proceedings. In addition, the New Jersey EMP anticipates the BPU will increasingly engage in transmission ROE and cost allocation proceedings atFERC to address costs toNew Jersey ratepayers. We continue to work with the BPU on these matters. An adverse change to PSE&G's base transmission ROE or ROE incentives could be material. Wholesale Power Market Design InDecember 2019 ,FERC issued an order establishing new rules for PJM's capacity market, extending the PJM MinimumOffer 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 ofFERC's finding that default procurement auctions such as basic generation service can also confer subsidies, it is possible 68 --------------------------------------------------------------------------------
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that other PSEG units could be subject to the MOPR. Based on PJM'sMarch 2020 compliance filings, if PJM's proposals for nuclear unit floor prices are accepted byFERC , the floor prices are not expected to prevent the nuclear units receiving ZECs, as well asPSEG Power's Peach Bottom units if the MOPR applies to it as a result of payments from BGS auctions, from clearing in the next RPM auction. Further, if any gas-fired units are deemed to be subject to the MOPR, they are also not expected to be affected. However,FERC has not yet acted on this filing and the impact on future RPM auctions may differ. 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 fixed resource requirement (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 using the FRR approach. In aMarch 2020 order, the BPU initiated an investigation to examine whetherNew 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 withinNew Jersey . See Part II, Item 5. Other Information. We cannot predict what impact these rules or any measures taken by the BPU will have on the capacity market or our generating stations. In addition, we cannot predict whether there will be challenges to theFERC order and, if so, the impact of such challenges on the MOPR and other capacity market rules. InJanuary 2020 ,New Jersey rejoined the Regional Greenhouse Gas Initiative (RGGI). As a result, generating plants operating inNew Jersey , including those owned byPSEG Power , that emit carbon dioxide (CO2) emissions will be required to procure credits for each ton they emit. In response to RGGI, PJM initiated a process in 2019 to investigate the development of a carbon pricing mechanism that may mitigate the environmental and financial distortions that could occur when emissions "leak" from non-participating states to the RGGI states. If the process leads to a market solution, it could have a material impact on the value ofPSEG Power's generating 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 thePassaic and Hackensack Rivers are alleged by Federal and State agencies to have discharged substantial contamination into thePassaic 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 InApril 2019 ,PSEG Power's Salem 1,Salem 2 andHope 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 generated in payments to selected nuclear plants (ZEC payment)). These nuclear plants are expected to receive ZEC revenue for approximately three years, throughMay 2022 , and will be obligated to maintain operations during that period, subject to exceptions specified in the ZEC legislation.PSEG Power has and will continue to recognize revenue monthly as the nuclear plants generate electricity and satisfy their performance obligations. 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. The BPU's decision awarding ZECs has been appealed by theNew Jersey Division of Rate Counsel . PSEG cannot predict the outcome of this matter. The BPU is expected to issue an order inMay 2020 outlining the process for applying for ZECs for the next three-year eligibility period and is expected to issue a decision regarding any ZEC applications and any change in the amount of future ZEC payments byApril 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 toSalem 1,Salem 2 andHope Creek inApril 2019 . However,PSEG Power cannot predict whether the BPU will change the application requirements or whether other plants besidesSalem 1,Salem 2 andHope 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 theSalem 1,Salem 2 andHope 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 69 --------------------------------------------------------------------------------
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initial ZEC period at or prior to a scheduled refueling outage. Alternatively, if all of theSalem 1,Salem 2 andHope Creek plants are selected to continue to receive ZEC payments but the financial condition of the plants is materially adversely impacted by changes in commodity prices,FERC's changes to the capacity market construct (absent sufficient capacity revenues provided under a program approved by the BPU in accordance with aFERC -authorized capacity mechanism), or, in the case of theSalem nuclear plants, decisions by theEPA and state environmental regulators regarding the implementation of Section 316(b) of the Clean Water Act and related state regulations, or other factors,PSEG Power would still take all necessary steps to retire all of these plants. Retirement of these plants would result in a material adverse impact onPSEG's andPSEG Power's financial results. California Solar Facilities As part of its solar production portfolio,PSEG Power owns and operates twoCalifornia -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$54 million as ofMarch 31, 2020 . InJanuary 2019 , PG&E and its parent company PG&E Corporation filed for Chapter 11 bankruptcy protection; however, they continue to perform under the current PPAs.PSEG Power cannot predict the ultimate outcome that this bankruptcy proceeding will have on our ability to collect all of the revenues from these facilities due under the PPAs; however, any adverse changes to the terms ofPSEG 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. Offshore Wind InJune 2019 , the BPU selected Ørsted US Offshore Wind'sOcean Wind project as the winning bid inNew Jersey's initial solicitation for 1,100 MW of offshore wind generation. InOctober 2019 , PSEG exercised its option on Ørsted'sOcean 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 Facilities in our leveraged lease portfolio include the Shawville,Joliet andPowerton generating facilities. Converted natural gas units such as Shawville andJoliet 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 inIllinois . Each of these three facilities may not be as economically competitive as newer combined cycle gas units and could continue to be adversely impacted by the same economic conditions experienced by other less efficient natural gas and coal generation facilities, which could require additional write-downs of the residual values ofEnergy Holdings' leveraged lease receivables associated with these facilities. Tax Legislation InMarch 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, the 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, the tax deductibility of a portion ofPSEG's andPSEG Power's interest was disallowed but is expected to be realized in future periods. However, certain aspects of the law 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 reducePSEG's andPSEG Power's 2020 taxable income. Amounts recorded under the Tax Act and the CARES Act, such as depreciation and interest disallowance, are subject to change based on several factors, including but not limited to, the Internal Revenue Service and state taxing authorities issuing additional guidance and/or further clarification. Any further guidance or clarification could impact PSEG's,PSE&G's andPSEG Power's financial statements. For additional information, see Item 1. Note 16. Income Taxes. InJuly 2018 , theState of New Jersey made changes to its income tax laws, including imposing a temporary surtax of 2.5% effectiveJanuary 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 underNew 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 anticipate theState of New Jersey will be issuing clarifying guidance regarding combined reporting rules. Any further guidance or clarification could impactPSEG's andPSEG Power's financial statements. 70 --------------------------------------------------------------------------------
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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. InJuly 2019 , we announced that we expect to cut carbon emissions atPSEG 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, public policy and customer behavior. 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 our CEF program 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,
transmission planning rules that continue to promote fair and efficient
electricity markets, including recognition of the cost of emissions,
• engage multiple stakeholders, including regulators, government officials,
customers and investors, and
• 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 2020 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 theassociated economic impact, which could extend beyond the duration of the
pandemic,
• the continuing impacts of the Tax Act, coronavirus-related tax legislation
and changes in 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
other existing businesses or the acquisition or development of new
businesses,
• the expansion of our geographic footprint, and
• investments in capital improvements and additions, including the
installation of environmental upgrades and retrofits, improvements tosystem resiliency, modernizing existing infrastructure and participation
in transmission projects through
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.
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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 subsidiaries,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/ March 31, (Decrease) 2020 2019 2020 vs. 2019 Millions Millions % Operating Revenues$ 2,781 $ 2,980 $ (199 ) (7 ) Energy Costs 906
1,124 (218 ) (19 )
Operation and Maintenance 754 756 (2 ) - Depreciation and Amortization 324 314 10 3 Income from Equity Method Investments 3 2 1 50 Net Gains (Losses) on Trust Investments (221 )
128 (349 ) N/A
Other Income (Deductions) 4 33 (29 ) (88 ) Net Non-Operating Pension and OPEB Credits (Costs) 62 33 29 88 Interest Expense 153 133 20 15 Income Tax (Benefit) Expense 44
149 (105 ) (70 )
The following discussions forPSE&G andPSEG Power provide a detailed explanation of their respective variances. PSE&G Three Months Ended Increase/ March 31, (Decrease) 2020 2019 2020 vs. 2019 Millions Millions % Operating Revenues$ 1,883 $ 2,032 $ (149 ) (7 ) Energy Costs 708
947 (239 ) (25 )
Operation and Maintenance 386 408 (22 ) (5 ) Depreciation and Amortization 222 212 10 5 Net Gains (Losses) on Trust Investments - 1 (1 ) N/A Other Income (Deductions) 27 19 8 42 Net Non-Operating Pension and OPEB Credits (Costs) 51 30 21 70 Interest Expense 96 87 9 10 Income Tax Expense (Benefit) 109 25 84 N/A Three Months EndedMarch 31, 2020 as Compared to 2019 Operating Revenues decreased$149 million due to changes in delivery, commodity, clause and other operating revenues. Delivery Revenues increased$89 million due primarily to • Transmission revenues were$73 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.
• Electric distribution revenues decreased
million decrease attributable to lower sales volumes.
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• Gas distribution revenues increased
million increase in Weather Normalization Charges and a
increase from the Gas System Modernization Program I (GSMP I) and GSMP II.
These increases were partially offset by a
lower volumes.
• Gas revenues further increased by
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 decreased $290 million as a result of lower 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 basic gas supply service (BGSS) and BGS to retail customers.
• Gas commodity revenues decreased $162 million due primarily to lower BGSS
sales volumes of $94 million and lower BGSS prices of $68 million .
• Electric commodity revenues decreased
million in lower BGS sales volumes and
Clause Revenues decreased$2 million due primarily to lower SBC revenues of$10 million and a$2 million decrease in Margin Adjustment Clause (MAC) revenues. These decreases were partially offset by a$10 million reduction in Tax Adjustment Credit (TAC) deferrals. The changes in the SBC and MAC revenues and 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 and Interest Expenses. PSE&G does not earn margin on SBC and MAC revenues or on TAC deferrals. Other Operating Revenues increased by$54 million due primarily to$38 million in ZEC revenues billed sincemid-April 2019 and a$14 million increase in SREC revenues. See Item 1. Note 11. Commitments and Contingent Liabilities. The changes in these revenues are entirely offset by changes to Energy Costs. Operating Expenses Energy Costs decreased$239 million . This is entirely offset by changes in Commodity Revenues and Other Operating Revenues. Operation and Maintenance decreased$22 million due primarily to a net$12 million decrease in clause and renewable-related expenditures, a$3 million decrease in injuries and damages, a$2 million decrease in distribution corrective maintenance expenditures, a$2 million reduction in seasonal storm costs and a$1 million decrease in transmission-related expenditures. Depreciation and Amortization increased$10 million due primarily to an increase related to additional plant in service. Other Income (Deductions) increased$8 million due primarily to an increase in the allowance for funds used during construction (AFUDC). Net Non-Operating Pension and OPEB Credits (Costs) increased$21 million due primarily to an$11 million increase in the long-term expected return on plan assets, an$8 million decrease in interest cost and a$3 million decrease in the amortization of the net unrecognized loss, partially offset by a$1 million decrease in the amortization of prior service credit. Interest Expense increased$9 million due primarily to a$7 million increase from net debt issuances in 2019 and a$4 million increase from net debt issuances in January 2020.These increases were partially offset by a decrease of$2 million due to a reduction in short-term borrowings. Income Tax Expense increased$84 million due primarily to higher pre-tax income and the reduction in the 2020 flowback of PSE&G's excess deferred income tax liabilities, as PSE&G refunded allFERC approved, transmission-related excess deferred income taxes that are not subject to the normalization rules in 2019. 73 --------------------------------------------------------------------------------
table of contentsPSEG Power Three Months Ended Increase/ March 31, (Decrease) 2020 2019 2020 vs. 2019 Millions Millions % Operating Revenues$ 1,220 $ 1,416 $ (196 ) (14 ) Energy Costs 676
786 (110 ) (14 )
Operation and Maintenance 241 235 6 3 Depreciation and Amortization 94 94 - - Income from Equity Method Investments 3 2 1 50 Net Gains (Losses) on Trust Investments (220 )
126 (346 ) N/A
Other Income (Deductions) (23 ) 13 (36 ) N/A Net Non-Operating Pension and OPEB Credits (Costs) 8 3 5 N/A Interest Expense 34 25 9 36 Income Tax Expense (Benefit) (70 )
124 (194 ) N/A
Three Months EndedMarch 31, 2020 as Compared to 2019 Operating Revenues decreased$196 million due primarily to changes in generation and gas supply revenues. Gas Supply Revenues decreased$131 million due primarily to • a decrease of$123 million in sales under the BGSS contract, of which$90
million was due to lower volumes sold and
average sales prices, and
• a net decrease of
increase of
Generation Revenues decreased
prices in the PJM and
sold in the PJM region, primarily due to the sale of PSEG Power's
ownership interests in the Keystone and Conemaugh generation plants. This
was partially offset by higher volumes of electricity sold in the New
England (NE) region, primarily due to the commencement of commercial
operations of BH5 in June 2019 ,
• a net decrease of $34 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, and
• a decrease of
to lower volumes and lower prices,
• partially offset by a net increase of
in 2020 as compared to 2019. Of this amount, there was a
increase due to changes in forward prices this year as compared to last
year, partially offset by a $66 million decrease due to less gains on
positions reclassified to realized upon settlement, and
•
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 decreased$110 million due to Gas costs decreased$100 million due mainly to • a decrease of$98 million related to sales under the BGSS contract, of which$76 million was due to lower volumes and$22 million was due to lower average gas costs, and • a net decrease of$2 million related to sales to third parties, of which$29 million was due to a decrease in the average cost of gas largely offset by an increase of$27 million in volumes sold. 74
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Generation costs decreased
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
ownership interests in Keystone and Conemaugh generation plants, and lower
volumes of gas in the PJM region. This was partially offset by utilization
of higher volumes of gas in the NE region due to the commencement of
commercial operations at BH5 in June 2019 , and
• a net decrease of $6 million due primarily to decreases in energypurchased in the NE region due to BH5 beginning commercial operations,
• partially offset by a net increase of
2020 as compared to MTM gains in 2019. Of this amount, there was a
million increase due to changes in forward prices this year as compared to
last year coupled with a
reclassified to realized upon settlement in 2020 as compared to gains in
2019, and
• a
by a decrease in oil demand and pricing.
Operation and Maintenance increased$6 million due primarily to outage costs at our nuclear plants.Net Gains (Losses) on Trust Investments decreased$346 million due primarily to a$320 million decrease resulting from net unrealized losses in 2020 as compared to net unrealized gains in 2019 on equity investments in theNDT Fund and a$22 million decrease in net realized gains onNDT Fund investments attributable to market volatility associated with the ongoing coronavirus pandemic. Other Income (Deductions) decreased$36 million primarily due to greater purchases of NOLs underNew Jersey's Technology Tax Benefit Transfer Program. Net Non-Operating Pension and OPEB Credits (Costs) increased$5 million due to a$2 million increase in the expected return on plan assets, a$2 million decrease in interest cost and a$1 million decrease in the amortization of the net unrecognized loss. Interest Expense increased$9 million due primarily to lower capitalized interest as a result of BH5 being place into service. Income Tax Expense decreased$194 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, and the benefit from the 2019 NOLs purchased under the New Jersey Technology Tax Benefit Transfer Program in 2020. 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 capital expenditures and shareholder dividend payments. For the three months endedMarch 31, 2020 , our operating cash flow decreased$65 million as compared to the same period in 2019. The net decrease was primarily due to the net changes from our subsidiaries as discussed below. 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 C&I customer payment patterns. While the negative impact on customer payment patterns, including reduced cash inflow and higher Accounts Receivable aging and associated increasing bad debt expense did not have a material impact on our cash flows for the quarter endedMarch 31, 2020 , a prolonged adverse change to customer payment patterns due to the ongoing coronavirus pandemic could materially and adversely impact our cash flows from operations. PSE&G PSE&G's operating cash flow increased$115 million from$520 million to$635 million for the three months endedMarch 31, 2020 , as compared to the same period in 2019, due primarily to an increase of$139 million related to accounts receivable resulting primarily from higher outstanding billings in 2019, higher earnings in 2020 and$63 million in decreased payments to third party BGS suppliers in 2020 due to lower demand. These increases were partially offset by a decrease of$149 million in regulatory deferrals due to lower sales volumes attributable to a milder winter weather and BGSS credits awarded to customers in 2020, as well as tax payments in 2020 as compared to tax refunds in 2019. 75 --------------------------------------------------------------------------------
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PSEG Power PSEG Power's operating cash flow decreased$242 million from$726 million to$484 million for the three months endedMarch 31, 2020 , as compared to the same period in 2019, due to a$135 million reduction related to counterparty cash collateral posting requirements, lower earnings, and an$87 million decrease in the usage of fuels, materials and supplies, partially offset by tax refunds in 2020 as compared to tax payments in 2019. Short-Term Liquidity PSEG meets its short-term liquidity requirements, as well as those ofPSEG Power , primarily with cash and through the issuance of commercial 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. InMarch 2020 , PSEG entered into a$300 million , 364-day term loan agreement and inApril 2020 it entered into two 364-day term loan agreements for$200 million and$300 million . These term loans provide an additional source of liquidity for our operations as we continue to monitor the impact of the ongoing coronavirus pandemic on the volatility and availability of the capital and commercial paper markets. These term loans are not included in the credit facility amounts presented in the table below. Our total credit facilities and available liquidity as ofMarch 31, 2020 were as follows: As of March 31, 2020 Total Available Company/Facility Facility Usage Liquidity Millions PSEG$ 1,500 $ 806 $ 694 PSE&G 600 17 583 PSEG Power 2,100 154 1,946 Total$ 4,200 $ 977 $ 3,223 As ofMarch 31, 2020 , our credit facility capacity was in excess of our projected maximum liquidity requirements over our 12 month planning 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 ofPSEG 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 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$916 million and$974 million as ofMarch 31, 2020 andDecember 31, 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 a$700 million floating rate term loan maturing inNovember 2020 , and • PSE&G has$250 million of 3.50% Medium-Term Notes (MTN), Series G, maturing inAugust 2020 ,$9 million of 7.04% MTN, Series A, maturing in
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. InApril 2020 , PSEG utilized external sources of liquidity, including the commercial paper markets and term loans, to repay a loan toPSEG Power through the money pool andPSEG Power used the proceeds from this loan repayment to redeem its$406 million of 5.13% Senior Notes at maturity. 76 --------------------------------------------------------------------------------
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For additional information see Item 1. Note 12. Debt and Credit Facilities. Guarantor Financial InformationPSEG Power's Senior Notes are fully and unconditionally guaranteed on a joint and several basis by its subsidiaries,PSEG Fossil LLC ,PSEG Nuclear LLC andPSEG Energy Resources & Trade LLC . Each guarantor subsidiary is a consolidated subsidiary ofPSEG Power . InMarch 2020 , theUnited States Securities and Exchange Commission adopted amendments to the financial disclosure requirements applicable to certain registered debt offerings.PSEG Power adopted these amendments onMarch 31, 2020 . Accordingly, summarized financial information is being presented, on a combined basis, only forPSEG Power (parent company) and the guarantors ofPSEG Power's Senior Notes, excluding investments in, and earnings (losses) from, subsidiaries that are not guarantors. All transactions betweenPSEG 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 tables below. Three Months Ended Year Ended March 31, 2020 December 31, 2019 Millions Operating Revenues (A) $ 1,205 $ 4,315 Operating Income (Loss) $ 209 $ 451 Net Income $ 22 $ 484
(A) Operating Revenues include sales to affiliates of
million, respectively for the three months ended March 31, 2020 and year
ended December 31, 2019 , respectively.
As of As of
March 31, 2020 December 31, 2019
Millions
Current Receivables from Subsidiaries and
Affiliates $ 2,773 $ 2,456
Total Current Assets $ 3,780 $ 3,559
Noncurrent Receivables from Affiliates $ 17 $ 17
Total Noncurrent Assets $ 6,882 $ 7,025
Current Payables to Subsidiaries and
Affiliates $ 245 $ 218
Total Current Liabilities $ 1,176 $ 1,155
Noncurrent Payables to Affiliates $ 113 $ 115
Total Noncurrent Liabilities $ 4,946 $ 4,934
Pension and NDT Fund Obligations
As a result of the market downturn due to the ongoing coronavirus pandemic, the
fair market value of assets in our pension trust decreased from $5.9 billion as
of December 31, 2019 to $5.0 billion as of March 31, 2020 . Internal Revenue
Service (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 had
accumulated funding credits totaling approximately $600 million , 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.
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Common Stock Dividends OnApril 21, 2020 , our Board of Directors declared a$0.49 dividend per share of common stock for the second quarter of 2020. This reflects an indicative annual dividend rate of$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 2020 and Future Outlook for additional information. PSE&G During the three months endedMarch 31, 2020 , PSE&G made capital expenditures of$620 million , primarily for T&D system reliability. This does not include expenditures for cost of removal, net of salvage, of$24 million , which are included in operating cash flows. PSEG Power During the three months endedMarch 31, 2020 ,PSEG Power made capital expenditures of$39 million , excluding$58 million for nuclear fuel, primarily related to various projects at Fossil and Nuclear. 78 --------------------------------------------------------------------------------
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ACCOUNTING MATTERS For information related to recent accounting matters, see Item 1. Note 2. Recent Accounting Standards.
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