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Public Service Enterprise (PEG) Set to Reduce Transmission Rates

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Public Service Enterprise Group PEG recently announced that its subsidiary PSE&G has made an agreement with the New Jersey Board of Public Utilities and the New Jersey Division of Rate Counsel for lowering its transmission rates. Through this accord, a typical electric residential customer of PSE&G will now be able to save approximately $3 on the monthly bill.

PSE&G will now seek the approval of the Federal Energy Regulatory Commission (FERC) for reducing its transmission rates. On approval, the new rates would reset the base return on equity for PSE&G's transmission formula rate at 9.9%, down from 11.18%.

If the agreement is approved, customers would then receive the full benefit associated with this change from Aug 1.

Customers to Benefit From Rate Reduction

Utility companies mostly require systematic investments for infrastructural developments. Maintained and upgraded infrastructure enables these companies to provide reliable services to their customer bases. The utilities recoup the invested amount through rate revisions approved by the commissions. So far, PSE&G's transmission investments have saved customers hundreds of millions of dollars in congestion costs and increased the reliability and resiliency of the grid.

The aforementioned settlement, under which PSE&G has agreed to reduce its electric rates, is a balanced resolution that will deliver timely rate savings to customers. Once approved, the agreed transmission rates would save a typical electric residential customer about 3% on the total bill. On receiving the nod from FERC along with other components of the agreement, the company’s existing electric customers could save approximately $140 million a year.

How Will This Agreement Impact PSE&G?

The reduction of its base transmission return on equity to 9.9% will lower the company's annual transmission pre-tax revenue requirement by about $100 million, per year. The agreement also has the potential to lower annual depreciation expenses of approximately $42 million, without any impact on earnings.

It will also enable PSE&G to improve cost recovery methodologies regarding materials and supplies and reduce administrative and general costs. An increase in its equity ratio from 54% to 55% of total capitalization can also be expected. However, on the flip side, the financial impact of the settlement agreement, once completed, is expected to lower PSE&G's net income by approximately 10-12 cents per share in the first 12 months

Utilities Adopting Rate Adjustment Measures

Let's look at some other utility companies that have adopted rate adjustment measures in recent times.

Duke Energy DUK, in June 2021, announced that its subsidiary — Duke Energy Progress — will be implementing new rates for North Carolina customers, from Jun 1, following the approval from the North Carolina Utilities Commission (NCUC). The company’s new rates include state and federal tax savings for customers and will remain below the national average.

Also in June, Black Hills Corp.’s BKH natural gas subsidiaries in Colorado and Iowa have filed rate review applications to recover investments made in their respective infrastructure systems.

In May 2021, NiSource’s NI subsidiary, Columbia Gas of Maryland, Inc., filed a rate revision request with the Maryland Public Service Commission (PSC). If approved, the average total bill for the unit’s residential customers who consume 70 therms of gas per month will increase 11.35%.

Price Movement & Zacks Rank

In a year’s time, shares of the company have increased 14.1% compared with the industry’s 9.8% growth.

Public Service Enterprise currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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