2nd UPDATE: PSEG 4Q Profit Slides 19%; Year Guidance Downbeat
February 22 2011 - 1:19PM
Dow Jones News
Public Service Enterprise Group Inc.'s (PEG) fourth-quarter
profit fell 19% after sliding margins cut into earnings at the
company's main electricity utility.
The company projected a downbeat outlook for the current year
amid tough power-market conditions.
New Jersey's largest utility has suffered continued revenue
pressure amid stagnant demand. Many power companies are struggling
following back-to-back years of declining purchases and slumping
prices for wholesale generation that's sold at market-driven rather
than regulated rates.
"We will continue to focus on maintaining high levels of
operating efficiency" across its utility and competitive-power
business, Chairman and Chief Executive Ralph Izzo said during a
conference call. "We will not, however, be able to offset the
impact on operating earnings in 2011 from a decline in the market
price for energy, and the increased expenses" related to the
company's operating coal plants.
Earnings will be pressured by lower-priced hedges replacing
higher priced hedges seen last year and customer loss amid tough
power market conditions, executives said. For instance, the company
has hedged 95% of its coal and nuclear generation in 2011 at $68 a
megawatt hour compared to 91% of that portfolio hedged in 2010 at
$72 a megawatt hour.
The Newark-based company generated about 70% of its profits from
its competitive power business with the bulk of the rest coming
from its utility operations, but the regulated business will make
up nearly 40% of the share in 2011.
The company will face more pressure in the coming years now that
New Jersey has enacted a series of long-term incentives to build
natural gas power plants in the state. PSEG and other utilities
vocally opposed the measures, which were intended to lower
electricity rates in the state, create jobs and reduce carbon
emissions. They have filed a complaint with federal regulators and
are challenging it in a U.S. district court.
Even so, the company plans to file Tuesday a plan to build new
gas-fired generation at an existing site under the New Jersey
program in case it survives legal scrutiny, executives said.
For 2011, PSEG will earn about $2.50-$2.75 a share, behind
analysts' recent expectation of $2.80 a share. The company earned
$3.12 in 2010.
PSEG posted a fourth-quarter profit of $282 million, or 56 cents
a share, down from $349 million, or 69 cents a share, a year
earlier. Excluding effects from hedging, the sales of two Texas
power plants and other items, per-share operating earnings were 60
cents, down from 66 cents. Analysts polled by Thomson Reuters most
recently forecast earnings of 62 cents a share.
PSEG Power, the company's largest unit by earnings, posted a 19%
lower profit after margins continued to erode on certain wholesale
contracts and a 26-day refueling outage at its Hope Creek nuclear
reactor cut output.
The company's electric and gas businesses posted 22% higher
earnings thanks to an electric and gas rate settlement, but profit
in its energy holdings unit fell 58% after lower project earnings
and write-downs more than offset the benefit of lower interest
expenses.
PSEG pegged capitals pending at $6.7 billion in 2011-2013.
The bonus depreciation tax benefit will improve cash by about
$900 million in 2011-2012, of which half will be at the utility and
the rest at the company's wholesale operations, Chief Financial
Officer Caroline Dorsa said. The tax benefit passed in December
lets companies take a 100% writedown on investments projects
completed this year and a 50% writedown next year, instead of
spreading them over 15-20 years.
Shares were recently down 12 cents at $31.62. The stock is up
2.9% over the past 12 months.
-By Naureen S. Malik, Dow Jones Newswires; 212-416-4210;
naureen.malik@dowjones.com
-Drew FitzGerald contributed to this report.
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