Public Service Enterprise Group Incorporated (PEG)

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Industry: Public Utilities
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Public Service Enterprise Group, Inc.

Q3 2010 Earnings Conference Call

October 27, 2010 11 AM ET

Executives

Kathleen Lally – VP, IR

Ralph Izzo – Chairman, President and CEO

Caroline Dorsa – EVP and CFO

Analysts

Daniel Eggers – Credit Suisse

Greg Gordon – Morgan Stanley

Paul Patterson – Glenrock Associates

Paul Fremont – Jefferies

Jonathan Arnold – Deutsche Bank

Steve Fleishman – Merrill Lynch

Neel Mitra – Simmons & Company

Marc De Croisset – FBR Capital Markets

Ashar Khan – Visium Asset Management

Leslie Rich – JPMorgan

Michael Lapides – Goldman Sachs

Presentation

Operator

Ladies and gentlemen, thank you for standing by. My name is Deshandra and I am your event operator today. I would like to welcome everyone to the PSEG third quarter 2010 earnings conference call and webcast. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session for members of the financial community. (Operator Instructions).

As a reminder, this conference is being recorded, Wednesday, October 27th, 2010 and will be available for telephone replay, beginning at 1 o’clock PM Eastern Time today, until 11:59 PM Eastern Time on November 3rd, 2010. It will also be available as an audio webcast on PSEG’s corporate website at www.pseg.com.

I would now like to turn the conference over to Kathleen Lally. Please go ahead.

Kathleen Lally

Thank you, operator. Good morning. Thank you all for participating in PSEG’s call. As you are aware, we released our third quarter 2010 earnings statements earlier today. They are also the release and the attachments are posted on our website at www.pseg.com in the Investors section. We also have posted a series of slides that detail our operating results by company for the quarter. Our 10-Q for the period ended September 30th, 2010 it will be filed shortly.

I’m not going to read the full disclaimer statement or the comments that we have on the difference between operating earnings and GAAP results. However, as you know the release and other matters that we will discuss in today’s call contain forward-looking statements and estimates that are subject to various risks and uncertainties. And although we may elect to update forward-looking statements from time-to-time, we specifically disclaim any obligation to do so even if our estimate changes unless we are absolutely required to do so obviously.

Our release also contains adjusted non-GAAP operating earnings. Please refer to our 8-K today containing the earnings statement and other filings for a discussion of the factors that may cause results to differ from management’s projections, forecasts and expectations, and for a reconciliation of those operating earnings to GAAP results.

I’m now going to turn the call over to Ralph Izzo, Chairman, President, and Chief Executive Officer of Public Service Enterprise Group. Joining Ralph on the call is Caroline Dorsa, Executive Vice President and Chief Financial Officer.

At the conclusion of their remarks, there will be time for your questions, and we do ask that you limit yourself to a one question and one follow-up. We hope that there will be plenty of time for all of your questions today.

With that, I’ll turn the call over to Ralph.

Ralph Izzo

Thank you, Kathleen. Good morning and thank you everyone for joining us today. Earlier this morning, we reported operating earnings for the third quarter of 2010 of $1.06 per share compared with operating earnings of $0.92 per share in 2009’s third quarter. Overall, operating earnings benefited from strong weather related demand. New Jersey experienced the hottest summer on record this year. This stands in contrast to last year’s very cool weather conditions.

For the past three quarters, we’ve been saying the economy appears to have stabilized, well that story remains unchanged. The signals coming from employment levels and housing indicate the economy may have bottomed, but as of yet no signs of a significant recovery have appeared.

Company execution was strong in the quarter. Our fossil generating units in particular were available to respond to the increase in demand and our employees continue to support our results through their constant focus on operating efficiency and cost control.

Capital commitments are being met as well. PSEG Power is in the midst of testing the backend technology installed on the Hudson and Mercer Coal Stations. These units are expected to meet stringent environmental requirements for sulfur, mercury, nitrous oxides in particular. PSEG is in the midst of a $700 million capital program that will produce a 160 megawatts of solar energy.

PSEG Energy Holdings has completed the installation of 29 megawatts of solar capacity in New Jersey, Ohio and Florida, and is reviewing additional PPA supported solar investments. These are but a few examples. Caroline will have more details on the capital program later on.

We’re moving forward with PSEG substantial capital investment and transmission. The update we’re providing you today of PSEG planned capital outlays takes into account the announced reductions in distribution related spending, the delay in construction of the Susquehanna-Roseland transmission line, and PJM’s recently approved reconfiguration of the Branchburg-Roseland-Hudson transmission line. The net result will be a capital program yielding annual growth in the utilities rate base of 9.5% per year over 2010 to 2013 with transmission continuing its role as our most significant area of investment.

We continue to reduce our financial risk and maintain our focus on core markets. PSEG Energy Holdings successfully terminated another two cross-border leases during the quarter. Over the past two years, the successful termination of 17 leases has reduced the Holdings’ potential tax liability by $1 billion with one lease remaining in the cross-border lease portfolio.

PSEG Power announced during the quarter that it is exploring the sale of its Texas gas-fired combined cycle generating capacity. If successful, we expect the sale to close during the first quarter of 2011. We’ve been saying that we need us to get bigger in Texas or get out, and we have not found appropriate opportunities to grow in that market. The sale of the Texas assets will reduce the overall size of the portfolio by 2,000 megawatts, but it will improve returns on the portfolio and keep the focus squarely on the markets and assets with the highest value.

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