Public Service Enterprise Group Inc.'s (PEG) first-quarter profit rose 7.1% as its electric-and-gas business's profit increased, but adjusted earnings declined.

"Our results in the first quarter are strong in the face of difficult economic conditions," Chairman and Chief Executive Ralph Izzo said during a conference call Thursday. "Although, there are signs of economic recovery, a decline in contracted energy and capacity prices from a year ago levels beginning in the second quarter will have an impact on our full-year operating earnings."

New Jersey's largest utility has seen continued pressure because of stagnant demand and weak power prices. It could face additional costs from increased nuclear regulations following the Japanese nuclear crisis and stricter federal air and water rules. The company reiterated its full-year earnings forecast.

The March 11 earthquake and tsunami cutoff back-up power at the Fukushima Daiichi plant, releasing radiation. These events triggered fresh safety reviews at nuclear plants across the U.S.

The company has been involved in an ongoing battle over the storage of nuclear waste.

PSEG joined more than a dozen power companies in suing the Energy Department in March to try to suspend annual fees the companies would pay for nuclear waste storage. Meanwhile, New Jersey has sought to join a multistate challenge that would limit how long shuttered nuclear power plants can store waste on site.

It also faces pressure in coming years after New Jersey enacted a series of long-term incentives to build natural gas power plants as the state looked to lower electricity rates. PSEG and a slew of other power generators in the state are involved in a lawsuit seeking to prevent the state from providing such incentives, saying they undermine the competitive power market. Even so, PSEG, along with three other utilities, signed long-term contracts to buy power from these new gas-fired plants under protest last week.

PSEG generates more than 60% of its profits from selling power in competitive markets with the bulk of the rest coming from its utility operations.

For the first quarter, the company posted a profit of $526 million, or $1.04 a share, up from $491 million, or 97 cents a share, a year earlier. Excluding the effects from hedging and other items, per-share operating earnings were 85 cents, down from 87 cents. Analysts polled by Thomson Reuters expected earnings of 77 cents.

The PSEG Power wholesale unit, the company's largest unit by earnings, posted a 14% lower profit.

The company's electric and gas utility business saw profit of $163 million, up from $117 million, helped by higher rates.

The company has "taken advantage of market conditions" to hedge more of its power generation, Chief Financial Officer Caroline Dorsa said. The company's baseload power production for 2011 is now completely hedged at an average price of $68 a megawatt hour and 40% to 50% of the company's expected output in 2012 at $66 a megawatt hour.

Shares were recently down 0.6% at $32.14. The stock has risen 1% so far this year.

-By Naureen S. Malik and Nathan Becker, Dow Jones Newswires; 212-416-4210; naureen.malik@dowjones.com

-Nathan Becker contributed to the report.
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