RALPH IZZO Chairman, President and Chief Executive Officer
In 2016, our industry continued to be reshaped by the economics of natural
gas, the promise of renewables and our customers' evolving expectations.
Our company has responded successfully to these market forces by increasing its
focus and its investment in our utility and regulated assets, leading PSE&G to an
increased percentage of 2016 earnings. At the same time, we have continued to
improve the economic efficiency of our PSEG Power portfolio, providing customers
with safe, reliable, economic and greener energy in an evolving generation
I am pleased to report that, in 2016, we made excellent progress toward our
We delivered strong results in 2016 with full-year non-GAAP operating earnings at the
upper end of our revised guidance and solidly within our initial guidance.
Our strong financial position has allowed us to steadily increase our dividend. In
February 2017, we raised our indicative annual dividend rate to $1.72 per share from
$1.64 per share. This was the 13th increase in our dividend in the last 14 years. We are
proud of our track record of having paid dividends for 110 consecutive years.
We remain well-positioned to finance our capital program without the need to
issue equity, while still having the opportunity for consistent and sustainable growth
in our dividend.
Our commitment, as always, is to deliver sustainable, long-term value to our
customers, our communities, our employees and our shareholders by focusing on
three core commitments: operational excellence, financial strength and disciplined
Reliability is the foundation for long-term excellence in the energy industry and PSE&G
is recognized as a national leader in this measure. In 2016, PSE&G was named the
Mid-Atlantic region's most reliable electric utility for the 15th consecutive year by PA
Consulting, an industry-benchmarking group.
Reliability at PSEG also means ensuring that our power plants are operating at peak
efficiency to provide power when needed, at the most affordable cost to the customer.
In October, we announced that our last two coal-burning
generating units in New Jersey will be retired on
June 1, 2017. A few months earlier, we began
construction on Sewaren 7, a 540-megawatt dual-fuel
combined-cycle power plant. The $600 million
plant is expected to be operational in 2018. Progress
also continued on construction of a 755-megawatt
combined-cycle plant at the Keys Energy Center in
Maryland and development of a 485-megawatt facility in
PSE&G's residential gas customers have reaped the
benefits of plentiful natural gas supplies with lower prices
while we continue to make investments and upgrades
to modernize our distribution system. In 2016, PSE&G
reduced residential gas rates for the seventh consecutive
year. Since 2009, we have reduced residential gas
customers' bills by about 50 percent, saving the typical
customer more than $800 a year. PSE&G also has issued
bill credits since 2012 totaling approximately $800 million,
or $590 per typical customer.
In 2016, we significantly improved our employee safety
record, achieving the lowest rate of reportable injuries in
our company's history.
We continue to be an industry leader in connecting with
customers using social media. Among utilities, PSE&G
has one of the largest audiences on Twitter, with more
than 100,000 followers. PSEG Long Island grew its
Facebook audience by 132 percent.
PSEG Long Island currently has the lowest rate of
customer complaints to the state regulatory agency out
of all electric and gas utilities in New York.
Over time, PSEG has emphasized the importance of
financial strength as a key differentiator in our business.
We have been proactive in taking a broad range of
measures to maintain and further enhance our strong
For several years, we have focused on investments in our
utility business and regulated assets. As a result, PSE&G
net income grew 13 percent in 2016, adding to a streak
of 16 percent annual growth since 2009. Today, the utility
represents a more substantial share of earnings, and its
share is forecast to continue to grow in 2017.
Growth of the utility is offsetting the challenges in our
PSEG Power company, which are primarily due to a
changing energy marketplace driven by lower electricity
prices. Nevertheless, we continue to find ways to
increase the efficiency and performance of PSEG Power
assets while lowering costs – without compromising
safety or reliability.
Our strong balance sheet is one key to our financial
strength. We continue to maintain a solid financial profile
capable of meeting our growth objectives, without
diluting our current shareholders through the issuance of
Gas Modernization Program – May 26, 2016, Montclair, NJ
Our five-year capital investment program stands
at approximately $15 billion, with regulated utility
investments representing more than 80 percent of our
planned capital expenditures.
In 2016, we continued progress in our three-year,
$905 million Gas System Modernization Program,
moving forward with the replacement of our aging
system of cast-iron and unprotected steel gas mains. In
collaboration with Google, the Environmental Defense
Fund and Colorado State University, PSE&G upgraded
its leak-detection capabilities to prioritize repairs and
significantly reduce methane emissions.
We continue to move ahead with our three-year,
$1.2 billion Energy Strong program to harden and
improve the resiliency of our electric and gas systems.
In 2016, we reached another key milepost when we
energized the Sewaren Switching Station – the first
elevated station placed into service as part of
In November, the New Jersey Board of Public Utilities
approved a three-year, $80 million extension to PSE&G's
Solar 4 All® program. This extension of the program
allows construction of an additional 33 megawatts of
solar farms on landfills and brownfields.
Meanwhile, on the non-utility portion of our solar
investments, PSEG Power's Solar Source portfolio
doubled in size during 2016, bringing its total operating
capacity to 326 megawatts in 13 states, with another
70 megawatts under construction.
PSE&G continues to invest in energy efficiency as a
key to realizing a sustainable energy future. In 2016, we
were presented with an Association of Energy Service
Professionals award for installing energy efficiency
measures in multifamily housing.
We continue to benefit from having two complementary
businesses. In PSE&G, we have a leading electric and
gas utility that continues to see growth, and has been
expanding its investments in projects that focus on
meeting customer needs by providing reliable, efficient
and clean energy at an attractive return. And in PSEG
Power, we have a competitive generation business
with a strong focus on getting the most value from
its diverse, low-cost and environmentally advantaged
assets. These two businesses have provided for
consistently strong results by our company.
Building on Good, Strong Values
PSEG's core values – starting with fundamental
commitments to safety and integrity – continue to guide
our company. Our success for more than a century
has been based on putting our energy to work for the
greater benefit of our customers, our shareholders and
the larger society around us.
It is a particular point of pride that, in 2016, PSEG
was named to the first-ever Forbes "Just 100" list
of companies celebrated for their commitment as
strong corporate citizens. PSEG was recognized for
its success in creating jobs, conducting business in an
ethical manner, providing competitive retirement and
health benefits, and caring about the communities in
which it operates.
PSEG also was named – for the ninth consecutive year – to the Dow Jones Sustainability North America Index,
which recognizes companies for their commitment to
economic, environmental and social responsibility.
PSEG also continues to be honored as a top employer,
particularly for military veterans. Victory Media named
the company one of the top employers in the U.S. for
providing training and employment opportunities to
Lawrence Livermore National Laboratory – April 26, 2016, Livermore, CA
In the coming year, we expect to continue our
leadership role in the energy industry while navigating an
Energy markets continue to evolve in response to the
persistence of low-priced natural gas. We are meeting
these challenges with increased investments in our
regulated utility and extended cost-efficiencies for our
PSEG Power assets, while delivering the benefits of
low-priced natural gas to our customers. This year, we
intend to invest $4.7 billion to enhance the efficiency
and reliability of our businesses at PSE&G and PSEG
Power – a record amount for PSEG to invest in any one
year – while meeting our commitments to provide safe,
clean and affordable energy.
We continue to monitor the effects of low natural
gas prices on the revenues of our nuclear generating
facilities at Salem and Hope Creek, which are critically
important to the state of New Jersey. Our management
team is committed to the continued implementation
of disciplined cost control at these facilities and will
continue to advocate for policies that recognize nuclear
power as a source of clean energy and an important
part of a diverse, reliable energy portfolio.
We also expect to seek approval of new investments in
energy efficiency and electric vehicles, and are working
to file documents for a distribution base rate case at
PSE&G by November 2017.
The rate of change in our business is increasing.
Throughout this evolution, we are able to keep pace
thanks, in large part, to the commitment of our
dedicated workforce. I continue to be grateful for their
efforts and contributions.
We remain as dedicated as ever to growing a brighter
energy future responsibly, reliably and efficiently. We
thank you, our shareholders, for your loyalty and
support. We will continue to work hard to maintain your
confidence and trust.
Chairman, President and Chief Executive Officer
Public Service Enterprise Group