Zacks_Analysts' Blog : NJ Infrastructure Draws PSE&G's Focus - Analyst Blog

Public Service Enterprise Group Inc. (PEG) also known as PSE&G received approval from the New Jersey Board of Public Utilities (“BPU”) to invest in both expanding and upgrading its electric and gas infrastructure, and programs to help it become more energy efficient. PSE&G will spend about $273 million on electric and gas projects in New Jersey. The utility will also invest an additional $95 million in its ongoing energy efficiency programs.  

Of the $273 million earmarked for ongoing electric and gas projects, PSE&G will spend about $195 million in accelerated capital improvements to its electric distribution network. Among the projects are upgrades to voltage regulators, insulators, and breakers at substations; the replacement of underground cable facilities including transformers, network protectors and relays; upgrades to substation fire protection systems, and the replacement of overhead cable and other equipment.

PSE&G will spend the other $78 million of the above $273 million on eight projects to enhance the reliability of the utility's gas distribution system. Among the projects are the replacement of 47 miles of aging cast iron and bare steel gas mains and 4,200 bare steel gas services. Other projects include the replacement of aging or obsolete gas pressure regulators, meter and regulating equipment, and electronic measurement systems.

Lastly, PSE&G will spend $95 million to bring energy efficiency measures to cash-strapped hospitals, municipalities, non-profits and multi-family housing units, including affordable housing and senior projects. The investment is an extension of a $166 million program approved in 2009 to provide energy audits and the direct installation of energy efficiency measures to customers who might not otherwise have been able to afford them.  

PSE&G, based in Newark, New Jersey, is a diversified utility holding company. Its operations are mostly located in the Northeastern and Mid-Atlantic parts of the U.S.

Going forward, Public Service Enterprise’s robust portfolio of regulated and non-regulated utility assets offers steady earnings and significant long-term growth prospects. The company remains focused on operational excellence, financial strength and disciplined investment. Also, the company’s earnings growth will be driven by a low-cost nuclear fleet, assumed rate relief and addition to generating capacities.

However, the increasing cost of coal, higher pension and financial costs, and power-price volatility are areas of concern. In the near term, we see the shares of the company performing in line with the broader market and thus reiterate a short-term Zacks #3 Rank (Hold rating) on the stock, along with a longer-term Neutral recommendation. This is in line with its peers like American Electric Power Company Inc. (AEP) and Ameren Corporation (AEE).