Morningstar | PSEG's Regulated Utility Investments Drive Earnings and Dividend Growth
Public Service Enterprise Group is one of the few diversified utilities left in the United States, giving investors a mix of stable, growing earnings at its regulated utility and commodity energy market exposure at its power generation business.Earnings flatlined for several years because of weakness at its power generation unit but we think earnings growth will match or exceed its peers starting in 2019. PSEG's New Jersey regulated distribution utility, which now contributes about three quarters of PSEG's total earnings, will provide the bulk of our 7% earnings growth outlook during the next four years. PSEG's plan to invest as much as $16 billion at its utility during the next five years is the primary growth driver.The utility must maintain political and regulatory support for infrastructure replacement, clean energy, energy efficiency, and other network upgrades to grow earnings. New Jersey's 2018 Clean Energy Bill and other infrastructure investment initiatives show that public policy should support PSEG's growth outlook. PSE&G passed a big regulatory test by reaching a settlement to raise base electric and gas rates in 2019 for the first time since 2010.PSEG Power's wholesale generation fleet benefits from the tight supply/demand balances in the New Jersey and Northeast markets. This makes its plants' energy and capacity more valuable than many other utilities' fleets. Its proximity to low-cost Marcellus Shale gas gives its fleet a competitive advantage over other regional generators. Recent New Jersey legislation approving nuclear subsidies will boost margins.After exiting all its coal generation exposure, PSEG Power has one of the lowest carbon-emitting fleets of any U.S. utility. PSEG's $2 billion investment in new gas generation, successful lobbying to keep its nuclear plants open, and potential offshore wind development support its clean energy profile.Short-term power demand and price volatility could swing PSEG Power profits, but as long as PSEG remains an efficient operator, the generation business should continue to provide value in any commodity market environment.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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