Public Service Enterprise Group Inc. (PEG) has announced its expectation for costs and earnings associated with the Superstorm Sandy that had badly hit the U.S. East Coast electric companies at the end of October 2012 and the subsequent Nor'easter that had worsened the situation later in November 2012.
Public Service Enterprise currently expects storm restoration costs to be in the range of $250 million to $300 million. After taking these costs into account, the company maintained its earnings guidance for full-year 2012 as announced during its third quarter earnings call. The company expects earnings to be in the range of $2.25 to $2.50 per share.
The cost guidance includes both expenses and capital related to the restoration. However, these costs do not include the future expenses for permanent repair of the company’s damaged infrastructure or any modification in the infrastructure to minimize the risk of damage caused by future storms. The company expects 85% of these costs to be deferred or capitalized for future distribution or transmission recovery. The company will recognize these costs as one-time items.
Public Service Enterprise Group based in Newark, New Jersey, was the hardest hit state. Besides damaging the company’s transmission and distribution system throughout the service territory, the storm also smashed some of the generation infrastructure in the northern part of New Jersey. Superstorm Sandy's strong winds and heavy rainfall resulted in overflow of the Hudson, Hackensack and Passaic rivers, thereby damaging the switching stations, substations and generating infrastructure.
However, the company has recovered to some extent from the damages caused by Sandy as well as Nor'easter. Besides making current repairs, the company is working on best possible ways to protect the system from this type of storm in the future.
In November, Public Service Enterprise reported third-quarter 2012 results. During the quarter, operating earnings per share were 75 cents, above the Zacks Consensus Estimate of 72 cents. However, it was lower than the previous year figure of 83 cents per share. The company has indicated that it expects double-digit compound annual growth in its regulated operations due to the Susquehanna – Roseland transmission line through 2014. Moreover, it expects the line to provide benefits to New Jersey’s economy in the long term.
The Zacks Consensus Estimates for fourth-quarter 2012 and full-year 2012 are currently at 38 cents per share and $2.39 per share, respectively.
Going forward, we believe that the diversified utility’s robust portfolio of regulated and non-regulated assets will offer a steady earnings base and significant long-term growth prospects. Over the longer run, Public Service’s growth will be driven by a low-cost nuclear fleet, assumed rate relief, operational excellence, disciplined investment and added generating capacities.
However, the increasing cost of coal, higher pension & financial costs, power-price volatility and the extent of restoration costs for hurricane Sandy are areas of concern. The company presently retains a short-term Zacks #3 Rank (Hold).
Public Service Enterprise Group Inc. is a diversified utility holding company. The company’s operations are mostly located in the Northeastern and Mid-Atlantic parts of the U.S. Public Service Enterprise principally operates through three key subsidiaries: Public Service Electric and Gas Company (PSE&G), PSEG Power LLC (PSEG Power) and PSEG Energy Holdings LLC (PSEG Energy).
Some other Sandy Storm affected utilities are FirstEnergy Corporation (FE), Consolidated Edison Inc. (ED), Northeast Utilities (NU), Exelon Corporation (EXC), and PPL Corporation (PPL).
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