Morningstar | New Jersey Public Policy Helping Support Public Service Enterprise Group's Earnings Growth
We are reaffirming our $48 per share fair value estimate for Public Service Enterprise Group after it announced earning $1.08 per share on an operating basis in the first quarter, up from $0.97 in the first quarter of 2018.Management reaffirmed its full-year $3.15-$3.35 EPS guidance, in line with our estimate. We are reaffirming our narrow moat and stable moat trend ratings.
The company continues successful execution on several fronts, including operations and public policy. The distribution utility, PSE&G, earned $0.79 per share during the first quarter, up from $0.63 in the first quarter of 2018. We don't expect this similar growth to persist for the full year, but we do expect the segment to contribute the bulk of our 7% average annual consolidated earnings growth estimate through the next three years.
PSEG Generation operating earnings were down slightly in the quarter, as we expected, based primarily on lower hedged power prices. We expect the segment's earnings to get a boost in the second half of the year when it starts collecting Zero Emissions Credit revenue that New Jersey regulators recently awarded. We think these will total about $100 million pretax this year and $200 million on an annual run-rate basis.
We continue to assume PSEG invests an average $3 billion annually during the next three years, in line with management's $11 billion-$16 billion five-year plan. Good execution could lead the utility's earnings growth to hit the top end of management's 7%-9% annual target. We expect 5% consolidated earnings growth.
Our growth estimates assume regulators allow the company to spend about one third of its proposed $3.6 billion, six-year Clean Energy Future investment plan during the next three years. Approval for additional spending or offshore wind investments could have a slight positive impact on our fair value estimate.
Public Service Enterprise Group, through its subsidiaries, is engaged in the energy industry. The company conducts its business through two subsidiaries, Public Service Electric and Gas Company (PSE&G) and PSEG Power LLC (PSEG Power). PSE&G is a public utility, which is engaged in the transmission of electricity and distribution of electricity and natural gas in certain areas of New Jersey; and PSEG Power is a multi-regional energy supply company that integrates the operations of its merchant nuclear and fossil generating assets with its power marketing businesses and fuel supply functions through energy sales in energy markets primarily in the Northeast and Mid-Atlantic United States.
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