# Public Service Enterprise Group (PEG) Financial Model

Free Excel 3-statement financial model and company analysis for Public Service Enterprise Group.

- Canonical: https://finamodel.com/companies/public-service-enterprise-group
- Industry: Utilities
- Downloadable model: Yes
- Excel download: https://finamodel.com/company-models/PEG.xlsx

## Model Purpose

This model projects rate base growth, earnings, and cash flows to determine the equity valuation of Public Service Enterprise Group (PSEG), enabling an equity research analyst to assess whether the company's regulated infrastructure investments and nuclear fleet cash flows justify its current market multiple.

## Company Overview

Public Service Enterprise Group (PSEG) is a predominantly regulated utility holding company headquartered in Newark, New Jersey. The company operates New Jersey's largest electric and gas transmission and distribution utility and owns a fleet of carbon-free nuclear power plants.
- **PSE&G (Public Service Electric and Gas Company):** The regulated utility segment, contributing approximately 85% of non-GAAP operating earnings.
- **PSEG Power & Other:** The unregulated energy supply segment, consisting primarily of 3,758 MW of baseload nuclear generation in New Jersey and Pennsylvania, contributing approximately 15% of non-GAAP operating earnings.
- **Key Geographies:** New Jersey (primary utility footprint) and Pennsylvania (partial nuclear operations).
- **Business Model:** Asset-heavy regulated utility model with returns driven by capital investment into an approved rate base, paired with a merchant nuclear fleet supported by federal Production Tax Credits (PTCs).
- **Competitive Position:** PSE&G is a top-tier US utility by reliability and customer satisfaction, operating in a constructive regulatory environment under the New Jersey Board of Public Utilities (BPU).
- **Recent Major Events:** The company successfully exited its merchant fossil generation and offshore wind investments to focus entirely on regulated utility operations and carbon-free nuclear power. In late 2024, PSE&G settled its first distribution base rate case since 2018, securing a 9.6% return on equity.

## Revenue Deep Dive



### PSE&G Electric and Gas Distribution

- **Segment Name:** PSE&G Distribution (Electric and Gas)
- **Revenue Driver Formula:** (Average Rate Base x Allowed Return on Asset) + Recoverable Operating Expenses + Depreciation
- **Historical Growth Rate:** 5% to 7% CAGR, driven by rate base expansion.
- **Key Growth Levers and Headwinds:** Driven by the Gas System Modernization Programme (GSMP) and grid resiliency investments. Headwinds include customer affordability constraints and rising interest rates.
- **Pricing Dynamics:** Regulated by the New Jersey BPU. Revenue is decoupled from volumetric sales via the Conservation Incentive Programme (CIP), meaning weather and energy efficiency do not materially impact distribution margins.
- **Revenue Recognition Notes:** Recognised over time as services are delivered, with regulatory assets/liabilities recorded for under/over-recovery of costs.
- **Seasonality:** Historically peaked in summer (electric cooling) and winter (gas heating), but decoupling mechanisms smooth the margin profile significantly.

### PSE&G Transmission

- **Segment Name:** PSE&G Transmission
- **Revenue Driver Formula:** Transmission Rate Base x Formula Rate Return
- **Historical Growth Rate:** 8% to 10% CAGR.
- **Key Growth Levers and Headwinds:** Driven by FERC-regulated formula rates and regional grid upgrades mandated by PJM Interconnection.
- **Pricing Dynamics:** Regulated by the Federal Energy Regulatory Commission (FERC) with forward-looking formula rates, allowing for timely recovery of capital expenditures.
- **Revenue Recognition Notes:** Billed to wholesale customers and load-serving entities based on peak load contributions.
- **Seasonality:** Minimal seasonality due to formulaic cost-recovery mechanisms.

### PSEG Power (Nuclear)

- **Segment Name:** PSEG Power & Other
- **Revenue Driver Formula:** (Generation Volume in MWh x Realised Energy Price) + Capacity Revenues + Nuclear PTCs
- **Historical Growth Rate:** Flat to low single digits, highly dependent on wholesale power prices.
- **Key Growth Levers and Headwinds:** Driven by nuclear capacity factors (historically >91%), PJM capacity market clearing prices, and federal support.
- **Pricing Dynamics:** Merchant power sold into the PJM wholesale market, heavily hedged 1-3 years forward to lock in margins.
- **Revenue Recognition Notes:** Spot and forward energy sales recognised upon delivery. Federal PTCs are recognised as energy is generated.
- **Seasonality:** Highest generation value during extreme summer heatwaves and winter cold snaps when wholesale prices spike.

## Cost Structure



### Variable Costs / COGS

- **Energy Costs:** Purchased power and natural gas for utility customers. These are pass-through costs with zero margin impact for the regulated utility.
- **Gross Margin Range:** Not a relevant metric for the utility segment due to pass-through fuel costs. For PSEG Power, net energy margin is the key metric, heavily influenced by hedging and PTCs.
- **Key Input Costs:** Uranium (nuclear fuel), wholesale electricity, and natural gas.
- **Scaling Dynamics:** Fuel costs scale perfectly linearly with volume, but regulatory mechanisms ensure 100% recovery.

### Operating Expenses

- **Operation and Maintenance (O&M):** The largest controllable cost, covering utility workforce, storm response, and nuclear plant operations.
- **Depreciation and Amortisation:** Extremely high (typical for utilities), scaling directly with the $36 billion rate base.
- **Taxes Other Than Income Taxes:** Significant property and payroll taxes.
- **Restructuring / One-Time Charges:** Infrequent, though recent years included costs related to the exit from fossil generation.

### Margin Profile

- **Operating Margin:** Consolidated operating margins are distorted by pass-through fuel costs. Analysts focus on Non-GAAP Operating Earnings per share rather than percentage margins.
- **Margin Trend:** Expanding slightly due to strict O&M cost control and replacement of legacy infrastructure with lower-maintenance modern assets.
- **Segment Earnings:** PSE&G generates roughly $1.75 billion in non-GAAP operating earnings, while PSEG Power generates roughly $280 million.

## Balance Sheet Structure

- **Total Assets:** Approximately $57.6 billion (as of 2025).
- **Key Asset Categories:** Property, Plant and Equipment (PP&E) makes up the vast majority of assets. Regulatory assets represent deferred costs approved for future recovery.
- **Goodwill & Intangibles:** Minimal, as the company relies on organic rate base growth rather than corporate acquisitions.
- **Working Capital Profile:**
  - **DSO:** 30 to 45 days.
  - **DIO:** Relevant only for nuclear fuel and gas inventory (typically 30 to 60 days).
  - **DPO:** 30 to 45 days.
  - **Net Working Capital:** Often negative or a small net liability, which is standard for utilities. The company funds growth through debt and equity, not working capital.
- **PP&E:** Utility distribution grids, transmission lines, and nuclear generation facilities. Depreciated over very long useful lives (30 to 50+ years).
- **Right-of-Use Assets:** Immaterial relative to the massive PP&E base.

## Capital Expenditure & Investment

- **Capex Scale:** $3.7 billion in 2025, expected to rise to $4.2 billion in 2026.
- **Maintenance vs. Growth:** The vast majority is classified as growth or modernisation (e.g., GSMP III replacing cast iron pipes), which adds to the rate base and drives earnings.
- **Major Programmes:** The 2026 to 2030 capital spending plan is $24 billion to $28 billion, of which $22.5 billion to $25.5 billion is dedicated to regulated utility investments.
- **Capitalised Software:** Minor compared to hard infrastructure.
- **M&A Pattern:** Purely organic grower. The company has actively divested non-core assets (fossil, offshore wind) rather than acquiring.

## Debt & Capital Structure

- **Total Debt:** Highly levered in absolute terms, which is standard for regulated utilities.
- **Target Capital Structure:** The regulated utility (PSE&G) is managed to a strict 55% equity / 45% debt ratio as mandated by the BPU rate case settlement.
- **Credit Rating:** Solid investment grade (typically BBB+ to A- range).
- **Key Debt Instruments:** Long-term first mortgage bonds at the utility level, and senior unsecured notes at the holding company level.
- **Interest Rate Profile:** Mostly fixed-rate long-term bonds, though new issuances are exposed to current higher interest rates.
- **Share Repurchase Programme:** Not a primary tool. Cash is prioritised for capital expenditure and dividends.
- **Dividend Policy:** Highly consistent. The 2026 indicative annual dividend is $2.68 per share, representing roughly a 60% to 65% payout ratio. The company has paid a dividend annually since 1907.

## Cash Flow Characteristics

- **Operating Cash Flow:** Highly stable and predictable, driven by regulated utility returns and nuclear PTCs.
- **Free Cash Flow:** Structurally negative. OCF is entirely consumed by the massive capital expenditure programme required to grow the rate base.
- **Funding the Gap:** The negative free cash flow is funded by issuing debt at the utility level, maintaining the 55% equity ratio through retained earnings.
- **Major Non-Cash Items:** Depreciation and amortisation, deferred income taxes, and Mark-to-Market (MTM) adjustments on energy contracts.
- **Tax Rate:** The cash tax rate is often lower than the statutory rate due to accelerated depreciation on infrastructure investments and nuclear production tax credits.

## Sheet Structure

1. **Assumptions:** Hardcoded drivers for rate base growth, allowed ROE, nuclear capacity factors, power prices, and financing costs.
2. **Rate Base Roll-Forward:** Tracks opening balance, capex additions, depreciation, and closing balance for Transmission, Electric Distribution, and Gas Distribution.
3. **Revenue Build:** Calculates utility revenue based on rate base returns and pass-through costs, plus PSEG Power revenue based on generation volumes and pricing.
4. **Income Statement:** Consolidated view separating PSE&G and PSEG Power, flowing down to Non-GAAP Operating Earnings and GAAP Net Income.
5. **Balance Sheet:** Heavy focus on PP&E, regulatory assets/liabilities, and long-term debt.
6. **Cash Flow Statement:** Standard indirect method, highlighting the massive capex outflows and debt issuance inflows.
7. **Debt Schedule:** Tranches of utility first mortgage bonds and holding company debt, calculating weighted average interest expense.
8. **Valuation (DCF & DDM):** A Dividend Discount Model (DDM) is often preferred for utilities, alongside a standard DCF and P/E multiple valuation.

## Key Financial Relationships

1. **PSE&G Average Rate Base =** (Beginning Rate Base + Ending Rate Base) / 2
2. **PSE&G Allowed Earnings =** Average Rate Base x Equity Ratio (55%) x Allowed ROE (9.6%)
3. **PSE&G Distribution Revenue =** Allowed Earnings + Interest Expense + Depreciation + O&M + Pass-Through Fuel Costs
4. **Nuclear Generation (MWh) =** Total Capacity (3,758 MW) x 24 hours x 365 days x Capacity Factor (approx 91.2%)
5. **PSEG Power Energy Revenue =** Nuclear Generation (MWh) x Realised Price per MWh
6. **Total Nuclear Revenue =** PSEG Power Energy Revenue + Capacity Market Revenue + Federal PTCs
7. **Consolidated O&M =** PSE&G O&M + PSEG Power O&M + Corporate O&M
8. **Utility Depreciation =** Gross Utility Plant x Blended Depreciation Rate
9. **Interest Expense =** Average Debt Balance x Weighted Average Interest Rate
10. **Non-GAAP Operating Earnings =** GAAP Net Income - MTM Adjustments - NDT Gains/Losses
11. **Earnings Per Share =** Non-GAAP Operating Earnings / Diluted Shares Outstanding
12. **Dividends Paid =** Diluted Shares Outstanding x Dividend Per Share ($2.68 in 2026)

## Cross-Sheet Dependencies

- The **Rate Base Roll-Forward** is the engine of the model. It feeds depreciation into the **Income Statement** and capital expenditures into the **Cash Flow Statement**.
- The ending rate base dictates the allowed earnings in the **Revenue Build**, which drives the top line of the **Income Statement**.
- The **Cash Flow Statement** determines the funding shortfall (Capex minus OCF minus Dividends), which feeds the **Debt Schedule** to calculate required new debt issuance.
- The **Debt Schedule** feeds interest expense back into the **Income Statement**, creating a circularity that must be managed with an interest toggle or iterative calculation.

## Sign Convention

- **Revenue and Income:** Positive.
- **Expenses (O&M, D&A, Interest, Taxes):** Negative on the Income Statement.
- **Assets:** Positive on the Balance Sheet.
- **Liabilities and Equity:** Positive on the Balance Sheet.
- **Cash Inflows:** Positive on the Cash Flow Statement.
- **Cash Outflows (Capex, Dividends):** Negative on the Cash Flow Statement.

## Things Most Likely to Go Wrong

- **Confusing GAAP and Non-GAAP Earnings:** PSEG's GAAP earnings are highly volatile due to Mark-to-Market (MTM) accounting on energy contracts and Nuclear Decommissioning Trust (NDT) returns. The model must focus on Non-GAAP Operating Earnings for valuation.
- **Mismodelling Pass-Through Costs:** Fuel and purchased power costs for the utility are pure pass-throughs. If fuel prices spike, revenue spikes, but margins do not change. Do not apply a percentage margin to total utility revenue.
- **Ignoring the CIP Decoupling:** Weather anomalies (mild winters, cool summers) do not materially impact PSE&G's distribution margins due to the Conservation Incentive Programme. Do not build weather-driven volume volatility into the utility margin forecast.
- **Misunderstanding Nuclear PTCs:** The transition from state-level Zero Emission Certificates (ZECs) to federal Production Tax Credits (PTCs) changes the tax line and revenue line. Ensure PTCs are modelled correctly based on the prevailing legislative floor price.
- **Applying the Wrong Equity Ratio:** The BPU strictly mandates a 55% equity ratio for the regulated utility. If the model funds all utility capex with debt, it will violate regulatory assumptions and understate required equity injections from the holding company.
- **Overestimating PSEG Power Growth:** The nuclear fleet is a stable cash cow, not a growth engine. All structural earnings growth comes from the PSE&G regulated rate base.
- **Double Counting Pension Variability:** PSEG has made progress reducing pension variability, but non-operating pension costs should be kept separate from core utility O&M.

## Validation Checks

- **Rate Base CAGR:** Must fall between 6.0% and 7.5% through 2030 based on management guidance.
- **EPS Growth:** Non-GAAP Operating Earnings per share should grow at a 6% to 8% CAGR from the 2025 base of $4.05.
- **Dividend Payout Ratio:** Should remain stable between 60% and 65% of Non-GAAP Operating Earnings.
- **Nuclear Capacity Factor:** Must remain between 90% and 93%. Anything lower implies an unmodelled outage.
- **Effective Tax Rate:** Should remain below the statutory 21% rate due to the impact of federal nuclear PTCs and utility tax benefits.
- **Balance Sheet Check:** Total Assets must exactly equal Total Liabilities plus Shareholders' Equity in all forecast periods.
- **Capex to OCF Ratio:** Capex should consistently exceed Operating Cash Flow, resulting in negative Free Cash Flow before financing.

## Key Assumptions (Default Values)

| Assumption | Default Value | Unit | Rationale |
|---|---|---|---|
| 2025 Ending Rate Base | 36,000 | $ Millions | Actual year-end 2025 rate base reported by PSEG. |
| Rate Base CAGR (2026-2030) | 6.75 | % | Midpoint of management's 6% to 7.5% guidance. |
| Utility Allowed ROE | 9.6 | % | Approved in the October 2024 BPU rate case settlement. |
| Utility Equity Ratio | 55.0 | % | Approved in the October 2024 BPU rate case settlement. |
| 2026 Regulated Capex | 4,200 | $ Millions | Management guidance for 2026 regulated investments. |
| Nuclear Capacity | 3,758 | MW | Actual baseload nuclear capacity owned by PSEG. |
| Nuclear Capacity Factor | 91.2 | % | Actual 2025 performance; standard run-rate for the fleet. |
| 2026 Dividend Per Share | 2.68 | $ | Approved indicative annual rate for 2026. |
| Diluted Shares Outstanding | 501 | Millions | Actual average shares outstanding for full year 2025. |
| Long-Term EPS Growth Target | 7.0 | % | Midpoint of management's updated 6% to 8% target. |
| Cost of Debt (New Issuance) | 5.5 | % | Estimated yield on new long-term utility mortgage bonds. |
| Terminal Growth Rate (DDM) | 2.5 | % | Standard terminal growth assumption for a mature regulated utility. |

## Data Sources & Benchmarks

- **Filings:** SEC EDGAR (10-K, 10-Q, 8-K) and the PSEG Investor Relations website (investor.pseg.com).
- **Presentations:** PSEG Q4 2025 Earnings Presentation (February 26, 2026) and March 2026 Investor Update.
- **Key Peers:** Exelon Corporation (EXC), Consolidated Edison (ED), Public Service Enterprise Group (PEG), and Constellation Energy (CEG) for the nuclear fleet benchmarking.
- **Industry Data:** PJM Interconnection for wholesale power and capacity market clearing prices; New Jersey Board of Public Utilities (BPU) for rate case dockets and regulatory orders.

## Sources

- PSEG Q4 and Full Year 2025 Earnings Release (February 26, 2026)
- PSEG 2025 Annual Report on Form 10-K
- PSEG March 2026 Investor Update Presentation
- New Jersey Board of Public Utilities (BPU) October 2024 Rate Case Settlement Order
- J.D. Power 2025 U.S. Electric Utility Residential Customer Satisfaction Study

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## Frequently asked questions

### What is Public Service Enterprise Group (PSEG) and what does it do?

Public Service Enterprise Group (PSEG) is a predominantly regulated utility holding company headquartered in Newark, New Jersey. It operates New Jersey's largest electric and gas transmission and distribution utility, PSE&G, which contributes approximately 85% of non-GAAP operating earnings. The company also owns a fleet of carbon-free nuclear power plants through its PSEG Power & Other segment.

### How does Public Service Enterprise Group (PSEG) generate its revenue?

PSEG generates revenue primarily through its regulated utility segment, PSE&G, where returns are driven by capital investment into an approved rate base. The company also earns revenue from its unregulated energy supply segment, PSEG Power & Other, which consists of its merchant nuclear fleet supported by federal Production Tax Credits.

### What are Public Service Enterprise Group's (PSEG) capital expenditure plans?

PSEG's capital expenditure was $3.7 billion in 2025 and is projected to increase to $4.2 billion in 2026. The company has a substantial capital spending plan of $24 billion to $28 billion from 2026 to 2030, with the majority dedicated to regulated utility investments for growth and modernization.

### What are some key financial assumptions in the Public Service Enterprise Group (PSEG) model?

Key financial assumptions for PSEG include a revenue growth rate of approximately -0.15% and COGS as about 34.95% of revenue. Additionally, Selling, General, and Administrative (SGA) expenses are assumed to be 15% of revenue, and the tax rate is around 18.12%.

### What is the purpose of the financial model for Public Service Enterprise Group (PSEG)?

The financial model for PSEG projects rate base growth, earnings, and cash flows to determine the company's equity valuation. This allows an equity research analyst to assess whether PSEG's regulated infrastructure investments and nuclear fleet cash flows justify its current market multiple.

### Can I download an Excel financial model for Public Service Enterprise Group (PSEG)?

Yes, an Excel financial model for Public Service Enterprise Group (PSEG) is available for download. This model provides financial projections for the company, covering the forecast horizon from FY2026 through FY2030.

[Interactive forecast calculator](https://finamodel.com/companies/public-service-enterprise-group/forecast)