Public Service Enterprise Group will spend approximately $12 billion in capital investments during the next five years, primarily driven by increased investments in transmission to maintain reliability.
Speaking at the company's Annual 2014 Investor Conference in New York, Ralph Izzo, PSEG chairman and CEO, told the financial community that Public Service Electric and Gas (PSE&G) is implementing a five-year capital program of $10 billion, a 20 percent increase in the level of spending over the prior five years. The additional investment is primarily due to PJM-mandated transmission upgrades to relieve projected system overloads and maintain reliability for millions of customers.
"The strategy we have put in place over the past several years is transforming the profile of our company," Izzo said. "We are reaffirming our operating earnings guidance for 2014 of $2.55 to $2.75 per share. This year, operating earnings from our company's stable, regulated business will represent about 55 percent of earnings as we make critical infrastructure investments. Combined with the flexibility of a solid merchant generation business, we are providing shareholders with the opportunity for consistent and sustainable dividend growth.
"Transmission lines and switching stations are the backbone of our electric grid, ensuring that we can transport power to where it's needed safely and reliably," Izzo added. "The utility has five major projects under way, with an additional 345-kilovolt line slated to be in service by June 2018." PSE&G's capital spending program is expected to lead to double-digit earnings growth at the utility over the 2013-2016 period.
Izzo noted that the company is poised to make additional investments under its proposed Energy Strong program that would harden New Jersey's electric and gas delivery systems against severe weather. If approved, the plan would protect substations that were heavily damaged by water during Hurricane Irene in 2011 and Superstorm Sandy in 2012, among other resiliency improvements. Hearings on the proposal at the New Jersey Board of Public Utilities are set to conclude today, with a decision expected as early as April. The investment dollars associated with Energy Strong are not included in the utility's capital expenditures and would be incremental once approved.
Ralph LaRossa, PSE&G president and COO, said the utility's transmission investments of $6.8 billion – up about $2 billion -- account for about 70 percent of PSE&G's capital investments and represent 60 percent of PSEG's total capital expenditures during the next five years.
"Companies have a choice in where to invest their capital," LaRossa said. "We have chosen to invest our capital in upgrading and maintaining infrastructure that is critical to New Jersey's economic health – and the more than 2 million electric and gas customers who rely on us to provide them with heat and light day in and day out."
Bill Levis, president and COO of PSEG Power, said the generation subsidiary is continuing to focus on adding capacity in an economically efficient manner by increasing the output at its nuclear facilities by 130 megawatts and at its combined cycle power plants by 150 megawatts. "Our fleet's fuel diversity and dispatch flexibility – together with access to lower cost Marcellus shale gas – allow Power to generate free cash flow and meet our commitments," Levis said.
"Our corporate balance sheet is in excellent shape, thanks to the ability of PSE&G and PSEG Power to generate strong cash flows from operations," said Caroline Dorsa, executive vice president and chief financial officer. "As a result, we can fund our capital programs without the need to issue additional equity. Ongoing cost control efforts, including effective pension fund management, are expected to result in declining O&M expenses during the next several years."
LaRossa also noted that on Jan. 1, PSEG began operating the Long Island Power Authority's electric system under a 12-year operating services agreement. Led by seasoned utility professionals, PSEG Long Island is expected to provide $0.03 earnings in 2014, growing to $0.07 in 2016.