Executive Summary / Key Takeaways

• Public Service Enterprise Group (PSEG) is strategically focused on its predominantly regulated utility business, Public Service Electric and Gas Company (PSE&G), leveraging significant capital investments in infrastructure modernization and clean energy to drive predictable earnings growth.
• The company has outlined a robust regulated capital investment plan of $21 billion to $24 billion through 2029, targeting a 6% to 7.5% compound annual growth rate in regulated rate base from a $34 billion base at year-end 2024.
• PSEG initiated full-year 2025 non-GAAP operating earnings guidance at $3.94 to $4.06 per share, representing a roughly 9% increase at the midpoint over 2024 results, and reaffirmed a 5% to 7% non-GAAP operating earnings CAGR through 2029, anchored by the nuclear Production Tax Credit (PTC).
• The company's nuclear fleet provides a critical source of carbon-free baseload power, supported by the IRA's PTC and offering potential incremental growth opportunities through long-term contracts with large energy users like data centers, which are showing significant interest in the New Jersey service territory.
• Key risks include regulatory and market uncertainties, particularly regarding PJM capacity market dynamics and the outcome of the LIPA contract, alongside environmental liabilities and the challenges of managing costs in an inflationary environment.

Setting the Scene: A Regulated Core in a Dynamic Energy Landscape

Public Service Enterprise Group (PSEG) operates as a holding company with a strategic emphasis on its regulated utility segment, Public Service Electric and Gas Company (PSE&G), which serves as New Jersey's largest electric and gas transmission and distribution utility. This focus represents a significant evolution, particularly following the 2022 divestiture of its fossil generation assets, solidifying its identity as a predominantly regulated infrastructure entity. The core strategy revolves around allocating capital primarily toward regulated investments to enhance the sustainability and predictability of financial results, while also realizing the inherent value of its retained merchant nuclear generation business.

Within the competitive landscape, PSE&G operates as a regulated monopoly within its defined service territory, providing essential electric and gas delivery services. This regulated structure offers a degree of insulation from direct competition compared to merchant generation businesses. PSE&G consistently highlights its strong competitive positioning within New Jersey and the broader Eastern region based on operational performance and customer service. The utility has received accolades such as the ReliabilityOne Award for the Mid-Atlantic region for 23 consecutive years and has been ranked highly for residential customer satisfaction by J.D. Power. Furthermore, PSE&G's combined electric and gas bill is noted as comparing favorably to other utilities in New Jersey, with its gas bill often cited as the lowest in the region. While direct utility competition is limited by regulation, PSEG Power's generation assets operate within the competitive wholesale markets managed by PJM Interconnection, where they compete with a diverse set of generators, including those operated by companies like Duke Energy (DUK), NRG Energy (NRG), and NextEra Energy (NEE). These competitors often possess greater scale, broader geographic reach, or a more concentrated focus on specific technologies like renewables or competitive retail operations.

Technological Edge and Infrastructure Modernization

A key differentiator for PSEG, particularly within its Power segment, is its ownership and operation of a fleet of carbon-free nuclear generating units (Salem 1, Salem 2, and Hope Creek). These facilities represent a critical technological asset providing reliable baseload power. The company is actively pursuing enhancements to these assets, including thermal efficiency upgrades at the Salem units, which could potentially increase their combined output by approximately 200 megawatts. These upgrades are believed to qualify for technology-neutral tax credits established by recent legislation. Additionally, PSEG is implementing a fuel cycle extension for the Hope Creek unit, transitioning to a 24-month refueling cycle in Fall 2025, which enhances operational efficiency and reduces outage frequency. The value of this nuclear technology is further supported by the Production Tax Credit (PTC) from the Inflation Reduction Act (IRA), effective through 2032, which provides downside price protection linked to the plants' gross receipts.

On the utility side, PSEG is investing heavily in modernizing its transmission and distribution infrastructure through programs like Energy Strong II, the Infrastructure Advancement Program (IAP), and the Gas System Modernization Program (GSMP II/III). A significant technological undertaking recently completed is the Advanced Metering Infrastructure (AMI) program, which involved the installation of approximately 2.2 million smart meters by the end of 2024. These smart meters are foundational technologies that enable improved grid management, enhanced reliability, more efficient outage response, and facilitate the integration of other clean energy technologies like distributed solar and electric vehicles. The company's energy efficiency programs (CEF-EE/EE II) also leverage various technologies to help customers reduce energy consumption and lower bills, aligning with state decarbonization goals.

The "so what" for investors is that these technological assets and investments contribute directly to PSEG's strategic objectives. The nuclear fleet provides a stable, low-carbon revenue stream with potential for incremental growth and supports state clean energy mandates. The modernized utility infrastructure enhances operational efficiency, improves service quality, and positions PSE&G to accommodate increasing load growth from electrification and new demands like data centers, all of which support rate base growth and predictable earnings.

Financial Performance and Capital Deployment

PSEG's recent financial performance reflects the strategic shift towards its regulated core and the impact of ongoing investments. For the three months ended March 31, 2025, PSEG reported consolidated operating revenues of $3,222 million, an increase from $2,760 million in the prior-year period. Net income for the quarter was $589 million, up from $532 million in the first quarter of 2024. This performance was significantly influenced by the full-quarter impact of new electric and gas base distribution rates approved in October 2024, which provided regulatory recovery on and of invested capital, as well as the favorable seasonality of gas revenues concentrated in the first quarter.

The PSE&G segment specifically saw operating revenues increase to $2,664 million in Q1 2025 from $2,333 million in Q1 2024, with net income rising to $546 million from $488 million. This growth was primarily driven by continued investments in TD clause programs and the benefits from the distribution base rate case settlement. The PSEG Power Other segment also saw an increase in operating revenues to $1,092 million from $872 million, though net income slightly decreased to $43 million from $44 million, reflecting changes related to mark-to-market activity and the Nuclear Decommissioning Trust (NDT) Fund, alongside higher realized prices for nuclear generation output.

The company's liquidity position remains solid, supported by operating cash flows and access to credit facilities. For the three months ended March 31, 2025, net cash provided by operating activities was $1,049 million, a significant increase from $661 million in the prior-year period. This improvement was attributed to changes at PSE&G, lower net cash collateral postings at PSEG Power, and higher tax refunds. As of March 31, 2025, PSEG had total available liquidity of $3.704 billion, supported by $3.825 billion in committed credit facilities, which were extended through March 2029. The company's balance sheet strength is a key enabler of its capital investment program, allowing it to fund planned expenditures without the need for new equity issuances or asset sales.

Strategic Outlook and Growth Drivers

PSEG's outlook is anchored by its substantial capital investment program and the anticipated benefits from regulatory outcomes and market trends. The company projects a regulated capital investment range of $21 billion to $24 billion for the 2025-2029 period, part of a total PSEG capital program of $22.5 billion to $26 billion. These investments are expected to drive a compound annual growth rate in regulated rate base of 6% to 7.5% from the year-end 2024 base of approximately $34 billion.

This investment strategy underpins PSEG's full-year 2025 non-GAAP operating earnings guidance of $3.94 to $4.06 per share, representing a 9% increase at the midpoint over 2024 results. The company also reaffirmed its long-term non-GAAP operating earnings CAGR target of 5% to 7% through 2029, using the nuclear PTC threshold as the reference price for its nuclear generation output. Key drivers for this growth include the full-year impact of the new distribution rates, continued investment in regulated infrastructure and clean energy programs like the expanded CEF-EE II ($2.9 billion over six years), and the stable contribution from the nuclear fleet, supported by the PTC.

A significant emerging opportunity is the increasing demand for power from large load customers, particularly data centers, in the New Jersey service territory. PSEG has seen a substantial increase in inquiries and feasibility studies, with the pipeline growing to over 6,400 MW as of March 31, 2025. While not all inquiries will convert to firm load, this trend signals potential for future load growth and associated system investment needs. PSEG Power is actively exploring long-term power sale agreements from its nuclear fleet to serve this demand, which could provide incremental revenue opportunities beyond the base earnings forecast.

Risks and Challenges

Despite a clear strategic direction and positive outlook, PSEG faces several risks and challenges. Regulatory and political uncertainty remains a key factor, particularly concerning future transmission planning processes by the BPU and PJM, the design of energy and capacity markets, and the potential impacts of state and federal clean energy policies on cost recovery and investment returns. The volatility of the PJM capacity market, as evidenced by the significant price increases in the July 2024 auction, poses a risk to customer affordability, although PSEG is working with regulators on mitigation proposals.

Environmental liabilities from historical operations, including MGP sites, river contamination, and former fossil sites (exacerbated by new regulations like the CCR Rule), continue to present potential material costs. The outcome of ongoing litigation and regulatory proceedings, such as the BPU audit of PSEG and the Sewaren 7 construction litigation, also introduces uncertainty. Furthermore, the outcome of the LIPA Operations Services Agreement RFP process, where the LIPA board recently voted against management's recommendation for a different provider, remains uncertain and could impact future revenues, although PSEG is confident in its ability to offset any potential loss.

Financial market conditions, including fluctuating interest rates, can impact financing costs and pension funding requirements. Managing costs in an inflationary environment while maintaining affordable customer rates is an ongoing challenge that could influence future regulatory proceedings. Cybersecurity and physical security threats to infrastructure are also increasing risks requiring continuous investment and vigilance.

Conclusion

Public Service Enterprise Group is executing a focused strategy centered on its regulated utility business and leveraging its carbon-free nuclear generation assets. The company's substantial capital investment plan in infrastructure modernization and clean energy initiatives provides a clear path for predictable rate base and earnings growth, supported by favorable regulatory outcomes like the recent distribution rate case settlement. The nuclear fleet, bolstered by the IRA's Production Tax Credit and potential opportunities from growing demand sectors like data centers, offers a stable foundation and potential incremental upside. While regulatory uncertainties, market volatility, and environmental liabilities present challenges, PSEG's strong balance sheet, operational excellence, and commitment to aligning with state clean energy goals position it to navigate the energy transition and deliver on its long-term growth targets. The investment thesis is grounded in the stability of its regulated operations, the strategic value of its nuclear assets, and the disciplined execution of its capital program aimed at enhancing reliability, supporting electrification, and driving sustainable earnings growth.