Morningstar | PSEG Strikes Constructive Rate Agreement
We are raising our fair value estimate for Public Service Enterprise Group to $47 per share from $46 after the company reached what we consider to be a constructive settlement agreement in its 2018 electric and gas base rate review. The settlement terms and time value appreciation since our last update contributed to the fair value increase. We are reaffirming our narrow moat and stable moat trend ratings.The settlement terms demonstrate how tax reform has helped utilities increase earnings while keeping customer rates mostly flat. PSEG agreed to raise base rates $212 million, slightly higher than our forecast, but total customer rates will go down as the company returns $225 million of tax savings. We expect New Jersey regulators to accept the settlement with no material changes.
The settlement gives us more confidence that New Jersey will continue to be a constructive regulatory environment. Our 5% consolidated annual average earnings and dividend growth forecast the next few years depends primarily on PSEG's New Jersey utility, PSE&G, receiving regulatory support for its $12 billion-$16 billion investment plan. We forecast  9% annual average earnings growth at PSE&G. The settlement has no impact on our 2018 earnings per share forecast, which remains in line with management's $3.00-$3.20 guidance.
Unrelated to the settlement, PSEG this week proposed investing $3.6 billion in energy efficiency, electric vehicles, and other projects during the next six years to support the state's recently enacted clean energy legislation. We assume regulators approve $1 billion of the proposed investments in 2019-22. We also await regulatory input on PSEG's $2.5 billion five-year Energy Strong II investment proposal later this year.
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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