Q3 2023 Summary
Published Jan 10, 2025, 5:10 PM UTC- Accelerated execution on capital projects: PSEG is investing ahead of schedule, with an additional $200 million in capital expenditures due to early completion of work, reflecting strong operational performance and potential for increased earnings.
- Positive credit outlook from Moody's: Moody's has taken favorable action on PSEG Power's outlook, recognizing the improved business mix and the stabilization provided by the nuclear Production Tax Credit (PTC), enhancing the company's financial strength and creditworthiness.
- Potential increase in rate base growth: PSEG anticipates incremental transmission spend of around $400 million and higher energy efficiency investments, which could raise the rate base CAGR beyond the current 6% to 7.5%, signaling future earnings growth opportunities.
- Uncertainty around future rate base growth due to key investment programs not being firmed up: While management acknowledges positive indications for incremental transmission spend (approximately $400 million) and potential increases in energy efficiency investments, these plans are not yet finalized. The filings for energy efficiency haven't been made, and final approvals from PJM for transmission projects are pending. Additionally, the Gas System Modernization Program (GSMP) had a higher run rate but was not as much as GSMP I was filed for. This uncertainty may constrain rate base growth projections and impact earnings growth within the 6% to 7.5% rate base CAGR range.
- Variability in capital expenditure timing may impact future earnings growth: The company is ahead of plan on capital expenditures for 2023 by about $200 million, primarily due to pulling forward some projects. While this demonstrates strong execution, there is fluidity in CapEx timing, which could result in fewer investment opportunities in subsequent years like 2024 or 2025, potentially affecting future earnings growth. Management indicated that future CapEx could be adjusted, but this introduces uncertainty into the capital deployment plan.
- Delays and lack of clarity in obtaining nuclear Production Tax Credit (PTC) guidance could affect the nuclear segment's performance: The company has not received updates on the timing or details of the nuclear PTC guidance from the Treasury, creating uncertainty for their nuclear business's financial projections. This delay may impact planning for nuclear refueling cycles and upgrades, such as those at Hope Creek and Salem plants, potentially affecting the company's ability to capitalize on PTC benefits in a timely manner.
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Equity Issuance Plans
Q: Are you planning any equity issuance through 2028?
A: No, we have no plans for equity issuance, even as we roll forward our capital plan to 2028 and include growth opportunities like energy efficiency and transmission. We can fund our investments without incremental equity. -
2024 Guidance and Assumptions
Q: When will you provide 2024 guidance, and how are you approaching assumptions?
A: We plan to provide our 2024 guidance in December after completing our business planning process with the board. We'll make reasonable assumptions regarding factors like the rate case timeline and potential PTC guidance, and we believe our prior efforts have reduced volatility, allowing us to be confident in our guidance range. -
CapEx Updates
Q: Will there be updates to your CapEx plan, and how does energy efficiency factor in?
A: We'll provide a partial CapEx update through 2027 in December, with more details in January. The upcoming energy efficiency filing is expected to be larger than previous ones, indicating more opportunity. We're ahead of plan on CapEx, and this performance is within our overall range. -
Nuclear PTC and Hedging Strategy
Q: How are you considering the nuclear PTC in your business plan and hedging strategy?
A: We've set our plan at the PTC floor and aren't counting on anything above that. We're progressing as expected with our nuclear operations, including the Hope Creek refueling. Our hedging strategy for 2025 remains similar, even amidst uncertainty around PTC calculations; we're continuing to hedge appropriately until we receive clarity. -
Rate Case Expectations
Q: Any changes in your rate case expectations given higher interest rates?
A: There's no significant change in our rate case expectations. While higher interest rates could impact costs in the revenue requirement, this is our first filing since 2018 when rates were lower. Net-net, we don't anticipate a considerable rate increase due to interest rates, so it's not a rate pressure as we proceed. -
GSMP Extension and Capital Plans
Q: How does the GSMP II extension fit into your capital plan?
A: The two-year GSMP II extension agreed upon is at a higher run rate than our filing, which is positive. While some areas like renewable natural gas and hydrogen blending are policy discussions for the future, our commitment to reducing cast iron in our system remains supported by the commission. We're within our capital plan range. -
Hydrogen Hub Opportunities
Q: What is your involvement in hydrogen hub development?
A: We're part of the MACT II hydrogen hub selected by the DOE, offering long-term regional growth opportunities. Potential projects include placing an electrolyzer in South Jersey and leveraging existing pipelines and storage. This isn't currently included in our plan; it's upside without adding commodity risk.