PSEG Reports $444 Million Net Income In Q1 2009

Operating Earnings for the first quarter of 2009 were $482 million or $0.95 per share compared to the First Quarter of 2008 Operating Earnings of $438 million or $0.86 per share. Including the impact of net losses on investments in our nuclear decommissioning trust funds (NDT) of $0.04 per share and the recognition of non-trading mark-to-market (MTM) losses of $0.03 per share, PSEG reported Net Income for the first quarter of 2009 of $444 million or $0.88 per share. Including the impact of net losses on investments in NDT funds of $0.02 per share and the recognition of non-trading MTM gains of $0.01 per share and income from discontinued operations of $0.03 per share, PSEG reported Net Income for the first quarter of 2008 of $448 million or $0.88 per share.

PSEG believes that the non-GAAP financial measure of “Operating Earnings” provides a consistent and comparable measure of performance of its businesses to help shareholders understand performance trends. Operating Earnings exclude the impact of the sale and/or impairment of certain non-core domestic assets and the impact of returns/(losses) associated with NDT and MTM accounting.

“PSEG’s results for the first quarter of 2009 demonstrate the strength of operations and the diversity of our asset base in the face of difficult market conditions” said Ralph Izzo, chairman, president and chief executive officer of PSEG.

Izzo indicated that “the market remains challenging, with power prices down and demand softening. But, effective portfolio management and cost control efforts give us the confidence to manage through these difficult times.” He went on to say “we continue to support our operating earnings guidance for 2009 of $3.00-$3.25 per share.”

PSEG Power

PSEG Power reported operating earnings of $359 million ($0.71 per share) for the first quarter of 2009 compared with operating earnings of $279 million ($0.55 per share) for the first quarter of 2008.

PSEG Power’s margins in the first quarter of 2009 benefited from higher contracted pricing and lower fuel costs ($0.18 per share). Higher average prices in the first quarter of 2009 reflect the positive impact of the June 2008 BGS contract on revenue as well as the re-pricing of a below-market wholesale contract which expired at the end of 2008. Cold weather supported demand in January; however, more normal weather during the remainder of the quarter coupled with a contraction in economic activity led to a reduction in overall demand for the quarter. Power was able to take advantage of an increase in output from its nuclear fleet as well as the availability of low-cost gas supply to meet load requirements in the quarter while generation from its coal-fired stations declined quarter-over-quarter. Included in Power’s first quarter margin improvement is income associated with the termination of positions with counterparties which accelerated the recognition of income which would have been realized later in the year. This item represented $0.03 per share of the $0.18 per share improvement in first quarter margin.

The nuclear fleet continued its strong operations with an average capacity factor of 97.8% in the quarter. This compares with an average capacity factor of 94.1% during the year-ago quarter. Production from the nuclear fleet also benefited from an uprate in the capacity of Hope Creek and Salem 2 (173MW) completed during the second quarter of 2008.

Power’s earnings saw an increase in margin under the BGSS contract ($0.01 per share). Quarter-over-quarter earnings comparisons were also affected by an anticipated increase in operating and maintenance expense in 2009 associated with planned outage work at the fossil stations ($0.01 per share) and nuclear stations ($0.01 per share). An increase in depreciation and interest expense reduced earnings comparisons by $0.01 per share.

For the year, PSEG Power’s operating earnings forecast reflects the benefit of higher electric power pricing. The operation of competitive energy and capacity markets has allowed Power to hedge 100% of its expected coal and nuclear output in 2009. The improvement in margins during the remainder of the year, however, is not expected to be as strong as that experienced in the first part of the year.

PSE&G

PSE&G reported operating earnings of $123 million ($0.24 per share) for the first quarter compared with operating earnings of $136 million ($0.26 per share) for the first quarter of 2008.

The results for the quarter were affected by several factors. Colder than normal weather increased the demand for gas. Degree Days were 8.5% higher than the level experienced in 2008’s first quarter, and 3.3% greater than normal causing gas sales to increase by 3.1% in the quarter versus last year. The quarter-over-quarter increase in sales was led by a 7.8% increase in gas sales to the residential sector. The weather-related increase in sales contributed $0.03 per share to earnings. Growth in demand continues to be constrained by poor economic conditions. This reduced demand negatively affected non-firm sales to the commercial and industrial sectors and hurt earnings by $0.01 per share in the quarter. Earnings were aided by an increase in transmission revenues effective on October 1, 2008 ($0.01 per share).

The increase in margin was offset by higher pension and operating and maintenance expense ($0.01 per share). Depreciation expense increased with a higher level of capital spending ($0.01 per share). Earnings comparisons were also affected by the absence of tax benefits recognized in the first quarter of 2008 ($0.02 per share).

PSE&G is expected to experience a decline in 2009 operating earnings. Demand is expected to remain weak in response to a contraction in economic growth. Results will also reflect an increase in pension expense as well as higher levels of depreciation expense associated with the start-up of PSE&G’s new customer information system and an increase in financing costs associated with increased capital outlays. PSE&G is preparing to file a combined electric and gas rate case by mid-year. The request will primarily address the company’s increased level of capital spending and pension related costs.

The quarter was marked by the New Jersey BPU’s approval of PSE&G’s proposal to accelerate capital spending as a means of meeting the Governor’s call for programs to stimulate the economy. PSE&G plans to spend $694 million on electric and gas programs over 24 months with approximately $190 million to be spent in 2009. These amounts will be recovered through a new capital adjustment charge (approved separate from base rates) designed to provide immediate recovery of a return on the program expenditures plus depreciation of the assets.

PSEG Energy Holdings

PSEG Energy Holdings reported operating earnings of $4 million ($0.01 per share) versus operating earnings of $28 million ($0.06 per share) during the first quarter of 2008.

The decline in operating earnings for the quarter was influenced by several factors. A reduction in gas prices reduced the profitability of the combined cycle gas assets in Texas ($0.01 per share). The Texas generating units performed better than a year ago in what remains a difficult market. The absence of tax benefits recorded in 2008 ($0.02 per share) also hurt earnings. Earnings from Resources were hurt by a reduction in income on the lease portfolio ($0.02 per share) and an increase in taxes ($0.03 per share). These items more than offset the gain recorded on the termination of leases during the quarter ($0.03 per share). The termination of leases during the quarter reduced Resources investment in international leases to $924 million at the end of March 2009 from $1.0 billion at the end of 2008.