PUBLIC SERVICE ELECTRIC & GAS CO

PUBLIC SERVICE ELECTRIC & GAS CO Annual Report - A Clear View for Investors

Thinking about investing in Public Service Electric & Gas Co (PSE&G)? This summary cuts through the jargon to give you a clear picture of their performance and outlook, helping you decide if it aligns with your investment goals.

Business Overview (what the company does) Public Service Electric & Gas Co (PSE&G) serves as a vital utility, primarily distributing electricity and gas and providing critical transmission services throughout New Jersey. Its PSEG Power segment also generates and sells wholesale electricity, contributing to a diversified energy portfolio. This year, PSE&G supplied approximately 2.3 million electric customers and 1.9 million gas customers, delivering over 45 terawatt-hours (TWh) of electricity and 350 billion cubic feet (Bcf) of natural gas. PSE&G significantly advanced its clean energy initiatives, funding over 150 megawatts (MW) of solar capacity through its Solar Loan Program and driving substantial energy efficiency improvements via the New Jersey Clean Energy Program.

Financial Performance (revenue, profit, year-over-year changes) PSE&G reported strong financial results. Total revenues grew by 4% from last year, reaching approximately $10.5 billion, driven by consistent rate base growth and strategic infrastructure investments. Net income rose 7% to $1.8 billion, leading to diluted earnings per share of $3.50. This performance reflects effective cost management and robust operational execution within a regulated environment.

Management Discussion (MD&A highlights) This year, PSE&G achieved significant milestones:

• Successfully completed major infrastructure upgrades, enhancing grid reliability and resilience across its service territories.
• Expanded clean energy initiatives, particularly the Solar Loan Program and the New Jersey Clean Energy Program, establishing PSE&G as a leader in state decarbonization.
• Secured favorable regulatory outcomes for its capital investment plans.

However, the company faced several challenges:

• Rising interest rates increased financing costs.
• Inflationary pressures and supply chain disruptions led to higher operational expenses.
• Several severe weather events required extensive restoration efforts.

PSE&G's stable leadership team consistently executed a long-term strategy focused on infrastructure modernization, accelerating the clean energy transition, and achieving operational excellence. Recent strategic shifts emphasize accelerated investment in grid resilience and decarbonization initiatives, aligning with state and federal energy goals.

Financial Health (debt, cash, liquidity) PSE&G holds a strong liquidity position with approximately $750 million in cash and equivalents. Total long-term debt amounts to $25 billion, primarily consisting of diversified Medium-Term Notes and Senior Notes. These notes carry interest rates ranging from 0.95% to 5.63% and have staggered maturity dates from 2026 to 2056, ensuring a manageable debt profile for ongoing capital expenditures.

The company also adequately funds substantial pension and other post-retirement benefit obligations. Additionally, Nuclear Decommissioning Trust (NDT) Funds, totaling over $5 billion, are on track to cover future decommissioning costs, and Rabbi Trusts are in place for executive benefits, all demonstrating prudent long-term financial planning.

Key Risks (key risks) Despite its stability, PSE&G faces several key risks:

• Environmental Loss Contingencies: Accrued Environmental Loss Contingencies, primarily related to the Passaic River Site, total $150 million, reflecting ongoing remediation efforts. While management considers these reserves adequate, actual costs could differ.
• Regulatory Changes: Potential regulatory changes could impact rate structures and investment recovery.
• Interest Rates: Rising interest rates affect borrowing costs.
• Climate Change: Increasing impacts of climate change pose risks to infrastructure.
• Operational Risks: Inherent operational risks are associated with maintaining an extensive utility network.

Competitive Position As a regulated utility, PSE&G operates as a near-monopoly in its electric and gas distribution service territories. Direct competition for core services remains limited. However, competition primarily stems from evolving energy efficiency initiatives, the growth of distributed generation (such as rooftop solar), and alternative energy providers. PSE&G's strong market position relies on its essential service provision, extensive infrastructure, and commitment to reliability.

Future Outlook (guidance, strategy) PSE&G commits to a sustainable future, planning significant capital expenditures of approximately $3-4 billion annually over the next five years. Key initiatives include:

• Clean Energy Future Electric Vehicles program: Aims to deploy 50,000 EV charging ports by 2030.
• Gas Infrastructure Advancement Program: Starting January 2026, this program will invest $1.5 billion over three years to modernize gas pipelines.
• Conservation Incentive Program for Gas: Also beginning in early 2026, it seeks to reduce natural gas consumption by 10% through customer incentives.

These programs highlight a strategic focus on grid modernization, decarbonization, and enhanced customer service. PSE&G operates within New Jersey's dynamic regulatory landscape, which strongly supports clean energy and infrastructure modernization. Regulatory frameworks, such as the state's Energy Master Plan, drive investments in renewable energy, energy efficiency, and grid resilience. PSE&G actively engages with regulators to secure timely cost recovery and ensure a stable operating environment, balancing customer affordability with essential infrastructure investments.