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2018 Annual Report
A MESSAGE FROM THE CHAIRMAN
Ralph Izzo, Chairman, President, and Chief Executive Officer
RALPH IZZO
Chairman, President
and Chief Executive Officer
A MESSAGE FROM THE CHAIRMAN

POWERING PROGRESS  More than a century ago, PSEG founder Thomas McCarter committed our company “to develop the State of New Jersey and to make it a better place to live.”

Our ongoing mission remains unchanged: to provide energy in ways that work toward the betterment of the state and communities we serve. We have a civic responsibility to ensure all customers have access to a safe, reliable and sustainable energy supply, and to provide it as efficiently and affordably as possible.

But today, as we confront the urgent need to address global climate change by reducing greenhouse gas emissions, we are obligated to do more. We must also commit ourselves to a low-carbon, clean energy future.

Concern for clean air and a healthy climate is the driving force behind PSEG’s ongoing transformation from a traditional electric and gas utility to a national clean energy leader.

PSEG has established a strong record of leadership in working toward a cleaner, greener energy industry:

  • We have invested more than $1.7 billion to develop solar energy in New Jersey and 13 other states;
  • We are supporting New Jersey’s efforts to become a national leader in offshore wind generation;
  • We continue to work toward preserving New Jersey’s nuclear fleet, which is a critical component of New Jersey’s clean energy portfolio; and most recently,
  • We have proposed a sweeping $3.6 billion investment in our Clean Energy Future program.

Clean Energy Future, which calls for historic investments in energy efficiency, electric vehicle charging infrastructure, energy storage and advanced metering, is perhaps the most significant step in PSEG’s evolution as a green energy provider.

DIVIDEND PER SHARE
Dividend Per Share
Powering Progress

Our proposal is ambitious and far-reaching in its approach to transforming New Jersey’s energy sector – in ways that are good for public health; increase safety, reliability and resiliency; create thousands of jobs; and achieve economic savings for customers.

PSEG already has one of the smallest carbon footprints of any energy company in the United States – thanks in large part to our transition away from power plants that burn coal in favor of low- and zero-carbon resources. As a result, we reduced our company’s carbon emissions by more than 20 percent in a span of three years.

PSEG may be a local utility and energy provider for New Jersey and Long Island, but the impact of our business is global. The urgent need for worldwide carbon reductions means we have a duty as corporate citizens to do even more.

Our customers depend on the safe, reliable, around-the-clock energy we provide. But we also understand that is no longer enough.

PSEG must become a leader in clean energy, as well, for the benefit of our customers and for the good of the planet.

I am pleased to report that, during 2018, we once again made excellent progress toward our business objectives.

Noteworthy during an eventful year were successful outcomes for two of our company’s top priorities.

The first came in the spring, when the New Jersey Legislature and Gov. Phil Murphy enacted a package of clean energy legislation – including a Zero Emissions Certificate program that recognizes nuclear power as a critical component of New Jersey’s clean energy portfolio and an important element of a diverse generation supply.

Then, in October, PSE&G reached a settlement with the New Jersey Board of Public Utilities that establishes new distribution base rates and sets a firm foundation for our utility’s future, while keeping bills for the typical combined electric and gas residential customer at levels that are 30 percent lower than they were in 2008.

PSE&G’s growth met expectations, fueled by the investment of approximately $3 billion of capital, targeted at improving the reliability and resiliency of our system.

PSEG Power continued its emphasis on safety and operational excellence.

Finally, our results benefited from the control of operations and maintenance costs by both PSE&G and PSEG Power.

Our strong financial position has supported the growth in our dividend. In February 2019, we raised our indicative annual dividend rate to $1.88 per share, from $1.80 per share. This is the 112th consecutive year our company has provided a dividend and the 15th dividend increase in the last 16 years.

Our commitment, as always, is to deliver sustainable, long-term value to our customers, our communities, our employees and our shareholders by focusing on these fundamental objectives: operational excellence, financial strength and disciplined investment.

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Powering Progress
OPERATIONAL EXCELLENCE

Reliability is central to long-term excellence and financial strength in the energy industry.

In 2018, PSE&G received the Outstanding Customer Reliability Experience Award and, for the 17th consecutive year, the ReliabilityOne Award for Outstanding Reliability Performance in the Mid-Atlantic Region, both from PA Consulting, an industry benchmarking group.

The Customer Reliability award recognized PSE&G’s digital assets, including a redesigned website, text alerts and grid technology upgrades that speed restoration after an outage. We hope to do more.

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 2018, Hope Creek set a new record for its longest-ever continuous production run – 517 consecutive days online. For the first time in its 32-year operating history, Hope Creek also achieved what is known as a “breaker-to-breaker” run, operating nonstop between its two scheduled refueling outages.

Two new power plants were placed into service in 2018: Sewaren 7, a 538-megawatt combined-cycle natural gas plant in New Jersey, and the Keys Energy Center in Prince George’s County, Maryland, a 761-megawatt combined-cycle gas plant. A third, a 485-megawatt facility in Bridgeport, Connecticut, will be completed in mid-2019.

In 2018, three PSEG business groups – Fossil, Customer Operations and Delivery Projects & Construction – achieved top-decile performance in safety.

PSEG Long Island continued its rise as the most improved large utility in the nation over the last five years, according to J.D. Power data, including residential customer satisfaction scores that increased at twice the rate of the average electric utility.

FINANCIAL STRENGTH

Over time, PSEG has emphasized the importance of financial strength as a key differentiator in our business. Financial strength helps keep us well-positioned to finance our capital program without the need to issue incremental equity, while still having the opportunity for consistent and sustainable growth in our dividend.

In recent years, we have increasingly focused on investments in our regulated utility business. As a result, PSE&G net income grew approximately 10 percent in 2018. Today, the utility represents more than two-thirds of our non-GAAP operating earnings, a portion that we expect will continue to grow.

Growth of the utility continues to offset the challenges at PSEG Power that are the result of a changing energy marketplace driven by persistently lower prices. In response to those market conditions, as well as a desire to reduce our company’s carbon footprint, our generation portfolio has been reconfigured to establish a cleaner, more efficient fleet. While we continue to find ways to increase the efficiency and performance of PSEG Power’s assets, we target lowering costs – without compromising safety or reliability.

Our strong balance sheet continues to provide us with a competitive advantage as we adapt to recently enacted changes in the federal corporate tax code. We maintain a solid financial profile capable of meeting our growth objectives and continuing our long history of providing dividends to shareholders.

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DISCIPLINED INVESTMENT

Energy markets are evolving, and our investments are evolving, as well.

PSE&G’s investment of $3 billion in its transmission and distribution infrastructure in 2018 provided for approximately 13 percent growth in rate base to $19 billion. Of this amount, PSE&G’s investment in transmission represents 45 percent, or $8.7 billion, of the company’s rate base at the end of 2018.

In 2019, we intend to invest approximately $3 billion at PSE&G and PSEG Power to achieve our commitments to provide safe, clean and affordable energy. Our five-year capital investment program stands at approximately $12 billion to $17 billion, with regulated utility investments representing more than 90 percent of our planned capital expenditures.

PSEG Power’s share of capital investment continues to decline as we near completion of our investment in construction of three new combined-cycle natural gas generation units. Our final new plant, in Bridgeport, Connecticut, is expected to be placed in service in mid-2019.

Phase I of our three-year Gas System Modernization Program will be completed in early 2019, replacing approximately 450 miles of cast-iron and unprotected steel natural gas infrastructure with more durable plastic materials.

Phase II, which represents a nearly $1.9 billion investment that will create roughly 3,200 jobs and will replace 875 miles of pipes along with other gas infrastructure improvements, also began this year.

We also completed the first phase of our post-Superstorm Sandy Energy Strong program, which hardened and improved the resiliency of our electric and gas systems against extreme weather, and have proposed a five-year, $2.5 billion extension of this critical infrastructure work that is under consideration by the BPU.

A COMPANY WITH A PURPOSE

In the coming year, we will continue our leadership role in the energy industry while navigating an ever-changing marketplace.

PSEG’s core values – starting with fundamental commitments to safety and integrity – will continue to guide our company. Our success for 116 years has been based on putting our energy to work for the greater benefit of our customers, our communities, our shareholders and the larger society around us.

To this end, PSEG expanded its focus on Corporate Citizenship and created a senior leadership role committed to corporate sustainability, strengthening partnerships with key stakeholders and working to ensure that Public Service is both understanding of and acting in the best interests of New Jersey.

Through the PSEG Foundation and corporate giving, we invest in the communities we serve with emphasis on the environment, safety, STEM education, workforce development, diversity and inclusion. Employee citizenship is reflected on and off the job, through dedicated service to and volunteerism in our communities.

In 2018, we deepened our commitments to building a more diverse, inclusive and purpose-driven workforce and culture.

More than one-third of PSEG Foundation giving was focused on diversity and inclusion priorities in our communities, and nearly one-fifth of PSEG’s total supplier spend was with minority-, women- and veteran-owned businesses.

We hosted the inaugural 2018 PSEG Leadership & Diversity Summit in December, earned a perfect score on the LGBTQ-focused 2018 Human Rights Council Corporate Equality Index and were named to Forbes’ America’s Best Employers for Diversity list.

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Powering Progress
LOCAL REACH, GLOBAL IMPACT

PSEG strives to put the goals of sustainability – social awareness, economic growth, sound corporate governance and especially environmental stewardship – at the forefront of our mission.

PSEG is committed to assuming a leadership role and powering progress toward a more sustainable, low-carbon energy supply. That means helping customers use less energy, use cleaner energy, while also spending less on their bills.

We at PSEG remain dedicated to growing a brighter, greener energy future. As a workforce, we are dedicated to driving change toward a cleaner tomorrow for our local and global communities. I continue to be thankful for our employees’ efforts, contributions and commitment to making a difference.

We thank you, our shareholders, for your loyalty and support. We will continue to work hard to maintain your confidence and trust.

Sincerely,

Ralph Izzo Signature

Ralph Izzo
Chairman, President and Chief Executive Officer
Public Service Enterprise Group

Feb. 27, 2019

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