NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Organization, Basis of Presentation and Significant Accounting Policies
Organization
Public Service Enterprise Group Incorporated (PSEG) is a public utility holding company that, acting through its wholly owned subsidiaries, is a predominantly regulated electric and gas utility and a nuclear generation business. PSEG’s principal operating subsidiaries are:
•Public Service Electric and Gas Company (PSE&G)—which is a public utility engaged principally in the transmission of electricity and distribution of electricity and natural gas in certain areas of New Jersey. PSE&G is subject to regulation by the New Jersey Board of Public Utilities (BPU), the Federal Energy Regulatory Commission (FERC) and other federal and New Jersey state regulators. PSE&G also invests in regulated solar generation projects and energy efficiency (EE) and related programs in New Jersey, which are regulated by the BPU.
•PSEG Power LLC (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 by FERC, the Nuclear Regulatory Commission (NRC), and other federal regulators and state regulators in the states in which they operate.
PSEG’s other direct wholly owned subsidiaries are: PSEG Energy Holdings L.L.C. (Energy Holdings), which holds investments in offshore wind ventures and legacy lease investments; PSEG Long Island LLC (PSEG LI), which operates the Long Island Power Authority’s (LIPA) electric transmission and distribution (T&D) system under an Operations Services Agreement (OSA); and PSEG Services Corporation (Services), which provides certain management, administrative and general services to PSEG and its subsidiaries at cost.
Basis of Presentation
The respective financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) applicable to Quarterly Reports on Form 10-Q. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting guidance generally accepted in the United States (GAAP) have been condensed or omitted pursuant to such rules and regulations. These Condensed Consolidated Financial Statements and Notes to Condensed Consolidated Financial Statements (Notes) should be read in conjunction with, and update and supplement matters discussed in, the Annual Report on Form 10-K for the year ended December 31, 2022.
The unaudited condensed consolidated financial information furnished herein reflects all adjustments which are, in the opinion of management, necessary to fairly state the results for the interim periods presented. All such adjustments are of a normal recurring nature. All significant intercompany accounts and transactions are eliminated in consolidation. The year-end Condensed Consolidated Balance Sheets were derived from the audited Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2022.
Significant Accounting Policies
Cash, Cash Equivalents and Restricted Cash
The following provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of the same such amounts for the beginning (December 31, 2022) and ending periods shown in the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023. Restricted cash consists primarily of deposits received related to various construction projects at PSE&G.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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| | PSE&G | | PSEG Power & Other (A) | | Consolidated | |
| | Millions | |
| As of December 31, 2022 | | | | | | |
| Cash and Cash Equivalents | $ | 220 | | | $ | 245 | | | $ | 465 | | |
| Restricted Cash in Other Current Assets | 27 | | | — | | | 27 | | |
| Restricted Cash in Other Noncurrent Assets | 19 | | | — | | | 19 | | |
| Cash, Cash Equivalents and Restricted Cash | $ | 266 | | | $ | 245 | | | $ | 511 | | |
| | | | | | | |
| As of March 31, 2023 | | | | | | |
| Cash and Cash Equivalents | $ | 814 | | | $ | 391 | | | $ | 1,205 | | |
| Restricted Cash in Other Current Assets | 29 | | | — | | | 29 | | |
| Restricted Cash in Other Noncurrent Assets | 20 | | | — | | | 20 | | |
| Cash, Cash Equivalents and Restricted Cash | $ | 863 | | | $ | 391 | | | $ | 1,254 | | |
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(A)Includes amounts applicable to PSEG Power, Energy Holdings, Services and PSEG (parent company).
Note 2. Revenues
Nature of Goods and Services
The following is a description of principal activities by which PSEG and its subsidiaries generate their revenues.
PSE&G
Revenues from Contracts with Customers
Electric and Gas Distribution and Transmission Revenues—PSE&G sells gas and electricity to customers under default commodity supply tariffs. PSE&G’s regulated electric and gas default commodity supply and distribution services are separate tariffs which are satisfied as the product(s) and/or service(s) are delivered to the customer. The electric and gas commodity and delivery tariffs are recurring contracts in effect until modified through the regulatory approval process as appropriate. Revenue is recognized over time as the service is rendered to the customer. Included in PSE&G’s regulated revenues are unbilled electric and gas revenues which represent the estimated amount customers will be billed for services rendered from the most recent meter reading to the end of the respective accounting period.
PSE&G’s transmission revenues are earned under a separate tariff using a FERC-approved annual formula rate mechanism. The performance obligation of transmission service is satisfied and revenue is recognized as it is provided to the customer. The formula rate mechanism provides for an annual filing of an estimated revenue requirement with rates effective January 1 of each year and a true-up to that estimate based on actual revenue requirements. The true-up mechanism is an alternative revenue which is outside the scope of revenue from contracts with customers.
Other Revenues from Contracts with Customers
Other revenues from contracts with customers, which are not a material source of PSE&G revenues, are generated primarily from appliance repair services and solar generation projects. The performance obligations under these contracts are satisfied and revenue is recognized as control of products is delivered or services are rendered.
Payment for services rendered and products transferred are typically due on average within 30 days of delivery.
Revenues Unrelated to Contracts with Customers
Other PSE&G revenues unrelated to contracts with customers are derived from alternative revenue mechanisms recorded pursuant to regulatory accounting guidance. These revenues, which include the Conservation Incentive Program (CIP), green energy program true-ups and transmission formula rate true-ups, are not a material source of PSE&G revenues.
PSEG Power & Other
Revenues from Contracts with Customers
Electricity and Related Products—PSEG Power owns generation solely within PJM Interconnection, L.L.C. (PJM), which facilitates the dispatch of energy and energy-related products. Prior to the sale of the fossil generation assets in 2022, PSEG
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Power also had significant sales in the New York Independent System Operator (NYISO) and the New England Independent System Operator (ISO-NE) regions.
PSEG Power primarily sells to the Independent System Operators (ISOs) energy and ancillary services which are separately transacted in the day-ahead or real-time energy markets. The energy and ancillary services performance obligations are typically satisfied over time as delivered and revenue is recognized accordingly. Historically, wholesale load contracts have been executed in the different ISO regions for the bundled supply of energy, capacity, renewable energy credits (RECs) and ancillary services representing PSEG Power’s performance obligations. Revenue for these contracts is recognized over time as the bundled service is provided to the customer. PSEG generally reports electricity sales and purchases conducted with those individual ISOs net on an hourly basis in either Operating Revenues or Energy Costs in its Condensed Consolidated Statements of Operations. The classification depends on the net hourly activity.
PSEG Power enters into capacity sales and capacity purchases through the ISOs. The transactions are reported on a net basis dependent on PSEG Power’s monthly net sale or purchase position through the individual ISOs. The performance obligations with the ISOs are satisfied over time upon delivery of the capacity and revenue is recognized accordingly. In addition to capacity sold through the ISOs, PSEG Power sells capacity through bilateral contracts and the related revenue is reported on a gross basis and recognized over time upon delivery of the capacity.
In December 2022, PJM called its first ISO-wide Maximum Generation Emergency Action, which triggered a Performance Assessment Interval (PAI) event. During the PAI, PSEG Power’s Salem 2 nuclear plant incurred penalties due to an unplanned outage during the second day of the event. Our remaining nuclear plants earned bonus payments during the entire event. In 2022, the estimated impact of Salem 2’s penalties and bonuses earned by the other units was not material to PSEG’s financial results. Additional revenue may be recorded in 2023 upon further clarification from the ISO on expected bonus payments.
PSEG Power’s Salem 1, Salem 2 and Hope Creek nuclear plants have been awarded Zero Emission Certificates (ZECs) by the BPU through May 2025. These nuclear plants are expected to receive ZEC revenue from the electric distribution companies (EDCs) in New Jersey. PSEG Power recognizes revenue when the units generate electricity, which is when the performance obligation is satisfied. These revenues are included in PJM Sales in the following tables. See Note 3. Early Plant Retirements/Asset Dispositions and Impairments for additional information.
Gas Contracts—PSEG Power sells wholesale natural gas, primarily through an index based full-requirements Basic Gas Supply Service (BGSS) contract with PSE&G to meet the gas supply requirements of PSE&G’s customers. The BGSS contract remains in effect unless terminated by either party with a two-year notice. Based upon the availability of natural gas, storage and pipeline capacity beyond PSE&G’s daily needs, PSEG Power also sells gas and pipeline capacity to other counterparties under bilateral contracts. The performance obligation is primarily the delivery of gas which is satisfied over time. Revenue is recognized as gas is delivered or pipeline capacity is released.
PSEG LI Contract—PSEG LI has a contract with LIPA which generates revenues. PSEG LI’s subsidiary, Long Island Electric Utility Servco, LLC (Servco) records costs which are recovered from LIPA and records the recovery of those costs as revenues when Servco is a principal in the transaction.
Other Revenues from Contracts with Customers
PSEG Power has entered into long-term contracts with LIPA for energy management and fuel procurement services. Revenue is recognized over time as services are rendered.
Revenues Unrelated to Contracts with Customers
PSEG Power’s revenues unrelated to contracts with customers include electric, gas and certain energy-related transactions accounted for in accordance with Derivatives and Hedging accounting guidance. See Note 12. Financial Risk Management Activities for further discussion.
Energy Holdings generates lease revenues which are recorded pursuant to lease accounting guidance.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Disaggregation of Revenues
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| | PSE&G | | PSEG Power & Other (A) | | Eliminations | | Consolidated | |
| | Millions | |
| Three Months Ended March 31, 2023 | | | | | | | | |
| Revenues from Contracts with Customers | | | | | | | | |
| Electric Distribution | $ | 730 | | | $ | — | | | $ | — | | | $ | 730 | | |
| Gas Distribution | 959 | | | — | | | (1) | | | 958 | | |
| Transmission | 425 | | | — | | | — | | | 425 | | |
| Electricity and Related Product Sales | | | | | | | | |
| PJM | | | | | | | | |
| Third-Party Sales | — | | | 276 | | | — | | | 276 | | |
| Sales to Affiliates | — | | | 31 | | | (31) | | | — | | |
| NYISO | — | | | — | | | — | | | — | | |
| ISO-NE | — | | | 3 | | | — | | | 3 | | |
| Gas Sales | | | | | | | | |
| Third-Party Sales | — | | | 86 | | | — | | | 86 | | |
| Sales to Affiliates | — | | | 533 | | | (533) | | | — | | |
| Other Revenues from Contracts with Customers (B) | 78 | | | 153 | | | — | | | 231 | | |
| Total Revenues from Contracts with Customers | 2,192 | | | 1,082 | | | (565) | | | 2,709 | | |
| Revenues Unrelated to Contracts with Customers (C) | 101 | | | 945 | | | — | | | 1,046 | | |
| Total Operating Revenues | $ | 2,293 | | | $ | 2,027 | | | $ | (565) | | | $ | 3,755 | | |
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| | PSE&G | | PSEG Power & Other (A) | | Eliminations | | Consolidated | |
| | Millions | |
| Three Months Ended March 31, 2022 | | | | | | | | |
| Revenues from Contracts with Customers | | | | | | | | |
| Electric Distribution | $ | 720 | | | $ | — | | | $ | — | | | $ | 720 | | |
| Gas Distribution | 1,047 | | | — | | | (1) | | | 1,046 | | |
| Transmission | 392 | | | — | | | — | | | 392 | | |
| Electricity and Related Product Sales | | | | | | | | |
| PJM | | | | | | | | |
| Third-Party Sales | — | | | 582 | | | — | | | 582 | | |
| Sales to Affiliates | — | | | 56 | | | (56) | | | — | | |
| NYISO | — | | | 88 | | | — | | | 88 | | |
| ISO-NE | — | | | 86 | | | — | | | 86 | | |
| Gas Sales | | | | | | | | |
| Third-Party Sales | — | | | 136 | | | — | | | 136 | | |
| Sales to Affiliates | — | | | 526 | | | (526) | | | — | | |
| Other Revenues from Contracts with Customers (B) | 85 | | | 146 | | | (1) | | | 230 | | |
| Total Revenues from Contracts with Customers | 2,244 | | | 1,620 | | | (584) | | | 3,280 | | |
| Revenues Unrelated to Contracts with Customers (C) | 40 | | | (1,007) | | | — | | | (967) | | |
| Total Operating Revenues | $ | 2,284 | | | $ | 613 | | | $ | (584) | | | $ | 2,313 | | |
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(A)Includes revenues applicable to PSEG Power, PSEG LI and Energy Holdings.
(B)Includes primarily revenues from appliance repair services and the sale of solar renewable energy credits (SRECs) at auction at PSE&G. PSEG Power & Other includes PSEG LI’s OSA with LIPA and PSEG Power’s energy management fee with LIPA.
(C)Includes primarily alternative revenues at PSE&G principally from the CIP program and derivative contracts and lease contracts at PSEG Power & Other.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Contract Balances
PSE&G
PSE&G did not have any material contract balances (rights to consideration for services already provided or obligations to provide services in the future for consideration already received) as of March 31, 2023 and December 31, 2022. Substantially all of PSE&G’s accounts receivable and unbilled revenues result from contracts with customers that are priced at tariff rates. Allowances represented approximately 19% and 20% of accounts receivable (including unbilled revenues) as of March 31, 2023 and December 31, 2022, respectively.
Accounts Receivable—Allowance for Credit Losses
PSE&G’s accounts receivable, including unbilled revenues, is primarily comprised of utility customer receivables for the provision of electric and gas service and appliance services, and are reported on the balance sheet as gross outstanding amounts adjusted for an allowance for credit losses. The allowance for credit losses reflects PSE&G’s best estimate of losses on the account balances. The allowance is based on PSE&G’s projection of accounts receivable aging, historical experience, economic factors and other currently available evidence, including the estimated impact of the COVID-19 pandemic on the outstanding balances as of March 31, 2023. PSE&G’s electric bad debt expense is recoverable through its Societal Benefits Clause (SBC) mechanism. As of March 31, 2023, PSE&G had a deferred balance of $137 million from electric bad debts recorded as a Regulatory Asset. In addition, as of March 31, 2023, PSE&G had deferred incremental gas bad debt expense of $68 million as a Regulatory Asset for future regulatory recovery due to the impact of the coronavirus pandemic. See Note 5. Rate Filings for additional information.
The following provides a reconciliation of PSE&G’s allowance for credit losses for the three months ended March 31, 2023 and 2022:
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| | | 2023 | | 2022 | |
| | | Millions | |
| Balance as of Beginning of Year | $ | 339 | | | $ | 337 | | |
| Utility Customer and Other Accounts | | | | |
| | Provision | 9 | | | 33 | | |
| | Write-offs, net of Recoveries of $7 million and $8 million in 2023 and 2022, respectively | (29) | | | (19) | | |
| Balance as of End of Period | $ | 319 | | | $ | 351 | | |
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PSEG Power & Other
PSEG Power generally collects consideration upon satisfaction of performance obligations, and therefore, PSEG Power had no material contract balances as of March 31, 2023 and December 31, 2022.
PSEG Power’s accounts receivable include amounts resulting from contracts with customers and other contracts which are out of scope of accounting guidance for revenues from contracts with customers. The majority of these accounts receivable are subject to master netting agreements. As a result, accounts receivable resulting from contracts with customers and receivables unrelated to contracts with customers are netted within Accounts Receivable and Accounts Payable on the Condensed Consolidated Balance Sheets.
PSEG Power’s accounts receivable consist mainly of revenues from energy and ancillary services sold directly to ISOs, wholesale load contracts and capacity sales which are executed in the different ISO regions, and other counterparties. In the wholesale energy markets in which PSEG Power operates, payment for services rendered and products transferred are typically due within 30 days of delivery. As such, there is little credit risk associated with these receivables. PSEG Power did not record an allowance for credit losses for these receivables as of March 31, 2023 or December 31, 2022. PSEG Power monitors the status of its counterparties on an ongoing basis to assess whether there are any anticipated credit losses.
PSEG LI did not have any material contract balances as of March 31, 2023 and December 31, 2022.
Remaining Performance Obligations under Fixed Consideration Contracts
PSEG primarily records revenues as allowed by the guidance, which states that if an entity has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date, the entity may recognize revenue in the amount to which the entity has a right to invoice. PSEG has future performance obligations under contracts with fixed consideration as follows:
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Capacity Revenues from the PJM Annual Base Residual and Incremental Auctions—The Base Residual Auction is generally conducted annually three years in advance of the operating period. The 2022/2023 auction was held in June 2021 and the 2023/2024 auction was held in June 2022. In February 2023, the results of the 2024/2025 auction held in December 2022 were released. PSEG Power expects to realize the following average capacity prices resulting from the base and incremental auctions, including unit specific bilateral contracts for previously cleared capacity obligations.
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| Delivery Year | | $ per MW-Day | | MW Cleared | | |
| June 2022 to May 2023 | | $97 | | 3,300 | | | |
| June 2023 to May 2024 | | $49 | | 3,700 | | | |
| June 2024 to May 2025 | | $55 | | 3,500 | | | |
| | | | | | | |
Capacity transactions with the PJM Regional Transmission Organization are reported on a net basis dependent on PSEG Power’s monthly net sale or purchase position.
Bilateral capacity contracts—Capacity obligations pursuant to contract terms through 2029 are anticipated to result in revenues totaling $31 million.
Amended OSA—PSEG LI entered into an amended OSA with LIPA effective April 2022. The OSA remains a 12-year services contract ending in 2025 with annual fixed and variable components. The fixed fee for the provision of services thereunder in 2023 is approximately $42 million and is updated each year based on the change in the Consumer Price Index.
Note 3. Early Plant Retirements/Asset Dispositions and Impairments
Nuclear
In April 2019, PSEG Power’s Salem 1, Salem 2 and Hope Creek nuclear plants were awarded ZECs by the BPU. Pursuant to a process established by the BPU, ZECs are purchased from selected nuclear plants and recovered through a non-bypassable distribution charge in the amount of $0.004 per kilowatt-hour (KWh) used (which is equivalent to approximately $10 per megawatt hour (MWh) generated in payments to selected nuclear plants (ZEC payment)). Each nuclear plant received ZEC revenue for approximately three years, through May 2022. That first eligibility period related to the award of ZECs from the April 2019 BPU Order has concluded.
In April 2021, PSEG Power’s Salem 1, Salem 2 and Hope Creek nuclear plants were awarded ZECs for the three-year eligibility period starting June 2022 at the same approximate $10 per MWh received during the prior ZEC period through May 2022 referenced above. As a result, each nuclear plant is receiving ZEC revenue for an additional three years starting June 2022. The terms and conditions of this April 2021 ZEC award are the same as the ZEC period through May 2022. In May 2021, the New Jersey Division of Rate Counsel filed an appeal with the New Jersey Appellate Division of the BPU’s April 2021 decision. PSEG cannot predict the outcome of this matter.
The award of ZECs attaches certain obligations, including an obligation to repay the ZECs in the event that a plant ceases operations during the period that it was awarded ZECs, subject to certain 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. Further, the ZEC payment may be adjusted by the BPU at any time to offset environmental or fuel diversity payments that a selected nuclear plant may receive from another source.
In August 2022, the Inflation Reduction Act (IRA) was signed into law expanding incentives promoting carbon-free generation. The enacted legislation established the Production Tax Credit (PTC) for electricity generation using nuclear energy set to begin in 2024 through 2032. The expected PTC rate is up to $15/MWh subject to adjustment based upon a facility’s gross receipts. The PTC rate and the gross receipts cap are subject to annual inflation adjustments. The U.S. Treasury is expected to clarify the definition of gross receipts prior to when the eligibility period begins in 2024. PSEG Power is continuing to analyze the impact of the IRA on its nuclear units, including additional future guidance from the U.S. Treasury and the impact of PTCs on expected ZEC payments.
PSEG Power may take all necessary steps to cease to operate all of these plants and will incur associated costs and accounting charges in the event that the financial condition of the plants is materially adversely impacted in the future. This decision may be based upon market conditions, including energy and capacity revenues, insufficient government financial support, or, in the case of the Salem nuclear plants, decisions by the Environmental Protection Agency and state environmental regulators regarding the implementation of Section 316(b) of the Clean Water Act (CWA) and related state regulations, or other factors. The associated costs and accounting charges may include, among other things, one-time impairment charges or accelerated Depreciation and Amortization Expense on the remaining carrying value of the plants, potential penalties associated with the
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
early termination of capacity obligations and fuel contracts, accelerated asset retirement costs, severance costs, environmental remediation costs and, in certain circumstances potential additional funding of the Nuclear Decommissioning Trust Fund, which would result in a material adverse impact on PSEG’s results of operations.
Non-Nuclear
In March 2023, Energy Holdings completed the sale of one of its domestic energy generating facilities and recorded an immaterial pre-tax gain.
In August 2021, PSEG entered into two agreements to sell PSEG Power’s 6,750 MW fossil generating portfolio for aggregate consideration of approximately $1,920 million and recorded a pre-tax impairment loss on sale of approximately $2,691 million. In February 2022, PSEG completed the sale of this fossil generating portfolio. As defined in each agreement, further adjustments were required as a result of purchase price and working capital adjustments, including an adjustment for positive or negative cash flow of the fossil generating assets based on actual performance starting after December 31, 2021 through the respective closing dates. As a result, in the first quarter of 2022 PSEG Power recorded an additional pre-tax impairment of approximately $43 million.
PSEG Power has retained ownership of certain assets and liabilities excluded from the transactions primarily related to obligations under certain environmental regulations, including possible remediation obligations under the New Jersey Industrial Site Recovery Act (ISRA) and the Connecticut Transfer Act (CTA). The amounts for any such environmental remediation are not currently estimable, but may be material.
Note 4. Variable Interest Entities (VIEs)
VIE for which PSEG LI is the Primary Beneficiary
PSEG LI consolidates Servco, a marginally capitalized VIE, which was created for the purpose of operating LIPA’s T&D system in Long Island, New York as well as providing administrative support functions to LIPA. PSEG LI is the primary beneficiary of Servco because it directs the operations of Servco, the activity that most significantly impacts Servco’s economic performance and it has the obligation to absorb losses of Servco that could potentially be significant to Servco. Such losses would be immaterial to PSEG.
Pursuant to the OSA, Servco’s operating costs are paid entirely by LIPA, and therefore, PSEG LI’s risk is limited related to the activities of Servco. PSEG LI has no current obligation to provide direct financial support to Servco. In addition to payment of Servco’s operating costs as provided for in the OSA, PSEG LI receives an annual contract management fee. PSEG LI’s annual contractual management fee, in certain situations, could be partially offset by Servco’s annual storm costs not approved by the Federal Emergency Management Agency, limited contingent liabilities and penalties for failing to meet certain performance metrics.
For transactions in which Servco acts as principal and controls the services provided to LIPA, such as transactions with its employees for labor and labor-related activities, including pension and OPEB-related transactions, Servco records revenues and the related pass-through expenditures separately in Operating Revenues and Operation and Maintenance (O&M) Expense, respectively. Servco recorded $128 million and $123 million for the three months ended March 31, 2023 and 2022, respectively, of O&M costs, the full reimbursement of which was reflected in Operating Revenues. For transactions in which Servco acts as an agent for LIPA, it records revenues and the related expenses on a net basis, resulting in no impact on PSEG’s Condensed Consolidated Statement of Operations.
VIE for which PSEG is not the Primary Beneficiary
PSEG holds a 25% equity interest in Ocean Wind JV HoldCo, LLC (OWH). OWH is considered a VIE since its equity investments at risk are not sufficient to permit this entity to finance its activities without additional subordinated financial support. Since PSEG does not have voting control or the power to direct the activities of OWH that most significantly impact its economic performance, PSEG has determined that it is not the primary beneficiary and therefore accounts for this investment under the equity method. As of March 31, 2023 and December 31, 2022, PSEG’s carrying amount of its investment in OWH was $223 million and $225 million, respectively, which is included in Long-Term Investments on PSEG’s Condensed Consolidated Balance Sheets. PSEG’s maximum exposure to loss is limited to the carrying amount of its investment.
In January 2023, PSEG agreed to sell to Ørsted its 25% equity interest in OWH. The sale proceeds approximate PSEG’s carrying value of the investment and no material gain or loss is expected upon disposition nor is the sale contingent upon Ørsted electing to proceed to the construction phase of the project. The sale is contingent upon finalization of a purchase and sale agreement with Ørsted as well as other closing conditions and any regulatory approval that may be required to close on the
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
transaction. The sale is expected to close in the first half of 2023. PSEG has no further obligation to make any capital contributions to the project prior to closing on the transaction.
Note 5. Rate Filings
This Note should be read in conjunction with Note 7. Regulatory Assets and Liabilities to the Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2022.
In addition to items previously reported in the Annual Report on Form 10-K, significant regulatory orders received and currently pending rate filings with the BPU are as follows:
BGSS—In January and February 2023, PSE&G filed with the BPU two self-implementing BGSS rate reductions of 15 cents and 3 cents per therm, effective February 1, 2023 and March 1, 2023, respectively. These reductions resulted in a new BGSS rate of approximately 47 cents per therm effective March 1, 2023.
In April 2023, the BPU gave final approval to PSE&G’s BGSS rate of 47 cents per therm.
CIP—In February 2023, the BPU gave final approval for PSE&G to recover approximately $52 million of deficient electric revenues that resulted from the 12-month period ended May 31, 2022, with approximately $18 million approved for recovery for the first year starting on the effective date of June 15, 2022 and the remaining $34 million to be recovered starting in June 2023.
In April 2023, the BPU gave final approval for PSE&G to recover approximately $53 million of deficient gas revenues that resulted from the 12-month period ended September 30, 2022, over one year effective October 1, 2022.
In April 2023, PSE&G updated its annual electric CIP petition seeking BPU approval to recover estimated deficient electric revenues of approximately $61 million based on the 12-month period ended May 31, 2023 with new rates proposed to be effective June 1, 2023. This matter is pending.
COVID-19 Deferral—PSE&G continues to make quarterly filings as required by the BPU and has recorded a Regulatory Asset as of March 31, 2023 of approximately $131 million for net incremental costs, including $68 million for incremental gas bad debt expense associated with customer accounts receivable, which PSE&G expects are probable of recovery under the BPU order.
Energy Strong II—In April 2023, the BPU approved PSE&G’s updated filing for annual electric and gas revenue increases of $16 million and $4 million, respectively, effective May 1, 2023. These increases represent the return on and of Energy Strong II investments placed in service through January 2023.
Gas System Modernization Program II (GSMP II)—In March 2023, PSE&G updated its GSMP II petition for actual investments placed in service through February 2023 seeking BPU approval to recover in gas base rates an estimated annual revenue increase of approximately $11 million effective June 1, 2023. This matter is pending.
Pension—In February 2023, the BPU approved an accounting order authorizing PSE&G to modify its method for calculating the amortization of the net actuarial gain or loss component of pension expense for ratemaking purposes. This methodology change for ratemaking purposes is effective for the calendar year ending December 31, 2023 and forward. As of March 31, 2023, PSE&G has deferred $15 million as a Regulatory Asset under this methodology.
Remediation Adjustment Clause (RAC)—In January 2023, PSE&G filed its RAC 30 petition with the BPU seeking recovery of approximately $44 million of net Manufactured Gas Plant (MGP) expenditures incurred from August 1, 2021 through July 31, 2022. This matter is pending.
SBC—In January 2023, PSE&G filed a petition to increase its annual electric and gas rates by approximately $52 million and $32 million, respectively, in order to recover electric and gas costs incurred or expected to be incurred through February 2024 under its EE and Renewable Energy and Social Programs. The increase to electric rates includes the impact of increased bad debt expense as a result of the negative economic impact of the coronavirus pandemic and the resulting impact of moratoriums on collections. This matter is pending.
ZEC Program—In January 2023, the BPU approved PSE&G’s petition to set the ZEC refund component of the tariff rate to zero effective February 1, 2023 as overcollections for the ZEC Energy Year ended May 31, 2022 totaling $1.3 million, including interest, were refunded to customers in 2022 through January 2023.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 6. Leases
PSEG and its subsidiaries are both a lessor and a lessee in operating leases. As of March 31, 2023, PSEG and its subsidiaries were lessors for leases classified as operating leases or leveraged leases. See Note 7. Financing Receivables. There was no significant change in amounts reported in Note 8. Leases in the Annual Report on Form 10-K for the year ended December 31, 2022 for operating leases in which PSEG and its subsidiaries are lessees.
PSEG and its subsidiaries, as lessors, have lease agreements with lease and non-lease components, which are primarily related to generating facilities and real estate assets. Rental income from these leases is included in Operating Revenues.
PSEG Nuclear, LLC, a wholly owned subsidiary of PSEG Power, is the lessor in an operating lease for certain parcels of land with terms through 2050, plus five optional renewal periods of ten years.
Energy Holdings is the lessor in leveraged leases. See Note 7. Financing Receivables.
Energy Holdings is the lessor in an operating lease for a domestic energy generation facility with remaining terms through 2036, and in real estate assets with remaining terms through 2049. As of March 31, 2023, Energy Holdings’ property subject to these leases had a total carrying value of $30 million.
In March 2023, Energy Holdings completed the sale of one of its domestic energy generating facilities and recorded an immaterial pre-tax gain.
The following is the operating lease income for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | Three Months Ended March 31, | | |
| | | 2023 | | 2022 | | |
| | | Millions | | |
| Fixed Lease Income | | $ | 6 | | | $ | 8 | | | |
| Total Operating Lease Income | | $ | 6 | | | $ | 8 | | | |
| | | | | | | |
Note 7. Financing Receivables
PSE&G
PSE&G’s Solar Loan Programs are designed to help finance the installation of solar power systems throughout its electric service area. Interest income on the loans is recorded on an accrual basis. The loans are paid back with SRECs generated from the related installed solar electric system. PSE&G uses collection experience as a credit quality indicator for its Solar Loan Programs and conducts a comprehensive credit review for all prospective borrowers. As of March 31, 2023, none of the solar loans were impaired; however, in the event of a loan default, the basis of the solar loan would be recovered through a regulatory recovery mechanism. Therefore, no current credit losses have been recorded for Solar Loan Programs I, II and III. A substantial portion of these loan amounts are noncurrent and reported in Long-Term Investments on PSEG’s and PSE&G’s Condensed Consolidated Balance Sheets. The following table reflects the outstanding loans by class of customer, none of which would be considered “non-performing.”
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| | | As of | |
| Outstanding Loans by Class of Customer | | March 31,
2023 | | December 31,
2022 | |
| | | Millions | |
| Commercial/Industrial | | $ | 82 | | | $ | 85 | | |
| Residential | | 4 | | | 4 | | |
| Total | | 86 | | | 89 | | |
| Current Portion (included in Accounts Receivable) | | (27) | | | (27) | | |
| Noncurrent Portion (included in Long-Term Investments) | | $ | 59 | | | $ | 62 | | |
| | | | | | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The solar loans originated under three Solar Loan Programs are comprised as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| Programs | | Balance as of March 31, 2023 | | Funding Provided | | Residential Loan Term | | Non-Residential Loan Term | |
| | | Millions | | | | | | | |
| Solar Loan I | | $ | 8 | | | prior to 2013 | | 10 years | | 15 years | |
| Solar Loan II | | 40 | | | prior to 2015 | | 10 years | | 15 years | |
| Solar Loan III | | 38 | | | largely funded as of March 31, 2023 | | 10 years | | 10 years | |
| Total | | $ | 86 | | | | | | | | |
| | | | | | | | | | |
The average life of loans paid in full is eight years, which is lower than the loan terms of 10 to 15 years due to the generation of SRECs being greater than expected and/or cash payments made to the loan. Payments on all outstanding loans were current as of March 31, 2023 and have an average remaining life of approximately three years. There are no remaining residential loans outstanding under the Solar Loan I program.
Energy Holdings
Energy Holdings, through its indirect subsidiaries, has investments in assets subject primarily to leveraged lease accounting. A leveraged lease is typically comprised of an investment by an equity investor and debt provided by a third-party debt investor. The debt is recourse only to the assets subject to lease and is not included on PSEG’s Condensed Consolidated Balance Sheets. As an equity investor, Energy Holdings’ equity investments in the leases are comprised of the total expected lease receivables over the lease terms, reduced for any income not yet earned on the leases. This amount is included in Long-Term Investments on PSEG’s Condensed Consolidated Balance Sheets. The more rapid depreciation of the leased property for tax purposes creates tax cash flow that will be repaid to the taxing authority in later periods. As such, the liability for such taxes due is recorded in Deferred Income Taxes on PSEG’s Condensed Consolidated Balance Sheets.
Leveraged leases outstanding as of March 31, 2023 commenced in or prior to 2000. The following table shows Energy Holdings’ gross and net lease investments as of March 31, 2023 and December 31, 2022.
| | | | | | | | | | | | | | | | | |
| | | | | |
| | As of | |
| | March 31,
2023 | | December 31,
2022 | |
| | Millions | |
| Lease Receivables (net of Non-Recourse Debt) | $ | 223 | | | $ | 249 | | |
| Unearned and Deferred Income | (70) | | | (74) | | |
| Gross Investments in Leases | 153 | | | 175 | | |
| Deferred Tax Liabilities | (37) | | | (39) | | |
| Net Investments in Leases | $ | 116 | | | $ | 136 | | |
| | | | | |
The corresponding receivables associated with the lease portfolio are reflected as follows, net of non-recourse debt. The ratings in the table represent the ratings of the entities providing payment assurance to Energy Holdings.
| | | | | | | | | | | | | | | | |
| | | | | | |
| | | Lease Receivables, Net of
Non-Recourse Debt | | | |
| Counterparties' Standard & Poor's (S&P) Credit Rating as of March 31, 2023 | | | | | |
| | As of March 31, 2023 | | | |
| | | Millions | | | |
| AA | | $ | 7 | | | | |
| A- | | 43 | | | | |
| BBB+ to BBB | | 173 | | | | |
| Total | | $ | 223 | | | | |
| | | | | | |
PSEG recorded no credit losses for the leveraged leases existing on March 31, 2023. Upon the occurrence of certain defaults, indirect subsidiaries of Energy Holdings would exercise their rights and seek recovery of their investments, potentially including stepping into the lease directly to protect their investments. While these actions could ultimately protect or mitigate the loss of value, they could require the use of significant capital and trigger certain material tax obligations which could, for certain leases, wholly or partially be mitigated by tax indemnification claims against the counterparty. A bankruptcy of a lessee
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
would likely delay and potentially limit any efforts on the part of the lessors to assert their rights upon default and could delay the monetization of claims.
Note 8. Trust Investments
Nuclear Decommissioning Trust (NDT) Fund
PSEG Power maintains an external master NDT to fund its share of decommissioning costs for its five nuclear facilities upon their respective termination of operation. The trust contains two separate funds: a qualified fund and a non-qualified fund. Section 468A of the Internal Revenue Code limits the amount of money that can be contributed into a qualified fund. The funds are managed by third-party investment managers who operate under investment guidelines developed by PSEG Power.
The following tables show the fair values and gross unrealized gains and losses for the securities held in the NDT Fund.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | As of March 31, 2023 | |
| | Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value | |
| | Millions | |
| Equity Securities | | | | | | | | |
| Domestic | $ | 431 | | | $ | 250 | | | $ | (7) | | | $ | 674 | | |
| International | 383 | | | 86 | | | (18) | | | 451 | | |
| Total Equity Securities | 814 | | | 336 | | | (25) | | | 1,125 | | |
| Available-for-Sale Debt Securities | | | | | | | | |
| Government | 735 | | | 3 | | | (75) | | | 663 | | |
| Corporate | 593 | | | 2 | | | (55) | | | 540 | | |
| Total Available-for-Sale Debt Securities | 1,328 | | | 5 | | | (130) | | | 1,203 | | |
| Total NDT Fund Investments (A) | $ | 2,142 | | | $ | 341 | | | $ | (155) | | | $ | 2,328 | | |
| | | | | | | | | |
(A)The NDT Fund Investments table excludes cash and foreign currency of $3 million as of March 31, 2023, which is part of the NDT Fund.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | As of December 31, 2022 | |
| | Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value | |
| | Millions | |
| Equity Securities | | | | | | | | |
| Domestic | $ | 476 | | | $ | 232 | | | $ | (12) | | | $ | 696 | | |
| International | 336 | | | 68 | | | (28) | | | 376 | | |
| Total Equity Securities | 812 | | | 300 | | | (40) | | | 1,072 | | |
| Available-for-Sale Debt Securities | | | | | | | | |
| Government | 721 | | | — | | | (94) | | | 627 | | |
| Corporate | 597 | | | 1 | | | (69) | | | 529 | | |
| Total Available-for-Sale Debt Securities | 1,318 | | | 1 | | | (163) | | | 1,156 | | |
| Total NDT Fund Investments (A) | $ | 2,130 | | | $ | 301 | | | $ | (203) | | | $ | 2,228 | | |
| | | | | | | | | |
(A)The NDT Fund Investments table excludes cash and foreign currency of $2 million as of December 31, 2022, which is part of the NDT Fund.
Net unrealized gains (losses) on debt securities of $(73) million (after-tax) were included in Accumulated Other Comprehensive Loss on PSEG’s Condensed Consolidated Balance Sheet as of March 31, 2023. The portion of net unrealized gains (losses) recognized in the first three months of 2023 related to equity securities still held as of March 31, 2023 was $56 million.
The amounts in the preceding tables do not include receivables and payables for NDT Fund transactions which have not settled at the end of each period. Such amounts are included in Accounts Receivable and Accounts Payable on the Condensed Consolidated Balance Sheets as shown in the following table.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| | | | | | | | | | | | | | | | | |
| | | | | |
| | As of | | As of | |
| | March 31,
2023 | | December 31,
2022 | |
| | Millions | |
| Accounts Receivable | $ | 21 | | | $ | 14 | | |
| Accounts Payable | $ | 19 | | | $ | 6 | | |
| | | | | |
The following table shows the value of securities in the NDT Fund that have been in an unrealized loss position for less than and greater than 12 months.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | As of March 31, 2023 | | As of December 31, 2022 | |
| | Less Than 12
Months | | Greater Than 12
Months | | Less Than 12
Months | | Greater Than 12
Months | |
| | Fair
Value | | Gross
Unrealized
Losses | | Fair
Value | | Gross
Unrealized
Losses | | Fair
Value | | Gross
Unrealized
Losses | | Fair
Value | | Gross
Unrealized
Losses | |
| | Millions | |
| Equity Securities (A) | | | | | | | | | | | | | | | | |
| Domestic | $ | 41 | | | $ | (4) | | | $ | 12 | | | $ | (3) | | | $ | 90 | | | $ | (10) | | | $ | 9 | | | $ | (2) | | |
| International | 58 | | | (5) | | | 55 | | | (13) | | | 88 | | | (12) | | | 38 | | | (16) | | |
| Total Equity Securities | 99 | | | (9) | | | 67 | | | (16) | | | 178 | | | (22) | | | 47 | | | (18) | | |
| Available-for-Sale Debt Securities | | | | | | | | | | | | | | | | |
| Government (B) | 107 | | | (3) | | | 443 | | | (72) | | | 301 | | | (27) | | | 292 | | | (67) | | |
| Corporate (C) | 87 | | | (4) | | | 347 | | | (51) | | | 221 | | | (21) | | | 249 | | | (48) | | |
| Total Available-for-Sale Debt Securities | 194 | | | (7) | | | 790 | | | (123) | | | 522 | | | (48) | | | 541 | | | (115) | | |
| NDT Trust Investments | $ | 293 | | | $ | (16) | | | $ | 857 | | | $ | (139) | | | $ | 700 | | | $ | (70) | | | $ | 588 | | | $ | (133) | | |
| | | | | | | | | | | | | | | | | |
(A)Equity Securities—Investments in marketable equity securities within the NDT Fund are primarily in common stocks within a broad range of industries and sectors. Unrealized gains and losses on these securities are recorded in Net Income.
(B)Debt Securities (Government)—Unrealized gains and losses on these securities are recorded in Accumulated Other Comprehensive Income (Loss). The unrealized losses on PSEG Power’s NDT investments in U.S. Treasury obligations and Federal Agency mortgage-backed securities were caused by interest rate changes. PSEG Power also has investments in municipal bonds. It is not expected that these securities will settle for less than their amortized cost. PSEG Power does not intend to sell these securities nor will it be more-likely-than-not required to sell before recovery of their amortized cost. PSEG Power did not recognize credit losses for U.S. Treasury obligations and Federal Agency mortgage-backed securities because these investments are guaranteed by the U.S. government or an agency of the U.S. government. PSEG Power did not recognize credit losses for municipal bonds because they are primarily investment grade securities.
(C)Debt Securities (Corporate)—Unrealized gains and losses on these securities are recorded in Accumulated Other Comprehensive Income (Loss). Unrealized losses were due to market declines. It is not expected that these securities would settle for less than their amortized cost. PSEG Power does not intend to sell these securities nor will it be more-likely-than-not required to sell before recovery of their amortized cost. PSEG Power did not recognize credit losses for corporate bonds because they are primarily investment grade securities.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The proceeds from the sales of and the net gains (losses) on securities in the NDT Fund were:
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | Three Months Ended | |
| | | | March 31, | |
| | | | | | 2023 | | 2022 | |
| | | | | | Millions | |
| Proceeds from NDT Fund Sales (A) | | | | | $ | 396 | | | $ | 473 | | |
| Net Realized Gains (Losses) on NDT Fund | | | | | | | | |
| Gross Realized Gains | | | | | $ | 21 | | | $ | 29 | | |
| Gross Realized Losses | | | | | (27) | | | (34) | | |
| Net Realized Gains (Losses) on NDT Fund (B) | | | | | (6) | | | (5) | | |
| Net Unrealized Gains (Losses) on Equity Securities | | | | | 51 | | | (61) | | |
| | | | | | | | | |
| Net Gains (Losses) on NDT Fund Investments | | | | | $ | 45 | | | $ | (66) | | |
| | | | | | | | | |
(A)Includes activity in accounts related to the liquidation of funds being transitioned within the trust.
(B)The cost of these securities was determined on the basis of specific identification.
The NDT Fund debt securities held as of March 31, 2023 had the following maturities:
| | | | | | | | | | | | | | |
| | | | |
| Time Frame | | Fair Value | |
| | | Millions | |
| Less than one year | | $ | 17 | | |
| 1 - 5 years | | 303 | | |
| 6 - 10 years | | 219 | | |
| 11 - 15 years | | 64 | | |
| 16 - 20 years | | 100 | | |
| Over 20 years | | 500 | | |
| Total NDT Available-for-Sale Debt Securities | $ | 1,203 | | |
| | | | |
PSEG Power periodically assesses individual debt securities whose fair value is less than amortized cost to determine whether the investments are impaired. For these securities, management considers its intent to sell or requirement to sell a security prior to expected recovery. In those cases where a sale is expected, any impairment would be recorded through earnings. For fixed income securities where there is no intent to sell or likely requirement to sell, management evaluates whether credit loss is a component of the impairment. If so, that portion is recorded through earnings while the noncredit loss component is recorded through Accumulated Other Comprehensive Income (Loss). Any subsequent recoveries of the noncredit loss component of the impairment would be recorded through Accumulated Other Comprehensive Income (Loss). Any subsequent recoveries of the credit loss component would be recognized through earnings. The assessment of fair market value compared to cost is applied on a weighted average basis taking into account various purchase dates and initial cost of the securities.
Rabbi Trust
PSEG maintains certain unfunded nonqualified benefit plans to provide supplemental retirement and deferred compensation benefits to certain key employees. Certain assets related to these plans have been set aside in a grantor trust commonly known as a “Rabbi Trust.”
The following tables show the fair values, gross unrealized gains and losses and amortized cost basis for the securities held in the Rabbi Trust.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | As of March 31, 2023 | |
| | Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value | |
| | Millions | |
| Domestic Equity Securities | $ | 13 | | | $ | 7 | | | $ | — | | | $ | 20 | | |
| Available-for-Sale Debt Securities | | | | | | | | |
| Government | 112 | | | — | | | (18) | | | 94 | | |
| Corporate | 88 | | | — | | | (12) | | | 76 | | |
| Total Available-for-Sale Debt Securities | 200 | | | — | | | (30) | | | 170 | | |
| | | | | | | | | |
| Total Rabbi Trust Investments | $ | 213 | | | $ | 7 | | | $ | (30) | | | $ | 190 | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | As of December 31, 2022 | |
| | Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value | |
| | Millions | |
| Domestic Equity Securities | $ | 14 | | | $ | 6 | | | $ | — | | | $ | 20 | | |
| Available-for-Sale Debt Securities | | | | | | | | |
| Government | 110 | | | — | | | (21) | | | 89 | | |
| Corporate | 89 | | | — | | | (15) | | | 74 | | |
| Total Available-for-Sale Debt Securities | 199 | | | — | | | (36) | | | 163 | | |
| Total Rabbi Trust Investments | $ | 213 | | | $ | 6 | | | $ | (36) | | | $ | 183 | | |
| | | | | | | | | |
Net unrealized gains (losses) on debt securities of $(22) million (after-tax) were included in Accumulated Other Comprehensive Loss on PSEG’s Condensed Consolidated Balance Sheet as of March 31, 2023. The portion of net unrealized gains (losses) recognized during the first three months of 2023 related to equity securities still held as of March 31, 2023 was $1 million.
The amounts in the preceding tables do not include receivables and payables for Rabbi Trust Fund transactions which have not settled at the end of each period. Such amounts are included in Accounts Receivable and Accounts Payable on the Condensed Consolidated Balance Sheets as shown in the following table.
| | | | | | | | | | | | | | | | | |
| | | | | |
| | As of | | As of | |
| | March 31,
2023 | | December 31,
2022 | |
| | Millions | |
| Accounts Receivable | $ | 1 | | | $ | 1 | | |
| Accounts Payable | $ | 1 | | | $ | — | | |
| | | | | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following table shows the value of securities in the Rabbi Trust Fund that have been in an unrealized loss position for less than 12 months and greater than 12 months.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | As of March 31, 2023 | | As of December 31, 2022 | |
| | Less Than 12
Months | | Greater Than 12
Months | | Less Than 12
Months | | Greater Than 12
Months | |
| | Fair
Value | | Gross
Unrealized
Losses | | Fair
Value | | Gross
Unrealized
Losses | | Fair
Value | | Gross
Unrealized
Losses | | Fair
Value | | Gross
Unrealized
Losses | |
| | Millions | |
| Available-for-Sale Debt Securities | | | | | | | | | | | | | | | | |
| Government (A) | $ | 11 | | | $ | (1) | | | $ | 80 | | | $ | (17) | | | $ | 32 | | | $ | (5) | | | $ | 57 | | | $ | (16) | | |
| Corporate (B) | 12 | | | (1) | | | 60 | | | (11) | | | 35 | | | (5) | | | 39 | | | (10) | | |
| Total Available-for-Sale Debt Securities | 23 | | | (2) | | | 140 | | | (28) | | | 67 | | | (10) | | | 96 | | | (26) | | |
| | | | | | | | | | | | | | | | | |
| Rabbi Trust Investments | $ | 23 | | | $ | (2) | | | $ | 140 | | | $ | (28) | | | $ | 67 | | | $ | (10) | | | $ | 96 | | | $ | (26) | | |
| | | | | | | | | | | | | | | | | |
(A)Debt Securities (Government)—Unrealized gains and losses on these securities are recorded in Accumulated Other Comprehensive Income (Loss). The unrealized losses on PSEG’s Rabbi Trust investments in U.S. Treasury obligations and Federal Agency mortgage-backed securities were caused by interest rate changes. PSEG also has investments in municipal bonds. It is not expected that these securities will settle for less than their amortized cost. PSEG does not intend to sell these securities nor will it be more-likely-than-not required to sell before recovery of their amortized cost. PSEG did not recognize credit losses for U.S. Treasury obligations and Federal Agency mortgage-backed securities because these investments are guaranteed by the U.S. government or an agency of the U.S. government. PSEG did not recognize credit losses for municipal bonds because they are primarily investment grade securities.
(B)Debt Securities (Corporate)—Unrealized gains and losses on these securities are recorded in Accumulated Other Comprehensive Income (Loss). Unrealized losses were due to market declines. It is not expected that these securities would settle for less than their amortized cost. PSEG does not intend to sell these securities nor will it be more-likely-than-not required to sell before recovery of their amortized cost. PSEG did not recognize credit losses for corporate bonds because they are primarily investment grade. The proceeds from the sales of and the net gains (losses) on securities in the Rabbi Trust Fund were:
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | Three Months Ended | |
| | | | March 31, | |
| | | | | | 2023 | | 2022 | |
| | | | | | Millions | |
| Proceeds from Rabbi Trust Sales | | | | | $ | 6 | | | $ | 28 | | |
| Net Realized Gains (Losses) on Rabbi Trust: | | | | | | | | |
| Gross Realized Gains | | | | | $ | 1 | | | $ | 1 | | |
| Gross Realized Losses | | | | | (1) | | | (2) | | |
| Net Realized Gains (Losses) on Rabbi Trust (A) | | | | | — | | | (1) | | |
| Net Unrealized Gains (Losses) on Equity Securities | | | | | 1 | | | (1) | | |
| | | | | | | | | |
| Net Gains (Losses) on Rabbi Trust Investments | | | | | $ | 1 | | | $ | (2) | | |
| | | | | | | | | |
(A)The cost of these securities was determined on the basis of specific identification.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Rabbi Trust debt securities held as of March 31, 2023 had the following maturities:
| | | | | | | | | | | | | | |
| | | | |
| Time Frame | | Fair Value | |
| | | Millions | |
| Less than one year | | $ | 2 | | |
| 1 - 5 years | | 28 | | |
| 6 - 10 years | | 23 | | |
| 11 - 15 years | | 10 | | |
| 16 - 20 years | | 16 | | |
| Over 20 years | | 91 | | |
| Total Rabbi Trust Available-for-Sale Debt Securities | $ | 170 | | |
| | | | |
PSEG periodically assesses individual debt securities whose fair value is less than amortized cost to determine whether the investments are considered to be impaired. For these securities, management considers its intent to sell or requirement to sell a security prior to expected recovery. In those cases where a sale is expected, any impairment would be recorded through earnings. For fixed income securities where there is no intent to sell or likely requirement to sell, management evaluates whether credit loss is a component of the impairment. If so, that portion is recorded through earnings while the noncredit loss component is recorded through Accumulated Other Comprehensive Income (Loss). Any subsequent recoveries of the noncredit loss component of the impairment would be recorded through Accumulated Other Comprehensive Income (Loss). Any subsequent recoveries of the credit loss component would be recognized through earnings. The assessment of fair market value compared to cost is applied on a weighted average basis taking into account various purchase dates and initial cost of the securities.
The fair value of the Rabbi Trust related to PSE&G and PSEG Power & Other is detailed as follows:
| | | | | | | | | | | | | | | | | |
| | | | | |
| | As of | | As of | |
| | March 31,
2023 | | December 31,
2022 | |
| | Millions | |
| PSE&G | $ | 33 | | | $ | 32 | | |
| PSEG Power & Other | 157 | | | 151 | | |
| Total Rabbi Trust Investments | $ | 190 | | | $ | 183 | | |
| | | | | |
Note 9. Pension and Other Postretirement Benefits (OPEB)
PSEG sponsors and Services administers qualified and nonqualified pension plans and OPEB plans covering PSEG’s and its participating affiliates’ current and former employees who meet certain eligibility criteria.
PSEG and PSE&G are required to record the under or over funded positions of their defined benefit pension and OPEB plans on their respective balance sheets. Such funding positions are required to be measured as of the date of their respective year-end Consolidated Balance Sheets.
The following table provides the components of net periodic benefit costs (credits) relating to all qualified and nonqualified pension and OPEB plans on an aggregate basis for PSEG, excluding Servco. Net periodic benefit costs are reduced in 2023 as a result of an accounting order from the BPU authorizing PSE&G to modify its method for calculating the amortization of the net actuarial gain or loss component of pension expense for rate making purposes. See Note 5. Rate Filings. Amounts shown do not reflect the impacts of capitalization, co-owner allocations and the 2023 BPU accounting order. Only the service cost component is eligible for capitalization, when applicable.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | Pension Benefits | | OPEB | |
| | | | | | Three Months Ended | | Three Months Ended | |
| | | | | | March 31, | | March 31, | |
| | | | | | | | | | 2023 | | 2022 | | 2023 | | 2022 | |
| | | | | | | | | | Millions | |
| Components of Net Periodic Benefit (Credits) Costs | | | | | | | | | | | | | | | | |
| Service Cost (included in O&M Expense) | | | | | | | | | $ | 22 | | | $ | 35 | | | $ | 1 | | | $ | 2 | | |
| Non-Service Components of Pension and OPEB (Credits) Costs | | | | | | | | | | | | | | | | |
| Interest Cost | | | | | | | | | 69 | | | 42 | | | 10 | | | 6 | | |
| Expected Return on Plan Assets | | | | | | | | | (95) | | | (121) | | | (8) | | | (11) | | |
| Amortization of Net | | | | | | | | | | | | | | | | |
| Prior Service Credit | | | | | | | | | — | | | — | | | (13) | | | (32) | | |
| Actuarial Loss | | | | | | | | | 24 | | | 15 | | | (1) | | | 4 | | |
| Non-Service Components of Pension and OPEB (Credits) Costs | | | | | | | | | (2) | | | (64) | | | (12) | | | (33) | | |
| Total Benefit (Credits) Costs | | | | | | | | | $ | 20 | | | $ | (29) | | | $ | (11) | | | $ | (31) | | |
| | | | | | | | | | | | | | | | | |
Pension and OPEB (credits) costs for PSE&G and PSEG Power & Other are detailed as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | Pension Benefits | | OPEB | |
| | | | | | Three Months Ended | | Three Months Ended | |
| | | | | | March 31, | | March 31, | |
| | | | | | | | | | 2023 | | 2022 | | 2023 | | 2022 | |
| | | | | | | | | | Millions | |
| PSE&G | | | | | | | | | $ | 13 | | | $ | (18) | | | $ | (10) | | | $ | (27) | | |
| PSEG Power & Other | | | | | | | | | 7 | | | (11) | | | (1) | | | (4) | | |
| Total Benefit (Credits) Costs | | | | | | | | | $ | 20 | | | $ | (29) | | | $ | (11) | | | $ | (31) | | |
| | | | | | | | | | | | | | | | | |
PSEG does not plan to contribute to its pension and OPEB plans in 2023.
Servco Pension and OPEB
Servco sponsors a qualified pension plan and OPEB plan covering its employees who meet certain eligibility criteria. Under the OSA, employee benefit costs for these plans are funded by LIPA. See Note 4. Variable Interest Entities. These obligations, as well as the offsetting long-term receivable, are separately presented on the Condensed Consolidated Balance Sheet of PSEG.
Servco amounts are not included in any of the preceding pension and OPEB cost disclosures. Pension and OPEB costs of Servco are accounted for according to the OSA. Servco recognizes expenses for contributions to its pension plan trusts and for OPEB payments made to retirees. Operating Revenues are recognized for the reimbursement of these costs. Servco’s pension-related revenues and costs were $5 million and $8 million for the three months ended March 31, 2023 and 2022, respectively. The OPEB-related revenues earned and costs incurred were $3 million and $2 million for the three months ended March 31, 2023 and 2022, respectively.
Servco plans to contribute $18 million into its pension plan in 2023.
Note 10. Commitments and Contingent Liabilities
Guaranteed Obligations
PSEG Power’s activities primarily involve the purchase and sale of energy and related products under transportation, physical, financial and forward contracts at fixed and variable prices. These transactions are with numerous counterparties and brokers that may require cash, cash-related instruments or guarantees as a form of collateral.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
PSEG Power has unconditionally guaranteed payments to counterparties on behalf of its subsidiaries in commodity-related transactions in order to
•support current exposure, interest and other costs on sums due and payable in the ordinary course of business, and
•obtain credit.
PSEG Power is subject to
•counterparty collateral calls related to commodity contracts of its subsidiaries, and
•certain creditworthiness standards as guarantor under performance guarantees of its subsidiaries.
Under these agreements, guarantees cover lines of credit between entities and are often reciprocal in nature. The exposure between counterparties can move in either direction.
In order for PSEG Power to incur a liability for the face value of the outstanding guarantees,
•its subsidiaries would have to fully utilize the credit granted to them by every counterparty to whom PSEG Power has provided a guarantee, and
•the net position of the related contracts would have to be “out-of-the-money” (if the contracts are terminated, PSEG Power would owe money to the counterparties).
PSEG Power believes the probability of this result is unlikely. For this reason, PSEG Power believes that the current exposure at any point in time is a more meaningful representation of the potential liability under these guarantees. Current exposure consists of the net of accounts receivable and accounts payable and the forward value on open positions, less any collateral posted.
Changes in commodity prices can have a material impact on collateral requirements under such contracts, which are posted and received primarily in the form of cash and letters of credit. PSEG Power also routinely enters into futures and options transactions for electricity and natural gas as part of its operations. These futures contracts usually require a cash margin deposit with brokers, which can change based on market movement and in accordance with exchange rules.
In addition to the guarantees discussed above, PSEG Power has also provided payment guarantees to third parties and regulatory authorities on behalf of its affiliated companies. These guarantees support various other non-commodity related obligations.
The following table shows the face value of PSEG Power’s outstanding guarantees, current exposure and margin positions as of March 31, 2023 and December 31, 2022.
| | | | | | | | | | | | | | | | | |
| | | | | |
| | As of | | As of | |
| | March 31, 2023 | | December 31, 2022 | |
| | Millions | |
| Face Value of Outstanding Guarantees | $ | 1,536 | | | $ | 1,601 | | |
| Exposure under Current Guarantees | $ | 101 | | | $ | 198 | | |
| | | | | |
| Letters of Credit Margin Posted | $ | 22 | | | $ | 87 | | |
| Letters of Credit Margin Received | $ | 78 | | | $ | 38 | | |
| | | | | |
| Cash Deposited and Received | | | | |
| Counterparty Cash Collateral Deposited | $ | — | | | $ | — | | |
| Counterparty Cash Collateral Received | $ | (11) | | | $ | (1) | | |
| Net Broker Balance Deposited (Received) | $ | 738 | | | $ | 1,522 | | |
| | | | | |
| Additional Amounts Posted | | | | |
| Other Letters of Credit | $ | 180 | | | $ | 156 | | |
| | | | | |
As part of determining credit exposure, PSEG Power nets receivables and payables with the corresponding net fair values of energy contracts. See Note 12. Financial Risk Management Activities for further discussion. In accordance with PSEG’s accounting policy, where it is applicable, cash (received)/deposited is allocated against derivative asset and liability positions with the same counterparty on the face of the Condensed Consolidated Balance Sheet. The remaining balances of net cash (received)/deposited after allocation are generally included in Accounts Payable and Receivable, respectively.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In addition to amounts for outstanding guarantees, current exposure and margin positions, PSEG and PSEG Power have posted letters of credit to support PSEG Power’s various other non-energy contractual and environmental obligations. See the preceding table.
Environmental Matters
Passaic River
Lower Passaic River Study Area
The U.S. Environmental Protection Agency (EPA) has determined that a 17-mile stretch of the Passaic River (Lower Passaic River Study Area (LPRSA)) in New Jersey is a “Superfund” site under the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA). PSE&G and certain of its predecessors conducted operations at properties in this area, including at one site that was transferred to PSEG Power.
The EPA has announced two separate cleanup plans for the Lower 8.3 miles and Upper 9 miles of the LPRSA. The EPA’s plan for the Lower 8.3 miles involves dredging and capping sediments at an estimated cost of $2.3 billion, and its plan for the Upper 9 miles involves dredging and capping sediments at an estimated cost of $550 million. Additional cleanup work may be required depending on the results of these initial phases of work.
Occidental Chemical Corporation (Occidental) has voluntarily commenced design of the cleanup plan for the Lower 8.3 miles, and has received an EPA Unilateral Administrative Order directing it to design the cleanup plan for the Upper 9 miles. It has filed two lawsuits against PSE&G and others to attempt to recover costs associated with this work and to obtain a declaratory judgement of parties’ shares of any future costs. One lawsuit is currently paused, and the other is currently proceeding. PSEG cannot predict the outcome of the litigation.
The EPA has announced a proposed settlement with 85 parties who have agreed to pay $150 million to resolve their LPRSA CERCLA liability, in whole or in part. It is uncertain whether the settlement will be finalized as currently proposed. PSE&G and PSEG Power are not included in the proposed settlement, but the EPA sent PSE&G, Occidental, and several other Potentially Responsible Parties (PRPs) a letter in March 2022 inviting them to submit to the EPA individually or jointly an offer to fund or participate in the next stages of the remediation. PSEG submitted a good faith offer to the EPA in June 2022 on behalf of PSE&G and PSEG Power. PSEG understands that the EPA is evaluating its offer.
Two PRPs, Tierra Solutions, Inc. (Tierra) and Maxus Energy Corporation (Maxus), have filed for Chapter 11 bankruptcy. The trust representing the creditors in this proceeding has filed a complaint asserting claims against Tierra’s and Maxus’ current and former parent entities, among others. Any damages awarded may be used to fund the remediation of the LPRSA.
As of March 31, 2023, PSEG has approximately $66 million accrued for this matter. PSE&G has an Environmental Costs Liability of $53 million and a corresponding Regulatory Asset based on its continued ability to recover such costs in its rates. PSEG Power has an Environmental Liability of $13 million.
The outcome of this matter is uncertain, and until (i) a final remedy for the entire LPRSA is selected and an agreement is reached by the PRPs to fund it, (ii) PSE&G’s and PSEG Power’s respective shares of the costs are determined, and (iii) PSE&G’s ability to recover the costs in its rates is determined, it is not possible to predict this matter’s ultimate impact on PSEG’s financial statements. It is possible that PSE&G and PSEG Power will record additional costs beyond what they have accrued, and that such costs could be material, but PSEG cannot at the current time estimate the amount or range of any additional costs.
Newark Bay Study Area
The EPA has established the Newark Bay Study Area, which is an extension of the LPRSA and includes Newark Bay and portions of surrounding waterways. The EPA has notified PSEG and 21 other PRPs of their potential liability. PSE&G and PSEG Power are unable to estimate their respective portions of any loss or possible range of loss related to this matter. In December 2018, PSEG Power completed the sale of the site of the Hudson electric generating station. PSEG Power contractually transferred all land rights and structures on the Hudson site to a third-party purchaser, along with the assumption of the environmental liabilities for the site.
Natural Resource Damage Claims
New Jersey and certain federal regulators have alleged that PSE&G, PSEG Power and 56 other PRPs may be liable for natural resource damages within the LPRSA. In particular, PSE&G, PSEG Power and other PRPs received notice from federal regulators of the regulators’ intent to move forward with a series of studies assessing potential damages to natural resources at the Diamond Alkali Superfund Site, which includes the LPRSA and the Newark Bay Study Area. PSE&G and PSEG Power are unable to estimate their respective portions of any possible loss or range of loss related to this matter.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Hackensack River
In 2022, the EPA announced it had designated the lower 18.75 miles of the Hackensack River a federal Superfund site. PSE&G and certain of its predecessors conducted operations at properties in this area, including at the Hudson, Bergen and Kearny generating stations that were transferred to PSEG Power. PSEG Power subsequently contractually transferred all land rights and structures on the Hudson generating station site to a third-party purchaser, along with the assumption of the environmental liabilities for that site. The ultimate impact of this action on PSE&G and PSEG Power is currently unknown, but could be material.
MGP Remediation Program
PSE&G is working with the New Jersey Department of Environmental Protection (NJDEP) to assess, investigate and remediate environmental conditions at its former MGP sites. To date, 38 sites requiring some level of remedial action have been identified. Based on its current studies, PSE&G has determined that the estimated cost to remediate all MGP sites to completion could range between $202 million and $222 million on an undiscounted basis, including its $53 million share for the Passaic River as discussed above. Since no amount within the range is considered to be most likely, PSE&G has recorded a liability of $202 million as of March 31, 2023. Of this amount, $38 million was recorded in Other Current Liabilities and $164 million was reflected as Environmental Costs in Noncurrent Liabilities. PSE&G has recorded a $202 million Regulatory Asset with respect to these costs. PSE&G periodically updates its studies taking into account any new regulations or new information which could impact future remediation costs and adjusts its recorded liability accordingly. PSE&G completed sampling in the Passaic River in 2020 to delineate coal tar from certain MGP sites that abut the Passaic River Superfund site. PSEG cannot determine at this time the magnitude of any impact on the Passaic River Superfund remedy.
Legacy Environmental Obligations at Former Fossil Generating Sites
PSEG Power has retained ownership of certain liabilities excluded from the 2022 sale of its fossil generation portfolio. These liabilities primarily relate to obligations under the New Jersey ISRA and the CTA to investigate and remediate PSEG Power’s two formerly owned generating station sites in Connecticut, and six formerly owned generating station sites in New Jersey. In addition, PSEG Power still owns two former generating station sites in New Jersey that triggered ISRA in 2015.
PSEG Power is in the process of fulfilling its obligations under ISRA and the CTA to investigate these sites. It will require multiple years and comprehensive environmental sampling to understand the extent of and to carry out the required remediation. The full remediation costs at each of the ten sites are not estimable, but will likely be material.
CWA Section 316(b) Rule
The EPA’s CWA Section 316(b) rule establishes requirements for the design and operation of cooling water intake structures at existing power plants and industrial facilities with a design flow of more than two million gallons of water per day.
In June 2016, the NJDEP issued a final New Jersey Pollutant Discharge Elimination System permit for Salem. In July 2016, the Delaware Riverkeeper Network (Riverkeeper) filed an administrative hearing request challenging certain conditions of the permit, including the NJDEP’s application of the 316(b) rule. If the Riverkeeper’s challenge is successful, PSEG Power may be required to incur additional costs to comply with the CWA. Potential cooling water and/or service water system modification costs could be material and could adversely impact the economic competitiveness of this facility. The NJDEP granted the hearing request and a hearing is scheduled for September 2023.
Jersey City, New Jersey Subsurface Feeder Cable Matter
In October 2016, a discharge of dielectric fluid from subsurface feeder cables located in the Hudson River near Jersey City, New Jersey, was identified and reported to the NJDEP. The feeder cables are located within a subsurface easement granted to PSE&G by the property owners, Newport Associates Development Company (NADC) and Newport Associates Phase I Developer Limited Partnership. The feeder cables are subject to agreements between PSE&G and Consolidated Edison Company of New York, Inc. (Con Edison) and are jointly owned by PSE&G and Con Edison. The impacted cable was repaired in September 2017. A federal response was initially led by the U.S. Coast Guard. The U.S. Coast Guard transitioned control of the federal response to the EPA, and the EPA ended the federal response to the matter in 2018. The investigation of small amounts of residual dielectric fluid believed to be contained with the marina sediment is ongoing as part of the NJDEP site remediation program. In August 2020, PSE&G finalized a settlement with the federal government regarding the reimbursement of costs associated with the federal response to this matter and payment of civil penalties of an immaterial amount.
A lawsuit in federal court is pending to determine ultimate responsibility for the costs to address the leak among PSE&G, Con Edison and NADC. In addition, Con Edison filed counter claims against PSE&G and NADC, including seeking injunctive relief and damages. Based on the information currently available and depending on the outcome of the federal court action, PSE&G’s
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
portion of the costs to address the leak may be material; however, PSE&G anticipates that it will recover its costs, other than civil penalties, through regulatory proceedings.
Basic Generation Service (BGS), BGSS and ZECs
Each year, PSE&G obtains its electric supply requirements through annual New Jersey BGS auctions for two categories of customers that choose not to purchase electric supply from third-party suppliers. The first category is residential and smaller commercial and industrial customers (BGS-Residential Small Commercial Pricing (RSCP)). The second category is larger customers that exceed a BPU-established load (kW) threshold (BGS-Commercial and Industrial Energy Pricing (CIEP)). Pursuant to applicable BPU rules, PSE&G enters into the Supplier Master Agreements with the winners of these RSCP and CIEP BGS auctions to purchase BGS for PSE&G’s load requirements. The winners of the RSCP and CIEP auctions are responsible for fulfilling all the requirements of a PJM load-serving entity including the provision of capacity, energy, ancillary services and any other services required by PJM. BGS suppliers assume all volume risk and customer migration risk and must satisfy New Jersey’s renewable portfolio standards.
The BGS-CIEP auction is for a one-year supply period from June 1 to May 31 with the BGS-CIEP auction price measured in dollars per MW-day for capacity. The final price for the BGS-CIEP auction year commencing June 1, 2023 is $330.72 per MW-day, replacing the BGS-CIEP auction year price ending May 31, 2023 of $276.26 per MW-day. Energy for BGS-CIEP is priced at hourly PJM locational marginal prices for the contract period.
PSE&G contracts for its anticipated BGS-RSCP load on a three-year rolling basis, whereby each year one-third of the load is procured for a three-year period. The contract prices in dollars per MWh for the BGS-RSCP supply, as well as the approximate load, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | Auction Year | | |
| | 2020 | | 2021 | | 2022 | | 2023 | | |
| 36-Month Terms Ending | May 2023 | | May 2024 | | May 2025 | | May 2026 | (A) | |
| Load (MW) | 2,800 | | 2,900 | | 2,800 | | 2,800 | | |
| $ per MWh | $102.16 | | $64.80 | | $76.30 | | $93.11 | | |
| | | | | | | | | | |
(A)Prices set in the 2023 BGS auction will become effective on June 1, 2023 when the 2020 BGS auction agreements expire.
PSE&G has a full-requirements contract with PSEG Power to meet the gas supply requirements of PSE&G’s gas customers. PSEG Power has entered into hedges for a portion of these anticipated BGSS obligations, as permitted by the BPU. The BPU permits PSE&G to recover the cost of gas hedging up to 115 billion cubic feet or 80% of its residential gas supply annual requirements through the BGSS tariff. Current plans call for PSEG Power to hedge on behalf of PSE&G approximately 70 billion cubic feet or 50% of its residential gas supply annual requirements. For additional information, see Note 19. Related-Party Transactions.
Pursuant to a process established by the BPU, New Jersey EDCs, including PSE&G, are required to purchase ZECs from eligible nuclear plants selected by the BPU. In April 2019, PSEG Power’s Salem 1, Salem 2 and Hope Creek nuclear plants were selected to receive ZEC revenue for approximately three years, through May 2022. In April 2021, PSEG Power’s Salem 1, Salem 2 and Hope Creek nuclear plants were awarded ZECs for the three-year eligibility period starting June 2022. PSE&G has implemented a tariff to collect a non-bypassable distribution charge in the amount of $0.004 per KWh from its retail distribution customers to be used to purchase the ZECs from these plants. PSE&G will purchase the ZECs on a monthly basis with payment to be made annually following completion of each energy year. The legislation also requires nuclear plants to reapply for any subsequent three-year periods and allows the BPU to adjust prospective ZEC payments.
Minimum Fuel Purchase Requirements
PSEG Power’s nuclear fuel strategy is to maintain certain levels of uranium and to make periodic purchases to support such levels. As such, the commitments referred to in the following table may include estimated quantities to be purchased that deviate from contractual nominal quantities. PSEG Power’s nuclear fuel commitments cover approximately 100% of its estimated uranium, enrichment and fabrication requirements through 2024 and a significant portion through 2026 at Salem, Hope Creek and Peach Bottom.
PSEG Power has various multi-year contracts for natural gas and firm transportation and storage capacity for natural gas that are primarily used to meet its obligations to PSE&G.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
As of March 31, 2023, the total minimum purchase requirements included in these commitments were as follows:
| | | | | | | | | | | | | | |
| | | | |
| Fuel Type | | PSEG Power’s Share of Commitments through 2027 | |
| | | Millions | |
| Nuclear Fuel | | | |
| Uranium | | $ | 389 | | |
| Enrichment | | $ | 309 | | |
| Fabrication | | $ | 185 | | |
| Natural Gas | | $ | 1,103 | | |
| | | | |
Pending FERC Matter
FERC has been conducting a non-public investigation of the Roseland-Pleasant Valley transmission project. In November 2021, FERC staff presented PSE&G with its non-public preliminary findings, alleging that PSE&G violated a FERC regulation. PSE&G disagrees with FERC staff’s allegations and believes it has factual and legal defenses that refute these allegations. PSE&G has the opportunity to respond to these preliminary findings. The matter is pending and the investigation is ongoing. PSE&G is unable to predict the outcome or estimate the range of possible loss related to this matter; however, depending on the success of PSE&G’s factual and legal arguments, the potential financial and other penalties that PSE&G may incur could be material to PSEG’s and PSE&G’s results of operations and financial condition.
BPU Audit of PSE&G
In 2020, the BPU ordered the commencement of a comprehensive affiliate and management audit of PSE&G. It has been more than ten years since the BPU last conducted a management and affiliate audit of this kind of PSE&G, which is initiated periodically as required by New Jersey statutes/regulations. Phase 1 of the audit reviews affiliate relations and cost allocation between PSE&G and its affiliates, including an analysis of the relationship between PSE&G and PSEG Energy Resources & Trade, LLC, a wholly owned subsidiary of PSEG Power over the past ten years, and between PSE&G and PSEG LI. Phase 2 is a comprehensive management audit, which will address, among other things, executive management, corporate governance, system operations, human resources, cyber security, compliance with customer protection requirements and customer safety. The audit officially began in late May 2021 and data collection (written discovery and interviews) has concluded. The BPU Audit Staff are in the process of finalizing their report. It is not possible at this time to predict the outcome of this matter.
Litigation
Sewaren 7 Construction
In June 2018, a complaint was filed in federal court in Newark, New Jersey against PSEG Fossil LLC, which at the time was a wholly owned subsidiary of PSEG Power, regarding an ongoing dispute with Durr Mechanical Construction, Inc. (Durr), a contractor on the Sewaren 7 project. Among other things, Durr seeks damages of $93 million and alleges that PSEG Power withheld money owed to Durr and that PSEG Power’s intentional conduct led to the inability of Durr to obtain prospective contracts. PSEG Power intends to vigorously defend against these allegations. In January 2021, the court partially granted PSEG Power’s motion to dismiss certain claims, reducing the amount claimed to $68 million. In December 2018, Durr filed for Chapter 11 bankruptcy in the federal court in the Southern District of New York (SDNY). The SDNY bankruptcy court has allowed the New Jersey litigation to proceed. PSEG Power has accrued an amount related to outstanding invoices which does not reflect an assessment of claims and potential counterclaims in this matter. Due to its preliminary nature, PSEG Power cannot predict the outcome of this matter.