PSEG Expects 7%/Year Earnings Growth through 2005

In announcing better-than-expected earnings last Tuesday, PSEG CEO E. James Ferland said growth prospects for his energy and energy services company are the strongest in its 98-year history because of high expectations for its unregulated power generation and global energy operations. He expressed confidence that PSEG can both maintain its current dividend and achieve a 7% compound growth rate over the next five years.

"PSEG has successfully completed the transformation from a regulated New Jersey utility to a competitive global energy company," Ferland said. "In the past, our growth was largely driven by earnings of PSE&G, our regulated utility, but our earnings mix has changed. Two of our unregulated subsidiaries, PSEG Power and PSEG Global, are now expected to grow by more than 25% a year, and these companies should contribute more than 70% of earnings this year."

The company reported flat earnings per share of $1.25 ($261 million compared to $270 million), but that beat consensus estimates of $1.18/share. Public Service Electric & Gas had a 5 cents/share earnings decrease for the quarter compared to a doubling of earnings by PSEG Energy Holdings, parent of the international power subsidiary PSEG Global among other subsidiaries. PSEG Power earnings were off by nine cents because high fuel costs and interest expenses for generation asset purchases offset gains by the company's trading operations.

PSEG Power COO Frank Cassidy said the subsidiary plans to nearly double capacity over the next five years by expanding at existing sites, increasing ownership in facilities where it is part owner, purchasing existing generation plants around the country, and developing new power plants in the Midwest. He added that as PSEG Power grows, its trading operation would expand as well. Currently the 15th largest energy trading business by volume in the United States, PSEG Power is the only one of the 15 that trades only regionally.

PSEG Global, which serves international markets, is currently managing the largest construction program in its history and, as a result of plants beginning operation, its 2001 earnings are expected to more than double 2000's results. "PSEG Global plants that have been in development for years will begin to produce power, earnings and cash for the first time in 2001," said Robert J. Dougherty Jr., COO of PSEG Energy Holdings, "and over the next five years, Global's compound earnings growth rate is expected to be about 35%."

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