Zacks_Analysts' Blog : PSEG Lowers Gas Rates Again - Analyst Blog

Public Service Electric and Gas Company (PSE&G), a unit of Public Service Enterprise Group Incorporated (PEG) or PSEG, again lowered the residential gas bills by 5.0% to pass on lower input costs to its customers. Prior to the current rate curtailment, PSE&G has lowered the gas bills by 26% since January 2009, when the prices of wholesale natural gas started to drop.

The current reduction of natural gas rates for residential consumers followed the 5% cut in rates in July and another 6.8% implemented in September. Following the current reduction, PSE&G customers will now be paying for their gas usage at rates similar to levels seen in January 2003.

A residential consumer, who uses 160 therms in a winter month or 1,050 therms per year, would save $64.68 annually. With the new rates, a monthly winter residential bill would amount to $184.91, a decline of $9.86 per month.

During the third quarter, PSE&G experienced an increase in demand from its residential and commercial consumers due to favorable weather. The operating earnings for 2010 from this unit are expected to range from $425 million to $455 million.  The midpoint of the guidance range reflects a 37% growth from the previous year’s earnings of $321 million. The yearly results would be driven by an increase in transmission revenue and a decline in operating and maintenance expenses.

The company maintains its operating guidance in a range of $3.00–$3.25 per share for 2010. The Zacks Consensus Estimates for fourth quarter 2010, fiscal year 2010 and fiscal year 2011 are 62 cents per share, $3.15 per share and $2.86 per share, respectively.

We appreciate the company's stance of lowering natural gas rates issuing from a reduction in input costs and passing on the benefits to its customers. The positive catalysts for PSEG are its robust portfolio of regulated and non-regulated utility assets that offer a steady earnings base and significant long-term growth prospects.

The company competes with Consolidated Edison Inc. (ED) and FirstEnergy Corp. (FE). On a competitive landscape the operating margin of the company fared better than its peers in the trailing twelve months.

However, the increasing cost of coal, higher pension and financial costs, and the power-price volatility will make PSEG shares perform in line with the broader market. We presently retain a Neutral rating on the stock over the long term.

Diversified Utility Public Service Enterprise Group Incorporated is based in Newark, New Jersey. The main business of the company is to supply electricity and natural gas to its commercial, residential, and industrial customers primarily in the northeastern and Mid Atlantic United States.