Edgar Filing: PUBLIC SERVICE ENTERPRISE GROUP INC

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED June 30, 2016

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO



Commission File Number	Registrants, State of Incorporation, Address, and Telephone Number	I.R.S. Employer Identification No.
001-09120	PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED (A New Jersey Corporation) 80 Park Plaza Newark, New Jersey 07102 973 430-7000 http://www.pseg.com	22-2625848
001-00973	PUBLIC SERVICE ELECTRIC AND GAS COMPANY (A New Jersey Corporation) 80 Park Plaza Newark, New Jersey 07102 973 430-7000 http://www.pseg.com	22-1212800
001-34232	PSEG POWER LLC (A Delaware Limited Liability Company) 80 Park Plaza Newark, New Jersey 07102 973 430-7000 http://www.pseg.com	22-3663480

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrants have submitted electronically and posted on their corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files). Yes ý No ¨

Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Public Service Enterprise Group Incorporated	Large accelerated filer x	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o

Public Service Electric and Gas Company	Large accelerated filer o	Accelerated filer o	Non-accelerated filer x	Smaller reporting company o

PSEG Power LLC	Large accelerated filer o	Accelerated filer o	Non-accelerated filer x	Smaller reporting company o

Indicate by check mark whether any of the registrants is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

As of July 19, 2016, Public Service Enterprise Group Incorporated had outstanding 505,916,520 shares of its sole class of Common Stock, without par value.

As of July 19, 2016, Public Service Electric and Gas Company had issued and outstanding 132,450,344 shares of Common Stock, without nominal or par value, all of which were privately held, beneficially and of record by Public Service Enterprise Group Incorporated.

Public Service Electric and Gas Company and PSEG Power LLC are wholly owned subsidiaries of Public Service Enterprise Group Incorporated and meet the conditions set forth in General Instruction H(1) (a) and (b) of Form 10-Q. Each is filing its Quarterly Report on Form 10-Q with the reduced disclosure format authorized by General Instruction H.

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		Page
FORWARD-LOOKING STATEMENTS		ii
FILING FORMAT		iii
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Public Service Enterprise Group Incorporated	1
	Public Service Electric and Gas Company	6
	PSEG Power LLC	11
	Notes to Condensed Consolidated Financial Statements
	Note 1. Organization and Basis of Presentation	16
	Note 2. Recent Accounting Standards	16
	Note 3. Variable Interest Entities (VIEs)	18
	Note 4. Rate Filings	18
	Note 5. Financing Receivables	19
	Note 6. Available-for-Sale Securities	21
	Note 7. Pension and Other Postretirement Benefits (OPEB)	26
	Note 8. Commitments and Contingent Liabilities	28
	Note 9. Debt and Credit Facilities	35
	Note 10. Financial Risk Management Activities	36
	Note 11. Fair Value Measurements	43
	Note 12. Other Income and Deductions	51
	Note 13. Income Taxes	52
	Note 14. Accumulated Other Comprehensive Income (Loss), Net of Tax	53
	Note 15. Earnings Per Share (EPS) and Dividends	57
	Note 16. Financial Information by Business Segments	58
	Note 17. Related-Party Transactions	59
	Note 18. Guarantees of Debt	61
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	64
	Executive Overview of 2016 and Future Outlook	64
	Results of Operations	70
	Liquidity and Capital Resources	75
	Capital Requirements	77
	Accounting Matters	77
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	78
Item 4.	Controls and Procedures	79

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	79
Item 1A.	Risk Factors	79
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	79
Item 5.	Other Information	79
Item 6.	Exhibits	83
	Signatures	84

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FORWARD-LOOKING STATEMENTS

Certain of the matters discussed in this report about our and our subsidiaries' future performance, including, without limitation, future revenues, earnings, strategies, prospects, consequences and all other statements that are not purely historical constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. When used herein, the words “anticipate,” “intend,” “estimate,” “believe,” “expect,” “plan,” “should,” “hypothetical,” “potential,” “forecast,” “project,” variations of such words and similar expressions are intended to identify forward-looking statements. Factors that may cause actual results to differ are often presented with the forward-looking statements themselves. Other factors that could cause actual results to differ materially from those contemplated in any forward-looking statements made by us herein are discussed in filings we make with the United States Securities and Exchange Commission (SEC), including our Annual Report on Form 10-K and subsequent reports on Form 10-Q and Form 8-K and available on our website: http://www.pseg.com. These factors include, but are not limited to:


•	adverse changes in the demand for or ongoing low pricing of the capacity and energy that we sell into wholesale electricity markets,


•	adverse changes in energy industry law, policies and regulations, including market structures and transmission planning,


•	any inability of our transmission and distribution businesses to obtain adequate and timely rate relief and regulatory approvals from federal and state regulators, including prudency reviews, disallowances and changes in authorized returns,


•	any deterioration in our credit quality or the credit quality of our counterparties,


•	changes in federal and state environmental regulations and enforcement that could increase our costs or limit our operations,


•	adverse outcomes of any legal, regulatory or other proceeding, settlement, investigation or claim applicable to us and/or the energy industry,


•	changes in nuclear regulation and/or general developments in the nuclear power industry, including various impacts from any accidents or incidents experienced at our facilities or by others in the industry, that could limit operations or increase the cost of our nuclear generating units,


•	actions or activities at one of our nuclear units located on a multi-unit site that might adversely affect our ability to continue to operate that unit or other units located at the same site,


•	any inability to manage our energy obligations, available supply and risks,


•	delays or unforeseen cost escalations in our construction and development activities, or the inability to recover the carrying amount of our assets,


•	availability of capital and credit at commercially reasonable terms and conditions and our ability to meet cash needs,


•	increases in competition in energy supply markets as well as for transmission projects,


•	changes in technology, such as distributed generation, storage and micro grids, and greater reliance on these technologies,


•	changes in customer behaviors, including increases in energy efficiency, net-metering and demand response,


•	adverse performance of our decommissioning and defined benefit plan trust fund investments and changes in funding requirements,


•	any equipment failures, accidents, severe weather events or other incidents that impact our ability to provide safe and reliable service to our customers, and any inability to obtain sufficient insurance coverage or recover proceeds of insurance with respect to such events,


•	acts of terrorism, cybersecurity attacks or intrusions that could adversely impact our businesses,


•	delays in receipt of necessary permits and approvals for our construction and development activities,


•	any inability to achieve, or continue to sustain, our expected levels of operating performance,


•	changes in the cost of, or interruption in the supply of, fuel and other commodities necessary to the operation of our generating units,


•	an extended economic recession,


•	an inability to realize anticipated tax benefits or retain tax credits,


•	challenges associated with recruitment and/or retention of a qualified workforce, and


•	changes in the credit quality and the ability of lessees to meet their obligations under our domestic leveraged leases.

All of the forward-looking statements made in this report are qualified by these cautionary statements and we cannot assure you that the results or developments anticipated by management will be realized or even if realized, will have the expected

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consequences to, or effects on, us or our business prospects, financial condition or results of operations. Readers are cautioned not to place undue reliance on these forward-looking statements in making any investment decision. Forward-looking statements made in this report apply only as of the date of this report. While we may elect to update forward-looking statements from time to time, we specifically disclaim any obligation to do so, even if internal estimates change, unless otherwise required by applicable securities laws.

The forward-looking statements contained in this report are intended to qualify for the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

FILING FORMAT

This combined Quarterly Report on Form 10-Q is separately filed by Public Service Enterprise Group Incorporated (PSEG), Public Service Electric and Gas Company (PSE&G) and PSEG Power LLC (Power). Information relating to any individual company is filed by such company on its own behalf. PSE&G and Power are each only responsible for information about itself and its subsidiaries.

Discussions throughout the document refer to PSEG and its direct operating subsidiaries, PSE&G and Power. Depending on the context of each section, references to “we,” “us,” and “our” relate to PSEG or to the specific company or companies being discussed.

iii

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PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Millions, except per share data

(Unaudited)




	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
OPERATING REVENUES	$	1,905		$	2,314		$	4,521		$	5,449
OPERATING EXPENSES
Energy Costs	624			668			1,460			1,762
Operation and Maintenance	710			761			1,439			1,424
Depreciation and Amortization	224			317			448			647
Total Operating Expenses	1,558			1,746			3,347			3,833
OPERATING INCOME	347			568			1,174			1,616
Income from Equity Method Investments	4			4			6			7
Other Income	44			76			92			124
Other Deductions	(10		)	(10		)	(31		)	(22		)
Other-Than-Temporary Impairments	(10		)	(10		)	(20		)	(15		)
Interest Expense	(97		)	(97		)	(189		)	(195		)
INCOME BEFORE INCOME TAXES	278			531			1,032			1,515
Income Tax Expense	(91		)	(186		)	(374		)	(584		)
NET INCOME	$	187		$	345		$	658		$	931
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC	505			506			505			506
DILUTED	508			508			508			508
NET INCOME PER SHARE:
BASIC	$	0.37		$	0.68		$	1.30		$	1.84
DILUTED	$	0.37		$	0.68		$	1.30		$	1.83
DIVIDENDS PAID PER SHARE OF COMMON STOCK	$	0.41		$	0.39		$	0.82		$	0.78

See Notes to Condensed Consolidated Financial Statements.

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PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Millions

(Unaudited)




	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016		2015
NET INCOME	$	187		$	345		$	658	$	931
Other Comprehensive Income (Loss), net of tax
Unrealized Gains (Losses) on Available-for-Sale Securities, net of tax (expense) benefit of $(10), $15, $(26) and $2 for the three and six months ended 2016 and 2015, respectively	10			(15		)	26		(1		)
Unrealized Gains (Losses) on Cash Flow Hedges, net of tax (expense) benefit of $0, $0, $(1) and $7 for the three and six months ended 2016 and 2015, respectively	(1		)	—			1		(9		)
Pension/Other Postretirement Benefit Costs (OPEB) adjustment, net of tax (expense) benefit of $(6), $(6), $(12) and $(12) for the three and six months ended 2016 and 2015, respectively	8			8			16		16
Other Comprehensive Income (Loss), net of tax	17			(7		)	43		6
COMPREHENSIVE INCOME	$	204		$	338		$	701	$	937

See Notes to Condensed Consolidated Financial Statements.

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PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

Millions

(Unaudited)




	June 30, 2016			December 31, 2015
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents	$	648		$	394
Accounts Receivable, net of allowances of $65 and $67 in 2016 and 2015, respectively	988			1,068
Tax Receivable	4			305
Unbilled Revenues	202			197
Fuel	351			463
Materials and Supplies, net	554			513
Prepayments	271			135
Derivative Contracts	152			242
Regulatory Assets	310			164
Other	9			13
Total Current Assets	3,489			3,494
PROPERTY, PLANT AND EQUIPMENT	37,285			35,494
Less: Accumulated Depreciation and Amortization	(9,271		)	(8,955		)
Net Property, Plant and Equipment	28,014			26,539
NONCURRENT ASSETS
Regulatory Assets	3,120			3,196
Long-Term Investments	1,218			1,233
Nuclear Decommissioning Trust (NDT) Fund	1,797			1,754
Long-Term Tax Receivable	183			171
Long-Term Receivable of Variable Interest Entity (VIE)	513			495
Other Special Funds	246			227
Goodwill	16			16
Other Intangibles	131			102
Derivative Contracts	76			77
Other	242			231
Total Noncurrent Assets	7,542			7,502
TOTAL ASSETS	$	39,045		$	37,535

See Notes to Condensed Consolidated Financial Statements.

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PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

Millions

(Unaudited)




	June 30, 2016			December 31, 2015
LIABILITIES AND CAPITALIZATION
CURRENT LIABILITIES
Long-Term Debt Due Within One Year	$	662		$	734
Commercial Paper and Loans	—			364
Accounts Payable	1,308			1,369
Derivative Contracts	20			76
Accrued Interest	103			96
Accrued Taxes	107			42
Clean Energy Program	200			142
Obligation to Return Cash Collateral	128			128
Regulatory Liabilities	74			123
Regulatory Liabilities of VIEs	22			42
Other	496			459
Total Current Liabilities	3,120			3,575
NONCURRENT LIABILITIES
Deferred Income Taxes and Investment Tax Credits (ITC)	8,545			8,166
Regulatory Liabilities	165			175
Asset Retirement Obligations	693			679
OPEB Costs	1,199			1,228
OPEB Costs of Servco	389			375
Accrued Pension Costs	429			487
Accrued Pension Costs of Servco	118			114
Clean Energy Program	27			—
Environmental Costs	402			415
Derivative Contracts	14			27
Long-Term Accrued Taxes	171			212
Other	181			181
Total Noncurrent Liabilities	12,333			12,059
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 8)
CAPITALIZATION
LONG-TERM DEBT	10,273			8,834
STOCKHOLDERS’ EQUITY
Common Stock, no par, authorized 1,000 shares; issued, 2016 and 2015—534 shares	4,919			4,915
Treasury Stock, at cost, 2016—29 shares; 2015—28 shares	(709		)	(671		)
Retained Earnings	9,360			9,117
Accumulated Other Comprehensive Loss	(252		)	(295		)
Total Common Stockholders’ Equity	13,318			13,066
Noncontrolling Interest	1			1
Total Stockholders’ Equity	13,319			13,067
Total Capitalization	23,592			21,901
TOTAL LIABILITIES AND CAPITALIZATION	$	39,045		$	37,535

See Notes to Condensed Consolidated Financial Statements.

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PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Millions

(Unaudited)




	Six Months Ended
	June 30,
	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	658		$	931
Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities:
Depreciation and Amortization	448			647
Amortization of Nuclear Fuel	105			106
Provision for Deferred Income Taxes (Other than Leases) and ITC	334			170
Non-Cash Employee Benefit Plan Costs	63			81
Leveraged Lease (Income) Loss, Adjusted for Rents Received and Deferred Taxes	(30		)	(22		)
Net Unrealized (Gains) Losses on Energy Contracts and Other Derivatives	153			(9		)
Change in Accrued Storm Costs	(1		)	15
Net Change in Other Regulatory Assets and Liabilities	(124		)	(53		)
Cost of Removal	(74		)	(58		)
Net Realized (Gains) Losses and (Income) Expense from NDT Fund	(2		)	(21		)
Net Change in Certain Current Assets and Liabilities:
Tax Receivable	301			188
Accrued Taxes	94			71
Margin Deposit	(46		)	69
Other Current Assets and Liabilities	(120		)	98
Employee Benefit Plan Funding and Related Payments	(78		)	(67		)
Other	41			88
Net Cash Provided By (Used In) Operating Activities	1,722			2,234
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Property, Plant and Equipment	(1,971		)	(1,743		)
Proceeds from Sales of Available-for-Sale Securities	392			885
Investments in Available-for-Sale Securities	(407		)	(918		)
Other	(18		)	3
Net Cash Provided By (Used In) Investing Activities	(2,004		)	(1,773		)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Change in Commercial Paper and Loans	(364		)	—
Issuance of Long-Term Debt	1,550			600
Redemption of Long-Term Debt	(171		)	(300		)
Redemption of Securitization Debt	—			(125		)
Cash Dividends Paid on Common Stock	(415		)	(394		)
Other	(64		)	(47		)
Net Cash Provided By (Used In) Financing Activities	536			(266		)
Net Increase (Decrease) in Cash and Cash Equivalents	254			195
Cash and Cash Equivalents at Beginning of Period	394			402
Cash and Cash Equivalents at End of Period	$	648		$	597
Supplemental Disclosure of Cash Flow Information:
Income Taxes Paid (Received)	$	(276	)	$	184
Interest Paid, Net of Amounts Capitalized	$	176		$	195
Accrued Property, Plant and Equipment Expenditures	$	513		$	324

See Notes to Condensed Consolidated Financial Statements.

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PUBLIC SERVICE ELECTRIC AND GAS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Millions

(Unaudited)




	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
OPERATING REVENUES	$	1,350		$	1,466		$	3,062		$	3,468
OPERATING EXPENSES
Energy Costs	529			544			1,258			1,436
Operation and Maintenance	352			368			734			780
Depreciation and Amortization	136			234			275			481
Total Operating Expenses	1,017			1,146			2,267			2,697
OPERATING INCOME	333			320			795			771
Other Income	19			19			39			37
Other Deductions	(1		)	(1		)	(2		)	(2		)
Interest Expense	(74		)	(67		)	(142		)	(136		)
INCOME BEFORE INCOME TAXES	277			271			690			670
Income Tax Expense	(98		)	(104		)	(249		)	(261		)
NET INCOME	$	179		$	167		$	441		$	409

See disclosures regarding Public Service Electric and Gas Company included in the Notes to Condensed Consolidated Financial Statements.

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PUBLIC SERVICE ELECTRIC AND GAS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Millions

(Unaudited)




	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2016		2015			2016		2015
NET INCOME	$	179	$	167		$	441	$	409
Unrealized Gains (Losses) on Available-for-Sale Securities, net of tax (expense) benefit of $0 and $0 for the three and six months ended 2016 and 2015, respectively	1		(1		)	1		(1		)
COMPREHENSIVE INCOME	$	180	$	166		$	442	$	408

See disclosures regarding Public Service Electric and Gas Company included in the Notes to Condensed Consolidated Financial Statements.

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PUBLIC SERVICE ELECTRIC AND GAS COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

Millions

(Unaudited)




	June 30, 2016			December 31, 2015
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents	$	168		$	198
Accounts Receivable, net of allowances of $65 and $67 in 2016 and 2015, respectively	736			787
Accounts Receivable—Affiliated Companies	—			222
Unbilled Revenues	202			197
Materials and Supplies	162			148
Prepayments	196			31
Regulatory Assets	310			164
Derivative Contracts	—			13
Other	8			9
Total Current Assets	1,782			1,769
PROPERTY, PLANT AND EQUIPMENT	24,976			23,732
Less: Accumulated Depreciation and Amortization	(5,627		)	(5,504		)
Net Property, Plant and Equipment	19,349			18,228
NONCURRENT ASSETS
Regulatory Assets	3,120			3,196
Long-Term Investments	316			330
Other Special Funds	57			49
Other	113			105
Total Noncurrent Assets	3,606			3,680
TOTAL ASSETS	$	24,737		$	23,677

See disclosures regarding Public Service Electric and Gas Company included in the Notes to Condensed Consolidated Financial Statements.

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PUBLIC SERVICE ELECTRIC AND GAS COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

Millions

(Unaudited)




	June 30, 2016		December 31, 2015
LIABILITIES AND CAPITALIZATION
CURRENT LIABILITIES
Long-Term Debt Due Within One Year	$	100	$	171
Commercial Paper and Loans	—		153
Accounts Payable	680		724
Accounts Payable—Affiliated Companies	179		292
Accrued Interest	73		70
Clean Energy Program	200		142
Derivative Contracts	2		—
Obligation to Return Cash Collateral	127		128
Regulatory Liabilities	74		123
Regulatory Liabilities of VIEs	22		42
Other	339		297
Total Current Liabilities	1,796		2,142
NONCURRENT LIABILITIES
Deferred Income Taxes and ITC	5,503		5,181
OPEB Costs	904		937
Accrued Pension Costs	165		202
Regulatory Liabilities	165		175
Clean Energy Program	27		—
Environmental Costs	336		365
Asset Retirement Obligations	220		218
Derivative Contracts	—		11
Long-Term Accrued Taxes	99		109
Other	113		114
Total Noncurrent Liabilities	7,532		7,312
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 8)
CAPITALIZATION
LONG-TERM DEBT	7,394		6,650
STOCKHOLDER’S EQUITY
Common Stock; 150 shares authorized; issued and outstanding, 2016 and 2015—132 shares	892		892
Contributed Capital	695		695
Basis Adjustment	986		986
Retained Earnings	5,440		4,999
Accumulated Other Comprehensive Income	2		1
Total Stockholder’s Equity	8,015		7,573
Total Capitalization	15,409		14,223
TOTAL LIABILITIES AND CAPITALIZATION	$	24,737	$	23,677

See disclosures regarding Public Service Electric and Gas Company included in the Notes to Condensed Consolidated Financial Statements.

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PUBLIC SERVICE ELECTRIC AND GAS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Millions

(Unaudited)




	Six Months Ended
	June 30,
	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	441		$	409
Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities:
Depreciation and Amortization	275			481
Provision for Deferred Income Taxes and ITC	290			79
Non-Cash Employee Benefit Plan Costs	36			48
Cost of Removal	(74		)	(58		)
Change in Accrued Storm Costs	(1		)	15
Net Change in Other Regulatory Assets and Liabilities	(124		)	(53		)
Net Change in Certain Current Assets and Liabilities:
Accounts Receivable and Unbilled Revenues	50			53
Materials and Supplies	(14		)	(10		)
Prepayments	(165		)	(162		)
Accounts Payable	(29		)	48
Accounts Receivable/Payable—Affiliated Companies, net	181			154
Other Current Assets and Liabilities	17			(27		)
Employee Benefit Plan Funding and Related Payments	(62		)	(55		)
Other	(13		)	(13		)
Net Cash Provided By (Used In) Operating Activities	808			909
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Property, Plant and Equipment	(1,355		)	(1,230		)
Proceeds from Sales of Available-for-Sale Securities	12			12
Investments in Available-for-Sale Securities	(13		)	(14		)
Other	2			12
Net Cash Provided By (Used In) Investing Activities	(1,354		)	(1,220		)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Change in Short-Term Debt	(153		)	—
Issuance of Long-Term Debt	850			600
Redemption of Long-Term Debt	(171		)	(300		)
Redemption of Securitization Debt	—			(125		)
Other	(10		)	(8		)
Net Cash Provided By (Used In) Financing Activities	516			167
Net Increase (Decrease) In Cash and Cash Equivalents	(30		)	(144		)
Cash and Cash Equivalents at Beginning of Period	198			310
Cash and Cash Equivalents at End of Period	$	168		$	166
Supplemental Disclosure of Cash Flow Information:
Income Taxes Paid (Received)	$	(255	)	$	(74	)
Interest Paid, Net of Amounts Capitalized	$	134		$	131
Accrued Property, Plant and Equipment Expenditures	$	381		$	282

See disclosures regarding Public Service Electric and Gas Company included in the Notes to Condensed Consolidated Financial Statements.

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PSEG POWER LLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Millions

(Unaudited)




	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
OPERATING REVENUES	$	714		$	1,025		$	2,027		$	2,750
OPERATING EXPENSES
Energy Costs	381			409			1,019			1,302
Operation and Maintenance	265			313			518			485
Depreciation and Amortization	80			75			159			151
Total Operating Expenses	726			797			1,696			1,938
OPERATING INCOME (LOSS)	(12		)	228			331			812
Income from Equity Method Investments	4			5			6			8
Other Income	25			55			51			84
Other Deductions	(9		)	(7		)	(27		)	(18		)
Other-Than-Temporary Impairments	(10		)	(10		)	(20		)	(15		)
Interest Expense	(20		)	(33		)	(42		)	(64		)
INCOME (LOSS) BEFORE INCOME TAXES	(22		)	238			299			807
Income Tax Benefit (Expense)	11			(72		)	(118		)	(306		)
NET INCOME (LOSS)	$	(11	)	$	166		$	181		$	501

See disclosures regarding PSEG Power LLC included in the Notes to Condensed Consolidated Financial Statements.

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PSEG POWER LLC

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Millions

(Unaudited)




	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016		2015
NET INCOME (LOSS)	$	(11	)	$	166		$	181	$	501
Other Comprehensive Income (Loss), net of tax
Unrealized Gains (Losses) on Available-for-Sale Securities, net of tax (expense) benefit of $(9), $14, $(25) and $1 for the three and six months ended 2016 and 2015, respectively	9			(14		)	25		—
Unrealized Gains (Losses) on Cash Flow Hedges, net of tax (expense) benefit of $0, $0, $0 and $7 for the three and six months ended 2016 and 2015, respectively	—			—			—		(9		)
Pension/OPEB adjustment, net of tax (expense) benefit of $(5), $(5), $(10) and $(10) for the three and six months ended 2016 and 2015, respectively	7			7			14		14
Other Comprehensive Income (Loss), net of tax	16			(7		)	39		5
COMPREHENSIVE INCOME	$	5		$	159		$	220	$	506

See disclosures regarding PSEG Power LLC included in the Notes to Condensed Consolidated Financial Statements.

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PSEG POWER LLC

CONDENSED CONSOLIDATED BALANCE SHEETS

Millions

(Unaudited)




	June 30, 2016			December 31, 2015
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents	$	16		$	12
Accounts Receivable	202			217
Accounts Receivable—Affiliated Companies	94			276
Short-Term Loan to Affiliate	1,335			363
Fuel	351			463
Materials and Supplies, net	389			363
Derivative Contracts	150			223
Prepayments	7			25
Other	4			7
Total Current Assets	2,548			1,949
PROPERTY, PLANT AND EQUIPMENT	11,969			11,354
Less: Accumulated Depreciation and Amortization	(3,491		)	(3,227		)
Net Property, Plant and Equipment	8,478			8,127
NONCURRENT ASSETS
NDT Fund	1,797			1,754
Long-Term Investments	112			119
Goodwill	16			16
Other Intangibles	131			102
Other Special Funds	60			55
Derivative Contracts	76			77
Other	60			51
Total Noncurrent Assets	2,252			2,174
TOTAL ASSETS	$	13,278		$	12,250

See disclosures regarding PSEG Power LLC included in the Notes to Condensed Consolidated Financial Statements.

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PSEG POWER LLC

CONDENSED CONSOLIDATED BALANCE SHEETS

Millions

(Unaudited)




	June 30, 2016			December 31, 2015
LIABILITIES AND MEMBER’S EQUITY
CURRENT LIABILITIES
Long-Term Debt Due Within One Year	$	553		$	553
Accounts Payable	466			432
Accounts Payable—Affiliated Companies	102			33
Derivative Contracts	17			76
Accrued Interest	29			25
Other	96			107
Total Current Liabilities	1,263			1,226
NONCURRENT LIABILITIES
Deferred Income Taxes and ITC	2,418			2,347
Asset Retirement Obligations	470			457
OPEB Costs	234			230
Derivative Contracts	14			16
Accrued Pension Costs	151			166
Long-Term Accrued Taxes	22			35
Other	104			87
Total Noncurrent Liabilities	3,413			3,338
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 8)
LONG-TERM DEBT	2,380			1,684
MEMBER’S EQUITY
Contributed Capital	2,214			2,214
Basis Adjustment	(986		)	(986		)
Retained Earnings	5,195			5,014
Accumulated Other Comprehensive Loss	(201		)	(240		)
Total Member’s Equity	6,222			6,002
TOTAL LIABILITIES AND MEMBER’S EQUITY	$	13,278		$	12,250

See disclosures regarding PSEG Power LLC included in the Notes to Condensed Consolidated Financial Statements.

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PSEG POWER LLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Millions

(Unaudited)




	Six Months Ended
	June 30,
	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	181		$	501
Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities:
Depreciation and Amortization	159			151
Amortization of Nuclear Fuel	105			106
Provision for Deferred Income Taxes and ITC	37			64
Net Unrealized (Gains) Losses on Energy Contracts and Other Derivatives	153			(9		)
Non-Cash Employee Benefit Plan Costs	19			24
Net Realized (Gains) Losses and (Income) Expense from NDT Fund	(2		)	(21		)
Net Change in Certain Current Assets and Liabilities:
Fuel, Materials and Supplies	86			209
Margin Deposit	(46		)	69
Accounts Receivable	(12		)	76
Accounts Payable	(10		)	(62		)
Accounts Receivable/Payable—Affiliated Companies, net	179			123
Other Current Assets and Liabilities	11			(21		)
Employee Benefit Plan Funding and Related Payments	(10		)	(7		)
Other	67			89
Net Cash Provided By (Used In) Operating Activities	917			1,292
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Property, Plant and Equipment	(598		)	(487		)
Proceeds from Sales of Available-for-Sale Securities	346			837
Investments in Available-for-Sale Securities	(359		)	(854		)
Short-Term Loan—Affiliated Company, net	(972		)	(366		)
Other	(24		)	(17		)
Net Cash Provided By (Used In) Investing Activities	(1,607		)	(887		)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Long-Term Debt	700			—
Cash Dividend Paid	—			(400		)
Other	(6		)	(2		)
Net Cash Provided By (Used In) Financing Activities	694			(402		)
Net Increase (Decrease) in Cash and Cash Equivalents	4			3
Cash and Cash Equivalents at Beginning of Period	12			9
Cash and Cash Equivalents at End of Period	$	16		$	12
Supplemental Disclosure of Cash Flow Information:
Income Taxes Paid (Received)	$	(53	)	$	218
Interest Paid, Net of Amounts Capitalized	$	38		$	62
Accrued Property, Plant and Equipment Expenditures	$	132		$	42

See disclosures regarding PSEG Power LLC included in the Notes to the Condensed Consolidated Financial Statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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Note 1. Organization and Basis of Presentation

Organization

PSEG is a holding company with a diversified business mix within the energy industry. Its operations are primarily in the Northeastern and Mid-Atlantic United States and in other select markets. PSEG’s principal direct wholly owned subsidiaries are:

•

PSE&G—which is a public utility engaged principally in the transmission of electricity and distribution of electricity and natural gas in certain areas of New Jersey. PSE&G is subject to regulation by the New Jersey Board of Public Utilities (BPU) and the Federal Energy Regulatory Commission (FERC). PSE&G also invests in solar generation projects and has implemented energy efficiency and demand response programs in New Jersey, which are regulated by the BPU.

•

Power—which is a multi-regional, wholesale energy supply company that integrates its generating asset operations and gas supply commitments with its wholesale energy, fuel supply and energy transacting functions primarily in the Northeast and Mid-Atlantic United States through its principal direct wholly owned subsidiaries. Power’s subsidiaries are subject to regulation by FERC, the Nuclear Regulatory Commission (NRC), the Environmental Protection Agency (EPA) and the states in which they operate.

PSEG's other direct wholly owned subsidiaries include PSEG Energy Holdings L.L.C. (Energy Holdings), which primarily has investments in leveraged leases; PSEG Long Island LLC (PSEG LI), which operates the Long Island Power Authority's (LIPA) transmission and distribution (T&D) system under an Operations Services Agreement (OSA); and PSEG Services Corporation (Services), which provides certain management, administrative and general services to PSEG and its subsidiaries at cost.

Basis of Presentation

The financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) applicable to Quarterly Reports on Form 10-Q. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been condensed or omitted pursuant to such rules and regulations. These Condensed Consolidated Financial Statements and Notes to Condensed Consolidated Financial Statements (Notes) should be read in conjunction with, and update and supplement matters discussed in, the Annual Report on Form 10-K for the year ended December 31, 2015.

The unaudited condensed consolidated financial information furnished herein reflects all adjustments which are, in the opinion of management, necessary to fairly state the results for the interim periods presented. All such adjustments are of a normal recurring nature. All intercompany accounts and transactions are eliminated in consolidation. The year-end Condensed Consolidated Balance Sheets were derived from the audited Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2015.

Note 2. Recent Accounting Standards

New Standards Issued But Not Yet Adopted

Revenue from Contracts with Customers

This accounting standard clarifies the principles for recognizing revenue and removes inconsistencies in revenue recognition requirements; improves comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets; and provides improved disclosures.

The guidance provides a five-step model to be used for recognizing revenue for the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.

The standard was originally to be effective for annual and interim reporting periods beginning after December 15, 2016; however, the Financial Accounting Standards Board issued new guidance deferring the effective date by one year to periods beginning after December 31, 2017. Early application will be permitted as of the original effective date. PSEG is currently analyzing the impact of this standard on its financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents (UNAUDITED)

Recognition and Measurement of Financial Assets and Financial Liabilities

This accounting standard will change how entities measure equity investments that are not consolidated or accounted for under the equity method. Under the new guidance, equity investments (other than those accounted for using the equity method) will be measured at fair value through Net Income instead of Other Comprehensive Income (Loss). Entities that have elected the fair value option for financial liabilities will present changes in fair value due to a change in their own credit risk through Other Comprehensive Income (Loss). For equity investments which do not have readily determinable fair values, the impairment assessment will be simplified by requiring a qualitative assessment to identify impairments. The new standard also changes certain disclosures.

The standard is effective for annual and interim reporting periods beginning after December 15, 2017. PSEG is currently analyzing the impact of this standard on our financial statements; however, PSEG expects increased volatility in Net Income due to changes in fair value of our equity securities within the Nuclear Decommissioning Trust (NDT) and Rabbi Trust Funds.

Leases

This accounting standard replaces existing lease accounting guidance and requires lessees to recognize all leases with a term greater than 12 months on the balance sheet using a right-of-use asset approach. At lease commencement, a lessee will recognize a lease asset and corresponding lease obligation. A lessee will classify its leases as either finance leases or operating leases based on whether control of the underlying assets has transferred to the lessee. A lessor will classify its leases as operating or direct financing leases, or as sales-type leases based on whether control of the underlying assets has transferred to the lessee. Both the lessee and lessor models require additional disclosure of key information. The standard requires lessees and lessors to apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements.

The standard is effective for annual and interim periods beginning after December 15, 2018 with retrospective application to previously issued financial statements for 2018 and 2017. Early application is permitted. PSEG is currently analyzing the impact of this standard on its financial statements.

Stock Compensation-Improvements to Employee Share-Based Payment Accounting

This accounting standard was issued to simplify aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.

Under the new guidance, all excess tax benefits and tax deficiencies will be recognized in income tax expense rather than recognized in additional paid in capital. In the statement of cash flows, excess tax benefits and deficiencies will be classified with other income tax cash flows as an operating activity rather than a financing activity as currently classified. In addition, the minimum statutory tax withholding requirements were simplified in order to facilitate equity classification of the award.

The standard is effective for annual and interim reporting periods beginning after December 15, 2017. Early adoption is permitted for an entity in any interim or annual period. An entity that elects early adoption must adopt all of the amendments in the same period; however, the amendments within this update require different adoption methods. PSEG is currently analyzing the impact of this standard on its financial statements.

Measurement of Credit Losses on Financial Instruments

This accounting standard provides a new model for recognizing credit losses on financial assets carried at amortized cost. The new model requires entities to use an estimate of expected credit losses that will be recognized as an impairment allowance rather than a direct write-down of the amortized cost basis. The estimate of expected credit losses is to be based on past events, current conditions and supportable forecasts over a reasonable period. For purchased financial assets with credit deterioration, a similar model is to be used; however, the initial allowance will be added to the purchase price rather than reported as an allowance. Credit losses on available-for-sale securities should be measured in a manner similar to current GAAP; however, this standard requires those credit losses to be presented as an allowance, rather than a write-down. This new standard also requires additional disclosures of credit quality indicators for each class of financial asset disaggregated by year of origination.

The standard is effective for annual and interim periods beginning after December 15, 2019; however, entities may adopt early beginning in the annual or interim periods after December 15, 2018. PSEG is currently analyzing the impact of this standard on its financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents (UNAUDITED)

Note 3. Variable Interest Entities (VIEs)

VIEs for which PSE&G is the Primary Beneficiary

PSE&G is the primary beneficiary and consolidates two marginally capitalized VIEs, PSE&G Transition Funding LLC (Transition Funding) and PSE&G Transition Funding II LLC (Transition Funding II), which were created for the purpose of issuing transition bonds and purchasing bond transitional property of PSE&G, which was pledged as collateral to a trustee. PSE&G acted as the servicer for these entities to collect securitization transition charges authorized by the BPU. These funds were remitted to Transition Funding and Transition Funding II and were used for interest and principal payments on the transition bonds and related costs. During 2015, Transition Funding and Transition Funding II paid their final securitization bond payments and as of December 31, 2015, no further debt or related costs remained with these VIEs. Effective January 1, 2016, PSE&G commenced refunding the overcollections from customers associated with these VIEs and expects to fully refund these liabilities in 2016.

VIE for which PSEG LI is the Primary Beneficiary