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Public Service Enterprise Group's 10-K: Steady Revenue; Potential Issues With Nuclear Generation On The Horizon

Mar. 01, 2018 2:42 AM ETPEG
Hale Stewart profile picture
Hale Stewart


  • PEG's gross revenue was steady.
  • They took a big depreciation hit thanks to two early power plant closings.
  • Due to competition from natural gas, their nuclear operations may become unprofitable in the future.

I originally profiled Public Services Enterprise Group (PEG) here. For a general background on the utilities industry's market background, please see this link.

Let's begin with the relevant financial data for income and dividend investors (data from Morningstar.com; author's calculations).

Revenue was more or less flat. While the company's gross margin rose 2.4%, the operating margin dropped 1.6% due to plant closures. The EBIT/Gross revenue is at a very healthy 47%. The company is growing EBIT at a solid clip which is helping to keep their interest/EBIT ratio contained. The company's debt to asset ratio is very conservative. Dividend investors will be pleased with the low dividend payout ratio.

The company filed for a rate increase in January; they are seeking a 1% rate hike. Like other utilities, they included the impact of the new tax law in their submission. They also have a gas modernization request pending.

They retired two plants: their Hudson and Mercer coal facilities. They recorded $964 billion in accelerated depreciation as a result of the closures, which is why their operating margin dropped.

Then we have the potential nuclear issue. As a refresher, the company has the following power generation sources:

Nuclear is key to the company's generation capabilities. Thanks to fracking, natural gas is now plentiful and cheap as shown in the following chart:

Natural gas has declined consistently since the end of the recession. That has started to squeeze power companies that use nuclear generation. This graph from the Department of Energy's Monthly Energy Report highlights the change:

The following two paragraphs from the company's 10-K outlines the situation [emphasis added]:

..... These closures and retirements are generally due to the decline in market prices of energy, resulting from low natural gas prices driven by the growth of shale gas production since 2007, the continuing

This article was written by

Hale Stewart profile picture
Hale Stewart spent 5 years as a bond broker in the late 1990s before returning to law school in the early 2000s. He is currently a tax lawyer in Houston, Texas. He has an LLM in domestic and international taxation (MagnaCumLaude). He is the author of the book The Lifetime Income Security Solution. Follow me on Twitter at @originalbonddadYou can read his legal analysis on his law office's blog.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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